The Indian automotive industry faces a 'precarious' outlook due to the ongoing conflict in West Asia, according to Shailesh Chandra, President of the Society of Indian Automobile Manufacturers (SIAM). Speaking to reporters in New Delhi, Chandra highlighted the sector's reliance on industrial gases such as LPG for manufacturing processes, making it vulnerable to geopolitical instability.
Supply Chain Disruptions and Rising Costs
While the industry experienced strong growth in March, the underlying situation remains tense. Chandra noted that companies like Tata Motors, where he serves as Managing Director, Passenger Vehicles, have been receiving supply clarity updates every few days from suppliers dependent on LPG. Although many auto manufacturers have proactively shifted to Piped Natural Gas (PNG) or secured bulk LPG connections to enhance efficiency and mitigate risks, the threat of disruption persists.
SIAM's president also pointed out that underlying operational costs have escalated for many companies. To circumvent potential supply chain bottlenecks, some manufacturers have resorted to expensive air freight options, impacting their bottom lines. The industry has managed to maintain supplies so far, but the long-term sustainability of such measures is questionable.
Potential Vehicle Price Hikes on the Horizon
A significant concern raised by Chandra is the strong likelihood of vehicle price increases. The war's impact on global commodity prices is expected to translate into higher input costs for automakers. The extent to which original equipment manufacturers (OEMs) can absorb these rising costs, and the precise trajectory of commodity price increases, should become clearer within the next four to five weeks.
This clarity is crucial for determining the demand outlook for Fiscal Year 2027. Chandra cautioned that a prolonged West Asia crisis combined with a significant surge in fuel prices could exacerbate the situation, further impacting consumer demand. Despite these challenges, the Indian economy's projected GDP growth of 6.5% to 7% offers a glimmer of hope, as passenger vehicle growth typically mirrors the broader economic expansion.