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State of the industry

Sections
1.0 Supply and finance - Supply - Car and utility vehicle finance - Used car and utility vehicle market Regulations and policies - Foreign investment and trade regulations - Environmental regulations - Fiscal regulations Technology - Product technology - Manufacturing technology International markets - China - USA - Western Europe - Japan - Thailand - Malaysia Domestic players International players 33 33 34 36 41 41 43 48 51 51 57 61 61 65 65 66 67 67 69 83

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Boxes
2.0 01 02 3.0 01 Regulations and policies Responses to emission norms Use of LPG in India Technology Common Rail Direct Injection (CRDi) Technology

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Charts
5.0 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Domestic players Bajaj Tempo Ltd Daewoo Motors India Ltd DaimlerChrysler India Pvt Ltd Fiat India Pvt Ltd Ford India Ltd General Motors India Ltd Hindustan Motors Ltd Honda SIEL Cars India Ltd Hyundai Motors India Ltd Mahindra & Mahindra Ltd Maruti Udyog Ltd Tata Motors Ltd Toyota Kirloskar Motors Ltd SkodaAuto India Pvt Ltd 69 69 70 71 72 73 74 75 76 77 78 79 80 81

Figures
4.0 01 02 03 04 05 06 07 08 09 International markets China: Passenger car sales (1998-2002) China: Increase in no of car models Profile of passenger car users in China China: Region-wise dominance (2002) China: Company-wise market share (2002) Western Europe: Passenger car sales and export trends Japan: Passenger car production, sales and export trends Thailand: Sales volume of passenger cars Malaysia: Passenger car sales 61 62 62 64 64 66 66 67 68

Tables
1.0 01 02 03 04 05 Supply and finance Capacity utilisation 2002-03 Car finance market Car finance players (Disbursements) Passenger cars: Car finance market projections Second hand car markets 33 35 35 36 37
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2.0 01 02 03 3.0 01 02 03 04 01 02 03 6.0 01 02 03 04 05 06 07

Regulations and policies Engine technologies for compliance of emission norms Tariffs applicable on cars and utility vehicles Effective customs tariffs on cars and utility vehicles Technology Price comparison of CNG with petrol and diesel Main components/sub-assemblies of a car Technology trends International markets China: Model-wise market share of passenger cars (2002) China: Capacity expansion plans by auto manufacturers US: Light vehicle sales International players General Motors Ford Motors DaimlerChrysler Motors Volkswagen Fiat Group Toyota Motors Honda Motors

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1.0

Supply and finance

Supply Player capacities and utilisation The total capacity of the cars and utility vehicles industry in India is around 1.24 million vehicles. However, capacity utilisation in 2002-03 was only 60 per cent. Among individual manufacturers, only Maruti Udyog Limited and Hyundai Motors operate at high utilisation levels (over 100 and 75 per cent, respectively). With the launch of its passenger car model, the Corolla, Toyota Kirloskar Motors Ltd has achieved capacity utilisation levels of around 60 per cent. Tata Motors increased its capacity utilisation levels substantially to around 67 per cent due to the launch of the Indigo in the mid-sized segment. The industrys total capacity includes the capacity of Daewoo Motors India Ltd, which has been lying idle for the last three years. To reduce fixed overheads, Daewoo Motors may restart production of the Matiz on a contract basis for General Motors India Ltd, which is planning to re-launch the model under the Chevrolet Spark brand, in the last quarter of 2003-04.
Capacity utilisation 2002-03
Player (nos) Bajaj Tempo Ltd Daewoo Motors India Ltd DaimlerChrysler India Pvt. Ltd Fiat India Ltd Ford India Ltd General Motors India Ltd Hindustan Motors Ltd Honda Siel Cars India Ltd Hyundai Motors India Ltd Mahindra & Mahindra Ltd Maruti Udyog Ltd Tata Motors Ltd Toyota Kirloskar Motors Ltd Total of passenger cars and UVs Note Sales figures for Fiat India Ltd have been taken as a proxy Source: CRIS INFAC 55,000 72,000 10,000 50,000 100,000 25,000 64,000 30,000 150,000 125,000 350,000 160,000 50,000 1,241,000 3,760 1,057 25,932 15,899 7,801 20,001 13,723 112,527 52,199 357,010 107,314 29,929 747,152 6.8 10.6 51.9 15.9 31.2 31.3 45.7 75.0 41.8 102.0 67.1 59.9 60.2 Capacity

Table 1
Production Capacity utilisation (%)

A few players to increase capacities Capacity expansion in the short- to medium-term is expected to be moderate, as the capacities of most players are still underutilised. However, companies operating at a high capacity will undertake capacity upgradation and expansion. In addition, players like Ford Motors, General Motors, Honda Motors, and Toyota Kirloskar Motors India, who are planning to enter the small car segment, are expected to invest in production platforms for new models. Future investment plans The following manufacturers have announced plans to increase investments in India to expand capacities and launch new models:
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Honda SIEL Cars India Ltd is expected to gradually invest around Rs 2,000 million till 2005, for upgrading its production facilities for the new City and Accord models. The investment may also include the setting up of a new assembly line for its entry into the small car segment (with a 1,000 cc offering) in 2004-05. Hyundai Motors India Ltd is expected to invest Rs 10,000 million to expand its capacity from the current 150,000 units to 250,000 units by September 2004. This expansion is aimed at meeting the domestic and export demand for the Santro as well as for the launch of its new model, the Getz, in the second half of 2003-04. General Motors is investing around Rs 1,800 million to increase its capacity from the current 25,000 units per annum to 50,000 units per annum till 2005. The company will also invest around $ 60 million over the next three years to set up a research and development and technical centre in Bangalore, which will carry out online work for the engineering services of its US operations. Ford India is investing in product development for two India-specific models. The B-226 is being developed for the high-end compact segment and may be launched towards the end of 2003-04, whereas the B376 is being developed for the mid-sized segment and will be launched in 2005. SkodaAuto India is investing in a CKD assembly plant near Aurangabad in Maharashtra, which will be operational by February 2004. The company will use the plant to manufacture Skoda models from imported CKD kits. Toyota Motors is planning to invest Rs 2,000 - Rs 3,000 million over the next two years to increase its capacity from the current 50,000 units to 75,000 units. Maruti Udyog Ltd is likely to invest in upgrading its plant to launch the Liana, its new offering in the midsized segment, in the second half of 2003-04. It will also invest in a research and development centre at its Gurgaon plant, to cater to Asian markets. The company also plans to spend Rs 3,580 million in increasing its automation levels and introducing minor modifications in its models and workshops for the same.

Car and utility vehicle finance Evolution Organised auto finance dates back to 1984, when Citibank entered the car finance market. In 1987, Citibank introduced its first branded scheme called Citimobile'. Subsequently, other nonbanking finance companies (NBFCs), including co-operative banks, entered the car finance market. Review From 1995-96 to 2002-03, the car finance market is estimated to have grown at a CAGR of 24 per cent, to around Rs 150 billion. Growth in the car finance market can be attributed to the growth in the car market, lower financing rates, easy availability of loans, and improved services by financiers. While the volumes of car sales increased at a CAGR of around 10 per cent during this period, the growth in the car finance market was higher due to an increase in the average realisations of cars (a combination of normal price increases and an improved sales mix comprising sales of higher value cars) and the increase in penetration rates (the proportion of cars financed as a percentage of the total car sales volume). With private banks such as ICICI and HDFC, foreign banks, and nationalised banks entering the car finance market, competition has increased significantly. The cost of finance to customers has declined from around 24 per cent in 1997-98 to 10-12 per cent. As a result, profitability in the car finance business decreased significantly. The profitability of players in the car finance market depends largely on the total volumes of cars purchased through financing options.

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Car finance market


1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 Car sales volumes
1

Table 2
CAGR2 9.8 16.2 5.8 4.0 2.8 6.9 24.3 309,928 78.2 252.2 60 70 42 32.8 370,727 19.6 101.6 274.0 8.6 63 70 44 44.4 35.4 385,873 4.1 117.9 305.7 11.6 65 70 46 53.7 20.8 384,544 -0.3 124.9 324.8 6.3 68 75 51 63.2 17.8 613,993 59.7 196.2 319.6 -1.6 70 75 53 103.0 62.9 572,423 -6.8 208.0 363.4 13.7 72 80 58 119.8 16.3 576,484 0.7 209.7 363.8 0.1 75 80 60 125.8 5.0 597,043 3.6 223.7 374.7 3.0 79 85 67 150.2 19.4

Growth Y-o-Y (per cent) Total value of car sales (Rs billion) Avg price of a car (Rs 000) Growth Y-o-Y (per cent) Volume penetration (per cent) Percentage of price financed Total finance penetration (per cent) Total car finance market (Rs billion) Growth Y-o-Y (per cent)
1 2

Car sales volumes include sales for Maruti Omni.

CAGR from 1995-96 to 2002-03 Source: CRIS INFAC

Key players Since the late 1990s, the car finance market has witnessed significant consolidation. Many NBFCs such as Alpic Finance, Apple Finance, Gujarat Lease Finance, and Garden Finance, have stopped operations. At present, foreign banks, financial institutions, and large NBFCs dominate the car finance market in the organised sector. The key players in the car finance market are ICICI Bank, Kotak Mahindra Finance, Citibank, and Standard Chartered Bank. Till the late 1990s, this market was led by Kotak Mahindra and Citibank. However, in the last two years, ICICI Bank has taken over this position.
Car finance players (Disbursements)
(Rs million) ICICI Group Citibank Kotak Group (including Ford Credit) StanChart Group (including ANZ) Sundaram Finance ABnamro Bank HDFC Bank Maruti Countrywide Finance GMAC American Express HSBC Group Tata Finance Ashok Leyland Finance Cholamandalam Finance na: Not available Source: Industry 2000-01 11,000 10,000 11,000 9,000 4,000 4,000 3,000 6,000 2,000 2,000 3,000 3,500 3,000 2,500 2001-02 24,000 14,000 12,500 11,000 10,000 8,000 8,000 4,500 3,000 2,500 2,000 na na na

Table 3
2002-03 45,000 na 11,900 na 6,154 na 12,000 na na na na 2,419 2,700 1,613

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Product offerings and player strategies Players in the car finance sector have been focussing on improving services, by reducing paper work and providing assistance in selling used cars and procuring new cars. Financiers have also been trying to lower EMIs or extend loan tenures to increase their volumes. The average loan tenure ranges from three to seven years, with three-year loans being the most popular. Some aggressive players have begun offering 100 per cent finance, which covers the complete on-road price of the car, inclusive of insurance, tax, and registration. Outlook The new car finance market is likely to grow at a CAGR of around 17 per cent till 200708, led by a 12 per cent growth in sales volumes. Declining interest rates and higher repayment tenures are expected to reduce EMIs, which will increase the sales volumes of cars, and consequently, the car finance business. Players like ICICI have converted their operations into banking entities. This reduces the cost of retail deposits and allows them to offer lower rates of interest. However, the profitability in the car finance markets will continue to be low due to severe price competition.
Passenger cars: Car finance market projections
2002-03 Car sales volumes
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Table 4
2007-08 1,036,486 450.2 434.4 85 85 72 325.3 CAGR2 11.7 15.0 3.0 16.7

597,043 223.7 374.7 79 85 67 150.2

Total value of car sales (Rs billion) Avg price of a car (Rs 000) Volume penetration Percentage of price financed Total finance penetration Total car finance market (Rs billion)
1 2

Car sales volumes include sales of Maruti Omni.

