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Value Drivers In Automotive Sector Essay

2332 words - 10 pages

AUTOMOTIVE SECTOR REPORT
An Introduction about the factors influencing the sector:
1. Infrastructure/ GDP: Automobiles sales revenue follows economic cycles very closely. This is especially true in the case of sales of HCVs. Availability of good roads is an important determinant for passenger vehicle demand.
2. Affordability: Movement in income and interest rates determine the affordability of new motor vehicles. The ready availability of cheap loans is an important factor driving demand. Disposable income in the rural agriculture sector is increasing.
3. Auto Financing: There are more than 35 financers in the market today, with the State Bank of India being the leader. Easy ...view middle of the document...

Petrol car sales have gone down by 16.5% whereas the diesel cars have increased by 25% since deregulation.
iii. Alternative Fuels: The number of CNG vehicles has been growing at a CAGR of 60 per cent in the last two years. CNG distribution network in India is expected to increase to 250 cities by 2018 from 30 cities in 2009.
iv. Inflation: Inflation also exhibits a negative correlation with automotive sales revenues. This is due to reduction disposable income and forcing buyers to postpone demand especially in the case of individual buyers. Also an increase in input costs is also generally passed on to the buyer thus moderating the demand further.
6. Exchange Rate: Movement in the value of Rupee determines the attractiveness of Indian products overseas and the price of import for domestic consumption.
7. Localized components: Most of the international companies are moving towards locally made components to improve margins and remain competitive. Renault and Nissan have kept competitive prices of their products due to the same fact along with their strategy of joint production.
8. Retailing:The organized sector of the Indian auto retail market comprises 6,500 automobile dealerships and their workshops, employing more than 0.4 million people directly. Exchange outreach ranges from 15 to 20 per cent in India. In some developed economies, it is as high as 90 per cent.
9. LCV:India is witnessing a structural change with sales moving towards LCV with the prevalence of hub and spoke model. Launch of sub one tone 4 wheeler models has furthered the demand. International trends indicate strong future potential for LCV growth. India has one of the lowest LCV-MHCV ratios thus pointed to huge potential.

CURRENT SCENERIO OF THE INDUSTRY: Risks faced by sector

1. Economic Scenario:The general economic scenario affects the industry prospects as consumers defer the purchase decision in case of worsening conditions. The exports also suffer as a result. Some economic factors that impact the auto sector are as under:
i. Rising Interest rates: High interest rates make it difficult for the customers to finance their purchases. The effect is even more widespread as 85% of the purchases are through financing.
Of late the RBI has been fusing the market with liquidity by bringing down the CRR.The current credit policy has the Repo rate at 8.0 per cent and the Cash Reserve Ratio to 4.5 per cent. This although should increase liquidity before the main festive season but the high interest rates would prevent sales from increasing by making debt costly for buyers.
ii. Moderating growth: The Industrial growth as measured by GDP estimates and IIP have shown a considerable decrease due to strict monetary policy and rising inflation.
iii. Fears of Global Slowdown: The European debt crisis has the potential to bring in another period of slowdown. This is affecting the Indian auto exports and the Indian economy as well (which in turn...

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