pest analysis

INTRODUCTION

1. Definition and brief history of the product

An automobile vehicle or mechanism; esp., a self-propelled vehicle suitable for use on a street or roadway. Automobiles are usually propelled by internal combustion engines (using volatile inflammable liquids, as gasoline or petrol, alcohol, naphtha, etc.), steam engines, or electric motors. The power of the driving motor varies from about 4 to 50 H. P. for ordinary vehicles, ranging from the run-about to the touring car, up to as high as 200 H. P. for specially built racing cars. Automobiles are also commonly, and generally in British usage, called motor cars.

2. Different uses and category of the product

SegmentCommercial vehicleCars and multi utility vehicleTwo and Three wheeler

1. Brief overview of the industry (Dominant Industry Features)

Since the first car rolled out on the streets of Mumbai (then Bombay) in 1898, the Automobile Industry of India has come a long way. During its early stages the auto industry was overlooked by the then Government and the policies were also not favorable. The liberalization policy and various tax reliefs by the Govt. of India in recent years has made remarkable impacts on Indian Automobile Industry. Indian auto industry, which is currently growing at the pace of around18 % per annum, has become a hot destination for global auto players like Volvo, General Motors and Ford.

A well developed transportation system plays a key role in the development of an economy, and India is no exception to it. With the growth of transportation system the Automotive Industry of India is also growing at rapid speed, occupying an important place on the 'canvas' of Indian economy. Today Indian automotive industry is fully capable of producing various kinds of vehicles and can be divided into 03 broad categories: Cars, two-wheelers and heavy vehicles.

Among the two-wheeler segment, motorcycles have major share in the market. Hero Honda contributes 50% motorcycles to the market. In it Honda holds 46% share in scooter and TVS makes 82% of the mopeds in the country.

Page No. 1 . 40% of the three-wheelers are used as goods transport purpose. Piaggio holds 40% of the market share. Among the passenger transport, Bajaj is the leader by making 68% of the three-wheelers. Cars dominate the passenger vehicle market by 79%. Maruti Suzuki has 52% share in passenger cars and is a complete monopoly in multipurpose vehicles. In utility vehicles Mahindra holds 42% share.In commercial vehicle, Tata Motors dominates the market with more than 60% share. Tata Motors is also the world's fifth largest medium & heavy commercial vehicle manufacturer.

INDUSTRY INVESTMENTAccording to Commerce Minister Kamal Nath, India is an attractive destination for global auto giants like, BMW General Motors, Ford and Hyundai who were setting base in India, despite the absence of specific trade agreements.

Current Scenario

On the cost front of Indian automobile industry, OEMs are eyeing India in a big way,Investing to source products and components at significant discounts to home market.On the revenue side, OEMs is active in the booming passenger car market in India.

SnippetsBy 2010, India is expected to witness over Rs 30,000 crore of investment.Maruti Udyog has set up the second car with an investment of Rs 6,500 crore.Hyundai will bring in more than Rs 3,800 crore to India.Tata Motors will be investing Rs 2,000 crore in its small car project.General Motors will be investing Rs 100 crore and Ford about Rs 350 crore.Ashok Leyland and Tata Motors have each announced over Rs 1,000 crore ofinvestment.

Facts & Figures

The automobile industry in India is on an investment overdrive. Be it passenger car or two-wheeler manufacturers, commercial vehicle makers or three-wheeler companies – everyone appears to be in a scramble to hike production capacities. The country is expected to witness over Rs 30,000 crore of investment by 2010.Take note of this, Maruti Udyog is coming up with new Zen and the diesel version of Swift during the next few months. Hyundai will also be unmasking

the Verna and a brand new diesel car. General Motors will be launching a mini and may be a compact car. Most of the companies have made their intentions clear. Maruti Udyog has set up the second car plant with a manufacturing capacity of 2.5 lakh units per annum for an investment of Rs 6,500 crore (Rs 3,200 crore for diesel engines and Rs 2,718 crore for the car plant itself). Hyundai and Tata Motors have announced plans for investing a similar amount over the next3 years. Hyundai will bring in more than Rs 3,800 crore to India, Tata Motors will beInvesting Rs 2,000 crore in its small car project. General Motors will be investing Rs 100 crore, Ford about Rs 350 crore and Toyota announced modest expansion plans even as Honda Siel has earmarked Rs 3,000 crore over the next decade for India - a sizeable chunk of this should come by 2010 since the company is also looking to enter the lucrative small car segment. Some new entrants will also taste the water. They are the big names in passenger cars like Citroen, Volkswagen AG, Nissan (separately, apart from its tie-up with Suzuki), Alfa Romeo, Maserati, Land Rover and Aston Martin. Talking about the commercial vehicle segment, Ashok Leyland and Tata Motors have each Announced well over Rs 1,000 crore of investment. In two-wheelers segment, Chinese bike major Lifan Harley-Davidson are expected to enter India soon. Hero Honda is about to establish its fourth manufacturing plant.

The Automotive Industry in India FACTS

9th largest automobile industry. 2nd largest two-wheeler market, 4th largest in Heavy Trucks. 2nd largest tractor manufacturer. Annual production of over 2.3 million units. The monthly sales of passenger cars in India exceed 100,000

units.

Production of 4-WheelersTata Motors Ltd. 449,878Mahindra & Mahindra Ltd. 128,601Ashok Leyland Ltd. 65,085Force Motors Ltd. 35,728Eicher Motors Ltd. 24,348Hindustan Motors Ltd. 15,458

MAJOR PLAYERS IN INDIA

Volkswagen

BMW

Toyota

Tata

Skoda

Nissan Motor

Mitsubishi

Mercedes

Mahindra

Maruti

Hyundai

Honda

Hindustan Motors

General Motors

Chevrolet

Daewoo Motors

Fiat

Ford

TECHNOLOGICAL

Technology, for cars or for any other automated innovations, is a constantly evolving concept. No two consecutive years ever see one single car technology trend doing the rounds in the automobile industry. There is always something new coming up in the form of an auto model. Be it a car, motorbike or any other vehicle, car enthusiasts always have something new to revel at.

