1.1: 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 Jacob Cugnot. 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
1.2: 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 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 steampowered road vehicles were automobiles, feel that Nicolas Cugnot was the inventor of the first automobile. The automotive industry has certain trends it has to follow, just like fashion designers and musical composers. In times of recession and decreasing sales there is less room to take chances and manufacturers are prone to follow the common pattern as a safer bet rather than releasing a controversial product or idea that might or might not be successful. However throughout the automotive industry's history, great innovators have "boldly gone where no man has gone before" to set new trends which have dynamically altered the industry as a whole. 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 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 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.
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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. Standard Motors Products of India Ltd. moved over to the manufacture of Light Commercial Vehicles in 1965.
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.
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Unfair practices of monopoly, oligopoly etc slowly disappeared. 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 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.
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. 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.
1.3: 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 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 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 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 8
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. Allocations to automotive cess fund created for R&D of automotive industry shall be increased and the scope of activities covered under it enlarged.
1:4 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 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 fullfledged 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 10
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 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 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. 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. 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 increasing competitiveness in the industry. Many companies have entered the car manufacturing sector, to tap the middle and premium end of car industry.
1.5: 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. 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.
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:
Models Maruti Omni, Maruti 800 etc. Fiat Uno, Hyundai Santro, tata Indica, Maruti Alto etc. Tata Indigo, Honda City, Mitsibushi Lancer, Ford Ikon, Opel Astra, Hyundai Accent & others Mercedes Benz & other imported models
The economy segment has a very large foothold over the Indian automobile market as compared to the mid-size and luxury segment. Segment Economy Mid-size and luxury Source: SIAM/ Auto Car India Market Share (%) 90.2 9.8
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
Figure -Structure of Passenger Vehicle Market (India)
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 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 components has prompted several global majors like Ford, to get their international suppliers
1.6: 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 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 With the liberalization of the India economy, the Rs 18,500 crore Indian car market is 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 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. 20
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 (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 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
1.7: 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. 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. 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.
2.1: 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; 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.
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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, includingPromotion of R&D in the automotive sector to ensure continuous technology
upgradation, building better designing capacities to remain competitive;
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 would get the required support from other Ministries and departments of Government of India in achieving the goals laid down in the auto policy
2.2: 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 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 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, 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, 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.
2.3: 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.
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 inhouse 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. 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).
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. 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 Volume Growth %yoy Source : SIAM FY94 209,203 27.0 FY95 264,822 27.0 FY96 345,486 30.0 FY97 410,992 19.0 FY98 417,736 2.0 FY99 FY2000 409,624 638,815 -2.0 55.8
The demand for cars is dependent on a number of factors. The key variables are per capita income, introduction of new models, availability & 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 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.
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 production numbers of passenger cars in the past few years. Cars Production Growth %yoy 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. FY94 207,658 27.2 FY95 264,468 27.4 FY96 348,146 31.6 FY97 407,539 17.1 FY98 401,002 (1.6) FY99 FY2000 390,355 577,243 (2.7) 32.4
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.
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 Maruti Udyog Hyundai Telco Daewoo Ford India Fiat India General Motors Honda Siel Hindustan Motors Total FY2000 250,000 110,000 100,000 72,000 50,000 60,000 25,000 30,000 30,000 727,000 Expected 350,000 130,000 150,000 130,000 70,000 60,000 100,000 30,000 50,000 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. 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 35
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 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 36
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 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 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. 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 Features of Range Main Models Market Share of the segment (Rs. ‘000) the Segment M-800, Omni, Price, Fuel Economy < 250 Uno, 46.9% Efficiency Ambassador Zen, Uno, 118NE,Ambassador Price, 1800 ISZ, Performance, Medium 250-500 43.1% Contessa, Diesel Indica, Santro, Option Matiz Lancer, Esteem, Status Value, 500 & Cielo, Accent, Premium Performance, 10.1% above City, Opel Features. Astra, Ikon Sources : various sources Segment
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 semiurban 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 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.
