Ownership cost of automobiles to go up: SIAM

At a time when the banks have started raising base rates, it is feared that auto sectors which is already struggling with low demand will get further hit as auto loans will get costlier. On Thursday, ICICI Bank increased base rate by 25 bps to 10 percent.

In an interview to CNBC-TV18, S Sandilya, president, SIAM believes that another 25-50 bps increase in interest rates will not make significant impact as interest rates are already very high. He stressed for auto sector to do well economy has to improve which will require infrastructure spending and other growth boosting initiative.  Also read: M&M to launch cheaper XUV 500 model in festive season: Srcs
"Fiscal deficit must be under control, current account deficit (CAD) must be under control, unless these steps are being really taken interest rates itself is not going to make a big difference," he adds.  Below is the verbatim transcript of the interview Q: HDFCs move does not affect the auto sector directly. But ICICI bank's decision on base rates will deter a rise in auto loans then won't it?
What impact will this then have on the auto sector which is witnessing a slowdown as it is?
A: See the point is the interest rates are already very high. Given that another 25-50 basis points increase is not going to make a significant impact because the market is already dented.
I think the fundamental requirement is not so much of interest rate reduction, it will marginally help I agree but increase will also marginally impact.
However the economy has to improve, the money available in the hands of the customer should improve, which means that the infrastructure spending, the other kind of economic growth related matters must be attended to.
Fiscal deficit must be under control, current account deficit (CAD) must be under control, unless these steps are being really taken interest rates itself is not going to make a big difference.
We have suggested to the government they must take some measures which will boost the auto sector which is in terms of fleet modernization, set number of excise duty rationalization, infrastructure spending, government ban on vehicle purchase being improved, Jawaharlal Nehru National Urban Renewal Mission (JnNURM) scheme always be in place, quite a few things the government can do. Q: Are you now looking at revising your year end growth targets?
A: See this time we did not give any target. I think the last quarter analysis when I did give the forecast foe the year we said we are refusing to give forecast because the volatility is so high.
Giving the forecast is very meaningless in the current circumstances. Therefore, we resisted our temptation to give forecast because in the last few quarters all forecasts given have been bad and they have not come out as per our expectations.
Under the current volatility with as you said interest rates going up, economy not improving, inflation still holding high and rupee depreciating at a much faster pace. I think we can not sustain at 65.05-65.45 per dollar.
Look at the crude oil prices going up, diesel and petrol prices will go up and in these kinds of situations the cost of ownership of automobiles will go up so significantly.
People will look at other options of spending money or conserve it for their own saving because they will have problems soon enough for meeting their normal expenditure, forget about buying cars or white goods.