Difficult financing conditions and rising cost of ownership have caused a slowdown in automobile
sales since April 2008. Sluggish demand has made it necessary for players to partly absorb input
cost increases resulting in lower margins. CRISIL Research expects the deceleration to continue
until 2009-10.
Falling demand for Medium and Heavy Commercial Vehicles (MHCV) is mainly linked to the overall
slowdown in industrial production. Transporters have deferred purchases despite stable freight
rates, with rising cost of ownership impacting their profitability amidst concerns over freight
demand sustainability. Due to demand-related concerns, freight rates are expected to decline in
the second half of 2008-09, further affecting transporter profitability.
CRISIL Research expects MHCV volumes to continue to decline by 5-10 per cent in 2008-09. Light
Commercial Vehicles (LCVs), which have been clocking healthy double-digit growth over the last
few years, are expected to register single-digit growth in 2008-09 owing to the existing high
base.
The domestic passenger car industry registered a moderate 6 per cent growth during April-
August 2008, after posting a 16 per cent growth in the first quarter of 2008-09. The rapidly
changing finance scenario, increase in vehicle prices and fuel cost have pushed up the cost of
ownership for a typical compact car by 4-5 per cent.
CRISIL Research expects the domestic passenger car industry to register a 6-7 per cent growth
in 2008-09. In the two wheeler segment, despite the existing tight finance scenario, sales growth
recovered during April-August 2008-09, with increase in cash purchases and rising income levels
in rural areas. CRISIL Research expects domestic two wheeler sales to grow by 7-8 per cent in
2008-09 as against the 9 per cent decline in 2007-08.
The impact of the rise in raw material prices on the cost of sales of overall automotive chain is
expected to be around 7 per cent in 2008-09. Margins of leading players are expected to
continue to remain under pressure in 2008-09 despite OEMs absorbing only part of the surge in
cost and passing the balance to the customers.
CRISIL Research expects single digit growth rates to continue for automobile segments in
2009-10. Mr. Sachin Mathur, Head, CRISIL Research elaborated, “A moderate
improvement in the outlook for the automobile sector in 2009-10 hinges on softening of
input costs and fuel prices, financing rates remaining stable and continuation of the
industrial investment cycle.”
