While the sales in the automotive industry in the Indian market are growing at an average of 12% and even car sales in India are expected to rise by at least 300,000 units a year for the next five years, analysts believe that the auto majors in the Indian market could well use the capacity crunch in the industry.

Already, five analysts have downgraded the auto stocks keeping in mind that increasing raw material costs are expected to lead to tighter margins in the next three years in the price-sensitive category. Some experts even claim that contract manufacturing may prove to be a very good option for some auto majors in the Indian market as a couple of them have excess capacity on hand.

Keeping in mind the fact that establishing a new assembly line takes two years on an average and setting up a new plant will need around 2-4 years at least before it can start production, contract manufacturing seem to be the most viable option for the auto majors.

Notably, Maruti does the same for Nissan in the case of A-Star which Nissan sells in the European markets with the name of Pixo. In fact, Volkswagen also showed its interest in sharing its Chakan plant for contract manufacturing.