Post on 30-Aug-2014
PREFACE
Indian automobile industry has grown leaps and bounds since 1898, a time when a car had
touched the Indian streets for the first time. At present it holds a promising tenth position in
the entire world with being # 1 in Two Wheelers and # 4 in commercial vehicles.
Withstanding a growth rate of 18% per annum and an annual production of more than 2
million units, it may not be an exaggeration to say that this industry in the coming years will
soon touch a figure of 10 million units per year. The automobile industry in India — the ninth
largest in the world with an annual production of over 2.3 million units in 2011 — is
expected to become one of the major global automotive industries in the coming years.
In this project we have undergone a detailed analysis of India automobile industry by using
Fundamental and Technical tools. In order to better understand the threat and growth
opportunities of Indian automobile industry with foreign automobile industry we have made
comparative analysis of automobile industry of India with China. In this report we have
studied the market and discussed some cases that shows threat to Indian automobile Industry.
1
TABLE OF CONTENTS
CHAPTER TITLE PAGE NO
EXCUTIVE SUMMARY 3
I
INTRODUCTION
1.1 Objective of the study
1.2 Importance of the study
6
7
7
II
LITERATURE REVIEW
2.1 Industry Overview
2.2 Industry Definition & Supply chain
2.3 Passenger vehicle in India
2.4 Key Statistics of small car industry
2.4.1Product
2.4.2 Sales
2.4.3 Exports
9
9
18
19
21
36
IIIRESEARCH METHODOLOGY3.1 Research Methodology Used
44
IV
ANALYSIS AND INTERPRETATION
4.1 Market Analysis
4.1.1 Market Characteristics
4.1.2 International Market
4.2 Fundamental Analysis
4.2.1 Economy
4.2.2 GDP and Small car Industry
46
46
48
57
65
65
65
FINDINGS OF THE STUDY
2
V
5.1 Assessment of Threats & opportunities
5.1.1Five Forces Model
5.1.2PEST Analysis
5.1.3BCG Matrix
5.1.4Industrial Life Cycle
5.1.5 SWOT Analysis
5.2
5.3
70
71
71
73
74
75
90
VI
Comparative study of Some Major
Players6.1 Introduction-TATA Motors
6.1.1 Analysis of TATA Motors
6.1.2 Porter’s Five forces Analysis
6.1.3 SWOT Analysis
6.1.4 BCG Matrix
6.2 Introduction-General Motors
6.2.1 Analysis of General Motors
6.2.2 Porter’s Five Forces Analysis
92
92
92
VII RECOMMENDATION 95
VIII CONCLUSION 97
IX BIBLIOGRAPHY 100
3
EXECUTIVE SUMMARY
The automobile industry today is the most lucrative industry. Due to the increase in
disposable income in both rural and urban sector and easy finance being provided by all the
financial institutes, the passenger car sales have increased at the rate of 38% per annum in
June 2010-11 over the corresponding period in the previous year. Further competition is
heating up in the sector with a host of new players coming in and other like Porsche, Bentley,
Audi, and BMW all set to venture in the Indian markets. The automobile industry, one of the
core sectors, has undergone metamorphosis with the advent of new business and
manufacturing practices in the light of liberalization and globalization. The sector seems to be
optimistic of posting strong sales in the couple of years in the view of a reasonable surge in
demand. The Indian automobile market is gearing towards international standards to meet the
needs of the global automobile giants and become a global hub. A detailed analysis of Small
car industry has been covered in respect of past growth and performance. Under this project
to better understand the Industry we have used Fundamental and Technical tools to make it
more authentic and meaningful. An approach has been followed under Fundamental Analysis
which covered effect of Recession, the impact of inflation, FDI’s, Export, GDP etc. on Small
car Industry. The Industry Analysis has been done with the help of five forces model, BCG
Matrix, SWOT analysis, industry life cycle. For assessment of threats and growth
opportunities of Indian Small car industry with reference to foreign small car industry we
have discussed some cases that shows the threat & oppurtunities to Indian Market. At the end
conclusion have been specified so as to make the research work more meaningful and
purposeful.
4
CHAPTER IINTRODUCTION
5
INTRODUCTION
The car industry was born in Germany more than 100 years ago. Early development of the
industry began in France in the 1900s. It was in America that the industry came of age thanks
to Henry Ford, who introduced the assembly line production system. The car industry
pioneered many innovative business practices. For example, the industry introduced the
concept of "planned obsolescence," i.e. frequent changes in design to induce customers to
switch to a new model every other year. At the same time, by virtue of its sheer size and
ubiquity, the industry attracted wide public attention. In the 1960s, consumer activist Ralph
Nader attacked the safety record of the 'Big Three' Detroit manufacturers, General Motor,
Ford and Chrysler. In the 1970s, as oil prices quadrupled, the industry found itself under
attack from environmentalists. The industry also attracted government scrutiny on account of
safety concerns, antitrust worries (in the days when General Motors had 60% share of the US
market) and pollution. But in view of its size and the number of jobs it created, the industry
continued to receive strong government support. When small, fuel efficient and reliable
Japanese cars started to eat into the market share of the Big Three, the American government
resorted to protectionism.
India’s automobile sector consists of the passenger cars and utility vehicles, commercial
vehicle, two wheelers and tractors segment. The total market size of the auto sector in India is
approximately Rs 540 billion and has been growing at around 8 percent per annum for the
last few years. Since the last four to five years, the two wheelers segment has driven the
overall volume growth on account of the spurt in the sales of motorcycles. India is the second
largest manufacturer of two-wheelers in the world. It stands next only to Japan and China in
terms of the number of two-wheelers produced and sold respectively. India is one of the very
few countries manufacturing three wheelers in the world. It is the world's largest
manufacturer and seller of three-wheelers. Following India's growing openness, the arrival of
new and existing models, easy availability of finance at relatively low rate of interest and
price discounts offered by the dealers and manufacturers all have stirred the demand for
vehicles and a strong growth of the Indian automobile industry
The automobile industry in India is the ninth largest in the world with an annual production
of over 2.3 million units in 2011. In 2011, India emerged as Asia's fourth largest exporter of
automobiles, behind Japan, South Korea and Thailand. Following economic liberalization in
India in 1991, the Indian automotive industry has demonstrated sustained growth as a result
6
of increased competitiveness and relaxed restrictions. Several Indian automobile
manufacturers such as Tata Motors, Maruti Suzuki and Mahindra and Mahindra, expanded
their domestic and international operations. India's robust economic growth led to the further
expansion of its domestic automobile market which attracted significant India-specific
investment by multinational automobile manufacturers. In February 2011, monthly sales of
passenger cars in India exceeded 100,000 units.
7
1.1 Objective of the study
The objective of this project is to deeply analyze our Indian Small car Industry, which may be
beneficial for many purposes like for investment purpose, for knowing the growth trend for
better growth as well as the study of opportunities and threats from foreign industries.
Secondary data from the internet has been used for effective analysis. The main objectives of
the Project study are:
• Detailed analysis of Small carindustry which is gearing towards international
standards
• Analyze the impact of qualitative factors on industry’s and company’s prospects
• Comparative analysis of Some major players of small car Industry.
1.2 Importance of Study
The importance of this study is to practically understand the relevance of the concepts about
the industry or to do well in the business organisations and here in the realm of the
automobile industry. The present market scenario was analyzed and future demands
forecasted using research techniques. Also, a comprehensive study of the major factors
involved in this market was conducted so as to see how different and similar a market
structure is from the theories.
8
CHAPTER II
LITERATURE REVIEW
9
Literature Review
2.1 Industry overview
The first car ran on India's roads in 1897. Until the 1930s, cars were imported directly, but in very small numbers.
Embryonic automotive industry emerged in India in the 1940s. Mahindra & Mahindra was established by two brothers as a trading company in 1945, and began assembly of Jeep CJ-3A utility vehicles under license from Willys.[19] The company soon branched out into the manufacture of light commercial vehicles (LCVs) and agricultural tractors.[20]
Following the independence, in 1947, the Government of India and the private sector launched efforts to create an automotive component manufacturing industry to supply to the automobile industry. However, the growth was relatively slow in the 1950s and 1960s due to nationalisation and the license raj which hampered the Indian private sector. After 1970, the automotive industry started to grow, but the growth was mainly driven by tractors, commercial vehicles and scooters. Cars were still a major luxury. Japanese manufacturers entered the Indian market ultimately leading to the establishment of Maruti Udyog. A number of foreign firms initiated joint ventures with Indian companies.[21]
In the 1980s, a number of Japanese manufacturers launched joint-ventures for building motorcycles and light commercial-vehicles. It was at this time that the Indian government chose Suzuki for its joint-venture to manufacture small cars. Following the economic liberalisation in 1991 and the gradual weakening of the license raj, a number of Indian and multi-national car companies launched operations. Since then, automotive component and automobile manufacturing growth has accelerated to meet domestic and export demands.[21]
Following economic liberalization in India in 1991, the Indian automotive industry has demonstrated sustained growth as a result of increased competitiveness and relaxed restrictions. Several Indian automobile manufacturers such as Tata Motors, Maruti Suzuki and Mahindra and Mahindra, expanded their domestic and international operations. India's robust economic growth led to the further expansion of its domestic automobile market which has attracted significant India-specific investment by multinational automobile manufacturers.[22] In February 2009, monthly sales of passenger cars in India exceeded 100,000 units[23] and has since grown rapidly to a record monthly high of 182,992 units in October 2009.[24] From 2003 to 2010, car sales in India have progressed at a CAGR of 13.7%, and with only 10% of Indian households owning a car in 2009 (whereas this figure reaches 80% in Switzerland for example)[25] this progression is unlikely to stop in the coming decade.[26]Congestion of Indian roads, more than market demand, will likely be the limiting factor.[27]
SIAM is the apex industry body representing all the vehicle manufacturers, home-grown and international, in India.[28]
During early 60s & 70s, automobiles came largely in twos. In scooters, you had a Lambretta
or a Vespa.In motorcycles, you had a Bullet or a Java.In cars, you had to choose between an
Ambassador and a Fiat. In trucks, it was either an Ashok Leyland or a Tata. In tractors, it was
between a Swaraj and a Mahindra. This situation reflected the India of yester years.
Economic reforms and deregulation have transformed that scene. Automobile industry has
written a new inspirational tale. It is a tale of exciting multiplicity, unparalleled growth and
amusing consumer experience - all within a few years. India has already become one of the
fastest growing automobile markets in the world. This is a tribute to leaders and managers in
the industry and, equally to policy planners. The automobile industry has the opportunity to
go beyond this remarkable achievement. It is standing on the doorsteps of a quantum leap.
The Indian automobile industry is going through a technological change where each firm is
engaged in changing its processes and technologies to maintain the competitive advantage
and provide customers with the optimized products and services. Starting from the two
wheelers, trucks, and tractors to the multi utility vehicles, commercial vehicles and the luxury
10
vehicles, the Indian automobile industry has achieved splendid achievement in the recent
years. "The opportunity is staring in your face. It comes only once. If you miss it, you will
not get it again" On the canvas of the Indian economy, auto industry maintains a high-flying
place. Due to its deep frontward and rearward linkages with several key segments of the
economy, automobile industry has a strong multiplier effect and is capable of being the driver
of economic growth. A sound transportation system plays an essential role in the country's
rapid economic and industrial development. The well-developed Indian automotive industry
skillfully fulfils this catalytic role by producing a wide variety of vehicles: passenger cars,
light, medium and heavy commercial vehicles, multi-utility vehicles such as jeeps, scooters,
motorcycles, mopeds, three wheelers, tractors etc.
The automotive sector is one of the core industries of the Indian economy, whose prospect is
reflective of the economic resilience of the country. Continuous economic liberalization over
the years by the government of India has resulted in making India as one of the prime
business destination for many global automotive players. The automotive sector in India is
growing at around 18 per cent per annum.
"The auto industry is just a multiplier, a driver for employment, for investment, for
technology" The Indian automotive industry started its new journey from 1991 with
delicensing of the sector and subsequent opening up for 100 per cent FDI through automatic
route.
The automobile sector has been contributing its share to the shining economic performance of
India in the recent years. With the Indian middle class earning higher per capita income, more
people are ready to own private vehicles including cars and two-wheelers. Product
movements and manned services have boosted in the sales of medium and sized commercial
vehicles for passenger and goods transport. Side by side with fresh vehicle sales growth, the
automotive components sector has witnessed big growth. The domestic auto components
consumption has crossed rupees 9000 crore and an export of one half size of this figure.
Eye-Catching FDI Destination - INDIA!India is on the peak of the Foreign Direct Investment wave. FDI flows into India trebled from
$6 billion in 2007-08 to $19 billion in 2009-10 and are expected to quadruple to $25 billion
in 2010-11. By AT Kearney's FDI Confidence Index 2006, India is the second most attractive
FDI destination after China, pushing the US to the third position. It is commonly believed
that soon India will catch up with China. This may also happen as China attempts to cool the
11
economy and its protectionism measures that are eclipsing the Middle Kingdom's
attractiveness. With rising wages and high land prices in the eastern regions, China may be
losing its edge as a low-cost manufacturing hub. India seems to be the natural choice.
India is up-and-coming a significant manufacturer, especially of electrical and electronic
equipment, automobiles and auto-parts. During 2005-2010 of the total FDI inflow, electrical
and electronic (including computer software) and automobile accounted for 13.7 per cent and
8.4 per cent respectively. In services sectors, the lead players are the US, Singapore and the
UK. The total investment from these three countries accounted for about 40 per cent of the
FDI in the services sector. In automobiles, the key player is Japan. Japan accounted for about
41 per cent of the total FDI in automobile, surpassing all its competitors by a big margin.
India's vast domestic market and the large pool of technically skilled manpower were the
magnetism for the foreign investors. Hitherto, known for knowledge-based industries, India is
emerging a powerhouse of conventional manufacturing too. The manufacturing sector in the
Index for Industrial Production has grown at an annual rate of over 9 per cent over the last
three years. Korean auto-makers think India is a better destination than China. Though China
provides a bigger market for automobiles, India offers a potential for higher growth. Clearly,
manufacturing and service-led growth and the increasing consumerisation makes India one of
the most important destinations for FDI.
Automotive Mission Plan 2016The bumper-to-bumper traffic of global automobile biggies on the passage to India has
finally made government sit up and take notice. In a bid to drive greater investments into the
sector, ministry of heavy industries has decided to put together a 10-year mission plan to
make India a global hub for automotive industry."The ten year mission plan will also set the
roadmap for budgetary fiscal incentives"
The Government of India is drawing up an Automotive Mission Plan 2016 that aims to make
India a global automotive hub. The idea is to draw an innovative plan of action with full
participation of the stakeholders and to implement it in mission mode to meet the challenges
coming in the way of growth of industry. Through this Automotive Mission Plan,Government
also wants to provide a level playing field to the players in the sector and to lay a predictable
future direction of growth to enable the manufacturers in making a more informed investment
decision.
Major players in the automobile sector are:
Tata
12
Mahindra
Ashok Leyland
Bajaj
Hero Honda
Daimler Chrysler
Suzuki
Ford
Fiat
Hyundai
General Motors
Volvo
Yamaha
Mazda
Foreign Companies in the Indian auto-sectorUntil the mid-1990s, automobile industry in India consisted of just a handful of local
companies with small capacities and obsolete technologies. Nevertheless, after the sector was
thrown open to foreign direct investment in 1996, some of the global majors moved in and
Hyundai, Honda, Toyota, General Motors, Ford and Mitsubishi set up their manufacturing
bases.
Over the past four to five years, the country has seen the launch of several domestic and
foreign models of passenger cars, multi-utility vehicles (MUVs), commercial vehicles and
two-wheelers and a robust growth in the production of all kinds of vehicles. Moreover, owing
to its low-cost, high-quality manufacturing, India has also emerged as a significant
outsourcing hub for auto components and auto engineering design, rivaling Thailand. German
auto-maker Volkswagen AG, too, is looking to enter India.
India is expected to be the small car hub for Japanese major Toyota. The car, a hot hatch like
the Swift or Getz is likely to be exported to markets like Brazil and other Asian countries.
This global car is crucial for Toyota, which is looking to improve its sales in the BRIC
(Brazil, Russia, India, China) markets.
Two multi-national car majors -- Suzuki Motor Corporation of Japan and Hyundai Motor
Company of Korea -- have indicated that their manufacturing facilities will be used as a
global source for small cars. The spurt in in-house product development skills and the
13
uniquely high concentration of small cars will influence the country's ability to become a
sourcing hub for sub-compact cars.
A heartening feature of the changing automobile scene in India over the past five years is the
newfound success and confidence of domestic manufacturers. They are no longer afraid of
competition from the international auto majors.
For instance, today, Tata Motor's Indigo leads the popular customer category, while its Indica
is neck-to-neck with Hyundai's Santro in the race for the top-slot in the B category.
Meanwhile M&M's Scorpio has beaten back the challenge from Toyota's Qualis to lead the
SUV segment.
Similarly, a few Indian winners have emerged in the motorbike market -- the 150 and 180 cc
Pulsar from Bajaj and 110 cc Victor from the TVS stable. The 93 cc Bike from Bajaj and 110
cc Freedom bike from LML have also emerged as winners.
