EXECUTIVE SUMMARY

The automobile industry, one of the core sectors, has undergone

metamorphosis with the advent of new business and manufacturing

practices in the light of liberalization and globalization. The sector seems to

be optimistic of posting strong sales in the couple of years in the view of a

reasonable surge in demand. The Indian automobile market is gearing

towards international standards to meet the needs of the global automobile

giants and become a global hub.

A detailed analysis of Automobile industry has been covered in

respect of past growth and performance.

For Industry Analysis as a part of Fundamental tool we have

undergone with the analysis of TATA Motors as our leading Industry with

Maruti Suzuki India’s largest Car manufacturer. At the end conclusion

have been specified so as to make the research work more meaningful and

purposeful.

1
 OBJECTIVE OF THE PROJECT

The objective of this project is to deeply analyze our Indian Automobile

Industry for performance on the basis of historical data.

The main objectives of the Project study are:

 Detailed analysis of Automobile industry which is gearing towards

international standards

 Analyze the impact of qualitative factors on industry’s and company’s

prospects

 Comparative analysis of two tough competitors TATA Motors and

Maruti Suzuki

 Understanding the trends in automobile, variety and competitiveness.

2
 The Beginning of New Era…

With the invention of the wheel in 4000 BC, man’s journey on the

road of mechanized transport had begun. Since then he continually sought

to devise an automated, labor saving machine to replace the horse.

Innumerable attempts reached conclusion in the early 1760s with the

building of the first steam driven tractor by a French Captain, Nicolas

JosephCugnot. It was however left to Karl Benz and Gottlieb Damlier to

produce the first vehicles powered by the internal combustion engine in

1885. It was then that the petrol engine was introduced, which made the

car a practical and safe proposition. Then onwards, it has been one big

journey...on the roads

The original 1769 model.

Cugnot's 1771 fardier à vapeur, as preserved

at the Musée des Arts et Métiers, Paris

3
 History of Automobile Industry

The automobile as we know it was not invented in a single day by a single

inventor. The history of the automobile reflects an evolution that took place

worldwide. It is estimated that over 100,000 patents created the modern

automobile. However, we can point to the many firsts that occurred along

the way. Starting with the first theoretical plans for a motor vehicle that

had been drawn up by both Leonardo da Vinci and Isaac Newton.

In 1769, the very first self-propelled road vehicle was a military tractor

invented by French engineer and mechanic, Nicolas Joseph Cugnot (1725 -

1804). Cugnot used a steam engine to power his vehicle, built under his

instructions at the Paris Arsenal by mechanic Brezin. It was used by the

French Army to haul artillery at a whopping speed of 2 1/2 mph on only

three wheels. The vehicle had to stop every ten to fifteen minutes to build

up steam power. The steam engine and boiler were separate from the rest

of the vehicle and placed in the front (see engraving above). The following

year (1770), Cugnot built a steam-powered tricycle that carried four

passengers.

In 1771, Cugnot drove one of his road vehicles into a stone wall,

making Cugnot the first person to get into a motor vehicle accident. This

was the beginning of bad luck for the inventor. After one of Cugnot's

4
patrons died and the other was exiled, the money for Cugnot's road vehicle

experiments ended.

Steam engines powered cars by burning fuel that heated water in a

boiler, creating steam that expanded and pushed pistons that turned the

crankshaft, which then turned the wheels. During the early history of self-

propelled vehicles - both road and railroad vehicles were being developed

with steam engines. (Cugnot also designed two steam locomotives with

engines that never worked well.) Steam engines added so much weight to a

vehicle that they proved a poor design for road vehicles; however, steam

engines were very successfully used in locomotives. Historians, who accept

that early steam-powered road vehicles were automobiles, feel that Nicolas

Cugnot was the inventor of the first automobile.

1880's & early 1900's

 About hundred years ago

-The first motor car was imported

-Import duty on vehicles was introduced.

-Indian Great Royal Road (Predecessor of the Grand Trunk Road)

was conceived.

 First car brought in India by a princely ruler in 1898.

 Simpson & Co established in 1840.

-They were the first to build a steam car and a steam bus, to attempt

5
 motor car manufacture, to build and operate petrol driven passenger

service and to import American Chassis in India.

 Railways first came to India in 1850's

 In 1865 Col. Rookes Crompton introduced public transport wagons

strapped to and pulled by imported steam road rollers called

streamers. The maximum speed of these buses was 33 kms/hr.

 From 1888 Motors Spirit attracted a substantial import duty.

 In 1919 at the end of the war, a large number of military vehicles

came on the roads.

 In 1928 assembly of CKD Trucks and Cars was started by the wholly

owned Indian subsidiary of American General Motors in Bombay

and in 1930-31 by Canadian Ford Motors in Madras, Bombay and

Calcutta In 1935 the proposals of Sir M Visvesvaraya to set up an

Automobile Industry were disallowed.

 1942 Hindustan Motors Ltd incorporated and their first vehicle was

made in 1950.

 In 1944 Premier Automobiles Ltd incorporated and in 1947 their first

vehicle was produced.

 In 1947 the Government of Bombay accepted a scheme of Bajaj Auto

to replace the cycle rickshaw by the auto and assembly started in a

couple of years under a license from Piaggio. Manufacturing

6
 Programme for the auto and scooter was submitted in 1953 to the

Tariff Commission and approved by the Government in 1959.

 In 1953 the Government decreed that only firms having a

manufacturing programme should be allowed to operate and mere

assemblers of imported CKD units be asked to terminate operations

in three years.

 Only seven firms namely Hindustan Motors Limited, Automobile

Products of India Limited, Ashok Leyland Limited, Standard Motors

Products of India Limited., Premier Automobiles Limited, Mahindra

& Mahindra and TELCO received approval. M&M was

manufacturing jeeps. Few more companies came up later.

 Government continued with its protectionism policies towards the

industry.

 In 1956, Bajaj Tempo Ltd entered the Indian market with a

programme of manufacturing Commercial Vehicles, and Simpson for

making engines.

1960's

 In sixties 2 and 3 Wheeler segment established a foothold in the

industry.

 Escorts and Ideal Jawa entered the field in the beginning of sixties.

 Association of Indian Automobile Manufacturers formally

established in 1960.

7
  Standard Motors Products of India Ltd. moved over to the

manufacture of Light Commercial Vehicles in 1965.

1970's

 Major factors affecting the industry's structure were the

implementation of MRTP Act, FERA and Oil Shocks of 1973 and

1979.

 During this decade there was not much change in the four wheeler

industry except the entry of Sipani Automobiles in the small car

market.

 Oil Shock of 1973 quickened the process of dieselization of the

Commercial Vehicle segment.

 Three other companies, namely, Kirloskar Ghatge Patil Auto Ltd,

Indian Automotive Ltd and Sen & Pandit Engg products Ltd entered

the market during 1971-75. They ultimately withdrew in early

eighties.

 During the seventies the economy was in bad shape. This and many

specific problems affected the Automobile Industry adversely.

1980's - The period of liberalized policy and intense competition

 First phase of liberalisation announced.

 Unfair practices of monopoly, oligopoly etc slowly disappeared.

8
 Liberalisation of the protectionism policies of the Government.

 Lots of new Foreign Collaborations came up in the eighties. Many

companies went in for Japanese collaborations.

 Hindustan Motors Ltd. in collaboration with Isuzu of Japan

introduced the Isuzu truck in early eighties.

 ALL entered into collaboration with Leyland Vehicles Ltd. for

development of integral buses and with Hino Motors of Japan for the

manufacture of W Series of Engines.

 TELCO after the expiry of its contract with Daimler Benz,

indigenously improved the same Benz model and introduced it in the

market.

 Government approved four new firms in the LCV market, namely,

DCM, Eicher, Swaraj and Allwyn. They had collaborations with

Japanese companies namely, Toyota, Mitsubishi, Mazda and Nissan

respectively.

 In 1983 Maruti Udyog Ltd was started in collaboration with Suzuki, a

Japanese firm.

 Other three Car manufacturers namely, Hindustan Motors Ltd.,

Premier Automobiles Ltd., Standard Motor Production of India Ltd.

also introduced new models in the market.

 At the time there were five Passenger Car manufacturers in India -

Maruti Udyog Ltd., Hindustan Motors Ltd., Premier Automobiles

9
 Ltd., Standard Motor Production of India Ltd. and Sipani

Automobiles.

 Ashok Leyland Ltd. and TELCO were strong players in the

Commercial Vehicles sector.

 In 1983-84 Bajaj Tempo Ltd. entered into a collaboration with

Daimler-Benz of Germany for manufacture of LCVs.

 Important policy changes like relaxation in MRTP and FERA,

delicensing of some ancillary products, broad banding of the

products, modifications in licensing policy, concessions to private

sector (both Indian and Foreign) and foreign collaboration policy etc.

resulted in higher growth / better performance of the industry than in

the earlier decades.

1990's

 Mass Emission Norms were introduced for in 1991 for Petrol Vehicles
and in 1992 for Diesel Vehicles.

 In 1991 new Industrial Policy was announced. It was the death of the

License Raj and the Automobile Industry was allowed to expand.

 Further tightening of Emission norms was done in 1996.

 In 1997 National Highway Policy has been announced which will
have a positive impact on the Automobile Industry.

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  The Indian Automobile market in general and Passenger Cars in
particular have witnessed liberalisation. Many multinationals like

Daewoo, Peugeot, General Motors, Mercedes-Benz, Honda, Hyundai,

Toyota, Volvo and Fiat entered the market.

 Various companies are coming up with state-of-art models of

vehicles.

 TELCO has diversified in Passenger Car segment with Indica.

Despite the adverse trend in the growth of the industry, it is

resolutely trying to meet the challenges. Various issues of critical

importance to the industry are being dealt with forcefully.

Preview of Automobile Industry

The automobile industry, one of the core sectors, has undergone

metamorphosis with the advent of new business and manufacturing

practices in the light of liberalization and globalization. The sector seems to

be optimistic of posting strong sales in the next couple of years in view of a

reasonable surge in demand.

The Indian automobile market is gearing towards having

international standards to meet the needs of the global automobile giants

and become a global hub.  Players are strategizing to consolidate their

position and gradually increase market penetration with the launch of new

11
models, targeting different segments. Since the sector is price driven, huge

investment is envisaged to remain competitive through cost advantage, for

which indigenization is highly important. The product becomes dearer if it

is manufactured using imported parts. IT in the automobile sector plays a

crucial role.. Some players are working towards development of efficient

production systems that control the entire production process with high

precision and accuracy. Such systems working on real time operating

systems allow efficient control of different parts of manufacturing and

production. It is essential to leverage skills of different engineering

disciplines to build these kinds of integrated systems.

Analysts foresee high scope in the electronics for auto sector and

expect the retailing of such electronics products to contribute a major

chunk of future revenues. The government is increasing the research and

development (R&D) fund for the automobile industry over and above the

Rs 1400 crores earmarked for eight years. All laboratories in the country

researching on automobile technology, such as BHEL which is developing

cell technology as alternative fuel, have also been brought together through

the setting up of  a national R & D working group. The group is working

out a plan to link all major laboratories across the country to give a thrust

to automotive research.

Indian automobile sector being a driver of product and process

technologies, and has become a excellent manufacturing base for global

12
players, because of its high machine tool capabilities, extremely capable

component industry, most of the raw material locally produced, low cost

manufacturing base and highly skilled manpower Not only a large number

of world manufacturers have set up production bases in India but also a

large number of foreign companies are collaborating with the auto

component suppliers and vendors.

Indian Automobile Components Industry has been making rapid

strides towards achievement of world-class Quality Systems by imbibing

ISO 9000/QS 9000 Quality Systems whereby the Indian Automotive

industry has become more competitive in the export market due to its

technological and quality advances, so much so that in quality conscious

markets such as Europe and America, it is emerging as a major player,

based on its performance. India today exports: Engine and engine parts,

electrical parts, drive transmission & steering pats, suspension & braking

parts among others.

The sector is striding inroads into the rural middle class after its

inroads into the urban markets and rural rich. It is trying to bring in

varying products to suit requirements of different class segments of

customers.

States like Rajasthan, Uttar Pradesh, Maharashtra, Andhra Pradesh

and West Bengal are vying to woo global players with proposals including

13
heavy tax exemptions and to create a more investor friendly regime, each

state is proposing to provide all regulatory clearances at express speed.

The Government should promote Research & Development in

automotive industry by strengthening the efforts of industry in this

direction by providing suitable fiscal and financial incentives.

The current policy allows Weighted Tax Deduction under I.T. Act,

1961 for sponsored research and in-house R&D expenditure. This will be

improved further for research and development activities of vehicle and

component manufacturers from the current level of 125%.

In addition, Vehicle manufacturers will also be considered for a

rebate on the applicable excise duty for every 1% of the gross turnover of

the company expended during the year on Research and Development

carried either in-house under a distinct dedicated entity, faculty or division

within the company assessed as competent and qualified for the purpose or

in any other R&D institution in the country. This would include R & D

leading to adoption of low emission technologies and energy saving

devices.

Government will encourage setting up of independent auto design

firms by providing them tax breaks, concessional duty on plant/equipment

imports and granting automatic approval.

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 Allocations to automotive cess fund created for R&D of automotive

industry shall be increased and the scope of activities covered under it

enlarged.

Automobile industry – Wheels of Change

India had its date with this wonderful vehicle first time in 1898.

Then for the next fifty years, cars were imported to satisfy domestic

demand. Between 1910 and 20's the automobile industry made a humble

beginning by setting up assembly plants in Mumbai, Calcutta and Chennai.

The import/assembly of vehicles grew consistently after the 1920's, crossing

the 30,000 mark in 1930. In 1946, Premier Automobile Ltd (PAL) earned the

distinction of manufacturing the first car in the country by assembling

'Dodge DeSoto' and 'Plymouth' cars at its Kurla plant. Hindustan Motors

(HM), which started as a manufacturer of auto components graduated to

manufacture cars in 1949. Thanks to the Licence Raj which restricted

foreign competitors to enter the Indian car market, Indian roads were ruled

by Ambassador Car from Hindustan Motors and the Fiat from Premier

Auto Ltd. for many of the initial years.

In 1952, the GOI set up a tariff commission to devise regulations to

develop an indigenous automobile industry in the country. After the

commission submitted its recommendations, the GOI asked assembly

plants, which did not have plans to set up manufacturing facilities, to shut

15
operations. As a result General Motors, Ford and other assemblers closed

operations in the country. The year was 1954 and this decision of the

government marked a turning point in the history of the Indian car

industry. The GOI also had a say in what type of vehicle each manufacturer

should make. Therefore, each product was safely cocooned in its own

segment with no fears of any impending competition. Also, no new entrant

was allowed even though they had plans of a full-fledged manufacturing

program. The restrictive set of policies was chiefly aimed at building an

indigenous auto industry. However, the restrictions on foreign

collaborations led to limitations on import of technology through technical

agreements. In the absence of adequate technology and purchasing power,

the car industry grew at a snail's pace in the 60’s. The demand for cars in

1960 was to the tune of 15,714. In the next two decades the number

increased to 30,989 i.e. a CAGR of only 3.5 per cent. 

