Smoking car sales set for screeching halt

“We have already seen reduction in passenger car growth last month due to higher interest rates and hike in commodity prices. With petrol prices going up,demand will further be impacted,mainly on short-term,” Society of Indian Automobile Manufacturers (SIAM) Director General Vishnu Mathur said.

Car sales in India posted the slowest growth rate in 22 months in April this year at 13.18 per cent,mainly due to rising interest rates and declining consumer confidence.

The country’s largest carmaker Maruti Suzuki India (MSI) said if the fuel prices increase at this rate,the industry will suffer severely.

“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,” MSI Chief General Manager (Marketing) Shashank Srivastava said.

Rival Hyundai Motor India Ltd (HMIL) also said there will be impact on car sales,although it may not be a massive one.

“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. However,it may not be a big impact,” HMIL Director (Marketing and Sales) Arvind Saxena said.

Expressing similar sentiments Volkswagen Group Sales India Pvt Ltd Member of Board Neeraj Garg,said: “It is going to keep the customers away from purchasing cars in the short term mainly because of the psychological impact.”

For the next one to two months there will be a dip in demand,Garg added.

General Motors India Vice-President P Balendran said petrol price hike is “definitely a dampener” and footfalls in car showrooms will come down considerably in the near future.

MSI’s Srivastava said usually the market rebounds after some time when there is a fuel price increase,but this time around it has to be seen how it reacts as “it may be too much for consumers sometime”. As such the market has already slowed down due to inflationary pressures.

He also said that although disposable income may have gone up in the last few years,high inflation in recent times has left consumers with less spending power.

The industry players are almost unanimous that going forward,customers will prefer vehicles which give better fuel efficiency and hence diesel cars will get more focus.

“Diesel car demand will surely go up as running cost in petrol will further go up substantially after last week’s hike,” Srivastava said.

Ever since the government freed petrol prices from its control in June 2010,the cost differential between petrol and diesel has increased significantly. Currently diesel prices are about 60 per cent of petrol prices as against about 80 per cent in June last year.

“Today’s diesel rate is the lowest compared to petrol prices in India. The earlier lowest was in June 2002,when diesel was available at a rate that was 62 per cent of petrol.

So in such cases,demand for diesel cars will surely rise,” Srivastava said.

MSI currently sells about 20,000 units every month of its four diesel models — Swift,DZiRE,Ritz and SX4. The contribution of these variants to its overall sales is about 20 per cent,he added.

Already,Hyundai,which last week had introduced a new variant of its mid-size sedan Verna and has registered over 5,000 bookings so far,is seeing a huge demand for the diesel variant of its new model. Out of the total bookings so far,the petrol variant accounted only for about 25 per cent,while the rest has come for the diesel version.

On future demand of diesel cars,Ernst & Young National Leader (Automotive Sector) Rakesh Batra said: “At present demand is good and in the immediate future,it will rise. But in the long-run,it will entirely depend on de-regulation of diesel prices and its gap with petrol prices.”

SIAM’s Mathur said contribution of diesel cars in the passenger car segment has remained at about 30-32 per cent for the last three years.

In the biggest ever price increase of the fuel,state-owned oil companies hiked petrol price by Rs 5 per litre with effect from May 14 midnight. The steep hike is likely to be followed by a Rs 4 per litre rise in diesel rates and Rs 20-25 per cylinder increase in domestic LPG price later this month.

GM India’s Balendran said: “There is a significant gap between diesel and petrol now. But I am sure diesel prices will also be increased very shortly and this will further raise inflation.”

The company’s diesel variant models — Captiva,Tavera,Optra and Cruze — contribute 30-35 per cent to its total sales. Following the launch of diesel Beat next month,GM India is expecting this percentage to go up further to 40-45 per cent,he said.