Car sales in May, June likely to dip due to rise in fuel prices

The Rs.5 hike on petrol that was announced last week will have a short-term impact on the demand for cars in India.

Carmakers are expecting sales to slow down in the coming months. This, along with high interests on auto loans will act as a dampener for car sales in the country. Also read: Petrol prices rise Rs.5, diesel to follow

“We have already seen reduction in passenger car growth last month due to higher interest rates and hike in commodity prices,” Vishnu Mathur, Director General, Society of Indian Automobile Manufacturers ( SIAM ) was quoted as saying by the Economic Times.

Car sales in India during April 2011 stood at a growth rate of 13.18%. This was the lowest growth rate registered in the past 22 months. This is an indication that people buy fewer cars when there are high interest rates on car loans. Also read: April car sales lowest since 2009 as car prices go up

“At some point of time, there will be a big negative impact on petrol cars as well as the overall industry, because diesel prices are also rising,” Shashank Srivastava, Chief General Manager, Maruti Suzuki India said.

“A hike of Rs 5 in per litre of petrol is a substantial hike. The sentiment is very down and it will surely have some impact,” Arvind Saxena, Director (Marketing and Sales), Hyundai Motors India Limited (HMIL) said.

Volkswagen Group has also expressed similar views about the decline in car sales. “For the next two months, there will be a dip in demand”, Neeraj Garg, Volkswagen Group Sales India Pvt Ltd said.

Garg mentioned that the fuel price hike is going to keep customers away, discouraging them from purchasing cars in the short term, mainly because of the psychological impact.

While high interest rates on auto loans and fuel price hikes are saddening car buyers, the other issue is inflation. Though many consumers have disposable income, high inflation has lessened their purchasing power.

SIAM has made a demand forecast for the Indian automobile industry based on an exhaustive list of relevant variables such as GDP components, interest rates, inflation, vehicle price, model launches, inter-segment competition, finance availability, road connectivity etc.

For the 2011-2012 fiscal years, SIAM expects a sales growth of 12-15% for the automobile industry as a whole. In particular, SIAM forecasts 16-18% growth in the passenger cars, 12-14% growth in the utility vehicles, 11-13% growth in the motorcycles and 15-17% growth in the scooters.