The other control imposed on carmakers related to production

capacity and distribution. The GOI control even extended to fixation of

prices for cars and dealer commissions. This triggered the start of a

protracted legal battle in 1969 between some carmakers and GOI. Simply

put, the three decades following the establishment of the passenger car

industry in India and leading upto the early 1980s, proved to be the 'dark

ages' for the consumer, as his choice throughout this period was limited to

two models viz. Ambassador and Padmini. It was only in 1985, after the

16
entry of Maruti Udyog, that the car makers were given a free hand to fix

the prices of cars, thus, effectively abolishing all controls relating to the

pricing of the end product.

In the early 80's, a series of liberal policy changes were announced

marking another turning point for the automobile industry. The GOI

entered the car business, with a 74% stake in Maruti Udyog Ltd (MUL), the

joint venture with Suzuki Motors Ltd of Japan. The very face of the

industry was changed for ever in 1983 with the entry of public sector

Maruti Udyog in a joint venture with the Suzuki Corporation of Japan. Car

sales grew by 42 per cent yoy in 1985 after Maruti 800 was launched.

Thanks to MUL car sales registered a CAGR of 18.6 per cent i.e. from 1981

to 1990.

In 1985, the GOI announced its famous broadbanding policy which

gave new licenses to broad groups of automotive products like two and

four-wheeled vehicles. Though a liberal move, the licensing system was

still very much intact. MUL introduced 'Maruti 800' in 1983 providing a

complete facelift to the Indian car industry. The car was launched as a

"people’s car" with a price tag of Rs 40,000. This changed the industry's

profile dramatically. Maruti 800 was well accepted by middle income

families in the country and its sales increased from 1,200 units in FY84 to

more than 200,000 units in FY99. However in FY2000, this figure came

17
down due to rising competition from Hyundai's 'Santro', Telco's Indica and

Daewoo's 'Matiz'.

MUL extended its product range to include vans, multi-utility

vehicles (MUVs) and mid-sized cars. The company has single handedly

driven the sales of cars in the country cornering around 79.6% market

share. With increasing competition from new entrants, this market share

has plummeted to almost 62% in FY2000.

A brief 3-year downturn till 1993 and car sales bounced back to

register a 17 per cent growth rate in 1997.Since then, the economy slumped

into recession and sales of cars remained quite stagnant FY97 and

FY99. The Financial year 2000 has, however, been the turnaround year for

the Auto industry with the economy looking up. The automobile industry,

crossed the half million mark for the first time in FY2000.

Overwhelmed by newer models from new and existing players had led to

an impressive shift from a constrained supply situation to a surplus one.

Within the past decade, about 30 models have entered the Indian market

with a number of models still awaiting launch. The de-licensing of auto

industry in 1993 opened the gates to a virtual flood of international auto

makers into the country with an idea to tap the large population. Also the

lifting of quantitative restrictions on imports by the recent policy is

expected to add up to the flurry of foreign cars in to the country.

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 The Indian Automobile industry registered one of the strongest

growth rates in FY’04. Aided by sustained economic recovery, the industry

registered high growth rates in all major segments.

The growth story was led by Medium and Heavy Commercial

Vehicles (M&HCVs) registering a 40% growth while Light Commercial

Vehicles (LCVs) recorded a 32% jump in total sales. Passenger cars also

registered an impressive 34% growth in FY’04 and total sales volume

crossed the 1 million mark for the first time. Interestingly, two wheelers

registered the lowest but healthy growth rate of 13% in FY’04. While

motorcycle volumes tripped on a high base, scooters registered a 10%

growth after 4 years of continuous decline. Three wheelers grew by 23% in

FY’04.

Apart from strong economic growth in all sectors, low interest rate

regime, normal monsoon, continued infrastructure investment, fiscal

measures like cut in excise duty (in case of cars), etc provided impetus for

the growth. The year also saw a sharp 56% rise in export volumes with all

the sectors registering more than 40% growth, signalling the

rising international competitiveness of the industry.

Profitability improvements were recorded in companies across

segments driven by rise in volumes and lower interest costs to some extent,

notwithstanding the rise in prices of certain inputs like steel.

19
 Though the peak customs duty had been reduced to 20% in January

2004 and Special Additional Duty was abolished, the domestic industry

still enjoys adequate protection, with no import threats. The potential

borne by the industry is well exhibited by the growing number of

international players setting up base in India and

increasingcompetitiveness in the industry.

Many companies have entered the car manufacturing sector, to tap

the middle and premium end of car industry.

Background of Automobile Industry

 The automobiles industry for many years operated in a seller's market.

In such a scenario the manufacturer could offer outdated models and

also raise prices at will. Little or no attempt was made to control costs or

to offer new products. Lack of innovation restricted the consumer’s

options to the models offered by these companies.

 The number of manufacturers (domestic and foreign) increased

dramatically after the de-licensing of the sector. Increased competition

has forced companies to focus on cutting costs, improve technology and

styling through research. It has also constrained them to limit price

increases.

20
 Availability of easy credit facilities also resulted in creating demand for

automobiles. The car financing market has boomed from a turnover of

Rs 7,000 m in FY95 to nearly Rs 35,000 m in FY97.

Structure
 The Indian automobile industry can be broadly classified into:

 2 /3 Wheelers

 Passenger Cars

 Commercial Vehicles (LCV/HCV/MCV)

 UV (Utility vehicles)

 Tractors

The models in the car market can be fitted to different segments as given

below:

Category Models
Economy segment (upto Rs Maruti Omni, Maruti 800 etc.

0.25mn)
Mid-size segment (Rs 0.25-0.45 Fiat Uno, Hyundai Santro, tata

mn) Indica, Maruti Alto etc.

Luxury car segment (Rs 0.45- Tata Indigo, Honda City,

1mn) Mitsibushi Lancer, Ford Ikon,

Opel Astra, Hyundai Accent &

21
 others
Super luxury segment (above Rs Mercedes Benz & other imported

1mn) models
The economy segment has a very large foothold over the Indian

automobile market as compared to the mid-size and luxury segment.

Segment Market Share (%)

Economy 90.2
Mid-size and luxury 9.8

Source: SIAM/ Auto Car India

(society of Indian Automobile Manufacturers)

 Increased urbanisation, low pricing policies, improvement in products

and technology have fuelled demand for 4-wheelers. The markets are

clearly segmented between economy models and premium models. The

easy availability of finance and increased levels of disposable incomes

has led to higher demand for premium models. Rural areas have also

become an exciting market to cater to.

 The growth of the economy has also resulted in a shift in consumer

preferences in each of the segment. Gradual shift can be seen in buyers

from mopeds to economy scooters, from economy scooters to premium

and from premium to motorcycles

22
Figure -Structure of Passenger Vehicle Ma

rket

(India)

23
 Trends in Passenger Car / Utiltity Vehicle Sales

 The passenger car segment has seen rapid growth on the back of rise in

disposable income, increased availability of consumer finance, and

reduction in excise and customs duties. Post-1991, this segment has seen

maximum foreign investment. There is a clear segmentation of

passenger cars based on price and size. While the lower and medium

range cars (Maruti, Ford, Cielo) have been moderately successful,

luxury cars such as Mercedes have found the going tough.

 The CV segment is directly linked to industrial production and foreign

trade and is therefore subject to cyclical fluctuations of the economy.

The demand for CVs is related to growth in movement of goods

24
 transported and freight rate levels, both of which are linked to level of

production.

Commercial Vehicle Sales Growth v/s IIP Growth

 Demand for utility vehicles and tractors come from rural India. These

vehicles have witnessed steady demand growth over the past few years

due to successive monsoons, better procurement prices, improved

irrigation facilities, and availability of finance.

 A strong in-house R&D capability allows a manufacturer to develop and

introduce products at lower prices, thus saving costs of importing

technology. However, Indian companies spend very little on R&D.

Availability of quality components is another factor that determines

smooth production without bottlenecks. High rejection rate of auto

25
components has prompted several global majors like Ford, to get their

international suppliers

Industry background

Driving the most luxurious car has been made possible by the stiff

competition in the automobile industry in India, with overseas players

gathering the same momentum as the domestic participants.

Every other day, we have been hearing about some new launches, some

low cost cars – all customized in a manner such that the common man is

not left behind. In 2009, the automobile industry is expected to see a

growth rate of around 9%, with the disclaimer that the auto industry in

India has been hit badly by the ongoing global financial crisis.

The automobile industry in India happens to be the ninth largest in the

world. Following Japan, South Korea and Thailand, in 2009, India emerged

as the fourth largest exporter of automobiles. Several Indian automobile

manufacturers have spread their operations globally as well, asking for

more investments in the Indian automobile sector by the MNCs.

Potential of the Automobile industry

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. Similar plans are for General Motors.

26
 Turnover of Automobile Manufacturers(In USD Million)
Year In USD Million
2002-03 14,880
2003-04 16,544
2004-05 20,896
2005-06 27,011
2006-07 34,285

The figures show that the automobile sector in India has been growing

robustly. The market shares of the different types of vehicles will clearly

depict the demand pattern in this sector.

Domestic Market Share for 2008-09

Passenger Vehicles 15.96%
Commercial Vehicles 3.95%
Three Wheelers 3.6%
Two Wheelers 76.49%

Features of the automobile industry

The structure of the auto market has been changing at a faster pace

along with the global changes in the Industry. There are several global

automobile companies who were averse to come and invest in India ten

years ago, now have kept India as a priority destination for their

investment. Along with the entry of multinational auto companies, the

27
profile of domestic auto companies too witnessed a structural change. The

stiff competition to access market prompted companies to go for different

models with differing qualities and efficiency. The market too expanded at

a rapid pace with the entry of soft financial assistance from several

financial institutions to middle income households.

MNCs need to carefully plan their entry into emerging markets.

Early commitment to a market often results in first mover advantages that

are difficult to replicate. On the other hand, later entrants have the

opportunity to learn from the mistakes of the first entrant. The Indian car

market offers useful lessons in this context. In the 1990s, the Indian

Government removed several restrictions in a bid to attract foreign

investors into the automobile industry. Among the first to enter was

Daewoo of South Korea, with its model Cielo, targeted at the upper end of

the market. Other MNCs such as Ford and General Motors also entered the

Indian market, followed by Hyundai, Honda, Toyota, Volkswagen etc.

Most MNCs began their operations in India as joint ventures with

local partners.  Examples include Suzuki, G.M, Ford and Daewoo.  With

the exception of Suzuki,  these joint ventures have become fully owned

subsidiaries of the foreign partners.  In all these cases, the local partners

have just not had enough resources to chip in whenever the equity base has

been expanded.  Consequently, the foreign partners have pumped in the

additional capital and raised their equity stakes

28
 With the liberalization of the India economy, the Rs 18,500 crore

Indian car marketis being opened up to foreign investors. Several

companies are setting up or have already set up operations in India to cater

to the Indian market. There are several strategies by which a foreign

enterprise can set - up Indian operations. This module aims to give the

various entry options available to a foreign investor, especially for foreign

direct investment. This module does not deal with portfolio investments.

Broadly, entry strategies may be classified into two major types :-

1. A foreign investor may directly set up its operations in India through

a branch office or a representative office or liaison office or project

office of the foreign Company ; or

2. It may do so through an Indian arm i.e. through a subsidiary

company set - up in India under Indian laws.

Generally, setting up operations through an Indian arm is advisable,

especially if the quantum of investment is huge.

The impact of India’s initiatives in economic liberalization and

globalization (post 1991) is most apparent in the automotive sector.

Automotive industry is a key driver of economic growth contributing

around four to five percent to the Indian GDP. Introduction of reforms and

entry of international companies has intensified competition in the Indian

29
automotive sector. This has resulted in the transformation of a seller’s

market (created mainly due to the Indian government’s protectionist

policies) into a buyers market. The changing structure of this industry has

posed many challenges and opportunities to the market participants.

Previously, Indian automotive market was characterized by weak

air pollution regulations. In addition, low labor cost of maintenance and

the psyche of Indian consumer to delay the discarding of the old vehicle

reduced the scrap rate. All these factors resulted in prolonged operational

existence of vehicle on Indian roads. The benefit of this practice is the

comparatively higher revenues for automotive component suppliers, due

to increased demand in the aftermarket. But recent pronouncement of GoI

to prohibit polluting vehicles in the National Capital Region (NCR) is likely

to force the old polluting vehicles off road. This will reduce the average life

span of vehicles on road and the overall impact would be reduced per

vehicle parts consumption.

Two wheelers generate the highest volumes and are more popular

in rural and semi urban markets primarily due to lower income levels and

poor road conditions. Therefore, these could be classified as entry-level

vehicles. Within two wheeler segments, progressively mopeds are likely to

be replaced by motorcycles. With the growth in the family income of these

rural and semi-urban buyers and the option of numerous used cars, it is

expected that a significant shift would take place from two wheelers

30
(mainly scooters) to four wheelers. Lucrative finance schemes have made

the purchase of mid-sized cars really affordable. The present owners of the

small car are likely to graduate to mid-size cars mainly due to declining

importance of small car as status symbol and the marginal increment in

repayment installment in the finance options.

Good performance of the economy has led to higher all round

growth leading to high GDP growth of 8%. Excise duty reduction on

passenger vehicles helped to reduce the ultimate price to the customer.

Brisk activities on infrastructural development will give a boost to the

automobile industry. Softening of interest rates and improved financing of

second hand vehicles have made the purchasing of cars financially viable.

Availability of finance in rural and semi-urban areas have led the low-end

customers to put money in the purchase of vehicles. Emergence of India as

a manufacturing hub for the automobile industry is a good sign for the

country’s future prospects.

The automotive industry performance is closely linked to

industrial growth. It is hoped that industrial growth would be around 7 per

cent during the year 2003-04 as against around 6.5% last year. Agriculture

output during the year 2003-04 increased by over 10% as compared to

(-)3.2% in the previous year. Today we are fourth largest economy (USD 2.5

trillion) in the world after USA, Japan and China in terms of purchasing

31
power parity. The outlook for the year 2004-05 is promising and it is

expected that the current growth rates of GDP and industrial output will be

sustainable, which would ensure robust growth in the automotive sector.

Good performance of the economy has led to higher all round

growth leading to high GDP growth

The landmarks along the way...

1928- The first imported car was seen on Indian roads

1942- Hindustan Motors incorporated

1944- Premier automobiles started

1948- First car manufactured in India

1953- The Government of India decreed that only those firms which have a

manufacturing program should be allowed to operate

1955- Only seven firms, namely, Hindustan Motors Limited, Automobile

Products of India Limited, Ashok Leyland Limited, Standard Motors

Products of India Limited. Premier Automobiles Limited, Mahindra

& Mahindra and TELCO received approval.

1960 - 1970 - The two, three wheeler industries established a foothold in the

Indian scenario.

