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Rising fuel, finance cost pushes vehicle ownership cost by 6-7% in a year

Shally Seth Mohile/Mumbai 13 Sep 18 | 05:49 AM

Hetal Gandhi, director at CRISIL Research, said there had been a seven per cent increase in ownership cost for even a small car like the Alto

The cost of owning a personal vehicle is estimated to have risen by six to seven per cent over a year, the highest since 2010-11. The main reasons being rising fuel prices, increase in finance, insurance and vehicle registration cost.

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Even so, sales demand is expected to stay strong, say officials at automobile companies. The peak season is about to begin, with Navratra, followed by Dussehra and Diwali.

Led by good economic growth, benign interest rates and new model launches, automobile sales across segments  have been advancing at a brisk annual pace for six years. The 2017-18 fiscal year saw a record sales of 24.9 million vehicles, according to the Society of Indian Automobile Manufacturers.

As for the six-seven per cent rise in total ownership cost of passenger vehicles (PVs), this is an estimate issued on Wednesday by IIFL Institutional Equities.  The recent Supreme Court order to compel long-term third-party insurance has further increased upfront purchase cost. IIFL adds  that borrowing rates on automobile loans are on the way up. 

“Our forecasts build in 11 per cent volume growth for PVs and 14.5 per cent for two-wheelers in FY19. Given the strong start to the year, these forecasts might not be under severe risk," wrote Joseph George and Suraj Chheda, analysts at IIFL.

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“If such elevated costs persist, growth might slow towards the end of the year. We last saw a similar six-seven per cent rise in ownership cost in FY11/12.

“While the cost of owning a vehicle has gone up sharply in recent times, we don’t think it will drive down demand," said an official at Hyundai Motor India, second largest car maker by sales.

His company is preparing for a strong festive season, including the launch of a new compact car.   “While higher insurance costs and a continuing lack of clarity are holding people back, fuel prices are not," said a dealer.

Hetal Gandhi, director at CRISIL Research, said there had been a seven per cent increase in ownership cost for even a small car like the Alto. Fuel, earlier around 36 per cent of this cost, had seen a 14 per cent rise over a year. “We believe this could impact sales negatively for entry-level cars and (compact) utility vehicles. It will also negatively impact fleet addition for taxis, around 10 per cent of overall sales."

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