Automobile Sector – Challenges in the new year

The automobile companies that have registered healthy numbers are evidence of the growth story in the Indian automobile market which is commending, in the fiscal year 2010. Now with the closing of the third quarter of the year in the month of December, the growth of the automobile industry seems unaffected.

The Economic Times reported that all major automobile manufacturers have closed their third quarter on a high. There has been a profound increase in the sale of vehicles compared to last year. The inflation rate that has reached new heights is giving sleepless nights to company executives. The rising cost of input led by the increase in the cost raw material has exerted severe bottom-line pressure on the auto makers. It was further reported that fend off these pressure the companies are passing down this cost to the customers, in effect hiking the cost of the vehicle.

It was however confidently asserted that despite the worrisome factors  in the form of interest rates, rising inflation, manufacturers are assured of sailing through the end of the  year with a northward growth trend in sales of vehicle, much greater than what was forecasted or anticipated initially at the start of the financial year. It  shed light on some interesting figures, Maruti Suzuki India Ltd, which prides it for commanding half of this segment, registered a growth story of 28 % in sales of vehicles in October-December period during the same time previous year. whereas on the other hand two-wheeler market leader in Indian market Hero Honda Motors clocked 29 % growth in vehicular sales.

The sharp rising cost of various factors of production has always been a perennial cause of worry for the automobile companies since time immemorial. All major auto making companies like Mahindra, GM, Hyundai and Tata Motors have announced hike in their prices of the products. According to various top-executives, rising cost of input is one part of it; the others are namely raising interest rates and Inflation index. However, the industry approach is still positive and foresees a 12-15 percent growth in cars as well as bikes next year. Cautious, not worried, is what mental state of the auto industry is described as at the moment.

The 3rd quarter of the fiscal year also saw few crucial developments across the industry. Indian desis reversed the age old phenomenon if getting taken over. This was evident by the two shining examples, Hero group announcement to buy out the 26 % share of Honda in the JV and Mahindra and Mahindra inking a definitive deal to acquire auto maker from Korea, Ssanyong.

But in spite of the growth seen in the third quarter of the financial year, companies are nervous about the shrinking profit margin. The CFO of Maruti Suzuki (Ltd) said, according to a report, commodity prices shooted up significantly during the end quarter, which will definitely narrow down margins. According to his calculations and observations, steel prices saw a steep rise up to 10-15 %, other costly metals 15-20 % more over prices of rubber were substantially north bound. Last year saw the sky rocketing in the price of crude.  Third quarter in the last financial year has been the lowest ebb if we were to consider the commodities price alone.

The report made an interesting observation, it stated that automobile manufacturers Maruti Suzuki, that imports a considerable amounts of components from country of Japan, appreciating value of the Yen was a cause of concern. This may lead to more rupee outflow for each unit of Japanese Yen for import purposes. Inflation would certainly push the prices northwards of services and consumables, while the ever increasing rate of interest may create a financial bottleneck, in terms of the financial availability.

But despite intermittent hiccups and niggling issues automakers are still cheerfully optimistic, they will bid farewell to this the financial year on a healthy note.

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