Hyundai Motor Company (Hangul: Hy ndae Chatongch'a Chusik-hoesa) (KRX: 005380), a major company in the Hyundai Kia

Automotive Group which is the world¶s fifth largest automaker as of the end of 2009.[1] (In 2008, Hyundai ranked the eighth largest auto maker, without including Kia.[2]) and the world's fastest growing automaker.[3][4] Headquartered in Seoul, South Korea, Hyundai operates the world¶s largest integrated automobile manufacturing facility[5] in Ulsan, which is capable of producing 1.6 million units annually. The company employs about 75,000 persons around the world, Hyundai vehicles are sold in 193 countries through some 6,000 dealerships and showrooms worldwide. The Hyundai logo, a slanted, stylized 'H', symbolizes the company shaking hands with its customer. Hyundai translates from the word "modernity", and is pronounced as "Hyon-dae" in Korean.

Contents
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1 History o 1.1 Research & Development o 1.2 Business o 1.3 Hyundai in North America  1.3.1 United States  1.3.2 US sales  1.3.3 Hyundai in Canada o 1.4 Hyundai In India o 1.5 Hyundai in Europe o 1.6 Hyundai in Turkey o 1.7 Hyundai in Egypt o 1.8 Hyundai in China o 1.9 Hyundai in Japan 2 Electric vehicles 3 Environmental record 4 Motorsport 5 Model lineup o 5.1 SUVs and vans o 5.2 Commercial vehicles 6 See also 7 References 8 External links

[edit] History

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The world's largest automobile manufacturing plant in Ulsan, South Korea, produces over 1.6 million vehicles annually. Chung Ju-Yung founded the Hyundai Engineering and Construction Company in 1947. Hyundai Motor Company was later established in 1967. The company¶s first model, the Cortina, was released in cooperation with Ford Motor Company in 1968. When Hyundai wanted to develop their own car, they hired George Turnbull, the former Managing Director of Austin Morris at British Leyland. He in turn hired five other top British car engineers.They were Kenneth Barnett body design, engineers John Simpson and Edward Chapman, John Crosthwaite as chassis engineer and Peter Slater as chief development engineer.[6] In 1975, the Pony, the first Korean car, was released, with styling by Giorgio Giugiaro of ItalDesign and powertrain technology provided by Japan¶s Mitsubishi Motors. Exports began in the following year to Ecuador and soon thereafter to the Benelux countries. In 1991, the company succeeded in developing its first proprietary gasoline engine, the four-cylinder Alpha, and transmission, thus paving the way for technological independence. In 1983, Hyundai exported the Pony to Canada, but not to the United States because the Pony didn't pass emissions standards there. Canadian sales greatly exceeded expectations, and it was at one point the top-selling car on the Canadian market. The Pony afforded a much higher degree of quality and refinement in the lowest price auto segment than the Eastern-bloc imports of the period then available. In 1986, Hyundai began to sell cars in the United States, and the Excel was nominated as "Best Product #10" by Fortune magazine, largely because of its affordability. The company began to produce models with its own technology in 1988, beginning with the midsize Sonata. In 1996, Hyundai Motors India Limited was established with a production plant in Irrungattukotai near Chennai, India.[7] In 1998, Hyundai began to overhaul its image in an attempt to establish itself as a world-class brand. Chung Ju Yung transferred leadership of Hyundai Motor to his son, Chung Mong Koo, in 1999.[8] Hyundai's parent company, Hyundai Motor Group, invested heavily in the quality, design, manufacturing, and long-term research of its vehicles. It added a 10-year or 100,000-mile (160,000 km) warranty to cars sold in the United States and launched an aggressive marketing campaign. In 2004, Hyundai was ranked second in "initial quality" in a survey/study by J.D. Power and Associates. Hyundai is now one of the top 100 most valuable brands worldwide. Since 2002, Hyundai has also been one of the worldwide official sponsors of the FIFA World Cup. In 2006, the South Korean government initiated an investigation of Chung Mong Koo's practices as head of Hyundai, suspecting him of corruption. On April 28, 2006, Chung was arrested, and charged for embezzlement of 100 billion South Korean won (US$106 million).[9] As a result, Hyundai Vice Chairman and CEO, Kim Dong-jin, replaced him as head of the company.
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[edit] Research & Development Hyundai has 5 R&D centres worldwide. Located in South Korea, California, United States, Germany, Japan and Hyderabad, India.[10]

[edit] Business
See also: Hyundai In 1998, after a shake-up in the Korean auto industry caused by overambitious expansion and the Asian financial crisis, Hyundai acquired rival Kia Motors. In 2000, the company established a strategic alliance with DaimlerChrysler and severed its partnership with the Hyundai Group. In 2001, the Daimler-Hyundai Truck Corporation was formed. In 2004, however, DaimlerChrysler divested its interest in the company by selling its 10.5% stake for $900 million. Hyundai has invested in manufacturing plants in the North America, China, Czech Republic, Pakistan, India, and Turkey as well as research and development centers in Europe, Asia, North America, and the Pacific Rim. In 2004, Hyundai Motor Company had $57.2 billion in sales in South Korea making it the country¶s second largest corporation, or chaebol. Worldwide sales in 2005 reached 2,533,695 units, an 11 percent increase over the previous year. Hyundai has set as its 2006 target worldwide sales of 2.7 million units (excluding exports of CKD kits). In 2007 it reached 3,961,629 worldwide vehicle sales²surpassing Fiat, Chrysler, PSA/Peugeot, Nissan, and Honda. Hyundai motor vehicles are sold in 193 countries through some 5,000 dealerships and showrooms. After a recent survey of global automotive sales, Hyundai is now the fourth largest automaker in the world as of 2009.[11] Hyundai Motor Company¶s brand power continues to rise as it was ranked 72nd in the 2007 Best Global Brands by Interbrand and BusinessWeek survey. brand value estimated at $4.5 billion. Public perception of the Hyundai brand has been transformed as a result of dramatic improvements in the quality of Hyundai vehicles.

[edit] Hyundai in North America
[edit] United States

The Hyundai Genesis, named the 2009 North American Car of the Year.

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The 6th Generation Hyundai Sonata will arrive in North America with hybrid technology using a lithium polymer battery.

The Hyundai Tiburon, also known as the Tuscani in South Korea.

Hyundai Santa Fe was awarded the Top Pick by Consumer Reports in 2008.

The Hyundai Tucson, also known as ix35 in Europe and Brazil from Second generation.

A Hyundai Universe Space Luxury, the latest modern coach by Hyundai. Successor to the Hyundai Aero. Hyundai entered the United States market in 1986 with a single model, the Hyundai Excel. The Excel was offered in a variety of trims and body styles. That year, Hyundai set a record of selling the most automobiles in its first year of business in the United States compared to any other car brand (c. 126,000 vehicles). Initially well received, the Excel¶s faults soon became apparent; cost-cutting measures caused reliability to suffer. With an increasingly poor reputation for quality, Hyundai sales plummeted, and many dealerships either
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earned their profits on repairs or abandoned the product. At one point, Hyundai became the butt of many jokes (i.e. Hyundai stands for "Hope you understand nothing's driveable and inexpensive") and even made David Letterman's Top Ten Hilarious Mischief Night Pranks To Play In Space: #8 - Paste a "Hyundai" logo on the main control panel.[12] In response, Hyundai began investing heavily in the quality, design, manufacturing, and long-term research of its vehicles. It added a 10-year or 100,000-mile (160,000 km) powertrain warranty (known as the Hyundai challenge) to its vehicles sold in the United States. By 2004, sales had dramatically increased, and the reputation of Hyundai cars improved. In 2004, Hyundai tied with Honda for initial brand quality in a survey/study from J.D. Power and Associates, for having 102 problems per 1000 vehicles. This made Hyundai second in the industry, only behind Toyota, for initial vehicle quality. The company continued this tradition by placing third overall in J.D. Power's 2006 Initial Quality Survey, behind only Porsche and Lexus.[13] Hyundai continues to invest heavily in its American operations as its cars grow in popularity. In 1990, Hyundai established the Hyundai Design Center in Fountain Valley, California. The center moved to a new $30 million facility in Irvine, California in 2003, and was renamed the Hyundai Kia Motors Design and Technical Center. Besides the design studio, the facility also housed Hyundai America Technical Center, Inc. (HATCI, established in 1986), a subsidiary responsible for all engineering activities in the U.S. for Hyundai. Hyundai America Technical Center moved to its new 200,000-square-foot (19,000 m2), $117 million headquarters in Superior Township, Michigan (near Ann Arbor) in 2005. Later that same year, HATCI announced that it would be expanding its technical operations in Michigan and hiring 600 additional engineers and other technical employees over a period of five years. The center also has employees in California and Alabama. Hyundai America Technical Center completed construction of its Hyundai/Kia proving ground in California City, California in 2004. The 4,300-acre (17 km2) facility is located in the Mojave Desert and features a 6.4mile (10.3 km) oval track,[5] a Vehicle Dynamics Area, a vehicle-handling course inside the oval track, a paved hill road, and several special surface roads. A 30,000-square-foot (2,800 m2) complex featuring offices and indoor testing areas is located on the premises as well. The facility was built at a cost of $50 million. An aerial view can be found here.[14] Hyundai completed an assembly plant just outside Montgomery, Alabama in 2004, with a grand opening on May 20, 2005, at a cost of $1.1 billion. At full capacity, the plant will employ 2,000 workers. Currently, the plant assembles the Hyundai Sonata and the Hyundai Santa Fe. It is Hyundai's second attempt at producing cars in North America since Hyundai Auto Canada Inc.'s plant in Quebec closed in 1993. In 2003, Consumer Reports, based on complaints about 2002 model new cars that in general are less than one year usage, ranked Hyundai¶s reliability tied with Honda's; however, J.D. Power and Associates put Hyundai's 2002 vehicles below the industry average according to its annual Initial Quality Survey, which looks at problems in the first 90 days of ownership.[15] In 2006, J.D. Power and Associates' quality ranking, overall the Hyundai brand ranked 3rd, just behind Porsche and Lexus, and beating long time rival Toyota.[16] But Hyundai's ranking fell to twelfth in 2007.[17] However, in 2009, Hyundai was the Highest Ranked Non-Premium Nameplate in the J.D. Power and Associates Initial Quality Study.[18] The brand overall is ranked much higher than the average industry and resale value continues to improve; a comparable 2003 Hyundai Sonata sedan ranks just $2200 below a similarly equipped Honda Accord, according to Kelley Blue Book Pricing 2006.[citation needed] In the 2007 Strategic Vision Total Quality Awards, Hyundai Motors leads the most vehicle segments in Strategic Vision¶s Total Quality Index, measuring the ownership experience. They attempt to measure more than just the number of problems per vehicle. Hyundai tops in Strategic Vision Total Quality Awards. For the
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first time ever, Hyundai has risen to share the position of having the most models leading a segment. three models with the top Total Quality Index (TQI) score in their segments, including the Hyundai Azera, Entourage, Santa Fe.[19][20] In 2007 at the New York International Auto Show, Hyundai unveiled its V8 rear-drive luxury sedan called the Concept Genesis to be slotted above the Azera in the Hyundai line-up. This concept made its American debut in mid-2008. The Genesis reintroduced rear-wheel drive to the Hyundai range following a long period of only producing front-wheel drive cars.[21] In 2007 at the Los Angeles International Auto Show, Hyundai unveiled its second rear-drive concept car, the Concept Genesis Coupe, will be Hyundai¶s first sports car due to make its debut in early 2009.[22] In 2008, Hyundai Santa Fe and Hyundai Elantra were awarded 2008 Consumer Reports "top picks". The magazine's annual ratings, based on road tests and predicted safety and reliability are considered highly influential among consumers. [23] The Hyundai Elantra was Consumer Reports' top-ranked 2008 vehicle among 19 other compacts and small family cars, beating out the Honda Civic, Toyota Corolla and Toyota Prius.[24] In 2008, at the North American International Auto Show, the production version of the luxury & performanceoriented Hyundai Genesis sedan made its debut, dealerships will have the Genesis as soon as summer 2008. In 2008, at the New York International Auto Show, Hyundai debuted its production version of the performanceoriented rear-drive Hyundai Genesis Coupe, slated to hit dealerships in early 2009. In 2009 Hyundai announced the five-door hatchback variant of the Elantra compact sedan will carry the name Elantra Touring when it goes on sale in the spring as a 2009 model. [25] In 2009, the Hyundai Genesis luxury sedan was named 2009 North American Car of the Year, the first for Hyundai.[26] The Genesis has received a number of well-recognized automobile awards worldwide. It also won the 2009 Canadian Car of the Year after winning its category of Best New Luxury Car under $50,000.[27] The Hyundai's V8 Tau engine in the Genesis, which develops 375 hp (280 kW) on premium fuel and 368 hp (274 kW) on regular fuel, received 2009 Ward's 10 Best Engines award.[28] In 2009, 4 models from Hyundai and two from Kia, earned the Top Safety Award by IIHS.[29] In 2009, Hyundai/Kia vehicles were named as ³least expensive vehicles to insure´. Hyundai/Kia vehicles were the least expensive to insure and occupied the 'top five' least expensive slots, said Insure.com.[30] In 2009, According to a preliminary report from the Environmental Protection Agency published in November 2009, which is based on 2009 pre-model year production projections provided by automakers,[31] Hyundai, at an average of 23.4 mpg-US (10.1 L/100 km; 28.1 mpg-imp), is the second most fuel-efficient automaker in America, after Honda's combined U.S. fleet of Honda and Acura models at an average of 23.6 mpg-US (9.97 L/100 km; 28.3 mpg-imp).[32] In 2010, According to Consumer Reports reliability survey, Hyundai (including Kia) ranked 4th best automaker in US. The ratings reflect the performance, comfort, utility and reliability of more than 280 vehicles that the magazine recently tested.[33] In 2010, the Hyundai Equus made its North American debut at the North American International Auto Show [edit] US sales
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Calendar Year Sales 2000[34] 244,391 2001 346,235 [35] 2002 375,119 2003 400,221 [36] 2004 418,615 2005 455,012 2006 455,520 [37] 2007 467,009 2008 401,742 2009 435,064 [edit] Hyundai in Canada In 1989, Hyundai Auto Canada Inc. opened a stamping and assembly plant in Bromont, Quebec, employing 800. The plant cost $387.7 million, with Quebec and Canadian federal government subsidies of $131 million.[38] The plant was designed to manufacture approximately 2000 Hyundai Sonatas per week.[38] Subsequently, Chrysler and Hyundai considered a joint venture that would have Chrysler rebranding the Sonata manufactured at Bromont ² only to later announce the deal had failed.[39] The Bromont plant was operational for four years before it closed ² with Hyundai's sales unable to support the plant. With boost in Sales in 2009, Hyundai Auto Canada Inc. is currently planning to build a new plant in Canada and resume production in Canada.[40] Hyundai subsequently sold the plant,[40] which was eventually purchased by AAER Inc., a manufacturer of wind turbines based in Quebec.

