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Auto industry flashes red signal

autos Updated: Jan 04, 2009 21:48 IST

The downturn that has gripped the automobile industry over the last six months is not set to end anytime soon. The top industry association, the Society of Indian Automobile Manufacturers (SIAM), has predicted that there would be at least three more months of pain before any relief in 2009. Worse still, it also foresees a corresponding fall in profit margins for automobile firms.

In a meeting of the Development Council for Automobile and Allied Industries (DCAAI) under the ministry of heavy industries and public enterprises held last month, SIAM President and Managing Director of Tata Motors Ravi Kant said that the problems being faced by the industry were not six months old but have been persisting for the last year and a half.

“Raw material costs account for 60-70 per cent of the total cost and with steel prices going up by 40 per cent in the recent past, overall costs have gone up by 15-20 per cent completely eroding the profitability of the sector,” Kant said.

“The financial results of most of the automotive industry players for Q3 (Oct-Dec 08) and Q4 (Jan-Mar 09) will be devastating.”

Despite a fall in primary steel prices, prices of auto grade steel have not come down and there is likely to be an increase in prices of cars, two wheelers and commercial vehicles in January. Hyundai, Maruti and Toyota have already indicated of such plans.

Falling demand for automobiles, which has impacted all three segments, has got everybody worried.

"It is critical that the sector is turned around and if steps are not taken in the next 2-3 months, irreparable damage may be caused,” said Pawan Goenka, president automotive sector, M&M. “Speed of action is of essence.”