CAGR from 2001-02 to 2006-07 Source: CRIS INFAC

Used car and utility vehicle market The development of a vibrant used car market will drive the growth for the sales of new cars and utility vehicles by ! helping owners dispose their old cars easily and realise gains to upgrade to new cars; ! creating a potential customer for new cars, when used car owners will want to upgrade; and ! meeting the demand from owners of two wheelers who want to upgrade to used cars, thus increasing the population of car owners. With most car manufacturers entering the organised used car market, the proportion of this market will increase. In order to enter this segment, manufacturers must have a sizeable number of models on the road, which can be traded in for upgrading to a new car. Manufacturers will be able to buy used cars from owners seeking a fair price, value the car on a transparent 36
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and scientific basis, refurbish it and sell it to used car customers at reasonable prices, with a company-backed quality guarantee. Currently, car manufacturers comprise only 2-3 per cent of the organised used car market. Among the compact car manufacturers, only Maruti Udyog Ltd has a sizeable car population, which has prompted it to aggressively promote its used car venture, True Value'. The company has increased its True Value dealerships to 70 and plans to raise the number to 100 by the end of the financial year 2003-04. Hyundai Motors and Tata Motors are expected to enter the used car business in the next two years, once the number of their models on the road increases to sizeable levels. Evolution Since 1996-97, the market for used cars has increased significantly, driven by the reduction in the holding period of vehicles and the increase in the variety of models available in the used car market. However, uncertainty over the valuation of a car, ownership, documentation, and the quality of available cars hampered the purchase of used cars. To overcome these limitations, large brokers (offering good quality cars) and car manufacturers (through their subsidiaries) entered the used car market with exchange schemes. They introduced concepts like the scientific valuation of used cars, guarantee of legal ownership, refurbishment, and short-term warranty. Financing of used cars also increased, which resulted in a substantial growth in the sale of used cars in India. Size and value The size of the used car market in India, with a volume of around 8-9 lakh cars in 200203, is estimated to be around 1.1-1.3 times the size of the new car and utility vehicle market. The total sale in value terms is expected to be around Rs 160-180 billion. The mini and compact segments account for around 80 per cent of the total used car volumes. However, the proportion of compact segment models in the used car market is rapidly increasing, and is expected to form the largest segment in the used car market over the next two years. Mid-sized cars, like the Honda City, the Mitsubishi Lancer, the Maruti Esteem, and the Opel Astra, contribute to only 10 per cent of the used cars sales. These are less popular because of faster depreciation in value, lower fuel economy, and higher maintenance costs. Utility vehicles form only 5 per cent of the total used car market, as most of them are used for commercial purposes and undergo considerable wear and tear due to which their resale price is negligible.
Second hand car markets
Volumes (numbers) Mini segment Compact segment Mid-size segment Executive, premium and luxury segments UVs Source: CRIS INFAC

Table 5
785,000-930,000 Percentage share 35-40 35-40 8-10 5 5

Organised v/s unorganised It is estimated that only around 15-20 per cent of the used car market is organised. Organised players include manufacturers, high quality used car dealers (Sai Automobiles, Automart India), and high quality used car brokers (Classic Cars). However, within the organised market, the proportion
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of manufacturers is estimated to be very marginal, at around 2-3 per cent. The unorganised market consists of small brokers and used car dealers. In the next few years, the need for transparency is expected to increase the proportion of the organised used car business. In the medium term, the growth of the organised used car market will facilitate the sale of new cars. Manufacturers will be able to offer customers valueadded facilities like buying back an old model after a particular period and at a pre-decided price, and offering easy finance options for exchanging an old car with a new model of the same manufacturer, thus retaining customers. As a result, the used car market is expected to be one of the main drivers for the growth of new car sales. Most manufacturers have already entered the used car business to exploit this business opportunity. Customer profile The customer profile of the used car market is as follows: ! Salaried customers form around 60-70 per cent of the buyers, as they have limited resources and the low prices of used cars suit their budgets. Most of them make cash purchases due to the high interest rates charged by used car financiers. ! Self-employed businessmen form around 20 per cent of the customers. These customers purchase used cars as a second car for their wives or children. Most of these customers avail of loans from finance companies. The remaining 5-10 per cent of the customers are made up of: ! New entrants into the car market, who are upgrading from two wheelers, and ! Customers within the used car market, who are upgrading from a lower segment used car to an upper segment used car. Factors driving growth The following are the factors that spur growth in the Indian organised used car market: ! Transparency: The entry of car manufacturers through ventures like Ford Assured, Maruti True Value, and M&M's Automart has introduced fairness and transparency in the process of selling and purchasing used cars. It has also broadened the avenues for selling used cars (through exchange schemes) and by ensuring a fair valuation for them. ! Availability of many models: As a result of the introduction of a large number of models in the new car market and a reduction in the holding period of cars, many recently introduced models are available in the used car market. The choice in the used car market has thus increased. This is expected to lead the demand growth of used cars. ! Increase in customer aspirations: An increase in income levels in the urban and rural areas has led to an increase in aspirations. Middle class customers who are deterred by the high price of new cars opt for used cars that are in good condition. ! Easier finance availability: The entry of organised players in this segment has been followed by the entry of car financiers. An increase in competition and a drop in interest rates have caused financing rates for used cars to fall from 18 per cent in 2001-02 to 13-15 per cent. These are expected to decline further in the short- to medium-term on account of the increase in volumes through organised channels and higher competition amongst financiers. Geographical concentration Around 60-70 per cent of the used car sales are from cities, like the four metros and Bangalore, Hyderabad, and Pune. An organised market for used cars has not yet developed in semi-urban 38
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and rural areas, as the average replacement period is higher than that in urban markets. The major demand for used cars in the higher-priced compact and mid-size segment comes from urban centres, whereas the demand for mini segment cars comes mainly from semi-urban and rural markets. Margins Margins in the used car business are currently higher than those in the new car business. As there are only a few organised players in the used car market, they charge a high premium for services. Financiers also earn a high interest on the financing of used cars. However, these margins are expected to decrease once the market matures. Finance Financing for used cars is still in the nascent stage due to the following reasons: ! Only an estimated 15-20 per cent of the used car market is organised, of which 35-40 per cent is dominated by financiers like ICICI Bank, Kotak Mahindra Finance, and Standard Chartered Bank, though they do not finance cars sold by unorganised players. The recent entry of public sector banks like SBI will increase the penetration of used car financing. ! The lower resale value of used cars results in a higher risk of loan recovery, due to which interest rates are high. Currently, the interest rate for used cars is around 15 per cent, while that on new cars is 10 per cent. Used car finance also entails the following risks: Ownership risk: The car being sold could have been stolen from another state, its number plates could have been changed, and the original documents could have been tampered with. Quality risk: The car could have been involved in an accident. It could have been refurbished to make it look attractive. Previous owners might also have used spurious spares for replacement, which may affect the operational efficiency and resale value of the car. Depreciation risk: Used cars depreciate faster than new cars, which is why financiers incur considerable losses if they have to resell cars repossessed due to non-repayment of loans. However, higher margins and the expectation of higher growth rates have prompted financiers to enter the used car market. The increase in the proportion of organised players in used car operations will reduce these risks. Additionally, increasing competition among financiers will reduce interest charges on used car financing. Exports of used cars Many car manufacturers are planning to export used cars, in order to increase sales. The markets identified for this purpose include Nepal, Sri Lanka, and countries in the African continent, which import most of their cars. Manufacturers have proposed that the government draft separate guidelines for the export of good quality used cars and offer incentives like graded excise duty benefits on the basis of the age of the car, and duty entitlement passbook (DEPB) scheme benefits. This could reduce the price of Indian cars in these markets, enabling them to compete with imported cars from other countries.

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2.0

Regulations and policies

The government has, over the years, formulated various regulations and policies for the development of the automobile industry in India, especially after the liberalisation of economic laws in 1991. These measures were aimed at encouraging the development of the automobile industry to meet global standards. In the following sections, regulations governing the automobile industry are discussed in three parts, 1. Investment-related regulations and compliance with World Trade Organisation (WTO) guidelines 2. Environmental regulations 3. Fiscal regulations Foreign investment and trade regulations Foreign direct investment The New Industrial Policy was formulated in 1991 to implement economic reforms initiated by the government. The objective of the policy was to improve technical and production capacities in the country, with minimum foreign exchange outflow. However, it was only in April 1993 that the licensing requirement for cars was abolished and various global vehicle manufacturers entered the Indian market. Under the Automobile Policy, formulated in 1995, global manufacturers were required to sign a memorandum of understanding (MoU) with the Directorate General of Foreign Trade (DGFT) to obtain licences to import CKD and SKD kits to be assembled at plants in India. Automobile manufacturers also had to comply with the government's conditions on foreign direct investments, known as trade-related investment measures (TRIMS). The highlights of this policy are as follows: ! Manufacturers must achieve indigenisation levels of up to 50 per cent within three years, and 70 per cent by the end of five years, from the date of starting commercial production. ! Manufacturers must invest a minimum of $ 50 million as equity capital over a period of 3-4 years. ! Foreign exchange outflows must be balanced with inflows over a period of 5-7 years. ! In addition to vehicles, the venture would be allowed to export components, in order to meet export obligations. ! The time frame for the export commitment could be extended. A moratorium would be provided to companies to fulfil the obligation. The main objective of adopting the MoU route was to limit foreign exchange outflow and ensure that foreign companies investing in India commit long-term investments for the manufacture of automobiles, instead of merely importing and selling models. Removal of quantitative restrictions The WTO, of which India is a member, does not allow quantitative restrictions (QRs) such as import licences and import quotas on foreign trade. Although the removal of QRs on imports was initiated in the early 1980s, QRs on automobiles were only removed with effect from April 1, 2001. Since then, imports of all new and used automobiles have been allowed.
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In the Union Budget 2001-02, the government imposed a high customs duty on the imports of new and used vehicles to counter the unrestricted import of vehicles into India, and protect the domestic automobile industry. A peak customs duty of 35 per cent was imposed on imports of new cars and utility vehicles in the form of CKD and SKD units. A few months later, the basic customs duty on new CBUs were revised to 60 per cent, while the basic customs duty for the import of CKD and SKD units was left unchanged at 35 per cent. In the Union Budget 2003-04, basic customs duty on CKD units has been reduced to 30 per cent, while that on SKD units has been raised to the level of CBUs at 60 per cent. Regulations for the import of cars Since the removal of QRs allowed the import of used cars, the government, in its Export-Import Policy of 2001-02, imposed various non-tariff barriers to protect the domestic automobile industry. Under this policy, imports of used automobiles are subject to the following conditions: ! The automobiles must not be over three years old. ! Left-hand drive vehicles cannot be imported. ! Pre-shipment and post-shipment certification would be mandatory to ensure compliance with the above requirements. ! The imported automobiles must have a minimum residual life of five years, and the importer must ensure the supply of spares and servicing during this period. ! Imports will be allowed only through the customs port at Mumbai. Similarly, imports of new automobiles are subject to the following conditions: ! Automobiles can be imported only from the country of manufacture. ! Left-hand drive vehicles cannot be imported. ! Imported vehicles must conform to the provisions of the Motor Vehicles Act, 1988. ! A prototype of the vehicle to be imported must be approved by notified agencies in India. Given the stiff conditions, not many used cars are imported into India. In addition, most large global manufacturers, who have set up manufacturing bases in India, would not like their own second hand models to compete with new models manufactured for the Indian market. Therefore, almost none of the manufacturers have initiated used car imports of their own models into India. Auto Policy 2002 Even after the abolition of QRs, the Indian government continued to impose regulations on minimum investments, compulsory indigenisation, and export commitments. Many foreign car manufacturers, who had made significant investments in India, filed an appeal with the WTO against these policies. Foreign car manufacturers felt they were being discriminated against. Subsequently, in January 2002, the WTO rejected the restrictions imposed by India on foreign car manufacturers. In March 2002, in order to comply with the new WTO ruling, the cabinet committee of the Central Government announced the New Auto Policy, which did away with most of the clauses in the earlier auto policy. The main highlights of the policy are: ! Removal of the ruling on indigenisation. However, since most companies have already achieved over 70 per cent indigenisation due to the cost advantages arising out of sourcing components locally (as compared to paying high customs duty for the import of the same), this is not expected to benefit the companies in India. However, it may benefit new companies who are likely to enter India in the future. ! Removal of the export commitment clause for all companies (including those who had signed agreements with DGFT in 1997) in September 2002. The removal of this clause is expected to benefit manufacturers 42
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like Daewoo Motors, Honda SIEL, and Hindustan Motors (which is involved in a technical collaboration with Mitsubishi for the Lancer model), as some of them have large outstanding export obligations. Automatic approval of foreign equity of up to 100 per cent for the manufacture of automobiles and components. Announcement of specific fiscal incentives for cars less than 3.8 metres in length, in order to establish India as the Asian centre for exports of small cars and multi-utility vehicles (MUVs). Proposal for an increase in weighted deduction, from the existing level of 125 per cent, for research and development (R&D) activities under the IT Act, 1961. Introduction of a rebate on the applicable excise duty for every 1 per cent of the gross turnover spent on R&D. Provision of tax incentives, automatic approvals, and import of equipment under the concessional import duty to encourage the setting up of independent auto design firms.