Recently, a lot of happenings in the car technology arena have kept the global auto market abuzz. Digital technology has largely taken over the automotive industry. With each auto model year, vehicle manufacturers are coming up with more sophisticated digital systems addressing vehicle safety, infotainment, and telematics. Computer in

various forms is becoming an integral part of a motor body. You find them almost everywhere- inside the passenger cabin, or under the hood of a car or any other

vehicle. No wonder, automobiles today are increasingly being recognized as modern “computers on wheels.”

Following are the four major areas where automotive technology is making great progress:

Powertrain and Safety: Engine Management, Power Steering, Electronic Suspension, Braking Systems etc. Vehicle Controls and Comfort/Convenience:

Dashboard/Instrument Cluster, Security Alarm Systems, Climate Control etc.

Driver Assistance: Heads Up Display, Tire Pressure Monitoring, Adaptive Cruise Control, Collision Warning etc. Communication and Infotainment: Audio Systems,

Telematics, Navigation/GPS, Games Consoles etc.

PLD: A Major Technology Trend in Automobile Industry

PLDs or Programmable logic devices are a power alternative to the silicon technology based semiconductors ASIC and ASSP. There was a time when these were the

preferred semiconductor options, but now, car manufacturers in the global automobile industry are opting for more powerful yet cost-effective car design platforms to meet the

growing networking needs of their increasingly complex car digital systems.

“Platform” concept: A Landmark Technology Trend in Automotive Industry“Platform” concept is the newest thing in the evolutionary history of automotive

designing. In this concept, one basic design is used for car model differentiation. The

concept is further gaining popularity due to increase in the trend of converging data, audio and video in a single automotive space.

Increased Demand for Digital Content in Automobile Industry On-board motor digital content such as rear seat entertainment systems, navigation

systems, and driver assistance applications are no more add-ons in a car model. They are now considered mainstream products in automobile industry.

Quality- The Mainstay in Automobile IndustryMotivated by the enhanced use of high definition, wireless communication in cars and vehicles, system OEMs and automakers in the global automobile industry are increasingly opting for cutting-edge technology driven semiconductor devices.

All these technology progress in the automobile industry has significantly brought down the automotive design cycle from 60 months to approximately 24 to 36 months. This is further going to expedite the innovation of automotive technology in the years to come.

IMPORTANCE:

The automobile industry is often characterized in terms that limit the scope of discussionto the manufacture and sale of new automobiles. This panel broadens the scope toinclude the broad set of complements, enablers, and constraints that make the industryone of the largest and most influential human enterprises in history. The role ofinformation technology has been profound in the slow transformation of the industryfrom its original status as a product industry into what is increasingly a service industry inwhich ?product? is something far different from what it was when the industry firstbecame a powerful global force. The role of information technology (IT) in this processhas never been in the foreground: it has always been infrastructural, making possiblesubtle but profound changes in nearly every aspect of the industry.This panel will examine the mechanisms and logic of transformation in a world of rapidlychanging capabilities in information processing and communication. In this, we departsomewhat from the contemporary practice of focusing on the ways in which specificinformation technologies (e.g., the Internet, World Wide Web, or e-commerce) changespecific practices in the industry as it currently operates. Our focus is more upon the slowaccretion of capability enabled by information technology that, in time, results infundamentally new characteristics in the industry. In a way, this panel?s main interest isin the relationship between information and the automobile realm. We break this analysisinto six regimes of change:• Property regulation, risk mitigation, and complementary asset provision• Atmospheric emissions control• Passenger safety• Entertainment, conviviality and control• Expediting and coordinating production and distribution• Manufacturer-customer relationship construction and maintenanceThe most important impacts of information technology in this transformation have been

deep in the infrastructure of the vehicles themselves (e.g., emissions control, safety,entertainment), and in the records systems that have fundamentally important in alteringthe relationship between OEMs, dealers, automobile users, and other actors in theautomobile realm. Attempts to e-enable or e-transform the automotive industry, largeexperiments, from changing the supply chain (e.g., Covisint) to revolutionizing sales(e.g., Auto-by-Tel) have thus far proved to be far less significant than their proponentshoped.The story of IT in enterprise transformation in the automobile industry is one of slow,infrastructural, accretionary change that produces powerful cumulative effects. It is notsurprising that this kind of change is difficult to see. Moreover, industry transformationis not limited to the businesses processes of the firms. It affects the broad fabric ofeconomic and social enterprise in a world where information, knowledge, and value areeasily reproduced and transported.The contemporary developments in the Internet and the World Wide Web might verywell, in time, produce such changes. To this point, they have not yet done so, and it isdifficult to predict whether or how they will. The history of the automobile industry hasfrom the start been one of complementary use of IT. The automobile industry co-evolvedwith modern IT, and in myriad ways, incorporated that technology as it grew. The fulleffects of such evolution are difficult to spot because they take a long time and so muchof what is important becomes infrastructural and invisible. That is the reason why abroader view of automotive industry transformation is necessary to understand the effectsof a class of technologies as broad as information technology on an industry as large,diverse, and complex as the automobile industry.

INVENTION:

The automobile industry is one of the fastest growing industries in India. With the continuous advancement of technologies new

inventions in the automobile industry is only paving the way for more and more technologically superior and sophisticated vehicles.

This in turn is forcing the automobile companies to implement these latest technologies in their vehicles in order to have an edge

over competitors. The Indian automobile industry is on a high and hence there is immense competition because everyone wants to

be the best whether it is the domestic players or foreign players who have their manufacturing units in India. Latest technologies are

being equipped into the vehicle. Even the dearth and rising prices of traditional fuel have given the automobile companies reason

enough to introduce electric cars and alternate fuel vehicle.

Latest Automobiles Inventions in IndiaLatest technologies invented to improve the engine of a vehicle.

Common Rail Direct Injection Engine (CRDI)

The Common Rail Direct Injection offers 25% more power than the normal direct injection and makes better use of the fuel by breaking up the fuel into small particles and making optimum use of it. The CRDI engine has provided a tremendous boost to diesel engines.

