A Drivers report

Neel Shah Flame School Of Business 11/13/2010


OBJECTIVE OF THE REPORT The objective of this project is deeply analyze our Indian Automobile Industry for investment purpose by monitoring the growth rate and performance on the basis of historical data. The main objectives of the Project study are: •Detailed analysis of Automobile industry which is gearing towards international standards • Analyze the impact of qualitative factors on industry‘s and company‘s prospects • Comparative analysis of various Automobile 4 Wheeler companies. • Application of various Technical Tools and Fundamental tools (like Financial and Nonfinancial statements)

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TABLE OF CONTENTS 1. Executive Summary 5 6

2. Introduction 2.1 Automobile Industry in India 2.2 Evolution Of Indian Automobile Industry 2.3 Economic Growth in current year 2.4 Indian Automobile at global level

3. Industry Overview 12 3.1 Production Trend 3.2 Major Players 3.3 District-Wise Distribution Of Automotive Plants In The Leading Indian Auto States 3.4 Demand Characteristics 3.5 Factors affecting demand – supply of automobile industry 4. Segmentation of Automobile 4 wheeler segment 4.1 Passenger Vehicle Industry 4.1.1 Structure of Indian PV segment 4.1.2 Demand Drivers in Passenger car segment 4.2 Commercial Vehicle Industry 4.2.1 Structure of Indian CV segment 4.2.2 Demand and Supply trend in CV segment 4.2.3 Overall Outlook of CV Segment 4.3 Used Cars Market 4.3.1 Overall Outlook of Used cars market 5. Joint Venture 19

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6. Foreign Investment in Automobile Industry 6.1 Foreign Companies in the Indian auto-sector 6.2 FDI 6.2.1 Advantages of FDI in Auto Sector 6.2.2 Opportunities of FDI in the Automobile Sector 6.2.3 Important Aspects of FDI in Automobile Sector 7. Issue of Government Influence 7.1 Summary of Government Influence on Industry Development 7.2 Phases of Government Policies 7.2.1 The Regulatory Phase 7.2.2 Phase of Limited Liberalization 7.2.3 Liberalization Phase 7.2.4 Brief Review of Policy Influence 7.3 Outlook on Government Policies 8. Analysis of Indian Automobile Industry


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9. Effect of Recession 9.1 Impact of Slowdown

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10. Inflation 11. Factors Contributing to the growth of Indian Auto Sector 11.1 Government Support 11.2 Recent policy initiatives 11.3 Current Growth drivers of auto sector 12. Small Cars and India 13. Pestel Analysis on the Auto Sector 14. Porters Five force model on the Auto Sector 15. SWOT Analysis 16. Future of Indian Auto Industry 16.1 Future Small car model in India 16.2 Automotive Mission Plan 2016 17. References

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EXECUTIVE SUMMARY 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 couple of years in the view of a reasonable surge in demand. The Indian automobile market is gearing towards international standards to meet the needs of the global automobile giants and become a global hub. A detailed analysis of Automobile industry has been covered in respect of past growth and performance. Under this project to better understand the Industry we have used Fundamental and Technical tools to make it more authentic n meaningful. An E.I.C approach has been followed under Fundamental Analysis which covered effect of Recession, the impact of inflation, FDI‘s, Export, GDP etc. on Automobile Industry. The Industry Analysis has been done with the help of five forces model, BCG Matrix, SWOT analysis, industry life cycle and the industry specific index. For Company Analysis as a part of Fundamental tool we have undergone with the comparative analysis of TATA Motors as our leading company with Maruti Suzuki India‘s largest Car manufacturer. The fundamental aspect consists financial and NonFinancial analysis of both the company. In the Technical aspect we have considered Share price analysis, moving average, moving average crossover, Bollinger bands and M.A.C.D. of both the company by keeping TATA Motors as our leading company. At the end conclusion and recommendations have been specified so as to make the research work more meaningful and purposeful.

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INTRODUCTION: The 4 wheeler industry in India has not been able to match up to the performance of its counterparts in other parts of the world. The main reason for this has been the regulatory atmosphere that prevailed till the deregulation in the mid 1990s. After the Liberalisation the passenger car segment saw a boom and many companies from India as well as foreign entered the market. However, the smooth sailing was suddenly disrupted in the last quarter of FY1996. The automobile industry, which contributed substantially to industrial growth in FY1996, failed to maintain the same momentum between FY1997 and FY1999. The overall slowdown in the economy and the resultant slowdown in industrial production, political uncertainty and inadequate infrastructure development were some of the factors responsible for the slowdown experienced by the automobile industry. In FY2000, the sector experienced a turnaround, posted positive growth rates and witnessed the launch of many new models. But the spectacular growth in FY2000 was followed by a decline in FY2001 and only a marginal growth of 0.5% in FY2002. However, since FY2003, industry sales have increased at a 3year CAGR of 17.4% to 1.14 million in FY2006.      Indian automobile industry has grown leaps and bounds since 1898, a time when car touched the Indian streets for the first time. At present it holds a promising tenth position in the entire world with being No. 1 in Two wheelers and No. 4 in commercial vehicles. The Automobile Industry in India is the 7th largest in the world with an annual production of over 2.6 million units in 2009. In 2009, India emerged as Asia‘s 4th largest exporter of automobiles behind Japan, South Korea and Thailand. By 2050, the country is expected to top the world in car volumes with approximately 611milion vehicles on the nation‘s road.

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AUTOMOBILE SECTOR IN INDIA This situation reflected the India of yester years. Economic reforms and deregulation have transformed that scene. Automobile industry has written a new inspirational tale. It is a tale of exciting multiplicity, unparalleled growth and amusing consumer experience - all within a few years. India has already become one of the fastest growing automobile markets in the world. This is a tribute to leaders and managers in the industry and, equally to policy planners. The automobile industry has the opportunity to go beyond this remarkable achievement. It is standing on the doorsteps of a quantum leap. The Indian automobile industry is going through a technological change where each firm is engaged in changing its processes and technologies to maintain the competitive advantage and provide customers with the optimized products and services. Starting from the two wheelers, trucks, and tractors to the multi utility vehicles, commercial vehicles and the luxury vehicles, the Indian automobile industry has achieved splendid achievement in the recent years. "The opportunity is staring in your face. It comes only once. If you miss it, you will not get it again" On the canvas of the Indian economy, auto industry maintains a high-flying place. Due to its deep frontward and rearward linkages with several key segments of the economy, automobile industry has a strong multiplier effect and is capable of being the driver of economic growth. A sound transportation system plays an essential role in the country's rapid economic and industrial development. The well-developed Indian automotive industry skillfully fulfils this catalytic role by producing a wide variety of vehicles: passenger cars, light, medium and heavy commercial vehicles, multi-utility vehicles such as jeeps, scooters, motorcycles, mopeds, three wheelers, tractors etc. The automotive sector is one of the core industries of the Indian economy, whose prospect is reflective of the economic resilience of the country. Continuous economic liberalization over the years by the government of India has resulted in making India as one of the prime business destination for many global automotive players. The automotive sector in India is growing at around 18 per cent per annum.

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"The auto industry is just a multiplier, a driver for employment, for investment, for technology" The Indian automotive industry started its new journey from 1991 with delicensing of the sector and subsequent opening up for 100 per cent FDI through automatic route. Since then almost all the global majors have set up their facilities in India taking the production of vehicle from 2 million in 1991 to 9.7 million in 2006 (nearly 7 per cent of global automobiles production and 2.4 per cent of four wheeler production). The cumulative annual growth rate of production of the automotive industry from the year 2000-2001 to 2005-2006 was 17 per cent. The cumulative annual growth rate of exports during the period 2000-01 to 2005-06 was 32.92 per cent. The production of the automotive industry is expected to achieve a growth rate of over 20 per cent in 2006-07 and about 15 per cent in 2007-08. The export during the same period is expected to grow over 20 per cent. The automobile sector has been contributing its share to the shining economic performance of India in the recent years. With the Indian middle class earning higher per capita income, more people are ready to own private vehicles including cars and two-wheelers. Product movements and manned services have boosted in the sales of medium and sized commercial vehicles for passenger and goods transport. Side by side with fresh vehicle sales growth, the automotive components sector has witnessed big growth. The domestic auto components consumption has crossed rupees 9000 crore and an export of one half size of this figure. FACTS      The automotive sector is one of the key segments of the economy having extensive forward and back word linkages with other key segments of the economy. It contributes about 4% in India‘s GDP and 5% in India‘s industrial production. This sector has generated about 4.5 Lack of direct employment and about 1.31 crore of indirect employment. India holds huge potential in the automobile sector including the automobile component sector owing to its technological, cost and manpower advantage. India has a well developed, globally competitive Auto Ancillary Industry and established automobile testing and R&D centers.

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       

India enjoys natural advantage and is among the lowest cost producers of steel in the world. 9thlargest automobile industry 2ndlargest two-wheeler market 11thlargest Passenger Cars producer 4th largest in Heavy Trucks 2ndlargest tractor manufacturer Annual production of over5 .3 million units in 2001-02to 10.8 million units in 200708 The monthly sales of passenger cars in India exceed 100,000 units, Turnover of over 1 65,000 crores

Evolution Of Indian Automobile Industry

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Economic Growth This Year Despite economic slowdown that has affected the automobile industry, production and exports of the sector went up last fiscal, said the Economic Survey20 0 8- 0 9, and underlined that the industry employs over one crore people. While the overall automobile production went up by3 per cent to reach1.11- crore, exports increased by over23 per cent to over15 - lacs. The domestic turnover of the sector stood at Rs. 2.19- lacs crore, while exports totaled at Rs. 31,782 crore, taking the total size of the industry to Rs. 2.50-lacs crore during 2008-09 Contribution of17 % to the kitty of indirect taxes Indian auto industry is one of the core industries. Post-independence due to the thrust on industrialization Indian auto industry indirectly benefited as transport of goods across the country increased manifold. Liberalization of the economy that started in 1980 has also had a positive impact on the Indian Auto industry. India is considered as a crucial business destination for reputed

automotive players across the globe. The automotive sector in India is growing at around 18 per cent per annum.