Evidently, Indian players have learnt from past mistakes and developed the skills to build
cheaper automobiles using `appropriate' technologies. TVS, for instance, paid an overseas
source $100,000 to fine-tune home-grown engines rather than $1.5 million to import the
entire engine. Similarly, M&M adapted available systems and off-the-shelf components from
global suppliers to keep costs down and go for aggressive pricing. True, Indian players are
still lacking in scale of operation. While economies of scale no doubt play an important role
in the auto sector, a few Indian manufacturers relied on innovation rather than scale of
operation for competitive advantage. For instance, Sundram Fasteners was able to achieve the
feat of directly supplying radiator caps to General Motors purely on the strength of
innovation in product quality. The domestic tooling industry bagged the order for the Toyota
Kirloskar transmission plant in the face of stiff competition from multinational corporations.
The cost of the entire job turned out to be only a fraction of the original estimate.
As the automobile industry has matured over the past decade, the auto components industry
has also grown at a rapid pace and is fast achieving global competitiveness both in terms of
cost and quality.
In fact, industry observers believe that while the automobile market will grow at a measured
pace, the components industry is poised for a take-off. For it is among the handful of
industries where India has a distinct competitive advantage. International automobile majors,
such as Hyundai, Ford, Toyota and GM, which set up their bases in India in the 1990s,
persuaded some of their overseas component suppliers to set up manufacturing facilities in
India.
14
Consequently, the value of cumulative output of the auto components industry rose rapidly to
Rs 30,640 crore at end-2003-04 from just Rs 11,475 crore in 1996-97. Foreign companies
such as Delphi, which followed General Motors in 1995, and Visteon, that followed Ford
Motors in 1998, soon realised the substantial cost advantage of manufacturing components in
India.
Finding the cost lower by about 30 per cent, they began exploring the possibility of exporting
back these low-cost, high-quality components to their global factories and, thus, reducing
their overall costs. Not surprisingly, the industry's exports registered a more than four-fold
jump to Rs 4,800 crore in 2003-04 from just Rs 1,033 crore in 1996-97.
Automobile majors such as Maruti Udyog, Toyota, Hyundai have now finalised their plans to
invest in some of the critical auto components. According to the Automotive Component
Manufacturers Association of India (ACMA) officials, auto component manufacturers are
expected to invest about Rs 10,000 crore over the next five years at the rate of Rs 2,000 crore
per annum.
According to analysts, the auto component industry could emerge as the next success story
after software, pharmaceuticals, BPO and textiles. The size of the global auto component
industry is estimated at $1 trillion and is set to grow further. Against this backdrop,
McKinsey's latest report has estimated that the sector has the potential of increasing its
exports to $25 billion by 2015 from $1.1 billion in 2004.
Threat to the Dream!India's expedition to become a global auto manufacturing hub could be seriously challenged
by its inability to uphold its low-cost production base. A survey conducted by the research,
KMPMG firm reveals that the Indian auto component manufacturers are increasingly
becoming skeptical about sustaining the low-cost base as overheads including labour costs
and complex tax regime are constantly rising.
The survey said many executives believe that India's cost advantage is grinding down fast as
labour costs are constantly increasing and retaining employees is becoming more and more
difficult. Increased presence of global automotive companies in the country was cited as one
of the reasons for the high erosion rate.
Indian auto businesses will only flourish if they boost investments in automation. In the
longer term, cost advantage will only be retained if Indian capital can be used to develop low-
cost automation in manufacturing. This is the way to preserve our low cost.
15
Global auto majors are also cynical about India's low cost manufacturing base. India taxation
remains a big disadvantage. This is not about tax rates it is just about unnecessary
complexity. But some companies also believe there is scope for reducing the cost of doing
business.
In spite of this there are opportunities to exploit lower costs right across the board. It's true
that labour costs are definitely increasing but they are still five per cent of the total
operational costs. The labour costs can be further reduced if companies are successful in
bringing down other costs like reducing power costs. Low-cost base can never last long. The
company said Indian industry has till now relied on very labour intensive model but it would
have to switch to a more capital intensive model now. The Indian Automobile Industry
manufactures over 11 million vehicles and exports about 1.5 million each year. The dominant
products of the industry are two-wheelers with a market share of over 75% and passenger
cars with a market share of about 16%. Commercial vehicles and three-wheelers share about
9% of the market between them. About 91% of the vehicles sold are used by households and
only about 9% for commercial purposes. The industry has a turnover of more than USD $35
billion and provides direct and indirect employment to over 13 million people.???The supply
chain is similar to the supply chain of the automotive industry in Europe and
America.Interestingly, the level of trade exports in this sector in India has been medium and
imports have been low. However, this is rapidly changing and both exports and imports are
increasing. The demand determinants of the industry are factors like affordability, product
innovation, infrastructure and price of fuel. Also, the basis of competition in the sector is high
and increasing, and its life cycle stage is growth. With a rapidly growing middle class, all the
advantages of this sector in India are yet to be leveraged.
With a high cost of developing production facilities, limited accessibility to new technology,
and increasing competition, the barriers to enter the Indian Automotive sector are high. On
the other hand, India has a well-developed tax structure. The power to levy taxes and duties is
distributed among the three tiers of Government. The cost structure of the industry is fairly
traditional, but the profitability of motor vehicle manufacturers has been rising over the past
five years. Major players, like Tata Motors and Maruti Suzuki have material cost of about
80% but are recording profits after tax of about 6% to 11%.
The level of technology change in the Motor vehicle Industry has been high but, the rate of
change in technology has been medium. Investment in the technology by the producers has
16
been high. System-suppliers of integrated components and sub-systems have become the
order of the day. However, further investment in new technologies will help the industry be
more competitive. Over the past few years, the industry has been volatile. Currently, India's
increasing per capita disposable income which is expected to rise by 106% by 2015 and
growth in exports is playing a major role in the rise and competitiveness of the industry.Tata
Motors is leading the commercial vehicle segment with a market share of about 64%. Maruti
Suzuki is leading the passenger vehicle segment with a market share of 46%.Hyundai Motor
India and Mahindra and Mahindra are focusing expanding their footprint in the overseas
market. Hero MotoCorp is occupying over 41% and sharing 26% of the two-wheeler market
in India with Bajaj Auto. Bajaj Auto in itself is occupying about 58% of the three-wheeler
market.Consumers are very important of the survival of the Motor Vehicle manufacturing
industry. In 2008-09, customer sentiment dropped, which burned on the augmentation in
demand of cars. Steel is the major input used by manufacturers and the rise in price of steel is
putting a cost pressure on manufacturers and cost is getting transferred to the end consumer.
The price of oil and petrol affect the driving habits of consumers and the type of car they buy.
The key to success in the industry is to improve labour productivity, labour flexibility, and
capital efficiency. Having quality manpower, infrastructure improvements, and raw material
availability also play a major role. Access to latest and most efficient technology and
techniques will bring competitive advantage to the major players. Utilising manufacturing
plants to optimum level and understanding implications from the government policies are the
essentials in the Automotive Industry of India.
Both, Industry and Indian Government are obligated to intervene the Indian Automobile
industry. The Indian government should facilitate infrastructure creation, create favourable
and predictable business environment, attract investment and promote research and
development. The role of Industry will primarily be in designing and manufacturing products
of world-class quality establishing cost competitiveness and improving productivity in labour
and in capital. With a combined effort, the Indian Automotive industry will emerge as the
destination of choice in the world for design and manufacturing of automobiles.
The first car ran on India's roads in 1897. Until the 1930s, cars were imported directly, but in
very small numbers.
Embryonic automotive industry emerged in India in the 1940s. Mahindra & Mahindra was
established by two brothers as a trading company in 1945, and began assembly of Jeep CJ-3A
17
utility vehicles under license from Willys. The company soon branched out into the
manufacture of light commercial vehicles (LCVs) and agricultural tractors.
Following the independence, in 1947, the Government of India and the private
sector launched efforts to create an automotive component manufacturing industry to supply
to the automobile industry. However, the growth was relatively slow in the 1950s and 1960s
due to nationalisation and the license raj which hampered the Indian private sector. After
1970, the automotive industry started to grow, but the growth was mainly driven by tractors,
commercial vehicles and scooters. Cars were still a major luxury. Japanese manufacturers
entered the Indian market ultimately leading to the establishment of Maruti Udyog. A number
of foreign firms initiated joint ventures with Indian companies.
In the 1980s, a number of Japanese manufacturers launched joint-ventures for
building motorcycles and light commercial-vehicles. It was at this time that the Indian
government chose Suzuki for its joint-venture to manufacture small cars. Following the
economic liberalisation in 1991 and the gradual weakening of the license raj, a number of
Indian and multi-national car companies launched operations. Since then, automotive
component and automobile manufacturing growth has accelerated to meet domestic and
export demands.
Following economic liberalization in India in 1991, the Indian automotive industry has
demonstrated sustained growth as a result of increased competitiveness and relaxed
restrictions. Several Indian automobile manufacturers such as Tata Motors, Maruti
Suzuki and Mahindra and Mahindra, expanded their domestic and international operations.
India's robust economic growth led to the further expansion of its domestic automobile
market which has attracted significant India-specific investment by multinational automobile
manufacturers. In February 2009, monthly sales of passenger cars in India exceeded 100,000
units and has since grown rapidly to a record monthly high of 182,992 units in October 2009.[24] From 2003 to 2010, car sales in India have progressed at a CAGR of 13.7%, and with only
10% of Indian households owning a car in 2009 (whereas this figure reaches 80% in
Switzerland for example) this progression is unlikely to stop in the coming decade.
Congestion of Indian roads, more than market demand, will likely be the limiting factor.
SIAM is the apex industry body representing all the vehicle manufacturers, home-grown and
international, in India.
18
2.2 Industry Definition
This class consists of units mainly engaged in manufacturing motor vehicles or motor vehicle
engines,Products and Services
The primary activities of this industry are:
Motor cars manufacturing Motor vehicle engine manufacturing
The major products and services in this industry are:
Passenger motor vehicle manufacturing segment (Passenger Cars, Utility Vehicles & Multi
Purpose Vehicles) Commercial Vehicles (Medium & Heavy and Light Commercial Vehicles)
Two Wheelers Three Wheelers.
19
2.3 The supply chain of automobile industry
The supply chain of automobile industry in India is very similar to the supply chain of the
automotive industry in Europe and America. The orders of the industry arise from the bottom
of the supply chain i. e., from the consumers and go through the automakers and climbs up
until the third tier suppliers. However the products, as channeled in every traditional
automotive industry, flow from the top of the supply chain to reach the consumers.
Automakers in India are the key to the supply chain and are responsible for the products and
innovation in the industry.
The description and the role of each of the contributors to the supply chain are discussed
below.
Third Tier Suppliers: These companies provide basic products like rubber, glass, steel,
plastic and aluminum to the second tier suppliers.
Second Tier Suppliers: These companies design vehicle systems or bodies for First Tier
Suppliers and OEMs. They work on designs provided by the first tier suppliers or OEMs.
They also provide engineering resources for detailed designs. Some of their services may
include welding, fabrication, shearing, bending etc.
20
First Tier Suppliers: These companies provide major systems directly to assemblers. These
companies have global coverage to follow their customers to various locations around the
world. They design and innovate to provide "black-box" solutions for the requirements of
their customers. Black-box solutions are solutions created by suppliers using their own
technology to meet the performance and interface requirements set by assemblers.
First tier suppliers are responsible not only for the assembly of parts into complete units
like dashboard, breaks-axle-suspension, seats, or cockpit but also for the management of
second-tier suppliers.
Automakers/Vehicle Manufacturers/Original Equipment Manufacturers (OEMs): After
researching consumers' wants and needs, automakers begin designing models which are
tailored to consumers' demands. The design process normally takes five years. These
companies have manufacturing units where engines are manufactured and parts supplied by
first tier suppliers and second tier suppliers are assembled. Automakers are the key to the
supply chain of the automotive industry. Examples of these companies are Tata
Motors, Maruti Suzuki, Toyota, and Honda. Innovation, design capability and branding are
the main focus of these companies.
Dealers: Once the vehicles are ready they are shipped to the regional branch and from there,
to the authorised dealers of the companies. The dealers then sell the vehicles to the end
customers.
Parts and Accessory: These companies provide products like tires, windshields, and air
bags etc. to automakers and dealers or directly to customers.
Service Providers: Some of the services to the customers include servicing of vehicles,
repairing parts, or financing of vehicles. Many dealers provide these services but, customers
can also choose to go to independent service providers.
21
2.4 Key statistics
The production of automobiles has greatly increased in the last decade.
Yea
r
Car
Production
%
ChangeCommercial
%
Change
Total
Vehicles
Prodn.
%
Change
2010 2,814,584 29.39 722,199 54.86 3,536,783 33.89
2009 2,175,220 17.83 466,330 -4.10 2,641,550 13.25
2008 1,846,051 7.74 486,277 -9.99 2,332,328 3.35
2007 1,713,479 16.33 540,250 -1.20 2,253,999 10.39
2006 1,473,000 16.53 546,808 50.74 2,019,808 19.36
22
Yea
r
Car
Production
%
ChangeCommercial
%
Change
Total
Vehicles
Prodn.
%
Change
2010 1,264,000 7.27 362,755 9.00 1,628,755 7.22
2009 1,178,354 29.78 332,803 31.25 1,511,157 23.13
2008 907,968 28.98 253,555 32.86 1,161,523 22.96
2007 703,948 7.55 190,848 19.24 894796 8.96
2006 654,557 26.37 160,054 -43.52 814611 1.62
2005 517,957 -2.85 283,403 -0.58 801360 -2.10
2004 533,149 285,044 818193
Year2006-
2007
2007-
2008
2008-
2009
2009-
2010
2010-
2011
Motor Vehicle Production 8,467,853 9,743,503 11,087,997 10,853,930 11,175,479
Industry Revenue USD
Million24,379 26,969 30,507 32,383 33,342*
23
Year2006-
2007
2007-
2008
2008-
2009
2009-
2010
2010-
2011
Exports (Units) 629,544 806,222 1,011,529 1,238,333 1,530,660
Exports (Revenue) 1,915 2,231 2,552 3,008 3,718*
Automobile Production
Type of Vehicle2006-
20072007-2008 2008-2009
2009-
20102010-2011
Passenger Vehicles 1,209,876 1,309,300 1,545,223 1,777,583 1,838,697
Commercial Vehicles 353,703 391,083 519,982 549,006 417,126
Three Wheelers 374,445 434,423 556,126 500,660 501,030
Two Wheelers 6,529,829 7,608,697 8,466,666 8,026,681 8,418,626
Total. 8,467,853 9,743,503 11,087,997 10,853,930 11,175,479
Automobile Sales
Type of Vehicle2006-
20072007-2008 2008-2009
2009-
20102010-2011
Passenger Vehicles 1,061,572 1,143,076 1,379,979 1,549,882 1,551,880
24
Type of Vehicle2006-
20072007-2008 2008-2009
2009-
20102010-2011
Commercial Vehicles 318,430 351,041 467,765 490,494 384,122
Three Wheelers 307,862 359,920 403,910 364,781 349,719
Two Wheelers 6,209,765 7,052,391 7,872,334 7,249,278 7,437,670
Total 7,897,629 8,906,428 10,123,988 9,654,435 9,723,391
Automobile Exports
Type of Vehicle2006-
20072007-2008 2008-2009
2009-
20102010-2011
Passenger Vehicles 166,402 175,572 198,452 218,401 335,739
Commercial Vehicles 29,940 40,600 49,537 58,994 42,673
Three Wheelers 66,795 76,881 143,896 141,225 148,074
Two Wheelers 366,407 513,169 619,644 819,713 1,004,174
Total 629,544 806,222 1,011,529 1,238,333 1,530,660
25
Product and service segmentation
The automotive industry of India is categorised into passenger cars, two-wheelers,
commercial vehicles and three-wheelers, with two-wheelers dominating the market. More
than 75% of the vehicles sold are two-wheelers. Nearly 59% of these two-wheelers sold
were motorcycles and about 12% were scooters. Mopeds occupy a small portion in the two-
wheeler market however; electric two-wheelers are yet to penetrate.
The passenger vehicles are further categorised into passenger cars, utility vehicles and multi-
purpose vehicles. All sedan, hatchback, station wagon and sports cars fall under passenger
cars. Tata Nano, is the world's cheapest passenger car, manufactured by Tata Motors - a
leading automaker of India. Multi-purpose vehicles or people-carriers are similar in shape to
a van and are taller than a sedan, hatchback or a station wagon, and are designed for
maximum interior room. Utility vehicles are designed for specific tasks. The passenger
vehicles manufacturing account for about 15% of the market in India.
Commercial vehicles are categorised into heavy, medium and light. They account for about
5% of the market. Three-wheelers are categorised into passenger carriers and goods carriers.
Three-wheelers account for about 4% of the market in India.
