Automotive Industry Opportunities and Challenges

Automobiles Its Opportunities and Challenges for Four Wheeler Segment
A Project Report On
In Partial Fulfillment of the Requirements For Masters In Management Studies (MMS) 2011-2013
Guided By: Prof. Mrs. Rashmi Nadange Compiled By:
Pankaj S. Vyas (P-60) M.M.S. (Marketing)

Date-:20/12/2013
DR. V. N. Bedekar Institute of Management Studies
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STATEMENT BY THE CANDIDATE

I wish to state that the work embodied in this Project titled Study on Automobile Four Wheeler Market Segment forms my own contribution to management. Wherever references have been made to intellectual properties of any individual / Institution / Government / Private / Public Bodies / Universities, research paper, text books, reference books, research monographs, archives of newspapers, corporate, individuals, business / Government and any other source of intellectual properties viz., speeches, quotations, conference proceedings, extracts from the website, working paper, seminal work et al, they have been clearly indicated, duly acknowledged and included in the Bibliography.
________________________ Guide Signature
_____________________ Signature of Candidate
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ACKNOWLEDGEMENT
In the first place, I thank Ms. Rashmi Nadange, Assistant Professor, Department of Business Management, Dr .V. N. BRIMS Thane for having given me her valuable guidance for the project. Without her help it would have been impossible for me to complete the project.
I would be failing in my duty if I do not acknowledge with a deep sense of gratitude the sacrifices made by my parents and thus have helped me in completing the project work successfully.
I would be failing in my duty if I do not acknowledge with a deep sense of gratitude the sacrifices made by my parents and thus have helped me in completing the project work successfully.
Place: Mumbai Date: Pankaj S. Vyas
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Automobiles Its Opportunities and Challenges for Four Wheeler Segment Table of Contents GENESIS ........................................................................................................................................ 6 Introduction ..................................................................................................................................... 7 Executive Summary ........................................................................................................................ 9 Global Scenario ............................................................................................................................. 11 Overview of Automobile Industry ................................................................................................ 14 Indian Automobile Industry .......................................................................................................... 16 Market Overview: Cars & UV ...................................................................................................... 18 Competition from Substitutes: ...................................................................................................... 29 Rivalry between Established Competitors: ................................................................................... 31 Threat of Entry: ............................................................................................................................. 31 Bargaining Power of Buyers ......................................................................................................... 32 Bargaining Power of Suppliers ..................................................................................................... 33 PESTLE Analysis of Automobile Sector ...................................................................................... 37 Political ......................................................................................................................................... 37 Economic ...................................................................................................................................... 38 Social............................................................................................................................................. 38 Technological ................................................................................................................................ 39 Environmental ............................................................................................................................... 40 Legal ............................................................................................................................................. 40 Industry Investment ...................................................................................................................... 45 Suggestions at the national level ................................................................................................... 58 Suggestions at the international level ........................................................................................... 59 Reasons of Growth ........................................................................................................................ 60 Market Share ................................................................................................................................. 60 Role of Government in Automobile Industry ........................................................................... 63 Non-Financial Analysis ........................................................................................................... 67 Upcoming Ventures & Products ............................................................................................... 68 Maruti Suzuki............................................................................................................................ 69
The upcoming cars in near future by both companies are: ................................................................ 70
Market Segmentation .................................................................................................................... 71 Market trends ................................................................................................................................ 73 Strong Growth Drivers Favorable Prospects for the Indian Passenger Vehicle Market............... 76 Findings......................................................................................................................................... 78 DR. V. N. Bedekar Institute of Management Studies Page 4
Automobiles Its Opportunities and Challenges for Four Wheeler Segment CONCLUSION ............................................................................................................................. 79 Bibliography ................................................................................................................................. 80
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GENESIS
India a country diverse in culture and religion, strong in will and manpower, large in size and opportunities has become a highly wooed automobile market. Despite the impact of the financial and economic crisis, Indias automobile economy is booming. Due to the unsteady global situation with respect to the crude oil sector, various sectors of industries were affected. In this project, I have tried to judge the opportunities and challenges of Indian four wheeler markets. On the analyses, it is found that the automobile sector in India has shown considerable growth after liberalization.
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Introduction
The importance of the automotive industry to the Indian economy needs no reiteration. The industry is poised for strong growth in the decade ahead. However, certain critical challenges need to be addressed to enable the industry to exploit the emerging opportunities, both locally and globally. The Future Thought of Business: Automotive is an attempt to capture the various facets of the Indian automotive industry and identify the important trends that would be in the sectors changing dynamics in the coming decade. The demand potential, the major challenges likely to be faced by the sector and the actions needed to be taken are detailed in the report. Future Drivers Healthy economic growth, changing consumer preferences and rising aspirations, increased spending on infrastructure development, thrust on rural economy and new product launches would be the chief factors driving the automotive industrys growth and expansion, going forward. Future Strategies The strategies likely to be adopted by automotive companies would be aimed at meeting the major challenges faced today, particularly in the areas of rising fuel consumption; automobile recycling; increasing environmental and safety concerns, cost-effectiveness and rising market competition. Enhanced Customer Experience With market competition set to become, following the expected launch of more vehicle models on the Indian roads, creating a differentiated customer experience will be a key tool to retain existing customers as also to expand market share. The coming decade will see increased action in the areas of OEMs captive enhancing business, preowned vehicle market, organized auto service stations and social media marketing. In-vehicle Experience Automobile manufacturers would deploy telematics, embedded software and in-vehicle infotainment to enhance their competitive positions. The challenge, however, would be to integrate the various technologies and offer the in-vehicle experience in the most simple, seamless, safe and user-friendly manner. Technology Innovation The future technological development in the Indian automotive industry would be driven by changing demands in the core areas of fuel efficiency, emission reduction, safety and durability, cost optimization and innovative features. Focus on Green Technology Green vehicle manufacturing, i.e. product and process innovation and enhancement of efficiency and productivity would assume Centre stage in the coming decade. In view of the rising fuel prices and increasing expectations of Indian consumers for cost-effective and DR. V. N. Bedekar Institute of Management Studies Page 7
Automobiles Its Opportunities and Challenges for Four Wheeler Segment fuel-efficient vehicles, the Original Equipment Manufacturers (OEMs) would place greater thrust on two core areas - reducing vehicle weight and developing smaller engines. De-risking To ensure long-term sustainability and growth and to reduce susceptibility of their businesses to cyclical fluctuations, auto companies will look at deploying their core competencies in other industries such as defense, aerospace, oil & gas, railways and construction, among others. Cost Optimization Mounting pressures on margins would put cost optimization high on the industrys agenda, which they would approach through local sourcing, local manufacturing and by having multiplant operations. The globalization objectives would lead to companies widening their presence, not just within the domestic boundaries, but also across the global markets. The success stories of Indian companies who embarked on the acquisition route early on would encourage more auto players to aggressively focus on expanding their global footprint. Collaboration The changing role of component suppliers will necessitate more investments in R&D, product innovation and faster response time to OEMs new product launch plans. As a result of the changing OEM-Tier I supplier relationships, the endings predict increased consolidation in future. The Indian automotive industry has come a long way since the countrys independence, having transformed from being a protected, locally-focused industry, to emerging as one of the fastest growing automotive markets in the world. The automobile industry in India is the seventh largest in the world. Most of the leading players in the world have established a presence in this important market. In fact, liberalization policies and concurrent induction of foreign competition has changed the market dynamics in the auto industry over the last few decades. The Indian automotive industry is going through a phase of rapid transformation and growth, driven by growth in the economy and infrastructure development. The industry is an important driver of economic growth, owing to its deep forward and backward linkages, which has a strong multiplier effect. Automobile sales volumes have grown at a CAGR of 13.1% during FY06-FY12. At the same time, the size of the auto components industry has risen at a CAGR of 13% during FY08-FY12. The automotive industrys contribution to the national GDP has risen to 6% presently from 2.77% in 1992-93. 1
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Executive Summary
The Indian Automotive Industry embarked on a new journey in 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 level of production of vehicle from 2 million in 1991 to 12.4 million in 2010.
The growth of Indian middle class with increasing purchasing power along with strong growth of economy over a past few years have attracted the major auto manufacturers to Indian market. The market linked exchange rate and availability of trained manpower at competitive cost have further added to the attraction of Indian domestic market. The increasing pull of Indian market on one hand and the near stagnation in auto sector in markets of USA, EU and Japan on the other have worked as a push factor for shifting of new capacities and flow of capital to the auto industry of India. The increasing competition in auto companies has not only resulted in multiple choices for Indian consumers at competitive costs, it has also ensured an improvement in productivity by almost 20 per cent a year in auto industry, which is one of the highest in Indian manufacturing sector. To maintain this high rate of growth and to retain the attractiveness of Indian market and for further enhancing the competitiveness of Indian companies, the Government through the Development Council on Automobile and Allied Industries constituted a Task Force to draw up a ten year Mission Plan for the Indian Automotive Industry. The challenge was to give shape to a futuristic plan of action with full participation of the stakeholders and to implement it in a mission mode to remove the impediments coming in the way of growth of industry. Besides making concerted efforts for removal of obstacles for accelerated growth, the prime need was to put in place required infrastructure well in time to facilitate growth. Through this Automotive Mission Plan 2006-2016, Government also wants to provide a level playing field to all players in the sector and to lay a predictable direction of growth to enable the manufacturers to take more informed investment decision. Automotive Mission Plan (AMP) 2006-2016 is the outcome of a protracted in-depth dialogue with all stakeholders (industry, academia, authorities) over a period of fifteen months. Five Working Groups were constituted with people of eminence from industry, academia and public institutions to map the challenges, set targets and evolve mission mode for implementation of agreed mile stones. They examined policy parameters as well as the configuration of manufacturing infrastructure of Indian industries and DR. V. N. Bedekar Institute of Management Studies Page 9
Automobiles Its Opportunities and Challenges for Four Wheeler Segment addressed a wide range of issues including upgrading infrastructure of production, induction of technology, labour law reforms and employment related issues, R&D needs, change of fiscal and policy parameters, human resource development, growth of domestic demand and exports and finally, environment and safety concerns. Their findings and recommendations were considered by five IMGs having representatives of all concerned Ministries, Academia and Public Institutions. The final recommendations of the IMGs vetted by respective Ministries were put in the public domain for wider debate and more inclusive recommendations. The final outcome was put before the Development Council of Automobile and Allied Industries, which has unanimously endorsed it. Thus the consensus was arrived at. India is at the threshold for a major take off in the automotive sector. Time bound implementation of Automotive Mission Plan AMP 2006-2016 together with establishment of world class testing, homologation and certification facilities along with 9 state of art R&D centres under National Automotive Testing & R&D Infrastructure Development Project (NATRIP) will ensure Indian Automotive Industry a distinct edge amongst the newly emerging automotive destinations of the world.
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Global Scenario
The passenger car segment has emerged as a major driving force for upstream industries like steel, iron, aluminum, rubber, plastics, glass, and electronics and downstream industries like advertising and marketing, transport and insurance. The car industry generates large amount of employment opportunities in the economy. For example in the US, every sixth worker is involved in the making of an automobile. The global automotive car market is growing at a rate of only 2 percent per annum and is not expected to pick up in the near term. Growth has dropped due to the increasing levels of saturation in the larger car markets of the world. Worldwide the trend is towards ensuring that one's products are superior in terms of quality. This will enhance the useful life of cars and, hence, slow down growth in sales.The world car production has increased from 44.66 mn in 1996 to an estimated 48.3 mn cars in 1999. Japan, Canada and USA brought about the major increases, which contribute to 53% of the world's car production. The largest car market - the US market expects car sales to decline 8 to 9 per cent to 16 million cars in 2001, as compared to 17.4 million cars sold in 2000. The USA and Japan are the leaders with around 42% of the total world market. However, since the last two to three years, the international passenger car industry has been witnessing an over capacity of more than 30%. The trend suggests that industry volumes may grow by just 2% or around 10 mn vehicles per year. If this situation continues for the next few years the world car market may witness shakeout in the near future. Already signs towards this are being observed as the phenomenon of mergers catches on. The recent mergers in the international car market are Ford-Volvo, Renault-Nissan, Daimler-Chrysler. A few more players are expected to join the fray in the next few years so as to strengthen their hold in the world market. Among the top car manufacturing companies General Motors and Ford Motors group of USA lead with a contribution of 15.8% and 11.6%, of world car production, respectively. Volkswagen and Toyota stand third and fourth with more than 9% contribution each to the world car production.
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Automobiles Its Opportunities and Challenges for Four Wheeler Segment The global domination of the larger automotive manufacturers is slowly on the wane and the trend in sales is shifting towards more "regio-centric" products. Automakers that have been enjoying a generally prosperous spell would have to rethink on the way vehicles are designed, manufactured, distributed or sold. Already, players like General Motors Volkswagen and Toyota have begun to re-examine their dealer relationships and pricing strategies. Car makers would now have to think in terms of a new customer focus and provide better financing and servicing. Strategic tie-ups, mergers and acquisitions have become the talk of the day. A few instances are Daimler Benz's tie-up with Chrysler of the US, Ford's acquiring of Daewoo and tie up with Volvo Car Corporation and Renault acquiring a stake in Nissan. Such deals will certainly lead to economy in terms of costs but it remains to be seen whether they will also create significant new opportunities for growth. With global consolidation in the car industry, it is expected that more international players will work closely to bring about operational efficiencies. By nature, the car industry is highly capitalintensive and vast amounts of money are being spent on R&D. With the players getting together to produce more technologically superior cars, they can derive greater benefits from their R&D efforts. Profits, which are under pressure due to wafer thin margins will be boosted due to greater economies of scale. Moreover, bigger capacities among players means lesser fixed costs per car produced. Even if mergers are not on the cards in the near future (one can see that the DaimlerChrysler merger has not brought about synergies as expected by automobile experts), technology-sharing and the offering of equity stakes is inevitable. In India, the car market has become extremely competitive and come April 2001, India's automobile market will be thrown open to imports of completely built up vehicles, which hitherto was prohibited. With the international acquisitions and alliances, one can expect to see a dramatic change in the auto market. If GM were to acquire Daewoo in Korea, then GM would be in a commanding position in India with its alliance with FIAT and Suzuki motors as well. Already Daimler Chrysler and Ford are contemplating introducing new models in India from their various associate companies through their local subsidiaries. The situation could become very difficult for the purely Indian automakers such as Telco, Mahindra and Hindustan Motors unless they rethink their strategy. It can easily be seen why TELCO has been in the news on rumors that it wants to hive off its car division and bring in an overseas partner. Reports suggest DR. V. N. Bedekar Institute of Management Studies Page 12
Automobiles Its Opportunities and Challenges for Four Wheeler Segment that HM is thinking of exporting parts from its manufacturing units and also assembling and distributing other makes of vehicles who may wish to enter into India, but cannot enter full scale manufacture due to the small market sizes. Clearly exports will be the big opportunity for Indian automobile companies if they can control costs and deliver good quality output. Already Maruti, Hyundai and Ford as well as Mercedes Benz have started exports in a small way and this can grow. Majors like TELCO and Ashok Leyland are already exporting their products in reasonable volumes.
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Overview of Automobile Industry

