SVKMs NMIMS

School of Law, Mumbai

A Project Submitted
AUTOMOBILE SECTOR OF INDIA
In compliance to the partial fulfilment of the marking scheme, for
Trimester 4 of 2015-2016, in the subject of FINANCIAL MANAGEMENT
Submitted To
PROF. NAVEEN ROHATGI
for evaluation
Received by:
On date:
Time:

Submitted by:
Poonam Acharya (A010)
Ayushi Agrawal(A014)
Deepashikha Godbole(A029)
Apeksha Narula(A042)
Vidhi Agarwal(A073)

AUTOMOBILE SECTOR OF INDIA

Page 1

INDEX
SL.NO

CONTENT

PAGE NO.

1.

INTRODUCTION

2.

INDIAN AUTOMOBILE INDUSTRY BEFORE

LIBERALISATION POLICY OF 1991

3.

INDIAN AUTOMOBILE INDUSTRY AFTER

LIBERALISATION POLICY OF 1991

4.

EMERGING TRENDS IN INDIAN AUTOMOBILE

6-7

INDUSTRY
5.

MAJOR PLAYERS IN THE MARKET

8-12

6.

MARKET SIZE

13-14

7.

INVESTMENT

15-16

8.

GOVERNMENT INITIATIVES

17-19

9.

PERFORMANCE OF THE SECTOR

20-22

10.

GROWTH AND FUTURE PROSPECT OF THE

23-24

SECTOR
11.

SWOT ANALYSIS OF THE SECTOR

25-26

12.

CHALLENGES FACED BY THE SECTOR

27

13.

DEFUNCT AUTO MANUFACTURERS OF INDIA

28-29

14.

STATISTICS

30

15.

CASE STUDY

31-33

16.

CONCLUSION

34

AUTOMOBILE SECTOR OF INDIA

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INTRODUCTION
The Indian automotive industry has emerged as a 'sunrise sector' in the Indian
economy. India is emerging as one of the world's fastest growing passenger car
markets and second largest two wheeler manufacturer. It is also home for the
largest motor cycle manufacturer and fifth largest commercial vehicle
manufacturer. India is emerging as an export hub for sports utility vehicles
(SUVs). The global automobile majors are looking to leverage India's costcompetitive manufacturing practices and are assessing opportunities to export
SUVs to Europe, South Africa and Southeast Asia. India can emerge as a supply
hub to feed the world demand for SUVs. India also has the largest base to
export compact cars to Europe. Moreover, hybrid and electronic vehicles are
new developments on the automobile canvas and India is one of the key markets
for them. Global and Indian manufacturers are focussing their efforts to develop
innovative products, technologies and supply chains. The automotive plants of
global automakers in India rank among the top across the world in terms of the
productivity and quality. Top auto multinational companies (MNCs) like
Hyundai, Toyota and Suzuki rank their Indian production facilities right on top
of their global pecking order.
The Indian auto industry is one of the largest in the world with an annual
production of 21.48 million vehicles in FY 2013-14.
The automobile industry accounts for 22 per cent of the country's manufacturing
gross domestic product (GDP).
India is also a substantial auto exporter, with solid export growth expectations
for the near future. Various initiatives by the Government of India and the major
automobile players in the Indian market is expected to make India a leader in
the Two Wheeler and Four Wheeler market in the world by 2020.

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INDIAN AUTOMOBILE INDUSTRY BEFORE

LIBERALISATION POLICY OF 1991
However, growth was relatively slow in the 1950s and 1960s, due to
nationalisation and the license raj, which hampered the Indian private sector.
After 1970, with restrictions on the import of vehicles set, the automotive
industry started to grow; but the growth was mainly driven by tractors,
commercial vehicles and scooters. Cars were still a major luxury item. In the
1970s, price controls were finally lifted, inserting a competitive element into the
automobile market. However, by the 1980s, the automobile market was still
dominated by Hindustan and Premier, who sold superannuated products in
fairly limited numbers. During the eighties, a few competitors began to arrive
on the scene.
In 1986, to promote the auto industry, the government established the Delhi
Auto Expo. The 1986 Expo was a showcase for how the Indian automotive
industry was absorbing new technologies, promoting indigenous research and
development, and adapting these technologies for the rugged conditions of
India. The nine-day show was attended by then Prime Minister Rajiv Gandhi.

