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Automobile Industry is one of the largest industries in global market. Automobile
manufacture in India began with the establishment of two domestic firms in India in the late
1940s: Hindustan Motors Limited and Premier Automobiles Limited. Government banned
the entry of foreign auto manufacturers and brought the auto industry under a tight
licensing regime. The rate of customs duty levied on automobiles was 225%, and there were
also quantitative restrictions on imports. As a result, supply was limited to just two models:
the Ambassador, a medium sized car from Hindustan Motors and the Padmini, a small car
from Premier Automobiles, both produced under license from foreign manufacturers.
Present Scenario
Automobile sector contributes to 4% of the total GDP of India and generates over 2 lakh jobs. The
twin phenomena of low car
penetration & rising incomes,
when combined with
increasing affordability of cars,
are expected to contribute to
an increase in demand.
Presently there are 1.95 Mn
Passenger vehicles plying on
the Indian roads which are
expected to grow to 4.90 Mn till 2015 at a CAGR of 20% . More than three-fourth of the
market is in two-wheelers (See the pie chart). Global OEMs regard India as a sourcing hub
and intellectual pool, that is why an increasing number of R&D and engineering centers are
being established by them.
76%
16%
4% 4%
Domestic Sales Volumes: Percentage share of
Different Vehicle Categories in 2009-10
Two Wheelers
Passenger Vehicles
Commercial Vehicles
Three Wheelers
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Automobile Production Trends (Number of Vehicles)
Category 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Passenger
Vehicles989,560 1,209,876 1,309,300 1,545,223 1,777,583 1,838,593 2,351,240
Commercial
Vehicles275,040 353,703 391,083 519,982 549,006 416,870 566,608
Three
Wheelers356,223 374,445 434,423 556,126 500,660 497,020 619,093
Two
Wheelers5,622,741 6,529,829 7,608,697 8,466,666 8,026,681 8,419,792 10,512,889
GrandTotal
7,243,564 8,467,853 9,743,503 11,087,997 10,853,930 11,172,275 14,049,830
The Two-wheeler Automobiles:
Two-wheeler segment is one of the most important components of the automobile sector
which has been in existence in our country since the early 1950s.
The Indian two wheeler industry made a modest beginning in the early 1950 when
Automobile Product of India (API) started manufacturing scooter in India. Until 1958, API
and Enfield (motorcycle) were the only two producers.
In 1948, Bajaj auto began trading in imported Vespa scooter and the three wheeler. Finally,
in 1960s it set up its facility to manufacture them in technical collaboration with piggaio of
Italy. The agreement expired in 1971. In the initial stages, the scooters segment was in
regulated regime, foreign companies were not allowed to operate in India, and waiting time
for getting Bajaj scooters was as high as 12 years.
Currently India is the second largest two-wheeler market in the world, it stands next to
Japan and china in terms of number of two-wheelers produced and sold.
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Classification of Two-wheelers:
1.Motorcycle: Wheel size >12 inches 2.Scooter/Scooty: Wheel size less than or
equal to 12 inches
3.Mopeds: Engine capacity less than 75 ccwith fixed transmission, wheel size more
than 12
In India there are 7 scooters manufacturers, 9
motorcycle manufacturers and 3 mopeds
manufacturers and the entry level bikes (engine
2 lakh income group and this group is
expected to reach 268 Mn count by 2015, which shows the huge potential.
Major Players
Hero Honda: Largest Two-wheeler manufacturer in the
world.
Bajaj Auto: Second largest
Two-wheeler manufacturer in
India and the largest in 3
wheelers.
0%
10%
20%
30%
40%
50%
60%
70%
80%
80%
14%
6%
Hero Honda
Motors 42%
Bajaj Auto
Ltd. 27%
TVS Motor
Company
19%
Honda
Motors 9% Others 3%
Market Share of Two-Wheeler
Automobiles
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In India the Rules and Regulations related to driving license, registration of motor vehicles,
control of traffic, construction & maintenance of motor vehicles etc. are governed by the
Motor Vehicles Act 1988 (MVA) and the Central Motor Vehicles rules 1989 (CMVR). The
Ministry of Shipping, Road Transport & Highways (MoSRT&H) acts as a nodal agency for
formulation and implementation of various provisions of the Motor Vehicle Act and CMVR.