Multi Point Fuel Injection Engine (MPFI)

This technology sticks to stricter auto emission norms and manages to squeeze out the maximum benefit of the fuel by making optimum use of even the last drop of petrol or diesel and providing the vehicle with a great mileage.

Latest technologically superior cars

Solar Power Car by Toyota: Global automobile giants Toyota already have designed a car air conditioner running on solar power and now they have taken a great leap and are about to design a car that runs on solar power. The car will be having fixed solar

panels on the roofs of the car. This would result in a real revolution in the history of automobile inventions doing away totally with the cost of fuels and emissions.

Electric Cars: The Reva India's first battery car was launched recently after 13 years of research and development. The concept of the battery car was introduced mainly to have a pollution free environment. The Reva is a small car carrying a price tag of Rs 2,99,000 and a fuel efficiency of 80 kms per charge. The life of the battery of the Reva is 120 kms per charge. The company has managed to sell 2,500 units already and still hopes to upgrade the Reva for higher sales figures and a green environment

Driverless cars: Driverless cars also known as autopilot, autonomous vehicle or auto-drive car are intelligent vehicles because of the simple fact that they drive themselves, to put it in a better way they actually do not require drivers to drive them. These vehicles navigate the roads themselves and give you a taxi experience.

Latest inventions in automobile components

In Car Journey Recorder: The latest inventions by Nikkai is the in car journey recorder. This is meant to be placed of the windshield of the car. The journey recorder is a video recorder which records in front of you while you are driving. This is mainly meant to come of use during accidents. It will benefit in the accessibility of loss incurred due to accident and also if you are being accused even if you are not at fault.

Smart Pedal Technology: The brake override or Smart pedal technology is a system which is built into the car to prevent fatal accidents. The computer system known as the smart pedal tells the engine to disregard the accelerator if the brake and the gas pedal are pushed at the same time. Companies like Mercedes and BMW have been using this technology for quite some time now and soon General Motors are introducing the smart pedal in India as well.

5 Star Shine: This is a unique paint protection system that keeps your car clean for five years. It has been tested and has managed to survive 150 washings. This paint protection system increases the exterior life span of the car.

Automobile Industry Regulations in India

In view of the huge investment in the automotive sector, it is important to be aware of the laws relating to and the regulation governing the automotive sector writes Vidya Sunderam.

The Indian automobile industry is the tenth largest in the world. It has an annual production of approximately 2 million units. There has been a sustained growth in the automotive sector of India following the economic reforms of 1991 which opened up 100 percent Foreign Direct Investment in this sector. The competitiveness in the automotive sector has been increasing since then. The industry has been growing annually at 20 per cent. India is set to be a key player in the automotive sector.

The automotive regulations in India are governed by the Ministry of Shipping, Road Transport & Highways (MoSRT&H) which is the nodal ministry for regulation of the automotive sector in India. Along with MoSRT&H, ministries such as Ministry of Environment & Forests and Ministry of Petroleum & Natural Gas also have a vital role in the formulation of automotive regulations and standards in India.

The principal instrument governing the automotive sector in India is the Motor Vehicles Act, 1988 (MVA) along with the Central Motor Vehicles Rules 1989 (CMVR). The Act governs emission norms and safety standards in India and consolidates the law pertaining to motor vehicles. The CMVR provide the rules that explain the MVA in detail.

MoSRT&H has constituted two committees to recommend and advise the ministry on issues relating to Safety and Emission Regulations. These committees are - Central Motor Vehicles Rules-Technical Standing Committee (CMVR-TSC) and Standing Committee on Implementation of Emission Legislation (SCOE). Central Motor Vehicles Rules-Technical Standing Committee (CMVR-TSC) was formulated to receive draft recommendations from other committees, such as Automotive Industry Standards Committee and Bureau of Indian Standards, and to finalise and approve safety recommendations made by such committees. The joint secretary of MoSRT&H is the Chairman of CMVR-TSC. CMVR-TSC comprises of representatives from Ministry of Heavy Industries and Public Enterprises, Bureau of Indian Standard (BIS), Automotive Component Manufacturers Association of India (ACMA), Select State Governments, Testing agencies, SIAM and other invitees. The purpose of CMVR-TSC is to finalise and approve the draft standards and norms submitted by various committees. The CMVR-TSC is assisted by the Automotive Industry Standards Committee (AISC) and Bureau of Indian Standards (BIS).

AISC is a committee set up by MoSRT&H. The purpose of establishing this committee was to review the safety standards with regard to motor vehicles in India on a periodic basis and to give recommendations. The Chairman of this committee is the Director of Automotive Research Association of India (ARAI) which is one of the testing

agencies constituted under CMVR-TSC. The AISC safety standards are formulated and prepared by separate Panel comprising of representatives of various stakeholder associations such as Department of Heavy Industries, Department of IPP, Department of RT&H, BIS, Vehicle Research and Development Establishment (VRDE), SIAM, ACMA and ARAI. The representative of ARAI is the member secretary of this committee.

For preparing safety standards, consideration is on various aspects such as the status of technology, time frame required for implementation, necessity of a particular regulation in relation to the safety and emission issues, etc. AISC submits the draft safety standards in the form of recommendations to CMVR-TSC for final approval. The CMVR – TSC looks into the recommendations of AISC and either approves or sends the recommendations to AISC for amendments. After approval CMVR-TSC submits its final proposal to MoSRT&H. MoSRT&H then takes the final decision for incorporation of the recommendations in CMVR.

The National Standards for Automotive Industry are prepared by Bureau of Indian Standards (BIS). These standards are submitted for approval to the CMVR-TSC. After approval the CMVR-TSC sends it to MoSRT&H for final approval. The standards formulated by AISC are also converted into Indian Standards by BIS. The standards formulated by both BIS and AISC are considered by CMVR-TSC for implementation.

Standing Committee on Implementation of Emission Legislation (SCOE) is another committee along with CMVR-TSC that was formulated under the MoSRT&H. This committee was established for the purpose of recommending emission norms. This committee is established to discuss the future emission norms and to recommend norms for in-use vehicles to MoSRT&H. This committee finalises the test procedures and the implementation strategy for emission norms and advises MoSRT&H on any issue relating to implementation of emission regulations.

