Crisil sees India auto slowdown continuing in FY10

The slowdown in the Indian automobile sector is seen extending to 2009/10, as difficult financing, rising prices and higher fuel cost slow sales, a report by rating agency Crisil said on Wednesday.Crisil said it expected single-digit growth rate for the segment in 2009/10.”The rapidly changing finance scenario, increase in vehicle prices and fuel cost have pushed up the cost of ownership for a typical compact car by 4-5 percent,” the note said.Interest costs are at a seven-year high and banks are slowing down retail and auto loans as defaults start to inch up.Car sales in India fell 4.4 percent in August from a year earlier, declining for the second month in a row, as rising borrowing costs and higher prices crimped demand, data from the Society of Indian Automobile Manufacturers (SIAM) showed.

Sales in July had fallen an annual 1.7 percent, the first decline in three years.”A moderate improvement in the outlook for the automobile sector in 2009/10 hinges on softening of input costs and fuel prices, financing rates remaining stable,” Sachin Mathur, head of CRISIL Research, said in a statement.But sluggish demand has made it necessary for players to partly absorb input cost increases resulting in lower margins, the report said.The impact of the rise in raw material prices on the cost of sales in the overall automotive chain is expected to be around 7 per cent in 2008/09, it said. Falling demand for medium and heavy commercial vehicles (MHCV) is mainly linked to the overall slowdown in industrial production as transporters defer purchases despite stable freight rates, it said.Crisil expects MHCV volumes to continue to fall by 5-10 percent in 2008/09, while light commercial vehicles, which have been clocking healthy double-digit growth in previous years, may register single digit growth in 2008/09.

Source:in.reuters.com

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