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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.
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(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
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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.
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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.
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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
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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%).
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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
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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.
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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
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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.
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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.
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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
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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.
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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
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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
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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:-
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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%.
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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.
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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.
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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
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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
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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.
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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.
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• 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.
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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.
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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!
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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.
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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.
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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.
Product Differences – Since there is hardly any difference in the offerings of the
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.
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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.
Product Differences – Since there is hardly any difference in the offerings of the
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.
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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.
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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.
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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.
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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