Auto slump spreads to component suppliers segment

The slowdown in the automotive industry is no longer just a bump on the road. And as manufacturers look to cut back on production to bring it in line with sluggish demand, they have also started cutting down on their workforce. CNBC-TV18's Ronojoy Banerjee and Sunanda Jayaseelan report that the effects of this are being felt by component suppliers as well.

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The automobile sector is taking corrective action by cutting back on production to align it with slowing demand.

It began in the passenger vehicle segment with Maruti halting production of petrol and diesel engines at its plants. M&M, which had been a little insulated due to its SUV product portfolio, is also feeling the pressure. In June, when sales fell, the company had to lay off close to 500 workers. Says Pawan Goenka, president - automotive business, M&M, "After reducing employee strength by 400-50, more cuts in employee strength are due if shutdown in production continues after July."

The commercial vehicle space has not been spared either. Sales fell over 8 percent in June, making it the 16th straight month of falling sales. Commercial vehicle major Ashok Leyland was amongst the worst hit and responded by reportedly laying off around 1,300 temporary workers. 

No surprise then, that component suppliers are also feeling the heat. Says Sunder Rajan, CEO, Sona Koyo, "We are sill watching. There could be correction in the form of layoffs in October for our company too. This correction is to be done in support functions not directly related to manufacturing."

So far, the damage has been restricted to contract workers. But Sona Koyo says most auto component manufacturers are staying away from any fresh hiring. And unless demand picks up, there seems to be no reversal on the cards.