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INDIAN AUTOMOBILE INDUSTRY AFTER THE

LIBERLISATION POLICY OF 1991
The government of India has made some radical changes in its polices bearing
on trade, foreign investment, exchange rate, industry, fiscal affairs and so on.
Mass Emission Norms were introduced for in 1991 for Petrol Vehicles and in
1992 for Diesel Vehicles. In 1991 new Industrial Policy was announced. It was
the death of the License Raj and the Automobile Industry was allowed to
expand. Further tightening of Emission norms was done in 1996. In 1997
National Highway Policy has been announced which will have a positive impact
on the Automobile Industry. The Indian Automobile market in general and
Passenger Cars in particular have witnessed liberalization. Many multinationals
like Daewoo, Peugeot, General Motors, Mercedes-Benz, Honda, Hyundai,
Toyota, Mitsubishi, Suzuki, Volvo, Ford and Fiat entered the market. Various
companies are coming up with state-of-art models of vehicles. TELCO has
diversified in Passenger Car segment with Indica. Despite the adverse trend in
the growth of the industry, it is resolutely trying to meet the challenges. Various
issues of critical importance to the industry are being dealt with forcefully.
In 1999 The Honble Supreme Court passed an order directing all car
manufacturers to comply with Euro I emission norms (India 2000 norms) by the
1st of May 1999 in National Capital Region (NCR) of Delhi. The deadline was
later extended to 1st June 1999. The 90s have become the melting point for the
car industry in India. The consumer is king. He is being constantly wooed by
both the Indian and foreign manufacturers. Though sales had taken a dip in the
first few months of 1999, it is back to boom time. New models like Marutis
Classic, Alto, Station Wagon, Ford s Ikon and the new look Mitsubishi Lancer
have all been launched with an eye on the emerging market.

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EMERGING TRENDS IN INDIAN AUTOMOBILE

INDUSTRY
Globalization is pushing auto majors to consolidate, to upgrade technology,
enlarge product range, access new markets and cut costs. They have resorted to
common platforms, modular assemblies and systems integration of component
suppliers and ecommerce. The component industry is undergoing vertical
integration resulting into emergence of systems and assembly suppliers rather
than individual component suppliers. Thus, while most component suppliers are
integrating into tier 2 and tier 3 suppliers, larger manufacturers and
multinational corporations (MNCs) are being transformed into tier 1 companies.
Environmental and safety concerns are leading to higher safety and emission
norms in the country. India has already charted out a road-map for reaching
EURO-II norms across the country by the year 2005. Seven metropolitan cities
of India would simultaneously move to EURO-III norms in 2005. Most vehicle
manufacturers are already producing EURO-II compliant vehicles in the
country to meet special requirements of capital city of New Delhi where the
Supreme Court verdict has already necessitated this.
To meet the concomitant testing and certification activities relating to higher
safety and emission norms, testing infrastructure in the country is being
overhauled. A substantive state funding is being planned in upgrading the
testing infrastructure with participation of industry. Environmental pollution
and the need to conserve existing supply of fossil fuels have led to search for
alternative fuels. In addition to supporting Greenfield research in this area, an
ambitious phased programme to upgrade carbon fuel quality commensurate
with higher emission norms is also being undertaken. Foreign direct investment
norms have already been considerably relaxed. Unhindered import of
automobiles, including new and second hand vehicles, has also been permitted.
AUTOMOBILE SECTOR OF INDIA

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Most non-tariff barriers have also been relaxed or removed. The Government
has moderated and lowered taxes and duties on automobiles, including customs
duty. Value Added Tax (VAT) is also proposed to be introduced across the
country from 1 April 2001. The Government has also allowed private sector
participation in the insurance sector. Norms guiding external commercial
borrowings (ECBs) have been liberalized and lending rates within the country
have also been reduced further strengthening the environment of investment. An
ambitious programme to upgrade the quadrilateral of highways in the country,
the Government is laying an eight lane expressway linking all metropolitan and
several important capital towns across the country paving the way for
movement of heavier haulage vehicles.

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MAJOR PLAYERS IN THE MARKET

Hero Honda is the largest two-wheeler manufacturer in the world. Bajaj Auto is
the second-largest two-wheeler manufacturer and largest three wheeler
manufacturer in India. TVS Motor Co. the third largest two wheeler
manufacturer in India; has established a manufacturing facility in Indonesia.
Honda Motorcycle & Scooter India (Pvt) Ltd (HMSIL) has recently entered the
Indian market through its own subsidiary (in addition to its joint venture Hero
Honda). Suzuki Motorcycle India P. Ltd. The Company started its India
operations in February 2006 through this fully-owned subsidiary.
The top ten major player in the automobile industry are discussed below:
1. TATA MOTORS:
Tata Motors is the largest automobile company of Asia headquartered in
Mumbai, India. Annual Projected revenue for 2010-11 is US$ 27.629 billion. It
also occupies the number one position in commercial car segment. Tata Motors
enjoys 31.2% of market share in the multi-utility vehicles, which in luxury car
segment, it has 6.4% market share. Most of the Tata Motors' vehicles are sold
predominantly in India and over 4 million vehicles have been produced
domestically within India.
Tata sold 52,531 units of vehicles during September 2009, comparing to 49,647
units during September 2008 (a growth of 6%). In domestic market, Tata
Motors sold 49,650 units during the same period, comparing to 45,234 units in
September 2008.

