Auto Investments to Decrease Following Sluggish Demand in the Market

According to a recent report from SIAM or Society of Indian Auto Manufacturers, the sluggish demand currently faced in the Indian auto market may make many companies put off from making any new investments in their additional facilities.

As the lending rates for vehicle loans increased to the highest ever since two years, add to that the increased cost of fuel that put a dent in retail demand, automobile manufacturers were reviewing their expansion plans.

The president of SIAM, Pawan Goenka, said that right now the market is a wait and watch strategy. Many companies are more watchful, with their approach being more cautious. There is also some delay increasing new capacities.

In spite of the many fiscal measures taken by the government, the inflation is still strong by more than quarters. The growth for passenger cars in the first quarter had decreased by as much as 9%. The segment of cars posted its slowest growth ever last month since as much as 27 months, with the market recording a growth of only 1.2%.

SIAM is also expected to carry out an additional downward revision for their sales forecast for this year of the industry, which will be its second revision. Goenka added that the Reserve Bank of India hike in rates has shocked the industry. The hike in interest rates would only further damage growth in this sector causing a spiraling trend.

This statement from SIAM comes at a time, when both Toyota Kirloskar and Ford India made commitments of almost INR 5,000 crores this week as part of expansion activities. While Ford India will open an engine and vehicle manufacturing facility in Gujarat, the other auto company, Toyota, will nearly double their capacity at their manufacturing plant in Bangalore.

Meanwhile, even Maruti Suzuki is carrying out work on their new facility in Manesar according to schedule. The leader in the car marker, in fact, even recorded a dismal 3% growth during the Q1, having shortened the launch date from November as they had announced earlier to September.

Even still, the companies had already scheduled their expansion plans months ago. As the plans got delayed, the companies were forced to face constraints in production, increasing the wait period for their popular models.

The market leader in SUVs, Mahindra & Mahindra is reported to have re-examined their investment plans for their second phase of their expansion plans of their facility in Chakan, close to Pune.

The company also expressed their displeasure that the government of Maharashtra had decided to withdraw their VAT or value added tax set off, which is provided to M&M vehicle sold in markets outside Maharashtra.

Goenka added that they had many talks with the officials of different levels from the government. They are quite concerned since the past 4 months. In spite of the continuous dialogue, there is no improvement on this issue. Because of this fact, he added that the company would have a hard time thinking about future investments in this state. They will re-look at their second investment phase in their Chakan facility to know if it is financially viable for them.

The company was scheduled to carry out the final part of their investment phase in the Chakan facility for expansion, where they manufacturer trucks and SUV’s. He also added that it’s been a long time since the state saw any big ticket investment, which has instead gone to the other states. The Chakan project, which was inaugurated in 2010, is spread over 700 acres, with an installed production capacity of around 300,000 vehicles a year.

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