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AUTOMOTIVE

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Automotive is one such industry group.
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AUTOMOTIVE

ADVANTAGE INDIA

GOVERNMENT INITIATIVES

MARKET
Size and Growth

OPPORTUNITIES

18

CONTACT FOR INFORMATION

28

The Indian automotive industry has been witnessing dynamic


growth over the years.
The domestic Indian passenger car market (including utility
vehicles) totalled 900,000 units (with a CAGR of 10 per
cent over the past 4 years) while the exports were
130,000 million units (with a registered CAGR of 68 per
cent over the past 4 years) during financial year 2004
The Indian two-wheeler Industry is one of the largest
in the world, and is expected to maintain robust growth
in the future
At the back of this phenomenal automotive growth
is the success of the Indian auto component industry.
Presently a US$ 6.7 billion industry, it is expected to
almost treble in less than eight years time to US$ 17
billion by 2012
India offers a distinct technological and cost-competitive
advantage, which global Original Equipment Manufacturers
(OEMs) and automotive suppliers are leveraging for both
manufacturing and research facilities.

A U T O M O T I V E

PAGE 3

ADVANTAGE INDIA
The Indian automotive industry has a significant labour cost
advantage. Indias automotive sector has the worlds second
largest pool of skilled labour. The country with its high
education levels also provides the worlds largest pool
of qualified engineers.

Competitive cost advantage

Global growth in working-age population (15-64)

Source: UN, Morgan Stanley

English is a widely spoken language in India that provides an


edge to the local workforce, enabling work on long-term
design and engineering projects with overseas customers.

Global comparisons: availability of skilled manpower, 2003

Scale of 1 to 10 with 1 = Low and 10 = High; Souce: IMD Competitiveness Yearbook 2003

English, a widely spoken


language in the country

Global comparisons: availability of qualified engineers, 2003

Scale of 1 to 10 with 1 = Low and 10 = High; Souce: IMD Competitiveness Yearbook 2003

India is already the IT


outsourcing destination
of the world

Indias global reputation in IT instils confidence in global OEMs


and Tier 1 companies. India can supply auto parts for their
global requirements as well as play a role in design and
development of auto components, systems and aggregates.

Product quality already at


par with global standards

Indias emission norms based on Euro II norms are stringent,


placing it ahead on the vehicle quality curve.

A mature Indian auto


industry

The Indian auto component manufacturers are well-positioned


to integrate with the global automotive supply chain, either
as Tier 2 or 3 suppliers or as value providers through
engineering and software services backed by high quality
and state-of-the-art technological products. Global Tier 1
auto component makers like Dana Corporation, Delphi, Visteon
and Denso plan to leverage Indias technological advantage
over other competing Asian countries by setting up
manufacturing units in the country to produce the most
complex auto components. Dana Corporation is relocating
four of its plants, located in US and Europe to India via its
local partner, the Anand Group.
India has a well-developed and reliable financial and legal
system.
India: The cost and skills advantage

India

China

Indias
Advantage
(%Difference)

MIDDLE MANAGEMENT (> 5 YRS)

1,400

2,500

-44%

SUPERVISOR (5 YRS)

300

800

-63%

SKILLED WORKER (I YR)

61

125

-51%

UNSKILLED WORKER

42

65

-35%

US$ per Month

Source: World Bank Development Indicators

A U T O M O T I V E

GOVERNMENT INITIATIVES
The Indian automobile regulatory policy has undergone
progressive change over the last decade.
In June 1993, the First Automobile Policy was announced.
It abolished the requirement of licences to set up
an auto manufacturing plant in India, which was the
first step to allow private and foreign investment
in the automobile industry.
In 1995, the Government introduced a company-specific
Memorandum of Understanding (MoU) route for
manufacturers of cars and multi-utility vehicles. The
policy allowed investments in the automobile industry
with a capitalisation restriction of at least US$ 50 million
over a three-year period.
With effect from April 1, 2001 Quantitative Restrictions
(QRs) on import of automobiles have been removed,
thereby phasing out the MoU policy. With the removal
of QRs, automobile manufacturers do not need import
licences, either to import cars in the kit form or as
completely built units (CBU). The MoU policy has
been replaced by a new three-tiered tariff structure.
Import Tariffs
Product