32
1970 - 1980 - Not much change was witnessed during this period. The

major factors affecting the industry were the implementation of the

MRTP Act (Monopolies and Restrictive Trade Practices Act), FERA

(Foreign Exchange Regulation Act) and the Oil Shock of 1973 and

1979.

1980 - 1990 - The first phase of liberalization was announced by the Govt.

-With the liberalization of the Government's protectionist policies, the

advantages hitherto enjoyed by the Indian car manufacturers like

monopoly, oligopoly, slowly began to disappear.

1991 - Under the Govt.'s new National Industrial Policy, the license raj was

dispensed with, and the automobile industries were allowed to

expand freely.

1993 - With the winds of liberalization sweeping the Indian car market,

many multinationals like Daewoo, Peugeot, general Motors,

Mercedes-Benz and Fiat came into the Indian car market.

1997 - The National Highway Policy was announced which will hopefully

have a positive impact on the automobile industry. The Government

also laid down the emission standards to be met by car

manufacturers in India in the coming millennium. There were two

successively stringent emission levels to be met by April 2000 and

April 2005, respectively. These norms were benchmarked on the basis

of those already adopted in Europe, hence the names Euro I

(equivalent to India 2000) and the Indian equivalent of Euro II.

33
1999 - The Hon’ble Supreme Court passed an order directing all car

manufacturers to comply with Euro I emission norms (India 2000

norms) by the 1st of May, 1999 in National Capital Region(NCR) of

Delhi. The deadline was later extended to 1st June, 1999

2004 - Tata Motors becomes the first Indian auto company to be listed on

the New York Stock Exchange.

Auto policy of the Government of India

VISION

To establish a globally competitive automotive industry in India and to

double its contribution to the economy by 2010.

POLICY OBJECTIVES

This policy aims to promote integrated, phased, enduring and self-

sustained growth of the Indian automotive industry. The objectives are to:-

 Exalt the sector as a lever of industrial growth and employment and

to achieve a high degree of value addition in the country;

 Promote a globally competitive automotive industry and emerge as a

global source for auto components;

34
  Establish an international hub for manufacturing small, affordable

passenger cars and a key center for manufacturing Tractors and Two-

wheelers in the world;

 Ensure a balanced transition to open trade at a minimal risk to the

Indian economy and local industry;

 Conduce incessant modernization of the industry and facilitate

indigenous design, research and development;

 Steer India's software industry into automotive technology;

 Assist development of vehicles propelled by alternate energy sources;

 Development of domestic safety and environmental standards at par

with international standards.

SIAM welcomed the announcement of Auto Policy, and feels that the

policy would serve as a reference document for all stake holders and other

interested parties.

The Auto Policy has spelt out the direction of growth for the auto sector in

India and addresses most concerns of the automobile sector, including-

Promotion of R&D in the automotive sector to ensure continuous

technology

 upgradation, building better designing capacities to remain

competitive;

35
  Impetus to Alternative Fuel Vehicles through appropriate long term

fiscal structure to facilitate their acceptance;

 Emphasis on low emission fuel auto technologies and availability of

appropriate auto fuels and

encouragement to construction of safer bus/truck bodies - subjecting

unorganised sector also to 16% excise duty on body building activity

as in case of OEMs

The policy has rightly recognised the need for modernising the parc profile

of vehicles to arrest degradation of air quality. The terminal life policy for

commercial vehicles and move toward international taxing policies linked

to age of vehicles, are steps in the right direction.

SIAM has always been advocating encouragement of value addition within

the country against mere trading activity. However, this aspect has not

been fully addressed. The Auto Policy allows automatic approval for

foreign equity investment upto 100% in the automotive sector and does not

lay down any minimum investment criteria.

The recommendation of promoting passenger cars of length upto 3.8

meters through excise benefits is not in line with the free market concept

and may lead to market distortion.

However, with the Auto Policy in place, the automotive industry would

get further fillip to become vibrant and globally competitive. The industry

36
would get the required support from other Ministries and departments of

Government of India in achieving the goals laid down in the auto policy

Role of Government in Automobile Industry

The government is making efforts to overcome the constraints at their

research centers for automobile industry. India can also learn from

countries like Japan that are already using these technologies for a wide

number of applications. The Indian auto industry should launch

programmes for market development and a wider acceptance of alternative

energy-driven vehicles in India. It should also work in tandem with the

government to make India a world leader in this area.

Indian automobile industry is also consistently trying to meet the

emerging challenges of environmental pollution and better safety standard.

According to a study, automobile exhaust contributes more than 60% of the

atmospheric pollution in metropolitan cities, with the growing number of

vehicles, the pollution in the cities is continuously increasing. Government

initiated controls by notifying emission standard from the year 1992 under
37
which were furthers tightened in April 1996 under the Motor Vehicles Act.

Euro-I emission norms have already been made applicable throughout the

country and Indian is poised to induct Euro-II norms across the country by

April 2005. Form that date 7 metropolitan cities are going to switch over to

Euro–III norms. To meet this emerging challenges of newer emission

norms Indian automobile industry has already braced itself up with new

investment and fresh technological induction.

With the growing number of vehicles, the pollution in the cities is

ever increasing. Government initiated controls by notifying emission

standards from the year 1992 which were further tightened under the

Motor Vehicle Act. For meeting these norms, unleaded petrol was also

introduced in metropolitan cities from 1995, which enabled fitments of

catalytic convertors on new petrol driven vehicles. The norms are being

further tightened from April,2000 when India’s stage one norm equivalent

to Euro-I will become effective. For 2-wheelers, India has announced one of

the tightest norms in the entire world. In the national capital territory

region of Delhi, India’s stage 2 norms equivalent to Euro-II norms, will be

effective from April, 2000, as per the order of Hon’ble Supreme Court. This

would apply to passenger cars.

The government seems most keen to hand over a huge replacement

market on a platter to the automobile industry without ensuring that

manufacturers take responsibility of the emission performance of the

38
vehicles they produce for its useful life. In fact the most important action

point that was recorded after the ministerial consultation was that

manufacturers would have to give emissions warranty for two- wheelers

from But ultimately, the government could not muster enough courage to

push the mighty automobile industry and enforce it.

Government will encourage and assist establishment of specialized

training institutes for the automobile sector through the active association

of interested automobile industries. These institutes will be set up in Bidadi

Industrial area and Dharwad Growth center. The Institute will be managed

by the participating automobile industries and will train skilled category of

auto workers, in specified skill areas such as painting, welding, auto

mechanical, etc. It also is making an effort abe to enlist the support of

multilateral aid institutions to provide part of the funding for this project,

which promises tremendous environment-improvement benefits for the

vehicle, which create pollution.

The policy of broadbanding capacities in the eighties led to

increased utilization of capacity for four-wheelers in the industry.

The liberal policy on foreign participation through technical and

financial collaboration in early eighties led to substantial product

upgradation and introduction of new models. But it was alleged that the

policy was discriminatory in favor of MUL, while others like Telco, PAL,

39
HM were denied permission to produce cars in collaboration with Japanese

companies.

The GOI controls the car sector by way of framing policies on

depreciation norms, import duty on cars and parts used in it, petrol prices

and import duty of steel.

During the era of socialist inspired controls, the government

protected the car industry from new entrants by making effective use of

licenses. However, after liberalization and with the consequent opening up

of the auto sector in 1992-93, the license raj ceased to exist .

The perception of a car as a luxury good lead to heavy excise duty on cars.

The excise duty doubled from 25% in FY87 to 55% in FY91. Till 1987, the

GOI followed a discriminatory policy so as to charge lower duty on fuel

efficient car with engine capacity of less than 1000cc. This helped MUL to

price its car at a lower price in comparison to others. But with lobbying

from PAL and HM government withdrew the provision in 1987.

But with the onset of the liberalization process in the early nineties,

the government has continually rationalized the excise duty regime.

Presently, there is a duty of 40% (16% + 24%) on motor vehicles, designed

for transport of not more than six persons (excluding the driver). On

vehicles designed for transport of more than six persons, but not more than

12 persons, the duty is 32% (16% + 16%). Over and above the excise duty,

40
cess by the Central Government, states are now charging a uniform sales

tax of 12%. This came in being after the 15th of May 2000. Earlier, states

used to charge sales tax varying from 3 to 14%. But MUL vehicles receive

favorable treatment in terms of sales tax as well.

In line with its treatment for luxury items import duties for car

have been maintained high. In the 80's, import duties varied between 150

to 200% based on the engine capacity of a car. The import duty on cars and

components has come down in the last few years in line with general

reduction in import tariffs. In the FY98 budget, the import duty on cars has

also been further brought down from 50% to 40% ad valorem. Substantial

reduction in import duty has been extended in the budget FY98 for import

of certain items which would help the industry to reduce the emission level

of vehicles. The import duty on catalytic converters and parts thereof has

been reduced from 25% to 5%. The duty on CNG kits and parts thereof

have been reduced from 10% to 5%.

The import duty on auto components will be a key factor in

deciding the final pricing of cars as new ventures start with about 50%

indigenisation levels. The reduction in import duty on steel in the last few

years has helped the industry in reducing raw material costs as major steel

requirement of car industry was imported. Even today, all CKD/SKD

imports include metal pressed body panels.

41
 Impact of union Budget 2004-05

Budget Proposals / Measures

 No change in basic excise duty on automobiles other than tractors

 Peak rate of customs duty to be maintained at 20%

 Automobile companies entitled to 150% deduction of expenditure on

in-house R&D facilities

 Reduction in customs duty for alloy and non alloy steel to 15% and

10% respectively.

 Excise duty on steel increased to 12% from 8%.

 Indications of continuing benign interest rate regime.

 Educational cess of 2% on excise, customs duties and Income Tax.

 Likely implementation of VAT from April 1, 2005

 Strong thrust towards sustainable rural economic growth.

 Reduction in customs duty on copper as well as some other metals to

15%.

 Consortium of banks formed to ensure speedy conclusion of loan

agreements and implementation of infrastructure projects.

Budget impact:

42
Tractor manufacturers will benefit from increased demand for tractors once

they pass on the benefits of excise duty exemption to the end consumers.

The industry has just come out of a three-year slump, having registered a

volume growth of 10% in FY04. Thus, the current exemption is likely to

give a further boost to demand. The target of doubling the agricultural

credit in three years is also likely to make more funds available to the

farmers for investment in farm mechanisation.

With major auto companies spending sizeable amount on product

development and in-house R&D expenditure in recent times, deduction of

150% allowed on the same will encourage further R&D investments. With

cost efficiency no longer the domain of any single player, future survival

will depend upon the capability to offer more technologically competent

products. From this perspective, the current move is a step in the right

direction.

The government has pushed for speedy implementation of infrastructure

projects, which is a good sign for the auto industry, especially the CV

manufacturers. In line with the international experience, improvement in

road infrastructure will translate into increased demand for higher tonnage

CVs.

Reduction in customs duty on alloy and non alloy steel would have a

positive impact on the auto components and automobile industry.

43
However, it would be nullified to some extend by increase in excise duty

on steel.

R&D sop will also boost investments in technology related areas. Cess of

2% may result in increase in end product prices if the manufacturers decide

to pass on the hike.

Rural thrust is likely to result in long term increase in demand of

automobiles. Favourable economic scenario, renewed impetus on

infrastructure and thrust on rural economy are likely to sustain healthy

growth rates across segments.

Overall, no significant impact for the automobile industry (other than

tractors).

Demand

The demand for cars in the past was supply driven as demand did not

match supply. This led to high premium and long waiting periods for the

cars. But change in government policies coupled with aggressive capacity

additions and upgradation of models by MUL in the early nineties led to

increase in supply and subsequently reduced the waiting periods for

economy cars.

44
The demand for cars was suppressed by various supply constraints. The

demand for cars increased from 15,714 in FY60 to 30,989 in FY80 at a CAGR

of only 3.5%. The entry of Maruti Udyog Ltd (GoI-Suzuki JV) in 1983 with a

"peoples" car and a more favorable policy framework resulted in a CAGR

of 18.6% in car sales from FY81-FY90. 

After witnessing a downturn from FY90 to FY93, car sales bounced back to

register 17% growth rate till FY97. Since then, the economy slumped into

recession and this affected the growth of the automobile industry as a

whole. As a result car sales remained almost stagnant in the period

between FY97 and FY99. CAGR recorded during the FY94-FY99 period was

14.4%, reaching sales of 409,624 cars in FY99. However, during FY2000,

with the revival of economy, the segment went great guns posting a sales

growth of 56%yoy. The table below indicates the past sales trend for cars -

Cars FY94 FY95 FY96 FY97 FY98 FY99 FY2000

Volume 209,203 264,822 345,486 410,992 417,736 409,624 638,815
Growth 27.0 27.0 30.0 19.0 2.0 -2.0 55.8

%yoy

Source : SIAM

The demand for cars is dependent on a number of factors. The key

variables are per capita income, introduction of new models, availability &

45
cost of car financing schemes, price of cars, incidence of duties and taxes,

depreciation norms, fuel cost and its subsidization, public transport

facilities etc. The first four factors viz, increase in per capita income,

introduction of new models, availability & cost of car financing have

positive relationship with the demand whereas others have an inverse  

relationship with demand for cars.

The demand for cars in the future can be estimated with the help of making

use of macro economic variables like growth in GDP, per capita income etc.

or house hold penetration technique. An attempt is made to estimate the

potential demand for passenger cars based on the household penetration

level of passenger cars as explained in Annexure 4 of the report.

The demand for cars in the future is expected to come predominantly

from the existing two-wheeler owners who will be upgrading to a four-

wheeler, due to rising income and necessity of car for personal

transportation purposes. Therefore, excluding the owners of mopeds, the

potential demand for cars in the next fifteen to twenty years can be taken

as 50% of the existing two-wheeler population of around 28mn units.

But with the release of new models in the higher end of the economy

segment, the supply of second hand economy cars is expected to increase

substantially, which will be costing just about two times the price of

premium range two-wheelers. This could affect the demand for first

46
hand/new cars. Also, with cross demand from utility vehicles, availability

of finance and other factors the above mentioned potential for cars will be

difficult to realize. Growth in the segment thus is expected to hover around

15-20%yoy.

The dominance of economy segment will continue in the future as it will

provide large volume to Indian car industry. This is because a majority of

customers for cars will graduate from two-wheelers. The demand for mid-

sized and premium cars is   expected to rise as new models enter the

market, income levels rise and present car owners upgrading from the

economy segment to higher end cars.

Supply

The supply of cars in Indian industry till 1991 was dependent upon the

production capacity of individual players. The production of cars has

increased from 42,475 units to 181,420 units from 1981 to 1991 respectively.

The growth in production of cars has varied in the last three decades from

just 1% in 1970-80 to 21% in 1980-90 and above 15% in 1991- 96. The table

below gives the productionnumbers of passenger cars in the past few

years.

Cars FY94 FY95 FY96 FY97 FY98 FY99 FY2000

Production 207,658 264,468 348,146 407,539 401,002 390,355 577,243
Growth % 27.2 27.4 31.6 17.1 (1.6) (2.7) 32.4

47
Source: SIAM 

The major increase in production of cars in the 80's was due to the entry of

MUL in 1983, which helped increase car production by 20,000 to 30,000 cars

per annum till the early nineties.

