First Car Prices Increase, Then Fuel Prices Increase, Now Loan Interest Rate Also Increases


Indian Automobile Industry is gradually facing a lot of pressure from all sides. In the beginning of the year 2011, it has witnessed price increase in almost all segments and brands of vehicles, be it two wheelers, four wheelers, commercial vehicles etc. The reason behind the price increase was the ever increasing input cost owing to cost inflation of every kind taking place in India. It was the first shock to the industry which was bearable as the standard of living of Indian car buyers is also improving gradually and they can afford to shell out some extra initial cost.


The second and most significant impact was the huge increase in the fuel priced which increased the Petrol and Diesel prices making the running cost of cars too high for middle class and lower middle class of India. The running cost of petrol cars and two wheelers pinch the pockets of everyday commuters and now it seems like a burden. This has prevented many of the buyers from buying a petrol car or two wheelers. However the sales of Diesel engines cars has gone up. Car makers are also utilizing this opportunity of shift in demand by offering better Diesel engine cars. However, a two wheeler buyer gets no respite as most two wheelers are still with petrol engine only, electric scooters being the only exception. Interestingly, this fuel price rise has given a boost to Moped sales in India which are low engine capacity two wheelers with high fuel efficiency.

The third shock, the most recent one is like the nail on the coffin (may sound like exaggeration), but is very disheartening for the already slowing down automobile sales, is the hike in Interest rates in India. RBI has increased the repo and reverse repo rates recently making the loans more expansive in India. This will further put brakes on buyer’s buying decision will slow down sales even further. This is one of the slowest sales time for the Indian auto Industry in past two years or so after the economic slowdown of 2008. We hope the economic turbulences in Indian economy calm down soon paving way for a steady and reasonable growth for Indian automobile industry. This will happen only when Inflation remains in control for some time and the loan rates can be revised to lower levels. But the International fuel prices and increasing input costs seem unlikely to soften. So as they say, good old times may not come back, but we hope for a bright future with good growth and prosperity for the Industry, society, county and our planet as a whole.