Indian Automobile At Global Level      Ranks 1st in the global 2 wheeler market. The 4th biggest commercial vehicle market. Ranks 11th in the International Passenger Car market. Ranks 5th in the no. of Trucks and Buses sold. The Second largest tractor manufacturer.

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The economy of India is emerging. The following table shows the ranking of India in the past four years

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INDUSTRY OVERVIEW: The Indian automobile industry posted a spectacular growth of 32%, powered by improving economic environment, gradual dissipation of job & business uncertainty, new offerings and good consumer spending in urban and rural India. The upbeat market sentiment spanned all segments of motor vehicles, with passenger vehicles, commercial vehicles, two-wheelers and three-wheelers - all recording decent double-digit growth. Passenger vehicles, continuing its good run, stole the limelight by notching up 35% rise in domestic sales. While Maruti Suzuki remained the leader without much of a challenge and recorded spectacular sales numbers, new players in the segment such as Ford Motor, General Motors and Volkswagen too benefited from a robust demand for their recently launched small cars - Figo, Beat and Polo. Riding on the continuing strong performance of industry and the increased pace of infrastructure development, commercial vehicles sustained the momentum of the last six months during May,2010, growing by a whopping 57.7% in domestic market. The smart growth numbers of CVs were, to a great extent, aided by the low base of the previous year, though.

Production Trend           Installed capacity of this sector has been growing at a compound annual rate of over 16% since 2003-2004. Automobile industry grew by 14.83% in April 2008- February2009. Cumulative growth rate of some important segments in April 2007-December 2008 was: Passenger vehicles: 22.91% Passenger cars: 24.76% Utility vehicles: 12.69% Multi -purpose vehicles: 28.385% Commercial vehicle: 36.12% Medium and heavy commercial vehicles: 36.74% Light commercial vehicles: 35.25%

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MAJOR PLAYERS IN INDIA: Volkswagen BMW Toyota Tata Skoda Nissan Motor Mitsubishi Mercedes Mahindra Maruti Hyundai Honda Hindustan Motors General Motors Chevrolet Daewoo Motors Fiat Ford

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(A) Passenger Cars: In developed markets, engine capacity and wheel-base are the bases of segmentation of passenger cars: price does play a role but only up to a point. Since affordability is the most important demand driver in India, the domestic car market has until now been segmented on the basis of vehicle price. Price-based competition takes place in a continuum rather than in segments since nearly all the models are launched in multiple versions at different price points. As a result, a higher-end variant may compete with a lower-end variant of a car in a segment above it. (B) Multi Utility Vehicle (MUVs): The MUV segment consists of vehicles that are suited to both rural and urban areas. In rural areas where the roads are usually bad, these vehicles are used as goods carriers and also for public transportation. Northern and Western India account for nearly two-thirds of the

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demand for MUV. Specifically, in States like Rajasthan, Madhya Pradesh, Uttar Pradesh and Maharashtra, the demand for MUVs is the largest. There are three segments of buyers for MUVs: the private market, Government, and the Defence. Until the 1990s, the Government and Defence segments accounted for the largest share of the market. The reduction in Government and defence spending since the 1990s has substantially reduced sales to these two segments. This has pushed private sector purchases into greater prominence. There are three sub-segments of the UV / MUV segment: the hard-top, soft-top and pick-up. The hard-top version consists of the higher-end Sports Utility Vehicles (SUVs) that have been present in the Indian markets since FY1999. Following the success of the higher-end SUVs, the share of the hard top segment in total MUV sales has registered an increase. Softtop MUVs, which are largely dependent on sales in the rural and semi-urban markets where the vehicles serve as modes of mass transportation (maxi taxi); have witnessed a contraction in volumes in recent years. The declining share of the soft-top sub-segment is attributable largely to the increasing acceptance of SUVs as an alternative to soft-tops (and even higher end-cars). That apart, soft-top sale have also been affected by a decline in rural income, increase in sales tax in some states, increase in diesel prices, enforcement of strict emission control norms, and restraints on the issue of licences to use soft-top vehicles as rural taxis.

FACTORS AFFECTING DEMAND SUPPLY OF AUTOMOBILE INDUSTRY Demand Factors 1. Financing Options Auto industry observers cite car loans as the biggest driving factor for the expansion of the Compact Car segment. At present, almost 85 per cent of all new car sales are backed by auto finance, compared to 65 per cent five years ago.

Interest rates on car loans have come down drastically in the past four or five years, which helps prospective buyers take the plunge. The growth of the CC-segment in the past few years can be mainly credited to factors such as rise in income levels leading to increased affordability and simultaneous reduction in interest rates leading to lower EMIs. The drop in interest rates usually helps very few people to probably shift from the base model to a deluxe model. A larger shift happens if people are willing to take long-term loans, like five years instead of the earlier three-year loans.

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2. Advertising And Marketing Due to the advertising techniques adopted by all the manufacturers in the CCSegment the sales have risen drastically. It is all due to because the companies now a days are using even aggressive selling techniques for which they are even coping with the Film celebrities and Cricket stars, like Maruti has contracted Irfan Pathan as the brand ambassador of Zen and for Santro Hyundai has contracted for Shah Rukh Khan. And the companies are even trying to approach to the customer as to there demand for a vehicle at special interest loans, etc. They are using data according to the customers return and earning capacity for attracting the customers for there vehicles. 3. Price Of The Car One of the major factors that affect the demand of any commodity in the market is the price of the commodity. As the law of demand also states that with an increase in price the demand of the commodity decreases and vice versa. Since, in the compact car segment market even there are very less competitors there is stiff price competition. Like the price of Zen in 2001 was Rs. 3.93 lacs which increased to Rs. 4.01 lacs in 2005, but still the sale of the Maruti brand keeps on increasing it was due to the company‘s reputation with the customers. 4. Income Of Consumer / Buyer The income of the consumer or buyer of the car is a very important factor of demand. In recent time we have seen that due to increase in the Income of the general public, there has been a shift from the Lower CC-segment cars to the Upper CC-segment cars. Due to the recent increase in the number of multinationals in India, the income level of the employees have risen drastically and has made CC-segment cars an entry level car for a lot of people. The average age of a CC-segment car owner has also dropped from 35 years to 31 years in India. 5. Increase In Affordability The demand for passenger cars is driven mainly by greater affordability, which in turn increases the aspiration level of the customers. Today with high amount of disposable income

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in the hand of Indian youth, who forms major portion of the population, PV market has larger addressable market. 6. Demographic Drivers Cars being aspirational products, purchase decisions are influenced by the overall economic environment. Increase in per capita income increases the consumption tendency of the customer. Growth in per capita income and rising aspirations and changing lifestyle is leading to increased preference for cars

over two-wheelers, which is also having a positive rub off on car demand. 7. Availability Of Easy Financing Options A majority of PV purchases are financed through financial institutions. Over the past 4-5 years car industry has been benefited through significant increase in affordability due to the decrease in EMIs. Car finance rates dropped from 17% in 2000-01 to 11% in 2005-06. However it has increased and averaged at 13.75% in 2006-07. The current hardening of interest rates is expected to affect demand by

reducing affordability. 8.New Offerings Car sales increase when a new model hits the market. Due to escalation in competition in Indian car market, frequency of new model launches has increased. In the past one year only the Indian car market has seen many launches namely SX4, Swift Diesel, Zen Estilo, Spark, Logan, etc. 9. Exports The share of exports from domestic production is currently at 12-13%, which is much lower than current export hubs. Currently, India‘s share of global passenger cars export volume stands at less than 1%. But India is fast emerging as a manufacturing hub for leading global car makers, and several manufacturers have already firmed up plans for setting up manufacturing bases in India, which will also be used for exports.

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Supply Factors 1. Presence Across Segments Manufacturers with presence across various product segments can ensure higher volume and better capacity utilization by using the common manufacturing capacity. Typically a customer upgrades from one segment to higher segment and the presence across various segments ensures that the company retains its existing customers. 2. Efficient Operations Competition in PV segment is very intense and this requires the existing players to initiate steps to reduce their cost of production. Effective and successful operation methods like platform commonality, reduction in vendor base and workforce

rationalization can help a company immensely. 3. Wide Dealer Network And Availability Of Finance A wide dealer network helps the company serve customers over wide geographical area. For e.g. Maruti has used its available wide service network as point of difference over competitors. The companies are tying up with the financial institutions having rural presence to provide additional financing options to customers in such areas. 4. Access To Latest Technologies Indian PV segment is highly competitive with as many a 14 players operating in it and more than 80 models on the offering. But still any new model launch meets with increase in sales volume for the company. Moreover in a time when a substantial portion of Indian customer is looking to upgrade in higher segment, companies with latest technologies and latest models will catch more attentions 5. Price Of The Car Price of the car is one of the major factors that affect the supply as well as the demand of a car. If the price of the car is high in the market, the manufacturer or the supplier will want to supply more units in the market so he can earn more profits. In the automotive industry where the market type is oligopoly, if one company drops its price for the car, there is a huge impact on the sales of the other cars as well as the

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same car. In the market the price of one car is inter-related to the price of the other cars in the same segment. The best solution is that market equilibrium should be achieved so that the amount of the quantity demanded should be equal to the amount of the quantity supplied to achieve maximum profits. A Market Equilibrium is achieved at the point of intersection of the demand line and the supply line. The point is the equilibrium point where the quantity demanded is equal to the quantity supplied. 6. Factors Of Production There are some factors of production which influence the supply of a car like: Cost of Raw Material Labour Cost Machinery Input Cost These factors influence the supply of a car largely. If the cost of the raw material (Steel, Spare Parts, Rubber) increases there will be an increase in the cost of production leading to decrease in profit margins. Costs like labour costs, machinery and input costs also influence the supply with the increase or decrease in these costs. 7. Government Policies And Taxes If there is a change in the government policies regarding the increase in the road tax charged or the tax which is to be paid per unit sold, the supply of a car will fluctuate with the nature of the change. Recently the government has reduced the custom duty on inputs and raw material from 20% to 15% which has increased the supply.

