Production cut is the old news. Most automakers in India, both domestic and international – have kept their plants closed for weeks in the last couple of months. The inventories have gone up both at the factory level as well as the dealer level. Obviously, the stock prices nosedived. Most of the analyst community is bearish on the automakers in the short term.

The only ray of hope is in the government action, where the rates are being slashed by central bankers and the economic stimulus package announced by the government offering CENVAT cut.

Most of the players have welcomed this package but termed it as a half-hearted attempt to ward off the economic slowdown.

The CENVAT cut of 4% has been passed on to the customers by the largest small car maker in India – Maruti Suzuki, which announced price reduction in all 11 models it manufactures at the plants in Gurgaon and Manesar. Tata Motors – the closest competitor of Maruti, has followed suit. The foreign automobile makers in India, including General Motors, Toyota and Hyundai have passed on the CENVAT cut benefit to their customers across the board and reduced prices to that effect. All the automakers have reduced the prices with immediate effect.

However things are not expected to improve in foreseeable future. The inventory build up is yet to be disposed of. The layoffs are increasing labour unrest in the sector. There is a lack of demand and the price cuts do not make the automobiles attractive for  potential buyers at all. The lack of demand is not only due to prices of the cars but lack of purchasing power.

The sector is interest rate sensitive. A 200 basis points cut in a span of one month is not enough. Most of the bankers have not reduced rates on car loans. Rather, many have made the requirements for sanctioning of an auto loans more stringent. This is an outcome of the increasing defaults in the auto loan segment. The layoffs in the economy have made many defaults on their car and bike loans. This has added to non-performing loans of the banks resulting into further tightening of the auto loan portfolio. If the real economy does not improve and bankers do not go easy on the auto loans at realistic rates (read around 12% which is at least 600 BPS below the prevailing rate for auto loans), it is highly unlikely that the auto sector will bounce back.

The woes of the sector does not end here. Players such as Hyundai and General Motors are already facing trouble in their country. Tata Motors, the most aggressive player, has got into turbulent times, as it is cash starved to refinance acquisitions overseas. Though Tatas managed to take their rights issue through by subscribing to the shares out of their money, they are still in need of cash. The rights issue of approximately Rs 2,000 crore is being supplemented by the fixed deposit programme of Rs 6,000 crore. The auto ancillary units are also out of shape completely and many are on the verge of closing down as their customers experience tough times.

The Union government reduced CENVAT for all cars by 4 per cent

Maruti Suzuki

After passing on the complete duty reduction benefit, the price reduction (Ex showroom Delhi prices) ranges from Rs 6,500/- for Maruti 800 to Rs 23,000 for the top-end SX4 sedan. There is no change in prices of Grand Vitara, as it is not impacted by CENVAT changes.

Tata Motors
Passenger vehicles: Indica and Indigo family: Between Rs. 12,000/- to Rs. 23,000/- depending on the model.

Utility Vehicles: Safari and Sumo family: Between Rs. 16000/- to Rs. 36000/, depending on the model.

Light Commercial Vehicles: Between Rs. 17,000/- to Rs. 23,000/-.
Medium &Heavy Commercial Vehicles: Between Rs. 30,000/- to Rs. 60,000/-

SkodaIndia

Skoda India reduces prices in the range of Rs. 12,500 to Rs 51,000 on all models from 10th December 2008

Hyundai Motors
Flagship model Santro would drop by Rs 8,834 for the non AC model while the top end luxury car Sonata will see a price drop of  as much as Rs 44,792.

General Motors

Cut the price of its vehicles by up to Rs 30,500
GM small car 'Spark' by Rs 8,000-Rs 10,200
Aveo U-VA has been cut between Rs 12,000 and Rs 16,000, Entry-level sedan 'Aveo' is slashed by Rs 16,700-Rs 21,000 and multi-utility vehicle 'Tavera' would be cheaper by Rs 16,500.
"These price cuts are in addition to the discounts offered by the company between Rs 20,000 and Rs 58,000 on our different models.