Basic Customs
Duty

CBU

60%

CKD/SKD*

20%

Components

20%
*Completely Knocked Down Units / Semi Knocked Down Units

PAGE 5

Auto Policy, Government of India, 2002


The Government of India approved a comprehensive
automotive policy in the year 2002, to promote an integrated
automotive sector that can achieve sustainable growth.
The policy, inter alia, seeks to:
make India an international hub for manufacturing
small, affordable passenger cars and a key centre
for manufacturing tractors and two-wheelers for
sales worldwide
ensure a balanced transition to open trade at minimal
risk to the Indian economy and the local industry
provide a conducive environment for modernisation
and facilitate indigenous design, research and development
assist development of vehicles propelled by alternative
energy sources
develop safety and environmental standards at par with
international standards
Identifying the lack of volumes (both in the automotive and
components sectors) as a major impediment constraining
efficient production, the policy proposes a set of measures:
Foreign direct investment. Automatic approval has been
granted to foreign equity investment up to 100 per cent
for the manufacture of automobiles and components.
Import tariff. Import tariffs have been fixed in a manner to
facilitate development of manufacturing capabilities as opposed
to mere assembly. For motor cars and multi-utility vehicles
(MUVs), the import tariff has been designed to give maximum
fillip to manufacturing without extending undue protection.

A U T O M O T I V E

Incentives for Research and Development (R&D).


The Finance Bill 2005 provides a weighted deduction of
150 per cent for in-house R&D expenditure in the auto
component industry. Further, the policy proposes to include
vehicle manufacturers for a rebate on the applicable excise
duty for every 1 per cent of the gross turnover of the
company expended during the year on R&D.
Environmental aspects. Adequate fiscal incentives have been
given to promote use of low emission auto fuel technology
(in line with the Auto Fuel Policy). The auto policy states
the Governments intent to align domestic policy with the
international practice of imposing higher road tax on used
old vehicles to discourage their use. Recognising the need
to support the development and introduction of vehicles
propelled by alternate fuels (hybrid vehicles, vehicles operating
with batteries and fuel cells), the policy proposes a long-term
fiscal structure to be put in place to facilitate their acceptance.
Other measures. Recognising the importance of small cars
(cars not exceeding 3.80 meters in length) in the domestic
market and the potential India holds to become an
international hub for the manufacture of small cars, the policy
emphasises the need to spur growth in this segment through
fiscal incentives. Considering the importance of the MUV
segment in the rural and semi-urban areas, the policy states
the need to provide fiscal incentives to this segment.

PAGE 7

Environmental standards:
The National Auto Fuel Policy
The principal environmental standards in India are the Euro I
and Euro II norms, which regulate vehicular emission in terms
of pollutants such as carbon monoxide (CO), hydrocarbons,
nitrous oxides (NOx) and suspended particulate matter.
The Government of India announced the National Auto Fuel
Policy, which recommended Euro II (Bharat II) norms. These
norms are in place in Delhi, Mumbai, Chennai, Kolkata,
Bangalore, Hyderabad, Ahmedabad, Pune, Surat, Kanpur and
Agra. The Policy also suggested that the norms be further
extended to the entire country from April 1, 2005. The
Mashelkar Committee has recommended that Euro III
equivalent emission norms for all categories of vehicles
should be introduced in seven megacities April 1, 2005
onwards, and subsequently extended to other parts of the
country from 2010. Estimates suggest that the automobile
industry would require investments in the range of
US$ 5-7 billion for manufacturing vehicles compatible
with the proposed emission norms.

A U T O M O T I V E

PAGE 9

MARKET
Size and Growth
The passenger car market is projected to grow at a CAGR of
12.3 per cent over the next few years. Growth in the mid-size
and premium car segments is expected to outpace the overall
market growth.

Passenger car market


growing at a sustained pace

2003-04 (A): Total units - 696,207

Source: CRIS INFAC, Annual Passenger Car, October 2003

The Indian two-wheeler market is one of the largest


two-wheeler markets in the world, with the present estimated
size of 5.4 million units a year.
Over the last five years, the two-wheeler market in India
has grown at a CAGR of 10 per cent and is projected to
maintain this robust growth rate in the future. Motorcycles
comprise approximately 78 per cent of the two-wheeler
market, with the remaining 22 per cent being shared
between scooters and mopeds.

