Auto companies bump into roadblocks

In fact, Telco shut down some units of its Jamshedpur plant for the first time since many years as outlook for the rest of the fiscal has become negative. In a corporate presentation made available on its website, Telco has planned a Rs 300 crore savings to tide over the current slowdown.

Last year, the industry’s sales graph was up mainly due to the combined effect of a significant sales push by the new entrants like Telco, Hyundai and Daewoo, in an attempt to gain market share, and the release of pent-up demand built over previous three years in anticipation of new product launches.

Says Anand Mahindra, Managing Director of utility vehicle major, Mahindra and Mahindra: “The automobile industry is witnessing a slowdown due to number of factors like hike in fuel prices, new pollution control norms, and implementation of uniform sales tax etc. But despite all that, our company has performed well and we hope to see our sales going in the rest of the fiscal.”

A report prepared by rating firm, Crisil says that Maruti is the worst affected of the slowdown, which has primarily been impacted by volume decline of almost 30 per cent in the economy segment – where it has enjoyed the strongest competitive advantage. Maruti’s share has dropped to about 60 per cent in the first seven months of the fiscal 2001, as compared to about 66 per cent in the corresponding period of the previous year. The company has recorded over 60 per cent monthly market share by selling 27,007 vehicles in the month of November 2000.

Faced with a demand crunch, Maruti’s passenger car sales dropped 15 per cent in November, although Hyundai, General Motors and Honda Siel managed to notch up higher sales.

With car buyers preferring to buy latest versions on passenger cars instead of buying outdated vehicles like Maruti 800 and Ambassodor, the future of these models are uncertain.

Even as a steady slowdown in sales continue, auto manufacturers are facing a steep increase in input costs. Consistent weakening of the rupee against the dollar have made imports of various components costly. Steel prices have been moving up both in the domestic and international markets and the recent increase in prices of petroleum products further ate into margins. Hence the price hike.

Most manufacturers were waiting for the other to increase prices, fearing it will smother the already-sluggish growth witnessed by the industry. But with the cost side pressure continuing, Maruti led the way by announcing a hike in prices to protect their bottomline. Ford India, Hyundai are other players which have indicated a possible hike in prices from the New Year.

The prices would be increased across the board and translate into Rs 6,000 to Rs 7,000 for Maruti 800 and between Rs 9000 to Rs 11,000 for Zen. Maruti price hikes would be implemented by the end of this month or early January. Maruti officials say that vendor costs have started rising and the government increase diesel prices which has led to escalating costs and finally a price hike.

In June this year, market leader MUL had announced an initiative to kickstart and revive the market out of the uncertainty by dropping the price of its entry-level models for a limited period. But in October, the company rolled back some of the increases it faced a massive labour unrest and recorded a Rs 108 crore loss in the first seven months of the current fiscal. The company, therefore, had no other option but to resort to yet another price hike. Ford and Hyundai have immediately followed suit and raised their prices.

Analysts hope that the auto sales will ultimately pick up in the last quarter which traditionally beats the other three quarters in sales. Yet the volumes growth in fiscal 2001 will not match the last year figures, they add.