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 next couple of years in view of a reasonable surge in demand.The Indian automobile market is gearing towards having international standards to meet the needs of the global automobile giants and become a global hub. Players are strategizing to consolidate their position and gradually increase market penetration with the launch of new models, targeting different segments. Since the sector is price driven, huge investment is envisaged to remain competitive through cost advantage, for which indigenization is highly important. The product becomes dearer if it is manufactured using imported parts. IT in the automobile sector plays a crucial role.. Some players are working towards development of efficient production systems that control the entire production process with high precision and accuracy. Such systems working on real time operating systems allow efficient control of different parts of manufacturing and production. It is essential to leverage skills of different engineering disciplines to build these kinds of integrated systems. Analysts foresee high scope in the electronics for auto sector and expect the retailing of such electronics products to contribute a major chunk of future revenues. The government is increasing the research and development (R&D) fund for the automobile industry over and above the Rs. 1400 crores earmarked for eight years. All laboratories in the country researching on automobile technology, such as BHEL which is developing cell technology as alternative fuel, have also been brought together through the setting up of a national R & D working group. The group is working out a plan to link all major laboratories across the country to give a thrust to automotive research. Indian automobile sector being a driver of product and process technologies, and has become an excellent manufacturing base for global players, because of its high machine tool capabilities, extremely capable component industry, most of the raw material locally produced, low cost manufacturing base and highly skilled manpower Not only a large number of world manufacturers have set up production bases in India but also a large number of foreign companies are collaborating with the auto component suppliers and vendors.
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Automobiles Its Opportunities and Challenges for Four Wheeler Segment Indian Automobile Components Industry has been making rapid strides towards achievement of world-class Quality Systems by imbibing ISO 9000/QS 9000 Quality Systems whereby the Indian Automotive industry has become more competitive in the export market due to its technological and quality advances, so much so that in quality conscious markets such as Europe and America, it is emerging as a major player, based on its performance. India today exports: Engine and engine parts, electrical parts, drive transmission & steering pats, suspension & braking parts among others. The sector is striding inroads into the rural middle class after its inroads into the urban markets and rural rich. It is trying to bring in varying products to suit requirements of different class segments of customers. States like Rajasthan, Uttar Pradesh, Maharashtra, Andhra Pradesh and West Bengal are vying to woo global players with proposals including heavy tax exemptions and to create a more investor friendly regime, each state is proposing to provide all regulatory clearances at express speed. The Government should promote Research & Development in automotive industry by strengthening the efforts of industry in this direction by providing suitable fiscal and financial incentives. The current policy allows Weighted Tax Deduction under I.T. Act, 1961 for sponsored research and in-house R&D expenditure. This will be improved further for research and development activities of vehicle and component manufacturers from the current level of 125%. In addition, Vehicle manufacturers will also be considered for a rebate on the applicable excise duty for every 1% of the gross turnover of the company expended during the year on Research and Development carried either in-house under a distinct dedicated entity, faculty or division within the company assessed as competent and qualified for the purpose or in any other R&D institution in the country. This would include R & D leading to adoption of low emission technologies and energy saving devices. Government will encourage setting up of independent auto design firms by providing them tax breaks, concessional duty on plant/equipment imports and granting automatic approval. DR. V. N. Bedekar Institute of Management Studies Page 15
Automobiles Its Opportunities and Challenges for Four Wheeler Segment Allocations to automotive cess fund created for R&D of automotive industry shall be increased and the scope of activities covered under it enlarged.
Indian Automobile Industry

An Indian car as one which has been conceived and designed in India, has at least 85% of its components 'Made in India', by an Indian company. The Indian passenger car industry as we see today is relatively recent in origins. Except the ubiquitous Ambassador and the Premier Padmini there was not much moving around with an Indian tag.
The official mascot of the Indian political system, the Triassic-era Ambassador has little Indianness in it. To start with, the name isn't Indian and that's only the tip of the iceberg. The design came from Morris Motors and the present petrol power plant and drive train are Isuzu throwaways. The diesel version has a BMC engine. Of course everything is made in India now, but do you call a tree your own if its roots are in someones courtyard.
The other pre-Cambrian relic, the Premier Padmini, which till a few months back was adorning showrooms throughout the country. Its in the market since my grandpa learnt driving and at the time of its going to grave, the Padmini was a completely made in India product. But again, there's very little Indian-ness about the car, except maybe the name Padmini. The entry of Maruti Udyog Ltd, a GoI JV with Suzuki of Japan, in 1983 with a so-called "peoples" car and a more favorable policy framework resulted in a growth rate of 18.6% in car sales from FY81-FY90. After witnessing a downturn from FY90 to FY93, car sales bounced back to register 17% growth rate till FY97. Since then, the economy slumped into recession and this affected the growth of the automobile industry as a whole. As a result car sales remained almost stagnant in the period between FY97 and FY99. However, with the revival in the economy, FY2000 turned out to be a significant year for the industry in which it recorded volume sales of 638,815 units as against 409,951 units in the previous year. Thus, the CAGR for the period FY96 - FY2000 stands at 16.6%.
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Automobiles Its Opportunities and Challenges for Four Wheeler Segment The present day stunner from HM is the Lancer. As with HM products from the past, the Lancer is a borrowed from abroad product. The saving grace is only that this Lancer is a contemporary model and not some. The erstwhile Premier Auto Ltd. no longer exists. The nearest thing to it in the present is Ind Auto Ltd. Ind is an acronym for India or Indian, but the products are all borrowed from Italy. The Uno came to India after the Mafiosi had their fill with it. The Siena is a very contemporary model. It being a good car and all, but I always wonder why Fiat doesn't launch it in their motherland. What's this 'special' car for India, Brazil, Africa, Latin America inc.
Ford did take the pains to design an India specific car, the Ikon. So does the quest for an Indian car end with the Ikon. No I don't think so. First thing, the company is American. Secondly, the Ikon's platform is that of the Fiesta, nothing else. So the only thing Indian about the car is the 'Josh' advertising gimmick.
Starting with the official one, i.e. Maruti, the company, since its inception has changed the automobile scene in India completely. It's has been the number one manufacturer, churning out close to 300,000 cars last year. At last count it held a 64% market share in the passenger car market with four out of every five cars. On Indian roads being Marutis every year it rakes in multi-billion rupee profits, and, yet the company is nothing more than Suzuki India Ltd.
Telco is a completely Indian carmaker with no major foreign collaborations. Their Indica was much touted as 'The Indian car', but it was styled by I.D.E.A of Italy. The engine technology had inputs from 'Moteur Modern' of France. In effect it was the case of an Italian body being wrapped around Indian mechanicals. Frankly I would have preferred an Indian body wrapping an Indian platform.
India is also the largest manufacturer of agricultural tractors, motor scooters and the world's fifth largest commercial vehicle manufacturer. Each of these sectors experienced rapid growth during the last three years Demand in these sectors is driven by industrial, individual and agricultural consumers respectively. The increases have resulted from improved overall economic trends in India including large doses of foreign investment a more liberalized economy and higher productivity. DR. V. N. Bedekar Institute of Management Studies Page 17
The fortune of the Auto component industry is inextricably linked with that of the automobile industry which in turn is influenced by the general economic trends of the country the country's economic growth is projected to grow at more than six percent per annum in the coming years. The estimated growth will automatically emphasize the need for better transport infrastructure facilities. This means demand for automobiles and hence for auto components, is bound to grow accordingly. Therefore, good growth prospects are assured for the automobile industry.
Market Overview: Cars & UV

