‘Car sales to skid further’

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New Delhi, Nov 4: After a disappointing Diwali for car manufacturers when sales declined by an estimated 8% in October, auto analysts have revised the growth projections downward by almost 50% for 2008-09. According to experts, the passenger car industry is now projected to grow by 6-7% as against 10-12% estimated earlier. In the previous fiscal, passenger car sales had grown by 11.79%.

“Under current circumstances, even if the industry grows by 6% as against the earlier projection of 10-12% it would be decent. However, this would be done with lot of challenges including high interest rates and unavailability of funds,” says Abdul Majeed, auto analyst and partner, PricewaterhouseCoopers.

“Retail finance has further become stringent as higher number of loan applications are being rejected now and this would slowdown the overall industry growth to around 6-7%,” says Arvind Saxena, senior vice president, Hyundai Motor India.

The revised growth projections come at a time when the commodity prices are softening and interest rates are expected to soften post RBI’s reduction in cash reserve ratio and repo rate. “The impact of lower commodity prices and easing of liquidity would be mainly seen in the fourth quarter because of the lag effect. However, since interest rates will still be high, second half is expected to be subdued,” adds Vaishali Jajoo, senior analyst, Angel Broking.

An analysis of eight out of 14 auto companies listed on the Bombay Stock Exchange (BSE) shows that the raw material prices for the sector had gone up by 18.7% in the second quarter ended September 30, as against the 42.5% jump in commodity prices for a sample of 317 companies amongst the BSE 500 companies. This has brought down the net profit for the sector by 15.5% as against a jump of 8.2% in net profit for a sample of 317 companies amongst the BSE 500 companies.

“Despite easing of liquidity and lower commodity prices, the impact on margins would only be seen in the fourth quarter as customer sentiments will also take some time to pick up. Along with this, the companies need to tightly control inventory, cut down cost and negotiate commodity prices once the contract is renewed to improve margins,” says an official of a leading car company.