Monday, February 13, 2012
By Manoj Kumawat
Overproduction dilemma for the Indian automakers
The Indian automakers are facing a big trouble of surplus capacity trimming down their profit margins like Maruti Suzuki and Mahindra & Mahindra (M&M). Over the last two years, the growth chart dynamics of the Indian automotive industry has jumped by 30 percent. Consequently, to keep their promises the car manufacturers have increased their production capacity by $6 billion, just double of the country’s annual car production i.e. more than 6 million vehicles. India’s leading automaker, Maruti Suzuki, the maker of world popular Maruti Alto, had announced to increase its production capacity by 250, 000 units of cars annually with an investment of $390 million in year of 2010.
By the end of last fiscal year, the auto industry has reported an increase of 63 percent with the sales of 2.5 million units and one million units over the last two years. Unfortunately, the car sales didn’t remain same for the long. As per the expert’s speculations, in this fiscal year the car sales may significantly get fall down that will result in capacity surplus of nearly one million cars.
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The Maruti Suzuki chairman, R.C. Bhargava has said that there would be a serious surplus capacity problem for the company, if all the speculation will come true in the future. The growing markets are attracting the car manufacturers that directly affecting the profit margin of everyone.
If the market situation will remain same then, the production may go higher by 30 to 40 percent, the demand & production ratio may get imbalanced. Addressing to the Reuters he said that by considering the 11 percent fall in cars sales, company will make some essential changes to its $1 billion new plant that are expected to produce 2,700 cars a day.