2. MARUTI SUZUKI INDIA LIMITED:

Maruti Suzuki India is an undisputed leader in the Indian automobile industry.
Started its journey in February 1981 as Maruti Udyog Limited, the company
created history in the Indian automobile market with its hugely popular fourAUTOMOBILE SECTOR OF INDIA

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wheeler model Maruti 800. The company became the first Indian automobile
company to manufacture one million vehicles in 1994. The company became
Maruti Suzuki India Limited on September 17, 2007.
Maruti's average revenue for the year ending 2010-11 is US$7.13 billion.
Maruti sold 83,306 units of vehicles in September 2009, comparing to 71,000
units in the same month in the previous year (with a growth rate of 17.3%). It
also exported 11,712 units during September 2009, comparing to 6,318 units in
the same month in the previous year (with a growth rate of 85.4%).

3. HYUNDAI MOTORS INDIA LIMITED:

Hyundai Motor India Limited, founded in 1998 and a subsidiary of Korean auto
giant Hyundai Motor Company, is the second largest car manufacturer in India.
It is also country's largest passenger car exporter. Hyundai Motor came very
close to the hearts of the Indian auto lovers through its flagship model Santro.
After the recession, Hyundai Motor saw a growth rate of 25% in the domestic
market. During September 2009, HMIL sold 53,804 units, comparing to 46,218
units during September 2008. In the domestic market, it sold 27,803 units in
September 2009, comparing to 22,311 during September 2008. The overseas
sales during the same period also grew up 9% as it sold 26,001 units in
September 2009, comparing to 23,907 units during the same month in the
previous year.

4. MAHINDRA AND MAHINDRA LIMITED:

Mahindra &Mahindra Limited is another auto-giant in India. A part of the
Mahindra Group, M&M is the largest SUV maker in the country. In September
2009, M&M registered a domestic sale of record 26,921 units, comparing to
22,729 units in September 2008 (with an increase of 18.4%). On the other hand,
it sold 15,296 units of UV in the same period comparing to 10,641 units in
September 2008 (with a whooping growth of 43.7%).
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5. GENERAL MOTORS INDIA PRIVATE LIMITED:

General Motors India Private Limited is another top player in Indian automobile
industry. A wholly-owned subsidiary of the auto giant General Motors, GM
India saw a Y-o-Y sales growth of 49% in September 2009 with a sale of 7,654
units, comparing to 5,154 units in September 2008.

6. HERO MOTOCORP LIMITED:

In 2010, When Honda decided to move out of the joint venture, Hero Group
bought the shares held by Honda. Subsequently, in August 2011 the company
was renamed Hero MotoCorp with a new corporate identity.
Hero Honda Motors Limited, the joint venture between Hero Group and Honda,
was the biggest two-wheeler manufacturers in the world. It shook the Indian
two-wheeler market with its famous model Hero Honda Splendor, which
became the largest selling motorcycle in the world. It consistently sold more
than 1 million units of Splendors every year.
In 2008-09, Hero Honda sold about 3.28 million bikes and registered a net
profit of ` 1281.7 crore. It sold 4,01,290 units of two-wheeler in September
2009, comparing to 3,85,262 in September 2008. It already sold 11,83,235 units
of two-wheelers in Q2 of FY10 with a growth rate of 21.7% against the
corresponding period of the previous year.

7. BAJAJ AUTO:
Bajaj Auto is the second largest two-wheeler manufacturer in India. It is also the
fourth largest two and three-wheeler maker in the world. In September 2009,
Bajaj Auto sold 249,795 units of two-wheelers, comparing to 218,494 units in
September 2008 (with a growth rate of 14.3%). During September 2009, it also
registered a growth of 12.4% in the domestic two-wheeler sales and 19.9% in
two-wheeler export.

