The fuel price hike could slow demand for automobiles in the country in the short term. But in the long term, there could be a greater shift towards smaller and more fuel-efficient vehicles, as is happening in the West now, according to industry experts and analysts.
At present, small and compact cars constitute over 61 per cent of the total monthly sales of passenger vehicles in India. It is expected that this could go up to 70 per cent over the next two years as fuel prices go up further.
“High fuel prices would have a negative impact on sales in the short term, wherein demand is expected to drop by as much as 5-10 per cent over the next month or two. If prices continue to soar, achieving the 17 per cent estimated growth rate for the automobile sector in 2010-11could become a challenge,” GM India Vice-President P Balendran said.
| THE RIGHT PUSH Current revenue loss per litre for oil marketing companies | |
| Petrol | Rs 3.73 |
| Diesel | Rs 3.8 |
| Kerosene | Rs 18.82 |
| LPG* | Rs 261.90 |
| *on every cylinder of domestic LPG | |
| Period | Under- recovery (In Rs cr) | In diesel | In domestic LPG | In kerosene | Average crude oil $/barrel |
| 2008-09 | 5,181 | 52,286 | 17,600 | 28,225 | 83.57 |
| 2009-10 | 5,151 | 9,279 | 14,257 | 17,364 | 69.76 |
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The passenger vehicle industry has witnessed an average year-on-year growth rate of over 30 per cent between January and May. This could come down to 20 per cent because of today’s rise in fuel prices and an anticipated one in interest rates.
“As crude prices tend to go upward in the long term, there will be greater movement of Indian car buyers to more fuel-efficient cars instead of gas guzzlers — a trend which is fast picking up in the West, where people are not just mileage but environment conscious as well,” Maruti Suzuki India Chairman R C Bhargava said.
The auto sector has already survived the impact of three price rises in the last six months. That was primarily on account of several new launches in the recent past. However, high inflation – expected in the wake of today’s hike in fuel prices – is expected to result in higher interest rates and, therefore, would impact demand.
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“While it is imperative to opt for more fuel-efficient cars when petrol prices get market-linked, it is expected that overall sales will taper if inflation and, subsequently, interest rates go up, as people would postpone their purchase decisions,” PricewaterhouseCoopers Head (Automotive Practice) Abdul Majeed added.
According to him, the shift is already becoming evident with more and more global car manufacturers foraying into the small car segment and setting up production bases in India to cater to the huge, untapped domestic market, as well as to export from here.