Indian Automobile Sector - A Booming Market De-licensing in 1991 has put the Indian automobile industry on a new growth

track, attracting foreign auto giants to set up their production facilities in the country to take advantage of various benefits it offers. This took the Indian automobile production from 5.3 Million Units in 2001-02 to 10.8 Million Units in 2007-08. The other reasons attracting global auto manufacturers to India are the countrys large middle class population, growing earning power, strong technological capability and availability of trained manpower at competitive prices. These are the major findings of our new report, "Indian Automobile Sector - A Booming Market In 2006-07, the Indian automotive industry provided direct employment to more than 300,000 people, exported auto component worth around US$ 2.87 Billion, and contributed 5% to the GDP. Due to this large contribution of the industry in the national economy, the Indian government lifted the requirement of forging joint ventures for foreign companies, which attracted global to the Indian market to establish their plants, resulting in heightened automobile production. The Indian automobile market is currently dominated by two-wheeler segment but in future, the demand for passenger cars and commercial vehicles will increase with industrial development. Also, as India has low vehicle presence (with passenger car stock of only around 11 per 1,000 population in 2008), it possesses substantial potential for growth.

Porter's Five Forces Analysis - Indian Automobile Industry A Porter's Five Forces Analysis explores five principal industry factors to determine the attractive of a given industry in a given market. In this P5F exercise, we look at the automobile industry in India. This is independent of any manufacturer. As such, it applies to every Indian car manufacturer. In any P5F analysis, one must examine the following: 1.The threat of new entrants 2. The bargaining power of buyers/customers 3. The threat of substitute products 4. The amount of bargaining power suppliers have 5. The amount of rivalry among competitors

1. The threat of new entrants In most markets, the capital and expertise needed to setup an auto or parts manufacturing facility, would be a great enough barrier to entry to prevent many new entrants from setting up. However, given India's incredible growth forecasts, infrastructure progress (especially new and better roads), and ever-expanding financing options to rural residents, the market is attractive. As such, we expect the threat of new entrants to be high. Result: Unfavorable 2. The bargaining power of buyers/customers Buyers in India have a wide variety of choice. There are more than 20 foreign manufacturers selling in India (including ultra high-end such as Rolls-Royce and Lamborghini). Of course there are also a plethora of incredibly cheap choices, like the famous Tata Nano. Result: Unfavorable 3. The threat of substitute products India is famous for its two-wheelers (bikes and mopeds) and three-wheelers. These are very real and obvious threats to auto manufacturers. Result: Unfavorable 4. The amount of bargaining power suppliers have It is likely that the suppliers to the manufacturers have considerable bargaining power. They are not held ransom by one single manufacturer as they can market their products to any of the others in India. Result: Unfavorable 5. The amount of rivalry among competitors High. The industry is not yet in its shake-out phase and is still struggling to find the up-andcoming stars and possibly topple the leaders.

Industrial Life Cycle The industrial life cycle is a term used for classifying industry vitality over time. Industry life cycle classification generally groups industries into one of four stages: pioneer, growth, maturity and decline.In the pioneer phase, the product has not been widely accepted or adopted. Business strategies are developing, and there is high risk of failure. However, successful companies can grow at extraordinary rates. The Indian automobile sector has passed this stage quite successfully.In the growth phase, the product market has been established and there is at least some historical guide to ground demand estimates. The industry is growing rapidly, often at an accelerating rate of sales and earnings growth. Indian Automotive Industry is booming with a growth rate of around 15 % annually. The cumulative growth of the Passenger Vehicles segment during April 2007 March 2008 was 12.17 percent. Passenger Cars grew by 11.79 percent, Utility Vehicles by 10.57 percent and Multi Purpose Vehicles by 21.39 percent in this period. The Commercial Vehicles segment grew marginally at 4.07 percent. While Medium & Heavy Commercial Vehicles declined by 1.66 percent, Light Commercial Vehicles recorded a growth of 12.29 percent. Three Wheelers sales fell by 9.71 percent with sales of Goods Carriers declining drastically by 20.49 percent and Passenger Carriers declined by 2.13 percent during April- March 2008 compared to the last year. Two Wheelers registered a negative growth rate of 7.92 % during this period, with motorcycles and electric two wheelers segments declining by 11.90 percent and 44.93% respect. However, Scooters and Mopeds segment grew by 11.64% and 16.63% respect. The growth rate of the automobile industry in India is greater than the GDP growth rate of the economy, so the automobile sector can be very well be said to be in the growth phase. As the product matures, growth slows as penetration reaches practical limits. Companies began to focus on market share rather than growth. Industry demand tends to follow the overall economy, but the scope of growth of the automobile sector is very much possible in India due to the increasing income of the middle class and their income as well as standard of living.

