Carmakers in the country are expecting sales to slow down further following the biggest-ever hike of Rs 5 a litre in petrol prices last week, at a time when the market is already reeling under pressure from high interest rates on auto loans.
Industry players also feel that till diesel prices are de-regulated and a significant difference of prices between the two fuels exists, demand for diesel-driven cars will rise.
"We have already seen reduction in passenger car growth last month due to higher interest rates and hike in commodity prices. With petrol prices going up, demand will further be impacted, mainly on short-term," Society of Indian Automobile Manufacturers (SIAM) Director General Vishnu Mathur said.
Car sales in India posted the slowest growth rate in 22 months in April this year at 13.18 per cent, mainly due to rising interest rates and declining consumer confidence.
The country's largest carmaker Maruti Suzuki India (MSI) said if the fuel prices increase at this rate, the industry will suffer severely.
"At some point of time, there will be a big negative impact on petrol cars as well as the overall industry, because diesel prices are also rising," MSI Chief General Manager (Marketing) Shashank Srivastava said.
Rival Hyundai Motor India Ltd (HMIL) also said there will be impact on car sales, although it may not be a massive one.
"A hike of Rs 5 in per litre of petrol is a substantial hike. The sentiment is very down and it will surely have some impact. However, it may not be a big impact," HMIL Director (Marketing and Sales) Arvind Saxena said.
Expressing similar sentiments Volkswagen Group Sales India Pvt Ltd Member of Board Neeraj Garg, said: "It is going to keep the customers away from purchasing cars in the short term mainly because of the psychological impact."
For the next one to two months there will be a dip in demand, Garg added.
General Motors India Vice-President P Balendran said petrol price hike is "definitely a dampener" and footfalls in car showrooms will come down considerably in the near future.
MSI's Srivastava said usually the market rebounds after some time when there is a fuel price increase, but this time around it has to be seen how it reacts as "it may be too much for consumers sometime". As such the market has already slowed down due to inflationary pressures.
He also said that although disposable income may have gone up in the last few years, high inflation in recent times has left consumers with less spending power.