Professional Documents
Culture Documents
AUTOMOTIVE
KPMG’s India
Automotive
Study 2007
Domestic Growth
Automotive Practice
KPMG’s India Automotive Study 2007 – Domestic Growth and Global Aspirations
The independent member firms of the KPMG network are affiliated with KPMG
Through its member firms, KPMG has invested extensively in developing a highly
current and forward looking, thanks to KPMG’s member firms’ global experience,
knowledge sharing, industry training and the use of professionals with direct
KPMG member firms serve many of the market leaders within the Automotive
sector. KPMG’s strength lies in its member firm network, its professionals and their
knowledge and experience gathered from working with a large and diverse client
base. KPMG’s industry experience helps the team understand both your business
combined with industry knowledge, helps KPMG assist you in recognizing and
KPMG’s member firms in India were established in September 1993, serving over
2,000 international and national clients. KPMG in India has offices in Mumbai, Delhi,
strategies to automotive clients. The team has assisted a large number of Indian
and global OEMs and suppliers, in areas such as strategy and planning, product
What is driving this growth? Higher incomes have helped, not to mention
improved roads, and easier access to finance. Less easy to define but just as
important is the steady trend of liberalization across the whole economy, a trend
that has helped to build confidence in future growth of opportunities and wealth.
products and services. India seems set to emerge not only as a very large
Uwe Achterholt
domestic auto market, but also as a powerful link in the global auto chain.
KPMG in Germany Yet it is just when confidence is running high that questions need to be asked.
India may be full of potential, but it faces more than its fair share of challenges
too. From the remotest road-building site to the highest levels of government
Whether those challenges will be met is the question this report seeks to address.
With the help of many senior executives from India’s automotive sector we ask
how realistic is India’s goal of becoming a leading participant in the global auto
Yezdi Nagporewalla
Industrial Markets
KPMG in India
KPMG’s India Automotive Study 2007 – Domestic Growth and Global Aspirations ii Executive Summary
while optimism grows some more for the global automotive industry?
companies say that the management for growing small car exports.
businesses remains low and that Will the top five Indian OEMs see
iii KPMG’s India Automotive Study 2007 – Domestic Growth and Global Aspirations iv
remain to be built.
management processes.
profitmaking acquisitions,
acquired businesses.
small cars?
•
•
remains untested.
KPMG’s India Automotive Study 2007 – Domestic Growth and Global Aspirations
Managerial Professionalism.
continue to be dominated by
comment executives.
Will a growing percentage of
on alternative fuels?
BPM
CEO
CFO
CNG
GDP
HR
JV
LPG
MNC
NCAER
OEM
R&D
SIAM
TS-16949
KPMG’s India Automotive Study 2007 – Domestic Growth and Global Aspirations
Human Resources
Joint Venture
Multinational company
Foreword ii
List of Abbreviations v
1 Introduction 1
The top five Indian OEM manufacturers will see a growing proportion
through acquisitions 16
small cars 20
alternative fuels 21
4 Conclusion 27
KPMG’s India Automotive Study 2007 – Domestic Growth and Global Aspirations vi
1
Introduction
1 KPMG’s India Automotive Study 2007 – Domestic Growth and Global Aspirations During 2006 and
2007 KPMG in India automotive strategists and managers included Indian-origin and multinational
has been talking to senior industry from India and beyond. companies (MNCs) operating in India.
increasingly upbeat about India’s global The report uses proprietary and a balanced spread across sizes
and
potential. Some believe that India should public domain secondary sources. segments of the auto value
chain.
be able to build a range of worldclass It also includes extensive first hand (Figure 1)
auto businesses in the next ten years. interviews with some of India’s
But even as optimism grows some key most senior decision makers in Growth In Perspective
concerns are becoming more pressing. the automotive industry. India is growing faster than most
KPMG has found that senior auto economic projections. The economy
executives are also concerned about KPMG interviewed 40 chief executive has experienced consistent
growth
India’s eroding cost advantage and officers (CEOs) and other senior officers of over eight percent in the
last four
the increasing challenges of rewarding from different segments of the Indian years, and has achieved
growth of
and retaining talent, about the pace of Automotive industry. The mix of around nine percent in 2007.
