Rate hike, Japan’s crisis hit car manufacturers

Faced with surging raw material costs, car makers now face three additional serious challenges, including a shortage of key components, which could impact their performance this year.

While they could pass on the burden of increased input costs to customers, a shortage of components compounded by the March 11 tsunami and quake in Japan and the Reserve Bank of India’s rate hikes — which could affect car financing — have made them jittery over their prospects in the short-to-medium-term.

“Yes, the industry is facing problems, but we are taking it as a big challenge. We think this is a passing phase — we see light at the end of tunnel,” the General Motors India Vice-President, Mr P. Balendran, told PTI here.

A shortage of critical components, many of them sourced from Japan where many automobile facilities, besides others, have been damaged by the powerful quake, has made the going tough for the industry which is likely to find it difficult to meet its sales target, he said.

“Frankly, it is difficult to meet the earlier projected (sales) figure this time. A shortage of components, including tyres, casting and steel, has made things difficult,” he said.

The hike in key rates by the RBI, which is expected to push up interest rates on auto loans, could deter potential buyers, Mr Balendran said.

The General Motors executive said “it is difficult to predict a timeline for the problems to be resolved.”

Homegrown auto major Mahindra & Mahindra is confident of the long-term potential of the industry, but feels the sector is likely to be stymied by the Japan’s crisis and RBI rate hike in the short-term.

“Commodity prices have been increasing in the last few months and now the Japan calamity will affect supplies of auto components. The rate hikes by the RBI could add to the industry’s woes,” said Mr Pawan Goenka, Mahindra & Mahindra’s President (Automotive).

The RBI recently hiked both its repo and reverse repo rates by 0.25 per cent each to 6.75 per cent and 5.75 per cent, respectively, for the eighth time since March 2010. This, in turn, is likely to push up the cost of loans for customers.

Auto majors like Honda Siel Cars India and Tata Motors have already indicated that they would be upping their product prices from April 1 to offset the rising input costs and more are expected to follow suit.

Mr Vijay Kedia, Director of three-wheeler maker Atul Auto, said: “Imports of some automobile components from Japan will be affected in the short-term. The growing (auto) industry is sandwiched between surging input costs and meeting increasing demand.”

Following the rate hikes, he said there could be a slackening in demand. “People will not be encouraged to buy more vehicles through financiers this time due to the recent rate hikes by the central bank. It may slow down demand in the coming weeks.”

Admitting that the present situation was “challenging”, the Ford India President and Managing Director, Mr Michael Boneham, exuded confidence that the tough times would be “short-lived’’.

“The Indian auto industry, in general, is clocking an unprecedented growth in sales. Though the Japanese tsunami and the RBI rate hikes present challenges to the industry, it will be able to overcome them,” he said.

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