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AUTOMOBILE

INDUSTRY

Presented
By,
Akshay
Adisha
Arathi
Aftab

Meaning
The automotive industry is a wide
range of companies and
organizations involved in the design,
development, manufacturing,
marketing, and selling of motor
vehicles

Introduction
The term automotive was created from Greek autos (self), and Latin motive (of
motion) to represent any form of self-powered vehicle.
The automotive industry began in the 1890s with hundreds of manufacturers that
pioneered the horseless carriage.
In 1929 before the Great Depression, the world had 32,028,500 automobiles in use,
and the U.S. automobile industry produced over 90% of them. At that time the U.S.
had one car per 4.87 persons.
After World War II, the U.S. produced about 75 percent of world's auto production.
In 1980, the U.S. was overtaken by Japan and became world's leader again in 1994.
In 2006, Japan narrowly passed the U.S. in production and held this rank until
2009, when China took the top spot with 13.8 million units. With 19.3 million units
manufactured in 2012, China almost doubled the U.S. production, with 10.3 million
units, while Japan was in third place with 9.9 million units.
From 1970 (140 models) over 1998 (260 models) to 2012 (684 models), the
number of automobile models in the U.S. has grown exponentially.
In 2014-15, the Indian automobile industry produced 23.37 million vehicles.
Automobile Industry GDP contribution is almost 10 % as of 2016 Budget ( 2013GDP 7%)

Objectives
Modernization of the Indian
Automobile Industry
Production of fuel-efficient vehicles
to conserve scarce resources.
Production of large number of motor
vehicles which is necessary for the
economic growth.

Economy
India is the 2nd largest motorcycle and 4th largest commercial vehicle
manufacturer in World
The total turnover of the Indian automotive component industry estimated at USD
35 billion in 2013-14, Auto ancillary exports fetched USD 10.2 billion.
The automobile is a primary mode of transportation for many developed
economies.
The Detroit branch of Boston Consulting Group predicted that by 2014, one-third of
world demand will be in the four BRIC markets (Brazil, Russia, India and China).
Meanwhile, in the developed countries, the automotive industry has slowed down.
It is also expected that this trend will continue, especially as the younger
generations of people (in highly urbanized countries) no longer want to own a car
anymore, and prefer other modes of transport.
Other potentially powerful automotive markets are Iran and Indonesia. Emerging
auto markets already buy more cars than established markets.
According to a J.D. Power study, emerging markets accounted for 51 percent of the
global light-vehicle sales in 2010. The study, performed in 2010 expected this trend
to accelerate. However, more recent reports (2012) confirmed the opposite;
namely that the automotive industry was slowing down even in BRIC countries

Domestic Motor Vehicle Sales(201415)


Passenger Vehicles: 2.60 million units
Commercial Vehicles: 0.61 million
units
Two wheelers: 16.0 million units
Three wheelers: 0.53 million units
Total=19.75 million units

Automotive Parts
Manufacturers

Ashok Leyland- Leyparts


Tata AutoComp Systems Ltd
Clutch Auto Ltd
Indian Pistons Ltd
Bharat Gears
Bharat Forge
Exide Industries
Bosch India
Rico Auto

Regulatory Bodies
Ministry of Road Transport and Highways (MORT&H)
Motor Vehicles are governed by the Motor Vehicles
Act,1988 and Central Motor Vehicles Act 1989
Other regulatory bodies associated with industry
are:
-Bureau of Indian Standards
-Automotive Research Association of India(ARAI)
-Automotive Component Manufacturers
Association(ACMA)
-Central Institute of Road Transport(CIRT)

BIG FIVE MODEL

1)Threat of New Entrants- threat of entry and rivalry is the most


important as it defines how companies in an industry behave and
perform
Factors that can limit the threat of new entrants in an industry include:
Existing loyalty to major brands
Incentives (for using a particular buyer (such as frequent shopper
programs)
High fixed costs
Scarcity of resources
High costs of switching companies
Government restrictions or legislation
Companies Planning to enter Indian
Automobile Industry are: Isuzu, Jeep and
Mazda