The New Auto Policy has the following implications: ! Most major global car manufacturers have a presence in the Indian market. The market is already competitive with the existing players. Hence, in the short- to medium-term, competition is not expected to increase with an increase in the number of players. However, some current players are likely to introduce models in the compact and the niche SUV segment, which have a high demand potential. ! The policy has not specified reductions in the excise duty for small cars and MUVs. In addition, there has been no reduction in the excise duty for small cars and MUVs in the Union Budget 2002-03. As a result, in the short term, prices of cars and UVs are not expected to drop, which implies that demand would not be affected significantly. ! In accordance with its commitment to the WTO, the government has to lower import duties within a stipulated timeframe. Thus, in the Union Budget 2002-03, the government has indicated the gradual lowering of import duties on components, CKDs, and SKDs from the current level of 30 per cent to around 20 per cent by 2004-05, which, in turn, will reduce the costs of these components. ! Fiscal incentives offered by auto manufacturers on R&D are expected to have a marginally positive impact on their profits, as R&D costs account for around 1-2 per cent of sales. The incentives for setting up auto design firms, combined with India's software skills, can result in the development and rapid growth of these skills in India. Environmental regulations Environmental regulations, especially with respect to the emission of pollution, are increasingly driving technological innovation in the passenger car market. There is continued pressure on automobile manufacturers from environmental lobbies, consumers, judiciary and international agreements (such as the Kyoto Protocol), to reduce vehicular emission. The Indian government has been gradually strengthening the regulatory framework related to vehicular pollution through a phased introduction of emission norms. Environmental policy Under the New Auto Policy, the government has announced an Environmental Policy for automobiles. Some of the key provisions of the policy, with respect to environment, are ! Approval of Dr Mashelkar Committee provisions, which provide the time schedule for the phased implementation of vehicular emission norms. ! Encouragement for manufacturing automobiles using alternative fuel technologies, like compressed natural gas (CNG) and electric batteries. ! Adopting the international system of levying road tax, based on the principle of higher tax for older vehicles, to discourage the use of old vehicles. At present, road taxes are levied at the time of purchase and are based on the type of the vehicle.
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These clauses are likely to encourage manufacturers to launch cars and UVs with improved technology and using alternative fuels that are low-priced and cleaner. Sales of new cars are also likely to increase since customers will be deterred from buying older cars due to the higher road tax on older vehicles. Incentives for the upgradation of auto ancillary units to international standards are expected to result in the availability of good quality and competitively-priced components in the domestic market. Mashelkar Committee recommendations On September 1, 2001, the government constituted the Mashelkar Committee to ! recommend an 'Auto Fuel Policy' for major cities and the rest of the country; ! devise a road map for its implementation; and ! recommend suitable auto fuels, automobile technologies, and fiscal measures. In October 2003, the government accepted the committee's report, which included the following recommendations: ! The government should only stipulate vehicular emission standards and corresponding fuel specifications, without specifying vehicle technology and the type of fuel to be used. ! A roadmap for the implementation of vehicular emission norms and auto fuel quality. (i) Bharat Stage-II (equivalent to Euro-II) norms, which are in place in 11cities, - Delhi, Mumbai, Kolkata, Chennai, Bangalore, Hyderabad, Ahmedabad, Pune, Surat, Kanpur, and Agra - will be applicable to all passenger cars and utility vehicles (petrol and diesel) throughout the country by April 1, 2005. (ii) Euro-III equivalent emission norms for all cars and utility vehicles (petrol and diesel) will be introduced in the 11 cities mentioned above from April 1, 2005. (iii) Euro-III equivalent emission norms for all cars and utility vehicles (petrol and diesel) will be extended to other parts of the country from April 1, 2010. iv) Euro IV norms will be applicable to all cars and utility vehicles (petrol and diesel) for the 11 cities mentioned above by April 1, 2010. ! Matching quality of petrol and diesel, as detailed by the committee, should be simultaneously made available. ! In addition to petrol and diesel, the government has permitted the use of CNG and liquefied petroleum gas (LPG) as auto fuels. The committee has recommended that alternative fuels like di-methyl ether, biodiesel, hydrogen, electric and fuel cell, should be encouraged, giving customers the choice of fuel and vehicle technology. Also, any combination of fuel and vehicle technology, which meets the prescribed emission norms, should be acceptable. ! Other cost-effective measures such as a comprehensive inspection and certification system for in-use vehicles, fitting of emission reduction devices in the existing vehicles, traffic management, and the construction of bypasses should be established with private sector participation. ! In order to meet the new emissions norms, substantial investments are required to produce the appropriate quality of fuel and vehicles. As per the report, domestic oil companies will have to invest an additional Rs 180 billion by 2005 and another Rs 120 billion by 2010 for upgrading their refineries to produce Bharat III and Bharat IV specification auto fuels (petrol and diesel). Similarly, automobile companies will need to invest Rs 250 billion till 2010 to manufacture car and utility vehicle engines, which meet these norms. Also, the test facilities currently available in the country are inadequate to meet the new regulations. SIAM estimates that the cost of setting up additional facilities to test vehicles as per the new regulations would be around Rs 10.4 billion (excluding the cost of setting up inspection and certification centres). Hence, the committee has recommended that preferential treatment be given to the oil and auto industry 44
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in matters relating to (a) customs duty on imported capital goods, equipment, and machinery needed for the upgradation of technology/facilities, (b) excise duty on indigenously manufactured capital goods, equipment, and machinery needed for upgradation, (c) 100 per cent depreciation on plant and machinery set up for upgradation, (d) soft loans for technology modernisation or upgradation projects, and (e) adequate incentives, such as tariff differentials and other measures, to enable the domestic industry to compete with imports. Government should provide fiscal and financial incentives to the manufacturers and users of electric vehicles, in order to make these vehicles competitive.

Engine technologies for compliance of emission norms


Level of emission Technology options for norms compression ignition engine Euro I / India 2000 Retarded injection timing Open/re-entrant bowl Intake, exhaust and combustion optimisation FIP~700-800 bar, low sac injectors High swirl Naturally aspirated Euro II / Bharat Stage II Turbocharging Injection pressure > 800 bar, moderate swirl High pressure inline / rotary pumps, injection rate control VO nozzles Re-entrant combustion chamber Lube oil consumption control Inter-cooling (optional, depends on specific power) EGR (may be required for high speed car engines) Conversion to CNG with catalytic converter Euro III / Bharat Stage III Multi valve Low swirl high injection pressure > 120 bar Rotary pumps, pilot injection rate shaping Electronic fuel injection Critical lube oil consumption control Variable geometry turbocharger (VGT) Inter-cooling Oxycat & EGR CNG/LPG High specific power output Euro IV / Bharat Stage IV Particulate trap NOx trap On board diagnostics system Common rail injection-injection pressure>1600 bar Fuel Cell CNG/LPG na: not available Compiled by CRIS INFAC Direct cylinder injection Multi-brick catalytic converter On-board diagonisties system Fuel injection + catalytic converter Rs 0.5 lakh Variable EGR Variable valve timing Multi-valve On-board diagnostic system CNG/LPG Fuel injection Catalytic converter Fixed EGR Multi-valve CNG/LPG na Technology options for spark ignition engine Intake, exhaust, combustion optimisation Carburettor optimisation

Table 1
Incremental vehicle cost of technology upgradation na

Cannot be predicted at present

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In the short and medium term, these recommendations are likely to benefit automobile companies, oil companies, customers and the government. Mandatory implementation of the new emission norms in the immediate future would have required the companies to upgrade engine technology. This would have increased input costs, which would have to be passed on to the customers. However, any increase in the prices of cars will result in a further drop in sales, as the automobile sector is facing a slowdown in demand, and has been offering heavy discounts to increase sales volumes. The postponement of the implementation of the Euro-II and Euro-III norms across the country till 2005 and 2010, respectively has given automobile manufacturers time to work out technologies that will reduce the cost of adapting to the new norms. It will also allow the oil industry to set up the infrastructure needed to manufacture and market alternative fuels. The government will get more time to set up testing facilities for enforcing these norms in an efficient manner. As a result, the cost increase being passed on to the customer will be gradual and much lesser. Consequently, neither the demand for cars nor the profitability of players will be adversely affected. Emission norms Emission norms for different vehicles were introduced from 1989 to 1991. Since the implementation of the emission norms, the emission reduction achieved for diesel vehicles is 61 per cent more than the 1991 levels. The use of catalytic converters has been made compulsory in all metros, for all vehicles sold after April 1, 1995. Catalytic converters use unleaded petrol, which is easily available, and oxidises the harmful CO and HC+NOx to carbon dioxide, nitrogen dioxide and water, thus reducing vehicular pollution significantly. In April 2000, Euro-II norms for passenger cars were introduced in the National Capital Region (NCR). These norms were extended to Mumbai from January 2001, and to Chennai and Kolkata from July 2001. However, Euro-II norms are applicable only to vehicles of up to 3,500 kg of gross vehicle weight (GVW). The government is expected to follow the schedule recommended by the Mashelkar Committee for implementing the Euro-II and Euro-III emission norms. In order to comply with the Euro-II norms, the fuel used must have a maximum sulphur content of 0.05 per cent. According to SIAM, it is not possible to meet emission norms that are more stringent than the Euro-II, with the current fuel quality. Therefore, oil companies and refineries would have to improve the quality of fuel supplied, by reducing the sulphur, benzene and lead content.

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Responses to emission norms

Box 1

In compliance with the emission requirements, all new models being launched are Euro-II or Euro-III compliant. For existing models, vehicle manufacturers have been modifying engines largely through changes in the fuel injection pump to burn fuel more efficiently. Some of the modifications being made in the petrol and diesel engines are listed below. For diesel vehicles, modifications would involve introducing
! ! ! !

high pressure fuel injection pumps turbo chargers with inter-coolers exhaust air re-circulation catalytic converters

For petrol vehicles, modifications would involve introducing


!

multi-point fuel injection engines to control the air-to-fuel ratio and ensure the efficient functioning of the catalytic converter advanced three-way catalytic converters exhaust air re-circulation

! !

Most manufacturers have discontinued the production of non-Euro compliant variants of all passenger cars, and introduced multi-point fuel injection (MPFI) engines in their models. The subsequent increase in costs has been passed on to customers in the form of price increases in the range of Rs 3,000 - Rs 20,000 for different segments. Given that the regulations governing vehicular emissions are becoming increasingly stringent, automobile manufacturers are experimenting with alternate fuels, such as CNG and LPG (CNG has the lowest toxic gas emission levels). Several automobile manufacturers such as Fiat India, Hindustan Motors, and Tata Motors, have begun manufacturing cars operating on CNG and LPG. The government is promoting alternate fuels such as CNG and LPG, as these gaseous fuels do not contain lead, sulphur and benzene, which can cause toxic pollutants and affect the efficient functioning of the engine. However, in India, the infrastructure for the distribution of these fuels is not adequate to cater to the large vehicle population.

Use of LPG in India

Box 2

In August 2001, the government approved the use of LPG as an automotive fuel. Domestic LPG is subsidised, while LPG for automotive use is likely to be priced on the basis of import parity. To prevent the misuse of domestic LPG as automotive fuel the use of replaceable cylinders is not permitted in vehicles. LPG-driven vehicles are likely to have fixed storage tanks, which would be refuelled. (However, in several countries, replaceable cylinders are permitted.) Petrol pumps are required to maintain a mandatory distance between liquid fuel dispensing facilities and the auto LPG facility. Hence, only pumps having adequate space can have LPG-dispensing facilities.

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Fiscal regulations One of the key determinants of the demand for automobiles is acquisition cost, which is largely determined by the sale price (ex-showroom price) and the current income levels. In India, various taxes and levies account for around 43 per cent of the acquisition cost of a passenger car. Levies and taxes include excise duty (25 per cent), central sales tax (4 per cent), uniform state sales tax (12 per cent), and road and registration tax (1-2 per cent). Rationalisation of the tax structure could reduce prices. This is expected to result in increased demand. The government may reduce the excise duty on passenger cars and utility vehicles from the current 25 per cent to 16 per cent. The three key fiscal tariffs, which influence car prices and hence, demand, include Excise duty Excise duty rates directly affect the price of vehicles, and hence, demand. From 1994 to 2001, the excise duty on cars and utility vehicles remained constant at 40 per cent. In the Union Budget 2003-04, excise duty was reduced to 24 per cent. The New Auto Fuel Policy has indicated that the government may provide fiscal incentives for the manufacture of cars less than 3.8 metres in length, in order to establish India as the global hub for sourcing small cars. Hence, excise duties may be reduced in the near future to encourage the manufacture, sales, and export of small cars. Customs duty The basic customs duty on cars and utility vehicles was reduced gradually from 65 per cent in 1994-95 to 35 per cent in 2000-01. However, with the removal of QRs on imports in April 2001, the basic customs duty on CBUs was increased to 60 per cent (import duty was at 30 per cent for the import of CKD and SKD units), in order to protect the domestic industry. The basic customs duties on auto components vary between 19 and 35 per cent, and that on project imports vary between 15 and 25 per cent. According to India's commitment to the WTO, the customs duties on CKD and SKD kits are likely to be reduced to 20 per cent by 2004-05. This will result in some reduction in the operating costs of manufacturers. In the Union Budget 2003-04, the customs duty on cars and utility vehicles in CKD form was reduced to 30 per cent, whereas the duty on CBUs has been left unchanged at 60 per cent. However, the customs duty on SKD has been increased to 60 per cent. The total effective duties applicable to cars and utility vehicles are given in the table below.

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Tariffs applicable on cars and utility vehicles


Tariffs (per cent) Customs 2002-03 New cars - CKDs - SKDs - CBUs Second-hand cars Passenger transport - 6-12 seater Steel items Engines and engine parts Other components
1 1 1

Table 2
Excise

2003-04 30.0 66.4 66.4 113.2 30.0 30.0 30.0 30.0 30.0

2002-03 32.0 32.0 32.0 32.0 32.0 16.0 16.0 16.0 16.0

2003-04 24.0 24.0 24.0 24.0 24.0 16.0 16.0 16.0 16.0

35.2 35.2 66.4 113.2 35.2 35.2 30.0-35.2 35.2 30.0-35.2

- 12 seater and above

CBU: Completely built unit; CKD: Completely-knocked down; SKD: Semi-knocked down Excluding driver Source: CRIS INFAC

Effective customs tariffs on cars and utility vehicles


CKD (per cent) Basic customs duty Special additional customs duty Basic and SACD Countervailing duty Countervailing duty
1 1

Table 3
Used CBUs 105.0% 4.0% 113.2% 24.0% 164.4% 16.0% 147.3%

SKDs/New CBUs 60.0% 4.0% 66.4% 24.0% 106.3% 16.0% 93.0%

30.0% 4.0% 35.2% 24.0% 67.6% 16.0% 56.8%

Effective import duty


2

Effective import duty (excluding driver)


2

Countervailing duty for cars and utility vehicles with seating capacity between 6-12 persons Countervailing duty for utility vehicles with seating capacity of over 12 persons

(excluding driver) Source: CRIS INFAC

Sales tax Before May 2000, different state governments levied different rates of sales tax ranging from 4 to 12 per cent. This created disparity in the price of the same model of a car across different states, encouraging the purchase of vehicles in states with lower sales tax. To prevent this, the government fixed the sales tax on cars in all states at a uniform rate of 12 per cent, with effect from May 1, 2000. Impact of Value Added Tax (VAT) on the automobile industry VAT is a broad-based tax covering the value added on a product at each stage of production and distribution. It was proposed to be levied across India with effect from April 1, 2003, but has been postponed since all states could not implement the same. The automobile industry involves multi-tiered supply chains with components and sub-assemblies moving from different states to the final assembly plant. Here, the vehicle is manufactured and sold to dealers all over India. In this process, various central and state taxes get embedded
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into the product cost and have a cascading effect on the final price of the vehicle. The introduction of VAT will ensure that the cascading effect of taxes is avoided, as a simple rate will be collected on value addition. This will result in a marginal reduction in the final price and increase export competitiveness.

