Ranjit Yadav, Tata Motors' president of the passenger vehicle business unit, sits in the Zest sedan after unveiling it in New Delhi yesterday. Tata introduced its first new models in four years, banking on two small cars to reverse the company's sliding passenger car sales. Photo: Reuters

Mumbai - Indian car makers have seen better days. Vehicle sales in the country are headed for their first drop in 12 years as the economy grows at a pace that is close to a decade low.

So companies from market leader Maruti Suzuki India to Tata Motors, grieving over the sudden death of managing director Karl Slym, are counting on the biennial New Delhi Auto Expo this week to become a turning point as they seek to revive demand with their latest vehicle models.

It won’t be easy. Asia’s third-largest car market is shrinking at a time when Indian inflation is higher than anywhere in Asia, undermining the economy. Loans are expensive and government help is nowhere in sight as political bickering escalates before the general elections due in May.

“The only way to turn things around is if people are excited by the new models and concepts at the Auto Expo, which is why the show is crucial,” said Deepesh Rathore, a director at Emerging Markets Automotive Advisors in New Delhi. “Slym’s untimely death will be a sad overhang.”

The economic slump has prompted consumers in India, already the biggest market for hatchbacks, to stop flirting with gas guzzlers and return to small cars. Hatchbacks accounted for 55 percent of the 1.8 million passenger vehicles sold in the country during the first nine months of the Indian fiscal year, which ends on March 31.

That is why small cars, along with compact sport utility vehicles – the focus of the last car show – are likely to dominate the show floor this year.

Tata, maker of the flop that has been the $2 300 (R25 500) Nano, will be in the spotlight. The Mumbai-based company, whose sales in India have fallen more than at any other car maker, unveiled a hatchback, Bolt, and a compact sedan, Zest, yesterday.

Shares of Tata fell 3.8 percent to 336.40 rupees (R59.65) in Mumbai trading, the lowest close since October 1.

Reserve Bank of India governor Raghuram Rajan has raised the benchmark interest rate thrice – the latest 0.25 percentage point increase last week – since taking charge of the central bank in September last year to protect the rupee from external shocks and tame inflation. With about two-thirds of the cars delivered in India being sold on loans, higher borrowing costs can delay purchase decisions.

Back at Tata, the motor show may offer a chance for the company to recover some ground after sales of its passenger vehicles in India slumped 37 percent in the first nine months of the fiscal year.

Last month, it introduced the Twist variant of the Nano, equipped with features such as power steering to upgrade its image. – Bloomberg