Inventory plays a critical role in manufacturing systems to match supply with demand. Inventory decisions by firms have an impact at both the microeconomic and macroeconomic levels. In manufacturing systems, a production decision is defined as an estimation made by a firm about the level of output in the upcoming planning period based on the next period sales forecast and desired inventory level the firm wants to achieve from one period to another. The desired inventory level is unobservable, but is crucial for production decision. In this study, we attempt to estimate the desired inventory level using Kalman filtering, and formulated a model to predict the production pattern for various automobile firms in India. We investigate the behaviour of desired inventory for Indian and foreign firms to market share and rate of change of sales. We find that firms with higher market share and with increase in rate of change in sales tend to have higher levels of desired inventory.