Maruti cuts output as Indian car deand slows for second month

Maruti Suzuki India Ltd., maker of almost half the cars sold in India, cut production after sales fell for the second straight month in July.

The carmaker, which sold 75,300 vehicles in July compared with 100,857 units a year earlier, will scale back output of most models this month because of poor demand, Chairman R.C. Bhargava said yesterday at a briefing in New Delhi, where the company is based.

The reduction comes ahead of India’s festival season that starts with homage to Ganesh, the elephant god of prosperity, on Sept. 1 and runs through Oct. 26 with Diwali, the festival of lights. Higher interest rates boosted by inflation and costlier fuels have damped demand for vehicles, prompting Maruti to say in June it may miss its forecast of as much as 15 percent sales growth this fiscal year.

“Until there is clarity on inflation and interest rates, sales will continue to decline at Maruti,” said Aditya Shekhawat, a Mumbai-based analyst with Khandwala Securities Ltd.

The Reserve Bank of India has raised its benchmark repurchase rate 11 times starting March 2010 by 3.25 percentage points, denting demand in the world’s second-most populous country where loans fund 80 percent of car purchases. Wholesale- price inflation has averaged 9.6 percent starting 2010.

Dip in Sales

Local sales at the Suzuki Motor Co. unit fell 26 percent last month to 66,504 units and exports declined 18 percent, it said in a statement on August 1.

Maruti said at the time sales fell because production of the Swift hatchback was stopped before the introduction of a new variant and also as the company shifted output of the DZire sedan to its factory in Gurgaon from Manesar.

“There’s no doubt demand for petrol cars has fallen,” Bhargava said. “Production of all models, barring Swift and Dzire, will be reduced. We’ll produce depending on our ability to sell,” he said.

State-owned Indian Oil Corp., the country’s largest refiner, increased the price of gasoline by 5 rupees a liter to 63.37 rupees ($1.4) in New Delhi in May. That was the biggest increase since June 2008.

Maruti’s shares declined 0.1 percent to 1,246.35 rupees at the 3:30 p.m. close of trade in Mumbai yesterday, compared with a 1.3 percent drop in the Sensitive Index of the Bombay Stock Exchange.

“Sales should pick up in the festive season,” Khandwala Securities’s Shekhawat said.