With the entry of MUL, the face of the passenger car industry changed

forever. Existing producers who had operated in a protected, high margin

environment faced the prospect of not just diminishing market share, but a

shift in focus from producing vehicles to selling them. But MUL made use

of the opportunity open to its technologically superior product and

increased its capacity from 100,000 cars in FY90 to 240,000 cars in FY96 and

350,000 cars in FY98.

The opening of economy in 1993, attracted world majors who joined hands

with existing auto majors, to start their operations at the earliest. The first

ones to enter the field were Mercedes Benz in joint venture with Telco to

manufacture E220, E250D models, Peugeot in JV with PAL to manufacture

Peugeot 309L, Fiat in JV with PAL to manufacture Fiat Uno.

This has helped in increasing the number of models available to the

customer from 8 to 30 and hence provided a wide choice to him. This has

also helped in reducing the average waiting period and premium on cars,

which were a part and parcel of car cost in the eighties.

48
 Capacity

The present production capacities is detailed in the table below. This has

increased from an estimated 600,000 units in FY98 to the present 727,000

units in FY2000.

Car Capacity FY2000 Expected

Maruti Udyog 250,000 350,000
Hyundai 110,000 130,000
Telco 100,000 150,000
Daewoo 72,000 130,000
Ford India 50,000 70,000
Fiat India 60,000 60,000
General Motors 25,000 100,000
Honda Siel 30,000 30,000
Hindustan Motors 30,000 50,000
Total 727,000 1,070,000

Thus, capacity utilization in FY2000 stands at 79.4%. This is still better than

utilization levels the world over which stands at around 40%. Production

capacities are expected to increase in the next two years as players

introduce new models. The major increase in supply, as was witnessed in

FY2000, will be in the mid-size and luxury segment. The supply in the

future, taking into account the plans announced by the car majors are

expected to grow to 1,070,000 cars by 2002. 

49
The segment which has seen a number of new entrants in the recent past

will see two new models from the stable of Maruti namely the 'Alto', which

will be available in the 800cc and 1000cc configuration. However, industry

sources have indicated that after the hectic action of the past two years, this

segment will slowly witness some stability in terms of sales volumes and

prices. The entry of new players is expected to create a marketing warfare

in the car industry. A start has already been made by sharp reduction in

prices of Daewoo 'Cielo' and Maruti 800. Lately, the price of Wagon R was

also lowered by MUL to face the intensifying competition. However, with

manufacturers having to comply with Euro emission norms, car

manufacturers have sold their products at lowered margins. This is

expected to affect their ability to reduce prices in the future.  

Increased support through finance from auto manufacturers was quite

evident in FY2000. This has and will in the future induce existing owners of

cars to go for technologically superior products in the same segment

leading to sharp drop in prices of second-hand cars. This will also create a

platform for upgradation of existing two-wheeler owners to four-wheelers.

The luxury segment will see more new entrants namely Toyota of Japan,

Skoda of Czech Republic and Proton of Malaysia in the years to come.

Recently, companies like MUL, GM and Hindustan Motors have come out

with new models to cover the present gap in the segment. Therefore, the

50
customer will be having a wider choice to choose depending on his specific

needs

Indian Automobile Industry

An Indian car as one which has been conceived and designed in

India, has at least 85% of its components 'Made in India', by an Indian

company. The Indian passenger car industry as we see today is relatively

recent in origins. Except the ubiquitous Ambassador and the Premier

Padmini there was not much moving around with an Indian tag.

The official mascot of the Indian political system, the Triassic-era

Ambassador has little Indian-ness in it. To start with, the name isn't Indian

and that's only the tip of the iceberg. The design came from Morris Motors

and the present petrol power plant and drive train are Isuzu throwaways.

The diesel version has a BMC engine. Of course everything is made in

India now, but do you call a tree your own if its roots are in someone’s

courtyard.

The other pre-Cambrian relic, the Premier Padmini, which till a few

months back was adorning showrooms throughout the country.Its in the

market since my grandpa learnt driving and at the time of its going to

grave, the Padmini was a completely made in India product. But again,

there's very little Indian-ness about the car, except maybe the name

Padmini. The entry of Maruti Udyog Ltd, a GoI JV with Suzuki of Japan, in

1983 with a so-called "peoples" car and a more favorable policy framework
51
resulted in a growth rate of 18.6% in car sales from FY81-FY90. After

witnessing a downturn from FY90 to FY93, car sales bounced back to

register 17% growth rate till FY97. Since then, the economy slumped into

recession and this affected the growth of the automobile industry as a

whole. As a result car sales remained almost stagnant in the period

between FY97 and FY99. However, with the revival in the economy,

FY2000 turned out to be a significant year for the industry in which it

recorded volume sales of 638,815 units as against 409,951 units in the

previous year. Thus, the CAGR for the period FY96 - FY2000 stands at

16.6%.

The present day stunner from HM is the Lancer. As with HM

products from the past, the Lancer is a borrowed from abroad product. The

saving grace is only that this Lancer is a contemporary model and not

some. The erstwhile Premier Auto Ltd. no longer exists. The nearest thing

to it in the present is Ind Auto Ltd. Ind is an acronym for India or Indian,

but the products are all borrowed from Italy. The Uno came to India after

the Mafiosi had their fill with it. The Siena is a very contemporary model. It

being a good car and all, but I always wonder why Fiat doesn't launch it in

their motherland. What's this 'special' car for India, Brazil, Africa, Latin

America inc.

Ford did take the pains to design an India specific car, the Ikon. So

does the quest for an Indian car end with the Ikon. No I don't think so. First

thing, the company is American. Secondly, the Ikon's platform is that of the

52
Fiesta, nothing else. So the only thing Indian about the car is the 'Josh'

advertising gimmick.

Starting with the official one, i.e. Maruti, the company, since its

inception has changed the automobile scene in India completely. It's has

been the number one manufacturer, churning out close to 300,000 cars last

year. At last count it held a 64% market share in the passenger car market

with four out of every five cars .on Indian roads being Marutis. Every year

it rakes in multi-billion rupee profits, and, yet the company is nothing more

than Suzuki India Ltd.

Telco is a completely Indian carmaker with no major foreign

collaborations. Their Indica was much touted as 'The Indian car', but it was

styled by I.D.E.A of Italy. The engine technology had inputs from 'Moteur

Modern' of France. In effect it was the case of an Italian body being

wrapped around Indian mechanicals. Frankly I would have preferred an

Indian body wrapping an Indian platform.

India is also the largest manufacturer of agricultural tractors, motor

scooters and the world's fifth largest commercial vehicle manufacturer.

Each of these sectors experienced rapid growth during the last three years

Demand in these sectors is driven by industrial, individual and

agricultural consumers respectively. The increases have resulted from

improved overall economic trends in India including large doses of foreign

investment a more liberalized economy and higher productivity.

53
 The fortune of the Auto component industry is inextricably linked

with that of the automobile industry which in turn is influenced by the

general economic trends of the country the country's economic growth is

projected to grow at more than six percent per annum in the coming years.

The estimated growth will automatically emphasize the need for better

transport infrastructure facilities. This means demand for automobiles and

hence for auto components, is bound to grow accordingly. Therefore, good

growth prospects are assured for the automobile industry.

World-wide, cars are segmented on the basis of their size. However, in

India, price is the main factor determining the choice of car. Hence, cars

are segmented on the basis of price into three segments :

Price Approximate

Range Features of Market Share

Segment Main Models
(Rs. the segment of the

‘000) Segment

54
 M-800, Omni,
Price, Fuel
Economy < 250 Uno, 46.9%
Efficiency
Ambassador

Zen, Uno, 118-

NE,Ambassador Price,
250-
Medium 1800 ISZ, Performance, 43.1%
500
Contessa, Indica, Diesel Option

Santro, Matiz

Lancer, Esteem,
Status Value,
500 & Cielo, Accent,
Premium Performance, 10.1%
above City, Opel Astra,
Features.
Ikon

Sources : various sources

Absence of adequate mass transportation system and rising income levels

have resulted in personal vehicles becoming an important mode of

transportation in the urban and semi-urban areas. By international

standards however, the Indian car volumes remain small at just over 1% of

the world market with penetration rates of approximately 3.7 cars per

thousand people as against 24 in Thailand, 144 in Malaysia, 204 in Poland

55
and 90 in Brazil. Cars currently constitute approximately 12% of the total

stock of personal vehicles in India.

Rising household income, increased urbanisation, introduction of new

models and availability of cost effective finance are the key demand drivers

in the industry. The premium segment cars are mainly targeted at

corporates or businessmen and are usually bought on consumer finance.

The midsize segment witnessed an increase of around 115% in sales

volume during the period April 1999-March 2000. Currently the economy,

medium and premium segments constitute 46.9%, 43.1% and 10.1%

respectively of the market.

Segmentation of Automobile Industry:

The automobile industry comprises of Heavy vehicles (trucks, buses,

tempos, tractors); passenger cars; Two-wheelers; Commercial Vehicles; and

Three-wheelers. Following is the segmentation that how much each sector

comprises of whole Indian Automobile Industry.

8 OUT OF TOP 10 GLOBAL COMPANIES HAVE INDIA PRESENCE

56
They contribute 60 % of global production 25 % of India

Production

Keyplayers in the Indian auto industry-

PassengerCars and Commercial vehicles

Thelargest player TATAintheIndianindustry.launch newandexcit

productsin the Indianmarkets, including the‘100,000’car

Suzuki’s JVinIndiaand thelargest

passengercarmanufacturerinIndia

57
 Has vision of capturing 10 %shareofthe

Indianpassengercar market

Oneoftheleading players in the Indianpremiumcars segment

Oneof theleadingplayers inthe Indian

premium cars segment.

Plans to enterthesmall carsegmentby re-

launchingtheMatiz

One of thelargestplayersinthe UV /MUVsegment

The 2nd largestCVmanufacturerin Indi.

KEYPLAYERSIN THE INDIAN AUTO

INDUSTRY- TWOWHEELERS

58
 The largest2 wheelermanufacturer intheworld

and1st inInd The 2nd largest2-wheeler

manufacturerinIndiaand thelargest.

3wheelermanufacturer. Hasplansfor

establishing a manufacturing

facilityinIndonesia .

The thirdlargest2wheelermanufacturer inIndia.Has

plansforestablishingamanufacturingfacility

inIndonesia

Has enteredtheIndian marketthrough itsdirect subsidiary

INDUSTRY PERFORMANCE

59
Automobile Production Trends :

CATEGORY 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Passenger 989,560 1,209,876 1,309,300 1,545,223 1,777,583 1,838,697
Vehicles
Commercial 275,040 353,703 391,083 519,982 549,006 417,126
Vehicles
Three 356,223 374,445 434,423 556,126 500,660 501,030
Wheelers
Two Wheelers 5,622,741 6,529,829 7,608,697 8,466,666 8,026,681 8,418,626
Grand Total 7,243,564 8,467,853 9,743,503 11,087,997 10,853,930 11,175,479

Automobile Exports Trends :

CATEGORY 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Passenger 129,291 166,402 175,572 198,452 218,401 335739
Vehicles
Commercial 17,432 29,940 40,600 49,537 58,994 42673
Vehicles
Three 68,144 66,795 76,881 143,896 141,225 148074
Wheelers
Two Wheelers 265,052 366,407 513,169 619,644 819,713 1004174
Grand Total 479,919 629,544 806,222 1,011,529 1,238,333 1,530,666

Automobile Domestic Sales Trends :

CATEGORY 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Passenger 902,096 1,061,572 1,143,076 1,379,979 1,549,882 1,551,880
Vehicles
Commercial 260,114 318,430 351,041 467,765 490,494 384,122
Vehicles
Three 284,078 307,862 359,920 403,910 364,781 349,719
Wheelers
60
Two Wheelers 5,364,249 6,209,765 7,052,391 7,872,334 7,249,278 7,437,670
Grand Total 6,810,537 7,897,629 8,906,428 10,123,988 9,654,435 9,723,391

Indian Automobile Market

The Indian market confounds global carmakers simply because of the

way it is segmented. In the West, automobiles are generally segmented

according to platforms -- that is chassis-engine combinations. Price plays a

factor but only up to a point. In India, though, price plays the primary role

in segmentation.

Consider first the segments in the European or American market. At

the bottom, you have city cars' -- which include the Daewoo Matiz, the

Hyundai Santro, the Maruti 800, Alto, Fiat Uno, the Zen as well as the

Wagon R. Next come the budget minis -- which would include cars like the

Suzuki Swift (our own Esteem). The next segment, the superminis, would

take in cars like the Opel Corsa, the Ford Ikon. Above the superminis are

small family cars -- which include models like the Opel Astra and the Ford

Escort. Medium-sized family cars are bigger and include cars like the Opel

Vectra and Peugeot 406. Compact executive cars are small but immensely

prestigious and include the BMW 3 series and the Mercedes C class.

Executive cars embrace their bigger brothers -- the BMW 5 series and the

Mercedes E class. Only a handful of cars are classified as true-blue luxury

cars namely-- Jaguar XJ8, the BMW 7 series. And of course there are the

niches like sports, sports utility, and exotics.

61
 The Indian market, of course, is quite differently segmented. The

Maruti 800 and Zen fall in a class by their own -- and are referred to as the

sub-Rs 2.5-lakh cars. The next is the Rs 3-4 lakh segment -- which includes

all the other cars that would normally be classified as city cars in Europe.

Strictly speaking, the Tata Indica should fall in the super-mini category

because of its specifications -- but because of price, it competes in the same

segment. Above Rs 4 lakh and all the way up to Rs 10 lakh is the luxury car

range. It is loosely divided into two halves -- with Maruti Esteem, Ford

Ikon, Hyundai Accent, Daewoo Cielo, Opel Corsa and Honda City 1.3

falling in the bottom layer, and the Opel Astra, Honda City 1.5 and Ford

Escort in the upper range. The last segment is of premium car segment,

which includes cars like Mercedes Benz and BMW.

Scooters India Ltd (SIL), US-based Amerigon and Bangalore-based

Maini Group are negotiating a joint venture to manufacture an electrical

passenger car. Priced at Rs 1.75 lakhs, the car will target the segment

between two-wheelers and petrol/diesel based cars. Assembly from

imported Completely Knocked Down (CKD) kits will start as soon as an

agreement is finalised among the partners. This venture represents a major

manufacturing shift for SIL, a public sector enterprise, which so far has

only produced two- and three-wheelers. It also plans to introduce an

electric three-wheeler model, already in use in Nepal, into the Indian

market.

62
 Bajaj Auto has introduced its diesel three-wheeler in Hyderabad. The

vehicle has a 416 cc engine and is priced at Rs 83,000, lower than its nearest

competitor the Greaves Garuda, which is priced at Rs 85,000 (in

Hyderabad). Bajaj’s petrol three-wheelers already account for 85 per cent of

the India market. Its new product, consequentially, could erode its own

base.