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8. HONDA CARS INDIA LIMITED:

Honda Siel Cars India Limited, a joint venture between the Japanese auto giant
Honda Motor Company Limited and the Indian company Siel Limited, started
its operation in December 1995. In September 2009, HSCI sold 5,794 units,
comparing to 3,104 units in September 2008 (with a growth rate of 86.7%).
9. TOYOTA KIRLOSKAR MOTOR PRIVATE LIMITED:
Toyota Kirloskar Motor Private Limited is another top Indian automobile
company. A joint venture between the Japanese auto giant Toyota Motor
Corporation and Kirloskar Group, TKM has a number of car models including
Innova, Corolla, Fortuner, Camry and the Land Cruiser Prado. It sold 7,657
units in December 2009.

10. HINDUSTAN MOTORS:

Hindustan Motors is another top automobile company in India. It was once
country's largest car manufacturer before Maruti Udyog overpowered it. Its
popular model 'Ambassador' has been extensively used as government
limousine as well as taxi cab in India.
There are many foreign investors in this sector. Namely:
1. Suzuki (Japan)
2. Nissan (Japan)
3. Piaggio (Italy)
4. Volkswagen (Germany)
5. Renault (France)
6. Hyundai (South Korea)
7. General Motors (USA)
8. BMW (Germany)
9. Ford (USA)
10.Toyota (Japan)

AUTOMOBILE SECTOR OF INDIA

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Companies
Ashok Leyland
Asian Motor Works
Bajaj Auto
BMW India
Daimler Chrysler India
Eicher Motors
Fiat India
Force Motors
Ford India
General Motors India
Hero Honda Motors
Hindustan Motors
Honda
Hyundai Motors
Kinetic Motor
Mahindra & Mahindra
Maruti Suzuki
Piaggio
Royal Enfield Motors
Skoda Auto India
Suzuki Motorcycles
Swaraj Mazda Ltd
Tata Motors Cars
Toyota Kirloskar
TVS Motor Co
Volvo India
Volkswagen India
Yamaha Motor India

AUTOMOBILE SECTOR OF INDIA

Segments

LCVs, M&HCVs, buses

M & HCVs
Two and three wheelers
Cars and MUVs
Cars
LCVs, M & HCVs
Cars
MUVs and LCVs
Cars and MUVs
Cars & MUVs
Two wheelers
Cars, MUVs and LCVs
Two wheelers, cars and MUVs
Cars and MUVs
Two wheelers
Three wheelers, cars, MUVs, LCVs
Cars, MUVs, MPVs
Three wheelers, LCVs
Two wheelers
Cars
Two wheelers
LCVs, M & HCVSs, buses
MUVs, LCVs, M&HCVs, buses
Cars, MUVs
Two wheelers
M & HCVs, buses
Cars
Two wheelers

Page 12

MARKET SIZE
Sales of commercial vehicles in India grew 5.3 per cent to 52,481 units in
January 2015 from a year ago, according to Society of Indian Automobile
Manufacturers (SIAM).
Sales of cars also grew for a third month in a row to 169,300 units in
January 2015, up 3.14 per cent from the year-ago period.
Car market leader Maruti Suzuki India witnessed 8.6 per cent higher sales
at approximately 118,551 units in February 2015, out of which 107,892
were sold in domestic market and 10,659 units were exported.
Hyundai Motor India Ltd (HMIL) reported a 2.4 per cent growth in total
sales at 47,612 units in February, compared with 46,505 units in the same
month last year.
In the two-wheeler segment, Hero MotoCorp witnessed sales of 484,769
units in February 2015.
TVS Motor Co posted 15 per cent higher sales at 204,565 units against
177,662 units.
Bajaj Auto sold a total of 243,000 two and three-wheelers segment.

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AUTOMOBILE SECTOR OF INDIA

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INVESTMENT
To match production with demand, many auto makers have started to invest
heavily in various segments in the industry in the last few months. The industry
has attracted foreign direct investment (FDI) worth US$ 12,232.06 million
during the period April 2000 to February 2015, according to the data released
by Department of Industrial Policy and Promotion (DIPP).
Some of the major investments and developments in the automobile sector in
India are as follows:
DSK Hyosung has announced to set up a plant in Maharashtra and is planning
to add 10-15 dealerships in the next financial year (FY 15-16) mostly in
the tier-II cities and introduce more models in the 250cc segment.
Germany-based luxury car maker Bayerische Motoren Werke AGs (BMW)
local unit has announced to procure components from seven India-based
auto parts makers.
Mahindra Two Wheelers Limited (MTWL) has acquired 51 per cent shares in
France-based Peugeot Motocycles (PMTC).
Suzuki Motor Corp is planning to sell the automobiles made in the Gujarat
plant, in Africa.
Tata Motors Ltd, Indias largest automobile maker, will sell trucks in
Malaysia, Vietnam and Australia to strengthen its presence in the AsiaPacific region.

