Smgt Automobile Project)

8/3/2019 Smgt Automobile Project)

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JAIPURIA INSTITUTE OF MANAGEMENT

LUCKNOW

INDUSRTY ANALYSIS OF THE INDIAN AUTOMOBILEINDUSTRY

SUBMITTED BY: SUBMITTED TO

Bushra Ahmed (JIML-10-036) Prof. V.V. Ratna

Mamta Agarwal (JIML-10-RM-003)

Mumuksh Sharma (JIML-10-080)

Shayan Faheem (JIML-10-130)

Suyash Singh (JIML-10-154)



INTRODUCTION

Peter Drucker called the automobile industry as "the industry of industries". During the last fewyears, the production and management systems have been revolutionized in the automobileindustry. One of the major changes in the industry has been the opening up and growth of several

emerging markets. India is one of the most important emerging car economies in the world today.In 1991, the Government of India embarked on an ambitious structural adjustment programmeaimed at economic liberalization, based on the pillars of Delicensing, Decontrol, Deregulation andDevaluation. Post-liberalization, the Government of India's new automobile policy announced inJune 1993 contained measures, such as delicensing, automatic approval for foreign holding of 51%in Indian companies, abolition of phased manufacturing programme, reduction of excise duty to40% and import duties of CKD to 50% and of CBU to 110%, and commitment to indigenizationschedules. The Government of India's new automobile policy attracted a large number of automobile companies to India. These include General Motors and Ford, and two Japanese, sevenEuropean and two Korean companies. Toyota and Chrysler are also seeking to enter the countrywith suitable Indian partners. In addition, there are three existing Indian companies, Hindustan

Motors, Premier Automobiles and Telco, and one Indo-Japanese venture, Maruti already in the passenger car market. Maruti is by far the biggest player with about 70% of the market share. Asof April 1997, a total of 7 Automobile companies (Daewoo, Peugeot, Fiat, Ford, General Motors,Merc, Audi) have already started selling cars, while another 8 companies (Honda, Mitsubishi,Renault, VW, BMW, Toyota, Hyundai, Chrysler) have either begun operations in India or plan tostart soon. Some Indian companies like Telco and Kinetic are also working on introducing smallcar models. The number of new entrants and the level of investment within a very narrow timewindow of two to three years is unprecedented and seems unique to India. Compared to threemajor models available in the Indian market until recently, customers can now choose from a widevariety of products.

Some of the entry barriers faced by automobile companies in India are relatively high levels of import duties, a nascent ancillary industry, and product modifications required for relatively poor road conditions and high levels of heat and dust. On the other hand, a rapidly growing middleclass, rising per capita income, and high levels of latent unsatisfied demand with customers starvedof world class options promise enormous opportunities. For instance, from current sales of around300,000 passenger cars in 1996-97, sales are expected to rise to anywhere between 850,000 to 1.7million vehicles by the year 2000. Automobile companies have announced plans to install capacityof around 900,000 vehicles by the year 2000. The number of cars sold over the next four years isgoing to be anywhere between 2 and 3.5 million vehicles. It is not certain how exactly demand willgrow and on what factors it will depend, and whether there is room for so many players.The supplier industry also faces enormous challenges to keep pace with rapid growth.

Manufacturing practices will have to change considerably to come closer to lean production. It isalso possible that some companies will increasingly use India as a base for exporting vehicles toother countries. These issues will become clear as the future unfolds The Indian automotiveindustry has been growing for the third year in succession at over 25%. The number of persons per car is 200, which is very large compared to other emerging markets like Korea and Brazil whichhave about 12 persons per car. There is therefore a very huge untapped market. Compared to threemajor models available in theIndian market until recently, customers can now choose from a wide variety of products.



Table 1. – Prospects in the Automobile Industry

Cumulative Investment Turnover

1996 2006 1996 2006

Automobile Industry 80 290 225 1300

Auto Components 35 150 70 800

Transportation Industry 300 1000 2000 1500

All figures in billion Rupees. Currently, US $1 = Rs.40.

