The poor condition of auto makers in India is no unknown fact and for a while now, experts have tried to draw out some positives vibes from the industry; however nothing has emerged as of now. Nevertheless, the ongoing festive season has shown a bit of promise and auto makers have pinned all their hopes on it. However, it is being said even if companies do well during the festive season, the overall condition is not going to be affected much. According to a recent report, car makers in India have suffered from a decline in the capacity utilisation by a huge figure.
Resurgent India Ltd., a service provider of financial solutions, released a report on the Indian car market, which comprised figures and statistics related to the capacity utilisation of auto makers. This report suggests that due to the currently existing slow demand, the capacity utilisation of firms in India has fallen by about 50 per cent, which can be considered quite a lot. There are several pros and cons that are involved in this premise, which have occurred due to actions in the past. Notably, the Indian automobile industry performed really well during fiscal 2007-2011, which resulted in a lot of actions from auto makers.
Due to the kind of progress made during this period, car makers increased their capacity, anticipating good demand in coming years. However, inability of the market to produce such a demand level has severely hit plans of the auto makers. Players in the passenger vehicle segment have suffered a fall in utilisation rates, which will add on to the margin pressures that already exist. Another thing that was added in the report with respect to the fiscal 2007-2011 period was the gross turnover of car makers in India. According to the report prepared, gross turnover was approximately $58.6 billion, which depicted a Compound Annual Growth Rate (CAGR) of around 17.7 per cent.
The report, prepared by Resurgent India, stated, "Despite impressive growth during FY07-11 period, the capacity utilisation since then decreased due to muted demand. These estimates are for overall capacities and therefore are much lower than the utilisation rate in case of diesel passenger capacities where demand was strong in 2012." Industry experts feel that some immediate action must be taken by authorities in order to support auto makers in the passenger car segment. In the past, big names from the industry have sent formal requests to authorities regarding this subject matter but no action has been taken.
The report has come out with a number of worrying signs for the Indian car market as statistics are quite unfavourable. Although there was no specific mention of numbers in the report regarding the decline in the capacity utilisation, an estimate was mentioned. "In passenger vehicles the capacity utilisation is anticipated to be below 50 per cent...underutilisation of capacities in 2013 would add to margin pressure," the report stated.
There have been some other revelations in this report, which do not reflect good on the current state of the Indian car market. During FY12, the cumulative production of passenger cars in the Indian market was around 3.1 million units as compared to 3 million units in FY11, thereby reflecting an increase of 3.3 per cent, reports have claimed. Society of Indian Automobile Manufacturers (SIAM), the industry body, also revealed some statistics, which indicated the condition of the market. According to figures, around 1523654 units were produced during the period April-September in the current fiscal. This depicted a fall of 2.3 per cent as compared to the statistics of corresponding period in the last fiscal, wherein around 1559592 units were manufactured.
As far as the improvement in current situation is concerned, Resurgent India’s report stated that the economic crisis, if persists, will really damage the auto industry. In addition, the Land Acquisition Bill, which was introduced recently, is also likely to worsen things for car makers. "While the economy would recover in due course the conditions laid down in the bill would be a definite deterrent for companies to set up greenfield projects. With no or negligible expansion companied would be stuck up with the existing lines and the scope of introducing new models would be restricted," claims the report.