4.2: Automobile Industry Performance during 2003 – 04
During the year 2003-04 the automobile industry has registered a growth of around 16.5 per cent in numbers and 24 per cent in value terms. Passenger cars saw a 35 per cent growth in FY04 over the previous fiscal while medium and heavy commercial vehicles witnessed a 46 per cent growth.
Passenger Vehicles The excise duty reduction on passenger vehicles given in the union budget 2003-04 has directly impacted the sales of passenger vehicles positively as it has reduced the acquisition cost to the customer. The cumulative passenger vehicle sales in the domestic market in April-March 2003-04 have grown by over 27% over the same period last year. However, this is against relatively low and negative growth rates in the previous years. Within the passenger vehicle segment, while passenger cars and utility vehicles have grown at a brisk pace of 28.6% and 27.6% respectively, MPVs have grown at a lower rate of around 14.5%. However, the growth of MPVs this year is significant as it was (-) 15.7% in the last year. Passenger Cars & MUV’s Annual Production FY 2003 TO 2004 in Nos MUV -16%; CARS – 84%
Passenger Cars Sales Segment-Wise Market Distribution FY 2002 TO 2003 in Nos Upper C Misc Lower C Luxury D A Seg Upper B Lower B 3% 3% 3% 10% 2% 32%32%% 16%% 34%
Commercial Vehicles The performance of the commercial vehicle segment during the course of the year was very satisfying. It has clocked over 30% growth rate in consecutive years. The growth rate of all commercial vehicles during the year 2003-04 grew by 36.5%. M&HCV segment has grown by 39.5% whereas LCVs grew by 32%. With improved economic performance especially in the agricultural sector besides expansion of the national highways and expressways, we are also witnessing fleet rationalisation in the country. This has also led to increased penetration of multi-axle vehicles on our roads. During the year 1998-99 sale of Multi axle vehicles was 4539. Whereas, in the year 2003-04, 59251 multi-axle vehicles were sold. In percentage terms an increase of 67% per annum over a five year period. The share of multi-axle vehicles during the same period has gone up from hardly 5% to around 40%. Commercial Vehicles Annual Production FY 2002 TO 2003 in Nos BUSES LCV 10% 41%
The performance of the automobile industry in exports is also encouraging. Passenger vehicle exports have crossed the hundred thousand mark and clocked sales of around 1,30,000 and two & three wheelers have crossed three hundred thousand mark for the first time clocking around 3,33,000. Commercial vehicle exports have also increased to an all time high of over 17,000. In percentage terms the growth during the year over the previous year have been almost 80% for passenger vehicles, over 49% for two & three wheelers and over 40% for commercial vehicles.
4.3: 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 trueblue luxury cars namely-- Jaguar XJ8, the BMW 7 series. And of course there are the niches like sports, sports utility, and exotics. 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. 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.
5.1: Strengths of the Automobile Industry
Low labor cost: India enjoys a comparative cost advantage in labour as compared to western countries.
Skilled Manpower: India has vast pool of skilled manpower and qualified engineers among the largest in the world. On a scale of 1-10, 1 = low, 10 = high. Availability of Skilled labour. Sr No 1 2 3 4 5 Country India Brazil US Germany Mexico Points. 8.5 7.5 7.4 6.6 6.6
Availability of Qualified Engineers. Sr No 1 2 3 4 5 Country Germany India US Brazil Mexico Points. 7.5 7.4 7.2 6.4 6.3
Reference: Competitiveness of Indian automotive industry Feb 2004.
5.2: Weaknesses of the Automobile Industry
Low labor productivity: Cost advantage in labor wages is nullified by the fact that we have lower labor productivity. 46
Defect rates high: We have a higher defect rate about 10 times the world average. Low Investment in R & D: The Industry has a very low investment in R & D as compared to their foreign counterparts which will their sustainability in the future. Not reached critical mass: Indian companies are in nascent stage and hence not able to cater to the requirements of OEM’s. Our auto- ancillary industry is of 2.4 bn $ while Ford’s outsourcing budget is 86 bn $. Poor infrastructure : Poor infrastructure like roads, ports, railways which lead to higher logistics cost and lower reliability.
