AUTOMOTIVE INDUSTRY IN INDIA

Industry Analysis

The automotive industry in India is one of the largest in the world and one of
the fastest growing globally. India's passenger car and commercial vehicle
manufacturing industry is the sixth largest in the world, with an annual
production of more than 3.9 million units in 2014.
In 2014, India beat Thailand to become Asia's third largest exporter of
passenger cars.
As of 2014, India is home to 40 million passenger vehicles. More than 3.7
million automotive vehicles were produced in India in 2014 (an increase of
33.9%), making the country the second (after China) fastest growing
automobile market in the world. According to the Society of Indian
Automobile Manufacturers, annual vehicle sales are projected to increase to
5 million by 2017 and more than 9 million by 2020. By 2050, the country is
expected to top the world in car volumes with approximately 611 million
vehicles on the nation's roads.
Regional Clusters of Manufacturing
The majority of India's car manufacturing industry is based around three
clusters in the south, west and north. The southern cluster consisting of
Chennai and Bangalore is the biggest with 35% of the revenue share. The
western hub near Mumbai and Pune contributes to 33% of the market and
the northern cluster around the National Capital Region contributes 32%.
Chennai, is also referred to as the "Detroit of India" with the India operations
of Ford, Hyundai, Renault, Mitsubishi, Nissan, BMW, Hindustan Motors,
Daimler, Caparo, and PSA Peugeot Citron is about to begin their operations
by 2016. Chennai accounts for 60% of the country's automotive exports.
Gurgaon and Manesar in Haryana form the northern cluster where the
country's largest car manufacturer, Maruti Suzuki, is based. The Chakan
corridor near Pune, Maharashtra is the western cluster with companies like
General Motors, Volkswagen, Skoda, Mahindra and Mahindra, Tata Motors,
Mercedes Benz, Land Rover, Fiat and Force Motors having assembly plants in
the area. Aurangabad with Audi, Skoda and Volkswagen also forms part of
the western cluster. Another emerging cluster is in the state of Gujarat with
manufacturing facility of General Motors in Halol and further planned for Tata
Nano at their plant in Sanand. Ford, Maruti Suzuki and Peugeot-Citroen plants
are also set to come up in Gujarat.Kolkata with Hindustan Motors, Noida with

Honda and Bangalore with Toyota are some of the other automotive
manufacturing regions around the country.
The Indian Automobile Industry manufactures over 11 million vehicles and
exports about 1.5 million each year. The dominant products of the industry
are two-wheelers with a market share of over 75% and passenger cars with a
market share of about 16%. Commercial vehicles and three-wheelers share
about 9% of the market between them. About 91% of the vehicles sold are
used by households and only about 9% for commercial purpose.The industry
has a turnover of more than USD $35 billion and provides direct and indirect
employment to over 13 million people.
The supply chain is similar to the supply chain of the automotive industry in
Europe and America.
Currently, India's increasing per capita disposable income which is expected
to rise by 106% by 2015 and growth in exports is playing a major role in the
rise and competitiveness of the industry.
Tata Motors is leading the commercial vehicle segment with a market share
of about 64%.Maruti Suzuki is leading the passenger vehicle segment with a
market share of 46%. Hyundai Motor India Limited and Mahindra and
Mahindra are focusing expanding their footprint in the overseas market. Hero
Moto Corp is occupying over 41% and sharing 26% of the two-wheeler
market in India with Bajaj Auto. Bajaj Auto in itself is occupying about 58% of
the three-wheeler market.
Driving forces in the industry

Shifts in consumer demand : Consumers appear to be rethinking

their long love affair with individual automobile brands and viewing
cars more as transportation machines. Although this is not likely to
have a major impact on sales volume, it is affecting how much people
are willing to pay for automobiles. That willingness is also affected by
the waning of product differentiation, due partly to a general increase
in vehicle quality throughout the industry

Expanded regulatory requirements : Emission norms , car life

cycle etc

Increasing availability of data and information : Information

about vehicle usage and driver behavior usage is proliferating as
sensors and telematics systems become more common

