The auto industry seems to have swerved to the edge with the simmering conflict in the Middle East causing deepest uncertainty over the prices of crude oil.
Crude prices are feared to head north in case the tension flares up across a wider area in the region, threatening supplies. While many automakers reckon that the market is underestimating the geopolitical risks and a potential disruption to oil supplies, industry body SIAM believes a surge in fuel prices can put pressure on Internal Combustion Engine Vehicles (ICEVs).
“We have to cautiously watch the trend. There is always a bit of resilience if the fuel prices go slightly up and down. But if it fluctuates a lot and go beyond a certain threshold, then it will definitely impact the auto industry,” noted Shailesh Chandra, who was recently elected as the president of the Society of Indian Automobile Manufacturers (SIAM).
A recent surge in crude prices triggered by Iran's missile attacks on Israel had left India Inc concerned over further snag in supplies, and disruption in freight costs, and shipping routes.
Commercial vehicles, according to Chandra, are more vulnerable to a rise in fuel prices, compared other segments such as cars, scooters and motorcycles. He clarified that in the immediate term, the industry doesn’t see any major impact because of the onset of the festive season.
“During the quarter (of a financial year), buyers, in any case, are (there) in the market. They have been waiting for this period. So, I don't see an immediate impact. But, beyond a certain threshold, price increase can impact the industry and when it does, there can be some segmental shift here and there. But broadly, if somebody has thought of buying a vehicle, they generally go for it,” said Chandra, who is also the managing director of Tata Motors Passenger Vehicles and Tata Passenger Electric Mobility (TPEM).
Meanwhile, Passenger vehicle (PV) wholesales declined 1.79 percent in the July-September quarter of FY25 to 10,55,137 units from 10,74, 395 units last year. During the first six months of this fiscal, PV wholesale grew just 0.5 percent to 20,81,143 units from 20,70,060 units, according to SIAM data.
Headwinds to entry-level cars
The SIAM chief affirmed that the rural market will witness a massive resurgence due to strong monsoon, which will drive sales up for entry-level two wheelers. Entry-level cars, however, are likely to stay downhill despite being the least priced products.
Sales of minicars such as Alto, S-Presso and Kwid dropped 15.56 percent from 78,170 units in April-September 2024 from 66,000 units last year.
"The trend suggests that you will see a recovery of the entry-level two-wheeler segment based on the rural demand. I cannot say the same for four wheelers, because a strong upgrade is happening in the industry as people are gravitating to higher price point cars. There is a structural shift in the four-wheeler industry and the average buying prices have increased also," Chandra said.
He acknowledged that there is a pressure, from the used car industry, on the entry-level car segment. “These are structural changes which seem to be happening because the used car industry has grown up to nearly 5 million plus (per annum), and the average selling price points are around Rs 4.5 lakh to Rs 5 lakh. So, pre-owned cars are directly competing with new entry-level cars in the industry.”
According to Chandra's estimates, PV sales are expected to grow at sub 5 percent rate in FY25. "If you would have taken a triangulated view of what different manufacturers would have talked about (was) in terms of the growth for the passenger vehicle industry in FY 25, it would have been 5-8 percent. The expectation for H1 was slightly better. It was a slight surprise, especially in May and June, which did not play out as per our expectations,” he said.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