AUTOMOBILE SECTOR OF INDIA

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Reasons to Invest:
1. By 2015, India is expected to be the fourth largest automotive market by
volume in the world.
2. Over the next 20 years, India will be a part of the big global automotive
triumvirate.
3. Tractor sales in the country are expected to grow at CAGR of 8-9% in the
next five years, upping Indias market potential for international brands.
4. Two-wheeler production has grown from 8.5 Million units annually to
15.9 Million units in the last seven years. Significant opportunities exist
in rural markets.
5. Indias car market has the potential to grow to 6+ Millions units annually
by 2020.
6. The emergence of large automotive clusters in the country: DelhiGurgaon-Faridabad in the north, Mumbai-Pune-Nashik- Aurangabad in
the west, Chennai-Bengaluru-Hosur in the south and Jamshedpur-Kolkata
in the east.

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GOVERNMENT INITIATIVE
The Government of India encourages foreign investment in the automobile
sector and allows 100 per cent FDI under the automatic route. Excise duty on
small cars, scooters, motorcycles and commercial vehicles was reduced in
February last year to 8 per cent from 12 per cent to boost the Make in India
initiative of the Indian government.
Some of the major initiatives taken by the Government of India are:
Under the Union budget of 2015-16, the Government has announced to
provide credit of Rs 850,000 to farmers, which is expected to boost the
tractors segment. The government is aligning to ensure that at least one
family member is economically strong to support the family. This is
expected to improve the sentiments of entry-level two-wheelers.
The Government plans to promote eco-friendly cars in the country i.e. CNG
based vehicle, hybrid vehicle, and electric vehicle and also made
mandatory of 5 per cent ethanol blending in petrol.
The government has formulated a Scheme for Faster Adoption and
Manufacturing of Electric and Hybrid Vehicles in India, under the
National Electric Mobility Mission 2020 to encourage the progressive
induction of reliable, affordable and efficient electric and hybrid vehicles
in the country.
The Automobile Mission Plan for the period 20062016, designed by the
government is aimed at accelerating and sustaining growth in this sector.
Also, the well-established Regulatory Framework under the Ministry of
Shipping, Road Transport and Highways, plays a part in providing a
boost to this sector.

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Road Ahead:
India is probably the most competitive country in the world for the automotive
industry. It does not cover 100 per cent of technology or components required to
make a car but it is giving a good 97 per cent, highlighted Mr Vicent Cobee,
Corporate Vice-President, Nissan Motors Datsun.
The vision of AMP 2006-2016 sees India, to emerge as the destination of
choice in the world for design and manufacture of automobiles and auto
components with output reaching a level of US$ 145 billion; accounting for
more than 10 per cent of the GDP and providing additional employment to 25
million people by 2016.
The Japanese auto maker Maruti Suzuki expects the Indian passenger car
market to reach four million units by 2020, up from 1.8 million units in 201314.
Market break up by production volume
1. Two wheelers dominate production volumes; in FY15, the segment
accounted for about 79.40 per cent of the total automotive production in the
country
2. India is the worlds second-largest two wheeler manufacturer and fourthlargest producer of commercial vehicles
3. A unique feature of Indian auto sector is the presence of three wheelers which
are a form of public transportation equivalent to taxis

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AUTOMOBILE SECTOR OF INDIA

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PERFORMANCE OF THE SECTOR

Domestic vehicle sales of Indian Automobile industry has been growing at
CAGR of ~9.6% over the period of FY05-FY15 while exports have grown
at a CAGR of ~18.9%. However, post the three consecutive years of strong
double digit growth during FY10-FY12, the industry is struggling to reach even
a low double digit growth rate. During FY13-FY15, domestic sales grew at a
CAGR of just ~4.4% which was mainly driven by ~7.2% YoY growth in FY15.
This weakness in demand for automobile vehicle in domestic market was
mainly due to sluggish economic growth with subdued consumer sentiment due
to rising interest rate and fuel prices.

