Auto part vendors' cheer premature, say analysts

After being severely hit by the recent slump in demand for cars and commercial vehicles, automobile component manufacturers are rejoicing a sudden 30-40 per cent spurt in demand in February over the previous two months.

Analysts are, however, not entirely sure of the reason for this high growth and many are doubtful if it can be sustained, given the other gloomy signals.

In recent months, all leading car makers — Maruti Suzuki, Hyundai Motors, Tata Motors, Ashok Leyland, General Motors and Mahindra & Mahindra — had cut production and, thus, business for vendors.

The impact was severe for smaller companies, which depend entirely on one or a few original equipment manufacturers. Many units of such smaller companies based in Pune and Jamshedpur were forced to shut operations.

An executive with Pune-based Behr India, a manufacturer of air conditioning units, says: “Our customers — Tata Motors and Mahindra & Mahindra — have increased their sourcing, with supplies from us going up 30 per cent last month over the average of the earlier two months. This is a very positive sign.”

This is echoed by Mumbai-based Setco Automotive, a maker of clutches, clutch actuation systems, machined castings, forgings and stampings for the commercial vehicle industry. Shevtal Vakil, the company’s executive director, says: “The after market has reported a demand spurt of 60-70 per cent, while the Original Equipment Manufacturer (OEM) grew 30-40 per cent last month over December and January.”

But other indicators remain sombre. A city-based analyst from a leading brokerage house notes: “Only a few new car models have seen a growth in demand. Almost all car makers have either completely withdrawn or drastically reduced their promotional offers.”

In such cases, say analysts, the production increase is only to fill the gap in supply created in earlier weeks due to a cut. Also, despite the substantial increase in sourcing of components from OEMs, payment issues remain a problem.

A Mumbai-based vendor says: “All vendors of Tata Motors, who are covered by the special payment cover by banks, are secured. However, other vehicle manufacturers are delaying payments to alarming lengths, aggravating our cash flow.”