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INDIANAUTOMOBILE4 WHEELER SECTORA Drivers report

2010

Neel ShahFlame School Of Business

11/13/2010





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TABLE OF CONTENTS

1. Executive Summary 5

2. Introduction 6

2.1 Automobile Industry in India2.2 Evolution Of Indian Automobile Industry2.3 Economic Growth in current year2.4 Indian Automobile at global level

3. Industry Overview 123.1 Production Trend3.2 Major Players3.3 District-Wise Distribution Of Automotive Plants In The Leading Indian Auto States3.4 Demand Characteristics3.5 Factors affecting demand – supply of automobile industry

4. Segmentation of Automobile 4 wheeler segment 194.1 Passenger Vehicle Industry4.1.1 Structure of Indian PV segment4.1.2 Demand Drivers in Passenger car segment

4.2 Commercial Vehicle Industry4.2.1 Structure of Indian CV segment4.2.2 Demand and Supply trend in CV segment4.2.3 Overall Outlook of CV Segment

4.3 Used Cars Market4.3.1 Overall Outlook of Used cars market

5. Joint Venture 36

6. Foreign Investment in Automobile Industry 386.1 Foreign Companies in the Indian auto-sector6.2 FDI6.2.1 Advantages of FDI in Auto Sector6.2.2 Opportunities of FDI in the Automobile Sector6.2.3 Important Aspects of FDI in Automobile Sector

7. Issue of Government Influence 437.1 Summary of Government Influence on Industry Development7.2 Phases of Government Policies7.2.1 The Regulatory Phase7.2.2 Phase of Limited Liberalization7.2.3 Liberalization Phase7.2.4 Brief Review of Policy Influence

7.3 Outlook on Government Policies

8. Analysis of Indian Automobile Industry 47

9. Effect of Recession 489.1 Impact of Slowdown



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10. Inflation 50

11. Factors Contributing to the growth of Indian Auto Sector 5111.1 Government Support11.2 Recent policy initiatives

11.3 Current Growth drivers of auto sector

12. Small Cars and India 55

13. Pestel Analysis on the Auto Sector 56

14. Porters Five force model on the Auto Sector 61

15. SWOT Analysis 65

16. Future of Indian Auto Industry 66

16.1 Future Small car model in India16.2 Automotive Mission Plan 2016

17. References 68



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EXECUTIVE SUMMARY

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 Automobile 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 n meaningful. An E.I.C approach has been followed under

Fundamental Analysis which covered effect of Recession, the impact of inflation, FDI‘s,

Export, GDP etc. on Automobile Industry. The Industry Analysis has been done with the help

of five forces model, BCG Matrix, SWOT analysis, industry life cycle and the industry

specific index. For Company Analysis as a part of Fundamental tool we have undergone with

the comparative analysis of TATA Motors as our leading company with Maruti Suzuki

India‘s largest Car manufacturer. The fundamental aspect consists financial and Non-

Financial analysis of both the company. In the Technical aspect we have considered Share

price analysis, moving average, moving average crossover, Bollinger bands and M.A.C.D. of

both the company by keeping TATA Motors as our leading company.

At the end conclusion and recommendations have been specified so as to make the research

work more meaningful and purposeful.



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INTRODUCTION:

The 4 wheeler industry in India has not been able to match up to the performance of its

counterparts in other parts of the world. The main reason for this has been the regulatory

atmosphere that prevailed till the deregulation in the mid 1990s. After the Liberalisation the

passenger car segment saw a boom and many companies from India as well as foreign

entered the market.

However, the smooth sailing was suddenly disrupted in the last quarter of FY1996. The

automobile industry, which contributed substantially to industrial growth in FY1996, failed to

maintain the same momentum between FY1997 and FY1999. The overall slowdown in the

economy and the resultant slowdown in industrial production, political uncertainty and

inadequate infrastructure development were some of the factors responsible for the slowdown

experienced by the automobile industry. In FY2000, the sector experienced a turnaround,

posted positive growth rates and witnessed the launch of many new models. But the

spectacular growth in FY2000 was followed by a decline in FY2001 and only a marginal

growth of 0.5% in FY2002. However, since FY2003, industry sales have increased at a 3-

year CAGR of 17.4% to 1.14 million in FY2006.

Indian automobile industry has grown leaps and bounds since 1898, a time when cartouched the Indian streets for the first time.

At present it holds a promising tenth position in the entire world with being No. 1 in

Two wheelers and No. 4 in commercial vehicles.

The Automobile Industry in India is the 7th largest in the world with an annual

production of over 2.6 million units in 2009.

In 2009, India emerged as Asia‘s 4th largest exporter of automobiles behind Japan,

South Korea and Thailand. By 2050, the country is expected to top the world in car volumes with approximately

611milion vehicles on the nation‘s road.



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AUTOMOBILE SECTOR IN INDIA

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 advantageand 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

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.



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"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. Since then

almost all the global majors have set up their facilities in India taking the production of

vehicle from 2 million in 1991 to 9.7 million in 2006 (nearly 7 per cent of global automobiles

production and 2.4 per cent of four wheeler production).

The cumulative annual growth rate of production of the automotive industry from the year

2000-2001 to 2005-2006 was 17 per cent. The cumulative annual growth rate of exports

during the period 2000-01 to 2005-06 was 32.92 per cent. The production of the automotive

industry is expected to achieve a growth rate of over 20 per cent in 2006-07 and about 15 per

cent in 2007-08. The export during the same period is expected to grow over 20 per cent.

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.

FACTS

The automotive sector is one of the key segments of the economy having extensive

forward and back word linkages with other key segments of the economy.

It contributes about 4% in India‘s GDP and 5% in India‘s industrial production.

This sector has generated about 4.5 Lack of direct employment and about 1.31 crore

of indirect employment.

India holds huge potential in the automobile sector including the automobile

component sector owing to its technological, cost and manpower advantage.

India has a well developed, globally competitive Auto Ancillary Industry and

established automobile testing and R&D centers.





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Economic Growth This Year

Despite economic slowdown that has affected the automobile industry, production and

exports of the sector went up last fiscal, said the Economic Survey20 0 8- 0 9, and underlined

that the industry employs over one crore people.

While the overall automobile production went up by3 per cent to reach1.11- crore, exports

increased by over23 per cent to over15 - lacs. The domestic turnover of the sector stood at

Rs. 2.19- lacs crore, while exports totaled at Rs. 31,782 crore, taking the total size of the

industry to Rs. 2.50-lacs crore during 2008-09

Contribution of17 % to the kitty of indirect taxes

Indian auto industry is one of the core industries. Post-independence due to the thrust on

industrialization Indian auto industry indirectly benefited as transport of goods across the

country increased manifold.

Liberalization of the economy that started in 1980 has also had a positive impact on the

Indian Auto industry. India is considered as a crucial business destination for reputed

automotive players across the globe. The automotive sector in India is growing at around 18

per cent per annum.

Indian Automobile At Global Level

Ranks 1st in the global 2 wheeler market.

The 4th biggest commercial vehicle market.

Ranks 11th in the International Passenger Car market.

Ranks 5th in the no. of Trucks and Buses sold.

The Second largest tractor manufacturer.



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SEGMENTATION OF AUTOMOBILE INDUSTRY

The economy of India is emerging. The following table shows the ranking of India in the past

four years



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INDUSTRY OVERVIEW:

The Indian automobile industry posted a spectacular growth of 32%, powered by improving

economic environment, gradual dissipation of job & business uncertainty, new offerings and

good consumer spending in urban and rural India. The upbeat market sentiment spanned all

segments of motor vehicles, with passenger vehicles, commercial vehicles, two-wheelers and

three-wheelers - all recording decent double-digit growth.

Passenger vehicles, continuing its good run, stole the limelight by notching up 35% rise in

domestic sales. While Maruti Suzuki remained the leader without much of a challenge and

recorded spectacular sales numbers, new players in the segment such as Ford Motor, General

Motors and Volkswagen too benefited from a robust demand for their recently launched

small cars - Figo, Beat and Polo.

Riding on the continuing strong performance of industry and the increased pace of

infrastructure development, commercial vehicles sustained the momentum of the last six

months during May,2010, growing by a whopping 57.7% in domestic market. The smart

growth numbers of CVs were, to a great extent, aided by the low base of the previous year,

though.

Production Trend

Installed capacity of this sector has been growing at a compound annual rate of over

16% since 2003-2004.

Automobile industry grew by 14.83% in April 2008- February2009.

