Unseasonal rains impacting rural demand, high-interest rates on auto loans and increased costs due to new regulatory norms are making the automotive industry cautious about the growth prospects in the current fiscal.
The industry --- which witnessed the first full year without any impact of COVID-19 in FY23 after a gap of two years with double-digit growth of 21 per cent in overall retail sales -- is now set to clock tapered growth in the low single-digit due to a high base, according to the Federation of Automobile Dealers Associations (FADA).
As per data shared by the dealers' body, the total domestic vehicle retail sales stood at 2,21,50,222 units in FY23 against 18,3,27,326 units in FY22.
Maruti Suzuki India Senior Executive Officer, Marketing and Sales, Shashank Srivastava said the unseasonal rains in March and early April could have a dampening effect on the sentiment in the rural areas.
"Because this is the harvest time and these rains are not so good (for the rural sales)," he told PTI.
Similarly, FADA said, "The untimely rains and hailstorms in north and central India have destroyed key rabi crops and delayed harvesting, (and) will have a negative impact on rural sales".
Another concern for automakers is the high-interest rates on automobile loans.
"The interest rates continue to be high," Srivastava said, adding since the rate tightening cycle started by the RBI in May 2022, the repo rate has gone up from 4 per cent to 6.5 per cent.
He further said, "And what we have found is that the transmission of the repo rates into the auto loan rates has been almost complete. There are different banks which have increased between 180 basis points to 250 basis points".
With auto loans constituting 80 per cent of the total retail in the industry, Srivastava said, "Any increase in the auto loan rates obviously has a negative impact and that is the other factor which we are looking at".
For domestic passenger vehicle (PV) sales, Srivastava said the estimated sales would be "somewhere between 4.05 million to 4.1 million in FY24" at a growth of 5-7 per cent over FY23.
Tata Motors Passenger Vehicles Ltd and Tata Passenger Electric Mobility Ltd Managing Director Shailesh Chandra said the growth rate of the passenger vehicle industry may "moderate due to a strong base effect as well as macro factors, including hardening interest rates, rising inflation and the cost impact from progressive regulatory norms".
PV prices have gone up due to increased costs to meet the real-time driving emission norms under BS-VI phase II. Also, the mandatory six airbags norms coming in from October this year will further increase costs.
"The price increases in response to both the commodity price increases and the regulatory requirements could lead to adverse impact on the demand projections," Srivastava said.
FADA on its outlook for the low single-digit growth of vehicle sales said it is "due to a high base, inflationary pressures, routine price hikes and regulatory changes".
Additionally, it said, there have been predictions of the possibility of El Nino's arrival later this year, "which could lead to poor monsoons, hampering rural India's growth potential".