SWOT Analysis Strengths Large domestic market Sustainable labor cost advantage Competitive auto component vendor base Government incentives for manufacturing plants Strong engineering skills in design etc

Weaknesses Low labor productivity High interest costs and high overheads make the production Various forms of taxes push up the cost of production Low investment in Research and Development Infrastructure bottleneck Opportunities Commercial vehicles: SC ban on overloading Heavy thrust on mining and construction activity Increase in the income level Cut in excise duties Rising rural demand Threats Rising input costs Rising interest rates Cut throat competition

Government Policies Towards Indian Automobile Industry: Automobile industry in India also received an unintended boost from stringent government auto emission regulations over the past few years. This ensured that vehicles produced in India conformed to the standards of the developed world. Though it has an advantage in India, thanks to low costs and government policies it soon faces stiff competition from it multinational competitors all eyeing for a share in the ever growing Indian auto sector. The policies adopted by Government will increase competition in domestic market, motivate many foreign commercial vehicle manufactures to set up shops in India, whom will make India as a production hub and export to nearest market. Bring in a minimum foreign equity of US $ 50 Million if a joint venture involved majority foreign equity ownership

 Automatic approval for foreign equity investment upto 100% of manufacture of automobiles and component is permitted FIIs including overseas corporate bodies (OCBs) and NRIs are permitted to invest up to 49 per cent of the paid-up equity capital of the investee company, subject to approval of the board of directors and of the members by way of a special resolution. . Investments in making auto parts by a foreign vehicle maker will also be considered a part of the minimum foreign investment made by it in an auto-making subsidiary in India. The move is aimed at helping India emerge as a hub for global manufacturing and sourcing for auto parts. Specific component of excise duty applicable to large cars and utility vehicles will be reduced to 15,000 rupees per vehicle from 20,000 rupees earlier. The Proposal by the Govt. to set up an expert group to advise on a viable and sustainable system of pricing petroleum products, as this will surely had an impact on the Automobile Industry. The announced reduction on the basic customs on bio-diesel is great news for all companies working on environmental saving technologies. Key Research Highlights - Passenger car production in India is projected to cross three million units in 2014-15. - Sales of passenger cars during 2008-09 to 2015-16 are expected to grow at a CAGR of around 10%. - Export of passenger cars is anticipated to rise more than the domestic sales during 2008-09 to 2015-16. - Motorcycle sales will perform positively in future, exceeding 10 Million units by 2012-13. - Value of auto component exports is likely to attain a double digit figure in 2012-13. - Turnover of the Indian auto component industry is forecasted to surpass US$ 50 Billion in 2014-15.

Key Issues & Facts - Study of the Indian automobile industry structure. - Analysis of performance of industry sub-segments and their future outlook. - Understanding the Indian auto component market and its growth aspects. - Evaluation of factors fuelling growth in the Indian automobile market. - Discussion of the forces countering the market growth. - Identification of future prospects for the Indian automobile industry.