(Figure 2)
in building Indian auto brands. Figure 1. Companies Participating In The KPMG India Automotive Study
2007
The Indian automotive industry is
The auto business is vital for India. Source: KPMG International, June 2007
in the context of a global auto industry Figure 2. GDP Growth 2002 – 2007 (percentage)
9.00
7.50
8.10
8.50
3.80
2002
Indian government Automotive Mission Plan from the Department of Heavy Industries (Dec 2006)
Company
Passenger
Cars Wheelers
Three
Wheelers
Commercial
Indian OEMs ✓ ✓ ✓ ✓
MNC OEMs ✓ ✓
Manufacturers
✓ ✓ ✓ ✓
Manufacturers
✓ ✓ ✓
Two
Vehicles
KPMG’s India Automotive Study 2007 – Domestic Growth and Global Aspirations 2
2001
6.2
2.5
7.1
-6.9
6.8
7.3
10
7.1
8.2
0.7
8.1
9.9
6.0
9.6 9.8
February 2007
202
186
120
91
46
9 7 6
years. (Figure 3)
3 KPMG’s India Automotive Study 2007 – Domestic Growth and Global Aspirations role? Some foresee
Indian automotive
402
431
470
506
576
645
281
299
326
342
382
420
acquisitions.
for India.
on labor cost.
KPMG’s India Automotive Study 2007 – Domestic Growth and Global Aspirations 4 8 Domestic: a
significant percentage
vehicle sales.
international sales.
engineering services.
5 KPMG’s India Automotive Study 2007 – Domestic Growth and Global Aspirations KPMG’s India
Automotive Study 2007 – Domestic Growth and Global Aspirations 6 2
7 KPMG’s India Automotive Study 2007 – Domestic Growth and Global Aspirations Visteon
Delphi
Ford
GM
for India
20
15
10
be lost.”
(Figure 6)
Net Margin (in %)
10
-5
-10
-15
-20
KPMG’s India Automotive Study 2007 – Domestic Growth and Global Aspirations 8 Figure 7. Indian Auto
Consequently, automakers are looking
79%
4%
3%
7%
7%
Raw Materials
Manufacturing
Other costs
(Figure 7)
30
19.2
17.7
22.7
20.3
10.1
2.0
1.5
20
1.0
10
0.5
0 0.0
1.8
1.4
1.6
1.5
9 KPMG’s India Automotive Study 2007 – Domestic Growth and Global Aspirations was the primary
reason why global
cost advantage:
KPMG’s India Automotive Study 2007 – Domestic Growth and Global Aspirations 10 0
100
200
300
400
500
600
700
800
10
20
30
40
50
60
70
80
800
70,300
60
57,500
60,100
63,100
41,200
12,700
5,000
7,500
9,000
Source: Indian Brand Equity Foundation (Feb 2007), Prices & Earnings, UBS (July 2006)
quite soon.”
(Figure 10)
http://www.foreignaffairs.org/20060701faessay85401-p40/gurcharan-das/the-india-model.html
11 KPMG’s India Automotive Study 2007 – Domestic Growth and Global Aspirations 0 5 10 15 20 25 30
35 4
• Vision: Rajiv Dube of Tata Motors services. “It will take more than
believes that India remains dependent five years for India to achieve this,”
“This is something that has to be led in India. He adds: “India is turning out
by the global auto companies.” Sunil somewhere between 200 and 300
a step change in vision is needed: but that doesn’t mean that all those
a back office, but they are not so automotive industry. You need very
used to India leading the design specific skills. You need to be able
“The European and U.S. players are requires experience and training. The
still not doing this, even the Japanese global players will have to do a lot of
have been very slow to move high- training to fulfill this target.” A senior
Superior quality
34.5%
of manpower
Public policy
10.3%
in India
Diversity of
17.2%
service offerings
Availability of
37.9%
cost-effective
manpower
car exporter?
the relatively low retail cost of fuel and percent) were also cited as candidates.
