Automotive industry slump continues, grim cheer ahead

The slump in the automobile industry continued in August on rising fuel costs and interest rates amid a sinking rupee, and the industry looks, like the average citizen, likely to see limited cheer in the festive months ahead, when Indians traditionally go on a buying spree.

Car sales at Maruti Suzuki India Ltd, India's largest car maker by sales, rose 61 per cent to 87,323 units in August over the same month last year.

But this was mainly due to the reduced base, since Maruti's sales had slumped after it was forced to suspend production at its plant in Manesar in Haryana for a month last year owing to labour unrest.

Since then, several major car manufacturers led by Maruti have cut production and laid off temporary employees.

Tata Motors Ltd, India's largest truck and tractor maker, said its vehicle sales in India fell 33 per cent in August.

Passenger car sales at Mahindra & Mahindra Ltd, the country's largest utility vehicle maker, slid 28 per cent.

Sales at Hyundai Motor India Ltd, India's largest car exporter, remained unchanged in August from a year ago as the prolonged economic slowdown dampened demand in India.

The local unit of South Korea's Hyundai Motor Co sold 28,311 units in August, marginally higher than the 28,257 units it sold in the same month last year.

Hyundai's exports, however, rose 29 per cent to 24,008 units on strong demand from non-European markets, said Rakesh Srivastava, senior vice-president, sales and marketing,

M&M has let go about 1,000 temporary and contract workers over the past two months and said it would be observing up to six "no production" days per month at its automotive plants in the months ahead.

Maruti Suzuki said it is adjusting its number of temporary workers to reflect weak production but declined to give further details.

The Society of Indian Automobile Manufacturers (SIAM) and the industry's leaders have long been seeking government action, like a reduction in central taxes and import duties, but the pleas have so far fallen on deaf ears.

"Immediate action by the government is needed so as not to lose out on the upcoming festive season wherein sales could look up and bring some cheer for the auto industry," Pravin Shah, head of M&M's automotive division, said on Sunday.

''The weakening rupee, resulting in increased inflation, is impacting cost of operations. Immediate action by the government is needed so as not to lose out on the upcoming festive season wherein sales could look up and bring some cheer for the auto industry and add additional revenue to the government,'' said Pravin Shah, chief executive of the automotive sector at Mahindra & Mahindra.

Hyundai's Srivastava said, ''The overall market is suppressed due to various macroeconomic factors. The frequent and steep increases in fuel prices continue to affect the already poor market sentiments. We expect the challenge to continue in the coming months as well until there is a significant change in macroeconomic policies.''

At Toyota Kirloskar Motor Pvt Ltd sales declined 14 per cent to 12,007 units compared to the same month a year ago.

''The market is still sluggish. However, we hope to see it improve with a good monsoon and the upcoming festive season,'' said Sandeep Singh, deputy managing director and chief operating officer, marketing and commercial, at Toyota Kirloskar.

Toyota has increased prices of its vehicles by 1 per cent due to the depreciating rupee and rising inflation, said Singh.

India and Indonesia are the only countries whose automobile sectors have witnessed a fall in share prices this year, according to Reuters StarMine data.

Sales of commercial vehicles, a leading indicator of demand, declined 17 per cent to 33,605 units.

Automobile makers have been pinning their hopes on the festive season, which begins this month with Ganesh Chaturthi followed by Navratri, Durga Puja, Diwali and the Christmas holidays, to boost demand, but with no signs of the economy recovering, it is likely to be something of a damp squib.
The economy grew 4.4 per cent in April-June, the slowest quarterly rate since the major global financial crisis in 2008.

The increase in fuel prices effected on Sunday, with petrol up by as much as Rs2.35 a litre plus a commensurate hike in state taxes, won't help the industry's cause – particularly amid a fear that a cash-strapped government will continue to hike fuel prices.