2)Suppliers Power- Supplier power is the degree of leverage a


supplier has with its customers in areas such as price, quality, and
service.
-Sellers of commodity goods to a concentrated number of
buyers are in a much more difficult position than sellers of
differentiated products to a diverse buyer base
Here are a few reasons that suppliers might have power:
There are very few suppliers of a particular product
There are no substitutes
Switching to another (competitive) product is very costly
The product is extremely important to buyers cant do without
it
The supplying industry has a higher profitability than the buying
industry

3)Buyers Power- Buyer power is the bargaining strength of the buyers of a


product or service
Here are a few reasons that buyers might have power:
Small number of buyers
Switching to another (competitive) product is simple
The product is not extremely important to buyers; they can do without the
product for a period of time
Customers are price sensitive
4)Threat of Substitution- Substitution threat addresses the existence of
substitute products or services, as well as the likelihood that a potential buyer
will switch to a substitute product.
Here are a few factors that can affect the threat of substitutes:
The main issue is the similarity of substitutes. For example, if the price of
coffee rises substantially, a coffee drinker may switch over to a beverage like
tea.
If substitutes are similar, it can be viewed in the same light as a new entrant.

5)Competitors Rivalry- Competitive rivalry describes


the intensity of competition between existing firms in an
industry. Highly competitive industries generally earn
low returns because the cost of competition is high
A highly competitive market might result from:
Many players of about the same size; there is no
dominant firm
Little differentiation between competitors products
and services
A mature industry with very little growth; companies
can only grow by stealing customers away from
competitors

PESTEL ( Contd.)

MARKET STRUCTURE
What is oligopoly market?
Market structure is featured by a few firms
Strategic Interaction Reaction to competitors pricing and market strategies
Product can be homogeneous or differentiated
Considerable barrier to entry for new firms
Profit maximization conditions
Ability to set price

What is Monopolistic market?


Market structure is characterized by many firms
Product differentiation allows a Range of prices
Monopoly over a small range of price
Barriers to entry and exit very minor
Branding, advertising and personal selling to differentiate the product

REASONS FOR THE OLIGOPOLY STRUCTURE


Post 1947, Government of India and private sector launched efforts to create
Automotive components manufacturing industry
Slow growth in 1950s and 1960s: Reason: License Raj, Nationalization,
Socialistic approach, MRTP Act
The Industries (Development and Regulation) Act passed in 1951 to
implement Industrial Policy Resolution of 1948- one of the reasons for closed
market
The Act empowered Government to prescribe Prices, Methods, Volume of
Production, Channels of distribution
License Raj Up to 80 government agencies to be satisfied before private
companies could produce something and, if granted, the government would
regulate production
MRTP Act - To control Monopolies and Monopolistic trade policies
1970s Fair Growth but mainly towards Tractors, Commercial vehicles and
Scooters

THE CAUSES OF TRANSFORM


The first big step MARUTI+SUZUKI=MARUTI SUZUKI

Policy changes introduced in 2 doses:


1.
2.

Partial de-regulation in 1985


1991 policy changes

. Partial de-regulation allowed technology inflow into India


. New Industrial Policy in July 1991 by Congress Government led by Mr. Narsimha Rao
. April 1993- Government removed motor cars from list of industries reserved for
compulsory licensing

EFFECTS OF THE TRANSFORMATION


New firms, including foreign players, entered with modern engineering, efficient processes and
modern shop-floor layouts.
Indian automobile industry grew at 14.31% per annum in post-1991 era compared to 8.56% per
annum during 1985-91.
Delicensing of sector attracted many major Global OEMS(GM, Ford, Honda, Hyundai etc.) to
start assembly in India.
The share of export in total production for the OEMs that do export ranges between less than 1
and 10 per cent, with one exception, which is a car major based in Chennai, exporting more than
50% of its production.