Two-wheelers on a robust
growth path

Auto ancillary industry


to strengthen

Nearly two-thirds of the auto component production is


consumed directly by OEMs, around one-fifth goes to
after-market sales and the remaining is exported. The market
is dominated by the organised sector that comprises nearly
400 players, covering 78 per cent of the demand. The
remaining demand is met by the fragmented unorganised
sector. Presently a US$ 6.7 billion industry, the Indian auto
component industry is projected to grow at a CAGR of
15 per cent. It is expected to almost treble in eight years to
US$ 17 billion by 2012 (Source: Automotive Component
Manufacturers Association of India (ACMA) quoted in a
Study of the Indian Automobile Industry, AT Kearney).

Indian auto ancillary industry: revenue shares of various component


categories, fiscal year 2003

Source: CRIS INFAC

A U T O M O T I V E

Indian auto ancillary industry: revenue shares of various component


categories
FY1999

FY2000

FY2001

FY2002

FY2003

CAGR

ENGINE PARTS

696

870

804

848

1000

8.9%

ELECTRICAL PARTS

152

217

261

283

304

20.1%

TRANS & STEERING

435

478

457

565

609

9%

SUSPEN. & BRAKING

370

435

413

435

457

6.3%

EQUIPMENT

152

174

217

239

348

23.7%

OTHER

370

543

848

1152

1521

43.2%

TOTAL ORGANISED
SECTOR

2174

2739

2978

3522

4239

18.2%

SSI SECTOR
ESTIMATED

652

826

891

1043

1283

18.4%

TOTAL COMPONENTS

2826

3565

3869

4565

5522

18.3%

Source: CRIS INFAC


All values in US$ million; FY: Financial Year

Sales break-up: Indian auto component industry, fiscal year 2003

Source: CRIS INFAC

P A G E 11

Market Structure

Changing laws

attracted numerous
players in the passenger car
segment

For nearly three decades after independence, the Indian


automobile industry comprised only two automobile
companies, Hindustan Motors and Fiat. The industry was
licensed, highly regulated and government-controlled during
this period. The early 1980s saw the entry of a new player,
Maruti Suzuki, a joint venture of Suzuki Motor Corporation,
Japan and the Government of India.
The early 1990s witnessed several reforms initiated by the
Indian Government aimed at encouraging private and foreign
investment through delicensing, government-decontrol and
deregulation of various sectors of the economy. In June 1993,
a new automobile policy was formulated allowing foreign
investment in the automobile sector, abolition of licences
and a reduction in duties across the board to enable the
sector to become globally competitive. This resulted in several
new players entering the Indian automobile industry, including
General Motors, Ford, Hyundai, Honda, and several others.
Market shares of players in the domestic passenger car market
(April 2003 - March 2004)