Indian Automobile industry has become more competitive in the

export market due to its technological and quality advances, so much so

that in quality conscious markets such as Europe and America, Indian

automobile industry is emerging as a major player judging by its

performance. India today exports: Engine and engine parts, electrical parts,

drive transmission & steering pats, suspension & braking parts among

others.

Industrial Life Cycle

The industrial life cycle is a term used for classifying industry vitality over

time. Industry life cycle classification generally groups industries into one

of four stages: pioneer, growth, maturity and decline.

In the pioneer phase, the product has not been widely accepted or adopted.

Business strategies are developing, and there is high risk of failure.

63
However, successful companies can grow at extraordinary rates. The

Indian automobile sector has passed this stage quite successfully.

In the growth phase, the product market has been established and there is

at least some historical guide to ground demand estimates. The industry is

growing rapidly, often at an accelerating rate of sales and earnings growth.

Indian AutomotiveIndustry is booming with agrowth rateof around 15 %

annually. The cumulative growth of the Passenger Vehicles segment

during April 2007 – March 2008 was 12.17 percent. Passenger Cars grew by

11.79 percent, Utility Vehicles by 10.57 percent and Multi Purpose Vehicles

by 21.39 percent in this period.

The Commercial Vehicles segment grew marginally at 4.07 percent.

While Medium & Heavy Commercial Vehicles declined by 1.66 percent,

Light Commercial Vehicles recorded a growth of 12.29 percent. Three

Wheelers sales fell by 9.71 percent with sales of Goods Carriers declining

drastically by 20.49 percent and Passenger Carriers declined by 2.13

percent during April- March 2008 compared to the last year. Two Wheelers

registered a negative growth rate of 7.92 % during this period, with

motorcycles and electric two wheelers segments declining by 11.90

percent and 44.93% respect. However, Scooters and Mopeds segment

grew by 11.64% and 16.63% respect. The growth rate of the automobile

industry in India is greater than the GDP growth rate of the economy, so

64
the automobile sector can be very well be said to be in the growth phase

As the product matures, growth slows as penetration reaches practical

limits. Companies began to focus on market share rather than growth.

Industry demand tends to follow the overall economy, but the scope of

growth of the automobile sector is very much possible in India due to the

increasing income of the middle class and their income as well as standard

of living.

LEADING PLAYERS AND SEGMENTS IN WHICH THEY OPERATE

Manufacturer Segments

65
Ashok Leyland LCVs, M&HCVs, Buses
Asian Motor Works M&HCVs
Atul Auto Three wheelers
Bajaj Auto Two and Three Wheelers
BMW India Cars and MUVs
Daimler Chrysler India Cars
Eicher Motors LCVs, M&HCVs, Buses
Electrotherm India Electric Two Wheelers
Fiat India Cars
Force Motors Three Wheelers, MUVs and LCVs
Ford India Cars and MUVs
General Motors India Cars & MUVs
Hero Honda Motors Two Wheelers
Hindustan Motors Cars, MUVs and LCVs
Honda Two Wheelers, Cars and MUVs
Hyundai Motors Cars and MUVs
Kinetic Motor Two Wheelers
Mahindra & Mahindra Three Wheelers, Cars, MUVs, LCVs
Majestic Auto Three Wheelers
Maruti Suzuki Cars, MUVs
Piaggio Three Wheelers, LCVs
Reva Electric Car Co. Electric Cars
Royal Enfield Motors Two Wheelers
Scooters India Three Wheelers
Skoda Auto India Cars
Suzuki Motorcycles Two Wheelers
Swaraj Mazda Ltd. LCVs, M&HCVSs, Buses
Tata Motors Cars, MUVs, LCVs, M&HCVs, Buses
Tatra Vectra Motors M&HCVs
Toyota Kirloskar Cars, MUVs
TVS Motor Co. Two Wheelers
Volvo India M&HCVs, Buses
Yamaha Motor India Two Wheelers

66
 SEGMENTATION
A market segment consists of a group of customers who share a similar set

of wants.

The marketer does not create the segments; the marketer’s task is to

identify the segments and decide which one(s) to target. Segment

marketing offers several benefits over mass marketing. The company can

create a more fine-tuned product or service offering and price it

appropriately for the target segment. The company can more easily select

the best distribution and communication channels, and it will also have a

clearer picture of its competitors, which are the companies going after the

same segment.In the context of automotive sector, we would be classifying

it in the following ways-:

 BASED ON THE PRICE OF THE CAR

 BASED ON THE LENGTH OF THE CAR

 BASED ON THE USER SEGMENT

BASED ON THE PRICE OF THE CAR

On the basis of price of car we can segment the car in following ways-:

 Economy Segment

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o The economy segment of car ranges up to Rs. 2.5 lacs. The products in ths

segment are Maruti 800, Alto and the newly launched product of TATA

motors i.e. NANO.

 Mid- Size Segment

o The mid-size segment of car ranges from 2.5 lacs to 4.5 lacs. It includes the

products like Hyundai santro, Maruti zen, Tata Indica etc.

 Luxury car segment

o The luxury segment of car ranges from 4.5 lacs to 10 lacs. It includes the

products like Honda city, Hyundai Verna, Mahindra Scorpio etc.

 Super luxury car segment

o The super luxury segment of car ranges above 10 lacs. This segment

satisfies the elite class of the society. It includes the products like Skoda

Laura, Honda Accord, BMW, Mercedes, Audi etc.

BASED ON THE LENGTH OF THE CAR:

 A segment- Cars that are less than 3.5 meters long (800, omni)

68
  B segment- Cars between 3.5 meters to 4 meters long( Zen, SX4,

Santro)

 C Segment- Cars between 4 meters to 4.5 meters long (Verna, Honda

city, ford fiesta)

 D segment- Cars that are more than 4.5 meters long( Mercedez,

Sonata, Accord, Skoda)

BASED ON THE USER :

Segmentation of automotive sector is also based on the user of the

products. Like the example of TATA Motors, when it observed that their

product ‘INDICA’ is used extensively by the taxi operators, it came up with

a new model of the car having Round Tail Lights to distinguish it from the

car having vertical tail lights used by the individual buyers.

 Individual Buyers

 Taxi operators -:

 Government /non-government institutions

SWOT Analysis

A scan of the internal and external environment is an important part of the

strategic planning process. Environmental factors internal to the firm

usually can be classified as strengths (S) or weaknesses (W), and those

external to the firm can be classified as opportunities (O) or threats (T).

Such an analysis of the strategic environment is referred to as a SWOT

69
analysis. SWOT analysis of the Indian automobile sector gives the

following points:

Strengths:

 Large domestic market

 Sustainable labor cost advantage

 Competitive auto component vendor base

 Government incentives for manufacturing plants

 Strong engineering skills in design etc

Weaknesses:

 Low labor productivity

 High interest costs and high overheads make the production

uncompetitive

 Various forms of taxes push up the cost of production

 Low investment in Research and Development

 Infrastructure bottleneck

Opportunities:

 Commercial vehicles: SC ban on overloading

 Heavy thrust on mining and construction activity

70
  Increase in the income level

 Cut in excise duties

 Rising rural demand

Threats:

 Rising input costs

 Rising interest rates

 Cut throat competition

INDUSTRY INVESTMENT

According to Commerce Minister Kamal Nath, India is an attractive

destination for global auto giants like BMW, General Motors, Ford

and Hyundai who were setting base in India, despite the absence of specific

trade agreements.
71
CURRENT SCENARIO:

 On the cost front of Indian automobile industry, OEMs are eyeing

India in a big way, investing to source products and components at

significant discounts to home market.

 On the revenue side, OEMs are active in the booming passenger car

market in India.

OVERVIEW

Snippets:

 By 2010, India is expected to witness over Rs 30,000 crore of

investment.

 Maruti Udyog has set up the second car with an investment of Rs

6,500 crore.

 Hyundai will bring in more than Rs 3,800 crore to India.

 Tata Motors will be investing Rs 2,000 crore in its small car project.

 General Motors will be investing Rs 100 crore and Ford about Rs 350

crore.

 Ashok Leyland and Tata Motors have each announced over Rs 1,000

crore of investment.

72
WHY INDIA

The economy of India is emerging. The following table show the ranking of

India in the past four years.

Rank 2005 2004 2003 2002

1 China China China China
2 India Thailand Thailand Thailand
3 Thailand India USA USA
4 Vietnam Vietnam Vietnam Indonesia
5 USA USA India Vietnam
6 Russia Russia Indonesia India
7 Korea Indonesia Korea Korea

Challenges for the Indian automobile industry

As we move into the new millennium, the Indian Automobile

Industry faces some tremendous opportunities and also great challenges.

The growth in automobile sales has been impressive for the past ten years

since liberalization began. However, with liberalization, the Indian

73
customer has been presented with a wide range of choices in automobiles,

to suit every requirement and budget. The market has turned into a buyers

market where the customer is being wooed by the manufacturers and the

dealers with a range of freebies unheard of before in India. Financing has

become so easy that an automobile is within every aspirant's reach.

Competition has meant that manufacturers' margins have been

squeezed severely and they are all under pressure to cut costs to be

profitable and competitive. Some of the older manufacturers like Premier

Automobiles (manufacturers of Premier cars), Automobile products of

India (manufacturers of Lambretta scooters) and Ideal Jawa (manufacturers

of Jawa and Yezdi motorcycles) have closed shop. Hindustan Motors

(manufacturers of Ambassador and Contessa cars) is in trouble due to the

declining sales of its car’s, as most customers prefer the newer models

available in the market. Even the dominant player Maruti has seen its

market share decline rapidly due to its models being old and jaded and is

in addition facing labour problems in its plant.

To add to the problems, come April 2001, under the WTO agreement,

India will have to permit import of fully built automobiles, which hitherto

was not permitted. The foreign manufacturers such as GM, Ford and

Daimler Chrysler will almost certainly import vehicles from their large

portfolio of models and makes, further segmenting the market into niches,

although how competitive they are in terms of price remains to be seen.

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 The challenge before the industry is to figure out the strategy for

survival and growth. It is clear from the picture painted above that the

industry will have to increase volumes in each segment to achieve lower

cost of manufacture. One way to achieve this will be to go for exports in a

big way. Maruti is already exporting vehicles, as are Mahindra, Telco,

Daimler Chrysler and more recently Daewoo. The overseas markets will

have to be exploited more aggressively, but this will mean the companies

will have to invest more in Research and Development of new models with

better features.

The second opportunity is to become contract manufacturers for

overseas companies. A number of Japanese and Korean companies have

been following this strategy very successfully. Hindustan Motors is said to

be considering this option. The third opportunity is to overcome the

vulnerability of the automobile market to oil prices by designing vehicles,

which can offer lower fuel consumption. Recent reports suggest the

government is exploring the possibility of introducing Gasohol, which is a

mixture of Petrol and Alcohol. Gasohol has been very successful in Brazil.

Since Alcohol is a by-product of the Sugar industry (of which India has the

worlds largest), this is a very logical step that should have been taken

many years ago. Even a small percentage reduction in the consumption of

petroleum per vehicle can make a big difference to the balance of

payments.

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 The industry must focus its R&D efforts in line with the global

trends, which is to build vehicles that are considerably more fuel efficient

and less polluting. With growing awareness among the public about

pollution and the effective campaigns carried out by the NGO's, this will

increasingly become an important selling feature. It was surprising to see

how the industry kept stalling the introduction of pollution norms for

vehicles on the pretext that they needed more time to get the technology.

Even Maruti despite its foreign affiliation was caught off guard when the

Supreme Court finally ruled that all new vehicles should strictly adhere to

the Euro II norms.

The inadequacy of road infrastructure in India is well known. This is

compounded by the fact that traffic management is very poor or non-

existent and the drivers are mostly ill trained and in disciplined. As more

vehicles come on the road, this will become a major bottleneck. The

industry will need take initiatives firstly to train all drivers in safe driving

and proper road discipline and manners. They will also need to assist

government agencies in better road design and in building of multilevel

parking lots. Training of police personnel in better traffic management and

advising them on better equipping themselves to deal with various

problems will also have to be done.

In terms of the world averages, India's vehicle density is very low

and if we have to achieve those density levels, the industry can look

76
forward to a bright future. However in the industry's interest care must be

taken to see that we also achieve the safety and convenience levels of using

automobiles.

The Challenges

 External Level :

 Integrating into Global Supply Chains

 WTO – Multilateral trade regimes

 FTA’s (i.e. Bi-lateral Trade)

 Country Level :

 Infrastructure

 Cascading effect of Taxes

 Cost of Capital

 Cost of Power

 Inflexible labor laws Inflexible labor laws

 Firm Level :

 Export as a “mind set

 QCDDM – equation taken for granted

 Logistics

 Warranties & Liabilities

77
  Challenges for CEO’s

 Dilemma of Investment

 Addressing fast Global Business Environment

 Changing mind set of teams

 Developing & Employing people with “right “right skills”

skills

Appropriate Strategies – the key to success:

 Government :

Flexible Labor laws :

Stringent labor laws in India are hindering the over all

development of the Industry. Changing these archaic laws will help in

attracting

investment and lead to expansion of the industry.

Cutting down R.M cost:

Government should reduce import duty and taxes on raw materials

for auto ancillary industry which will bring down their raw material cost to

counter Chinese threat.

78
Attention for R& D & expansion:

Since most of auto ancillary companies are up coming their range of

operation is limited to a few products. In order to encourage these

companies to venture into new product categories Government should

allocate Soft loans.

Auto expo zones:

On lines on software technology parks, govt. should establish export

zones of auto-ancillary industries, equipping them with infrastructure &

offering them tax sops or holidays.

Research center:

Government should establish a research center

dedicated to automobile research

called “Indian institute of automobile research” which can work with auto

industry to develop cutting edge technology.

 Industry :

Marketing and Advertising in potential markets:

79
ACMA in collaboration with CII or FICCI should organize Trade fairs

showcasing Indian Auto ancillary industry both in India and abroad.

Acquiring Auto ancillary companies in potential markets:

Acquiring companies in overseas market gives a direct entry in that

market to Indian companies. For e.g. Bharat Forge acquired one of the

largest forging companies in

Germany, Carl Dan Peddinghaus GmbH (CDP).

Moving up the value chain:

Automobiles companies are going for aggregate buying, hence

company should try to acquire tier I status and ultimately target OEM

status.

Leveraging Software skills

Culture change:

Auto ancillary industry should adopt concepts like six sigma rather

than continuing with post Morton analysis.

R & D spending:

Industry should target at allocating at least 5 % of their revenues on R

& D expenditures for achieving cutting edge in technology.

Competitive Edge
 Manpower
80
The trends clearly indicate a huge opportunity for Indian manufacturers

due to:

 Low cost advantage primarily on account of vast availability of

low cost-high skilled manpower

 Average wage rates are 8$ per hour as compared to 20$ in the

developed markets.

 Highly Competitive at Lower Scales

Indian Auto Companies are highly cost competitive even at lower

volumes due to:

 Appropriate levels of automation

 Low cost automation

 Autonomation

 High Quality & Productivity

Indian Auto Companies have achieved a High level of

Productivity by embracing Japanese Concepts and Best Practices:

 TQM

 TPM

 Toyota Production Systems

In fact cost productivity is our key differentiator viz-a-viz competition from

other low cost economies.

