U.S. Automobile Crisis to Hit Indian Auto Component

Crisis in the global economy started eroding the corporates eventually. To get more detail of the auto companies, the European car salesYour browser may not support display of this image. were down 26 per cent in November compared to the same month in the previous year and one suddenly makes out how deep is the inability to spend on cars is driving home in the developed world.

India's auto component makers are facing one of the biggest crises ever. With the domestic market in the doldrums and the exports to the American market badly hit, many companies are on the verge of shutting down.

The Indian market has also been battered and with no sign yet of an impending bail out of the Yankee Big Three (such a misplaced term to think of them as Big!)

The entire supply chain of auto companies is bearing the brunt of the economic meltdown. From Tier-1 companies to small-scale units, all are facing a huge fall in demand, delayed payments and a stiff liquidity crunch.

Anil Bhardwaj, Secretary General, Federation of Indian Micro, Small and Medium Enterprises (FISME) said,"About 4,000 ancillary units are on the verge of closure and about 200,000 people will be affected by this crisis. Most companies have cut down the number of shifts, working days and are cutting down production. The US crisis has aggravated the problem,"

The commercial vehicle segment is the worst hit by the crisis. Such crises are cyclical, and tend to recur every 5-6 years, but a calamity of this magnitude has put all companies in trouble.

Jayant Davar, vice president, Automotive Component Manufacturers Association (ACMA) said "Auto component makers are hit very badly. The original equipment manufacturers (OEMs) have not been able to sell stocks. Cash flow is getting hugely affected. Payments are getting delayed, affecting a lot of projects. The overall sentiment is negative,"

In this worst economic condition, top three U.S Automakers such as General Motors (GM), Ford Motor and Chrysler are seeking a bailout from the U.S. government. According to analysts, even these companies succeed in getting the bailout; their IT expenditure could drop more than $1.5 billion a year. Moreover, IT companies will be pressurized to cut price for future contacts.

Viju George, IT analyst, Edelweiss Capital opined "In case of a bailout, the U.S. auto companies would cut their discretionary spend to stay afloat. As of now, about a third of their IT spends are of discretionary nature. This portion could get impacted going ahead,"