India's Car Sector in Trouble

India is aiming for $145 billion in automotive sales by 2016, accounting for 10% of its economy.

India's automobile industry is facing "unprecedented challenges," hit by hefty interest rates and rising costs, said the head of the Society of Indian Automobile Manufacturers on Sept. 4.

The sector is reeling from a triple whammy of interest rates at seven-year highs, costly fuel and climbing steel and other raw material costs, said Ravi Kant, president of the Society of Indian Automobile Manufacturers (SIAM).

India is aiming for $145 billion in sales for the automotive sector by 2016, accounting for 10% of its economy, from $34 billion in 2006, according to the government's 10-year Automotive Mission Plan. It is also aiming for 25 million indirect and direct auto sector jobs, up from 13 million, but Kant warned that the achievement of the plan was at risk. "The Indian automotive industry is facing unprecedented challenges," he told SIAM's annual meeting in New Delhi.

"Demand is shrinking because of the lack of availability of consumer finance, high interest rates and the high cost of fuel," he said, adding input materials have "witnessed massive increases."

More than half the vehicles sold in India are financed through credit.

In the past two years, steel prices have increased by nearly 40%, copper prices are up by 45% and natural rubber has risen by 40%, Kant noted in a speech."These factors are having a catastrophic effect on the bottom line of the Indian automotive industry," he said. "These are (also) resulting in the withdrawal, scaling down or deferment of capital investment which would hurt the objectives of the Automotive Mission Plan."

Kant appealed to the government to take "corrective measures" so the automotive plan's goals can be met, but did not elaborate.

In August, Japanese-owned Maruti Suzuki India, which manufactures half the cars in the country, reported sales fell 9.2%, the first fall in five months. Further gloom was cast over the industry this week when India's Tata Motors suspended work on a project to make its "Nano" car, due to fierce protests over land acquired for the plant. Overall industry sales growth has fallen to single digits this fiscal year to March 2009 after posting double-digit growth in the past financial year, Kant said.

Copyright Agence France-Presse, 2008

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