Micro & Macro Factors Affecting the Auto Industry, India

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Macroeconomic Policies Affecting the Auto Industry In most countries, the level of automotive production is closely correlated to domestic or regional automotive sales. Also the level of automotive sales and production is closely related to disposable income levels, interest rates and finance availability, consumer confidence and other factors influenced by macroeconomic policies. Production in particular often has long lead times, so consistent and predictable economic progress is important. Therefore, national macroeconomic and monetary policies which produce stability and consistency in GDP per capita growth are generally very significant factors affecting the level of automotive sales and production. The following are the…show more content…
(e) Monetary policies which promote low interest rates (affordability) both affordability of vehicles and availability and cost of capital are critical in developing a healthy demand for vehicles. Governments that rely excessively on monetary policy rather than fiscal policy can induce a large reduction in vehicle sales and production, if they try to control the economy through interest rate mechanisms. (f) Stability in exchange rates. The industry is global and thus subject to the vagaries of exchange rate fluctuations. However sourcing decisions are generally not flexible in the short term. Thus widely varying exchange rates can move an industry from a viable to a non-viable situation in a short period of time. Devaluation increases the cost of imported competition. This threat to viability can quickly eliminate jobs and productive capability built up over a long period of time. (g) Improvement of automobile infrastructure (roads, parking lots and complementary public transportation. An appropriate balance between automotive infrastructure and public transport investment should be sought. Good infrastructure is required to allow the benefits of motoring to be enjoyed by as many as possible. However if this is done at the cost of running down public transport infrastructure, chronic traffic problems may result. (h) Low to moderate inflation. High inflation inevitably leads to high nominal interest rates

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