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Indian Auto Industry Tipped Over due to Downturn
Feb 07, 2009

2008 is being touted as the worst year for the Indian auto industry due to declining demand, credit crunch and expensive automobile components in the backdrop of economic turmoil.

Industry sources have declared 2008, the year of economic slowdown, high inflation and credit crisis, as the “'annus horibilis'” for the Indian automobile industry, as reported by International Business Times.

In November 2008, car sales in the country slid to 83,059 Units from 103,031 Units in November 2007, recording the lowest sales figure in eight years. Commercial vehicles were no exception, with sales of buses and trucks in the country declining approx 50%, which is sharper than 48.6% decrease in January 1998. Sales of two-wheelers slumped 14.7% to 567,502 Units.

The decline in Indian auto industry is prominently due to the fall in demand as a result of worsening global economic downturn. Sales of commercial and passenger vehicles witnessed slow growth. The pathetic condition of the country’s auto industry becomes clear from the recent sales figures of General Motors, Maruti Suzuki, Bajaj and Hero Honda.

Moreover, the expensive and scarce automobile loans, costly automobile components and the unfavorable monetary policy adopted by the central bank till mid-October 2008 were some other factors responsible for this decline. Consequently, Indian automobile manufacturers are reconsidering their strategy to check the falling sales.

Though the central bank has been lowering its standard interest rates since mid-October 2008, banks proved sluggish in passing the benefits of these rate cuts to consumers and thus, auto loans remained expensive. Consequently, automobile manufacturers were forced to offer finance to the buyers to boost the sales.

According to a Research Analyst at RNCOS, “Auto manufacturers have always considered India as a long-term target, expecting strong demand from the Indian market. The cost of manufacturing is also low in India. But presently, the Indian auto industry is experiencing a downturn. However, government’s stimulus package has reduced the automobile prices, but as long as higher credit rates and liquidity crunch are prevailing, the industry is unlikely to recover. Also, a lot more efforts should be made by the government to re-boost the sagging demand.”

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