3/20/2009

Jaipuria Institute Of
Management

STRATEGIC
MANAGEMENT
INDIAN AUTOMOBILE INDUSTRY

Submitted To :
Prof. V.V. Ratna

Submitted By :
Ravi Pratap Singh CFTR 08_37
Rituraj Singh CFTR
08_40
 PGDM (RM) Batch 2008-2010

Acknowledgement
We express our sincere gratitude to respected Prof. V. V. Ratna,
faculty of JAIPURIA INSTITUTE OF MANAGEMENT who has
helped us to clarify our concepts by sharing his valued experiences
through his teaching, which have thereby become an unconscious
part of our ideas and thoughts while analyzing the facts and other
documents necessary for this project report.

Without his sincere help and guidance, the project report would
have not been accomplished.

Lastly we would like to give our sincere thanks to the Library staff
who had given us the opportunity to use all the resources available.

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Introduction :
India is one of the fastest growing automobile industries in the world.
After 1960, the automobile industry saw rapid growth and many
automotive manufacturers started production. In 1920 one of the first
companies was Hindustan Motors which produced the Ambassador;
later, Fiat entered a collaboration with Premier. Chrysler entered India
in the early 1960's. After 1990 Mercedes-Benz, Tata Motors, Ford,
General Motors, Hyundai, Toyota, and Maruti (owned jointly by the
Government of India and Suzuki) grew to be major forces in the
country's economy. Honda came up in 1996 with the Honda City, then
the Civic, CR-V, and the Accord. Also BMW started production for the
local market due to import duty. Tata purchased Jaguar and Land
Rover from Ford Motor Company in 2008.
Automobile Industry in India is growing in a very high rate with more
than 1 million passenger vehicle sales per annum and overall 10-15%
growth annually. Now more and more foreign manufacturers are
coming to India and existing companies are coming up with new
models. India’s automotive industry is now $34 billion worth and
expected to grow $145 in another 10 years. Indian Automobile
industry is the tenth largest in the world with an annual production of
approximately 2 million units.

Some Interesting Facts About Indian

Automobile Industry :
• India is 2nd largest two wheeler market in the world.
• 4th largest commercial market in the world.
• 11th largest passenger car market and expected to become 7th
largest by 2016.
• Sale of passenger cars in India is likely to grow at an average of
14.9% each year to touch 2.1 million mark by 2010.
• SUV segment grew by almost 12.2% in 2007 and expected to
grow at 20% by 2010.
• MUV segment grew at 21.93% in 2007 and expected to grow at
32% in 2010.

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Timeline of Indian automobile industry :

• 1897 First Person to own a car in India - Mr Foster of

M/s Crompton Greaves Company
• 1901 First Indian to own a car in India - Jamshedji Tata
• 1905 First Woman to drive a car in India - Mrs. Suzanne RD Tata
• 1905 Fiat Motors
• 1911 First Taxi in India
• 1924 Formation of traffic police
• 1928 Chevrolet Motors
• 1942 Hindustan Motors
• 1944 Premier Auto Limited
• 1945 Tata Motors
• 1947 Mahindra Motors
• 1948 Ashok Motors
• 1948 Standard Motors
• 1974 Sipani Motors
• 1981 Maruti Udyog
• 1994 Rover Motors
• 1994 Mercedes Benz
• 1994 Opel
• 1995 Ford Motors
• 1995 Honda SIEL
• 1995 Reva Electric Car Company
• 1995 Daewoo Motors
• 1996 Hyundai Motors
• 1997 Toyota Kirloskar Motors
• 1997 Fiat Motors (Re-Entry)
• 1998 San Motors
• 1998 Mitsubishi Motors
• 2001 Skoda Auto
• 2003 Chevrolet Motors (Re-Entry)

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Types Of Vehicles :
Passenger Vehicles

In passenger vehicle segment still Maruti Udyog is the leader with

around 52%, market share followed by Hyundai Motors with 19% and
Tata Motors with 16%. Other players in this segment are Honda Siel
Cars and Ford India Pvt. Ltd.

Utility Vehicles

Mahindra and Mahindra is the top player in this segment with a

market share of 42% followed by Toyota Kirlosker and Tata Motors.
Other manufacturers are Maruti Udyog, General Motors and Hyundai
India.

