High prices of raw materials, coupled with inability of auto component suppliers to ensure timely supply of auto parts is likely to reduce year-on-year growth of car sales in 2010-11  After the initial highs comes the dampener. While the Indian automotive industry continues to enjoy healthy sales, which would hold true in 2010-11 as well, the growth of car sales on a year-on-year (y-o-y) basis will be half as compared to the previous financial year, thanks to increasing prices of raw materials. According to the Society of Indian Automobile Manufacturers (SIAM), although nearly 1.9 lakh more cars will be sold in the current financial year, the y-o-y growth rate will be nearly 12-13%, almost half as compared to 2009-10 that stood at 25%.
Apart from changing macro economic factors such as high interest rate, inflation, changing income demographics etc, other factors such as implementation of emission norms and increase in fuel prices, among others too are likely to play a critical role in car sales.
Supply constrains for auto vendors
According to Ravi Jain, managing director of Ravi Transmission Products, a mid-sized manufacturer of automobile ancillary units in Mumbai, “Several auto vendors have been unable to supply parts on time due to high demand for vehicles and are therefore unable to expand their existing capacity at a rapid pace. The same has impacted supply of auto parts, which in turn is likely to take a toll on sales. Besides, prices of natural rubber have increased significantly in the international market, which has also affected domestic tyre manufacturers such as Ceat, J K Tyre etc compelling them to raise prices of their products. Major auto giants in the country are facing supply constrains, which would impact overall sales of vehicles in the country.”
It is to be noted that the proposed implementation of the new emission norms, which is likely to take place later this year, will require car makers to upgrade their existing engine technology, thereby making vehicles more expensive. Prices of other raw materials such as steel, aluminium etc have already witnessed a massive rise in the last few months forcing several auto majors to pass some of the burden onto consumers.
According to Rakesh Jha, managing director of Deco World, a mid-sized manufacturer of auto ancillaries in Kolkata, “There has been hikes in several key policy rates to control inflation, which is likely to result in higher interest on car loans, thereby affecting sales because a large section of consumers in the country still depends on bank loans for purchasing new vehicles.” It is to be noted that earlier this month, the Reserve Bank of India (RBI) revised its key policy rates for the third time in a year and analysts anticipate further hike on July 27, when RBI reviews its monetary policy.
Factors assisting sales
Meanwhile, a determining factor that will help to drive car sales in the current financial year is the launch of a series of new models with several value-added features. Venturing of foreign companies into the Indian territory is also likely to fuel car sales in the country. Both two-wheeler and three-wheeler segments are expected to record robust sales in 2010-11, clocking a growth of 9-10% and 7-8%, respectively.
Arup Choudhury |