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3.0

Technology

Product technology Since the mid-1990s, cars have changed drastically in terms of technology, and are now equipped with several new features. The drivers for this change are ! increased customer expectations - they look for improved vehicle performance, and features that ensure safety, comfort, convenience, connectivity, and economy; ! stricter environmental regulations; and ! intense competition among players. Changes in product technology aim to meet the following requirements: Customer expectations In the international market, the following improvements are being undertaken to meet customer expectations: Safety In this sphere, technology focuses on reducing the probability of accidents, and the impact of accidents on passengers. Some commonly used features are advanced safety interiors (such as airbags), collision avoidance systems, anti-lock braking systems (ABS), and disc brakes for all wheels. Safety-related technological features are also being introduced in some Indian models. For instance, all models of the Mercedes Benz India, and other premium cars like the Honda Accord, Hyundai Sonata, and Ford Mondeo have air bags and ABS. Rear seat belts have been introduced in the Maruti 800. More safety features are likely to be introduced in Indian vehicles in the next 23 years. Comfort, convenience, and connectivity Electric power steering (EPS) systems are increasingly used to reduce effort and fatigue for the driver. Use of improved suspension systems provides increased riding comfort. There has also been an increase in the demand for information, communication, entertainment, and comfort in a vehicle. As a result, technologies such as one-touch adjustable steering columns, integrated navigation radios, power sliding doors, power lift gates, and mobile multimedia systems are being developed. Advanced entertainment systems such as rear seat audio/video (RSAV) deliver high-quality movies, music, and games. An evolving concept in the area of communication and connectivity is telematics, the convergence of wireless and vehicle-location technologies [geographical positioning system (GPS)]. This technology enables wireless communication from vehicles. Fuel economy Fuel economy, which is of primary concern to most car manufacturers, is achieved through various measures, including the production of lightweight cars using alternative materials such as aluminium and plastics. (Volkswagen and other car manufacturers are researching the manufacture of ultralight cars in the European Union. The project aims at providing technology for reducing the body weight of a car using low-cost carbon composite structures. This would also reduce carbon
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dioxide emissions). The use of electronic ignitions and multi-point fuel injections (MPFI) also ensure fuel economy. By 2003-04, automakers are expected to increase the use of 42-volt electrical systems. The switch from 12-volt to 42-volt systems will be necessitated by the increasing use of computers, entertainment devices such as sound systems and DVD players, and heating and air-conditioning systems in vehicles. The use of high-power batteries using small and lightweight wire harnesses for these systems will increase fuel efficiency. A higher voltage is also expected to save fuel consumption significantly (by 10 per cent or more), and reduce emissions. In India, given that small and economy segment cars account for over 80 per cent of passenger car sales, technological advancement largely focuses on fuel economy. Last year, vehicles began using CNG and LPG fuels, which provide fuel economy and comply with Indian emission norms.

Common Rail Direct Injection (CRDi) Technology

Box 1

A petrol engine works by taking in a mixture of gas and air, compressing it, and then igniting the mixture with a spark. A diesel engine, by contrast, takes in only air, compresses it, and then injects fuel into the compressed air. The heat of the compressed air lights the fuel spontaneously. Currently, diesel engines give 30 per cent more fuel economy than petrol engines. To increase the efficiency of diesel engines, researchers have developed the common rail, a fuel reservoir that runs alongside the cylinder heads, in which diesel fuel is stored under pressure. When the engine requires fuel for combustion, a high-pressure pump forces the fuel from the rail straight into the injectors, which quickly open and close, spraying fuel into the cylinders. In older diesel engines, by contrast, fuel had to travel from the pump to each individual cylinder in separate pipes. The common rail allows fuel to be injected into the engine's combustion chamber at a very high pressure. Hence, the fuel and air mix more thoroughly, and burn more efficiently. Since the pump constantly replenishes the common rail with pressurised fuel, high fuel pressure is maintained throughout the engine's range of speeds, ending the problem of hesitation on acceleration. Another advancement in diesel engine technology is direct fuel injection. In the past, diesel engines relied on indirect injection, a system in which fuel was sprayed into a small chamber in the cylinder head, where a glow plug sparked combustion. With direct injection, fuel is sent directly into the combustion chamber. Direct injection engines electronically control engine pressure, fuel quantity and injection timing for greater fuel efficiency and lower emission levels. Research is being carried out to refine the diesel engine. Researchers are developing injectors that will deliver fuel more precisely into the combustion chamber for burning it more thoroughly. This will increase the fuel efficiency of these engines. In India, diesel engine cars using CRDi technology are available in all Mercedes Benz models. Hyundai Motors India Ltd introduced this technology in its Accent model in September 2002.

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Compliance with environmental regulations Vehicles are equipped with features such as advanced engine management and thermal management systems to decrease environmental pollution. Technologies for reducing exhaust emissions, introduced in certain models in India, include multi-point fuel injection (MPFI) and catalytic converters. Indian oil refineries have also been working towards improving the quality of available fuel. Alternative fuels The use of alternative fuels reduces fuel costs and pollution. Alternative Fuel Vehicles (AFVs) operate on fuels other than petroleum fuel products. These vehicles can be either original equipment manufacturers (OEM) vehicles or conversions. Of late, the use of alternative fuels is becoming more common. The benefits of alternative fuels are ! lower dependence on oil imports, which saves foreign exchange; ! lower air pollution from the emission of various types of harmful gases, like carbon monoxide; ! renewable fuels; and ! lower cost of operation of vehicles. Some of the these fuels are: Compressed natural gas (CNG) Among the hydrocarbon fuels, CNG is the most environment-friendly. It is free from lead, sulphur and particulate matters, which ensure the lowest level of emission of toxic gases. The cost of CNG is 59 per cent lower than petrol, and 30 per cent lower than diesel. CNG's high knock-resistance property allows the use of a compression ratio that is higher than that of petrol, thus increasing power output and fuel economy. Hence, CNG engines are more fuel-efficient than petrol engines. However, the compression ratio for CNG engines is lower than that of diesel engines. As a result, the fuel efficiency of CNG engines is 10-20 per cent lower than that of diesel engines. The cost of a CNG kit for a new vehicle ranges between Rs 55,000 and Rs 60,000. It can be used for a distance of 250 km for cars. The cost of a conversion kit for old cars is estimated to be around Rs 36,000. CNG vehicles are expected to be almost as safe as petrol-operated vehicles, as the cylinders are built according to stringent quality standards. The sudden release of CNG from a vehicle cylinder will not form a vapour cloud on the ground; as natural gas is lighter than air the gas cloud will disperse. Hence, the risk of fire from the uncontrolled release of CNG is much lower than in the case of petrol.

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Price comparison of CNG with petrol and diesel


Cost of CNG Price of CNG equivalent to 1 litre of petrol Price of petrol Percentage by which CNG is priced lower than petrol Price of CNG equivalent to 1 litre of diesel Price of diesel Percentage by which CNG is priced lower than diesel Conversion: I kg of CNG = I kg of CNG = Compiled by CRIS INFAC litres of petrol litres of diesel Rs/litre Rs/litre as on October 2003 Rs/kg as on October 2003 Rs/litre Rs/kg as on October 2003

