Car sales could get a renewed push in the second half of 2012-13, riding on the spate of reforms announced by the Government in the last few days. The industry feels the move is “very timely,” as the festive season demand kicks in from this month.

Car companies are waiting with bated breath for the easing of FDI norms in sectors such as aviation and multi-brand retail, to lead to improved market sentiments and deliver overall economic growth.

However, a more direct impact on sales will come from the Cash Reserve Ratio (CRR) cut by the Reserve Bank of India as banks are likely to reduce interest rates on auto loans. This is significant as over 70 per cent of cars are bought on finance today.

Maruti Suzuki Chairman R. C. Bhargava said the Central Bank’s move will mean greater liquidity for banks, making them more ready to lend to new customers.

“All the things that have happened should lead to improved sales in the remaining six months. An improved investment climate will mean more money in the hands of people. But, long-term growth will really depend on implementation of the new measures,” he said.

Passenger vehicles sales (includes passenger cars, utility vehicles and vans) have dropped 4 per cent to 1.84 lakh units between April and August this year, with the subset of passenger cars recording a 19 per cent dip. In 2011-12, passenger vehicle sales were up 5 per cent to 2.6 million units.

John Chacko, Volkswagen Group Chief Representative for India, said the reforms have been in the right direction and the impact will be seen in October-November.

Petrol Cars

“We’re quite optimistic and frankly it can’t get any worse now. The clearer policy stance will help us firming up our decision to invest in a local engine plant,” he said.

Meanwhile, the much-awaited increase in diesel prices may also give a boost to petrol car sales. The total share of petrol cars versus diesel cars has fallen to 53 per cent (April-August, 2012) from about 25 per cent in early 2010.

This has put pressure on carmakers that had manufacturing capacities designed to produce more petrol engines than diesel.

In fact, in cars such as Maruti Swift and Hyundai Verna, where both fuel options are available, the diesel twin accounts for over 80 per cent of sales.

Vishnu Mathur, Director-General at Society of Indian Automobile Manufacturers, said there may not be an “immediate spurt in demand,” but it will definitely send a positive signal. “Though there is still a significant gap between petrol and diesel prices, those that had been sitting on the fence till now may opt for petrol cars instead,” he said.

Maruti’s Bhargava agreed that petrol car sales could see a “marginal benefit,” as the cost of ownership for diesel cars has increased.