The automobile sector and fuel price rise

The automobile sector and fuel price riseFaiz DodhiaINTRODUCTION

Components of fuelPrice List of Petrol in SuratDec 17, 2010: Rs.52.59 per litreFeb 09, 2011: Rs.52.91 per litre May 16, 2011: Rs.58.37 per litreAug 15, 2011: Rs.63.37 per litreNov 16, 2011: Rs.66.84 per litreJan 4, 2012: Rs.68.64 per litreAug 7, 2012: Rs.73.18 per litreOct 16, 2012: Rs 75.82 per litreDec 23, 2012: Rs. 73.56 per litreFeb 6, 2013, Rs. 71.59 per litreToday: Rs 69.39 per litre

Overview: The shift of demandEver rising cost of petrol is hitting the demand of petrol.Demand already at stake, each time hike each time situation worsens.CNG is not able to compete petrol in terms of efficiency.All eyes on Diesel fuel.

Overview: Consumers responsePassenger car sales in India witnessed the slowest growth during April in 10 years at 3.4 per cent as customer sentiment remained low due to post-Budget price hikes and high interest rates, affecting the entry-level segment most.The consumers are either switching to diesel cars or are making up their minds for smaller and efficient segment cars instead of luxury cars.Last fiscal year experienced 20.2% decline in sales of Petrol vehicles and 37% growth in diesel cars.

Consumers worry:There is a blur image of prices coming down.People fear just like CNG, the prices of diesel would rise as well.Costly petrol, cheaper cars; Cheaper Diesel, costly cars.

Industrial perspective:

Sugato Sen, Senior Director, Society of Indian Automobile Manufacturers (SIAM) : "Petrol cars are not selling as such already. With this record hike, the situation will go from bad to worse. In the short-term, sales would be further affected while in the long term, a negative consumer sentiment will be created, which might as well hurt the growth of Indian auto industry".Industrial Perspective:

Terming the latest price hike as a 'disaster', Maruti Suzuki India Managing Executive Officer, Marketing and Sales Mayank Pareek lamented: "This will further increase the skew between petrol and diesel vehicle demand, which is already very wide. This will severely affect the sales of entry level cars, which are mainly petrol driven The overall impact of the price hike would further dent growth of the automobile industry".Industrial Perspective:

Hyundai Motor India Ltd Director Marketing and Sales Arvind Saxena said: 'Demand is already under pressure on account of inflation and high interest rates. An increase of such magnitude is neither good for the customer nor for industry'.Impact on the Automobile IndustryAuto industry sees demand slump due to fuel price hike: Most Indian automakers rely heavily on petrol driven vehicles. The new price hike could deter buyers from opting for petrol cars and two-wheelers. This will directly impact revenues and profits for automakers that have a petrol-heavy portfolio.

Impact on Automobile Industry.Ramping up Diesel capacity: Maruti Suzuki, Indias largest carmaker, is looking to expanding its capacity from 240,000 diesel cars a year in fiscal 2012 to 300,000 in the current one. It is also sourcing 100,000 additional diesel engines from Fiat, according to an earlier report from Kotak Institutional Equities. Hyundai Motor India is setting up diesel-engine capacity of about 150,000, while Ford Motors is growing capacity from 250,000 units to 330,000 units a year by mid-2013Impact on Automobile IndustryVolatility may cause delay in new investments and also Ramping up diesel capacity will also require large capital expenditure. Thus, financial crunch may occur.

Higher discounts thus lower profit margin: Today manufacturers like Maruti Suzuki, Tata Motors and Hyundai are offering huge discounts up to Rs. 50,000/- on their petrol powered cars. So this makes business less profitable and hence difficult to manage. This hampers manufacturers opinion and certainty about biggest automobile markets.

A light of HopeNew technologies (like GDI engine) may get priority: Recently we heard about Delphi developing Gasoline Direct Injection engine technology. This technology combines advantages of diesel with that of petrol. If this comes to reality then its a win-win situation for the automobile industry.

Alternative fuels will emerge: future may show us many cars coming out running on alternate fuels like these gases, high ethanol petrol, electricity, hybrid or even hydrogen. Possibilities are many but situation should force the manufacturers to think in that direction. After all fuel reservoir is going to deplete anytime in the next 20-30 years.

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