[edit] Hyundai In India

Hyundai's manufacturing plant at Irungattukottai near Sriperumbudur, India. Hyundai Motor India Limited is currently the second largest carmaker after Maruti Suzuki and largest auto exporter in India.[41] It is making India the global manufacturing base for small cars. Hyundai sells several models in India, the most popular being the Santro Xing, i10 and the i20. Other models include Getz Prime, Accent, second generation Verna, Tucson, and the Sonata Transform. Hyundai has two manufacturing plants in India located at Sriperumbudur in the Indian state of Tamil Nadu. Both plants have a combined annual capacity of 600,000 units.In the year 2007 Hyundai opened its R&D facilty in Hyderabad Andhra pradesh , employing now nearly 450 engineers from different parts of the country.Basically the Hyundai Motors India Engineering (HMIE) gives technical & engineering support in Vehicle development and CAD & CAE support to Hyundai's main R&D center in Namyang Korea.
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[edit] Hyundai in Europe
On November 2008, Hyundai opened its European plant in No ovice, Czech Republic, following an investment of over 1 billion euros and over two years of construction.[42][43] The plant, which mainly manufactures the i30 for the European market, has an annual capacity of 200,000 cars.[44] The new Hyundai plant is 90 kilometers north of Kia Motors' ilina Plant in Slovakia.

[edit] Hyundai in Turkey
Since 1990 Hyundai is active on the Turkish market with the Hyundai Assan Otomotiv joint-venture. In its first time the company was only the local car dealership. After a success on the market, the company has decided to open an plant in zmit. Today it is the fifth largest automaker of the Turkey.

[edit] Hyundai in Egypt
Hyundai cars are manufactured in Egypt also, the local manufacturer of these vehicles is the Ghabbour Group which is located in Cairo. They have a big model range and offers sports models of some car models which are only offered on the Egypt market. Formerly, the company had assembled vehicles from the GM concern.

[edit] Hyundai in China
Main article: Beijing Hyundai Motor A joint venture with Beijing Automotive Group, Beijing Hyundai manufactures localized versions of most Hyundai vehicles, as well as models which are exclusive to the Chinese market. In October 2010, Hyundai signed agreement with Sichuan Nanjun Automobile on setting up a commercial vehicle joint venture²Sichuan Hyundai Motor Co., Ltd.[45]

[edit] Hyundai in Japan
Despite having growing sales worldwide, Hyundai struggled in Japan, having sold only 15,000 passenger cars from 2001 to 2009. Following an announcement on November 2009, Hyundai pulled their passenger car division out of the Japanese market and focused on their commercial vehicle division instead.[46]

[edit] Electric vehicles
Main articles: Hybrid electric vehicle and Electric vehicle Since 2004, Hyundai has suppliedabout 3,000 hybrid versions of its Getz and Accent small cars to government fleets as part of a testing program. The automaker cites a lack of local tax benefits for purchasing hybrids as a barrier to its hybrid development program. But Hyundai expects the tax situation to change in 2009.[citation needed] The new hybrid electric Sonata made its debut at the Los Angeles International Auto Show in November 2008. Hyundai expects to release it in the U.S. market in 2010, featuring lithium-ion battery technology.[47] Hyundai plan to begin producing hybrid electric vehicles in 2009. The company is going to use Hybrid Blue Drive, which includes lithium polymer batteries, as opposed to lithium-ion.[48][49][50] The Avante was be the first
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vehicle to be produced. Other are the Santa Fe Hybrid, the Elantra, Sonata Hybrid (to the U.S. market in 2010) and the Hyundai i20, which will replace the Hyundai Getz. Hyundai began producing the Elantra LPI Hybrid (or Avante in the local market) was launched in the South Korean domestic market in July 2009. The Elantra LPI (Liquefied Petroleum Injected) is the world's first hybrid electric vehicle to be powered by an internal combustion engine built to run on liquefied petroleum gas (LPG) as a fuel. The Elantra PLI is a mild hybridand the first hybrid to adopt advanced lithium polymer (Li±Poly) batteries.[51][52] The Hyundai Blue Will plug-in hybrid has made its U.S. debut at the North American International Auto Show in Detroit 2010.[53][54] In 2010 the company is going to launch the mass-market Hyundai i10 EV. Includes a LG 16 kW·h lithium-ion battery, for 100 miles (160 km) all electric range, and a 49 kW·h electric motor[55] At the 2010 Geneva Motor Show, Hyundai unveiled the i-flow , a concept car using a variant of the BLUEWILL hybrid system. The i-flow Concept uses a 1.7-liter twin-turbo diesel engine along with electric batteries to achieve fuel economy of 3 litres per 100 kilometres (94 mpg-imp; 78 mpg-US). Hyundai says a production car based on the i-flow's design will be in production by 2011.[56] This section requires expansion.

[edit] Environmental record
On April 23, 2008 Hyundai Motor announced the beginning of a five-year project to turn 50 km of infertile land into grassland by 2012. Hyundai is doing so with the help of the Korean Federation for Environmental Movement (KFEM). The project, named Hyundai Green Zone, is located 660 km north of Beijing. The goal of the project is to end the recurring dust storms in Beijing, block desertification and protect the local ecosystem. Local weeds will be planted in the region that have the ability to endure sterile alkaline soil. This is the first environmental project of the company¶s social contribution program.Hyundai also made electric car concept i10 recently.[57][58] Hyundai Motor plans to aid Chevron Corporation in the construction of up to six hydrogen fueling stations that will be located in California, including locations at the University of California-Davis and the Hyundai America Technical Center in Chino. Hyundai is going to provide a collection of 32 Tucson fuel cell vehicles, which are powered by UTC Fuel Cell power plants.[59]

[edit] Motorsport

Alister McRae driving an Accent WRC at the 2001 Rally Finland.
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Hyundai entered motorsport by competing in the F2 class of the World Rally Championship in 1998 and 1999. In September 1999, Hyundai unveiled the Accent WRC, a World Rally Car based on the Hyundai Accent. The Hyundai World Rally Team debuted the car at the 2000 Swedish Rally and achieved their first top-ten result at that year's Rally Argentina, when Alister McRae and Kenneth Eriksson finished seventh and eighth, respectively. Eriksson later drove the car to fifth place in New Zealand and fourth in Australia. In 2001, Hyundai debuted a new evolution of the Accent WRC, which was intended to improve reliability, but the performance of the car was still not good enough to challenge the four big teams (Ford World Rally Team, Mitsubishi, Peugeot and Subaru). However, at the season-ending Rally GB, the team achieved their best result with McRae finishing fourth and Eriksson sixth. For the 2002 season, Hyundai hired the four-time world champion Juha Kankkunen, along with Freddy Loix and Armin Schwarz. Kankkunen's fifth place in New Zealand was the team's best result, but they managed to edge out koda and Mitsubishi by one point in the battle for fourth place in the manufacturers' world championship. In September 2003, after a season hampered by budget constraints, Hyundai announced withdrawal from the WRC and planned to return in 2006, this has never happened though.[60] In 2006, following the announcement that Korea was scheduled to earn a Formula One Grand Prix race, Hyundai announced that they plan to enter the sport. Korea Earned The 2010 Korean F1, but Hyundai did not participate in any ways.[61]

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1.2: History of Automobile Industry
The automobile as we know it was not invented in a single day by a single inventor. The history of the automobile reflects an evolution that took place worldwide. It is estimated that over 100,000 patents created the modern automobile. However, we can point to the many firsts that occurred along the way. Starting with the first theoretical plans for a motor vehicle that had been drawn up by both Leonardo da Vinci and Isaac Newton. In 1769, the very first self-propelled road vehicle was a military tractor invented by French engineer and mechanic, Nicolas Joseph Cugnot (1725 - 1804). Cugnot used a steam engine to power his vehicle, built under his instructions at the Paris Arsenal by mechanic Brezin. It was used by the French Army to haul artillery at a whopping speed of 2 1/2 mph on only three wheels. The vehicle had to stop every ten to fifteen minutes to build up steam power. The steam engine and boiler were separate from the rest of the vehicle and placed in the front (see engraving above). The following year (1770), Cugnot built a steam-powered tricycle that carried four passengers. In 1771, Cugnot drove one of his road vehicles into a stone wall, making Cugnot the first person to get into a motor vehicle accident. This was the beginning of bad luck for the inventor. After one of Cugnot's patrons died and the other was exiled, the money for Cugnot's road vehicle experiments ended. Steam engines powered cars by burning fuel that heated water in a boiler, creating steam that expanded and pushed pistons that turned the crankshaft, which then turned the wheels. During the early history of self-propelled vehicles - both road and railroad vehicles were being developed with steam engines. (Cugnot also designed two steam locomotives with engines that never worked well.) Steam engines added so much weight to a vehicle that they proved a poor design for road vehicles; however, steam engines were very successfully used in locomotives. Historians, who accept that early steam-powered road vehicles were automobiles, feel that Nicolas Cugnot was the inventor of the first automobile.

The automotive industry has certain trends it has to follow, just like fashion designers and musical composers. In times of recession and decreasing sales there is less room to take chances and manufacturers are prone to follow the common pattern as a safer bet rather than releasing a controversial product or idea that might or might not be successful. However throughout the automotive industry's history, great innovators have "boldly gone where no man has gone before" to set new trends which have dynamically altered the industry as a whole.
1880's & early 1900's

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About -The -Import first duty

hundred motor on car vehicles

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ago imported introduced.

-Indian Great Royal Road (Predecessor of the Grand Trunk Road) was conceived.

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First car brought in India by a princely ruler in 1898.

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Simpson

&

Co

established

in

1840.

-They were the first to build a steam car and a steam bus, to attempt motor car manufacture, to build and operate petrol driven passenger service and to import American Chassis in India.

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Railways first came to India in 1850's In 1865 Col. Rookes Crompton introduced public transport wagons strapped to and pulled by imported steam road rollers called streamers. The maximum speed of these buses was 33 kms/hr.

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From 1888 Motors Spirit attracted a substantial import duty. In 1919 at the end of the war, a large number of military vehicles came on the roads. In 1928 assembly of CKD Trucks and Cars was started by the wholly owned Indian subsidiary of American General Motors in Bombay and in 1930-31 by Canadian Ford Motors in Madras, Bombay and Calcutta In 1935 the proposals of Sir M Visvesvaraya to set up an Automobile Industry were disallowed.

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1942 Hindustan Motors Ltd incorporated and their first vehicle was made in 1950. In 1944 Premier Automobiles Ltd incorporated and in 1947 their first vehicle was produced. In 1947 the Government of Bombay accepted a scheme of Bajaj Auto to replace the cycle rickshaw by the auto and assembly started in a couple of years under a license from Piaggio. Manufacturing Programme for the auto and scooter was submitted in 1953 to the Tariff Commission and approved by the Government in 1959.

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In 1953 the Government decreed that only firms having a manufacturing programme should be allowed to operate and mere assemblers of imported CKD units be asked to terminate operations in three years.

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Only seven firms namely Hindustan Motors Limited, Automobile Products of India Limited, Ashok Leyland Limited, Standard Motors Products of India Limited., Premier Automobiles Limited, Mahindra & Mahindra and TELCO received approval. M&M was manufacturing jeeps. Few more companies came up later.

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Government continued with its protectionism policies towards the industry. In 1956, Bajaj Tempo Ltd entered the Indian market with a programme of manufacturing Commercial Vehicles, and Simpson for making engines.

1960's

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In sixties 2 and 3 Wheeler segment established a foothold in the industry. Escorts and Ideal Jawa entered the field in the beginning of sixties. Association of Indian Automobile Manufacturers formally established in 1960. Standard Motors Products of India Ltd. moved over to the manufacture of Light Commercial Vehicles in 1965.

1970's

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Major factors affecting the industry's structure were the implementation of MRTP Act, FERA and Oil Shocks of 1973 and 1979. During this decade there was not much change in the four wheeler industry except the entry of Sipani Automobiles in the small car market.

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Oil Shock of 1973 quickened the process of dieselization of the Commercial Vehicle segment. Three other companies, namely, Kirloskar Ghatge Patil Auto Ltd, Indian Automotive Ltd and Sen & Pandit Engg products Ltd entered the market during 1971-75. They ultimately withdrew in early eighties.

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During the seventies the economy was in bad shape. This and many specific problems affected the Automobile Industry adversely.

1980's - The period of liberalized policy and intense competition

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First phase of liberalisation announced. Unfair practices of monopoly, oligopoly etc slowly disappeared. Liberalisation of the protectionism policies of the Government. Lots of new Foreign Collaborations came up in the eighties. Many companies went in for Japanese collaborations. Hindustan Motors Ltd. in collaboration with Isuzu of Japan introduced the Isuzu truck in early eighties. ALL entered into collaboration with Leyland Vehicles Ltd. for development of integral buses and with Hino Motors of Japan for the manufacture of W Series of Engines.

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TELCO after the expiry of its contract with Daimler Benz, indigenously improved the same Benz model and introduced it in the market. Government approved four new firms in the LCV market, namely, DCM, Eicher, Swaraj and Allwyn. They had collaborations with Japanese companies namely, Toyota, Mitsubishi, Mazda and Nissan respectively.

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In 1983 Maruti Udyog Ltd was started in collaboration with Suzuki, a Japanese firm. Other three Car manufacturers namely, Hindustan Motors Ltd., Premier Automobiles Ltd., Standard Motor Production of India Ltd. also introduced new models in the market.

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At the time there were five Passenger Car manufacturers in India - Maruti Udyog Ltd., Hindustan Motors Ltd., Premier Automobiles Ltd., Standard Motor Production of India Ltd. and Sipani Automobiles.

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Ashok Leyland Ltd. and TELCO were strong players in the Commercial Vehicles sector. In 1983-84 Bajaj Tempo Ltd. entered into a collaboration with Daimler-Benz of Germany for manufacture of LCVs. Important policy changes like relaxation in MRTP and FERA, delicensing of some ancillary products, broad banding of the products, modifications in licensing policy, concessions to private sector (both Indian and Foreign) and foreign collaboration policy etc. resulted in higher growth / better performance of the industry than in the earlier decades.

1990's

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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 liberalisation. Many multinationals like Daewoo, Peugeot, General Motors, Mercedes-Benz, Honda, Hyundai, Toyota, Volvo and Fiat entered the market.

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Various companies are coming up with state-of-art models of vehicles. TELCO has diversified in Passenger Car segment with Indica.

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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.