Segment2006-
07
2007-
08
2008-
09
2009-
10
2010-
11
Passenger Car (%) 10.22 10.39 9.91 10.65 12.42
Utility Vehicles (UVs) (%) 2.15 2.23 2.18 2.18 2.39
Multi Purpose Vehicles (MPVs) (%) 0.87 0.82 0.75 0.82 0.98
Total Passenger Vehicles (%) 13.25 13.44 12.83 13.65 15.79
Passenger Carriers (%) 0.36 0.32 0.32 0.28 0.43
26
Segment2006-
07
2007-
08
2008-
09
2009-
10
2010-
11
Goods Carriers (%) 2.01 2.19 2.01 2.44 2.10
Total Medium & Heavy Commercial
Vehicles[18] (%)2.37 2.51 2.33 2.73 2.53
Passenger Carriers (%) 0.28 0.25 0.25 0.24 0.32
Goods Carriers (%) 1.17 1.27 1.36 1.67 1.77
Total Light Commercial Vehicles (%) 1.45 1.52 1.61 1.90 2.10
Total Commercial Vehicles[18] (%) 3.82 4.03 3.94 4.63 4.63
Passenger Carriers (%) 2.56 2.17 2.39 2.34 2.51
Goods Carriers (%) 1.61 1.73 1.65 1.65 1.51
Total Three Wheelers[18] (%) 4.17 3.90 4.04 4.00 4.01
Scoters/Scooterettee (%) 13.01 11.68 10.21 9.31 11.57
Motorcycles/Step-Throughs (%) 61.24 62.86 65.24 64.83 59.35
27
Segment2006-
07
2007-
08
2008-
09
2009-
10
2010-
11
Mopeds (%) 4.52 4.08 3.74 3.52 4.47
Electric Two Wheelers (%) - - - 0.07 0.19
Total Two Wheelers (%) 78.76 78.63 79.18 77.73 75.57
Grand Total (%) 100.00 100.00 100.00 100.00 100.00
Vehicle Registration
India had over 100 million vehicles registered on its roads in the year 2008. This is a growth
of about 100% in the past 9 years. Over 77% and about 77 million of these vehicles are two-
wheelers, about 14% and over 14 million are cars, jeeps and taxis. Over 5 million and over 1
million vehicles registered are goods vehicles and buses respectively.
Two-wheelers account a significant market share. Tata Motors with the launch of Tata
Nano is trying to attract some of these two-wheeler buyers to buy a small, cheap and
affordable passenger car.
Total Number of Vehicle Registrations in India from 2004 to 2011
Yea
r
All
Vehicles
(in '000)
Two
Wheelers
(in '000)
Cars,
Jeeps and
Taxis (in
'000)
Buses
(in
'000)
Goods
Vehicles (in
'000)
Other
Vehicles (in
'000)
2004 54,991 38,556 7,058 634 2,948 5,795
28
Yea
r
All
Vehicles
(in '000)
Two
Wheelers
(in '000)
Cars,
Jeeps and
Taxis (in
'000)
Buses
(in
'000)
Goods
Vehicles (in
'000)
Other
Vehicles (in
'000)
2005 58,924 41,581 7,613 635 2,974 6,121
2006 67,007 47,519 8,599 721 3,492 6,676
2007 72,718 51,922 9,451 768 3,749 6,828
2008 80,045 57,417 10,460 822 4,053 7,337
2009 88,068 63,487 11,571 879 4,345 7,891
2010 96,808 70,141 12,810 936 4,652 8,464
2011 106,591 77,588 14,222 1,003 5,018 9,065
Emission norms
In tune with international standards to reduce vehicular pollution, the central government
unveiled the standards titled 'India 2000' in 2000 with later upgraded guidelines as 'Bharat
Stage'. These standards are quite similar to the more stringent European standards and have
been traditionally implemented in a phased manner, with the latest upgrade getting
implemented in 13 cities and later, in the rest of the
nation. Delhi(NCR), Mumbai, Kolkata, Chennai, Bangalore, Hyderabad, Ahmedabad, Pune,
Surat, Kanpur, Lucknow, Solapur, and Agra are the 13 cities where Bharat Stage IV has been
imposed while the rest of the nation is still under Bharat Stage III.
29
Geographic Segmentation
The total number of new vehicles registered in the 28 states and 7 union territories of India in
the year 2008 were about 106,591. The diagram above displays the registration of new
vehicles in various states and union territories. About 16 states and 1 union territory had over
a million new vehicles registered. Tamil Nadu had about 16 million new vehicles
registered, Maharashtra had over 13 million, and Gujarat had over 10 million. About 91% of
these vehicles are non-commercial vehicles purchased by households looking for a two-
wheeler, or a car. Only about 9% of new vehicles registered are used for commercial
purposes. Details of category wise new vehicle registrations in the various states and union
territories are displayed. The number of new vehicles registrations has grown by about 66%
in the past five years.
Geographical Segmentation: State-wise motor vehicles registration in India
from 2004 – 2011.
States\Year
2004
(in
'000)
2005(in
'000)
2006
(in
'000)
2007(in
'000)
2008
(in
'000)
2009(in
'000)
2010
(in
'000)
2011
(in
'000)
Andhra
Pradesh1111 4,389 5,002 5,720 6,446 7,232 8,042 8,989
Arunachal
Pradesh21 21 21 21 21 21 21 21
Assam 542 596 657 727 798 883 973 1,086
Bihar 949 1,024 1,121 751 726 694 647 593
Chhattisgarh 857 948 1,076 1,216 1,367 1,536 1,726 1,939
30
States\Year
2004
(in
'000)
2005(in
'000)
2006
(in
'000)
2007(in
'000)
2008
(in
'000)
2009(in
'000)
2010
(in
'000)
2011
(in
'000)
Goa 341 366 397 436 483 537 585 638
Gujarat 5,576 6,008 6,508 7,087 7,892 8,785 9,633 10,543
Haryana 1,949 2,122 2,279 2,548 2,883 3,267 3,689 4,164
Himachal
Pradesh217 244 269 289 329 375 421 480
Jammu &
Kashmir330 364 399 439 493 556 628 719
Jharkhand 909 984 1,101 1,217 1,341 1,479 1,630 1,796
Karnataka 3,537 3,636 3,738 3,977 4,338 4,717 5,036 5,360
Kerala 2,112 2,315 2,552 2,792 3,180 3,612 4,034 4,564
Madhya
Pradesh3,095 3,173 3,459 3,804 4,119 4,442 4,710 4,968
Maharashtra 6,760 7,414 8,134 8,969 10,055 11,281 12,477 13,817
31
States\Year
2004
(in
'000)
2005(in
'000)
2006
(in
'000)
2007(in
'000)
2008
(in
'000)
2009(in
'000)
2010
(in
'000)
2011
(in
'000)
Manipur 77 90 97 106 114 123 134 145
Meghalaya 62 67 73 73 78 84 89 95
Mizoram 31 34 37 42 48 54 61 70
Nagaland 160 177 162 172 186 201 215 230
Orissa 1,096 1,215 1,359 1,525 1,717 1,936 2,159 2,417
Punjab 2,910 3,103 3,308 3,529 3,859 4,225 4,571 4,992
Rajasthan 2,943 3,197 3,487 3,834 4,285 4,791 5,281 5,815
Sikkim 12 13 15 17 19 21 23 25
Tamil Nadu 5,162 5,658 8,005 8,575 10,085 11,901 13,860 16,207
Tripura 50 57 66 76 85 95 105 117
Uttarakhand 364 406 457 516 580 651 732 822
Uttar Pradesh 4,921 5,171 5,928 6,460 7,271 8,144 8,970 9,919
32
States\Year
2004
(in
'000)
2005(in
'000)
2006
(in
'000)
2007(in
'000)
2008
(in
'000)
2009(in
'000)
2010
(in
'000)
2011
(in
'000)
West Bengal 1,690 1,690 2,366 2,548 2,816 3,138 3,464 3,833
Andaman &
Nicobar
Islands
25 28 28 28 31 34 38 42
Chandigarh 386 386 562 586 629 677 732 799
Dadra & Nagar
Haveli13 13 31 35 43 54 67 86
Daman & Diu 37 41 44 48 55 63 71 79
Delhi 3,635 3,699 3,971 4,237 4,544 4,868 5,166 5,469
Lakshadweep 4 5 5 5 6 7 7 8
Pondicherry 252 270 293 313 359 418 495 552
33
Geographical Segmentation: Category-wise registration in Union
Territories of India
Type of Vehicle
Andaman
& Nicobar
Islands
Chandigarh
Dadra &
Nagar
Haveli
Daman
& DiuDelhi Lakshadweep Pondicherry
Multiaxled/
Articulated
Vehicles/Trucks
& Lorries
1,519 1,671 5,487 1,896 75,601 - 6,588
Light Motor
Vehicles (goods)- 7,459 1,190 1,829 75,947 270 2,923
Buses 459 1,239 154 361 36,059 - 1,831
Taxis 436 1,173 108 43 24,712 - 1,421
Light Motor
Vehicles
(passenger)
784 - 500 890 20,893 408 4,283
Total
Commercial3,198 11,542 7,439 5,019
233,21
2678 17,046
Two Wheelers 21,74 416,917 17,881 30,3512,665,
7503,978 235,438
34
Type of Vehicle
Andaman
& Nicobar
Islands
Chandigarh
Dadra &
Nagar
Haveli
Daman
& DiuDelhi Lakshadweep Pondicherry
Cars 1,693 157,612 9,270 12,2781,192,
38978 47,642
Jeeps 1,033 - 429 295122,28
385 3,838
Omni Buses - - 6 38 8,386 5 2,545
Tractors 261 36 44 165 4,851 44 318
Trailers 67 - 46 124 99 - 1,582
Others 461 - - 30 9,705 503 4,541
Total non-
commercial25,258 574,565 27,000 43,281
4,003,
4634,693 295,904
35
Exports
Mahindra Scorpio Jeep in service with the Italy's CNSAS.
India's automobile exports have grown consistently and reached $4.5 billion in 2009,
with United Kingdom being India's largest export market followed
byItaly, Germany, Netherlands and South Africa. India's automobile exports are expected to
cross $12 billion by 2014.
According to New York Times, India's strong engineering base and expertise in the
manufacturing of low-cost, fuel-efficient cars has resulted in the expansion of manufacturing
facilities of several automobile companies like Nissan, Toyota, Volkswagen and Suzuki.
In 2008, Hyundai Motors alone exported 240,000 cars made in India. Nissan Motors plans to
export 250,000 vehicles manufactured in its India plant by 2011. Similarly, General
Motors announced its plans to export about 50,000 cars manufactured in India by 2011.
In September 2009, Ford Motors announced its plans to set up a plant in India with an annual
capacity of 250,000 cars for US$500 million. The cars will be manufactured both for the
Indian market and for export. The company said that the plant was a part of its plan to make
India the hub for its global production business. Fiat Motors also announced that it would
source more than US$1 billion worth auto components from India.
In July 2010, The Economic Times reported that PSA Peugeot Citroën was planning to re-
enter the Indian market and open a production plant in Andhra Pradesh with an annual
capacity of 100,000 vehicles, investing EUR 700M in the operation. PSA's intention to utilise
this production facility for export purposes however remains unclear as of December 2010.
36
A Tata Safari on display in Poznan,Poland.
In 2009 India (0.23m) surpassed China (0.16m) as Asia's fourth largest exporter of cars after
Japan (1.77m), Korea (1.12m) and Thailand (0.26m) by allowing foreign carmakers 100%
ownership of factories in India, which China does not allow.
In recent years, India has emerged as a leading center for the manufacture of small
cars. Hyundai, the biggest exporter from the country, now ships more than 250,000 cars
annually from India. Apart from shipments to its parent Suzuki, Maruti Suzuki also
manufactures small cars for Nissan, which sells them in Europe. Nissan will also export small
cars from its new Indian assembly line. Tata Motors exports its passenger vehicles to Asian
and African markets, and is in preparation to launch electric vehicles in Europe in 2010. The
firm is also planning to launch an electric version of its low-cost car Nano in Europeand
the U.S. Mahindra & Mahindra is preparing to introduce its pickup trucks and
small SUV models in the U.S. market. Bajaj Auto is designing a low-cost car for the Renault
Nissan Automotive India, which will market the product worldwide. Renault Nissan may also
join domestic commercial vehicle manufacturer Ashok Leyland in another small car
project. While the possibilities are impressive, there are challenges that could thwart future
growth of the Indian automobile industry. Since the demand for automobiles in recent years
is directly linked to overall economic expansion and rising personal incomes, industry growth
will slow if the economy weakens.
37
Top 20 Export destinations in 2010-2011 and growth from previous year
Rank Country2009-2010 (in USD
Millions)
2010-2011 (in USD
Millions)
Percentage
Growth
1United States of
America593.64 525.24 -11.52
2 Italy 332.35 359.68 8.22
3 Sri Lanka 249.14 216.11 -13.26
4 South Africa 224.93 188.57 -15.79
5 United Kingdom 165.57 246.32 48.77
6United Arab
Emirates164.44 192.74 17.21
7 Algeria 147.34 265.63 80.28
8 Bangladesh 137.26 164.86 20.11
9 Egypt 134.43 143.54 5.99
10 Germany 133.52 409.63 206.8
11 Colombia 118.88 120.71 1.54
38
Rank Country2009-2010 (in USD
Millions)
2010-2011 (in USD
Millions)
Percentage
Growth
12 Nepal 111.33 98.13 -11.86
13 Mexico 93.80 94.10 0.32
14 Turkey 83.53 73.82 -11.63
15 Spain 81.01 56.96 -29.69
16 France 76.77 134.21 74.83
17 Nigeria 66.01 148.74 125.03
18 Greece 65.75 127.63 94.1
19 Netherland 65.19 163.66 151.05
20 Ghana 59.91 38.30 -36.07
39
2.5 Passenger vehicles in India
This list is of cars that are officially available and serviced in India. While other cars can be
imported to the country at a steep 105% import duty, car-makers such as Alfa
Romeo, McLaren,Pagani, Cadillac, Chrysler, SSC, Zenvo,SEAT Smart, Daihatsu, Lexus, Infi
niti,Acura, Saab, Spyker, Lotus, Ariel,Caterham, Peugeot,Citroën,Mazda, Jeep, SsangYong,
Kia, GAZ and Proton are in varying stages of official introduction to the Indian automobile
market.
Indian automotive companies
Chinkara Motors: Beachster, Hammer, Roadster 1.8S, Rockster, Jeepster, Sailster
Hindustan Motors: Ambassador
ICML: Rhino Rx
Mahindra: Major, Xylo, Scorpio, Bolero, Thar, Verito, Genio, XUV500.
Premier Automobiles Limited: Sigma, RiO
San Motors: Storm
TataMotors:Nano, Indica, Vista, Indigo, Manza, Indigo
CS, Sumo, Grande, Venture, Safari, Xenon, Aria
Foreign automotive companies in India
Vehicles manufactured or assembled in India
Manufactured only in Chennai, India, thei10 is one of Hyundai's best selling globally
exported cars.
40
Maruti Swift. Maruti Suzuki, a subsidiary of Japan's Suzuki Motor, is the largest automobile
manufacturer in India.
BMW India: 3 Series, 5 Series, X1, X3.
Fiat India (in collaboration with Tata Motors): Grande Punto, Linea.
Ford India: Figo, Fiesta Classic, Fiesta, Endeavour.
General Motors India
Chevrolet: Spark, Beat, Aveo U-VA, Aveo, Optra, Cruze, Tavera.
Honda Siel: Brio, Jazz, City, Civic, Accord.
Hyundai Motor India: Eon, Santro, i10, i20, Accent, Verna, Sonata.
Land Rover: Freelander 2
Maruti Suzuki: 800, Alto, WagonR, Estilo, A-star, Ritz, Swift, Swift
DZire, SX4, Omni, Eeco, Gypsy.
Mercedes-Benz India: C-Class, E-Class, M-Class, S-Class.
Mitsubishi (in collaboration with Hindustan Motors):[85] Lancer, Lancer
Cedia, Pajero.
Nissan Motor India: Micra, Sunny, Evalia.
Renault India: Pulse, Duster, Fluence, Koleos.
Toyota Kirloskar: Etios Liva, Etios, Corolla Altis, Innova, Fortuner.
Volkswagen Group Sales India:
Audi India: A4, A6, Q5.
Škoda Auto India: Fabia, Rapid, Laura.
Volkswagen India: Polo, Vento, Jetta, Passat.
Opel was present in India until 2006. As of 2011, Opel only provides spare parts and vehicle servicing to existing Opel vehicle owners.
41
Vehicles brought into India as CBUs
Aston Martin: Vantage, Rapide, Virage, DB9, DBS, One-77.
Audi: A7, A8, S4, S6, S8, Q7, TT, R8, RS5.
Bentley: Arnage, Azure, Brooklands, Continental GT, Continental
Flying Spur, Mulsanne.
BMW: 5 Series GT, 6 Series, 7 Series, X5, X6, X6
M, M3, M5, M6 and Z4.
Bugatti: Veyron.
Chevrolet: Captiva.
Ferrari: California, 458 Italia, 599 GTB Fiorano, FF.
Fiat: 500, Bravo.
General Motors: Hummer H2, Hummer H3.
Gumpert: Apollo.
Honda: Civic Hybrid, CR-V.
Hyundai: Santa Fe.
Jaguar: XF, XJ, XK.
Koenigsegg: CCX, CCXR, Agera.
Lamborghini: Gallardo, Aventador.
Land Rover: Discovery 4, Range Rover Evoque, Range Rover
Sport, Range Rover.
Maserati: Quattroporte, GranTurismo, GranCabrio.
Maybach: 57 and 62.
Mercedes-Benz: CL-Class, GL-Class, R-Class, CLS-Class, SL-Class,
SLK-Class, Viano, G-Class, SLS.
MINI: Cooper, Cooper S, Convertible, Countryman.
Mitsubishi: Montero, Outlander, Evo X.
Nissan: Teana, X-Trail, 370Z, GT-R.
Porsche: 997, Boxster, Panamera, Cayman, Cayenne, Carrera GT.
Rolls Royce: Ghost, Phantom, Phantom Coupé, Phantom Drophead
Coupé.
Škoda: Yeti, Superb.
Suzuki: Grand Vitara, Kizashi.
