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AUTOMOBILE INDUSTRY

Driving the most luxurious car has been made possible by the stiff
competition in the automobile industry in India, with overseas players
gathering the same momentum as the domestic participants.

Every other day, we have been hearing about some new launches, some low
cost cars – all customized in a manner such that the common man is not left
behind. In 2009, the automobile industry is expected to see a growth rate of
around 9%, with the disclaimer that the auto industry in India has been hit
badly by the ongoing global financial crisis.

The automobile industry in India happens to be the ninth largest in the world.
Following Japan, South Korea and Thailand, in 2009, India emerged as the
fourth largest exporter of automobiles. Several Indian automobile
manufacturers have spread their operations globally as well, asking for more
investments in the Indian automobile sector by the MNCs.

Indian Automobile industry

Starting its journey from the day when the first car rolled on the streets of
Mumbai in 1898, the Indian automobile industry has demonstrated a
phenomenal growth to this day. Today, the Indian automobile industry
presents a galaxy of varieties and models meeting all possible expectations
and globally established industry standards. Some of the leading names
echoing in the Indian automobile industry include Maruti Suzuki, Tata Motors,
Mahindra and Mahindra, Hyundai Motors, Hero Honda and Hindustan Motors
in addition to a number of others.

During the early stages of its development, Indian automobile industry


heavily depended on foreign technologies. However, over the years, the
manufacturers in India have started using their own technology evolved in
the native soil. The thriving market place in the country has attracted a
number of automobile manufacturers including some of the reputed global
leaders to set their foot in the soil looking forward to enhance their profile
and prospects to new heights. Following a temporary setback on account of
the global economic recession, the Indian automobile market has once again
picked up a remarkable momentum witnessing a buoyant sale for the first
time in its history in the month of September 2009.
The automobile sector of India is the seventh largest in the world. In a year,
the country manufactures about 2.6 million cars making up an identifiable
chunk in the world’s annual production of about 73 million cars in a year. The
country is the largest manufacturer of motorcycles and the fifth largest
producer of commercial vehicles. Industry experts have visualized an
unbelievably huge increase in these figures over the immediate future. The
figures published by the Asia Economic Institute indicate that the Indian
automobile sector is set to emerge as the global leader by 2012. In the year
2009, India rose to be the fourth largest exporter of automobiles following
Japan, South Korea and Thailand. Experts state that in the year 2050, India
will top the car volumes of all the nations of the world with about 611 million
cars running on its roads.

At present, about 75 percent of India’s automobile industry is made up by


small cars, with the figure ranking the nation on top of any other country on
the globe. Over the next two or three years, the country is expecting the
arrival of more than a dozen new brands making compact car models.

ecently, the automotive giants of India including General Motors (GM),


Volkswagen, Honda, and Hyundai, have declared significant expansion plans.
On account of its huge market potential, a very low base of car ownership in
the country estimated at about 25 per 1,000 people, and a rapidly surging
economy, the nation is firmly set on its way to become an outsourcing
platform for a number of global auto companies. Some of the upcoming cars
in the India soil comprise Maruti A-Star (Suzuki), Maruti Splash (Suzuki), VW
Up and VW Polo (Volkswagen), Bajaj small car (Bajai Auto), Jazz (Honda) and
Cobalt, Aveo (GM) in addition to several others.

History of the automobile industry

The economic liberalization that dawned in India in the year 1991 has
succeeded in bringing about a sustained growth in the automotive
production sector triggered by enhanced competitiveness and relaxed
restrictions prevailing in the Indian soil. A number of Indian automobile
manufacturers including Tata Motors, Maruti Suzuki and Mahindra and
Mahindra, have dramatically expanded both their domestic and international
operations. The country’s active economic growth has paved a solid road to
the further expansion of its domestic automobile market. This segment has
in fact invited a huge amount of India-specific investment by a number of
multinational automobile manufacturers. As a significant milestone in its
progress, the monthly sales of passenger cars in India exceeded 100,000
units in February 2009.

The beginnings of automotive industry in India can be traced during 1940s.


