As the Indian auto industry cheers record growth in sales during 2009-10, industry experts are cautious about a repeat performance in the current fiscal owing to hardening of interest rates, rising commodity prices and upgradation in emission norms, all of which are likely to dampen consumer enthusiasm. Above all, this time, the industry would have to face the high base effect of last fiscal.
Analysts and senior auto company executives have already pointed out that a large part of the previous fiscal?s growth was due the to low base effect, coupled with the stimulus package. Secondly, any further monetary pressures such as an impending hike in interest rates would definitely dampen auto sales. ?Around 70% of auto purchases are financed through credit and the auto demand is extremely price-elastic?, Abdul Majeed of KPMG said.
However, the roll-back of the stimulus package in the Budget, which raised excise duty by two percentage points is not seen as a major dampener by analysts. This is because with economic activity picking up, demand for passenger vehicles and commercial vehicles is seen to remain intact.
Lack of clarity on emission norms too has left auto companies confused about what products to roll out and when. Another factor which would decide the fate of the auto growth numbers, are the monsoons.
?Out of the net additions in the total vehicles segment, 30% are from rural and semi-urban markets and their dependence on monsoons and harvest is a major deciding factor, especially in the light commercial vehicle segment?, Majeed said.
Rising input prices is another major area of worry. Commodities like steel, copper and aluminium, which go into the making of vehicles have seen an upward pressure on prices and promises to be the same for at least the next two quarters. Regarding steel, which comprises 70% of the input cost of a car, there would be price volatility round the year, with raw material companies deciding to have quarterly contracts for iron ore and coking coal.