As the data shows, the automobile industry does not dominate the transportation industry. Out of $17 billion fresh investments in the transportation industry up to the year 2000, only $5.7 billionwill be in the automotive industry. Turnover figures include sales for trucks, cars, utility vehicleslike jeeps, and two wheelers. The share of passenger cars is much lower and is expected to risefrom 11% currently to the 15% to 20% range by the year 2000. Some of the strengths of theindustry are low labor costs, supportive government policies and trained manpower. Major weaknesses are a small and fragmented ancillary industry, poor infrastructure, low level of diffusion of lean manufacturing, improvements needed in quality and productivity, and lack of product development capabilities. The opportunities that the industry offers are a large untappedmarket, and a possible production base for exports. Some MNCs like Maruti-Suzuki have alreadystarted using their Indian plant for exports.

CURRENT SCENARIO

Indian automobile industry continued good show in FY2006-07. The overall volume is expanded by 14% to cross 10 million vehicles as compare to 89, 06,428 units in FY2005-06, where as theindustry registered a CAGR of 14.11% between 2001-02 to 2006-07. The commercial vehicle isthe fastest growing segment thanks to ban on overloading by Supreme Court last year, commercialvehicle sale clocked 33% growth to 467882 units as compare to 351041 units in FY 2005-06. The passenger car segment led by Maruti registered the growth of 21% to cross 1.3 million vehicles inFY 2006-07, where as the two wheeler segment remain subdued up by 11% to 78,57,548 units ascompare to 70,52,391 units in FY 2005-06.On the export front the industry is doing exceptionally

well. The export sales registered a growth of 25% to cross one million vehicles in a year whereas the industry registered a growth of 41% CAGR in last 5 years.

3

THE INDUSTRIAL STRUCTURE



Suzuki was the first MNC to enter India in 1981 through a joint venture with the Government of India and set up Maruti Udyog Limited. Currently, Maruti has around 70% of market share, andthe Maruti 800 in the small car segment is the best selling model. Since 1995, the industry iswitnessing a sea change with the introduction of several new models by MNCs coming into Indiathrough joint ventures with Indian partners. In the super-premium segment there is the Mercedes

Benz's E-class sedan. BMW and Audi are also considering plans to sell cars. New introductions inthe premium segment are General Motor's Opel Astra, PAL Peugeot's 309, Maruti's Esteem,Telco's Sumo, Estate and Sierra, DCM Daewoo's Cielo and Sipani's Montego. In the economy car segment, Fiat Uno and Telco are expected to produce 60,000 cars each per annum. The power relationship between automobile companies, dealers and customers is going to changesubstantially as the industry moves from a supply constrained sellers' market to a demand driven buyers' market. Thus dealers and customers are going to acquire greater power.

ADOPTION OF LEAN PRODUCTION

Since the Indian industry started mass production only in the mid 1980s with the arrival of MarutiUdyog Limited, the transition to lean production is likely to take time. With so many MNCs

entering the growing Indian market, there will be a push towards lean production. Maruti hasimplemented JIT for some of its major suppliers. Some others are in the process of doing so. Thereis a stress on quality in the highly competitive industry. However, the success of lean production atthe industry level depends not only on the efforts of the assemblers, but also on the suppliers andon institutional and cultural factors. The bargaining power of suppliers of some components ishigh, because of capacity constraints. This makes them accept only large orders, and thereforemakes it difficult for assemblers to implement JIT.



MODERN AUTOMOBILE MARKET - KEY ISSUES

The latest trends and key issues in the modern automobile market need to be considered for successful entry in the Indian Market.1. Government – The Enabler

In contrast over the past, Indian Government has switched over its role from controller to enabler.The focus is on providing better infrastructure, growth oriented economic policies and rightenvironment to attract investments. An ambitious project of interstate highway network, calledgolden quadrangle, is in its advanced stages of implementation. Pollution control has becomeanother priority area. There is a proposal to ban all the vehicles older than 10~15 years, which islikely to boost the demand of modern automobile.The import duties on the CBU and Used vehicles are designed to protect the interests of theautomobile manufacturers in India, an incentive to attract foreign investment. Government has alsocut the excise duty to boost the demand. Although, it has met with a limited success in past, with afavourable economic environment, Government may take these proactive steps again.The oil companies are about to be privatised which is likely to make them flexible and customer

friendly. These developments have made India an attractive and promising destination for anyglobal player.

