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INDIA
Submitted To:
Submitted By:
Vidushi Gupta
College Roll No. 158
DELHI UNIVERSITY
Chapter- 1
Overview
The Indian Automobile Industry is manufacturing over 11 million vehicles and exporting about 1.5 million every year. The dominant products of the industry are two wheelers with a market share of over 75% and passenger cars with a market share of about 16%. Commercial vehicles and three wheelers share about 9% of the market between them. About 91% of the vehicles sold are used by households and only about 9% for commercial purposes. The industry has attained a turnover of more than USD 35 billion and provides direct and indirect employment to over 13 million people. The supply chain of this industry in India is very similar to the supply chain of the automotive industry in Europe and America. This may present its own set of opportunities and threats. The orders of the industry arise from the bottom of the supply chain i. e., from the consumers and goes through the automakers and climbs up until the third tier suppliers. However the products, as channeled in every traditional automotive industry, flow from the top of the supply chain to reach the consumers. Interestingly, the level of trade exports in this sector in India has been medium and imports have been low. However, this is rapidly changing and both exports and imports are increasing. The demand determinants of the industry are factors like affordability, product innovation, infrastructure and price of fuel. Also, the basis of competition in the sector is high and increasing, and its life cycle stage is growth. With a rapidly growing middle class, all the advantages of this sector in India are yet to be leveraged. Note that, with a high cost of developing production facilities, limited accessibility to new technology and soaring competition, the barriers to enter the Indian Automotive sector are high. On the other hand, India has a well-developed tax structure. The power to levy taxes and duties is distributed among the three tiers of Government. The cost structure of the industry is fairly traditional, but the profitability of motor vehicle manufacturers has been rising over the past five years. Major players, like Tata Motors and Maruti Suzuki have material cost of about 80% but are recording profits after tax of about 6% to 11%. The level of technology change in the Motor vehicle Industry has been high but, the rate of change in technology has been medium. Investment in the technology by the producers has been high. System-suppliers of integrated components and sub-systems have become the order of the day. However, further investment in new technologies will help the industry be more competitive. Over the past few years, the industry has been
volatile. Currently, Indias increasing per capita disposable income which is expected to rise by 106% by 2015 and growth in exports is playing a major role in the rise and competitiveness of the industry. Tata Motors is leading the commercial vehicle segment with a market share of about 64%. Maruti Suzuki is leading the passenger vehicle segment with a market share of 46%.Hyundai Motor India and Mahindra and Mahindra are focusing expanding their footprint in the overseas market. Hero Honda Motors is occupying over 41% and sharing 26% of the two wheeler market in India with Bajaj Auto. Bajaj Auto in itself is occupying about 58% of the three wheeler market. Consumers are very important of the survival of the Motor Vehicle manufacturing industry. In 2008-09, customer sentiment dropped, which burned on the augmentation in demand of cars. Steel is the major input used by manufacturers and the rise in price of steel is putting a cost pressure on manufacturers and cost is getting transferred to the end consumer. The price of oil and petrol affect the driving habits of consumers and the type of car they buy. The key to success in the industry is to improve labour productivity, labour flexibility, and capital efficiency. Having quality manpower, infrastructure improvements, and raw material availability also play a major role. Access to latest and most efficient technology and techniques will bring competitive advantage to the major players. Utilising manufacturing plants to optimum level and understanding implications from the government policies are the essentials in the Automotive Industry of India. Both, Industry and Indian Government are obligated to intervene the Indian Automotive industry. The Indian government should facilitate infrastructure creation, create favourable and predictable business environment, attract investment and promote research and development. The role of Industry will primarily be in designing and manufacturing products of world-class quality establishing cost competitiveness and improving productivity in labour and in capital. With a combined effort, the Indian Automotive industry will emerge as the destination of choice in the world for design and manufacturing of automobiles.