Medium and Heavy Commercial Vehicles

Tata Motors leads this segment with 61% market share followed by
Ashok Leyland, Eicher Motos and Swaraj Mazda.

Light Commercial Vehicles

Passenger carriers segment leads by Tata Motors with 46% share

followed by Mahindra and Mahindra, Swaraj Mazda and Force Motors.
Good carriers segment also leads by Tata Motors with 58% market
share. Other players in this segment are Mahindra and Mahindra,
Swaraj Mazda and Force Motors.

An Overview :
The Indian Automotive Industry after de-licensing in July, 1991 has
grown at a
spectacular rate of 17% on an average for last few years. The industry
has now
attained a turnover of Rs. 1,65,000 crores (34 billion USD) and an
investment of
Rs. 50,000 crores. Over of Rs. 35,000 crores of investment is in
pipeline.

The industry is providing direct and indirect employment to 1.31 crore

people. It is also making a contribution of 17% to the kitty of indirect

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taxes. The export in automotive sector has grown on an average
CAGR of 30% per year for the last five years. The export
earnings from this sector are 4.08 billion USD out of which the share
of auto
component sector 1.8 billion USD.

Automotive Industry, globally, as well in India, is one of the key

sectors of the
economy. Due to its deep forward and backward linkages with several
key segments
of the economy, automotive industry has a strong multiplier effect
and acts as one of
the drivers of economic growth.

The developing Indian automotive industry produces a wide variety of

vehicles: passenger cars, light, medium and heavy commercial
vehicles, multi-utility vehicles such as jeeps, scooters, motor-cycles,
mopeds, three wheelers, tractors and other agricultural equipments
etc. The sector has tremendous potential for providing employment.
This will increase the present figure of employment in manufacturing
sector which presently is quite low at 12% as compared to the
countries like Malaysia (50%); Korea (62%) and China (31%).

The automobile industry, especially over a period of time, and

particularly after liberalization, has installed a robust capacity. The
installed capacity in different segments of automobile industry is as
under :

S.No. Segment Installed Capacity

1. Four Wheelers 1,590,000
2. Two & Three Wheelers 7,950,000
Grand Total 9,540,000

The production of all categories of vehicles has grown at a rate of 16%

per annum over the last five years. The last 5 years production figures
are as follows:
Production (in nos.)

Category 2003-04 2004-05 2005-06 2006-07 2007-08

Passenger
Car 564052 608851 842437 960505 1045881
Multi Utility
Vehicle 105667 114479 146103 249149 263032
Commercial
Vehicles 162508 203697 275224 350033 391078
Two
Wheelers 4271327 5076221 5624950 6526547 7600801

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Three
Wheelers 212748 276719 340729 374414 434424

Total 5316302 6279967 7229443 8460648

9735216

Export of Vehicles: Automotive industry of India is now finding

increasing
recognition worldwide. While a beginning has been made in export of
vehicles, the
potential in this area still remains to be fully tapped. Significantly,
during the last two years the export in this sector has grown
specifically in export of cars and two / three
wheelers. The table below indicates the performance during last six
years.
Export (in nos.)

Category 2003-04 2004-05 2005-06 2006-

07 2007-08
Passenger Car 50088 70828 126249 160677
170193
Multi Utility Vehicles 3077 1177 3067 5736
5579
Commercial Vehicles 11870 12255 17227 29949
40581
Two Wheelers 104183 179682 264669 366724
513256
Three Wheelers 15462 43366 68138 66801
76885
Total 184680 307308 479350
629887 806494

Manufacturer Feb-2009 Feb-2008 Change

Maruti Suzuki 70,625 59,311 +19.1%
Mahindra & Mahindra 14,720 12,562 +17.2%
Mahindra Renault 1,008 2,751 -63.4%
Hyundai 21,215 14,600 +45.3%
Tata Motors 19,039 18,766 +1.5%
General Motors 4,921 5,563 -11.5%
Honda 5,579 3,774 -47.8%

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Key Players :
• MUL
• TATA
• Hyundai
• Honda
• Ford
• GM
• Sonalika International
• HM
• Force
• Toyota Kirloskar
• M&M
• Fiat
• Skoda
• Audi
• Mercedes Benz
• BMW
• Volkswagon
• Mitshubishi