The CMVR-TSC and SCOE recommend the safety standards and emission norms for implementation by the MoSRT&H. The standards and norms that are finalized by the CMVR-TSC are then sent for approval of the Secretary (MoSRT&H) and the Minister. After approval by the Ministry, and based on the recommendations from CMVR-TSC and SCOE, MoSRT&H issues notification for necessary amendments / modifications in the in Central Motor Vehicle Rules. The finalized standards and norms are notified through General Statutory Rule/Statutory Order.

Under Rule 126 of the CMVR, various test agencies are established to test and certify the vehicles based on the safety standards and emission norms prescribed by the Ministry. Every manufacturer of motor vehicle has to submit a prototype of the vehicle to be manufactured to any of the test agencies mentioned hereafter. After testing the vehicle for compliance of all standards and norms, the test agency shall grant a certificate to the manufacturer. The test agencies are – Automotive Research Association of India, Pune (ARAI), Vehicle Research & Development Establishment, Ahmednagar, Central Farm Machinery Testing and Training Institute, Budni, Indian Institute of Petroleum, Dehradun, Central Institute of Road Transport, Pune and International centre for Automotive Technology, Manesar.

The Indian standards and norms are at par with international standards to the extent that there is a sustained growth in the automotive sector. But there is a need to consolidate the laws further by bringing a master legislation in force that would govern and regulate all committees in force India rather than the committees being governed by various Ministries.

Leaders & Laggards in Auto Manufacturers - Major

Leaders in Long-Term Growth Rate (5 yr)

BMW [BMW.DE] 88.41%

Toyota Motor Corporation Common [TM] 56.30%

Tata Motors Ltd Tata Motors Lim [TTM] 35.00%

Honda Motor Company, Ltd. Commo [HMC] 25.10%

Tesla Motors, Inc. [TSLA] 20.00%

SORL Auto Parts, Inc. [SORL] 18.00%

Ford Motor Company Common Stock [F] 17.73%

MAHINDRA & MAHINDRA LTD. [MNM.BO] 13.11%

MARUTISUZUKI [MARUTI.BO] 12.39%

330 Long-Term Grow th Rate (5 yr) View

General Motors Company Common S [GM] 10.30%

Laggards in Long-Term Growth Rate (5 yr)

FLEETWOOD FPO [FWD.AX] 8.67%

General Motors Company Common S [GM] 10.30%

MARUTISUZUKI [MARUTI.BO] 12.39%

MAHINDRA & MAHINDRA LTD. [MNM.BO] 13.11%

Ford Motor Company Common Stock [F] 17.73%

SORL Auto Parts, Inc. [SORL] 18.00%

Tesla Motors, Inc. [TSLA] 20.00%

Honda Motor Company, Ltd. Commo [HMC] 25.10%

Tata Motors Ltd Tata Motors Lim [TTM] 35.00%

Toyota Motor Corporation Common [TM] 56.30%

Market Size - Automobile and Light Duty Automobile ManufacturingThe total U.S. market size for the Automobile and Light Duty Automobile Manufacturing industry includes all companies, both public and private. In addition to total revenue, the table contains details on employees, companies, and average firm size.

The total U.S. market size for the Automobile and Light Duty Automobile Manufacturing industry includes all companies, both public and private. In addition to total revenue, the table contains details on employees, companies, and average firm size.

Market Size - Automobile and Light Duty Automobile ManufacturingThe total U.S. market size for the Automobile and Light Duty Automobile Manufacturing industry includes all companies, both public and private. In addition to total revenue, the table contains details on employees, companies, and average firm size.

INDIAN EXPENSES:

At present time, Indian automobile industry is making a major contribution in increasing the country's GDP by 9% every year. New heights has been scaled by the industry in the year 2010. In January 2010, total automobile sales in the domestic market reached 1114157 units, the figures shows an increment of 44.9% compared to the sales units of 7,68,698 of same period last year. Even for the month of April-October after a gap of 11 years, total automobile sales in India stood at 1,120,081 Units. Annually, the Indian automobile industry is growing at an average rate of 30% and marking itself as one of the fastest growing industries in India. According to the reports of Society of Indian Automobile Manufacturers, annual car sales are estimated to reach 5 million vehicles by 2015 and more than 9 million by 2020 To believe New York Times

reports, several automobile companies like Hyundai Motors, Nissan, Toyota, Volkswagen and Suzuki have expanded their manufacturing facilities owing to India's strong engineering base and expertise in the manufacturing of low-cost, fuel-efficient cars.

The following statistics explains the market share of different vehicles in the Indian automobile Industry. This data is valid for the Indian domestic market only.Passenger Vehicles : 15.86%Commercial Vehicles : 4.32%Three Wheelers : 3.58%Two Wheelers : 76.23%Production Rate Statistics

The production of automobiles in India has greatly increased in the last decade. At present India is the largest tractor and three-wheel vehicle producer, second largest two-wheel vehicle producer, fourth largest commercial vehicle producer and eleventh largest passenger car producer. For the year 2003-2004 the production rate crossed 7,243,5648 and for the current year it has reached 14,049,830 in terms of total vehicles production. As a result of all this, the resultant annual turnover of the Indian automobile industry for the year is recorded to be 38,238 million USD by Soceity of Indian automobile Manufacturer (SIAM). For the year 2009-10, the production rate for different category of vehicles is as followed(As per SIAM)

Passenger Vehicles : 2,351,240Commercial Vehicles : 566,608Three Wheelers : 619,093Two Wheelers : 10,512,889Grand Total : 14,049,830

Export Market Statistics

Last year, India's automobile exports had reached $4.5 billion and a consistent export growth rate can be estimated in the year 2010 also with the estimation that it will cross $12 billion by 2014. As per the SIAM records automobile exports have under gown a growth of 22.30 percent during the current financial year. United Kingdom is largest export market for India's automobile industry followed by Germany, Netherlands and South Africa. In the year 2009-10, India has made a huge profit by exporting 1,804,619 no. vehicles. Different brands are utilizing the Indian automobile engineering expertise to manufacture and export maximum no. of vehicles from their Indian plants. Nissan Motors plans to export 250,000 vehicles manufactured in its India plant by 2011. Similarly, General Motors announced its plans to export about 50,000 cars manufactured in India by 2011. Listed below is the statistics showcasing export sales rate of Indian automobile industry for the year 2009-10.

