The hike in petrol, diesel prices will fuel a slowdown in the auto industry in the short-term, feel car majors like Maruti, Hyundai and Honda. And, it may spell good news for consumers in terms of lower prices and greater discounts from car makers, who will try to offset the negative impact on the industry, which is already hit by higher interest rates and tighter retail financing.

Market analysts said customers could expect more discounts with companies being forced to clear stocks and keep the momentum going. The impending monsoon season is anyway a lean period and the fuel price hike could not have come at a worst time. Already, the market is flooded with discounts, especially in the high-volume compact car segment.

"This move would further dampen the demand for new cars, as the industry is under pressure because of the higher interest rates and the steep rise in input costs," said Arvind Saxena, senior V-P at Hyundai India. A senior official at Maruti also said new purchases "would see a dip" due to the hike, though hoping that demand would pick up later.

The impact would also be felt on some premium models, though the effect would not be much on cars priced above Rs 10 lakh," said Jnaneswer Sen, V-P at Honda Siel Cars India.

P Balendran, V-P at GM India, said the fuel hike had the potential to slow down industry’s sales by as much as 2%. "And considering that this comes just when other negative pressures are already causing pressure, the effect can even be long-term," he added.

Two-wheeler makers, however, are less pessimistic and expect to be insulated. "The rise in petrol prices may impact the riding habits of people, and to some extent, the frequency of their usage of two-wheelers. However, it is unlikely to impact the overall demand for two-wheelers as the fundamental reasons for customers buying two-wheelers — such as the need for mobility and the need to commute to work, will stay unchanged," a senior Hero Honda official said.

TVS Motors senior V-P, R Chandramouli, also downplayed threats of a slowdown. "People were already expecting the fuel hike and so there would not be a knee-jerk reaction," he said.

Vaishali Jajoo, auto analyst at Angel Broking, said the effect would be spread across product categories in the auto industry and would hit sales of cars, two-wheelers and commercial vehicles. "This just adds up to the already prevailing negative sentiments," Jajoo said from Mumbai. Amit Kasat of Motilal Oswal said the slowdown could last for about two months, though things are likely to stabilise thereafter.

Diesel cars could also be preferred over petrol, considering the fuel is cheaper. Also, alternate fuel options like LPG and CNG could be in demand. "There can be a further shift to diesel cars from petrol. However, a big shift to LPG/CNG versions may be restricted due to their limited availability," Jajoo said

The stocks of automobile companies suffered as investors fear further erosion in profitability as companies would need to spend much more on discounts and advertisements to push sales. Auto index fell by 3.3% on BSE.