Ministry of Shipping,
Road Transport &
Highways
Standing Committee
on Implementation
of Emission
Legislation
CMVR - Technical
Standing Committee
Automotive Industry
Standards
Committee
Bureau of
Indian
Standards Other
Ministries
Ministry of
Environment
& Forests
Ministry of
Petroleum &
Natural Gas
Ministry of
Non-
ConventionalEnergy
Sources
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Customs Duty Norms
Custom Duties for Motorcycles (including mopeds) and cycles fitted with an auxiliary motor,
with or without side-cars, Tariff Item No. 87.11 are as listed below:
Sub
Heading
No
Description of article Rate of duty
8711.10 With reciprocating internal combustion pistons engine
of a cylinder capacity not exceeding 50 cc
100%
8711.20 With reciprocating internal combustion piston engine
of a cylinder capacity exceeding 50 cc but not
exceeding 250 cc
100%
8711.30 With reciprocating internal combustion piston engine
of a cylinder capacity exceeding 250 cc but not
exceeding 500 cc
100%
8711.40 With reciprocating internal combustion piston engine
of a cylinder capacity exceeding 500 cc but not
exceeding 800 cc
100%
8711.50 With reciprocating internal combustion piston engine
of a cylinder capacity exceeding 800 cc
100%
8711.90 Other 100%
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Excise Duty Norms
Excise Duty Norms for Motorcycles (including mopeds) and cycles fitted with an auxiliary
motor, with or without side-cars, Tariff Item No. 8711 are as listed below:
Tariff Item Description of goods Rate of
Duty(%)
8711 10 With reciprocating internal combustion piston engine of a
cylinder capacity not exceeding 50 cc:
10
8711 10 10 Mopeds 10
8711 10 20 Motorised cycles 10
8711 10 90 Other 10
8711 20 With reciprocating internal combustion piston engine of a
cylinder capacity exceeding 50 cc but not exceeding 250 cc:
10
Scooters
8711 20 11 Of cylinder capacity not exceeding 75 cc 10
8711 20 19 Other 10
Motor cycles:
8711 20 21 Of cylinder capacity not exceeding 75 cc 10
8711 20 29 Other 10
Mopeds
8711 20 31 Of Cylinder capacity not exceeding 75 cc 10
8711 20 39 Other 10
Other
8711 20 91 Of cylinder capacity not exceeding 75 cc 10
8711 20 99 Other 10
8711 30 With reciprocating internal combustion piston engine of a
cylinder capacity exceeding 250 cc but not exceeding 500 cc:
8711 30 10 Scooters 10
8711 30 20 Motor-cycles 10
8711 30 90 Other 10
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8711 40 With reciprocating internal combustion piston engine of a
cylinder capacity exceeding 500 cc but not exceeding 800 cc:
8711 40 10 Motor-cycles 10
8711 40 90 Other 10
8711 50 00 With reciprocating internal combustion piston engine of a
cylinder capacity exceeding 800 cc
10
8711 90 Other
8711 90 10 Side-cars 10
Other
8711 90 91 Electrically operated 4
8711 90 99 Other 10
Exports Trends
Automobile Exports Trends (No of Vehicles)
Category 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Passenger
Vehicles
129,291 166,402 175,572 198,452 218,401 335,729 446,146
Commercial
Vehicles
17,432 29,940 40,600 49,537 58,994 42,625 45,007
Three
Wheelers
68,144 66,795 76,881 143,896 141,225 148,066 173,282
Two
Wheelers
265,052 366,407 513,169 619,644 819,713 1,004,174 1,140,184
Grand Total 479,919 629,544 806,222 1,011,529 1,238,333 1,530,594 1,804,619
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PEST Analysis of Two-Wheeler Industry
Politico-Legal Aspects Tax policies, trade regulation, political influence and some of
the rules and regulation of government policies which is considered in political analysis.
The corrections in Excise duty on electric vehicles will enable the manufacturers to take
advantage of exemption of customs duty on Electric Vehicles. This would encourage
industry because the cost of the final product is going to be less for the customer, which will
ultimately lead to more sales.
Economic Aspects Economic factor are those which is influenced by economic growth,
interest rate, exchange rate and inflation rate.
Abundant and low cost labor coupled with local availability of raw material like steel,
aluminum and natural rubber has placed India amongst the low cost producing centers of
two-wheelers. Consequently, CARE Research anticipates buoyant growth in two-wheelers
exports as well. Abundance of low labor and raw material gives India an upper edge in the
export. Since many auto finance companies lay easy installment rules with less interest rate,
which makes more consumers to go for it.
Social Aspects Social aspects of two-wheelers industry are Popularity, Subculture,
Mobility and safety.