Cars and UV industry growth moderated to 4.7 per cent owing to high cost of ownership. Cars and UVs grew by 4.7 per cent in 2011-12 in which car sales grew by a mere 2.2 per cent on account of increase in fuel prices, interest rates and higher inflation (translating in lower disposable income). Production troubles caused by labor issues at market leader Marutis plant, affected production, severely limiting growth of the industry already battling a slowdown.
Further, industry witnessed a huge shift of demand towards diesel vehicles owing to the widening gap between prices of petrol and diesel. While limited availability of diesel engines restricted growth in sales, the OEMs also had to battle rising inventory of petrol models.
We expect domestic passenger vehicle sales to grow by 10-13 per cent in 2012-13 with pickup in small car sales. Increase in cost of ownership and inflation is expected to be lower than in 2011-12 which will aid car purchases. While slower growth in income will seek to limit growth, low base effect (due to production problems during 2011-12) and increase in diesel engine availability will aid growth.
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Automobiles Its Opportunities and Challenges for Four Wheeler Segment Demand for UVs to grew by 14.1 per cent in 2011-12. Domestic utility vehicles sales grew by 27 per cent in 2010-11 as new models launched by players like Daimler, BMW, Maruti and M&M generated greater buying interest. During the year, players with lower volumes generated higher growth with Daimler, BMW and Nissan growing by more than 100 per cent. Growth moderated to around 14 per cent in 2011-12, however, continued to remain higher when compared to sluggish industry growth of 4.7 per cent. New model and variant launches helped industry grow by 14 per cent. Additionally, with limited diesel availability in cars, higher diesel supplies in UVs also added to growth. Demand for utility vehicles will continue 13-15 per cent in 2012-13 as newer models with attractive price points continue to drive growth. Exports growth to be driven by India's export hub potential, entry of new players in export markets Exports grew by around 14 per cent over a low base of 2010-11 despite a slowdown in Europe which is one of the key export markets. Exports grew as Hyundai, one of the largest exporters, could increase exports with lower demand in the domestic market. Also, exports of Nissan Micra and Ford Figo overseas further aided growth. We expect exports to grow at 12-14 per cent in 2012-13 as players explore newer geographies in line with their objective of developing India as one of their important export hubs.
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Objective of the Study

The objective of this project is to analyze our Indian Automobile Industry (mainly Indian four wheeler market) for investment purpose by monitoring the growth rate and performance on the basis of historical data. The main objectives of the Project study are: Detailed analysis of Automobile industry which is gearing towards international standards To know the future outlook of the four wheeler market. To know the past trends of four wheeler market and to figure out the new trends in India Four wheeler market.
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Research Methodology
Research Problem Statement

To study the future opportunities and challenges of four wheeler market and auto components in India.
Research Design & Approach Research followed a phenomenological approach as subjective data needed to be evaluated and interpreted to understand the working environment. For data to be meaningful, making use of the phenomenological paradigm, information, data and observations needed to be made over time & for this the collection of data was done over a period of two months.
Data Collection
During the study period, data collected as qualitative, objective and subjective. Research was not conducted in a stable environment; a precondition existed, new concepts, practices and procedures were introduced and resulted in specific outcomes. For this research, data obtained from Secondary sources.
Secondary Data: Secondary data was collected from various automobile forums and magazines available on internet.
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Snapshot of the Indian Automotive Industry

IMPORTANCE TO ECONOMY Turnover Share in National GDP Share In Manufacturing GDP US $ 73 Billion 6% 22%
Share in excise duty collection Employment Passenger Vehicle *For April 2000-June 2012 12th Five Year Plan
21% More than 13.1 million people 7th in world Source: Report of the Working Group on Automotive Sector for the
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Comparison of Vehicle Penetration:

Countries/ Segments China Germany India Indonesia Japan Thailand US Source: SIAM *Vehicles per 1,000 populations 27 565 10 18 451 57 453 Cars Commercial Vehicles 18 38 4 14 131 90 365
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Automobiles Its Opportunities and Challenges for Four Wheeler Segment Demand during sales. for the automobiles last decade, sales of has which risen is at rejected healthy in rates the (trucks across segments trend in have
segmental &
Domestic
commercial
vehicles
buses)
grown at a CAGR of 17.4% during FY03-FY12. At the same time, sales of passenger vehicles (cars, vans and multi-utility vehicles) grew at a rate of 15.7% during this period. Sales of two-wheelers (motorcycles, scooters & mopeds) recorded growth of 12.1%, while those of three-wheelers (goods carriers & passenger carriers) rose by 9.2% during this 10-year period.
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Changing Customer Needs Alter Vehicle Market Dynamics

The automobile industry has seen distinct shift in demand patterns across vehicle categories in the last few years. Within the passenger vehicle segment, for instance, there has been a steady increase in demand for compact cars away from mini cars. Though small in terms of market share, the high-end/luxury car market is growing fast, driven by changing customer preferences and aspirations and launch of more models by foreign OEMs. In years, the average age of the luxury car buyer has come down from 45 to 40 years. In another year, it would decrease to 35 years.
Source: SIAM, D & B Research
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Auto Components
The auto components industry is an integral part of the Indian automotive industry, with the industrys growth being driven by increasing demand for vehicles, low cost manufacturing and availability of low cost skilled manpower. The component industrys scale of operations has increased substantially, thereby making it possible to invest in technologies which are designed for high volume production. The focus on improving quality levels and basic shop or practices has also played a critical role in its transformation. The industry has substantially developed the capability to keep pace with the international quality standards, which are constantly moving upwards. Today component suppliers offer their own design solutions, do value engineering, and instead of supplying only components, they are beginning to supply automotive systems. With more global companies designing products for India, it offers opportunities for the Indian component makers to build on their R&D capabilities by participating in the design and development process. The OEMs are rationalizing their vendor base to improve operational efficiencies. As a result, the supply chain management (SCM) responsibility will increasingly shift on the component suppliers. Also, the market will witness greater consolidation activities. Component sppliers will be required to invest more in R&D, product innovation and meeting faster response time to new product launches of the OEMs.
The auto components industrys turnover has grown at a CAGR of 14.6% during 2007-11, and the Automotive Component Manufacturers Association of India (ACMA) estimates the industry to grow at DR. V. N. Bedekar Institute of Management Studies Page 26
Automobiles Its Opportunities and Challenges for Four Wheeler Segment a CAGR of 11% during 2011-2021. Exports have also been rising steadily, at a CAGR of 11% during 2007-11. The ACMA estimates growth in exports to accelerate to 18.8% (CAGR) during 2011-21.
The components industry is working towards achieving world class standards of inventory management, processing time and quality levels. Over the past few decades, it has made significant progress in the export markets. Compared with the 1990s, when 65% of Indias component exports catered to the aftermarket (with only 35% being catered to the OEMs/Tier I suppliers), today this composition has changed favorably, with exports to OEMs/Tier I suppliers contributing to 80% of Indias exports, indicating growing significance of the Indian industry in the global automotive value chain.
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Five Forces Model

Porters 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
Porters Five Forces of Competition Framework
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).
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Automobiles Its Opportunities and Challenges for Four Wheeler Segment 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.
The structural determinants of the Five Forces of Competition
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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.
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. 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.
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Automobiles Its Opportunities and Challenges for Four Wheeler Segment Access to distribution Since in India there is no well-established distribution network. So threat of new entrants is low.
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 labor 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 Todays customers are well educated about the various product offerings in the sector. So bargaining power of buyers is high. Buyer Switching Costs Since customers dont 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. 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.
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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 Todays 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 buyers 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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Industrial Life Cycle
The industrial life cycle is a term used for classifying industry vitality over time. Industry life cycle classification generally groups industries into one of four stages: pioneer, growth, maturity and decline. In the pioneer phase, the product has not been widely accepted or adopted. Business strategies are developing, and there is high risk of failure. However, successful companies can grow at extraordinary rates. The Indian automobile sector has passed this stage quite successfully. In the growth phase, the product market has been established and there is at least some historical guide to ground demand estimates. The industry is growing rapidly, often at an accelerating rate of sales and earnings growth. Indian Automotive Industry is booming with a growth rate of around 15 % annually. The cumulative growth of the Passenger Vehicles segment during April 2007 March 2008 was 12.17 percent. Passenger Cars grew by 11.79 percent, Utility Vehicles by 10.57 percent and Multi-Purpose Vehicles by 21.39 percent in this period. DR. V. N. Bedekar Institute of Management Studies Page 34
Automobiles Its Opportunities and Challenges for Four Wheeler Segment The growth rate of the automobile industry in India is greater than the GDP growth rate of the economy, so the automobile sector can be very well be said to be in the growth phase As the product matures, growth slows as penetration reaches practical limits. Companies began to focus on market share rather than growth. Industry demand tends to follow the overall economy, but the scope of growth of the automobile sector is very much possible in India due to the increasing income of the middle class and their income as well as standard of living.
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SWOT Analysis
A scan of the internal and external environment is an important part of the strategic planning process. Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W), and those external to the firm can be classified as opportunities (O) or threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis. SWOT analysis of the Indian automobile sector gives the following points:
Strengths: Large domestic market Sustainable labor cost advantage Competitive auto component vendor base Government incentives for manufacturing plants Strong engineering skills in design etc
Weaknesses: Low labor productivity High interest costs and high overheads make the production uncompetitive Various forms of taxes push up the cost of production Low investment in Research and Development Infrastructure bottleneck
Opportunities: Commercial vehicles: SC ban on overloading Heavy thrust on mining and construction activity Increase in the income level Cut in excise duties Rising rural demand
Threats: Rising input costs Rising interest rates Cut throat competition Page 36
PESTLE Analysis of Automobile Sector