Toyota: Prius, Camry, Land Cruiser, Land Cruiser Prado.
42
Volkswagen: Beetle, Tiguan, Touareg, Phaeton.
Volvo: S60, S80, XC60, XC90.
Commercial vehicles manufacturer in India
Indian brands
Force
Hindustan Motors
Premier
Tata
AMW
Eicher Motors
Joint Venture Brands
VE Commercial Vehicles Limited - VE Commercial Vehicles
limited - A JV between Volvo Groups & Eicher Motors Limited.
Ashok Leyland - originally a JV between Ashok Motors and Leyland
Motors, now 51% owned by Hinduja Group
Mahindra Navistar - a 51:49 JV between Mahindra
Group and Navistar International
Swaraj Mazda - originally a JV between Punjab
Tractors and Mazda, now 53.5% owned by Sumitomo Group
Kamaz Vectra - A JV between Russia's KaMAZ and the Vectra
Group
Foreign brands
Volvo
Tatra
MAN
Mercedes-Benz - manufactures luxury coaches in India.
Daimler AG - manufactures BharatBenz, a brand of trucks based on
the Fuso and the Mercedes Benz truck platforms, which Daimler AG
owns.
Rosenbauer
Scania
43
Iveco
Hino
DAF
Isuzu
Piaggio
Caterpillar Inc.
Electric car manufacturers in India
Ajanta Group
Mahindra
Hero Electric
REVA
Tara International
Tata
Electric vehicle and Hybrid Vehicle
During April 2012 Indian Government has planned to unveil the roadmap for the
development of the domestic electric and hybrid vehicles (xEV) in the country. A discussion
between the various stakeholders including Government, industry and the academia is
expected to take place during February 23-24]. The final contours of the policy will be
formed after this set of discussions. Ministries such as Petroleum, Finance, Road Transport
and Power are involved in developing a broad framework for the sector. Along with these
ministries big auto industry names such as Mr Anand Mahindra ( Vice Chairman and
Managing Director, Mahindra & Mahindra) and Mr Vikram Kirloskar (Vice-Chairman,
Toyota Kirloskar) are also involved in this task. Government has also proposed to set up a Rs
740 crore R&D fund for the sector in the 12th five year plan during 2012-17. The idea is to
reduce the high cost of key imported components such as the battery and electric motor and
develop such capabilities locally
44
CHAPTER IIIRESEARCH METHODOLOGY
45
RESEARCH METHODOLOGYResearch Methodology is a way of systematically solves the research problem. It may be
understood as a science of studying how research is done. We can say that research
methodology has many dimensions to constitute a part of research methodology. The study of
research methodology gives necessary training to the students in gathering information and
necessary material related to their project and understanding the importance of the field work
when necessary and training techniques for the collection of the appropriate to particular
problem, in the use of statistics questionnaire and controlled experimentation and in
recording evidences sorting it out and interrupting it knowledge of research methodology
plays a key role in project work. It consists of series of action or necessary step to effectively
carry out research and desired sequence of the step. There are many definitions of research
design, but no single definition imparts full range of important aspects.
3.1 RESEARCH METHODOLOGY USED:-Types of Data Collected:-
There are two types of data collected. They are Primary Data, Secondary Data .
Primary Data: - Primary Data or sources are original works of research or raw data which
interpretation or pronouncements that represent an official opinion or position. Primary
sources are always the most authoritative because information has not been filtered or
interpreted by a second party.Not Much Primary data is given in this report, apart from some
guidance and overview about the industry from my friends and faculty.
Secondary Data: - Secondary Data are interpretation of primary data. Nearly all the
reference material fall into this category. This includes Encyclopedias, textbooks, handbooks,
magazine, news paper and articles and most news casts are considered secondary information
sources. . We have used the trend projection and exponential forecasting technique to predict
the sales.Secondary data used in the project generally consist of internet, encyclopedia and
Car magazines and Internet.
46
CHAPTER IV
MARKET ANALYSIS
47
MARKET ANALYSIS
4.1 Market analysis of Industry
4.1.1 Market characteristics
Market size
The Indian Automotive Industry after de-licensing in July 1991 has grown at a spectacular
rate on an average of 17% for last few years. The industry has attained a turnover of USD
$35.8 billion, (INR 165,000 crores) and an investment of USD 10.9 billion. The industry has
provided direct and indirect employment to 13.1 million people. Automobile industry is
currently contributing about 5% of the total GDP of India. India's current GDP is about $1.4
trillion and is expected to grow to $3.75 trillion by 2020. The projected size in 2016 of the
Indian automotive industry varies between $122 billion and $159 billion including USD 35
billion in exports. This translates into a contribution of 10% to 11% towards India's GDP by
2016, which is more than double the current contribution.
Demand determinants
Determinants of demand for this industry include vehicle prices (which are determined
largely by wage, material and equipment costs) and exchange rates, preferences, the running
cost of a vehicle (mainly determined by the price of petrol), income, interest rates, scrapping
rates, and product innovation.
Exchange Rate: Movement in the value of Rupee determines the attractiveness of Indian
products overseas and the price of import for domestic consumption.
Affordability: Movement in income determine the affordability of new motor vehicles.
Allowing unrestricted Foreign Direct Investment (FDI) led to increase in competition in the
domestic market hence, making better vehicles available at affordable prices.
Product Innovation is an important determinant as it allows better models to be available each
year and also encourages manufacturing of environmental friendly cars.
Demographics: It is evident that high population of India has been one of the major reasons
for large size of automobile industry in India. Factors that may be augment demand include
rising population and an increasing proportion of young persons in the population that will be
more inclined to use and replace cars. Also, increase in people with lesser dependency on
traditional single family income structure is likely to add value to vehicle demand.
48
Infrastructure: Longer-term determinants of demand include development in Indian's
infrastructure. India's banking giant State Bank of India and Australia's Macquarie Group has
launched an infrastructure fund to rise up to USD 3 billion for infrastructure improvements.
India needs about $500 billion to repair its infrastructure such as ports, roads, and power
units. These investments have been made with an aim to generate long-term cash flow from
automobile, power, and telecom industries. (Source: Silicon India)
Price of Petrol: Movement in oil prices also have an impact on demand for large cars in India.
During periods of high fuel cost as experienced in 2007 and the first half of 2008, demand for
large cars declined in favour of smaller, more fuel-efficient vehicles. The changing patterns
in customer preferences for smaller, more fuel-efficient vehicles led to the launch of Tata
Motor's Nano – one of the world's smallest and cheapest cars.
Surprisingly, when overall passenger car sales have run into problems, the sales of luxury
cars and SUVs, which are significantly more expensive in India than abroad due to high
import taxes, have experienced encouraging growth. The Indian unit of BMW had to raise
capacity at its factory four times during 2011, while sales of the high-end Jaguar Land
Rover model owned by Tata Motors rose impr
essively during a period when more affordable passenger car sales were experiencing a
downturn.
49
4.1.2 International Markets
International Markets Exports
The level of trade export is medium
The level of trade export is increasing
International Markets Imports
The level of trade import is low
The level of trade import is increasing
International Markets Analysis
The Indian automotive industry embarked a new journey in 1991 with de-licensing of the
sector and subsequent opening up for 100% foreign direct investment (FDI). Since then
almost all global majors have set up their facilities in Indian taking the level of production
from 2 million in 1991 to over 10 million in recent years. The exports in automotive sector
have grown on an average compound annual growth rate of 30% per year for the last seven
years. The export earnings from this sector are over USD 6 billion.
Even with this rapid growth, the Indian automotive industry's contribution in global terms is
very low. This is evident from the fact that even thought passenger and commercial vehicles
have crossed the production figures of 2.3 million in the year 2008, yet India's share is about
3.28% of world production of 70.53 million passenger and commercial vehicles. India's
automotive exports constitute only about 0.3% of global automotive trade.
Basis of Competition
Competition in this industry is high. Competition in this industry is increasing. Automotive
industry is a volume-driven industry, and certain critical mass is a pre-requisite for attracting
the much-needed investment in research and development and new product design and
development. Research and development investment is needed for innovations which is the
lifeline for achieving and retaining competitiveness in the industry. This competitiveness in
turn depends on the capacity and the speed of the industry to innovate and upgrade. The most
important indices of competitiveness are productivity of both labour and capital.
The concept of attaining competitiveness on the basis of low cost and abundant labour,
favourable exchange rates, low interest rates and concessional duty structure is becoming
50
inadequate and therefore, not sustainable. A greater emphasis is required on the development
of the factors like innovation which can ensure competitiveness on a long-term basis.
India, with a rapidly growing middle class , market oriented stable economy, availability of
trained manpower at competitive cost, fairly well developed credit and financing facilities
and local availability of almost all the raw materials at a competitive cost, has emerged as one
of the favourite investment destinations for the automotive manufacturers. These advantages
need to be leveraged in a manner to attain the twin objective of ensuring availability of best
quality product at lower cost to the consumers on the one hand and developing and
assimilating the latest technology in the industry on the other hand.
As per Automotive Mission Plan 2006–2016 (2008), the Indian Government recognises its
role as a catalyst and facilitator to encourage the companies to move to higher level of
competitive performance. The Indian Government wants to create a policy environment to
help companies gain competitive advantage. The government aims that with its policies its
encourage growth, promote domestic competition and stimulate innovation.
Life Cycle
The life cycle stage is growth Life Cycle Reasons The market for manufacturing motor
vehicles is consistently increasing. The products manufactured by this industry are profitable.
Companies have been consistently opening new plats and employing over the past five years.
Japanese and European manufacturers of motor vehicles have entered the market. Industry
value added has been rising, along with the rise in GDP. Life Cycle Analysis
General improvement in availability of trained manpower and good infrastructure is required
for sustainable growth of the industry. Keeping this in view, the Indian Government has
launched a unique initiative of National Automotive Testing and R&D Infrastructure Project
(NATRIP) to provide specialised facilities for Testing, Certification and Homologation to the
industry. A similar initiative is required for creating specialised institutions in automotive
sector for education, training and development.
The auto industry has grown in the clusters of interconnected companies which are linked by
commonalities and complementarities. The major clusters are in and around Manesar in
North, Pune in West, Chennai in South, Jamshedpur-Kolkata in East and Indore in Central
India. The Government is planning to create a National Level Specialises Education and
Training Institute for Automotive Sector and to enhance the transportation, communication
and export infrastructure facilities.
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The contribution of automotive sector in the GDP of India is expected to double by
2016. through major spotlight on export of small cars, Multi-Utility Vehicles, Two- and
Three-wheelers.
Industry Conditions
The automobile manufacturing sector is characterised by a high cyclical growth patterns, high
fixed cost and break-even point levels, and an excessive number of participants. Barriers to
entry into automobile manufacturing activity are formidable. Some of the barriers that need to
be overcome by a new entrant include: the cost of developing high volume production
facilities to benefit from economies of scale; and the ability to gain access to technology of
major operators, as the present incumbents include some of the largest multinationals, that
have considerable claims to new technology. The relative large size of domestic market,
together with high competition, has already seen significant rationalisation of this industry.
Key Competitors
Tata Motors
Market Share: Commercial Vehicles 63.94%, Passenger Vehicles 16.45%
Tata Motors Limited is India's largest automobile company, with consolidated revenues of
USD 14 billion in 2008-09. It is the leader in commercial vehicles and among the top three in
passenger vehicles. Tata Motors has winning products in the compact, midsize car and utility
vehicle segments. The company is the world's fourth largest truck manufacturer, and the
world's second largest bus manufacturer with over 24,000 employees. Since first rolled out in
1954, Tata Motors as has produced and sold over 4 million vehicles in India.
Tata Motors is the first company from India's engineering sector to be listed in the New York
Stock Exchange (September 2004), has also emerged as an international automobile
company. Through subsidiaries and associate companies, Tata Motors has operations in the
United Kingdom, South Korea, Thailand and Spain. Among them is Jaguar Land Rover, a
business comprising the two British brands which was acquired in 2008. In 2004, it acquired
the Daewoo Commercial Vehicles Company, South Korea's second largest truck maker. The
rechristened Tata Daewoo Commercial Vehicles Company has launched several new
products in the Korean market, while also exporting these products to several international
markets. Today two-thirds of heavy commercial vehicle exports out of South Korea are from
Tata Daewoo. In 2005, Tata Motors acquired a 21% stake in Hispano Carrocera, a reputed
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Spanish bus and coach manufacturer, and subsequently the remaining stake in 2009.
Hispano's presence is being expanded in other markets.
In 2006, Tata Motors formed a joint venture with the Brazil-based Marcopolo, a global leader
in bodybuilding for buses and coaches to manufacture fully built buses and coaches for India
and select international markets. In 2006, Tata Motors entered into joint venture with
Thonburi Automotive Assembly Plant Company of Thailand to manufacture and market the
company's pickup vehicles in Thailand. The new plant of Tata Motors (Thailand) has begun
production of the Xenon pickup truck, with the Xenon having been launched in Thailand in
2008. Tata Motors is also expanding its international footprint by franchises and joint
ventures assembly operations in Kenya, Bangladesh, Ukraine, Russia, Senegal and South
Africa.
With over 3,000 engineers and scientists, the company's Engineering Research Centre,
established in 1966, has enabled pioneering technologies and products. The company today
has R&D centres in Pune, Jamshedpur, Lucknow, Dharwad in India, and in South Korea,
Spain, and the UK. It was Tata Motors, which developed the first indigenously developed
Light Commercial Vehicle, India's first Sports Utility Vehicle and, in 1998, the Tata Indica,
India's first fully indigenous passenger car. Within two years of launch, Tata Indica became
India's largest selling car in its segment. In 2005, Tata Motors created a new segment by
launching the Tata Ace, India's first indigenously developed mini-truck.
In January 2008, Tata Motors unveiled its People's Car, the Tata Nano, a development which
signifies a first for the global automobile industry. Nano brings the comfort and safety of a
car within the reach of thousands of families. The standard version has been priced at USD
2,200 or Rs.100,000 (excluding VAT and transportation cost).
Maruti Suzuki India
Market Share: Passenger Vehicles 46.07%
Maruti Suzuki India Limited, a subsidiary of Suzuki Motor Corporation of Japan, is India's
largest passenger car company, accounting for over 45% of the domestic car market. The
company offers a complete range of cars from entry level Maruti-800 and Alto, to stylish
hatchback Ritz, A star, Swift, Wagon-R, Estillo and sedans DZire, SX4 and Sports Utility
vehicle Grand Vitara.
Since inception in 1983, Maruti Suzuki India has produced and sold over 10 million vehicles
in India and exported over 500,000 units to Europe and other countries. The company's
53
revenue for the fiscal 2010-2011 stood over Rs 375,224 million and Profits After Tax at over
Rs. 22,886 million.
Hyundai Motor India
Market Share: Passenger Vehicles 14.15%
Hyundai Motor India Limited is a wholly owned subsidiary of world's fifth largest
automobile company, Hyundai Motor Company, South Korea, and is the largest passenger
car exporter. Hyundai Motor presently markets 49 variants of passenger cars across segments.
These includes the Santro in the B segment, the i10, the premium hatchback i20 in the B+
segment, the Accent and the Verna in the C segment, the Sonata Transform in the E segment.
Hyundai Motor, continuing its tradition of being the fastest growing passenger car
manufacturer, registered total sales of 559,880 vehicles in the year 2009, an increase of
14.4% over 2008. In the domestic market it clocked a growth of 18.1% as compared to 2008
with 289,863 units, while overseas sales grew by 10.7%, with export of 270,017 units.
Hyundai Motor currently exports cars to more than 110 countries across European Union,
Africa, Middle East, Latin America and Asia. It has been the number one exporter of
passenger car of the country for the sixth year in a row.
In a little over a decade since Hyundai has been present in India, it has become the leading
exporter of passenger cars with a market share of 66% of the total exports of passenger cars
from India, making it a significant contributor to the Indian automobile industry. In 2010, in
spite of a global slowdown, Hyundai Motor India's exports grew by 10.7%. In 2011 Hyundai
plans to add 10 new markets with Australia being the latest entrant to the list. The first
shipment to Australia is of 500 units of the i20 and the total i20 exports to Australia are
expected to be in the region of 15,000 per annum.
Mahindra & Mahindra
Market Share: Commercial Vehicles 10.01%, Passenger Vehicles 6.50%, Three Wheelers
1.31%
Mahindra & Mahindra is mainly engaged in the Multi Utility Vehicle and Three Wheeler
segments directly. The company competes in the Light Commercial Vehicle segment through
its joint venture subsidiary Mahindra Navistar Automotives Limited and in the passenger car
segment through another joint venture subsidiary Mahindra Renault. In the year 2009, on the
domestic sales front, the Company along with its subsidiaries sold a total of 220,213 vehicles
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(including 44,533 three-wheelers, 8,603 Light Commercial Vehicles through Mahindra
Navistar Automotives and 13,423 cars through Mahindra Renault), recording a growth of
0.6% over the previous year.
The company's domestic Multi Utility Vehicle sales volumes increased by 3.3%, as against a
decline of 7.4% for industry Multi Utility Vehicle sales. A record number of 153,653 Multi
Utility Vehicles were sold in the domestic market in 2011 compared to 148,761 MUVs in the
previous year. Hence, Mahindra & Mahindra further strengthened its domination of the
domestic Multi Utility Vehicle sub-segment during the year, increasing its market share to
57.2% over the previous year's market share of 51.3%.
Mahindra & Mahindra is expanding its footprint in the overseas market. The Xylo was
launched in South Africa. The company formed a new joint venture Mahindra Automotive
Australia Pty. Limited, to focus on the Australian Market.
