New Delhi: Domestic passenger vehicle sales are expected to grow by 7-9 percent in 2017-18, with 7th Pay Commission payout and better rabi output likely to support growth, according to auto industry body SIAM.
However, increase in raw material costs and oil prices may negatively impact sales during the ongoing fiscal during which the number of new model launches will also remain low with cars likely to see more launches compared to utility vehicles, it added.
"We are seeing an improvement in the economic growth and also consumer sentiment. Factors like lower borrowing costs, pent-up demand after demonetisation and a mild budgetary support to incomes will drive consumption growth in 2017-18," SIAM Deputy Director General Sugato Sen told reporters here.
On the passenger vehicles front, he said: "Overall, the segment is expected to grow by 7 percent to 9 percent."
The Pay Commission award and better rabi output will support growth in the new fiscal, he said.
Sen said demand will also be back as additional production capacities become operational to further help reduce waiting period for many of the popular models.
He, however, cautioned that cost of ownership is expected to rise by 4-6 percent in 2017-18 for petrol and diesel cars as a result of increasing cost of raw material.
"Moreover, oil prices are also expected to remain higher which would contribute to the increasing cost of ownership and likely to negatively impact sales in 2017-18," he added.
Asked why SIAM has kept forecast for the PV segment almost similar to 9.23 percent achieved in 2016-17, SIAM Director General Vishnu Mathur said the increasing base has to be factored in as domestic sales of PVs have crossed three million units in 2016-17.
In the two-wheeler segment, SIAM said it expects motorcycles sales to grow moderately in 2017-18 with demand in economy and executive sub-segments likely to revive gradually once the cash situation improves.
"Majority of demand in these segments is from the rural areas," Sen said, adding that motorcycle segment was the worst hit due to demonetisation.
An expected good rabi crop output will further revive sentiment and boost contribution from the rural side, he added.
For scooters, sales are expected to continue to grow in double digits in 2017-18, Sen said.
"A steady trend of increase in the proportion of females in urban regions joining the workforce has kept the urban workforce growth rate higher, which is a big contributor to scooter sales," he explained.
Overall, while ease in borrowing cost, remonetisation and much improvement in general sentiment are positives for 2017-18, Sen said. According to him, the key concerns are increasing commodity prices, high vehicle finance rates and adhoc changes in policy environment that could affect profitability of OEMs.
The overall commercial vehicle segment is expected to grow by 4-6 percent while that of three-wheeler sales is likely to post a low single digit growth, SIAM said.