2. Competition – Cut Throat

The entry of multinationals has put immense pressure on Indian companies. Some of them haveentered into joint ventures with multinationals; a few others have invested heavily on R&D to beon their own, others perished. The market has now polarized into two distinct segments:Indian Players: Those who invested in R&D survived. They could launch new models, retaintheir dealer network and improve on their service in due course of time. They have strategicallyleveraged their low cost structure to create price barrier for the competition. Most of them offered“value for money” products to offset their weakness in technology and styling.Multinationals: The multinationals have launched international products with better technologyand styling at higher price points. These products appealed to a different class of customers whowere “value-conscious”. This class of customers has an attitude to appreciate evolved productofferings and buying power to purchase them. Both Value conscious and Price conscious customer segment co-exist in Indian market today. The later is losing its share rapidly. Any potential entrantcan consider launching the products targeted at Value conscious segments. However, the value perceptions of the target segment should be analysed in depth. The “features-price” packageshould ensure an attractive value reposition for the customers.

3. Customer – The King

Undoubtedly the customer has become the King. The modern customer is armed with IT and hashigher buying power. The ever-increasing expectations from products and services are a major challenge for all the players in the market. The softer issues have gained as much importance as product features in his brand decisions. There is higher propensity towards choosing brand that befitting the self-image. In the present market scenario, the transition from “products” to “brands”is complete. The intangible offerings have gained as much importance as the tangible productfeatures. Any new entrant should therefore have a greater focus on brand building.Monitoring customer satisfaction periodically is also very critical Resources and efforts put behindthese activities should be considered as investment on the brand for ultimate success.



4. Customer Care – not just Service

After sale service is the clichéd description of the function. The customer today is looking beyond just fixing the problems. The service experience, ambience and the expertise are sought after. 24-hour breakdown service is not uncommon. The potential entrant needs to look at this function in

larger perspective. It should be “customer care” rather than mere After Sale Service. Raison deentrée of this function should be customer delight. Fixing the automobile should merely be the wayto achieve it. This approach would mean higher investments in workshops. More importantly afresh approach to the intangible softer issues of the customer relationship is recommended.

5. Pollution and Safety norms

Indian two wheelers have already met the most stringent international norms of pollution. The carsare not left far behind. Government of India is dead serious about enforcing them. Euro II vehicleshave become a norm in the NCR region, Mumbai and Kolkata. Soon these norms would beenforced in 6 other metro cities and eventually all over India.Any new entrant planning to make it big in India, should keep in pace with the latest international

pollution control norms right from the inception. It would mean higher level of investments inmodern technology for efficient engines. Such investments are the business compulsion, henceshould not be compromised upon. Safety in motor vehicles is relatively neglected area in Indianmarket. There are only a handful models with safety features such as airbag, crumple zone etc. Butthe awareness is increasing rapidly. Recently use of seatbelts has been made mandatory. It istherefore recommended that the models be launched with latest international standards of safety.Any efforts to create awareness about safety in automobiles would generate goodwill among thecustomer fraternity and would also receive encouragement from Government department.

6. Used vehicle Business

Maruti and Ford have pioneered in this business in India. Chain of authorised shops is set up totrade-in the used vehicles. The venture is very successful, as these chains have emerged as preferred destinations for trading used cars. Customers admire the convenience and transparencyoffered by them, unlike the opportunistic attitude of the unorganised players who controlled themarket earlier. This strategic business unit is strongly recommended for the new entrants. This business is complimentary to the main business. It can also generate handsome profits if run professionally.



GOVERNMENT REGULATIONS

The Indian government has made significant shifts in its policy towards the automobile industry.

