Indian Automobile Industry

The study also tries to assess the impact of various factors influencing capacity utilization. In this paper, optimal output is defined as the minimum point on the firm’s short run average total cost curve and the rate of capacity utilization is merely ratio of its actual output to capacity output level. We use an econometric model to determine the optimal capacity output. Our result shows that capacity utilization has been improved after the path breaking economic reforms initiated in 1991 at the rate of around 5 percent per annum but capacity grows more rapidly than output growth.

In view of identifying several factors that influence capacity utilization, result suggests hat coefficient of export-intensity variable, import penetration ratio are negative which indicate that capacity utilization was relatively lower in firms belonging to industry characterized by high export-intensity and import penetration. A positive relationship is found between size and capacity utilization and similarly between market share and capacity utilization Indian automobile industry went aboard on a new Journey in 1991 with deliquescing of the sector and subsequent opening up for 100 percent FED through automatic route.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!

order now

Since then ,almost all the global majors eave set up their facilities in India taking the level of production from 2 million in 1991 to 9. 7 million in growth of Indian middle class with increasing purchasing power along with strong growth of economy over a past few years have attracted the major auto manufacturers to Indian market. Increase in income level, decline in tax and interest rates have helped to increase in personal disposable income .

Change in mindset leading to changing investment / spending pattern from property investment to increasing consumerism ,explosive growth in communication have led to arbitration of rural consumers’ attitude and has increased the propensity to consume. Therefore, increased disposable income and fast changing spending habits have led to the increased consumerism of capital good product for human comfort. The market linked exchange rate and availability of trained manpower at competitive cost have further added to the attraction to Indian domestic market.

The growing of Indian market on one hand and the near stagnation in auto sector in market of USA, EX. and Japan on the other hand have worked as a push factor for shifting of new capacities and flow of capital to the auto industry of India. The increasing competition in auto companies have not only resulted in multiple choices for Indian consumers at competitive costs, it has also ensured an improvement in productivity by almost 20 percent a year in auto industry which is one of the highest in Indian manufacturing sector. The rate of capacity utilization Indian Automobile Industry By Aeronautical of the central variables in economic analysis.

As a yardstick for evaluating economic performance in a capital-scare economy like India, manufacturing capacity utilization is a key indicator which not only determines how much more output can be obtained y fuller utilization of existing capacity but also defines the required expansion of capacity for a targeted output and also explains changes in investment, inflation, level of resource utilization, assesses possible future demand for investment goods, a demand that tends to vary directly with increase in CUE, permits economic analysts to adjust current productivity growth calculations for departure from full equilibrium. Etc. Therefore, the estimation of capacity output and its utilization will be very useful to evaluate the variations in the performance of an industry over a period of time Rigorous changes have been made in industrial policy of India Government with the initiation of major economic reforms since 1991. Relaxing of licensing rule, reduction of tariff rates, removal of restrictions on import etc. Are among those which have been initiated at early stage.

After deliquescing of the sector, with the enhancement of purchasing power of common masses in India, the Indian automobile market is flourishing gradually. Even better, ancillary sectors that extensively supply spares and inputs to the automobile sector are themselves booming, ensuring that this sector stays firmly on the growth path for times to come. In the past two years, more than a dozen multi-national firms have announced plans to enter the Indian market.

Most of them have formed Joint ventures with Indian firms, while there are exceptions such as Handy which plan to form fully-owned units. Despite the large growth potential of the Indian market (analysts expect the growth to triple in the next five years), no one expects the industry to sustain the fragmentation caused by more than a dozen suppliers. Many of these new firms will not enjoy the scale economies ND relationships with suppliers that Marti does, so they have decided not to challenge Marti at its price of $5,500 in the smaller car segment.

Most are planning to produce between 20,000 and 50,000 higher-end vehicles. The stiff competition is building up in the mid-sized car range (1 ,300 c and above), where several of these multi-national and Indian companies are planning to go head-to-head. Although these newly announced vehicles at $12,000 or above remain expensive by Indian standards and planned capacity exceeds projected demand, new entrants are betting on the rising incomes of middle-class families.

The advocates of liberalizing expect that this policy reforms will perk up industrial growth and performance significantly while critics argue that absolute elimination of restrictions on several matters will have an unwanted effect on future growth and performance of the industry. In this background, this paper attempts to measure capacity utilization of Indian automobile industry econometrical and tries to assess the impact of various factors influencing capacity utilization .

This study is conducted for the aggregates of an industry where Capacity Utilization(CUE) has been oaken as bench-mark in measuring performance on the assumption that all the firms in an industry behave alike and therefore industry level characteristics could be attributable to all the firms operating in that industry. It is not claimed that CUE is the only specification for evaluating the performance of an industry where there exist 2. Overview of Indian Automobile Industry 2. 1 Major players in automobile market: TABLE 2. : Comparison of different companies 2. 2 Profile Of Major Players In India Data Motors Maidenhair And Maidenhair General Motors Ford India Baja] Auto Ltd Marti Dog Hero Honda Motors 2. 3 GROWTH OF SECTOR Current Status 2. 3. 1 SEGMENT COMMENTARY Commercial Vehicles Passenger Vehicles Two Wheelers 2. 4 Financial Performance 2. 4. 1 Domestic Sales 2. 4. 2 Exports 2. 5 Government Policies 3. Growth Analysis 3. 1 Current Status 3. 3 Auto Component Industry- Production Turnover 3. 4 Major Players 3. 5.

Drivers of Growth Fig: Demand drivers for the Automobile segment * Increase in income levels and thus purchasing power: Increase in disposable incomes have made cars affordable to a larger section of the population. While the Asia of car prices to average monthly salaries was around 36 – 48 months in the past, it has dropped significantly to less than 24 months currently. This is also a result of decreasing automobile prices with increasing efficiency in production and stiff competition in the market. * Gradual shift to higher segment passenger vehicles: B and C segments have emerged as high growth segments over the last few years.

In 2001-02, the A segment accounted for around 28% of sales while in 2004-05 it accounted for only 14%. At the same time, the demand for premium vehicles has also rowan significantly, though the volumes are still low compared with other segments. The trend in segmental sales is poised to undergo a sea change with the launch of high volume selling Data Anna and other players eyeing to get into the ultra low-cost segment. * Availability of a wider range of products: The number of players as well as the number of products in the auto MOM space has increased, thus making more number of product options available to the end customer.