TVS Motor, India’s third-largest two-wheeler maker, said it will reduce investments by 20 per cent this year and cut production after sales slowed and banks turned reluctant to finance vehicles.
The decision comes close to a similar move undertaken by Pune-based Bajaj Auto to cut production to adjust to falling demand in the post festive period, which begins by the first week of November this year.
Venu Srinivasan, chairman and managing director, TVS Motor, said, “We have seen sales declining in the export and domestic market due to sluggishness in demand. We have planned to cut investment by 20 per cent this year as an adjustment.”
Although the company’s sales grew by 6 per cent during the first half of this year starting April, at 610,000, it was largely aided by a jump of 20 per cent in sales of last month. The average increase during the period of April-August this year was just 2.6 per cent as compared to last year.
TVS now plans to invest Rs. 70 crore this year compared to about Rs 90 crore earlier. It had spent about Rs 150 crore last year as capital expenditure. “The challenge will be to sustain the margins rather than increasing it. It will be a very tough phase for the industry”, said Srinivasan.
Industry experts say that the recent ad-hoc move by the country’s central bank, the Reserve Bank of India, to slash the repo rate as well as the cash reserve ratio (CRR) will not improve business for the auto sector in the near term. “It seems very unlikely that banks will cut lending rates for auto loans as the RBI measure is just a temporary one”, said a senior official at Bajaj Auto.
