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OEM Update

Auto part makers cautious on investment

January 12, 2010 5:12 am

Top component makers had invested heavily in capacity expansions in early 2008, but the global recession and tight availability of finance saw a demand slump in automobile sales.
 
Auto component manufacturers are careful about making huge investments for capacity expansions. This comes in the wake of growing uncertainty over Euro IV emission norms and a possible hike in excise duty on cars. Senior industry executives say this stance by component makers is mainly due to fears that they could be stuck with large liabilities as the government hasn’t yet upgraded refineries to supply eco-friendly fuel.
Top component makers had invested heavily in capacity expansions in early 2008, but the global recession and tight availability of finance saw a demand slump in automobile sales. As a result, auto parts makers have resorted to layoffs and production cuts. “When there is a downswing in demand, we are not insulated enough and we are left to handle the risk. So now all of us are overly cautious,” said Ashok Taneja, Managing Director, Sriram Pistons, which supplies to major car makers such as Maruti Suzuki and Tata Motors.

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