5.3: Opportunities for the Automobile Industry
Global automobile companies are setting up manufacturing facilities in India. Also, many Indian automobile manufacturers have announced their plans to increase the export of vehicles from India. The year 2002-03 has already seen a significant 65%
increase in export volumes during the period April to March. This trend is expected to continue with more global OEMs sourcing vehicles from their Indian plants. Additionally, the introduction of newer technologies such as Electronic Diesel Control Systems to reduce emission levels, safety devices such as Air Bags, Anti-lock Braking Systems, etc. augur well for the Company and the automotive sector as a whole. These technologies not only offer increased safety for drivers and passengers, but also result in greater comfort and better drivability. While there exist many opportunities for growth in business, there are also quite a few factors, which act as an impediment. In my last year’s speech I mentioned about the need for a well thought out and clearly defined policy on emission norms. It is now fairly certain that Bharat Stage II norms (equivalent of Euro II norms) will be implemented countrywide starting 2005. It is important that this plan is implemented in time in the interest of a cleaner environment. Technology is available to meet the advanced emission norms using gasoline and diesel fuel; Bosch and many other companies have proved this worldwide. There is no need for the authorities to specify the type of technical solution required for this purpose as long as the end objectives are met. The spurious and reconditioned goods market, which I also dealt with in detail in my speech last year, continues to be a worrying factor as it directly affects our market share. The Company on its part has intensified the anti-spurious operations by conducting several raids across the country with the help of local regulatory authorities. Large quantities of spurious and fake products have been seized and legal action has been taken against those indulging in such activities. The Company believes that continued focus and concerted action against spurious activities would improve safety and fuel efficiency of the vehicles and at the same time help in expanding our market share in the Aftermarket. The Company is also continuously educating the users about the benefits of using genuine spares in place of spurious and reconditioned spares. The lack of any significant change in the labor law reforms also continues to be a matter of concern. It is essential that legal reforms be put in place at the earliest to provide more flexibility in manufacturing operations and enable the industry to quickly adjust the work force in line with fluctuating market conditions.
5.4: 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 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. 49
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. 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 byproduct 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. 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 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.
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 : 51
Export as a “mind set QCDDM – equation taken for granted Logistics Warranties & Liabilities
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
5.5: 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. • Corpus 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 autoancillary 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:
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.
6.1: Competitive Scenario
The industry witnessed radical changes and entered a competitive phase with de-licensing and liberalization in the 1990s. The two major developments during this period were a strong growth in volumes between 1993 and 1997 and the entry of international car giants into India, especially in the mid car segment. The attraction for these companies was the largely untapped Indian market. However, these companies over-estimated the market in the short term and set up larger than required capacities. This resulted in price wars and thereby affected the expected margins. The global automotive industry is currently undergoing consolidation phase and the repercussions of this consolidation are likely to be experienced in India, too. The installed capacity for passenger car production in India is likely to reach around 1.8mn by end2004, but the total passenger car sales is expected to be around 0.9mn. This explains an over-capacity of around 50% as compared to the global over-capacity of around 30%. The consolidation of the automotive vehicle industry is likely to have serious implications on the automotive component industry too. Most of the foreign companies entered India using the joint venture/collaboration route. While many of these conglomerates have turned out to be mutually beneficial few tie-ups weren’t as successful. For example, Mahindra & Mahindra pulled out of car joint venture with Ford, General Motors bought over the stake of Hindustan Motors in its Indian car venture. Mercedes Benz has decided to operate independently after suffering severe losses with Indian partner Telco. Indian players are trying to maintain their hold on the Indian market, not giving in to multinationals. But the very fact of Indian company’s
reliance on foreign partners for technology is likely to drive the trend of collaborations followed by consolidations. Foreign companies are now all over the Indian market. There is a need for a level playing field to bolster Indian auto industry.It is already a level playing field for companies setting up shop in India. Even in the case of imports, entry barriers in commercial vehicle industry are among the lowest, with tariff at half that of cars. However, on the global plane, things are different. Though the Indian industry, in the last few years especially, has gained considerably in internal efficiencies, in terms of external factors such as cost of finance, infrastructure and labour legislation, we have a long way to go for parity with the developed world Competition is heating up in the sector with a host of new players coming in and others like Porshe, Bentley, Audi, BMW all set to venture in the Indian markets. We take a look at the key factors that are vital for gaining a stronghold in such a competitive scenario.
