The increased financial stability and purchase power among the higher income group may invoke car industry. According to a statistics revealed by Crisil, nearly 117 million households, with an addition of 60-70million households, will soon get opportunity to own a car in another four or five years. This will make the increase in the auto industry to 17-19% procuring Rs4.20,000 crore by that time, adds Crisil’s Research Director. Still, the proportionate equity will be 17 per 1000 car owners compared against 604 in Europe and 440 in the US during 2009 he further said. The research says that during the interim period of two years, by 2012, there will be an investment of Rs35000 – 40000 crore in the industry manufacturers and Rs20000 – 25000 crores by the component suppliers. The investment by the makers will be for launching new models and expansion drives to face the competition among themselves. The suppliers will invest to make up the demand spree for the makers.
With the competition expected to increase and the price factor to play a crucial role in deciding the market share, the makers will have to shell out huge investment to retain their position. Due to this anticipated competition the makers will face dip in their profit and can survive on launching new models and neo technology. The fall in profit is also due to the hike in the raw materials cost and the price factor posed by the component suppliers. In addition there will be a royalty aspect for the global makers when more launches are made on global platforms. Above all technological edge will have the deciding factor among the
competitors and for this the makers have to invest a lot. The Crisil report says that the auto industry will face a fall of profit to the tune of 150-330 basis points during this fiscal and the component suppliers will face the dip by 100-200 points basis. However, there will be an increase in the raw material index by 15-16% during the same period.