North America may see only a marginal In interviews, companies cited physical
shift toward smaller cars in the next infrastructure as the leading critical
five years. In Europe, Japan and South issue for small car exports. “The
shift due to increased parking and off -- this is our biggest challenge,”
concerns over large car recycling costs, country head of the Eaton Corporation,
should create new opportunities for Rajiv Dube of Tata Motors adds:
low cost exporters with small car “There are still not many ports you
experience. The emergence of a can export from, and the feeder rail
significant small car market in Africa lines to those ports that exist are
Many companies interviewed for this also comments that part of the
report felt that China would emerge solution may lie in companies making
5.23
5.94
6.81
7.9
8.91
0.81
0.63
0.48
0.18 0.31
In million vehicles
five years?
in Indonesia.
is critical.
Subsidiary
Motors
Marco Polo, Brazil (2006)
Mahindra
(2006)
– overcoming perceptions on
as first quality.”
Description
and coaches
manufacturer
these countries
KPMG’s India Automotive Study 2007 – Domestic Growth and Global Aspirations 14 Foreign sales of
passenger and
five years.”
to Mumbai.”
component companies
while the
sales,
http://www.bosch.com/content/language2/html/index.htm
http://www.bharatforge.com/
15 KPMG’s India Automotive Study 2007 – Domestic Growth and Global Aspirations USD 670 million
and trailed by
hands-on management.”
TS-16949 ~ 25 percent
Deming Awards
manufacturers will
through acquisitions
40 billion by 2016.
Such growth forecasts are based on
http://www.amtek.com/aal.aspx?pgid=20
http://www.sundram.com/
KPMG’s India Automotive Study 2007 – Domestic Growth and Global Aspirations 16 Bosch India Bharat
Forge Ltd Amtek Auto Ltd Sundaram Fastene Motherrsson Sumi Wheels India ltd. Rico Auto Ltd
Sundaram Clayton Omax Autos Munjal Showa
Figure 14. Component Makers’ Export Performance and the ten largest makers already
1000 100
80
(Figure 14)
800
830
755
18
71
54
30
33
10
11
693
266
254
240
175
70
50
400 40
200 20
Bosch Bharat Amtek Sundram Motherson Wheels Rico Sundram Omax Munjal quality or value from
these companies,
India Forge Ltd Auto Ltd Fasteners Sumi India ltd. Auto Ltd Clayton Autos Showa
Sources: Company Annual Reports, SSKI (Sep 2006), Motilal Oswal (Jul 2006),
Bharat Forge • FAW Corporation in China - 52 percent, JV (2006) to seek savings by sourcing
some
Amtek Auto
Source: KPMG International, 2007 and company Annual Reports – Bharat Forge Ltd, Amtek Auto Ltd,
Sundram Fasteners
17 KPMG’s India Automotive Study 2007 – Domestic Growth and Global Aspirations Our discussions
with key executives
incentivised to stay.”
global scale.
KPMG’s India Automotive Study 2007 – Domestic Growth and Global Aspirations 18 3
The Domestic Challenge
19 KPMG’s India Automotive Study 2007 – Domestic Growth and Global Aspirations 0
10
15
20
25
by small cars
of General Motors.
24.3%
15.8%
14.7%
13.8%
12.0%
Carmakers are investing accordingly: “The main trend is that people are
units. Hyundai, Tata and Ford have also Affordability shapes the Indian
“Customers want more quality and in car finance loans. That rate of
they want more comfort,” says Suhas borrowing combined with forecasts
even calling for more power – this was suggests that it is the small car segment
something that was unheard of just a that will continue to dominate the
couple of years ago.” But Mr. Kadlaskar passenger car market, with almost 50
rather than the purchase of larger cars. compared with less than 15 percent able
Segment A1 & A2 (Mini & compact) 6.25 – 12.5 35.06 percent 48.46 percent
Segment A3 & A4 (Mid Size & Executive) 12.5 – 3.0 8.9 percent 14.53 percent
Segment A5 & A6 (Premium & Luxury) Over 30.0 2.43 percent 4.50 percent
KPMG’s India Automotive Study 2007 – Domestic Growth and Global Aspirations 20 The small-car
segment will also benefit
five years.
“I believe India will remain a small car
A growing percentage of
farming sector”.
of electrically-powered vehicles
also operate.
24.05
in age.
in the 14 cities.
19.72
21.68
23.15
22.58
20.6
22.82
22.82
18.95
13.72
KPMG’s India Automotive Study 2007 – Domestic Growth and Global Aspirations 22 0 1 2 3 4 5 6 7 8
Figure 19. Survey: Executives Rate Consumer Acceptance and the whole of mankind needs
Ethanol Blend
CNG
LPG
Fuel cell
Bio-diesel
Electricity
fuel development:
of DaimlerChrysler, commenting
environmental consciousness is
Replacement of commercial
and replacement?