6.2: Competitive Edge
Manpower The trends clearly indicate a huge opportunity for Indian manufacturers due to: Low cost advantage primarily on account of vast availability of low costhigh 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.
Just-In-Time Delivery & Logistics Indian Auto Companies have proven capability to supply on JIT basis out of Warehouses situated near the Customers 57
Most Indian companies have arrangements with major Logistic Providers for JIT Supplies. Adequate Warehousing support and onsite Engineering support
7.1: Global Scenario
The passenger car segment has emerged as a major driving force for upstream industries like steel, iron, aluminum, rubber, plastics, glass, and electronics and down stream industries like advertising and marketing, transport and insurance. The car industry generates large amount of employment opportunities in the economy. For example in the US, every sixth worker is involved in the making of an automobile. The global automotive car market is growing at a rate of only 2 percent 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 world car production has increased from 44.66 mn in 1996 to an estimated 48.3 mn cars in 1999. Japan, Canada and USA brought about the major increases, which contribute to 53% of the world's car production. The largest car market - the US market expects car sales to decline 8 to 9 per cent to 16 million cars in 2001, as compared to 17.4 million cars sold in 2000. The USA and Japan are the leaders with around 42% of the total world market. However, since the last two to three years, the international passenger car industry has been witnessing an over capacity of more than 30%. The trend suggests that industry volumes may grow by just 2% or around 10 mn vehicles per year. If this situation continues for the next few years the world car market may witness shakeout in the near future. Already signs towards this are being observed as the phenomenon of mergers catches on. The recent mergers in the international car market are Ford-Volvo, Renault-Nissan, Daimler-
Chrysler. A few more players are expected to join the fray in the next few years so as to strengthen their hold in the world market. Among the top car manufacturing companies General Motors and Ford Motors group of USA lead with a contribution of 15.8% and 11.6%, of world car production, respectively. Volkswagen and Toyota stand third and fourth with more than 9% contribution each to the world car production.
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 General Motors Volkswagen and Toyota have begun to re-examine their dealer relationships and pricing strategies. Car makers would now 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 talk 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 will certainly lead to economy in terms of costs but it remains to be seen whether they will also create significant new opportunities for growth. With global consolidation in the car industry, it is expected that more international players will work closely to bring about operational efficiencies. By nature, the car industry is highly capital-intensive and vast amounts of money are being spent on R&D. With the players getting together to produce more technologically superior cars, they can derive greater benefits from their R&D efforts. Profits, which are under pressure due to wafer thin margins will be boosted due to greater economies of scale. Moreover, bigger capacities among players means lesser fixed costs per car produced. Even if mergers are not on the cards in the near future (one can see that the Daimler-Chrysler merger has not brought about synergies as expected by automobile experts), technology-sharing and the offering of equity stakes is inevitable.