1.3: Preview of Automobile Industry
The automobile industry, one of the core sectors, has undergone metamorphosis with the advent of new business and manufacturing practices in the light of liberalization and globalization. The sector seems to be optimistic of posting strong sales in the next couple of years in view of a reasonable surge in demand. The Indian automobile market is gearing towards having international standards to meet the needs of the global automobile giants and become a global hub. Players are strategizing to consolidate their position and gradually increase market penetration with the launch of new models, targeting different segments. Since the sector is price driven, huge investment is envisaged to remain competitive through cost advantage, for which indigenization is highly important. The product becomes dearer if it is manufactured using imported parts. IT in the automobile sector plays a crucial role.. Some players are working towards development of efficient production systems that control the entire production process with high precision and accuracy. Such systems working on real time operating systems allow efficient control of different parts of manufacturing and production. It is essential to leverage skills of different engineering disciplines to build these kinds of integrated systems. Analysts foresee high scope in the electronics for auto sector and expect the retailing of such electronics products to contribute a major chunk of future revenues. The government is increasing the research and development (R&D) fund for the automobile industry over and above the Rs 1400 crores earmarked for eight years. All laboratories in the country researching on automobile technology, such as BHEL which is developing cell technology as alternative fuel, have also been brought together through the setting up of a national R & D working group. The group is working out a plan to link all major laboratories across the country to give a thrust to automotive research. Indian automobile sector being a driver of product and process technologies, and has become a excellent manufacturing base for global players, because of its high machine tool capabilities, extremely capable component industry, most of the raw material locally produced, low cost manufacturing base and highly skilled manpower Not only a large number of world manufacturers have set up production bases in India but also a large number of foreign companies are collaborating with the auto component suppliers and vendors. Indian Automobile Components Industry has been making rapid strides towards achievement of world-class Quality Systems by imbibing ISO 9000/QS 9000 Quality Systems whereby the Indian Automotive industry has become more competitive in the export market due to its technological and quality advances, so much so that in quality conscious markets such as Europe and America, it is emerging as a major player, based on its performance. India today exports: Engine and engine parts, electrical parts, drive transmission & steering pats, suspension & braking parts among others. The sector is striding inroads into the rural middle class after its inroads into the urban markets and rural rich. It is trying to bring in varying products to suit requirements of different class segments of customers.

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States like Rajasthan, Uttar Pradesh, Maharashtra, Andhra Pradesh and West Bengal are vying to woo global players with proposals including heavy tax exemptions and to create a more investor friendly regime, each state is proposing to provide all regulatory clearances at express speed. The Government should promote Research & Development in automotive industry by strengthening the efforts of industry in this direction by providing suitable fiscal and financial incentives. The current policy allows Weighted Tax Deduction under I.T. Act, 1961 for sponsored research and in-house R&D expenditure. This will be improved further for research and development activities of vehicle and component manufacturers from the current level of 125%. In addition, Vehicle manufacturers will also be considered for a rebate on the applicable excise duty for every 1% of the gross turnover of the company expended during the year on Research and Development carried either in-house under a distinct dedicated entity, faculty or division within the company assessed as competent and qualified for the purpose or in any other R&D institution in the country. This would include R & D leading to adoption of low emission technologies and energy saving devices. Government will encourage setting up of independent auto design firms by providing them tax breaks, concessional duty on plant/equipment imports and granting automatic approval.
Allocations to automotive cess fund created for R&D of automotive industry shall be increased and the scope of activities covered under it enlarged.

1:4 Automobile industry Wheels of Change
India had its date with this wonderful vehicle first time in 1898. Then for the next fifty years, cars were imported to satisfy domestic demand. Between 1910 and 20's the automobile industry made a humble beginning by setting up assembly plants in Mumbai, Calcutta and Chennai. The import/assembly of vehicles grew consistently after the 1920's, crossing the 30,000 mark in 1930. In 1946, Premier Automobile Ltd (PAL) earned the distinction of manufacturing the first car in the country by assembling 'Dodge DeSoto' and 'Plymouth' cars at its Kurla plant. Hindustan Motors (HM), which started as a manufacturer of auto components graduated to manufacture cars in 1949. Thanks to the Licence Raj which restricted foreign competitors to enter the Indian car market, Indian roads were ruled by Ambassador Car from Hindustan Motors and the Fiat from Premier Auto Ltd. for many of the initial years. In 1952, the GOI set up a tariff commission to devise regulations to develop an indigenous automobile industry in the country. After the commission submitted its recommendations, the GOI asked assembly plants, which did not have plans to set up manufacturing facilities, to shut operations. As a result General Motors, Ford and other assemblers closed operations in the country. The year was 1954 and this decision of the government marked a turning point in the history of the Indian car industry. The GOI also had a say in what type of vehicle each manufacturer should make. Therefore, each product was safely cocooned in its own segment with no fears of any impending competition. Also, no new entrant was allowed even though they had plans of a full-fledged manufacturing program. The restrictive set of policies was chiefly aimed at building an indigenous auto industry. However, the restrictions on foreign collaborations led to limitations on import of technology through technical agreements. In the absence of adequate technology and purchasing power, the car industry grew at a snail's pace in the 60 s. The demand for cars in 1960 was to the tune of 15,714. In the next two decades the number increased to 30,989 i.e. a CAGR of only 3.5 per cent.

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The other control imposed on carmakers related to production capacity and distribution. The GOI control even extended to fixation of prices for cars and dealer commissions. This triggered the start of a protracted legal battle in 1969 between some carmakers and GOI. Simply put, the three decades following the establishment of the passenger car industry in India and leading upto the early 1980s, proved to be the 'dark ages' for the consumer, as his choice throughout this period was limited to two models viz. Ambassador and Padmini. It was only in 1985, after the entry of Maruti Udyog, that the car makers were given a free hand to fix the prices of cars, thus, effectively abolishing all controls relating to the pricing of the end product. In the early 80's, a series of liberal policy changes were announced marking another turning point for the automobile industry. The GOI entered the car business, with a 74% stake in Maruti Udyog Ltd (MUL), the joint venture with Suzuki Motors Ltd of Japan. The very face of the industry was changed for ever in 1983 with the entry of public sector Maruti Udyog in a joint venture with the Suzuki Corporation of Japan. Car sales grew by 42 per cent yoy in 1985 after Maruti 800 was launched. Thanks to MUL car sales registered a CAGR of 18.6 per cent i.e. from 1981 to 1990. In 1985, the GOI announced its famous broadbanding policy which gave new licenses to broad groups of automotive products like two and four-wheeled vehicles. Though a liberal move, the licensing system was still very much intact. MUL introduced 'Maruti 800' in 1983 providing a complete facelift to the Indian car industry. The car was launched as a "people s car" with a price tag of Rs 40,000. This changed the industry's profile dramatically. Maruti 800 was well accepted by middle income families in the country and its sales increased from 1,200 units in FY84 to more than 200,000 units in FY99. However in FY2000, this figure came down due to rising competition from Hyundai's 'Santro', Telco's Indica and Daewoo's 'Matiz'. MUL extended its product range to include vans, multi-utility vehicles (MUVs) and mid-sized cars. The company has single handedly driven the sales of cars in the country cornering around 79.6% market share. With increasing competition from new entrants, this market share has plummeted to almost 62% in FY2000. A brief 3-year downturn till 1993 and car sales bounced back to register a 17 per cent growth rate in 1997.Since then, the economy slumped into recession and sales of cars remained quite stagnant FY97 and FY99. The Financial year 2000 has, however, been the turnaround year for the Auto industry with the economy looking up. The automobile industry, crossed the half million mark for the first time in FY2000. Overwhelmed by newer models from new and existing players had led to an impressive shift from a constrained supply situation to a surplus one. Within the past decade, about 30 models have entered the Indian market with a number of models still awaiting launch. The de-licensing of auto industry in 1993 opened the gates to a virtual flood of international auto makers into the country with an idea to tap the large population. Also the lifting of quantitative restrictions on imports by the recent policy is expected to add up to the flurry of foreign cars in to the country. The Indian Automobile industry registered one of the strongest growth rates in FY 04. Aided by sustained economic recovery, the industry registered high growth rates in all major segments.

The growth story was led by Medium and Heavy Commercial Vehicles (M&HCVs) registering a 40% growth while Light Commercial Vehicles (LCVs) recorded a 32% jump in total sales. Passenger cars also registered an impressive 34% growth in FY 04 and total sales volume crossed the 1 million mark for the first time. Interestingly, two wheelers registered the lowest but healthy growth rate of 13% in FY 04. While motorcycle volumes tripped on a high base, scooters registered a 10% growth after 4 years of continuous decline. Three wheelers grew by 23% in FY 04.

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Apart from strong economic growth in all sectors, low interest rate regime, normal monsoon, continued infrastructure investment, fiscal measures like cut in excise duty (in case of cars), etc provided impetus for the growth. The year also saw a sharp 56% rise in export volumes with all the sectors registering more than 40% growth, signalling the rising international competitiveness of the industry. Profitability improvements were recorded in companies across segments driven by rise in volumes and lower interest costs to some extent, notwithstanding the rise in prices of certain inputs like steel.

Though the peak customs duty had been reduced to 20% in January 2004 and Special Additional Duty was abolished, the domestic industry still enjoys adequate protection, with no import threats. The potential borne by the industry is well exhibited by the growing number of international players setting up base in India and increasing competitiveness in the industry. Many companies have entered the car manufacturing sector, to tap the middle and premium end of car industry.

1.5: Background of Automobile Industry 
The automobiles industry for many years operated in a seller's market. In such a scenario the manufacturer could offer outdated models and also raise prices at will. Little or no attempt was made to control costs or to offer new products. Lack of innovation restricted the consumer¶s options to the models offered by these companies. 
The number of manufacturers (domestic and foreign) increased dramatically after the de-licensing of the sector. Increased competition has forced companies to focus on cutting costs, improve technology and styling through research. It has also constrained them to limit price increases. 

Availability of easy credit facilities also resulted in creating demand for automobiles. The car financing market has boomed from a turnover of Rs 7,000 m in FY95 to nearly Rs 35,000 m in FY97.

Structure 
The Indian automobile industry can be broadly classified into: 2 /3 Wheelers Passenger Cars Commercial Vehicles (LCV/HCV/MCV) UV (Utility vehicles) Tractors

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The models in the car market can be fitted to different segments as given below:

Category Economy segment (upto Rs 0.25mn) Mid-size segment (Rs 0.25-0.45 mn)

Models Maruti Omni, Maruti 800 etc. Fiat Uno, Hyundai Santro, tata Indica, Maruti Alto etc.

Luxury car segment (Rs 0.45- 1mn)

Tata Indigo, Honda City, Mitsibushi Lancer, Ford Ikon, Opel Astra, Hyundai Accent & others Mercedes Benz & other imported models

Super luxury segment (above Rs 1mn)

The economy segment has a very large foothold over the Indian automobile market as compared to the mid-size and luxury segment.

Segment Economy Mid-size and luxury

Market Share (%) 90.2 9.8

Source: SIAM/ Auto Car India  Increased urbanisation, low pricing policies, improvement in products and technology have fuelled demand for 4-wheelers. The markets are clearly segmented between economy models and premium models. The easy availability of finance and increased levels of disposable incomes has led to higher demand for premium models. Rural areas have also become an exciting market to cater to.  The growth of the economy has also resulted in a shift in consumer preferences in each of the segment. Gradual shift can be seen in buyers from mopeds to economy scooters, from economy scooters to premium and from premium to motorcycles

Figure -Structure of Passenger Vehicle Market (India)

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Trends in Passenger Car / Utiltity Vehicle Sales 

The passenger car segment has seen rapid growth on the back of rise in disposable income, increased availability of consumer finance, and reduction in excise and customs duties. Post-1991, this segment has seen maximum foreign investment. There is a clear segmentation of passenger cars based on price and size. While the lower and medium range cars (Maruti, Ford, Cielo) have been moderately successful, luxury cars such as Mercedes have found the going tough.  The CV segment is directly linked to industrial production and foreign trade and is therefore subject to cyclical fluctuations of the economy. The demand for CVs is related to growth in movement of goods transported and freight rate levels, both of which are linked to level of production.

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Commercial Vehicle Sales Growth v/s IIP Growth 

Demand for utility vehicles and tractors come from rural India. These vehicles have witnessed steady demand growth over the past few years due to successive monsoons, better procurement prices, improved irrigation facilities, and availability of finance.  A strong in-house R&D capability allows a manufacturer to develop and introduce products at lower prices, thus saving costs of importing technology. However, Indian companies spend very little on R&D. Availability of quality components is another factor that determines smooth production without bottlenecks. High rejection rate of auto components has prompted several global majors like Ford, to get their international suppliers

1.6: Features of the automobile industry
The structure of the auto market has been changing at a faster pace along with the global changes in the Industry. There are several global automobile companies who were averse to come and invest in India ten years ago, now have kept India as a priority destination for their investment. Along with the entry of multinational auto companies, the profile of domestic auto companies too witnessed a structural change. The stiff competition to access market prompted companies to go for different models with differing qualities and efficiency. The market too expanded at a rapid pace with the entry of soft financial assistance from several financial institutions to middle income households.
MNCs need to carefully plan their entry into emerging markets. Early commitment to a market often results in first mover advantages that are difficult to replicate. On the other hand, later entrants have the opportunity to learn from the mistakes of the first entrant. The Indian car market offers useful lessons in this context. In the 1990s, the Indian Government removed several restrictions in a bid to attract foreign investors into the automobile industry. Among the first to enter was Daewoo of South Korea, with its model Cielo, targeted at the upper end of the market. Other MNCs such as Ford and General Motors also entered the Indian market, followed by Hyundai, Honda, Toyota, Volkswagen etc. Most MNCs began their operations in India as joint ventures with local partners. Examples include Suzuki, G.M, Ford and Daewoo. With the exception of Suzuki, these joint ventures have become fully owned subsidiaries of the foreign partners. In all these cases, the local partners have just not had enough resources to chip in whenever the equity base has been expanded. Consequently, the foreign partners have pumped in the additional capital and raised their equity stakes With the liberalization of the India economy, the Rs 18,500 crore Indian car market is being opened up to foreign investors. Several companies are setting up or have already set up operations in India to cater to the Indian market. There are several strategies by which a foreign

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enterprise can set - up Indian operations. This module aims to give the various entry options available to a foreign investor, especially for foreign direct investment. This module does not deal with portfolio investments. Broadly, entry strategies may be classified into two major types :1. A foreign investor may directly set up its operations in India through a branch office or a representative office or liaison office or project office of the foreign Company ; or 2. It may do so through an Indian arm i.e. through a subsidiary company set - up in India under Indian laws.

Generally, setting up operations through an Indian arm is advisable, especially if the quantum of investment is huge. The impact of India s initiatives in economic liberalization and globalization (post 1991) is most apparent in the automotive sector. Automotive industry is a key driver of economic growth contributing around four to five percent to the Indian GDP. Introduction of reforms and entry of international companies has intensified competition in the Indian automotive sector. This has resulted in the transformation of a seller s market (created mainly due to the Indian government s protectionist policies) into a buyers market. The changing structure of this industry has posed many challenges and opportunities to the market participants. Previously, Indian automotive market was characterized by weak air pollution regulations. In addition, low labor cost of maintenance and the psyche of Indian consumer to delay the discarding of the old vehicle reduced the scrap rate. All these factors resulted in prolonged operational existence of vehicle on Indian roads. The benefit of this practice is the comparatively higher revenues for automotive component suppliers, due to increased demand in the aftermarket. But recent pronouncement of GoI to prohibit polluting vehicles in the National Capital Region (NCR) is likely to force the old polluting vehicles off road. This will reduce the average life span of vehicles on road and the overall impact would be reduced per vehicle parts consumption. Two wheelers generate the highest volumes and are more popular in rural and semi urban markets primarily due to lower income levels and poor road conditions. Therefore, these could be classified as entry-level vehicles. Within two wheeler segments, progressively mopeds are likely to be replaced by motorcycles. With the growth in the family income of these rural and semi-urban buyers and the option of numerous used cars, it is expected that a significant shift would take place from two wheelers (mainly scooters) to four wheelers. Lucrative finance schemes have made the purchase of mid-sized cars really affordable. The present owners of the small car are likely to graduate to mid-size cars mainly due to declining importance of small car as status symbol and the marginal increment in repayment installment in the finance options.