Ashok Leyland
Market Share: Commercial Vehicles 22%
Against the backdrop of the sharp slump in demand for commercial vehicles, during 2010-11,
Ashok Leyland registered sales of 47,118 medium and heavy commercial vehicles
(M&HCV), 37.5% less than in the previous year. This includes 16,049 M&HCV buses and
31,069 M&HCV trucks respectively, 8.7% and 46.3% less than in the previous year.
The company lost 1.8% market share in the Indian medium and heavy commercial vehicle
market during the financial year 2010-11, mainly due to loss of sales in the truck segment.
This was because the Eastern Region, where the Company's presence had been historically
weak, was relatively stable, whilst the market declined sharply in other regions.
While total industry volume of the medium and heavy duty buses declined by about 8.7%, the
Company's market share grew marginally and Ashok Leyland retained its number one
position in this segment.
The Company sold 6,812 vehicles in the overseas markets during 2010-11. This represents a
decrease of approximately 6.5% over the previous year. Total industry volume related to
overseas markets to which the Company exports (such as Sri Lanka, the Middle East)
witnessed a reduction of about 25% over the previous year.
To combat the impact of decline in CV sales, the Company focused on non-cyclical
businesses in the portfolio.
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The Company produced in all 54,049 vehicles during the year. To contain costs and conserve
cash, the Company worked only about 50% of the working days in all its manufacturing units
during the second half of the year. More significantly, Maruti Suzuki introduced more
efficient manufacturing practices and developed a number of local component suppliers. This
industrial eco-system with vastly improved capabilities eased the entry of several foreign car
manufacturers, after industrial licensing was abandoned in the 1990s. The growth of
component suppliers also enabled select domestic automobile firms, with no prior experience
in car manufacturing, to add passenger vehicles to their product range. Though several
foreign manufacturers have struggled to expand their foothold, the growing purchasing power
of the middle class continues to attract new entrants to the Indian passenger car market.
This story essentially repeated itself in other segments of the Indian automobile market,
including commercial vehicles and motorcycles. These segments too have evolved from
duopolistic inertia to vigorous competition. In place of outdated products, buyers now have a
surfeit of vehicle models to choose from. The trigger for change has typically been the
introduction of foreign technology and competition. However, instead of being overwhelmed,
the domestic manufacturers have emerged as market leaders, adapting well through alliances
with foreign firms for technology.
56
Yet, withdrawing restrictive industrial licensing and allowing the entry of foreign firms
would not have ensured sustained growth for the Indian automobile industry. For demand
growth to endure, the government would also have to enable the development of the
country’s road network and reduce traffic congestion in its cities. Considering the poor state
of Indian roads even in the 1990s, this was an arduous task that required large capital
investments.
The National Highway Development Program launched in 2000 is similar in concept, though
smaller in scale, to the National Highway System in the U.S. The first leg of the project
linked the four big Indian cities of Delhi, Kolkata, Chennai, and Mumbai with a four-lane
highway, dubbed the Golden Quadrilateral. The subsequent phases of the program developed
the North-South and East-West highway corridors and access roads to major seaports. Since
its launch, more than 20,000 miles of highways have been upgraded or are currently being
developed under the program. Over the next decade, the government is planning to upgrade
another 20,000 miles of highways apart from building more than 10,000 miles of
expressways. Most of these projects are being implemented through private sector
participation, with the government absorbing part of the costs for segments where toll
collections are unlikely to make the project commercially viable.
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Most Indian cities have grown without even basic planning of the road network and other
infrastructure. As the number of car owners started rising, roads in most cities became
clogged and pollution levels increased. Widening of inner-city roads and construction of
elevated roads over busy intersections and level crossings have helped the cities to absorb the
significant increase in vehicle population over the last decade. The federal government
provides a large part of the financing for such projects, under programs like the National
Urban Renewal Mission.
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4.1.3 Market Segments
Passenger Vehicles: Middleclass dreams fuel sales growth
Like most other markets, much of the excitement in India is in the passenger vehicle segment.
Robust growth in middle class income levels and easier credit availability have sustained
demand growth for passenger cars. Most major global manufacturers are already present in
the country, while some of the domestic manufacturers are entering overseas markets.
Despite increased competition, Maruti Suzuki, which is now majority owned by Suzuki
Motor Corp, remains the market leader in India with a share of over 45%. Its strength lies in
its wide range of small car models, which form the bulk of the Indian car market. Maruti
Suzuki also has the largest dealer network and its annual manufacturing capacity is now over
1 million vehicles.
Korean firm Hyundai and domestic major Tata Motors have been in a tight race for the
second and third places for a while now. Hyundai is now marginally ahead with a market
share of 14% as compared to over 12% for Tata Motors. Small hatchbacks dominate
Hyundai’s model lineup and the firm has built up a strong brand reputation over the last
several years. Tata Motors has a wider product range, from SUV’s to the world’s cheapest
car, the Nano. Tata products are positioned as value-for-money and run predominantly on
diesel, which is nearly a third less expensive than gasoline in India because of government
subsidies. The firm also jointly owns an assembly line with European carmaker Fiat and
markets Fiat cars in India.
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Mahindra & Mahindra, another large local manufacturer, derives the bulk of its sales from the
SUV segment where it is the market leader. The firm recently bought out European
manufacturer Renault in a passenger car joint venture, which has not performed well.
Several global manufacturers have struggled in India, though they have been present in the
market for more than a decade. General Motors has seen a revival over the last year, after the
firm launched low-priced hatchbacks under the Chevrolet brand. GM also sells small sedans
and SUV’s, but volumes remain very low. The firm sold half of its Indian operations to
Chinese automaker SAIC Group last year, and the joint venture is planning to introduce
utility vehicles, besides passenger cars. Ford has been more successful in the small sedan
segment in India. The company has gained make share recently after the launch of a
competitively priced small hatchback from its assembly line and engine plant near Chennai,
in south India.
Though their product offerings in the Indian market are limited, Japanese manufacturers
Toyota and Honda enjoy leadership in their segments. Honda is a clear leader in the mid-
sized sedan category, while Toyota sells the most minivans. In a bid to expand their market
share, both firms are expected to launch small hatchbacks and sedans shortly.
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Leading Indian Automobile Firms
Firm ProductsForeign
Partner
Market
Value (in
$ Billions)
Stock Listing
Tata MotorsPassenger and
Commercial VehiclesFiat 11.6
Mumbai,
New York
Bajaj AutoTwo and Three -
Wheelers
Renault-Nissan
for planned
small car
9.2
Mumbai,
London (Holding
Firm)
Maruti Suzuki Passenger Vehicles Suzuki Motor 8.8 Mumbai
Mahindra &
Mahindra
Passenger and
Commercial Vehicles,
Farm Equipment,
Two-wheelers
Navistar for
Commercial
Vehicles
8.7 Mumbai, London
Hero Honda Two - Wheelers Honda Motor 7.9 Mumbai
Market value data based on full capitalization as on September 20, 2010
Among European manufacturers, Skoda Auto, the Czech subsidiary of Volkswagen, has built
a relatively good position in the mid-sized sedan market. Volkswagen itself has been a recent
entrant in the Indian market and has expanded its product range by launching a small
hatchback and a mid-sized sedan. Fiat’s record in India has been patchy and it now relies on
the Tata Motors dealer network to sell its products. While its venture with Mahindra has not
been successful, French automaker Renault has opened a large assembly line, jointly owned
by its Japanese associate Nissan. The Renault-Nissan alliance is expected to launch several
models in the near future, with Nissan focusing more on the small car segment.
Luxury passenger cars have seen excellent demand growth, especially in recent years.
However, the luxury segment now accounts for only about a percent of the total passenger
vehicle market. Mercedes Benz and BMW have almost identical market shares while Audi
has made rapid gains over the last year. All three manufacturers assemble cars in India from
imported kits, which attract high import taxes, and hence product prices are higher than other
61
markets. Jaguar and Land Rover, now owned by Tata Motors, are gradually expanding their
dealerships in the country.
Commercial Vehicles: Rapid economic growth boosts demandThe volume of goods to be moved across the country and the demand for commercial
vehicles to transport the goods are directly related to the pace of overall economic growth.
When the country has a high population density and personal car ownership is low, demand
for passenger transport will also rise faster when the economic growth accelerates. In recent
years, as the country emerged as the second fastest growing economy in the world, India has
seen a substantial increase in demand for trucks, buses, and other commercial vehicles.
Though India has one of the most extensive railway networks in the world, the bulk of the
commercial goods movement is by road. The rebuilding of the country’s main highways
under the National Highway Development Program has made road transport easier and more
efficient. Unlike in the past when only single axle trucks were suitable for narrow Indian
roads, the new highways can easily accommodate large multi-axle tractor-trailers. Another
factor that pushed up demand for trucks is the substantial increase in construction of
buildings and infrastructure.
To ease traffic congestion in cities, the bus transit systems have been improved and upgraded
across the country. The federal government continues to finance the introduction of modern
buses, comfortable enough to encourage commuters to switch from personal vehicles in
cities. Increased migration of workers to the cities and industrial zones has also pushed up
demand for long distance bus services. As the smaller towns and villages get connected to the
highway system and more migrants move out of the villages, demand for commercial
transport services will only increase in the future.
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For decades, Tata Motors has dominated the commercial vehicles segment and currently
controls two-thirds of the market. The firm has the broadest dealer network and the widest
product range of all manufacturers, from small goods carriers to large tractor-trailers. Tata
Motors has also expanded its overseas presence over the last decade, mostly through
acquisitions and joint ventures. The firm currently has a truck manufacturing facility in South
Korea and owns a major portion of a bus and coach manufacturer in Spain. Tata Motors is the
majority partner in a venture with Brazilian firm Marcopolo to build buses in India. In
Thailand, the firm has joined hands with a local company to assemble and market pickup
trucks.Ashok Leyland is a distant second in the segment with a nearly 13% market share of
all commercial vehicle sales, including small goods carriers. The firm’s large trucks and
buses are popular, but it has had limited success in smaller capacity truck models. Ashok
Leyland is a market leader in buses and a leading vehicle supplier to the Indian armed forces.
The company has recently tied up with Nissan for manufacturing light commercial vehicles
and engines
In the 1990s, several Japanese manufacturers entered the Indian market with light
commercial vehicles but had limited success. Among more recent entrants, Volvo has gained
market share in the large truck and bus segment and acquired half of a domestic manufacturer
of small trucks. German manufacturer MAN owns half of a joint venture with local firm
Force Motors, which manufactures a range of commercial vehicles. American manufacturer
Navistar has a joint venture with Mahindra & Mahindra and has recently launched large
trucks in India.
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Two-wheelers: Rural markets offer further growth opportunityLike most developing markets, two-wheelers, such as motorcycles and motor scooters, are
the most popular mode of personal transport in India. Two-wheelers are more affordable than
low cost cars and even used cars. They are also cheaper to run and easier than cars to
maneuver and park on narrow roads. Since the average road speeds in India are low, the
lower passenger safety of two-wheelers when compared to cars does not inhibit buyers. These
factors have made India the second largest two-wheeler market in the world with annual sales
of over 10 million units. The increasing income levels in semi-urban and rural areas of the
country offers further growth potential for two-wheeler manufacturers.
Hero Honda is the undisputed market leader in the Indian two-wheeler market, with a market
share of more than 40%. The firm is particularly strong in the entry-level motorcycle
category and its products are positioned as the most fuel-efficient. Honda Motor of Japan
holds a 26% stake in the firm and provides product technology.
Bajaj Auto is the second largest Indian two-wheeler manufacturer, with a dominant position
in higher priced motorcycles. The firm once had a near monopolistic control of the motor
scooter market, but gradually withdrew from the segment as consumers switched to
motorcycles. Bajaj Auto is also the market leader in three-wheelers, which are popular as
taxis in India. TVS Motor is the third major player in the two-wheeler market.
Honda Motor also has a wholly owned subsidiary in India, for manufacturing motorcycles
and motor scooters. It is the market leader in motor scooters and the fourth largest in
motorcycles. Honda is followed by fellow Japanese manufacturers Suzuki and Yamaha in the
motorcycle segment. Harley Davidson is a recent entrant in the premium motorcycle market
where volumes are very low.
Automobile Components: Attractive source for global auto firmsThe Indian automobile component industry and allied businesses are among the select
success stories in the country’s manufacturing sector, but their achievements are not yet
widely acknowledged. The leading Indian component manufacturers have gradually built
their design, engineering, and manufacturing competencies over the last couple of decades.
The impressive growth of the domestic automobile market has allowed them to scale up their
operations. Several of them now export to major global car manufacturers and the leading
firms are establishing manufacturing operations in overseas mark
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Though major carmakers bring along their key suppliers when they enter new markets, local
component manufacturers are enlisted as suppliers of smaller parts. As the carmakers become
more confident in the capabilities of the local parts suppliers, they begin sourcing
components from local suppliers even for their global operations. Several global automobile
makers have been present in India for several years now and they have been sourcing parts
from the network of local suppliers for other markets. Leading global manufacturers
including Volkswagen and Fiat have announced their plans to increase component sourcing
from India.
Outlook: Export potential adds to domestic demand flourishEven after the spectacular growth in recent years, the Indian automobile market still has
considerable room to grow. Passenger car ownership in India is still very low even when
compared to other emerging markets. Despite domestic sales of over 10 million units
annually, even two-wheeler ownership is below 100 per 1,000 of the population. It is likely
that the continued rise in average income levels will sustain demand for personal vehicles
while overall economic growth will support the demand for commercial vehicles.
Besides the domestic prospects, India also has the opportunity to emerge as a global
manufacturing base for select product segments. The big domestic market potential will allow
carmakers to build large assembly lines, with sufficient economies of scale. Design,
development, and production costs in India are lower than the developed markets. The
country is also building a reputation in frugal engineering, or building low-cost products
under tight budgets. Together with the growing maturity of domestic auto component
suppliers, these factors are making an attractive automobile manufacturing location for the
global markets.
In recent years, India has emerged as a leading center for the manufacture of small cars.
Hyundai, the biggest exporter from the country, now ships more than 250,000 cars annually
from India. Apart from shipments to its parent Suzuki, Maruti Suzuki also manufactures
small cars for Nissan, which sells them in Europe. Nissan will also export small cars from its
new Indian assembly line. Tata Motors exports its passenger vehicles to Asian and African
markets, and is planning to launch electric vehicles in Europe this year. The firm is also
planning to launch an electric version of its low-cost car Nano in Europe and the U.S.
Mahindra & Mahindra is preparing to introduce its pickup trucks and small SUV models in
the U.S. market. Bajaj Auto is designing a low-cost car for the Nissan-Renault alliance,
65
which will market the product globally. Nissan-Renault may also join domestic commercial
vehicle manufacturer Ashok Leyland in another small car project.
While the potential is impressive, there are challenges that could pull down future growth of
the Indian automobile industry. Since the demand surge for automobiles in recent years is
directly linked to overall economic growth and rising personal incomes, industry growth will
slow if the economy weakens. Also, any delay in the further development of the highway
network could slow down domestic demand growth. It is possible that the government will
favor mass transport systems for the large cities, which may restrict the demand for personal
vehicles. Most Indian cities will have a combination of metro rail networks and dedicated
road corridors for buses and it is possible that a good number of commuters will opt for
public transport. It is also likely that intense competition will erode the profitability of
manufacturers, especially in the passenger vehicles segment.
Despite these challenges, the long-term outlook for the automobile industry in India remains
bright. In most countries, the automobile industry historically has been one of the sectors
leading the economic growth and development. Available indicators suggest that it will be no
different in India, which is likely to remain one of the fastest growing economies in the
world.
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4.2 FUNDAMENTAL ANALYSIS
4.2.1 ECONOMY
Economic analysis is the analysis of forces operating the overall economy a country.
Economic analysis is a process whereby strengths and weaknesses of an economy are
analyzed. Economic analysis is important in order to understand exact condition of an
economy.
4.2.2 GDP and Automobile Industry
In absolute terms, India is 16th in the world in termsof nominal factory output. The service
sector isgrowing rapidly in the past few years. This is the pie- chartshowing contributions of
different sectors in Indian economy.The per capita Income is near about Rs38,000 reflecting
improvement in the living standards of an average Indian.Today, automobile sector in India is
one of the key sectors of the economy in terms of the employment. Directly and indirectly it
employs more than 10 million people and if we add the number of people employed in the
auto-component and auto ancillary industry then the number goes even higher.
As the world economy slips into recession hitting the demand hard and the banking sector
takes conservative approach towards lending to corporate sector, the GDP growth has
downgraded it to 7.1 percent for 2009-10 and predicted it to be 6.5 per cent for FY 2010-11
Mr. Montek Singh (PlanningCommission of India). Following is the graph showing a trend of
Indian GDP trend in past 3 years.
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The market value of Automobile Industry is more than US$8 bl. and Contribution in Indian
GDP is near about 5% and will be double by 2016. The automotive industry in India grew at
a computed annual growth rate (CAGR) of 11.5 percent over the past five years, but growth
rate in last FY2008-09 was only0.7% with passenger car sales shows 1.31% growth while
Commercial Vehicles segment slumped 21.7%.
RecessionAll the major auto companies enjoyed the high growth ride till the mid 2008. But at the end
of the year industry had to face the hard truth and witnessed the fall in sales compared to last
year. In December 2011, overall production fell by 22 % over the same month last year.
