Slowdown in the industry to hit Auto component makers

Auto component producers face the prospect of a slowdown as dwindling growth in the automobile industry will trigger fall in domestic demand, forcing them to focus on rising export opportunities. Component suppliers to the manufacturers of heavy commercial vehicles, sedans and tractors are already feeling the pinch. While sales of small cars, light commercial vehicles and two-wheelers are posting good growth, heavy commercial vehicles, sedans and tractors are seeing decline in sales due to rising interest rates and fuel prices. 

"A slow off-take is beginning to show in some of the sectors. While there is no let up in investment, it gives us an opportunity to make appropriate corrections and revisit plans," said Shriram Pistons MD Ashok Taneja. 

The components industry has reported a 25% growth last financial year, riding on the record 30% growth in the automobile industry. However, the automobile industry has projected a growth rate of only 15% during the current year due to rising interest rates and fuel prices. The RBI has hiked the repo rate by 25 basis points on June 11, raising prospects for an increase in home and auto loan rates. 

"Our target growth rate for FY12 is significantly lower. As against a growth rate of 30%, we have projected an overall growth rate of 15% for the automotive segment and tractors at 10-11%," said Mahindra & Mahindra president Pawan Goenka and president of SIAM . 

But auto component makers feel that slowdown will continue only for the first two quarters of this year. "We were so far insulated. The first two quarters this year will see the slowdown. If inflation and interest rates ease, then the next two quarters should start looking better," said Amtek Auto MD Arvind Dham. 

Component manufacturers have shifted their focus to exports especially to countries such as France and Germany. "Since European countries are not expanding capacities, many of the component manufacturers are increasing their exports to these regions," said Taneja. 

Exports, which touched $5 billion in 2010-11, is expected to grow by 20-25% in 2011-12. 

The manufacturers are, however, worried at the prospects of exports becoming unviable due to concerns over the withdrawal of Duty Exemption Passbook Scheme from September 30. The scheme allows export exemption incentives for certain products and parts. There is a concern that the scheme may not be extended beyond September. The government should come up with an alternative scheme which allows time for business planning," said Wheels India MD Srivats Ram.

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