After the nation became independent in the year 1947, the Indian
Government and the private sector launched their efforts to establish an
automotive component manufacturing industry to meet the needs of the
automobile industry. The growth of this segment was however not so
encouraging in the initial stage and through the 1950s and 1960s on account
of nationalization combined with the license raj that was hampering the
private sector in the country. However, the period that followed 1970s,
witnessed a sizeable growth contributed by tractors, scooters and
commercial vehicles. Even till those days, cars were something of a sort of a
major luxury. Eventually, the country saw the entry of Japanese
manufacturers establishing Maruti Udyog. During the period that followed,
several foreign based companies started joint ventures with Indian
companies.

During 1980s, several Japanese manufacturers started joint-ventures for


manufacturing motorcycles and light commercial-vehicles. During this time,
that the Indian government selected Suzuki for a joint-venture to produce
small cars. Following the economic liberalization in 1991 and the weakening
of the license raj, several Indian and multi-national car companies launched
their operations on the soil. After this, automotive component and
automobile manufacturing growth remarkably speeded up to meet the
demands of domestic and export needs.

Experts have an opinion that during the early stages the policies and the
treatment by the Indian government were not favorable to the development
of the automobile industry. However, the liberalization policy and various tax
reliefs announced by the Indian government over the recent past have
pronounced a significantly encouraging impact on this industry segment.
Estimates reveal that owing to several boosting factors, Indian automobile
industry has been growing at a pace of about 18% per year. Therefore,
global automobile giants like Volvo, General Motors and Ford have started
looking at India as a prospective hot destination to establish and expand
their operations.

Like many other nations India’s highly developed transportation system has
played a very important role in the development of the country’s economy
over the past to this day. One can say that the automobile industry in the
country has occupied a solid space in the platform of Indian economy.
Empowered by its present growth, today the automobile industry in the
country can produce a diverse range of vehicles under three broad
categories namely cars, two-wheelers and heavy vehicles.

Exports of Automobile Industry

Today, India is among the world’s largest producers of small cars. The New
York Times has rated India as a very strong engineering base with an
incomparable expertise in the arena of manufacturing a number of low-cost,
fuel-efficient cars has encouraged the expansion plans of the manufacturing
facilities of a number of automobile leaders like Hyundai Motors, Nissan,
Toyota, Volkswagen and Suzuki.

On 22 February 2010, Hyundai motors exported its 10,00,000th car, the feat
which was achieved by the firm in just over 10 years. Hyundai Motors is the
largest passenger car exporter and the second largest car manufacturer in
the country. In the similar lines, General Motors has announced its plans to
export not less than 50,000 cars made in India by the year 2011. In yet
another proposal, Ford Motors is to setup a manufacturing facility costing
about US$500 million in India with an annual capacity of 250,000 cars. The
firm has stated that the facility will play a major part in its strategic plan to
make India a hub for its global production business. In yet another significant
move, Fiat motors has stated that it will source a big volume of auto
components from India worth about US$1 billion. In the year 2009, India
overtook China by emerging as the fourth largest exporter of cars in Asia.

Various Segments of the Indian Automobile Industry

Motor cycles manufacture makes up the major share in the two-wheeler


segment of the Indian automobile industry. About 50% of the motorcylcles
are manufactured by Hero Honda. While Honda manufactures about 46% of
the scooters, TVS produces 82% of the mopeds running on the Indian roads.

About 40% of the three-wheelers manufactured in India are used for


transporting goods with Piaggio manufacturing 40% of the vehicles sold in
the Indian market. On the other hand, Bajaj has emerged as the leader in
manufacturing three-wheelers used for passenger transport. The firm
produces about 68% percent of the three wheelers used for passenger
transport in India. The Indian passenger vehicle segment is dominated by
cars which make up about 80% of it. Maruti Suzuki manufactures about 52%
of passenger cars while the firm enjoys a complete monopoly in the
manufacture of multi-purpose vehicles. In the utility vehicles segment
Mahindra makes up a 42% share.

