Auto sector on fire after petrol price hike

Business

oi-Monika

By Monika Nihalani

Published: Friday, September 16, 2011, 10:55 [IST]

With petrol prices hiked by Rs 3.14 per litre on Thursday and high interest rates prevailing in India, puts more pressure on automobile companies. The sector which which saw 34% growth last year due to festive season may see their sales falling this year.

The Reserve Bank of India's monetary policy review is scheduled for today, where RBI may increase key policy rates again, which will be another pinch for the companies.

On one side, higher interest rates is raising the borrowing cost for the companies on the other side, vehicle buyers are shrugging off buying new vehicles due to high loan interest rates.

The industry sold 3,52,074 cars during festive season last year against 2,62,298 cars in same period in 2009. Car sales zoomed 30% to 2.52 million in 2010-11 and estimated numbers show the growth of just 10-12% this year on account of petrol price hike and high interest rates.

“Any hike in petrol price is psychologically detrimental to sale of vehicles. But at the same time, it is unavoidable," Pawan Goenka, president-automotive business of Mahindra and Mahindra (M&M) said in an interview to CNBC-TV18.

He is also concerned over the another rate hike which RBI may announce today.

“The situation is going to be double whammy. On one day, we have a petrol price increase, the next day we have a rate hike. That certainly will not be too well," he added.

He also mentioned, “the auto industry is in a slowdown right now. In the last two months, sales have been pretty bad, infact consecutive months of de-growth in the passenger vehicle segment.
Therefore, I am concerned that if there is another increase in interest rate, it"s going to further dampen the festival season."

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