Brief Description about the major players :

Maruti Udyog Limited :

MUL was incorporated on February 24, 1981, to meet the growing

demand for a personal mode of transport caused by the lack of an
efficient public transport system. Suzuki Motor Company was chosen
from seven prospective partners worldwide. A license and a Joint
Venture agreement were signed with Suzuki Motor Company (now
Suzuki Motor Corporation of Japan) in October 1982, by which Suzuki
acquired 26% share of the equity.
MUL created history by going into production in a record 13 months.
Maruti 800
was the first car that was launched in 1984. The car had an engine
capacity of 796
cc, high fuel efficiency and the pricing was extremely competitive.
Over the last
10 years, MUL has launched various models such as Omni, 1000, Zen,
Esteem,
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WagonR, Gypsy, Alto, Baleno and Vitara, targeting all segments of
customers.
MUL’s plant is located at Gurgaon in Haryana. It has an installed
capacity of
350,000 vehicles. However, the company, through productivity
improvement
initiatives, would be easily able to produce 500,000 vehicles with its
existing
facilities. MUL manufactured 370,000 cars at its three plants in
Gurgaon in FY
2002-03. The total manpower strength of the organization is 4,629,
with an
average age of all employees at 36.53 years.

TATA :

Tata Motors Limited, formerly known as TELCO (TATA Engineering

and Locomotive Company), is a multinational
corporation headquartered in Mumbai, India. It is India's largest
passenger automobile and commercial vehicle manufacturing
company. Part of the Tata Group, and one of the world's largest
manufacturers of commercial vehicles. The OICA ranked it as the
world's 20th largest automaker, based on figures for 2006.

Tata Motors was established in 1945, when the company began

manufacturing locomotives. The company manufactured its first
commercial vehicle in 1954 in a collaboration with Daimler-Benz AG,
which ended in 1969. Tata Motors was listed on the NYSE in 2004, and
by 2005 it was ranked among the top 10 corporations in India with an
annual revenue exceeding INR 320 billion. In 2004, it
bought Daewoo's truck manufacturing unit, now known as Tata
Daewoo Commercial Vehicle, in South Korea. It also, acquired a 21%
stake in Hispano Carrocera SA, giving it controlling rights in the
company. Tata Motors launched their much awaited Tata Nano, noted
for its Rs 100,000 price-tag, in January 2008.In March 2008, it finalised
a deal with Ford Motor Company to acquire their British Jaguar Land
Rover (JLR) business, which also includes
theRover, Daimler and Lanchester brand names. The purchase was

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completed on 2 June 2008. Tata Motors has its manufacturing base
in Jamshedpur, Pantnagar, Lucknow, Ahmedabad and Pune.

Mahindra & Mahindra Limited :

Mahindra & Mahindra Limited is part of the US $6.7

billion Mahindra Group, an automotive, farm equipment, financial
services, trade and logistics, automotive components, after-market, IT
and infrastructure conglomerate. The company was set up in 1945
as Mahindra & Mohammed. Later, after the partition of
India, Ghulam Mohammad returned to Pakistan and became that
nation's first finance minister. Hence, the name was changed from
Mahindra & Mohammed to Mahindra & Mahindra in 1948.

Initially set up to manufacture general-purpose utility vehicles,

Mahindra & Mahindra (M&M) was first known for assembly of the
iconic Jeep in India. The company later branched out into manufacture
of light commercial vehicles (LCVs) and agricultural tractors, rapidly
growing from being a manufacturer of army vehicles and tractors to
an automobile major with a growing global market. At present, M&M is
the leader in the utility vehicle (UV) segment in India with its flagship
UV, the Scorpio (known as the Mahindra Goa in Italy).

M&M is India's largest SUV maker.

BAJAJ Auto Ltd. :
Bajaj Auto is a major Indian automobile manufacturer. It is India's
largest and the world's 4th largest two- and three-wheeler market. It is
based in Pune, Maharashtra, with plants in Akurdi and Chakan (near
Pune),Waluj (near Aurangabad) and Pantnagarin Uttaranchal. Bajaj
Auto makes and exports motorscooters, motorcycles and the auto
rickshaw.

