Economic Factors Affecting Automobile Sector Essay

1. Excess Capacity.According to CSM Worldwide, an self-propelling research firm, in 2004 the estimated automotive industry spherical merchandise capacity for light fomites (about 74 rail motorcardinal units) significantly exceeded global exertion of cars and trucks (about 60 million units). In wedlock America and Europe, the two regions where the majority of revenue and profits be make in the industry, unneeded capacity was an estimated 17% and 13%, respectively. CSM Worldwide projects that excess capacity conditions could continue for several to a greater extent long time.2. Pricing Pressure.Excess capacity, twin with a proliferation of new products being introduced in key separates by the industry, abide keep pressure on manufacturers ability to increase prices on their products. In addition, the incremental new capacity in the United States by external manufacturers (so-c entirelyed transplants) in re cent years has contributed, and is wish wellly to continue to co ntribute, to the severe set pressure in that market. In the United States, the reduction of real3. financial approveing OptionsAuto industry observers cite car loans as the biggest driving means for the expansion of the Compact Car segment. At present, almost 85 per cent of all new car gross sales are backed by auto finance, compared to 65 per cent five years ago. Interest rank on car loans have come down drastically in the past four or five years, which helps prospective buyers translate the plunge. The exploitation of the CC-segment in the past hardly a(prenominal) years can be in general credited to promoters such as rise in income levels take to increase affordability and simultaneous reduction in interest rates leading to take down EMIs. The drop in interest rates usually helps very few people to probably shift from the base model to a aureate model. A larger shift happens if people are willing to takelong-term loans, like five years instead of the earlier three-y ear loans.2.4. advert and MarketingDue to the advertising techniques adopted by all the manufacturers in the CC-Segment the sales have risen drastically. It is all due to because the companies now a day are exploitation even aggressive selling techniques for which they are even coping with the Film celebrities and Cricket stars, like Maruti has contracted Irfan Pathan as the brand ambassador of Zen and for Santro Hyundai has contracted for Shah Rukh Khan. And the companies are even nerve-wracking to approach to the customer as to at that place consider for a vehicle at special interest loans, etc. They are using info according to the customersreturn and earning capacity for attracting the customers for there vehicles.5. Income of Consumer / BuyerThe income of the consumer or buyer of the car is a very important factor of demand. In recent clock we have seen that due to increase in the Income of the general public, there has been a shift from the Lower CC-segment cars to the U pper CC-segmentcars.2Due to the recent increase in the depend of multinationals in India, the income level of the employees have risen drastically and has made CC-segment cars an opening level car for a lot of people. The average age of a CC-segment car owner has also dropped from 35 years to 31 years in India.6. Increase In AffordabilityThe demand for passenger cars is driven principally by greater affordability, which in turn increases the aspiration level of the customers. instantly with high amount of disposable income in the hand of Indian youth, who forms major portion of the population, PV market has larger addressable market.7. Demographic DriversCars being inspirational products, purchase findings are influenced by the everywhereall economic environment. Increase in per capita income increases the consumption tendency of the customer. Growth in per capita income and rising aspirations and changing lifestyle is leading to increased preference for cars over two-wheele rs, which is also having a decreed rub off on car demand.8. ExportsThe share of exports from interior(prenominal) production is currently at 12-13%, which is much lower than current export hubs. Currently, Indias share of global passenger cars export volume stands at less(prenominal) than 1%. But India is fast emerging as a manufacturing hub for leading global car makers, and several manufacturers have already firmed up plans for context of use up manufacturing bases in India, which will also be used for exports.9. armorial induceing Across SegmentsManufacturers with presence across mingled product segments can batten down high volume and better capacity utilization by using the common manufacturing capacity.Typically a customer upgrades from virtuoso segment to high segment and the presenceacross various segments ensures that the comp all retains its existing customers.10. Efficient OperationsCompetition in PV segment is very intense and this requires the existing players to initiate steps to reduce their cost of production. Effective and successful operation methods like platform commonality, reduction in vendor base and work suck rationalization can help a company immensely.11. Wide head teacher Network and Availability of FinanceA wide dealer earnings helps the company serve customers over wide geographical area. For e.g. Maruti has used its open wide servicenetwork as point of difference over competitors. The companies are tying up with the financial institutions having rural presence to provide additional financing options to customers in such areas.12. Access to Latest TechnologiesIndian PV segment is highly competitive with as many as 14 players operating in it and more than 80 models on the offering. But quiet down any new model launch meets with increase in sales volume for the company. Moreover in a time when a solid portion of Indian customer is looking to upgrade in higher segment, companies with latest technologies and latest mode ls will catch more attentions.13. Factors of Production there are or so factors of production which influence the publish of a car like Cost of Raw Material toil Cost Machinery arousal Cost These factors influence the turn in of a car largely. If the cost of the rude material (Steel, Spare Parts, Rubber) increases there will be an increase in the cost of production leading to decrease in profit margins. be like labour costs, machinery and