Table 1
19.7 14.2 37.4 62.1 16.7 25.8 35.1 1.39 1.18

In India, the use of CNG as an automotive fuel was allowed in April 2000. However, since the government has prescribed strict safety norms for dispensing CNG, very few dispensing stations have been set up. Hence, CNG as an alternative auto fuel has not gained widespread usage in the country. Liquefied petroleum gas (LPG) or propane LPG is a mixture of petroleum and natural gases that exist in a liquid state under moderate pressure. LPG has been used as a vehicular fuel for over 60 years. It has the largest market share among alternative fuels in the international market. LPG is priced lower than petrol, diesel and CNG, and is the least polluting fuel. LPG offers twice the mileage that a petrol or diesel car provides, and its cost is estimated to be 60 per cent lower than petrol (around the same price as diesel). Both private and public sector oil companies have shown willingness to set up the necessary infrastructure for supplying LPG through retail outlets. The cost of an LPG kit is around Rs 15,000 - Rs 20,000. However, LPG is likely to be more hazardous than CNG, since LPG vapours are heavier than air. Hence, leaks from the fuel system tend to accumulate at the ground level, where they may come into contact with ignition sources. In India, the regulation allowing the use of LPG as an auto fuel was passed in August 2001. Currently, the LPG used in vehicles is largely imported. In addition, the cylinders used have to be fixed in the vehicles and have to be refilled at dispensing stations. Since the infrastructure for dispensing LPG is inadequate, the use of LPG has not yet gained widespread usage in the country. Electricity Electricity can be used as a transportation fuel to power electric battery and fuel cell vehicles. When used to power electric vehicles (EVs), electricity is stored in an energy storage device such as a battery. EVs use electricity as fuel, instead of petrol or some other combustible fuel. The electric motor in an EV converts electricity, usually from a battery pack, into mechanical power, in order to turn the wheels. EV batteries have a limited storage capacity and must be replenished by plugging the vehicle into a recharging unit. At present, a fully charged battery can be used for around 80 kilometers. 54
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Also, the price of the battery is high (the battery cost is around one-third the cost of the EV). This is the main constraint for the widespread use of EVs in India. The cost of an equivalent amount of fuel for EVs is significantly less than the price of petrol. Also, the maintenance cost for EVs is lower as they have fewer moving parts to service and replace. In India, Reva Auto India Ltd launched its Reva electric car in August 2001. The cost of operation of the Reva electric car is around Rs 0.40 per km (as compared with Rs 3.13 per km for a petrol-operated car, based on a price of Rs 34.42 per litre, at a fuel efficiency of 11 km to a litre; the cost of operation of a diesel car is around Rs 1.84 per litre, based on a price of Rs 23.97 per litre, at fuel efficiency of 13 km to a litre). The Electric Vehicles Association of India has sought financial support for the EV industry from the government. Ethanol Ethanol is an alcohol-based alternative fuel, produced by fermenting and distilling starch crops, which have been converted into simple sugars. Feedstocks for this fuel include corn, barley, and wheat. Ethanol is most commonly used to improve the emission quality of gasoline. In some cases, ethanol is blended with gasoline to form an E10 blend (10 per cent ethanol and 90 per cent petrol), but it can be used in higher concentrations, such as E85 or E95. Methanol Methanol, also known as wood alcohol, has been used as an alternative fuel in flexible fuel vehicles that run on M85 (a blend of 85 per cent methanol and 15 per cent gasoline). Currently, it is not commonly used because auto manufacturers are no longer producing methanol-powered vehicles. In future, methanol could be used for providing the hydrogen necessary to power fuel cell vehicles. Neat methanol or M-100 may also be used in the future. Biodiesel Biodiesel (fatty acid alkyl esters) is a cleaner burning fuel, made from natural, renewable sources such as new and used vegetable oils and animal fats. Like petroleum diesel, biodiesel, which is a diesel replacement, operates in combustion-ignition engines. Blends of up to 20 per cent of biodiesel (mixed with petroleum diesel fuels) can be used in nearly all diesel equipment, and are compatible with most storage and distribution equipment. Hydrogen Hydrogen gas is expected to play an important role in developing sustainable transportation, because it can be produced in virtually unlimited quantities using renewable resources. Pure hydrogen and hydrogen mixed with natural gas (hythane) have been used effectively to power automobiles. However, in the future, hydrogen is expected to be used as a fuel for fuel cell vehicles. Hydrogen and oxygen fed into a proton exchange membrane (PEM) fuel cell produces enough electricity to power an electric automobile, without producing harmful emissions. Currently, there are no transportation and distribution systems for hydrogen. However, the ability to create the fuel from a variety of resources and its clean burning property make it a desirable alternative fuel. Solar energy Solar energy technologies use sunlight to produce heat and electricity. Electricity produced by solar energy through photovoltaic technologies can be used in conventional electric vehicles. Currently,
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solar energy powered vehicles are used in competitions and demonstrations. Also, the market for pure solar powered vehicles is very limited and none of the vehicle manufacturers are planning to manufacture these vehicles on a commercial scale. Current status of alternative fuel vehicles in India In India, since most of the transportation infrastructure is designed for supplying petroleum-based fuels, fuel needs are met through such fuels (diesel and petrol). However, this has caused a substantial increase in air pollution in metropolises. The country also has to spend large amounts of its foreign exchange reserves for importing crude oil. Some manufacturers have started producing vehicles that can run on LPG and CNG. Currently, the infrastructure for making fuels like CNG and LPG available to users is inadequate, thus hampering the widespread use of these fuels. However, the use of alternative fuel vehicles is expected to increase with an increase in the outlets dispensing these fuels and stricter emission norms. Current technologies Multi-point fuel injection systems: In India, till the mid-1990s, the carburettor was used to regulate the supply of fuel to the engine. However, since this was ineffective in controlling pollution, the use of catalytic converters (CC) was made mandatory in all vehicles sold after April 1, 1995. With further technological advancement, CCs were replaced with single-point or central fuel injection systems, which incorporated electrically controlled fuel-injector valves into the engine. In these systems, the accelerator pedal is connected to the throttle valve, which opens to allow air into the engine when the accelerator is depressed. The engine control unit that monitors the intake of air increases the release of fuel into the engine to meet the air to fuel ratio in real time. Gradually, as new engines were designed, single-point fuel injection was replaced by multi-point fuel injection systems. These systems have a fuel injector for each cylinder, usually located such that they spray fuel precisely at the intake valve. The fuel injectors are tiny nozzles that spray fuel in very tiny droplets, allowing the fuel to burn completely and increasing the engine's fuel efficiency. In India, most manufacturers have started using this technology in petrol-engine cars, to meet the government's strict emission control norms. Future technologies Hybrid vehicles A hybrid vehicle is an emerging technology, which combines two or more sources of power, such as a gasoline engine (for long distance driving) and a battery-powered electric motor (for ignition and low-speed driving within the city). It results in greater fuel efficiency and lower emission of toxic gases. Hybrid technology improves fuel usage by automatically switching off the engines in an idle state, capturing energy when the brakes are applied, and providing extra power while accelerating. Hybrid engine cars offer 1.5-2 times more fuel efficiency than gasolinebased cars of the same size, and reduce carbon dioxide emissions. However, this technology is very expensive. For instance, Toyota Estima hybrid costs around $ 4,000 more than the same model fitted with a gasoline engine. Toyota was the first automaker to launch a hybrid vehicle, the Prius, in 1997. To date, Toyota has sold around 100,000 hybrid cars worldwide, which includes the Estima and Crown luxury sedans. Honda Motors is the only other manufacturer that has sold around 13,000 models of 56
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the 2-seater Insight and a hybrid version of its Civic compact model. General Motors and Ford are expected to offer hybrid vehicles by 2003-04. Hybrid vehicles are not available in India at present. Fuel cell Fuel cell technology is an evolving concept, which uses an electrochemical process to create electricity, by mixing hydrogen with oxygen, and emitting only water and heat. Fuel cells run on hydrogen and have a zero-pollution factor. Although hydrogen is a renewable source of energy, it is difficult to store and the cost of the storage equipment used is high. Most large automakers such as General Motors, Ford, Toyota Motors, and Honda Motors, are researching fuel cell technology and are trying to make it commercially viable in the next 3-5 years. Countries like USA and Japan are offering tax incentives for increasing the acceptance of such cars. Manufacturing technology The manufacture of cars is an assembly operation of around 20,000 separate components. A car comprises a frame or body shell (which forms the skeleton of the vehicle), an engine, a transmission system, a suspension system, a steering, brakes, and an electrical system. The manufacturing technique used to assemble a car depends on its design and volume. Some manufacturing techniques are listed below. Steel paneled monocoque design: Most cars are manufactured by the steel-paneled monocoque design, where the body acts as the chassis, and all the parts are mounted onto the welded body. This technique is capital intensive since several large dies and presses are required to build the body of a model. These account for around 40 per cent of the project cost. The minimum viable volumes in the manufacture of a car using this technique are estimated at around 100,000 cars per annum. In India, most new car projects use this technique. Resin transfer moulding: In this technique, body panels are fixed onto pressed (steel) or extruded (aluminium) space frames that act as the chassis. The dies and presses required are smaller in size and fewer in number. The resin transfer moulding (RTM) technique is viable at volumes of 25,000-30,000 cars per annum. Hand-beaten body: Cars manufactured under this technique have a separate frame or chassis, and a hand layered or beaten body. However, only specialised vehicles, such as sports cars, are manufactured by this technique. Volumes as low as 500 cars per year are also viable. Stages in the manufacturing process A car's manufacturing process involves the following main operations: Press shop: The body shell is manufactured using steel sheets, which are cut to the required size. Subsequently, each sheet is pressed between various dies, in order to give it the required shape, such as that of doors, roofs, or bonnets. An anti-rust coating is applied at this stage. In general, the investments needed to set up a press shop are the highest. This stage is important, as it determines the exterior of the vehicle and its appearance. Body shop: In the body shop stage, the various press metal components manufactured in the previous stage are welded together to form the body shell. The various parts, such as floor panel, side panel, doors, and bonnet, are sub-assembled. Subsequently, the assembled parts undergo
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final welding. The welded body is sent to the paint shop through a conveyer. Paint shop: In the paint shop, the body undergoes various pre-treatment and painting processes. This provides high corrosion resistance and complete water proofing to the body. The car body is given an intermediate or primer coat before the top paint coat is applied. The final coat is applied using automatic electrostatic spray painting, followed by a baking and cooling process. Final assembly: The painted bodies are sent to the final assembly line, where various trims, such as overhead lining, windshield glass, and other parts, such as suspension, are added. The car is then transferred to an overhead conveyer carrier, where the drive train, consisting of the engine, the gearbox, and the front and rear axles, are assembled onto the body. The underbody operations and wheel alignment are performed at this stage. The vehicle is then taken off the conveyor, and items, such as seats, steering wheel, and battery are fitted. The investment required for this stage is high, due to the expense incurred on the conveyer belt and other machinery. Some car manufacturers also have a die or machine tools shop, for fabricating various dies, jigs and tools, which are required for manufacturing components or the car body. These dies and machine tools are made according to specifications, which depend on the design of the car and its parts. Raw material Raw material costs account for around 70-75 per cent of a car's cost of production. The main raw materials required for the manufacture of cars are steel, components, tyres and tubes. Steel Steel sheets, plates and flats, and steel coils comprise 5-10 per cent of the cost of raw materials. Cold rolled (CR) steel products can be categorised as ordinary drawn (OD), deep drawn (DD) and extra deep drawn (EDD). EDD steel is used in the manufacture of the car's body panel. This variety is of high quality, does not crack under pressure, and also has a surface finish suitable for the high quality body paint used in cars. Manufacturers largely import EDD sheets and plates, as the imported EDD sheets are of better quality. As a result, international prices of steel have a significant impact on a manufacturers cost. In April 2000, Tisco set up a new CR mill, which has started producing auto-grade steel. Autograde steel is expected to meet the quality standards required by car manufacturers. However, CR steel imports by car manufacturers are not expected to reduce significantly in the short term. Substitutes for steel Plastic and aluminium have substituted steel in the manufacture of certain car parts. Moulded plastic is used in the manufacture of components such as dashboards, fenders, interiors and door handles. Since aluminium is lighter than steel, it has a high strength to weight ratio, which results in a reduction in weight, thereby, improving fuel efficiency. According to industry estimates, a mid-sized car using 1,000 pounds of aluminium would be 25 per cent lighter and 20 per cent more fuel efficient than a car manufactured using steel. Some manufacturers have started using engines made of aluminium, instead of steel. 58
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According to a report by the American Metal Market (a metal trades journal), the average aluminium content in cars and light trucks is expected to increase from 255 pounds per vehicle in 2000 to 268 pounds per vehicle in 2002. Components Auto ancillaries form an integral part of the passenger car industry. Manufacture of cars is essentially an assembly of various modules and components, which are largely outsourced from vendors. The table below gives the share of various components and sub-assemblies in the total cost, and the schedule of indigenisation adopted by most car manufacturers.
Main components/sub-assemblies of a car
Component sub-assembly Share in total material cost (per cent) Phase I Tyre Battery Nuts and bolts Wheel rim Doors and windows Electricals Trim Seats Body Brakes Front axle Rear axle Suspension Steering system Glass (front and rear) Transmission Engine Total na: Not available Compiled by CRIS INFAC 2.70 1.40 4.10 2.70 6.80 0.70 2.70 16.20 5.40 4.10 8.10 2.00 4.10 5.40 13.50 20.30 100.00 1 1 2 2 Phase II 3 4 5 5 5 Phase III 6 6 6 6 6 6 Phase IV Final Final na na 14-16 months 14-16 months 14-16 months 14-16 months 14-16 months 14-16 months 5-6 months 5-6 months Minimal na na Minimal Minimal Minimal Minimal Sequence of indigenisation

Table 2
Time required for indigenisation

In the domestic component industry, technological development has been inadequate due to the absence of global players, the small size of the car market, and the small-scale nature of the component industry. However, the entry of multinational players in 1993 has increased technological improvements. Global suppliers who have set up plants in India, such as Delphi, Visteon, and Magneti Marelli, have introduced the latest technologies in their Indian plants. Globally, the research and development (R&D) expenditure of component manufacture as a percentage of turnover is at around 6.5-7 per cent, while for Indian players, it is less than 2 per cent. However, a large number of Indian players have initiated technological developments, largely in the areas of product engineering and reverse engineering, new materials (such as aluminium
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59

alloys), and value engineering. Most technological improvements by the Indian companies are through technical tie-ups with overseas players.
Technology trends
Vehicle part Engine components Exhaust systems Fuel delivery systems Component Pistons, piston rings, piston pins, engine valves, gaskets Mufflers, pipes, catalytic converters Introduction of more stringent emission norms has made the use of catalytic converters compulsory in metros Carburettors, fuel injection pumps, direct injection diesel systems. In petrol engines, electronically controlled direct fuel in order to meet fuel efficiency and emission norms. In diesel engines, direct injection of fuel into the combustion chamber results in better fuel efficiency and lower emission levels Gears Clutch Gears, bevel gears, crown wheel/pinion Clutch casings, clutch plate, friction material Automatic transmission is increasingly being offered in various higher-end models Increased penetration of diaphragm type clutches, in place of spring type clutches. Though clutchless automatic transmission systems are being introduced in western countries, in India their penetration is mainly in the luxury car segment Brakes Actuation system, friction material Disc brakes are increasingly being used in passenger vehicles. Anti-lock braking systems (ABS) are being introduced in some models in the Indian market Wheels Wheel rims, wheel covers, wheel drums Suspension Steering gears Shock absorbers, struts, forks, springs Mechanical steering gear, power steering, rack and pinion steering, power steering pump Steering wheel/column Steering wheel, steering column Polyurethane steering wheels are replacing moulded plastic steering wheels. With increased consideration for safety and comfort, demand for adjustable and collapsible steering columns is expected to grow Electronics Engine management systems, sensors, navigation systems, safety systems In developed countries, the value of electronic components in passenger cars is about $ 1,000 - $ 1,500 per vehicle. These are chiefly used in engine management systems, various sensors (crash sensors, traction control, climate sensors), ABS and navigation systems Interiors and equipment Castings Sheet metal components Seats, seat belts, ACs, plastic Cylinder block, cylinder head, casings parts, structural parts Use of air bags to increase with an emphasis on safety Pressure die casting is increasingly used, especially for manufacturing aluminium components computer-aided design/manufacturing (CAD/CAM) for designing components and designing and manufacturing sheet metal dies and tools
Source: Industry and CRIS INFAC

Table 3
Technological improvements Increased usage of steel rings instead of cast iron rings

petrol injection system, common rail injection is replacing the conventional carburetted engines,

Penetration of cast aluminium alloy wheels is increasing in developed markets, due to the consequent reduction in vehicle weight Increased used of struts in the front suspension instead of shock absorbers Power steering is increasingly replacing mechanical steering in cars

Skin panels, internal panels, chassis Special steels for strength and weight reduction, use of

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4.0

International markets

In 2002, passenger cars reported declining to flat sales in the US and in Europe, whereas they improved marginally in Japan. However, most of Asia, excluding Japan, saw a high sales growth in passenger cars due to strong economic recovery, low interest rates, and price reduction due to increased competition. In China, car sales continue to surge on the back of higher incomes, reduction in car prices, and the launch of new models. Growth in passenger car sales will continue to remain weak in the US, European and Japanese markets. However, Asia will drive the demand for passenger cars with countries like China, Thailand and South Korea posting double-digit growth rates. China In the first five months of 2003, despite the outbreak of SARS, car sales in China grew by a phenomenal 83 per cent over the same period last year. This is in addition to the 60 per cent growth posted in 2002 to reach 1.2 million cars. From 1998-2002, passenger car sales in China have grown at a CAGR of 19 per cent.
China: Passenger car sales (1998-2002)
(Unit Sales) 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 1998 1999 2000 Years 2001 2002

Figure 1

Compiled by CRIS INFAC

The stupendous growth in sales in 2002 was on account of ! the reduction in car prices due to price cuts driven by intense competition; ! the launch of a variety of new models, resulting in increased choice for the customer; ! continued economic growth and increase in personal disposable incomes in China; and ! favourable government policies. Reduction in car prices Passenger car sales in 2002 were fuelled by demand from private customers led by a reduction in car prices. China's entry into the WTO in December 2001 led to a slash in import duties from 70 to 44 per cent, which, in turn, led to a drop in prices. Increasing competition also forced manufacturers to lower prices. While the prices of mini-cars were reduced by an average 15 per cent, the prices of sedans were reduced by an average 7 per cent.
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61

Increased product range The availability of a variety of new models increased the choice available to the customers, resulting in higher sales. Some of the new models introduced in 2002 were Bora (FAW-VW), Sail (General Motors), Palio (Fiat), Polo (Shanghai VW), Bluebird (Nissan), Vios (Toyota), and Sonata (Hyundai). The sale of new models represented almost 50 per cent of the increase in passenger car sales, indicating the vital role played by these new models in the growth of the industry.
China: Increase in no of car models
(Number of models) 40 35 30 25 20 15 10 5 0 1989 1994 1999 2000 Years 2001 2002 2003 3 7 12 5 13 18 36

Figure 2

Car models

Note New models launched in 2003 are upto May 2003 Compiled by CRIS INFAC

Economic growth Since 1991, China has maintained an economic growth rate of around 7 per cent, with an 8 per cent growth rate in 2002. China's per capita income has increased from around 1,000 yuan in 1991 to over 8,000 yuan in 2001. The steady increase in the purchasing power of consumers has resulted in an enormous increase in passenger car sales, which coupled with an increase in roads and expressways, has encouraged the surge in private ownership of vehicles.

