RBI repo rate hike will hit auto industry: FADA

Auto industry still not out of the woods and Reserve Bank of India’s (RBI) decision to raise repo rate by 45 basis points will make car loans expensive, senior official says of the Federation of Automobile Dealers Associations (FADA).

Comparing April 2022 auto sales to April 2019, FADA Chairman Vinkesh Gulati said the sector was still not out of the woods as overall retail sales declined. less than 6%.

Apart from PV (passenger vehicle) and tractors which have experienced strong growth of 12% and 30%, two/three-wheelers, utility vehicles have not yet become green, these categories having fallen by minus-11% , 13% and 0.5%. cent, respectively, Gulati said.

“April (2022) saw similar numbers to March 22. While the yearly comparison to April 21 shows all categories in green with a high rate of growth, it is important to note that April 21 april and april 20 were affected by the nationwide lockdown due to phase 1 and 2 of the covid wave which witnessed not to negligible business hence a better comparison will be with Aprila�19 which was a normal pre-covid month,” Gulati said.

He said the RBI’s untimely announcement of a 45 basis point repo rate hike caught everyone off guard.

“This move will reduce excess liquidity in the system and make car loans expensive,” he added.

While the passenger vehicle segment may be able to absorb this shock due to long wait times, the two-wheeler segment is already reeling from an underperforming rural market, rising vehicle prices and high fuel costs.

High interest rates for auto loans due to the RBI move will be a further blow for this segment. Certainly, the move will slow the speed of auto retail and further dampen sentiment, Gulati said.

On the other hand, private consumption is regaining ground, supported by a recovery in contact-intensive services and an increase in discretionary spending.

“With the continuation of the Russian-Ukrainian war and the shutdown of China, the global automotive industry continues to experience a supply shortage as semiconductor shortages, high metal prices and container shortages prevail. Customers in the PV segment therefore continue to witness a long waiting period,” Gulati said.

Referring to the normal monsoon forecast from Skymet and if the monsoon is evenly distributed, there will be a positive effect on rural sentiment as farmers will be able to get better harvest realization thereby increasing their disposable income.

It will thus benefit sales of tractors and two-wheelers. This, along with the wedding season in the coming days, will also see traction in auto retail.

Overall, FADA is changing its stance from extremely cautious to cautious in terms of a slight near-term recovery.