News and Events

Auto cos put investments on hold

Slowing sales due to high interest rates and rising input costs force the move.

Automobile companies, faced with slowing sales and a high cost of finance, are shying away from making new investments. Many have put expansion plans on hold.

Bajaj Auto Ltd, the country’s second-largest motorcycle maker, has deferred a final decision on its fourth manufacturing facility in Mundra, Gujarat . Bajaj’s biggest rival, India ’s No 1 two-wheeler maker, Hero MotoCorp, has also put off work on starting another manufacturing facility in one of the southern states. Hero had set aside an investment of Rs 500 crore to set up the new plant. Hyundai Motor India Ltd, India ’s No. 2 car maker after Maruti, has put off plans to set up a diesel engine factory in Chennai.

BUMPY RIDE
* Bajaj Auto has deferred a final decision on its fourth manufacturing facility in Mundra, Gujarat
* Hero MotoCorp has also put off work on starting another manufacturing facility in one of the southern states
* Hyundai Motor India Limited has put off plans for setting up a diesel engine factory in Chennai


Automobile makers are regularly wooed by state governments to set up factories, since they create jobs and give more work to vendors. For instance, two-wheeler companies source almost their entire components from within India , boosting small businesses. A deferment of investment by these companies hits growth all around.

“We are operating at more than 90 per cent of our capacity. We should set up a new plant; Gujarat is a likely alternative. But the economic conditions are so uncertain, we want to be prudent and see how the market develops,” said Rajiv Bajaj, managing director, Bajaj. “If there is a meltdown, we don’t want to be caught on the wrong foot.”

Bajaj’s motorcycle sales grew by a modest 1.9 per cent to 244,503 units in the domestic market in October, tumbling from a 14 per cent sales growth in June. After posting strong double-digit growth rates in the first half of the financial year, two-wheeler sales (which include motorcycles) for the entire industry slowed to a two per cent growth to 1,147,621 units last month. Though the two-wheeler segment is projected to end the financial year with sales growth of 13-15 per cent, manufacturers are exercising caution in investing in fresh capacity, which they fear, may remain unutilised.