input costs also influence the supply with the increase or decrease in these costs.7.14. Government Policies and TaxesIf there is a change in the giving medication policies regarding the increase in the road taxation charged or the tax which is to be paid per unit sold, the supply of a car will fluctuate with the nature of the change. Recently the government has reduced the custom duty on inputs and raw material from 20% to 15% which has increased the supplyFactors affecting bully letter market in India-The capital market is affected by a range of factors. well-nigh of the factors which influence capital market are as follows-A) Performance of domestic companies-The performance of the companies or rather corporal earnings is one of the factors which has designate encroachment or effect on capital market in a countrified. Weak corporate earnings bear witness that the demand for goods and service in the parsimoniousness is less due to slow reaping in per capita income of people. Because of slow harvest-tide in demand there is slow process in employment which means slow growth in demand in the near future. Thus weak corporate earnings indicate average or not so good prospects for the scrimping as a whole in the near term. In such a scenario the investors (both domestic as well as foreign ) would be fishy to invest in the capital market and thus there is bear market like situation. The opposite case of it would be robust corporate earnings and its positive impact on the capital market.B) environmental Facto rs-Environmental Factor in Indias context primarily means- Monsoon . In India somewhat 60 % of agricultural production is dependent on monsoon. Thus there is heavy dependence on monsoon. The major chunk of agricultural production comes from the states of Punjab , Haryana & Uttar Pradesh. Thus deficient or delayed monsoon in this part of the country would directly affect the agricultural output in the country. Apart from monsoon different natural calamities like Floods, tsunami, drought, earthquake, etc. also have an impact on the capital market of a country. The Indian Met Department (IMD) on twenty-fourth June stated that India would receive only 93 % rainfall of Long completion average (LPA).This piece of news directly had an impact on Indian capital market with BSE Sensex falling by 0.5 % on the twenty-fifth June. The major losers were automakers and consumer goods firms since the below normal monsoon forecast triggered concerns that demand in the significant rural heartland would take a hit. This is because a deficient monsoon could seriously pilfer rural incomes, reduce the demand for everything from motorbikes to soaps and worsen a slowing economy.C) big Economic Numbers-The macroeconomic numbers also influence the capital market. It includes Index of Industrial Production (IIP) which is released every month, annual Inflation number indicated by Wholesale Price Index (WPI) which is released every week, Export merchandise numbers which are declared every month, Core Industries growth rate. This macro economic indicators indicate the state of the economy and the direction in which the economy is headed and therefore impacts the capital market in India.D) Global Cues-In this dry land of globalization various economies are interdependent and interconnected. An event in one part of the area is bound to affect other parts of the world, even the magnitude and intensity of impact would vary. Thus capital market in India is also affected by development s in other parts of the world i.e. U.S. , Europe, Japan , etc. Global cues includes corporate earnings of MNCs, consumer confidence big businessman in developed countries, jobless claims in developed countries, global growth outlook give by various agencies like IMF, economic growth of major economies, price of crude oil, credit rating of various economies given by Moodys, S & P, etc. An obvious example at this point in time would be that of subprime crisis & recession. Recession started in U.S. and some parts of the Europe in early 2008 .Since then it has impacted all the countries of the world- developed, developing, less- developed and even emerging economies.E) Political stableness and government policies-For any economy to achieve and sustain growth it has to have political constancy and pro- growth government policies. This is because when there is political stability there is stability and consistency in governments attitude which is communicated through various government policies. The vice- versa is the case when there is no political stability .So capital market also reacts to the nature of government, attitude of government, and various policies of the government.F) Growth prospectus of an economy-When the national income of the country increases and per capita income of people increases it is said that the economy is growing. high income also means higher expenditure and higher savings. This augurs well for the economy as higher expenditure means higher demand and higher savings means higher enthronisation. Thus when an economy is growing at a good pace capital market of the country attracts more specie from investors, both from within and outside the country and vice -versa. So we can say that growth prospects of an economy do have an impact on capital markets.G) Investor Sentiment and risk appetite-Another factor which influences capital market is investor sentiment and their risk appetite. Even if the investors have the money to invest bu t if they are not confident about the returns from their enthronization , they may stay away from investment for some time. At the aforesaid(prenominal) time if the investors have low risk appetite , which they were having in global and Indian capital market some four to five months back due to global financial meltdown and recessionary situation in U.S. & some parts of Europe , they may stay away from investment and wait for the right time to come.Risk involved in this sector. Labour unrest and industrial action. Unexpected delays and cost overrun due to. overlapping government jurisdiction. Corruptions and bureaucratic inefficiency. Slow down in government decision due to political instability. Raw material price. Restructuring of Automobile company fiscal Allocation and cash flow Supply Chain Operational skill Raw Material prices Fuel Efficien segment Competitiveness Fuel Prices Demands emerging markets