Car sales growth to slip to 2008-09 level, warns Crisil

The constant hike in interest rates coupled with the persistently high inflation has adversely impacted the domestic auto sector as many firms have revised their growth projections for the industry. Crisil Research now expects growth in passenger vehicles to decelerate sharply to 2-4 percent with domestic cars growing at a mere 0-3 percent vis-a-vis their earlier forecast of a growth of 8-10 percent. The downward revision is due to the Rs 3 rise in petrol prices and a 25 basis point hike in interest rates by the RBI. This would take the growth levels back to 2008-09 when the domestic car sales grew by only 1.4 percent due to the global recession.

Some of the key highlights are :

•Rising cost of ownership and strikes to subdue growth in the festive season - the Rs 3.14 petrol price hike on 15 September coupled with the rate hike by the RBI was the main reason for Crisil to revise its forecast downwards, as it expects consumer sentiments to be affected negatively. While the cost of ownership would also increase in line with the increase in petrol prices, uncertainty on behalf of automobile financiers regarding their decision to increase EMI’s would impact demand for cars.

•Demand drifting to diesel cars - owing to the huge difference (43 percent ) between the prices of diesel and petrol, demand for diesel cars has increased significantly, far outstripping the available diesel engine capacities at the OEMs (Original Equipment Manufactures), said Crisil. While investments have been made in expansion of diesel engines capacities during the year, most of the new capacities are expected are likely to get commissioned only in 2012-13 limiting sales growth in the current year.

•Dealers and OEMs view festive season with caution - Crisil interaction with dealers and OEMs indicates lesser enquires and footfalls as compared to that of the festive season each year. While inventory levels for petrol cars has increased to 25-30 days vis-a-vis 15-20 days last year, waiting period has decreased significantly. However, waiting period for diesel cars continues to remain high at around 5-8 months.