The Hindu Business Line : M&M says slowdown beyond March hard to endure

Mumbai, Dec. 9 Mahindra & Mahindra says that it can hold out in this slowdown only till March after which “some very difficult steps will have to be taken”.

“We can endure 2-3 months at best but should this slowdown last 6-8 months, things will become tough. All of us in the automotive sector had done our planning for this fiscal based on a growth path of 10-15 per cent. When a slowdown occurs suddenly, it is not a comfortable situation,” the President of M&M’s automotive sector, Dr Pawan Goenka, told Business Line.

He added that a turnaround was imperative by February-March but certainly not sometime in September-October. “We are all stretched and have invested in the future. If we do not make money today, where is it going to come from some months down the line?” he asked.

The government, of course, unveiled a stimulus package on Sunday which included excise duty cuts for cars and two-wheelers but the biggest worry continues to be easy financing for customers.

In addition, the automobile industry was hoping that the arbitrary excise levy of Rs 15,000, imposed on vehicles between 1500cc and 2000cc, and Rs 20,000 on those exceeding 2,000cc would be removed but that has not been addressed yet. In the case of M&M, sales of its utility-vehicles began falling when this levy came into place soon after Budget 2008.

Despite this grim scenario, Dr Goenka said he was “more hopeful” than the prophets of doom simply because he did not see a fundamental problem.

“People still want to buy cars. There is also a strong correlation between GDP and car sales. An eight per cent GDP growth translates into 16 per cent growth for the automotive industry. Even if GDP slows down to 6.5 per cent, it is 13 per cent growth which is still good but being hindered because of other reasons,” he said.

One of these, of course, is inadequate finance. Companies like M&M were also hoping that with commodity prices coming down, it would help them make money or at least reduce their product prices. This has not happened either.

“I am certain there is inherent demand in the market which explains my optimism. If banks become more positive on auto sector lending and if the effect of raw material costs helps us, things will definitely look up. A slow economy does affect sentiment but that, in my view, is the least important point in the Indian context,” Dr Goenka said.

M&M has already gone in for a partial shutdown of select plants this month. December, in any case, is not a great time for automakers in terms of sales but this year has been particularly difficult. “We have overcapacity and have done a lot to reduce costs and conserve cash. We also do not want to take any drastic steps at this tough phase,” he said.

The positive of this slowdown is that this period has come in handy to remove needless fat accumulated during the good times. “If it does not prolong, it is good for the business. A tiny dose of difficult times keeps your body alert,” Dr Goenka quipped.

M&M is, incidentally, not letting the downturn in the US affect its plans for a 2009 entry with the Scorpio. This is because the strategy was never anything to do with big numbers. “If we were gong there with an intention to grab 10 per cent market share, we would have backed off. But that was never our intention,” he said. The idea is to reach out to those customers who may be keen on parameters like fuel-efficiency, simplicity and comfort as part of a value proposition.