Rise in India car sales considered unsustainable

India's struggling carmakers staged a temporary comeback in August, boosted by higher sales from Maruti Suzuki following a factory closure last year, although industry figures warned that low demand and a weak rupee would cause the sector to shrink for a second consecutive year.

Sales of passenger cars rose 15 per cent year-on-year during the month, the first increase in 2013, as Maruti, India's largest carmaker by sales, enjoyed an upturn even as the rest of the industry continued to suffer from weak consumer confidence and rising fuel costs.

A month-long shutdown at a big Maruti plant close to New Delhi cut the company's production during August 2012, following industrial unrest and rioting in which a senior manager was killed.

But while Tuesday's data from the Society of Indian Automobile Manufacturers trade group showed car sales up at 133,486, SIAM described the figures as a blip and said the industry's run of bad figures was likely resume in the coming months.

"Maruti's figures have created the illusion of a turnround, but actually this is not so, things are still worrisome," said Sugato Sen, senior director at SIAM. "Nothing has changed for the better . . . We are still saddled with high inflation and now we have this new dimension of foreign exchange rates, so the cost of manufacturing has gone up."

India's rupee has declined by about 20 per cent against the US dollar over the past six months, helping some car exporters but adding costs more generally to an industry that imports much of its raw materials, and particularly affecting global auto groups that bring in components from abroad.

The currency's fall is likely to add further downward pressure to a once-vibrant sector that shrank for the first time in a decade the last financial year. SIAM suggests that earlier forecasts of a modest expansion this year are unlikely to be met.

"At the end of the year we will not be anywhere near what we had originally projected," Mr Sen said. "To recover from here . . . will require huge growth in the subsequent months, which we don't expect."

Manufacturers hope that consumers may be tempted back into showrooms over the next couple of months, which are seen as an auspicious time to buy cars on account of a number of Hindu religious festivals. However, analysts cautioned that sustained sales increases were unlikely.

"Even the festival season is not going to be all that festive this year," said Ammar Master at research group LMC automotive in Singapore.

"Sentiment is getting worse and worse . . . You will see more incentives and discounts, but India's middle class just isn't buying cars at the moment because people are worried about growth and jobs."

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