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Driving on the growth track, but with caution

Published by | January 20th 2010 | Views:

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Although the auto component sector in India has come back on the track by posting good sales following the recent surge in auto sales and new launches, SME auto parts manufacturers continue to maintain a cautious outlook on the investment front. Small-scale auto component makers are wary of drawing ambitious capacity expansion plans considering that the global economy has not yet recovered fully.

Going slow on investments

Analysts observe that small-scale auto component manufacturers are putting in a great deal of thought before making investments in a phased manner. The cautious approach largely arises from the skepticism looming over market demand. However, the situation has improved in the last few months after recording a fall for several months since the global economic slowdown.

“Although the demand for vehicles has shown an improvement, thereby helping SME auto parts makers regain momentum, the question that continues to bother component manufacturers is that whether the pullback in demand will remain sustainable for long,” said Manu Vora, proprietor of Kunal Auto Services, a small-sized auto parts supplier in Mumbai.

The Auto Component Manufacturers’ Association of India (ACMA) has also noted that small auto parts manufacturer and suppliers are adopting a ‘wait and watch’ approach before making fresh investments.

“Small players in the sector are shying away from making big investment decisions as cost of borrowing is quite high and risks associated with investments are also greater now,” said a key industry official.

Considering that the global economy is yet to show a complete turnaround, SME auto component manufacturers and investors are keeping a low profile as far as their investments are concerned. Taking calculated risks has become the mantra of auto parts makers and suppliers, at least for some time now.
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