81
  Just-In-Time Delivery & Logistics

 Indian Auto Companies have proven capability to supply on

JIT basis out of Warehouses situated near the Customers

 Most Indian companies have arrangements with major

Logistic Providers for JIT Supplies.

 Adequate Warehousing support and onsite Engineering

support

Different players in Automobile industry

Jagdish Khattar. Y.S. Kim. Ratan Tata. S.G. Awasthi. The four men are

peers. Each has unequivocally established himself as one of the winners in

the first round of the car wars. Between them, they control almost 80% of

the Rs 30,500-crore Indian automobile market.

The battle royale in the Indian car market has entered the next phase. As

the dust and excitement of the dozens of new models introduced in the

past one year settles down, the winners have pulled way ahead of the also-

rans. One old assumption has been vindicated -- that over 80% of the

Indian car market is still confined to the small, sub-Rs 4 lakh models. And

those mid-size and bigger models can only provide the icing on the cake,

not the cake itself to any manufacturer.

Maruti found out that price is no longer the most important factor in

winning car battles. Daewoo's Awasthi admits candidly that he learnt

82
precisely the opposite lesson -- that price does matter. Kim of Hyundai

found out the hard way that you could get your pricing and value equation

just right and still land up with egg on your face if you tried to cut corners

in the technology game. Ratan Tata learnt that providing an internationally

designed car with a great value proposition didn't get you far if you

couldn't provide global quality standards. Both the Indica and the Matiz

had to upgrade their engines in less than one year after launch, the Honda

City had to bring in both a new body and a more powerful engine, and

Hyundai had to start offering a new variant with the power steering option

barely a year after it hit the market.

From now on, the battle is expected to get more vicious. In 1999-2000, the

car market bounced back from the recession by showing a 55.83% growth!

But now, no one expects the market to grow by more than 10-15% per

annum. The really big volume gains will come from wresting market share

away from rivals rather than because the market itself is growing

exponentially.

 Maruti Udyog Ltd.

83
 December 1983 heralded a revolution in the Indian car industry.

Maruti collaborated with Suzuki of Japan to produce the first affordable car

for the average Indian. At this time, the Indian car market had stagnated at

a volume of 30,000 to 40,000 cars for the decade ending 1983. This was from

where Maruti took over.

Nineteen years back Maruti introduced the first small car in the

Indian auto market. They started with their model Maruti 800 which was

very popular at that time and still its major cash cow. The models, which

were available at that time, were Premier Padmini and Ambassador.

Customers were interested in having some different types of models with

some fashionable looks. That was the perfect time to enter into market and

Maruti took right step to introduce its different models.

Maruti established its monopoly over Indian auto market India's

largest automobile company, Maruti entered the Indian car market with

the avowed aim to provide high quality, fuel - efficient, low - cost vehicles.

Its cars operate on Japanese technology, adapted to Indian conditions and

Indian car users. Maruti comes in a variety of models in the small segment.

The sales figure for the year 1993 reached up to 1,96,820. The

company reached a total production of one million vehicles in March 1994

becoming the first Indian Company to cross this milestone. It crossed the

two million mark in 1997.

To fend off growing competition, Maruti has recently completed a Rs.

4 billion expansion project at the current site, which has increased the total

84
production capacity to over 3,20,000 vehicles per annum. It has further

plans to modernize the existing facilities and to expand its capacity by

1,00,000 units in the year 1998-99. The total production of the company will

exceed 4,00,000 vehicles per year.

 Maruti registered sales of 39,838 units in April 2004, up 38.4% yoy from

28,793 vehicle units in April 2003. This includes 2,910 units of exports

compared to 3,150 in April 2003, decreasing by 7.6%.

 Sales for April 2004:

Segment Models April April % April'03 –

2004 2003 change March'04

A1 M800 11,097 10,741 3.3% 167,561
C Omni, Versa 4,816 3,972 21.2% 59,526
A2 Alto, WagonR, 19,296 9,668 99.6% 176,132

Zen
A3 Baleno, Esteem 1,313 952 37.9% 14,173
MUV Gypsy, Vitara 406 310 31.0% 3,555
Domestic 36,928 25,643 44.0% 420,947
Export 2,910 3,150 -7.6% 51,175
Total Sales 39,838 28,793 38.4% 472,122

The A1 segment has grown by 3.3% yoy from 10,741 units in April 2003 to

11,097 units. This is lower compared to some of its other segments. The A2

85
segment comprising of the Alto, WagonR and Zen registered a 100%

growth from 9,668 units in April 2003 to 19,296 units, mainly driven by

rising Alto sales. The A3 segment has grown by 38% yoy to 1,313 in April

2004 from 952 in the same period last year.

The C segment comprising of the Omni and the Versa has shown a 21.2%

growth yoy from 3,972 in the same period last year to 4,816.

In the multi utility vehicle (MUV) comprising Gypsy and Vitara, it sold 406

units in April 2004 from 310 units in April 2003, a rise of 31% yoy.

 Hyundai: Can The Dream Run Continue?

Hyundai has become the undisputed number two in the Indian auto

market, and the only one -- even rivals admit -- with the capability of

giving leader Maruti a run for its money in the total volume stakes

though Hyundai in India currently sells just about a quarter of the

numbers that Maruti does.

Hyundai got everything right because it got the value-price-technology

equation almost perfectly right from day one. The Santro was an instant

winner from the day it was introduced in the Indian market because it

offered the optimum mix of space and technology in the small car

market, at a highly competitive price. And with easy consumer

financing available in the market, Hyundai did not have to work too

hard to persuade even entry-level car buyers to go for the Santro instead

86
of the Maruti 800. And when it launched mid-size Accent some time

later, Hyundai proved that it could get its value-price equation

consistently right across different segments.

But despite its great start, Hyundai made two mistakes.   The two

miscalculations that Hyundai made? First, while Hyundai Santro was

harping on the fact that it was a new generation car, it hadn't brought its

latest engine technology to India. It was a mistake that rival Matiz

capitalised on once Euro-II pollution norms were announced for the

metros. Daewoo made most of the fact that every Matiz was Euro-II

complaint -- while Hyundai could offer an Euro-II version only at a

higher price. Though the latter moved quickly in a damage-control

exercise, the Santro did lose a bit of its sheen. it miscalculated demand

for its cars. The result: when demand peaked for the Santro, it was in no

position to offer the car off-the-shelf like its rivals. Buyers had to wait for

three months to get a Santro after booking it.

Hyundai is moving fast to sort out its capacity problem. Work will soon

start on the second phase of its Sriperumbudur car project, one year

ahead of what was initially planned. An additional investment of $400

million will help expand capacity from 1.2 lakh cars to 2 lakh cars per

annum. This expansion is likely to be completed by December, 2001,

ahead of schedule. But even that could be a bit too late as it gives rivals

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that much time to grab sales that would otherwise have gone to

Hyundai.

That apart, the big worry for Hyundai is that other than the Santro (the

Atos in Korea), it doesn't have any other small car in its armoury. Unlike

Suzuki, which is primarily a small car specialist, Hyundai can only

introduce bigger cars in the Indian market either from its own product

range, or those of Kia Motors, which it took over last year.

Hyundai is looking a bit vulnerable now because globally it is a minnow

in the car market. It lacks the sheer money power and product muscle to

keep fighting the Fords and GMs in any market. And if Ford does take

over Daewoo Motors, Hyundai's number two position in India could be

seriously under threat.

 Daewoo Motors India: Life After Death

Daewoo should have been dead in the Indian market a long time ago.

Shortly after it invested over $1 billion to build up a fully integrated

plant with a capacity to roll out 1.20 lakh vehicles per annum, its parent

went bankrupt. In India, Daewoo started out on a disastrous note by

introducing the Cielo at a high price, then slashing its price to gain

volumes; and then introducing a higher-priced Cielo-clone, the Nexia.

Even in the small car segment, its entry was ill planned. It launched the

Matiz in a single variant and at the highest price in its class. The Matiz

was introduced with a sticker price of Rs 3.67 lakh while the bigger

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Hyundai Santro was selling its base model at Rs 2.98 lakh. Given that

the car was considerably smaller than the Zen, the Santro and the Indica,

the Daewoo Matiz almost sank.

Two things have helped Daewoo bounce back though. First, in the case

of the Matiz, it moved fast to introduce lower-priced, stripped-down

variants that got the price-value-technology equation correct. In May,

1999, it introduced new variants, including the stripped-down, non-AC

Matiz SS, and saw its volumes rise 165% to 1,996 from the previous

month's 754. It touched a peak volume of 5,853 in March, 2000, before

slipping to 3,500 in July, 2000.

More importantly, the announcement of the Euro-II norms helped it

grab the image of being the small car with the best technology since all

its variants met the norms, unlike its rivals. And now that the Matiz has

been voted the best small car in the world by several prestigious

motoring magazines worldwide, Daewoo image has got a further boost.

But these problems could vanish overnight if Ford takes over Daewoo.

The Ford-Daewoo combine could be the strongest challenger to Maruti

here. Despite the success of the Ikon, Ford's share in the total passenger

car market will still be less than 5% this year. With no small car in its

portfolio, Ford can never dream of playing the numbers game. Daewoo

and Matiz, Ford could become the number two player in Indian market.

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  Telco-The HomeGrown Challenger

Telco did not boast a great reputation for developing even world-class

commercial vehicles, forget passenger cars. When the Indica hit the

market, the consensus opinion was that Telco had goofed up again.. The

Indica was riddled with quality problems. A year down the line, almost

everyone grudgingly admits that the Indica has been a success. The

Telco formula of pushing the biggest small car with a rugged diesel

engine has been a major hit in the semi-urban and rural markets.

The Indica cost $400 million from start to finish whereas the Hyundai

Accent is said to have cost $1.6 billion to develop. But the flip side is that

all global giants can amortise the costs of development by selling the

same car across different world markets, Telco can't afford to capture.At

the moment though, the Telco strategy is to tap the niches first. The

Indica, with the diesel engines being pushed hard, was clearly aimed at

a segment none of the rivals was addressing. Similarly, the new car

Magna it is planning to launch is again expected to be a niche car

addressing a particular need in the Rs 12-16 lakh car segment. And in

the SUV market, Telco has already introduced the premium Safari,

which again focuses on a small niche.

It is a smart strategy as it avoids taking any of the big guns head on. But

in the long run, Telco knows it has to take on its rivals in the

mainstream markets as well. It is ramping up capacity to 160,000 from

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 the current 120,000 cars anticipating that it will get the demand. But

Telco is also the weakest player in the small car market -- and unless it

keeps springing surprises, it could be the first casualty in this round of

the car battles.

 Hindustan Motors

Hindustan Motors Ltd (HML) is the oldest passenger car manufacturer in

the country. It also has a small presence in the multi-utility vehicle and the

heavy commercial vehicle segments. The later is generally manufactured

for exports. Other than the automotive sector, the company has diversified

into earth moving equipments and power products. In the passenger car

segment, the company has the well known ‘Ambassador’ and ‘Contessa’

models. It has recently tied with Mitsubishi of Japan for manufacturing the

‘Lancer’ range of cars. At present, the company has a market share of 4.2%

in the car segment.

HML, incorporated in 1942, is the flagship company of the C.K. Birla

group of companies The company became the first manufacturer of cars in

India when it set up its plant at Port Okha in Gujarat. In 1948, it shifted its

activities in Uttarpara near Calcutta and set up facilities to manufacture

cars and trucks. Over the years, HML has diversified into heavy

engineering equipment like excavators, cranes, presses and steel products

under the heavy engineering division (HED). With the division becoming a

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loss making one, it was hived off to Hyderabad Industries Ltd, a group

company, in FY92. In 1971, HML further diversified its activities to include

earth-moving equipment such as dumpers, front-end loaders etc by setting

up a plant near Chennai. In 1985, HML set up a plant at Hosur in Tamil

Nadu for manufacturing heavy-duty transmission required for earth

moving equipments.

In 1986, a project was undertaken to produce HCV’s at Vadodara. A

part of the assets was later sold to a JV between GM and HML, General

Motors India Ltd. In 1987, HML commenced the production of petrol

engines in collaboration with Isuzu Motor Company, Japan. Recently, the

company has entered into a technical collaboration with Mitsubishi of

Japan for the manufacture of the ‘Lancer’ car. Commercial production of

the car started in October 1998. HML also entered into collaboration with

OKA Motor Company of Australia to produce custom-designed rural

transport vehicle.

 Mitsubishi Motors

In the early 1870s, as Japan emerged from over 300 years of feudal

isolation, a young entrepreneur, Yataro Iwasaki, formed a small

shipping company named the Tsukumo Shokia. Following several name

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changes this company became Mitsubishi Mail Steamship Company in

1875, the root of the combined Mitsubishi Companies of today.

A family owned and directed business, the company quickly expanded

into other fields of endeavor and became one of the largest combines in

pre-world war II Japan. By the end of 1945, business ventures in

addition to shipping included heavy industries with ship building at its

helm, banking, trading, mining real estate, chemicals and many other.

The history of Mitsubishi as an automobile manufacturer dates back

long before the Motor Vehicles Division of Mitsubishi Heavy Industries

Ltd. was incorporated as Mitsubishi Motors Corporation in 1970.

Mitsubishi’s epoch making vehicles, which rolled off the assembly line

in 1917, were the Model-A, Japan’s first series production passenger

cars. Always the innovators, the Mitsubishi Model-A were the pioneers

of vehicles in Japan. In early years, the ship and aircraft-manufacturing

arm of Mitsubishi produced vehicles. Therein the provenance of

Mitsubishi Motor’s engineering excellence and the resultant reputation

for outstanding reliability and all around performance of its vehicles.

Today, Mitsubishi Motors ranks as one of the largest vehicle

manufacturer, and one of the very few that can boast a vehicle lineup

which extends from mini cars to heavy-duty trunk buses and other

specialized commercial vehicles.

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The all new Mitsubishi Lancer comes to you from two automotive

giants: Hindustan Motors and Mitsubishi Motors. A technical

collaboration between the two, the project brings together their

formidable expertise and experience to provide you with a whole new

automotive experience.

Mitsubishi Motors brings the most contemporary technology on Indian

roads. The Lancer has an impeccable rallying pedigree and has proven

it's mettle in the toughest conditions. The combination of high

technology and classic build quality continues to woo customers the

world over. Mitsubishi provided you with a comfortable and intuitive

environment to explore the Lancer. There's virtual reality so you can

view the car as you would in one of our showrooms, and every aspect

of the car is explored in detail to let you get a good feel for the car from

the comfort of your own home. There are useful tools to make your

buying process easier.

Not only has HM cleared any doubts pertaining to the quality of its

locally-made Lancer, but it has also proved that its mid-size car is the

one customers like or appreciate most. The Lancer scores superbly in all

but the Ride, Handling and Braking categories, where customers find

comparatively more problems, as a result of the stiffened and raised

suspension.

