The Hindu Business Line : Foreign car majors set to wipe off losses soon

Over the last few years, some of these companies have also been setting off part of their accumulated losses against profits thereby shrinking the cumulative loss.

Bangalore , Aug. 19

THE current fiscal and the next could see some of the foreign auto companies wiping out their accumulated losses and shoring up their bottomlines.

Honda Siel, which makes the popular City and Accord models, has just announced that it has wiped out its accumulated losses of around Rs 75 crore this fiscal.Toyota Kirloskar is all set to wipe out its accumulated losses of around Rs 250 crore by 2006, much ahead of its earlier projections.

DaimlerChrysler has nearly halved its accumulated losses to around Rs 270 crore and is expected to wipe it out in a year or two and is already out of the BIFR net.

General Motors, the largest car maker in the world, which wrote off most of its accumulated losses a year ago, has turned around the corner and Ford has said it will start making operational profits from this year.

It recently retired high cost debts worth a total of Rs 200 crore taking advantage of the prevailing softer interest rates. It hopes to wipe out its accumulated losses in another three years.

Over the last few years, some of these companies have also been setting off part of their accumulated losses against profits thereby shrinking the cumulative loss.

or example, Honda's accumulated losses touched a high of Rs 160 crore three years ago. But since then, it has been brought down and now it has completely wiped out the losses.

Hyundai started making profits from the second year of operations itself.

Toyota's success in having a better balance sheet than others was largely because of exercising extremely strict fiscal discipline apart from the fact that it did not borrow from outside which meant that it was able to save on interest cost which typically accounts for around 5 per cent of the total sales.

According to a Toyota official, the auto industry works on extremely thin margins of between two per cent and three per cent.

As the auto industry is material intensive business, any rise in input costs can severally dent the margins.

Because of the boom in auto industry last year which saw it grow around 27per cent, foreign auto companies were able to breathe easier with profit margins going up 4 per cent to 5 per cent compared with 1 per cent to 2 per cent during the previous years.

"This year we expect the margins to be maintained as that of last year," says an official of an auto company.

This would be achieved in spite of a lesser growth of around 15 per cent projected this year.

"As the base has already been widened last year, a 15 per cent growth on a larger base is still a good news for us," the official said.