Global recession has hit the Indian auto industry, India is strong and growing industry but the
impact of recession is evident now on industry as sales & growth of automobile companies
have declined. Passenger Vehicles segment registered negative growth. One of its supporting
facts is that the sales in December 2011 for passenger vehicles fell by 13.86% over
December 2010 Two Wheelers registered minor growth of 1.85 % during April – December
2011. However, Two Wheelers sales recorded 15.43 percent fall in December 2011 over the
same month last year. Although the sector was hit by economic slowdown, overall production
(passenger vehicles, commercial vehicles, two wheelers and three wheelers) increased from
10.85 million vehicles in 2009-10 to 11.17 million vehicles in 2010-11. Passenger vehicles
increased marginally from 1.77 million to 1.83 million while two-wheelers increased from
8.02 million to 8.41 million. Total number of vehicles sold including passenger vehicles,
commercial vehicles, two-wheelers and three-wheelers in 2010-11 was 9.72 million as
compared to 9.65 million in 2009-10.
InflationDespite of negative inflation these days (-.21% on 22-Aug-11) we saw an increasing trend of
sales in auto sector. A moderate amount of inflation is important for the proper growth of an
economy like India because it attracts more private investment. The fall in wholesale prices
from a year earlier is mainly due to a statistical base effect and doesn’t suggest contraction in
demand, the Reserve Bank of India said few week back, while revising its inflation forecast
for the FY through March to around 5% from 4%.
In last FY despite of skyrocketing oil prices (crude oil price has already up to $130 compared
to $20 per barrel five years back), Indian automobile Industry was not as much affected and
experts think that Indian automobile industry will continue to grow this year despite all
obstacles- oil price hike, higher interest rates. However, the effect of inflation has affected
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every sector which is related to car manufacturing and production. The increase in the price
of fuel and the steel due to inflation has led to a slower growth rate of the car industry in
India. The effect of inflation has taken the rise in the price rate of the cars by 3-4% which in
turn suffices the need to meet the rise in price of the raw materials to build a car. The car
market and the car industry witnessed a fall of 8-9%.
FDI’sIn India FDI up to 100 percent, has been permitted under automatic route to this sector, which
has led to a turnover of USD 12 billion in the Indian auto industry and USD 3 billion in the
auto parts industry. India enjoys a cost advantage with respect to casting and forging as
manufacturing costs in India are 25 to 30 per cent lower than their western counterparts the
Investment Commission has set a target of attracting foreign investment worth US$ 5 billion
for the next seven years to increase India's share in the global auto components market from
the existing 0.9 per cent to 2.5 per cent by 2015. FDI inflows in Automobile Industry 2008-
2009- was Rs.5,212 Cr an increase of 47.25% compare to 2009-10, while in April-May 2011
it was around Rs.497 Cr.
Foreign ExchangeIndia holds the third largest stock of reserves among the emerging market economies after
China and Russia. The overall approach to the management of India's foreign exchange
reserves in recent years reflects the changing composition of the balance of payments and the
'liquidity risks' associated with different types of flows and other requirements. Taking these
factors into account, India's foreign exchange reserves continued to be at a comfortable level
and consistent with the rate of growth, the share of external sector in the economy and the
size of risk-adjusted capital flows. Following is the table shows the trend of foreign reserves
held by central bank in last FY. Reserves came down cause of recession all over the world
however India still able to maintain its reserves hence a minor fall was seen compare to all
other country which shows great strength in long-term for Indian Economy.
Current Scenario of Automobile Industry in EconomyWith the latest available data Indian Automobile Industry is expected to grow at 9%-10% in
near future, Two wheeler segment sales grew up by 12.8% with the modest 2.6% growth rate,
under this segment the market leader Hero Honda registered growth of 12% in its domestic
sales where as Bajaj Auto disappointed as sales plunging by 23%, on the other hand car sales
has been grew up by a healthy 22.7% in last February and Commercial Vehicles reported
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slower sales. It is assumed that in coming festive season to meet demand, carmakers going to
produce 70000units/month more over the average 1.3lac/month with help of 5000 new hands.
Indian Automobile Industry at Global level.
India ranks 1st in the global two-wheeler market.
India is the 4th biggest commercial vehicle market in the world.
India ranks 11th in the international passenger car market.
India ranks 5th pertaining to the number of bus and truck sold in the world.
India is the second largest tractor manufacturer in the world.
Volkswagen, Toyota, Nissan & Ford plan new cars to cash in on fastest-growing compact car
section of car market in India. Source: Economic Times Sales of different Auto Companies
speed up even before festive season Maruti by 29%, TATA by 11%,Skoda Auto 33%, Hero
Honda 33%, Mahindra 42%, Yamaha 63% etc. It is expected that the Automobile Industry in
India would be the 7th largest automobile market within the year 2016. Projected Growth
rate in Automobile Industry
Passenger vehicle sales in the country will grow at a CAGR of 12 per cent to touch 3.75
million units by 2014.
The domestic two-wheeler sales will grow at a CAGR of 8.8% by 2014 at 11.3 million
units.
To emerge as the destination of choice in the world for design and manufacture of
automobiles and auto components with output reaching a level of US$ 145 billion
accounting for more than 10% of the GDP and providing additional employment to 25
million people by 2016.
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CHAPTER V
ASSESMENT OF THREATS AN
GROWTH OPPURTUNITIES OF
INDIAN AUTOMOBILE
INDUSTRY
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ASSESMENT OF THREATS AN GROWTH OPPURTUNITIES
OF INDIAN AUTOMOBILE INDUSTRY
Assessment of the industry can be done based on the following headings:
1. Five Forces Model
2. BCG Matrix
3. Industrial Life Cycle
4. SWOT Analysis
5. Industry Specific Index
5.1.1 Five Forces ModelMichael Porter identifies five forces that influence an industry. These forces are
Degree of Rivalry
Despite the high concentration ratio seen in the automotive sector, rivalry in the Indian auto
sector is intense due to the entry of foreign companies in the market. The industry rivalry is
extremely high with any being product being matched in a few months by the competitors.
This instinct of the industry is primarily driven by technical capabilities acquired over years
of gestation under the technical collaboration with international players.
Threat of Substitutes
The threat of substitutes to the automotive industry is fairly mild. Numerous other forms of
transportation are available, but none offer the utility, convenience, independence and value
offered by automobiles. The switching cost associated with using a different mode of
transportation, may be high in terms of personal time, convenience and utility.
Barriers to entry
The barriers to enter automotive industry are substantial. For a new company, the startup
capital required to establish manufacturing capacity to achieve minimum efficient scale is
prohibitive.
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Although the barriers to new companies are substantial, establishing companies are entering
the new markets through strategic partnerships or through buying out or merging with other
companies. However, a domestic company, with local knowledge and expertise, has the
potential to compete its home market against the global firms who are not well established
there.
Supplier’s power
In the relationship between the industry and its suppliers, the power axis is tipped in
industry’s favor. The industry is comprised of powerful buyers who are generally able to
dictate their terms to the suppliers.
Buyers’ Power
In the relationship between the automotive industry and its ultimate consumers, the power
axis is tipped in the consumers’ favor. This is due to the fairly standardized nature and the
low switching costs associated with selecting from among competing brands.
5.1.2 BCG MatrixIn an economy, different industries are present and different industries have different growth
rate as compared to the growth of the economy. In an economy, there are a number of major
industries and they all occupy different positions in the BCG matrix according to their growth
and contribution towards the economy. In the Indian economy, some of the major sectors are
FMCG, automobiles, banking and insurance, steel, telecom, software, pharmacology and
retail sectors and these can be placed in the different positions in the matrix.
5.1.3 Industrial Life CycleThe industrial life cycle is a term used for classifying industry vitality over time. Industry life
cycle classification generally groups industries into one of four stages: pioneer, growth,
maturity and decline. In the pioneer phase, the product has not been widely accepted or
adopted. Business strategies are developing, and there is high risk of failure. However,
successful companies can grow at extraordinary rates. The Indian automobile sector has
passed this stage quite successfully. In the growth phase, the product market has been
established and there is at least some historical guide to ground demand estimates. The
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industry is growing rapidly, often at an accelerating rate of sales and earnings growth . Indian
Automotive Industry is booming with a growth rate of around 15 % annually.
The cumulative growth of the Passenger Vehicles segment during April 2010 – March 2011
was 12.17 percent. Passenger Cars grew by 11.79 percent, Utility Vehicles by 10.57 percent
and Multi Purpose Vehicles by 21.39 percent in this period. The Commercial Vehicles
segment grew marginally at 4.07 percent. While Medium & Heavy Commercial Vehicles
declined by 1.66 percent, Light Commercial Vehicles recorded a growth of 12.29 percent.
Three Wheelers sales fell by 9.71 percent with sales of Goods Carriers declining drastically
by 20.49 percent and Passenger Carriers declined by 2.13 percent during April- March 2008
compared to the last year. Two Wheelers registered a negative growth rate of 7.92 % during
this period, with motorcycles and electric two wheelers segments declining by 11.90 percent
and 44.93% respect. However, Scooters and Mopeds segment grew by 11.64% and 16.63%
respect.
The growth rate of the automobile industry in India is greater than the GDP growth rate of the
economy, so the automobile sector can be very well be said to be in the growth phase.
As the product matures, growth slows as penetration reaches practical limits. Companies
began to focus on market share rather than growth. Industry demand tends to follow the
overall economy, but the scope of growth of the automobile sector is very much possible in
India due to the increasing income of the middle class and their income as well as standard of
living.
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5.1.4 SWOT AnalysisA scan of the internal and external environment is an important part of the strategic planning
process. Environmental factors internal to the firm usually can be classified as strengths (S)
or weaknesses (W), and those external to the firm can be classified as opportunities (O) or
threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis.
SWOT analysis of the Indian automobile sector gives the following points:
Strengths
Large domestic market
Sustainable labor cost advantage
Competitive auto component vendor base
Government incentives for manufacturing plants
Strong engineering skills in design etc
Weaknesses
Low labor productivity
High interest costs and high overheads make the production uncompetitive
Various forms of taxes push up the cost of production
Low investment in Research and Development
Infrastructure bottleneck
Opportunities
Commercial vehicles: SC ban on overloading
Heavy thrust on mining and construction activity
Increase in the income level
Cut in excise duties
Rising rural demand
Threats
Rising input costs
Rising interest rates
Cut throat competition
5.1.5 Industry Specific Index
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Industry specific index also called as sectoral index are those indices, which represent a
specific industry sector. All stocks in a sectoral index belong to that sector only. Hence an
index like the BSE auto index is made of auto stocks. Sectoral Indices are very useful in
tracking the movement and performance of particular sector.
Above is the Indian Auto Industry Index(BSE) shows the up’s and down’s over the period of
5 years. Intially in 2003 when major giants got listed on stock exchange TATA Motors,
Maruti Suzuki, etc. Indian auto industry start picking up growth slowly in the first end of 1st
quarter index reaches to its highest in his history. Than we saw a steady fall in the index and
in the mid 2006 reaches to years lowest point it again start booming and than year on year we
saw a up and down movement in the index as lots of new players came in Indian market with
foreign colaboration but when 2008 came with global slowdown it brings the demand of
automobile so low that index reaches to its lowest in past 5year . Most of the company even
shut down their manufacturing units for more than a week, production came down because of
less demand in the economy. Also no further launches were made in mid or late 2009 and
postponed to next year. We have also saw a fall in FDI’s in automobile Industry. But in the
beginning of 2010 right from 1st quarter auto industry again start regaining and we saw a
tremondous growth in auto industry which never seen before not in india but all over the
world. The demand of 2 and 4 Wheelers start increasing rapidly which also force auto
industry to employ more workers to meet demand and with in the 2nd quarter of FY2010-11
Auto index reaches to its highest ever crossed mark of 6000. And this growth of industry will
be carry further as festive season still to come, so there is a lot of scope to growth in this
industry.
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5.2 THREATS TO INDIAN AUTOMOBILE INDUSTRY FROM
FOREIGN AUTMOBILE INDUSTR Y
The big threat to Indian autos………Can an improved Indica be sold for less than the Maruti 800? Can Bajaj create a service
network that's miles ahead of the competition? Should TVS and Bajaj be developing next-
generation two-wheeler engines together? If Indian-owned automobile companies are not
asking themselves these kinds of questions today they will be marginalised tomorrow. True,
the Indian auto sector is growing like gangbusters. But apparent success should not cloud our
vision on long-term trends. Consider: Indian companies have already ceded market
dominance in both mobikes and scooters.
The Tatas are No 1 in the C segment, but their current dominance may be transient. The
Mahindras never will be No 1 anywhere, unless we are talking tractors. The Firodias and the
LMLs do not have it in them to make it to world class.
What Indian entrepreneurs have not displayed so far is sharp, strategic thinking. They cannot
expect to hold their own against global competition by simply following the strategies of the
past. First and foremost, they must learn to identify the main enemy and dissect his long-term
game plan before working out a counter-offensive.
Though no one can rule the US and European carmakers out, the real long-term threat to
Indian autos comes from the Japanese. Honda defeated Bajaj in two-wheelers with just one
basic fuel-efficient bike. It is close to doing the same in scooters.
By launching a pincer attack with a 100 per cent subsidiary, it is now in a position to
completely dominate the all-important segments in two-wheelers.
Dumping or sidelining the Hero group is only a matter of time. Yamaha and Suzuki decided
to go it alone when they realised that their Indian partners (the Nandas and TVS) would be a
drag on their ambitions. In four-wheelers, Suzuki wants only a minimal presence for Maruti
in its new diesel and car plants.
If Japan Inc is the real enemy of Indian-owned auto companies, their strategies are worth
studying. Three in particular are of relevance to the Indian context.
One is that they compete relentlessly on cost and quality. The Japanese grind their
competitors into the dust using TPM, TQM and lean manufacturing techniques.
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Toyota is already No 2 worldwide and it has achieved this by cutting costs (and/or improving
quality) at a rate that is faster than its competitors. If Toyota cuts costs annually by 5–7 per
cent, this means it can sell the Corolla at the price of an Indigo in real terms) 10 years from
now.
If Tata Motors wants to stay in the competitive game, it will have to cut costs and improve
quality at a faster rate than Toyota, Suzuki, and Honda -- not to speak of Hyundai
And cost cutting has to spread across the supply chain -- and not just in the Tata or Bajaj
factories. The first key to global success is superior supply chain competitiveness.
The second way the Japanese compete is by targeting their rivals' profitable honey pots. Why
did Honda get into scooters when everyone was saying the market was not growing as fast as
mobikes? Answer: that's where Bajaj's margins were fattest.
To win the war, you have to destroy your rivals' profit centres so that their ability to compete
is steadily reduced. This also explains why the next target for Honda is the Pulsar -- Bajaj's
best-selling bike. Once the profitability of Bajaj is down to sub-normal levels, defeating Bajaj
will be easy for the Japanese. It also explains why Suzuki wants a diesel engine plant: it has
to neutralise Tata Motors' advantage.
The third Japanese war technique is the feint -- a mock attack that sends the opponent looking
in the wrong direction for a counter-attack. Consider Toyota's first offering -- the Qualis
Everyone knows that Toyota is world champ in cars but it chose to enter the MUV segment
first. It did this to make its competitors invest more in this segment, forcing resources to be
shifted there.
But as the Mahindras celebrate the short-term success of the Scorpio or the Sumo, the real
attack will come shortly in low and middle end cars. And when that comes, the Tatas will
face the battle of their lives.
So what should Indian auto-entrepreneurs do? One thing is to realise that they cannot take on
their Japanese rivals in all segments. They have to work out strategic alliances in such a way
that they can concentrate their resources in areas where they want to be No 1 and help their
partners in the other ways.
In two-wheelers, for example, this could mean players like TVS and Bajaj working out an
alliance in supply chain improvements, customer servicing, engine development, and various
other areas.
The Tatas and Mahindras could carve out segments of dominance in MUVs so that they can
specialise and improve quality and reduce costs faster. Without such strategic thinking, 10
years from now India's hitherto successful auto players will find that they are losing the war.
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Here we are discussing some case that shows that Indian market is really
overshadowed from foreign market:
Hyundai Eon launched, treads on Alto territory: - Hyundai has launched its new car directly pitted against Maruti Suzuki's global top seller
Alto, firing a warning shot across the bow of its bleeding arch rival which has been wounded
by a strike at one of its plants. Eon, Hyundai's first car developed from scratch for India and
is aimed at the bulging middle of the country's car market, has a starting price of Rs 2.7 lakh,
making it the first serious threat to the Alto's seven-year-old dominance of the country's car
market. The Alto, with 3.47 lakh cars sold last fiscal year, accounted for around 16% of all
cars sold in India and is the top selling car model on the planet, having edged Volkswagen's
Gol & Golf and Fiat's Punto. Hyundai aims to sell 1.5 lakh units of the Eon in a year, an
ambitious target in a tepid car market and also given that the Alto took almost four years after
launch to reach this level of unit sales. "We are looking at the sub-compact segment, which is
a fourth of the total Indian market and ushers in the greatest potential for growth in the
world's second fastest market," said Arvind Saxena, Hyundai's director for sales.
Hyundai's most ambitious launch to date comes at a time Maruti has temporarily stopped
Alto's production because of a longstanding labour issues, now running into its third month,
and which has left the country's biggest carmaker dependent on a slender inventory to drive
sales during the bumper festive period. Hyundai, meanwhile, has already filled its dealers
with stocks of the new Eon, hoping to capitalise on the vacuum in the segment.
