Hopes of recovery in auto sales post general elections seem to have crashed, with global oil prices spiralling up and the United States making it clear that it would no longer grant exemptions to sanctions on export of Iranian crude oil.
For now, crude is hovering around $75 a barrel. If the US move gains traction, there is no telling how supplies will impact prices going forward, meaning auto sector is staring at a crisis while consumers are in for a painful surge.
Already, the sector seems to have no respite from the multiple headwinds battering it, with the sectoral index slipping 5.13 per cent from 20,201 on April 18 to 19,164 on April 26. A poor show by auto majors on the back of waning demand have also led to shares of TVS (down 2.07 per cent), Bajaj Auto (down 1.3 per cent), Maruti Suzuki (down 1.03 per cent) and Mahindra and Mahindra (down 0.94 per cent) trading in losses.
With price deregulation, diesel is no longer the affordable/cheap fuel; and coupled with the fact that diesel cars are pricier, petrol is back in favour all over again. Now with the added cost challenge coming up in the form of Bharat Stage VI emission norms that will make vehicles dearer, the last thing the industry would want is an oil price shock.
Fearing a slack in auto sales in the coming quarters, Maruti Suzuki chairman RC Bhargava said factors like the US embargo on Iranian crude imports and new emission norms are playing a spoilsport.
“I would have had great confidence that auto demand will pick up after the Lok Sabha polls, but the US putting an embargo on Iranian oil imports and BS-VI emission norms are some of the factors that may hit auto sales going forward,” Bhargava said.
Besides the oil trouble, the sector has survived various hurdles such as the Insurance Regulatory and Development Authority of India’s order to increase higher insurance premiums for two-wheelers. “Increased insurance premium had pressured buyers, which led to about consistent 10-15 per cent drop in two-wheeler sales,” said analysts at Society of Indian Automobile Manufacturers.
That apart, a host of other factors — Kerala floods, patchy monsoon, tight liquidity, crash in farm prices — dampened sales volume… The effect is likely to remain at least during the first quarter of FY20, considering the current levels of inventory pile-up by companies,” said Rakesh Batra, partner and sector leader, Automotive, Ernst & Young India. The outcome of the general would be critical to set the course of the market, he added.