Ever since independence, the government considered the passenger car to be a luxury item, and

imposed very high tariffs. Since the economic liberalization launched in 1991, the Government of

India's automobile policy announced in June 1993 has changed. The excise duty varied as follows

over the last five years. The import duty on car components increased from 40% to 75% during

1984-91 and then came down to 50% recently. Thus duties and taxes continue to be high by

international standards. These might be brought down in future as the industry becomes more

competitive. The Government of India has reduced its direct control on the automobile industry

following the announcement of the new automobile policy. Entry of MNCs is permitted, either as

joint ventures or on their own. However, the indirect impact of government policies on the industry

still remains far from insignificant. The government has levied 110% customs duty on completely

built units (CBU) and 50% on CKD and parts. There are several areas where there is ambiguity. At

the moment, the duty on both CKD kits and components is 50%. However, though component

imports do not require any license, CKD imports need a license.



PORTER'S 5 FORCES ANALYSIS

1. Threat of New Entrants. It's true that the average person can't come along and startmanufacturing automobiles. Historically, it was thought that the American automobileindustry and the Big Three were safe. But this did not hold true when Honda Motor Co.opened its first plant in Ohio. The emergence of foreign competitors with the capital,required technologies and management skills began to undermine the market share of North American companies.

2. Bargaining Power of Suppliers. The automobile supply business is quite fragmented(there are many firms). Many suppliers rely on one or two automakers to buy a majority of their products. If an automaker decided to switch suppliers, it could be devastating to the previous supplier's business. As a result, suppliers are extremely susceptible to the demandsand requirements of the automobile manufacturer and hold very little power. There areabout 6,350 small and large component manufacturers in India, out of which about 350 arein the organized sector and are registered with the Automotive Components Manufacturers

Association. There is a sizeable replacement market for parts and components, but thismarket is heavily dominated by manufacturers who sell unbranded products at very low prices. The component manufacturers therefore have to rely on assemblers in the domesticmarket. The industry had a turnover of about $2.7 billion in 1995-96. Although this is notimpressive, industry sales have been growing at nearly 35% since 1992- 93, and turnover is projected to reach about $6.4 billion by the year 2000. Exports are projected to reach $565million by the year 2000. Tooling costs for suppliers remain the same for 10,000 units or for 100,000 units. Till assemblers achieve volumes, it is not profitable for suppliers to

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accept orders. Assemblers are thus forced to import components. This pushes up costs andcurrently prices as well, which in turn affects sales and growth. Maruti developed a qualityvendor base over a period of 10 years. However, new entrants can expect to develop asupplier base faster. The Indian auto component industry has had some success indeveloping parts and components including collapsible steering columns, brake linings,

power steering, catalytic converters and central locking systems. Current technologyupgradation is in plastics, trims, electronics, anti locking braking systems, and environmentand safety related items and materials. International supplier firms are looking for Indian partners in a variety of areas. Thirteen new joint ventures were formed in 1995, and manymore technical collaborations are being finalized. A large business delegation fromCLEPA, the Liaison Committee for the European Automotive Components and EquipmentIndustry, visited India in February 1996. Further collaboration between Indian andEuropean suppliers is likely to take place. Industry analysts expect that products made bynew joint ventures will not only serve the Indian market, but would also be exported.Export focus is shifting from traditional markets in Asia, the Middle East and Africa to North America, Europe and Australia. India would need to adjust to a situation where the

customer has a wide choice. In the current auto marketing system, the dealer orders cars inadvance in a `push' system driven by the automakers' agendas, and in turn the dealer has to bend the customer's requirements to existing stock. The typical Indian auto dealer hastraditionally confined his role to collecting payments from customers and supplying the car to the customer after he receives it from the factory. However, with wider consumer options, auto retailing in India is set to change. The new multinational companies are tryingto revolutionize the concepts of car delivery and after-sales service in India, and are comingout with several innovative retailing ideas to win customers. Customers are demandingmore voice in the options they want and the cars they buy. This in turn will force dealers to be more customer oriented. The emerging system of `customer pull' translates toempowering the customer and creating a genuine symbiosis between the customer, thedealer, and the automaker. Technology is playing a major, possibly revolutionary role inthis new thinking and is increasingly expressing the voice of the consumer. Dealers wouldneed to change to address the new market conditions. These factors would require even better coordination between the manufacturer and the dealer. With greater competition, theIndian car manufacturers and dealers are also likely to adopt advanced country practices,like large dealer groups, multiple outlets per dealer, company-owned dealers, higher sales per dealer, higher margin to dealers, changing role of the dealer as a retailer, etc.