History The first car ran on India's roads in 1897. Until the 1930s, cars were imported directly, but in very small numbers. Embryonic automotive industry emerged in India in the 1940s. Mahindra & Mahindra was established by two brothers as a trading company in 1945, and began assembly of Jeep CJ-3A utility vehicles under license from Willys. The company soon branched out into the manufacture of light commercial vehicles (LCVs) and agricultural tractors. Following the independence, in 1947, the Government of India and the private sector launched efforts to create an automotive component manufacturing industry to supply to the automobile industry. However, the growth was relatively slow in the 1950s and 1960s due to nationalisation and the license raj which hampered the Indian private sector. After 1970, the automotive industry started to grow, but the growth was mainly driven by tractors, commercial vehicles and scooters. Cars were still a major luxury. Japanese manufacturers entered the Indian market ultimately leading to the establishment of Maruti Udyog. A number of foreign firms initiated joint ventures with Indian companies. In the 1980s, a number of Japanese manufacturers launched joint-ventures for building motorcycles and light commercial-vehicles. It was at this time that the Indian government chose Suzuki for its joint-venture to manufacture small cars. Following the economic liberalisation in 1991 and the gradual weakening of the license raj, a number of Indian and multi-national car companies launched operations. Since then, automotive component and automobile manufacturing growth has accelerated to meet domestic and export demands. Following economic liberalization in India in 1991, the Indian automotive industry has demonstrated sustained growth as a result of increased competitiveness and relaxed restrictions. Several Indian automobile manufacturers such as Tata Motors, Maruti Suzuki and Mahindra and Mahindra, expanded their domestic and international operations. India's robust economic growth led to the further expansion of its domestic automobile market which has attracted significant India-specific investment by multinational automobile manufacturers. In February 2009, monthly sales of passenger cars in India exceeded 100,000 units and has since grown rapidly to a record monthly high of 182,992 units in October 2009. From 2003 to 2010, car sales in India have
progressed at a CAGR of 13.7%, and with only 10% of Indian households owning a car in 2009 (whereas this figure reaches 80% in Switzerland for example ) this progression is unlikely to stop in the coming decade. Congestion of Indian roads, more than market demand, will likely be the limiting factor. SIAM is the apex industry body representing all the vehicle manufacturers, home-grown and international, in India.
Chapter- 2
Industry Definition
This class consists of units mainly engaged in manufacturing motor vehicles or motor vehicle engines. Products and Services The primary activities of this industry are: Motor cars manufacturing Motor vehicle engine manufacturing The major products and services in this industry are: Passenger motor vehicle manufacturing segment (Passenger Cars, Utility Vehicles & Multi Purpose Vehicles) Commercial Vehicles (Medium & Heavy and Light Commercial Vehicles) Two Wheelers Three Wheelers. Supply Chain of Automobile Industry The supply chain of automotive industry in India is very similar to the supply chain of the automotive industry in Europe and America. The orders of the industry arise from the bottom of the supply chain i. e., from the consumers and goes through the automakers and climbs up until the third tier suppliers. However the products, as channeled in every traditional automotive industry, flow from the top of the supply chain to reach the consumers. Automakers in India are the key to the supply chain and are responsible for the products and innovation in the industry.
Key statistics The production of automobiles has greatly increased in the last decade. It passed the 1 million mark during 2003-2004 and has more than doubled since.
Year Car Production % Change Commercial % Change Total Vehicles Prodn. % Change
2010 2,814,584
29.39
722,199
54.86
3,536,783
33.89
2009 2,175,220
17.83
466,330
-4.10
2,641,550
13.25
2008 1,846,051
7.74
486,277
-9.99
2,332,328
3.35
2007 1,713,479
16.33
540,250
-1.20
2,253,999
10.39
2006 1,473,000
16.53
546,808
50.74
2,019,808
19.36
2005 1,264,000
7.27
362, 755
9.00
1,628,755
7.22
2004 1,178,354
29.78
332,803
31.25
1,511,157
23.13
2003 907,968
28.98
253,555
32.86
1,161,523
22.96
2002 703,948
7.55
190,848
19.24
894796
8.96
2001 654,557
26.37
160,054
-43.52
814611
1.62
2000 517,957
-2.85
283,403
-0.58
801360
-2.10
1999 533,149
285,044
818193
Year
2004-2005
Motor Vehicle Production[18] 8,467,853 Industry Revenue Exports (Units)[18] Exports (Revenue)[18]
[18]
Exports
India's automobile exports have grown consistently and reached $4.5 billion in 2009, with United Kingdom being India's largest export market followed by Italy, Germany, Netherlands and South Africa. India's automobile exports are expected to cross $12 billion by 2014. According to New York Times, India's strong engineering base and expertise in the manufacturing of low-cost, fuel-efficient cars has resulted in the expansion of manufacturing facilities of several automobile companies like Hyundai Motors, Nissan, Toyota, Volkswagen and Suzuki. In 2008, Hyundai Motors alone exported 240,000 cars made in India. Nissan Motors plans to export 250,000 vehicles manufactured in its India plant by 2011. Similarly, General Motors announced its plans to export about 50,000 cars manufactured in India by 2011. In September 2009, Ford Motors announced its plans to setup a plant in India with an annual capacity of 250,000 cars for US$500 million. The cars will be manufactured both
for the Indian market and for export. The company said that the plant was a part of its plan to make India the hub for its global production business. Fiat Motors also announced that it would source more than US$1 billion worth auto components from India. In July 2010, The Economic Times reported that PSA Peugeot Citron was planning to re-enter the Indian market and open a production plant in Andhra Pradesh with an annual capacity of 100,000 vehicles, investing EUR 700M in the operation. PSA's intention to utilise this production facility for export purposes however remains unclear as of December 2010.
