The Indian car market is going through what can be considered as the worst slowdown in its history. Not only have the sales dropped significantly, the demand for vehicles is slowing down regularly. The Indian economy has been struck by a financial crisis, as a result of which, the value of rupee is falling continuously. This, automatically, has increased the cost pressure on auto makers, thereby forcing them to raise the prices of vehicles to maintain their profit margins. Now, according to reports, car makers operating in the Indian auto market are revising their plans for the future. In the years 2010 and 2011, India was one of the fastest growing markets in the world and was catching up on China.
However, due to the financial crisis prevalent in the country, the Indian car market has been pegged back by a great extent. In the past year, the country's auto industry has seen a tremendous decline in terms of sales. Car makers are struggling to match reduced levels of demand as inventories are piling up at their production facilities, thereby forcing them to stop manufacturing on certain days. This crisis has been a huge deterrent for foreign car makers in particular, who are rethinking their options for the future.
The Indian subsidiary of Japanese car maker Toyota is one of the firms that is planning to modify its future plans for India. This was confirmed by Hiroshi Nakagawa, Managing Director at Toyota Kirloskar Motor, who spoke about the situation in an interview. Another car maker that has been troubled by this situation is German car maker Volkswagen, which is relatively new in the Indian auto market. Arvind Saxena, Managing Director at Volkswagen Passenger Cars, said in an interview, "5 years back everyone predicted India to be a growth market. The projections were in the range of 6 to 11% but we have now gone down by about 9%. It would prompt everyone including us to review investment plans."
Industry experts believe that the continuously fall in the value of rupee has had a severe impact on the prospects of foreign car makers. This is because a lot of foreign companies import a number of parts of their vehicles. The fall in the value of rupee drastically increases the cost for these companies, who are then compelled to sell vehicles at a higher price. Volatility in the exchange rate is harming car makers, a sentiment expressed by prominent officials from big firms. Philipp von Sahr, BMW India's President, commenting on the plight of foreign companies, said, "We have to react when there is an exchange rate volatility. Because it hurts our bottomline. We can’t let our profits suffer because of this.”
Renault, a company that has managed to perform well in the market with the Duster compact Sports Utility Vehicle (SUV), is also unsure about the future performance. Sumit Sawhney, Executive Director at Renault India, said, "Looking at previous years growth, companies made plans with lot of optimism but the first 8 months have brought down that optimism.”
Prominent figures from the Indian auto industry have been pleading the government to come up with some corrective measures to improve the situation. It is being said that car makers want a stimulus package, something that is unlikely to happen in the near future despite strong requests. Industry experts believe that for car makers to come out of these troubled conditions, government intervention is quite essential. Some experts suggest that without the support of the government, the scenario will not improve anytime soon.
