Rising inflation has taken its toll on the entry-level and the compact car segment in a big way. Be it Maruti 800, Alto, Hyundai Santro, Tata Indica or Chevrolet Spark, the largest selling cars of respective manufacturers in the compact car category, all have witnessed a dip in sales between January and April this year.
During January to April, inflation has gone up from 3.79% for the week ended January 5 to 8.1% for the week ended May 20. Consequently, there has been a dip in sales of compact cars across the industry. According to the Society of Indian Automobile Manufacturers, while the country?s leading car manufacturer Maruti Suzuki India Ltd witnessed a dip of 6.17% in compact cars at 43,121 units in April as compared to 45,957 units in January, India?s second largest car maker Hyundai Motor India saw a decline of 11.09% at 18,771 units in April vis-?-vis 21,114 units in January.
Sales of Tata Motors? only compact car Indica have also come down by 39.88% from 12,360 units in January to 7,430 units in April. Even sales of General Motors? Chevrolet Spark has come down from 2,639 units in January to 1,963 units in April, a dip of 25.62%.
According to Emkay Research, one of the biggest concerns of the automobile industry is the impact of inflation on demand for passenger cars. ?Biggest threat for Maruti is lower demand for entry-level offerings like M800 and Alto as the maximum impact of rising inflationary pressure (relative to the overall target audience for different vehicles) would be felt by the target audience for these offerings,? it says.
?Rising inflation has led to a substantial increase in household expenses over the last few months. As a result the free cash flow with medium income-level people, who constitutes a large proportion of the compact car buyers, has tightened and hence, a decline in their reaping capacity,? explains Abdul Majeed, auto analyst and partner, Price Waterhouse.
?Moreover, anticipating bad times ahead due to continuous increase in inflation, people will continue holding on their credit investment in days to come,? he says adding that if the scenario of global uncertainty and high inflation persists for long, the impact on the volumes would be huge.
According to Vaishali Jajoo, senior research analyst, Angel Broking, two-wheelers are far more sensitive to change in inflation than passenger cars due to their sheer price. ?Two-wheeler buyers fall in the income level ranging between Rs 15,000 and Rs 45,000. If the inflation goes up, pocket outflow of these individuals reduces significantly.
As such, in an effort to cut down on EMIs they normally postpone their purchase,? says Jajoo. As per industry estimates, over 70% of vehicles purchased in India are on credit and the number was as huge as 85-90% in case of entry-level two-wheelers until the banks decided to cut down two-wheeler financing in a big way.
