Tuesday, June 16, 2009

Auto industry far from revival mode

The overall performance of the country's auto industry in the just concluded fiscal was in no way different from that of previous year. The unprecedented slump in demand led to negative growth on few segments of vehicles. While passenger cars and two wheelers reported a growth of o.13% and 2.6%, respectively, three wheelers marginally declined by 4.13 % and commercial vehicles fell by whopping 21.69%.

The industry is still far away from full revival mode. Passenger Vehicles segment during April-May 2009 grew marginally at 1.68% over same period last year. Cumulative sales of Commercial Vehicles Segment continued to register de-growth. The segment grew at (-) 13.08% during April-May 2009. It appears that for Passenger vehicles, Two-wheelers and Light commercial vehicles segment, the worst is over. The commercial vehicle continues to be under pressure.

The government now needs to speed up long pending reforms in financial and infrastructure sectors. Credit squeeze has had its impact on small and medium sized companies collapsing and larger ones running scared. As its being followed in few countries, the government can take steps to reduce interest rates to 5 to 6% to accelerate growth.

New projects are being postponed or shelved due to non-availability of demand particularly in the Commercial Vehicles segment. The proposal to invest Rs 60,000 crore in construction and modernisation of 40,000 km roads should be immediately implemented. Incomplete projects such as Golden Quadrilateral should be expeditiously activated. We need to avoid delays inherently present between announcement of schemes and actual execution. The growth of real estate through availability of cheaper credit will further spur growth.

The demand outlook for component sector remains negative. With low capacity utilisation, the profitability and financial profile of component manufacturers is expected to worsen over the short term. Volatile metal prices causes' further difficulty as the metal suppliers link the prices with reference to London Metal Exchange market trends. Corrective actions in the price fixing mechanism together with some significant tax reliefs should result in creation of robust demand. The recent dip in exchange rates to US dollar will add to export market advantage.In turbulent times like this, the government's support is critical to various forms of market activity and requires complete, continuous, conservative and constructive strategy.

No comments: