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Porters five forces model Automobile Industry &

analyse investment
Apply the Porter's five forces model on Automobile Industry and analyse the
attractiveness of the Industry for Investment purpose
Evolution of Porter's Five Forces Model
Five forces is a framework for the industry analysis and business strategy development developed by Michael
E. Porter of Harvard Business School in 1979. Michael Porter is a professor at Harvard Business School andis
a leading authority on competitive strategy and international competitiveness.Michael Porter was born in Ann
Arbor, Michigan.
Five forces uses concepts developing, Industrial Organization (IO) economics to derive five forces that
determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers
to the industry profitability. An "unattractive" industry is one where the combination of forces acts to drive down
overall profitability. A very unattractive industry would be one approaching "pure competition".

Five Forces Model by Michael Porter
Five Forces model of Michael Porter is a very elaborate concept for evaluating company's competitive position.
Michael Porter provided a framework that models an industry and therefore implicitly alsobusinesses asbeing
influenced by five forces.Michael Porter's Five Forces model is often used in strategic planning. Porter's
competitive fiveforces model is probably one of the mostcommonly used business strategy tools and has
proven its usefulness in numerous situations when exploring strategic management models . Three of Porter's
five forces refer to competition from external sources. The remainder are internal threats. It is useful to use
Porter's five forces in conjunction with SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats).
A change in any of the forces normally, requires a business unit to re-assess the marketplace given the overall
change in industry information. The overall industry attractiveness does not imply that every firm in the industry
will return the same profitability. Firms are able to apply their core competencies, business model or network to
achieve a profit above the industry average.
Porter's five forces include :
Three forces from 'horizontal' competition
* Threat of new entrants or barriers to entry
* Threat of substitute products or substitutes
* Threat of established rivals or competitive rivalry

Two forces from 'vertical' competition

* The bargaining power of buyers or buyers
* The bargaining power of suppliers or suppliers

Force 1: Barriers to entry

Barriers to entry measure how easy or difficult it is for new entrants to enter into the industry. This can involve
for example:

Cost advantages (economies of scale, economies of scope)

Access to production inputs and financing,

Government policies and taxation

Production cycle and learning curve

Capital requirements

Access to distribution channels

Patents, branding, and image also fall into this category.

Force 2: Threat of substitutes

Every top decision maker has to ask: How easy can our product or service be substituted? The following needs
to be analyzed:

How much does it cost the customer to switch to competing products or services?

How likely are customers to switch?

What is the price-performance trade-off of substitutes?

If a product can be easily substituted, then it is a threat to the company because it can compete with price only.

Force 3: Competitive Rivalry

In this,we have to analyze the level of competition between existing players in the industry.

Is one player very dominant or all equal in strength/size?

Are there exit barriers?

How fast does the industry grow?

Does the industry operate at surplus or shortage?

How is the industry concentrated?

How do customers identify themselves with your brand?

Is the product differentiated?

How well are rivals diversified?

Force 4: Bargaining power of buyers

Now the question is how strong the position of buyers is. For example,cancustomerswork together to order
large volumes to squeeze your profit margins? The following is a list of other examples:

Buyer volume and concentration

What information buyershave

Competitive price

How loyal are customers to your brand

Price sensitivity

Threat of backward integration

How well differentiated your product is

Availability ofsubstitutes

Having a customer that has the leverage to dictate your prices is not a good position.

Force 5: Bargaining power of suppliers

This relates to what your suppliers can do in relationship with you.

How strong is the position of sellers?

Are there many or only few potential suppliers?

Is there a monopoly?

Do you take inputs from a single supplier or from a group? (concentration)

How much do you take from each of your suppliers?

Can you easily switch from one supplier to another one? (switching costs)

If you switch to another supplier, will it affect the cost and differentiation of your product?

Are there other suppliers with the same inputs available? (substitute inputs)

Need for Porter's five forces Model

In general, any CEO or a strategic business manager is trying to steer his or her business in a direction where
the businesswill develop an edge over rival firms. Michael Porter's model of Five Forcescan be used to better
understand the industry context in which the firm operates. Porter's Five Forces model is a strategy tool that is
used to analyze attractiveness of an industry structure. Porter's Five Forces modelviews thebusiness
fromoutside. It focuses on assessing competitive position within industry .Porter's Five Forces model in the
internal view.

Automobile Industry
The auto manufacturing industry is considered to be highlycapital and labor intensive. The major costs for
producing and selling automobiles include:
Labor - While machines and robots are playing a greater role in manufacturing vehicles, there are still
substantial labor costs in designing and engineering automobiles.
Advertising Each year automakers spend billions on print and broadcast advertising, furthermore, they spent
large amounts of money on market research to anticipate consumer trends and preferences.
The auto market is thought to be made primarily of automakers, but auto parts makes up anotherlucrative
sector of the market. The major areas of auto parts manufacturing are:
Original Equipment Manufacturers (OEMs) - The big auto manufacturers do produce some of their own
parts, but they can't produce every part and component that goes into a new vehicle. Companies in this
industry manufacture everything from door handles to seats.
Replacement Parts Production and Distribution - These are the parts that are replaced after the purchase
of a vehicle. Air filters, oil filers and replacement lights are examples of products from this area of the sector.

Rubber Fabrication - This includes everything from tires, hoses, belts, etc.
In auto industry, a large proportion of revenue comes from selling automobiles. The parts market is even more
lucrative. For example, a new car might cost $18,000 to buy, but if you bought, from the automaker, all the parts
needed to construct that car, it would cost 300-400% more ./p>
A significant portion of an automaker's revenue comes from the services itoffers with the new vehicle.
Offering lower financial rates than financial institutions, the car company makes a profit on financing.
Extended warranties also factor into the bottom line.
Greater emphasis on leasing has also helped increase revenues. The advantage of leasing is that it
eases consumer fears about resale value, and it makes the car sound more affordable. From a maker's
perspective, leasing is a great way to hide the true price of the vehicle through financing costs. Car
companies, then, are able to push more cars through. Unfortunately, profiting on leasing is not as easy
as it sounds. Leasing requires the automakers to accurately judge the value of their vehicles at the end
of the lease, otherwise they may actually lose money.

Indian Automobile Industry

The Indian automobile industry is the tenth largest in the world with an annual production of approximately 2
million units. Indian auto industry, promises to become the major automotive industry in the upcoming years
and the industry experts are hopeful that it will touch 10 million units mark. Indian automobile industry is
involved in design, development, manufacture, marketing, and sale of motor vehicles. There are a number of
global automotive giants that are upbeat about the expansion plans and collaboration with domestic companies
to produce automobiles in India.

Major car manufacturers

The major car manufacturers in India are Maruti Udyog, Hyundai Motors India Ltd., General Motors India Pvt.
Ltd., Honda Siel Cars India Ltd., Toyota Kirloskar Motor Ltd., Hindustan Motors etc.The two-wheeler
manufacturers in India are Honda Motorcycle & Scooter India (Pvt.) Ltd., TVS, Hero Honda, Yamaha, Bajaj, etc.
The heavy motors including buses, trucks, auto rickshaws and multi-utility vehicles are manufactured by TataTelco, Eicher Motors, Bajaj, Mahindra and Mahindra, etc.

The passenger car segment in the Indian auto industry is growing by 8-9 percent.

Commercial vehicle will grow by 5.2 per cent.

India is a potential emerging auto market.

Motorcycles contribute 80% of the two-wheeler industry.

India is the largest two-wheeler manufacturer in the world.

India's motorcycle segment will grow by 8-9 percent in the coming years. 11. India is the fifth largest
commercial vehicle manufacturer in the world. 12. India has the number one global motorcycle
manufacturer. 13. In Asia, India is the fourth largest car market.

Unlike the USA, the Indian passenger vehicle market is dominated by cars (79%).

