Mumbai: India’s auto industry is facing pressure from high interest rates and other costs, while an appreciating rupee is hurting exports, the managing director of Tata Motors Ltd said on Thursday, 27 September.
“It is certainly a very challenging position at the moment,” Ravi Kant told reporters on the sidelines of a conference.
New York-listed Tata Motors, in the race to buy Ford Motors’ premium brands Jaguar and Land Rover, is India’s top truck and bus maker and the third-biggest car maker.
India’s central bank raised lending rates five times between mid-2006 and March this year to douse inflation pressures in the fast-growing economy.
This pushed up auto loan rates by up to 350 basis points, hurting sales in India where 80-85% of vehicles are bought on borrowed money.
“The entire industry has committed large capex and all that capex has come in. With the market slowing down, it’s going to be a huge burden on the auto industry,” Kant said.
Passenger vehicle sales in India hit 1.4 million units last year and are forecast to nearly double by 2010, but volatile raw material prices, along with firmer interest rates and fierce competition, are affecting the profitability of vehicle makers.
“Tremendous rise in input prices has been affecting bottomline for the last one or two years,” Kant said.
He said the rupee’s rise against the dollar had hit exports “very badly”. The rupee, which touched a nine-year high of 39.62 per dollar on Thursday morning, has risen more than 11% this year, fuelled by rising capital inflows.
Tata Motors, which is ranked behind Maruti Suzuki India Ltd and South Korea’s Hyundai Motor Co, for cars has a joint venture with Italy’s Fiat to make cars and engines in India and a separate venture to make pick-up trucks in Argentina.
It makes the popular Indica hatchback and Indigo sedan and is scheduled to roll out a low-cost small car in 2008.
“People are looking at bringing new excitement in the market, trying to lure customers into buying,” Kant said.
Shares in Tata Motors have fallen about 17% since end-2006, compared with a 23% rise in the benchmark BSE index.