India Car Sales Return to Negative Territory in October

Car sales in India declined in October after growing for two months, hurt by factors such as rising fuel prices and weak consumer sentiment caused by sluggish economic growth.

Sales in October fell 3.9% from a year earlier to 163,199 cars, data from the Society of Indian Automobile Manufacturers showed Tuesday. Sales increased 0.7% in September and 15% in August—the only two months when car sales have shown an improvement in the fiscal year that began in April.

For several years, growth in India's car market had outpaced that in Western Europe and the U.S., helped by easy availability of low-cost loans and rising personal incomes. This led companies such as Toyota Motor Corp.  , Honda Motor Co. , Nissan Motor Co. and Ford Motor Co. F -1.01% to invest billions of dollars to build manufacturing facilities in the country or expand their existing factories.

Sales have hit more than a few roadblocks in recent times.

Borrowing costs have surged as accelerating inflation led the central bank to raise its main lending rate several times in the past few years. Fuel prices have gone up too, with the government lifting control on gasoline prices in June 2010 and partially freeing diesel rates.

Customer sentiment has been hit also by weak economic growth that has raised fears of job losses.

Auto makers are trying to turn things around by introducing new models or upgrades of their existing vehicles as well as offering discounts. While this has helped somewhat, overall demand has remain subdued.

The Society of Indian Automobile Manufacturers had in September predicted car sales in India to fall this fiscal year. That would be the second consecutive year of lower sales, as they fell 6.7% in the last fiscal year to 1.9 million cars.

"There are little bits of green shoots here and there but not very big green shoots," said Vishnu Mathur, director general of the manufacturers body. "The negative sentiment continues."

In the past month, sales got some support from festivals, a period when demand in India usually increases, and from demand in rural areas where this year's plentiful monsoon rains have boosted farm output and farmers' income. Meanwhile, the narrowing gap between gasoline and diesel prices helped increase demand for small cars, Mr. Mathur said.

Most small cars, which comprise three-fourths of the total cars sold in India, run on gasoline. State-run fuel retailers have increased the price of diesel by about 13% in the past year, while the price of gasoline has gone up by a much smaller 5.6%.

Gasoline is now about 34% costlier than diesel in New Delhi, compared with about 43% a year earlier, according to data from state-run fuel retailer Indian Oil Corp.

According to Mr. Mathur, October's high rural demand was unlikely to sustain in the rest of the year, while urban demand would continue to remain damped.

The weak economy that led to a slowdown in construction and mining activities has also hit demand for trucks and buses, with sales plunging 20% in October to 53,533 vehicles.

Sale of medium and heavy commercial vehicles—considered to be directly influenced by economic growth, fell 32% year-over-year in October to 14,261 units. In the light truck and bus segment, sales dropped 14% to 39,272 units.

Scooter and motorcycle sales bucked the overall weak automotive market in October.

Motorcycle sales jumped 18% in October to 1.10 million units, while scooter sales climbed 24% to 346,171 units.

Mr. Mathur attributed the pent-up demand to good monsoon rains this year. Farmers are among major buyers of two-wheeled vehicles in India.