U.S. Auto Slowdown to Hit Indian IT Companies
The slowdown in the US automobile industry is likely to impact the growth of select Indian IT companies. Some Indian companies such as Satyam Computer Services, TCS, Wipro and Infosys could be hit by delayed payments and a freeze in contracts as their major customers in the auto sector face threat of bankruptcy, according to analysts.
The top three US automakers—General Motors (GM), Ford Motor and Chrysler—are seeking a bailout from the US government. And, even if they succeed in getting the bailout, their IT expenditure could drop more than $1.5 billion a year, said analysts. Future contracts could come with demands for price cuts, which the IT majors will be pressurised to agree to.
"To cut costs, auto companies would shrink in size to trim their operations. Some of them will shut down a few plants. This means reduction in operational IT spends," Gartner VP advisory service manufacturing group Thilo Koslowski told ET. The companies are also likely to axe expenditure on new IT initiatives often referred as discretionary spends.
Edelweiss Capital's IT analyst Viju George said: "In case of a bailout, the US auto companies would cut their discretionary spend to stay afloat. As of now, about a third of their IT spends are of discretionary nature. This portion could get impacted going ahead." Analysts say the magnitude of the impact would be known in next 2-3 months, once auto players have a re-look at their IT budgets.