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India's Auto Industry Faces Slowdown


India's auto industry is facing a slowdown, prompting many automobile manufacturers to scale down plans for expansion. Many global automakers headed to India, in recent years, to take advantage of a growing economy.

Some consumers are avoiding expensive loans

Manoj Guha, 48, wanted to upgrade his old car, but put his plans on hold because of a spike in interest rates, in the last year. He says the global financial crisis has also made him jittery.

"I don't want to take an expensive loan when the job market is so uncertain," Guha said. "I worry about my company cutting back on staff and don't know if I will get a pay hike next year."

As customers like Guha tighten belts and cut back on purchases, sales of automobiles are plummeting for the first time in recent years.

Car sales declining

Sales of cars fell by more than 20 percent in November, compared to the same month last year, and those of heavy commercial vehicles dropped by as much as 60 percent.

The decline comes after three years of steady growth, fueled by a booming domestic economy.

The buoyant market prompted global auto giants such as Hyundai, Nissan and Ford to invest billions of dollars in auto plants in India, to take advantage of an expanding middle class, which was snapping up cars and homes. The companies have made India a manufacturing base for production of compact cars both for the local market and export.

Automakers re-think strategy

But, now, automakers are rethinking their strategy. Some are slamming the brakes on expansion. Others are cutting back on production. Dilip Chenoy is director general at the Society of Indian Automobile Manufacturers.

"Some are cutting down from three shifts to two shifts," Chenoy said. "Some are talking about closing on some parts of the day….Some manufacturers who were already looking at setting up plants, are going in for one line instead of two lines, etc, like that."

Carmakers Nissan and Renault, which plan to open several factories in partnership with Indian manufacturers, have scaled down their projects. Hyundai also plans to cut production and reduce the number of shifts at its factory in Southern India. Several local companies have also cut production, to avoid building up unsold stock.

It is not just the domestic market that is hit. Automakers are also facing a slump in exports, because of the financial crisis in Europe, which is the main market for auto manufacturers in India.

Industry analysts expect sales to pick up in 2009

Analysts say the slowdown in the industry will be temporary and expect sales -- both at home and overseas -- to bounce back in about a year. They say banks have started cutting interest rates and customers will flock back when credit becomes cheap. They also hope that consumer confidence will revive, if the Indian economy grows by seven percent this year, despite the global slowdown.

In fact, Chenoy says, the financial crunch could offer a silver lining to the Indian auto industry, as demand is expected to grow all over the world for low-cost, compact cars.

"We do have a slight advantage because we kind of produce and market the products people are looking for in time of recession, small cars, highly fuel-efficient two wheelers, economical, cost effective, meeting the regulations that are in place in different countries," Chenoy said.

Analysts say projections that the Indian auto industry will grow from $35 billion, at present, to $145 billion by 2016 still hold good. In fact, they say at a time when global automakers are facing huge problems in their home markets, they may still rake in some profits here -- although not as large as expected earlier.






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