The sector has grown at a mere 5% rate in the first six months.
With consumers postponing their decision to buy cars this festival season, the slowdown-hit auto-makers feel the industry's growth could halve this year.
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The car segment recorded a growth of 12 per cent last financial year. But the growth during the first six months of this financial year has been dismal at just 5 per cent. This is in stark contrast to growth projections of 12-13 per cent.
Arvind Saxena, senior vice-president, Hyundai Motor India, said, "The demand has been much slower than we had estimated. We are not expecting banks to relent despite steps taken by RBI. Our inventory funding is rising, nobody is lowering rates. Even though sales are expected to be better this month, overall growth for the year won't be more than 5-6 per cent."
The car sector, which is extremely price-sensitive -- especially the compact segment from where 70 per cent of sales arise, has seen a fall in demand lately at a time when stocks of vehicles continue to pile up at dealers end.
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"Our current growth estimate for the industry for the full year is between 7-8 per cent," says Vaishali Jajoo, auto analyst, Angel Broking.
Vaishalli says the key drivers that could sustain sales in the passenger vehicle segment are the mid-size cars and utility vehicles.
During 2001-07, the car and utility vehicle industry recorded a compound annual growth rate (CAGR) of 13.6 per cent, according to a research done by SKF, a leading bearing manufacturer. After being in the negative for three consecutive months starting June (year-on-year sales) this year, the segment recorded an insignificant increase of 2.83 per cent in sales last month.
However, the September rise, analysts say, may be unrealistic as manufacturers had stepped up production to push inventory through their dealer network.
"Actual retail sales must be much lower than wholesale numbers," said a Mumbai-based auto analyst.
The drastic fall has occurred despite the central government's efforts of cutting excise duty rate to 12 per cent from the earlier 16 per cent on small cars nearly eight months ago. However, the car-makers had hiked prices thereafter driven by high input prices, spiralling interest rates and stricter lending norms, which further dampened buying sentiment.
The festive period of Navratri and Dussera, which is when sales start to pick up, has been dampened up to a large extent, triggered by the recent stock market crash and also scant liquidity in the financial system.
Masahiro Takedagawa, president and CEO, Honda Siel Cars India, said, "India is not an exception to the global crisis. You cannot isolate yourself anymore. (High) inflation has definitely slowed down the economy. Financial institutions are reluctant to lend, while cost of manufacturing has surged. With 75 per cent of customers who opt for finance...it does impact our business."
Experts say that the current discount offers running on various models of cars, including the recent move by auto makers to entice government employees, is a desperate attempt by them to boost sagging sales.
Sales generally show a decline during the (calender) year end with manufacturers announcing huge discounts to clear stocks. Buyers look to defer their purchase during the period as they look to take advantage to the change in year of registration, which helps at the time of resale of the vehicle.