Passenger Vehicles : 446,146Commercial Vehicles : 45,007Three Wheelers : 173,282Two Wheelers : 1,140,184Grand Total : 1,804,619

Domestic Market Statistics

Even in the domestic market, the automobile industry is experiencing tremendous success. As per statistics launched by Society of Indian Automobile Manufacturers (SIAM), there has been a growth of 32.28% in the domestic car sales, justified from the January 2010 sales 145,905 units against the 2009 sales of 110,300 units. The Commercial Vehicles segment grew marginally at 4.07 percent. While Medium & Heavy Commercial Vehicles declined by 1.66 percent, Light Commercial Vehicles recorded a growth of 12.29 percent. Listed below is the statistics showcasing domestic market sales rate of Indian automobile industry for the year 2009-10.

Passenger Vehicles : 1,949,776Commercial Vehicles : 531,395Three Wheelers : 440,368Two Wheelers : 9,371,231Grand Total : 12,292,770

Automotive Industry Life Cycle

This section addresses the automotive industry in the US. The potential customer base is large and broad and ranges from individual private buyers, to corporations and small businesses.

The car industry has reached maturity in the US. Cars have been around for more than a century (so has GM) and almost all adult Americans own one or more cars.

In 2008, GM sold 8.35 million vehicles. According to 2006 Department of Transportation statistics, there were 250,851,833 vehicles in the US, and 196 million drivers in 2003. This represents approximately 1.3 vehicles per licensed driver.

Given this saturation level, and degree to which the major automakers are developed, there is little scope for new entrants into the industry, which leaves the existing giants in a comparatively good position.

Another aspect relevant to this industry’s life cycle is the fact that it is highly consolidated (as opposed to being fragmented). There are just a few players which command the majority of the US automobile market. GM, Toyota, Ford, and Chrysler comprise more than 60% of the US market. In fact, it is almost Pareto-optimal, with 38% of the 21 manufacturers amounting to just over 79% of all cars made and sold in the US. According to one source, if fewer than four firms control over 60% of the market, it is considered consolidated.

Being so consolidated, and with high barriers to entry, means that it is mature and developed. Over the years, the largest and most successful have emerged in dominant positions. They have engaged in horizontal and backward integration and have grown into massive firms.

The red X in the industry life cycle chart below represents where the industry is in the US today. It has already reached a saturation level. While there are more people receiving driver’s licenses, there are older people who are no longer driving. But the important thing to note is that cars have permeated US culture to a mature, saturated degree.

While the automotive industry is going through a shakeout of sorts during this financial crisis, the real shakeout occurred decades ago. One point which demonstrates the type of shakeout that has already happened in the US market is that there have been approximately 1,800 automakers in the US during the 20th century, and by the 1980s there were only three major brands: The Big Three.

Also, decline is indeed occurring in car sales, but this is likely not endemic or specific to the automotive industry. It can be more attributed to current economic conditions and the recent rise in oil prices. As such, the automotive industry life cycle is in maturity – between shakeout and decline.

POLITICAL

AUTO POLICY

VISION

TO ESTABLISH A GLOBALLY COMPETITIVE

AUTOMOTIVE INDUSTRY IN INDIA

AND

TO DOUBLE ITS CONTRIBUTION

TO THE ECONOMY BY 2010

 1. POLICY OBJECTIVES

This policy aims to promote integrated, phased, enduring and self-sustained growth of the Indian automotive industry. The objectives are to:-

(i) Exalt the sector as a lever of industrial growth and employment and to achieve a high degree of value addition in the country;

(ii) Promote a globally competitive automotive industry and emerge as a global source for auto components;

(iii) Establish an international hub for manufacturing small, affordable passenger cars and a key center for manufacturing Tractors and Two-

wheelers in the world;

(iv) Ensure a balanced transition to open trade at a minimal risk to the Indian economy and local industry;

(v) Conduce incessant modernization of the industry and facilitate indigenous design, research and development;

(vi) Steer India's software industry into automotive technology;

(vii) Assist development of vehicles propelled by alternate energy sources;

(viii) Development of domestic safety and environmental standards at par with international standards.

2. BACKGROUND

2.1 Automotive industry has universal5ly emerged as an important driver in the economy. Although the automotive industry in India is nearly six decades

old, until 1982, only three manufacturers - M/s. Hindustan Motors, M/s. Premier Automobiles and M/s. Standard Motors tenanted the motor car

sector. Owing to low volumes, it perpetuated obsolete technologies and was out of sync with the world industry. In 1982, Maruti Udyog Ltd. (MUL) came

up as a government initiative in collaboration with Suzuki of Japan to establish volume production of contemporary models. After the lifting of

licensing in 1993, 17 new ventures have come up of which 16 are for manufacture of cars. This industry currently accounts for nearly 4% of the

GNP and 17% 0f the indirect tax revenue.

3. EXTANT POLICY

3.1 Before the removal of QRs with effect from 01-04-2001, the policy placed import of capital goods and automotive components under open general

licence, but restricted import of cars and automotive vehicles in Completely Built Unit (CBU) form or in Completely Knocked Down (CKD) or in Semi

Knocked Down (SKD) condition. Car manufacturing units were issued licences to import components in CKD or SKD form only on executing a Memorandum of Understanding (MOU) with the Director General Foreign Trade (DGFT). 11

companies signed MOUs with DGFT under which they agreed to:

i. Establish actual production of cars and not merely assemble vehicles;

ii. Bring in a minimum foreign equity of US $ 50 Million if a joint venture involved majority foreign equity ownership;

iii. Indigenise components upto a minimum of 50% in the third and 70% in the fifth year or earlier from the date of clearance of the first lot of imports. Thereafter the MOU and import licensing will

abate; iv. Neutralise foreign exchange outgo on imports (CIF) by export of

cars, auto components etc. (FOB). This obligation was to commence from the third year of start of production and to be fulfilled during the currency of the MOU. From the fourth year

imports were to be regulated in relation to the exports made in the previous year.

