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Old 6th May 2016, 19:53   #1
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Default Poor capacity utilization for many Indian car manufacturers

Currently ranked at number 5 in auto sales (2015) and speculated to to be the third-largest car manufacturer by the year 2020, India is on a growth mode in this sector but production data for year 2015-16 shows a mixed picture of capacity utilization across manufactures of Passenger Vehicles.

Growth story - 2005-2015 ( Auto Punditz)
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Collating industry Installed capacity and production figures, it can be gleaned that the total capacity utilisation in the passenger vehicle segment for FY2015-16 was just 53.07%(?), an increase of a mere 2.99% over the previous financial year.
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Auto giants like Maruti Suzuki, Hyundai Motors have successfully utilized its production capacity smartly, but players like, Isuzu Motors India, Fiat Chrysler Automobiles India and Force Motors saw the lowest capacity utilisation figures at 0.69%, 4.39% and 4.53% respectively.

Volkswagen , Nissan have utilized its production capacity mainly for exports, but Ford though is on a record export volumes from India shows a low capacity utilization.

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The year 2016-17 looks promising as the Met forecasting a regular monsoon this year automakers are likely to improve their capacity utilization despite some hiccups on the diesel ban.

http://www.autocarpro.in/analysis-re...-47-2015-17173

Last edited by volkman10 : 6th May 2016 at 20:04.
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Old 6th May 2016, 21:33   #2
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Default Re: The Indian automotive industry is on a growth pace but with skewed Production utilization- 2015-

This means all the manufacturers were optimistic about grabbing marketshare from Maruti and Hyundai, and that did not fructify.
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Old 7th May 2016, 07:21   #3
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Default Re: The Indian automotive industry is on a growth pace but with skewed Production utilization- 2015-

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Originally Posted by volkman10 View Post
but players like, Isuzu Motors India, Fiat Chrysler Automobiles India and Force Motors saw the lowest capacity utilisation figures at 0.69%, 4.39% and 4.53% respectively.
Having had their Sri City plant officially inaugurated recently, Isuzu's numbers should look better next year.

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Originally Posted by volkman10 View Post
Ford though is on a record export volumes from India shows a low capacity utilization.
If Ford's Chennai plant that produces the Ecosport is considered in isolation, they would be green. The problem is with the new Sanand plant that rolls out the new Figo and Aspire. With sales hardly taking off, that spanking new facility would be severely underutilized, pulling down the overall Ford numbers in the process.

That said, kudos to Maruti-Suzuki and Hyundai. Competitors are trying every trick up their sleeves and these two just aren't budging. In fact, they are going from strength to strength and fiercely guarding their market share in the country.
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Old 7th May 2016, 10:43   #4
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Default Re: The Indian automotive industry is on a growth pace but with skewed Production utilization- 2015-

Lack of knowledge of the Indian market and a mindset that isn't tuned to the local requirements that create roadblocks for these automakers who otherwise rule the world.
Take note of the issues trying to correct the course but rely on exports. A idea seem not to crack the Indian market with dealers having to play an important role in the success of the company - a point more often forgotten in the mind to have profitable business tied to exports.

The two major companies in India - Maruti Suzuki and Hyundai together control more than 64% of the passenger vehicle market to themselves.
The Global giants if need to taste success in India need to learn from these two and replicate its operating model by and large and not just going 'premium - by cost' away from the masses.

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http://auto.economictimes.indiatimes...india/52160807

Last edited by volkman10 : 7th May 2016 at 10:47.
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Old 7th May 2016, 11:43   #5
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Default Re: The Indian automotive industry is on a growth pace but with skewed Production utilization- 2015-

Some of the capacity utilization figures are really an eye opener. Over all capacity utilisation for passenger cars is 55%. It means that close to half the investment done in this segment is twiddling their thumbs for things to happen. The article is clearly showing the skewed nature of Indian passenger market. I think the likes of Toyota, Volkswagen, Ford etc. will have to wait for a long long time before their see india as a mature market with the capacity to move the needle for them. Great write up.
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Old 11th May 2016, 17:13   #6
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Default OEM capacity and Utilization

Source: http://www.autopunditz.com/autopedia...s-utilization/

This is an interesting article; shows the utilization of OEM car manufacturers' capacity.

Maruti and Hyundai at nearly 95% utilization, while Fiat and Force at nearly 4%!

Hyundai, Maruti, VW, Honda and Nissan are going fine at more than 75% utilization, while the rest uses below-50% capacity, and not much exciting volume products on offer.