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 The Lancer wins hands down in the APEAL study too, scoring a full 33

points more than its closest rival, the Honda City a substantial lead. This

performance in the APEAL study has been achieved due to the fact that

the Lancer scores extremely well in each of the nine categories and this

makes it the pick of the mid-size cars by a fair margin.

 Ashok Leyland

For five decades, Ashok Leyland has been a major presence in India's

commercial vehicle industry. These decades have been punctuated by a

number of technological innovations by Ashok Leyland that went on to

become industry norms. Ashok Leyland was the first to introduce full-air

brakes, multi-axled trucks and a host of innovations in buses. Ashok

Leyland's range of dedicated buses answer the special needs of urban mass

transportation. No wonder then that four out of five STU buses in the

Indian metros come from Ashok Leyland. At 60 million passengers a day,

Ashok Leyland buses carry more people than the Indian rail network.

In 1948, when independent India was one year old, Ashok Leyland

was born. Ashok Motors then, assembling Austin cars at the first plant, at

Ennore near Chennai. In 1950 started assembly of Leyland commercial

vehicles and soon local manufacturing under license from British Leyland.

With British Leyland participation in the equity capital, in 1954, the

Company was rechristened Ashok Leyland. In 1987, the overseas holding

by LRLIH (Land Rover Leyland International Holdings Limited) was taken

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over by a joint venture between the Hinduja Group, the Non-Resident

Indian transnational group and IVECO Fiat SpA, part of the Fiat Group

and Europe's leading truck manufacturer. Ashok Leyland embarked on a

major product and process technology upgradation to world-class

standards of technology.

Since then Ashok Leyland has been a major presence in India's

commercial vehicle industry. These years have been punctuated by a

number of technological innovations which went on to become industry

standards. This tradition of technological leadership was achieved through

tie-ups with international technology leaders and through vigorous in-

house R&D.1994 was also the year, when international technology changed

the way India perceived trucks. The year when a new breed of world class

trucks - technologically superior and eco-friendly - rolled out on Indian

roads.

Ashok Leyland vehicles have built a reputation for reliability and

ruggedness. The 375,000 vehicles we have put on the roads have shared the

additional pressure placed on road transportation in independent India.

The share of goods movement by road rose from 12% in 1950 to 60% in

1995. In passenger transportation, the jump is equally dramatic: from 25%

to 80%. At 60 million passengers a day, Ashok Leyland buses carry more

people than the entire Indian rail network. In the populous Indian metros,

four out of the five State Transport Undertakings (STU’s) buses come from

Ashok Leyland. Some of them like double-decker and vestibuled buses are

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unique models from Ashok Leyland, tailor-made for high-density routes.

From our state-of-the-art manufacturing Plant at Hosur, near Bangalore.

They carried the name Cargo. Cargo brought with it, a new set of values

and an unmatched basket of benefits, ushering in a change Cargo and the

state-of-the-art Rs. 6 billion factory at Hosur were built with IVECO'S

global plan in mind. The Hosur plant servers as a world-class

manufacturing base for IVECO supporting its extra-European markets. To

Ashok Leyland, it meant retaining its technological edge against potential

global competition.

The Cargo range of trucks meets contemporary emission norms and

have gained acceptance internationally. Besides fully built vehicles

exported to many markets, Cargo is locally assembled in South Africa, East

Africa and Egypt from SKD/CKD packs exported from Hosur. A

recognized trading house, Ashok Leyland exports to over 40 countries.

Ashok Leyland's export turnover touched Rs.1.5 billion in 1997-98.

Committed to Total Quality Management, Ashok Leyland is the

country's first automotive manufacturer to obtain the coveted ISO 9002

certificate followed by the more comprehensive ISO 9001: 1994 certification

and in late 1998, the latest version of QS 9000. These are major milestones

in the company's TQM journey.

In the journey towards global standards of quality, Ashok Leyland

reached a milestone in 1993 when it became the first in India's automobile

industry to win the ISO 9002 certification. The more comprehensive ISO

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9001 certification came in 1994 and ISO 14001 certification for all vehicle

manufacturing units in 2002.

 Swaraj Mazda

Swaraj Mazda limited, formerly known as Swaraj Vehicles Ltd., was

promoted in 1983, by Punjab Tractors Limited in technical collaboration

with Mazda Motor Corporation, Japan and Sumitomo Corporation,

Japan. The Company is in the manufacture of Light Commercial

Vehicles like Trucks, Buses, Ambulance, Police Personnel Carriers,

Water Tankers and Special Vehicles. It exports to countries like Nepal,

Zambia, Bangladesh, Kenya, Tanzania, Ghana, Ivory Coast, Rwanda,

Seychelles Syria and Jordan.

It’s factory is located at village Asron, Dist. Hosiarpur, Punjab and

has a dealer network of about 128 dealers spread throughout the country.

Swaraj Engines and Punjab Scooters are its associate companies. The

Company has laid emphasis on Research & Development and thus made

the range of Company’s product variants, the widest amongst all new LCV

manufacturers and has made it lead the indigenisation of hi-tech

components. The company has made improvement in product-mix and

made wider market segment coverage. It has achieved progress towards

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compliance of Bharat State-ll emission norms, for implementation in the

National Capital Region and other 3 Metros.

SML has products like Super, Prestige and Sartaj in the 6-9 ton

category and the Cosmo in the 5 ton category providing cost effective

transport solutions in terms of larger wheelbase, powerful engine and

higher payload, which is gaining increased acceptance in the market. In the

passenger segment, the differentiation is in terms of end use rather than the

gross vehicle weight. SML products caters to intra-city transport for short

haulage, covering services like ambulance, post office delivery vans, school

buses etc.

The Company has introduced the CNG bus in the National Capital

Region and also the new `Sartaj` model in the 5-ton range. The happier

component of this growth has been the improvement in product-mix as

also the wider market segment covered.

SML has stayed ahead of competition with respect to cost efficiency

and product customisation. Against odd industry condition and

performance, Swaraj Mazda has been able to achieve a sale of 1,302

vehicles, an improvement of 33% over previous fiscal.

Swaraj Mazda sale volumes cross the 5000 level mark for the first

timeand has made a sales-growth of 27% over previous year as a result the

Company`s Profit has increased. Against odd industry condition and

performance, Swaraj Mazda has been able to achieved a sale of 1,302

vehicles an improvement of 33% over previous fiscal. The Company

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introduces the CNG bus in the National Capital Region and also the new

`Sartaj` model in the 5 ton range. The happier component of this growth

has been the improvement in product-mix as also the wider market

segment covered.

SML is planning to grow by making structural changes in the

industry, meeting the regulatory requirements, privatizing the passenger

segment and replacing demand. SML`s is also strategizing to building

market share through cost competitive pricing backed by its engineering

capability to provide customized product offerings for niche applications

like defense and other service sectors. It is also in the process of

strengthening its dealer network by activating more dealers so as to

increase its presence in the western parts of the country

 Mahindra & Mahindra

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M&M sold 10,345 units in April 2004, growing by 43% yoy from 7,235

during the same period last year.

Segments April 2004 April 2003 yoy (%)

UV 8,309 5,971 39.16
LCV 496 431 15.08
Three-wheelers 1,540 833 84.87
Total 10,345 7,235 42.99

8,309 utility vehicles were sold in April 2004 as compared to 5,971 units

during the same period last year registering a 39% yoy growth. Utility

vehicle sales included 2,007 units of the Scorpio model compared to 1,604

units last year.

It sold 496 LCV units compared to 431 LCV units in April 2003 and 1,540

three-wheelers from 833 three-wheeler units in April 2003. The LCV

segment showed a 15% growth compared to last year, however the

company saw a huge growth in its three-wheeler business, which grew by

almost 85% .

 Tata Motors

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Tata Motors registered a 57.7% increase yoy in total sales at 24,961 units in

April 2004, compared to 15,829 units in the same period last year.

The company's sales in the domestic market increased by 60.5% yoy at

24,026 vehicles from 14,966 units in April 2003.

Volumes April 2004 April 2003 yoy (%)

Domestic 24,026 14,966 60.54
Exports 935 863 8.34
Total 24,961 15,829 57.69

The company exported 935 units in April 2004 as compared to 863 vehicles

in April last year, which is an 8.3% yoy growth.

CV segment

Commercial vehicle sales at 12,050 units compared to 7,037 units in April

last year growing by 71.2% yoy.

Segment April 2004 April 2003 yoy(%)

M/HCV 7,975 4,530 76.05
LCV 4,075 2,507 62.54
Total 12,050 7,037 71.24

Medium and heavy commercial vehicles sales grew by 76.1% yoy at 7,975

units and light commercial vehicle sales showing a growth of 62.5% yoy at

4,075 units.

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Passenger cars

The passenger car business reported total sales of 11,976 vehicles in the

domestic market registering an increase of 51% over April 2003.

Indica sales recorded a 43.3% growth yoy at 7,251 units, while Indigo sales

grew 84.9% yoy at 2,723 units.

Utility Vehicles

Utility vehicles registered a sale of 2,002 units, showing a 43.4% increase as

compared to the same period last year. Sumo sales grew by 48% and Safari

sales grew by 16% over the April 2003.

Automobile Fashion

Automobile Accessories

India has a good network of manufacturers of Auto accessories

spread all over the country. International standards are also kept in mind

while producing these products. Best quality materials are used so as to

meet the international standards. Automobile Accessories such as Wheel

Caps, Car Speakers, Fog Lights, Car Care Products, CAR AC PARTS, Car

AC Condenser, Car Cooling Coil, Car AC Hoses, Car Reciver Drier, FLCD

Kit and Car Batteries are available in India.

Automobile Finance
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 The availability of finance at lower interest rates, have made car

purchase an affordable option for even young executives. Financing

schemes varies from Margin Money Scheme, Installment in advance

scheme, stepped schemes and as varying as balloon schemes, No income

schemes etc The new schemes available in the market has made it possible

for salaried individual to realize their aspirations to won a Car in India,

early in Life. Businessmen and professionals can treat the interest amount

as a business expense and avail tax deductions against the depreciation of

the Car. Companies can also acquire cars for eligible employees without

affecting cash flows. The interest amount can be claimed as business

expense.

Automobile Insurance

Taking insurance cover for your vehicle is a must especially in Indian

roads. There is danger at every corner when it comes to Indian roads. There

is always the chance of your brand new vehicle hit by someone who

mistakes a highway for space. Insurance can pay for your financial loss.

There are various insurance schemes available in India. Major Insurance

companies in India offering Auto insurance include The Oriental Insurance

Company Ltd and New India Assurance Company.

Automobile Services

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 This is a section where the buyers and sellers meet. Sellers can place

details of their products and buyers can specify details of their

requirements in this section.

Auto technology

The drive is a long one. Or let's put it this way, it's a never-ending

driveway. Since the invention of the wheel, man's quest for automotive

mobility led him to experiment with various kinds of vehicles. Vehicles

that have used diverse technologies to make them function. From the steam

- driven engine to the jet propelled aircraft, we sure have come a long way.

And of course, besides the shapes, it is the technology behind them that has

transformed the automotive landscape.

Different systems like the engine, electrical, cooling etc. combine to

make up a vehicle. Each works on disparate principles, yet collectively, it is

on them that the performance of the vehicle depends. It would need only

one of the many subsystems to dysfunction for the entire automobile to

come to a halt.

We drive our cars and our bikes, but seldom know the mechanics

involved. Here, we give detailed explanations on the different systems and

sub-systems that go in the making of an automobile. Read on about those

that are being phased out like the carburetor, and those that are talking its

place, the fuel injection system.

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Auto consumables

What are the constituents that keep your vehicle moving? Is it the

wheels, the axle, the engine, what? Of course they do. But what keeps them

running? It is actually the fuel that keeps it running. These include fuel,

engine oil, and various other lubricants that are responsible to keep a

vehicle 'alive'. It won't be an exaggeration to term these as the lifeblood of

your favorite automobile.

This is why today consumers in all vehicle segments have grown

cautious about the quality of fuel and lubricants that they use. Unbranded

lubricants and fuel from unauthorized sources is a complete no-no, while

big brands are spending extensively on positioning their products as

'guards for your engine'. The environment factor is the latest to hit the

market and has forced manufacturers and consumers alike to make and

use environment friendly consumables.

Same is the case with the other products like battery, tyres etc. which

account for the running expense of any vehicle. We present a list of such

and other consumables that will aid you in looking after your vehicle.

Auto Maintenance

Maintenance means taking care of all the parts, even those that are

inside the bonnet. These are the ones that directly concern the performance

of your vehicle. Besides taking it to the service station at regular periods, it

106
is a good idea to go through the owner's manual that will give a fair idea

about its routine maintenance.

Checking the battery, keeping a check on the oils, changing the oils,

checking the electrical system, are some of the absolutely unavoidable

things to keep your vehicle in good shape. Keeping a log book in which

you keep all the details regarding repair, maintenance, routine check-ups

etc. will not only give you an accurate idea of what needs to be done when.

Maintenance is something most of us ignore, until our vehicle stops

functioning, which is. And then we wonder what went wrong, where.

Maintenance is one of the most serious aspects of ownership. It determines

the longevity, performance and reliability of whichever vehicle you drive.

Looking after your vehicle involves more than taking care of its external

coat of paint and keeping it clean and shiny.

Innovation in Automobile Industry

Innovation has brought about a sea change in the Indian automotive

sector, where slick styling, technology and new models have become the

formula for success. These very factors led to the instantaneous success of

Suzuki when it first rolled out the technologically superior Maruti 800 into

the traditional Indian market. Even today it is the technology and a high

degree of indigenisation, which have helped MUL attain a price barrier,

which is very difficult for competition to penetrate. This coupled with

governmental support have perhaps been the clinchers for MUL's progress,
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despite recent competition from the likes of global players like Daewoo,

Hyundai, General Motors Ford and the indigenously designed Tata -

Indica.

However, what auto companies need to do is develop ergonomic

products, with slick styling, at an affordable price for the quality conscious

Indian market. This can easily be done by commissioning any international

design house.

Indian auto companies need to take corrective measures to counter

balance the shift in demands from motorcycles to cars. This is where Indian

companies which do not have joint ventures with international automotive

majors might well lag behind. Especially since, the development of fuel-

efficient cars in-house is a long and arduous task, involving huge financial

and manpower investments. It is in this department that foreign companies

are already miles ahead. Thus one option, which might well become quite

popular for Indian auto companies, is the joint venture route with an

international major.

The projected growth factors in an anticipated export thrust, as

product quality and cost efficiencies go up in the auto industry.

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 Market trends

Emerging Market Trends

The automotive industry is the barometer of Indian economy. The sign of

recovery are most visible in the growing demand for automobiles. The

aspirations of Indian consumer are rising with the growing demand. The

cumulative effect of growing customer demand, increased competition,

technology upgradations along with the traits are likely to be observed in

the following trends.

 International companies like Hyundai, Honda, Toyota, etc. are

gaining market share.

 Technological up gradation will be primary requisite for success in

the market.