4. CURRENT STATUS OF INDIAN AUTOMOTIVE INDUSTRY

4.1 The industry encompasses commercial vehicles, multi-utility vehicles, passenger cars, two wheelers, three wheelers, tractors and auto

components. There are in place 15 manufacturers of cars and multi utility vehicles, 9 of commercial vehicles, 14 of Two/Three Wheelers and 10 of

Tractors besides 5 of engines. With an investment of Rs.50,000 crores, the turnover was Rs. 59,500 crores in Automotive Sector during 1999-2000. It employs 4,50,000 people directly and 100,00,000 people indirectly and is

now inhabited by global majors in keen contention.

4.2 India manufactures about 38,00,000 2-wheelers, 5,70,000 passenger cars, 1,25,000 Multi Utility Vehicles, 1,70,000 Commercial Vehicles and 2,60,000 tractors annually. India ranks second in the production of two

wheelers and fifth in commercial vehicles.

4.3 India’s automotive component industry manufactures the entire range of parts required by the domestic automobile industry and currently employs

about 250,000 persons. Auto component manufacturers supply to two kinds of buyers – original equipment manufacturers (OEM) and the replacement

market. The replacement market is characterised by the presence of several small-scale suppliers who score over the organised players in terms of excise duty exemptions and lower overheads. The demand from the OEM market,

on the other hand, is dependent on the demand for new vehicles.

4.4 The auto sector (excluding Tractors) attained a steep cumulative annual growth of 22% between 1992 and 1997. The Tractors achieved a cumulative

annual growth of 16%. Component production grew by 28%. There has been a slowdown in the automobile sector in the past two years. However, the

component industry maintained a low but positive growth rate mainly due to its export performance. Over the years, the component industry has

maintained a 10% - 12% share of exports in the total production.

4.5 Roads occupy an eminent position in transportation as they, as per the present estimate, carry nearly 65% of freight and 87% of passenger traffic.

Although, India has 3.3 million kilometers of road network, which is the second largest in the world, the Indian highways are getting overpopulated.

Traffic management and road sense also need attention.

5. NEED FOR A COMPREHENSIVE AUTOMOTIVE POLICY

5.1 The extant policy has drawn many overseas companies into India but needs to be more investor friendly, address emerging problems and be WTO compatible. The Indian car market is full of possibilities; but present demand profile inhibits volume production, save by a few, and conduces contention

rather than competition. World over, the majors have consolidated to elevate technology, enlarge product range, access new markets, cut costs and ingraft versatility. They have resorted to common platforms, modular assemblies and systems integration by component suppliers and E-

Commerce.

5.2 The automotive industry is in the midst of a major structural transformation in today's globalised scenario. "System Supply" of integrated

components and sub-systems is becoming the order of the day, with individual small components being supplied to the system integrators

instead of the vehicle manufacturers. In this process, most of the SSI units manufacturing smaller individual components are on their way to become tier 2 and tier 3 suppliers, while the larger companies including most MNCs

are being transformed into tier 1 companies, which purchase from tier 2 & 3, and sell to the auto manufacturers.

5.3 Indian auto sector needs to grow collaterally and in harmony with world industry. India has the potential to be a global automotive power. However,

concerted efforts will be required to take auto manufacturing to a self-sustaining level where they shall have volumes, generate requisite

technology and meet evolving emission requirements.

5.4 Volume is important for any manufacturing enterprise. However, it is more important for automobile sector, both for the manufacture of vehicles

as well as auto components. Lack of volume will not only inhibit efficient manufacture but also R&D and introduction of new models. The investment and fiscal policies should create an environment for volume production and

indigenous capability for innovation for small cars and auto components.

5.5 Auto components manufacturers have been slowly gaining global recognition and maintaining a certain level of exports despite the recent

downturn. It should be possible to achieve an export target of US $ 1 billion by 2005 and US $ 2.7 billion by 2010. This would require three pronged

marketing strategy: exports through OEMs for their global sourcing requirements, export to tier I manufacturers as a part of their international supply chain and direct exports to aftermarket. The main challenges are

lower volume – low scale, fragmentation, inadequate R&D/technology support, lower productivity levels, limited resources for international

marketing and establishment of an efficient supply chain.

6. MEASURES TO REALIZE THE POLICY OBJECTIVES

6.1 Initiatives relating to investment, tariffs, duties and imposts will be the instruments to achieve the Policy objectives. These path government’s

economic reform and are in harmony with the commitments made to WTO.

6.2 Increased resource allocation to the highways sector to ensure collateral upgradation and development of road infrastructure in step with the increase

in the population of vehicles.

6.3 An appropriate regulatory framework for smooth movement of traffic, safety and environmental aspects.

7. FOREIGN DIRECT INVESTMENT

7.1 Automatic approval for foreign equity investment upto 100% of manufacture of automobiles and component is permitted.

8. IMPORT TARIFF

8.1 The incidence of import tariff will be fixed in a manner so as to facilitate development of manufacturing capabilities as opposed to mere assembly

without giving undue protection; ensure balanced transition to open trade; promote increased competition in the market and enlarge purchase options

to the Indian customer.

8.2 The Government will review the automotive tariff structure periodically to encourage demand, promote the growth of the industry and prevent India

from becoming a dumping ground for international rejects.

8.3 In respect of items with bound rates viz. Buses, Trucks, Tractors, CBUs and Auto components, Government will give adequate accommodation to

indigenous industry to attain global standards.

8.4 In consonance with Auto Policy objectives, in respect of unbound items i.e., Motor Cars, MUVs, Motorcycles, Mopeds, Scooters and Auto Rickshaws,

the import tariff shall be so designed as to give maximum fillip to manufacturing in the country without extending undue protection to

domestic industry.