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 governments 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 for such vehicles. Promoting multi-model transportation and the implementation of mass rapid transport system.
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Automobiles Its Opportunities and Challenges for Four Wheeler Segment Economic
The level of inflation Employment level per capita is right. Economic pressures on the industry are causing automobile companies to reorganize the 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.
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.
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Automobiles Its Opportunities and Challenges for Four Wheeler Segment 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. Preference for small and compact cars. They are socially acceptable even amongst the well off. Preference for fuel efficient cars with low running costs.
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, and Hyundai etc. have setup their manufacturing units in India.
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Automobiles Its Opportunities and Challenges for Four Wheeler Segment 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.
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.
Legal Legal provision relating to environmental population by automobiles. Legal provisions relating to safety measures. Confirms the governments 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. DR. V. N. Bedekar Institute of Management Studies Page 40
Tata Nano BCG Matrix
High
???
Safari Dicor, Indica Vista, Manza, Ace, other Lces Nano, Versa, and other new inventions
Low
Cash Cows Safari, Sumo, Indigo CS
Dogs Indigo Sedan, Safari.
High
Low
TATA NANO: Launch & Positioning The Peoples Carfed (Question Mark Stage) Tata Group introduced the revolutionary Tata Nano in January 08. This created a immediate stir among Indian Consumers. Even before its Launch, it was dubbed as Car for Masses The Peoples Car. However, low Price of the car is one of the crucial factors, which is going to deciding the future of Tata Nano. Deriving sales from Bottom of the Pyramid, launch was successful and was overbooked by almost 200%. Globally car is positioned as The Worlds Cheapest Car, which does not compromise quality, safety and environment. Given the low Profit margin, critiques initially questioned the Price Target of INR 1 lakh. They questioned the overall strategy of the launch. Questions were raised over the safety of the car. However, the unprecedented hype of Tata Nano within the Indian Masses ensured the smooth launch of Tata Nano. Tata Groups formidable Marketing & Distribution Muscle, will ensure that small cars are going to flood the Indian Roads. Core strength of the group the appeal within the Indian Masses, decided the initial launch of Tata Nano, whereas product performance and review of the customers is going to decide the future sales of Tata Nano.
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Automobiles Its Opportunities and Challenges for Four Wheeler Segment TATA Nanos Target Segment (To reach towards the Star stage) Nano aims to carve out a niche segment for itself in the Indian automobile industry. Indias burgeoning small car market holds huge potential. The booming economy and the accelerated growth of lower middle class is expected to generate very high demand for small cars in the near future. The closest competitor in the 4-wheeler segment is Maruti 800. Maruti 800 is slowly moving out of the market after ruling the small car segment for more than two decades. Its price is higher (>2.3 Lakhs) compared to Nano. Also the Maruti 800 has flooded the Indian roads for a long period and people are weary of its looks and functionalities. More recent cars such as Maruti Alto and Chevrolet Spark are also wooing customers in the small car segment. But their pricing and positioning is totally different than that of Nano, preventing any direct competition. Real threat comes from the upcoming small cars from Bajaj and Renault-Nissan etc. They will directly compete with Nano in the same segment. But the first mover advantage of Nano will prove decisive in the long run. In order to analyze the strategies for the launch of Tata Nano, it is imperative to understand the segments and target customers that Tata Nano caters to. Also, the positioning is a key element in deciding the marketing and distribution strategies. The target customers for Tata Nano are lower and middle income families, who aspire to upgrade to 4- wheelers from being 2-wheeler users. Many of such families stay away from purchasing 4wheelers primarily due to the affordability factor. Affordable purchase price, low maintenance cost, increased safety, usefulness as a family vehicle are the factors that influence such buying decisions. The second set of customers Nano is targeting is the youth, especially students who prefer young, trendy and innovative vehicles. 4-wheelers with their inherent safety characteristics would appeal more to them over 2-wheelers. Again cost would be the differentiating factor for Nano over other 4-wheelers.
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Automobiles Its Opportunities and Challenges for Four Wheeler Segment Similarly, Nano also targets the families who want a second car, mostly for women and children. Nano has been positioned as an innovative and trendy car, as opposed to a cheap product. Emphasis has been done on the quality standards, safety features, environment friendliness and innovative design. It leverages the TATAs trust and care for the people throughout its positioning and publicity. Tata nano now slowly and steadily moving towards the star area of the matrix. To achieve the star position in the matrix nano has used various marketing and promotion technique are as follows; To promote the Nano they focused on 2 key attributes: Strong need of the Indian families and Price consciousness of the masses.
The car was envisioned by, Ratan Tata, Chairman of the Tata Group and Tata Motors, who has described it as an eco-friendly peoples car. Through familiarizing itself with the culture of the Indian market TATA Nano used effective communications to hit the target. Key components of its marketing messages included these key attributes strong family values and low price Additionally Nano used innovative and current successful promotions. Tatalana was to be a promotion that would put lana, cash, back into hands of purchasers. Nano would offer cash to purchasers as an incentive to buy or finance a Tata Nano. These kinds of promotions have proved highly effective in India. But with the increasing competition and many new cars of different companies coming into this segment can move the Tata Nano into the cash cow stage. It will surely take time for Tata Nano to go in the cash cow stage because it is the only one of the best and cheap car of its segment. So it will enjoy a high relative market share for a very long time. After coming into the cash cow stage Tata Nano will not have to spend a lot on promotions because it will be really popular by then and will be generating ample amount of revenue.
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Automobiles Its Opportunities and Challenges for Four Wheeler Segment But as per our analysis and discussion Tata Nano will not go or will not try to go in the dog stage. They will revive the product and again will introduce the product repeating the whole cycle. This is because Tata motors understand the relevance of small car in middle class India. TATA NANO may not be catching up fast but surely it is a product to stay on a long term. And with the constant innovations of TATA Motors in various different fields will surely help Tata Nano enjoy high relative market share for a long time.
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Industry Investment
According to Commerce Minister Kamal Nath, India is an attractive destination for global auto giants like BMW, General Motors, and Ford and Hyundai who were setting base in India, despite the absence of specific trade agreements.
Current Scenario:
On the cost front of Indian automobile industry, OEMs are eyeing India in a big way, investing to source products and components at significant discounts to home market.
On the revenue side, OEMs are active in the booming passenger car market in India.
Snippets:
According to Ministry of Heavy Industry In 2012, India witnessed over Rs 3000 crore of investment. (www.investindia.gov.in)
Maruti Udyog has set up the second car with an investment of Rs 6,500 crore. Hyundai will bring in more than Rs 3,800 crore to India. Tata Motors will be investing Rs 2,000 crore in its small car project. General Motors will be investing Rs 100 crore and Ford about Rs 350 crore. Ashok Leyland and Tata Motors have each announced over Rs 1,000 crore of investment.
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WHY INDIA
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DEMAND
The demand for cars in the past was supply driven as demand did not match supply. This led to high premium and long waiting periods for the cars. But change in government policies coupled with aggressive capacity additions and upgradation of models by MUL in the early nineties led to increase in supply and subsequently reduced the waiting periods for economy cars.The demand for cars was suppressed by various supply constraints. The demand for cars increased from 15,714 in FY60 to 30,989 in FY80 at a CAGR of only 3.5%. The entry of Maruti Udyog Ltd (GoI-Suzuki JV) in 1983 with a "peoples" car and a more favorable policy framework resulted in a CAGR of 18.6% in car sales from FY81-FY90. After witnessing a downturn from FY90 to FY93, car sales bounced back to register 17% growth rate till FY97. Since then, the economy slumped into recession and this affected the growth of the automobile industry as a whole. As a result car sales remained almost stagnant in the period between FY97 and FY99. CAGR recorded during the FY94-FY99 period was 14.4%, reaching sales of 409,624 cars in FY99. However, during FY2000, with the revival of economy, the segment went great guns posting a sales growth of 56%yoy. The table below indicates the past sales trend for cars Cars Volume 2004 209,203 2005 264,822 27.0 2006 345,486 30.0 2007 410,992 19.0 2008 417,736 2.0 2009 409,624 -2.0
Growth %yoy 27.0
The demand for cars is dependent on a number of factors. The key variables are per capita income, introduction of new models, availability & cost of car financing schemes, price of cars, incidence of duties and taxes, depreciation norms, fuel cost and its subsidization, public transport facilities etc. The first four factors viz, increase in per capita income, introduction of new models, availability & cost of car financing have positive relationship with the demand whereas others have an inverse relationship with demand for cars. The demand for cars in the future can be estimated with the help of making use of macro economic variables like growth in GDP, per capita income etc. or house hold penetration DR. V. N. Bedekar Institute of Management Studies Page 47
Automobiles Its Opportunities and Challenges for Four Wheeler Segment technique. An attempt is made to estimate the potential demand for passenger cars based on the household penetration level of passenger cars as explained in Annexure 4 of the report. The demand for cars in the future is expected to come predominantly from the existing twowheeler owners who will be upgrading to a four-wheeler, due to rising income and necessity of car for personal transportation purposes. Therefore, excluding the owners of mopeds, the potential demand for cars in the next fifteen to twenty years can be taken as 50% of the existing two-wheeler population of around 28mn units. But with the release of new models in the higher end of the economy segment, the supply of second hand economy cars is expected to increase substantially, which will be costing just about two times the price of premium range two-wheelers. This could affect the demand for first hand/new cars. Also, with cross demand from utility vehicles, availability of finance and other factors the above mentioned potential for cars will be difficult to realize. Growth in the segment thus is expected to hover around 15-20%yoy. The dominance of economy segment will continue in the future as it will provide large volume to Indian car industry. This is because a majority of customers for cars will graduate from twowheelers. The demand for mid-sized and premium cars is expected to rise as new models enter the market, income levels rise and present car owners upgrading from the economy segment to higher end cars.
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SUPPLY
The supply of cars in Indian industry till 1991 was dependent upon the production capacity of individual players. The production of cars has increased from 42,475 units to 181,420 units from 1981 to 1991 respectively. The growth in production of cars has varied in the last three decades from just 1% in 1970-80 to 21% in 1980-90 and above 15% in 1991- 96. The table below gives the production numbers of passenger cars in the past few years. Cars Production Growth %yoy 2003 207,658 27.2 2004 264,468 27.4 2005 348,146 31.6 2006 407,539 17.1 2007 401,002 (1.6) 2008 390,355 (2.7) 2009 577,243 32.4
The major increase in production of cars in the 80's was due to the entry of MUL in 1983, which helped increase car production by 20,000 to 30,000 cars per annum till the early nineties.With the entry of MUL, the face of the passenger car industry changed forever. Existing producers who had operated in a protected, high margin environment faced the prospect of not just diminishing market share, but a shift in focus from producing vehicles to selling them. But MUL made use of the opportunity open to its technologically superior product and increased its capacity from 100,000 cars in FY9 to 240,000 cars in FY96 and 350,000 cars in FY98. The opening of economy in 1993, attracted world majors who joined hands with existing auto majors, to start their operations at the earliest. The first ones to enter the field were Mercedes Benz in joint venture with Telco to manufacture E220, E250D models, Peugeot in JV with PAL to manufacture Peugeot 309L, Fiat in JV with PAL to manufacture Fiat Uno. This has helped in increasing the number of models available to the customer from 8 to 30 and hence provided a wide choice to him. This has also helped in reducing the average waiting period and premium on cars, which were a part and parcel of car cost in the eighties.
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Capacity
The present production capacities is detailed in the table below. This has increased from an estimated 600,000 units in FY98 to the present 23,25,000 units in FY2012. Car Capacity Maruti Udyog Hyundai Ford India Fiat India General Motors Honda Siel Total FY2012 7,30,000 4,00,000 2,50,000 200,000 2,75,000 4,50,000 23,25,000
Thus, capacity utilization in FY2012 stands at 79.4%. This is still better than utilization levels the world over which stands at around 40%. Production capacities are expected to increase in the next two years as players introduce new models..
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Automobiles Its Opportunities and Challenges for Four Wheeler Segment MARKETING The industry is estimated to be a US$ 34 billion industry with exports contributing 5 per cent of the revenues. The growth of the Indian middle class with increasing purchasing power along with the strong growth of the economy over the past few years has attracted global major auto manufacturers to the Indian market. Moreover, India provides trained manpower at competitive costs making India a favoured global manufacturing hub. The Indian automobile industry is going through a technological change where each firm is engaged in changing its processes and technologies to maintain the competitive advantage and provide customers with the optimized products and services. The de-licensing of the sector in 1991 and the subsequent opening up of 100 per cent foreign direct investment (FDI) through the automatic route marked the beginning of a new era for the Indian automotive industry. Since then almost all the global major automobile players have set up their facilities in India taking the level of production of vehicles from 2 million in 1991 to 10.83 million in 201011. Stagnation of the auto sector in markets such as Europe, US and Japan on the other, have resulted in shifting of new capacities and flow of capital to the Indian auto industry. The Indian automobile industry has been growing at the rate of 1527 per cent over the past five years. In two wheelers industry, Indian companies are the largest manufacturers in the world. Bikes are a major segment in the industry, the other two being scooters and mopeds. Moreover, Indian car makers are earning acclaim worldwide. The home-grown automaker, Maruti Suzuki has emerged as the fourth most reputed among auto companies in the world, even ahead of its parent Suzuki Motor Co of Japan, according to the Global 200: The World's Best Corporate Reputations list, compiled by US-based Reputation Institute.
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Automobiles Its Opportunities and Challenges for Four Wheeler Segment EVOLUTION OF THE INDIAN AUTOMOBILE INDUSTRY: Pre 1983 Closed market 1983-1993 1993-2007 Suzuki, Japan and GOI joint De-licensing of the sector in 1993 Joint ventures with companies in Global major OEMs start commercial components Players Maruti Udyog Hindustan Motors Premier Telco Ashok Leyland Mahindra & Mahindra vehicles and assembly in India (GM, Ford, Honda, Hyundai, etc.) Imports allowed from April 2001; alignment of duty on components and parts to ASEAN levels Implementation of VAT
Growth of market limited venture to form Maruti Udyog by supply Outdated models Players Hindustan Motors Premier Telco Ashok Leyland Mahindra & Mahindra
Production: India as the Manufacturing Hub

