Car industry staring at a capacity glut

With competition intensifying among auto majors and a fresh capacity of close to 2 million units expected to be added by 2015, the number of cars produced are likely to outstrip the number of buyers. Manu P Toms reports.

With competition intensifying among auto majors and a fresh capacity of close to 2 million units expected to be added by 2015, the number of cars produced are likely to outstrip the number of buyers.

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The 42% addition to the existing production capacity may also mean less utilisation of plants, leading to revenue losses for manufacturers, say industry experts.

The number of cars production in India was 3.1 million in 2011-12 against the combined capacity of 4.5 million units, translating into an average 70% utilisation of manufacturing plants.

"Going forward, capacity utilization could fall below 60%," said Sudarshan Sreenivas, associate director, India Ratings. "Capacity addition is prompted by the need to protect marketshare and large production base for exports. Capacity earmarked for exports could be redirected to domestic market following slowdown in overseas markets."

The race among carmakers for a slice of India's auto market has slowed down the passenger vehicle market in the last two years. The passenger vehicle market grew by 4.66% in 2011-12 while the installed capacity grew by 11%. This financial year, though the utility vehicle segment is growing at 60%, slowing car sales, which account for 80% of the passenger vehicle market remain stagnant, dragging down overall growth to 8%.