Cumulative growth rate of some important segments in April 2007-December 2008

was:

Passenger vehicles: 22.91%

Passenger cars: 24.76%

Utility vehicles: 12.69%

Multi -purpose vehicles: 28.385%

Commercial vehicle: 36.12%

Medium and heavy commercial vehicles: 36.74%

Light commercial vehicles: 35.25%



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MAJOR PLAYERS IN INDIA:

Volkswagen

BMW

Toyota

Tata

Skoda

Nissan Motor

Mitsubishi

Mercedes

Mahindra

Maruti

Hyundai

Honda

Hindustan Motors

General Motors

Chevrolet

Daewoo Motors

FiatFord

MARKET SHARE IN AUTOMOBILE INDUSTRY

SALES



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DISTRICT-WISE DISTRIBUTION OF AUTOMOTIVE PLANTS IN THE LEADING

INDIAN AUTO STATES

DEMAND CHARACTERISTICS:

(A) Passenger Cars:

In developed markets, engine capacity and wheel-base are the bases of segmentation of

passenger cars: price does play a role but only up to a point. Since affordability is the most

important demand driver in India, the domestic car market has until now been segmented on

the basis of vehicle price. Price-based competition takes place in a continuum rather than insegments since nearly all the models are launched in multiple versions at different price

points. As a result, a higher-end variant may compete with a lower-end variant of a car in a

segment above it.

(B) Multi Utility Vehicle (MUVs):

The MUV segment consists of vehicles that are suited to both rural and urban areas. In rural

areas where the roads are usually bad, these vehicles are used as goods carriers and also for

public transportation. Northern and Western India account for nearly two-thirds of the



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demand for MUV. Specifically, in States like Rajasthan, Madhya Pradesh, Uttar Pradesh and

Maharashtra, the demand for MUVs is the largest. There are three segments of buyers for

MUVs: the private market, Government, and the Defence. Until the 1990s, the Government

and Defence segments accounted for the largest share of the market. The reduction in

Government and defence spending since the 1990s has substantially reduced sales to these

two segments. This has pushed private sector purchases into greater prominence.

There are three sub-segments of the UV / MUV segment: the hard-top, soft-top and pick-up.

The hard-top version consists of the higher-end Sports Utility Vehicles (SUVs) that have

been present in the Indian markets since FY1999. Following the success of the higher-end

SUVs, the share of the hard top segment in total MUV sales has registered an increase. Soft-

top MUVs, which are largely dependent on sales in the rural and semi-urban markets where

the vehicles serve as modes of mass transportation (maxi taxi); have witnessed a contraction

in volumes in recent years. The declining share of the soft-top sub-segment is attributable

largely to the increasing acceptance of SUVs as an alternative to soft-tops (and even higher

end-cars). That apart, soft-top sale have also been affected by a decline in rural income,

increase in sales tax in some states, increase in diesel prices, enforcement of strict emission

control norms, and restraints on the issue of licences to use soft-top vehicles as rural taxis.

FACTORS AFFECTING DEMAND SUPPLY OF AUTOMOBILE INDUSTRY

Demand Factors

1. Financing Options

Auto industry observers cite car loans as the biggest driving factor for the expansion

of the Compact Car segment. At present, almost 85 per cent of all new car sales are

backed by auto finance, compared to 65 per cent five years ago.

Interest rates on car loans have come down drastically in the past four or five years,

which helps prospective buyers take the plunge. The growth of the CC-segment in the

past few years can be mainly credited to factors such as rise in income levels leading

to increased affordability and simultaneous reduction in interest rates leading to lower

EMIs. The drop in interest rates usually helps very few people to probably shift from

the base model to a deluxe model. A larger shift happens if people are willing to takelong-term loans, like five years instead of the earlier three-year loans.



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2. Advertising And Marketing

Due to the advertising techniques adopted by all the manufacturers in the CC-

Segment the sales have risen drastically. It is all due to because the companies now a

days are using even aggressive selling techniques for which they are even coping with

the Film celebrities and Cricket stars, like Maruti has contracted Irfan Pathan as the

brand ambassador of Zen and for Santro Hyundai has contracted for Shah Rukh Khan.

And the companies are even trying to approach to the customer as to there demand for a

vehicle at special interest loans, etc. They are using data according to the customers return

and earning capacity for attracting the customers for there vehicles.

3. Price Of The Car

One of the major factors that affect the demand of any commodity in the market is the

price of the commodity. As the law of demand also states that with an increase in

price the demand of the commodity decreases and vice versa.

Since, in the compact car segment market even there are very less competitors there is

stiff price competition. Like the price of Zen in 2001 was Rs. 3.93 lacs which

increased to Rs. 4.01 lacs in 2005, but still the sale of the Maruti brand keeps onincreasing it was due to the company‘s reputation with the customers.

4. Income Of Consumer / Buyer

The income of the consumer or buyer of the car is a very important factor of demand. In

recent time we have seen that due to increase in the Income of the general public, there has

been a shift from the Lower CC-segment cars to the Upper CC-segment cars.

Due to the recent increase in the number of multinationals in India, the income level of the

employees have risen drastically and has made CC-segment cars an entry level car for a lot of

people. The average age of a CC-segment car owner has also dropped from 35 years to 31

years in India.

5. Increase In Affordability

The demand for passenger cars is driven mainly by greater affordability, which in turn

increases the aspiration level of the customers. Today with high amount of disposable income



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in the hand of Indian youth, who forms major portion of the population, PV market has larger

addressable market.

6. Demographic Drivers

Cars being aspirational products, purchase decisions are influenced by the overall

economic environment. Increase in per capita income increases the consumption

tendency of the customer. Growth in per capita income and rising aspirations and

changing lifestyle is leading to increased preference for cars

over two-wheelers, which is also having a positive rub off on car demand.

7. Availability Of Easy Financing Options

A majority of PV purchases are financed through financial institutions. Over the past

4-5 years car industry has been benefited through significant increase in affordability

due to the decrease in EMIs. Car finance rates dropped from 17% in 2000-01 to 11%

in 2005-06. However it has increased and averaged at 13.75% in 2006-07. The current

hardening of interest rates is expected to affect demand by

reducing affordability.

8.New Offerings

Car sales increase when a new model hits the market. Due to escalation in

competition in Indian car market, frequency of new model launches has increased. In

the past one year only the Indian car market has seen many launches namely SX4,

Swift Diesel, Zen Estilo, Spark, Logan, etc.

9. Exports

The share of exports from domestic production is currently at 12-13%, which is much

lower than current export hubs. Currently, India‘s share of global passenger cars

export volume stands at less than 1%. But India is fast emerging as a manufacturing

hub for leading global car makers, and several manufacturers have already firmed up

plans for setting up manufacturing bases in India, which will also be used for exports.



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Supply Factors

1. Presence Across Segments

Manufacturers with presence across various product segments can ensure higher

volume and better capacity utilization by using the common manufacturing capacity.

Typically a customer upgrades from one segment to higher segment and the presence

across various segments ensures that the company retains its existing customers.

2. Efficient Operations

Competition in PV segment is very intense and this requires the existing players to

initiate steps to reduce their cost of production. Effective and successful operation

methods like platform commonality, reduction in vendor base and workforce

rationalization can help a company immensely.

3. Wide Dealer Network And Availability Of Finance

A wide dealer network helps the company serve customers over wide geographical

area. For e.g. Maruti has used its available wide service network as point of difference

over competitors. The companies are tying up with the financial institutions having

rural presence to provide additional financing options to customers in such areas.

4. Access To Latest Technologies

Indian PV segment is highly competitive with as many a 14 players operating in it and

more than 80 models on the offering. But still any new model launch meets with

increase in sales volume for the company. Moreover in a time when a substantial

portion of Indian customer is looking to upgrade in higher segment, companies with

latest technologies and latest models will catch more attentions

5. Price Of The Car

Price of the car is one of the major factors that affect the supply as well as the demand

of a car. If the price of the car is high in the market, the manufacturer or the supplier

will want to supply more units in the market so he can earn more profits.

In the automotive industry where the market type is oligopoly, if one company drops

its price for the car, there is a huge impact on the sales of the other cars as well as the



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same car. In the market the price of one car is inter-related to the price of the other

cars in the same segment. The best solution is that market equilibrium should be

achieved so that the amount of the quantity demanded should be equal to the amount

of the quantity supplied to achieve maximum profits.

A Market Equilibrium is achieved at the point of intersection of the demand line and

the supply line. The point is the equilibrium point where the quantity demanded is

equal to the quantity supplied.

6. Factors Of Production

There are some factors of production which influence the supply of a car like:

Cost of Raw MaterialLabour Cost

Machinery

Input Cost

These factors influence the supply of a car largely. If the cost of the raw material

(Steel, Spare Parts, Rubber) increases there will be an increase in the cost of

production leading to decrease in profit margins. Costs like labour costs, machinery

and input costs also influence the supply with the increase or decrease in these costs.

7. Government Policies And Taxes

If there is a change in the government policies regarding the increase in the road tax charged

or the tax which is to be paid per unit sold, the supply of a car will fluctuate with the nature of

the change.