In India, the car market has become extremely competitive and come April 2001, India's automobile market will be thrown open to imports of completely built up vehicles, which hitherto was prohibited. With the international acquisitions and alliances, one can expect to see a dramatic change in the auto market. If GM were to acquire Daewoo in Korea, then GM would be in a commanding position in India with its alliance with FIAT and Suzuki motors as well. Already Daimler Chrysler and Ford are contemplating introducing new models in India from their various associate companies through their local subsidiaries. The situation could become very difficult for the purely Indian automakers such as Telco, Mahindra and Hindustan Motors unless they rethink their strategy. It can easily be seen why TELCO has been in the news on rumors that it wants to hive off its car division and bring in an overseas partner. Reports suggest that HM is thinking of exporting parts from its manufacturing units and also assembling and distributing other makes of vehicles who may wish to enter into India, but cannot enter full scale manufacture due to the small market sizes. Clearly exports will be the big opportunity for Indian automobile companies if they can control costs and deliver good quality output. Already Maruti, Hyundai and Ford as well as Mercedes Benz have started exports in a small way and this can grow. Majors like TELCO and Ashok Leyland are already exporting their products in reasonable volumes. Availability of easy financing options has been a major reason for the dramatic growth the automobile market has witnessed in recent times. Maruti has set up a separate financing unit in association with banks. GM has one of the largest financing companies in the US and can easily bring them into India should it so decide. Clearly the customer is in for some good times with a wide range of models to choose from, better quality and prices and easy financing options - a far cry indeed from the days when one had to book a Premier car and wait for years after paying an advance.
7.2: Key Driver – Global Business
Step 1 : CKD/SKD Assembly Step 2 : Localisation Step 3 : Future already on horizon - Natural follow-thru is global sourcing. Most Global OEMs have Indian operations with global platforms and world cars.
7.3: Global OEMs Sourcing from India: They have already come …
Toyota: Hub for Transmissions Hyundai: Export Base for Small Cars Fiat: Plans US $ 200 Mill outsourcing Volvo: started outsourcing Ford: sourcing engines, & Plans 500 Mill USD outsourcing Renault: Sourcing Truck Parts
DC: exported Euro 70 Mill to its subsidiaries abroad Two Chinese Truck OEMs: Sourcing Drive Trains
8: 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 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. 62
8.1: Maruti Udyog Ltd.
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 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 A1 C A2 A3 MUV Domestic Export Total Sales Models M800 Omni, Versa Alto, WagonR, Zen Baleno, Esteem Gypsy, Vitara April April % change 2004 11,097 4,816 19,296 1,313 406 36,928 2,910 39,838 2003 10,741 3,972 9,668 952 310 25,643 3,150 28,793 3.3% 21.2% 99.6% 37.9% 31.0% 44.0% -7.6% 38.4% April'03 – March'04 167,561 59,526 176,132 14,173 3,555 420,947 51,175 472,122
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 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.
Models of MUL 64
Alto Maruti 800 Zen Wagon R Omni Esteem Baleno
8.2: 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 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 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.
8.3: 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 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 pricevalue-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 FordDaewoo 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.
8.4: 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 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 68
8.5: 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 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. 69
Models of Hindustan Motors Ambassador 1800 ISZ Ambassador 2000 DSL Ambassador Nova Diesel Contessa motors
8.6: 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 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. 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 71
Braking categories, where customers find comparatively more problems, as a result of the stiffened and raised suspension. 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.
8.7: 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 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 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-ofthe-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 extraEuropean 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 9001 certification came in 1994 and ISO 14001 certification for all vehicle manufacturing units in 2002. Group Companies Automotive Coaches & Components Ltd (ACCL) Lanka Ashok Leyland Ashok Leyland Finance Ashok Leyland Project Services Limited Ennore Foundries Models Viking / Cheetah Panther Vestibuled Bus Cargo 1512 Comet (4x4) Tusker Super
8.8: 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 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 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.
8.9: Mahindra & Mahindra
M&M sold 10,345 units in April 2004, growing by 43% yoy from 7,235 during the same period last year. Segments UV LCV Three-wheelers Total April 2004 8,309 496 1,540 10,345 April 2003 5,971 431 833 7,235 yoy (%) 39.16 15.08 84.87 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 threewheelers 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 threewheeler business, which grew by almost 85% yoy.