3. Bargaining Power of Buyers. Historically, the bargaining power of automakers wentunchallenged. The Indian consumer, however, became disenchanted with many of the products being offered by certain automakers and began looking for alternatives, namelyforeign cars. On the other hand, while consumers are very price sensitive, they don't havemuch buying power as they never purchase huge volumes of cars. A rapidly growingmiddle class, rising per capita income, and high levels of latent unsatisfied demand promiseenormous opportunities. For instance, from current sales of 312,000 cars in 1994-95, salesare expected to rise to anywhere between 850,000 to 1.5 million vehicles by the year 2000.It is worth noting that in the past 15 years, all demand projections have been exceeded. It



remains to be seen if this will be true of current projections also. The following tablesummarizes industry performance in the past five years. Even though growth rates areimpressive, uncertainty about the extent of demand growth persists for several reasons. The price to income ratio for the middle class consumer is too high. Currently the price of a car is about 18 to 24 months salary, and therefore price is perhaps one of the most important

variables determining demand. However, incomes are rising rapidly and inflation seems to be under control. Car prices are also likely to remain fairly steady as companies indigenizecomponent production. Excise duties are high at 40%. If these are reduced, it is likely tospur growth. On the downside, infrastructure in roads is very poor, and traffic congestion inmany cities is very high. Of the total of 170 million families in India, effective purchasing power is estimated to be with 24 million families, which includes 4 million families whichare in the top income bracket, and can buy luxury and premium cars. These figures arerising rapidly since the economy is growing steadily at 5% to 6%. Rural incomes comparedto urban incomes are lower, but disposable incomes are higher because of lower houserents and cost of living, and because agricultural incomes are exempt from tax. The currentstate of rural roads is very poor. The government has allowed private parties to build

international class highways and collect tolls in some areas. If roads in rural areas aredeveloped, then car sales are likely to grow very fast since these areas have very lowmarket penetration. In addition to price, duties and taxes, economic growth and availabilityof adequate road kilometers, another factor affecting demand is availability and cost of credit. Vehicle financing has boomed, and currently is around $1.6b, covering 25% of industry sales. This figure includes credit for all vehicles including two wheelers, trucksand buses. Many companies also provide new cars or soft loans for buying cars to itsexecutives as perks.

4. Availability of Substitutes. Be careful and thorough when analyzing this factor: we arenot just talking about the threat of someone buying a different car. You need to also look atthe likelihood of people taking the bus, train or airplane to their destination. The higher thecost of operating a vehicle, the more likely people will seek alternative transportationoptions. The price of gasoline has a large effect on consumers' decisions to buy vehicles.Trucks and sport utility vehicles have higher profit margins, but they also guzzle gascompared to smaller sedans and light trucks. When determining the availability of substitutes you should also consider time, money, personal preference and convenience inthe auto travel industry. Then decide if one car maker poses a big threat as a substitute. Asubstitute is a product that might be consumed in place of another if the price or quality of the original item is unattractive. In other words; price change for one product leads to ashift in the same direction in the demand for another product; so there is cross priceelasticity. In the car industry, in this case Tata Motors, substitutes are mainly the other car manufacturing companies. Tata Motors is the largest car automobile manufacturer in theworld with a 14.5% market share. In a report about the automobile industry turned out thatthe company is making big losses due to the big competition; the threat of substitutes ishuge. As a result of this competition, prices are falling, and Tata Motors is making losses;in the first three quarters of 2005 GM saw their losses grow to 1 billion. These losses areaccording to that report due to "poor management and inertia", instead of Tata Motors, the



Chinese and Japanese car manufacturers, Hyundai, Nissan, Honda and Toyota. From thesefour manufacturers, Toyota has the best perspective because of its flexibility. So if thistrend continues, Tata Motors will lose its market share, this is an advantage for the other "foreign" manufacturers. They will all loose market share because they can't deal with thelow prices of other manufacturers despite of their long history.