Good performance of the economy has led to higher all round growth leading to high GDP growth of 8%. Excise duty reduction on passenger vehicles helped to reduce the ultimate price to the customer. Brisk activities on infrastructural development will give a boost to the automobile industry. Softening of interest rates and improved financing of second hand vehicles have made the purchasing of cars financially viable. Availability of finance in rural and semi-urban areas have led the low-end customers to put money in the purchase of vehicles. Emergence of India as a manufacturing hub for the automobile industry is a good sign for the country s future prospects.

The automotive industry performance is closely linked to industrial growth. It is hoped that industrial growth would be around 7 per cent during the year 2003-04 as against around 6.5% last year. Agriculture output during the year 2003-04 increased by over 10% as compared to ()3.2% in the previous year. Today we are fourth largest economy (USD 2.5 trillion) in the world after USA, Japan and China in terms of purchasing

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power parity. The outlook for the year 2004-05 is promising and it is expected that the current growth rates of GDP and industrial output will be sustainable, which would ensure robust growth in the automotive sector. Good performance of the economy has led to higher all round growth leading to high GDP growth

1.7: The landmarks along the way...
1928- The first imported car was seen on Indian roads 1942- Hindustan Motors incorporated 1944- Premier automobiles started
1948- First car manufactured in India 1953- The Government of India decreed that only those firms which have a manufacturing program should be allowed to operate 1955- Only seven firms, namely, Hindustan Motors Limited, Automobile Products of India Limited, Ashok Leyland Limited, Standard Motors Products of India Limited. Premier Automobiles Limited, Mahindra & Mahindra and TELCO received approval. 1960 - 1970 - The two, three wheeler industries established a foothold in the Indian scenario. 1970 - 1980 - Not much change was witnessed during this period. The major factors affecting the industry were the implementation of the MRTP Act (Monopolies and Restrictive Trade Practices Act), FERA (Foreign Exchange Regulation Act) and the Oil Shock of 1973 and 1979. 1980 - 1990 - The first phase of liberalization was announced by the Govt. -With the liberalization of the Government's protectionist policies, the advantages hitherto enjoyed by the Indian car manufacturers like monopoly, oligopoly, slowly began to disappear. 1991 - Under the Govt.'s new National Industrial Policy, the license raj was dispensed with, and the automobile industries were allowed to expand freely. 1993 - With the winds of liberalization sweeping the Indian car market, many multinationals like Daewoo, Peugeot, general Motors, Mercedes-Benz and Fiat came into the Indian car market. 1997 - The National Highway Policy was announced which will hopefully have a positive impact on the automobile industry. The Government also laid down the emission standards to be met by car manufacturers in India in the coming millennium. There were two successively stringent emission levels to be met by April 2000 and April 2005, respectively. These norms were benchmarked on the basis of those already adopted in Europe, hence the names Euro I (equivalent to India 2000) and the Indian equivalent of Euro II. 1999 - The Hon ble 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 2004 - Tata Motors becomes the first Indian auto company to be listed on the New York Stock Exchange.

2.1: Auto policy of the Government of India

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VISION To establish a globally competitive automotive industry in India and to double its contribution to the economy by 2010.

POLICY

OBJECTIVES

This policy aims to promote integrated, phased, enduring and self-sustained growth of the Indian automotive industry. The objectives are to:-

y y y

Exalt the sector as a lever of industrial growth and employment and to achieve a high degree of value addition in the country; Promote a globally competitive automotive industry and emerge as a global source for auto components; Establish an international hub for manufacturing small, affordable passenger cars and a key center for manufacturing Tractors and Twowheelers in the world;

y y y y y

Ensure a balanced transition to open trade at a minimal risk to the Indian economy and local industry; Conduce incessant modernization of the industry and facilitate indigenous design, research and development; Steer India's software industry into automotive technology; Assist development of vehicles propelled by alternate energy sources; Development of domestic safety and environmental standards at par with international standards.

SIAM welcomed the announcement of Auto Policy, and feels that the policy would serve as a reference document for all stake holders and other interested parties. The Auto Policy has spelt out the direction of growth for the auto sector in India and addresses most concerns of the automobile sector, includingPromotion of R&D in the automotive sector to ensure continuous technology

y y y

upgradation, building better designing capacities to remain competitive; Impetus to Alternative Fuel Vehicles through appropriate long term fiscal structure to facilitate their acceptance; Emphasis on low emission fuel auto technologies and availability of appropriate auto fuels and

encouragement to construction of safer bus/truck bodies - subjecting unorganised sector also to 16% excise duty on body building activity as in case of OEMs The policy has rightly recognised the need for modernising the parc profile of vehicles to arrest degradation of air quality. The terminal life policy for commercial vehicles and move toward international taxing policies linked to age of vehicles, are steps in the right direction. SIAM has always been advocating encouragement of value addition within the country against mere trading activity. However, this aspect has not been fully addressed. The Auto Policy allows automatic approval for foreign equity investment upto 100% in the automotive sector and does not lay down any minimum investment criteria. The recommendation of promoting passenger cars of length upto 3.8 meters through excise benefits is not in line with the free market concept and may lead to market distortion. However, with the Auto Policy in place, the automotive industry would get further fillip to become vibrant and globally competitive. The industry would get the required support from other Ministries and departments of Government of India in achieving the goals laid down in the auto policy

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2.2: Role of Government in Automobile Industry

The government is making efforts to overcome the constraints at their research centers for automobile industry. India can also learn from countries like Japan that are already using these technologies for a wide number of applications. The Indian auto industry should launch programmes for market development and a wider acceptance of alternative energy-driven vehicles in India. It should also work in tandem with the government to make India a world leader in this area.

Indian automobile industry is also consistently trying to meet the emerging challenges of environmental pollution and better safety standard. According to a study, automobile exhaust contributes more than 60% of the atmospheric pollution in metropolitan cities, with the growing number of vehicles, the pollution in the cities is continuously increasing. Government initiated controls by notifying emission standard from the year 1992 under which were furthers tightened in April 1996 under the Motor Vehicles Act. Euro-I emission norms have already been made applicable throughout the country and Indian is poised to induct Euro-II norms across the country by April 2005. Form that date 7 metropolitan cities are going to switch over to Euro III norms. To meet this emerging challenges of newer emission norms Indian automobile industry has already braced itself up with new investment and fresh technological induction.

With the growing number of vehicles, the pollution in the cities is ever increasing. Government initiated controls by notifying emission standards from the year 1992 which were further tightened under the Motor Vehicle Act. For meeting these norms, unleaded petrol was also introduced in metropolitan cities from 1995, which enabled fitments of catalytic convertors on new petrol driven vehicles. The norms are being further tightened from April,2000 when India s stage one norm equivalent to Euro-I will become effective. For 2-wheelers, India has announced one of the tightest norms in the entire world. In the national capital territory region of Delhi, India s stage 2 norms equivalent to Euro-II norms, will be effective from April, 2000, as per the order of Hon ble Supreme Court. This would apply to passenger cars. The government seems most keen to hand over a huge replacement market on a platter to the automobile industry without ensuring that manufacturers take responsibility of the emission performance of the vehicles they produce for its useful life. In fact the most important action point that was recorded after the ministerial consultation was that manufacturers would have to give emissions warranty for two- wheelers from But ultimately, the government could not muster enough courage to push the mighty automobile industry and enforce it.

Government will encourage and assist establishment of specialized training institutes for the automobile sector through the active association of interested automobile industries. These institutes will be set up in Bidadi Industrial area and Dharwad Growth center. The Institute will be managed by the participating automobile industries and will train skilled category of auto workers, in specified skill areas such as painting, welding, auto mechanical, etc. It also is making an effort abe to enlist the support of multilateral aid institutions to provide part of the funding for this project, which promises tremendous environment-improvement benefits for the vehicle, which create pollution.

The policy of broadbanding capacities in the eighties led to increased utilization of capacity for four-wheelers in the industry.

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The liberal policy on foreign participation through technical and financial collaboration in early eighties led to substantial product upgradation and introduction of new models. But it was alleged that the policy was discriminatory in favor of MUL, while others like Telco, PAL, HM were denied permission to produce cars in collaboration with Japanese companies. The GOI controls the car sector by way of framing policies on depreciation norms, import duty on cars and parts used in it, petrol prices and import duty of steel. During the era of socialist inspired controls, the government protected the car industry from new entrants by making effective use of licenses. However, after liberalization and with the consequent opening up of the auto sector in 1992-93, the license raj ceased to exist . The perception of a car as a luxury good lead to heavy excise duty on cars. The excise duty doubled from 25% in FY87 to 55% in FY91. Till 1987, the GOI followed a discriminatory policy so as to charge lower duty on fuel efficient car with engine capacity of less than 1000cc. This helped MUL to price its car at a lower price in comparison to others. But with lobbying from PAL and HM government withdrew the provision in 1987. But with the onset of the liberalization process in the early nineties, the government has continually rationalized the excise duty regime. Presently, there is a duty of 40% (16% + 24%) on motor vehicles, designed for transport of not more than six persons (excluding the driver). On vehicles designed for transport of more than six persons, but not more than 12 persons, the duty is 32% (16% + 16%). Over and above the excise duty, cess by the Central Government, states are now charging a uniform sales tax of 12%. This came in being after the 15th of May 2000. Earlier, states used to charge sales tax varying from 3 to 14%. But MUL vehicles receive favorable treatment in terms of sales tax as well. In line with its treatment for luxury items import duties for car have been maintained high. In the 80's, import duties varied between 150 to 200% based on the engine capacity of a car. The import duty on cars and components has come down in the last few years in line with general reduction in import tariffs. In the FY98 budget, the import duty on cars has also been further brought down from 50% to 40% ad valorem. Substantial reduction in import duty has been extended in the budget FY98 for import of certain items which would help the industry to reduce the emission level of vehicles. The import duty on catalytic converters and parts thereof has been reduced from 25% to 5%. The duty on CNG kits and parts thereof have been reduced from 10% to 5%. The import duty on auto components will be a key factor in deciding the final pricing of cars as new ventures start with about 50% indigenisation levels. The reduction in import duty on steel in the last few years has helped the industry in reducing raw material costs as major steel requirement of car industry was imported. Even today, all CKD/SKD imports include metal pressed body panels.

2.3: Impact of union Budget 2004-05

Budget Proposals / Measures
y y

No change in basic excise duty on automobiles other than tractors Peak rate of customs duty to be maintained at 20%

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y y y y y y y y y

Automobile companies entitled to 150% deduction of expenditure on in-house R&D facilities Reduction in customs duty for alloy and non alloy steel to 15% and 10% respectively. Excise duty on steel increased to 12% from 8%. Indications of continuing benign interest rate regime. Educational cess of 2% on excise, customs duties and Income Tax. Likely implementation of VAT from April 1, 2005 Strong thrust towards sustainable rural economic growth. Reduction in customs duty on copper as well as some other metals to 15%. Consortium of banks formed to ensure speedy conclusion of loan agreements and implementation of infrastructure projects.

Budget impact:
Tractor manufacturers will benefit from increased demand for tractors once they pass on the benefits of excise duty exemption to the end consumers. The industry has just come out of a three-year slump, having registered a volume growth of 10% in FY04. Thus, the current exemption is likely to give a further boost to demand. The target of doubling the agricultural credit in three years is also likely to make more funds available to the farmers for investment in farm mechanisation. With major auto companies spending sizeable amount on product development and in-house R&D expenditure in recent times, deduction of 150% allowed on the same will encourage further R&D investments. With cost efficiency no longer the domain of any single player, future survival will depend upon the capability to offer more technologically competent products. From this perspective, the current move is a step in the right direction. The government has pushed for speedy implementation of infrastructure projects, which is a good sign for the auto industry, especially the CV manufacturers. In line with the international experience, improvement in road infrastructure will translate into increased demand for higher tonnage CVs. Reduction in customs duty on alloy and non alloy steel would have a positive impact on the auto components and automobile industry. However, it would be nullified to some extend by increase in excise duty on steel.

R&D sop will also boost investments in technology related areas. Cess of 2% may result in increase in end product prices if the manufacturers decide to pass on the hike.

Rural thrust is likely to result in long term increase in demand of automobiles. Favourable economic scenario, renewed impetus on infrastructure and thrust on rural economy are likely to sustain healthy growth rates across segments.

Overall, no significant impact for the automobile industry (other than tractors).

3: Demand
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The demand for cars in the past was supply driven as demand did not match supply. This led to high premium and long waiting periods for the cars. But change in government policies coupled with aggressive capacity additions and upgradation of models by MUL in the early nineties led to increase in supply and subsequently reduced the waiting periods for economy cars. The demand for cars was suppressed by various supply constraints. The demand for cars increased from 15,714 in FY60 to 30,989 in FY80 at a CAGR of only 3.5%. The entry of Maruti Udyog Ltd (GoI-Suzuki JV) in 1983 with a "peoples" car and a more favorable policy framework resulted in a CAGR of 18.6% in car sales from FY81-FY90. After witnessing a downturn from FY90 to FY93, car sales bounced back to register 17% growth rate till FY97. Since then, the economy slumped into recession and this affected the growth of the automobile industry as a whole. As a result car sales remained almost stagnant in the period between FY97 and FY99. CAGR recorded during the FY94-FY99 period was 14.4%, reaching sales of 409,624 cars in FY99. However, during FY2000, with the revival of economy, the segment went great guns posting a sales growth of 56%yoy. The table below indicates the past sales trend for cars -

Cars Volume Growth %yoy

FY94 209,203 27.0

FY95 264,822 27.0

FY96 345,486 30.0

FY97 410,992 19.0

FY98 417,736 2.0

FY99 409,624 -2.0

FY2000 638,815 55.8

Source : SIAM

The demand for cars is dependent on a number of factors. The key variables are per capita income, introduction of new models, availability & cost of car financing schemes, price of cars, incidence of duties and taxes, depreciation norms, fuel cost and its subsidization, public transport facilities etc. The first four factors viz, increase in per capita income, introduction of new models, availability & cost of car financing have positive relationship with the demand whereas others have an inverse relationship with demand for cars. The demand for cars in the future can be estimated with the help of making use of macro economic variables like growth in GDP, per capita income etc. or house hold penetration technique. An attempt is made to estimate the potential demand for passenger cars based on the household penetration level of passenger cars as explained in Annexure 4 of the report. The demand for cars in the future is expected to come predominantly from the existing two-wheeler owners who will be upgrading to a fourwheeler, due to rising income and necessity of car for personal transportation purposes. Therefore, excluding the owners of mopeds, the potential demand for cars in the next fifteen to twenty years can be taken as 50% of the existing two-wheeler population of around 28mn units. But with the release of new models in the higher end of the economy segment, the supply of second hand economy cars is expected to increase substantially, which will be costing just about two times the price of premium range two-wheelers. This could affect the demand for first hand/new cars. Also, with cross demand from utility vehicles, availability of finance and other factors the above mentioned potential for cars will be difficult to realize. Growth in the segment thus is expected to hover around 15-20%yoy.