 With the entry of new models, medium sized cars segment is further

divided into low prestige and high prestige cars. Customers are

upgrading from entry level small cars to sophisticated small cars and

from sophisticated small cars to prestige car segment.

 Stricter Pollution norms are likely to force vehicle manufacturers to

adopt latest technology in maintaining emission standards. This is

likely to curtail the average life span of vehicle on road while the

maintenance cost and the genuine parts consumption per vehicle is

expected to increase.

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  Due to free imports local industry is expected to face increased

competition from international automotive companies.

 With the increasing number of vehicle population the two wheeler

owners will have viable option of used cars. The vehicle with higher

resale value and good service network is likely to dominate the

market.

All the trends derived out of present dynamics of the Indian automotive

vehicle market are indicators of internationalization of this market. India

has become focus of international growth seeking companies as not only a

cost competitive sourcing base but also a growing high potential market. In

the near future the competition will be prominent in all the functions of

business and only the companies with global standards are likely to

survive. Indian manufacturers are gearing up for the challenge but surely

the current

scenario is apparently in favor of international players. The early movers

are likely to secure a position to command the global competition

Local market trends

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  Sales, particularly in the small car segment, will drive passenger car

sales in the near term. However, within the next two years, capacity

is expected to be twice the total demand for cars.

 With developments in the small car segment acquiring a degree of

stability in terms of price competition, the action is shifting to the

mid-size car segment. Sales in this segment will pick up as new

models come in and income levels rise but it is still some time till it

comes anywhere close to the economy sized segment.  

 What will also drive car sales is the wide availability of finance

schemes by a variety of banks and FI's.

 Sales in the used car market is also expected to do well as more and

more older models get replaced by newer ones at a faster pace. The

coming in of Euro III and IV norms will also increase scrap page

rates.

 In view of expected surplus in the domestic market, India will

emerge as one of the leading car sourcing point in the Indian

subcontinent.

 Consumers will be the beneficiaries as a result of marketing war, as

they will be offered technologically superior products at better prices

and terms and conditions. But the customer has a risk of model

discontinuation as a result of shake-out expected in the industry.

International trend

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 The global automotive car market is growing at a rate of only 2% per

annum and is not expected to pick up in the near term. Growth has

dropped due to the increasing levels of saturation in the larger car

markets of the world. Worldwide

 the trend is towards ensuring that one's products are superior in

terms of quality. This will enhance the useful life of cars and, hence,

slow down growth in sales.

 The South-East Asian crises has been a dampener to the collective

fortunes of various carmakers worldwide. According to EIU

estimates, some countries in the region have witnessed cumulative

falls of 70% this year. In Indonesia record sales reported in 1997 are

not expected to be matched until 2005. In Malaysia it is expected to be

2003 before peak sales and production volumes are repeated and in

the Philippines the market will take seven years to recover. In

Thailand, the market for cars and commercial vehicles is expected to

fall from almost 600,000 units per year to 125,000 this year.

 The global domination of the larger automotive manufacturers is

slowly on the wane and the trend in sales is shifting towards more

"regio-centric" products. Automakers that have been enjoying a

generally prosperous spell would have to rethink on the way vehicles

are designed, manufactured, distributed or sold. Already, players

like GM, Volkswagen and Toyota have begun to re-examine their

dealer relationships and pricing strategies. Carmakers would now

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 have to think in terms of a new customer focus and provide better

financing and servicing.

 Strategic tie-ups, mergers and acquisitions have become the order of

the day. A few instances are Daimler Benz's tie-up  with Chrysler of

the US, Ford's acquiring of  Daewoo and tie up with Volvo Car

Corporation and Renault acquiring a stake in Nissan. Such deals

would certainly lead to economy in terms of costs but it remains to be

seen whether they will also create significant new opportunities for

growth.

Entry Strategies for MNC’s

• FDI

• Joint ventures

• Foreign and local buyers

• Licensing

• Sub-contracting

• Informal means (eg. training, hiring and returnees)

• OEM

• Own Design and Manufacture (ODM)

• Strategic partnership for technology

• Overseas acquisition equity

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 These are the ten entry strategies for positioning a country. It

could be through joint ventures, FDI, marketing network, licensing

arrangement, sub-contracting or even by informal means (training, hiring

and returnees).

It is generally agreed that a country’s pattern of participation in

international trade is determined to a large extent by its resource

endowments and the efficiency with which resources are utilized. OEM

and ODM contracts occur based on the resource endowments of the

countries. 

It is possible to establish virtuous circle between investment,

exports and growth by investing in sectors with significant productivity

and market potential, and using the export proceeds to finance imports of

capital goods and intermediate inputs required for further productivity

increases.

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 Case study- Maruti Versa

Improper positioning

Associating with a star, however big he or she may be, in itself does not

guarantee sales. The most it can do is generate interest in the product or

create a buzz around it. Take the case of Maruti Versa, which was launched

amidst a lot of fanfare about three years ago. In spite of Maruti signing up

superstar Amitabh Bachchan and his son Abhishek Bachchan as brand

ambassadors for Versa, the brand’s sales remained sluggish. To be fair, the

Big B magic did work and the ads created significant interest, drawing

people into the showroom. But perhaps the positioning itself was faulty as

people were expecting a larger than life car, just like the brand’s

ambassador. Last year, we saw Versa being re-positioned as a family car,

with the core proposition being, “the joy of travelling together.” In the

words of Ravi Bhatia, General Manager of Marketing at Maruti, Versa has

started doing well and has witnessed an upswing since the new

positioning. Last year, the average sales were 80-100 vehicles a month.

Now they are selling 450 vehicles a month.

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 29: Case study – Fiat Palio

Dissatisfaction with product quality/performance

A company cannot sell an ordinary product just by making a celebrity

endorse it. In fact, if anything, the product will fail faster because the

presence of the celebrity will create a buzz and more people will know

about the “ordinariness” of the product. Unfortunately using a celebrity

seems to be the easy way out of a parity product situation. Sachin

Tendulkar’s endorsement of Fiat Palio was quite a success initially. But as

word about the poor fuel efficiency of Palio spread, its sales took a beating.

In this case, Sachin’s presence could’ve worked wonders but for the poor

performance of the car in a market that is highly performance conscious.

Automobile industry – at a glance

Key Positives

Increasing affluence of the Indian middle class and introduction of better

quality cars has led to strong growth in the industry in terms of both

market size and production capacities.

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Exports buoyancy: On account of its low cost technical manpower and ever

increasing focus on quality, the auto industry has emerged as an export

hub, especially for the compact car segment. Exports of passenger cars

from the country have increased at a healthy CAGR of nearly 38% during

the past five years and increasingly more and more auto majors are lining

up to set up their production bases in the country.

Infrastructure thrust: Improvement in road infrastructure has led to

increased movement of goods through roadways. Close to 65% of all the

goods movement in the country takes place by roads as opposed to 55% a

decade ago. Also, owing to the fact that an estimated 39% of CVs plying on

the roads are 10 years old, demand for HCVs is expected to grow by a

robust rate in the long term.

Low interest rate regime: Close to 80% of the new cars being purchased in

the country are financed, thus underlying the importance of a low interest

rate regime to the fortunes of the industry. Given that interest rates are

unlikely to rise at a rapid rate in the future, we expect the buoyancy in auto

sales to continue over the medium to long term.

Environment led benefits: Any implementation of pollution norms in

metros, whereby vehicles beyond certain age need to be phased out could

further translate into higher volume growth for all vehicles, courtesy the

replacement demand

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Key Negatives

Concerning income growth: The per capita income in the country has been

growing at a slow rate. Since the auto industry growth has a strong

correlation with the same, the momentum has to continue to ensure robust

automobiles demand. Reforms need to be accelerated.

Competition from imports: With India coming under the WTO purview,

competition is expected to rise multifold. Indian companies also have to

contend with imports in the future. Already a number of companies are

introducing vehicles in the CKD route.

Taxation anomalies: Duties on some select and key raw materials including

steel and components are still pretty high and are thus hurting profit

margins of the companies. Also, multiple tax rules that exist in different

states are eroding the comparative advantage of a large domestic market

thus making it important to implement VAT (Value Added Tax) as soon as

possible.

Future Prospects look positive

FY04 turned out to be one of the best years for the Indian auto industry.

Attractive finance schemes and buoyant economic growth helped both the

passenger and commercial vehicle industry notch up growth in excess of

30%. With government committed to continue with infrastructure spending

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and economic growth likely to remain robust the industry seems to be

headed in the right direction. However, rising fuel prices and hike in

interest rates might throw a spanner in the wheels.

India is one of the few countries to post double digit growth in passenger

vehicles, while others like USA and Japan remained lackluster in 2003-04.

India is poised to become the manufacturing hub for the world with cheap

and skilled labor. Maruti Udyog is aiming to become the R&D hub for its

parent Suzuki’s Asia operations.

The passenger vehicles sector is a cyclical one, which posses a question -

Will the high growth rates witnessed earlier continue going forward? Our

discussions with the industry gave us an insight on the demand projections

for passenger vehicle volumes in the future.

Emission norms, infrastructure development, economic growth and low

interest rates are causing change in dynamics.

India: A value-adding automotive and manufacturing hub

The future of manufacturing in India, including the automobile sector,

would undoubtedly be affected by the outcome of the Non-Agricultural

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Market Access (Nama) discussions. The challenge is to get an agreement

that would make India a value-adding automotive and manufacturing hub.

The manufacturing sector is going through a period of revival, growth and

investment. The automobile sector is set to grow from a projected 7.5

million this year to over 10m in the year 2007. Investment in this sector is

over Rs 65,000 crore. The turnover of the component industry is set to

double over the current level of Rs 25,000 crore. By 2012, their combined

output would exceed Rs 2,00,000 crore. Indian industry has been able to

acquire, assimilate and develop technology. It is this capability, production

capacity, value addition and employment potential that should be kept in

mind during trade negotiations.

For some sectors, including the automotive sector, the treatment for

completely built products and SKD kits would be critical.

Future Outlook

The passenger car segment has continued to report a strong 30%+ growth

in the first month of FY04, partly due to low base effect. The transporters

strike had impacted volumes in April 2003. The car segment is likely to

grow by 20-22% during the current year. Commercial vehicle segment is

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expected to grow at a higher pace on the low base of the previous year and

accelerated GDP growth in the current year.

Growth in the short term is likely to be higher following increased

consumer spending (improved economic performance) and launch of new

models. The midsize segment is expected to record the highest growth

followed by the premium and economy segments.

In the economy and medium segments, it is estimated that total capacity is

expected to more or less match the expected demand by 2003-04. The

premium segment of the industry is however expected to witness acute

over-capacity. The premium segment is likely to emerge as the largest

segment over the very long term as people graduate to more expensive

models. In the meantime, exports are also expected to increase because of

over capacity in the domestic car industry and the Government's policy to

bring about a more liberal regime on the foreign exchange front. It is worth

mentioning that the car production capacity has increased significantly in

the last three years.

The industry will witness substantial over capacity in the next few years

unless there is a substantial spurt in sales. If not, Low capacity utilization

will lead to an inevitable marketing war between the car manufacturers

which is most likely to lead to a shake out which will see some of today's

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major players withdrawing from particular segments in the coming years.

Consumer will however continue to remain the KING. The prospective

buyer will be the main beneficiary of the marketing war in the industry not

only in terms of prices but also better technology. There is always a fear of

the shakeout eating into your favourite brand you own, for example

discontinuation of a model.

India would have the largest young population of the world in next 20

years - If India is to achieve a sustainable 7-8% GDP growth and 9-10%

growth of industrial production, we should have 50 million people every

year moving up from middle class to upper middle class. This defines the

future vehicle owners of the country.

Based on SIAM analysis, it is estimated that we should have a healthy

growth of sales (including exports) in the automobile sector in 2004-05.

Segment wise growth expectations, provided the Government takes

necessary steps that promote growth are:

 Passenger vehicles : 10 – 15%

 Commercial vehicles : 12 – 15%

 Two wheelers : 10 – 15%

 Three wheelers : 10 – 15%

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Ending the briefing on an optimistic note, Mr Khattar concluded that the

passenger vehicle manufacturers would easily cross a domestic sale of one

million vehicles during the year excluding exports. However, the real

challenge before the Indian automobile industry is to catch up with China

which was at par with us till recently and currently aspiring to be the third

largest market in the world.

With current penetration level of six cars per thousand people, the

potential for growth is significant.

In view of a couple of positive measures such as the excise duty exemption

on tractors and 150% deduction on R&D expenditure, we remain positive

on the future prospects of the industry. Also, with government pressing for

improvement in road infrastructure, the position of railways as the main

carriers of goods such as food grains and cement has come under

significant threat. Since most manufacturers have a technology tie-up with

a foreign major, the incentive to do R&D with the Indian counterpart has

increased. Since operating margins of auto majors have increased over the

last three years, significant further improvement from the current level is

limited and to that extent, we remain cautious.

Firstly, the international car market is growing by around 2% pa and this

set to continue for the next few years. This slow down is due to the

increasing level of saturation in the largest car markets of the world.

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Analysts from EIU(Economist Intelligence Unit)state that this saturation

level may even translate into negative growth, given the recent trend of

carmakers to opt for quality components which will increase the vehicle’s

useful life.

Secondly, the South-East Asian crises has been a dampener to the collective

fortunes of various carmakers worldwide. According to EIU estimates,

some countries in the region have witnessed cumulative falls of 70% this

year. In Indonesia record sales reported in 1997 are not expected to be

matched until 2005. In Malaysia it is expected to be 2003 before peak sales

and production volumes are repeated and in the Philippines the market

will take seven years to recover. In Thailand, the market for cars and

commercial vehicles is expected to fall from almost 600,000 units per year

to 125,000 this year.

Thirdly, the global domination by the large automotive players has slowly

abated with local manufacturers getting hold over the market. Japan,

Western Europe and the North American Free-Trade Agreement area

comprising USA, Mexico and Canada are expected to account for 71% of

the global park by 2005, down from almost 77% at the start of the 1990s.

This has come about, as the concept of "regio-centric" cars is becoming

popular.

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 Conclusion

Automobiles have become an indispensable part of our lives, an extension

of the human body that provides us faster, cheaper and more convenient

mobility every passing day. Behind this betterment go the efforts of those

in the industry, in the form of improvement through technological

research.

What actually lie behind this betterment of the automobiles are the

opinions, requirements, likes and dislikes of those who use these vehicles.

These wheeled machines affect our lives in ways more than one. Numerous

surveys and research are conducted throughout the world every now and

then to reveal one or the other aspect of automobiles, be it about the

pollution caused due to vehicle population in cities, or rising motor

accidents and causes, vehicular technology, alternative medicine and so on.

This section keeps you updated on the latest and the most interesting

researches conducted in the field of automobiles, and help you draw the

right conclusion.

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 Bibliography

Websites

 www.altavista.com

 www.askjeeva.com

 www.aol.com

 www.hindustan.com

 www.indiainfoline.com

Newspapers

 Times of India

 The Economic Times

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