Car major rejig growth plan after fuel, rate hikes

The double whammy of Thursday's petrol price increase and key policy rate hike by the Reserve Bank of India (RBI) on Friday has come as a shock for the auto industry. Some stakeholders have already revised the growth rate to single digits for the year, down from 30 per cent last year.

Though companies had used discounts and other offers to push sales, many feel that they may now be left with very few measures to mitigate the impact of poor market sentiment.

The bad news comes especially with the festive season demand boom around the corner, which was expected to bring cheer to an industry already burdened by dipping sales.

“It will definitely dampen the spirit in the festive period. I don't think any measures taken by a company can fully mitigate the impact,” said Mr Arvind Saxena, Director, Marketing and Sales, Hyundai Motor India.

Tamp growth

The 25-basis point repo and reverse repo increase was the 12th such move since March 2010. Petrol prices, up by Rs 3 a litre on Friday, marked the ninth increase since June 2010.

General Motors India (GMI) plans to continue its discount schemes on vehicles, which it started about two months back when the market started heading south.

“We expected that they (RBI) would put a pause (on policy rate increases) considering the slowdown of the economy … this would further bring down growth. In any case, the petrol price increase would lead to an increase in inflation,” Mr P Balendran, Vice-President, GMI told Business Line.

He added, “Normally there is an incremental growth of 15-20 per cent during the festive season. This time we were expecting only a 5 per cent growth, but even this will be impacted.”

Industry body SIAM has said that it would review the growth numbers for the first half of 2011-12 in October and decide on revising its official forecast for the entire fiscal. Earlier this year, the growth forecast was at 16-18 per cent, but was revised to 12-13 per cent a few months ago.

Maruti Suzuki's Chief General Manager of Marketing, Mr Shashank Srivastava said an expectation of 12-13 per cent industry growth rate has long been abandoned and most automobile manufacturers have revised it to single-digits.

Moreover, it will be tough to better the high growth seen in the second half of last year, largely because of new model launches.

“This year, (only) those companies will grow fast that have a high percentage of diesel vehicles and are launching new models. The power of sentiment in the market is the main issue, especially for small cars which forms 75 per cent of the market,” he said.