A U T O M O T I V E

P A G E 13

Foreign players in India


Name

India Partner

Collaborator

Foreign
equity

Year of
Incorporation

DaimlerChrysler India Private Limited

None

DaimlerChrysler AG

100%

1995

Fiat India Automobiles Pvt. Limited

None

Fiat Auto SPA, Italy

100%

1997

Ford India Limited

Mahindra & Mahindra

Ford Motor Company, USA

84.10%

1995

General Motors India Limited

None

General Motors Corporation, USA

100%

1995

Hindustan Motors

C K Birla Group

None

1940s

Honda Siel Cars India Limited

Siel Limited

Honda Motor Company Limited, Japan

99%

1995

Hyundai Motor India Limited

None

Hyundai Motor Company, Korea

100%

1996

Maruti Udyog Limited

Government of India

Suzuki Motor Company, Japan

54.20%

1982

Tata Motors Limited

Tata Group

None

1945

Toyota Kirloskar Motors Limited

Kirloskar Group

Toyota Motor Corp., Japan

88.90%

1997

Tata Motors an indigenous success story


Tata Group is among Indias largest business houses. The
group has interests in seven key industry sectors. These
include engineering, chemicals, consumer products, energy,
communications and information systems, materials and
services. It holds a leading position in many of these sectors.
One of its oldest and most prominent companies is Tata
Motors, earlier known as Tata Engineering. Tata Motors
is the foremost, the largest and the only fully integrated
automobile manufacturer in India. It ranks among the
worlds top ten producers of commercial vehicles.
Its product range covers passenger cars, multi-utility vehicles
and light, medium and heavy commercial vehicles for goods
and passenger transport. Seven out of ten medium and
heavy commercial vehicles in India bear the Tata mark.
Over the years Tata Motors has made substantial
investments in building companies that add value,
facilitate and support its diverse range of business activities.
The company enjoys a significant demand in export markets
such as Europe, Australia, South East Asia, the Middle East
and Africa. Tata Motors vehicles currently sell in over 70
countries. Tata Motors registered an annual turnover of
US$ 2.8 billion in 2003-04.
It launched Indias first indigenously designed and
manufactured passenger car - the Indica V2 - which has
been a phenomenal success, standing testimony to the
companys research and engineering expertise. Tata Motors
has followed this up with the launch of its sedan Indigo and
its variant the Indigo Marina.
Tata Motors is spreading its wings abroad. It has acquired
Daewoo Commercial Vehicle Co. (DWCV) Korea, the truck
making arm of Daewoo. With this deal the company gets
access to Daewoos 93 models in cargo, dumper, mixer
and tractor categories that it can introduce in other
markets. DWCV produces around 20,000 heavy-duty trucks
in the 200-400 horse power range. This deal will help
Tata Motors diversify into higher horse-power ranges.

A U T O M O T I V E

India represents one of the largest two-wheeler markets in


the world, with an estimated size of 5.4 million units a year.
Two-wheelers are used extensively in the country, both at
the rural and semi-urban level. India is the two-wheeler capital
of Asia with an average of 27 two-wheelers per thousand
people, compared to Chinas 8 two-wheelers per thousand
people (Source: World Bank).
The Indian two-wheeler market in India is oligopolistic in
nature, with the top three companies accounting for over
80 per cent of the total industry sales. Hero Honda Motors
Limited, a joint venture between Honda Motors, Japan and
the Indian-based Hero Group, is the largest manufacturer
of two-wheelers in the world with a 38 per cent market
share of the domestic 5.4 million units two-wheeler market.
Bajaj Auto is the second largest player in the two-wheeler
market with a 22.3 per cent share. The company uses
indigenously developed technology for its two-wheelers.
TVS Motor Company is the third largest player with a 20.9
per cent market share, with a majority of its sales coming
from the southern states of India.
Market shares of players in the domestic two-wheeler market
(April 2003 - March 2004)

Source: SIAM

P A G E 15

Two-wheelers market,
one of the largest in the
world and still growing

Auto ancillary,
transforming through the
years

The Indian auto parts industry is significantly fragmented with a


large number of players having a turnover of less than US$ 10
million per year. The industry directly employs about 250,000
people and has an annual turnover of over US$ 6.7 billion.
The evolution of the Indian auto ancillary industry can be
traced through three distinct phases, each marked by
substantive developments.
Phase I (1980s): Prior to the 1980s, the auto ancillary industry
had been primarily dominated by the unorganised, low
technology small-scale sector. The setting up of Maruti Suzuki
in 1983, generated a need for high quality, reliable auto
components that met the stringent emission standards set
for Maruti cars. This led to the entry of several Japanese
auto component majors like Sumitomo, Koyo and Denso.
Phase II (1990s): The auto component industry in India
witnessed a transformation in the 1990s to a high technology,
quality conscious industry catering to the requirements of
the growing domestic automobile industry. Large players like
Delphi, Robert Bosch, Visteon Corporation etc entered the
market to tap the huge potential created by the strong
domestic and export demand.
Phase III (2000 onwards): This period has seen the
emergence of three trends in the industry, namely:
Globalisation of Indian companies: Several leading Indian
companies have acquired international auto component
companies as part of their strategy to expand their markets
globally and acquire new technology. For example, Bharat
Forge, the second largest forging manufacturer in the world
has acquired German forging company, Carl Dan
Peddinghaus; Amtek Auto acquired two UK-based auto
component companies; Sundaram Fastners acquired
a precision forging unit of Dana Spicer, Europe.

