Carmakers face challenges from Japan crisis, rate hikes

A shortage of components compounded by the 11th March tsunami and quake in Japan and RBI's rate hikes-which could affect car financing-have made carmakers jittery in the short-to-medium-term

Mumbai: Faced with surging raw material costs, Indian carmakers now face three additional serious challenges, including a shortage of key components, which could impact their performance this year, reports PTI.

While they could pass on the burden of increased input costs to customers, a shortage of components compounded by the 11th March tsunami and quake in Japan and Reserve Bank of India's (RBI) rate hikes-which could affect car financing-have made them jittery over their prospects in the short-to-medium-term.

"Yes, the industry is facing problems, but we are taking it as a big challenge. We think this is a passing phase-we see light at the end of tunnel," General Motors India vice-president P Balendran told PTI here.

A shortage of critical components, many of them sourced from Japan where many automobile facilities, besides others, have been damaged by the powerful quake, has made the going tough for the industry which is likely to find it difficult to meet its sales target, he said.

"Frankly, it is difficult to meet earlier projected (sales) figure this time. A shortage of components, including tyres, casting and steel, has made things difficult," he said.

The hike in key rates by the RBI, which is expected to push up interest rates on auto loans, could deter potential buyers, Mr Balendran said.

The General Motors executive said "It is difficult to predict a timeline for the problems to be resolved."

Home-grown auto major Mahindra & Mahindra (M&M) is confident of the long-term potential of the industry, but feels the sector is likely to be stymied by the Japanese crisis and RBI rate hike in the shot term.

"Commodity prices have been increasing in the last few months and now the Japan calamity will affect supplies of auto components. The rate hikes by the RBI could add to the industry's woes," said Pawan Goenka, M&M's president (automotive).
The RBI recently hiked both its repo and reverse repo rates by 0.25% each to 6.75% and 5.75%, respectively, for the eighth time since March 2010. This, in turn is likely to push up cost of loans for customers.

Auto majors like Honda Siel Cars India and Tata Motors have already indicated that they would be upping their product prices from 1st April to offset rising input costs and more are expected to follow suit.

Vijay Kedia, director of three-wheeler maker Atul Auto said, "Imports of some automobile components from Japan will be affected in the short-term. The growing (auto) industry is sandwiched between surging input costs and meeting increasing demand."

Following the rate hikes, he said, there could be a slackening in demand. "People will not be encouraged to buy more vehicles through financiers this time due to the recent rate hikes by the central bank. It may slow down demand in the coming weeks."

Admitting that the present situation was "challenging" Ford India president and managing director Michael Boneham exuded confidence that the tough times would be "short-lived".

"The Indian auto industry, in general, is clocking an unprecedented growth in sales. Though the Japanese tsunami and the RBI rate hikes present challenges to the industry, it will be able to overcome them," he said.

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COMMENTS

Paul

6 years ago

Most of the gold is the wages , salary and benefits denied to workers , expatriates and Libya's citizens.
The Holy Bible says that in the last days the gold will rot.
For it is the symbol of greed and avarice.

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