Fuel price spike to impact car sales

The hike in petrol, diesel prices will fuel a slowdown in the auto industry in the short term but in reality it seems it is a long drawn process. Car majors like Maruti, Hyundai and Honda are already expressing their pessimistic views. And, it may spell good news for consumers in terms of lower prices and greater discounts from car makers who will try to offset the negative impact on the industry, which is already it by higher interest rates and tighter retail financing. But the car buyers have to be very conservative in running their cars. They must use them where it is essential and where possible they can resort to Public Transport or cheaper 3 wheeler hiring (meter rikshaws).

Markets analysts said customers could expect more discounts with companies being forced to clear stocks and keep the momentum going. The impending monsoon season is anyway a lean period and the fuel price hike could not have come at a worst time. Already, the market is flooded with discounts, especially in the high volume compact car segment.

This move would further dampen the demand for new cars, as the industry is under pressure because of the higher interest rates and the steep rise in input costs. New purchases would see a dip due to the hike pick up later.

The impact would also be felt on some premium models though the effect would not be much on cars priced above Rs 10 lakh.

The fuel hike had the potential to slow down industry sales by as much as 2% or even more. And considering that this comes just when other negative pressures are already causing pressure, the effect can even be long term.

Two wheeler makers however are less pessimistic and expect to be insulated. The rise in petrol process may impact the riding habits of people, and to extent, the frequency of tier usage of two wheelers. However, it is unlikely to impact the overall demand for two wheelers as the fundamental reasons for customers buying two wheelers such as the need for mobility and the need to commute to work, will stay unchanged. A senior Hero Honda official is optimistic about the needs.

Other manufacturers are downplaying threats of a slowdown. People were already expecting the fuel hike and so there would not be a knee jerk reaction.

An auto analyst at Angel Broking said the effect would be spread across product categories in the auto industry and would hit sales of cars, two wheeler and commercial vehicles. This adds up to the already prevailing negative sentiments. The slowdown could last for about two months, though things are likely to stabilize thereafter.

Diesel cars could also be preferred over petrol, considering the fuel is cheaper. Also, alternate fuel options like LPG and CNG could be in demand. There can be further shift to diesel cars from petrol. However, a big shift to LPG/CNG versions may be restricted due to their limited availability.

The stocks of automobile companies suffered as investors fear further erosion in profitability as companies would now need to spend much more on discounts and advertisements to push sales. Auto index fell by 3.3% on BSE.

Automobiles manufacturing and exporting which have already taken shape with more to come is making India the Global Automobile Hub. Already world manufacturers are setting up critical component manufacturing like engines, power train, and fuel injectors and alike to be catered to their plants in the other parts of the globe from India. This is due to technological, geographical, location and finally cist advantage. But now the situation all over the world is applicable to fuel price hike and therefore there may be a status quo on Exports from India. Car and other vehicle manufacturers may not be able to push much over seas because already the export prices are competitive.