THE IMPACT OF THE ENVIRONMENT on the AUTOMOBILE SECTOR

Environment Scanning conducted for Ford India Ltd and Maruti Suzuki India Ltd

GENERAL ENVIRONMENT
The variables of general environment of the automobile industry in India can be identified as below Social, cultural and behavioral factors: The 21st century Indian consumers are marked with characteristics like burgeoning middle class, major changes in life style, increased urbanization, more & more consumption orientation, double income & nuclear family on rise, trend of living on credit, boom in leisure activities, and rise of upwardly mobile social class. With increased westernization, purchasing and bargaining powers of the consumers the environment becomes more competitive, complex. Cars are turning into a necessity from social status item. Demographic: With the boom in software and service industries most of the population is moving towards the cities. Moreover to cater to the increase in urban population and due to other factors the cities are expanding. With this expansion there is an increase in need of transportation systems. These might result in a growth in the car industry. Economic: The economy of India today enjoys Continuation of economic reforms & liberalization, encouragement of foreign investments, big growth in service sector which are causing the GDP to grow at a healthy rate. Inflation continues as a problem, but no excessive rise in recent times took place and exchange rate remains reasonably stable presently. Although there is a setback due to recession recently, economy is back to the normal because of various steps taken by the Government. Energy especially petroleum energy becoming more scarce & costly because of which there is a growing trend towards fuel efficient cars.Labor situation attractive Because of the increase in numbers of the professional course graduates there is abundance of skilled workers. Passenger car industry and auto ancillaries are well endowed with skilled workforce and wages are on the increase now, but by global standards low. Because of the lucrative offers in software and service industries most of highly skilled labor is attracted by them.Boom in tourism industry has helped in growth of travels and taxi industry in India. This has increased in the demand of both luxury and passenger cars. Legal : Although there is a coalition Government, it is fairly stable for the past few years. The government expanded and amended list of safety standards for automobiles manufactured in the country. The notification is expected to further narrow the gap between Indian and European safety standards in automobiles. The complete list of existing and modified standards, along with a series of new standards, was notified and will be brought under the legal ambit through amendments in the Motor Vehicles Act and the Central Motor Vehicle Rules Technological factors: Rate of technology change is not so high in the automobile industry even if the technological change due to R&D is high.In order to encourage this Government of India has established National

Automotive Testing and R &D Infrastructure Project (NATRIP) which aims to create core global competencies in automotive sector and facilitate its integration with the world economy. It seeks to develop 'state-of -the- art' testing, validation and R& D infrastructure in the country with a view to support the growth and development effort of the automotive industry to reach international levels. Government regulations: The auto policy of 2002, later amendments in 2004 made by Government of India aimed to develop the automobile industry of India as it contributes tremendously for the growth of GDP. The fiscal measures, tax reliefs and reforms in equity regulations and foreign exchange led to significant growth in the automobile sector. A reduction in the percentage of tariffs imposed on exports and a change in the banking policies was instrumental in the expansion and growth of the banking sector. Furthermore, the auto emission rules issued by the government in recent years ensured that the vehicles manufactured in India, catered to international standards A reduction in the tariff imposed on car exports has been effected by the Indian government. There has also been a removal of the minimum capital investment required from new investors. The new policy is also in favor of reduction in excise duty for small automobiles and low emission and multi utility cars. The tariff policy is also to be reviewed on a regular basis in order to affect a balance between domestic industry and international trade. There has also been a proposal for tax relaxation on investment of more than Rs. 500 Crore. The government has recently proposed for an infrastructure that will provide one stop clearance for any kind of proposal for foreign direct investment in the automotive sector. This will include the local clearance system also for the same purpose. There are also plans for imposing a 100 % tax deduction on export profits. The government has also proposed for a concession in import duty for the establishment of new manufacturing units and industrial holdings. The Indian government is also urging the state governments to ensure continuous power supply to the automotive manufacturing units as well as granting them with the preferred plots of land. The auto policy of the Indian government also includes the promotion of vehicles which are run on alternative energy resources. The policies adopted by the Indian government for the growth and development of the automobile sector, has led to a large number of foreign investments. Financial resources sectors: Due to the increase in foreign investment, various supporting government policies the chance for raising capital for expansionary processes of automobile firms is higher. With increasing availability of car loans by financial institutions as well as firms for their employees ,the demand for cars is on an increase. Although it has suffered a setback during recession time, the times are changing at a faster pace to a favorable environment. Second hand automobile market: The new car market in India grew at a rate of 30% in 2010,however,the used car market which is highly unorganized grew at a rate of 40% (following a rough estimate).This growth in used car market can be beneficial as well as detrimental to the car industry. This market enables consumers