Domestic Passenger Vehicle Sales Reminded Volatile During FY15

Domestic Passenger vehicle sales remained volatile during FY15 where
passenger car segment grew by 4.8% YoY whereas Utility vehicle sales grew
by 5.3% YoY. Growth in Passenger car sales in H2FY15 was marginally higher
than in the first half. However, in Utility vehicle segment, growth dipped
sharply in H2FY15 compare to H1FY15 due to high base effect and few new
product launches. During the year within domestic passenger car segment,
Maruti Suzukis passenger car sales grew higher than industry growth rate and
thereby gaining market share. Total passenger car sales for the company grew
by about 9% YoY. In Utility vehicle (UV) segment, Mahindra and Mahindra
(M&M) retained its leadership position. However, due to absence in compact
UV segment, M&M is losing its market share in the overall UV segment.
Vehicle Export Up by 15%
In April-March 2015 overall auto exports have also risen 14.89 percent with
PVs, CVs, three-wheelers and two-wheelers up 4.42 percent, 11.33 percent,
15.44 percent and 17.93 percent respectively. This performance is much higher
than the shipments in FY2013-14 where overall growth was 7.21 percent.
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Key Factors To Impact The Volume Of Growth in FY16

Series of new launches to boost volume growth:
In FY15, many Original Equipment Manufacturing (OEM) companies like Baja
Auto and Mahindra and Mahindra have faced slowdown in their volume growth
mainly due to lack of new launches. However, according to several media
reports and interactions with the company management, FY16 is expected to be
full of new model launches and variants of existing models. This is with the
view of increasing the volume growth of the company. The management of
Mahindra and Mahindra has indicated that the company would have three new
launches. Likewise, Bajaj Auto has also started launches variation of its Pulsar
brand in premium segment.

AUTOMOBILE SECTOR OF INDIA

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GROWTH AND FUTURE OF PROSPECT OF THE

SECTOR
India has seen a lot of automotive sector interest in recent years. It is a market
with a huge potential for growth, but a China-like market surge is not expected.
Indeed, the economic crisis of 2013 and subsequent slowdown has hurt the
automotive industry, which has also been dragged down by slower economic
growth, inflation, high interest rates and expensive fuel. Almost 3 million cars
were sold in India in 2013. So far this year the market is down 3 per cent
compared with June 2013, according to LMC Automotive, a leading provider of
automotive production, sales and powertrain forecasts and automotive industry
market intelligence.
However, stronger sales over the past few months have caused renewed
optimism. India is also a substantial auto exporter, with solid export growth
expectations for the near future. Looking at the facts, there are ample reasons to
be optimistic about the automotive industrys future in India.
In April, Narenda Modis conservative Bharatiya Janata Party won Indias
national election. Analysts believe this will contribute to a renewed focus on the
Indian auto industry. The country, called the worlds largest democracy, is also
forecasted to see significant GDP growth from 2014 to 2020, while the young
and growing population can expect steadily increasing standards of living.
Many of the countrys citizens have become members of the rising middle class,
which allows them to increasingly afford luxury goods, such as cars.
There are several reasons to expect the export of cars out of India to increase.
The countrys geographical position, low wages and skilled workforce make it
an ideal location for manufactures to set up production for both domestic sales
and export. Some of the largest manufacturers currently doing this are Ford,
AUTOMOBILE SECTOR OF INDIA

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Hyundai, Nissan and Suzuki. Global information company IHS Automotive

forecasts exports to increase from 440,000 units in 2013 to 530,000 units in
2020. Continued weakness in the domestic market could contribute to seeing
these forecasts increase as local manufacturers look for other markets to serve.
The long-term prospects for India remain promising. Given the size of India's
population and future economic growth, incomes will most likely rise. If history
is any indicator, a rising urban middle-class will be drawn to car ownership.
IHS Automotive forecasts that India's light vehicle market will grow to 5.4
million units by 2020, close to doubling in a little more than five years. Surely,
that will be an exciting ride.

AUTOMOBILE SECTOR OF INDIA

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SWOT ANALYSIS OF THE SECTOR

1. STRENGTH:
i.

Domestic market is large

ii.

Government provides monetary assistance to manufacturing units

iii.

Reduced labour cost

2. WEAKNESS:
i.

Infrastructural drawback

ii.

Low productivity

iii.

Too many taxes levied by government increases the cost of

production

iv.

Low investment in Research and Development

3. OPPORTUNITY:
i.

Reduction in excise duty

ii.

Rural demand is rising

4. THREATS:
i.

Increasing rates of interest

ii.

Too much competition

iii.

