India Car Sales Fall for First Time Since 2005 on Loan Rates

India’s passenger car sales declined for the first time in more than two and a half years as higher interest rates and accelerating inflation damped demand at Tata Motors Ltd. and Honda Motor Co.

Sales in July fell 1.7 percent to 87,724 from 89,250 a year earlier, the Society of Indian Automobile Manufacturers said in a statement today. That was the first monthly decline since November, 2005, according to data compiled by Bloomberg.

A surge in gasoline prices has helped push inflation to the fastest pace in 13 years, forcing the central bank to raise interest rates to the highest in seven years, squeezing consumers. The slowing growth may risk a government target of tripling car sales to 3 million vehicles annually by 2015.

``Higher interest rates are hurting demand,’’ said Vaishali Jajoo, a Mumbai-based analyst at Angel Broking Ltd. ``Sales will slow down further in the next six months and we may end the year with just single-digit growth.’’

India’s central bank on July 29 raised its benchmark rate for the third time in two months to slow inflation. Consumers now pay more than 12 percent interest on auto loans compared with about 7 percent in 2003. More than half of the vehicles sold in India are bought on credit.

A decline in the stock market, with the benchmark headed for its first annual drop in seven years, is also hurting demand. The 14-member BSE Auto Index has slid 29 percent this year.

Maruti, Hyundai

Seven of the 13 carmakers in India posted declines during the month, according to the statement. Sales at Tata Motors, India’s third-largest carmaker, dropped 8.9 percent to 12,012 while Honda, the fourth-largest fell 7 percent to 4,006.

Maruti Suzuki India Ltd., maker of half the cars in the country, posted a 1.5 percent gain in sales at 45,757, the statement said. Hyundai Motor Co.’s India unit, the country’s second-largest carmaker, boosted sales 0.5 percent to 15,061.

Car sales in India, Asia’s fourth-largest auto market, grew 12 percent in the year ended March 31 to a record 1.2 million vehicles, slower than the 22 percent pace a year earlier, according to the Society, a group of all carmakers in the country.

``High fuel costs, interest rates and rising raw material input costs are challenges,’’ Dilip Chenoy, the director general of the group, told reporters in New Delhi today.