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Hike in petrol prices and car loan rate to further slowdown the car sales in India

Just a day after the announcement of the repo rate hike by the government of India, the car makers in India received another shock after the government hiked the petrol priced by as much as Rs 3.14 per liter. Both car loan and fuel prices play a very important role in the sales of cars in India. The hike has came at a time when the industry has already been into a slowdown for more than two months. The car sales dipped steeply in July and August 2011.

This was not at all right time for the hikes in the car loan rates as well as hike in petrol prices as car maker were expecting some relief in the upcoming festive season with a revival in consumer sentiments, which play a crucial role in the sales of cars. The leading car makers in India including Maruti Suzuki, Hyundai Motors, Tata Motors registered a fall in the car sales in domestic market in last month. With the hike in these essential factors, the scenario of sales not looks to be any different in the current month.

In last 18 months, the central bank of India has raised the borrowing rates by 3.5 percent (350 basis points), keeping the buyers out of the showrooms. The car loan providers have already made it clear that they will pass on any such rate hikes by RBI directly to the car loan seekers.

Adding to it has been the petrol price hike that has further intensified the slowdown in demand for cars in the Indian market. Most of the cars in the small car segment, which accounts for a considerable share of sales in the Indian auto market, are available in petrol version only, including the likes of Tata Nano, Maruti Alto, Maruti wagon R, Maruti A-Star, Hyundai i10 and Chevrolet Spark. Thus, a hike in petrol prices directly attacks on the backbone of the Indian car industry.