Deep Haria-PG-20-065 Ashish Nagpure-PG-20-080

Automobile Industry Analysis

Introduction:
India became the fourth largest auto market in 2019 displacing Germany with about 3.99 million
units sold in the passenger and commercial vehicles categories. India is expected to displace
Japan as the third largest auto market by 2021.
The two wheelers segment dominate the market in terms of volume owing to a growing middle
class and a young population. Moreover, the growing interest of the companies in exploring the
rural markets further aided the growth of the sector.
India is a prime destination for many multinational automobile companies with aspirations of
business expansion in Asia. It attracted about US$ 14.48 billion (5.2% of total) in cumulative
FDI equity inflows between 2000 and 2015.8 The basic advantages that the country provides as
an investment destination include cost-effectiveness of operations, efficient manpower, and a
fast-growing dynamic market. In the past, major investments have come from Japan, Italy, and
the USA followed by Mauritius and Netherlands. The industry manufactures a wide range of
products to meet both domestic and international demands.
India is also a prominent auto exporter and has strong export growth expectations for the near
future. In addition, several initiatives by the Government of India and major automobile players
in the Indian market is expected to make India a leader in the two-wheeler and four-wheeler
market in the world by 2020. In the first quarter of the financial year 2019-20, there was a huge
decline in the car sales rate which can be accounted to be 23 percent, while passenger vehicle
sale rate has nosedived to a mere 18 percent. This is considered to be the worst quarterly
performance since the third quarter of the year 2000-01. In the year 2000-2001 the car sale rate
graph came down by 27 percent and the passenger vehicle sale rate also declined by 23 percent.
This decline in the sale rate brought immense financial as well as economic loss to many
automotive companies.
The Indian automobile industry has started to show a deep decline in the market after a near-
decade of attractive growth. However, the fundamental of the automotive industry is still strong.
India is slowly but steadily emerging as the powerhouse in the automobile industry but there are
still many factors that pull the string from making our country move ahead.

 Objectives and Analysis:

1)To study the economic advantages of Automobile industry in India.
Automobiles represent freedom and economic growth. Automobiles are a liberating technology
for people around the world. The personal automobile allows people to live, work and play in
ways that were unimaginable a century ago. Automobiles provide access to markets, to doctors,
to jobs. Nearly every car trip ends with either an economic transaction or some other benefit to
our quality of life.
The auto industry is the single greatest engine of economic growth in the world.

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The global auto industry is a key sector of the economy for every major country in the world.
The industry continues to grow, registering a 30 percent increase over the past decade (1995-
2005).
Building 60 million vehicles requires the employment of about 9 million people directly in
making the vehicles and the parts that go into them. This is over 5 percent of the world’s total
manufacturing employment. It is estimated that each direct auto job supports at least another 5
indirect jobs in the community, resulting in more than 50 million jobs owed to the auto industry.
Many people are employed in related manufacturing and services. Autos are built using the
goods of many industries, including steel, iron, aluminum, glass, plastics, glass, carpeting,
textiles, computer chips, rubber and more.

2) To analyze the Indian market of Automobile industry.

Domestic automobiles production increased at 2.36% CAGR between FY16-20 with 26.36
million vehicles being manufactured in the country in FY20. Overall, domestic automobiles sales
increased at 1.29% CAGR between FY16-FY20 with 21.55 million vehicles being sold in FY20.
Two wheelers and passenger vehicles dominate the domestic Indian auto market. Passenger car
sales are dominated by small and mid-sized cars. Two wheelers and passenger cars accounted for
80.8% and 12.9% market share, respectively, accounting for a combined sale of over 20.1
million vehicles in FY20.
As per the Society of Indian Automobile Manufacturers (SIAM), passenger vehicle wholesales
in India increased by 26.45% to 2,72,027 units in September 2020, up from 2,15,124 in
September 2019.Overall, automobile export reached 4.77 million vehicles in FY20, growing at a
CAGR of 6.94% during FY16-FY20. Two wheelers made up 73.9% of the vehicles exported,
followed by passenger vehicles at 14.2%, three wheelers at 10.5% and commercial vehicles at
1.3%.
EV sales, excluding E-rickshaws, in India witnessed a growth of 20% and reached 1.56 lakh
units in FY20 driven by two wheelers.
Premium motorbike sales in India recorded seven-fold jump in domestic sales, reaching 13,982
units during April-September 2019. The sale of luxury cars stood between 15,000 to 17,000 in
the first six months of 2019.

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3) To make a SWOT analysis of the Automobile industry.

Strengths:
a) Evolving industry: The automobile industry is a highly growing industry, continuously
contributing to growth and development. Automobiles give people the opportunity to
live, work and travel in ways that were unimaginable a few decades ago. The ease and
quality of life improvements the automotive industry brings will only increase the
demand for vehicles in the future.

b) Constant product innovation & technological advancement: With the advent of E-

vehicles & alternative fuel such as Shell gas, CNG, and others, automobile companies are
increasing R&D expenditure to drive the next phase of growth through the use of
renewable sources of energy which may be solar, wind, etc.

c) Manufacturing facilities in Asian nations to control cost: To monitor cost and to manage
shrinking margins, automobile companies like Harley, Volvo, Bharat Benz, etc. are
building their manufacturing facilities in developing nations like India and China. These
nations have a cheap workforce, are high in resources, and are nearer to developed
economies. These are ideal conditions for an emerging market.

d) Growth shifting to Asian markets : Although American & European market is the pulse of
this Industry, but the focus is shifting to developing markets like China, India & other
Asian nations because of the rise in disposable income, changing lifestyle & stable
economic conditions.