8.10: Tata Motors
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 Domestic Exports Total April 2004 24,026 935 24,961 April 2003 14,966 863 15,829 yoy (%) 60.54 8.34 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 M/HCV LCV Total April 2004 7,975 4,075 12,050 April 2003 4,530 2,507 7,037 yoy(%) 76.05 62.54 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.
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.
9.1: Automobile Fashion
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.
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.
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.
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.
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.
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.
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 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.
9.2: 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, 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.
9.3: 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.
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
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.
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 85
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 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.
9.4: 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 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.
10.1: A Study of Motor Industries Company
Motor Industries Company (MICO) held its 51st Annual General Meeting on 8th May, 2003 at Bangalore. MICO is India's largest auto-ancillary company. German-based Robert Bosch group hold 60.5% after the company brought back its shares in February 2002. The company is the pioneer of automotive Spark Plugs and Diesel Fuel Injection Equipment
in India. It had been bearing the brunt of the recession in the tractor and commercial vehicle (CV) segment in the past few years. However the, sharp recovery in sales of CV in FY 2002 has compensated for the continued fall in tractor sales. For the full year ended Dec. 2002, the company had registered a growth of 7% in sales to Rs 1550.71 crore. This was achieved mainly due to the better performance in the quarter ended June 2002 and Sept. 2002. Net profit after adjusting for EO expenses rose 64% stood at Rs 134.06 crore. Very recently, Andreas Nobis, managing director of the company has taken over new responsibility in Robert Bosch GmbH with effect from 1st May 2003 to oversee the recent acquisition and integration of Buderus AG and hence could not attend the AGM. Robert Bosch has entered into an agreement to buy 30.2% of the share capital of Buderus AG in addition to 17% already held by the company. The successor to Andreas Nobis is expected to be known at a later date. MICO registered a 104% jump in bottom line to Rs 52.29 crore for the first quarter ended March 2003. Net sales during the quarter rose 17% to 432.08 crore. In continuation of the strategy to boost exports, focused efforts were made to get additional business from Robert Bosch, Germany. This led to a significant 29% growth in exports during the year, accounting for 16% of total turnover. From this, MICO expects to touch 20% in three years. Its spark plug business is growing in the US and expects an increase in turnover from new products, from the common rail system and the Electronic control units, which are based on the Euro II norms and potential navigation systems from Blaupunkt. The Union Budget 2003-04 is also positive for the sector as it has increased its thrust on infrastructure (especially roadway) projects, which is sure to usher in increased demand for the CV sector especially in the multi-axle segment.
Performance of the Company
The recovery in the automotive sector, led by the strong growth in commercial vehicles segment has enabled the Company’s sales turnover to rebound in 2002. The overall sales turnover of the Company grew by around 7%. Despite sales declining by 7% in the 1st quarter 2002 over the 1st quarter 2001, quarter 2 and quarter 3 showed an
increase of 21% and 14% respectively. This, together with a steady 4th quarter, enabled the Company to post the 7% growth in sales for the entire year. Sales to OEMs, which constitute nearly 45% of the total sales, increased by 6.8%. This growth was mainly due to increase in volumes of Multi Cylinder Pumps, Nozzle Holder Assemblies, Starters and Alternators. The general decline in the service business of the transport sector led to a fall in demand for fuel injection components in the Aftermarket. In spite of all counter measures, overall sales in this area declined by 3.6% as compared to 2001. In continuation of our strategy to boost exports, focused efforts were made to get additional business from Robert Bosch, Germany. This has led to a significant 29% growth in exports during the year, accounting for 16% of total turnover. The non-automotive businesses comprising of Power Tools and Packaging Machines, grew by 18% due to a strategic marketing thrust and introduction of new products such as "Marble Cutters" and "Terra 25" packaging machines. Cost cutting has now become integral to staying competitive. During the year, cost reduction measures such as strict control on additions to fixed assets, programs for rationalization and reduction of asset base, reduction in material cost through import substitution, rationalization of supplier base, improvement in labour productivity, budgetary control on overheads, etc. were further intensified. This has significantly contributed to an improvement in operational efficiency. As a result of growth in sales accompanied by the various cost reduction initiatives, the Profit Before Tax increased by more than 50% and stood at Rs. 200.5 crore. The Profit After Tax also increased by more than 60%. After taking into account the proposed dividend and transfer to capital redemption reserve, an amount of Rs. 90 crore is proposed to be transferred to general reserve, retaining a balance of Rs. 29.3 crore in the Profit & Loss Account. In 2002, the investments in fixed assets amounted to Rs. 94 crore, accounting for 6.1% of sales, as compared to Rs. 1,13.3 crore in 2001, which accounted for 7.8% of sales. 94% of the total investments made in 2002 are in Plant and Machinery. Of this 34% is for new products, 26% for quality improvement, 9% for R&D activities and the balance 31% for auxiliary and other services.