Profile of passenger car users in China


Users in 1997
(per cent)

Figure 3
Users in 2002
(per cent)

20 60

30

20
Government Agencies/ Companies Taxi Individuals

58
Government Agencies/ Companies Taxi

12
Individuals

Compiled by CRIS INFAC

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Government policies Apart from the reduction in import duties that came into effect when China joined the WTO, the Chinese government also allowed local banks to offer retail credit for the purchase of passenger cars. In October 2003, foreign automobile companies were allowed to offer retail credit for car purchases. In 2002, the central and local government cancelled many of the taxes and fees involved in vehicle trade, such as number plate application fees and consumer taxes, thus reducing the on-road price of cars. However, in a draft automobile policy, the Chinese government has proposed that by 2010, at least 50 per cent of the vehicles manufactured in China must be designed and manufactured in China. This will mean that foreign manufacturers, who currently manufacture global models in joint venture with Chinese companies, will have to transfer technology to their partners. This may hamper growth, as foreign companies will not be willing to transfer technology, given the absence of adequate regulations protecting intellectual property rights. Given the strong opposition to the provision of the draft policy, it is unlikely to be implemented in its current form. Car sales expected to register strong growth over the medium term In 2003, passenger car sales are likely to grow by over 50 per cent to cross 1.8 million units as the average monthly car sale is being maintained at 160,000-170,000 units. The significant price reduction and the increased competition arising out of new model launches are responsible for the continued buoyancy in sales. Over the next three to four years, passenger car sales in China are expected to soar on the back of strong economic growth. Surging private wealth and savings, combined with greater access to car financing and lower duties will fuel the demand for cars, mainly from private customers. As a result, passenger car sales in China are likely to exceed 4 million by 2006. China is a sedan market The Chinese passenger car market is a mid-sized car market, as sedans comprise around 90 per cent of the total annual car sales. Compact cars make up a small proportion of the total car sales. Mid-sized cars will continue to dominate the passenger car market in the medium term.
China: Model-wise market share of passenger cars (2002)
Manufacturer Shanghai VW First Auto Group Corp Tianjin Automotive Group Changan Automotive Group Shanghai GM Dongfeng Motor Corp Chery Guangzhou Automotive Industry Corp na: Not available Compiled by CRIS INFAC Honda Brand Volkswagen Volkswagen Toyota Suzuki GM Citroen Volkswagen Model Santana Jetta Xiali Alto Sail Buick Fukang BORA Chery Accord Price (US $) 13,000-22,000 12,000-21,000 5,000-16,000 5,000-6,000 11,000-16,000 31,000-45,000 11,000-20,000 21,000-29,000 na 28,000-38,000

Table 1
Market share (%) 17.2 10.8 8.5 5.8 5.0 4.9 4.7 4.6 4.5 4.0

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European manufacturers own largest market share


China: Region-wise dominance (2002)
(per cent) 60.00 50.00 40.00 30.00 20.00 10.00 0.00 European Japanese & Korean Manufacturers American Chinese

Figure 4

Compiled by CRIS INFAC

European manufacturers such as VW and Peugeot dominate the Chinese car market since they were the earliest players to enter the market in the mid-eighties, thus having the first mover advantage. However, competitors from Japan, USA and Korea are rapidly increasing their market

China: Company-wise market share (2002)


(per cent) 6.1 41.7

Figure 5

25.7

9.4 5.3 4.8 Suzuki 7.0

Volkswagen

PSA Citroen

Honda

General Motors

Chinese Manufacturers

Others

Compiled by CRIS INFAC

share on the back of new models. VW, operating two joint ventures in China, had over 60 per cent market share during the 1990s, which has now dwindled to around 42 per cent. Its market share is likely to decline further on account of increasing competition from domestic as well as imported models. Manufacturers increasing capacities to meet demand Most global car manufacturers have set up manufacturing facilities in China. Foreign joint ventures account for over 80 per cent of the market while the remaining is made up of Chinese automakers. Foreseeing the tremendous potential in the Chinese automobile market and realising the potential 64
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of its membership in the WTO, many players have initiated plans to expand capacities for meeting an increase in demand. For instance, Volkswagen has announced an investment of 3 billion euros to increase capacity from the current 300,000 units to 660,000 units by 2007. Similarly, GM has announced plans to invest $ 240 million to increase capacity from the current 100,000 units to 200,000 units in 2005.
China: Capacity expansion plans by auto manufacturers
Company Shanghai-GM Changan Ford Shanghai VW FAW-VW BMW DaimlerChrysler Guangzhou Honda FAW-Toyota Compiled by CRIS INFAC Current capacity 1,00,000 50,000 4,00,000 3,00,000 Nil Nil 1,20,000 50,000 Expansion plans 2,00,000 by 2005 1,50,000 in short term 7,00,000 by 2007 6,60,000 by 2007 30,000 by 2003 25,000 in short term 2,40,000 by 2004 3,00,000-4,00,000 by 2010

Table 2

USA In 2002, the total sales of passenger cars and light vehicles in USA fell marginally by 1.5 per cent to 16.9 million units. This was in spite of the significant incentives offered by manufacturers in the form of cash rebates and low or zero cost financing. Sales of light trucks remained at 2001 levels, while passenger car sales dropped by 3 per cent in 2002. In the first nine months of 2003, the total sales of passenger cars and light trucks fell by 1.76 per cent as compared to the same period in 2002. As a result, total sales are expected to be drop marginally in 2003. The market share of the three largest American manufacturers has fallen from 62 per cent in the first nine months of last year to 60 per cent. The share of Asian manufacturers has increased from 31 per cent last year to 33 per cent, whereas the share of European manufacturers has remained steady at 7 per cent.

US: Light vehicle sales


(units in mn) Cars Light trucks Total LV 1996 8.5 6.5 15 1997 8.3 6.8 15.1 1998 8.1 7.4 15.5 1999 8.7 8.2 16.9 2000 8.8 8.5 17.3 2001 8.4 8.7 17.1

Table 3
2002 8.2 8.7 16.9

Compiled by CRIS INFAC

Western Europe In 2002, passenger car sales in Western Europe fell by 2.7 per cent over 2001 figures, due to the slowdown in the economies of major European countries and subdued consumer sentiments, especially in Germany and France. The Iraq war further compounded the situation and passenger sales fell by 3.5 per cent in the first five months of 2003. The slowdown is expected to continue in the short term due to which passenger car sales in Western European countries are not expected to recover before the first half of 2004.

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Western Europe: Passenger car sales and export trends


(Units in millions) 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 1995 1996 1997 1998 Years 1999 2000 Total exports 2001

Figure 6

2002

New car registrations

Compiled by CRIS INFAC

Japan In 2002, the overall passenger car sales in Japan increased by 7 per cent. This growth was chiefly driven by a 12.4 per cent jump in exports. This was complemented by a 3.5 per cent increase in domestic sales, which increased from the 2001 figures to 4.44 million units. In 2002, the share of exports in Japan's total car sales rose to 47.2 per cent, up from 45.6 per cent in 2001. As a result of the marginal growth in the passenger car industry in Japan in the past few years, there is considerable overcapacity in the industry, which is expected to continue on account of the slow growth expected over the medium term. From January to August 2003, passenger car sales increased marginally by 1.2 per cent. Sales are expected to increase in the last quarter of 2003 due to the launch of new models from Suzuki, Honda and Daihatsu. However, despite this, passenger car sales are expected to register only a marginal increase over last year's levels.

Japan: Passenger car production, sales and export trends


(Units in millions) 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 1995 1996 1997 1998 Years Total sales Total exports Production 1999 2000 2001

Figure 7

2002

Note Sales, exports and production include figures of cars, trucks and buses Source: Japan automobile and manufacturing association

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Thailand Driven by booming domestic consumption, overall passenger car sales in Thailand rose by 20.9 per cent from 104,502 units in 2001 to 126,353 in 2002. Growth was driven largely by the government's policy of capping domestic gasoline prices, which lifted consumer sentiments. Lower interest rates on car finance and the launch of a host of new models such as the Honda City, Honda Accord, Toyota Camry and Toyota Soluna were also responsible for the high growth. However, the demand for passenger cars has recovered to only 75 per cent of the levels seen before the major economic crisis of 1997. Japanese automakers Toyota and Honda dominated the market with Toyota claiming 40 per cent of the market share, followed by Honda with 28 per cent. In the first 11 months of 2002, exports of completely built units of passenger cars from Thailand increased marginally from 160,182 (for the same period in 2001) to 164,099 units. In the first seven months of 2003, car sales grew from 126,353 units in 2002 to 114,751. This growth was bolstered by strong economic recovery and low interest rates. Car manufacturers are also offering incentives such as free insurance and discounts. As a result, in 2003, the growth of passenger cars is likely to be over 40 per cent. Exports are also expected to rise as foreign automakers transfer their production bases to Thailand and several companies, including GM, Isuzu, and Toyota, plan to increase exports.

Thailand: Sales volume of passenger cars


(Units) 200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 1993 1994 1995 1996 1997 1998 1999 2000 2001

Figure 8

2002

Years

Passenger Cars

Compiled by CRIS INFAC

Malaysia Backed by low interest rates and the introduction of new models, passenger car sales in Malaysia, for 2002, registered a 10 per cent increase over the figures of the previous fiscal, that is, from 327,447 units in 2001 to 359,934 units. However, in the first half of 2003, sales fell by 12 per cent amidst war fears and a planned cut in auto import duties. Falling used car prices ahead of the Malaysian auto industry's entry into the Association of South East Asian Nations Free Trade (ASEANFT) also aided the fall in passenger car sales. Under ASEANFT rules, tariffs applicable on cars imported into Malaysia would be cut down from the current 300 per cent to between zero and five per cent. Hence, in 2003, growth in sales is likely to drop by 57 per cent as falling used car prices and the hope of a further decrease in the prices of new cars are discouraging consumers from making fresh purchases.
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67

Malaysia: Passenger car sales


(Units) 400000

Figure 9

350000

300000

250000

200000

150000 1999 2000 2001 2002

Sales

Compiled by CRIS INFAC

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5.0

Domestic players
Chart 1
Publicly listed 55,000 units Pune (Maharashtra), Pithampur (Madhya Pradesh) Trax (na) 6,648 units 2002-03: 3.92; Apr-Aug 03: 4.22 Bajaj Tempo has increased its distribution reach by increasing the number of its dealerships across the country. On most of its UV models, the company is offering additional features as well as an extended warranty of upto 3 years or 3 lakh km, whichever is lesser.

Bajaj Tempo Ltd


Equity holding Capacity Plant location Model (launch) Total volume (2002-03) Aggregate market share (per cent) Marketing strategies

Key Issues

To increase its market share in the UV market by launching more models to compete with the Mahindra Maxx and Hindustan Motors' RTV in the rural markets and the Toyota Qualis, Tata Sumo and Mahindra Scorpio in the urban markets.

Financials

The company has increased its operating income from Rs 5,199 million in 2001-02 to to Rs 6,996 million in 2002-03, on the back of increased volumes of its MUV, Trax. Its operating margins have increased from 3.9 per cent to 5.5 per cent and consequently, its net profits have jumped from Rs 16 million in 2001-02 to Rs 321 million in 2002-03.

