A street car named affluence

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: commercial vehicles. No wonder, two-wheelers witnessed a decline of 7.92% at 72,48,600 units in the last financial year and the commercial vehicles managed to post a growth of 4.07% at 4,86,817 units during the same period.

Even steel, a major component of auto industry has seen a surge in price to as high as 45-50% since last year and that had impacted the margins of major players. According to industry estimates, while margins of OEMs were down by 100-200 basis points, for auto ancillary players, it was a decline of 300-500 basis points in margins. This resulted in a series of price hikes by all players across the category, thus impacting overall growth.

However, according to the Automotive Component Manufacturers Association (ACMA), the recent cut in steel prices seems to have no positive impact on the auto industry as it largely relies on alloy steel and there has been no impact on price of specific grades of alloy steel. “The alloy steel have not been impacted by the price cuts at all, leaving the industry sandwiched between fixed-price supply contracts on one hand and the rising prices of steel on the other, which has severely impacted the profitability of the industry,” says Sanjay Labroo, president of ACMA.

All this resulted in a dip of 7% in the auto index over the whole of last year till May 13, while the Bombay Stock Exchange gave a return of 20%. As a result the entire auto index underperformed 12-13% as compared to the Sensex. “Due to an increase in non-performing assets in two-wheelers and commercial vehicles, high interest rate and a rise in the cost of owning a vehicle, stocks of major listed auto companies under performed in 2007,” says Vaishali Jajoo, senior analyst, Angel Broking, adding that the rising inflation had slowed down the overall growth in the industry that had seen a growth of over 15% over the last four consecutive years.

However, with the country moving up in terms of value chain and the extremely low level of reach across the interiors of the country, industry experts are optimistic that there would be a huge potential for growth in days to come.