The industry was already facing tough times as demand slowed down due to earlier interest rate hikes made loans costlier along with the steep rise fuel prices have has hampered consumer sentiments. The car prices have also shooted up due to higher raw material prices.
With the 50 basis points hike in key rates the bank are expected to hike their interest rates, thereby making loans dearer. During the financial year 2010-11, the car sales increased by 30 per cent. However, the breakdown in sentiment due to costlier funding and high fuel prices are expected to bring down such growth to a much lower level during the current fiscal.
The car manufacturers have already started witnessing decline in the enquires at dealer levels and the conversion rates have also gone down. The replacement segment may take the major hit as customers already having a vehicle might be reluctant to pay increased EMIs to replace their existing cars.
The BSE Auto index plunged 6.5 per cent during the first four trading sessions of the week, while the shares of the sectoral majors like Tata Motors Ltd, Mahindra and Mahindra Ltd and Maruti Suzuki India Ltd decreased by 7.52 per cent, 8.21 per cent and 4.85 per cent, respectively during the same period.