Recently the government has reduced the custom duty on inputs and raw material from 20%

to 15% which has increased the supply.

SEGMENTATION OF AUTOMOBILE INDUSTRY:

A. Passenger Vehicles

B. Commercial Vehicles

C.

Used Cars



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PASSENGER VEHICLE INDUSTRY

The past few years have witnessed a rapid change in all the segments of the Indian passenger

vehicle industry. International competition, increase in the number of participants, and the

need to counter pressure on margins have made it a buyer's market rather than a seller's one.

Today customers have wide model choices and the rising income levels, especially among

young adults, coupled with the low equal monthly installments (EMIs), have made vehicle

purchase affordable. With increased foreign competition in passenger vehicles, domestic

participants are scrambling to catch up and compete by investing in R&D and improving

overall efficiency. Automobile manufacturers are now intending to provide cars in every

segment with widened price range and reaching more potential customers.

Segment classification

The Passenger Vehicle (PV) industry is divided into passenger cars, utility vehicles (UV) and

multi utility vehicles (MUV). Passenger cars based on their size are further divided into six

sub classes.

The Passenger Vehicles (PV) market grew 14% YoY to 1,762,131units as against 1,545,223

units sold in 2007-08. It is largely attributed to the impressive growth in the passenger car

segment in FY07 08. The passenger car segment contributed 80% to the total PV sales in

financial year 2007-08. Marketwise, it was backed by healthy growth in its domestic sales

and exports. Its domestic sales grew 12% YoY to 1,547,985 units in financial year 2007-08.

Also exports grew by 9.4% YoY to 217,054 units in FY2007-08. Over the last five years total

PV production has increased at a CAGR of 19.5%, from 723,330 units in 2002-03 to

1,762,131 units in 2007-08. In the same period domestic sales and exports of PV increased at

a CAGR of 17% and 25% respectively. The share of exports to total sales increased from

9.25% in FY03 to 12.3% in FY08



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Capacity vs. utilization

Total capacity for PV in India stood at around 2.5 million units in 2007-08 against 1.25

million units in 2002-03, a CAGR of around 15%. However, the capacity utilization of the

industry has fallen to around 71% in 2007-08 from 87% in 2006-07. During 2007-08 total

capacity increased by almost 40%. This is on account of major capacity expansions

undertaken by OEMs like Honda Siel, Maruti and Hyundai towards the end of 2007-08.

Moving forward car manufacturers have announced ambitious capital expenditure plans over

the next 2-3 years. Driven by high domestic demand and increasing exports capacity is

expected to touch 3.9 million units by 2009-10 (CRISIL).

Structure of Indian PV segment

Passenger vehicle industry is divided into three segments namely Passenger Vehicle (PV)

segment, Utility vehicle segment and Multi Purpose Vehicle segment. PV segment

contributes to about 80% of the volume while rest 20% is divided between UV and MPV.

Indian passenger vehicle industry is highly fragmented especially if we compare it to two

wheeler or commercial vehicles Industry. Although overall Maruti is the clear market leader

with about 50% of the market share and the second largest player have only one third of the

share of Maruti



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Major Players Profile

( A) Maruti Suzuki India Limited(MSIL):

Maruti Suzuki sells one car out of every two cars sold in the country, crossed yet another

landmark, clocking over one-lakh units of sales in a month for the first time. MSIL sold

102,175 units in May 2010, of which 12,134 units accounted for exports. Incidentally, the

company's domestic sales tally of 90,041 units was also the highest ever in a month. The

previous highest monthly domestic sale was 84,765 units in February 2010. Maruti Suzuki

registered highest ever-domestic sales in A2, A3 and C segments respectively. A2 segment

(comprising of Alto, WagonR, Estilo, Swift, Ritz, A-Star) grew by 16.6% to clock sales of

62,679 units. A3 segment (SX4, Dzire) rose by 60.5% to 10,883 units, while domestic sales

volume in C segment (Omni, Versa, Eeco) at 12,953 units soared by 70% y-o-y during the

month. Maruti Suzuki India (MSIL): Maruti Suzuki is the market leader in the passenger car

industry with a market share of 46.5% and with a 63% share in the overall compact car

segment. Suzuki Motor Corporation of Japan holds a 54% stake in MSIL. Maruti has around

562 sales outlets covering 372 cities. Maruti plans to expand service its service network from

2,500 outlets in more than 1,200 cities to 3,800 outlets in 1,700 cities by FY10. In FY07-08,

Maruti has launched SX4 and Dzire in mid size segment. MSIL has announced an investment

of Rs.90 billion in the expansion of its manufacturing facilities. This investment will be made

over a period of eight years and most of it would be in capacity expansion and setting up of

R&D and design facility.

Key Models: M800, OMNI, Gypsy, Alto, Wagon R, Versa, Grand Vitara, Swift, Zen Estillo,

Swift Diesel, SX4 and Dzire.



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(B) Mahindra & Mahindra Ltd (M&M):

M&M clocked 13,476 units of its UV sales in domestic market during May 2010, growing by

a healthy 67.8% over 8,033 units in May 2009. CV and 3-wheeler sales of M&M in domestic

market were also on a high growth trajectory. While CV sales at 7,796 units were up 43.9%,

3-wheeler domestic sales volume increased by 59.4% y-o-y to 4,309 units during the month.

M&M is the dominant player in multi utility vehicle segment. In UV market The Company

has around 51% market share in FY08. M&M has a market share of 11.2% in C-segment cars

during FY08. M&M is second biggest player in the Indian LCV segment. The company has

recently announced an investment of Rs 15 billion in the upcoming Greenfield Chakan

facility in Pune. It plans to use the capacity for the production of LCV, M&HCV and UV at

this plant with the initial capacity of around 2.5 lakh units.

Major Models: Utility Vehicles: Scorpio, Bolero, Pick-up, Commander, Hard-top etc.

Light commercial vehicles: Maxx Pickup, Maxx Maxi, and minibuses, Tourister.

(C) Ashok Leyland (ALL):

ALL is the second-largest commercial vehicles manufacturer in India. The company plans to

increase the installed capacity from 84,000 vehicles in FY08 to 184,000 vehicles by FY 10

with a capital expenditure of Rs 30 billion over the next three years. Nissan Motor and ALL

have stepped up planned investment in their three new joint venture companies to $575

million. The JV will set up manufacturing capacity of one lakh vehicles in the first phase

which would be scaled up subsequently. The plant is expected to start production by FY10-

11.

(D)Tata Motors:

TML is the world‘s fifth largest medium and heavy commercial vehicle manufacturer. The

company has plants in Jamshedpur, Pune, Lucknow, and Dharwad and R&D centers in Pune,

Jamshedpur, and Lucknow in India and in South Korea, Spain and the UK. The company

markets its products in Europe, Africa, Middle East, South Asia, South East Asia and

Australia. TML plans to produce new generation Indica from a new platform in later part of

2008. This new Indica will be manufactured at new Tata-Fiat joint venture plant at

Ranjangaon in Maharashtra. The company plans to produce 2.5 lakh units of Nano fromSingur in the first phase. Tata Motors has planned a capacity of 2.25 lakh units for Ace, the



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sub-one-tonne truck, while the existing capacity in Pune is just around 60,000 units a year.

Recently, TML has acquired Jaguar and Land Rover from Ford Motors for $2.3 billion.

Tata Motors domestic sales of commercial and passenger vehicles in May 2010 were 52,801

units, a 38% growth over 38,392 units sold in May 2009. Of this, commercial vehicles racked

up 31,475 units - up 37% over 23,004 vehicles sold in May last year. While LCV sales at

13,755 units grew by 26.6% y-o-y. Passenger Vehicles Business Unit of Tata Motors reported

a total sale of 21,477 units in the domestic market during May 2010, which translates into a

good 38.9% increase compared to 15,459 units a year earlier. Domestic sales of Tata

passenger cars at 21,326 units surged by 39% y-o-y. Sales of the Tata Nano were 3,550 units.

The Indica range sales at 8,468 units witnessed a 15% slide, while the Indigo range logging

6,600 units grew by a robust 133%. The Sumo/ Safari range accounted for sales of 2,708

units, higher by 6% over May 2009. Exports of Tata Motors at 3,978 units in May 2010

registered a growth of 121% compared to 1,804 units in May 2009.

(E) Eicher Motors (EML):

EML produces commercial vehicles including trucks, buses, motorcycles, automotive gears

and components. The company has sold 8.1% of promoter's holding to Swedish bus maker

Volvo to form a joint venture, in which Volvo will pump up Rs 1,082 crores. The JV wouldbe a subsidiary of EML, where Eicher would hold 54.4% equity and Volvo 45.6%. The

manufacturing facility of Eicher Motors is located in Pithampur, Madhya Pradesh. The plant

houses some top-of-the-line equipments, a robust infrastructure and has an annual production

capacity of 30,000 vehicles. The company is one of the leading manufacturers of commercial

vehicles in India with a 33% market share in the 7T-11T segment.