Rising cost of raw material

AUTOMOBILE SECTOR OF INDIA

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AUTOMOBILE SECTOR OF INDIA

Page 25

CHALLENGES FACED BY THE SECTOR

1. Increase in price of raw material:
Steel is a major input used when manufacturing a motor vehicle. Rises in the
price of steel puts cost pressures on manufacturers, which often leads to a fall in
profitability. Over the past five years, the price of steel has been rising rapidly.
These rises in price eventually pass from the manufacturers to the end
customers.
2. Tariff Rates:
High taffies may restrict flow of trade but may attract investment if domestic
market is big enough and growing. Over the last few years India s tariff policies
and conditions of import of vehicles have served the purpose of attracting
investments. Industry is keen that the existing tariff structure roadmap and
conditions of import of vehicles are retained without any modifications because
of certain systematic deficiencies which make manufacturing less cost
competitive in India as compared to some of the neighbouring countries like
China, Thailand, Indonesia, etc.
3. Price of Crude Oil:
The hike or the effect of increasing prices of crude oil at world level per barrel
will affect the market scenario of the Automobile industry adversely. The price
of oil and petrol affect the driving habits of consumers and the type of car they
buy. Over the past five years, the price of petrol has been influenced the buying
decision of motorists, who are switching more to fuel efficient options. These
include cars that run on liquefied petroleum gas (LPG), CNG etc., diesel and
small cars that achieve better mileage. The trucking sector has also been
struggling with the rise in the price of fuel, which has put enormous pressures
on their costs.

AUTOMOBILE SECTOR OF INDIA

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DEFUNCT MOTOR VEHICLE MANUFACTURERS OF

INDIA

Automobile Products of India or API:

Founded in 1949 at Bombay (now Mumbai), by the British company Rootes

Group and later bought over by M. A. Chidambaram of the MAC Group from
Madras (now Chennai). The company manufactured Lambretta scooters, API
Three Wheelers under licence from Innocenti of Italy and Automobile
ancillaries, notably Clutch and Braking systems. API's registered offices were
earlier in Mumbai, later shifted to Chennai, in Tamil Nadu. The manufacturing
facilities were located in Mumbai and Aurangabad in Maharashtra and in
Ambattur, Chennai.[206] The company has not been operational since 2002.

Escorts Yamaha:

Founded in 1984 Escorts formed a joint venture with Yamaha to manufacture

motorcycles. In 2008 became India Yamaha Motor.

Hero Motors:

It was a former moped and scooter manufacturer based in Delhi, India. It is a

part of multinational company Hero Group, which also currently owns Hero
Motocorp (formerly Hero Honda) and Hero Cycles, among others. Hero Motors
was started in the 1960s to manufacture 50 cc two-stroke mopeds but gradually
diversified into making larger mopeds, mokicks and scooters in the 1980s and
the 1990s. Noteworthy collaborators and technical partners were Puch of
Austria and Malaguti of Italy. Due to tightening emission regulations and poor
sales, Hero motors have discontinued the manufacture of all gasoline powered
vehicles and transformed itself into an electric two-wheeler and auto parts
manufacturer.
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Kinetic Honda:

A joint venture between Kinetic Engineering Limited, India and Honda Motor
Company, Japan. The JV operated during 1984 - 1998, manufacturing 2-stroke
scooters in India. In 1998, the joint venture was terminated after which Kinetic
Engineering continued to sell the models under the brand name Kinetic until
2008[207] when the interests were sold to Mahindra.
Standard-Triumph:
Standard Motor Products of India Ltd. (SMPI) was incorporated in 1948 and
their first product was the Vanguard, which began to be assembled in 1949. The
company was dissolved in 2006 and the old plant torn down.

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STATISTICS

Domestic Market Share 2013-14:

1. Passenger Vehicles 13.59%.
2. Commercial Vehicles 3.44%.
3. Three-wheelers 2.60%.
4. Two-wheelers 80.37%.
The industry currently accounts for almost 7% of the countrys GDP and
employs about 19 Million people both directly and indirectly.

India is currently the seventh-largest producer in the world with an average

annual production of 17.5 Million vehicles, of which 2.3 Million are exported.

The Indian automobile market is estimated to become the 3rdlargest in the

world by 2016 and will account for more than 5% of global vehicle sales.

India is the second-largest two-wheeler manufacturer, the largest motorcycle

manufacturer and the fifth largest commercial vehicle manufacturer in the
world.

The total turnover in 2010-11 was USD 58.5 Billion, turnover by 2016 is slated
to be USD 145 Billion.

