Auto woes to continue till year end

Fri, 6 Sep Pre-Open

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Sales of cars declined for the ninth month in a row in July this year. And the trend is likely to continue for the full year, thereby leading to the first annual drop in a decade. Given this outlook, the industry has been seeking the help of the government - in terms of financial incentives - to try and give the ailing sector a boost. And given that the economic conditions are worse both internally as well as externally, the sector definitely needs help from the government to ride through these tough times. At a recent conference, minister of heavy industry and public enterprise Praful Patel did state that there is a case for the same which he would take up with the finance ministry.

Buying a car is a big decision for most individuals. One takes into consideration many factors - the purchase cost. The cost of maintenance as well as the running cost. Not to mention the interest rates on auto loans. As things stand today, most of these are on the rise. Selected cars have become expensive given the rising input costs and weak currency. Fuel prices are being hiked at regular intervals. Cost of debt is expensive at the moment.

All these factors would deter the average Indian – who otherwise aspires to buy a new car - from purchasing a new vehicle. And given the uncertain times that the Indian economy is going through, an individual would want to wait for things to get better.

Also, one must note that the spike in average salary levels over the past few years was a key reason behind the jump in volumes. With the boom days far behind, the role that this factor could play in terms of the passenger vehicle growth will be much lower in the future. And the much written about spending power of the consumers has also been on a slowing path - making matters more difficult for the auto manufacturers.

All of these points have been making the automobile manufacturers very jittery. Given the long down ward trend in volumes, companies were relying on the upcoming festive season for the trend to change. However, as per the Mint, the many offers provided by the car dealers are unlikely to change the sentiments and mood of prospective buyers.

What can an investor do in such times? Well, waiting for the market to bounce back would not be an apt option considering that the auto companies themselves do not seem to have a clue as to when things will take turn for the better. Sticking with the quality companies with good balance sheets and strong brands would be one way. Else, one could also consider an indirect play by looking at some of the good auto ancillary companies around.