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Carmakers face challenges from Japan crisis, rate hikes

Last updated on: March 23, 2011 09:45 IST

Car-makers face challenges from Japan crisis, rate hikes

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Faced with surging raw material costs, Indian car-makers now face three additional serious challenges, including a shortage of key components, which could impact their performance this year.

While they could pass on the burden of increased input costs to customers, a shortage of components, compounded by the March 11 tsunami and quake in Japan and the Reserve Bank's latest rate hike -- 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 in Mumbai.

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Image: Hyundai cars ready for shipment at a port in Chennai.
Photographs: Reuters
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A shortage of critical components, many of them sourced from Japan where many automobile facilities, besides others, have been damaged by the powerful quake and tsunami, has made the going tough for the industry, which is likely to find it difficult to meet its sales targets, 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 Reserve Bank, which is expected to push up interest rates on auto loans, could deter potential buyers, Balendran said.

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

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Image: A Japan Self-Defense Forces officer holds a 4-month-old baby girl who was rescued along with her family members from their home in Ishimaki City.
Photographs: Yomiuri Shimbun/Reuters
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Carmakers face challenges from Japan crisis, rate hikes

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Home-grown auto major Mahindra & Mahindra is confident of the long-term potential of the industry, but feels the sector is likely to be stymied by the Japan crisis and RBI rate hike in the short-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 Mahindra & Mahindra president (automotive) Pawan Goenka.

The Reserve Bank of India recently hiked both the repo and reverse repo rates by 0.25 per cent each to 6.75 per cent and 5.75 per cent, respectively, for the eighth time since March, 2010.


Image: Ford's manufacturing plant.

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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 April 1 to offset rising input costs and more are expected to follow suit.

Vijay Kedia, the 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.

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Image: Robots at Ford plant.

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"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.


Image: A worker at an auto factory in Chennai.
Photographs: Reuters
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