In 2009 India (0.23m) surpassed China (0.16m) as Asia's fourth largest exporter of cars after Japan (1.77m), Korea (1.12m) and Thailand (0.26m) by allowing foreign carmakers 100% ownership of factories in India, which China does not allow. In recent years, India has emerged as a leading center for the manufacture of small cars. Hyundai, the biggest exporter from the country, now ships more than 250,000 cars annually from India. Apart from shipments to its parent Suzuki, Maruti Suzuki also manufactures small cars for Nissan, which sells them in Europe. Nissan will also export small cars from its new Indian assembly line. Tata Motors exports its passenger vehicles to Asian and African markets, and is in preparation to launch electric vehicles in Europe in 2010. The firm is also planning to launch an electric version of its low-cost car NANO in Europe and the U.S. Mahindra & Mahindra is preparing to introduce its pickup trucks and small SUV models in the U.S. market. Bajaj Auto is designing a lowcost car for the Renault Nissan Automotive India, which will market the product worldwide. Renault Nissan may also join domestic commercial vehicle manufacturer Ashok Leyland in another small car project. While the possibilities are impressive, there are challenges that could thwart future growth of the Indian automobile industry. Since the demand for automobiles in recent years is directly linked to overall economic expansion and rising personal incomes, industry growth will slow if the economy weakens.
Rank
Country
Percentage Growth
525.24
-11.52
Italy
332.35
359.68
8.22
Sri Lanka
249.14
216.11
-13.26
South Africa
224.93
188.57
-15.79
United Kingdom
165.57
246.32
48.77
164.44
192.74
17.21
Algeria
147.34
265.63
80.28
Bangladesh
137.26
164.86
20.11
Egypt
134.43
143.54
5.99
10
Germany
133.52
409.63
206.8
11
Colombia
118.88
120.71
1.54
12
Nepal
111.33
98.13
-11.86
13
Mexico
93.80
94.10
0.32
14
Turkey
83.53
73.82
-11.63
15
Spain
81.01
56.96
-29.69
16
France
76.77
134.21
74.83
17
Nigeria
66.01
148.74
125.03
18
Greece
65.75
127.63
94.1
19
Netherland
65.19
163.66
151.05
20
Ghana
59.91
38.30
-36.07
sector is characterised by a high cyclical growth patterns, high fixed cost and breakeven point levels, and an excessive number of participants. Barriers to entry into automobile manufacturing activity are formidable. Some of the barriers that need to be overcome by a new entrant include: the cost of developing high volume production facilities, in order to benefit from economies of scale; and the ability to gain access to technology of major operators, as the present incumbents include some of the largest multinationals, that have considerable claims to new technology. The relative large size of domestic market, together with high competition, has already seen significant rationalisation of this industry. Capital and Labour Intensity The level of Capital Intensity is high The level of Labour intensity in medium The motor vehicle manufacturing industry requires significant level of capital investment. Value is added through the automated manufacturing and assembly of costly components. Labour input is required in the manufacturing, assembly, and finishing processes. In order to achieve and retain competitiveness, vehicle manufacturing industry depends on its capacity and speed to innovate and upgrade. The most imperative indices for competitiveness in the industry are productivity in both labour and capital. Technology and Systems The level of technology change is high The rate of change in technology is medium Investment in technology by producers has been on the rise. The automobile industry in India has seen an enormous development in the engines which are being used. Carburettor engines have become obsolete and Multi Point Fuel Injection (MPFI) engines are the order of the days in patrol cars. The Diesel engines have also under gone a sea change from the time Rudolf Diesel invented it way back in the 1892. Today Common Rail Direct Injection (CRDI) is the order of the day.
Market Size
The Indian Automotive Industry after de-licensing in July 1991 has grown at a spectacular rate on an average of 17% for last few years. The industry has attained a turnover of USD 35.8 billion, (INR 165,000 crores) and an investment of USD 10.9 billion. The industry has provided direct and indirect employment to 13.1 million people. Automobile industry is currently contributing about 5% of the total GDP of India. Indias current GDP is about $ 1.4 trillion and is expected to grow to $ 3.75 trillion by 2020. The projected size in 2016 of the Indian automotive industry varies between $ 122 billion and $ 159 billion including USD 35 billion in exports. This translates into a contribution of 10% to 11% towards Indias GDP by 2016, which is more than double the current contribution. Demand Determinants Determinants of demand for this industry include vehicle prices (which are determined largely by wage, material and equipment costs) and exchange rates, preferences, the running cost of a vehicle (mainly determined by the price of petrol), income, interest rates, scrapping rates, and product innovation. Exchange Rate:Movement in the value of Rupee determines the attractiveness of Indian products overseas and the price of import for domestic consumption. Affordability: Movement in income and interest rates determine the affordability of new motor vehicles. Allowing unrestricted Foreign Direct Investment (FDI) led to increase in competition in the domestic market hence, making better vehicles available at affordable prices. Product Innovation is an important determinant as it allows better models to be available each year and also encourages manufacturing of environmental friendly cars. Demographics: It is evident that high population of India has been one of the major reasons for large size of automobile industry in India. Factors that may be augment demand include rising population and an increasing proportion of young persons in the population that will be more inclined to use and replace cars. Also, increase in people with lesser dependency on traditional single family income structure is likely to add value to vehicle demand.
