Automobiles

IBEF

Introduction:

The growth of the Indian middle class along with the growth of the economy over the past few years
has attracted global auto majors to the Indian market. India provides trained manpower at competitive
costs making the country a favoured global manufacturing hub. The world's major car manufacturers
continue to invest in India and now the supplier segment is also attracting private equity (PE)
investments.

The government has claimed that the country has become the seventh largest vehicle producing
nation in the world, six years ahead of the set target. According to Mr B S Meena, Secretary, Ministry
of Heavy Industry, "When we were making the Auto Mission Plan (AMP) in 2006, we had projected
India to become the seventh largest vehicle producing country in the world by 2016. We have already
achieved this milestone good six years ahead of the set target."

According to a study by global consultancy firm Ernst & Young, the Indian market will clock the
fastest compound annual growth rate between 2009 and 2020, more than double that of China and
the triad of North America, Europe and Japan. India's CAGR between 2009 and 2020 is expected to
be 14 per cent compared with China's 6 per cent, other emerging markets' 6 per cent (which includes
BRIC nations) and the triad's four per cent.

Investments:

India has emerged as one of the favourite investment destinations for automotive manufacturers in
recent times.

• Maruti Suzuki India Ltd (MSIL) has announced an investment of US$ 411.45 million for
setting up its third plant at Manesar in order to capitalise on the rapid growth of the Indian
auto industry. This new production line–Maruti's sixth overall would have 250,000 units
annual capacity.
• Volvo-Eicher Commercial Vehicles (VECV) has announced an investment of US$ 61.51
million for a new engine plant at its existing facility at Pithampur, Madhya Pradesh. With this,
India will now become a global manufacturing hub for Volvo's new medium-duty engine
platform, with the only other factory for the engine type being present in Japan.
• Toyota Kirloskar, which focused mainly in metros and urban areas, has drawn up plans to
sell 40 per cent of its cars in the rural markets. By end of 2010, the company plans to have
150 dealers across the country and will invest US$ 698.46 million in a second plant in Bidadi.
• Toyoto also plans to invest US$ 107 million to make engines and gearboxes for Toyota's
new small car, Etios that is expected to be launched by year-end.
• India Yamaha Motor Limited is also planning to tap the rural market, which currently
accounts for around 15 per cent of its overall sale. The company has launched a new bike
YBR 110 that will target the rural markets.
• Mercedes Benz has met its single largest order—of 150 cars worth US$ 14.7 million—from
the small industrial town of Aurangabad, Maharashtra.
• The Renault-Nissan alliance and Bajaj Auto have signed a memorandum of understanding
for developing a low-cost car. According to the MoU, the design, engineering, manufacturing
and supply base expertise to create the product will be executed by Bajaj with the support of
the Renault-Nissan alliance.
 • Honda Siel Cars India (HSCI) has announced an investment of US$ 53.55 million for the
expansion of its power train facility at Tapukara, Rajasthan. Scheduled to be completed by
end-2010, the plant would become a low-cost production base for its new small car.
• Indo-Russian commercial vehicle joint venture (JV) Kamaz Vectra Motors plans to more than
double its annual capacity to 12,000 units at its Hosur plant by 2012 to capture the fast-
growing market in India.
• Ashok Leyland and Japanese car maker Nissan Motor Co Ltd have announced the launch of
three light commercial vehicles (LCVs) from 2011 through 2013. The auto makers also
confirmed to be in talks to create a small car for the Indian market within the US$ 2,000 -
US$ 6,000 price range.
• British luxury brand Jaguar Land Rover (JLR) plans to increase presence in India and will tap
parent Tata Motors for assistance in areas like logistics and service support.
• BMW, the luxury car maker, is planning to infuse US$ 15.76 million in its Indian operations.
Andreas Schaaf, President, BMW India, said that the company had invested US$ 24.77
million till September 2010 and this would be increased to US$ 40.53 million by the end of
2012.
• Luxury carmaker Mercedes-Benz India will set up a new facility for building of city bus bodies
at its Chakan plant in Pune. The new unit will become operational by mid-2011 and will have
a capacity of 700 units a year.

Domestic Market/ Sales:

• According to data released by the Society of Indian Automobile Manufacturers (SIAM), the
passenger vehicles segment during April-September 2010 grew at 32.91 per cent over same
period last year. Passenger cars grew by 33.58 per cent, utility vehicles grew by 20.69 per
cent and multi-purpose vehicles grew by 49.32 per cent during this period.
• The overall commercial vehicles segment registered a growth of 41.59 per cent during the
first half of 2010-11, as compared to the same period last year. While medium and heavy
commercial vehicles registered growth of 61.59 per cent, light commercial vehicles grew at
26.90 per cent.
• Two wheelers registered a growth of 25.86 per cent during April-September 2010. Mopeds,
scooters and motorcycles grew by 23.13 per cent, 44.95 per cent and 22.52 per cent,
respectively.

Road Ahead:

Global auto companies are investing to tap the growing demand in India as investment spending and
the government's social programmes raise incomes in smaller cities and rural areas too. "The Indian
automobile industry is geared up to invest up to US$ 17.12 billion in fresh capacity in the next four
years," Vishnu Mathur, Director-General, SIAM said. He further stated, "The components industry will
also invest US$ 12 billion up to the end of the Automotive Mission Plan."

Car and motorcycle sales in India are setting records with rising incomes, cheap lending by banks
and launch of new models such as Volkswagen's Polo and Fiat's Linea. Car manufacturing capacity
is set to rise to 5.7 million units by 2015, according to consultants Ernst & Young.

Further, India aims to become the small car hub of the world by dethroning Japan, the biggest maker
of compact cars, a majority of which is consumed domestically. Last year, it had pipped Brazil to
become the second-largest producer of such cars. While Japan produced 3.4 million small cars
between January and December in 2009, India manufactured 1.48 million units in the same period.

According to the annual forecast of the SIAM, passenger vehicle sales in the country will be
21,96,791 units in 2010-11 as compared to 19,49,248 units in 2009-10.

While two-wheeler sales are expected to be up 9-10 per cent at 10,287,837 units from 9,368,230
 units in 2009-10, commercial vehicle sales in India will grow 17-18 per cent at 6,21,681 units vis-à-vis
5,31,395 units last financial year. Sales of three-wheelers are expected to go up 7-8 per cent at
4,73,693 units in the current financial year as against 4,40,368 units in 2009-10.

However, with demand outgrowing the supply in the market, the overall market growth for 2010-11 is
most likely to exceed SIAM's initial prediction of 10-14 per cent.

Copyright © 2010-2015 India Brand Equity Foundation

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