A U T O M O T I V E

Global Quality Benchmarking: Today the Indian automotive


industry has six Deming Award winners which include Rane
Brake Linings Limited; Brakes India Limited, Foundry Division;
Sona Koyo Steering Systems Limited; TVS Motor Company
Limited; Sundaram Brake Linings Limited and SundaramClayton Limited, Brakes Division. By investing in quality,
local component manufacturers are becoming the hub for
global sourcing of international automotive companies.
Outsourcing: Global auto component companies like Delphi,
Visteon, Cummins etc consider India their manufacturing as
well as research base and are sourcing components from
India for their global requirements.

P A G E 17

OPPORTUNITIES
India offers twin
advantages
scaling costs and
optimising revenues

India is a market that offers new avenues for growth in the


automotive sector and also provides opportunities to global
companies to compete more effectively in their home markets.
Given the present downturn in developed markets, OEMs
and suppliers alike are under pressure to optimise their cost
levels and simultaneously drive growth. In this context, India
represents a substantial cost advantage, which global OEMs
and component manufacturers are leveraging to drive down
costs and build growth options.
On the cost front, OEMs are eyeing India in a big way to
source products and components at significant discounts to
home markets. On the revenue side, OEMs are active in the
booming passenger car market in India.

Exports from India

India becoming an export


hub

The Indian automotive exports industry has covered significant


ground to reach international standards in quality, reliability
and technology. This is borne out by the phenomenal auto
export growth witnessed by the country over the last 3-4
years.
Passenger vehicle exports have grown over five times in
the last four years, touching 129,316 cars in 2003-04.
A testimony to Indias emergence as a future auto export
base of the world, is UK-based MG Rover Groups recent
alliance with an Indian automobile major, Tata Motors, to
export an estimated 100,000 cars over the next five years
from India.

A U T O M O T I V E

Korean car manufacturer, Hyundai has made India the global


sourcing base for its small cars and targets exports volumes
of 70,000 cars for 2005.
Suzuki, Japan is using India as the sourcing base for its small
cars.
Export of passenger cars

Source: CRIS INFAC, SIAM

Hyundai Motor India Limited (HMIL)


HMIL was set up in late 1996 as a wholly owned subsidiary
of Hyundai Motors, Korea. The companys small and
compact model, Santro has been a runaway success
in India. The company currently is the second largest player
in the passenger car market in the country with a present
market share of 20 per cent and a turnover of
approximately US$ 1 billion. The company recently rolled
out its 500,000th vehicle from its Chennai plant, and plans
to roll out its millionth vehicle by 2006.
The company caters to all segments (small and compact,
mid-size, premium) of the car market in India, and has a
current manufacturing capacity of 250,000 units.

P A G E 19

Hyundai Motor India Limited

Source: CMIE

HMILs strategy has been to penetrate the Indian passenger


car market with low price offering (Santro priced between
US$ 6000-8000) targeting the burgeoning middle class
market segment. The company has been able to keep
costs down by outsourcing most of its parts to its vendors.
Due to a low fixed cost structure, its breakeven level is
low. The company has replicated the Santro success story
with its Accent model, which is priced at over US$ 10,000
and targets the upper middle class and upper class market
segments. The Hyundai plant has a capacity to make
250, 000 cars and 350,000 engine transmission units per
annum. It also exports engines and transmission parts to
its operations in Korea and Turkey.

Auto ancillary exports have multiplied over the last five years,
growing at a CAGR of 26 per cent between 1999-2000 to
2003-04. As per the latest McKinsey & Co. report on auto The

A U T O M O T I V E

P A G E 21

components, Indian auto ancillary exports currently pegged


at US$ 1 billion, could potentially scale up to US$ 25 billion
in the coming decade.

Explore the cost-competitive advantage


Indias auto component industry with its high product quality,
superior design and engineering capabilities, backed by a large
domestic market and government regulations has emerged as
a preferred outsourcing destination. According to Automotive
Component Manufacturers Association of India (ACMA), all
these factors are expected to contribute towards an export
growth of over 30 per cent per annum until 2010.