(G) General Motors India:

Chevrolet Beat bolstered an impressive growth for General Motors India of 61%, selling

8,225 units against 5,109 units in May last year. The May 2010 sales comprised of 2,812

units of the Chevrolet Spark, 2,296 units of Chevrolet Beat, 1,418 units of the Chevrolet

Tavera, 854 units of the Cruze, 396 Units of Chevrolet Aveo, 312 units of Chevrolet Aveo U-

VA, 84 units of the Chevrolet Captiva and 53 units of Chevrolet Optra.



Page | 25

(F) Hyundai Motor India Ltd (HMIL):

Hyundai Motors stayed on course with its domestic sales at 27,151for May,2010, units

growing by 15.5% over the same month last year. HMIL's total sales for May'10 (including

exports) stood at 46,808 units as against 43,624 units in May 2009, registering a 7.3%

growth. The exports declined by 2.3% from 20,121 units in May 2009 to 19,657 units in May

2010. The segment-wise cumulative sales of HMIL during May 2010 were as follows: A2

segment (Santro, i10, Getz & i20) - 42,460 units; A3 segment (Accent & Verna)-4,310 units;

A4 segment (Elantra) -1 unit; andA5 segment (Sonata Transform) - 37 units. The demand for

the i20 continues to swell, as demand has shot up by almost 35% following the launch of the

new model and addition of two trims.

Demand Drivers In Passenger Cars Segment

Increase in affordability - the demand for passenger cars are driven mainly by greater

affordability, which in turn increases the aspiration level of the customers. Today with high

amount of disposable income in the hand of Indian youth, who forms major portion of the

population, PV market has larger addressable market.

Demographic drivers- Cars being aspirational products, purchase decisions are influenced by

the overall economic environment. Increase in per capita income increases the consumption

tendency of the customer. Growth in per capita income and rising aspirations and changing

lifestyle is leading to increased preference for cars over two-wheelers, which is also having a



Page | 26

positive rub off on car demand. Replacement cycle, second car and up gradation- Factors like

the rapid pace of new product introductions, rising income levels and a buoyant used car

market have shrunk the average replacement cycle for cars. According to Crisil statistics,

over the last decade, car replacement cycle has shrunk from 10 years to nearly five years at

present. With more than one working member in the family concept of a second car is also on

rise in urban India

Availability of easy financing options- a majority of PV purchases are financed through

financial institutions. Over the past 4-5 years car industry has been benefited through

significant increase in affordability due to the decrease in EMIs. Car finance rates dropped

from 17% in 2000-01 to 11% in 2005-06. However it has increased and averaged at 13.75%

in 2006-07. The current hardening of interest rates is expected to affect demand by reducing

affordability.

Rural market- PV has been traditionally seen as luxurious item in India, especially so in rural

areas. Today PV manufacturers are ready to break this myth and are exploring rural market,

which constitutes more than 2/3rdof countries population, with great vigor. To penetrate in

semi urban and rural market manufacturers are trying to increase the availability of finance in

these areas by having tie-ups with financial institutions. .

New offerings - car sales increases when a new model hits the market. Due to escalation in

competition in Indian car market, frequency of new model launches has increased. In the past

one year only the Indian car market has seen many launches namely SX4, Swift Diesel, Zen

Estilo, Spark, Logan, etc.

Increased distribution reach- Distribution is another key factor in driving demand. Increase in

distribution reach brings a large number of households into the target population. Having

realized the purchasing power of Tier II &III Indian cities companies are expanding their

distribution network their.

Exports - The share of exports from domestic production is currently at 12-13%, which is

much lower than current export hubs. Currently, India‘s share of global passenger cars export

volume stands at less than 1%. But India is fast emerging as a manufacturing hub for leading

global car makers, and several manufacturers have already firmed up plans for setting up

manufacturing bases in India, which will also be used for exports.



Page | 27

Nano Effect - Ever since the unveiling of the Tata Nano — and the hysterical response it

triggered off in India and overseas — the ultra low cost car is right on top of the automotive

mind-space. All the attention it has got and all the promises it has generated makes the Nano

a terribly exciting product. But that‘s not all. What makes the ultra low cost (ULC) trend even

more exciting is the number of top MNC carmakers that have indicated that they would be

looking at the segment in the near future. According to C K Prahlad, the management

mahaguru, the Nano represents an important inflection point in the global auto industry and

in the evolution of Indian Automotive industry. What originally started as an alternative to a

scooter now has the capability to cater to a multiple set of needs and therefore will address a

number of segments.



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COMMERCIAL VEHICLE INDUSTRY

Types of Commercial vehicles in India

Commercial vehicles are of two types – Goods vehicles and Passenger vehicles. Good

vehicles used for transport are the trucks, tempos, containers, trailers and tankers. In this

segment, the medium and heavy commercial vehicles goods occupy a maximum market share

of 48%. The light commercial vehicles enjoy a market share of 38%. The industrial

revolution that started post-Independence and contributed to urban migration led to a huge

demand for these goods vehicles. In the recent years, with the retail boom all over the

country, it has been noticed that the market share of Light Commercial Vehicles (LCVs) is

increasing. This is indicative of the hub and spoke model that most retailers and producers are

following.

The commercial vehicle (CV) Industry in India, as is the trend internationally, is cyclical,

with periods of volume growth leading to investments in fleet capacity and subsequently to

periods of correction. In spite of the inherent cyclical nature, the long-term growth prospects

for the industry remain closely linked to the development of road infrastructure, growth in

gross domestic product (GDP) and industrial production. The Indian CV industry is currently

going through demand correction following one of the longest up-cycles in its history. TheIndustry which grew at a rate of above 25% over 2001-07 has grown by just 5% in FY08.

The long up-cycle was driven by strong economic growth and investments in road

infrastructure, besides favorable regulatory changes and a benign financing environment. The

industry, on its part, has used its period of growth and the resulting financial surplus to invest

in product development and improvement in operating efficiencies. These efforts have

resulted in industry extending its presence into newer geographies and exports have increased

at a CAGR of almost 40% over the last five years. Going forward this could help in

mitigating the effect of down cycle to an extent.

Industry growth

Over the last five years light commercial vehicles (LCV) and medium/ heavy commercial

vehicle (M/HCV) segment have grown at a CAGR of 27% and 17% respectively. Although

growth of these segments has shown similar trend, volume growth in the M/HCV segment

has been more volatile. The demand for M/HCV goods carrier segment mainly depends on

higher capacity addition at the fleet operator level and also prone to severe demand shocks.



Page | 29

The LCV segment, though cyclical, usually exhibits steadier demand patterns on account of

wide usage range

Sales Trend

Structure of Indian CV segment

The CV industry in India is split between the LCV and M/HCV segments, with the

classification being based on gross vehicle weight (GVW). According to Industry norms,

vehicles with GVW less than 7.5 tonnes are classified as LCVs while the ones heavier than

these are termed M/HCVs. In terms of usage, CVs may be categorized as goods carriers and

passenger carriers. Among the passenger carriers in the less than 7.5 tonne GVW segment,

those with sitting capacity up to 13 are categorized as utility vehicles (UVs, and not part of

LCVs) while those with capacity over 13 passengers are grouped as LCVs. According to



Page | 30

Crisil statistics, the overall CV industry is split between the LCV and M/HCV segments

roughly in the ratio of 45:55.The Indian four-wheeler industry is duopolistic in nature with

Mahindra and Mahindra (M&M) and Tata Motors holding a major share in LCV segment

(90.8%) and Ashok Leyland (ALL) and Tata Motors holding a major share in M&HCV

segment (88.6%).



Page | 31

Demand Drivers

GDP/IIP- CV industry has high degree of correlation with the GDP and IIP (Index of

Industrial production) of the country. The Industry follows the path by which these two goes

and good performance of GDP and IIP results in higher demand for CVs.

Freight outlook- CV sales have a direct correlation with the state of the freight industry, with

growth in CV sales (MHCV trucks) closely tracking increase in freight movements. Strong

economic activity in the country, especially in sectors like cement, mining, steel production,

automobiles, consumer durables, food processing and food grain production, leads to

increased demand for freight movement by road.

