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Auto demand, rising oil & more - Views on News from Equitymaster
 
 
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  • May 28, 2008

    Auto demand, rising oil & more

    Car trouble around the world
    While the subprime mess has wrecked havoc in the financial world, it has turned out to be a spoke in the wheel for the auto industry too in the US. As per reports, banks and auto lenders are tightening their purse strings and are wary of lending to consumers. To put things into perspective, around 15 m vehicles are expected to be sold in 2008 in the US as compared to 16.2 in 2007.

    The auto industry is one of the first to get impacted in times of a downturn and consequently impacts a host of other industries dependent on it such as suppliers of parts, paints, metals and the like. The Indian auto industry too is facing the heat as rising input prices continue to weigh heavy on sales and profitability. And with the government mulling a next round of price hike (if it gets over its political reservations), matters are likely to get only worse.

  • Read our outlook on the Indian auto sector

    Impact of preferring ads over doctors
    Leading global pharma company Merck has agreed to pay US$ 58 m as part of a settlement for charges that its ads for the painkiller 'Vioxx' played down the health risks associated with the drug. Readers would well remember that 'Vioxx' was withdrawn from the market after studies indicated serious safety issues with respect to the same. This led the US FDA to become more stringent in approving new drugs, in an industry, which was already in the doldrums due to a waning pipeline despite mounting R&D costs.

    In Merck's case, what had come under considerable flak was the heavy advertisement spend on the drug, which led the patients to ask for 'Vioxx' prescriptions even before the doctors could understand the side effects. This has in recent times brought the sales and marketing force of Big Pharma under fire and has caused companies to cut down size of their sales teams.

    In this context, The Economist states that 'another sore point for the industry is direct-to-consumer advertising. Only America and New Zealand allow makers of prescription drugs to promote their wares directly to the public. In most other countries the practice is prohibited. The proponents of consumer advertising argue that it helps make patients aware of medical conditions they may not have known about and gives them more information for discussing their condition with their doctor. Critics counter that such promotion encourages consumers to badger their doctors, compromising the quality of care and the doctor-patient relationship'.

  • Why is custom manufacturing gaining pace?

    Roiled by rising oil
    Relentlessly rising oil prices are beginning to take their toll on emerging economies; more importantly on economies where the oil prices are subsidised at the retail level. Joining India in the bandwagon, Sri Lanka and Bangladesh too have been compelled to raise prices. Mounting subsidies have been hurting state oil companies in these countries causing them to bleed profusely. While Sri Lanka has raised prices for kerosene, gasoline and diesel by around 14% to 47%, Bangladesh Petroleum, the country's sole oil importer and distributor, has proposed fuel price increases of 37% to 80%!

  • Will the boiling oil spill over?

    Is the worst over for the US economy?
    The raging debate surrounding recession in the US continues and while certain economic indicators have turned out to be positive, Morgan Stanley (through its Global Economic Forum) maintains that considerable downsides remain as well.

    Let us first begin with the positives. The first quarter of 2008 saw the economic activity in the US increase by 1%, non-financial companies reporting strong results and exports maintaining a healthy momentum due to firm demand in Asia and Latin America. Besides this, the tax rebates announced by the Bush administration also began to find its way into the accounts of US consumers.

    That said, downside risks continue to persist. For instance, further decline in home prices and rise in foreclosures would pressurise financial institutions. Rising energy and food prices, as has been the scenario around the world, is expected to stoke inflation and reduce discretionary income. Thus, while the US government's purpose of doling out tax rebates has been to induce spending and prevent the US economy from slipping into a recession, tightening credit, soaring food and energy prices and rising unemployment could in reality make the American consumer vary of spending more.

     

     

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