comprising rich and higher middle classes to sell their old models to buy new models of cars. Most of the lower middle class go for buying an used car than for a new car. Consumers are offered with an alternative of getting a used richer model than a low cost model because of the used car industry.So, the companies with low cost cars are going to be affected with this used car market.

MARUTI SUZUKI INDIA LTD GENERAL INFORMATION

Maruti Udyog Limited (MUL), INDIAs finest and Asias largest automobile industry was established in 1981 by an act of parliament. MUL, the first automobile company in the world to be honored with an ISO 9000:2000 certificate, is a subsidiary of Suzuki Motor Corp (holds a 54% equity stake). The Government of India remains a significant equity stakeholder (10%). With its early mover advantage in Indian market, Maruti retains a dominant Market share despite increasing competition. The Group's principal activity is to manufacture, purchase and sale of Motor Vehicles and Spare parts. The other activities of the Group comprises of facilitation of Pre-Owned Car Sales, Fleet Management and Car Financing. The Group also provides services like framing of customized car policies, economical leasing of cars, maintenance management, registration and insurance management, emergency assistance and accident management. The product range includes ten basic models with more than 50 variants. The Group has operations in over 100 cities with more than 150 outlets and also exports cars to other countries.

EXTERNAL TASK ENVIRONMENT

Customers Maruti Suzuki has adopted a focused approach and wisely created segments within a large market to promote their cars. The segments they created are - Lower Income Group (Maruti 800, Alto), Middle Income Group (Wagon R, Swift, Swift Dzire, Ritz) & High Income Group (Maruti Suzuki Kizashi, Suzuki Grand Vitara)

Deloitte consulting predicts that over the next 10 years, the automotive industry will see the most dramatic changes in consumer buying preferences in its 100 year history. They say that, in their nature and implications, these changes will play out differently in mature and emerging markets. They say that attitudes altered by the recession will continue in mature markets while a shift from economy cars to luxury sedans will occur in emerging markets. Competitors With a slew of new players entering the Indian small car market, segment leaders like Maruti Suzuki India Ltd (MSIL) and Hyundai Motor India Ltd (HMIL) will face challenges to their domination. The increasing number of new players as well as the higher number of new product launches from existing players is likely to increase the competitive intensity over the medium term. This could lead to increased price competition and consequently margin pressures. (as predicted by ResearchandMarkets, Worlds largest market research source) Labor market Maruti, 54.2-percent owned by Japan's Suzuki Motor Corp, has suffered a total production loss of over 64,000 cars in 2011 due to strikes by its employees, a shortfall equivalent to around $400 million. Industrial action first flared up in June when a 13-day strike by workers demanding the firm recognize a new union lead to a production loss of $95 million. Therefore maruti should understand the increasing clout of unions and bargain efficiently so as to prevent such instances from disrupting production. India is evolving at a very high pace but its aim to turn into a global small car hub could be impacted in several ways and one of the major consequences hindering the growth is the troublesome labor of the country. Apart from excessive insufficiency of workers in India, sluggish expansion in locally crafting the components and skilled workmanship are few of the clauses depreciating the country of becoming a small auto hub in the world, as per market research firm JD Power. A report from JD Power in India Automotive 2020: The Next Giant from Asia, Indias main objective to turn into a global small carmaker and producer basically encounters massive troubles like lack of skilled labor, high cost of labor, lower work efficiency and lesser productivity. Apart from these basic hindrances, the increasing cost of labor is actually pressurizing the production costs leading to further labor problems. Even major automakers in India like Hyundai, General Motors and recently countrys auto leader Maruti Suzuki have confronted labor unrest in last few months. Financial The Reserve Bank of India on Tuesday chose to continue with its tight monetary stance and raised interest rates by 25 basis points-- 13th time since March, 2010-- to tame inflation, even as it lowered the growth target to 7.6 per cent for the current fiscal. "Changing the policy stance when inflation is still far above the tolerance level entails risks to the

