Economic Factors Affecting Automobile Sector
Economic Factor Affecting Automobile Sector.
1. Excess Capacity.
According to CSM Worldwide, an automotive research firm, in 2004 the estimated automotive industry global production capacity for light vehicles (about 74 million units) significantly exceeded global production of cars and trucks (about 60 million units). In North America and Europe, the two regions where the majority of revenue and profits are earned in the industry, excess capacity was an estimated 17% and 13%, respectively. CSM Worldwide projects that excess capacity conditions could continue for several more years.
2. Pricing Pressure.
Excess capacity, coupled with a proliferation of new products being introduced in key segments by the industry, will keep pressure on manufacturers’ ability to increase prices on their products. In addition, the incremental new capacity in the United States by foreign manufacturers (so-called “transplants”) in recent years has contributed, and is likely to continue to contribute, to the severe pricing pressure in that market. In the United States, the reduction of real
3. Financing Options
Auto industry observers cite car loans as the biggest driving factor for the expansion of the Compact Car segment. At present, almost 85 per cent of all new car sales are backed by auto finance, compared to 65 per cent five years ago. Interest rates on car loans have come down drastically in the past four or five years, which helps prospective buyers take the plunge. The growth of the CC-segment in the past few years can be mainly credited to factors such as rise in income levels leading to increased affordability and simultaneous reduction in interest rates leading to lower EMIs. The drop in interest rates usually helps very few people to probably shift from the base model to a deluxe model. A larger shift happens if people are willing to take long-term loans, like five years instead of the earlier three-year loans.2.
4. Advertising and
1. Excess Capacity.
According to CSM Worldwide, an automotive research firm, in 2004 the estimated automotive industry global production capacity for light vehicles (about 74 million units) significantly exceeded global production of cars and trucks (about 60 million units). In North America and Europe, the two regions where the majority of revenue and profits are earned in the industry, excess capacity was an estimated 17% and 13%, respectively. CSM Worldwide projects that excess capacity conditions could continue for several more years.
2. Pricing Pressure.
Excess capacity, coupled with a proliferation of new products being introduced in key segments by the industry, will keep pressure on manufacturers’ ability to increase prices on their products. In addition, the incremental new capacity in the United States by foreign manufacturers (so-called “transplants”) in recent years has contributed, and is likely to continue to contribute, to the severe pricing pressure in that market. In the United States, the reduction of real
3. Financing Options
Auto industry observers cite car loans as the biggest driving factor for the expansion of the Compact Car segment. At present, almost 85 per cent of all new car sales are backed by auto finance, compared to 65 per cent five years ago. Interest rates on car loans have come down drastically in the past four or five years, which helps prospective buyers take the plunge. The growth of the CC-segment in the past few years can be mainly credited to factors such as rise in income levels leading to increased affordability and simultaneous reduction in interest rates leading to lower EMIs. The drop in interest rates usually helps very few people to probably shift from the base model to a deluxe model. A larger shift happens if people are willing to take long-term loans, like five years instead of the earlier three-year loans.2.
4. Advertising and