Used car Market

The new chapter in the automobile industry is that of used cars. The massive demand of used cars indicates
that cars are becoming increasingly popular. Those who can't afford the luxury cars and their high prices are
opting for used cars. In today's time, customers are conscious and diligently investing on car dealership. Car
buyers are investing heavily a lot of time for both to sell a car and buy car. There's also a number of car
websites that have offering detailed information on new car prices, used cars, car reviews, Chevrolet cars,
jaguar cars and luxury cars.

Market Share
At present major Indian, European, Korean, Japanese automobile companies are holding significant market
shares. In commercial vehicle, Tata Motors dominates over 60% of the Indian commercial vehicle market. Tata
Motors is the largest medium and heavy commercial vehicle manufacturer.Car manufacturers in India dominate
the passenger vehicle market by 79%. Maruti Suzuki is the largest car producer in India and has 52% share in
passenger cars and is a complete monopoly in multi purpose vehicles. In utility vehicles Mahindra holds 42%
share. Hyundai and Tata Motors is the second and third car producer in India

The automobile Industry in India is now working in terms of the dynamics of an open market. Many joint
ventures have been set up in India with foreign collaboration, both technical and financial with leading global
manufacturers. Also a very large number of joint ventures have been set up in the auto-components sector and
the pace is expected to pick up even further. The Government of India is keen to provide a suitable economic,
and business environment conducive to the success of the established and prospective foreign partnership
ventures. $5.7 billion is the investment envisaged in the new vehicles projects.

Porter's five forces model on Automobile Industry

1. Barriers to Entry - It's true that the average person can't come along and start manufacturing automobiles.
The emergence of foreign competitors with the capital, required technologies and management skills began to
undermine the market share of many automobile companies. Globalization the tendency of world investment
and businesses to move from national and domestic markets to a worldwide environment, is a huge factor
affecting the auto market. More than ever, itis becoming easier for foreign automakers to enter the Domestic
market .Automobiles depend heavily on consumer trends and tastes. While car companies do sell a large
proportion of vehicles to businesses and car rental companies (fleet sales), consumer sales is the largest
source of revenue. For this reason, taking consumer and business confidence into accountshould be ahigher
priority than considering the regular factors like earnings growth anddebt load .
2. Threat of Substitutes - Rather than looking at the threat of someone buying a different car, there is also
need to also look at the likelihood of people taking the bus, train or airplane to their destination. The higher the
cost of operating a vehicle, the more likely people will seek alternative transportation options. The price of
gasoline has a large effect on consumers' decisions to buy vehicles. Trucks and sport utility vehicles have
higher profit margins, but they also guzzle gas compared to smaller sedans and light trucks. When determining
the availability of substitutes you should also consider time, money, personal preference and convenience in the
auto travel industry. Then decide if one car maker poses a big threat as a substitute.
3. Competitive Rivalry - Highly competitive industries generally earn low returns because the cost of
competition is high. The auto industry is considered to be an oligopoly (A market condition in which sellers are
so few that the actions of any one of them will materially affect price) which helps to minimize the effects of
price-based competition. The automakers understand that price-based competition does not necessarily lead to
increases in the size of the marketplace, historically they have tried to avoid price-based competition, but more
recently the competition has intensified - rebates, preferred financing and long-term warranties have helped to
lure in customers, but they also put pressure on the profit margins for vehicle sales. Every year, car companies
update their cars. This is a part of normal operations, but there can be a problem when a company decides to
significantly change the design of a car. These changes can cause massive delays and glitches, which result in
increased costs and slower revenue growth. While a new design may pay off significantly in the long run, it's
always a risky proposition
4. Bargaining Power of Suppliers - The automobile supply business is quite fragmented (there are many
firms). Many suppliers rely on one or two automakers to buy a majority of their products. If an automaker
decided to switch suppliers, it could be devastating to the previous supplier's business. As a result, suppliers
are extremely susceptible to the demands and requirements of the automobile manufacturer and hold very little

power. For parts suppliers, the life span of an automobile is very important. The longer a car stays operational,
thegreater theneed for replacement parts. On the other hand, new parts are lasting longer, which is great for
consumers, but is not suchgood news for parts makers. When, for example, most car makers moved from using
rolled steel to stainless steel, the change extended the life of parts by several years.
5. Bargaining Power of Buyers -The bargaining power of automakers are unchallenged. Consumers may
become dissatisfied with many of the products being offered by certain automakers and began looking for
alternatives, namely foreign cars. On the other hand, while consumers are very price sensitive, they don't have
much buying power as they never purchase huge volumes of cars.