India with its rapidly growing middle class, market-oriented stable economy, availability of trained manpower at competitive cost, fairly well-developed credit and financing facilities and local availability of almost all the raw materials at a competitive cost has emerged as one of the favorite investment destinations for the automotive manufacturers.
Japanese auto major, Nissan Motor Co, has identified India as one of the five low-cost countries to manufacture its new generation compact cars, including the Micro.
Hyundai has made India its global hub for manufacturing small cars. It will invest US$ 1 billion in its second plant in Chennai by 2013. In addition, it is also investing US$ 40 million in its R&D facility in Hyderabad.
General Motors has so far invested about US$ 1 billion into its Indian operations. It has already started production of its small car, Spark in its new Talegaon factory in Maharashtra, which has been set up with an investment of US$ 300 million.
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Mercedes-Benz will invest about US$ 64. 21 million in its plant at Chakan near Pune, which would begin operations in February-March next year. The plant would have a production capacity of 2,500 trucks and buses and 10,000 cars over two shifts per year.
Renault has entered into 50:50 joint ventures with Nissan Motors and together they have set up a manufacturing facility near Chennai at a cost of US$ 901.35 million to deliver 400,000 cars annually.
Skoda Auto plans to make India its regional manufacturing hub. It will start producing cars in India by 2010 with a manufacturing target of 50,000 units. Besides the domestic market, these will also be exported to neighboring countries like Nepal, Sri Lanka, Burma and Bangladesh.
Domestic Market: According to the Society of Indian Automobile Manufacturers (SIAM), the Indian auto industry recorded a production growth of 8.39 per cent during the current fiscal year till October 2008, over the same period in the previous fiscal. Sales: The growth of the passenger vehicles segment during AprilOctober 2011 was 4.87 per cent over the same period, the previous year. Passenger cars grew by 3.51 per cent, utility vehicles by 6.33 per cent and multi-purpose vehicles by 18.15 per cent in this period. However, cumulative sales of commercial vehicles segment registered a decline during the period. The segment registered a decline of 2.97 per cent during AprilOctober 2011 as compared to the same period last year.
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India as the Export Hub

In terms of manufacturing excellence and availability of low-cost quality components as well as a fast expanding domestic market, India is all set to become the global export hub of the automobile industry. The exports markets have helped carmakers such as Maruti Suzuki and Hyundai Motor India post greater sales overseas than in the domestic market. India has overtaken China as a car exporter this year, exporting 201,138 cars in January-July against Chinas 164,800. Whats more, India exports this period went up 18%, while Chinas fell by 60%. As the world moves away from big cars to smaller makes, owing to high fuel costs and general recessionary trends, the small car advantage presents a huge business opportunity for car makers in India. The Indian car market accounts for 71 per cent of small cars, while in China it accounts for 33 per cent. Home-grown auto major, Maruti Suzuki, the country's largest car maker, currently exports Alto, M800, Omni, Wagon R and Zen Estilo to non-European markets such as Chile, UAE, Algeria and East Africa. US car major Ford today will make India its export hub with plans to sell its products in more than 50 countries over a period of time.
Korean car maker Hyundai exports 40 per cent of its small car production, primarily 'i10' and 'Santro', which sells as 'Autos' in 97 countries across the world. The sales of its newlylaunched compact car i10 touched 106,749 units in the overseas markets within seven months of being launched in December 2007. As a part of its strategy to make India an export hub for compact cars, Hyundai Motors has raised production to 0.6 million units per annum. The latest addition to the list is Nissan, which plans to buy 50,000 A-Star compact cars from its rival Maruti Suzuki and export to markets in Europe as well as make small cars in India and start exporting it to Latin American and African countries. The car makers in the markets like Latin America and Europe too have ramped up sourcing orders of small cars from Indian companies.
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Automobiles Its Opportunities and Challenges for Four Wheeler Segment FDI, Mergers, Acquisitions and Joint Ventures In sync with the dynamics of an open market, mergers and acquisitions and joint ventures have continued to be the driving force in the Indian automobile industry. Leading Japanese, Korean, European, French, Italian and American automobile companies have either set up their own manufacturing base in India or have tied up with Indian automotive firms to roll out new products from Indian market. The list includes Toyota, Nissan, Renault, Fiat, Honda, Kawasaki, Cummins and many more. On the other hand, Indian companies have also been bullish in acquiring foreign automobile companies to reinforce their presence in the global market. The biggest acquisition in the first half of 2008 has been the Tata Motors' acquisition of Jaguar-Land Rover from US automobile firm for US$ 2.3 billion. During this period, another auto major, Mahindra & Mahindra has acquired three Italian companies - G R Grafica Ricerca, Metalcastello and Engines Engineering. Another event is Daimler AG's acquisition of 26 per cent stake in Sutlej Motors. The prominent private equity deals in the first half of the year include Golbot Holding's (a Goldman Sach arm) 3.68 per cent stake in M&M for US$ 175 million, AIG Global Investment's US$ 20 million in Unipart, AIG's 14.5 per cent in Kinetic Engineering and Phi Advisors' 10 per cent in M&M's subsidiary First Choice. Emerging Trends: Small Cars, Hybrid Cars: One of the innovative cars which are prominent in existence in the southern zone of India is the electric car, Reva. Reva has now begun to capture other markets too, with emphasis shifting to saving fuel. Other carmakers such as Hero Electric and M&M are coming out with electric versions. Recently, after the launch of Nano by Tata Motors, the global automotive market has shifted its focus on the huge potential of small car segment. The landmark innovation has shed light on a vast market of potential consumers who were hitherto unable to afford a car. The Invest India Incomes and Savings Survey 2007, by IIMS Data works, and another study by CRISIL Research suggest that there is a huge demand base for entry level cars in India. The immediate potential demand base for a car of 1.6 million units, according to the former, is based
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Automobiles Its Opportunities and Challenges for Four Wheeler Segment on the respondents, who do not own a car at present but aspire to own one in the near future. Nearly all automotive giants have geared up towards leveraging the prospect of this segment.
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Projections Automobile Industry With the domestic auto industry now moving in step with the WTO covenants, the stage is set for it to make rapid strides domestically and internationally to attain its rightful place in the world trade. A global recession for last four years notwithstanding, the industry has shown appreciable resilience and adjusted to the challenges of the environment. Based on the general growth projections indicated by the Planning Commission of India for the next five-year period, automobile industry has seen growth pattern as given below. This growth estimate implies certain assumptions relating to segment-wise growth rates based on a study conducted by the National Council of Applied Economic Research. (NCAER).
Table Projections of Indias automobile industry, 2001-2012
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Measures for more Conducive Growth