Tata Motors is the leader in the Indian commercial vehicles market while it
holds more than 60% share. Tata Motors also enjoys the credit of being the
world’s fifth largest manufacturer of medium and heavy commercial
vehicles.
Automobile Dealers Network in India

In terms of Car dealer networks and authorized service stations, Maruti leads
the pack with Dealer networks and workshops across the country. The other
leading automobile manufactures are also trying to cope up and are opening
their service stations and dealer workshops in all the metros and major cities
of the country. Dealers offer varying kind of discount of finances who in tern
pass it on to the customers in the form of reduced interest rates.

Major Manufacturers in Automobile Industry

1. Maruti Udyog Ltd.

2. General Motors India

3. Ford India Ltd.

4. Eicher Motors

5. Bajaj Auto
6. Daewoo Motors India

7. Hero Motors

8. Hindustan Motors

9. Hyundai Motor India Ltd.

10. Royal Enfield Motors

11. Telco

12. TVS Motors

13. DC Designs

14. Swaraj Mazda Ltd

Points to remember:

1. The first automobile in India rolled in 1897 in Bombay.

2. India is being recognized as potential emerging auto market.

3. Foreign players are adding to their investments in Indian auto industry.

4. Within two-wheelers, motorcycles contribute 80% of the segment size.

5. Unlike the USA, the Indian passenger vehicle market is dominated by


cars (79%).

6. Tata Motors dominates over 60% of the Indian commercial vehicle


market.

7. 2/3rd of auto component production is consumed directly by OEMs.

8. India is the largest three-wheeler market in the world.

9. India is the largest two-wheeler manufacturer in the world.

10. India is the second largest tractor manufacturer in the world.

11. India is the fifth largest commercial vehicle manufacturer in the


world.

12. The number one global motorcycle manufacturer is in India.


13. India is the fourth largest car market in Asia - recently crossed
the 1 million mark.

Global Players in India:

Segments Companies
Cars/ SUVs  Daimler-Chrysler  M&M
 Daewoo Motors  Mahindra &
 Fiat Mahindra
 Ford  Maruti Udyog Ltd
 GM  Mitsubishi
 Honda  Skoda
 Hindustan Motors  Suzuki
 Hyundai  Tata
 Toyota
Two-  Bajaj Auto  LML
wheelers  Hero Honda  Royal Enfield Motors
 Hero Motors Ltd.
 Honda  Suzuki
 Kinetic  TVS
 Yamaha
CVs  Ashok Leyland  Swaraj Mazda
 Eicher  Tata
 Mahindra &  Tatra
Mahindra  Volvo
 Mitsubishi
Tractors  Eicher  Mahindra &
 Escorts Limited Mahindra
 ITL-Renault  New Holland
 John-Deere  Punjab Tractors
 L&T  Steyr
 M&M  Tata

Manufacturing Hub in India:

Company Particulars
Hyundai Export Base for Small Cars.
Skoda Hub for exports of cars to neighbouring countries.
Ford Exporting CKDs of Ikon to South Africa & other countries.
Mitsubishi & Hub for 125 cc Motorcycles.
Yamaha
Maruti Suzuki Exports cars to EU.
Honda Hub for two-wheelers exports.

Manufacturing Hub for Components:

Company Particulars
Toyota Motor Global Hub for Transmission
Daimier
Sourcing more than 70 million Euro
Chrysler
Ford Full Fledged Component Sourcing Team
Fiat Sourcing Components.
MRF Ltd. Export Tyres To The US

Auto Industry Trends

In keeping with auto industry trends, leading automobile manufacturers are


turning to Asian markets that appear set to grow immensely over next
decade. Auto markets in U.S., Europe and Japan have almost matured as a
result of saturation and appear set to decline through next decade. In
contrast, auto markets spread over entire Asian continent (with exception of
Japan), are constantly increasing in size and will be destination for most of
globally leading auto manufacturers.
Auto industry trends reveal that emerging markets of developing nations of
Asia especially China, and India are backed by their huge population growth
rate, to add to growing national economy of these two nations.
Rapid growth of national economy of BRIC countries (including Brazil,Russia,
India, and China) have enabled a growing section of population of these
countries to purchase cars. Global surveys conducted recently reveal that
within next ten years, these emerging auto markets will account for nearly a
whooping 90 percent of global auto sales growth. As a result of this, leading
auto manufacturers of world are setting up factories in emerging markets, in
order to serve potential consumers better as well as reduce manufacturing
and shipping costs. In addition, these arrangements are enabling leading
global auto manufacturers to compete with local auto manufacturers, that
were flourishing in absence of quality competition. Prosperity of national
economy is reflected in rising per capita income of developing nations.
Therefore, increasing gross domestic product and per capita income have
raised purchasing ability of population that constitutes these emerging
markets.

