Carmakers sold 98,900 units in October in the local market, lower than 105,877 units sold a year earlier. Top carmaker Maruti Suzuki, majority owned by Japan's Suzuki Motor Corp, sold 59,127 cars, 8 per cent fewer than a year ago.

Sales of trucks and buses slumped nearly 36 per cent with the latest data showing industrial activity expanding at its slowest pace in a decade.

Car sales had fallen in July, the first monthly decline in three years, and in August, before trending up in September as dealers stocked up in anticipation of higher demand during the Hindu festivals of Dussehra and Diwali.

"The challenge is to sustain single-digit growth," said Dilip Chenoy, director-general of the Society of Indian Automobile Manufacturers (SIAM), which had earlier expected double-digit expansion in the fiscal year to next March.

Sales during the first seven months of the financial year have risen just 3.5 per cent from the same period a year earlier.

"The whole issue boils down to tight liquidity. Dealers are not getting money to hold stock," Chenoy said, adding that firms were getting profit margins of about 8 per cent on cars sold, while interest costs on funds to carry stock were about 13 per cent in October.

BORROWING COSTS

Automobile loans remained expensive through October as banks delayed before passing on rate cuts by the Reserve Bank of India.

The central bank cut the repo rate, its main short-term lending rate, by 100 basis points on Oct. 20 from a seven-year high of 9 per cent as inflation concerns eased and growth in Asia's third-largest economy slowed.

It followed up with a further 50 bps cut in early November, taking the repo to 7.5 per cent, and retail banks have now lowered their lending rates.

India is feeling the effects of global financial turmoil in its lending and property markets, while industry, particularly car makers, is being pinched by a slowdown in demand.

Policy makers are gradually ratcheting down their growth expectations and now say the economic expansion is likely to slow to 7 per cent in the fiscal year to March 2009, from 9 per cent in the previous year.

Automakers' profit margins were also squeezed by rising prices of steel and other raw materials, forcing firms to lift car prices and curtail incentives to buyers, further souring demand.

Sales of trucks and buses fell to 28,027 units in October, slumping 35.9 per cent from the same month a year ago, SIAM said, tracking slowing industrial activity. Industrial output in August, at an annual 1.3 per cent, was the slowest in a decade.

Top commercial vehicle maker Tata Motors has said it will close two plants for six days from Monday, as inventory piles up.