The Forbes Global 2000 list for the year 2005 ranked Bajaj Auto
at 1946.

Over the last decade, the company has successfully changed its
image from a scooter manufacturer to a two wheeler manufacturer. Its
product range encompasses Scooterettes, Scooters and Motorcycles.

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Its real growth in numbers has come in the last four years after
successful introduction of a few models in the motorcycle segment.

The company is headed by Rahul Bajaj who is worth more than US$1.5
billion.

Low Cost Cars :

Bajaj Auto says its $2,500 car, which it is building with Renault and
Nissan Motor, will aim at a fuel-efficiency of 30 km/litre, or twice an
average small car, and carbon dioxide emissions of 100 gm/km.

It is a Tata Nano competitor. The Bajaj venture will have an initial

capacity of 400,000 units, while Tata expects eventual demand of 1
million Nano.

HONDA :

The company
manufactures automobiles, motorcycles, trucks, scooters, robots, jets
and jet engines, ATV, water craft, electrical generators, marine
engines, lawn and garden equipment, and aeronautical and other
mobile technologies. Honda's line of luxury cars are branded Acura in
North America, Hondura in Honduras and Ben Tian in China. More
recently they have ventured into mountain bikes. Honda is the 6th
largest automobile manufacturer in the world as well as the largest
engine-maker in the world, producing more than 14 million internal
combustion engines each year. In August 2008, Honda
surpassed Chrysler as the 4th largest automobile manufacturer in
the United States. Currently, Honda is the second largest
manufacturer in Japan behind Toyota and ahead of Nissan.

HUNDAI :

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Hyundai Group is a South Korean conglomerate company (chaebol)
founded by Chung Ju-yung. The first company in the group was
founded in 1947 as a construction company. With government
assistance, Chung and his family members rapidly expanded into
various industries, eventually becoming South Korea's biggest
chaebol. The company spun off many of its better known businesses
after the 1997 Asian financial crisis, including Hyundai Automotive
Group, Hyundai Department Store Group, and Hyundai Heavy
Industries Group.

The Hyundai Group now focuses on elevators, container services, and

tourism to Mount Kumgang. As of March 2007, Hyundai Engineering
and Construction is the main shareholder of Hyundai Merchant Marine,
which is the de-facto holding company of Hyundai Group

TOYOTA :

Toyota Motor Corporation is a multinational

corporation headquartered inJapan, and currently the world's
largest automaker. Toyota employs approximately 316,000 people
around the world.

In 1934, while still a department of Toyota Industries, it created its

first product Type A engine and in 1936 its first passenger car
the Toyota AA. The company was eventually founded by Kiichiro
Toyoda in 1937 as a spinoff from his father's company Toyota
Industries to create automobiles. Toyota currently owns and
operates Lexus and Scion brands and has a majority shareholding
stake in Daihatsu Motors, and minority shareholdings in Fuji Heavy
Industries, Isuzu Motors, and Yamaha Motors. The company includes
522 subsidiaries.

Toyota is headquartered in Toyota City and Nagoya (both in Aichi), and

in Tokyo. In addition to manufacturing automobiles, Toyota provides
financial services through its division Toyota Financial Services and
also creates robots. Toyota Industries and Finance divisions form the
bulk of the Toyota Group, one of the largest conglomerates in the

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 world. Toyota was hit hard during the 2008-2009 financial crisis and
requested a loan from the Japanese government.

General Motors :
Gneral Motors Corporation (GM), founded in 1908, is the world's
second-largest automaker after Toyota, ranked by 2008 global unit
sales. GM was the global sales leader for 77 consecutive calendar
years from 1931 to 2008. It manufactures cars and trucks in 34
countries. With global headquarters in Detroit, Michigan, GM employs
252,000 people around the world, and sells and services vehicles in
some 140 countries. In 2008, 8.35 million GM cars and trucks were
sold globally under the following
brands: Buick, Cadillac, Chevrolet, GMC, GMDaewoo, Holden, Hummer
, Opel, Pontiac, Saab, Saturn, Vauxhall and Wuling.