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The dominance of economy segment will continue in the future as it will provide large volume to Indian car industry. This is because a majority of customers for cars will graduate from two-wheelers. The demand for mid-sized and premium cars is expected to rise as new models enter the market, income levels rise and present car owners upgrading from the economy segment to higher end cars.

Supply
The supply of cars in Indian industry till 1991 was dependent upon the production capacity of individual players. The production of cars has increased from 42,475 units to 181,420 units from 1981 to 1991 respectively. The growth in production of cars has varied in the last three decades from just 1% in 1970-80 to 21% in 1980-90 and above 15% in 1991- 96. The table below gives the production numbers of passenger cars in the past few years.

Cars Production Growth %yoy

FY94 207,658 27.2

FY95 264,468 27.4

FY96 348,146 31.6

FY97 407,539 17.1

FY98 401,002 (1.6)

FY99 390,355 (2.7)

FY2000 577,243 32.4

Source: SIAM

The major increase in production of cars in the 80's was due to the entry of MUL in 1983, which helped increase car production by 20,000 to 30,000 cars per annum till the early nineties. With the entry of MUL, the face of the passenger car industry changed forever. Existing producers who had operated in a protected, high margin environment faced the prospect of not just diminishing market share, but a shift in focus from producing vehicles to selling them. But MUL made use of the opportunity open to its technologically superior product and increased its capacity from 100,000 cars in FY90 to 240,000 cars in FY96 and 350,000 cars in FY98. The opening of economy in 1993, attracted world majors who joined hands with existing auto majors, to start their operations at the earliest. The first ones to enter the field were Mercedes Benz in joint venture with Telco to manufacture E220, E250D models, Peugeot in JV with PAL to manufacture Peugeot 309L, Fiat in JV with PAL to manufacture Fiat Uno. This has helped in increasing the number of models available to the customer from 8 to 30 and hence provided a wide choice to him. This has also helped in reducing the average waiting period and premium on cars, which were a part and parcel of car cost in the eighties.

Capacity
The present production capacities is detailed in the table below. This has increased from an estimated 600,000 units in FY98 to the present 727,000 units in FY2000.

Car Capacity Maruti Udyog Hyundai

FY2000 250,000 110,000

Expected 350,000 130,000

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Telco Daewoo Ford India Fiat India General Motors Honda Siel Hindustan Motors Total

100,000 72,000 50,000 60,000 25,000 30,000 30,000 727,000

150,000 130,000 70,000 60,000 100,000 30,000 50,000 1,070,000

Thus, capacity utilization in FY2000 stands at 79.4%. This is still better than utilization levels the world over which stands at around 40%. Production capacities are expected to increase in the next two years as players introduce new models. The major increase in supply, as was witnessed in FY2000, will be in the mid-size and luxury segment. The supply in the future, taking into account the plans announced by the car majors are expected to grow to 1,070,000 cars by 2002. The segment which has seen a number of new entrants in the recent past will see two new models from the stable of Maruti namely the 'Alto', which will be available in the 800cc and 1000cc configuration. However, industry sources have indicated that after the hectic action of the past two years, this segment will slowly witness some stability in terms of sales volumes and prices. The entry of new players is expected to create a marketing warfare in the car industry. A start has already been made by sharp reduction in prices of Daewoo 'Cielo' and Maruti 800. Lately, the price of Wagon R was also lowered by MUL to face the intensifying competition. However, with manufacturers having to comply with Euro emission norms, car manufacturers have sold their products at lowered margins. This is expected to affect their ability to reduce prices in the future. Increased support through finance from auto manufacturers was quite evident in FY2000. This has and will in the future induce existing owners of cars to go for technologically superior products in the same segment leading to sharp drop in prices of second-hand cars. This will also create a platform for upgradation of existing two-wheeler owners to four-wheelers. The luxury segment will see more new entrants namely Toyota of Japan, Skoda of Czech Republic and Proton of Malaysia in the years to come. Recently, companies like MUL, GM and Hindustan Motors have come out with new models to cover the present gap in the segment. Therefore, the customer will be having a wider choice to choose depending on his specific needs

Indian Automobile Industry
An Indian car as one which has been conceived and designed in India, has at least 85% of its components 'Made in India', by an Indian company. The Indian passenger car industry as we see today is relatively recent in origins. Except the ubiquitous Ambassador and the Premier Padmini there was not much moving around with an Indian tag. The official mascot of the Indian political system, the Triassic-era Ambassador has little Indian-ness in it. To start with, the name isn't Indian and that's only the tip of the iceberg. The design came from Morris Motors and the present petrol power plant and drive train are Isuzu throwaways. The diesel version has a BMC engine. Of course everything is made in India now, but do you call a tree your own if its roots are in someone s courtyard.

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The other pre-Cambrian relic, the Premier Padmini, which till a few months back was adorning showrooms throughout the country. Its in the market since my grandpa learnt driving and at the time of its going to grave, the Padmini was a completely made in India product. But again, there's very little Indian-ness about the car, except maybe the name Padmini. The entry of Maruti Udyog Ltd, a GoI JV with Suzuki of Japan, in 1983 with a so-called "peoples" car and a more favorable policy framework resulted in a growth rate of 18.6% in car sales from FY81-FY90. After witnessing a downturn from FY90 to FY93, car sales bounced back to register 17% growth rate till FY97. Since then, the economy slumped into recession and this affected the growth of the automobile industry as a whole. As a result car sales remained almost stagnant in the period between FY97 and FY99. However, with the revival in the economy, FY2000 turned out to be a significant year for the industry in which it recorded volume sales of 638,815 units as against 409,951 units in the previous year. Thus, the CAGR for the period FY96 - FY2000 stands at 16.6%. The present day stunner from HM is the Lancer. As with HM products from the past, the Lancer is a borrowed from abroad product. The saving grace is only that this Lancer is a contemporary model and not some. The erstwhile Premier Auto Ltd. no longer exists. The nearest thing to it in the present is Ind Auto Ltd. Ind is an acronym for India or Indian, but the products are all borrowed from Italy. The Uno came to India after the Mafiosi had their fill with it. The Siena is a very contemporary model. It being a good car and all, but I always wonder why Fiat doesn't launch it in their motherland. What's this 'special' car for India, Brazil, Africa, Latin America inc. Ford did take the pains to design an India specific car, the Ikon. So does the quest for an Indian car end with the Ikon. No I don't think so. First thing, the company is American. Secondly, the Ikon's platform is that of the Fiesta, nothing else. So the only thing Indian about the car is the 'Josh' advertising gimmick. Starting with the official one, i.e. Maruti, the company, since its inception has changed the automobile scene in India completely. It's has been the number one manufacturer, churning out close to 300,000 cars last year. At last count it held a 64% market share in the passenger car market with four out of every five cars . on Indian roads being Marutis. Every year it rakes in multi-billion rupee profits, and, yet the company is nothing more than Suzuki India Ltd. Telco is a completely Indian carmaker with no major foreign collaborations. Their Indica was much touted as 'The Indian car', but it was styled by I.D.E.A of Italy. The engine technology had inputs from 'Moteur Modern' of France. In effect it was the case of an Italian body being wrapped around Indian mechanicals. Frankly I would have preferred an Indian body wrapping an Indian platform. India is also the largest manufacturer of agricultural tractors, motor scooters and the world's fifth largest commercial vehicle manufacturer. Each of these sectors experienced rapid growth during the last three years Demand in these sectors is driven by industrial, individual and agricultural consumers respectively. The increases have resulted from improved overall economic trends in India including large doses of foreign investment a more liberalized economy and higher productivity. The fortune of the Auto component industry is inextricably linked with that of the automobile industry which in turn is influenced by the general economic trends of the country the country's economic growth is projected to grow at more than six percent per annum in the coming years. The estimated growth will automatically emphasize the need for better transport infrastructure facilities. This means demand for automobiles and hence for auto components, is bound to grow accordingly. Therefore, good growth prospects are assured for the automobile industry. World-wide, cars are segmented on the basis of their size. However, in India, price is the main factor determining the choice of car. Hence, cars are segmented on the basis of Price Main Models Range Features of the Approximate segment Market Share price into three segments :

Segment

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(Rs. 000) M-800, Omni, Uno, Price, Ambassador Efficiency Fuel

of the Segment

Economy Absence of adequate mass income levels have resulted in important semi-urban mode areas. of By Medium

< 250

46.9% transportation system and rising personal vehicles becoming an 43.1% transportation in the urban and international standards however, small at just over 1% of the world approximately 3.7 cars per

250500

the Indian car volumes remain market with penetration rates of thousand people as against 24 in Poland and 90 in Brazil. Cars approximately 12% of the total India. Premium

Zen, Uno, 118Price, NE,Ambassador Performance, 1800 ISZ, Contessa, Diesel Option Indica, Santro, Matiz

Lancer, Esteem, Status Value, 500 & Cielo, Accent, City, Performance, 10.1% above Opel Astra, Ikon Features.

Thailand, 144 in Malaysia, 204 in currently constitute

Sources : various sources

stock of personal vehicles in

Rising household income, increased urbanisation, introduction of new models and availability of cost effective finance are the key demand drivers in the industry. The premium segment cars are mainly targeted at corporates or businessmen and are usually bought on consumer finance. The midsize segment witnessed an increase of around 115% in sales volume during the period April 1999-March 2000. Currently the economy, medium and premium segments constitute 46.9%, 43.1% and 10.1% respectively of the market.

.3: Indian Automobile Market
The Indian market confounds global carmakers simply because of the way it is segmented. In the West, automobiles are generally segmented according to platforms -- that is chassis-engine combinations. Price plays a factor but only up to a point. In India, though, price plays the primary role in segmentation. Consider first the segments in the European or American market. At the bottom, you have city cars' -- which include the Daewoo Matiz, the Hyundai Santro, the Maruti 800, Alto, Fiat Uno, the Zen as well as the Wagon R. Next come the budget minis -which would include cars like the Suzuki Swift (our own Esteem). The next segment, the superminis, would take in cars like the Opel Corsa, the Ford Ikon. Above the superminis are small family cars -- which include models like the Opel Astra and the Ford Escort. Medium-sized family cars are bigger and include cars like the Opel Vectra and Peugeot 406. Compact executive cars are small but immensely prestigious and include the BMW 3 series and the Mercedes C class. Executive cars embrace their bigger brothers -- the BMW 5 series and the Mercedes E class. Only a handful of cars are classified as true-blue luxury cars namely-- Jaguar XJ8, the BMW 7 series. And of course there are the niches like sports, sports utility, and exotics. The Indian market, of course, is quite differently segmented. The Maruti 800 and Zen fall in a class by their own -- and are referred to as the sub-Rs 2.5-lakh cars. The next is the Rs 3-4 lakh segment -- which includes all the other cars that would normally be classified as city cars in Europe. Strictly speaking, the Tata Indica should fall in the super-mini category because of its specifications - but because of price, it competes in the same segment. Above Rs 4 lakh and all the way up to Rs 10 lakh is the luxury car range. It is loosely divided into two halves -- with Maruti Esteem, Ford Ikon, Hyundai Accent, Daewoo Cielo, Opel Corsa and Honda City 1.3

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falling in the bottom layer, and the Opel Astra, Honda City 1.5 and Ford Escort in the upper range. The last segment is of premium car segment, which includes cars like Mercedes Benz and BMW. Scooters India Ltd (SIL), US-based Amerigon and Bangalore-based Maini Group are negotiating a joint venture to manufacture an electrical passenger car. Priced at Rs 1.75 lakhs, the car will target the segment between two-wheelers and petrol/diesel based cars. Assembly from imported Completely Knocked Down (CKD) kits will start as soon as an agreement is finalised among the partners. This venture represents a major manufacturing shift for SIL, a public sector enterprise, which so far has only produced two- and three-wheelers. It also plans to introduce an electric three-wheeler model, already in use in Nepal, into the Indian market. Bajaj Auto has introduced its diesel three-wheeler in Hyderabad. The vehicle has a 416 cc engine and is priced at Rs 83,000, lower than its nearest competitor the Greaves Garuda, which is priced at Rs 85,000 (in Hyderabad). Bajaj¶s petrol three-wheelers already account for 85 per cent of the India market. Its new product, consequentially, could erode its own base. Indian Automobile industry has become more competitive in the export market due to its technological and quality advances, so much so that in quality conscious markets such as Europe and America, Indian automobile industry is emerging as a major player judging by its performance. India today exports: Engine and engine parts, electrical parts, drive transmission & steering pats, suspension & braking parts among others.

5.1: Strengths of the Automobile Industry 

Low labor cost: India enjoys a comparative cost advantage in labour as compared

to western countries.  Skilled Manpower: India has vast pool of skilled manpower and qualified engineers among the largest in the world.

On a scale of 1-10, 1 = low, 10 = high.

Availability of Skilled labour. Sr No 1 2 Country India Brazil Points. 8.5 7.5

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3 4 5

US Germany Mexico

7.4 6.6 6.6

Availability of Qualified Engineers. Sr No 1 2 3 4 5 Country Germany India US Brazil Mexico Points. 7.5 7.4 7.2 6.4 6.3

Reference: Competitiveness of Indian automotive industry Feb 2004.

5.2: Weaknesses of the Automobile Industry 

Low labor productivity: Cost advantage in labor wages is nullified by the fact that we have lower labor productivity. 

Defect rates high: We have a higher defect rate about 10 times the world average. 

Low Investment in R & D: The Industry has a very low investment in R & D as compared to their foreign counterparts which will their sustainability in the future. 

Not reached critical mass: Indian companies are in nascent stage and hence not able to cater to the requirements of OEM s. Our auto- ancillary industry is of 2.4 bn

$ while Ford s outsourcing budget is 86 bn $.

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Poor infrastructure : Poor infrastructure like roads, ports, railways which lead to

higher logistics cost and lower reliability.

