India's auto industry on Wednesday slashed its growth forecast for full-year car sales to the low single digits as a sharply slowing economy and high loan costs keep buyers from showrooms.
The Society of Indian Automobile Manufacturers (SIAM) predicted sales growth of between one and three percent, down from an earlier 10-12 percent projection -- bad news for global carmakers seeking to expand beyond stagnant developed markets.
"Economic growth is not encouraging, inflation is not under control and the cost of vehicle ownership is high," SIAM president S. Sandilya told reporters, referring to high borrowing and fuel costs.
The outlook is of key importance to automakers from GM to Toyota that have been looking at India and China with their billion-plus populations to boost sales and counter sluggish demand at home.
If SIAM's new forecast for the fiscal year to March 2013 proves accurate, it means growth would be the weakest since the onset of the global financial crisis in 2008-09 when annual car sales rose by just 0.18 percent.
Car sales slumped in September for a second month in a row, falling by 5.36 percent to 157,536 units from a year earlier. Car sales for the six-months to September period were down 1.07 percent from a year earlier.
SIAM said sales should pick up in the religious festival season, which gets into full swing this month when buying big-ticket goods is seen as auspicious.
The festival season normally accounts for 25 percent of the year's car sales and SIAM said roll-out of new models could also help.
Auto analysts said SIAM's forecast of one to three percent growth might be overly grim.
"It's a little bit too pessimistic. The next six months are going to be tough but the festive season should give a reasonable lift to sales," said Deepesh Rathore, IHS Automotive's India-based auto expert.
Long term, SIAM's Sandilya said the market's potential remained "really rosy".
While hundreds of millions of Indians live in poverty, the middle class is expanding and trading up to cars from scooters.
"These economic cycles are bound to be there. With penetration of just 12 car owners per 1,000 Indians, headroom for sales to grow is extremely high," he said.
Car sales expanded by over 20 percent a year while Asia's third-largest economy was growing at near 10 percent. But the economy posted 5.5 percent growth in the most recent financial quarter, hit by high interest rates to counter stubborn inflation and a weak global economy.
SIAM also said it has asked the government to extend its 10-year flagship Automotive Mission Plan by a decade to 2026. The plan aimed to double the sector's contributions to gross domestic product to 10 percent by 2016.
Even if sales pick up sharply in the next few years, "we have missed the bus (in meeting the target)", said SIAM director general Vishnu Mathur.