SEGMENTATION OF AUTOMOBILE INDUSTRY: A. Passenger Vehicles B. Commercial Vehicles C. Used Cars

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PASSENGER VEHICLE INDUSTRY The past few years have witnessed a rapid change in all the segments of the Indian passenger vehicle industry. International competition, increase in the number of participants, and the need to counter pressure on margins have made it a buyer's market rather than a seller's one. Today customers have wide model choices and the rising income levels, especially among young adults, coupled with the low equal monthly installments (EMIs), have made vehicle purchase affordable. With increased foreign competition in passenger vehicles, domestic participants are scrambling to catch up and compete by investing in R&D and improving overall efficiency. Automobile manufacturers are now intending to provide cars in every segment with widened price range and reaching more potential customers. Segment classification The Passenger Vehicle (PV) industry is divided into passenger cars, utility vehicles (UV) and multi utility vehicles (MUV). Passenger cars based on their size are further divided into six sub classes. The Passenger Vehicles (PV) market grew 14% YoY to 1,762,131units as against 1,545,223 units sold in 2007-08. It is largely attributed to the impressive growth in the passenger car segment in FY07 08. The passenger car segment contributed 80% to the total PV sales in financial year 2007-08. Marketwise, it was backed by healthy growth in its domestic sales and exports. Its domestic sales grew 12% YoY to 1,547,985 units in financial year 2007-08. Also exports grew by 9.4% YoY to 217,054 units in FY2007-08. Over the last five years total PV production has increased at a CAGR of 19.5%, from 723,330 units in 2002-03 to 1,762,131 units in 2007-08. In the same period domestic sales and exports of PV increased at a CAGR of 17% and 25% respectively. The share of exports to total sales increased from 9.25% in FY03 to 12.3% in FY08

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Capacity vs. utilization Total capacity for PV in India stood at around 2.5 million units in 2007-08 against 1.25 million units in 2002-03, a CAGR of around 15%. However, the capacity utilization of the industry has fallen to around 71% in 2007-08 from 87% in 2006-07. During 2007-08 total capacity increased by almost 40%. This is on account of major capacity expansions undertaken by OEMs like Honda Siel, Maruti and Hyundai towards the end of 2007-08. Moving forward car manufacturers have announced ambitious capital expenditure plans over the next 2-3 years. Driven by high domestic demand and increasing exports capacity is expected to touch 3.9 million units by 2009-10 (CRISIL). Structure of Indian PV segment Passenger vehicle industry is divided into three segments namely Passenger Vehicle (PV) segment, Utility vehicle segment and Multi Purpose Vehicle segment. PV segment contributes to about 80% of the volume while rest 20% is divided between UV and MPV. Indian passenger vehicle industry is highly fragmented especially if we compare it to two wheeler or commercial vehicles Industry. Although overall Maruti is the clear market leader with about 50% of the market share and the second largest player have only one third of the share of Maruti

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Major Players Profile (A) Maruti Suzuki India Limited(MSIL): Maruti Suzuki sells one car out of every two cars sold in the country, crossed yet another landmark, clocking over one-lakh units of sales in a month for the first time. MSIL sold 102,175 units in May 2010, of which 12,134 units accounted for exports. Incidentally, the company's domestic sales tally of 90,041 units was also the highest ever in a month. The previous highest monthly domestic sale was 84,765 units in February 2010. Maruti Suzuki registered highest ever-domestic sales in A2, A3 and C segments respectively. A2 segment (comprising of Alto, WagonR, Estilo, Swift, Ritz, A-Star) grew by 16.6% to clock sales of 62,679 units. A3 segment (SX4, Dzire) rose by 60.5% to 10,883 units, while domestic sales volume in C segment (Omni, Versa, Eeco) at 12,953 units soared by 70% y-o-y during the month. Maruti Suzuki India (MSIL): Maruti Suzuki is the market leader in the passenger car industry with a market share of 46.5% and with a 63% share in the overall compact car segment. Suzuki Motor Corporation of Japan holds a 54% stake in MSIL. Maruti has around 562 sales outlets covering 372 cities. Maruti plans to expand service its service network from 2,500 outlets in more than 1,200 cities to 3,800 outlets in 1,700 cities by FY10. In FY07-08, Maruti has launched SX4 and Dzire in mid size segment. MSIL has announced an investment of Rs.90 billion in the expansion of its manufacturing facilities. This investment will be made over a period of eight years and most of it would be in capacity expansion and setting up of R&D and design facility. Key Models: M800, OMNI, Gypsy, Alto, Wagon R, Versa, Grand Vitara, Swift, Zen Estillo, Swift Diesel, SX4 and Dzire.

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(B) Mahindra & Mahindra Ltd (M&M): M&M clocked 13,476 units of its UV sales in domestic market during May 2010, growing by a healthy 67.8% over 8,033 units in May 2009. CV and 3-wheeler sales of M&M in domestic market were also on a high growth trajectory. While CV sales at 7,796 units were up 43.9%, 3-wheeler domestic sales volume increased by 59.4% y-o-y to 4,309 units during the month. M&M is the dominant player in multi utility vehicle segment. In UV market The Company has around 51% market share in FY08. M&M has a market share of 11.2% in C-segment cars during FY08. M&M is second biggest player in the Indian LCV segment. The company has recently announced an investment of Rs 15 billion in the upcoming Greenfield Chakan facility in Pune. It plans to use the capacity for the production of LCV, M&HCV and UV at this plant with the initial capacity of around 2.5 lakh units. Major Models: Utility Vehicles: Scorpio, Bolero, Pick-up, Commander, Hard-top etc. Light commercial vehicles: Maxx Pickup, Maxx Maxi, and minibuses, Tourister. (C) Ashok Leyland (ALL): ALL is the second-largest commercial vehicles manufacturer in India. The company plans to increase the installed capacity from 84,000 vehicles in FY08 to 184,000 vehicles by FY 10 with a capital expenditure of Rs 30 billion over the next three years. Nissan Motor and ALL have stepped up planned investment in their three new joint venture companies to $575 million. The JV will set up manufacturing capacity of one lakh vehicles in the first phase which would be scaled up subsequently. The plant is expected to start production by FY1011. (D)Tata Motors: TML is the world‘s fifth largest medium and heavy commercial vehicle manufacturer. The company has plants in Jamshedpur, Pune, Lucknow, and Dharwad and R&D centers in Pune, Jamshedpur, and Lucknow in India and in South Korea, Spain and the UK. The company markets its products in Europe, Africa, Middle East, South Asia, South East Asia and Australia. TML plans to produce new generation Indica from a new platform in later part of 2008. This new Indica will be manufactured at new Tata-Fiat joint venture plant at Ranjangaon in Maharashtra. The company plans to produce 2.5 lakh units of Nano from Singur in the first phase. Tata Motors has planned a capacity of 2.25 lakh units for Ace, the

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sub-one-tonne truck, while the existing capacity in Pune is just around 60,000 units a year. Recently, TML has acquired Jaguar and Land Rover from Ford Motors for $2.3 billion. Tata Motors domestic sales of commercial and passenger vehicles in May 2010 were 52,801 units, a 38% growth over 38,392 units sold in May 2009. Of this, commercial vehicles racked up 31,475 units - up 37% over 23,004 vehicles sold in May last year. While LCV sales at 13,755 units grew by 26.6% y-o-y. Passenger Vehicles Business Unit of Tata Motors reported a total sale of 21,477 units in the domestic market during May 2010, which translates into a good 38.9% increase compared to 15,459 units a year earlier. Domestic sales of Tata passenger cars at 21,326 units surged by 39% y-o-y. Sales of the Tata Nano were 3,550 units. The Indica range sales at 8,468 units witnessed a 15% slide, while the Indigo range logging 6,600 units grew by a robust 133%. The Sumo/ Safari range accounted for sales of 2,708 units, higher by 6% over May 2009. Exports of Tata Motors at 3,978 units in May 2010 registered a growth of 121% compared to 1,804 units in May 2009. (E) Eicher Motors (EML): EML produces commercial vehicles including trucks, buses, motorcycles, automotive gears and components. The company has sold 8.1% of promoter's holding to Swedish bus maker Volvo to form a joint venture, in which Volvo will pump up Rs 1,082 crores. The JV would be a subsidiary of EML, where Eicher would hold 54.4% equity and Volvo 45.6%. The manufacturing facility of Eicher Motors is located in Pithampur, Madhya Pradesh. The plant houses some top-of-the-line equipments, a robust infrastructure and has an annual production capacity of 30,000 vehicles. The company is one of the leading manufacturers of commercial vehicles in India with a 33% market share in the 7T-11T segment. (G) General Motors India: Chevrolet Beat bolstered an impressive growth for General Motors India of 61%, selling 8,225 units against 5,109 units in May last year. The May 2010 sales comprised of 2,812 units of the Chevrolet Spark, 2,296 units of Chevrolet Beat, 1,418 units of the Chevrolet Tavera, 854 units of the Cruze, 396 Units of Chevrolet Aveo, 312 units of Chevrolet Aveo UVA, 84 units of the Chevrolet Captiva and 53 units of Chevrolet Optra.

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(F) Hyundai Motor India Ltd (HMIL): Hyundai Motors stayed on course with its domestic sales at 27,151for May,2010, units growing by 15.5% over the same month last year. HMIL's total sales for May'10 (including exports) stood at 46,808 units as against 43,624 units in May 2009, registering a 7.3% growth. The exports declined by 2.3% from 20,121 units in May 2009 to 19,657 units in May 2010. The segment-wise cumulative sales of HMIL during May 2010 were as follows: A2 segment (Santro, i10, Getz & i20) - 42,460 units; A3 segment (Accent & Verna)-4,310 units; A4 segment (Elantra) -1 unit; andA5 segment (Sonata Transform) - 37 units. The demand for the i20 continues to swell, as demand has shot up by almost 35% following the launch of the new model and addition of two trims.

