Indian Car Industry on a Stony Path

Indian economy is tightly bonded to the Indian car industry. The rise and fall of the economy is greatly influenced by the happenings and shortcomings in auto industry.

The Indian auto industry has changed over the decade with increasing number of launches and more numbers of global car manufacturers venturing into the country. Gradually, the country has become a hot time favourite for both production and export. Manufacturers are looking forward to make the country a hub for small cars.

Everything was going well till the high interest rates and soaring fuel prices plagued the industry. The slowdown headed with these factors and was further influenced by the escalating cost of inputs and increased road tax.

With high inflation, interest rates are also soaring. The current repo rate, rate at which Central Government gives money to the banks, has been increased by almost 0.5 percentage and the cash reserve ratio, amount that banks put aside, has been increased by 0.25 percentages. This clearly states that a car loan amount of Rs 3 lakh will have a higher EMI of Rs 73 for a term period of 3 years, Rs 79 for 5 years and Rs 84 for 7 years.

Fuel prices have increased to about Rs 5 per liter of petrol and Rs 3 per liter of diesel. The increased prices have become a pain for many pockets. High oil prices have severely affected the Indian car industry. Oil prices are expected to come to a halt at about $ 120. Until this thing gets resolved, the industry has to face challenges.

The rising input costs are mainly because of the fact that raw material prices have increased by about 50%. Steel holds around 65% of the total vehicle weight and aluminium holds around 8%. Apart from steel and aluminium, plastic, rubber and glass also holds a proportion in the manufacturing process. All these materials have witnessed a severe hike in their prices during this financial year. Steel prices are still expected to hike.

Society of Indian Automobile Manufacturer (SIAM) also points out that a blend of factors like high input costs, high interest rates, global oil prices, increased road tax and global oil prices has made the road tough for auto majors.

The recent sales report reflects a clear picture of the sales figure that has slowed down. The overall car industry has dipped to nearly 1.7%. The passenger cars showed a sale of 11 percent in the beginning of the fiscal year 2008-2009 but down the line in July 2008, the sales figure fell down to almost 87,724 units from 89,250 units in July 2007. Future price revisions and excise duty on larger cars also affected the sale figure.

The biggest losers are the Tata Motors who faced a sale decline of about 8.9% to 12,012 units in July. Tata is now looking with anticipation to its ultra-cheap car Tata Nano. Not only India, global car market has their eyes on Tata Nano.

Mahindra & Mahindra also witnessed a sales dip of nearly 16 percent and Honda Seil Cars India showed a sale drop of nearly 7% to 4,006 units in July.

Inspite of the all the fall down, the Indian car market is steady with hopes and anticipations. All the leading car players are going through a correction phase with dedication and determination to switch over the ride from stony road to a smooth and comfortable drive.