Example : Porter's 5 Forces Model of the NANO car

There is continuing interest in the study of the forces that impact on an organisation, particularly those that can
be harnessed to provide competitive advantage. The ideas and models which emerged during the period from
1979 to the mid-1980s were based on the idea that competitive advantage came from the ability to earn a
return on investment that was better than the average for the industry sector. As Porter's 5 Forces analysis
deals with factors outside an industry that influence the nature of competition within it, the forces inside the
industry (microenvironment) that influence the way in which firms compete .

Time and cost of entry - Time is most essential thing while launching a product in any market. The launch of
the NANO is quite viable as the demand of the small car is on the rise in the market. By the cost of the entry we
mean the initial capital required to set up a new firm is very high, it makes the chances of the chances of new
entrants are very less.
Knowledge and Technology - Ideas and Knowledge that provides competitive advantage over others when
patented, preventing others from using it and thus creates barrier to entry. The TATA motors have great
knowledge/ experience in the automobile industry and has renowned technological advantage because of the
recent acquisition and mergers.
Product Differentiation and Cost Advantage - The new product has to be different and attractive to be
accepted by the customers. Attractiveness can be measured in the terms of the features , price etc. At this level
the price of the NANO car was one thing that is attracting customers. And above all this the image , trust the
name TATA carries with it.
Government Policy and Expected Retaliation - Although government's job is to preserve free competitive
market, it restricts competition through regulations and restrictions. The government tried to promote the TATA
Motors to start a plant by providing land and tax rebates. But the unexpected retaliation by the local people
surface in the setting up of the plant which costed the company a lot.
Access to Distribution Channels - When a new product a launched a well developed distribution is must for
its success. The TATA motors had a advantage of well established distribution channel across the world.

Price band - The threat that consumer will switch to a substitute product if there has been an increase in price
of the product or there has been a decrease in price of the substitute product. If the price of the NANO car will

increase the main expected customers ie the one switching from bike to car will not move to car and will remain
in the bike only. Thus the price is kept checked in this manner.
Substitutes performance - The performance of the substitute sector will also play a important role in the
success of the NANO car. If the price of the Bike segment increases or the price band of the small segment
fall , it will have effect on the quantity required in the market. Its just on the price but also the features and the
other services associated or it may be the status symbol story. The success of the electric car segment with
player like REVA can also effect the demand of the NANO.
Buyers willingness - Products with improving price/performance tradeoffs relative to present industry
products. It will determine the willingness of the buyer to but the NANO car.The willingness of the customers to
go forward try the new product in the market ie 'NANO'. They might be willing to go for the test products like
Maruti 800 , Santro etc.

Number and Diversity of Competitor - This describes the competition between the existing firms in an
industry. the current Business Policy & Competitive Strategy scenario, the small car market in India is very
competitive with players like Maruti Suzuki, Tata Motors, Hyundai etc. which was pretty much dominated by
Maruti. But with launch of Nano the 1 lakh car the whole momentum of the market has shifted. Now to be
competitive in market other companies have to either slash rates of their existing model or have to go back to
the drawing board and build again.
Price Competition - Advertising battles may increase total industry demand, but may be costly to smaller
competitors. Products with similar function limit the prices firms can charge. Price competition often leaves the
entire industry worse off. NANO is the only player so it has the price freedom but as the Maruti and Honda are
also planning to launch the car in the same segment the price competition will start.
Exit Barriers - Even if the product fails in the market its not that easy for the company to exit the market just
like that because of the heavy investment it has made in the initial stage. If the NANO fails or falls flat the TATA
motors will not be in a state to slow done the product even when NANO production line can be used by the
other products after few modification as for NANO only the new product line were setup and huge cost were
Product Quality - Increasing consumer warranties or service is very common these days. To maintain low
cost, companies consistently has to make manufacturing improvements to keep the business competitive. This
requires additional capital expenditure which tends to eat up company's earning. On the other hand if no one
else can provide products/ services the way you do you have a monopoly. NANO enjoys the monopoly are
there are no competitors in this segment.