In numerous cultures, motorcycles are the primary means of motorized transport. India is
the second largest motorcycle markets in the world next to China. Socially many motor cycle
manufacturers raise money for charities through organized ride and events. Many people
ride motorcycle for various reasons, those reasons are increasingly practical, with riders
opting for a powered two-wheeler as a cost-efficient alternative to infrequent and
expensive public transport system, or as a means of avoiding or reducing the effect of urban
congestion. Motor-cycle gives a great advantage to the specified areas where other vehicles
cannot enter. Since there is a rule in certain states and cities in India to wear helmet while
riding two-wheelers to make them safe from accidents makes two-wheeler riders to have a
safe journey.
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Technical Aspects - Technical Aspects in Two-wheeler industry include technology,
manufacturing process, fuel economy, electric motorcycles, dynamics and accessories.
Manufacturing of two-wheelers includes steel, aluminum frame, telescopic forks and disc
brakes. Motorcycle is the best fuel economy mode of transport. Nowadays two-wheelers
have been designed to give more than 80km mileage per liter with low maintenance cost.
Invention of Electric motorcycle gives an added advantage since the two-wheeler users can
avoid using petrol. These vehicles also have no noise and smooth drive. Different types of
two-wheelers have different dynamics and these play a vital role in their performance. Since
sufficient bike accessories are easily available in almost every region, two-wheeler riders
have a privilege to change the used or damaged parts very easily.
Porters Five Force Analysis
Porters five forces Model of Competition are as follows:
Rivalry among competing sellersPotential new entrantsSubstitute productsCompetitive pressures from supplier - seller relations: Bargaining powerCompetitive pressures from seller buyer relations: Bargaining power
Rivalry: The key players in two-wheeler industries are Hero Honda motor ltd. (HHML), Bajaj
Auto ltd and TVS motor Company ltd. The other players are Kinetic, LML, Yamaha, Majestic
auto ltd, Royal Enfield ltd, Honda motorcycle & scooter India. Two-wheelers domestic
market for 2009-10 is 76.49% which is very high when compared to that of three wheelers,
Passenger and commercial vehicles. The standardized product used in manufacturing of
two-wheelers is steel, aluminum and rubber, because there are many industries in India for
manufacturing those standardized product the production is going smooth. Sales of two-
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wheelers are very high when compared to that of three wheelers, passenger and
commercial vehicles. Indian Auto policy 2002 gives added advantage to two-wheeler
manufacturers to enter even other countries outside India.
Potential New Entrants: Capital investment is very huge in two-wheeler industries since
large plant and large machineries needed with skilled labors and good R&D team needed for
producing two-wheelers. Since high technology and raw material resources are abundant to
produce the production cost is less in producing two-wheelers. Since each company in
industry change the models based on the on-going requirements to show differentiation
among their competitors, because of this there is more learning and experience in this field.
Each company in industry not only makes differentiation in their product strategy but also
makes differentiation in the promotional strategy to create brand preference and loyalty.
Because of low cost production, this industry enjoys good growth rate and profitability.
Substitute Product: Substitute products for two-wheeler industries are bus
transportation, Auto-Rickshaws and even low-end cars, but people using two-wheelers can
only use the service of buses and auto as a substitute product. Sometimes low-end car is a
substitute product for the people using high-end motor cycles. Buses are available from
normal buses to hi-tech AC buses which is threat to two-wheeler industry.
Since only two people can travel in a bike so most of them use auto-rickshaws when they go
out with their family and if they are affordable to buy car will use car instead of auto. Since
bus service has increased when compared to five years back people who are aged above 45
years use buses because of their health condition.
Supplier Seller Relations: Since the selling units are very high in two-wheeler industryand because of many competitors, suppliers are very high. As they change their models
frequently, so they can cultivate good relationship with the suppliers. Some of the
components in two-wheeler industry are very common for all the two-wheeler industries
like steel, aluminum, tyres and tubes, these are available in abundant. This makes them to
drive a smooth production of their finished products.
Seller Buyer Relations: Buyer has added advantage than seller because there are five
to six popular brands of two-wheelers available in India, so there are chances that the
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costumers can switch brand from one another. Since full information is available to the
buyers about the product details and their prices, buyers are fully aware of seller costs and
products. Buyers are very conscious in spending their money to purchase two-wheelers,
because it attracts most of the middle-income groups, so the sellers cannot price their
product very high. Nowadays people go to unique brand because of the good service they
provide after purchase. The location of the service center also plays an important role in the
decision-making process, its distance from the customers place and quality of service are
given considerable importance by them. These factors help in making good relationship with
the customers.