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After facing an eight month long demand slump, small scale auto parts suppliers and commercial vehicle makers are seeing a rise in demand for vehicles in recent weeks.

Maruti Suzuki, Hyundai India, Mahindra & Mahindra, and Tata Motors have witnessed a surge in demand for vehicles in the month of February. Improved sales in the first two months of 2009 as compared to the October-December 2008 period has shown signs of the auto component industry gradually recovering from the recent decline.

The spurt in domestic demand for vehicles during January and February this year can be attributed to the government's relief measures. The second stimulus package released in the first week of January has also been crucial for easing liquidity pressure, which previously placed considerable restrictions on component suppliers and auto makers.

Public sector banks have also provided timely and adequate financing to help small scale units obtain easy access to funds. Availability of special line of credit to the Non-Banking Finance Companies (NBFC) has also enabled auto component players to cope with the acute liquidity crisis and maintain their output levels.

The depreciation benefit of 50% provided for vehicles purchased in the current quarter has also boosted sales in the market.

With the domestic auto market looking up, big companies including Tata Motors and Ashok Leyland have raised their production capacity during the past month. Subsequently, small scale component vendors supplying to auto makers have also reported a surge in volumes during the period.

Besides increase in demand for auto parts, supplies of sheet metal components and sub-assemblies from small industrial units have also seen a sharp rise over the past few weeks.

Though the sales performance during the first two months of this calendar year have been encouraging, it is still too early for small scale auto part suppliers to expect an end to the lean phase.

Despite positive indications on the domestic front, uncertainty still looms large on whether the demand would sustain the current levels for the entire year. Even though things have started looking up and the order books for March look positive, there is a need to exercise prudence while making strategic decisions.

About the Author:

David Parks is a well known author and has written articles on Buy Trade Leads and B2b Marketplace, suppliers, Manufactures and many other subjects.