Switching Costs - If switching to another product is simple and cheap the customers does not think much
before doing it. In case of NANO car the switching cost from bike to car is too high. Thus increasing the
demand of the car many fold.
Number of customers/ Volume of sales - If there are few buyers then they are able to dictate the terms. They
pull down the cost by Bargaining. The bargaining power of buyer is high as there are lot of choice available to

the buyer and the service do not vary from one manufacturer to the other. They force the manufactures to
improve the quality. All this can be clearly seen in the case of NANO car the price tag at which it has been
offered or the quality of the NANO car no compromises has been done at any front.
Brand Image - The brand image of the TATA and the segment in which the NANO has been the most attractive
thing in the entire package.

Number and Size of Suppliers - A company to manufacture its products requires raw material, labor etc. If
there are few suppliers providing material essential to make a product then they can set the price high to
capture more profit. Powerful suppliers can squeeze industry profitability to great extend. In case of NANO the
supplier are limited and the size of the suppliers are big enough to bring about the controlling power in the price
of the car. The NANO car has more than 128 suppliers in all and the major portion of the building cost of the car
is the parts supplied by the suppliers.
Unique Service / Product - Suppliers' products have few substitutes. Supplier industry is dominated by a few
firms. The some parts of the NANO car are obtain from the supplier who them are big enough and limited
substitutes are available against them. So the entire production line depends upon them only.
Ability to substitute - Suppliers' products have high switching costs. In many case even when substitute are
available its not that easy to opt for substitute as the next product in the assembly line depends upon it. If the
change in the any part is brought about the long list of depended parts also have to be changed , which in most
cases is not feasible to do.

Tata motors strengths

The internationalisation strategy so far has been to keep local managers in new acquisitions, and to only
transplant a couple of senior managers from India into the new market. The benefit is
that Tata has been able to exchange expertise. For example after the Daewoo acquisition the Indian company
leaned work discipline and how to get the final product 'right first time.'

Tata Motors Limited acquired Daewoo Motor's Commercial vehicle business in 2004 for
around USD $16 million.
The company has had a successful alliance with Italian mass producer Fiat since 2006. This
has enhanced the product portfolio for Tata and Fiat in terms of production, knowledge exchange
, logistics and its infrastructure.
In the summer of 2008 Tata Motor's successfully purchased the Land Rover and
Jaguar brands from Ford Motors for UK 2.3 million. Two of the World's luxury car brand
have been added to its portfolio of brands, and has undoubtedly off the company the chance to
market vehicles in the luxury segments.
NANO is the cheapest car in the World. The range of Super Milo fuel efficient buses are
powered by super-efficient, eco-friendly engines.

Tata motors weaknesses

The company's passenger car products are based upon 3rd and 4th generation platforms, which put Tata
Motors Limited at a disadvantage with competing car manufacturers.

Despite buying the Jaguar and Land Rover brands Tata has not got a foothold in the luxury
car segment in its domestic, Indian market. The brand associated with commercial vehicles and
low-cost passenger cars to the extent that it has isolated itself from lucrative segments in a more
aspiring India.
Other competing car manufacturers have been in the passenger car business for 40, 50 or
more years. Therefore Tata Motors Limited has to catch up in terms of quality and lean
Sustainability and environmentalism could mean extra costs for this low-cost producer. This could impact its
underpinning competitive advantage. Obviously, as Tata globalises and buys into other brands this problem
could be alleviated.