Future plans

The company plans to consolidate its presence in the semi-rural and rural transport markets by increasing promotions and expanding its distribution reach to newer markets. The company also plans to launch the Minifour', a four-wheel transport vehicle based on its three-wheeler Minidor' platform.

na: not available Compiled by CRIS INFAC

Daewoo Motors India Ltd


Equity holding Capacity Plant location Model (launch) Total volume (2002-03) Operations Daewoo Motors, Korea (91.7 per cent); others, including Indian public (8.3 per cent) 72,000 units per annum Surajpur (Uttar Pradesh) Matiz (1998), Cielo (1995), Nexia (1999) na

Chart 2

Aggregate market share (per cent) na The Indian operations were not part of General Motors' agreement to acquire Daewoo Motors, Korea, due to the huge liabilities of Daewoo Motors India. GM has made arrangements to procure spares, kits and components from the parent company's plant in Korea. GM has assured Daewoo Motors that it will continue to extend technical support, in terms of spares and components, for the company's Matiz and Nexia models for at least the next five years. Other issues Manufacturing activity in India has completely stopped following the decision of the lenders to sell off the plant on a piece-meal basis. However, this plan was not successful since the bids for the same were very low. The lenders are likely to lease the manufacturing facility on a contract basis to General Motors India Ltd, who may launch the erstwhile Daewoo Matiz' as Chevrolet Spark' in the second half of 2003-04, with some refinements and additional features. The model is expected to be manufactured at the Daewoo plant and will be sold by General Motors in the domestic market. na: not available Compiled by CRIS INFAC
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DaimlerChrysler India Pvt Ltd


Equity holding Capacity Plant location Model (launch) Total volume (2002-03) Recent developments DaimlerChrysler, Germany (100 per cent) 10,000 units per annum Pune (Maharashtra) E Class (1995), S Class (2000), C Class (2001) 1,114 units In July 2003, DaimlerChrysler launched the new version of its C class model, the

Chart 3

Aggregate market share (per cent) 2002-03: 0.2; Apr-Aug 03: 0.24 Kompressor', in the domestic market. The model, which replaces the earlier version, the C 180, is priced at Rs 23 lakh for the manual variant and Rs 25 lakh for the automatic variant, ex-showroom, Delhi. In November 2002, DaimlerChrysler launched an E class version, replacing the earlier version in the domestic market. The new version is fitted with an improved braking system, offers greater riding comfort and is priced at Rs 34 lakh (ex-showroom, Mumbai). Exports DaimlerChrysler plans to export components worth $ 70 million to its US and German plans in the current financial year. This is higher than the export of components worth $ 65 million in 2001-02. It has also started exporting its models to neighbouring countries. Key Issues To increase its sales volumes by tapping new markets such as the semi-urban towns of India. In order to do so, it will have to increase the number of its dealerships in the selected towns. Financials DaimlerChrysler posted a turnover of Rs 3,200 millon and pre-tax profit of Rs 390 million in 2002-03. The company expects to wipe out its accumulated losses of around Rs 3,000 million over the next three to five years. Future plans The company plans to launch the luxury brand Maybach' in the Indian market in mid-2004. The model will be priced above Rs 30 million. The company plans to increase its service network, which is currently at 15 dealers and 7 service centers across the country. Most of these dealers and service centers will service cars in the surrounding geographical regions, thus enhancing the company's Compiled by CRIS INFAC after sales service.

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Fiat India Pvt Ltd


Equity holding Capacity Plant location Model (launch) Total volume (2002-03) Player actions Fiat SpA, Italy (97.3 per cent), PAL (2.7 per cent) 60,000 units per annum Mumbai (Maharashtra) Uno (1996), Siena (1999), Palio (2001); Palio Adventure (2002); New Siena (2002) 25,932 units

Chart 4

Aggregate market share (per cent) 2002-03: 4.74; Apr-Aug 03: 1.78 In September 2003, Fiat India reduced the price of its Uno model to Rs 2.5 lakh for the petrol variant and Rs 2.9 lakh for the diesel variant. The price increase is expected to increase volume sales for Fiat India. In August 2003, Fiat India launched the Palio NV, a new version of the Palio petrol model. The variant is expected to be more fuel efficient than the current version, and costs around Rs 3,000 more than the original. In March 2003, the company launched the diesel version of the Fiat Palio, fitted with a 1.9 litre engine to compete with the Tata Indica (diesel). The version is priced in the range of Rs 4.14 lakh - Rs 4.76 lakh. Product positioning Fiat India has positioned the Uno in the mini segment to compete with the Maruti 800. This is likely to give a significant boost to the sales volumes of the Uno, which currently sells just around 60 units a month. Export The company has started exporting the Palio to neighbouring countries like Bangladesh, Nepal and Sri Lanka. It has also exported auto components to Fiat subsidiaries in Italy, Poland, Turkey and South Africa. Cost cutting Fiat India is negotiating with General Motors India and Maruti Udyog Ltd for the manufacture of a diesel engine at its Ranjangaon plant, to be used by all three manufacturers in their diesel models in future. This move is likely to save on expensive development and sourcing costs of engines for the three manufacturers, and will also increase the utilisation of the Ranjangaon plant. Key Issues To increase the volume sales of its models in the domestic market through an improvement in distribution reach and after sales service and assure customers of its long-term commitment to the Indian market. Financials Fiat Spa of Italy has decided to infuse an additional capital of Rs 2,000 million and wipe out the accumulated losses of Fiat India. With this infusion the company aims to break even in 2004 on its Rs 20,000 million investments in India and turn profitable in 2005. This move will also reinforce its commitment to continuing operations in India for the long term. The company had informed the Board for Industrial and Financial Reconstruction that it has become a potentially sick company as its accumulated losses at the end of 2001 were Rs 12,801 million, which had completely eroded its equity share capital of Rs 12,218 million. Future plans The company plans to export 1,000 units of the Palio to Singapore over the next one year. It also plans to export over 3,000 units of the same to Indonesia over the next three years. The company expects to earn Rs 1,600 million through these export orders. Fiat India is planning to launch the New Panda model in the compact car segment in India in 2004, to be positioned in the entry-level compact segment. The model may be available as a 1.2 litre petrol variant and a 1.3 litre diesel variant, powered by the CRDi technology. The company plans to increase the number of its dealerships from the current 68 to 75 by the end of 2003. Compiled by CRIS INFAC

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Ford India Ltd


Equity holding Capacity Plant location Model (launch) Total volume (2002-03) Player actions Ford Motor, US (92 per cent), Mahindra and Mahindra (8 per cent) 100,000 units per annum Chengalpattu (Tamil Nadu) Ikon (1999), Mondeo (2001) 15,406 units

Chart 5

Aggregate market share (per cent) 2002-03: 2.82; Apr-Aug 03: 2.48 In September 2003, Ford India entered the SUV segment, by launching the Ford Endeavor in the domestic market. Endeavor is the longest SUV in the Indian market and is powered by a 2,500 cc turbo diesel engine. The model will be available in two wheeler and four wheeler variants and will be commerically available from November 2003 onwards, when the vehicle's pricing will be revealed. In August 2003, Ford India signed an agreement with the Union Bank of India to offer finance to customers for the Ikon and Mondeo models through its branches all over India. In August 2003, Ford India launched a new variant of the Ikon, the Ikon Flair, priced at Rs 4.95 lakhs (ex-showroom, Bangalore). The company has been able to price the model attractively by increasing its localisation levels from 76 per cent to 90 per cent. In January 2003, Ford India replaced the existing Ikon model with the Ikon Nxt fitted with an improved Rocam engine and spruced up interiors. This move is aimed at increasing the volumes of domestic sales. Export Key Issues Over the next three years, Ford India is likely to export auto components in the range of $ 140 - $ 160 million to its parent company. Ford India has a marginal 2 per cent share in the domestic passenger car market due to its presence in the mid-size and premium segments. In order to increase its market share, the company will have to enter into the high volume small car market in India, which forms around 78 per cent of the market share. Financials In 2001-02, Ford India's topline was Rs 10,648 million, which was at the same level as 2000-01. However, the company's net losses dropped to Rs 605 million from Rs 1,010 million in 2000-01. The company's carried forward losses as on March 31, 2002 were to the tune of Rs 5,280 million. Future plans Ford India is developing two India-specific models to be launched in the next couple of years. The model in the higher end compact segment (code named B226) is to be launched in 2004, whereas the model in the mid-size segment (code named B376) will be launched in 2005. Ford India plans to launch its SUV, Everest' and a pick-up vehicle, Ranger' in the domestic market in the third quarter of 2003-04. These will be imported from Thailand through the CKD route. The Everest' is likely to be priced around Rs 13 lakh and the Ranger' around Rs 8 lakh. Cost cutting In January 2002, Ford India Ltd entered into an agreement with Hindustan Motors Ltd, for the latter to manufacture petrol engines for the Ford Ikon model. The resultant cost savings have been passed on to the customers in the form of the launch of the aggresively priced Ford Flair. Compiled by CRIS INFAC

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General Motors India Ltd


Equity holding Capacity Plant location Model (launch) Cars Total volume (2002-03) UV Total volume (2002-03) Player actions 52 units Aggregate market share (per cent) 2002-03: 0.03; Apr-Aug 03: 0.10 8,240 units Aggregate market share (per cent) 2002-03: 1.51; Apr-Aug 03: 2.40 General Motors, US (100 per cent) 25,000 units per annum Halol (Gujarat)

Chart 6

Astra (1996), Corsa (2000), Swing (2001), Forrester (2002), Vectra (2002), Sail (2003), Optra (2003).

In July 2003, General Motors launched the Chevrolet Optra in the mid-size segment to compete against the Toyota Corolla and the Skoda Octavia. The model is powered by an 1,800 cc petrol engine. The basic version is priced at Rs 7.9 lakh while the luxury version costs Rs 9.7 lakh. In May 2003, General Motors launched the Corsa Sail in the higher end compact segment, thus entering the high volume compact segment. The model is available in two variants and is priced at Rs 4.65 lakh for the 1.4 litre variant and Rs 4.95 lakh for the 1.6 litre variant. In March 2003, General Motors entered the utility vehicles segment by launching the SUV, Chevrolet Forrester. The model which is being imported in the CBU format is priced at Rs 15.59 lakh (ex-showroom, Delhi), is powered by a 1994 cc petrol engine and will compete against other premium SUVs such as the Suzuki Grand Vitara and the Honda CRV. In December 2002, General Motors launched the Chevrolet Vectra in the premium segment. The model, which is being imported in the CBU format from GM Belgium is powered by a 2.2 litre petrol engine and is priced at Rs 16 lakh (ex-showroom, Delhi) and competes with models such as the Honda Accord and Toyota Camry.

Marketing strategies

General Motors aims at emerging as a high volume player in India. Towards the same, it has entered the compact segment by launching the Corsa Sail and plans to launch the Chevrolet Spark in the beginning of 2004 in the same segment. This will hasten its plan to achieve sales volumes of 50,000 cars per annum by 2005.

Exports

General Motors has been sourcing and exporting auto components to auto component manufacturers in China, which have a joint venture with GM China. The components are being exported for the Opel Corsa, which is common to India and China.

Key Issues Financials

To increase the sales volumes on the back of models such as the Corsa Sail, Chevrolet Optra and the to-be-launched Chevrolet Spark by increasing the number of its dealerships. General Motors has posted a turnover of Rs 5,782 million for the financial year ending September 2002. However, the company posted accumulated losses of Rs 4,004 million till September 2002. The company has written off losses to the tune of Rs 37,340 million against its share capital and expects to post operating profits in the financial year ended September 2003, on account of higher volumes due to the launch of the Chevrolet Optra and Corsa Sail.

Future plans

General Motors plans to increase the manufacturing capacity at its Halol plant to 50,000 units in the next three years. The company plans to invest Rs 6,000 million for capacity expansion, plant modernisation and new product development over the next three years. General Motors is expected to launch its utility vehicle, Panther, in the second half of 2003-04. The UV will be fitted with a 2,500 cc engine and will compete against the Toyota Qualis and Mahindra Scorpio. It will be able to seat 7-9 passengers and may be priced in the range of Rs 6-8 lakh.
General Motors plans to increase the number of its dealers from 41 to to 45 by the end of 2003, in order to increase its distribution reach and ensure better after sales service.

Cost cutting

General Motors will source engines and transmission systems from Hindustan Motors Ltd for the new utility vehicle, the Isuzu Panther, to be introduced by General Motors. This will allow General Motors to reduce the cost of production of the new UV, and price it competitively.

Compiled by CRIS INFAC


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Hindustan Motors Ltd


Equity holding Capacity Plant location Model Cars Total volume (2002-03) UV Total volume (2002-03) Player actions 2,640 units In August 2003, HML launched a new version of the Ambassador, called the Grand'. The Aggregate market share (per cent) 2002-03: 1.56; Apr-Aug 03: 0.52 18,222 units Aggregate market share (per cent) 2002-03: 3.33; Apr-Aug 03: 2.09 Publicly listed 64,000 units per annum

Chart 7

Uttarpara (West Bengal), Pithampur (Madhya Pradesh), Trivellore near Chennai (Tamil Nadu) Lancer (1998), Ambassador (na), Contessa (na), Trekker (na), RTV (na), Pushpak (2001), Pajero (2002).

new version includes features such as power steering, noise and vibration reduction, power brakes, remote shift mechanism and wrap-around, body-coloured bumpers. The company has priced the diesel version at Rs 4.40 lakh and the petrol version at 4.16 lakh. The company is targeting individual customers like bureaucrats and politicians, and institutions such as government departments. The company has entered into an agreement with Sundaram Finance, Bank of Punjab and Ashok Leyland Finance to offer finance for the purchase of Ambassador cars. HML has also offered an exchange facility to existing Ambassador car owners to exchange their old models for the Grand'. HML has started exporting its 1.8 litre CNG variant of the Ambassador model to Bangladesh, which is to be used for the taxi segment. Product positioning Key Issues HML has positioned its Ambassador model as India's official car and is promoting its sales in central and state government departments. To arrest its declining market share in the car market, due to a decline in the car sales of the Lancer and the Ambassador, by introducing more models and entering into other segments. To increase capacity utilisation, by increasing contract manufacturing of engines and other critical parts for foreign car manufacturers. Financials The company's operating income of the company has fallen from Rs 10,032 million in 2001-02 to Rs 8,921 million in 2002-03 due to a drop in the volumes of the Ambassador and Lancer models. However, due to aggressive cost reduction, the operating margins increased from 3.6 per cent 2001-02 to 5 per cent, and the company reduced its net loss from Rs 338 million in 2001-02 to Rs 267 million in 2002-03. Future plans HML plans to launch 1.8 litre petrol version of the Lancer model with automatic transmission to increase sales volumes. The company is planning to double its dealer network from the current 91 dealerships, and is likely to focus more on the southern and eastern states, like West Bengal, Orissa, Tamil Nadu and Kerala. Cost cutting HML has been rationalising its work force, reducing raw material procurement costs and improving its manufacturing systems. As a result, the company has posted an improvement in its operating profit margins from 3.6 per cent in 2001-02 to 5 per cent in 2002-03, despite a 11 per cent drop in its operating income. na: not available Compiled by CRIS INFAC

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Honda SIEL Cars India Ltd


Equity holding Capacity Plant location Model (launch) Cars Total volume (2002-03) UV Total volume (2002-03) Player actions Aggregate market share (per cent) 2002-03: 0.00; Apr-Aug 03: 0.20 Honda Motor Company, Japan (99 per cent), Shriram Industrial Enterprises (1 per cent) 30,000 units per annum Noida (Uttar Pradesh) City (1998), Accord (2001) 13,300 units

Chart 8

Aggregate market share (per cent) 2002-03: 2.43; Apr-Aug 03: 2.33

In August 2003, Honda SIEL launched the 2.3 litre IV-TEC engine-fitted seventh generation Accord in manual and automatic transmission versions. The manual version is priced at Rs 14.9 lakh and the automatic version is priced at 15.7 lakh (ex-showroom, Delhi). These versions are priced lower than the current versions to enable higher volumes. In August 2003, Honda SIEL entered the utility segment by launching the Honda CR-V SUV in India. The model is fitted with a 2 litre IV-TEC engine and is equipped with a four-wheel drive. The model is priced at 14.9 lakh (ex-showroom, Delhi) and will compete with the Suzuki Grand Vitara and GM Forrester.

