automobile industry

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TEJEESH CHANDRA
(1226113139)
AUTOMOBILE INDUSTRY
SUMMARY
The automobile industry in India is one of the largest industries and a key sector of the economy.
It is in fact the ‘industry of industries’ as it has considerable forward and backward linkages.
Since independence (1947) to the FY 2012-13 (till October ’12) – automobile industry in India
has grown reasonably well, more developments took place only after 1993. In 1950 the
production was meagre 4000 vehicles and this production in financial year ending 2012 has
grown to over 20 million vehicles with industry gross annual turnover of 10,620 million USD in
the financial year 2001-02 to 58,583 million USD in the financial year 2011-12 against the
projected target of 75,300 million USD. The FDI in India was started with changes in industrial
policy (named as New Industrial Policy – NIP) which was announced on 24th July 1991. This
policy abolished industrial licensing system for all industries with exception made for strategic
and environmental concerns. The last two decades of the 20th Century witnessed a dramatic
world-wide increase in Foreign Direct Investment (FDI) The first phase is during early 80’s to
1995, The second phase is from 1995 to 2002, The third phase (2002 onwards).The 12th Five
Year Plan: Automotive sector as an engine to propel manufacturing to a high growth trajectory
INTRODUCTION
The recent slowdown in the automobile industry for two consecutive years has raised concerns
on the long-term growth prospects of the Indian automobile industry. Income and the cost of
ownership - two key factors affecting demand for passenger vehicles, were both negatively
impacted during the last two years. In the commercial vehicle segment , freight demand and
transporter profitability play a key role in demand for new trucks. the Indian two wheeler
industry has consistently grown at a high rate of 12 per cent over 2011-2012, making India the
second largest market for two wheelers in the world and select states reaching saturation levels.

TWO WHEELER SEGMENT
After 2010-2011, growth in total domestic two wheeler sales slowed to
14.1% in 2011-2012. in 2012-13 growth in domestic two wheeler sales slowed
further to 2.9 % as slow rise in incomes in rural areas and high fuel prices impacted
consumer sentiment. In 2013-2014 growth is expected to recover modestly to 6-8
% on expectations of normal monsoons aiding healthy rural incomes, recovery
urban incomes and lower fuel prices in.

COMMERCIAL VECHILES
Sales of medium and heavy commercial vehicles (MHCVs), which are directly linked to
the level of economic activity, declined by 25.9 per cent in 2012-13 following deceleration in
GDP growth to 5.0 per cent. Key macroeconomic indicators such as IIP, rail freight loading,
mining ,road awarding and execution and growth in port traffic remained weak during 20122013, thereby impacting CV sales. CV sales declined by 2 % in 2012-2013, after growing by
28.5 % and 18% respectively in 2010-2011 and 2011-2012. LCV sales proved to be relatively
resilient to the slowdown in GDP growth, and grew at 15.9 per cent. (CRISIL MAY 2013)
GOODS VEHICLES
After recording a compounded annual growth rate (CAGR) of 35.7 per cent in 2008-09 and
2009-10, growth in MHCV sales had moderated to 8.8 per cent in 2011-12 following the
slowdown in GDP growth. After dipping to 3.9 per cent in 2011-12, industrial GDP continued to
slow down in 2012-13 precipitating a 25.9 per cent fall in MHCV sales in 2012-13.

LCV sales relatively less impacted by economic slowdown , Light commercial vehicles
(LCVs) grew by 15.9 per cent in 2012-13 enabled by a 21 per cent increase in the sales of small
commercial vehicle . Sales of higher tonnage LCVs fell by 22.7 per cent in 2012-13 with
slowdown in freight demand, and the shift in preference for SCV and ICVs. Sales of LCVs is
expected to grow by 10-12 per cent in 2013-14. While mini-trucks have almost entirely replaced
the use of large three-wheelers, sales of micro-trucks (an emerging class of SCVs, with the 0.50.6 tonne payload pitted against the smaller three-wheelers) will drive sales growth. Bus sales
declined by 4 per cent in 2012-13, owing to slowdown in demand from State Transport
Undertakings (STUs) and cautious approach undertaken by private operators towards new
investments.
Domestic sales of cars and utility vehicles (UVs) grew by merely 2 per cent in 2012-13
despite a low base in 2011-12. Domestic car sales, which had increased by 3 per cent in 2011-12,
declined by 7 per cent in 2012-13. Growth was impacted due to weak macroeconomic growth,
uncertainty over income growth, increasing petrol prices, high interest rates and lower isposable
income caused by high inflation. On the other hand, domestic utility vehicles (UVs), including
vans, grew by 32 per cent during 2012-13 because of new model launches during the year and
also due to increased preference for diesel vehicles. Passenger vehicle sales to grow by 5-7 per
cent in 2013-14 over a 2 per cent growth in 2012-13. However, growth will be capped at 9-11
per cent on account of diesel price hikes. Long-term growth prospects will remain healthy until
2017-18, as passenger vehicle penetration is currently at low levels.
Exports of cars & utility vehicles (UVs) grew by 9 per cent in 2012-13 after a marginal
decline of 0.4 per cent in 2011-12. Weak global demand, especially in Europe, one of the largest
export markets, had impacted demand in 2011-12. In 2012-13, sluggish demand in Europe and
increase in import and excise duty rates in Sri Lanka, which accounts for nearly 5 per cent of the
total exports of players like MSIL, restricted growth to single digits. Hyundai Motors India Ltd
(HMIL), the largest exporter from India, clocked 9 per cent growth in exports during 2012-13,
with its i10 and i20 models performing well
Indian Auto Sector – Medium term
During the downturn, the two-wheeler and three-wheeler segments, which were
until then experiencing low growth or losing volumes, bucked the trend. India’s vehicle demand
is quite different from other top automobile markets – with the exception of China – in that two-