Attractiveness of the Automobile Industry for Investment purpose

Economic reforms and deregulation have transformed that scene. India has already become one of the fastest
growing automobile markets in the world. The Indian automobile industry is going through a technological
change where each firm is engaged in changing its processes and technologies to maintain the competitive
advantage and provide customers with the optimized products and services. Starting from the two wheelers,
trucks, and tractors to the multi utility vehicles, commercial vehicles and the luxury vehicles, the Indian
automobile industry has achieved splendid achievement in the recent years.
In the Indian economy, auto industry maintains a high-flying place. Automobile industry has a strong multiplier
effect and is capable of being the driver of economic growth. A sound transportation system plays an essential
role in the country's rapid economic and industrial development. The well-developed Indian automotive industry
skillfully fulfils this catalytic role by producing a wide variety of vehicles: passenger cars, light, medium and
heavy commercial vehicles, multi-utility vehicles such as jeeps, scooters, motorcycles, mopeds, three wheelers,
tractors etc.
The automotive sector is one of the core industries of the Indian economy, whose prospect is reflective of the
economic resilience of the country. Continuous economic liberalization over the years by the government of
India has resulted in making India as one of the prime business destination for many global automotive players.
The automotive sector in India is growing at around 18 per cent per annum.
The auto industry is just a multiplier, a driver for employment, for investment, for technology. The Indian
automotive industry started its new journey from 1991 with delicensing of the sector and subsequent opening
up for 100 per cent FDI through automatic route.The automobile sector has been contributing its share to the
shining economic performance of India in the recent years. With the Indian middle class earning higher per
capita income, more people are ready to own private vehicles including cars and two-wheelers. Product
movements and manned services have boosted in the sales of medium and sized commercial vehicles for
passenger and goods transport.

Side by side with fresh vehicle sales growth, the automotive components sector has witnessed big growth. The
domestic auto components consumption has crossed rupees 9000 crore and an export of one half size of this
India is on the peak of the Foreign Direct Investment wave. FDI flows into India trebled from $19 billion in 200607 and $25 billion in 2007-08. By AT Kearney's FDI Confidence Index 2006, India is the second most attractive
FDI destination after China, pushing the US to the third position. It is commonly believed that soon India will
catch up with China.
India is up-and-coming a significant manufacturer, especially of electrical and electronic equipment,
automobiles and auto-parts . The country is expected to witness over Rs 30,000 crore of investment by
2010.Over the next one year, some 20 new cars will be seen on Indian roads.
Maruti Udyog has set up the second car plant with a manufacturing capacity of 2.5 lakh units per annum for an
investment of Rs 6,500 crore (Rs 3,200 crore for diesel engines and Rs 2,718 crore for the car plant itself).
Hyundai and Tata Motors have announced plans for investing a similar amount over the next 3 years. Hyundai
will bring in more than Rs 3,800 crore to India, Tata Motors will be investing Rs 2,000 crore in its small car
General Motors will be investing Rs 100 crore, Ford about Rs 350 crore and Toyota announced modest
expansion plans even as Honda Siel has earmarked Rs 3,000 crore over the next decade for India - a sizeable
chunk of this should come by 2010 since the company is also looking to enter the lucrative small car segment.
Commercial vehicle segment, Ashok Leyland and Tata Motors have each announced well over Rs 1,000 crore
of investment. Mahindra & Mahindra's joint venture with International Trucks is expected to see an infusion of at
least Rs 500 crore. Hero Honda is about to establish its fourth manufacturing plant. Bajaj Auto and TVS Motors
are moving to the excise-free zones of Himachal Pradesh and Uttaranchal for putting up new capacity.
The growth of the Indian middle class along with the growth of the economy over the past few years has
attracted global auto majors to the Indian market. Moreover, India provides trained manpower at competitive
costs making India a favoured global manufacturing hub. The attractiveness of the Indian markets on one hand
and the stagnation of the auto sector in markets such as Europe, US and Japan on the other have resulted in
shifting of new capacities and flow of capital to the Indian automobile industry.
Global auto majors such as Japanese auto majors Suzuki, Honda and Korean car giant Hyundai are
increasingly banking on their Indian operations to add weight to their businesses, even as numbers stay
uncertain in developed markets due to economic recession and slowdown.
Moreover, according to a study released by global consultancy firm Deloitte, at least one Indian company will be
among the top six carmakers that would dominate the global auto industry by 2020. According to the study, the
car industry would see a massive capacity building in low-cost locations like India as manufacturers shift base
from developed regions.


