Slowdown bites: car cos on course to cut output

Higher interest rates are biting hard. The auto sector is likely to be the first to initiate steps to control damages from a slowdown.

Close on the heels of the Reserve Bank of India indicating that it is unlikely to cut interest rates anytime soon, auto makers are taking measures to cut output.

An Economic Times report said the companies are reducing the number of working days.

“Tata Motors, Maruti Suzuki, Tata Cummins, Telcon, and Toyota Kirloskar are some of the companies that have cut or are planning to reduce working days at their plants,” the report said.

Shutting down plants for smaller periods will help these companies avoid a long closure later.

In May, car makers witnessed a sales increase of just 2.8 percent, according to the Society of Indian Automobile Manufacturers. The lower-than-expected increase in sales was mainly owing to prevailing higher interest rates that make auto loans dearer and a higher excise duty imposed in the Budget.

Petrol vehicles are witnessing a bigger downfall in sales as against diesel vehicles. In May, the prices of petrol were increased around Rs 7.5 per litre. Oil marketing companies, however, cut the prices by around Rs 2 in June.

Demand for diesel vehicles has doubled over the past year to account for around 40 percent of India’s new sales because of state subsidies that make the fuel more than 50 percent cheaper than petrol.

A report in Mint said the bike market is also witnessing a downtrend as consumers buy cheaper models and shun expensive bikes, as these are considered “fuel guzzlers”.

SIAM has cautioned the government against imposing any additional excise duty on diesel cars as this would hit the sales of these vehicles.

On Tuesday, RBI Governor, while defending his decision to hold rates in its policy review, said inflation is at unacceptable levels. If his comment is any indication, automobile companies will have to wait a while longer for a turn around.