Cars by Price Range :

• Maruti 800, Alto, Omni

Under Rs. 3 Lakhs
• Reva
• Ambassador
• Fiat Palio
• Hyundai Santro, Getz
• Chevrolet Opel Corsa
Rs. 3-5 Lakhs • Maruti Zen, Wagon
R, Versa, Esteem, Gypsy, Maruti Suzuki A-Star
• Ford Icon & Fiesta

• Tata Indica, Indigo XL, Indigo Marina

Rs. 5-10 Lakhs • Chevrolet Swing, Optra Magnum, Tavera
• Hyundai Accent, Elantra
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 • Mahindra Scorpio
• Maruti Baleno
• Toyota Innova
• Tata Safari
• Mitsubishi Lancer, Mitsubishi Cedia
• Honda City ZX, Honda Jazz New
• Mahindra Bolero
• Hyundai Sonata Embera

• Fiat Linea
• Toyota Corolla, Toyota Corolla Altis
• Ford Mondeo & Endeavour
• Chevrolet Forester
Rs. 10-15 Lakhs
• Skoda Octavia & Combi

• Honda Civic
• Honda CR-V
• Maruti Suzuki Grand Vitara
• Terracan & Tucson
• Mitsubishi Pajero
• Audi A4
Rs. 15-30 Lakh • Opel Vectra
• Honda Accord
• Mercedes C Class
• New Skoda Superb New

• Toyota Camry
• Audi A6, A8 & Audi TT
• BMW X5, 5 Series & 7 Series
• Mercedes E Class, S Class, SLK, SL & CLS-Class
Rs. 30-90 Lakhs • Porsche Boxster, Cayenne, 911 Carrera & Cayman
S

• Toyota Prado
• Bentley Arnage, Bentley Continental GT & Flying
Spur
Above Rs. 1 Crore • Rolls Royce Phantom

• Maybach

Porter’s Five Forces Analysis :

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Michael Porter identified five forces that influence an industry. These
forces are: (1) degree of rivalry; (2) threat of substitutes; (3) barriers
to entry; (4) buyer power; and (5) supplier power.
Like other industries operating under free market, capitalistic systems,
viewing the automotive industry through the lens of Porter’s Five
Forces can be helpful in understanding the forces at play.

Degree of Rivalry

Despite the high concentration ratios seen in the Indian, which

typically signify
that a lesser degree of competition is seen in the industry, rivalry in
the India and the global automotive industry is intense. Clearly, the
concentration ratios do not tell the whole story. The automotive
industry in the India is no longer the playground of the Big 3 (MUL,
TATA, Hundai); global companies compete in the Indian market, while
U.S. companies have globalized themselves. The car makers Honda
and Hundai entered a fairly disciplined Indian market and have been
very focused in growing their shares of the market. The great diversity
of rivals in terms of cultures and associated philosophies has
intensified rivalry in the industry. Market growth is slow in the
established
markets and companies must fight fiercely to eke out gains or
prevent losses in market share. However, growth is potentially huge in
the rapidly industrializing India; in these booming markets, companies
could take advantage of the opportunities to reap
handsome rewards. The degree of rivalry in the automotive industry is
further heightened by high fixed costs associated with manufacturing
cars and trucks and the low switching costs for consumers when
buying different makes and models.

Threat of Substitutes

The threat of substitutes to the automotive industry is fairly mild.

Numerous other forms of transportation are available, but none offer
the utility, convenience, independence, and value afforded by
automobiles. The switching costs associated with using a different
mode of transportation, such as train, may be high in terms of
personal time (i.e., independence), convenience, and utility (e.g.,
luggage capacity), but not
necessarily monetarily (e.g., round trip train fare would most likely be
less expensive than the cost of fuel consumed on a similar round trip,
daily parking, car insurance, and maintenance). The exception to this
statement occurs in the global urban areas with high population
densities. In these areas, the substitutes available (e.g., walking, mass
transit, bicycles, etc.) can be less costly than automobiles and thus
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alternative modes of transportation are often preferred. Also, there
are inherent underlying social and cultural attitudes that keep people
from owning automobiles in some parts of the world. India is
constrained either by geography, race, class, or religion and the need
for personal transportation is not as great, yet. The Indian dream of
“a car in lifetime” is not what the rest of the world. Currently wants or
needs. However, the marketing arms of the global automotive
manufacturers are certainly working very hard to change this
paradigm, and with unprecedented production volumes worldwide, all
signs indicate that they are succeeding. Most with the ability and
means to own a vehicle, who
live in a society with the necessary infrastructure (e.g., roads and
fuelling stations), will do so.

