The Telegraph
Thursday , May 24 , 2012
Since 1st March, 1999
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Petrol price rise irks car firms

Calcutta, May 23: Car makers are fuming over the petrol price hike as the move will hurt the growth of the industry.

Higher prices following the excise duty hike in the budget and rising inflation have already dented sales. The latest hike will not only affect the demand for petrol cars but also push consumers towards diesel vehicles, widening the divide between the two fuel options.

“With high interest rates and rising inflation, there is already a negative sentiment in the market. The hike in petrol prices will accentuate this. We were hoping for the industry to recover in the second half, but now registering an 8-10 per cent growth will be difficult,” P. Balendran, vice-president of General Motors, told The Telegraph.

The hike will also result in an inventory pile up of petrol vehicles. “For our top-selling model Beat, the market is about 80 per cent for diesel and 20 per cent for petrol, which was just the opposite about a year ago,” Balendran said.

In April, Maruti Suzuki reported a 26 per cent drop in sales of its petrol models such as the WagonR, Alto, A-Star and the M800 that account for one-third of its total sales.

“It is a setback for the industry. Demand for petrol cars is surely going to take a hit with this hike today,” said Shashank Srivastava, chief general manger of Maruti Suzuki India.

Hyundai Motors India, which had put on hold its plans to build a diesel engine plant, today said it would take a call in two-three weeks.

“Because of a lack of clarity on the diesel policy, we had decided to put our plans on hold. Now with the demand for diesel cars on the upsurge, we would like to take a call on it in the next two to three weeks,” said Arvind Saxena, director (marketing and sales) of Hyundai Motors India.

According to Kumar Kandaswami, senior director and manufacturing practice leader at Deloitte, car makers will now look to strengthen their diesel portfolio.

Kandaswami added that sales might slow down in the next quarter as customers could look to hold back their decision.

The depreciating rupee is another dampener for the industry, especially for car makers who import components.

Kandaswami said companies that had a larger export portfolio might be able to mitigate the impact of a depreciating rupee, but the input costs of raw materials would rise steeply.

Car markers said they were raising local sourcing and scaling up exports to cut costs and offset the adverse impact of the tumbling rupee.

“Localisation of components is our main strategy, which we have been practicing over the last three years and it is showing some results now,” said Jnaneswar Sen, senior vice-president (sales and marketing) of Honda Siel Cars India Limited.

Maruti is also working towards increasing indigenisation levels to 90 per cent from 75 per cent over the next two years.