credibility of the Reserve Bank's commitment to low and stable inflation," the policy document said, even as it admits that growth momentum has slowed down. All this would imply that Auto loans would get costlier and purchases of vehicles would fall in the short term ------------------------------------------------------------------------------------------------------------------------------

TATA MOTORS LTD GENERAL INFORMATION

Tata Motors Limited is an Indian multinational automotive corporation headquartered in Mumbai, India. Part of the Tata Group, it was formerly known as TELCO (TATA Engineering and Locomotive Company). Tata Motors is South Asias largest automobile company, with consolidated net profit of 9,274 crore (US$2.07 billion) in 201011. It is the leader in commercial vehicles and among the top three in passenger vehicles. Tata Motors has products in the compact, midsize car and utility vehicle segments. The company is the world's fourth largest truck manufacturer, the world's second largest bus manufacturer, and employs 50,000 workers. Tata Motors has produced and sold over 4 million vehicles in India since 1954. Established in 1945, when the company began manufacturing locomotives, the company manufactured its first commercial vehicle in 1954 in collaboration with Daimler-Benz AG, which ended in 1969. Tata Motors is a dual-listed company traded on both the Bombay Stock Exchange and New York Stock Exchange. In 2010, Tata Motors surpassed Reliance to win the coveted title of 'India's most valuable brand' in an annual survey conducted by Brand Finance and The Economic Times. Tata Motors has auto manufacturing and assembly plants in Jamshedpur, Pantnagar, AP, Lucknow, UP, Sanand, GJ, Dharwad and Pune, MH in India, as well as in Argentina, South Africa, Thailand and England.

EXTERNAL TASK ENVIRONMENT

Customers: The company's passenger cars include the Indica, the Indica Vista, the Indigo and the Indigo Marina. Jaguar produces four car lines: XK, XF, XJ and X-Type. They manufacture a number of utility vehicles (UV), including the Sumo, and the sports utility vehicle (SUV), Tata Safari. Also, they manufacture a variety of light commercial vehicles (LCVs), including pickup trucks, trucks and buses with GVW of between 0.7 ton and 7.5 tons. This also includes the Ace, a mini-truck with a 0.7 ton payload, the Magic, a passenger variant for commercial transportation and the Winger. They also manufacture a variety of medium and heavy commercial vehicles (M&HCVs), which include trucks, buses, dumpers and multi-axle vehicles with GVW of between 9 tons to 49 tons. Thus the customers range from truck owners and transportation business owners to middle class families and upper class families.