The automobile Car industry across the world has great potential to trigger sustained employment, mobility, inter- sectorial industrial growth and thus conduce conditions for general economic and social well-being. However, there is need to promote and sustain international cooperation between Governments and industry. There is need for coordinated research and development, standardization of designs and broader technologies, effective cost cutting to enhance affordability and loosening of trade barriers across the globe. There are separate measures, which require addressing at the national and international levels. Some suggested steps at both levels are listed below.
Suggestions at the national level Further lessening the incidence of taxes and loosening of non-tariff barriers has to be attempted with a faster pace faster. A regime of single tax across the country is an ideal situation and possibilities of this should be explored. A vehicle retirement programme which will assist not only in fleet modernization and reduction of emission but will also provide quantum fillip to the demand should be put in place. There is a need to brief the international communities on technological and quality related capabilities of Indian automobile industry. Substantive efforts are required for educating opinion leaders and build a strong Made in India brand in overseas markets. Existing incentives for promoting exports are considered inadequate. An institutional mechanism such as the Automobile Export Promotion Council, which can address industry-specific issues and facilitate exports is urgently required. Labor laws reforms to facilitate better productivity and reduction in manpower costs as has already been committed by the Government should be expedited.
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Automobiles Its Opportunities and Challenges for Four Wheeler Segment Greater tax incentive on expenditure incurred on research and development in automotive sector. Tariff rationalization and taming of avoidable competition between rail and road transport sectors should be carried out. In this unhealthy competition, both the industries are unable to realize their full potential. Easier availability of market credit for funding automobile acquisition is required. Despite lower interest rates, availability of easy credit in rural and semi-urban areas requires more focused attention. This can substantially spur the demand.
Suggestions at the international level
Serious and sustained dialogue on regional cooperation in automobile sector should begin at the earliest. Dialogue should be regular and focused in which Governments and industry should both engage. The recent statistics of custom duties show that the average tariff rates of different countries have declined. However, it has been noticed that the problem of high tariffs is still prevalent in certain sectors. These high tariffs are generally noticed in developed countries. Reduction of peak tariffs is necessary to facilitate free flow of automobiles. Non-tariff barriers should be phased out with mutual dialogue and consensus. Mutual recognition should be accorded to the testing and certification agencies in various countries. Countries should join hands in developing alternative fuels to replace the existing fossil fuels. Similar cooperation is required in other critical areas of technological development. Fragmented and limited research in each country may lead to delay and more expensive results. Affordability of quality automobiles should be focus of industry across the world to facilitate volumes and widespread ownership.
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Reasons of Growth
Economic liberalization, increase in per capita income, various tax relief policies, easy accessibility of finance, launch of new models and exciting discount offers made by dealers all together have resulted in to a stupendous growth of India automobile industry.
Market Share
Automobile industry of India can be broadly classified under passenger vehicles, commercial vehicles, three wheelers and two wheelers. Automobile companies of India, Korea, Europe and Japan have a significant hold on the Indian market share. Tata Motors produces maximum numbers of mid and large size commercial vehicles, holding more that 60% of the market share. Motorcycles top the charts of two wheelers with Hero Honda being the key player.
Passenger vehicle section is majorly ruled by the car manufacturers capturing over 82% of the total market share. Maruti since long has been the biggest car manufacturer and holds more that 50% of the entire market.
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Auto Policy of the Government of India

Vision To establish a globally competitive automotive industry in India and to double its contribution to the economy by 2010.
Policy Objectives
This policy aims to promote integrated, phased, enduring and self-sustained growth of the Indian automotive industry. The objectives are to:
Exalt the sector as a lever of industrial growth and employment and to achieve a high degree of value addition in the country;
Promote a globally competitive automotive industry and emerge as a global source for auto components;
Establish an international hub for manufacturing small, affordable passenger cars and a key center for manufacturing Tractors and Two-wheelers in the world;
Ensure a balanced transition to open trade at a minimal risk to the Indian economy and local industry;
Conduce incessant modernization of the industry and facilitate indigenous design, research and development;
Steer India's software industry into automotive technology; Assist development of vehicles propelled by alternate energy sources; Development of domestic safety and environmental standards at par with international standards.
SIAM welcomed the announcement of Auto Policy, and feels that the policy would serve as a reference document for all stake holders and other interested parties. The Auto Policy has spelt out the direction of growth for the auto sector in India and addresses most concerns of the automobile sector, including-
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Automobiles Its Opportunities and Challenges for Four Wheeler Segment Promotion of R&D in the automotive sector to ensure continuous technology

up gradation, building better designing capacities to remain competitive; Impetus to Alternative Fuel Vehicles through appropriate long term fiscal structure to facilitate their acceptance;
Emphasis on low emission fuel auto technologies and availability of appropriate auto fuels and encouragement to construction of safer bus/truck bodies - subjecting unorganized sector also to 16% excise duty on body building activity as in case of OEMs
The policy has rightly recognized the need for modernizing the park profile of vehicles to arrest degradation of air quality. The terminal life policy for commercial vehicles and move toward international taxing policies linked to age of vehicles, are steps in the right direction. SIAM has always been advocating encouragement of value addition within the country against mere trading activity. However, this aspect has not been fully addressed. The Auto Policy allows automatic approval for foreign equity investment upto 100% in the automotive sector and does not lay down any minimum investment criteria. The recommendation of promoting passenger cars of length upto 3.8 meters through excise benefits is not in line with the free market concept and may lead to market distortion. However, with the Auto Policy in place, the automotive industry would get further fillip to become vibrant and globally competitive. The industry would get the required support from other Ministries and departments of Government of India in achieving the goals laid down in the auto policy
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Role of Government in Automobile Industry
The government is making efforts to overcome the constraints at their research centers for automobile industry. India can also learn from countries like Japan that are already using these technologies for a wide number of applications. The Indian auto industry should launch programmes for market development and a wider acceptance of alternative energy-driven vehicles in India. It should also work in tandem with the government to make India a world leader in this area.
Indian automobile industry is also consistently trying to meet the emerging challenges of environmental pollution and better safety standard. According to a study, automobile exhaust contributes more than 60% of the atmospheric pollution in metropolitan cities, with the growing number of vehicles; the pollution in the cities is continuously increasing. Government initiated controls by notifying emission standard from the year 1992 under which were furthers tightened in April 1996 under the Motor Vehicles Act. Euro-I emission norms have already been made applicable throughout the country and Indian is poised to induct Euro-II norms across the country by April 2005. Form that date 7 metropolitan cities are going to switch over to EuroIII norms. To meet this emerging challenges of newer emission norms Indian automobile industry has already braced itself up with new investment and fresh technological induction.
With the growing number of vehicles, the pollution in the cities is ever increasing. Government initiated controls by notifying emission standards from the year 1992 which were further tightened under the Motor Vehicle Act. For meeting these norms, unleaded petrol was also introduced in metropolitan cities from 1995, which enabled fitments of catalytic convertors on new petrol driven vehicles. The norms are being further tightened from April, 2000 when Indias stage one norm equivalent to Euro-I will become effective. For 2-wheelers, India has announced one of the tightest norms in the entire world. In the national capital territory region of Delhi, Indias stage 2 norms equivalent to Euro-II norms, will be effective from April, 2000, as per the order of Honble Supreme Court. This would apply to passenger cars.
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Automobiles Its Opportunities and Challenges for Four Wheeler Segment The government seems most keen to hand over a huge replacement market on a platter to the automobile industry without ensuring that manufacturers take responsibility of the emission performance of the vehicles they produce for its useful life. In fact the most important action point that was recorded after the ministerial consultation was that manufacturers would have to give emissions warranty for two- wheelers from But ultimately, the government could not muster enough courage to push the mighty automobile industry and enforce it.
Government will encourage and assist establishment of specialized training institutes for the automobile sector through the active association of interested automobile industries. These institutes will be set up in Bidadi Industrial area and Dharwad Growth center. The Institute will be managed by the participating automobile industries and will train skilled category of auto workers, in specified skill areas such as painting, welding, auto mechanical, etc. It also is making an effort abe to enlist the support of multilateral aid institutions to provide part of the funding for this project, which promises tremendous environment-improvement benefits for the vehicle, which create pollution. The policy of broad banding capacities in the eighties led to increased utilization of capacity for four-wheelers in the industry. The liberal policy on foreign participation through technical and financial collaboration in early eighties led to substantial product upgradation and introduction of new models. But it was alleged that the policy was discriminatory in favor of MUL, while others like Telco, PAL, HM were denied permission to produce cars in collaboration with Japanese companies. The GOI controls the car sector by way of framing policies on depreciation norms, import duty on cars and parts used in it, petrol prices and import duty of steel. During the era of socialist inspired controls, the government protected the car industry from new entrants by making effective use of licenses. However, after liberalization and with the consequent opening up of the auto sector in 1992-93, the license raj ceased to exist.
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Automobiles Its Opportunities and Challenges for Four Wheeler Segment The perception of a car as a luxury good lead to heavy excise duty on cars. The excise duty doubled from 25% in FY87 to 55% in FY91. Till 1987, the GOI followed a discriminatory policy so as to charge lower duty on fuel efficient car with engine capacity of less than 1000cc. This helped MUL to price its car at a lower price in comparison to others. But with lobbying from PAL and HM government withdrew the provision in 1987. But with the onset of the liberalization process in the early nineties, the government has continually rationalized the excise duty regime. Presently, there is a duty of 40% (16% + 24%) on motor vehicles, designed for transport of not more than six persons (excluding the driver). On vehicles designed for transport of more than six persons, but not more than 12 persons, the duty is 32% (16% + 16%). Over and above the excise duty, cess by the Central Government, states are now charging a uniform sales tax of 12%. This came in being after the 15th of May 2000. Earlier, states used to charge sales tax varying from 3 to 14%. But MUL vehicles receive favorable treatment in terms of sales tax as well. In line with its treatment for luxury items import duties for car have been maintained high. In the 80's, import duties varied between 150 to 200% based on the engine capacity of a car. The import duty on cars and components has come down in the last few years in line with general reduction in import tariffs. In the FY98 budget, the import duty on cars has also been further brought down from 50% to 40% ad valorem. Substantial reduction in import duty has been extended in the budget FY98 for import of certain items which would help the industry to reduce the emission level of vehicles. The import duty on catalytic converters and parts thereof has been reduced from 25% to 5%. The duty on CNG kits and parts thereof have been reduced from 10% to 5%. The import duty on auto components will be a key factor in deciding the final pricing of cars as new ventures start with about 50% indigenization levels. The reduction in import duty on steel in the last few years has helped the industry in reducing raw material costs as major steel requirement of car industry was imported. Even today, all CKD/SKD imports include metal pressed body panels.
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Entry Strategies for MNCs