Demand Drivers In Passenger Cars Segment Increase in affordability - the demand for passenger cars are driven mainly by greater affordability, which in turn increases the aspiration level of the customers. Today with high amount of disposable income in the hand of Indian youth, who forms major portion of the population, PV market has larger addressable market. Demographic drivers- Cars being aspirational products, purchase decisions are influenced by the overall economic environment. Increase in per capita income increases the consumption tendency of the customer. Growth in per capita income and rising aspirations and changing lifestyle is leading to increased preference for cars over two-wheelers, which is also having a

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positive rub off on car demand. Replacement cycle, second car and up gradation- Factors like the rapid pace of new product introductions, rising income levels and a buoyant used car market have shrunk the average replacement cycle for cars. According to Crisil statistics, over the last decade, car replacement cycle has shrunk from 10 years to nearly five years at present. With more than one working member in the family concept of a second car is also on rise in urban India Availability of easy financing options- a majority of PV purchases are financed through financial institutions. Over the past 4-5 years car industry has been benefited through significant increase in affordability due to the decrease in EMIs. Car finance rates dropped from 17% in 2000-01 to 11% in 2005-06. However it has increased and averaged at 13.75% in 2006-07. The current hardening of interest rates is expected to affect demand by reducing affordability. Rural market- PV has been traditionally seen as luxurious item in India, especially so in rural areas. Today PV manufacturers are ready to break this myth and are exploring rural market, which constitutes more than 2/3rdof countries population, with great vigor. To penetrate in semi urban and rural market manufacturers are trying to increase the availability of finance in these areas by having tie-ups with financial institutions. . New offerings - car sales increases when a new model hits the market. Due to escalation in competition in Indian car market, frequency of new model launches has increased. In the past one year only the Indian car market has seen many launches namely SX4, Swift Diesel, Zen Estilo, Spark, Logan, etc. Increased distribution reach- Distribution is another key factor in driving demand. Increase in distribution reach brings a large number of households into the target population. Having realized the purchasing power of Tier II &III Indian cities companies are expanding their distribution network their. Exports - The share of exports from domestic production is currently at 12-13%, which is much lower than current export hubs. Currently, India‘s share of global passenger cars export volume stands at less than 1%. But India is fast emerging as a manufacturing hub for leading global car makers, and several manufacturers have already firmed up plans for setting up manufacturing bases in India, which will also be used for exports.

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Nano Effect - Ever since the unveiling of the Tata Nano—and the hysterical response it triggered off in India and overseas—the ultra low cost car is right on top of the automotive mind-space. All the attention it has got and all the promises it has generated makes the Nano a terribly exciting product. But that‘s not all. What makes the ultra low cost (ULC) trend even more exciting is the number of top MNC carmakers that have indicated that they would be looking at the segment in the near future. According to C K Prahlad, the management mahaguru, the Nano represents an important inflection point in the global auto industry and in the evolution of Indian Automotive industry. What originally started as an alternative to a scooter now has the capability to cater to a multiple set of needs and therefore will address a number of segments.

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COMMERCIAL VEHICLE INDUSTRY Types of Commercial vehicles in India Commercial vehicles are of two types – Goods vehicles and Passenger vehicles. Good vehicles used for transport are the trucks, tempos, containers, trailers and tankers. In this segment, the medium and heavy commercial vehicles goods occupy a maximum market share of 48%. The light commercial vehicles enjoy a market share of 38%. The industrial revolution that started post-Independence and contributed to urban migration led to a huge demand for these goods vehicles. In the recent years, with the retail boom all over the country, it has been noticed that the market share of Light Commercial Vehicles (LCVs) is increasing. This is indicative of the hub and spoke model that most retailers and producers are following. The commercial vehicle (CV) Industry in India, as is the trend internationally, is cyclical, with periods of volume growth leading to investments in fleet capacity and subsequently to periods of correction. In spite of the inherent cyclical nature, the long-term growth prospects for the industry remain closely linked to the development of road infrastructure, growth in gross domestic product (GDP) and industrial production. The Indian CV industry is currently going through demand correction following one of the longest up-cycles in its history. The Industry which grew at a rate of above 25% over 2001-07 has grown by just 5% in FY08. The long up-cycle was driven by strong economic growth and investments in road infrastructure, besides favorable regulatory changes and a benign financing environment. The industry, on its part, has used its period of growth and the resulting financial surplus to invest in product development and improvement in operating efficiencies. These efforts have resulted in industry extending its presence into newer geographies and exports have increased at a CAGR of almost 40% over the last five years. Going forward this could help in mitigating the effect of down cycle to an extent. Industry growth Over the last five years light commercial vehicles (LCV) and medium/ heavy commercial vehicle (M/HCV) segment have grown at a CAGR of 27% and 17% respectively. Although growth of these segments has shown similar trend, volume growth in the M/HCV segment has been more volatile. The demand for M/HCV goods carrier segment mainly depends on higher capacity addition at the fleet operator level and also prone to severe demand shocks.

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The LCV segment, though cyclical, usually exhibits steadier demand patterns on account of wide usage range

Sales Trend

Structure of Indian CV segment The CV industry in India is split between the LCV and M/HCV segments, with the classification being based on gross vehicle weight (GVW). According to Industry norms, vehicles with GVW less than 7.5 tonnes are classified as LCVs while the ones heavier than these are termed M/HCVs. In terms of usage, CVs may be categorized as goods carriers and passenger carriers. Among the passenger carriers in the less than 7.5 tonne GVW segment, those with sitting capacity up to 13 are categorized as utility vehicles (UVs, and not part of LCVs) while those with capacity over 13 passengers are grouped as LCVs. According to

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Crisil statistics, the overall CV industry is split between the LCV and M/HCV segments roughly in the ratio of 45:55.The Indian four-wheeler industry is duopolistic in nature with Mahindra and Mahindra (M&M) and Tata Motors holding a major share in LCV segment (90.8%) and Ashok Leyland (ALL) and Tata Motors holding a major share in M&HCV segment (88.6%).

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Demand Drivers GDP/IIP- CV industry has high degree of correlation with the GDP and IIP (Index of Industrial production) of the country. The Industry follows the path by which these two goes and good performance of GDP and IIP results in higher demand for CVs. Freight outlook- CV sales have a direct correlation with the state of the freight industry, with growth in CV sales (MHCV trucks) closely tracking increase in freight movements. Strong economic activity in the country, especially in sectors like cement, mining, steel production, automobiles, consumer durables, food processing and food grain production, leads to increased demand for freight movement by road. Freight rates and fuel price- Truck operators‘ profitability is most sensitive to freight rates and fuel prices (60-65% of the total cost). With other things remaining constant, operator profit before depreciation and tax rises 6.5% with a 1% rise in freight rates and 3.5% for a 1% decline in fuel prices Policy initiatives- The CV industry has benefited from regulations like discouraging the use of old, polluting and uneconomical vehicles. The Supreme Court ban on overloading has also been very positive, leading to incremental volumes in the last two years. Further any government‘s likely policy initiatives like scrapping vehicles more than 15 years old can potentially unleash a huge replacement demand. Further the industry is also expected to benefit from the proposed phase-out of Central sales Tax by 2010. Replacement cycle- Replacement cycle for trucks has been shrinking, declining from about 12 years to nearly seven years now. The proportion of trucks under five years of age rose from about 34% in FY02 to nearly 45% in FY06. Competition from Indian Railways- Road transport competes with the Indian Railways (IR) for transportation of all major commodities, with roads having an edge in transportation of non-bulk commodities owing to point to point delivery with railways commanding a higher share in transportation of bulk commodities. Over the years, roads have gained an increasing preference vis-à-vis the railways and the share of road transport currently stands at about 65%. Demand supply scenario- The significant part of the demand for new trucks comes from capacity additions by small fleet operators and first-time users. This along with policy

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changes like ban on overloading has led to significant addition in the truck population. Also with easy availability of finance at low interest rate helped in increase of capacity in the past five years. But as interest rates are set to increase it might lead to slight dampening in demand for M&HCV in near future. However, demand is likely to remain healthy for LCV owing to the rise in demand for small commercial vehicle for providing the last mile connectivity and the creation of hub and spoke models. Demand And Supply Trend In Commercial Vehicle Segment Freight movement by road vs. system capacity Key Success Factors Ability to enhance and vary product mix - A diverse and broad product mix enables a manufacturer to serve a wide variety of transportation solutions across different load levels. It also helps in building strong brand loyalty among customers. In addition the presence in business such as auto spares, buses, exports and defence helps companies to weather the cyclicity in CV sales. Sales and distribution service network - A widespread sales and distribution setup enables the company to ensure a geographically diversified client profile. Access to new technologies – In addition to matching competitor‘s new products and upgraded machinery, technology is also going to be critical with emission norms are going to be stricter going forward. The requirement of updated technologies has driven domestic players into acquisition/collaborations/JVs with global majors. Balance between outsourcing and in-house production - Companies with high integration level have higher fixed costs which results in higher profitability in robust growth scenario. However it also results in sharp drop in performance as they would be affected by lower sales volume backed by Industry cyclical nature. More over company‘s proximity to their raw material and component suppliers help them in reducing procurement costs. Concerns Higher steel prices have been a key concern over the last two years. The CV industry has tackled this both by passing part of the costs through price hikes and also by optimizing their selling, advertising costs and treasury efficiencies.