5.3: Opportunities for the Automobile Industry
Global automobile companies are setting up manufacturing facilities in India. Also, many Indian automobile manufacturers have announced their plans to increase the export of vehicles from India. The year 2002-03 has already seen a significant 65% increase in export volumes during the period April to March. This trend is expected to continue with more global OEMs sourcing vehicles from their Indian plants. Additionally, the introduction of newer technologies such as Electronic Diesel Control Systems to reduce emission levels, safety devices such as Air Bags, Anti-lock Braking Systems, etc. augur well for the Company and the automotive sector as a whole. These technologies not only offer increased safety for drivers and passengers, but also result in greater comfort and better drivability. While there exist many opportunities for growth in business, there are also quite a few factors, which act as an impediment. In my last year¶s speech I mentioned about the need for a well thought out and clearly defined policy on emission norms. It is now fairly certain that Bharat Stage II norms (equivalent of Euro II norms) will be implemented countrywide starting 2005. It is important that this plan is implemented in time in the interest of a cleaner environment. Technology is available to meet the advanced emission norms using gasoline and diesel fuel; Bosch and many other companies have proved this worldwide. There is no need for the authorities to specify the type of technical solution required for this purpose as long as the end objectives are met. The spurious and reconditioned goods market, which I also dealt with in detail in my speech last year, continues to be a worrying factor as it directly affects our market share. The Company on its part has intensified the anti-spurious operations by conducting several raids across the country with the help of local regulatory authorities. Large quantities of spurious and fake products have been seized and legal action has been taken against those indulging in such activities. The Company believes that continued focus and concerted action against spurious activities would improve safety and fuel efficiency of the vehicles and at the same time help in expanding our market share in the Aftermarket. The Company is also continuously educating the users about the benefits of using genuine spares in place of spurious and reconditioned spares. The lack of any significant change in the labor law reforms also continues to be a matter of concern. It is essential that legal reforms be put in place at the earliest to provide more flexibility in manufacturing operations and enable the industry to quickly adjust the work force in line with fluctuating market conditions.

5.4: Challenges for the Indian automobile industry
As we move into the new millennium, the Indian Automobile Industry faces some tremendous opportunities and also great challenges. The growth in automobile sales has been impressive for the past ten years since liberalization began. However, with liberalization, the Indian customer has been presented with a wide range of choices in automobiles, to suit every requirement and

34

budget. The market has turned into a buyers market where the customer is being wooed by the manufacturers and the dealers with a range of freebies unheard of before in India. Financing has become so easy that an automobile is within every aspirant's reach. Competition has meant that manufacturers' margins have been squeezed severely and they are all under pressure to cut costs to be profitable and competitive. Some of the older manufacturers like Premier Automobiles (manufacturers of Premier cars), Automobile products of India (manufacturers of Lambretta scooters) and Ideal Jawa (manufacturers of Jawa and Yezdi motorcycles) have closed shop. Hindustan Motors (manufacturers of Ambassador and Contessa cars) is in trouble due to the declining sales of its car¶s, as most customers prefer the newer models available in the market. Even the dominant player Maruti has seen its market share decline rapidly due to its models being old and jaded and is in addition facing labour problems in its plant. To add to the problems, come April 2001, under the WTO agreement, India will have to permit import of fully built automobiles, which hitherto was not permitted. The foreign manufacturers such as GM, Ford and Daimler Chrysler will almost certainly import vehicles from their large portfolio of models and makes, further segmenting the market into niches, although how competitive they are in terms of price remains to be seen. The challenge before the industry is to figure out the strategy for survival and growth. It is clear from the picture painted above that the industry will have to increase volumes in each segment to achieve lower cost of manufacture. One way to achieve this will be to go for exports in a big way. Maruti is already exporting vehicles, as are Mahindra, Telco, Daimler Chrysler and more recently Daewoo. The overseas markets will have to be exploited more aggressively, but this will mean the companies will have to invest more in Research and Development of new models with better features. The second opportunity is to become contract manufacturers for overseas companies. A number of Japanese and Korean companies have been following this strategy very successfully. Hindustan Motors is said to be considering this option. The third opportunity is to overcome the vulnerability of the automobile market to oil prices by designing vehicles, which can offer lower fuel consumption. Recent reports suggest the government is exploring the possibility of introducing Gasohol, which is a mixture of Petrol and Alcohol. Gasohol has been very successful in Brazil. Since Alcohol is a by-product of the Sugar industry (of which India has the worlds largest), this is a very logical step that should have been taken many years ago. Even a small percentage reduction in the consumption of petroleum per vehicle can make a big difference to the balance of payments. The industry must focus its R&D efforts in line with the global trends, which is to build vehicles that are considerably more fuel efficient and less polluting. With growing awareness among the public about pollution and the effective campaigns carried out by the NGO's, this will increasingly become an important selling feature. It was surprising to see how the industry kept stalling the introduction of pollution norms for vehicles on the pretext that they needed more time to get the technology. Even Maruti despite its foreign affiliation was caught off guard when the Supreme Court finally ruled that all new vehicles should strictly adhere to the Euro II norms. The inadequacy of road infrastructure in India is well known. This is compounded by the fact that traffic management is very poor or non-existent and the drivers are mostly ill trained and in disciplined. As more vehicles come on the road, this will become a major bottleneck. The industry will need take initiatives firstly to train all drivers in safe driving and proper road discipline and manners. They will also need to assist government agencies in better road design and in building of multilevel parking lots. Training

35

of police personnel in better traffic management and advising them on better equipping themselves to deal with various problems will also have to be done. In terms of the world averages, India's vehicle density is very low and if we have to achieve those density levels, the industry can look forward to a bright future. However in the industry's interest care must be taken to see that we also achieve the safety and convenience levels of using automobiles.

The Challenges 

External Level :    Integrating into Global Supply Chains WTO Multilateral trade regimes FTA s (i.e. Bi-lateral Trade) 

Country Level :      Infrastructure Cascading effect of Taxes Cost of Capital Cost of Power Inflexible labor laws Inflexible labor laws 

Firm Level :     Export as a mind set QCDDM equation taken for granted Logistics Warranties & Liabilities 

Challenges for CEO s     Dilemma of Investment Addressing fast Global Business Environment Changing mind set of teams Developing & Employing people with right right skills skills

5.5: Appropriate Strategies ± the key to success: 

Government :

yFlexible Labor laws :

36

Stringent labor laws in India are hindering the over all development of the Industry. Changing these archaic laws will help in attracting investment and lead to expansion of the industry.

yCutting down R.M cost:

Government should reduce import duty and taxes on raw materials for auto ancillary industry which will bring down their raw material cost to counter Chinese threat.

yCorpus for R& D & expansion:

Since most of auto ancillary companies are up coming their range of operation is limited to a few products. In order to encourage these companies to venture into new product categories Government should allocate Soft loans.

yAuto expo zones:

On lines on software technology parks, govt. should establish export zones of auto-ancillary industries, equipping them with infrastructure & offering them tax sops or holidays.

yResearch center: Government should establish a research center dedicated to automobile research

called Indian institute of automobile research which can work with auto industry to develop cutting edge technology. 

ndustry :

yMarketing and Advertising in potential markets:

ACMA in collaboration with CII or FICCI should organize Trade fairs showcasing Indian Auto ancillary industry both in India and abroad.
yAcquiring Auto ancillary companies in potential markets:

Acquiring companies in overseas market gives a direct entry in that market to Indian companies. For e.g. Bharat Forge acquired one of the largest forging companies in Germany, Carl Dan Peddinghaus GmbH (CDP).

yMoving up the value chain:

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Automobiles companies are going for aggregate buying, hence company should try to acquire tier I status and ultimately target OEM status.
yLeveraging Software skills yCulture change:

Auto ancillary industry should adopt concepts like six sigma rather than continuing with post Morton analysis.
yR & D spending:

Industry should target at allocating at least 5 % of their revenues on R & D expenditures for achieving cutting edge in technology.

6.1: Competitive Scenario
The industry witnessed radical changes and entered a competitive phase with de-licensing and liberalization in the 1990s. The two major developments during this period were a strong growth in volumes between 1993 and 1997 and the entry of international car giants into India, especially in the mid car segment. The attraction for these companies was the largely untapped Indian market. However, these companies overestimated the market in the short term and set up larger than required capacities. This resulted in price wars and thereby affected the expected margins. The global automotive industry is currently undergoing consolidation phase and the repercussions of this consolidation are likely to be experienced in India, too. The installed capacity for passenger car production in India is likely to reach around 1.8mn by end-2004, but the total passenger car sales is expected to be around 0.9mn. This explains an over-capacity of around 50% as compared to the global over-capacity of around 30%. The consolidation of the automotive vehicle industry is likely to have serious implications on the automotive component industry too. Most of the foreign companies entered India using the joint venture/collaboration route. While many of these conglomerates have turned out to be mutually beneficial few tie-ups weren t as successful. For example, Mahindra & Mahindra pulled out of car joint venture with Ford, General Motors bought over the stake of Hindustan Motors in its Indian car venture. Mercedes Benz has decided to operate independently after suffering severe losses with Indian partner Telco. Indian players are trying to maintain their hold on the Indian market, not giving in to multinationals. But the very fact of Indian company s reliance on foreign partners for technology is likely to drive the trend of collaborations followed by consolidations. Foreign companies are now all over the Indian market. There is a need for a level playing field to bolster Indian auto industry.It is already a level playing field for companies setting up shop in India. Even in the case of imports, entry barriers in commercial vehicle industry are among the lowest, with tariff at half that of cars. However, on the global plane, things are different. Though the Indian industry, in the last few years especially, has gained considerably in internal efficiencies, in terms of external factors such as cost of finance, infrastructure and labour legislation, we have a long way to go for parity with the developed world Competition is heating up in the sector with a host of new players coming in and others like Porshe, Bentley, Audi, BMW all set to venture in the Indian markets. We take a look at the key factors that are vital for gaining a stronghold in such a competitive scenario.

6.2: Competitive Edge
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Manpower

The trends clearly indicate a huge opportunity for Indian manufacturers due to:   Low cost advantage primarily on account of vast availability of low cost-high skilled manpower Average wage rates are 8$ per hour as compared to 20$ in the developed markets. 

Highly Competitive at Lower Scales

Indian Auto Companies are highly cost competitive even at lower volumes due to:    Appropriate levels of automation Low cost automation Autonomation 

High Quality & Productivity

Indian Auto Companies have achieved a High level of Productivity by embracing Japanese Concepts and Best Practices:  TQM  TPM  Toyota Production Systems In fact cost productivity is our key differentiator viz-a-viz competition from other low cost economies. 

Just-In-Time Delivery & Logistics 

 

Indian Auto Companies have proven capability to supply on JIT basis out of Warehouses situated near the Customers Most Indian companies have arrangements with major Logistic Providers for JIT Supplies. Adequate Warehousing support and onsite Engineering support

7.1: Global Scenario
The passenger car segment has emerged as a major driving force for upstream industries like steel, iron, aluminum, rubber, plastics, glass, and electronics and down stream industries like advertising and marketing, transport and insurance. The car industry generates large amount of employment opportunities in the economy. For example in the US, every sixth worker is involved in the making of an automobile. The global automotive car market is growing at a rate of only 2 percent per annum and is not expected to pick up in the near term. Growth has dropped due to the increasing levels of saturation in the larger car markets of the world. Worldwide the trend is towards ensuring that one's products are superior in terms of quality. This will enhance the useful life of cars and, hence, slow down growth in sales.The world car production

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has increased from 44.66 mn in 1996 to an estimated 48.3 mn cars in 1999. Japan, Canada and USA brought about the major increases, which contribute to 53% of the world's car production. The largest car market - the US market expects car sales to decline 8 to 9 per cent to 16 million cars in 2001, as compared to 17.4 million cars sold in 2000. The USA and Japan are the leaders with around 42% of the total world market. However, since the last two to three years, the international passenger car industry has been witnessing an over capacity of more than 30%. The trend suggests that industry volumes may grow by just 2% or around 10 mn vehicles per year. If this situation continues for the next few years the world car market may witness shakeout in the near future. Already signs towards this are being observed as the phenomenon of mergers catches on. The recent mergers in the international car market are Ford-Volvo, Renault-Nissan, Daimler-Chrysler. A few more players are expected to join the fray in the next few years so as to strengthen their hold in the world market. Among the top car manufacturing companies General Motors and Ford Motors group of USA lead with a contribution of 15.8% and 11.6%, of world car production, respectively. Volkswagen and Toyota stand third and fourth with more than 9% contribution each to the world car production.

The global domination of the larger automotive manufacturers is slowly on the wane and the trend in sales is shifting towards more "regio-centric" products. Automakers that have been enjoying a generally prosperous spell would have to rethink on the way vehicles are designed, manufactured, distributed or sold. Already, players like General Motors Volkswagen and Toyota have begun to re-examine their dealer relationships and pricing strategies. Car makers would now have to think in terms of a new customer focus and provide better financing and servicing. Strategic tie-ups, mergers and acquisitions have become the talk of the day. A few instances are Daimler Benz's tie-up with Chrysler of the US, Ford's acquiring of Daewoo and tie up with Volvo Car Corporation and Renault acquiring a stake in Nissan. Such deals will certainly lead to economy in terms of costs but it remains to be seen whether they will also create significant new opportunities for growth.

With global consolidation in the car industry, it is expected that more international players will work closely to bring about operational efficiencies. By nature, the car industry is highly capital-intensive and vast amounts of money are being spent on R&D. With the players getting together to produce more technologically superior cars, they can derive greater benefits from their R&D efforts. Profits, which are under pressure due to wafer thin margins will be boosted due to greater economies of scale. Moreover, bigger capacities among players means lesser fixed costs per car produced. Even if mergers are not on the cards in the near future (one can see that the Daimler-Chrysler merger has not brought about synergies as expected by automobile experts), technology-sharing and the offering of equity stakes is inevitable. In India, the car market has become extremely competitive and come April 2001, India's automobile market will be thrown open to imports of completely built up vehicles, which hitherto was prohibited. With the international acquisitions and alliances, one can expect to see a dramatic change in the auto market. If GM were to acquire Daewoo in Korea, then GM would be in a commanding position in India with its alliance with FIAT and Suzuki motors as well. Already Daimler Chrysler and Ford are contemplating introducing new models in India from their various associate companies through their local subsidiaries. The situation could become very difficult for the purely Indian automakers such as Telco, Mahindra and Hindustan Motors unless they rethink their strategy. It can easily be seen why TELCO has been in the news on rumors that it wants to hive off its car division and bring in an overseas partner. Reports suggest that HM is thinking of exporting parts from its manufacturing units and also assembling and distributing other makes of vehicles who may wish to enter into India, but cannot enter full scale manufacture due to the small market sizes.

Clearly exports will be the big opportunity for Indian automobile companies if they can control costs and deliver good quality output. Already Maruti, Hyundai and Ford as well as Mercedes Benz have started exports in a small way and this can grow. Majors like TELCO and Ashok Leyland are already exporting their products in reasonable volumes.

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Availability of easy financing options has been a major reason for the dramatic growth the automobile market has witnessed in recent times. Maruti has set up a separate financing unit in association with banks. GM has one of the largest financing companies in the US and can easily bring them into India should it so decide. Clearly the customer is in for some good times with a wide range of models to choose from, better quality and prices and easy financing options - a far cry indeed from the days when one had to book a Premier car and wait for years after paying an advance.

