Supply

S= F(Price of Vehicle, Input cost, Technology, Expectations about future price)

Note: Although there are many more factors, we will limit out study to the above-mentioned factors.

Price of vehicle: When the price of the vehicle increase, the producers supply more as well as
new producers enter the market. This will lead to a further increase in supply, ceteris paribus.
 GST tax regime was implemented in 2017, a consolidated tax (18% to 28%) replaced the
two tax system of VAT and excise duty. It reduced the manufacturing cost in 2018 and
boosted production in the industry.
Input costs: When input costs increase, the of vehicles will not increase, ceteris paribus. Some of the
input parameters involved in the manufacturing are discussed below which will affect automobile
supply.

 Aluminium: LME of rolled products from FY 17-20 decreased from $ 3997MT to $

3236MT. It enabled more production in the automobile industry.
 Glass: Price increased by 1% compared to the previous financial year of 2019, this
caused a reduction in production volume of vehicles.
 Labour: In the context of Maruti, post-COVID, the labour wages decreased; however, the
pandemic with norms of social distancing makes it challenging and thus impacting the
vehicular supply.
Technology: Advancement in technology in the manufacturing process leads to an increase in
the supply of the vehicle. For eg.
 Machine vision: It involves the use of imaging processes such as 3D imaging, X-ray
imaging and others. The manual inspection time is getting reduced.
Expectation about future price: When an automobile company predicts a rise in selling price
of their vehicle, they try to reserve their inventories for future and reduce immediate production
volume. For eg. When BS-VI norms were introduced, manufacturers expected an increase in
price of the vehicle in future. In FY-2019 Q2, sales & production of Maruti dropped for BS-IV
vehicles since customers wanted to buy BS-VI vehicles which were due to be rolled out in the
next year.
 25000
19,401 19,314
20000 18,795 18,224 17,309 16,330
15,776 14,749
14,218
Sales volume in units

15000 12,677 12,444 12,934

10000

5000

Source(s): Autoportal.com; ID 869977

Fig 1: Maruti Suzuki swift sales across the month in 2019, showing the decline in Q2.

Supply Curve
Based on the parameters discussed in the previous section, the following will be the supply
equation was derived.
Q = w*P + x*IC + y*T + z*EP
Where,
P – Represents the total market price of the vehicle
IC – Represents the input costs
T – Represents the technological impact on vehicular supply
EP – Represents the expectation about the future price.
w, x, y & z - Co-efficient for the input parameters