Future Outlook of the company
As automobile manufacturers in India are increasingly tapping export potential there is a need to upgrade technology in order to meet the safety and legal requirements. This will inevitably lead to an increased demand for newer products such as Electronic Diesel Control systems, Anti-lock braking systems, Air bags, etc. In order to secure business in these areas the Company is closely working with all major automobile manufacturers in India for development and application of these systems. Despite the poor agricultural output in the financial year 2002-03, the growth in industrial production has been quite good at 6.1% in the period Apr-March 2003 as opposed to 3.3% posted during the same period a year ago. In addition, the trends in most macro-economic variables such as inflation, interest rates, development of the rupee against the US dollar, foreign exchange reserves position, are all positive. These strong fundamentals will help the Indian economy to post a GDP growth of over 5.5% in the financial year 2003-04 as against 4.4% achieved in the previous year. On the other hand there are some key risk factors such as: (i) the continuing problems in the Middle East; (ii) tension between India and Pakistan; and (iii) a second consecutive monsoon failure, which may endanger the achievement of the 5.5% GDP growth in the current fiscal year, forecasted at this point of time. In the automobile sector, the commercial vehicles and passenger car segments maintained the growth momentum at 34% and 3.6% respectively, in the first quarter of 2003. However, the slump in the tractor segment continues and is a cause for concern also this year. Overall, the Company recorded a sales turnover of Rs. 576.4 crore for the period Jan-Apr 2003, which accounts for an increase of 18% over the same period in the previous year. Considering this positive performance but also the uncertainties prevailing in the global economy and its adverse impact on our exports as well as the uncertainties in the domestic market, the underlying sales in 2003 are expected to grow by around 7% only. On the cost front, recent spurt witnessed in the prices of steel, aluminium, crude oil, fuel and power will exert severe pressure on the profitability of the Company. The Company will, of course, further intensify its cost reduction measures and pursue other
initiatives to counter the adverse impact of the rise in input costs and to maintain its profitability. In the automotive aftermarket the focus areas include aggressive marketing and promotional initiatives to increase sales turnover, strengthening of 4-wheeler dealer network, increasing the number of 2-wheeler dealers, expanding the product range through introduction of Bosch branded products and further intensification of antispurious activities. Exports continue to be a strategic thrust area for the Company. Continuous and vigorous efforts are being made to increase the share of exports to 20% of the overall sales turnover of the Company by 2005. This would mean that the Company must be in a position to continuously offer state-of-the-art products of international quality at a competitive price. In the Power tools business, our focus will be on gaining additional market share through expansion of product range, superior service levels and offering value for money products. In the Packaging machines business, the Company plans to further consolidate its position after the successful launch of "Terra 25" packaging machine.
10.2: Case study- Maruti Versa
Improper positioning Associating with a star, however big he or she may be, in itself does not guarantee sales. 91
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 repositioned 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.
10.3: 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.
11.1: Automobile industry – at a glance
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. 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
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 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 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.
11.2: 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 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 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 Commercial vehicles Two wheelers Three wheelers : 10 – 15% : 12 – 15% : 10 – 15% : 10 – 15%
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. Analysts from EIU 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.
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. 100
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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