7.2: Key Driver ± Global Business

Step 1 : CKD/SKD Assembly

Step 2 : Localisation

Step 3 : Future already on horizon

- Natural follow-thru is global sourcing.

Most Global OEMs have Indian operations with global platforms and world cars.

7.3: Global OEMs Sourcing from India: They have already come «

Toyota: Hub for Transmissions Hyundai: Export Base for Small Cars Fiat: Plans US $ 200 Mill outsourcing Volvo: started outsourcing Ford: sourcing engines, & Plans 500 Mill USD outsourcing

Renault: Sourcing Truck Parts

DC: exported Euro 70 Mill to its subsidiaries abroad

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Two Chinese Truck OEMs: Sourcing Drive Trains

8: Different players in Automobile industry
Jagdish Khattar. Y.S. Kim. Ratan Tata. S.G. Awasthi. The four men are peers. Each has unequivocally established himself as one of the winners in the first round of the car wars. Between them, they control almost 80% of the Rs 30,500-crore Indian automobile market. The battle royale in the Indian car market has entered the next phase. As the dust and excitement of the dozens of new models introduced in the past one year settles down, the winners have pulled way ahead of the also-rans. One old assumption has been vindicated -- that over 80% of the Indian car market is still confined to the small, sub-Rs 4 lakh models. And those mid-size and bigger models can only provide the icing on the cake, not the cake itself to any manufacturer.
Maruti found out that price is no longer the most important factor in winning car battles. Daewoo's Awasthi admits candidly that he learnt precisely the opposite lesson -- that price does matter. Kim of Hyundai found out the hard way that you could get your pricing and value equation just right and still land up with egg on your face if you tried to cut corners in the technology game. Ratan Tata learnt that providing an internationally designed car with a great value proposition didn't get you far if you couldn't provide global quality standards. Both the Indica and the Matiz had to upgrade their engines in less than one year after launch, the Honda City had to bring in both a new body and a more powerful engine, and Hyundai had to start offering a new variant with the power steering option barely a year after it hit the market. From now on, the battle is expected to get more vicious. In 1999-2000, the car market bounced back from the recession by showing a 55.83% growth! But now, no one expects the market to grow by more than 10-15% per annum. The really big volume gains will come from wresting market share away from rivals rather than because the market itself is growing exponentially.

8.2: Hyundai: Can The Dream Run Continue?
Hyundai has become the undisputed number two in the Indian auto market, and the only one -- even rivals admit -- with the capability of giving leader Maruti a run for its money in the total volume stakes though Hyundai in India currently sells just about a quarter of the numbers that Maruti does. Hyundai got everything right because it got the value-price-technology equation almost perfectly right from day one. The Santro was an instant winner from the day it was introduced in the Indian market because it offered the optimum mix of space and technology in the small car market, at a highly competitive price. And with easy consumer financing available in the market, Hyundai did not have to work too hard to persuade even entry-level car buyers to go for the Santro instead of the Maruti 800. And when it launched mid-size Accent some time later, Hyundai proved that it could get its value-price equation consistently right across different segments. But despite its great start, Hyundai made two mistakes. The two miscalculations that Hyundai made? First, while Hyundai Santro was harping on the fact that it was a new generation car, it hadn't brought its latest engine technology to India. It was a mistake that rival Matiz capitalised on once Euro-II pollution norms were announced for the metros. Daewoo made most of the fact that every Matiz was Euro-II complaint -- while Hyundai could offer an Euro-II version only at a higher price. Though the

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latter moved quickly in a damage-control exercise, the Santro did lose a bit of its sheen. it miscalculated demand for its cars. The result: when demand peaked for the Santro, it was in no position to offer the car off-the-shelf like its rivals. Buyers had to wait for three months to get a Santro after booking it. Hyundai is moving fast to sort out its capacity problem. Work will soon start on the second phase of its Sriperumbudur car project, one year ahead of what was initially planned. An additional investment of $400 million will help expand capacity from 1.2 lakh cars to 2 lakh cars per annum. This expansion is likely to be completed by December, 2001, ahead of schedule. But even that could be a bit too late as it gives rivals that much time to grab sales that would otherwise have gone to Hyundai. That apart, the big worry for Hyundai is that other than the Santro (the Atos in Korea), it doesn't have any other small car in its armoury. Unlike Suzuki, which is primarily a small car specialist, Hyundai can only introduce bigger cars in the Indian market either from its own product range, or those of Kia Motors, which it took over last year. Hyundai is looking a bit vulnerable now because globally it is a minnow in the car market. It lacks the sheer money power and product muscle to keep fighting the Fords and GMs in any market. And if Ford does take over Daewoo Motors, Hyundai's number two position in India could be seriously under threat.

9.1: Automobile Fashion
Automobile Accessories
India has a good network of manufacturers of Auto accessories spread all over the country. International standards are also kept in mind while producing these products. Best quality materials are used so as to meet the international standards. Automobile Accessories such as Wheel Caps, Car Speakers, Fog Lights, Car Care Products, CAR AC PARTS, Car AC Condenser, Car Cooling Coil, Car AC Hoses, Car Reciver Drier, FLCD Kit and Car Batteries are available in India.

Automobile Finance
The availability of finance at lower interest rates, have made car purchase an affordable option for even young executives. Financing schemes varies from Margin Money Scheme, Installment in advance scheme, stepped schemes and as varying as balloon schemes, No income schemes etc The new schemes available in the market has made it possible for salaried individual to realize their aspirations to won a Car in India, early in Life. Businessmen and professionals can treat the interest amount as a business expense and avail tax deductions against the depreciation of the Car. Companies can also acquire cars for eligible employees without affecting cash flows. The interest amount can be claimed as business expense.

Automobile Insurance
Taking insurance cover for your vehicle is a must especially in Indian roads. There is danger at every corner when it comes to Indian roads. There is always the chance of your brand new vehicle hit by someone who mistakes a highway for space. Insurance can pay for your financial loss. There are various insurance schemes available in India. Major Insurance companies in India offering Auto insurance include The Oriental Insurance Company Ltd and New India Assurance Company.

Automobile Services

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This is a section where the buyers and sellers meet. Sellers can place details of their products and buyers can specify details of their requirements in this section.

Auto technology
The drive is a long one. Or let's put it this way, it's a never-ending driveway. Since the invention of the wheel, man's quest for automotive mobility led him to experiment with various kinds of vehicles. Vehicles that have used diverse technologies to make them function. From the steam - driven engine to the jet propelled aircraft, we sure have come a long way. And of course, besides the shapes, it is the technology behind them that has transformed the automotive landscape. Different systems like the engine, electrical, cooling etc. combine to make up a vehicle. Each works on disparate principles, yet collectively, it is on them that the performance of the vehicle depends. It would need only one of the many subsystems to dysfunction for the entire automobile to come to a halt. We drive our cars and our bikes, but seldom know the mechanics involved. Here, we give detailed explanations on the different systems and sub-systems that go in the making of an automobile. Read on about those that are being phased out like the carburetor, and those that are talking its place, the fuel injection system.

Auto consumables
What are the constituents that keep your vehicle moving? Is it the wheels, the axle, the engine, what? Of course they do. But what keeps them running? It is actually the fuel that keeps it running. These include fuel, engine oil, and various other lubricants that are responsible to keep a vehicle 'alive'. It won't be an exaggeration to term these as the lifeblood of your favorite automobile. This is why today consumers in all vehicle segments have grown cautious about the quality of fuel and lubricants that they use. Unbranded lubricants and fuel from unauthorized sources is a complete no-no, while big brands are spending extensively on positioning their products as 'guards for your engine'. The environment factor is the latest to hit the market and has forced manufacturers and consumers alike to make and use environment friendly consumables. Same is the case with the other products like battery, tyres etc. which account for the running expense of any vehicle. We present a list of such and other consumables that will aid you in looking after your vehicle.

Auto Maintenance
Maintenance means taking care of all the parts, even those that are inside the bonnet. These are the ones that directly concern the performance of your vehicle. Besides taking it to the service station at regular periods, it is a good idea to go through the owner's manual that will give a fair idea about its routine maintenance. Checking the battery, keeping a check on the oils, changing the oils, checking the electrical system, are some of the absolutely unavoidable things to keep your vehicle in good shape. Keeping a log book in which you keep all the details regarding repair, maintenance, routine check-ups etc. will not only give you an accurate idea of what needs to be done when. Maintenance is something most of us ignore, until our vehicle stops functioning, which is. And then we wonder what went wrong, where. Maintenance is one of the most serious aspects of ownership. It determines the longevity, performance and reliability of whichever vehicle you drive. Looking after your vehicle involves more than taking care of its external coat of paint and keeping it clean and shiny.

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9.2: Innovation in Automobile Industry
Innovation has brought about a sea change in the Indian automotive sector, where slick styling, technology and new models have become the formula for success. These very factors led to the instantaneous success of Suzuki when it first rolled out the technologically superior Maruti 800 into the traditional Indian market. Even today it is the technology and a high degree of indigenisation, which have helped MUL attain a price barrier, which is very difficult for competition to penetrate. This coupled with governmental support have perhaps been the clinchers for MUL's progress, despite recent competition from the likes of global players like Daewoo, Hyundai, General Motors Ford and the indigenously designed Tata - Indica. However, what auto companies need to do is develop ergonomic products, with slick styling, at an affordable price for the quality conscious Indian market. This can easily be done by commissioning any international design house. Indian auto companies need to take corrective measures to counter balance the shift in demands from motorcycles to cars. This is where Indian companies which do not have joint ventures with international automotive majors might well lag behind. Especially since, the development of fuel-efficient cars in-house is a long and arduous task, involving huge financial and manpower investments. It is in this department that foreign companies are already miles ahead. Thus one option, which might well become quite popular for Indian auto companies, is the joint venture route with an international major. The projected growth factors in an anticipated export thrust, as product quality and cost efficiencies go up in the auto industry.

9.3: Market trends
Emerging Market Trends The automotive industry is the barometer of Indian economy. The sign of recovery are most visible in the growing demand for automobiles. The aspirations of Indian consumer are rising with the growing demand. The cumulative effect of growing customer demand, increased competition, technology upgradations along with the traits are likely to be observed in the following trends.

y y y

International companies like Hyundai, Honda, Toyota, etc. are gaining market share. Technological up gradation will be primary requisite for success in the market. With the entry of new models, medium sized cars segment is further divided into low prestige and high prestige cars. Customers are upgrading from entry level small cars to sophisticated small cars and from sophisticated small cars to prestige car segment.

y

Stricter Pollution norms are likely to force vehicle manufacturers to adopt latest technology in maintaining emission standards. This is likely to curtail the average life span of vehicle on road while the maintenance cost and the genuine parts consumption per vehicle is expected to increase.

y y

Due to free imports local industry is expected to face increased competition from international automotive companies. With the increasing number of vehicle population the two wheeler owners will have viable option of used cars. The vehicle with higher resale value and good service network is likely to dominate the market.

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All the trends derived out of present dynamics of the Indian automotive vehicle market are indicators of internationalization of this market. India has become focus of international growth seeking companies as not only a cost competitive sourcing base but also a growing high potential market. In the near future the competition will be prominent in all the functions of business and only the companies with global standards are likely to survive. Indian manufacturers are gearing up for the challenge but surely the current scenario is apparently in favor of international players. The early movers are likely to secure a position to command the global competition Local market trends

y

Sales, particularly in the small car segment, will drive passenger car sales in the near term. However, within the next two years, capacity is expected to be twice the total demand for cars.

y

With developments in the small car segment acquiring a degree of stability in terms of price competition, the action is shifting to the midsize car segment. Sales in this segment will pick up as new models come in and income levels rise but it is still some time till it comes anywhere close to the economy sized segment.

y y

What will also drive car sales is the wide availability of finance schemes by a variety of banks and FI's. Sales in the used car market is also expected to do well as more and more older models get replaced by newer ones at a faster pace. The coming in of Euro III and IV norms will also increase scrap page rates.

y y

In view of expected surplus in the domestic market, India will emerge as one of the leading car sourcing point in the Indian subcontinent. Consumers will be the beneficiaries as a result of marketing war, as they will be offered technologically superior products at better prices and terms and conditions. But the customer has a risk of model discontinuation as a result of shake-out expected in the industry.

International trend

y

The global automotive car market is growing at a rate of only 2% per annum and is not expected to pick up in the near term. Growth has dropped due to the increasing levels of saturation in the larger car markets of the world. Worldwide

y

the trend is towards ensuring that one's products are superior in terms of quality. This will enhance the useful life of cars and, hence, slow down growth in sales.

y

The South-East Asian crises has been a dampener to the collective fortunes of various carmakers worldwide. According to EIU estimates, some countries in the region have witnessed cumulative falls of 70% this year. In Indonesia record sales reported in 1997 are not expected to be matched until 2005. In Malaysia it is expected to be 2003 before peak sales and production volumes are repeated and in the Philippines the market will take seven years to recover. In Thailand, the market for cars and commercial vehicles is expected to fall from almost 600,000 units per year to 125,000 this year.

y

The global domination of the larger automotive manufacturers is slowly on the wane and the trend in sales is shifting towards more "regio-centric" products. Automakers that have been enjoying a generally prosperous spell would have to rethink on the way vehicles are designed, manufactured, distributed or sold. Already, players like GM, Volkswagen and Toyota have begun to re-examine their dealer relationships and pricing strategies. Carmakers would now have to think in terms of a new customer focus and provide better financing and servicing.

y

Strategic tie-ups, mergers and acquisitions have become the order of the day. A few instances are Daimler Benz's tie-up with Chrysler of the US, Ford's acquiring of Daewoo and tie up with Volvo Car Corporation and Renault acquiring a stake in Nissan. Such deals would certainly lead to economy in terms of costs but it remains to be seen whether they will also create significant new opportunities for growth.

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9.4: Entry Strategies for MNC s

‡FDI ‡Joint ventures ‡Foreign and local buyers ‡Licensing ‡Sub-contracting ‡Informal means (eg. training, hiring and returnees) ‡OEM ‡Own Design and Manufacture (ODM) ‡Strategic partnership for technology ‡Overseas acquisition equity
These are the ten entry strategies for positioning a country. It could be through joint ventures, FDI, marketing network, licensing arrangement, sub-contracting or even by informal means (training, hiring and returnees).

It is generally agreed that a country s pattern of participation in international trade is determined to a large extent by its resource endowments and the efficiency with which resources are utilized. OEM and ODM contracts occur based on the resource endowments of the countries.

It is possible to establish virtuous circle between investment, exports and growth by investing in sectors with significant productivity and market potential, and using the export proceeds to finance imports of capital goods and intermediate inputs required for further productivity increases.