5. Competitive Rivalry. Highly competitive industries generally earn low returns becausethe cost of competition is high. The auto industry is considered to be an oligopoly, whichhelps to minimize the effects of price-based competition. The automakers understand that price-based competition does not necessarily lead to increases in the size of themarketplace; historically they have tried to avoid price-based competition, but morerecently the competition has intensified - rebates, preferred financing and long-termwarranties have helped to lure in customers, but they also put pressure on the profitmargins for vehicle sales. The type of products in each company's portfolio is interesting to

examine. The market leader, Maruti Udyog Limited (MUL), has a small 800 cc car in theeconomy segment (Maruti 800), a family van (Maruti Omni), an off-road vehicle (MarutiGypsy), a 1000 cc notchback car (Maruti Zen), and a luxury car (Maruti Esteem). Thus,Maruti has now got a product in each segment except the super-luxury segment. GMcurrently has only one brand in the Indian market - the Opel Astra. Astra is the third largestselling car in the world. Ford is currently in the market with the Ford Esteem, and will soonintroduce a second brand - the Ford Fiesta. Daewoo has currently only one brand on theIndian roads - the Cielo in the luxury segment. Honda is entering the Indian car marketwith its Honda City, which the company claims has been `developed' and not adapted for India. While in India, the main market seems to be in the sub-compact economy segmentfor quite some time to come, hardly any company is entering this segment. Therefore,while MUL's Maruti 800 and Maruti Omni continue to dominate the largest segmentunchallenged, the smaller luxury segment is witnessing heavy competition with severalforeign players and well-known brands. There could be several reasons for this. First, whilethe economy segment is the largest, MUL's sales volumes in this segment and its highlycompetitive cost structure act as effective entry barriers for new entrants. Economies of scale in the sub-compact range occur at volumes greater than 150,000 cars per year. Marutialready has a capacity of 250,000 cars which could be a deterrent for new entrants in thissegment. However, for a firm with an established portfolio of automobiles, the addition of asub-compact line could be attractive. Telco has lans to move into this range. This option isnot open to a foreign player planning to introduce a single model. Since none of the foreigncompanies can match the price of Maruti 800 for a similar car, they are preferring tooperate in a segment which values attributes other than just price. With the higher end of the market likely to generate high margins, these companies plan to slowly move down thescale to a smaller car in course of time to take MUL head-on on price.

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QUALITY, TECHNOLOGY AND R&D

With increased competition, established automobile manufacturers in India are becoming more

conscious about technology and quality. These companies are incorporating ISO 9000 certification

and Total Quality Management as explicit corporate goals. R&D expenditure in Maruti, Hindustan

Motors, Premier Automobiles and Mahindra & Mahindra, the four companies with over 95% of

the market currently, is very low and in 1994-95, the combined budget of these four companies

was $1 million or 0.38% of sales.

However, Telco has been building product development capabilities in trucks, light commercial

vehicles, and jeeps over the past fifteen years and has launched the Tata Sumo and Sierra in the

market. It has plans to increase exports of these models. Most of the MNCs entering the Indian

automobile market are bringing in modern technology. Emission control techniques like catalytic

converters and injection technology are present in most models. The fuel efficiency of these cars is

higher than that of domestic models. Foreign models are equipped with vehicle safety gadgets

which have never been seen in Indian cars. In fact, some brands in the luxury and super-luxury

segments are positioning themselves on the basis of safety and engineering excellence. Some

European car manufacturers have even expressed an interest in introducing technologies for

improving mobility, such as traffic management, planning and control to manage traffic flow inmetropolitan areas.