Freight rates and fuel price- Truck operators‘ profitability is most sensitive to freight rates

and fuel prices (60-65% of the total cost). With other things remaining constant, operator

profit before depreciation and tax rises 6.5% with a 1% rise in freight rates and 3.5% for a 1%

decline in fuel prices

Policy initiatives- The CV industry has benefited from regulations like discouraging the use

of old, polluting and uneconomical vehicles. The Supreme Court ban on overloading has also

been very positive, leading to incremental volumes in the last two years. Further any

government‘s likely policy initiatives like scrapping vehicles more than 15 years old can

potentially unleash a huge replacement demand. Further the industry is also expected to

benefit from the proposed phase-out of Central sales Tax by 2010.

Replacement cycle- Replacement cycle for trucks has been shrinking, declining from about

12 years to nearly seven years now. The proportion of trucks under five years of age rose

from about 34% in FY02 to nearly 45% in FY06.

Competition from Indian Railways- Road transport competes with the Indian Railways (IR)

for transportation of all major commodities, with roads having an edge in transportation of

non-bulk commodities owing to point to point delivery with railways commanding a higher

share in transportation of bulk commodities. Over the years, roads have gained an increasing

preference vis-à-vis the railways and the share of road transport currently stands at about

65%.

Demand supply scenario- The significant part of the demand for new trucks comes from

capacity additions by small fleet operators and first-time users. This along with policy



Page | 32

changes like ban on overloading has led to significant addition in the truck population. Also

with easy availability of finance at low interest rate helped in increase of capacity in the past

five years. But as interest rates are set to increase it might lead to slight dampening in demand

for M&HCV in near future. However, demand is likely to remain healthy for LCV owing to

the rise in demand for small commercial vehicle for providing the last mile connectivity and

the creation of hub and spoke models.

Demand And Supply Trend In Commercial Vehicle Segment

Freight movement by road vs. system capacity

Key Success Factors

Ability to enhance and vary product mix - A diverse and broad product mix enables a

manufacturer to serve a wide variety of transportation solutions across different load levels. It

also helps in building strong brand loyalty among customers. In addition the presence in

business such as auto spares, buses, exports and defence helps companies to weather the

cyclicity in CV sales.

Sales and distribution service network - A widespread sales and distribution setup enables

the company to ensure a geographically diversified client profile.

Access to new technologies – In addition to matching competitor‘s new products and

upgraded machinery, technology is also going to be critical with emission norms are going to

be stricter going forward. The requirement of updated technologies has driven domestic

players into acquisition/collaborations/JVs with global majors.

Balance between outsourcing and in-house production - Companies with high integration

level have higher fixed costs which results in higher profitability in robust growth scenario.

However it also results in sharp drop in performance as they would be affected by lower sales

volume backed by Industry cyclical nature. More over company‘s proximity to their raw

material and component suppliers help them in reducing procurement costs.

Concerns

Higher steel prices have been a key concern over the last two years. The CV industry has

tackled this both by passing part of the costs through price hikes and also by optimizing their

selling, advertising costs and treasury efficiencies.



Page | 33

Another concern is a slowdown in the Indian economy. This would lead to lower investment

in infrastructure which in turn will affect the CV demand

• Higher domestic inflation and increase in fuel prices are other major concerns. Without a

concomitant increase in freight rates increase in fuel price will have a negative impact on

demand for CVs.

• Rise in interest rates may prove to be a dampener on the CV demand, especially given the

fact that around 60-70% of vehicles purchased are financed.

Overall Outlook

Although rise in interest rates and fuel price may dampen the growth of the sector in short run

the long-term outlook for the domestic CV industry remains strong. The expected

continuance of economic growth and investments in infrastructure will help the sector report

robust growth going forward. The entry of new players in the industry and the significant

capacity additions expected are however likely to keep the competitive pressures high. On the

demand side, a combination of tightening regulatory norms (on emissions and vehicle

scrapping) and increasing customer selectivity is expected to drive a shift towards high

tonnage quality products. The top players in the domestic CV industry have robust financials,

supported by strong cash accruals and a comfortable capital structure. These players are

capable of funding their significant investment plans over the medium term without resorting

to any large borrowings. Moreover, the ongoing capacity expansions are based largely on

outsourcing models, which aim at better sharing of risks with component suppliers and lower

the break-even levels. The significant export drives being made by the leading CV players are

likely to lower the risks arising from concentration on the domestic market and mitigate the

impact of cyclical downturns to an extent.

Key success factors

Presence across segments - Manufacturers with presence across various product segments can

ensure higher volume and better capacity utilization by using the common manufacturing

capacity. Typically a customer upgrades from one segment to higher segment and the

presence across various segments ensures that the company retains its existing customers.

Efficient operations - Competition in PV segment is very intense and this requires the

existing players to initiate steps to reduce their cost of production. Effective and successful



Page | 34

operation methods like platform commonality, reduction in vendor base and workforce

rationalization can help a company immensely.

Wide dealer network and availability of finance - A wide dealer network helps the company

serve customers over wide geographical area. For e.g. Maruti has used its available wide

service network as point of difference over competitors. The companies are tying up with the

financial institutions having rural presence to provide additional financing options to

customers in such areas.

Access to latest technologies - Indian PV segment is highly competitive with as many a 14

players operating in it and more than 80 models on the offering. But still any new model

launch meets with increase in sales volume for the company. Moreover in a time when a

substantial portion of Indian customer is looking to upgrade in higher segment, companies

with latest technologies and latest models will catch more attentions. .

Key concerns

• In the recent past cost of all most all the key raw materials (especially for metals) for

automobile segment has gone up. This combined with current high inflation rates looks set to

affect demand for PV globally and in India.

• Easy availability of low cost finance is one key demand driver for automobile sector. But as

the RBI has taken some liquidity tightening steps, interest rates are set to increase in short

term and it can have dampening effect.

• Unlike two wheeler or commercial vehicle sector, PV market is fairly fragmented. There are

14 players and more than 80 models in the market. So, there exists high competition in the

segment. Increased competition has led to fierce price competition which in turn has resulted

reduced margins for players. Now with increase in cost of inputs competition can result in

further reduction in profitability.



Page | 35

USED CAR MARKET

The Indian used car market has increased significantly, growing at a CAGR of around 28%

between 2001-02 and 2006-07 driven by reduction in the holding period of vehicles, increase

in variety of models and the development efforts taken by organized players like Maruti True

value, Mahindra First Choice, Honda Auto Terrace, and Ford Assured etc. Entry of

manufacturers in the used car market has resulted in increase of share of organized players in

a predominantly unorganized market. Moreover entry of these players is also set to help the

market which was otherwise suffering through the issues of valuation, ownership,

documentation and quality of car.

According to Crisil data, the size of used car market in India is estimated to be equal to that

of new car market with registered volume of 12-13 lakh cars in 2006-07 with the total sales in

value terms of around Rs 250-260 billion. In India, the mini and compact segment accounts

for around 60% of the total used car volumes. Mid sized cars form around 30% of the used

car sales.

Outlook

The Passenger Vehicle segment has grown at an annual rate of 20% over the last five years.

With the presence of about 14 players and with so many brands present or on the verge of

making their debut, competition in the future is likely to intensify. Hence the margins that

automobile players enjoy might be under pressure, as they will have little room for price

hikes. Increase in interest rates and fuel price hikes are expected to dampen the demand in

short run. Major players in this segment are also under tremendous pressure of increase in

raw material costs owing mainly to high steel and aluminum prices. However with the

increasing per head disposable income, lowering age of first-time car users, shorter

replacement cycles and lower car penetration, it is expected that the Indian automobile

industry would continue to grow at a robust rate in the long term.



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JOINT VENTURE IN AUTOMOBILE INDUSTRY

How did the joint-ventures in the Auto Industry in India start

The collaborative phase with the foreign players started in early 1980s through a joint venture

between Maruti (a government of India Undertaking) and Suzuki Motor Corporation, a

Japanese corporation to manufacture four wheelers. But, during that period even the industry

was subject to control and excess of regulations.

With de-licensing in 1991, the industry witnessed a remarkable growth in the Indian

automotive sector. This is because the economy was opened up and was allowed automatic

approval up to 51% for foreign ownership in 1997, after the de-licensing of car segment in

1993.

The automobile policy of 2002, permitted complete foreign equity investment in

manufacturing of automobiles and components. This led to an entry of international players

like Hyundai, Mercedes Benz, Toyota, Ford, General Motors, Mitsubishi, Daewoo and

Daimler Chrysler for manufacturing and sourcing components. This took the Indian

automobile production from 5.3 Million Units in 2001-02 to 10.8 Million Units in 2007-08.

The joint ventures in the Indian Auto-Industry today

At present, the joint ventures in the Indian auto industry are creating records and notching up

impressive sales. The table below gives details of the joint ventures in the four wheeler

market:

Joint Ventures in the Four-Wheeler Market

Some other JVs in this segment are that of Renault-Nissan Automotive India. This is a 50:50

JV between Nissan Motor Company of Japan and Renault from France. Fiat Motors has an

alliance with Tata Motors for jointly manufacturing cars at its plant in Ranjangaon, Pune. It is

estimated that, both will be making around 2,00,000 cars annually and they also have a

distribution and a service partnership.