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Another concern is a slowdown in the Indian economy. This would lead to lower investment in infrastructure which in turn will affect the CV demand • Higher domestic inflation and increase in fuel prices are other major concerns. Without a concomitant increase in freight rates increase in fuel price will have a negative impact on demand for CVs. • Rise in interest rates may prove to be a dampener on the CV demand, especially given the fact that around 60-70% of vehicles purchased are financed. Overall Outlook Although rise in interest rates and fuel price may dampen the growth of the sector in short run the long-term outlook for the domestic CV industry remains strong. The expected continuance of economic growth and investments in infrastructure will help the sector report robust growth going forward. The entry of new players in the industry and the significant capacity additions expected are however likely to keep the competitive pressures high. On the demand side, a combination of tightening regulatory norms (on emissions and vehicle scrapping) and increasing customer selectivity is expected to drive a shift towards high tonnage quality products. The top players in the domestic CV industry have robust financials, supported by strong cash accruals and a comfortable capital structure. These players are capable of funding their significant investment plans over the medium term without resorting to any large borrowings. Moreover, the ongoing capacity expansions are based largely on outsourcing models, which aim at better sharing of risks with component suppliers and lower the break-even levels. The significant export drives being made by the leading CV players are likely to lower the risks arising from concentration on the domestic market and mitigate the impact of cyclical downturns to an extent. Key success factors Presence across segments - Manufacturers with presence across various product segments can ensure higher volume and better capacity utilization by using the common manufacturing capacity. Typically a customer upgrades from one segment to higher segment and the presence across various segments ensures that the company retains its existing customers. Efficient operations - Competition in PV segment is very intense and this requires the existing players to initiate steps to reduce their cost of production. Effective and successful

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operation methods like platform commonality, reduction in vendor base and workforce rationalization can help a company immensely. Wide dealer network and availability of finance - A wide dealer network helps the company serve customers over wide geographical area. For e.g. Maruti has used its available wide service network as point of difference over competitors. The companies are tying up with the financial institutions having rural presence to provide additional financing options to customers in such areas. Access to latest technologies - Indian PV segment is highly competitive with as many a 14 players operating in it and more than 80 models on the offering. But still any new model launch meets with increase in sales volume for the company. Moreover in a time when a substantial portion of Indian customer is looking to upgrade in higher segment, companies with latest technologies and latest models will catch more attentions. . Key concerns • In the recent past cost of all most all the key raw materials (especially for metals) for automobile segment has gone up. This combined with current high inflation rates looks set to affect demand for PV globally and in India. • Easy availability of low cost finance is one key demand driver for automobile sector. But as the RBI has taken some liquidity tightening steps, interest rates are set to increase in short term and it can have dampening effect. • Unlike two wheeler or commercial vehicle sector, PV market is fairly fragmented. There are 14 players and more than 80 models in the market. So, there exists high competition in the segment. Increased competition has led to fierce price competition which in turn has resulted reduced margins for players. Now with increase in cost of inputs competition can result in further reduction in profitability.

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USED CAR MARKET The Indian used car market has increased significantly, growing at a CAGR of around 28% between 2001-02 and 2006-07 driven by reduction in the holding period of vehicles, increase in variety of models and the development efforts taken by organized players like Maruti True value, Mahindra First Choice, Honda Auto Terrace, and Ford Assured etc. Entry of manufacturers in the used car market has resulted in increase of share of organized players in a predominantly unorganized market. Moreover entry of these players is also set to help the market which was otherwise suffering through the issues of valuation, ownership, documentation and quality of car. According to Crisil data, the size of used car market in India is estimated to be equal to that of new car market with registered volume of 12-13 lakh cars in 2006-07 with the total sales in value terms of around Rs 250-260 billion. In India, the mini and compact segment accounts for around 60% of the total used car volumes. Mid sized cars form around 30% of the used car sales. Outlook The Passenger Vehicle segment has grown at an annual rate of 20% over the last five years. With the presence of about 14 players and with so many brands present or on the verge of making their debut, competition in the future is likely to intensify. Hence the margins that automobile players enjoy might be under pressure, as they will have little room for price hikes. Increase in interest rates and fuel price hikes are expected to dampen the demand in short run. Major players in this segment are also under tremendous pressure of increase in raw material costs owing mainly to high steel and aluminum prices. However with the increasing per head disposable income, lowering age of first-time car users, shorter replacement cycles and lower car penetration, it is expected that the Indian automobile industry would continue to grow at a robust rate in the long term.

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JOINT VENTURE IN AUTOMOBILE INDUSTRY How did the joint-ventures in the Auto Industry in India start The collaborative phase with the foreign players started in early 1980s through a joint venture between Maruti (a government of India Undertaking) and Suzuki Motor Corporation, a Japanese corporation to manufacture four wheelers. But, during that period even the industry was subject to control and excess of regulations. With de-licensing in 1991, the industry witnessed a remarkable growth in the Indian automotive sector. This is because the economy was opened up and was allowed automatic approval up to 51% for foreign ownership in 1997, after the de-licensing of car segment in 1993. The automobile policy of 2002, permitted complete foreign equity investment in manufacturing of automobiles and components. This led to an entry of international players like Hyundai, Mercedes Benz, Toyota, Ford, General Motors, Mitsubishi, Daewoo and Daimler Chrysler for manufacturing and sourcing components. This took the Indian automobile production from 5.3 Million Units in 2001-02 to 10.8 Million Units in 2007-08.

The joint ventures in the Indian Auto-Industry today At present, the joint ventures in the Indian auto industry are creating records and notching up impressive sales. The table below gives details of the joint ventures in the four wheeler market:

Joint Ventures in the Four-Wheeler Market Some other JVs in this segment are that of Renault-Nissan Automotive India. This is a 50:50 JV between Nissan Motor Company of Japan and Renault from France. Fiat Motors has an alliance with Tata Motors for jointly manufacturing cars at its plant in Ranjangaon, Pune. It is estimated that, both will be making around 2,00,000 cars annually and they also have a distribution and a service partnership.

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The international manufacturers are expanding base and investing more money due to huge cost efficiencies. India has emerged as one of the world‘s largest manufacturers of small cars. With the world looking at using small cars for cost and fuel efficiencies, Indian exports of cars will rise significantly after the new and expanded manufacturing facilities of players such as Nissan, Hyundai, Toyota and Suzuki become operational.

Investment By Global Majors In India

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FOREIGN DIRECT INVESTMENT IN AUTOMOBILE INDUSTRY: Foreign Companies in the Indian auto-sector Until the mid-1990s, automobile industry in India consisted of just a handful of local companies with small capacities and obsolete technologies. Nevertheless, after the sector was thrown open to foreign direct investment in 1996, some of the global majors moved in and, by 2002, Hyundai, Honda, Toyota, General Motors, Ford and Mitsubishi set up their manufacturing bases. Over the past four to five years, the country has seen the launch of several domestic and foreign models of passenger cars, multi-utility vehicles (MUVs), commercial vehicles and two-wheelers and a robust growth in the production of all kinds of vehicles. Moreover, owing to its low-cost, high-quality manufacturing, India has also emerged as a significant outsourcing hub for auto components and auto engineering design, rivaling Thailand. German auto-maker Volkswagen AG, too, is looking to enter India. India is expected to be the small car hub for Japanese major Toyota. The car, a hot hatch like the Swift or Getz is likely to be exported to markets like Brazil and other Asian countries. This global car is crucial for Toyota, which is looking to improve its sales in the BRIC (Brazil, Russia, India, China) markets. Two multi-national car majors -- Suzuki Motor Corporation of Japan and Hyundai Motor Company of Korea -- have indicated that their manufacturing facilities will be used as a global source for small cars. The spurt in in-house product development skills and the uniquely high concentration of small cars will influence the country's ability to become a sourcing hub for sub-compact cars. A heartening feature of the changing automobile scene in India over the past five years is the newfound success and confidence of domestic manufacturers. They are no longer afraid of competition from the international auto majors. For instance, today, Tata Motor's Indigo leads the popular customer category, while its Indica is neck-to-neck with Hyundai's Santro in the race for the top-slot in the B category. Meanwhile M&M's Scorpio has beaten back the challenge from Toyota's Qualis to lead the SUV segment.

Similarly, a few Indian winners have emerged in the motorbike market -- the 150 and 180 cc

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Pulsar from Bajaj and 110 cc Victor from the TVS stable. The 93 cc Bike from Bajaj and 110 cc Freedom bike from LML have also emerged as winners. Evidently, Indian players have learnt from past mistakes and developed the skills to build cheaper automobiles using `appropriate' technologies. TVS, for instance, paid an overseas source $100,000 to fine-tune home-grown engines rather than $1.5 million to import the entire engine. Similarly, M&M adapted available systems and off-the-shelf components from global suppliers to keep costs down and go for aggressive pricing. True, Indian players are still lacking in scale of operation. While economies of scale no doubt play an important role in the auto sector, a few Indian manufacturers relied on innovation rather than scale of operation for competitive advantage. For instance, Sundram Fasteners was able to achieve the feat of directly supplying radiator caps to General Motors purely on the strength of innovation in product quality. The domestic tooling industry bagged the order for the Toyota Kirloskar transmission plant in the face of stiff competition from multinational corporations. The cost of the entire job turned out to be only a fraction of the original estimate. As the automobile industry has matured over the past decade, the auto components industry has also grown at a rapid pace and is fast achieving global competitiveness both in terms of cost and quality. In fact, industry observers believe that while the automobile market will grow at a measured pace, the components industry is poised for a take-off. For it is among the handful of industries where India has a distinct competitive advantage. International automobile majors, such as Hyundai, Ford, Toyota and GM, which set up their bases in India in the 1990s, persuaded some of their overseas component suppliers to set up manufacturing facilities in India. Consequently, the value of cumulative output of the auto components industry rose rapidly to Rs 30,640 crore at end-2003-04 from just Rs 11,475 crore in 1996-97. Foreign companies such as Delphi, which followed General Motors in 1995, and Visteon, that followed Ford Motors in 1998, soon realised the substantial cost advantage of manufacturing components in India. Finding the cost lower by about 30 per cent, they began exploring the possibility of exporting back these low-cost, high-quality components to their global factories and, thus, reducing

