Rating agency Crisil has trimmed the growth forecast for passenger vehicle industry to 7-9% from the earlier 9-11% in 2018-19.
Rating agency Crisil has trimmed the growth forecast for passenger vehicle industry to 7-9% from the earlier 9-11% in 2018-19. This follows a lacklustre festive season, a sharp rise in fuel prices, rising interest rates, increase in insurance premium and lack of major model launches.
The festive season did not fare well for automakers, the ratings agency wrote. While sales increased only 1.6% in October, for September and October combined, they de-grew 2%.
Consequently, fiscal-to-date (April-October) growth is just 6%, Crisil stated in its latest report. The period of September and October/November, which contributes a fifth of annual sales for automakers due to festivities, did not sparkle sales for the automobile makers this season.
The report further elaborates that the rise in interest rates for car buyers by 20-25 bps results in an equal increase in total cost of ownership. Total cost of ownership (TCO) includes annual amount payable towards fuel cost, loan repayment, maintenance and insurance costs considered for an entry level car (Maruti Alto) in the first year of purchase.
Regulatory changes by the Supreme Court in September this year mandating upfront payment of three-year premium in the first year of purchase for third party liability and increase in personal accident cover (PAC) from Rs 2 lakh to Rs 15 lakh have led to an increase of Rs 6,000 (Rs 4,500 if PAC is opted for one year) for an entry-level car such as Maruti Alto.
All these higher costs have together increased the TCO for an entry-level car by 8% on-year this fiscal. This is expected to be the fastest growth in TCO in the past five years.
It is significantly higher than the 2-4% growth seen in the past five years, the report added. Moreover, while four major models were launched in fiscal 2017, fiscals 2018 and 2019 (year to date) have seen only one each. On the other hand, facelifts have been flooding the market over the past four quarters.
“Our channel interactions indicate the response to facelifts has not been as strong, weakening retail sentiment further,” the report said. Consequently, we believe the next five months of this fiscal will see automakers pushing discounts, offers and schemes.