The downward spiral being witnessed by automobile manufacturers is leaving a deep scar on component manufacturers who are either resorting to block closure of plants or putting off capacity expansion plans. Automotive Axles Ltd (AAL), a joint venture of the Kalyani group and Arvin Meritor Inc., USA (formerly the automotive division of Rockwell International Corporation), has informed the stock exchanges that ‘all capacity expansion proposals have been withdrawn’. (It is not clear what particular project the company meant by this announcement.)
In a notification last year Automotive Axles Ltd informed BSE that the board of directors at its meeting held on April 15, 2008, had approved expansion of axles capacity from 168,000 axles to 240,000 axles a year at an investment of Rs 112 crore. The company had been informing the stock exchanges about the status of the auto industry at various times. It had said the commercial vehicle market was witnessing a steep fall in demand, which had driven the company’s OE customers to resort to shut down/lay offs. This compelled AAL to moderate production. The company decided to shut down operations for at least a week during November and December 2008.
It decided to shut down production from January 10-18 and again from January 22 to 31, 2009. The company’s sales for the first quarter ending December 31, 2008 fell to Rs 49.45 crore from Rs 174.46 crore for the same period last year, while net profit dropped to Rs 6.85 lakh from Rs 14.61 crore previously. In its filings with the BSE, the company stated that the ‘current quarter’s sales have been affected due to severe downturn in the CV market’. Kesoram Industries Ltd, which among others manufactures automobile tyres under the brand name Birla Tyres, has not only announced temporary closure of operations at its Balasore unit during January but also has indicated that there would be steep production cuts during the next two months.
In a communication to the BSE, the company has said that looking into the demand from export market and vehicle manufacturers such as Tata Motors Ltd, Ashok Leyland Ltd and Mahindra & Mahindra Ltd, it is ‘inevitable to close down temporarily’ the production facilities at Birla Tyres at Balasore in Orissa from January 19 till January 31 and thereafter the production will be only for 13 days in every month till March 31, 2009. KIL said the matter would be ‘further examined and hope that the situation improves after March 2009’. Pricol Ltd, based in Coimbatore, announced the block closure of two units located at Coimbatore and Uttarakhand from January 22 to 31.
In a communication to the NSE today, the company stated that the decision was taken with a view to align its production plan ‘to avoid piling up of inventory’. Pricol has been resorting to closure of its manufacturing facilities for varying periods since December last year in an attempt to rejig its production to meet the demands of the automobile manufacturing sector. Since the company’s different units cater to different segments of the industry – from two wheelers to commercial vehicles – the timing and duration of closure are tailored to the demands of different customers.