Cost of owning a car shoots up, so inventory piles up

Data from regional transport office (RTO) Maharashtra suggests that dealers are holding more cars in their inventory. According to a report in the mint newspaper, for the fiscal year ended March 2011, the data suggests that only 293,673 cars were registered. The Society of Automobile manufacturers (SIAM) that compiles data from manufacturers on a monthly basis, said that car makers sold 327,655 cars during the period.

This means dealers are sitting on an inventory of 33,982 cars indicating a fall in actual car sales. Maharashtra accounts for 13% of the total passenger car sales in India, the report said.

A sharp rise in fuel costs and an upward revision in interest rates is said to be the reason for the inventory pile-up. Analysts estimate that over the past one year the cost of car ownership has increased by up to 16%.

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There is an expectation that car sales would decline as companies have raised prices of cars in the range of 3-5%. The BSE Auto index fell 5.8% over the past one month while the broader BSE 200 index fell 3.5% clearly indicating that the stock market expects a slowdown in car sales.

[caption id=“attachment_17392” align=“alignleft” width=“380” caption=“Car dealers are finding the going tough as they are now being asked by car companies to meet stiff targets.Valentin Flauraud/Reuters. “]  [/caption]

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“We expect sales growth to remain in lower double digits than witnessed previously,” said an auto sector analyst.

The Reserve Bank of India continues to be worried about high inflation and a section of bankers already expect another 50bps hike in interest rates over the next six months. To add to that the oil marketing companies believe that the recent Rs 5 per litre hike in petrol is not enough to meet under-recoveries. Some analysts are talking of yet another hike in fuel prices by Rs 3-4. If that happens, the cost of car ownership will increase by another 3-4% to about 20% than last year, they say.

The mint report also says that car dealers are finding the going tough as they are sitting on inventories and are now being asked by car companies to meet stiff targets.