Was wondering, what is stopping Renault in ramping up the Kwid production, and Mahindra in ramping up KUV100 production, when their utilization is just 15% and 40% respectively!
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Last edited by GTO : 14th May 2016 at 10:38. Reason: Guess you meant 'Mahindra KUV100' (not Mahindra Kwid) :)
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Old 11th May 2016, 18:01   #7
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Default Re: OEM capacity and Utilization

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Originally Posted by romeomidhun View Post
Source: http://www.autopunditz.com/autopedia...s-utilization/

This is an interesting article; shows the utilization of OEM car manufacturers' capacity.

Maruti and Hyundai at nearly 95% utilization, while Fiat and Force at nearly 4%!

Hyundai, Maruti, VW, Honda and Nissan are going fine at more than 75% utilization, while the rest uses below-50% capacity, and not much exciting volume products on offer.

Was wondering, what is stopping Renault in ramping up the Kwid production, and Mahindra in ramping up Kwid production, when their utilization is just 15% and 40% respectively!
This realistically might be a representation of just the final assembly line peak capacity (3 shift operation). Adding shifts means hiring and training people - doing pilot runs and stabilizing quality/ productivity from the new hires. Capacity of paint shops, body welding shops, sheet metal stamping shops, engine assembly shops, vendor bought out parts etc. might be vastly different. In the real world, these numbers mean little.
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Old 11th May 2016, 18:17   #8
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Default Re: OEM capacity and Utilization

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Originally Posted by romeomidhun View Post

Was wondering, what is stopping Renault in ramping up the Kwid production, and Mahindra in ramping up Kwid production, when their utilization is just 15% and 40% respectively!
Thanks for sharing this article with us!!

Besides production capacity, I guess one also needs to take into account the number of dealerships and distribution points. From my very limited knowledge of economics and finance, it also doesn't make sense to use all your capacity to meet all the demands, and then reduce production and fire your labour when the initial euphoria dies out.

For example if you have got 50,000 prelaunch bookings of your product, and you project that after the initial excitement dies out, your product is capable of doing 15k units permonth, the manufacturers set the production at about 20% more than the projected demand, so that the regular booking is also fulfilled at a smaller rate. That is probably why we see huge waiting periods for a blockbuster product initally, and then gradually, things become normal.

May be the business graduates among us can pitch in and enlighten us with more of these economy tactics.


Regards,
Shashi
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Old 11th May 2016, 18:30   #9
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Default Re: OEM capacity and Utilization

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Originally Posted by Leoshashi View Post
Thanks for sharing this article with us!!

From my very limited knowledge of economics and finance, it also doesn't make sense to use all your capacity to meet all the demands, and then reduce production and fire your labour when the initial euphoria dies out.
your point would make more sense if they had been utilising 60-70% of their capacity. 15% utilisation by Renault looks like too low a number. There could be several reasons for it

1. Demand - They have capacity to sell 40k units per month but the demand is little over 10k per month. This approximately equates to 25% of their capacity and hence capacity utilisation of little lesser than that of about 15% explains waiting period
2. People - Renault has seen increasing demand only in recent months. In order for them to ramp-up production, they will have to employ additional people (labour/managers). This cannot happen overnight, considering training, skill-set etc
3. Renault will have to plan their capacity utilisation keeping line-up of products for the next couple of years. So wavering around 15% doesn't make sense if they are expecting to increase their presence in India.
4. Like you mentioned, they will have to increase dealers and service centres too keeping increased number of sales.
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Old 11th May 2016, 18:35   #10
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Default Re: OEM capacity and Utilization

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Originally Posted by romeomidhun View Post
Was wondering, what is stopping Renault in ramping up the Kwid production, and Mahindra in ramping up Kwid production, when their utilization is just 15% and 40% respectively!
The problem is, the assembly lines are designed for particular product platforms. So, all the models from similar platform can be manufactured on a particular line. Modifying an existing assembly line is an expensive affair. This might be the reason that even with idle capacity, companies might not be shifting the manufacturing of popular models to different lines. Somebody correct me if I am wrong.

Secondly, there is the problem of parts supply by vendors. They also need to ramp up their production to meet to the additional vehicles produced. This might not be possible in all the cases.

Lastly, new models which are accepted well, tend to be popular in the first few months. Slowly, their demand normalizes to an acceptable level. Case in point is Ford Ecosport which had a 6-8 months waiting at launch and later, the bookings were closed. But today, it sells around 3k units per month. Now, if the manufacturers ramp up the production during the initial peak demand, they will face inventory pile-ups later on the demand normalizes. Ramp up and down of production is also not a simple task and can't be done on a frequent basis.
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Old 11th May 2016, 18:45   #11
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Default Re: OEM capacity and Utilization

As already mentioned, this will be capacity of all the models. This means, if those particular models are not doing well, the utilisation will remain lower. For one trick pony companies, this will be the case.For eg, Renault's utilisation for Pulse / Scala / Koleos and even Duster as now will be really low while Kwid should be running @ almost 100%.