23 KPMG’s India Automotive Study 2007 – Domestic Growth and Global Aspirations 0
50
00
50
00
50
00
50
Vehicles in India
0-4 years
24%
5-10 years
34%
11-15 years
19%
Over 15 years
23%
that electoral sensitivities will slow
replacement demand.
10
New
would do so.
In ‘000 351
147
191
260
318
57
90
75
116
99
161
120
199
143
207
Source: Businessline, July 2006 Source: Society of Indian Automobile Manufacturers (SIAM), February
2007
KPMG’s India Automotive Study 2007 – Domestic Growth and Global Aspirations 24 “There is a
perception change,” companies agree that electoral And this policy is something that will
believes Sunil Rekhi of GM India, sensitivity will determine policy: be gradually extended to other cities,
who adds: “People used to buy a “That is why we think the starting virtually like a step-by-step vehicle
vehicle for a lifetime. Then they were point should be end of life regulations retirement policy.”
thinking in terms of five years. Now not for private vehicles but for
it is three years. It is already getting example city bus fleets,” says • Road Infrastructure: Prakash
Kodlikeri
harder and harder to run old vehicles. Suhas Kadlaskar of DaimlerChrysler. of Kalyani Lemmerz believes
that
Insurers, for example, are getting very “Government understands that this the next five years will see
high
reluctant to insure vehicles that are is an area where they can use policy commercial vehicle sales
growth
over 15 years old.” to influence safety and environmental and renewal of fleets only if there
two critical issues for vehicle based.” AK Taneja of Shriram Pistons is a real drag on growth,” he says.
replacement: says: “Government is not going to “But there are huge efforts being
• Policy Support: “The industry vehicle retirement policy],” he says. The whole program of highway
has been asking policymakers for “It will be more like the approach to building is delayed by around 1-2
a retirement policy for old vehicles,” emissions. First there will be change years, but it is getting
completed.”
says Sunil Rekhi of General Motors. in Delhi. Then the next biggest metro
“The trouble is we are not getting it. cities. Then the mini-metro areas. It
idea, but as of today there is nothing that is more than ten years old is not
25 KPMG’s India Automotive Study 2007 – Domestic Growth and Global Aspirations KPMG’s India
Automotive Study 2007 – Domestic Growth and Global Aspirations 26 4
Conclusion
27 KPMG’s India Automotive Study 2007 – Domestic Growth and Global Aspirations Almost all the
companies surveyed
in India.
KPMG’s India Automotive Study 2007 – Domestic Growth and Global Aspirations 28 29 KPMG India
Automotive Study 2007 – Domestic Growth and Global AspirationsKPMG’s India Automotive Study 2007
– Domestic Growth and Global Aspirations 3031 KPMG’s India Automotive Study 2007 – Domestic
Growth and Global Aspirations
KPMG Contributors
Fiona Sheridan
KPMG in India
Vi
KPMG International
Karen French
Roland Schmid
Ashwin Jacob
Gaurav Khungar
Arun Krishnan
Yezdi Nagporewalla
Ankur Pegu
Priyankar Bhikshu
vek Subramanian KPMG India Automotive Study 2007 – Domestic Growth and Global Aspirations 32and
opinions of KPMG International or KPMG member firms.
kpmg.com
The information contained herein is of a general nature and is not intended to address the
circumstances of any
particular individual or entity. Although we endeavor to provide accurate and timely information, there
can be no
guarantee that such information is accurate as of the date it is received or that it will continue to be
accurate in the
future. No one should act on such information without appropriate professional advice after a thorough
examination of
The views and opinions expressed herein are those of the interviewees and do not necessarily represent
the views
Design Services
Contacts
KPMG in Germany
Uwe Achterholt
e-Mail: uachterholt@kpmg.com
Roland Schmid
e-Mail: rolandschmid@kpmg.com
KPMG in India
Pradeep Udhas
Head, Markets
e-Mail: pudhas@kpmg.com
Yezdi Nagporewalla
e-Mail: ynagporewalla@kpmg.com