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The Indian automotive industry is currently going through one of its most challenging phases so far. Vehicle sales are set to register a negative growth in 2013 – first time in more than a decade – compared with the previous year. Official data shows that vehicle sales in India declined at a high single digit rate year on year in the first nine months of 2013 compared to 2012. This downward spiral has prompted automakers and suppliers to cut production to avoid excess inventory build-up. Besides, there’s little respite on the cost front. Though there has recently been some softening in raw materials prices, other costs such as wages, cost of power and finance expenses, continue to erode suppliers’ operating margins.
The weakness in the automotive market has taken its toll on the investment drive of many suppliers. While international suppliers have continued their investments in India, citing the country’s long-term growth prospects, local suppliers have almost put their expansion plans on hold until there is a sustained recovery in vehicles sales. The Indian automotive industry at the moment is facing multiple challenges such as slowing economic growth, high inflation and high interest rates – compared with many of its peers. IHS however is sanguine about the country’s growth trend in the medium to long term and forecasts recovery in vehicle sales in 2014, and high single-digit growth in vehicle sales for the rest of this decade. IHS expects vehicle sales in India to grow at an average rate of 12.2% annually between 2014 and 2020; sales are expected to reach 7.1 million units by 2020 compared with 3.6 million in 2012.
This fourth edition of the Indian Supplier Report offers an account of the current volatile business environment in the country. The report, based on comprehensive first hand interaction with industry officials, gives an insight into how suppliers are dealing with the current market and economic challenges. The analysis in this report is supported by a survey conducted among more than 50 senior industry executives – mostly tier one suppliers. The survey reflects IHS’s opinion that, despite short-term challenges, India remains an attractive market for the automotive industry.
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