BackAuto makers optimistic of road ahead, but suppliers not so much
Sales projections and expansion plans of the country's top two car makers is an affirmation of their faith in the India growth story
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New Delhi: Auto makers are upbeat that improving economic growth, bountiful monsoon rains and hefty pay raises for central government employees and pensioners will boost demand for vehicles, but component makers aren’t as optimistic.
Auto ancillary companies say a sustainable, all-inclusive and broad-based rebound in the automobile market may still be some distance away.
Sales projections and expansion plans of the country’s top two car makers is an affirmation of their faith in the India growth story.
Suzuki Motor Gujarat (P) Ltd, a subsidiary of Suzuki Motor Corp., which will contract manufacture cars for Maruti Suzuki India Ltd, has advanced the start of its first assembly line.
The assembly line at the Gujarat plant will now start operations in February. The unit has already commenced work on the design of the second line.
“Certainly, things are looking better than they did for a long time. Industry now expects double-digit growth," R.C. Bhargava, chairman of Maruti Suzuki India, said in an interview on Monday.
The Society of Indian Automobile Manufacturers, or Siam, has raised its sales prediction for 2016-17 to 10% from 6% that it forecast earlier, he noted.
“Maruti’s growth is limited by capacity. The commencement of the Gujarat facility has been advanced by three months to February," added Bhargava. “We have already started designing the second unit."
The first assembly line of the plant will have a capacity to produce 250,000 units per annum.
A decision related to investments on the second line will be taken shortly by Suzuki Motor.
India’s second-largest carmaker Hyundai Motor India Ltd on 25 August said it was expecting to sell half-a-million vehicles in 2016. Hyundai India, which sold 475,000 cars in 2015, is expecting to grow sales by 6%, said Y.K. Koo, chief executive and managing director of Hyundai Motor India, on the sidelines of the launch of company’s premium Elantra sedan.
Pawan Goenka, executive director, Mahindra and Mahindra Ltd, is also optimistic.
“We are not going to see a 20% plus growth but at least 9-10%. I have always said that I don’t see a reason why the auto industry will not grow. It is just the sentiment that was not in our favour," said Goenka.
If nothing goes wrong, “I don’t see why we should not have a sustained growth for the next 2-3 years," he said referring to the monsoon, policy and interest rates that are expected to edge down.
The suppliers, however, have a less rosy outlook. They say sales growth is likely to cool off, and that the euphoria over plentiful monsoon rains and Seventh Pay Commission recommendations will prove to be short-lived.
The fundamentals of the automobile market haven’t improved yet to put the industry back on a sustained double-digit growth trajectory. Growth is confined to a few companies and a few chosen models, they say.
“The actual offtake is half of what was committed in the RFQ (request for quotation)," said a supplier referring to a global carmaker. He declined to be identified.
“Increasing capacity is fine but where is the demand going to come from?" asked Ravi Damodaran, president (technology and strategy) at Varroc Engineering Pvt. Ltd.
Several car makers have surplus capacity, and with demand not having rebounded, they have diverted the capacity to manufacture for exports, Damodaran said pointing out that in a worrisome trend, the growth rate of the auto sector has been slower than that of India’s gross domestic product (GDP). “If you look at the last five to 10 years, it has crawled. It has not even done what the GDP is doing."
India’s economy expanded 7.6% in 2015-16 while car sales grew 6% in the same period.
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