PORTERS FIVE FORCES MODEL ANALYSIS OF INDUSTRY

Threats of new entrants:.
Automobile industry is very specific industry, thus it has higher level of entry
barriers. For an example Factory facilities, machinery, labor, technology are
heavily involved. So following factors determine the barriers of entry to the
industry: For a new company, needs to look for mass production to achieve
economy of scale in this mature automotive industry. Eg: Kia An automotive
manufacturing facility is quite specialized, has enormous capital investment
and event of failure could not be easily retooled. Eg: Hyundai Sonata
Established companies are entering to new market through strategic
partnership or merging with other companies. Eg: TATA buys Jaguar
Company. A new company has to find dealership to sell their automobiles so
access to distribution channels builds a more pressure.

Bargaining Power of Buyers

Bargaining Power of buyers affects industry profitability by their ability to
hold out for lower price, higher quality, and better service. In automobile
industry the bargaining power of the buyers is moderately high. The factors
that affect consumer to make a buying decision are the appearance, quality,
price, and environmental effect. Based on a variety of the lifestyles; people
choose to purchase a vehicle in a different way. There are various brands and
models of the cars to choose from nowadays and the buyers have low
switching cost due to the various brands with similar specs and price with
competitive marketing. The reasons why the power is not completely high is
that the buyers are not large and few in number. The buyers do not have the
ability to integrate backwards into the industry.
Bargaining Power of Suppliers
Suppliers can exert a competitive force in an industry by raising prices or
reducing the quality of the goods they sell. The bargaining power of suppliers
is very low in the automobile industry. There are so many parts that are used

to produce an automobile, that it takes many suppliers to accomplish this.

When there are many suppliers in an industry, they do not have much power
due to that industry manufactures can easily switch to another supplier if it is
necessary.For example, Toyota has more than 10 different suppliers in US.
The main qualifications of the suppliers are the quality, cost, and delivery of
the products. If suppliers cant meet those basic considerations, it is hard for
them to survive.
Rivalry among Existing Firms
New entrants to automobile industry bring new capacity a desire to gain
market share and substantial resources. Rivalry between firms automobile
industry get customers several advantages changing prices, improving
product differentiation, creatively using channels of distribution, exploiting
relationship with suppliers, for example of competition between BMW and
Benz car market.
The intensity of rivalry is influenced by the automobile Industry:

Lager number of firms:-increases rivalry because more firms must

compete for the same customers and resources
Rate of market growth:-causes firms to fight for market share in a
growing market.
Amount fixed costs:-result in an economy of scale effect that increases
rivalry. When total costs are mostly fixed costs
High exit barriers:-a common exit barrier is asset specificity. Some
automobile production plant and equipment cant easily sell to other
buyers in another industry
Diversity of rivals:-with different cultures, histories, and philosophies
make an industry unstable

Threats of Substitute Product or Services

Products are appear different but can satisfy the same need as another
product. Product differentiation is more important. In the car industry
typically there are many cars that are similar just look at any mid-range
Toyota and you can easily find a very similar Nissan, Honda, or Mazda.

High functional similarity

Product image associated with many important factors
Mostly high product switching costs

Key Success factors

Ability to enhance and vary product mix - A diverse and broad

product mix enables a manufacturer to serve a wide variety of
transportation solutions across different load levels. It also helps in
building strong brand loyalty among customers. In addition the
presence in business such as auto spares, buses, exports and defence
helps companies to weather the cyclicity in passenger car sales
Sales and distribution service network - A widespread sales and
distribution setup enables the company to ensure a geographically
diversified client profile
Access to new technologies In addition to matching competitors
new products and upgraded machinery, technology is also going to be
critical with emission norms are going to be stricter going forward. The
requirement of updated technologies has driven domestic players into
acquisition/collaborations/JVs with global majors
Balance between outsourcing and in-house production Companies with high integration level have higher fixed costs which
results in higher profitability in robust growth scenario. However it also
results in sharp drop in performance as they would be affected by
lower sales volume backed by Industry cyclical nature. More over
companys proximity to their raw material and component suppliers
help them in reducing procurement costs