wheelers constitute a significant portion of vehicle demand (more than 3/4th of the Indian market
is in two-wheelers). In the context of the unique characteristics of the Indian automobile market,
growth is expected to be driven by the following:
Affordability
While quite a few new vehicles launched in the Indian market have been developed locally,
vehicle affordability remains a significant concern. Although the price of an average motorcycle
in India (about USD 900) is comparable to the average per capita income, the prices of passenger
cars have a long way to go. Although the entry level car (Nano) is priced at around USD 2,500,
the passenger car market could grow multi-fold if there is a break-through of another price level
in the years to come.
Fuel Economy
The volume leaders across two-wheelers and four-wheelers in India are companies which have
been able to offer products with the globally acknowledged best-in-class fuel economy rates, as
well as affordable total cost of ownership. This performance expectation will only increase in the
future. Some 65 percent of the total cost of ownership of a truck is fuel consumption. This goes
directly to the profit and loss of the customer”.
Alternative Fuels
Vehicles based on alternative fuels remain another area of interest for both consumers and
companies. Reva, a pioneer in electric cars, remains an exception in the area of electric vehicles
in India, although in two wheelers there are multiple offerings, none of which have as yet taken
off in terms of volume. Although both commercial vehicles and passenger vehicles running on
CNG are gaining popularity among transport service providers and consumers due to their lower
cost of operation, much more needs to be done to improve the fuelling infrastructure before CNG
vehicles become more mainstream.
Policy Environment and Evolution of Indian Auto Industry
The midterm goals in respect of the sector are articulated in the Automotive
Mission Plan 2006-16, a ten year strategy and plan prepared jointly by Government and industry
and formally released by the Prime Minister. The Plan laid down a 10 year roadmap for the
industry covering every aspect of its growth ranging from broad direction on fiscal policies,
emissions, safety and globalization in terms of technical standards, enhancing competitiveness,
skill development, testing and homologation, R&D etc. The Automotive Mission Plan 2006-

2016 envisaged that by 2016 India will emerge as the destination of choice in Asia for the design
& manufacture of automobiles and automotive components. The output of the India’s automotive
sector was projected at USD 145 billion by 2016, doubling the contribution of the industry to the
National GDP from around 5% in 2006 to 10% in 2016 and providing employment to 25 million
persons additionally.
FDI in India
FDI plays an important role in the development process of a country. Developing
countries like India need substantial foreign inflows to achieve the required investment to
accelerate economic growth and development. The FDI in India was started with changes in
industrial policy (named as New Industrial Policy – NIP) which was announced on 24th July
1991 (Vijay Bhasker, Subrahmanya Sarma, January 2013). India has most liberal and transparent
policies on FDI among the emerging economies.
Automotive Sector for the 12th Five Year Plan (2012-2017)
In the present stage of economic development of the country, the manufacturing sector is
expected to absorb a much larger workforce, relieving agriculture of the excessive burden and
also contribute more to the national GDP. However, contrary to expectations, the growth of
manufacturing sector in India has remained slow. It is likely to achieve only about 7.7. per cent
growth in the XI Plan as against the targeted rate of 10-11 per cent. This is also substantially less
than the overall GDP growth of about 8.2 percent that XI plan is expected to achieve. The share
of the manufacturing sector in GDP is only 15 per cent in India, compared with 34 per cent in
China. The National Manufacturing Plan which seeks to change the growth pattern of India’s
manufacturing sector, calls for focusing on a number of areas and has identified auto sector as
having the competitive advantage and potential to fuel rapid growth of manufacturing.

REFERENCES:
1:Automotives March 2013, IBEF.
http://www.ibef.org/industry/indian-automobile-industry-analysis-march-2013.aspx
2:Automotives sector for the 12th five year plan.(2012-2017).
http://natrip.in/download/Auto_report_12th_FiveyearPlan.pdf
3:CRISIL May 2013, automobile.
http://crisil.com/pdf/research/CRISIL-Research-cust-bulletin_may13.pdf
4:KPMG's global automotive executive survey 2013.
http://www.kpmg.com/KZ/ru/IssuesAndInsights/ArticlesAndPublications/Documents/KPMGsGlobal-Automotive-Executive-Survey-2013.pdf

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