FDI Joint ventures Foreign and local buyers Licensing Sub-contracting Informal means (e.g. training, hiring and returnees) OEM Own Design and Manufacture (ODM) Strategic partnership for technology Overseas acquisition equity
These are the ten entry strategies for positioning a country. It could be through joint ventures, FDI, marketing network, licensing arrangement, sub-contracting or even by informal means (training, hiring and returnees). It is generally agreed that a countrys pattern of participation in international trade is determined to a large extent by its resource endowments and the efficiency with which resources are utilized. OEM and ODM contracts occur based on the resource endowments of the countries.
It is possible to establish virtuous circle between investment, exports and growth by investing in sectors with significant productivity and market potential, and using the export proceeds to finance imports of capital goods and intermediate inputs required for further productivity increases.
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Non-Financial Analysis
Share Holding Pattern for Quarter Ended 30-June-09
TATA Motors Above is the updated share holding pattern of TATA motors which shows that Indian
Maruti Suzuki Being a venture of Japanese company Suzuki big stake of the company is held by foreign promoters which shows that they can divest their part (small part) to raise money in future. However institutional investors also held 39% major stake in the company but general public have very small part which shows that less
promoter share in the company is 41% that means if they are not in the position to raise further money from general public, Company already raised huge money by selling their large stake to institutional investors about 27%.
General Public also have quite large stake in the

company compare to its competitors.
presence of share in the secondary market

hence low volume trading in stock market.
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Upcoming Ventures & Products Tata Motors
Tata Motors is trying to be in a position to dominate the Indian Auto industry, at least in fourwheeler segment. Tata Motors have announced that they are interested in the idea of designing electric cars. To take it a step further Tata has also initialized plans for the manufacture of a hybrid car which it will market with Chryster in the U.S.
After the launch of Nano, Tata also apparently has its eye on the European and U.S. markets. The company hopes to have a version for Europe by 2013 and one for the U.S perhaps by 2014. Tata Motors is now aiming to launch its cars in Indonesia and is also planning to sell Nano in South America with the help of Fiat. After launching the worlds cheapest car, Nano, Tata Motors is looking east, towards neighboring Myanmar to boost its sales by setting up a truck manufacturing plant. As part of its expansion plans in Southeast Asia, Tata Motors had inked a joint venture with Thailands Thonburi Auto Assemblys to manufacture up to 35,000 one tone pickup trucks a year over the next 3-5 years. Tata Motors is searching options to pump approximately Rs. 8,000 cr. During the next 3-4 years on capital expenditure and product development.
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Maruti Suzuki
Maruti Suzuki has expanded the capacity at its Manesar plant to 1.7 lakhs unit per annum from January 2009. By the year end 2013, Suzuki Motors plan to increase their dealership in India. This is a step to increase their sales to one million units as well as for a better position in the Indian auto market. The expansion is estimated to cost $ 3.5 billion, out of which a quarter will be assigned for amplifying leadership network to 1000 in number.
As Maruti Suzuki eyes one million sales by 2013, they have firmed up a massive expansion plan of its service network and plans to expand it to 2000 towns and cities from the current of about 1700. The company plans to increase the number of service stations and workshops to over 3800 from about 2800 currently. They have also been coming with specific sales promotion programmes targeted at interior regions, among them is the Mera Sapna Meri Maruti: New Panchayati Scheme. The Haryana government has allotted 700 acres of land to Maruti Suzuki for hi tech Research & Development complex at Rohtak. The upcoming facility will see an investment in the range of Rs. 1,000 cr. to 1,500 cr. And will introduce world class R&D facilities into India. While the development of the allotted land and construction of the test tracks will be completed in the first phase by 2013, the overall R&D facilities will be progressively completed by 2015.
In a move ahead, Maruti Suzuki India limited launched the Estilo with all new overall looks and advanced technological features.
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Automobiles Its Opportunities and Challenges for Four Wheeler Segment The upcoming cars in near future by both companies are: TATA Motors Cars Tata Manza CS Tata Mini Aria Tata Indigo Manza Diesel Hybrid Tata Aria AT Tata MiniCat Maruti Suzuki Expected Launch May 2013 August 2013 August 2013 October 2013 February 2014
Products (CAR) Maruti New SX4 Maruti New A Star Maruti Ertiga CNG Maruti Cervo Maruti Swift Sport
Expected Launch March 2013 March 2013 March 2013 June 2013 July 2013
Source: ww.gaadi.com
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Market Segmentation
A market segment consists of a group of customers who share a similar set of wants. The marketer does not create the segments; the marketers task is to identify the segments and decide which one(s) to target. Segment marketing offers several benefits over mass marketing. The company can create a more fine-tuned product or service offering and price it appropriately for the target segment. The company can more easily select the best distribution and communication channels, and it will also have a clearer picture of its competitors, which are the companies going after the same segment. In the context of automotive sector, we would be classifying it in the following ways-:
Based On The Price Of The Car Based On The Length Of The Car Based On The User Segment
Based On the Price of the Car

On the basis of price of car we can segment the car in following ways-: Economy Segment o The economy segment of car ranges up to Rs. 2.5 lacs. The products in this segment are Maruti 800, Alto and the newly launched product of TATA motors i.e. NANO. Mid- Size Segment o The mid-size segment of car ranges from 2.5 lacs to 4.5 lacs. It includes the products like Hyundai Santro, Maruti Zen, and Tata Indica etc. Luxury car segment o The luxury segment of car ranges from 4.5 lacs to 10 lacs. It includes the products like Honda city, Hyundai Verna, Mahindra Scorpio etc.
o The super luxury segment of car ranges above 10 lacs. This segment satisfies the elite class of
the society. It includes the products like Skoda Laura, Honda Accord, BMW, Mercedes, Audi etc.
Super luxury car segment
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Automobiles Its Opportunities and Challenges for Four Wheeler Segment Based On the Length of the Car A segment- Cars that are less than 3.5 meters long (800, omni) B segment- Cars between 3.5 meters to 4 meters long( Zen, SX4, Santro) C Segment- Cars between 4 meters to 4.5 meters long (Verna, Honda city, ford fiesta) D segment- Cars that are more than 4.5 meters long( Mercedez, Sonata, Accord, Skoda) Based On the User Segmentation of automotive sector is also based on the user of the products. Like the example of Tata Motors, when it observed that their product INDICA is used extensively by the taxi operators, it came up with a new model of the car having Round Tail Lights to distinguish it from the car having vertical tail lights used by the individual buyers.
Individual Buyers Taxi operators -: Government /non-government institutions Quite a few of Indian auto-makersMaruti-Suzuki with its 'Splash' and 'A Star', Hyundai with 'i20', Fiat with 'Grande Punto'plan to roll out new small car models by the end of 2008.
General Motors plans to roll out its new mini car next year from its Talegaon plant, near Pune. This will be followed by the launch of a sedan category car named Cruz by 2010.
Tata Motors is also set to offer an all-new version of its Indica, which has lured the Indian auto consumer segment for the last many years.
Many new players would also make an entry into the small car segment. Honda, with its much-awaited 'Jazz', and Volkswagen, with an Indian version of its popular 'Polo compact', are among the prominent ones.
Global biggies like Toyota and General Motors are also expected to join the bandwagon by 2010.
Apart from that it is the hybrid car that has caught the attention of the Indian auto manufacturers. India's first hybrid car, Honda's 'Civic' sedan has been launched in June 2008.
Following the precedence, home-grown majors like, Tata Motors and Mahindra & Mahindra are developing hybrid cars.
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Even BMW is planning to introduce its hybrid car to India within two years of its global launch due in the next 18 months.
Market trends
Emerging Market Trends The automotive industry is the barometer of Indian economy. The sign of recovery are most visible in the growing demand for automobiles. The aspirations of Indian consumer are rising with the growing demand. The cumulative effect of growing customer demand, increased competition, technology up gradations along with the traits are likely to be observed in the following trends.