8.5 The conditions for import of new Completely Built Units (CBUs), will be as per Public Notice issued by the Director General Foreign Trade (DGFT) having

regard to environment and safety regulations.

8.6 Used vehicles imported into the country would have to meet CMVR, environmental requirements as per Public Notice issued by DGFT laying

down specific standards and other criteria for such imports.

8.7 Appropriate measures including anti dumping duties will be put in place to check dumping and unfair trade practices.

9. EXCISE DUTY

9.1 Motor Cars

9.1.1 The ownership of cars in India is just 6 per thousand of population as against 500 in the developed economies. The

contribution of the auto sector to the GDP and employment is likewise low. Expansion of local demand holds great potential

and is vital to install scale volumes of production.

9.1.2 Domestic demand mainly devolves around small cars not exceeding 3.80 meters in length. Small cars occupy less of road

space and save on fuel. These capture more than 85% of the market. India can build export capability and become an Asian

hub for export of small cars. The growth of this segment needs to be spurred.

9.2 Multi Utility Vehicles

9.2.1 MUVs are an important mode of economical mass transport in rural India due to poor road infrastructure and lack of good

State transport system. They are the first vehicle purchased by a number of farmers, traders, small businessmen in rural and semi-urban markets. The Government will endeavour to provide fiscal

incentives to this sector.

 9.3 Commercial Vehicles

9.3.1 Presently excise duty on commercial vehicles sold by a manufacturer whether as a chassis or with a complete body is 16%. However, no duty is levied on the body that is built by an

independent body builder on chassis bought from a manufacturer. This dispensation inveigles production of the

complete trucks and buses by the chassis manufacturer and is detrimental to safety standards. The duty imposed on the

construction of bodies by an independent body builder, small or organised sector, shall be equal to that of bodies built by a

chassis manufacturer.

9.3.2 The Government will encourage fabrication of bus body on bus chassis designed for better passenger comfort instead of

truck chassis as is the current practice.

9.3.3 The Government will promote the use of multi-axle vehicles for carriage of goods as they cause reduced environmental

pollution and lesser wear and tear on road surface in comparison to the existing 2-axle trucks.

10. IMPROVING ROAD INFRASTRUCTURE

10.1 Traffic on roads is growing at a rate of 7 to 10% per annum while the vehicle population growth for the past few years is of the order of 12% per

annum. Poor road infrastructure and traffic congestion can be a bottleneck in the growth of vehicle industry. A balanced and coordinated approach will be undertaken for proper maintenance, upgradation and development of roads by encouraging private sector participation besides public investment and

incorporating latest technologies and management practices to take care of increase in vehicular traffic.

10.2 For the convenience of traveling public the Government shall also promote multi-modal transportation and the implementation of mass rapid

transport systems.

11. INCENTIVE FOR RESEARCH AND DEVELOPMENT

11.1 The Government shall promote Research & Development in automotive industry by strengthening the efforts of industry in this direction by providing

suitable fiscal and financial incentives.

11.2 The current policy allows Weighted Tax Deduction under I.T. Act, 1961 for sponsored research and in-house R&D expenditure. This will be improved

further for research and development activities of vehicle and component manufacturers from the current level of 125%.

11.3 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.

11.4 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.

11.5 Allocations to automotive cess fund created for R&D of automotive industry shall be increased and the scope of activities covered under it

enlarged.

12. BUILDING BYE LAWS FOR RESIDENTIAL, COMMERCIAL AND OTHER USES

12.1 With the growth of vehicles, smooth traffic movement has come under severe strain. The problem has been aggravated because of inadequate provision of parking facilities generally. Starting with metropolitan and

important towns, the Government will pursue with State Governments and Local bodies amendments to bye laws for upward revision of the parking norms for new residential buildings, construction of common parking for existing residential areas besides parking upgradation in all commercial

areas. Multi-storied parking shall also be encouraged.

13. ENVIRONMENTAL ASPECTS

13.1 The automotive and oil industry have to heave together to constantly fulfill environment imperatives. The Government will continue to promote the

use of low emission fuel auto technology.

13.2 The Government after considering the recommendations of the Expert Committee on Auto Fuel Policy headed by Dr. R.A. Mashelkar, have approved a road map for implementation for the auto fuel quality consistent with the

required levels of vehicular emissions norms and environmental quality. The Government will formulate a comprehensive auto fuel policy covering the other related aspects and ensure availability of appropriate auto fuel/fuel mixes at minimum social costs across the country. Suitable institutional

mechanism will be put in place for certification, monitoring and enforcement of different technologies/fuel mixes. Appropriate fiscal measures will be

devised to achieve milestones in the roadmap for implementation of auto fuel policy.

13.3 In the short run, the Government will encourage the use of short chain hydrocarbons along with other auto fuels of the quality necessary to meet

the vehicular emissions norms.

13.4 There is prime need to support the development and introduction of vehicles propelled by energy sources other than hydrocarbons by promoting appropriate automotive technology. Hybrid vehicles and vehicles operating with batteries and fuel cells are alternatives to the conventional automobile,

which in their early beginnings, lie intreasured. As an impetus for the development of such vehicles, an appropriate long-term fiscal structure shall

be put in place to facilitate their acceptance vis-à-vis vehicles based on conventional fuels.

13.5 Internationally, the practice is to levy higher road tax on older vehicles in order to discourage their use. In India, the road tax on vehicles varies in nature and quantum among the states. Lifetime road tax is also in vogue.

The endeavour will be to move to the international model.

13.6 In order to facilitate faster upgradation of environmental quality, the Govt. will consider having a terminal life policy for commercial vehicles

alongwith incentives for replacement for such vehicles.

14. SAFETY

14.1 Government will duly amend the Central Motor Vehicles Rules, Bureau of Indian Standards (BIS) and other relevant provisions and introduce safety

regulations that conform to global standards.

14.2 Testing and certification facilities need to be revised and strengthened in accordance with safety standards of global order. Government, in

partnership with industry, will tend to this requirement.

