Recession and Its Effect on Automotive Industry

A recession is the contraction phase of business cycle. The official agency in charge of declaring that the economy is in a state of recession is the nation bureau of economic research. According to NBER the recession is defiend as “Significant decline in economic activity lasting more then a few months”, which is normally visible in GDP, real income, employment, industrial production, and wholesaler- retail sales. WHAT CAUSES RECESSION ? An economy which grow over a period of time tends to slow down the growth as a part of the normal economic cycle.

An economy typically expand for 6 to 10 yrs and tends to go into a recession for about 6 months to 2 years. A recession normally take place when consumer lose confidence in the growth of the economy, this leads to decreased demands for good and services, which in turn leads to decrease in production, layoff and a sharp rise in unemployment. Investors spend less as they fear stocks value will fall and thus stock market fall on negative sentiments. INDIAN SCENERIO Indian car industry is one of the most promising car industries across the globe. It has gradually strengthened its foothold in the international arena as well.

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The country is dealing with many car manufacturers, dealers, and associations in various different countries including U. S. From some countries, India imports cars and car components and to some India exports. With this, the global recession is obvious to have its impact on the Indian car industry. Though India has witnessed a growing customer base, it has not inoculated them from the global crisis. The crippling liquidity and high interest rates have slowed down the vehicle demand. However, the falldown started in July with a decline of 1. 9% and thereafter the industry saw a major slowdown in October 2008.

Global recession has devastated the global auto industry with pinching effects on the Indian auto industry. India is a strong and growing economy but the hit of recession has put red marks on the entire balance sheet of the Indian economy. Among the leading car manufacturers, General Motors and Ford were the first one to file for bankruptcy. GM is struggling to stay alive and claims that the company has just enough cash to continue its operations. Even the merger talks of GM and Chrysler have been officially brought to a halt because of the liquidity crunch. U.

S sales have fallen down by 32% which has directly affected the Indian car industry where GM has recorded a fall of 45%, Ford of 30% and Chrysler down by 35%. All the three major car manufacturers have reported declined growth after the hit of recession. After the industry experienced a heavy fall in the month of August due to inflation, September proved to be a promising month with things setting out at the right place. Then again the market went in the negative terrain swayed by the wind of recession. October usually is considered to be the best month for car sales because of the festive season.

Unfortunately, in 2008 it was proved to be a curse for the Indian auto industry. At one end of the spectrum, car manufacturers like Tata Motors, GM, Hyundai, Ford, Renault, Mahindra, and Maruti Suzuki were investing huge amounts to establish new production plants and line up launch of car models. At the other end of the spectrum, SIAM has cut down the growth forecast of automotive sales from 12. 5% to 9. 5%. This initiative taken by SIAM further forced few car manufacturers like Tata Motors and Maruti Suzuki to cut down their production which further took away the job of almost 300 workers.

Even Mahindra-Renault reduced the number of production units of their Logan. In addition, the severe liquidity crunch in the U. S market has also forced many of the car buyers to cut upgrades to bigger cars and many are pushed back from buying new cars. With deteriorating car sales, even production has gone down to a great extent, which has eventually put a negative impact on the auto component industry. In October, overall car sales declined to about 9. 05% over October 2007 and the car production fell down to about 12. 32%. Further to that even the month of November was not successful in bringing some charm to the industry.

Infact, November recorded the steepest fall in car sales in the past five years. Maruti Suzuki recorded a fall of 27%, Mahindra & Mahindra recorded a fall of about 40%, and Tata Motors showed 12% decline in the car sales. PART 1 Please list out, company-wise, the strategies practiced by following companies during the November 2008 business slow down: a) Tata Motors b) Mahindra & Mahindra c) Maruti Suzuki d) Renault e) Honda TATA MOTORS * By providing discounts and free gift to coustmers. * Cut in production * Lower down salaries, perks, and by lowering down cost for travel and fun. Limited airtravel to senior executives. * Decreasing daily allowences * Freezing freshers recruitments. * Freezing foreign trainings. * Reduction in entertainments allowences, statinery expences . * Layoff more the 4000 temporary employees. * Introducing new working hours policies, 5 days a week. * Transfer of employees in other units * Decreasing the amount of bonus * Reducing internal expenses. * Scale down in fresh investments * Cutting down orders and postponing delivery schedules. MAHINDRA & MAHINDRA * By laying off temporary employees By production cut * Decrease in perks and allowences * Reducing fresher recruitment * Q3 In my belief, if iam operated in my leg , i would sit in the hospital itself and improve my skills in different field. So is the recession here good for us – it lets us think what should we do that somewhere a recession does not hit our grounds , we need to first get out with ideas in Mech engineering use our great potential of Abstract thinking, get to work on rapid development tools, simulate test and design and do it right in the fast loop of design and test cycle.

Iam sure , with this things, we can hit the market running spreading our cheap cars ,manufactured in India and designed Collabaratively , like IT , our manufacturing techniques and manufacturing engineers should now put up the heads and go for it. Like IT also in the initial times had pulled almost every engineer to study computer schience , so now atleast we can share the loads and recession on all , so that one looses only half , and other gets another half. Share strength , ideas , appreciation.

For Indian Car manufacturers (JVs) like Maruti, we have substantial solutions within our country itself. If we see to the competitors like Hyundai i10 / 20 & Chevrolet Spark, we see they are innovative with great marketing strategy. Secondly, our products should be good looking & there should be a stylish way of doing the things like designing the dash board,front & rear looks as well. People who are buying these Hyundai models like I10 & 20, can be switched over to Indian indegenous companies when our companies keep improving the performance & power.

Like a 1065 cc of Maruti WagonR equates almost equally to 1200+ cc of Santro hyundai in pricing. With almost same price, one is getting more power. This is where we have to develope our strengths & then we can compete. During this period Car manufacturers need to price their cars competitively to attract consumers without compromising on quality and features. Too many small cars are not going to solve the problem either, the future lies in fuel-efficient or alternative-fuel powered cars. Hybrid cars and electric cars for a greener environment.