International companies like Hyundai, Honda, Toyota, etc. are gaining market share. Technological up gradation will be primary requisite for success in the market. With the entry of new models, medium sized cars segment is further divided into low prestige and high prestige cars. Customers are upgrading from entry level small cars to sophisticated small cars and from sophisticated small cars to prestige car segment.
Stricter Pollution norms are likely to force vehicle manufacturers to adopt latest technology in maintaining emission standards. This is likely to curtail the average life span of vehicle on road while the maintenance cost and the genuine parts consumption per vehicle is expected to increase.
Due to free imports local industry is expected to face increased competition from international automotive companies.
With the increasing number of vehicle population the two wheeler owners will have viable option of used cars. The vehicle with higher resale value and good service network is likely to dominate the market.
All the trends derived out of present dynamics of the Indian automotive vehicle market are indicators of internationalization of this market. India has become focus of international growth seeking companies as not only a cost competitive sourcing base but also a growing high potential market. In the near future the competition will be prominent in all the functions of business and DR. V. N. Bedekar Institute of Management Studies Page 73
Automobiles Its Opportunities and Challenges for Four Wheeler Segment only the companies with global standards are likely to survive. Indian manufacturers are gearing up for the challenge but surely the current Scenario is apparently in favor of international players. The early movers are likely to secure a position to command the global competition Local market trends
Sales, particularly in the small car segment, will drive passenger car sales in the near term. However, within the next two years, capacity is expected to be twice the total demand for cars.
With developments in the small car segment acquiring a degree of stability in terms of price competition, the action is shifting to the mid-size car segment. Sales in this segment will pick up as new models come in and income levels rise but it is still some time till it comes anywhere close to the economy sized segment.
What will also drive car sales is the wide availability of finance schemes by a variety of banks and FI's.
Sales in the used car market is also expected to do well as more and more older models get replaced by newer ones at a faster pace. The coming in of Euro III and IV norms will also increase scrap page rates.
In view of expected surplus in the domestic market, India will emerge as one of the leading car sourcing point in the Indian subcontinent.
Consumers will be the beneficiaries as a result of marketing war, as they will be offered technologically superior products at better prices and terms and conditions. But the customer has a risk of model discontinuation as a result of shake-out expected in the industry.
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Automobiles Its Opportunities and Challenges for Four Wheeler Segment International trend
The global automotive car market is growing at a rate of only 2% per annum and is not expected to pick up in the near term. Growth has dropped due to the increasing levels of saturation in the larger car markets of the world. Worldwide
The trend is towards ensuring that one's products are superior in terms of quality. This will enhance the useful life of cars and, hence, slow down growth in sales.
The South-East Asian crises have been a dampener to the collective fortunes of various carmakers worldwide. According to EIU estimates, some countries in the region have witnessed cumulative falls of 70% this year. In Indonesia record sales reported in 1997 are not expected to be matched until 2005. In Malaysia it is expected to be 2003 before peak sales and production volumes are repeated and in the Philippines the market will take seven years to recover. In Thailand, the market for cars and commercial vehicles is expected to fall from almost 600,000 units per year to 125,000 this year.
The global domination of the larger automotive manufacturers is slowly on the wane and the trend in sales is shifting towards more "regio-centric" products. Automakers that have been enjoying a generally prosperous spell would have to rethink on the way vehicles are designed, manufactured, distributed or sold. Already, players like GM, Volkswagen and Toyota have begun to re-examine their dealer relationships and pricing strategies. Carmakers would now have to think in terms of a new customer focus and provide better financing and servicing.
Strategic tie-ups, mergers and acquisitions have become the order of the day. A few instances are Daimler Benz's tie-up with Chrysler of the US, Ford's acquiring of Daewoo and tie up with Volvo Car Corporation and Renault acquiring a stake in Nissan. Such deals would certainly lead to economy in terms of costs but it remains to be seen whether they will also create significant new opportunities for growth.
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Strong Growth Drivers Favorable Prospects for the Indian Passenger Vehicle Market
The domestic passenger vehicles industry has been on a relatively steady growth phase over most of the last decade and has registered a 10 years CAGR of 10.3% during the period. It has been one of the few markets worldwide which saw growing passenger car sales during the liquidity crisis and recessionary phase witnessed during FY09. Buoyant economic growth, rising disposable income levels, favorable demographics, strong growth from tier II/III cities and rural India, together with improving availability of vehicle financing at competitive interest rates have been the key factors fuelling growth in the Indian passenger vehicle market. Among the emerging markets, India continues to have one the lowest car density, estimated at 13 cars per 1,000 people compared to other markets such as China (45), Brazil (160), and Indonesia (42). The growth has also been supported by OEM led initiatives like whole host of new model offerings from both from existing companies as well as new entrants in the market. Furthermore, in India, the car prices have remained relatively flat over the years (adjusted for the decline in duties) compared to steadily rising per capita income levels. In addition to the strong domestic demand, the OEMs have also been positioning themselves as competitive small-car makers, benefitting from Indias technological capabilities in the manufacturing small-cars, scale economies and a well-established component supplier base. Over the past 10 years, export of vehicles have grown at a CAGR of 31.7% to achieve volumes of 0.45 million units in FY10. ICRA expects overall growth momentum to be sustained driven by strong domestic demand and increased thrust on exports.
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Findings.
Technological up gradation will be primary requisite for success in the market. International companies like Hyundai, Honda, Toyota, etc. are gaining market share TATA motors gives approx. 90% return in a period of just 3 months while Maruti Suzuki shows always a buy and hold position because there is possibility of growth in future. Sales, particularly in the small car segment, will drive passenger car sales within the next two years; capacity is expected to be twice the total demand for cars. The global automotive car market is growing at a rate of only 2% per annum. The domestic passenger vehicles industry has been on a relatively steady growth phase over most of the last decade and has registered a 10 years CAGR of 10.3% during the period Mergers and Acquisitions and Joint Ventures have continued to be the driving force in the Indian automobile industry. The components industry is working towards achieving world class standards of inventory management, processing time and quality levels. Compared with the 1990s, when 65% of Indias component exports catered to the aftermarket today this composition has changed favorably, with exports to OEMs/Tier I suppliers contributing to 80% of Indias exports.. The auto components industrys turnover has grown at a CAGR of 14.6% during 2007-11 Though small in terms of market share, the high-end/luxury car market is growing fast, driven by changing customer preferences and aspirations and launch of more models by foreign OEMs. In years, the average age of the luxury car buyer has come down from 45 to 40 years. Sales of passenger vehicles (cars, vans and multi-utility vehicles) grew at a rate of 15.7% during FY 03 FY 12
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CONCLUSION
Indian Automobile Industry is in the growth phase and the expected growth rate is 10-12% for FY2011-12 said by SAIM. (www.thesundayindian.com)
Indian Automobile has a lot of scope for four wheelers due to development in infrastructure of the country and especially the rural sector in which demand four wheeler has increased even in recession. According to Indian Statistical Organization the per capita income (Rs.38000) is increasing and national income at the rate of 14.4% which shows potential to buy vehicle in auto industry. The growth rate of Indian Automobile is so fast that by 2016 Indian Industry will be world 7 largest manufacturers in all sections. The Indian auto market is still untapped the majority of the people in country dont own a four wheeler and all the major auto companies are trying to increase their sales by several moves. Like TATA has launch NANO the peoples car and now TATA motors is also planning to come out with an electric car as well as hybrid car, moreover in two wheeler segment many companies like Mahindra and Mahindra grow even more than expectations.
By analyzing the industry on various parameters with the help of implementing Fundamental tools we came to know that this industry has a lot of potential to grow in future.
By analyzing the current trend of Indian Economy and Automobile Industry we can say that being a developing economy there is lot of scope for growth for four wheeler market and this industry still have to cross many levels so there is huge opportunities to invest in and this is proving as more and more foreign Companies setting up there ventures in India.
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Bibliography
Websites:
1. 2. 3. 4. 5. Society of Indian Automobiles (SIAM) www.google.com Organisation Internationale des Constructers dAutomobiles (OICA) www.worldometers.info/cars/ www.marklines.com 6. www.wipro.com/ftob-automotive/
Magazines & Journals:

1. 2. 3. 4. Business world Auto India Auto Car Motoring
News Paper: 1. Times of India 2. Economics Times
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Automotive Industry Opportunities and Challenges

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Automobiles Its Opportunities and Challenges for Four Wheeler Segment

Guided By: Prof. Mrs. Rashmi Nadange Compiled By:

Pankaj S. Vyas (P-60) M.M.S. (Marketing)

DR. V. N. Bedekar Institute of Management Studies

Automobiles Its Opportunities and Challenges for Four Wheeler Segment

STATEMENT BY THE CANDIDATE

________________________ Guide Signature

_____________________ Signature of Candidate

DR. V. N. Bedekar Institute of Management Studies

Automobiles Its Opportunities and Challenges for Four Wheeler Segment

Place: Mumbai Date: Pankaj S. Vyas

DR. V. N. Bedekar Institute of Management Studies

DR. V. N. Bedekar Institute of Management Studies

Automobiles Its Opportunities and Challenges for Four Wheeler Segment

DR. V. N. Bedekar Institute of Management Studies

Automobiles Its Opportunities and Challenges for Four Wheeler Segment

DR. V. N. Bedekar Institute of Management Studies

Automobiles Its Opportunities and Challenges for Four Wheeler Segment

DR. V. N. Bedekar Institute of Management Studies

Automobiles Its Opportunities and Challenges for Four Wheeler Segment

DR. V. N. Bedekar Institute of Management Studies

DR. V. N. Bedekar Institute of Management Studies

Automobiles Its Opportunities and Challenges for Four Wheeler Segment

Overview of Automobile Industry

DR. V. N. Bedekar Institute of Management Studies

Indian Automobile Industry

DR. V. N. Bedekar Institute of Management Studies

Automobiles Its Opportunities and Challenges for Four Wheeler Segment

Market Overview: Cars & UV

DR. V. N. Bedekar Institute of Management Studies

DR. V. N. Bedekar Institute of Management Studies

Automobiles Its Opportunities and Challenges for Four Wheeler Segment

Objective of the Study

DR. V. N. Bedekar Institute of Management Studies

Automobiles Its Opportunities and Challenges for Four Wheeler Segment

Research Problem Statement

DR. V. N. Bedekar Institute of Management Studies

Automobiles Its Opportunities and Challenges for Four Wheeler Segment

Snapshot of the Indian Automotive Industry

DR. V. N. Bedekar Institute of Management Studies

Automobiles Its Opportunities and Challenges for Four Wheeler Segment

Comparison of Vehicle Penetration:

DR. V. N. Bedekar Institute of Management Studies

DR. V. N. Bedekar Institute of Management Studies

Automobiles Its Opportunities and Challenges for Four Wheeler Segment

Changing Customer Needs Alter Vehicle Market Dynamics

Source: SIAM, D & B Research

DR. V. N. Bedekar Institute of Management Studies

Automobiles Its Opportunities and Challenges for Four Wheeler Segment

DR. V. N. Bedekar Institute of Management Studies

Automobiles Its Opportunities and Challenges for Four Wheeler Segment

DR. V. N. Bedekar Institute of Management Studies

Automobiles Its Opportunities and Challenges for Four Wheeler Segment

Five Forces Model

Porters Five Forces of Competition Framework

Competition from Substitutes:

DR. V. N. Bedekar Institute of Management Studies

The structural determinants of the Five Forces of Competition

DR. V. N. Bedekar Institute of Management Studies

Automobiles Its Opportunities and Challenges for Four Wheeler Segment

Rivalry between Established Competitors:

DR. V. N. Bedekar Institute of Management Studies