Auto component makers seek relief from govt

Manufacturers are expecting some relief either in the form of excise duty cut or interest rate cuts

With vehicle sales down for the eighth consecutive month in June, not just the original equipment makers (OEMs) but also component manufacturers are facing the heat of the slowdown. In the lines of 2008-09, manufacturers are now expecting some relief from the government either in the form of excise duty cut or interest rate cuts or otherwise.

Kirti D Rathod, deputy chairman, Automotive Component Manufacturers Association of India (ACMA), western region said, "Talks are on within the ACMA, and there is a plan to meet representatives of the government in the next one to two weeks. Component makers are facing severe slowdown, and the industry expects some relief either in the form of interest rate cuts, or excise duty cuts."

He further added that with monsoons being good this time there is a general sentiment that the Reserve Bank of India (RBI) would announce a rate cut soon.

"This would not only help the buyer and improve demand, it also helps manufacturers by reducing the cost of capital. However, this is for all segments of the industry, not specifically for the automotive sector," Rathod said.

Back in 2008-09, the government had reduced the excise duty on two-wheelers, small cars and commercial vehicles to 8 per cent. At present, there is a general sentiment in the industry that the government might work out a similar stimulus package for the auto industry.

P Chaudhury, plant head of Caparo's Halol manufacturing unit said, "There is definitely a need for a stimulus package from the government now, in the form of a duty cut or otherwise, something which happened in 2008-09. There has been more than 40 per cent dip in demand from OEMs and with the current market sentiments it seems unlikely that there would be any revival during the festive season."

Rathod explained, "There has been a recent hike in excise duty on sports utility vehicles (SUV), first that should be rolled back, this would ensure that SUV sales can go on stream. Then, there can also be an across the board slash in duty as well."

Owing to demand slowdown and cost of capital going up, several units have put their expansion plans on hold. As for example, Rajkot based auto-component makers, a major auto-component hub in Gujarat, has over 500 component making units which employs over 10,000 people. Himanshu Nandasana, managing director, Bhavani Industries which makes transmission components said, "We do not have any expansion plans for this fiscal, we plan to move cautiously."

While many component makers are trying to find out newer pastures like in African countries, the overall slowdown in Europe as well as increased raw material costs have not helped either.

Vinnie Mehta, executive director, ACMA pointed out, "There is a general conception that with the rupee depreciating against the dollar, component makers are enjoying huge margins in exports. However, the fact is that raw material costs like aluminium and steel are determined on the basis of international landed costs, and since they are up thanks to dollar movement, the benefit of exports gets nullified to a great extent." He, however, also adds that the US is showing signs of recovery, Europe still continues to be weak.

For the first quarter (April-June) of the current fiscal, domestic car sales declined by 10.41 per cent against a forecast of 3-5 per cent rise by the Society of Indian Automobile Manufacturers (SIAM) in April. Similarly, two-wheeler sales dipped by 0.82 per cent against a forecast of 6-8 per cent growth and commercial vehicles were down 8.12 per cent against a projected growth of 7-9 per cent.