(Numbe
r
Automobile Domestic Sales Trends of
Vehicles
)
Category 2003- 2004- 2005- 2006-07 2007- 2008- 2009-10
04 05 06 08 09
Passenge 902,0 1,061, 1,143, 1,379,9 1,549, 1,552, 1,949,77
r Vehicles 96 572 076 79 882 703 6
Commerc 260,1 318,43 351,04 467,765 490,49 384,19 531,395
ial 14 0 1 4 4
Vehicles
Three 284,0 307,86 359,92 403,910 364,78 349,72 440,368
Wheelers 78 2 0 1 7
Two 5,364 6,209, 7,052, 7,872,3 7,249, 7,437, 9,371,23
Wheelers ,249 765 391 34 278 619 1
Grand 6,810 7,897, 8,906, 10,123, 9,654, 9,724, 12,292,7
Total ,537 629 428 988 435 243 70

Indian Automotive Industry: Opportunities and Challenges Posed By


Recent Developments

For forty years since India's independence from the British in 1947, the
Indian car market was dominated by two localized versions of ancient
European designs - the Morris Oxford, known as the Ambassador, and a old
Fiat. This lack of product activity in the Indian market was mainly due to the
Indian government's complex regulatory system that effectively banned
foreign-owned operations. Within this system (referred to informally as the
"license raj"), any Indian firm that wanted to import technology or products
needed a license/permit from the government. The difficulty of getting these
licenses stifled automobile and component imports, creating a low volume
high cost car industry that was inefficient, unprofitable, and technologically
obsolete. The two dominant products Ambassador and Fiat, although
customized to the poor road conditions in India, were based on a stale design
concept (with outdated features), and were also fuel inefficient.
Then came the abolition os license raj, In 1993, the government followed up
its liberalization measures with significant reductions in the import duty on
automobile components. These measures have spurred the growth of the
Indian economy in general, and the automotive industry in particular. Since
1993, the automotive industry has been experiencing growth rates of above
25%.

In the past two years, more than a dozen multi-national firms have
announced plans to enter the Indian market. Most of them have formed joint
ventures with Indian firms, while there are exceptions such as Hyundai which
plan to form fully-owned units. Despite the large growth potential of the
Indian market (analysts expect the growth to triple in the next five years), no
one expects the industry to sustain the fragmentation caused by more than
a dozen suppliers. Many of these new firms will not enjoy the scale
economies and relationships with suppliers that Maruti does, so they have
decided not to challenge Maruti at its price of $5,500 in the smaller car
segment.

Amongst the many issues facing the Indian automotive industry, the biggest
by far is the poor road infrastructure. India's road network, comprising of a
modest national highway system (that is only 2% or less of the total roadway
length) is woefully inadequate and dilapidated, and can barely keep pace
with the auto industry's rapid growth. Most roads are single-lane roads built
in the 1950's and 60's, and are crowded with two-wheelers, bullock carts,
and even pedestrian humans and cows. Traffic laws are not well enforced
leading to one of the highest per-capita accident rates in the world. It is to be
expected that the introduction of bigger and more powerful vehicles will only
worsen the situation. Upgrading the existing highway system is itself
expected to cost $30 billion or more, and resource and land constraints
prevent the building of new highways. The Indian government's approach to
solving this problem is to privatize the road infrastructure, by having private
firms build and operate tollways. However, it is unclear if this alone will be
able to solve this infrastructure problem of enormous proportions, which can
severely bottleneck future growth.

To analyze the strengths and weaknesses of the various players in the Indian
automotive industry, it is useful to classify them into the following four
categories: (1) Indian Assemblers, (2) Multinational Assemblers (3) Indian
Component Makers, and (4) Multi-national Component Makers.
(1) Indian Assemblers

[a]Strengths:

• Established distribution and after-sales networks, and supplier base.