Although it launched the new car only on Thursday, it had started producing the cars from
mid-September to develop a buffer to meet high festive demand. Although past challengers
have barely managed to make a dent on Alto's sales, industry experts say this time could be
different and are expecting a high-pitch battle in the small car segment completely dominated
by Maruti.
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"Eon, with its fluidic styling and contemporary engineering, will directly hit the dated Alto
and affect Maruti's fortunes," said Deepesh Rathore, managing director of IHS Automotive
India. Added one Delhi-based CEO of an automotive company: "It's an ideal buy for first
time car buyers who account for 25% of the 2-million new cars sold in India," But Maruti
Suzuki, which generates a quarter of its India sales from the Alto, was unfazed by the
prospect of a new challenger on its turf.
"The new Eon does bring in new competition in small car segment, but Maruti is the brand to
reckon with in compact cars. All our cars have low cost of ownership and higher resale value
that defines the segment norms across brands," said Maruti's marketing boss Shashank
Srivastava. The company is working on an answer to Eon and will unveil a all new small car
with a new-age 800cc engine, company sources said. The Alto, launched in September 2000,
has sold some 16.7 lakh units till date.
Sales of the model, available in two engine configurations of 800cc and 998cc, grew 46% in
last fiscal year to 3.47 lakh units. Maruti sells 32,000 units of the Alto every month on
average. In contrast, Hyundai managed to sell 34,286 units of its smallest car Santro in the
first five months of this year. But Hyundai executives hoping that the Eon, which sports a 814
cc engine and has a fuel efficiency of 21.1 kilometres per litre of petrol compared with Alto's
19.73, will give them a winner in India's price-sensitive small car market, which accounts for
three out of four sold in the country. "Eon will set a new benchmark in India with best
styling, performance, safety and convenience in its segment," said Hyundai Motor India
president and CEO H W Park.
Volkswagen, Toyota, Ford, Renault, Nissan challenging Maruti, Hyundai,
Tata Motors:"The growth story is intact. This (drop in July) is just a temporary blip. All car manufacturers
need to expand operations," says Sandeep Singh, deputy managing director, Toyota Kirloskar
Motor, the joint venture in which the Japanese giant holds 89%. "If inflation is tamed, interest
rates will come down. There is a huge opportunity and we have to move fast with our
expansion plans," he adds. The world's largest carmaker by sales, Toyota, intends to boost its
share of emerging markets from 40% in 2010 to 50% in two to three years on the back of
growing sales of fuel-efficient small vehicles. That in a line sums up the name of the game
for the auto majors: ramp up capacities at the entry levels with affordable and snazzier
models. "The Indian market is much bigger for us now than in the past," says Hiroshi
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Nakagawa, managing director of Toyota Kirloskar Motor. The renewed focus on the mass
market, more than half of the cars sold in India are compacts and hatchbacks, promises to
change the name of the game. VW, one of the newer entrants into India, it began operations
in 2007, has achieved what many of its global counterparts could not do in more than a
decade: a market share of 3% in four years. It has done so by launching competitively-priced
models -the Vento that was priced lower than the hitherto bestselling Honda City in the mid-
size segment; and the Polo premium hatchback is VW's cheapest car in India.
Emboldened, VW is now thinking big, very big. Says John Chacko, Volkswagen Group's
chief representative and president and MD, Volkswagen India: "We want to be amongst the
top three in India by 2018. Globally we rank third with a market share of 11%. I am sure with
a market share of 11% in India we can be amongst the top three." Chacko acknowledges that
it's going to be a "long journey," and that he needs to get "a whole range of products, the right
products and achieve high localisation levels" if he has to get into the top three.
If VW does climb five places, it will also mean that one of the leaders, if not all three, will
have to face up to a significant erosion in share. For, it's not only VW that can be spotted in
their rear view mirrors. Detroit giants GM and Ford are also threatening to get their act
together. What's more, Nissan (ranked No 6 in the world) and Renault have joined the race.
The likes of Peugeot-Citroen, Kia, Chrysler and Proton are all itching to get foot to pedal, and
finalising their India blueprints.
There is demand but we are all constrained by capacity," says Michael Boneham, managing
director, Ford India. Perhaps no longer. A week ago the US auto giant announced that it
would invest close to $1 billion in a second factory in Sanand in Gujarat to assemble vehicles
and make engines.
If Ford has decided to bite the bullet after 13 years in the country, it may have something to
do with some new-found success. Struggling with just a 1.5% market share till a year ago,
Ford bounced back smartly to more than double its share to 3.54%. The success ingredient:
The small car Figo, which accounts for three fourths of all cars Ford sold in July. More
variants of the Figo are in the works even as the Detroit major recently launched the premium
sedan Fiesta. But Ford is clear that that compacts is where the action is, it will launch eight
new such products in 12-18 months.
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ROOM FOR ALL
"Maruti has the scale, new products and is currently the most efficient manufacturer in India,"
says Hormazd Sorabjee, editor of Autocar India. "At least for the next 8-10 years, Maruti will
continue to be the dominant player as India is a lead market for Suzuki, much more important
than Japan," he adds.
Indeed, Suzuki's ability to transfer R&D quickly will go a long way in helping Maruti stay on
top. "Our ability to put models in the market that reflect customer needs in shorter periods at
a low cost of ownership will make the difference," says RC Bhargava, chairman, Maruti
Suzuki. "We may lose market share over a 10-year period but our volumes will grow," he
adds. Over the past decade, Maruti's share has slipped by 14 percentage points from 55% in
2000.
Another masterstroke from Maruti could well prove to be a plan to re-introduce its one-time
breadand-butter entry-level brand, the Maruti 800. Analysts point out that the new-look 800
will comply with the new emission norms, and will be priced lower than the Alto, taking it
closer into the territory of the world's cheapest car, the Tata Nano. Hyundai too is planning to
launch a car below its current base model, the Santro.
Tata Motors may well be the most vulnerable of the top three, what with the Nano not yet
delivering huge volumes. Sales in July fell to 3,250 from a peak of 10,000 a few months ago.
Overall, Tata's share in passenger cars has dropped from 18% in fiscal 2007 to 12.66% in the
April-June 2011 quarter.
"Of the top three, Tata Motors seems to be on the weakest wicket. The Nano has not given
them the required market share," says Maruti's Bhargava. "The passenger vehicle segment of
Tata Motors is under pressure as the lead time for product development is too long," adds
Autocar's Sorabjee. Tata Motors officials were unavailable for comment. The biggest
beneficiaries are the new kids on the block.
In the first six months of 2011, points out VW's Garg, the top three have grown volumes by
14%, 21% and 9% respectively, but their market shares have dropped cumulatively by 3.8%.
In the same period Toyota, VW and Ford have collectively gained 4.4%, adds Garg. "This
has to happen in any emerging market where a market leader starts losing share as the
number of players increase," he explains.
VW for its part has more than doubled its market share from 1.6% a year ago. As a group,
VW is present with entire range of brands: there's Audi at the luxury end; and Skoda, which
extends from the mass segment (with the Fabia) to the luxury (the Superb). Between January
and June, the three brands grew by 500% with sales of nearly 38,000 units, says Chacko.
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Toyota has been present in India since 1999 when it launched utility vehicle Qualis. Over the
years, it captured consumer mind space with bestselling brands like the Corolla, Innova,
Camry and Fortuner. Yet these brands addressed only 12% of the Indian car bazaar. The
more recent launches of the mid-size sedan Etios and small car Liva have changed the name
of the game-now Toyota can pull in close to half of the country's potential car buyers. That's
a significant shift for Toyota, from the higher end to the mass market. We have entered a new
segment with new customers and aspirations," acknowledges Toyota Kirloskar's Singh.
"Etios will now be our flagship product as it was developed and adapted for India. And for
the next two years our focus will be on the compact segment (where the Liva is positioned),"
adds Singh. Toyota intends to increase dealerships from 159 to 175 by the end of 2011, 40-45
% of them in tier-II markets.
SMALL PACKAGES
The advantage for brands like VW and Toyota is that they are distinctly more aspirational
than a Maruti. The flip side, however, is that nobody knows, and straddles, the small car
segment as well as Maruti does. And that's the segment that every car maker with mass
market ambitions is attempting to crack. GM is there with the Beat, which is now in diesel
too, and Ford with Figo (petrol and diesel). And Honda Siel, a distant No 10, is banking on
the Brio compact to score some gains.
So where does that leave a Johnnie-come-lately like a Renault? The French auto major
dissolved a joint venture with the Mahindras last April, and started independent operations
this May. The market share game is not priority for Renault at this point in time; establishing
the brand over the next 12 months is.
To that end Renault recently launched the Fluence sedan in the Rs 15 lakh price bracket.
"Brand Renault is not well established in India. With the launch of the Fluence we are
showing Renault's capabilities in design, styling, innovation, technology and value-formoney
products," says Marc Nassif, MD, Renault India.
Renault plans to follow up with the launch of the SUV Koleos this year; in 2012, it will
launch mass market cars, including a hatchback, the affordable SUV Duster and another yet
unnamed car. "In two years, we will launch mass market products and have 100 dealership
outlets in 70 cities, so 2013 will be the first fully functional year and we expect to sell
100,000 cars by 2014," explains Nassif. That's when he says Renault will reach a critical
mass in the Indian market. "Phase two of our operations will take us to a goal of reaching a
5% market share," adds Nassif. In South America and Brazil, the company got a 5% share in
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8-10 years.
Renault may be a late entrant but its advantage may well be that it won't have to traverse as
long learning curve as the likes of the Detroit majors, Honda and Toyota had to. Meantime,
other global majors like Peugeot-Citroen are looking to kickstart their India operations.
"New entrants have outlined an aggressive strategy with several new launches lined up in the
next three to four years. Cost and product differentiation will hold the key," says PwC's
Majeed. It's going to be a no-holds-barred skirmish for share in one of the world's fastest
growing markets. Who ends up on the victorious side is a matter of conjecture as of now, but
there's little doubt about one big winner in this battle: the spoilt-for-choice Indian consumer.
Fiat Signs Deal to Supply Diesel Engines to Maruti Italian carmaker Fiat and Japans Suzuki Motor Corporation have inked an agreement to
supply 1 lakh diesel engines to Maruti Suzuki India,which will help the countrys largest
carmaker to manufacture more engines,and thereby prune the rapidly growing waiting list.The
two auto giants agreed to supply Fiats 1.3 litre-multijet engine licensed by Fiat India
Automobile,which is a joint venture between Fiat and Tata Motors to Suzukis Indian
arm,Maruti Suzuki India.The JV company will supply up to 100,000 engines annually to
Maruti beginning January this year for a period of three years.
Stepping on the gas:To grab a bigger share of the Indian automobile market, late entrant Nissan Motor is
following a strategy somewhat different from its Japanese counterparts:
Two years ago, when Nissan Motor India, a 100 per cent subsidiary of Nissan Motor Ltd
Japan, was celebrating the start of production of its made-in-India compact car, Nissan Micra,
from its manufacturing plant at Oragadam, near Chennai, Toshiyuki Shiga, chief operating
officer, Nissan Motor Company, had said, “The start of commercial production of Nissan
Micra is the beginning of a new chapter for us in India.” One message came through loud and
clear from his statement. That the Asia’s No 2 car manufacturer (with a share of 7.5 per cent
in the region) may be a late entrant in one of the top 10 automobile producing markets in the
world (No 7 in 2010 with an annual turnover of $35 billion against No 15 in 2000) but it was
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no push-over. Mind you, in its home market, Nissan is already the second largest car
manufacturer, surpassing Honda in 2011 with Toyota still very much the dominant first.
Indeed, Nissan Motor India hasn't looked back since then. The company has gone on to sell
22,022 units in the domestic market till January this year, unveiled two new models — the
Nissan Sunny sedan in September 2011 and the Nissan Evalia, a multi-utility vehicle
showcased at the Delhi auto expo earlier this year and slated for launch in August — and has
put competition in a fix with a heady mix of killer pricing and aggressive retail expansion
strategy. While the sales figures tell a story of steady growth, its overall strategy shows how
it is following a path somewhat different from what its Japanese counterparts in India, such as
Honda Motor, Toyota and to an extent Suzuki, are following in the country.
First, let’s look at some figures: Nissan Motor India reported its highest ever monthly sales in
India this February with a total of 5,371 units, registering an over two-fold jump over
February 2011. In the same month last year, the company had sold a total of 2,081 units.
From the figures available, it is evident that the Nissan Sunny, the entry-level sedan that was
launched in the country in September 2012, has been a big contributor to the company’s sales
by logging 3,130 units in February 2012. In turn, the introduction of the diesel variant in
January 2012 has given sales of the Sunny a huge leg up. The Nissan Micra too showed
impressive numbers in February 2012 registering total sales of 2,198 units. The other models
in the company’s line-up in India, the Nissan Teana, the X-Trail and the 370Z, contributed
the rest. From the looks of it, the tales of rising inflation, the hardening of interest rates and
the increase in fuel prices are not going to dampen the spirits of the company’s brass. Says
Kiminobu Tokuyama, managing director, Nissan Motor India, “We hope to cross sales of
30,000 units this year and touch 1 lakh in the year 2013.” While Nissan has a little over 1 per
cent of the 2.3 million vehicles units Indian car market, Tokuyama says its performance
shows, among other things, that there is a growing acceptance of Japanese technology and
quality in India than ever before. Of course, the thing to remember is that the company has a
small base in India. In other words, for companies like Maruti Suzuki and Hyundai that have
a significantly larger base, even a small growth percentage can mean much higher sales
volume than Nissan. Also, the year seems to have begun on a positive note for most
automobile brands. Sales of market leader Maruti Suzuki grew 2 per cent in January 2012
compared to January 2011; that of No 2 Hyundai Motor India and Tata Motors grew 11 per
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cent in the same month over January 2011. Toyota Kirloskar logged 246 per cent growth,
while Ford India and General Motors skidded with –8 per cent and –22 per cent respectively.
Staying relevant
Now look at its strategy. While Nissan started its operations in India in 2005, with the launch
of the Nissan X-Trail (T30), which was imported as a completely-built unit (CBU), the
company really took the decision to go all out with the launch of the compact car Micra
realising that affordable small models dominate India’s car market, accounting for around 70
per cent of the sales. In this it has followed the strategy of South Korea’s Hyundai Motor
which entered the market in 1996 and immediately began targeting the small car sector where
formerly state-run Maruti Suzuki had a virtual monopoly. Even luxury brands like BMW AG
and Daimler’s Mercedes-Benz plan to bring compact cars to India.
Now compare this with, say, a Ford Motor Company, which entered India around the same
time as Hyundai but has struggled ever since with sluggish sales of bigger and costlier
vehicles. Hyundai India sold 616,000 cars in 2011, around five times Ford’s total. It is only
now that the company is saying India will be the small-car hub for Asia Pacific and Africa for
Ford Or consider Honda. Despite being having a presence in India for about 14 years now
and after ruling India’s premium car segment for years, Honda has faltered in recent years. It
held less than 0.74 per cent of the market share in January 2012, according to reports. The
Japanese car maker also failed to act fast on the market’s rapid shift towards diesel vehicles.
Petrol currently costs 50 per cent more than diesel which remains subsidised. Honda’s sales
fell 32 per cent in the first 10 months of the current fiscal while the passenger vehicle market
grew 1.45 per cent. It remains the only carmaker in the country with an all-petrol line-up even
though more than 40 per cent of the cars sold in India are now diesel-powered.Nissan has
been careful to cover its flanks — it offers both the Sunny and the Micra in diesel variants,
which contribute a big chunk of their sales in India. And catering to the expectations of the
small car market in India, Nissan claims to offer a combination of price, fuel-efficiency and
eco-friendliness, power and safety features, besides value adds like low turning radius, iKey
among others. The company has also been attempting higher localisation in its diesel engine-
powered cars. The company currently produces diesel engines for the Micra and the Sunny
partly with imported components and partly with locally procured components but is working
on higher localisation of the engine. Indeed, one important aspect of the Micra is that from
the very beginning, more than 85 per cent of its parts are procured through local vendors (96
in total) and 50 per cent of them are located within Chennai.Also many global automakers
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have moved low-cost export operations to India recently. Says Abdul Majeed, partner and
leader, automotive practice, PricewaterhouseCoopers India, “Auto companies should also
exploit the Indian location for their global strategy. For example, starting R&D base here, re-
directing component suppliers, exporting components to other countries etc. Only then a
global auto company can exploit the potential of a country in a holistic way.”Currently, a
majority chunk of Nissan’s production has been directed towards exports with the made-in-
India Micra being sold in several markets globally. During the April 2011-January 2012
period, the Oragadam plant’s total production for Nissan stood at 103,437 units and the
company exported 84,416 units of India-built Micra cars during the period. The company
exported 60,000 Micra sub-compacts last fiscal year, 80 per cent of the vehicles’ production.
Experts say that for a relatively late entrant like Nissan, a key determinant of success will be
how fast it is able to ramp up its distribution network. In a country like India the task
becomes slightly complicated as the distribution and after-sale services have to be custom-
made for different market segments.In its focus on having a wide retail footprint, Nissan has
followed Suzuki in India. Dinesh Jain, CEO, Hover Automotive India, Nissan’s sales and
marketing partner in India, says, “Nissan wants to play it big. At the launch time of Micra we
had 14 operating dealers and then in the next 20 months we opened 50 dealerships across
India. By the end of next financial year, we should be 100-plus. It took seven to 10 years for
many other original equipment manufacturers to reach such numbers that we have. We are
already catering to about 75 per cent of the market for cars in India across 20 states and
Union Territories.” While Jain seems content with the company’s growth figures, rising input
costs have recently compelled Nissan to hike the prices marginally.