Although the sector was hit by economic slowdown, overall production (passenger vehicles, commercial
vehicles, two wheelers and three wheelers) increased from 10.85 million vehicles in 2007-08 to 11.17 million
vehicles in 2008-09. Passenger vehicles increased marginally from 1.77 million to 1.83 million while twowheelers increased from 8.02 million to 8.41 million.
In recent times, India has emerged as one of the favourite investment destinations for automotive

German car major Audi will start assembling its sports utility vehicle Audi Q5 from mid-2010. The
company plans to assemble more cars locally at its Aurangabad plant instead of importing completely
built units (CBUs).

Ford India commenced commercial production of its compact car Figo, and diesel and petrol engines
at a new factory in Chennai. The Figo will be built exclusively in India and exported to Asian countries
and South Africa.

Japanese major Nissan has decided to shift the entire production of its small car, Micra, from the UK to
India. After production of the Micra begins here, Nissan plans to manufacture four more models in
India, involving a total investment of over US$ 412.2 million.

Suzuki Motorcycle India (SMIPL), a wholly-owned subsidiary of Japanese auto major Suzuki Motor
Corporation, plans to double production capacity of its two-wheelers to 300,000 units by the end of the
current fiscal year. The company will invest US$ 26.77 million.

Volkswagen has set a target to localise production in India to about 80 per cent in 2-3 years from the
current levels of almost 50 per cent as it seeks to offer cars at more competitive prices.

Domestic Market

According to figures released by the Society of Indian Automobile Manufacturers (SIAM), domestic passenger
car sales have increased 32.28 per cent to reach 145,905 units in January 2010 from 110,300 units in the same
month last year. Across all categories, total sale of vehicles increased 44.94 per cent to 1,114,157 units in
January 2010, against 768,698 units in the January 2009.

Road Ahead
The Indian auto industry is likely to see a growth of 10-12 per cent in sales in 2010, according to a report by the
global rating firm, Fitch. According to its report, Indian Auto Sector Outlook, competition in the country's auto
sector is likely to increase due to increasing penetration of global original equipment manufacturers (OEM).

The average person can't come along and start manufacturing automobiles. The emergence of foreign
competitors with the capital, required technologies and management skills began to undermine the market
share of many automobile companies.Rather than looking at the threat of someone buying a different car, there
is also need to also look at the likelihood of people taking the bus, train or airplane to their destination. The auto
industry is considered to be an oligopoly. Many suppliers rely on one or two automakers to buy a majority of
their products. If an automaker decided to switch suppliers, it could be devastating to the previous supplier's
business. The bargaining power of automakers are unchallenged. Consumers are very price sensitive, they
don't have much buying power as they never purchase huge volumes of cars
Indian automobile industry has achieved splendid achievement in the recent years. India is on the peak of the
Foreign Direct Investment. The attractiveness of the Indian markets on one hand and the stagnation of the auto
sector in markets such as Europe, US and Japan on the other have resulted in shifting of new capacities and
flow of capital to the Indian automobile industry. India is a significant manufacturer of automobiles and autoparts. Global auto majors such as Japanese auto majors Suzuki, Honda and Korean car giant Hyundai are
increasingly banking on their Indian operations to add weight to their businesses .The car industry would see a
massive capacity building in low-cost locations like India as manufacturers shift base from developed regions.
Although the sector was hit by economic slowdown but it doesn't effect the overall production of automobiles. In
recent times, India has emerged as one of the favourite investment destinations for automotive manufacturers.
The Indian auto industry is likely to see a growth of 10-12 per cent in sales in 2010.Competition in the country's
auto sector is likely to increase due to increasing penetration of global original equipment manufacturers