The news from the automobile world continues to be bad. Last week, tractor and utility vehicle-maker Mahindra and Mahindra (M&M) announced that it too would be keeping its factories closed for 3-4 days this month; last month, truck and bus manufacturers Tata Motors and Ashok Leyland said they would be working fewer hours in December. And Eicher’s volumes for commercial vehicles in November slumped 71 per cent, which was worse than 67 per cent fall at Leyland. Demand, whether for trucks or two wheelers, is clearly weakening. One reason for this has been the lack of credit from financiers on easy terms.
Banks have been reluctant to give consumer loans for cars or even trucks and if they are willing to lend, the loans are offered at relatively high interest rates. In the case of trucks, a slowing economy has meant a smaller quantum of goods to be transported and fleet operators are choosing to overload their trucks rather than buy a new one. And two-wheeler owners are choosing to make do with their existing bikes for some more time.
Against this backdrop, the four per cent cut in the central excise duty — which will mean lower prices of cars and trucks should manufacturers choose to pass on the benefit — is good news. But cheaper cars and trucks won’t mean long queues outside showrooms. Not just yet. For one, although banks are lowering their prime lending rates in response to rate cuts by the central bank — by about 50-75 basis points — they need to bring down rates for auto loans to make them more affordable.
Even before that they need to make up their minds that they want to lend to consumers. For their part, consumers are being cautious in difficult times — a weak stock market has robbed them of their wealth and a not-so-rosy outlook for the economy has made them anxious about their jobs and incomes. They’re also hoping car makers might cut prices further; after all prices of raw materials such as steel and aluminium have come off sharply. As of now a 4-5 per cent cut in prices is unlikely to kickstart demand.
