Transportation Automobile Sector Stock News

The hike in fuel prices has come as a further dampener to the automobile industry, which is expected to see a slowdown in demand with potential buyers postponing their buy. With high inflation already impacting small car sales by as much as 40% in some cases, the hike is set to dent passenger car sales further with petrol-run vehicles to be hit the most.

According to estimates by industry experts, the increase in prices of petrol by Rs 5 per litre and of diesel by Rs 3 per litre will bring down sales growth of passenger vehicles by a minimum 2%. At the same time, consumer interest in CNG and LPG-run cars is expected to go up sharply.

The industry is already struggling with high interests and rising raw material costs, and players, marred by the unfavourable economic environment, have been undertaking revision in vehicle prices.

“The high surge in fuel prices will definitely impact the sale of passenger vehicles in a big way. As a result, the growth of passenger car industry is estimated to come down to 8-10% as against the earlier projection of 12-13%,” said P Balendran, vice-president (sales), General Motor India. He added even vehicle prices would escalate in the long run as the cost of transportation goes up.

“The passenger car industry is expected to witness a dip of as low as 2% in total sales projected for the fiscal 2008-09 and the impact would be negative across all segments, except luxury cars,” said Abdul Majeed, auto analyst and partner, Price Waterhouse. Majeed even expects two-wheeler sales to be impacted to a small extent as other factors like unavailability of finance and high interest rates continue to exist.

While the worst impacted segment would be the petrol-run cars, even diesel vehicles are likely to take a back seat vis-à-vis CNG and LPG driven cars. “This is a phase that will lead to a shift towards compact cars and an increase in demand for fuel efficient cars and vehicles driven on alternate fuels,” says Arvind Saxena, senior vice-president, Hyundai Motors.

“The industry was expecting a moderate growth of 8% to 10% this year. However, in this environment, it looks unlikely,” said Vaishali Jajoo, an automobile & transportation analyst with Angel Broking. She adds that overall, the sentiment for the automobile industry was negative.