The Society of Indian Automobile Manufacturers (Siam) on Tuesday slightly lowered its car sales growth forecast for the year ending next March, as higher costs and slower economic expansion impinge on demand.
But Siam hoped demand would revive later in the year.
Car sales for 2012-13 are expected to rise 9-11 per cent, the group said, lower than the 10-12 per cent growth it had forecast in April.
Car makers are struggling to achieve double-digit sales growth targeted by the industry as Asia's third-largest economy grows at its slowest pace in nine years, hurting a sector that has been one of the best performers over the past decade.
The budget raised factory gate duty on cars from April 1, pushing up prices, although it did not impose a feared tax on diesel vehicles. Sales of diesel cars have soared in recent months, thanks to government subsidies that make the fuel 50 per cent cheaper than petrol.
In June, companies sold 155,763 cars, an annual growth of 8.3 per cent, but the lowest sales volume since October last year. For the quarter ended June, sales were up just 5.2 per cent, far lower than the new annual forecast range.
Industry executives defended the new sales forecast. "Fuel prices have come down moderately, interest rates are not going up, the government is under tremendous pressure to come up with reforms, we think it is kind of reasonable," Siam President S Sandilya said.
Vishnu Mathur, director-general of the industry body, said he expected demand to revive during the festive season that begins in September and peaks in November after Diwali.
The industry body lowered its sales forecast for trucks and buses, expecting it to rise 6-8 per cent over the current fiscal year, lower than the 9-11 per cent it had predicted in April. It maintained its sales growth forecast of 11-13 per cent for two-wheelers.
Breakneck domestic car sales growth over the past few years had attracted the who's who of the world's biggest car makers, including Ford Motor Co and Volkswagen AG to spend billions of dollars setting up factories in the country.
But demand for cars fell for the first time in three years last July and slumped by the most in over a decade in October as high interest rates and rising fuel costs deterred buyers, typically reliant on loans for purchases.
Leading automobile stocks were trading positive. Top carmaker Maruti Suzuki was up 1.2 percent, Mahindra & Mahindra was up 0.6 per cent, while Tata Motors gained 2.4 per cent in a broader market that was up 0.6 per cent.