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their overall costs. Not surprisingly, the industry's exports registered a more than four-fold jump to Rs 4,800 crore in 2003-04 from just Rs 1,033 crore in 1996-97. Automobile majors such as Maruti Udyog, Toyota, Hyundai have now finalised their plans to invest in some of the critical auto components. According to the Automotive Component Manufacturers Association of India (ACMA) officials, auto component manufacturers are expected to invest about Rs 10,000 crore over the next five years at the rate of Rs 2,000 crore per annum. According to analysts, the auto component industry could emerge as the next success story after software, pharmaceuticals, BPO and textiles. The size of the global auto component industry is estimated at $1 trillion and is set to grow further. Against this backdrop, McKinsey's latest report has estimated that the sector has the potential of increasing its exports to $25 billion by 2015 from $1.1 billion in 2004. FDI FDI Inflows to Automobile Industry have been at an increasing rate as India has witnessed a major economic liberalization over the years in terms of various industries. The automobile sector in India is growing by 18 percent per year. The automobile sector in the Indian industry is one of the high performing sectors of the Indian economy. This has contributed largely in making India a prime destination for many international players in the automobile industry who wish to set up their businesses in India. The automobile industry in India is growing by 18 percent per year. The automobile sector in India was opened up to foreign investments in the year 1991. 100% Foreign Direct Investment (FDI) is allowed in the automobile industry in India. The production level of the automobile sector has increased from 2 million in 1991 to 9.7 million in 2006 after the participation of global players in the sector. India is on the peak of the Foreign Direct Investment wave. FDI flows into India trebled from $6 billion in 2004-05 to $19 billion in 2006-07 and are expected to quadruple to $25 billion in 2007-08. By AT Kearney's FDI Confidence Index 2006, India is the second most attractive FDI destination after China, pushing the US to the third position. It is commonly believed that soon India will catch up with China. This may also happen as China attempts to cool the economy and its protectionism measures that are eclipsing the Middle Kingdom's

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attractiveness. With rising wages and high land prices in the eastern regions, China may be losing its edge as a low-cost manufacturing hub. India seems to be the natural choice. India is up-and-coming a significant manufacturer, especially of electrical and electronic equipment, automobiles and auto-parts. During 2000-2005 of the total FDI inflow, electrical and electronic (including computer software) and automobile accounted for 13.7 per cent and 8.4 per cent respectively. In services sectors, the lead players are the US, Singapore and the UK. During 2000-2005, the total investment from these three countries accounted for about 40 per cent of the FDI in the services sector. In automobiles, the key player is Japan. During 2000-2005, Japan accounted for about 41 per cent of the total FDI in automobile, surpassing all its competitors by a big margin.

India's vast domestic market and the large pool of technically skilled manpower were the magnetism for the foreign investors. Hitherto, known for knowledge-based industries, India is emerging a powerhouse of conventional manufacturing too. The manufacturing sector in the Index for Industrial Production has grown at an annual rate of over 9 per cent over the last three years.

Korean auto-makers think India is a better destination than China. Though China provides a bigger market for automobiles, India offers a potential for higher growth. Clearly, manufacturing and service-led growth and the increasing consumerisation makes India one of the most important destinations for FDI.

Advantages of FDI in the Automobile Sector in India: The basic advantages provided by India in the automobile sector include, advanced technology, cost-effectiveness, and efficient manpower. Besides, India has a well-developed and competent Auto Ancillary Industry along with automobile testing and R&D centres. The automobile sector in India ranks third in manufacturing three wheelers and second in manufacturing of two wheelers.

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Opportunities of FDI in the Automobile Sector in India: Opportunities of FDI in the Automobile Sector in India exist in       Establishing Engineering Centres. Two Wheeler Segment. Exports. Establishing Research and Development Centres. Heavy truck Segment. Passenger Car Segment.

Important Aspects of FDI in Automobile Industry: a) FDI up to 100 percent has been permitted under automatic route to this sector, which has led to a turnover of USD 12 billion in the Indian auto industry and USD 3 billion in the auto parts industry. b) The manufacturing of automobiles and components are permitted 100 percent FDI under automatic route. c) The automobile industry in India does not belong to the licensed agreement. d) Import of components is allowed without any restrictions and also encouraged.

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The transitions in the growth of India's automotive industry actually occurred simultaneous to the major transitions in government policies

The policy framework surrounding the Indian automotive industry has evolved from i) HEAVILY REGULATED one until the 1970s, to ii) PARTIALLY LIBERALISED one in the 1980s, and to iii) LIBERALISED one from 1991 onwards

This raises the question if government policies played a role in the growth of India's automotive industry and if so, to what extent

The answer shall help to obtain an insight into the role of government in industry development in general and that of the Indian government in the development of India's automotive industry (including auto components) in particular.

Study Objectives: In line with the overall purpose, the study has following objectives: 1. To IDENTIFY GOVERNMENT POLICIES that have influenced the development of India's automotive industry 2. To UNDERSTAND THE INFLUENCE of government policies on the development of India's automotive industry 3. To EXPLORE ROLE played by the government in the development of India's automotive industry

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Summary of Govt. Influence on Industry Development  Government policies have "significantly" influenced the development of India's automotive industry. 

Some of the important policies have been the ones related to the protection, indigenisation, modernisation and liberalisation of the industry.

The role of Indian government transitioned from regulatory to facilitative one as the industry progressed through successive stages of competitive development. This was in alignment to the theoretical framework, but with some deviations.

However, the transitions were mainly brought about by chance events like Oil Crisis, Gulf War, etc. The government has to be at least credited for implementation.

Government policies shall continue to play an important role in the future development of the industry with their effect on demand and factor conditions


Some important policy decisions in the REGULATORY PHASE (1947-1979) and its influence on the development of India's automotive industry

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The Phase of Limited Liberalization

Some important policy decisions in the LIMITED-LIBERALISATION PHASE (1980- 1990) and their influence on the development of India's automotive industry


The Liberalisation Phase

Some important policy decisions in the LIBERALISATION PHASE (1991 onwards) and their influence on the development of India's automotive industry.

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Brief Review of Policy Influence Review of role played by the Indian government in different phases against the theoretical framework developed based on Porter's findings.

Outlook on Government Policies

The role of government will continue to be that of a facilitator - facilitate firms to innovate and upgrade by means of industry-specific programmes.

The future government policies will affect the development of India's automotive industry largely through their effect on demand and advanced factor conditions.

Accordingly the policies will focus on tax incidences, exports, industry R&D, safety & environmental standards, infrastructure, specialised manpower, etc.

Indian automotive industry will thrive to attain its own competitive position (probably small cars) in the global auto industry moving away from mere cost advantages

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ANALYSIS OF AUTOMOBILE INDUSTRY Over a period of more than two decades the Indian Automobile industry has been driving its own growth through phases. With comparatively higher rate of economic growth rate index against that of great global powers, India has become a hub of domestic and exports business. The automobile sector has been contributing its share to the shining economic performance of India in the recent years. To understand this industry for the purpose of investment we need to analyze it by following two approaches: 1). Fundamental Analysis (E.I.C Approach) a. Economy b. Industry c. Company 2).Technical Analysis 1) FUNDAMENTAL ANALYSIS a). ECONOMY Economic analysis is the analysis of forces operating the overall economy a country. Economic analysis is a process whereby strengths and weaknesses of an economy are analyzed. Economic analysis is important in order to understand exact condition of an economy. GDP and Automobile Industry In absolute terms, India is 16th in the world in terms of nominal factory output. The service sector is growing rapidly in the past few years. This is the pie- chart showing contributions of different sectors in Indian economy. The per capita Income is near about Rs 38,000 reflecting improvement in the living standards of an average Indian. Today, automobile sector in India is one of the key sectors of the economy in terms of the employment. Directly and indirectly it employs more than 10 million people and if we add the number of people employed in the auto-component and auto ancillary industry then the number goes even higher.

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As the world economy slips into recession hitting the demand hard and the banking sector takes conservative approach towards lending to corporate sector, the GDP growth has downgraded it to 7.1 percent for 2008-09 and predicted it to be 6.5 per cent for FY 2009-10 Mr. Montek Singh (Planning Commission of India). Following is the graph showing a trend of Indian GDP trend in past 3 years.

The market value of Automobile Industry is more than US$8 bl. and Contribution in Indian GDP is near about 5% and will be double by 2016. The automotive industry in India grew at a computed annual growth rate (CAGR) of 11.5 percent over the past five years, but growth rate in last FY2008-09 was only 0.7% with passenger car sales shows 1.31% growth while Commercial Vehicles segment slumped 21.7%.

EFFECT OF RECESSION All the major auto companies enjoyed the high growth ride till the mid 2008. But at the end of the year, industry had to face the hard truth and witnessed the fall in sales compared to last year. In December 2008, overall production fell by 22 % over the same month last year. Global recession has hit the Indian auto industry, India is strong and growing industry but the impact of recession is evident now on industry as sales & growth of automobile companies have declined. Passenger Vehicles segment registered negative growth. One of its supporting facts is that the sales in December 2008 for passenger vehicles fell by 13.86% over December 2007 Two Wheelers registered minor growth of 1.85 % during April – December 2008. However, Two Wheelers sales recorded 15.43 percent fall in December 2008 over the same month last year. Although the sector was hit by economic slowdown, overall production (passenger vehicles, commercial vehicles, two wheelers and three

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wheelers) increased from 10.85 million vehicles in 2007-08 to 11.17 million vehicles in 2008-09. Passenger vehicles increased marginally from 1.77 million to 1.83 million while two-wheelers increased from 8.02 million to 8.41 million. Total number of vehicles sold including passenger vehicles, commercial vehicles, two-wheelers and three-wheelers in 200809 was 9.72 million as compared to 9.65 million in 2007-08.

IMPACT OF SLOWDOWN ASHOK LEYLAND:   AL has decided for three days work a week to decrease the production, as the demand has decreased by 40%. It has reported 50% slump in October sales as compared to last year. Ashok Leyland shares fell to Rs 15.10

TATA MOTORS:    TM has given three days holidays from 6-8 nov to match production with demand. No work notice to its non permanent workers. Sales decreased by 25-40% last month. Shares dropped to Rs131 as 52 week lowest.

HYUNDAI MOTORS:   HMIL Target was to sell 6 lakhs cars in 2008 which includes export of 2.7lakhs cars.But now the target is to close with 5.15 lakhs cars. In 2007 HMIL total sales went by 9.2% to 3,27,160 cars of which domestic sales rose by 7.6% to 2lakh & exports 11.8% to 1.26lakh cars. Company sold 4.07 lakh cars tillOctober, up by 49% over the same period in 2007 which include domestic sales of 2.15lakh, 28% increase & export of 1.92lakh cars an increase of 83%. MARUTI SUZUKI:-

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 

During the financial year 2006-07, it sold 6,35,629 units with a turnover of Rs 145.9 billion with a profit ofRs15.62 billion having a market share of 54.6%. It sold 7,64,842units including export of 53024 units.The sales rose up by 13.3% in the year 2007-08. the company had a total income of 1,88,238 million with a profit of 17,308 million after tax.