• Understanding of the Indian market and ability to liaison with the


government

[b]Weaknesses

• Lack of product development capabilities (except TELCO)

• Brand image (especially HM and PAL).

(2) Multinational Assemblers

[a]Strengths:

• Lean production capability.

• Ability to design products with differentiating features

• Deep pockets, brand image.

[b]Weaknesses

• Lack of product development capabilities (except TELCO)

• Brand image (especially HM and PAL).

(3) Indian Component Suppliers

[a]Strengths:

• Low cost, skilled workforce.

• Learning from exports.


[b]Weaknesses

• Small Size, Fragmentation.

• Lack of know-how in certain areas.

(4) Multinational Component Suppliers

[a]Strengths:

• Size, Deep pockets

• Experience and Know-how in technology

[b]Weaknesses

• Import tariffs, currency exchange rate fluctuations.

• Inexperience with Indian workforce.

The Indian automotive industry, although growing rapidly, is in a state of


flux. The production capacities planned by the new joint ventures currently
exceed most projections, and unless import tariffs come down quickly and
the economy grows remarkably, a shake-out may be expected from the
current 20 firms to about half a dozen major firms turning out finished
products by the end of the decade.

Potential of Indian Automobile Industry

There is a very stiff competition in the automobile industry segment in India.


This has helped many to realize their dreams of driving the most luxurious
cars. During the recent past, a number of overseas companies have started
grabbing a big chunk of the market share in both domestic and export sales.
Every new day dawns in India with some new launches by active players in
the Indian automobile arena. By introducing some low cost cars, the industry
had made it possible for common men to buy cars for their personal use.
With some innovative strategies and by adopting some alternative remedial
measures, the Indian automobile industry has successfully come unaffected
out of the global financial crisis.
While the automobile industry in India is the ninth largest in the world, the
country emerged as the fourth largest automobiles exporter on the globe
following Japan, South Korea and Thailand, in the year 2009. Over and
above, a number of automobile manufacturers based in India have expanded
their operations around the globe also giving way for a number of reputed
MNCs to enthusiastically invest in the Indian automobile sector.

Nissan Motors has revealed its prospective plans to export 250,000 vehicles
produced in its India plant by the year 2011. General Motors has also come
up with similar plans.

During the current fiscal year, the Indian automobile industry rode high on
the resurgence of consumer demand in the country as a result of the
Government’s fiscal stimulus and attractively low interest rates. As a result
the total turnover of the domestic automobile industry increased by about 27
per cent.

A reply produced in the Lok Sabha recently has quoted data from the Society
of Indian Automobile Manufacturers and has revealed that the total turnover
of the Indian automobile Industry in April-February 2009-10 was 1,62,708.77
crores.

This is a remarkable achievement compared with the total revenue of Rs


1,28,384.53 crore reported during the same period of last fiscal year.
Specifically, the segment of commercial vehicles witnessed the biggest jump
in revenues by 31 per cent by reporting Rs 38,845.09 crores. During the
same period, the passenger vehicle segment in the country witnessed a
growth of 27 per cent over the last fiscal year by reporting a total revenue of
Rs 76,545.96 crores. These figures imply a highly prospective road lying
immediately ahead of the Indian automobile industry.

Predictions made by Ernst and Young have estimated that the Indian
passenger car market will have a growth rate of about 12 percent per annum
over the next five years to reach the production of 3.75 million units by the
year 2014. The analysts have further stated that the industry’s turnover will
touch $155 billion by 2016. This achievement will succeed in consolidating
India’s position as the seventh largest automobiles manufacturer on the
globe, eventually surging forth to become the third largest by the year 2030
behind China and the US.

The Automotive Mission Plan launched by the Indian government has


envisaged that the country will emerge as the seventh largest car maker on
the globe thereby contributing more than 10 percent to the nation’s $1.2-
trillion economy.

Further, industry experts believe that the nation will soon establish its stand
as an automobile hub exporting about 2.75 million units and selling about a
million units to be operated on the domestic roads.