15. HARMONISATION OF STANDARDS:

15.1 Government recognises the need for harmonisation of standards in a global economy and will work towards it.

Auto Sector Budget 2011 Highlights at a Glance

Full exemption of basic customs duty and concessional central excise of 4% extended

to batteries imported for electric vehicles in replacement market.

Fuel-cell technology vehicles to get concessional excise duty of 10%.

Hybrid vehicles part to be fully exempt from basic customs duty and special CVD.

Concessional rate of 5% excise duty to incentivize domestic production of hybrids.

Duty reduced from 10% to 5% on conversion kits for fossil-fuelled vehicles to hybrid (CNG, LPG kits)

LED lights to attract only 5% excise from 10%, exempt from special CVD.

Outright concession in place of refund-based concession on excise duty for factory-built ambulances.

Refund-based concession on taxis with seating capacity of upto 13 (including driver). Existing concession on 7-seater taxis to stay.

No change in existing excise duty, so no price hike for cars and bikes

In the Budget 2011, Pranab Mukherjee has proposed the setting up a National Mission

for Hybrid and Electric Vehicles that will be launched in association with all stake

holders, which include carmakers and battery makers. This mission will strive to

provide green and clean transport to the masses.

The Finance Minister also extended the exemptions from basic customs duty and a

concessional rate of Central Excise duty of 4 percent that was provided to specific

parts of electrical vehicles in the last budget. These concessions now include batteries

for electric vehicles imported by carmakers for the replacement market. What this

means is, if you buy a Toyota Prius, you are not going to get any reduction in its price

as there’s no reduction in import duties on completely-built cars, but when the time

comes to replace its batteries, you will get them much cheaper.  A concessional rate of

5 percent excise duty has been proposed in Budget 2011 on hybrid vehicles to

incentivize their domestic production. It’s a good time for Toyota to consider making

the Prius in India instead of importing it.

However, if you drive an indigenous electric vehicle like the Mahindra Reva, you will

get the car cheaper because it is assembled locally and the battery cost will be lower.

To spur research and development on fuel-celled vehicles running on hydrogen cell

technology, the Finance Minister has given such vehicles a concessional excise duty of

10 per cent only. However, there are no commercially available fuel-celled vehicles in

India yet, though Mahindra and Honda have been doing some R&D on this locally.

All hybrid vehicles in India (CNG, LPG – dual fuel vehicles, and petrol-electric hybrids)

get a concessional excise duty rate of 10 per cent. Now Mukherjee has also granted

full exemption of basic customs duty and special countervailing duty (CVD) on specific

parts for such vehicle, besides the 5 per cent duty to urge more carmakers to make

hybrid vehicles locally.

He has also incentivized the conversion of petrol and diesel vehicles to hybrid

technology like CNG, LPG and electric, by reducing the excise duty on conversion kits

from 10 per cent to 5 per cent. LED lights are also likely to get cheaper (and can see

more use in automobiles), as they now only attract 5 per cent excise duty according to

Budget 2011 proposals for the auto industry.

It’s not just green cars. Mukherjee also wants green roads, and has exempted bio-

based asphalt in road construction from basic customs duty, as well as exempted

machinery for road construction (road-rollers, tarring machines, tunnel borers) from

the same.

Tata Motors, Force Motors, Mahindra and other makers of factory-built ambulances

can benefit from Mukherjee’s proposal of an outright concession instead of a refund-

based concession from excise duty on ambulances.

Large taxis also benefit thanks to Budget 2011. Mukherjee has proposed a refund-

based concession on excise duty to taxis that have a seating capacity not exceeding 13

people, including the driver. This concession is already available to 7-seater taxis. This

again will benefit Force Motors and Tata Motors, besides Mahindra, Maruti and

Toyota.

Other automakers that benefited from Budget 2010 were Tata Motors and Ashok

Leyland, as the government funded 15,260 low-floor and semi-low floor buses in the

NCR region under the Jawaharlal Nehru urban revival scheme, and made public

transport more comfortable.

Of course, consumers will have a wee-bit more disposable income to spend on cars.

The income-tax exemption limit has been raised by Rs. 20,000 to Rs. 1.8 lakh. For

senior citizens, the age to qualify is now 60 years (from 65 earlier), and the exemption

is Rs. 2.5 lakh. For super-senior citizens (above 80 years of age), the exemption limit is

now Rs. 5 lakh, putting a little more disposable income in the hands of Indians.

Besides this, Mukherjee also reduced excise duty on petrol, but that’s not likely to have

a significant impact on fuel prices owing to the soaring price of oil. Thankfully, duties

on regular cars and bikes remain unchanged in Budget 2011. Many were expecting a

hike in duties. Overall, the budget hasn’t significantly changed the pace of growth of

the automobile sector, but has tried to steer it in a green direction.

Economic

The level of inflation Employment level per capita is right. Economic pressures on the industry are causing automobile companies to

Reorganize the traditional sales process. Weighted tax deduction of up to 150% for in-house research and R & D Activities.

Govt. has granted concessions, such as reduced interest rates for export Financing. The Indian economy has grown at 8.5% per annum. The manufacturing sector has grown at 8-10 % per annum in the last few

years. More than 90% of the CV purchase is on credit. F inance availability to CV buyers has grown in scope during the last few

years. The increased enforcement of overloading restrictions has also contributed to an increase in the no. of CVs plying on Indian roads. Several Indian firms have partnered with global players. While some have formed joint ventures with equity participation, other also has entered into technology tie-ups. � Establishment of India as a manufacturing hub, for mini, compact cars,

OEMs and for auto components.

Social Since changed lifestyle of people, leads to increased purchase of Automobiles, so automobile sector have a large customer base to serve.

The average family size is 4, which makes it favorable to buy a four wheeler. Growth in urbanization, 4th largest economy by ppp index. Upward migration of household income levels

85% of cars are financed in India.Car priced below USD 12000 accounts for nearly 80% of the market.Vehicles priced between USD 7000-12000 form the largest segment in the passenger car market. Indian customers are highly discerning, educated and well informed. They Are price sensitive and put a lot of emphasis on value for money.

Preference for small and compact cars. They are socially acceptable even amongst the well off.

Preference for fuel efficient cars with low running costs.