Companies like Maruti & Hyundai don't have too many flops in the line up (compared to the total number of products on offer) & hence utilisation should be right up there.
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Old 11th May 2016, 18:58   #12
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Default Re: OEM capacity and Utilization

Also, some of this data looks incorrect.

I know for a fact that Fiat's production capacity is not 200,000 vehicles. At last check, the capacity of the plant at Ranjangaon was 130,000 vehicles which was equally shared by Tata Motors & Fiat, translating to a total capacity of 65,000 units of Fiat vehicles. At 8,787 units this still only translates to ~ 13.5%, but that's better than 4%! More importantly their engine plant is fully utilised given demand from Maruti & Fiat China.

With the proposed introduction of Jeep in India (which will also be assembled at the same plant), I guess Fiat is expecting utilisation to finally improve.
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Old 11th May 2016, 21:23   #13
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Default Re: OEM capacity and Utilization

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Originally Posted by phoenixash View Post
Also, some of this data looks incorrect.

I know for a fact that Fiat's production capacity is not 200,000 vehicles. At last check, the capacity of the plant at Ranjangaon was 130,000 vehicles which was equally shared by Tata Motors & Fiat, translating to a total capacity of 65,000 units of Fiat vehicles.
True, the data is incorrect for Renault as well.

The total capacity of the Renault-Nissan Alliance's Oragadam plant is 4,80,000 units per year at full throttle (link). This is shared between Renault and Nissan (including Datsun). I don't know in what ratio the capacity is shared, as some products are actually the same (being badge-engineered versions). The same capacity was also used for churning out Ashok Leyland Stiles (now stopped) which I guess could be counted under Nissan's capacity.

So if Nissan's capacity (including Datsun & Leyland's Stile) was given as 2,00,000 units per year, then Renault's capacity would turn out to be 2,80,000 units per year. I guess even this would be an approximation because of the shared models.

For Renault-Nissan, it would be better to take total utilisation of the plant itself, with 4,80,000 units being the total yearly capacity for the Alliance as a whole.

Last edited by RSR : 11th May 2016 at 21:50.
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Old 11th May 2016, 23:10   #14
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Default Re: OEM capacity and Utilization

Quote:
Originally Posted by phoenixash View Post
Also, some of this data looks incorrect.

I know for a fact that Fiat's production capacity is not 200,000 vehicles. At last check, the capacity of the plant at Ranjangaon was 130,000 vehicles which was equally shared by Tata Motors & Fiat, translating to a total capacity of 65,000 units of Fiat vehicles. At 8,787 units this still only translates to ~ 13.5%, but that's better than 4%! More importantly their engine plant is fully utilised given demand from Maruti & Fiat China.

With the proposed introduction of Jeep in India (which will also be assembled at the same plant), I guess Fiat is expecting utilisation to finally improve.
Also, Mahindra numbers only seem to take into account the passenger car production (about 20k / month). They also sell close to 18-19k small commercial vehicles (pickups etc.,). So, total production is close to about 37-38k / month translating to about 4.5 lakh units annually. That would make the utilisation about 74%.

The data needs to be vetted properly.
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Old 12th May 2016, 13:46   #15
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Default Re: OEM capacity and Utilization

Quote:
Originally Posted by romeomidhun View Post
Source: http://www.autopunditz.com/autopedia...s-utilization/

This is an interesting article; shows the utilization of OEM car manufacturers' capacity.

Maruti and Hyundai at nearly 95% utilization, while Fiat and Force at nearly 4%!

Hyundai, Maruti, VW, Honda and Nissan are going fine at more than 75% utilization, while the rest uses below-50% capacity, and not much exciting volume products on offer.

Was wondering, what is stopping Renault in ramping up the Kwid production, and Mahindra in ramping up Kwid production, when their utilization is just 15% and 40% respectively!
Another factor to consider is the economy.

While the media outlets claim 7-8% industrial growth, the reality is very different.

Major players are getting incentives and govt help to run their units, smaller MSME players are not.

Most of the ancillaries involved with the auto sector are MSME's. They are still struggling with cash flow and production issues. That is reason for reduced automotive capacity utilisation, the ancillaries are not being able to feed the auto companies, hence they have reduced production, to keep their fixed costs low.

Besides, demand is also low for most players. Drought, financial instability and market fluctuations are also important factors.
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