Infrastructure: Longer-term determinants of demand include development in Indians infrastructure. Indias banking giant State Bank of India and Australias Macquarie Group has launched
an infrastructure fund to rise up to USD 3 billion for infrastructure improvements. India needs about $500 billion to repair its infrastructure such as ports, roads, and power units. These investments are been made with an aim to generate long-term cash flow from automobile, power, and telecom industries. (Source: Silicon India) Price of Petrol: Movement in oil prices also have an impact on demand for large cars in India. During periods of high fuel cost as experienced in 2007 and first half of 2008, demand for large cars declined in favour of smaller, more fuel efficient vehicles. The changing patterns in customer preferences for smaller more fuel efficient vehicles led to the launch of Tata Motors Nano one of worlds smallest and cheapest cars.
Chapter- 2.iii
STRENGTHS
Large domestic market Sustainable labor cost advantage Government incentives for manufacturing plants Strong engineering skills in design Able to achieve significant gains in productivity
WEAKNESSES
Low labor productivity High interest costs and high overheads Rising cost of production Low investment in Research and Development
OPPORTUNITIES
Commercial vehicles Heavy thrust on mining and construction activity Increase in the income level Cut in excise duties Rising rural demand
THREATS
Rising interest rates Cut throat competition Lack of technology for Indian Companies
Life Cycle The life cycle stage is growth Life Cycle Reasons The market for manufacturing motor vehicles is consistently increasing. The products manufactured by this industry are profitable. Companies have been consistently opening new plats and employing over the past five years. Japanese and European manufacturers of motor vehicles have
entered the market. Industry value added has been rising, along with the rise in GDP. Life Cycle Analysis General improvement in availability of trained manpower and good infrastructure is required for sustainable growth of the industry. Keeping this in view, the Indian Government has launched a unique initiative of National Automotive Testing and R&D Infrastructure Project (NATRIP) to provide specialised facilities for Testing, Certification and Homologation to the industry. A similar initiative is required for creating specialised institutions in automotive sector for education, training and development. The auto industry has grown in the clusters of interconnected companies which are linked by commonalities and complementarities. The major clusters are in and around Manesar in North, Pune in West, Chennai in South, Jamshedpur-Kolkata in East and Indore in Central India. The Government is planning to create a National Level Specialises Education and Training Institute for Automotive Sector and to enhance the transportation, communication and export infrastructure facilities. The contribution of automotive sector in the GDP of India is expected to double by 2016 through major spotlight on export of small cars, Multi-Utility Vehicles, Two and Three wheelers.
FUTURE PROSPECT OF
The Industry's Challenge: Even though the automotive industry is robust, car manufacturers are complaining that the government's frequent change in policies is not encouraging the industry. Changing the policies and guidelines frequently severely hurts the companies plans. It also affects investment decisions in the country. Future Plans: The Government has prepared a ten-year Automotive Mission Plan (AMP) to draw a future plan of action and remove obstacles in the way of competition, such as that required infrastructure be put in place well in time to alleviate its constraining impact on the growth. The plan envisages a tax holiday for the industry on investments exceeding $225,000, 100% tax deductions of export profits, and deductions of 50% on foreign-exchange earnings. It also calls for a one-stop clearance for foreigndirect-investment proposals in the sector and deductions of 30% of net income for 10 years for new industrial undertakings. To bring down the cost of power and fuel, which accounts for 6% of the manufacturing costs in the auto sector, captive power generation would be
Dunham jokes not with standing. And this move further cements the fact that the next generation of Indian car buyers are environmentally responsible. According to its press release, Mahindra has been working years on developing green technologies for about 10 years now. It currently deploys diesel hybrid technology on the Scorpio and hydrogen Alfa three wheelers. Besides, Bijlee (electric three wheeler) developed in 1999, it is also currently working on an electric version of its mini-truck Maxximo. Revas EV technology should prove very useful for Mahindra. Now, dont expect people to be going gaga over the new Reva, not until it can improve on the look of the car, and it receives more infrastructure support from government authorities. Reva will now have access to decent car technology from Mahindra too, so it looks like a win-win-win situation. The last win is for the environment. Electric car manufacturers in India
Thus, Industry across countries will have to meet challenges of newer technologies, alternative fuels and affordability of automobiles by people at large through constructive cooperation. The earlier we are able to achieve this the better,it would be for the world performance.