India automobile industry Essay
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Is this the worst period for the automobile industry that you’ve witnessed? The sales of petrol-fuelled cars have been declining month after month and it went unnoticed. However, diesel car sales started declining only since the last six months. Sales of petrol cars have been declining for the past two years. This is certainly the worst period, I can’t think of any period in recent history that’s been anything like this. The correction that’s happening now is of diesel-powered car sales.
If you look back at the diesel car sales, it had a very rapid growth. Beginning of 2011, growth has been very high, till the end of last year. Carmakers had expanded capacity. There is now not much attraction for diesel cars with increasing fuel prices. There has been substantial cut-back in petrol car production, but the cut-back in diesel car production was seen only from last month. Analysts are talking about a huge inventory pile-up at stockyards and dealerships.
Is this one of the major reasons for plant shut downs? Shut downs are happening, because there is no point producing cars which are not selling.
If I have a capacity to sell 40,000 cars and the demand today in the market is for only 30,000 cars, what do I do now? I have to scale back production. I have two ways of doing it. Either I reduce production each day by 25% or work on less days and produce 25% less. It is more economical to choose the second option, to work for a fewer number of days at maximum capacity. Because this will help reduce overheads such as electricity, transport, water charges, etc. Lot of money goes into these. What companies are doing is working for a fewer number of days but at maximum capacity on those days.