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Weakness:
a) Bargaining power of consumers: Over the last 3-4 decades the automobile market has
shifted from a demand to a supply market. Availability of a considerable number of
variants, stiff competition between them, and a long list of alternatives to choose from
has given power to customers to decide whatever they like.

b) Government regulations: Regulations like excise duty, no entry of outside vehicles in the
state, decreasing number of the validity of registration period, and volatility in the fuel
prices pose considerable challenges to automobile companies. These factors also affect
the growth of the industry.

c) High employee turnover: The employee turnover in the automobile industry is found to
be higher when compared to several other sectors. Furthermore, attracting and retaining
employees in the automotive industry can be very challenging, especially in the case
where competitors are doing how to make a SWOT analysis of the Automobile industry.

Opportunities:
a) Fuel-efficient vehicles: Optimization of fuel-driven combustion engines and cost
efficiency programs are excellent opportunities for the automobile market. Emerging
markets will be the primary growth drivers for a long time to come, and hence fuel-
efficient cars are the need of the hour.

b) Changing lifestyle & customer groups: The increased availability of data and
information, shift in consumer demand, and expanded regulatory requirements for safety
and fuel economy will fuel the growth of this industry.

c) Market expansion: Entering new markets like Asian & BRIC nations will skyrocket the
demand for vehicles. Furthermore, other markets are also likely to emerge soon.

d) Changing lifestyle & customer groups: Three powerful forces are rolling the auto
industry. Shift in consumer demand, expanded regulatory requirements for safety and
fuel economy, and the increased availability of data and information. Also with the
increase in nuclear families there has been increase in demand of two-wheelers &
compact cars and this will grow further.

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Threats:
a) Rising competition: Presence of a large number of players in the automobile industry
results in intense competition and companies eating into other’s share, leaving little scope
for new players.

b) Sluggish economy: Macroeconomic uncertainty, recession, unemployment, etc. are the

economic factors which will daunt the automobile industry for an extended period.

c) High fixed cost and investment in R & D : Due to the fact that mature markets are already
overcrowded, industry is shifting towards emerging markets by building facilities, R & D
centers in these markets. But the ROI out of these decisions is yet to be capitalized.

d) Volatility in fuel prices: For the consumer segment, fluctuations in fuel prices remains the
determining factor for growth. Also, government regulations pertaining to the use of
alternative fuels like CNG and Shell gas is also affecting the inventories.

4) To study impact of COVID on Automobile industry.

The global pandemic caused by the novel corona virus comes at time when both the Indian
economy and the automotive industry were hoping for recovery. While the GDP growth
forecasts were north of 5.5%, COVID-19 may result in a negative impact of 1-2% on the
expected growth rates. The absolute magnitude of impact depends on the duration of ongoing
lockdown and the impact caused of this pandemic.
The onset of Covid-19 in India will have a negative impact on the automotive industry. It is
estimated that there will be an overall revenue impact of at least $1.5 -2.0 bn per month across
the industry. Even after we open up, further decline in passenger vehicles demand is expected
with discretionary spend taking a backseat. This will be coupled with transition to BS-VI norms
that will increase cost of ownership.
Farm sector and two wheelers demand could see a dip but expected to bounce back in the U
fashion. Commercial vehicles are expected to show some resilience, although this is contingent
on government continuing to invest in large infrastructure projects and the liquidity available
with the transportation sector.

Conclusion:
With its buoyant economy, a large young population, and growing foreign direct investment,
India has been an attractive investment destination for global automobile and component
manufacturers since the last two decades. Its growth story has been dominated by more
homegrown lead firms. However, absorption of global best practices has been slower than in

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China. Strategies of firms in the Chinese auto industry provided a boost to technological learning
more quickly and broadly than in India.78 Capable of end-to-end production, India has also
become an assembly hub for large cars and manufacturing hub for small cars. Firms have started
exporting to other countries. India-based manufacturers are engaged in global innovation
networks and sourcing suitable technologies from all over the world to complement their own
R&D efforts.
The AMP 2026 envisions that by the year 2026, the Indian automotive industry will be among
the top three of the world in engineering, manufacture, and export of vehicles and auto
components, growing in value to over 12% of India’s GDP and generating an additional 65
million jobs.

According to OICA statistics, the Indian industry accounted for just 5.38% of production in the
cars segment and 3.48% of production in the commercial vehicle segment in 2017. It has also not
created lead firms or MNCs of the scale that other more successful players like Japan, South
Korea, and other western countries have created. In spite of the success of government policy in
building auto supplier industry, India continues to be a net importer of auto components with its
trade deficit for auto components increasing from US$ 210 million in 2004–2005 to US$ 4.4
billion in 2009–2010 and US$ 13.8 billion in 2015–2016.
The current policy debate is around the issue of how greater resource efficiency can be achieved
and the need for newer materials in light of the industry’s plans to produce electric vehicles in
India. Innovation in new product development is lagging behind and remains critical for the
future of India to achieve competitive superiority or at least maintain its low-cost advantage.
Manufacturing technologies need to be upgraded continuously. Large investments for developing
new indigenous technologies that are green and compliant with recognized high efficiency
standards would help India move up the value chain.

References:
https://www.autobei.com/autoreports/automotive/indian-automobile-industry-report-q1-fy-2020/

https://www.ibef.org/archives/industry/automobiles-reports/indian-automobiles-
industry-analysis-january-2020

https://www.ibef.org/download/Automobiles-December-2019.pdf