The Telegraph
Since 1st March, 1999
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Hump on car makers’ path

New Delhi, Sept. 9: Not many moons ago, car makers were gung-ho about the Indian market, drawing up grandiose expansion plans, revving up to rollout the snazziest models in their bid to win the war-on-wheels. That was when everything was hotsy-totsy, when cars were lapped up faster than they could be rolled out.

Now, the hot wheels have lost their zing as demand dries up under the heat of recession, forcing manufacturers to shelve or cut back expansion plans.

And things are likely to get worse.

Market research shows that over-capacity will continue to dog the industry over the next five years and sales could come near installed capacity in 2007, only if the economy looks up. Otherwise, it may well continue meandering down slow lanes.

Saddled with a capacity of around 10 lakh units, car-makers are a wary lot, with the czars—Maruti and Hyundai—all but shelving expansion plans.

The Society of Indian Automobile Manufacturers (Siam) has projected sales of only about 7.9 lakh cars this year, that too only if the GDP grows at about 6.5 per cent.

“Our study shows that if the GDP growth is at 6.5 per cent each year and the industry rate of growth is 8 per cent, then we can sell about 11 lakh cars by 2007, compared with this year’s sales projection of 7.5 lakh. But even this growth is unsure as it depends on so many other factors,” Siam director Pankaj Gupta said.

Automobile manufacturers like Maruti and Hyundai, who were expecting demand to build up for their volume cars like Santro, Zen, Alto and the Maruti 800, no longer have any plans to build up future capacities.

Hyundai, which is now increasing its capacity from 1.2 lakh vehicles to 1.5 lakh vehicles, is reluctant to add even a third production shift at its factory near Chennai. Instead, it has increased working hours slightly to take care of the mild growth in domestic sales and higher export commitments.

“We do not see this capacity being fully used up even five years down the line. There has been an increase in demand but we do not know if it is sustainable,” Hyundai president B. V. R. Subbu said.

“We will be utilising the current rated capacity of 3.5 lakh vehicles. With industry sales in the first four months of this fiscal down 4 per cent, no one is interested in building up capacity,” Maruti officials said.

Ford India vice-president Vinay Piprasania said, “We are churning out 50,000 vehicles in a single shift and hope to use up the capacity over the coming five years, if our own projection of 10 lakh cars is achieved. Provision for any excess capacity will only be considered after that.”

Honda and Fiat also shared the industry-wide aversion to expand capacity. Honda has the capacity to produce 30,000 cars, of which it only produces 11,000 cars per annum, whereas Fiat has a capacity of 60,000 cars of which it produces 35,000 cars per annum.

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