Page | 37

The international manufacturers are expanding base and investing more money due to huge

cost efficiencies. India has emerged as one of the world‘s largest manufacturers of small cars.

With the world looking at using small cars for cost and fuel efficiencies, Indian exports of

cars will rise significantly after the new and expanded manufacturing facilities of players

such as Nissan, Hyundai, Toyota and Suzuki become operational.

Investment By Global Majors In India



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FOREIGN DIRECT INVESTMENT IN AUTOMOBILE INDUSTRY:

Foreign Companies in the Indian auto-sector

Until 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,

by 2002, 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, owingto 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

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



Page | 39

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.

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





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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 2000-2005 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. During 2000-2005,

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. During 2000-2005, 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.

Advantages of FDI in the Automobile Sector in India:

The basic advantages provided by India in the automobile sector include, advanced

technology, cost-effectiveness, and efficient manpower. Besides, India has a well-developed

and competent Auto Ancillary Industry along with automobile testing and R&D centres. The

automobile sector in India ranks third in manufacturing three wheelers and second in

manufacturing of two wheelers.



Page | 42

Opportunities of FDI in the Automobile Sector in India:

Opportunities of FDI in the Automobile Sector in India exist in

Establishing Engineering Centres.

Two Wheeler Segment.

Exports.

Establishing Research and Development Centres.

Heavy truck Segment.

Passenger Car Segment.

Important Aspects of FDI in Automobile Industry:

a) 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.

b) The manufacturing of automobiles and components are permitted 100 percent FDI

under automatic route.

c) The automobile industry in India does not belong to the licensed agreement.

d) Import of components is allowed without any restrictions and also encouraged.



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ISSUE OF GOVERNMENT INFLUENCE

The transitions in the growth of India's automotive industry actually occurred

simultaneous to the major transitions in government policies

The policy framework surrounding the Indian automotive industry has evolved from

i) HEAVILY REGULATED one until the 1970s, to

ii) PARTIALLY LIBERALISED one in the 1980s, and to

iii) LIBERALISED one from 1991 onwards

This raises the question if government policies played a role in the growth of India's

automotive industry and if so, to what extent

The answer shall help to obtain an insight into the role of government in industry

development in general and that of the Indian government in the development of

India's automotive industry (including auto components) in particular.

Study Objectives:

In line with the overall purpose, the study has following objectives:

1. To IDENTIFY GOVERNMENT POLICIES that have influenced the development of

India's automotive industry

2. To UNDERSTAND THE INFLUENCE of government policies on the development of

India's automotive industry

3. To EXPLORE ROLE played by the government in the development of India's automotive

industry



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Summary of Govt. Influence on Industry Development

Government policies have "significantly" influenced the development of India's

automotive industry.

Some of the important policies have been the ones related to the protection,

indigenisation, modernisation and liberalisation of the industry.

The role of Indian government transitioned from regulatory to facilitative one as the

industry progressed through successive stages of competitive development. This was

in alignment to the theoretical framework, but with some deviations.

However, the transitions were mainly brought about by chance events like Oil Crisis,

Gulf War, etc. The government has to be at least credited for implementation.

Government policies shall continue to play an important role in the future

development of the industry with their effect on demand and factor conditions

THREE PHASES OF GOVERNMENT POLICIES:

I. The Regulatory Phase

Some important policy decisions in the REGULATORY PHASE (1947-1979) and its

influence on the development of India's automotive industry



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II. The Phase of Limited Liberalization

Some important policy decisions in the LIMITED-LIBERALISATION PHASE (1980- 1990)

and their influence on the development of India's automotive industry

III. The Liberalisation Phase

Some important policy decisions in the LIBERALISATION PHASE (1991 onwards) and

their influence on the development of India's automotive industry.



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Brief Review of Policy Influence

Review of role played by the Indian government in different phases against the theoretical

framework developed based on Porter's findings.

Outlook on Government Policies

The role of government will continue to be that of a facilitator - facilitate firms to

innovate and upgrade by means of industry-specific programmes.

The future government policies will affect the development of India's automotiveindustry largely through their effect on demand and advanced factor conditions.

Accordingly the policies will focus on tax incidences, exports, industry R&D, safety

& environmental standards, infrastructure, specialised manpower, etc.

Indian automotive industry will thrive to attain its own competitive position (probably

small cars) in the global auto industry moving away from mere cost advantages



Page | 47

ANALYSIS OF AUTOMOBILE INDUSTRY

Over a period of more than two decades the Indian Automobile industry has been driving its

own growth through phases. With comparatively higher rate of economic growth rate index

against that of great global powers, India has become a hub of domestic and exports business.

The automobile sector has been contributing its share to the shining economic performance of

India in the recent years.

To understand this industry for the purpose of investment we need to analyze it by following

two approaches:

1). Fundamental Analysis (E.I.C Approach)

a. Economy

b. Industry

c. Company

2).Technical Analysis

1) FUNDAMENTAL ANALYSIS

a). 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.

GDP and Automobile Industry

In absolute terms, India is 16th in the world in terms of nominal factory output. The service

sector is growing rapidly in the past few years. This is the pie- chart showing contributions of

different sectors in Indian economy. The per capita Income is near about Rs 38,000 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.



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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 2008-09 and predicted it to be 6.5 per cent for FY 2009-10

Mr. Montek Singh (Planning Commission of India). Following is the graph showing a trend

of Indian GDP trend in past 3 years.

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 only 0.7% with passenger car sales shows 1.31% growth while

Commercial Vehicles segment slumped 21.7%.

EFFECT OF RECESSION

All 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 2008, 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 theimpact 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 2008 for passenger vehicles fell by

13.86% over December 2007 Two Wheelers registered minor growth of 1.85 % during April

– December 2008. However, Two Wheelers sales recorded 15.43 percent fall in December

2008 over the same month last year. Although the sector was hit by economic slowdown,

overall production (passenger vehicles, commercial vehicles, two wheelers and three



Page | 49

wheelers) increased from 10.85 million vehicles in 2007-08 to 11.17 million vehicles in

2008-09. 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 2008-

09 was 9.72 million as compared to 9.65 million in 2007-08.

IMPACT OF SLOWDOWN

ASHOK LEYLAND:-

AL has decided for three days work a week to decrease the production, as the demand

has decreased by 40%.

It has reported 50% slump in October sales as compared to last year.

Ashok Leyland shares fell to Rs 15.10

TATA MOTORS:-

TM has given three days holidays from 6-8 nov to match production with demand. No work notice to its non permanent workers.

Sales decreased by 25-40% last month.

Shares dropped to Rs131 as 52 week lowest.

HYUNDAI MOTORS:-

HMIL Target was to sell 6 lakhs cars in 2008 which includes export of 2.7lakhs

cars.But now the target is to close with 5.15 lakhs cars.

In 2007 HMIL total sales went by 9.2% to 3,27,160 cars of which domestic sales rose

by 7.6% to 2lakh & exports 11.8% to 1.26lakh cars.

Company sold 4.07 lakh cars tillOctober, up by 49% over the same period in 2007

which include domestic sales of 2.15lakh, 28% increase & export of 1.92lakh cars an

increase of 83%.

MARUTI SUZUKI:-



Page | 50

During the financial year 2006-07, it sold 6,35,629 units with a turnover of Rs 145.9

billion with a profit ofRs15.62 billion having a market share of 54.6%.

It sold 7,64,842units including export of 53024 units.The sales rose up by 13.3% in

the year 2007-08. the company had a total income of 1,88,238 million with a profit of 17,308 million after tax.

INFLATION

Despite of negative inflation these days (-.21% on 22-Aug-09) 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%.



Page | 51

FACTORS CONTRIBUTING TO THE GROWTH OF INDIAN AUTO SECTOR:

The convergence of government policies, economy‘s growth, people‘s purchasing power

have all contributed to the phenomenal growth of Indian Auto industry. Some of the

important growth drivers are explained below:

Rise in the industrial and agricultural output indirectly helps Indian Auto industry -

Industrial and agricultural output increase has reflected in higher GDP and overall

growth of the economy which is about 9% in the last three years. Higher GDP means

more purchasing power. Sales of vehicles for domestic and commercial consumption

have seen high growth in these three years too.

Growth in the road infrastructure increases demand for vehicles. Indian highways and

roads have improved a lot in quality and connectivity in the last 20 years. Projects like

the Golden Quadrilateral aim to make even remote areas accessible by road. Some of

the National Highways are of international standards. This has made road transport a

viable, cost effective and speedy option both for goods and passenger traffic.