The multitude of vehicles offered by Tata Motors translates into a wide variety of customers spread throughout the country and hence maintaining standards across the various models becomes necessary since product failures can affect more than one category. Recently there is a trend towards diesel cars due to the skyrocketing fuel prices, and since Tata Motors is predominantly strong in diesel engines this could lead to more customers. Moreover the joint venture with FIAT has helped Tata Motors provide the latest Common Rail Injection engine in its models which has helped to gain more customers. Competitors: The major competitors for Tata Motors in the commercial vehicles segment are Ashok Leyland and Mahindra and in the passenger segment there are a large number of Indian and multinational companies like Maruti Suzuki, Ford, Toyota, Fiat, Hyundai etc. The Competitors are very aggressive and there is intense competition for capturing market share and the market has witnessed of new launches in the recent times in almost all segments of passenger cars. In the petrol engines Hyundai, Maruti, GM and Ford has launched advanced engines with superior power and fuel efficiency whereas Tata Motors has not replicated the same and hence the sale of petrol hatchbacks and sedans has taken a beating. The Japanese competition namely Toyota and Honda are offering cars with class leading quality and reliability which Tata Motors would find difficult to match with the current production techniques. The segment where Tata Motors has no direct competition is the Nano car where it can leverage the first mover advantage. In the commercial vehicle sector recently there have been collaborations with international Truck makers and Tata has a joint venture with Marco Polo of Spain. Suppliers: Tata Steel Europe spends over six billion pounds each year on goods and services to support its steelmaking, processing, and distribution operations worldwide. To meet company needs, procurement is organised to work with operations across the company, with a central purchasing team for raw materials & shipping and lead buyers for alloys, refractoriness, rolls, metals, IT and bulk gases. Other categories, including scrap, goods and services, are co-ordinated across the procurement network where there are points of overlap and value can be created. Complementing the category organisation, procurement teams are also organised geographically to support all the business operations across the world. Tata Motors usually provide the output they expect and allowed suppliers to get creative with their designs, materials and prices. In other words, Tata described the goal they wanted to achieve with a certain part and the suppliers took that and ran with it. Labour Market Concerns of a global economic crunch and rising inflationary pressures are acting as a caution sign for India, which has suddenly turned cautious in its hiring plans in the automobile industry. The labour dispute at the Manesar plant of the countrys largest car maker Maruti Suzuki India (MSI) seems to have opened up a slight window of opportunity for other auto makers to close in on the big market share of MSI which commands nearly half of the passenger car market.

It was reported in LiveMint newspaper that he Indian auto major Tata Motors seems to be stepping on the gas to make the most of the opportunity created by labour strife at MSI.It was reported that the countrys third largest car maker has more than doubled production of cars at its Pune plant in October to meet demand created by the long waiting periods for its rivals diesel models. As a part of promoting the welfare of employees in TATA Motors, they have went ahead with the policy of making the temporary workers permanent, which lets TATA Motors provide them in house training and extending perks to them. The total number of temporary workers being made permanent in the financial year 2010-11 to 650, which is the highest in its history. The regularisation of services of temporary workers was a part of a tripartite agreement signed between the management and the labour unions at various plants across India. A subsidised pickup and drop-down bus service is being provided as well. Tata Motors last witnessed a minor labour scuffle back in 2005 at its Jamshedpur unit. Financial Resources. Tata Motors Limited is India's largest automobile company, with consolidated revenues of Rs. 92,519 crores (USD 20 billion) in 2009-10.The company controls about two-thirds of the entire sector in India, with sales growing at a compounded 13% rate over the past nine years, in line with the growth of the underlying market. The company like its peers is battling high input costs (already a dampener on profits) and high interest costs (which will be a dampener for vehicle demand). These concerns are expected to persist for the near term as India's central bank struggles to contain inflation. Tata Motors paid $2.3 billion for acquiring Jaguar Land Rover (JLR) To boost sales after three separate incidents of fire in the small car, the company had also announced schemes such as a free four-year/60,000 km extended warranty, a comprehensive maintenance contract for new buyers at Rs 99 per month. Tata Motors Finance also offers 90 per cent finance for the Nano at easy rates The FY 2009-10 witnessed the highest sale of Tata Motors vehicles registering at 642,686 units. In March 2010, Tata Motors' total sales were recorded at 75,151 against 54,452 units vended in March 2009. Collective sales of Tata Motors commercial vehicles in the Indian market for 2010 are 373,615 units. The company registered a growth of 41% considering its previous year's sales while the collective sales of Tata Motors passenger vehicles for 2010 are 234,930 units and are estimated the highest ever for the firm. The firm's trade from exports for March 2010 was at 4,105 units against 1,799 units in the previous fiscal. -------------------------------------------------------------------------------------------------------------------------------

References
http://motoroids.com/features/used-car-market-guide-for-2011.html http://www.economywatch.com/indian-automobile-industry/governmentpolicies.html http://www.thehindubusinessline.com/markets/stockmarkets/article2525009.ece Automotive Industry Report, 2010 - Deloitte Indian Automotive Industry Evolving dynamics KPMG International Capital Line Database Tata Motors Ltd Capital Line Database Maruti Suzuki Ltd Website of the Society of Indian Automotive Suppliers (SIAM) Website of the Reserve Bank of India (RBI)