Going forward
In the next one year, Nissan plans to focus on expanding its distribution network and
improving brand visibility besides launching new models. Another focus area will be beefing
up its portfolio of luxury cars in the country. In the pipeline is the launch its premium car
brand Infiniti, which is likely to drive up competition in the car space with Toyota also
drawing up plans to get the Lexus. Nissan wants to assemble the brand in India, rather than
importing the cars as CBUs. The reason is simple: It has to compete with manufacturers like
Mercedes Benz and BMW in the space, which have places a great onus on localisation.
Localisation will help keep the prices low (CBUs attract high import duty). Plus India’s car
assembly regulations mandate higher local content.Capacity expansion is also on the cards
for Nissan. It is currently running on a production capacity of 2 lakh units at our plant in
Chennai. By the end of March it hopes to increase the production capacity to 4 lakh units.
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Depending on demand, the company is looking to export its India-made cars to some markets
of Europe, Africa and West Asia, while sales in India will remain its first priority, Tokuyama
says.
Hyundai poaches another executive from Maruti Suzuki:South Korean carmaker Hyundai Motor India has poached Rakesh Srivastava, the marketing
head for the northern region for Maruti Suzuki, and placed him as the vice-president for its
sales operations across India. Hyundai Motor India is the main rival to the market
leader Maruti Suzuki India.
Maruti Suzuki still rules the Indian market with a 38% market share, while Hyundai comes a
distant second with 15% of the pie. They compete with bigger global rivals like Toyota,
General Motors, Volkswagen, Honda and Ford.Hyundai confirmed the move. "Rakesh
Srivastava has joined Hyundai Motor India as vice-president national sales with effect from
April 2, 2012," the company said in an email response. Srivastava was until recently the chief
general manager & commercial business head at Maruti Suzuki India. He was the zonal head
for the entire north market, which is the largest and most crucial market for any carmaker in
India.Analysts tracking the auto industry say the north plays a decisive role for the success of
any automotive company. "It's the largest market with customers carrying higher propensity
to spend. It's the largest market for luxury cars and predominantly consumers end up buying
top-end variants across all segments right from compact Alto to top-end Mercedes Benz S
Class," said a Mumbai based analyst.Maruti spokesperson did not deny the development, but
declined to comment.This is the second major placement for Hyundai after it snared Arvind
Saxena, another marketing veteran from Maruti, into its fold as vice-president marketing &
sales in November 2005. Saxena is now a key member of the HMIL team and drives the
entire operation for the Korean company in a leadership role - as director, sales and
marketing in India.
Is India ready for a green drive?Three lakh electric vehicles on the roads by 2020 would mean a reduction of over 16 lakh
metric tons of pollution and savings of over Rs 3,700 crore in foreign exchange over the same
period.Go Green’ is the motto for all leading economies of the
world, as reflected by the increasing focus on electric vehicles.
US President Obama has envisioned a target of one million
electric cars on US roads by 2015 and allocated USD 2.4 billion
to boost the development of electric vehicles. Almost 17 European Union nations including
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UK, France, Belgium, Italy and Spain provide specific tax rebates to promote usage of
electric cars.China has also joined the green initiative and has plans to produce one million
electric vehicles annually by 2015. However in India, we are still testing the waters to
understand the sustainability of these vehicles in the long run.
The Ministry of New and Renewable Energy has been the frontrunner in taking initiatives for
promotion and adoption of electric vehicles. In November 2010, the ministry formulated the
Alternative Fuels for Surface Transportation Programme under which it provided 20 per cent
subsidy to the manufacturers. The Prime Minister Dr Manmohan Singh also announced the
formulation of an apex body, the National Council for Electric Mobility (NCEM) which
would have representation by various ministries to devise a holistic policy for promotion of
electric vehicles in the country.
The main advantage of electric vehicles besides low pollution is that running cost of an
electric vehicle is much lower vis-à-vis conventional vehicle. Also increasing crude oil prices
are driving demand for these vehicles. Electric vehicles are becoming popular among
housewives and students who don’t have stringent commuting requirements. Once the
supportive government policies are formulated the market for these vehicles would become
developed. Besides, India also has the maximum market potential owing to an established
auto component infrastructure, low manufacturing and R&D costs, mechanical hardware
availability, high urban congestion and the presence of a large domestic market.Price
positioning is the main concern for electric and hybrid vehicles, owing to the expensive
battery costs. Reva is priced at a price point which is comparable to other petrol-driven A-
segment cars while similarly Toyota Prius is positioned in a price category which falls in the
luxury segment. The high price combined with low consumer awareness and environmental
sensitivity is leading to the big question on whether India is ready for such vehicles. In fact,
most manufacturers are planning to launch vehicles in other countries or have already
launched electric cars globally like Nissan with Leaf and Mitsubishi with iMiEV. However,
they are playing it safe in India by watching the government movements and would
eventually target Indian market only if the policies formulated under National Council for
Electric Mobility are favorable.Besides price, infrastructure is also another concern for
electric vehicles in India. Since these cars can run approximately 80 km on one charge, they
are recommended for short distances as charging infrastructure is not developed in the
country. There have been initiatives under which BSES in Delhi established charging ports in
50 locations across its sub-stations in the city. Likewise in Bangalore, parking spaces in malls
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and offices have been equipped with charging points for electric cars. However, it is
important to develop rapid charging stations which can provide quick charging in lesser time.
The key challenge here is that for a developing country like India where we are struggling to
deal with problem of electricity shortage, do we have enough resources to build charging
infrastructure for electric vehicles. Also it is difficult to assess in the long run, if we are trying
to reduce the carbon footprint by decreasing the fuel-driven vehicles, or on the contrary are
we burning more coal in the thermal stations to generate the required electricity for charging
these vehicles. As per statistics in India, transport contributes to 7 per cent of total
greenhouse gas emissions while electricity contributes to 35 per cent.Customer perception
and outlook further pose the challenge of product acceptability in India. Electric vehicles are
perceived to be under powered vehicles at higher cost. The cars can only cover short distance
of about 80 km per charge and hence the value proposition for electric vehicle as a first car is
also currently non-existent as compared to the petrol vehicle.The whole phenomenon of
electric vehicles have picked up in the recent years owing to the increasing oil prices and
pressure on developed nations to reduce the carbon footprint. It is interesting to note that
electric vehicles were introduced in 1830s while back in 1900, a majority of the total vehicles
in the US and the UK were electricity based. Thus it is certainly a case of reinventing the
wheel with India still gearing up to join the green drive.
Globally, smart cities are being developed which are focused on promoting electric vehicles
usage. Indian government is also planning four smart cities in Manesar, Shendra, Changodar
and Dahej to be built along the Dedicated Freight Corridor. These cities are being designed in
association with Japanese firms like Hitachi, Mitsubishi and Toshiba and would be would be
based on successful models of Japanese cities Kitakyushu, Toyota City and Yokohoma.
Smart cities are going to be built under the main objective of 3-Rs: Recycle, Reuse and
Reduce. It would focus on promoting energy-efficient facilities with networking function
along with environmentally friendly public transportation system and personal vehicles.
Special purpose companies would be established for project implementation, operation,
maintenance and management of smart cities. Japanese corporations such as Hitachi,
Mitsubishi, JGC Corp and Toshiba are working along with State and Central governments to
design and build these eco-friendly smart cities.By 2020, India’s population in cities is
expected to grow manifold to a staggering 200 million while pollution is expected to grow by
five times as compared to 2010. With this tremendous growth has emerged a very critical
issue of keeping air and noise pollution in urban areas under control. It is desired to have 3
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lakh electric vehicles on the roads by 2020, including three-wheelers, cars, and scooters
which could result in a reduction of over 16 lakh metric tons of pollution by 2020, savings of
over Rs 3,700 crore in foreign exchange and significant health costs savings.
Government initiatives are going to be one of the major drivers for bridging the gaps between
consumers and electric cars manufacturers. Reduction in cost of vehicles and providing
special benefits of parking, charging infrastructure and rebates would boost the adoption of
these vehicles in future. Various companies are also taking initiatives to promote electric
vehicles as a part of their corporate social responsibility. All leading manufacturers are
eyeing India as a key market for the electric vehicles provided the government implements
favorable policies. Consumers are also gradually becoming conscious about the use of
cleaner technologies with the key question now being, “Are we ready to bring about the green
wave of change?”
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5.3 Government Policies Towards Indian Automobile Industry
Automobile industry in India also received an unintended boost from stringent government
auto emission regulations over the past few years. This ensured that vehicles produced in
India conformed to the standards of the developed world.
Though it has an advantage in India, thanks to low costs and government policies it soon
faces stiff competition from it multinational competitors all eyeing for a share in the ever
growing Indian autosector. The policies adopted by Government will increase competition in
domestic market, motivate many foreign commercial vehicle manufactures to set up shops in
India, whom will make India as a production hub and export to nearest market.
Bring in a minimum foreign equity of US $ 50 Million if a joint venture involved
majority foreign equity ownership.
Automatic approval for foreign equity investment upto 100% of manufacture of
automobiles and component is permitted.
FIIs including overseas corporate bodies (OCBs) and NRIs are permitted to invest up to
49 percent of the paid-up equity capital of the investee company, subject to approval of
the board of directors and of the members by way of a special resolution.
Investments in making auto parts by a foreign vehicle maker will also be considered a
part of the minimum foreign investment made by it in an auto-making subsidiary in India.
The move is aimed at helping India emerge as a hub for global manufacturing and
sourcing for auto parts.
Specific component of excise duty applicable to large cars and utility vehicles will be
reduced to 15,000 rupees per vehicle from 20,000 rupees earlier.
The Proposal by the Govt. to set up an expert group to advise on a viable and sustainable
system of pricing petroleum products, as this will surely had an impact on the Automobile
Industry.
The announced reduction on the basic customs on bio-diesel is great news for all
companies working on environmental saving technologies.
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CHAPTER VI
INDIA AND CHINA: OVERVIEW
OF THE INDUSTRY
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6.1 India and China :overview of the auto Industry
China and India account for less than 1% of the cars in use today with fewer than 10 cars per
thousand people. These countries represent a huge potential market in the long term. There
might have been evidences of rapid growth in the short term but the options are limited for
potential entrants. The market on the Pacific rim alone cannot support the kind of volumes
expected to run sustainable operations in these countries. Domestic car sales in China is
xpected to grow at 10% each year and is expected to account for over 15% of the global
growth in the car sales. The Auto Industry contributes to nearly 4% of India’s GDP whereas a
higher percentage is deployed in the case of china .Both countries had long followed strict
FDI norms into these sectors and high import tariffs to support domestic players. With the
accession to WTO and the liberalization of the two economies, a large number of global p
layers have set up plants in India and China and in the process burnt their fingers in
anticipation of the large volumes. Given the capacity –intensive nature of the industry, the
logic of Cheap-labor has not worked to be too profitable ,as the auto majors have realized .In
addition ,these countries have one of the worst cost structures for the car industry, given the
inefficient supply chains and fragmented distribution systems. Thus not too many car
manufacturers have reached their economies of scale so far.
6.2 Framework for the Analysis:
6.2.1 Assessment of the Chinese threats & weaknesses of the Indian
Players
Two Wheelers: Import of two wheelers in the Indian market is unlikely to pose a serious
threat to Indian players despite the low price tags mainly due to two reasons-low perceived
quality levels of the Chinese vehicles and widespread availability of retail financing for two-
wheelers in India which makes Indian bikes easily available to all household. The low-end
Indian models competing essentially on price might have to bear the marginal decrease in
sales due to the imports. The government has also imposed strict emission norms, which act
as non-tariff barriers to Chinese imports.
Component Exports: The area of major competition for the Indian auto industry is in the
component sector. Firstly, global sourcing of components from china brings savings of nearly
17-20% to the table(as against the 15-17% in the case of India) mainly due to tehri scale of
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economies ,lower power costs(0.061 kWhr/USD in china as against 0.095 kWhr/USD in
India)reduced freight, local government concessions, lower transactional costs(30% lower for
auto components manufacturers in China).With the increasing competition for orders from
global OEMs, Indian component exporters might lose out in the price wars if they start with a
higher cost base.
Component Imports: The structure of the component industry in India shows a largely
fragmented industry (implying low scale operations0with just 28 players with a turnover of
greater than 30 million USD. Hence the Chinese dragon could eat away a diverse set of small
and medium enterprises in India through low cost imports of components (primarily in low-
end, low-technology parts).
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CHAPTER VII
RECOMMENDATIONS
96
RECOMMENDATIONS
The imperatives for all the firms in the Indian auto industry as follows:
Increase scale of operation through Greenfield projects or M&As (to prevent subscale
manufacturers from losing out to global majors.
Increase the quality consciousness of workers through training programmes (utilize the
Ministry of Industry automotive cess fund for conducting training programs to boost
productivity of SMEs in the component industry)
Leverage IT to drive down transaction costs and time-to-market.
Improve spending on R&D and employ flexible manufacturing to design and produce
new products.
Utilize existing relationships with MNC carmakers to achieve global recognition.
Learn from strategic alliances formed with other firms worldwide-utilize the exposure to
different companies with complementary capabilities and a mutual interest in
cooperation.
It is the time for Indian manufacturing sector as a whole to hone its competitive edge. They
would have to develop new competencies and radically overhaul existing ones if required and
companies which view their international expansion, as an opportunity to learn would find it
perfectly feasible to do so.
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CHAPTER VIIICONCLUSION
98
CONCLUSION
Indian Automobile Industry is in the growth phase and the expected growth rate is 9-10% for
FY2009-10 compare to last year growth rate which was just 0.7% and the above facts and
figures in our study also support this truth.
Indian Automobile has a lot of scope for both two wheelers and four wheelers due to
development in infrastructure of the country and especially the rural sector in which demand
of two wheeler has increased even in recession. According to Indian Statistical Organization
the per capita income (Rs.38000) is increasing and national income at the rate of 14.4%
which shows potential to buy vehicle in auto industry. The growth rate of Indian Automobile
is so fast that by 2016 Indian Industry will be world 7 largest manufacturer in all sections.
The Indian auto market is still untapped the majority of the people in country don’t own a
four wheeler and all the major auto companies are trying to increase their sales by several
moves. Like TATA has launch NANO the people’s car and now TATA motors is also
planning to come out with an electric car as well as hybrid car, moreover in two wheeler
segment many companies like Mahindra and Mahindra. Disaggreaation of the automotive
value chain has led to increased competition, declining margins, increasing disadvantages of
being subscale and emergence of a certain set of new oppurtunities for Indian Firms. There
are certain choices that could decide the future existence of the Indian auto firms –choosing
to ally or saty alone and also choice of segment of the value chain to focus on component
suppliers and module suppliers.
Critical Issues and Future Trends
The critical issue facing the Indian passenger car industry is the attainment of break-even
volumes. This is related to the quantum of investments made by the players in capacity
creation and the selling price of the car. The amount of investment in capacities by passenger
car manufacturers in turn depends on the production
Threat from the new players: Increasing
Most of the major global players are present in the Indian market; few more are expected to
enter. Financial strength assumes importance as high are required for building capacity and
maintaining adequacy of working capital. Access to distribution network is important. Lower
tariffs in post WTO may expose Indian companies to threat of imports.
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Rivalry within the industry: High
There is keen competition in select segments. (compact and mid size segments). New
multinational players may enter the market.
Market strength of suppliers: Low
A large number of automotive components suppliers. Automotive players are rationalizing
their vendor base to achieve consistency in quality.
Market strength of consumers: Increasing
Increased awareness among consumers has increased expectations. Thus the ability to
innovate is critical.Product differentiation via new features, improved performance and after-
sales support is critical.Increased competitive intensity has limited the pricing power of
manufacturers.
Threat from substitutes: Low to medium
With consumer preferences changing, inter product substitution is taking place (Mini cars are
being replaced by compact or mid sized cars).Setting up integrated manufacturing facilities
may require higher capital investments than establishing assembly facilities for semi knocked
down kits or complete knocked down kits. In recent years, even though the ratio of sales to
capacity (an important indicator of the ability to reach break-even volumes) of the domestic
car manufacturers have improved, it is still low for quite a few car manufacturers in India.
India is also likely to increasingly serve as the sourcing base for global automotive
companies, and automotive exports are likely to gain increasing importance over the medium
term. However, the growth rates are likely to vary across segments. Although the Mini
segment is expected to sustain volumes, it is likely to continue losing market share; growth in
the medium term is expected to be led largely by the Compact and Mid-range segments.
Additionally, in terms of engine capacity, the Indian passenger car market is moving towards
cars of higher capacity. This apart, competition is likely to intensify in the SUV segment in
India following the launch of new models at competitive prices.
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CHAPTER IX
BIBLIOGRAPHY
101
BIBLIOGRAPHY
MAGZINES: -
Business Today
Business World
News Papers: -
The Economic Times
The Indian Express
The Business Standard
The Hindustan Times
WEBSITES: -
www.googlefinance.com
www.yahoofinance.com
www.google.co.in
www.moneycontrol.com
www.worldfact.com
www.rbi.org.in
FDI statistic government of India
India Central Statistical Organization
Economic Times
Some more…..
EBSCO HOST(database)
PROWESS(database)
INDIA STATS(database)
Peterson, Lewis and Jain: Managerial Economics
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