Outsourcing opportunity

India offers a low-cost manufacturing base for auto


components, which may be utilised to fulfil global demands.
The average fully loaded cost of a component (for example,
oil filters) sourced from India is typically 20-30 per cent lower
than a US manufactured one, which compares favourably with
even markets like Mexico and is almost at par with China.
Examples of world-class players fulfilling such demand today
are companies like Sundaram Fastners, Sundaram Clayton,
Bharat Forge and Rico Auto, which supply to DaimlerChrysler,
Germany; RVI, France: General Motors, USA; Ford, UK;
Cummins, USA & UK; Land Rover, UK; Volvo, Sweden; Ford,
Brazil; PT DaimlerChrysler, Indonesia; Proton, Malaysia.
Experience of several e-procurement platforms indicates that,
on an average, global buyers save between 10-20 per cent by
sourcing components from India.
Global automobile companies are aggressive in the Indian
market to find sourcing partners in India to meet their
ambitious cost-cutting plans. Both OEMs and their Tier I
vendors (Delphi, Ford, Volvo, Robert Bosch, Cummins etc)
have set-up teams in India to explore such opportunities,
attracted by the countrys availability of low-cost, skilled
engineering manpower.

Tier-I vendors scouting for


sources in India

Large OEMs setting up


purchase offices

recent trend of OEMs setting up IPOs (international purchasing


offices) in the country is an indication of the huge opportunity
for Indian auto component manufacturers.

Minimising costs
of operations

OEMs can also reduce the cost of engineering services, design,


IT and other back-office related operations by remote sourcing
to India on account of its low cost yet highly skilled labour
market.
TRW has a strategic alliance with Satyam for outsourcing
enterprise resource management, supply chain management,
information systems, e-business applications, and engineering
services.
Ford Information Technology Services India (FITSI) is delivering
high-quality solutions in business software, computer-aided
engineering and call centre/e-mail processing. Ford expects
to have annual labour cost savings of US$ 30-60 million.

Bharat Forge Ltd


Bharat Forge Ltd, the flagship company of the Kalyani Group,
was set up in 1961. It is the largest forging company in Asia
and one of the largest and most technologically advanced
commercial forge shops in the world. Catering primarily to
the commercial vehicle segment, its client list includes Tata
Motors, Ashok Leyland, Mahindra & Mahindra and Maruti in
India and DaimlerChrysler, Arvin Meritor, Dana, Renault &
Volvo, overseas. The company has recently acquired Carl
Dan Peddinghaus AT, a German aluminium forging company,
for a consideration of Euro 6.3 million.

A U T O M O T I V E

Bharat Forge has an annual forging capacity of 102,966 MT,


front-axle capacity of 500,000 units and front-axle beams
capacity of 413,000 units. With revenues of approximately
US$ 150 millon, the company has a major focus on exports,
deriving 39 per cent of its revenues from overseas clients.

Bharat Forge Limited

Source: CMIE

Bharat Forges strength lies in its long-standing relationships


with its clients; it being a one-stop shop for all forging
requirements (including several critical products, where
it enjoys a near monopoly). Its manufacturing facilities
are rated very highly and its flexibility to scale operations
helps it in structuring its deliveries in a cost-effective manner.
The company is also looking at de-risking its revenues by
increasing its presence in new and existing overseas markets
and expanding its product lines to cater to other segments
of the automotive market, where it has a small presence
till date.

P A G E 23

Sundaram Fastners Limited


Sundaram Fastners, a member of the TVS group (the
largest automotive component group in India) since 1965,
is one of the pioneers and most respected names in
the auto component industry in India. The company
manufactures about 7000 different types of bolts and nuts.
Its product range includes high-tensile (premium quality)
fasteners, powder metal parts and radiator caps. The
company has won the coveted Best of the Best Suppliers
of the Year award for five consecutive years from General
Motors. Looking at the vast scope of the Chinese market
the company has set up a 100 per cent subsidiary,
Sundaram Fastners (Zhejiang) Ltd with an initial investment
of US$ 5 million and plans to invest US$ 12.5 million
more over the next two-three years. DaimlerChrysler,
Cummins and General Motors are its major customers.
Sundaram Fastners Limited

Source: CMIE

SFLs strength lies in its premium quality products. It has a


keen focus on R&D, which includes not only expansion of
product lines but also improving quality of existing products.
It also has a technical collaboration with Dura Automotive,
USA for gear shifter assemblies. SFL would be looking at
strategic acquisitions to fuel growth in the future.