A FEW GOVERNMENT INITIATIVES ..


Finance Bill 2006- reduction of excise duty on small motor vehicles, reduction in duty of raw
materials from 10% to in between 55-7.5% - Infrastructure boost.
Extension of 150% weighted tax deduction on R&D expenditure- increase in budgetary
allocation towards R&D.
Allowing automatic approval for foreign equity investment upto 100%, with no minimum
investment criteria.

Market Segmentation
Segmentation has mostly been done on product types or price ranges.
The following four segments based on price and type of car have been identified:
Off-road or utility vehicles e.g., Maruti Gypsy, Mahindra Armada, Tata Sumo.
Economy segment, comprising cars priced at less than $ 13,333, e.g., Ambassador, Premier
Padmini, Maruti 800.
Luxury segment, comprising cars in the $ 13,333 to $ 33,333 price bracket, e.g., Maruti Zen,
Premier 118NE, Contessa, Maruti Esteem, Tata Sierra, Peugeot 309, Opel Astra, Cielo, Ford
Escort, VW Golf, Mitsubishi Lancer, Rover Montego.
Super-luxury segment, comprising cars priced at higher than $ 33,333, e.g., Mercedes-Benz,
BMW, Audi.

Positioning
The companies have developed image-based positioning strategies for their brands. Some of
them are :
Hindustan Motors (HM) - enduring, sturdy
General Motors Opel (GM) - German engineering
Daewoo - Family car
Honda - superior after sale service
Peugeot - sound-free diesel engine
Ford Esteem - smooth drive

HERFINDAHL-HIRSCHMAN INDEX HHI


Herfindahl-Hirschman Index is a measure of the size of firms in relation to the industry and an
indicator of amount of competition among them.
An HHI below 0.01 (or 100) indicates a highly competitive index.
An HHI below 0.15 (or 1,500) indicates an unconcentrated index.
An HHI between 0.15 to 0.25 (or 1,500 to 2,500) indicates moderate concentration.
An HHI above 0.25 (above 2,500) indicates high concentration.
It is defined as the sum of the squares of the market shares of the firms within the industry
(sometimes limited to the 50 largest firms), where the market shares are expressed as fractions.
The result is proportional to the average market share, weighted by market share.

The U.S. Department of Justice considers a market with a result of less than 1,000 to be a
competitive marketplace; a result of 1,000-1,800 to be a moderately concentrated marketplace;
and a result of 1,800 or greater to be a highly concentrated marketplace. As a general
rule, mergers that increase the HHI by more than 100 points in concentrated markets
raise antitrust concerns.

MARKET
SHARE-2005

CARS

MARKET
SHARE(%)

(MARKET
SHARE)^2

Suzuki

21.35

455.82

Honda

14.25

203.06

Kawasaki

11.39

129.73

Bmw

7.38

54.46

Harley

3.69

13.61

Ktm

3.43

11.76

Triumph

2.89

8.35

Ducati

2.84

8.06

Gas gas

2.79

7.78

Yamaha

22.66

513.47

Others

7.33

53.72

HHI

100

1459.82

HHI for 2008

MARKET
SHARE-2010

CARS

MARKET
SHARE(
%)

(MARKET
SHARE)^
2

Maruti
Suzuki

45.4

2061.16

Hyundai

14

196

Tata
Motors

12.3

151.29

Mahindra

6.8

46.24

General
motors

3.9

15.21

Toyota

3.1

9.61

Honda

2.7

7.29

Ford

3.9

15.21

Volkswag
en

2.5

6.25

Others

5.5

30.25

HHI

100

2538.51

Market share-2013

CARS

MARKET
SHARE
( %)

