The hike in fuel prices has come as a further dampener to the automobile industry, which is expected to see a slowdown in demand with potential buyers postponing their buy. With high inflation already impacting small car sales by as much as 40% in some cases, the hike is set to dent passenger car sales further with petrol-run vehicles to be hit the most.

According to estimates by industry experts, the increase in prices of petrol by Rs 5 per litre and of diesel by Rs 3 per litre will bring down sales growth of passenger vehicles by a minimum 2%. At the same time, consumer interest in CNG and LPG-run cars is expected to go up sharply.

The industry is already struggling with high interests and rising raw material costs, and players, marred by the unfavourable economic environment, have been undertaking revision in vehicle prices.

?The high surge in fuel prices will definitely impact the sale of passenger vehicles in a big way. As a result, the growth of passenger car industry is estimated to come down to 8-10% as against the earlier projection of 12-13%,? said P Balendran, vice-president (sales), General Motor India. He added even vehicle prices would escalate in the long run as the cost of transportation goes up.

?The passenger car industry is expected to witness a dip of as low as 2% in total sales projected for the fiscal 2008-09 and the impact would be negative across all segments, except luxury cars,? said Abdul Majeed, auto analyst and partner, Price Waterhouse. Majeed even expects two-wheeler sales to be impacted to a small extent as other factors like unavailability of finance and high interest rates continue to exist.

While the worst impacted segment would be the petrol-run cars, even diesel vehicles are likely to take a back seat vis-?-vis CNG and LPG driven cars. ?This is a phase that will lead to a shift towards compact cars and an increase in demand for fuel efficient cars and vehicles driven on alternate fuels,? says Arvind Saxena, senior vice-president, Hyundai Motors.

?The industry was expecting a moderate growth of 8% to 10% this year. However, in this environment, it looks unlikely,? said Vaishali Jajoo, an automobile & transportation analyst with Angel Broking. She adds that overall, the sentiment for the automobile industry was negative.

A Tata Motors spokesperson said, ?Fuel price is one of the factors that has an impact on the automobile industry?. Last week, Ravi Kant, managing director, Tata Motors had said that this year will be a challenging one for the industry, which will have to tighten its belt and strike a balance between unfavourable economic environment on the one hand and maintain the market position on the other.

Says a Religare analyst, ?In the commercial vehicle segment, with the cost of fleet operations expected to go up, there will be an impact on the freight rate and demand for CVs in the market.? Adds, Jajoo, ?The margins of transporters will be under pressure but whether they will pass on the burden to customers is what one needs to wait and watch for.? Further, customers with lower disposable incomes are expected to postpone buys.

?While the immediate effect of increase in fuel prices would be a slow down in sales, there would also be a fast conversion from petrol to CNG vehicles and a gradual shift to hybrid versions,? says an analyst at Religare Securities Ltd.

Lately, car manufacturers have been aggressively working on CNG and LPG variants of their existing vehicles. While market leader Maruti Suzuki India Ltd has already announced the launch of an LPG variant of M800, its closest competitor Hyundai Motor is also mulling to come up with LPG variants of Santro, Getz and Accent soon. All this is over and above the CNG version of Hyundai Santro and the LPG variant of Maruti Wagon R.

According to the Society of Indian Automobile Manufacturers, 12,03,531 units of passenger cars were sold in India in 2007-08 as compared to 10,76,582 units in 2006-07, a growth of 11.79%. As per earlier industry projection, this would have gone up by 12% in 2008-09 to 13.5 lakh units. However, with the growth projection lowered by 2%, sales are likely to be around 13 lakh units in 2008-09.