Market Segmentation

The Indian automobile market is still in its evolutionary or early growth stage. Therefore, no fixedor widely accepted method of segmenting the market has evolved as yet. Segmentation has mostly been done on product types or price ranges. There has hardly been any kind of segmentation on psychographic or behavioral parameters as seen in developed car markets. The segmentation provided in this paper is based on an understanding of the current state of the industry. Thesesegments are quite different from the segments known in the US, European or Japanese markets.The following four segments based on price and type of car have been identified:

Off-road or utility vehicles e.g., Maruti Gypsy, Mahindra Armada, Tata Sumo.

Economy segment, comprising cars priced at less than $ 13,333, e.g., Ambassador,Premier Padmini, Maruti 800.

Luxury segment, comprising cars in the $ 13,333 to $ 33,333 price bracket, e.g., MarutiZen, Premier 118NE, Contessa, Maruti Esteem, Tata Sierra, Peugeot 309, Opel Astra,Cielo, Ford Escort, VW Golf, Mitsubishi Lancer, Rover Montego.

Super-luxury segment, comprising cars priced at higher than $ 33,333, e.g., Mercedes-

Benz, BMW, Audi. There is a significant variation in demand in the four geographicalregions of India. North India is the largest market for cars in India currently with 43%market share. Next come west with 27% and south with 22%. East has the lowest marketshare at 8%.

Positioning

The positioning of the brands in the Indian passenger car market can be understood from the price- power map given in the next page. This map gives an idea of competition in different segments.Since the Indian car market is in a state of flux, the positioning of most companies in theconsumer's mind appears to be confused. However, the companies have developed image-based

positioning strategies for their brands. Some of them are : Hindustan Motors (HM) - enduring, sturdy

General Motors Opel (GM) – German engineering

Daewoo - Family car

Honda - superior aftersale service

Peugeot - sound-free diesel engine

Ford Esteem - smooth driveAmbassador car of HM is being mostly targeted for the taxi segment and for institutional purchases like the Government. 40-45% of the taxi segment in the country and as much as 55% of this segment in the South is accounted for by Ambassador cars. The Contessa Classic is a luxury

car and is primarily targeted at corporate sector clients. Only 10-15% of the total purchases of Contessa is by individuals. Opel Astra, the 1995 Opel model, is a leader in the European car market and the largest selling car in Europe. This model is being produced in the GM India facilityat Halol. Astra is positioned as a reliable family sedan in the European market, which has beenmodified to suit the Indian market where it is an upmarket vehicle given the underdevelopedmarket. Around 60 to 70% of Astra's European market is in the taxicab segment and is regarded asthe reliable second car for a family. In contrast, the Opel Astra positioning in India is - " Germanengineered luxury car with safety features unmatched by others".





ATTRACTIVENESS OF THE INDIAN AUTOMOBILE INDUSTRY

THE sheer pace of growth, the wide spectrum of new technologies, and the number of new car manufacturers that have made India-specific products have made the car industry unique.

And now, with the expertise that multinational car manufacturers such as Hyundai, GM, Ford andHonda, have gained in the small car dominated Indian market, the country could well become theworld's manufacturing and export hub for this class of cars. Further, as manufacturing, instead of `screw-driver' technology, was promoted in the years after liberalisation of the industry, the backward linkages into the manufacturing of auto components have enabled many Indian vendorsto realise their global ambitions.

Players proliferate: The most visible aspect is the number of new manufacturers and the spread of new products available in each sub-segment.

Importantly, apart from the once ubiquitous Ambassador from Hindustan Motors, we now have

top-selling models and home-grown brands such as the Tata Indica and Mahindra Scorpio. Thestellar performance of these products has also, in equal measure, contributed to the expansion of the market. These `desi' companies are now attempting to leave their footprints in markets abroad.

From sales of less than a lakh vehicles about a decade ago to an estimated sales of 7.2 lakh carsand utility vehicles this fiscal, the industry has made a long haul. And these numbers have not justcome from small cars, but from the whole range of cars in the mid-size, premium mid-size andsuper-luxury car segments.