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CASE STUDY
MERGER OF MAN SCANIA AND VOLKSWAGEN:
Due to complexity of the truck and bus business it needs to continuously focus
on its core. To compete with the Daimler and Volvo, VW created this merger
concept by putting together business of same nature to get better results. As a
part of VW strategy, first Volkswagen latin American became part of MAN SE
business unit and then VW increased majority stake Scania. MAN is mainly
focusing to save some cost in purchasing and R&D. there should be some
effective coordination between MAN and SCANIA in the area of sales and
product concept to. Parts and platform should be common for all three product
base. VW, MAN and SCANIA should redefine there strategy map to get better
results through its cooperation.
Volvo is reducing cost to increase its profit by putting multiple efforts in
production and organisation structure. Its production cost also needs to be
managed effectively. Daimler is focusing on synergy amount among all brands
to reduce cost. MAN, SCANIA and VW CV expected to reduce cost by
merging of entities.
MERGER OF TATA MOTORS AND LAND ROVER AND JAGUAR:
Ford accepts an offer by the rapidly expanding Tata Motors of India for the
purchase of Land Rover and Jaguar. In the US, General Motors
announces annual losses for 2007 of $39 billion -the largest ever loss by a US
car manufacturer and a further sign that many of the older established
car makers are struggling to compete with the surge of production from Asia.
Jaguar Land Rover has been acquired at a cost of $2.3 billion on a cash-free,
debt-free basis. The purchase consideration includes the ownership by Jaguar
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and Land Rover, or perpetual royalty-free licences of all necessary intellectual

property rights, manufacturing plants, two advanced design centres in the UK,
and a worldwide network of national sales companies.
Long-term agreements have been entered into for supply of engines, stampings
and other components to Jaguar Land Rover. Other areas of transition support
from Ford include IT, accounting and access to test facilities. The two
companies will continue to cooperate in areas such as design and development
through sharing of platforms and joint development of hybrid technologies and
powertrain engineering. The Ford Motor Credit Company will continue to
provide financing for Jaguar Land Rover dealers and customers for a transition
period. Tata Motors is in an advanced stage of negotiations with leading auto
finance providers to support the Jaguar Land Rover business in the UK, Europe
and the US, and is expected to select financial services partners shortly.
DEMERGER OF HERO AND HONDA:
In December 2010, the board of directors of the Hero Honda Group had decided
to terminate the joint venture between Hero Group of India and Honda of Japan
in a phased manner. The Hero Group would buy out the 26% stake of the Honda
in JV Hero Honda.

Under the joint venture Hero Group could not export to international markets
(except Sri Lanka and Nepal) and the termination would mean that Hero Group
can now export. Since the beginning, the Hero Group relied on their Japanese
partner Honda for the technology in their bikes. So there are concerns that the
Hero Group might not be able to sustain the performance of the joint venture
alone.
The Japanese auto major will exit the joint venture through a series of off
market transactions by giving the Munjal familythat held a 26% stake in the
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companyan additional 26%. Honda, which also has an independent fully

owned two wheeler subsidiaryHonda Motorcycle and Scooter India
(HMSI)will exit Hero Honda at a discount and get over $1 billion for its
stake. The discount will be between 30% and 50% to the current value of
Honda's stake as per the price of the stock after the market closed on
Wednesday.
The rising differences between the two partners gradually emerged as an
irritant. Differences had been brewing for a few years before the split over a
variety of issues, ranging from Honda's reluctance to fully and freely share
technology with Hero (despite a 10-year technology tie-up that expires in 2014)
as well as Indian partner's uneasiness over high royalty pay outs to the Japanese
company. Another major irritant for Honda was the refusal of Hero Honda
(mainly managed by the Munjal family) to merge the company's spare parts
business with Honda's new fully owned subsidiary Honda Motorcycle and
Scooter India (HMSI).
As per the arrangement, it will be a two-leg deal. In the first part, the Munjal
family, led by Brijmohan Lal Munjal group, will form an overseas-incorporated
special purpose vehicle (SPV) to buy out Honda's entire stake, which will be
backed by bridge loans. This SPV would eventually be thrown open for private
equity participation and those in the fray include Warburg Pincus, Kohlberg
Kravis Roberts (KKR), TPG, Bain Capital, and Carlyle Group.
Honda will continue to provide technology to Hero Honda motorbikes until
2014 for existing as well as future models.

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CONCLUSION
Easier and faster mobility of people and goods across the regions, countries and
continents is a cherished yearning of mankind. The automobile industry s
potential for facilitating this mobility is enormous. Wheels of development
across the globe would have to be powered by this industry. However, a
seamless development of this industry across countries and continents alone will
help in realization of this objective. For such seamless and barrier-free
development of the sector, countries will have to come together and develop
better understanding. Industry across countries will have to meet challenges of
newer technologies, alternative fuels and affordability of automobiles by people
at large through constructive cooperation. The industry has recorded
phenomenon growth during the last decade. A market trend is growing at a
faster rate. The opening of the Indian automobile market for foreign companies
the competition is expected to enhance further. The opportunities can be
grabbed through the diversification of export basket in untouched foreign
destinations. Thus strict quality standards, services and use of latest technology
can provide an edge over competitors across the globe.

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