Rise in the Per capita income increases two/four wheeler sales. Industrial growth in

the 70s, IT boom in the 1980s and BPO boom in the 1990s have transformed the

Indian middle class. The present generation is able to earn the same levels of salary

that their parents were earning after years of work. This has pushed up the demand for

two and four wheelers. A rise in per capita income is also indirectly responsible for

the retail boom and industrial boom for consumer durables. This has pushed up the

demand for commercial vehicles to enable efficient distribution.

Urbanization changes the face of Indian auto industry. Joint families in towns and

villages have given away to migration of the younger generation to cities in search of

better opportunities. The new-age educated migrants and nuclear families (many with

double income couples) have a higher purchasing power. Presently, the rate of spread

of urbanization is 30% which is likely to increase by 40% in 2030 (UN). Urbanization

has promoted infrastructural development and it is estimated to spread at a rate of

$500 billion in the next 5-6 years.

Rising working class and middle class contribute to increased demand of automotives.

Post 1980s, a surging economy has created millions of new jobs in the private sector.



Page | 52

This has lead to a lot of prosperity in the working class and the middle income

households. They are able to provide for food, clothing and education and also are

able to think of owning luxuries like vehicles. According to the Planning Commission

report, between the year 2003 and 2009, 130 million people would have been added to

the working population. According to a finding from McKinsey, the middle income

group will grow from 50 million to 550 million by 2025.

Exhaustive range of options in price and models of automotives. Indian consumer in

70s and 80s had to choose between and Premier Padmini or an Ambassador. Now

there are at least 123 different models of cars from 30 odd manufacturers available.

The prices of the compact cars like Tata‘s Nano have made the world sit up and take

note of the truly unbeatable price points.

Attractive Finance Schemes for purchase of automotives. Most nationalized and

foreign banks have very tempting finance options and low interest rates for purchase

of cars and two wheelers. There are specialized companies that finance the

commercial vehicles. All this has made the dream of owning a vehicle an easy reality.

Favorable Government Policies for the auto sector. Apart from a healthy growing

economy, Indian auto industry has a lot to thank the government for the amazinggrowth rates. The Indian government has introduced several industry specific

programs.





Page | 54

This project principally aims to:

create critically needed automotive testing infrastructure to enable the

government in ushering in global vehicular safety, emission and performance

standard, _ deepen manufacturing in India, promote larger value addition and

performance standards and facilitates convergence of India's strength and IT

and electronics with automotive engineering.

enhance India's abysmally low global outreach in this sector by

debottlenecking exports, and

provide basic product testing, validation and development infrastructure so

that Indian automotive sector would not face any export obstacle in the foreign

market

In the Union Budget 2007-08, import duty on raw material had been reduced to 5-7.5

per cent from the earlier 10 per cent.

CURRENT GROWTH DRIVERS OF INDIAN AUTOMOBILE MARKET



Page | 55

SMALL CARS AND INDIA

India's small car industry is substantial:

• Strong demand base

• Government initiatives

• Growing confidence in India's engineering capacity

India is a lead market for the low-cost small car segment:

It is on the forefront of development of the low-cost small car

Shares commonalities with other emerging economies - optimal platform to do

business with these countries

India must secure its growing role in the small car industry:

Improve infrastructure and increase skilled labour

Ensure social/political harmony ("inclusive growth") to avoid slowing of reform

policies

Create a conducive eco-system by adopting a pro-active approach in supporting

world-class innovations in all segments of the automobile industry



Page | 56

PESTEL ANALYSIS:

A. Political:

• In 2002, the Indian government formulated an auto policy that aimed at promoting

integrated, phased, enduring and self-sustained growth of the Indian automotive

industry

• Allows automatic approval for foreign equity investment up to 100% in the

automotive sector and does not lay down any minimum investment criteria.

• Formulation of an appropriate auto fuel policy to ensure availability of adequate

amount of appropriate fuel to meet emission norms

• Confirms the government‘s intention on harmonizing the regulatory standards with

the rest of the world

• Indian government auto policy aimed at promoting an integrated, phased and

conductive growth of the Indian automobile industry.

• Allowing automatic approval for foreign equity investment up to 100% with no

minimum investment criteria.

• Establish an international hub for manufacturing small, affordable passenger cars as

well as tractor and two wheelers.

• Ensure a balanced transition to open trade at minimal risk to the Indian economy and

local industry.

• Assist development of vehicle propelled by alternate energy source.

• Lying emphasis on R&D activities carried out by companies in India by giving a

weighted tax deduction of up to 150% for in house research and R&D activities.

• Plan to have a terminal life policy for CVs along with incentives for replacement forsuch vehicles.

• Promoting multi-model transportation and the implementation of mass rapid transport

system.



Page | 57

B. Economic:

• The level of inflation Employment level per capita is right.

•

Economic pressures on the industry are causing automobile companies to reorganizethe traditional sales process.

• Weighted tax deduction of up to 150% for in-house research and R & D activities.

• Govt. has granted concessions, such as reduced interest rates for export financing.

• The Indian economy has grown at 8.5% per annum.

• The manufacturing sector has grown at 8-10 % per annum in the last few years.

• More than 90% of the CV purchase is on credit.

• Finance availability to CV buyers has grown in scope during the last few years.

• The increased enforcement of overloading restrictions has also contributed to an

increase in the no. of CVs plying on Indian roads.

• Several Indian firms have partnered with global players. While some have formed

joint ventures with equity participation, other also has entered into technology tie-ups.

• Establishment of India as a manufacturing hub, for mini, compact cars, OEMs and for

auto components.

C. Social:

• Since changed lifestyle of people, leads to increased purchase of automobiles, so

automobile sector have a large customer base to serve.

• The average family size is 4, which makes it favorable to buy a four wheeler.

• Growth in urbanization, 4th largest economy by ppp index.

• Upward migration of household income levels.

• 85% of cars are financed in India.

• Car priced below USD 12000 accounts for nearly 80% of the market.

• Vehicles priced between USD 7000-12000 form the largest segment in the passenger

car market.

• Indian customers are highly discerning, educated and well informed. They are price

sensitive and put a lot of emphasis on value for money.



Page | 58

• Preference for small and compact cars. They are socially acceptable even amongst the

well off.

• Preference for fuel efficient cars with low running costs.

D. Technological:

• More and more emphasis is being laid on R & D activities carried out by companies

in India.

• Weighted tax deduction of up to 150% for in-house research and R & D activities.

• The Government of India is promoting National Automotive Testing and R&D

Infrastructure Project (NATRIP) to support the growth of the auto industry in India

• Technological solutions helps in integrating the supply chain, hence reduce losses and

increase profitability.

• Customized solutions (designer cars, etc) can be provided with the proliferation of

technology

• Internet makes it easy to collect and analyse customer feedback

• With the entry of global companies into the Indian market, advanced technologies,

both in product and production process have developed.

• With the development or evolution of alternate fuels, hybrid cars have made entry into

the market.

• Few global companies have setup R &D centers in India.

• Major global players like audi, BMW, Hyundai etc have setup their manufacturing

units in India.

E. Environmental:

Physical infrastructure such as roads and bridges affect the use of automobiles. If

there is good availability of roads or the roads are smooth then it will affect the use of

automobiles.

Physical conditions like environmental situation affect the use of automobiles. If the

environment is pleasant then it will lead to more use of vehicles.



Page | 59

Technological solutions helps in integrating the supply chain, hence reduce losses and

increase profitability.

With the entry of global companies into the Indian market, advanced technologies,

both in product and production process have developed.

With the development or evolution of alternate fuels, hybrid cars have made entry into

the market.

Few global companies have setup R &D centers in India.

Major global players like audi, BMW, Hyundai etc have setup their manufacturing

units in India.

F. Legal:

Legal provision relating to environmental population by automobiles.

Legal provisions relating to safety measures.

Confirms the government‘s intention on harmonizing the regulatory standards with

the rest of the world

Indian government auto policy aimed at promoting an integrated, phased and

conductive growth of the Indian automobile industry.

Establish an international hub for manufacturing small, affordable passenger cars as

well as tractor and two wheelers.

Ensure a balanced transition to open trade at minimal risk to the Indian economy and

local industry.



Page | 60

Political / Legal Economic Social Technological

- Environmental

regulation and protection

- Economic growth - Income distribution - Government spending

on research

- Taxation - Monetary policy - Demographics - Government and

industry focus on

technological effort

- International trade

regulation

- Government

spending

- Labor / social

mobility

- New discoveries and

development

- Consumer protection - Policy towards

unemployment

- Lifestyle changes - Speed of technology

transfer

- Employment law - Taxation - Attitudes to work and

leisure

- Rates of

technological

obsolescence

- Government

organization / attitude

- Exchange rates - Education - Energy use and costs

- Competition regulation - Inflation - Fashions and fads - Changes in materialsciences

- Stage of the

business cycle

- Health & welfare - Impact of changes in

Information technology

- Economic "mood"

- consumer

confidence

- Living conditions - Internet!



