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Automobiles

India's auto parts makers see further weak vehicle demand in 2020

Industry body says rising car prices will continue to slow sales

For almost a year, automakers in India have been contending with one of the worst downturns as consumers cut back on spending.   © Reuters

MUMBAI (NewsRise) -- India's auto component manufacturer group expects the current slowdown in automobile sales to spill over to next year as rising vehicle prices and tighter availability of credit will continue to hurt demand.

For almost a year, automakers in Asia's third-largest economy have been contending with one of the worst downturns as consumers cut back on spending. A shift in preferences in cities to ride-hailing services such as Ola and Uber has also affected sales of cars and SUVs.

Passenger vehicle sales slumped 24% in the first half of this fiscal year, prompting automakers to slash production and cut jobs. That had a ripple effect on the auto parts industry, with several companies shutting shops.

Early part of the next fiscal year that starts in April will be "tough" for the auto parts makers, Deepak Jain, president of the Automotive Component Manufacturers Association of India, or ACMA, said in an interview. The transition to Euro VI emission standards by April is also expected sap sales in the first quarter of the next fiscal year, he said.

"If I were to put a simple reason to the downturn in the vehicles industry, it would be that prices have increased at a very fast pace," Jain said. "The affordability factor has actually reduced."

The cost of ownership of two wheelers is set to rise in April, when new regulations on insurance coverage and upgraded braking systems come into effect in the country. Such regulatory changes will lead to price increases, damping demand at a time when banks tighten financing.

About two-thirds of vehicle purchases in India are funded by credit from banks and other financial institutions.

ACMA's Jain warned that if more automobile manufacturers decreased production, the parts makers will have no choice but to align with the needs of their customers. In July, a Reuters report said that the auto parts industry would be forced to cut back a fifth of its five million workforce if the slowdown showed no signs of abating.

Earlier this year, component makers such as Bosch and Wabco said they were trimming production due to the demand slump. Jamna Auto Industries, another auto parts manufacturer, said in August that all its plants will be shut during the month due to the weak demand.

However, Maruti Suzuki India, the nation's largest automaker, showed the first signs of a revival in demand, raising its monthly production by 4.3% for November, its first such in about nine months. Maruti's domestic passenger vehicle sales declined 3.3% during this period.

Jain said he expects sales in the second half of this fiscal year to be better than the previous six months, though the industry would continue to see a decline. ACMA's predictions are in contrast with India's main automobile industry group, the Society of Indian Automobile Manufacturers, which expects passenger vehicle sales this fiscal year to expand 3% to 5%.

-- Rituparna Nath and Dhanya Ann Thoppil

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