10.1: A Study of Motor Industries Company
Motor Industries Company (MICO) held its 51st Annual General Meeting on 8th May, 2003 at Bangalore. MICO is India's largest auto-ancillary company. German-based Robert Bosch group hold 60.5% after the company brought back its shares in February 2002. The company is the pioneer of automotive Spark Plugs and Diesel Fuel Injection Equipment in

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India. It had been bearing the brunt of the recession in the tractor and commercial vehicle (CV) segment in the past few years. However the, sharp recovery in sales of CV in FY 2002 has compensated for the continued fall in tractor sales. For the full year ended Dec. 2002, the company had registered a growth of 7% in sales to Rs 1550.71 crore. This was achieved mainly due to the better performance in the quarter ended June 2002 and Sept. 2002. Net profit after adjusting for EO expenses rose 64% stood at Rs 134.06 crore. Very recently, Andreas Nobis, managing director of the company has taken over new responsibility in Robert Bosch GmbH with effect from 1st May 2003 to oversee the recent acquisition and integration of Buderus AG and hence could not attend the AGM. Robert Bosch has entered into an agreement to buy 30.2% of the share capital of Buderus AG in addition to 17% already held by the company. The successor to Andreas Nobis is expected to be known at a later date. MICO registered a 104% jump in bottom line to Rs 52.29 crore for the first quarter ended March 2003. Net sales during the quarter rose 17% to 432.08 crore. In continuation of the strategy to boost exports, focused efforts were made to get additional business from Robert Bosch, Germany. This led to a significant 29% growth in exports during the year, accounting for 16% of total turnover. From this, MICO expects to touch 20% in three years. Its spark plug business is growing in the US and expects an increase in turnover from new products, from the common rail system and the Electronic control units, which are based on the Euro II norms and potential navigation systems from Blaupunkt. The Union Budget 2003-04 is also positive for the sector as it has increased its thrust on infrastructure (especially roadway) projects, which is sure to usher in increased demand for the CV sector especially in the multi-axle segment.

Performance of the Company
The recovery in the automotive sector, led by the strong growth in commercial vehicles segment has enabled the Company¶s sales turnover to rebound in 2002. The overall sales turnover of the Company grew by around 7%. Despite sales declining by 7% in the 1st quarter 2002 over the 1st quarter 2001, quarter 2 and quarter 3 showed an increase of 21% and 14% respectively. This, together with a steady 4th quarter, enabled the Company to post the 7% growth in sales for the entire year. Sales to OEMs, which constitute nearly 45% of the total sales, increased by 6.8%. This growth was mainly due to increase in volumes of Multi Cylinder Pumps, Nozzle Holder Assemblies, Starters and Alternators. The general decline in the service business of the transport sector led to a fall in demand for fuel injection components in the Aftermarket. In spite of all counter measures, overall sales in this area declined by 3.6% as compared to 2001. In continuation of our strategy to boost exports, focused efforts were made to get additional business from Robert Bosch, Germany. This has led to a significant 29% growth in exports during the year, accounting for 16% of total turnover. The non-automotive businesses comprising of Power Tools and Packaging Machines, grew by 18% due to a strategic marketing thrust and introduction of new products such as "Marble Cutters" and "Terra 25" packaging machines. Cost cutting has now become integral to staying competitive. During the year, cost reduction measures such as strict control on additions to fixed assets, programs for rationalization and reduction of asset base, reduction in material cost through import substitution, rationalization of supplier base, improvement in labour productivity, budgetary control on overheads, etc. were further intensified. This has significantly contributed to an improvement in operational efficiency. As a result of growth in sales accompanied by the various cost reduction initiatives, the Profit Before Tax increased by more than 50% and stood at Rs. 200.5 crore. The Profit After Tax also increased by more than 60%. After taking into account the proposed dividend and transfer to capital redemption reserve, an amount of Rs. 90 crore is proposed to be transferred to general reserve, retaining a balance of Rs. 29.3 crore in the Profit & Loss Account.

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In 2002, the investments in fixed assets amounted to Rs. 94 crore, accounting for 6.1% of sales, as compared to Rs. 1,13.3 crore in 2001, which accounted for 7.8% of sales. 94% of the total investments made in 2002 are in Plant and Machinery. Of this 34% is for new products, 26% for quality improvement, 9% for R&D activities and the balance 31% for auxiliary and other services.

Future Outlook of the company
As automobile manufacturers in India are increasingly tapping export potential there is a need to upgrade technology in order to meet the safety and legal requirements. This will inevitably lead to an increased demand for newer products such as Electronic Diesel Control systems, Anti-lock braking systems, Air bags, etc. In order to secure business in these areas the Company is closely working with all major automobile manufacturers in India for development and application of these systems. Despite the poor agricultural output in the financial year 2002-03, the growth in industrial production has been quite good at 6.1% in the period Apr-March 2003 as opposed to 3.3% posted during the same period a year ago. In addition, the trends in most macro-economic variables such as inflation, interest rates, development of the rupee against the US dollar, foreign exchange reserves position, are all positive. These strong fundamentals will help the Indian economy to post a GDP growth of over 5.5% in the financial year 2003-04 as against 4.4% achieved in the previous year. On the other hand there are some key risk factors such as: (i) the continuing problems in the Middle East; (ii) tension between India and Pakistan; and (iii) a second consecutive monsoon failure, which may endanger the achievement of the 5.5% GDP growth in the current fiscal year, forecasted at this point of time. In the automobile sector, the commercial vehicles and passenger car segments maintained the growth momentum at 34% and 3.6% respectively, in the first quarter of 2003. However, the slump in the tractor segment continues and is a cause for concern also this year. Overall, the Company recorded a sales turnover of Rs. 576.4 crore for the period Jan-Apr 2003, which accounts for an increase of 18% over the same period in the previous year. Considering this positive performance but also the uncertainties prevailing in the global economy and its adverse impact on our exports as well as the uncertainties in the domestic market, the underlying sales in 2003 are expected to grow by around 7% only. On the cost front, recent spurt witnessed in the prices of steel, aluminium, crude oil, fuel and power will exert severe pressure on the profitability of the Company. The Company will, of course, further intensify its cost reduction measures and pursue other initiatives to counter the adverse impact of the rise in input costs and to maintain its profitability. In the automotive aftermarket the focus areas include aggressive marketing and promotional initiatives to increase sales turnover, strengthening of 4-wheeler dealer network, increasing the number of 2-wheeler dealers, expanding the product range through introduction of Bosch branded products and further intensification of anti-spurious activities. Exports continue to be a strategic thrust area for the Company. Continuous and vigorous efforts are being made to increase the share of exports to 20% of the overall sales turnover of the Company by 2005. This would mean that the Company must be in a position to continuously offer state-of-the-art products of international quality at a competitive price. In the Power tools business, our focus will be on gaining additional market share through expansion of product range, superior service levels and offering value for money products. In the Packaging machines business, the Company plans to further consolidate its position after the successful launch of "Terra 25" packaging machine.

11.1: Automobile industry at a glance

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Key Positives
Increasing affluence of the Indian middle class and introduction of better quality cars has led to strong growth in the industry in terms of both market size and production capacities. Exports buoyancy: On account of its low cost technical manpower and ever increasing focus on quality, the auto industry has emerged as an export hub, especially for the compact car segment. Exports of passenger cars from the country have increased at a healthy CAGR of nearly 38% during the past five years and increasingly more and more auto majors are lining up to set up their production bases in the country. Infrastructure thrust: Improvement in road infrastructure has led to increased movement of goods through roadways. Close to 65% of all the goods movement in the country takes place by roads as opposed to 55% a decade ago. Also, owing to the fact that an estimated 39% of CVs plying on the roads are 10 years old, demand for HCVs is expected to grow by a robust rate in the long term. Low interest rate regime: Close to 80% of the new cars being purchased in the country are financed, thus underlying the importance of a low interest rate regime to the fortunes of the industry. Given that interest rates are unlikely to rise at a rapid rate in the future, we expect the buoyancy in auto sales to continue over the medium to long term. Environment led benefits: Any implementation of pollution norms in metros, whereby vehicles beyond certain age need to be phased out could further translate into higher volume growth for all vehicles, courtesy the replacement demand

Key Negatives
Concerning income growth: The per capita income in the country has been growing at a slow rate. Since the auto industry growth has a strong correlation with the same, the momentum has to continue to ensure robust automobiles demand. Reforms need to be accelerated. Competition from imports: With India coming under the WTO purview, competition is expected to rise multifold. Indian companies also have to contend with imports in the future. Already a number of companies are introducing vehicles in the CKD route. Taxation anomalies: Duties on some select and key raw materials including steel and components are still pretty high and are thus hurting profit margins of the companies. Also, multiple tax rules that exist in different states are eroding the comparative advantage of a large domestic market thus making it important to implement VAT (Value Added Tax) as soon as possible.

Future Prospects look positive
FY04 turned out to be one of the best years for the Indian auto industry. Attractive finance schemes and buoyant economic growth helped both the passenger and commercial vehicle industry notch up growth in excess of 30%. With government committed to continue with infrastructure spending and economic growth likely to remain robust the industry seems to be headed in the right direction. However, rising fuel prices and hike in interest rates might throw a spanner in the wheels.

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India is one of the few countries to post double digit growth in passenger vehicles, while others like USA and Japan remained lackluster in 2003-04. India is poised to become the manufacturing hub for the world with cheap and skilled labor. Maruti Udyog is aiming to become the R&D hub for its parent Suzuki s Asia operations. The passenger vehicles sector is a cyclical one, which posses a question - Will the high growth rates witnessed earlier continue going forward? Our discussions with the industry gave us an insight on the demand projections for passenger vehicle volumes in the future. Emission norms, infrastructure development, economic growth and low interest rates are causing change in dynamics.

India: A value-adding automotive and manufacturing hub

The future of manufacturing in India, including the automobile sector, would undoubtedly be affected by the outcome of the Non-Agricultural Market Access (Nama) discussions. The challenge is to get an agreement that would make India a value-adding automotive and manufacturing hub. The manufacturing sector is going through a period of revival, growth and investment. The automobile sector is set to grow from a projected 7.5 million this year to over 10m in the year 2007. Investment in this sector is over Rs 65,000 crore. The turnover of the component industry is set to double over the current level of Rs 25,000 crore. By 2012, their combined output would exceed Rs 2,00,000 crore. Indian industry has been able to acquire, assimilate and develop technology. It is this capability, production capacity, value addition and employment potential that should be kept in mind during trade negotiations. For some sectors, including the automotive sector, the treatment for completely built products and SKD kits would be critical.

11.2: Future Outlook
The passenger car segment has continued to report a strong 30%+ growth in the first month of FY04, partly due to low base effect. The transporters strike had impacted volumes in April 2003. The car segment is likely to grow by 20-22% during the current year. Commercial vehicle segment is expected to grow at a higher pace on the low base of the previous year and accelerated GDP growth in the current year. Growth in the short term is likely to be higher following increased consumer spending (improved economic performance) and launch of new models. The midsize segment is expected to record the highest growth followed by the premium and economy segments. In the economy and medium segments, it is estimated that total capacity is expected to more or less match the expected demand by 2003-04. The premium segment of the industry is however expected to witness acute over-capacity. The premium segment is likely to emerge as the largest segment over the very long term as people graduate to more expensive models. In the meantime, exports are also expected to increase because of over capacity in the domestic car industry and the Government's policy to bring about a more liberal regime on the foreign exchange front. It is worth mentioning that the car production capacity has increased significantly in the last three years.

The industry will witness substantial over capacity in the next few years unless there is a substantial spurt in sales. If not, Low capacity utilization will lead to an inevitable marketing war between the car manufacturers which is most likely to lead to a shake out which will see some of today's major players withdrawing from particular segments in the coming years. Consumer will however continue to remain the KING. The prospective

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buyer will be the main beneficiary of the marketing war in the industry not only in terms of prices but also better technology. There is always a fear of the shakeout eating into your favourite brand you own, for example discontinuation of a model. India would have the largest young population of the world in next 20 years - If India is to achieve a sustainable 7-8% GDP growth and 9-10% growth of industrial production, we should have 50 million people every year moving up from middle class to upper middle class. This defines the future vehicle owners of the country.

Based on SIAM analysis, it is estimated that we should have a healthy growth of sales (including exports) in the automobile sector in 2004-05. Segment wise growth expectations, provided the Government takes necessary steps that promote growth are:

y y y y

Passenger vehicles Commercial vehicles Two wheelers Three wheelers

: 10 15% : 12 15% : 10 15% : 10 15%

Ending the briefing on an optimistic note, Mr Khattar concluded that the passenger vehicle manufacturers would easily cross a domestic sale of one million vehicles during the year excluding exports. However, the real challenge before the Indian automobile industry is to catch up with China which was at par with us till recently and currently aspiring to be the third largest market in the world.

With current penetration level of six cars per thousand people, the potential for growth is significant. In view of a couple of positive measures such as the excise duty exemption on tractors and 150% deduction on R&D expenditure, we remain positive on the future prospects of the industry. Also, with government pressing for improvement in road infrastructure, the position of railways as the main carriers of goods such as food grains and cement has come under significant threat. Since most manufacturers have a technology tie-up with a foreign major, the incentive to do R&D with the Indian counterpart has increased. Since operating margins of auto majors have increased over the last three years, significant further improvement from the current level is limited and to that extent, we remain cautious.

Firstly, the international car market is growing by around 2% pa and this set to continue for the next few years. This slow down is due to the increasing level of saturation in the largest car markets of the world. Analysts from EIU state that this saturation level may even translate into negative growth, given the recent trend of carmakers to opt for quality components which will increase the vehicle¶s useful life. Secondly, the South-East Asian crises has been a dampener to the collective fortunes of various carmakers worldwide. According to EIU estimates, some countries in the region have witnessed cumulative falls of 70% this year. In Indonesia record sales reported in 1997 are not expected to be matched until 2005. In Malaysia it is expected to be 2003 before peak sales and production volumes are repeated and in the Philippines the market will take seven years to recover. In Thailand, the market for cars and commercial vehicles is expected to fall from almost 600,000 units per year to 125,000 this year.

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Thirdly, the global domination by the large automotive players has slowly abated with local manufacturers getting hold over the market. Japan, Western Europe and the North American Free-Trade Agreement area comprising USA, Mexico and Canada are expected to account for 71% of the global park by 2005, down from almost 77% at the start of the 1990s. This has come about, as the concept of "regio-centric" cars is becoming popular.

11.3: Conclusion
Automobiles have become an indispensable part of our lives, an extension of the human body that provides us faster, cheaper and more convenient mobility every passing day. Behind this betterment go the efforts of those in the industry, in the form of improvement through technological research.
What actually lie behind this betterment of the automobiles are the opinions, requirements, likes and dislikes of those who use these vehicles. These wheeled machines affect our lives in ways more than one. Numerous surveys and research are conducted throughout the world every now and then to reveal one or the other aspect of automobiles, be it about the pollution caused due to vehicle population in cities, or rising motor accidents and causes, vehicular technology, alternative medicine and so on. This section keeps you updated on the latest and the most interesting researches conducted in the field of automobiles, and help you draw the right conclusion.

Bibliography

Websites  www.altavista.com  www.askjeeva.com  www.google.com  www.aol.com  www.hindustan.com  www.projecthubs.com  www.indiainfoline.com Newspapers

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Times of India 

The Economic Times

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