Page | 61

PORTER’S FIVE FORCES MODEL:

Porter‘s Five Forces of Competition framework views the profitability of an industry as

determined by five sources of competitive pressure. These five forces of competition include

three sources of ―horizontal‖ competition: competition from substitutes, competition from

entrants, and competition from established rivals; and two sources of ―vertical‖ competition:

the bargaining power of suppliers and buyers. The strength of each of these competitive

forces is determined by a number of key structural variables, as shown in Figure 3.3.

Porter’s Five Forces of Competition framework

1) Competition from Substitutes:

The price customers are willing to pay for a product depends, in part, on the availability of

substitute products. The absence of close substitutes for a product, as in the case of

automobiles, means that consumers are comparatively insensitive to price (i.e., demand is

inelastic with respect to price). The existence of close substitutes means that customers will

switch to substitutes in response to price increases for the product (i.e., demand is elastic with

respect to price).

The extent to which substitutes limit prices and profits depends on the propensity of buyers to

substitute between alternatives. This, in turn, is dependent on their price performance

characteristics. The more complex the needs being fulfilled by the product and the more

difficult it is to discern performance differences, the lower the extent of substitution by

customers on the basis of price differences.



Page | 62

The structural determinants of the Five Forces of Competition

2) Rivalry between Established Competitors:

For most industries, the major determinant of the overall state of competition and the general

level of profitability is competition among the firms within the industry. In some industries,

firms compete aggressively – sometimes to the extent that prices are pushed below the level

of costs and industry-wide losses are incurred. In others, price competition is muted and

rivalry focuses on advertising, innovation, and other non price dimensions. Six factors play

an important role in determining the nature and intensity of competition between established

firms: concentration, the diversity of competitors, product differentiation, excess capacity,

exit barriers, and cost conditions.

3) Threat of Entry:

If an industry earns a return on capital in excess of its cost of capital, that industry acts as a

magnet to firms outside the industry. Unless the entry of new firms is barred, the rate of profit

will fall toward its competitive level. The threat of entry rather than actual entry may be

sufficient to ensure that established firms constrain their prices to the competitive level.

Economies of Scale – Since Indian automobile market is of order $ 350 billion, the

economies of scale are very high. Thus, threat of new entrants is low.



Page | 63

Product Differences – Since there is hardly any difference in the offerings of the

various providers, so product differentiation is low. So threat of new entrants is high.

Brand Identity – Since there is no big Retailer like Amazon.com or Wal-Mart in

India. So threat of new entrants is high.

Government Policy – Since the Government Policy has been quite restrictive till now

with respect to the Retail market & FDI, so threat of new entrants is low.

Capital Requirements – The capital requirements for entering in the automobile

sector are substantially high( high fixed cost and cost of infrastructure), so only big

names can think of venturing into this area So, in that respect threat of new entrants is

low.

Access to distribution – Since in India there is no well established distribution

network. So threat of new entrants is low.

4) Bargaining Power of Buyers:

The firms in an industry operate in two types of markets: in the markets for inputs and the

markets for outputs. In input markets firms purchase raw materials, components, and

financial and labour services. In the markets for outputs firms sell their goods and services to

customers (who may be distributors, consumers, or other manufacturers). In both markets the

transactions create value for both buyers and sellers. How this value is shared between them

in terms of profitability depends on their relative economic power. The strength of buying

power that firms face from their customers depends on two sets of factors: buyers‘ price

sensitivity and relative bargaining power.


various providers, so product differentiation is low. So bargaining power of buyers is

high.

Buyer Information – Today‘s customers are well educated about the various product

offerings in the sector. So bargaining power of buyers is high.

Buyer Switching Costs – Since customers don‘t have to pay a fat premium to be

registered for provision of services, so bargaining power of buyers is high.

Brand Identity – High Brand Identity and trustworthiness reduce the bargaining

power of buyers but, otherwise the bargaining power of buyers is high.



Page | 64

Buyer Profits – Since dealers offers discounts and various bundling services like 0%

insurance, old car sale, etc, on different items. Hence bargaining power of buyers is

high.

5) Bargaining Power of Suppliers:

Analysis of the determinants of relative power between the producers in an industry and their

suppliers is precisely analogous to analysis of the relationship between producers and their

buyers. The only difference is that it is now the firms in the industry that are the buyers and

the producers of inputs that are the suppliers. The key issues are the ease with which the firms

in the industry can switch between different input suppliers and the relative bargaining power

of each party.


various suppliers, so product differentiation is low. So bargaining power of Suppliers

is low.

Supplier Information – Today‘s automobile manufacturers are well educated about

different Suppliers. So bargaining power of Suppliers is low.

Supplier Switching Costs – Since different Suppliers hold resources as per buyer‘s

requirements and a large inventory has to be maintained. So bargaining power of

Suppliers is low as they would have to incur a huge cost on switching. But if they get

automobile manufacturers for similar products who can pay higher Supplier switching

cost is low. In such case, bargaining power of Suppliers is high.

Brand Identity – High Brand Identity and Trustworthiness of a Supplier increases the

bargaining power of Suppliers. But, otherwise the bargaining power of suppliers is

low.



Page | 65

SWOT ANALYSIS:

I. Strengths:

Large domestic market.

Sustainable labor cost advantage.

Government incentives for manufacturing plants.

Strong engineering skills in design.

Able to achieve significant gains in productivity.

II. Weaknesses:

Low labor productivity.

High interest costs and high overheads.

Rising cost of production.

Low investment in Research and Development.

III. Opportunities:

Commercial vehicles.

Heavy thrust on mining and construction activity.

Increase in the income level.

Cut in excise duties.

Rising rural demand.

IV. Threats:

Rising interest rates.

Cut throat competition.

Lack of technology for Indian Companies.



Page | 66

THE FUTURE OF INDIAN AUTO INDUSTRY:

According to a report from United Nations Industrial Development Organization‘s (UNIDO)

in ‗International Yearbook of Industrial Statistics 2008‘, India enjoys 12th position amongst

top 15 automakers in the world. India is at the 4th position amongst the auto makers of

developing countries. By 2016 the size of the Indian automobile industry is expected to grow

by 13%, to reach a mark of US$ 120-159 billion. Presently, India is the 2nd largest two

wheeler market in the world and fourth largest commercial vehicle market worldwide. With

allies in a strong economy, rising demand and financial backing, Indian auto industry is

standing at the threshold of success.

The four wheeler segment comprises of the passenger vehicles, utility vehicles and multi-

purpose vehicles. India is the 11th largest passenger car market in the world and prominently

features on the major automobile players‘ road map. The passenger cars segment is has the

largest share in the domestic passenger vehicles industry. It contributes to a total volume of

78% and the rest of the share is enjoyed by utility and sports vehicles. Some of the key

players in the market are Maruti Udyog Ltd. Tata Motors Ltd., Hyundai, Toyota, Honda, Ford

and GM. The newer entrants are the marquee brands like Mercedes-Benz, BMW and

Volkswagen.

Automobile industry expert predicts that by 2050 every 6th car in the world will be

from India.

By 2010 India will take over Germany in sales volume and Japan by 2012.

The Indian automobile component industry is estimated to triple from USD 63 billion

to USD 190 billion within a span of six years by 2012.

Industry analysts predict this industry to touch USD 13000 million mark by 2010, a

cumulative growth of 9.5% annually. It is said that for every 1 spent, the auto sector returns 2 .24 to the Indian economy.

Future Prospect of Indian Automobile Sector

Nissan motors plans to export 2,50,000 vehicles manufactured in its India plant by

2011

General motors announced its plans to export about 50,000 cars manufactured in India

by 2011. By the end of 2010, India is expected to witness over`30,000 crore of

investment.



Page | 67

Maruti Udyog has set up the second car with an investment of 6,500 crores.

Future Small Car Models In India

Automotive Mission Plan 2016

The 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 moreinformed investment decision.



REFERENCES

1. http://www.fadaweb.com/autoind_june10.htm.

2. http://www.fadaweb.com/review_06.htm.

3. http://www.fadaweb.com/review_06.htm

4. http://www.carfreaks.info/porters-five-forces-analysis-indian-automobile-industry

5. http://www.marketresearch.com/product/display.asp?productid=1198991&g=1

6. http://www.oecd.org/dataoecd/53/35/40301081.pdf

7. http://www.surfindia.com/automobile/automobile-history.html

8. http://www.siamindia.com/scripts/market-share.aspx

9. http://ezinearticles.com/?Automobile-Sector---The-Indian-Scenario!&id=772205

10. http://business.mapsofindia.com/fdi-india/sectors/automobile-industry.html

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