INFLATION Despite of negative inflation these days (-.21% on 22-Aug-09) we saw an increasing trend of sales in auto sector. A moderate amount of inflation is important for the proper growth of an economy like India because it attracts more private investment. The fall in wholesale prices from a year earlier is mainly due to a statistical base effect and doesn‘t suggest contraction in demand, the Reserve Bank of India said few week back, while revising its inflation forecast for the FY through March to around 5% from 4%.

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FACTORS CONTRIBUTING TO THE GROWTH OF INDIAN AUTO SECTOR: The convergence of government policies, economy‘s growth, people‘s purchasing power have all contributed to the phenomenal growth of Indian Auto industry. Some of the important growth drivers are explained below:  Rise in the industrial and agricultural output indirectly helps Indian Auto industry Industrial and agricultural output increase has reflected in higher GDP and overall growth of the economy which is about 9% in the last three years. Higher GDP means more purchasing power. Sales of vehicles for domestic and commercial consumption have seen high growth in these three years too.  Growth in the road infrastructure increases demand for vehicles. Indian highways and roads have improved a lot in quality and connectivity in the last 20 years. Projects like the Golden Quadrilateral aim to make even remote areas accessible by road. Some of the National Highways are of international standards. This has made road transport a viable, cost effective and speedy option both for goods and passenger traffic.  Rise in the Per capita income increases two/four wheeler sales. Industrial growth in the 70s, IT boom in the 1980s and BPO boom in the 1990s have transformed the Indian middle class. The present generation is able to earn the same levels of salary that their parents were earning after years of work. This has pushed up the demand for two and four wheelers. A rise in per capita income is also indirectly responsible for the retail boom and industrial boom for consumer durables. This has pushed up the demand for commercial vehicles to enable efficient distribution.  Urbanization changes the face of Indian auto industry. Joint families in towns and villages have given away to migration of the younger generation to cities in search of better opportunities. The new-age educated migrants and nuclear families (many with double income couples) have a higher purchasing power. Presently, the rate of spread of urbanization is 30% which is likely to increase by 40% in 2030 (UN). Urbanization has promoted infrastructural development and it is estimated to spread at a rate of $500 billion in the next 5-6 years.  Rising working class and middle class contribute to increased demand of automotives. Post 1980s, a surging economy has created millions of new jobs in the private sector.

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This has lead to a lot of prosperity in the working class and the middle income households. They are able to provide for food, clothing and education and also are able to think of owning luxuries like vehicles. According to the Planning Commission report, between the year 2003 and 2009, 130 million people would have been added to the working population. According to a finding from McKinsey, the middle income group will grow from 50 million to 550 million by 2025.  Exhaustive range of options in price and models of automotives. Indian consumer in 70s and 80s had to choose between and Premier Padmini or an Ambassador. Now there are at least 123 different models of cars from 30 odd manufacturers available. The prices of the compact cars like Tata‘s Nano have made the world sit up and take note of the truly unbeatable price points.  Attractive Finance Schemes for purchase of automotives. Most nationalized and foreign banks have very tempting finance options and low interest rates for purchase of cars and two wheelers. There are specialized companies that finance the commercial vehicles. All this has made the dream of owning a vehicle an easy reality.  Favorable Government Policies for the auto sector. Apart from a healthy growing economy, Indian auto industry has a lot to thank the government for the amazing growth rates. The Indian government has introduced several industry specific programs.

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a. Government support:
 Current Industrial Policy: The New Industrial Policy of 1991 delicensed the Automobile Industry in India, but passenger car was delicensed in 1993. Now, no license is required for setting up of any unit for manufacture of Automobiles except in some special cases. Further, 100 per cent Foreign Direct Investment (FDI) is permissible under automatic route in this sector including passenger card segment. The import of technology or technological upgradation on the royalty payment of 5 per cent without any duration limit and lump sum payment of US $ 2 million is also allowed under automatics route in this sector. This liberalization has helped this sector to restructure itself, absorb newer technologies, and keep pace with the global developments realizing its full potential.  Exim Policy: Removal of Quantitative Restrictions (QRs) from April 1, 2001 has allowed the import of vehicle, including passenger car segment freely subject to certain conditions notified by DGFT. To protect India from becoming a dumping ground for old and used vehicles produced abroad, the custom duty on the import of second hand vehicles including passenger cars has been raised to 105 per cent. The custom duty rate on new Completely Built Units (CBUs) has also been increased to a level of 60 per cent to allow Indian countries to a fully competitive environment.

b. Recent policy initiatives:
 In order to develop and realize the growth potential of this sector both at domestic and global level, and to optimize its contribution to the national economy, the Department of Heavy Industry has decided to draw up a 10 year Mission Plan for the development of Indian Automotive Sector and creation of global hub.  To put Indian Auto Industry at the global map, National Automotive Testing and R&D Infrastructure Project (NATRIP) at the total cost of Rs. 1718 crore has been initiated.

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This project principally aims to:  create critically needed automotive testing infrastructure to enable the government in ushering in global vehicular safety, emission and performance standard, _ deepen manufacturing in India, promote larger value addition and performance standards and facilitates convergence of India's strength and IT and electronics with automotive engineering.  enhance India's abysmally low global outreach in this sector by debottlenecking exports, and  provide basic product testing, validation and development infrastructure so that Indian automotive sector would not face any export obstacle in the foreign market

In the Union Budget 2007-08, import duty on raw material had been reduced to 5-7.5 per cent from the earlier 10 per cent.


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SMALL CARS AND INDIA India's small car industry is substantial: • Strong demand base • Government initiatives • Growing confidence in India's engineering capacity India is a lead market for the low-cost small car segment:   It is on the forefront of development of the low-cost small car Shares commonalities with other emerging economies - optimal platform to do business with these countries

India must secure its growing role in the small car industry:    Improve infrastructure and increase skilled labour Ensure social/political harmony ("inclusive growth") to avoid slowing of reform policies Create a conducive eco-system by adopting a pro-active approach in supporting world-class innovations in all segments of the automobile industry

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PESTEL ANALYSIS: A. Political: • In 2002, the Indian government formulated an auto policy that aimed at promoting integrated, phased, enduring and self-sustained growth of the Indian automotive industry • Allows automatic approval for foreign equity investment up to 100% in the automotive sector and does not lay down any minimum investment criteria. • Formulation of an appropriate auto fuel policy to ensure availability of adequate amount of appropriate fuel to meet emission norms • Confirms the government‘s intention on harmonizing the regulatory standards with the rest of the world • Indian government auto policy aimed at promoting an integrated, phased and conductive growth of the Indian automobile industry. • • • • • • • Allowing automatic approval for foreign equity investment up to 100% with no minimum investment criteria. Establish an international hub for manufacturing small, affordable passenger cars as well as tractor and two wheelers. Ensure a balanced transition to open trade at minimal risk to the Indian economy and local industry. Assist development of vehicle propelled by alternate energy source. Lying emphasis on R&D activities carried out by companies in India by giving a weighted tax deduction of up to 150% for in house research and R&D activities. Plan to have a terminal life policy for CVs along with incentives for replacement for such vehicles. Promoting multi-model transportation and the implementation of mass rapid transport system.

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B. Economic: • • The level of inflation Employment level per capita is right. Economic pressures on the industry are causing automobile companies to reorganize the traditional sales process. • • • • • • • • • Weighted tax deduction of up to 150% for in-house research and R & D activities. Govt. has granted concessions, such as reduced interest rates for export financing. The Indian economy has grown at 8.5% per annum. The manufacturing sector has grown at 8-10 % per annum in the last few years. More than 90% of the CV purchase is on credit. Finance availability to CV buyers has grown in scope during the last few years. The increased enforcement of overloading restrictions has also contributed to an increase in the no. of CVs plying on Indian roads. Several Indian firms have partnered with global players. While some have formed joint ventures with equity participation, other also has entered into technology tie-ups. Establishment of India as a manufacturing hub, for mini, compact cars, OEMs and for auto components. C. Social: • Since changed lifestyle of people, leads to increased purchase of automobiles, so automobile sector have a large customer base to serve. • • • • • • • The average family size is 4, which makes it favorable to buy a four wheeler. Growth in urbanization, 4th largest economy by ppp index. Upward migration of household income levels. 85% of cars are financed in India. Car priced below USD 12000 accounts for nearly 80% of the market. Vehicles priced between USD 7000-12000 form the largest segment in the passenger car market. Indian customers are highly discerning, educated and well informed. They are price sensitive and put a lot of emphasis on value for money.

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• •

Preference for small and compact cars. They are socially acceptable even amongst the well off. Preference for fuel efficient cars with low running costs.

D. Technological: • More and more emphasis is being laid on R & D activities carried out by companies in India. • • Weighted tax deduction of up to 150% for in-house research and R & D activities. The Government of India is promoting National Automotive Testing and R&D Infrastructure Project (NATRIP) to support the growth of the auto industry in India • Technological solutions helps in integrating the supply chain, hence reduce losses and increase profitability. • Customized solutions (designer cars, etc) can be provided with the proliferation of technology • • • • • Internet makes it easy to collect and analyse customer feedback With the entry of global companies into the Indian market, advanced technologies, both in product and production process have developed. With the development or evolution of alternate fuels, hybrid cars have made entry into the market. Few global companies have setup R &D centers in India. Major global players like audi, BMW, Hyundai etc have setup their manufacturing units in India. E. Environmental:  Physical infrastructure such as roads and bridges affect the use of automobiles. If there is good availability of roads or the roads are smooth then it will affect the use of automobiles.  Physical conditions like environmental situation affect the use of automobiles. If the environment is pleasant then it will lead to more use of vehicles.

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Technological solutions helps in integrating the supply chain, hence reduce losses and increase profitability.

   

With the entry of global companies into the Indian market, advanced technologies, both in product and production process have developed. With the development or evolution of alternate fuels, hybrid cars have made entry into the market. Few global companies have setup R &D centers in India. Major global players like audi, BMW, Hyundai etc have setup their manufacturing units in India.

