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SIAM revokes demand for restriction barriers - Views on News from Equitymaster
 
 
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  • Sep 28, 1999

    SIAM revokes demand for restriction barriers

    The Society of Indian Automobile Manufacturers (SIAM) has backtracked on its call to restrict the number of companies operating in the passenger car segment till the year 2010. This was reported by a leading financial newspaper.

    The SIAM is pressing for a minimum investment of US$ 50 m (Rs 2.2 bn) by a new entrant in the car segment. This will separate the serious companies from the non-serious ones.

    Even if SIAM's demand for an entry barrier is accepted, there can be no denying the fact that the Indian auto market is very crowded with too many companies vying for a very small market. Currently, there are eight car manufacturers, nine light commercial vehicle (LCV) assemblers, three bus and truck builders and three multi-utility vehicle manufacturers competing for a market of less than 1 m vehicles.

    China with a market of less than 2 m vehicles has regulated the number of vehicle manufacturers to just two or three. Comparatively, India, which had only four-five manufacturers in the 1980s, now has 24 manufacturers.

    A study conducted by the Association of Indian Automobile Manufacturers (AIAM) reveals that the passenger car segment is likely to be faced with excess capacity from FY2000. The study reveals that by that year, thirteen companies will be operating in the car segment at a combined capacity of 1.3 m cars. However, demand will be much lower at 500,000-700,000 m cars, implying that around half the capacity will be idle.

    Earlier, many international companies set up operations in India due to lower labout costs. But this will count for nothing, as companies will have to post high sales volumes to make their operations viable. Eventually the competition may get too heated for some companies, and the auto segment could witness a round of mergers and acquisitions.

     

     

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