Blow below the belt for automobile sector

The cheaper car loans and high disposable income might have given a jump start to the car sales in January 2011 but it seems the honeymoon period is over. The automotive industry is in grave danger in the coming months. Rising cost of fuel and the high interest rate might have put their stacks a little bit further from what they have dreamed in January. Holla… it seems they have woken up with one tight slap right on their face.

Recently in a report by the Society of Indian Automobile Manufacturers, the year 2011 started with a boom in the car sales figure. The sales figure soared up to a height of 184,332 units which is 26% more than the last (wait for it) month. It’s the highest numbers recorded ever in just a month. Previously the highest record was in October 2010 with 182,992 units. The companies which managed to scratch the maximum share from both the figures were Maruti, Tata Motors, Ford and Toyota. The rising income which basically helped in rise in economic activities when gelled with the comfortable rate of interest and brand new launches bore this fruitful result.

But now in this romantic movie of car manufacturers and car sales chart, out of nowhere a villain has risen. It’s like all of a sudden your car tank has started to leak in the middle of a beautiful journey that started well (at least that’s what you thought). Enough of the build up. It seems that there is a combination of negative features which might pull down the momentum of demand. Say for example Reserve Bank of India has now raised the key policy rates, making it a seven fold increase than the last year which ultimately leads to high rate of interest. This ultimately will affect the demand for cars. Why it will affect the demand is because that the maximum sales, which is 70% of the sales happen through financing route.

Next, comes the hike in petrol prices. So, you thought you can get away with it, though not really. Hmm… so the hike in petrol prices has decreased the affordability of vehicles in Indian market. Besides there is inflation which will also hit the car sales figures very soon. The best is yet to come. Yes, the heaviest blow will be from our very own government. Car manufacturers are keeping their fingers crossed because if the government actually hiked the excise duty by 2% in order to bring it to the pre-slowdown level, then they can actually bid adieu to their dreams of selling more cars even this year. Why so? Because of it will have the same results as the hike in vehicles own price would.

But it seems that, only the consumer will be shocked as all the other parties involved have already predicted it and are getting ready for it. Society of Indian Automobile Manufacturers has already predicted that the sales growth in any case won’t be able to match up to the 30% soar scored last year. Further, this year it would be somewhere around 15% to 18% and not more than that. SIAM again, has directed the attention towards high inflation rate, high interest rate and high raw material cost saying that these are the factors. This has warned all the major car manufacturing companies like Maruti, Mahindra and Honda. These major companies are getting ready to receive this big blow as even they believe that the growth will get the impact this year.

While the car sales received the highest number of applauds in January, even the two wheeler sales remained healthy with a 17.5% rise. Overall automobile sales in the country remained healthy at 13.2 lakh units. This states a clear growth of 19% over the 11.1 lakh units last year. It’s clear that the automobile sector is ready to face the blow after blow. But right now we don’t have any option left besides waiting for the biggest blow called Budget and notice whether the automobile sector gets it the face, tummy or worse, below the belt.

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