A U T O M O T I V E

Bosch Group
Motor Industries Company (MICO) founded in 1951 is
a 61 per cent subsidiary of the German auto components
maker, Robert Bosch GmbH. MICO pioneered the
manufacture of automotive spark plugs and diesel fuel
injection equipment in India. Currently, the company is
the largest manufacturer of diesel fuel injection equipment
in the country and one of the largest in the world.
In recent years the company has widened its product range
by introducing a large number of automotive accessories
as well as special purpose machines, electric power tools,
car audio systems and packaging machines. The company
derives 45 per cent of its revenues from domestic sales
mainly to OEMs and the replacement market. Exports
comprise the remaining 55 per cent of its revenue.
Motor Industries Company Limited

Source: CMIE

MICO has seen sales grow by nearly three times and profits
by over five times in the last 10 years. The companys
strategy has been to introduce, manufacture and sell hightechnology products in the country. This backed with its
strong distribution network has been key to its success in
India.

P A G E 25

Contract manufacturing
OEMs are also leveraging the capabilities of the local
manufacturers for contract manufacturing. The global OEMs
in this case allow the local player to assemble a globally
developed, and in some cases, locally modified vehicle in one
of the existing local plants.
Mitsubishi has been successful in using Hindustan Motors to
manufacture its Lancer.
Ford has recently entered into a strategic tie-up with
Hindustan Motors to manufacture 20,000 petrol engines and
transmissions for its Ford Ikon cars.
Kawasaki has announced plans to outsource parts for sub 200 cc
motorcycles from Bajaj, with which it has a technical tie-up.

Greenfield projects
are a viable option

Global Tier 1 suppliers like Delphi and Visteon have also set
up greenfield projects in India. Such projects tend to have
longer gestation periods but allow the manufacturer to set-up
and manage the entity in line with its global policies and
standards.

Product penetrations

Large latent demand for


passenger cars

Indias current car penetration is one of the lowest in the


world at five cars per thousand persons, compared with ninety
cars per thousand people for other developing countries like
South Africa and Brazil in 2001 (Source: Wards Automotive
Data book). This represents a huge latent demand for a large
economy like India, which is projected to grow at a
phenomenal rate over the next five years. Car penetration
ratio is projected to double by 2007-08.

A U T O M O T I V E

P A G E 27

Innovating for the domestic market


Indias domestic passenger car market is poised to grow at
an impressive rate in the near future. Despite a market still
smaller than several other global markets, establishing
a beachhead could prove useful for the long-term.
The market has its own unique characteristics and one-size
fits all approach may not work. Indian consumers are not only
cost-conscious but also look for good vehicle performance.
A value for money proposition is usually a good starting
point. Hyundai has capitalised on this strategy by positioning
all its cars, from the Santro to the Sonata, on this platform.
Moving into the local market by leveraging some of the
existing global platforms and styling them to suit local tastes,
as most OEMs are doing now, could also lead to success
in the domestic market. Building the appropriate relationships
and transferring best practices into this market can yield
significant benefits in the long run.

Offering value for money


and adapting to local
conditions spells success

Explore, invest and partner


with India to profit and
advantage

CONTACT FOR INFORMATION


Two premier associations in India represent the automobile
and auto components industry respectively, creating a
symbiotic interface between industry, government, domestic
and international investors. These associations can be
contacted directly for information on market and opportunities
for investment/collaboration in the automobile and auto
components sectors.
Automotive Component Manufacturers Association
of India (ACMA)
6th Floor
The Capital Court
Olof Palme Marg, Munirka
New Delhi - 110 067
India
Tel: + 91 11 2616 0315, 2617 5873, 2618 4479
Fax: + 91 11 2616 0317
E-mail: acma@vsnl.com
Website: www.acmainfo.com
Society of Indian Automobile Manufacturers (SIAM)
Core 4B, 5th Floor
India Habitat Centre
Lodi Road
New Delhi - 110 003
India
Tel: + 91 11 2464 7810-12, 2464 8555
Fax: + 91 11 2464 8222
Email: siam@vsnl.com
Website: www.siamindia.com

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between the Ministry of Commerce and Industry, Government of India and
the Confederation of Indian Industry. The Foundation's primary objective
is to build positive economic perceptions of India globally.
India Brand Equity Foundation
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