labels: Economy - general
Mixed response to new stimulus package from auto makers news
03 January 2009

The special fiscal package announced by the government for the manufacturers of commercial vehicles, including truck and bus makers, would see some stimulation of demand, though the eventual consumer interest would be served only by a ground-level revival of business.

The Indian automobile industry has provided a mixed response to the government's initiatives, welcoming the move while retaining the underlying feeling that the overall economic scenario will still water down gains from the package announced.

Mahindra and Mahindra (M&M) chief operation officer Pawan Goenka was reported as saying that there were three aspects to the aid package, with the special line of credit from public banks to non-banking financial companies easing up the credit availability for buying new vehicles.

The second move of accelerated depreciation of 50 per cent on commercial vehicles purchased between 1 January and 31 March would essentially be a "price discount", and the offer of states to buy buses for their under urban transport system under the Jawaharlal Nehru National Urban Renewal Mission would unlock block orders. Goenka said that when viewed in conjunction of the repo and reverse repo rate cuts last month, this package addresses most demands of the commercial vehicle manufacturers.

Dilip Chenoy, director general of the Society of Indian Automobile Manufacturers was quoted as saying that the purchase of buses under the JNNURM would increase capacity utilisation. Plant closures, production stoppages, and some layoffs have been moves resorted to by vehicle manufacturers in recent months in the face of falling demand.

Tata Motors saw a 51 per cent drop in sales in December 2008, and a 70 per cent decline in its medium and heavy range commercial packages. Tata Motors managing director Ravi Kant was quoted in the media as saying that though the package would aid commercial vehicle manufacturers, more is needed to "substantially stoke demand", which is essentially what is lacking.

Reports said that industry analysts predict that a revival of commercial activity is key to the success of the package. Commercial vehicle sales are usually viewed as a benchmark of the overall health of the economy, being a derived demand from economic activity in different sectors of the economy.

The sharp decline seen in truck sales have as much to do with a credit crunch as a lack of enough business activity, and therefore, they caution, credit and discounts are only one side of the story. A restoration of consumer confidence is equally, or perhaps more, important, as investment in the construction and transportation sectors and revival of business.

While some manufacturers have welcomed the move, other industry observes point out that the package can prove to be more of a gentle breeze, than the wind needed in the sails of the auto industry to get it out of the doldrums. Most of the measures announced would enable commercial vehicle manufacturers to address inventory concerns, while the core issue of demand revival still remains largely unaddressed, and therefore the impact could be, at best, marginal.

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Mixed response to new stimulus package from auto makers