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.

51

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

52

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

54

(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.

55

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.

57

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.

58

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.

59

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.

60

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.

62

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.

63

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,

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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

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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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