Automotive assemblers are trying to make do. In the first half of the fiscal year, volumes have shrunk 38 percent (for passenger cars, LCVs, and SUVs), nowhere near a historic low but evidently much lower than last year which saw the industry find its new market size at above 300,000 units. Alas, only to slide back this year. As things stand, with an acute shortage of dollars, supply constraints have caused much of the industry to operate at less than optimal capacities, keeping plants non-operational for days at an end.
In recent history, new assemblers have come in with new models purportedly to shake up the industry, though causing no dent in existing assemblers’ market share. Instead, they have found new categories to operate in, with SUV share growing faster than ever before. But this year will be different for many reasons, the dominant being supply-side constraints that have challenged production across the board. Small cars have recently found a new avenue for growth with the government slashing duties from 30 percent to 15 percent on assembly kits which could have been a major win for Suzuki, except supply hurdles are seeing no signs of easing even if cars become cheaper.
At this point, even if assemblers were doling out discounts, they wouldn’t be able to meet the forthcoming demand which would be hampered given reduced purchasing power, high overall inflation, and expensive cost of borrowing. Rural cash demand is curbed due to floods. To top it all, if petrol and fuel go short in the market—which may very well become a reality with only weeks’ worth of petrol accessible—it may dampen further demand. Jobs losses and unemployment may also cause folks sitting at home to try to sell cars in the second-hand market with fewer buyers willing to purchase at prevailing prices.
However, it is not easy to ascertain the true demand in the market as long as supply-side constraints persist. It doesn’t look good for volumes for the rest of this fiscal year as assemblers struggle to open LCs in the formal banking system. Some brokerage houses have estimated the three assemblers’ return to profits in the quarter ending Dec-22 on account of higher volumes in the second quarter and higher operating days. But without a major turnaround in the macroeconomic environment, these profits cannot be sustained. Other income which typically boosts automakers' bottom lines will shrink as orders and consequently cash advances dry up. Parts and component manufacturers will be most hard hit as they remain small and cash-strapped, heavily dependent on OEM orders. Whether big companies will turn a profit this year or not, smaller units are already feeling the heat, and employees are on the verge of lay-offs. It is going to be catastrophic—how big a catastrophe it will be will depend on how quickly the government brings in necessary dollars from IMF and “friends”.
Comments
Comments are closed.