Blame high interest rates, mounting inventories and overcapacity, say analysts
The demand slowdown in the automobile sector has begun to hit production numbers with a majority of large auto companies—both four-wheeler and two-wheeler—cutting their production levels.
Production figures released by Society of Automobile Manufacturers of India (Siam) shows that almost all major automobile companies-- from Tata Motors to Bajaj Auto and Hyundai to Toyota— have cut production in May as demand shrank due to a variety of factors led by rising interest rates that pushed up the cost of finance
While production cuts started in March, it’s been most severe in May. Tata Motors, which is the country’s third largest passenger car manufacturer and the largest commercial vehicle manufacturer, saw overall production numbers for all vehicles falling 4.4% on a year-on-year basis, while Toyota Kirloskar posted an 11.4% decline. Other four-wheeler companies that cut production in May include Hyundai Motor India (9.9%), Ford Motors (36.9%), Hindustan Motors (21.2%), SkodaAuto (25.5%) and Volvo India (6.4%).
In the motorcycle segment, all the major manufacturers cut production in May. While the country’s second largest two-wheeler manufacturer, Bajaj Auto Ltd, slashed production by 12.3%, segment leader Hero Honda slashed it by 4.8%. The cut was even worse for TVS and Yamaha, the country’s third and fourth biggest bike makers. While TVS cut production by 56.5%, Yamaha cut back by 59.3%.
“It is a worrying trend and things are likely to worsen in the coming months as the monsoons are traditionally a low-sale period. This will certainly have a negative impact on the profitability of companies as well,” said Pradeep Saxena, senior vice-president at auto research firm TNS Automotive.
Saxena said high interest rates, a negative sentiment and large inventories at dealers were the reasons for the production cuts.
“Overcapacity is certainly there and until and unless there is a reduction in interest rates, the demand may not revive,” said Yezdi Nagporewalla, who tracks the auto sector at KPMG.
The trend is also worrying in the medium & heavy commercial vehicle segment, the performance of which is considered a barometer for the Indian economy. In the crucial goods carrier segment, Tata Motors posted a miniscule 4.7% growth in production at 13,103 units while Ashok Leyland had to cut output by 6.7% to 4,774 units.
“Demand has been hit even in this crucial segment due to rising interest rates,” said Saxena.
http://www.financialexpress.com/fe_full_story.php?content_id=166618
The demand slowdown in the automobile sector has begun to hit production numbers with a majority of large auto companies—both four-wheeler and two-wheeler—cutting their production levels.
Production figures released by Society of Automobile Manufacturers of India (Siam) shows that almost all major automobile companies-- from Tata Motors to Bajaj Auto and Hyundai to Toyota— have cut production in May as demand shrank due to a variety of factors led by rising interest rates that pushed up the cost of finance
While production cuts started in March, it’s been most severe in May. Tata Motors, which is the country’s third largest passenger car manufacturer and the largest commercial vehicle manufacturer, saw overall production numbers for all vehicles falling 4.4% on a year-on-year basis, while Toyota Kirloskar posted an 11.4% decline. Other four-wheeler companies that cut production in May include Hyundai Motor India (9.9%), Ford Motors (36.9%), Hindustan Motors (21.2%), SkodaAuto (25.5%) and Volvo India (6.4%).
In the motorcycle segment, all the major manufacturers cut production in May. While the country’s second largest two-wheeler manufacturer, Bajaj Auto Ltd, slashed production by 12.3%, segment leader Hero Honda slashed it by 4.8%. The cut was even worse for TVS and Yamaha, the country’s third and fourth biggest bike makers. While TVS cut production by 56.5%, Yamaha cut back by 59.3%.
“It is a worrying trend and things are likely to worsen in the coming months as the monsoons are traditionally a low-sale period. This will certainly have a negative impact on the profitability of companies as well,” said Pradeep Saxena, senior vice-president at auto research firm TNS Automotive.
Saxena said high interest rates, a negative sentiment and large inventories at dealers were the reasons for the production cuts.
“Overcapacity is certainly there and until and unless there is a reduction in interest rates, the demand may not revive,” said Yezdi Nagporewalla, who tracks the auto sector at KPMG.
The trend is also worrying in the medium & heavy commercial vehicle segment, the performance of which is considered a barometer for the Indian economy. In the crucial goods carrier segment, Tata Motors posted a miniscule 4.7% growth in production at 13,103 units while Ashok Leyland had to cut output by 6.7% to 4,774 units.
“Demand has been hit even in this crucial segment due to rising interest rates,” said Saxena.
http://www.financialexpress.com/fe_full_story.php?content_id=166618