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Auto sector: Speed breakers ahead

| 3/8/2012 9:00 PM Thursday

A fast growing economy, lower interest rates and a changing demography had been a perfect recipe for the growth of the auto sector. But with two out of these three factors having reversed the sector has been finding itself in a real tight spot. The performance of the sector which was very much dependent on these factors was further exacerbated by a host of other factors such as volatile oil prices which led to higher fuel costs and also by the fact that competition among players was on the rise. Moreover fluctuating commodity prices coupled with a rapidly depreciating rupee also dampened the prospects of a hitherto resurgent auto sector badly. Poor infrastructure has always been a problem for the development of this sector and it continues to be so even today. So where does it go from here? Will it regain its past glory where volumes would drive growth to dizzying heights? Or is the sector staring at a downhill grind from where coming back could be rather painful?

After recording a scorching pace of growth across various segments, the automobile sector over the past one year or so has been facing several roadblocks as mentioned above. Growth has been slowing down which is evident in the sales trend for 9MFY12. But before we get into where we are headed here is what is happening or rather what has happened in terms of numbers.

Taking Stock

Passenger Vehicles
This is probably one sub-segment which has been the worst affected. As a whole for 9MFY12, the companies in this segment have sold 1378834 cars as compared to 1410998 cars sold during the same period in the previous year. This translates into a decline of 2.50 per cent.

Utility Vehicles
The total Utility Vehicle (UV) sales for 9MFY12 stood at 256485 as against 227640 in 9MFY11. But this is not the kind of growth one should be enthused about. Moreover the number of players in this segment has gone up. The preference of customers too is seen changing. But does that really mean that this segment alone can propel the fortunes of the auto sector? We think, not so.

 

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