It is a reflection of the attractiveness of the Indian car industry that in addition to the presence of some of the biggest names in small car technology such as Suzuki, Hyundai and Fiat, many of the

high- profile luxury brands such as Mercedes Benz, Bentley, BMW and now Maybach and Audiare steering into India.

Diversity and choice: The renaissance, so to say, in the automobile industry happened with thethrowing open of the sector to overseas manufacturers through the wholly-owned subsidiary route.The credit for expanding the car industry and discovering the market for small cars must go toMaruti Udyog (MUL), which launched its Maruti 800 almost 20 years ago. With the entry of multinational car manufacturers, particularly in the premium small car and mid-size sub-segments,the industry has acquired greater diversity and choice. It also enabled the building up of a strongmanufacturing base, which companies are now able to leverage for developing new products.

Small car to dominate: Interestingly, the still ubiquitous Maruti 800, the small car thatrevolutionised personal four-wheeled transportation in India, continues to be MUL's best-seller.And yet, it is being debated if it will be able to face the future. The segment will see more entrantsand a lot more technological inputs in future. As a result, the small car segment will also continueto witness an expansion in terms of price spreads and in terms of varied trim-level positioning.



Expansion in mid-size cars: There is the possibility of a similar market expansion in the mid-sizecar segment. Near rock-bottom interest rates for car financing and competitive market forces haveensured that the affordability factor for mid-size cars has dramatically increased.

For the first time, since the opening up of the car industry, sales of mid-size passenger cars have

crossed the one lakh mark this fiscal and are set to close the year at an all time high.

Contemporary features: The combined attractiveness of the small car and mid-size segments of the Indian car industry and the integration of Indian emission standards with globally acceptedemission norms are also leading to the infusion of new technologies. The initial spate of cars,especially in the small car segment, made radial tyres, air-conditioning, power steering and side-impact protection standard features today.

The car industry is foreseeing the possibility of emission and safety related features such as anti-lock braking systems, common rail injection, airbags and tiptronic transmission becoming standardfitment in most mid-size cars, and even some premium small cars, of the future. The new, highly

aware Indian car buyer is also likely to drive demand for new technologies.

Strength in parts: The entry of new technology and the increased focus on costs during the lastfew years amongst the existing manufacturers, who have developed a strong vendor base in India,has ensured that the component manufacturers have also had to retool their production capacitiesto match global quality standards.

A number of multinational component manufacturers such as Delphi, Visteon and JohnsonControls did set up base in India, but the need for global quality standards amongst the localvendors (then Tier II and Tier III suppliers) has enabled a number of Indian companies to becomeTier I suppliers. Some of them such as Bharat Forge and Sundram Fasteners are also aspiring to

become global players through acquisitions abroad.

Benefical fragmentation: With the entry of new manufacturers, the market is likely to becomeeven more fragmented. The car industry is, however, likely to benefit from this in the form of greater depth, diversity and increased market discovery. After all, not many of us knew that therewas such a large latent demand for small cars, until manufacturers such as Hyundai, Fiat andDaewoo came to India in the late 1990s.

And, as car sales near the magical one-million mark, for all those wondering where the roads are toaccommodate the explosion in car sales, you may take solace in the fact that the US too faced asimilar scenario, a few decades ago.



CONCLUSION

The market is growing at about 25% for the last three years. In the highly price sensitive market,reduction of prices because of lower duties and taxes and progressive indigenization, and rising

middle class incomes are likely to further increase industry growth rate. Penetration in rural and

semi urban areas is extremely low and could provide fresh markets. New entrants will have to deal

with uncertainty of demand, different and evolving customer needs, a relatively poor supplier base,

a market crowded with competition and industry wide capacity shortages. However, if there is a

shake out as many analysts expect, further opportunities for survivors will open up. Another

implication is that India could emerge as a significant manufacturing base for exports. The supplier

industry is also going through massive growth, although from a small initial base. Except for

Telco, product development capabilities are very low among established indigenous assemblers

and suppliers, and the industry has some way to go before it becomes world class.

Smgt Automobile Project)

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