Barriers to Entry

The barriers to enter the automotive industry are substantial. For a

new company, the start up capital required to establish manufacturing
capacity to achieve minimum efficient scale is prohibitive. An
automotive manufacturing facility is quite specialized and in the event
of failure could not be easily retooled. Although the barriers to new
companies are substantial, established companies are entering new
markets through strategic partnerships or through buying out or
merging with other companies. In fact the barriers to entry for new (or
different) markets may be quite low.

Buyer and Supplier Power

In the relationship between the automotive industry and its suppliers,

the power axis is substantially tipped in the industry’s favour. The
automotive industry is comprised of powerful buyers who are
generally able to dictate their terms to their suppliers. There are
specific characteristics that make members of the automotive
industry powerful buyers. There is not a grand proliferation of
companies manufacturing automotives.
and backward integration can and does occur. In the relationship
between the automotive industry and its ultimate consumers,
purchasers of finished vehicles, the power axis is tipped in the
consumers’ favour. Consumers wield the greatest power in this
relationship due to the fairly standardized nature of the automotive
commodity (a vehicle) and the low switching costs associated with
selecting from among competing brands. However, the automotive
industry remains marginally powerful due to the large customer to
producer ratio. The automotive industry is a dynamic place. With the
forces above at play, and with history as a guide, it is safe to say that
the automotive industry will continue to change, evolve, and adapt.

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New Entrants In Small Car Segment:
• BAJAJ
• NISSAN
• TOYOTA
• M&M

Players In Niche Segment :

• DC
• Reva

Suggestions :

As India is a still a developing market, some Indian players launched

their global level vehicles (Xenon XT by TATA, Grand Vitara by MUL,
Xylo by M&M etc.) and make a strong presence among foreign players
like Japanese and German makers.
They made joint ventures, collaboration and strategic alliances to
compete in the market.
In Indian automobile market, there is a very tough competition in
small car segment as demand is high because of the demographic
and economic factor in India.
The Second National Labour Commission recommendation that prior
permission should not be required in respect of lay-off and
retrenchment in an establishment of any employment size would be
examined for its implementation in auto sector. The prior permission
required in case of a unit employing more than 100 employees for
closure of the establishment may be examined to raise it to 300.
A Supplementary Unemployment Benefits (SUB) fund need to be
encouraged to be created by the companies. This fund could be used
to provide compensation to laid-off workers.
Keeping in view the demand structure for styling and engineering
design centres,
it is suggested that the styling centre may be a part of National
Institute of
Design, Ahmedabad (NID). National Automotive Testing and R&D
Implementation Project (NATRIP) may act as the nodal centre for
providing data base for engineering design.
(ii) Education and training to orient R&D to meet customer’s demand.
(iii) Ensure flexibility to R&D personnel employed by National Labs,
Universities
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etc. to work in industry for a period of 3-4 years on
deputation/sabbatical
(iv) Electronics, megatronics and software capabilities for automotive
engineers in
IITs will be developed.
(v) Set up facilities for E-learning and E-training to reach wider
audience and be
able to train more persons required to meet the demand.
(vi) Encouraging OEMs to adopt existing training institutes or to set up
new
institutes for training

The National Manufacturing Strategy has indicated that Industry

would not only
need to think big in terms of scale but also need to:
(i) Invest in R&D and technology
(ii) Have a continuing commitment for skills development and
education
(iii) Benchmark their performance against best in the industry
(iv) Adopt best manufacturing practices and production techniques
(v) Deliver on globally acceptable quality levels

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Bibliography :

• TATA Motors
• MUL
• M&M
• Various Indian automobile surveys
• Ministry of Heavy Industries & Public Enterprises, Government of
India.
• www.sify.com
• www.wikipedia.com
• www.hyundaimotor.com
• www.honda.com
• www.gm.com
• www.tata.com
and other related websites.