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The Way Ahead for Indian Car Industry

The car industry has seen a slowdown in the last year, which is now reflecting in Bombay Stock Exchange. The car sector is worried about rising inputs costs, high rate of interest on credit and inflation hitting the market. Car manufacturers are experiencing drop in prices and investor’s faith in car companies is sliding down.

The car companies are going through a lean phase. The sales of passenger cars, trucks and two-wheeler fell by 4.7% in the last fiscal year. The combined net growth of the companies came down by 10 percent on March 31, 2008. The economy slows down which is a matter of concern among car companies.

A brief look at the sales performance of country’s leading car manufacturer Maruti Suzuki will reveal that growth has been slow in the past two years. The same incidence has been noticed with another leading auto manufacturer Tata Motors. The SIAM stats reflect that the growth in sales and profits have been the lowest in the last quarter. The company that has seen rise in sales record is Mahindra and Mahindra which posted a 15 growth in sales. This growth is due to increase in demand for utility vehicles. Maruti Suzuki posted a massive drop of profits by 34 percent compared to the quarter ending on March 2007.

The increase in input costs and tighter credit conditions were slowing down sales and in turn decreases the company’s profit margins. The inputs costs have risen on account of surge in the prices of steel, aluminum, rubber and plastics. On one hand the companies are forced to keep the product process low in order to get a larger market share, while inputs costs are eating into their profit margin. Owing to this a few car companies like Maruti Suzuki, Honda, Mahindra and Mahindra, Tata Motors and Hyundai have opted to raise car prices.

The sudden hike in fuel prices has also contributed to the above crisis. The fuel inflation is the highest in last three years at 8.1 percent. The crude oil prices are unlikely to ease in the near future. The increase in international fuel prices and a possible hike in domestic prices have put off many buyers from making purchases. This is likely to have a negative impact on sales of passenger cars, particularly the small car segment which is very price conscious. The banks too have hiked consumer loans and personal loans. In India where the consumer is very prices conscious and more than 80 percent of sales are channeled through bank loans, high interest rates will keep buyers at bay. The stocks are already tumbling in BSE and there are little signs of recovery.

The car companies have to implement new business strategies to improve the sales. They will have to make fantastic efforts to post huge volume of sales and record handsome profits.

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