Chennai rains halt auto companies’ production, may affect their sales

Experts say Chennai floods will definitely impact domestic and export sales of the auto companies with Hyundai getting affected the most.

By: and | Updated: March 20, 2016 8:51 PM

Chennai rains

Chennai rains: The city hosts country's largest auto manufacturing hubs with Ford, Daimler, Nissan, TVS, Hyundai, Renault-Nissan and Ashok Leyland having their factories there.

Chennai rains have crippled normal life in the city with a 20 cm rainfall in last 14 hours. Flight services have also been suspended and the Tamil Nadu government has announced holiday for schools and colleges while most of all the factories and offices too closed. Chennai rains have also hit the auto companies hard and forced their plants to shut for the second time in less than a month.

Chennai hosts country's largest auto manufacturing hub with Ford, Daimler, Nissan, TVS, Hyundai, Renault-Nissan and Ashok Leyland having their factories there.

Ford with an annual capacity of 3.4 lakh engines and 2 lakh vehicles has also shut its plant. "Continued heavy rains in Chennai have resulted in significant flooding in the area with many roads impassable. For the safety of our employees, we have halted production at our Chennai assembly and engine plants on Wednesday, December 2. We are carefully monitoring the situation and will return to normal operations as soon as conditions improve, ” Ford said in a statement.

Auto companies on Tuesday announced the November sales numbers with Eicher Motors reported a 48 per cent jump in total sales in November. Ashok Leyland posted an increase of 16 per cent in sales, Maruti Suzuki India registered a rise of 9.7 per cent in its total car sales and M&M sales grew 21 per cent in November.

However, market experts believe Chennai-based auto companies will see fall in sales on account of heavy rainfall. TVS Motor Company, which is based in Chennai, reported 2.43 per cent increase in total sales at 2,25,401 units in November. "Incessant rains for the past three weeks in Chennai have had an adverse effect on company's production during this period. The company suffered sales loss of approximately 15,000 units due to inclement weather", TVS Motor said in a statement.

The share price of TVS Motor Company was trading 4.14 per cent down at Rs 291.40 in the morning trade on BSE (at 11.14 am).

Sudip Bandyopadhyay, president, Destimoney Securities, said, “Chennai rain will definitely impact domestic and export sales of TVS Motors in the two-wheeler space. In the four-wheeler space, it will hurt export sales of Indian companies. In the non-listed category, Hyundai will be affected the most.”

According to Nomura, in passenger vehicles (PVs), industry growth momentum to remain healthy at around 13 per cent year-on-year. Key auto manufacturers like Maruti Suzuki India, Hyundai, Honda should deliver strong growth, thanks to their new launches. However, the brokerage house expects heavy rains and flooding in Chennai to impact production for original equipment makers that have factories in the area (Royal Enfield in two-wheelers and Hyundai/Renault/Ford in PVs).

In the late morning trade on Wednesday, shares of Eicher Motors were trading 0.37 per cent up at Rs 16,292, however, Ashok Leyland was trading 1.12 per cent down at Rs 92.30.

However, there are other four key challenges which may impact industry from here onwards.

1) Skilled Manpower: One of the major challenges of the auto industry is the creation of highly skilled human resource. The industry, like many other industries is facing severe shortage of skilled technical as well as managerial manpower. The automotive sector will require around 15 million skilled manpower in the next 10 odd years. The need of the hour is a workforce in this sector that has skills training and sufficient practical knowledge of vehicle operations and service.

2) Weakness in rural demand: Although new launches are driving sales in urban areas, but automobile makers are facing a rural slowdown. The rural market contributed 15 per cent of automobile sales this year, down from 18 per cent a year ago.

3) Lack of infrastructure: Infrastructure is one of the biggest issues being faced by Indian automotive industry. Despite ongoing improvements in infrastructure, several aspects of the auto sector are still riddled with problems due to outdated infrastructure and lack of investment in less economically active parts of the country.

4) Rise in oil prices: Although the prices of global crude oil have fallen to record five years low and is good for industry, but any immediate rise in oil prices will inversely impact the auto industry. Indian is oil importing country; more than ninety per cent of oil is imported, any sharp rise in oil prices will increase the cost of maintenance for vehicle owner.