(MARKET
SHARE)^2

Maruti

47.26

2233.5

Hyundai

16.34

266.99

Mahindra

8.50

72.25

Honda

7.40

54.76

Tata

6.01

36.12

Toyota

5.14

26.42

Ford

2.61

6.81

Chevrolet

1.67

2.78

Renault

1.50

2.25

Volkswagon

1.25

1.56

Nissan

0.86

0.74

Datsun

0.65

0.42

Skoda

0.56

0.31

Fiat

0.26

0.067

HM mitsibushi

0.00

0.00

HHI

100

2704.9

2015

Top-5 Car Manufacturer in India


Manufactur
Market
Rank
Sales
er
Share
Maruti
1
105559
46.48%
Suzuki India
2
Hyundai
34780
15.31%
Honda Cars
3
18324
8.07%
India
Mahindra &
4
18015
7.93%
Mahindra
5
Tata Motors
13047
5.74%

Total

189725

HHI
2160.39
0
234.396
65.124
62.884
32.947

INDIAN AND GLOBAL SCENARIO


OF AUTOMOBILE INDUSTRY
INTRODUCTION
India ranks just behind China with the worlds second largest population at over 1 billion
people. Less than 1 percent of the population currently owns automobiles, which is a much
smaller proportion than the rest of the Southeast Asia region.
In the last few years, the world automotive industry has changed its location preferences
due to various reasons. Growing developing economies has been evolving as the
manufacturing hub, as also the newfound markets, for the global majors like Ford, General
Motors, 46 Saurabh Mohan Saxena & R.K. Shukla Chrysler, Toyota, Honda, Nissan and
BMW, who are competing to enhance their market share in these markets.
The entry of global auto-majors into India has significantly altered the automobile
manufacturing scenario in the country. The changes in design and adaptation of
international technologies have enabled the Indian automotive industry to compete globally,
and thus are also exposed to global challenges.

GLOBAL SCENARIO
Around three-fourths of the global production is being carried out in top 10 producing
countries, in 2007. Of these, Japan, USA and China, cumulatively constitute over 40% of global
production.
India ranks 8th in the production of commercial vehicles and is ahead of countries like Brazil,
Germany, France and Turkey.
Addressing the Challenge of Volatility in Fuel Prices. One of the major challenges of the world
automotive industry is the volatile oil prices.
The year 2008 witnessed crude oil prices breaching the US $ 140 mark per barrel, and
thereafter slipped below US $ 40, in the later part of the year.
The volatility in oil prices does not directly affect the growth in automotive industry; however,
volatility in oil prices is one of the influential factors in automobile demand.

THE INDIAN SCENARIO


Indian automobile and auto- components industry, barring downtrends in few years, was on a
growth trajectory, aided by robust economic activity and infrastructure development; growing
middle-class population with disposable income; and growing consumer demand.
It is estimated that the Indian automotive industry contributes more than 5% of the national
GDP, and tax contribution of the sector to the exchequer is estimated to be Rs. 25,000 crores.
The industry provides direct and indirect employment to over 1.3 crore people. The turnover
of the automobile industry was estimated to be around US $ 35 billion and that for components
industry was at US $ 18 billion in 2007-08

Some related points:


Current State of the Indian Auto Market
Small Vehicle Market
Indian Exports and Top Manufacturers
Auto Components Industry

Automobile industries in
the world

Top 10 motor vehicle producing


country in the world

Conclusion
Despite economic slowdown, the Indian automobile sector has shown
high growth. The passenger vehicle market, which constitutes around
80% of automobile sales, has immense growth potential as
passenger car stock stood at around 11 per 1,000 people in 2008.
Anticipating the future market potential, the production of passenger
vehicle is forecasted to grow at a CAGR of around 10% from 2009-10
to 2012-13.

De-licensing in 1991 has put the Indian automobile industry on a new


growth track, attracting foreign auto giants to set up their production
facilities in the country to take advantage of various benefits it offers.
This took the Indian automobile production from 5.3 Million Units in
2001-02 to 10.8 Million Units in 2007-08. The other reasons
attracting global auto manufacturers to India are the countrys large
middle class population, growing earning power, strong technological
capability and availability of trained manpower at competitive prices.