India SUV Sales Drop in July

Sales of sport-utility vehicles in India fell in July for the first time in nearly two years, as a recent increase in factory tax affected demand in a segment that was the lone bright spot in the country's sluggish passenger-vehicle market.

Sales fell 17.5% from a year earlier in July to 37,010 vehicles, according to data issued Monday by the Society of Indian Automobile Manufacturers. That was the first drop in sales since a 0.2% drop in October 2011, and the biggest since May 2009 when sales fell 29%.

"Such a fall can happen only because of a trigger and the trigger was [increase in] excise [factory] tax," said Vishnu Mathur, SIAM's director general.

SUV makers such as Mahindra & Mahindra Ltd., 500520.BY-0.28% Tata Motors Ltd. 500570.BY 0.90% and Toyota Motor Corp. 7203.TO 1.29% increased prices in March after the Indian government raised the factory tax on locally produced SUVs by three percentage points to 30%.

Sales have been hit also by an increase in diesel prices in India where most SUVs run on diesel. Weak consumer sentiment in an economy growing at its slowest pace in a decade has also dented demand in the auto market.

Mahindra—India's largest producer of SUVs—and car makers such as Maruti Suzuki India Ltd. 532500.BY-0.35% are temporarily shutting factories to adjust inventory levels in line with the sluggish market.

In July, local sales of cars dropped for the ninth consecutive month. Sales fell 7.4% from a year earlier to 131,163 cars, according to the manufacturers' body.

Ten of India's 14 car manufacturers reported a drop in July car sales. They included Hyundai Motor CO., Toyota, Ford Motor Co., General Motors Co. and Volkswagen AG. Car-market leader Maruti, however, reported an increase in sales, mainly because of comparison with a lower base last year when it temporarily shut a factory due to labor problems.

Auto makers have resorted to various programs to attract buyers, including introducing new models or upgrades of existing models. Several of them have cut prices of their cars and SUVs, while offering customized financing schemes.

Mr. Mathur said some automobile as well as auto-parts makers are "adjusting" their temporary workforce due to the weak market. He declined to elaborate.

India's economic slowdown is also weighing on the market for trucks and buses.

Sales of medium and heavy trucks and buses declined for the 17th straight month in July. Sales fell 20% in the past month to 18,611 vehicles. Sale of light trucks and buses, which are used for short-distance transportation, fell 12% to 36,690 vehicles.

Mr. Mathur said auto makers are hoping for a spurt in sales in the coming months because of this year's good monsoon rains and the forthcoming festival season.

India has received better-than-average rainfall so far in the monsoon season that started in June, which could boost farm output. Farmers typically increase their purchase of consumer-durable goods and jewelry when they have bumper harvests.

Meanwhile, the south Indian festival of Onam will take place in September, followed by others, such as Diwali in November. India's majority Hindus consider it auspicious to purchase consumer-durable goods during festivals.