Automotive Mergers and Acquisitions Automotive mergers and acquisitions act as a means of increasing market share and improving reach. Other related reasons include attaining economies of scale and augmenting product ranges. The global automotive industry is, however, unlikely to witness the kind of mega automotive mergers seen in the drug or media industries for two reasons. First of all, most mega deals were struck during the nineties and the turn of the millennium, reducing future scope for consolidation. Secondly, automotive manufacturers have already polarized into six major alliances - GM Alliance, Ford-Mazda, DCX Alliance, Toyota, VW Group and Renault-Nissan. Automotive mergers are turning into a strategic option for companies looking to accelerate growth. In addition to corporate-level alliances, functional collaborations are increasing all over the globe. In the recent past, several technology and platform sharing agreements have been forged, enabling companies to reduce product development times and costs. Merger and acquisition trends in the automotive industry The automotive industry witnessed a host of major deals during the mid to late 1990s and the turn of the Millennium. As a result, the last few years have seen deals amongst manufacturers dwindle. In fact, the value of deals fell from USD10 billion in 2002 to USD3.5 billion in 2003, see figure 42. Purchase full updated report here. Some countries in the emerging markets are growing at a spectacular rate. The India auto industry, for example, grew at a rate of 29 percent in 2003 while the China auto industry grew at rate of 35 percent. These staggering growth rates are attracting global automotive majors to these markets in increasing numbers. Companies are resorting to acquisitions to gain a foothold in these markets, see table 44. Purchase full updated report here. First Automotive Works, General Motors and Nissan Motors are trying to consolidate their position in the Chinese market either through acquisition or equity stakes. Nissan Motors acquisition of a 50 percent stake in Dongfeng Motors for USD1.032 billion was the biggest deal in 2003. Competition and the global economic slowdown cut into the sales of Fiat and its debt rating was downgraded to just one rank above junk status. To reduce its debt, Fiat sold its stake in Ferrari and General Motors. Similarly, Daewoo Motors, which collapsed after the South Asian crises, was acquired by General Motors, see table 45. The main mergers and acquisitions that occurred during 2001, 2002, and 2003 are given in tables 46, 47 and 48 overleaf. Renault-Nissan automotive merger This alliance was struck in 1999 and Renault acquired 36.8 percent equity stake in Nissan, 22.5 percent stake in Nissan Diesel and 100 percent in Nissans European Finance subsidiaries amounting to USD5.4 billion.

Renault and Nissan came together to improve their respective competitiveness. The alliance is based on the principle that each company would retain its own identity while sharing resources. Renault supports Nissan in Europe and South America, while Nissan is firmly entrenched in North America and Asia. Responsibilities are shared for Africa and Middle East. Through this relationship, the companies intended to maximize synergies through their complementary strengths in product line-up, procurement, R&D, marketing, and personnel training, which would result in cost reductions, greater global market penetration and other benefits through cooperation. As a member of this strategic alliance, Renault would have access to up-to-the-minute technology, a worldwide network and advanced managerial expertise. The impact of this alliance has been beneficial. For example, Return of Equity (ROE) for Renault in 2002 and 2003, see figure 43, is attributed to the sharp increase in earnings of Nissan. The Nissan Revival Plan, which was started by the group in 1999 was focused on profit and international reach has resulted in increased net income and therefore an increase in ROE. In addition, substantial cost savings have been achieved through a common purchasing strategy and by setting up a common supplier base. Common platforms have been developed to reduce time for new product introduction. Cooperation is being stepped up in the development, use and sharing of common power train components (engines and gearboxes). All these efforts have led to a decrease in working capital requirements and therefore, an increase in cash flows which allowed the group to substantially decrease its outstanding debt, see figure 44. A reduction of 866 million in debt in 2001 is partly attributed to sale of the groups equity interests. Renault and Nissan provide complementary market support to maximize global efficiency in marketing and sales. As a result of such market focus, the alliance continues to grow in the three major markets of the US, Europe and Japan while making inroads into other markets as well. The alliance has been able to increase its global market share up to 8.9 percent in 2003, see figure 45. Purchase full report here. The transfer of chief operating officer, Carlos Ghosn, who revived Renault, to Nissan is one of the factors that made this alliance successful. Looking to the future, Renault expects the automobile market in 2004 to edge upwards in Europe and increase slightly in other countries where it has a presence. It expects to benefit from cooperative ventures within the alliance. In addition, Renault hopes to pursue its international development and will be looking to grow volumes outside Western Europe.