Auto News

Car cos brace for tough times ahead after festive season

By Motortrend India Staff   |   27 October,2011

With festival season getting over, the car industry is now bracing for an early winter chill as the constant hikes in interest rates and steep petrol prices are set to cut demand to bare minimum. And, deep discounts and other promotional events may not turn around the situation. The gloom is about to set in the Indian auto market.

Car company executives and bankers said that demand has been indifferent this time round and the situation will only get worse as time progresses. “The festival season was already lukewarm. On top of that, the constant rate hikes by banks will only add further gloom at a time when we are entering a leaner period. This is too bad,” said Mayank Pareek, managing executive officer at Maruti Suzuki India.

He said interest rates were already sky high, forcing people to postpone purchases. “Almost 70 percent of cars sold in India are financed. The higher interest rates are making EMIs dearer, making it an expensive affair to own cars.”

The grim scenario has already prompted auto industry body SIAM to downgrade its forecast for car sales for this fiscal to 2-4 percent against the 16-18 percent growth projection given in April. “The car industry is in a slowdown and it would take some time before demand picks up again,” SIAM president S Sandilya said.

Ashok Khanna, business head for vehicle loans at HDFC Bank, said that the coming months will be difficult for the car industry and banks would in all probability pass on the rate hikes (by RBI) to the market. “Post Diwali, it is going to be very tough. I do not think banks will take the rate hikes very kindly and there should be some reaction from their side. If it is not immediate, then it may come in the next one to two weeks. Thus, interest rates will go up.”

Interest rates on car loans have been inching up over the last one year, in line with RBI’s broader direction to make financing dearer to tame demand and tackle inflation. Interest rates have gone up by nearly 3 percent over the last one year, making EMIs dearer. A more worrisome factor for the car industry is the simultaneous hike in housing loan EMIs, which has reduced disposable incomes and dampened sentiments of buyers.

Sandeep Singh, deputy MD at Toyota Kirloskar, said the mood of the market is not expected to be upbeat. “The general market sentiments are bad when compared to previous years. The current rate hike by the banks, if passed on to the market, will certainly impact industry demand.”

Company executives said enquiry levels at dealerships had gone down substantially. Sumit Sawhney, who heads marketing at GM India, said the slowdown sentiment was likely to continue in the coming months.

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