F. Legal:    Legal provision relating to environmental population by automobiles. Legal provisions relating to safety measures. Confirms the government‘s intention on harmonizing the regulatory standards with the rest of the world  Indian government auto policy aimed at promoting an integrated, phased and conductive growth of the Indian automobile industry.   Establish an international hub for manufacturing small, affordable passenger cars as well as tractor and two wheelers. Ensure a balanced transition to open trade at minimal risk to the Indian economy and local industry.

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Political / Legal -


Social - Income distribution

Technological - Government spending on research

Environmental - Economic growth

regulation and protection - Taxation - Monetary policy - Demographics


Government focus

and on


technological effort International trade Government Labor / social - New discoveries and development - Speed of technology transfer - Attitudes to work and leisure Rates of

regulation - Consumer protection

spending Policy

mobility towards - Lifestyle changes

unemployment - Employment law - Taxation

technological obsolescence


Government - Exchange rates

- Education

- Energy use and costs

organization / attitude - Competition regulation - Inflation - Fashions and fads - Changes in material sciences Stage of the - Health & welfare - Impact of changes in Information technology - Internet!

business cycle - Economic "mood" - Living conditions consumer


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PORTER’S FIVE FORCES MODEL: Porter‘s Five Forces of Competition framework views the profitability of an industry as determined by five sources of competitive pressure. These five forces of competition include three sources of ―horizontal‖ competition: competition from substitutes, competition from entrants, and competition from established rivals; and two sources of ―vertical‖ competition: the bargaining power of suppliers and buyers. The strength of each of these competitive forces is determined by a number of key structural variables, as shown in Figure 3.3.

Porter’s Five Forces of Competition framework

1) Competition from Substitutes: The price customers are willing to pay for a product depends, in part, on the availability of substitute products. The absence of close substitutes for a product, as in the case of automobiles, means that consumers are comparatively insensitive to price (i.e., demand is inelastic with respect to price). The existence of close substitutes means that customers will switch to substitutes in response to price increases for the product (i.e., demand is elastic with respect to price).

The extent to which substitutes limit prices and profits depends on the propensity of buyers to substitute between alternatives. This, in turn, is dependent on their price performance characteristics. The more complex the needs being fulfilled by the product and the more difficult it is to discern performance differences, the lower the extent of substitution by customers on the basis of price differences.

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The structural determinants of the Five Forces of Competition 2) Rivalry between Established Competitors: For most industries, the major determinant of the overall state of competition and the general level of profitability is competition among the firms within the industry. In some industries, firms compete aggressively – sometimes to the extent that prices are pushed below the level of costs and industry-wide losses are incurred. In others, price competition is muted and rivalry focuses on advertising, innovation, and other non price dimensions. Six factors play an important role in determining the nature and intensity of competition between established firms: concentration, the diversity of competitors, product differentiation, excess capacity, exit barriers, and cost conditions. 3) Threat of Entry: If an industry earns a return on capital in excess of its cost of capital, that industry acts as a magnet to firms outside the industry. Unless the entry of new firms is barred, the rate of profit will fall toward its competitive level. The threat of entry rather than actual entry may be sufficient to ensure that established firms constrain their prices to the competitive level.  Economies of Scale – Since Indian automobile market is of order $ 350 billion, the economies of scale are very high. Thus, threat of new entrants is low.

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Product Differences – Since there is hardly any difference in the offerings of the various providers, so product differentiation is low. So threat of new entrants is high.

Brand Identity – Since there is no big Retailer like Amazon.com or Wal-Mart in India. So threat of new entrants is high.

Government Policy – Since the Government Policy has been quite restrictive till now with respect to the Retail market & FDI, so threat of new entrants is low.

Capital Requirements – The capital requirements for entering in the automobile sector are substantially high( high fixed cost and cost of infrastructure), so only big names can think of venturing into this area So, in that respect threat of new entrants is low.

Access to distribution – Since in India there is no well established distribution network. So threat of new entrants is low.

4) Bargaining Power of Buyers: The firms in an industry operate in two types of markets: in the markets for inputs and the markets for outputs. In input markets firms purchase raw materials, components, and financial and labour services. In the markets for outputs firms sell their goods and services to customers (who may be distributors, consumers, or other manufacturers). In both markets the transactions create value for both buyers and sellers. How this value is shared between them in terms of profitability depends on their relative economic power. The strength of buying power that firms face from their customers depends on two sets of factors: buyers‘ price sensitivity and relative bargaining power.  Product Differences – Since there is hardly any difference in the offerings of the various providers, so product differentiation is low. So bargaining power of buyers is high.    Buyer Information – Today‘s customers are well educated about the various product offerings in the sector. So bargaining power of buyers is high. Buyer Switching Costs – Since customers don‘t have to pay a fat premium to be registered for provision of services, so bargaining power of buyers is high. Brand Identity – High Brand Identity and trustworthiness reduce the bargaining power of buyers but, otherwise the bargaining power of buyers is high.

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Buyer Profits – Since dealers offers discounts and various bundling services like 0% insurance, old car sale, etc, on different items. Hence bargaining power of buyers is high.

5) Bargaining Power of Suppliers: Analysis of the determinants of relative power between the producers in an industry and their suppliers is precisely analogous to analysis of the relationship between producers and their buyers. The only difference is that it is now the firms in the industry that are the buyers and the producers of inputs that are the suppliers. The key issues are the ease with which the firms in the industry can switch between different input suppliers and the relative bargaining power of each party.  Product Differences – Since there is hardly any difference in the offerings of the various suppliers, so product differentiation is low. So bargaining power of Suppliers is low.  Supplier Information – Today‘s automobile manufacturers are well educated about different Suppliers. So bargaining power of Suppliers is low.  Supplier Switching Costs – Since different Suppliers hold resources as per buyer‘s requirements and a large inventory has to be maintained. So bargaining power of Suppliers is low as they would have to incur a huge cost on switching. But if they get automobile manufacturers for similar products who can pay higher Supplier switching cost is low. In such case, bargaining power of Suppliers is high.  Brand Identity – High Brand Identity and Trustworthiness of a Supplier increases the bargaining power of Suppliers. But, otherwise the bargaining power of suppliers is low.

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    

Strengths: Large domestic market. Sustainable labor cost advantage. Government incentives for manufacturing plants. Strong engineering skills in design. Able to achieve significant gains in productivity. Weaknesses: Low labor productivity. High interest costs and high overheads. Rising cost of production. Low investment in Research and Development. Opportunities: Commercial vehicles. Heavy thrust on mining and construction activity. Increase in the income level. Cut in excise duties. Rising rural demand. Threats: Rising interest rates. Cut throat competition. Lack of technology for Indian Companies.

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THE FUTURE OF INDIAN AUTO INDUSTRY: According to a report from United Nations Industrial Development Organization‘s (UNIDO) in ‗International Yearbook of Industrial Statistics 2008‘, India enjoys 12th position amongst top 15 automakers in the world. India is at the 4th position amongst the auto makers of developing countries. By 2016 the size of the Indian automobile industry is expected to grow by 13%, to reach a mark of US$ 120-159 billion. Presently, India is the 2nd largest two wheeler market in the world and fourth largest commercial vehicle market worldwide. With allies in a strong economy, rising demand and financial backing, Indian auto industry is standing at the threshold of success. The four wheeler segment comprises of the passenger vehicles, utility vehicles and multipurpose vehicles. India is the 11th largest passenger car market in the world and prominently features on the major automobile players‘ road map. The passenger cars segment is has the largest share in the domestic passenger vehicles industry. It contributes to a total volume of 78% and the rest of the share is enjoyed by utility and sports vehicles. Some of the key players in the market are Maruti Udyog Ltd. Tata Motors Ltd., Hyundai, Toyota, Honda, Ford and GM. The newer entrants are the marquee brands like Mercedes-Benz, BMW and Volkswagen.      Automobile industry expert predicts that by 2050 every 6th car in the world will be from India. By 2010 India will take over Germany in sales volume and Japan by 2012. The Indian automobile component industry is estimated to triple from USD 63 billion to USD 190 billion within a span of six years by 2012. Industry analysts predict this industry to touch USD 13000 million mark by 2010, a cumulative growth of 9.5% annually. It is said that for every 1 spent, the auto sector returns 2 .24 to the Indian economy.

Future Prospect of Indian Automobile Sector   Nissan motors plans to export 2,50,000 vehicles manufactured in its India plant by 2011 General motors announced its plans to export about 50,000 cars manufactured in India by 2011. By the end of 2010, India is expected to witness over`30,000 crore of investment.

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Maruti Udyog has set up the second car with an investment of 6,500 crores.

Future Small Car Models In India

Automotive Mission Plan 2016 The bumper-to-bumper traffic of global automobile biggies on the passage to India has finally made government sit up and take notice. In a bid to drive greater investments into the sector, ministry of heavy industries has decided to put together a 10-year mission plan to make India a global hub for automotive industry. "The ten year mission plan will also set the roadmap for budgetary fiscal incentives" The Government of India is drawing up an Automotive Mission Plan 2016 that aims to make India a global automotive hub. The idea is to draw an innovative plan of action with full participation of the stakeholders and to implement it in mission mode to meet the challenges coming in the way of growth of industry. Through this Automotive Mission Plan, Government also wants to provide a level playing field to the players in the sector and to lay a predictable future direction of growth to enable the manufacturers in making a more informed investment decision.

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1. http://www.fadaweb.com/autoind_june10.htm. 2. http://www.fadaweb.com/review_06.htm. 3. http://www.fadaweb.com/review_06.htm 4. http://www.carfreaks.info/porters-five-forces-analysis-indian-automobile-industry 5. http://www.marketresearch.com/product/display.asp?productid=1198991&g=1 6. http://www.oecd.org/dataoecd/53/35/40301081.pdf 7. http://www.surfindia.com/automobile/automobile-history.html 8. http://www.siamindia.com/scripts/market-share.aspx 9. http://ezinearticles.com/?Automobile-Sector---The-Indian-Scenario!&id=772205 10. http://business.mapsofindia.com/fdi-india/sectors/automobile-industry.html

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