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Auto sector has tough time ahead: Survey

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CIOL Bureau
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BANGALORE, INDIA: Tough times are likely to persist for the automotive industry in India until at least the first quarter of 2012-13, as major auto makers are geared up to hike prices by nearly one per cent to 10 per cent in the year ahead, says a survey by Assocham.

“Rising interest rates, steep and steady rise in input costs, unregulated price hike in raw material, sudden depreciation of rupee against major currencies together with labour pangs are certain key reasons behind the alarming drop in passenger car sales which shrunk to just over four per cent between January and November and dramatically rose to nearly seven per cent in November,” said D.S. Rawat, secretary general of The Associated Chambers of Commerce and Industry of India while releasing the chamber’s analysis on ‘Indian Auto Industry: The Year Ahead’.

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“Besides, global disturbances like a slow pace of economic recovery in the United States, a sovereign debt crisis in the Eurozone, sluggish economic growth in Japan and a slowing Chinese economy are other significant reasons due to which automakers in India have been finding it difficult to keep their margins intact,” Rawat added.

The growth of car sales in the current fiscal is likely to stay about four to five per cent as against nearly 30 per cent in the previous year, he noted. 

Also read: Indians rely on Internet to make auto purchase

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Despite the rising input costs, most of the car makers reduced the prices and offered a plethora of discounts to spur sales in 2011 amid rising competition in the industry.

“To make up for the losses incurred due to discount offers and inflationary pressures resulting in sharp rise in lending rates for car loans by banks, Indian automakers are all ready to hike prices of their passenger cars by one to nearly 10 per cent in the first half of next year,” Rawat continued.

The Assocham interacted with nearly 50 experts from the auto industry, including former chiefs of various leading automobile manufacturers, dealers, auto parts’ traders and auto industry analysts across cities like Ahmedabad, Bangalore, Delhi, Mumbai and Pune to ascertain their views on the prospects of the auto sector in the year ahead.

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Many respondents opined that the industry is likely to reel under pressure unless the situation improves globally.

While over half of the respondents said that profit margin of the industry might shrink further amid negative consumer sentiments due to soaring fuel prices and overall inflation.

Ten out of the total respondents sounded optimistic about the growth of the automobile industry on the back of sound fundamentals of Indian economy and hoped for improved industrial growth in the months to come.

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Almost all of those interviewed said that shocking and sudden decline in India’s industrial production, rampant inflation and sharp fall in value of rupee vis-à-vis the US dollar are drastically affecting the margins.

Many industry experts said that manufacturers with diesel variants of their car models will have better prospects in 2012.

“Automakers must revise their marketing strategies, launch diesel variants, promote easy availability of finance options to woo the customers and keep a tab on tier II, III cities and the rural areas as these markets are going to spurt the car sales in the recent future,” the Assocham chief concluded.