Key Issues

Around 80-82 per cent of the cars sold in India are small cars. Therefore, in order to gain market share the company should enter the small car market by introducing a competitively priced small car in India.

Financials

In 2002-03, Honda SIEL has posted a turnover of Rs 7,600 million on the back of a surge in volumes of its mid-sized model, the City. Aggressive cost cutting and increase in volumes have resulted in the company turning around and posting a pre-tax profit of Rs 500 million in the same fiscal.

Future plans

Honda SIEL is planning to enter the high volume compact segment in India in the short- to medium-term. Towards the same, it has identified the Honda Jazz and Honda Life as possible models to be launched in the domestic market, and is conducting feasibility tests on them. The company plans to invest in another unit near its plant in Noida to increase its capacity to 50,000 units per annum by the end of 2007-08. Honda SIEL is planning to launch a new version of the Honda City in the third quarter of 2003-04. The version is likely to be priced at Rs 6.2 lakh, which will be less expensive than existing variants in the range of Rs 40,000 to Rs 90,000. The company hopes to sell around 18,000 units of the Honda City in 2003-04. The company plans to increase its dealers from the current 34 to around 50 by the end of 2003-04.

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Hyundai Motors India Ltd


Equity holding Capacity Plant location Model (launch) Cars Total volume (2002-03) UV Total volume (2002-03) Player actions Aggregate market share (per cent) 2002-03: 0.00; Apr-Aug 03: 0.06 103,516 units Aggregate market share (per cent) 2002-03: 18.92; Apr-Aug 03: 19.65 Hyundai Motors, Korea (100 per cent) 150,000 units per annum Irrungattukottai (Tamil Nadu) Santro (1998), Accent (1999), Sonata (2001), Terracan (2003)

Chart 9

In August 2003, Hyundai Motors launched its SUV, Terracan, in the domestic market. The SUV is fitted with a 2.9 litre diesel CRDi engine and has features like on-demand four-wheel drive, that allows the driver to shift between two- and four-wheel driving modes, fully automatic temparature controls and a digital multimeter. Imported as a CBU, the vehicle is priced at Rs 18.5 lakh. In August 2003, Hyundai Motors commenced the export of the Santro Xing to Spain, Italy and Netherlands. The company plans to export around 35,000 units in 2003-04. This figure will be increased to 65,000-70,000 units in 2004-05. In May 2003, Hyundai launched the new version of the Santro model, the Xing, in the domestic market. The company has changed the external apperance of the earler version and replaced it with the Xing. The Xing is priced marginally higher than earlier models, thereby increasing the company's average realisations.

Exports

In the next two to three years, the company plans to derive around 50 per cent of its export volumes from countries in Western and Eastern Europe. It also plans to launch its model in the US under the Dodge' brand.

Key Issues Financials

To ramp up capacity aggressively and take advantage of the growing growth in export markets as well as increase its market share in the domestic market through the launch of new models. In 2001-02, Hyundai Motors increased its turnover by 13 per cent from Rs 30,592 million in 2000-01 to Rs 34,664 million on the back of higher volume sales. Consequently, its net profits increased by 60 per cent to Rs 2,746 million in 2001-02.

Future plans

Hyundai Motors is likely to increase the capacity of its plant in Tamil Nadu, from the current 150,000 units pa to 250,000 units pa by September 2004. The company will invest $ 200 million for the same. In 2005, Hyundai Motors is likely to launch a diesel version of the Santro model, fitted with a 1.1 litre CRDi engine, in the Indian market. The company plans to launch a new model in the compact segment, the Getz', in the third quarter of 2003-04 to compete with the Fiat Palio. The model will be powered by a 1.3 litre petrol engine and a 1.5 litre CRDi diesel engine and will be priced in the range of Rs 5-7 lakh. Hyundai is likely to launch the diesel version of the Accent Viva in January 2004. The new version will be fitted with a CRDi diesel engine.

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Mahindra & Mahindra Ltd


Equity holding Capacity Plant location Models (launch) Total volume (2002-03) Aggregate market share (per cent) Player actions Publicly listed 113,000 units per annum Mumbai, Nashik (Maharashtra) Armada (na), Bolero (na), Commander (na), Marshall (na), Maxx (na), Voyager (na), Scorpio (2002) 51,849 units 2002-03: 30.59; Apr-Aug 03: 32.84

Chart 10

In August 2003, M&M launched a new variant of the Scorpio model, fitted with an improved diesel engine to reduce vibration levels. It also sports new rear suspensions and contoured seats and costs Rs 1,500-Rs 7,000 more than the existing variants of the model. In March 2003, M&M launched a new variant of its Bolero model, an open top version named the Invader' in the soft top segment to boost its sales of soft top vehicles. The Invader is priced at Rs 3.78 lakh (ex-Jaipur).

Product positioning

The company is discontinuing its older models like the Mahindra Classic and replacing them with newer models such as the Invader and Scorpio to rationalise its offerings and reduce the overhead costs of manufacturing low selling models.

Exports

M&M is planning to set up local operations in Russia, China, Indonesia and South America for the assembly of the CKD units of its Uvs, in collaboration with local partners. The move is expected to increase the exports of the company's UVs in these countries and make them more price competive vis--vis other competitors.

Key Issues

To maintain its market share in the utility vehicles segment by launching variants and upgrades of its Scorpio, Bolero and Maxx models and effectively compete against new entrants such as Panther from General Motors, which is to be launched in the second half of 2003-04. The company's operating income increased by 14 per cent from Rs 32,680 million in 2001-02 to Rs 37,284 million, on the back of strong sales of the Scorpio, pick-ups and three wheelers. M&M's operating margins improved marginally from 8.1 per cent in 2001-02 to 8.8 per cent, due to the increase in steel prices. However, high volume sales increased net profits from Rs 102 million in 2001-02 to Rs 145 million.

Financials

Future plans

By the end of 2003, M&M is planning to increase the production of its SUV model, Scorpio, from the current 2,400 units per month to 3,000 units per month, in order to meet the backlog of orders. M&M is in discussion with the Korean company, Ssangyong to import its SUV model, the Rexton, in order to enter the high-end SUV segment in the domestic market. The model ls likely to be priced at Rs 14 lakh and will be powered by a 2874 cc turbo diesel engine.

Cost cutting

M&M will continue to reduce raw material costs by sourcing materials, parts and accessories through a common vendor network, thereby saving around 7-10 per cent of the raw material costs.

na: not available Compiled by CRIS INFAC

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Maruti Udyog Ltd


Equity holding Capacity Plant location Model (launch) Cars Total volume (2002-03) UV Total volume (2002-03) Player actions 55,097 units Aggregate market share (per cent) 2002-03: 32.50; Apr-Aug 03: 31.71 275,031 units Aggregate market share (per cent) 2002-03: 50.27; Apr-Aug 03: 50.29 Suzuki Motor Corporation, Japan (54.2 per cent), Government of India (20.5 per cent) public (25 per cent) 350,000 units per annum Gurgaon (Haryana)

Chart 11

800 (1984), Omni (1984), Alto (August 2000), Zen (1993), Wagon R (February 2000), Esteem (November 1994), Baleno (November 1999), Gypsy (1986), Versa (2001), Grand Vitara (2003)

In September 2003, Maruti slashed the price of its Alto model (800 cc) by around Rs 23,000 to bring it below Rs 3 lakh. The company plans to position the Alto between the mini and compact segments to increase its sales volumes. In order to increase the sales volumes of its multi-purpose vehicle, Versa, Maruti reduced its price to below Rs 5 lakh in September 2003. The company offers three variants of the model, at price points of Rs 4 lakh, Rs 4.4 lakh and Rs 4.9 lakh, which is comparable to the price of top end versions of the Zen and Wagon R models. In September 2003, Maruti started accepting used cars of other manufacturers for exchange through its True Value used car program. The company expects to increase the sale of its new cars, by tapping the existing customers of its rival brands. In June 2003, the government divested 25 per cent of its 45.6 per cent holding through an initial public offer. The shares of the company, of face value Rs 5 were priced at Rs 125 per share and were listed on stock exchanges in July 2003.

Marketing strategies

Maruti has tied up with SBI and its subsidiaries to offer loans at lower interest rates and for higher tenures to customers in the semi-urban and rural areas. The company aims to increase its sales volumes in these areas through this tie-up.

Exports

Maruti plans to export around 40,000 units of its car models in the current fiscal year. The majority of these exports will be of the Alto model, which the company exports to some European countries.

Product positioning

By reducing the price of the Alto 800 cc in the domestic market by to below Rs 3 lakh, Maruti has positioned it between the mini and compact segments. The company expects that this move will increase volumes of the Alto, as many first time buyers can directly buy it.

Key Issues Financials

To retain its dominant position in all segments of the car industry by launching new models at competitive prices and at regular intervals. Maruti posted a marginal increase in net sales from Rs 93,989 million in 2001-02 to Rs 94,260 million. However, the aggressive cost reduction undertaken by the company has increased the the profit before tax from 1,183 million in 2001-02 to Rs 2,821 million. Consequently, net profits increased by 40 per cent from Rs 1,045 million in 2001-02 to 1,464 million.

Future plans

Suzuki plans to make the Maruti plant in India its R&D hub for the Asian region (excluding Japan). The Indian plant will have full model change capability by 2006-07 and will also play an important role in localisation and development of components. It will also help in the development of vehicles running on alternative fuels such as CNG and LPG. Maruti plans to launch at least two models the Liana in the mid-size segment and the Ignis in the compact segment in the second half of the current fiscal. The Liana is likely to be priced in the range of Rs 6-8 lakh and the Ignis in the range of Rs 4-6 lakh.

Cost cutting

Maruti has launched its second VRS for its employees at all levels. The VRS will be offered in two phases during the current financial year. The company plans to reduce its labour costs by rationalising its workforce through this initiative. Maruti has reduced the number of its vendors by over 20 per cent from 370 to 300 during the past three years. The company expects to reduce its raw material procurment costs significantly due to this initiative.

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Tata Motors Ltd


Equity holding Capacity Plant location Model (launch) Cars Total volume (2002-03) UV Total volume (2002-03) Player actions 24,881 units In September 2003, Tata Motors launched the petrol version of the Safari. The model is Aggregate market share (per cent) 2002-03: 14.68; Apr-Aug 03: 14.19 79,062 units Aggregate market share (per cent) 2002-03: 14.45; Apr-Aug 03: 16.29 Publicly listed 160,000 units per annum Pune (Maharashtra) Sierra (1994), Sumo (1994), Safari (1994), Indica (1999), Indigo (2002)

Chart 12

powered by a 2.1 litre petrol engine and is priced at Rs 9.35 lakh for the two-wheel drive and Rs 10.22 lakh for the four-wheel drive. In December 2002, Tata Motors entered the mid-size segment by launching the Indigo with petrol and diesel variants. The petrol variant is priced in the range of Rs 4.35 - Rs 4.95 lakh, whereas the diesel variant is priced in the range of Rs 4.8 to Rs 5.2 lakh. Marketing strategies Product positioning Tata Motors plans to penetrate the rural and semi-urban market by selling soft top variants of the Sumo. It also plans to increase its sales to institutions and defence establishments. Tata Motors has launched a luxury variant of its SUV, the Safari, in order to position itself in the league of higher end SUVs such as the Honda CRV and the Chevrolet Forrester. The new high end variant is fitted with better braking system, mounted AC and improved interiors and costs Rs 40,000 more than current variants. Key Issues To maintain its dominant position in the compact segment (diesel), by successfully competing with other diesel cars from the compact segment such as the Palio diesel and Zen diesel models. To launch new UV models at competent prices in order to compete with new models like the Scorpio from M&M, the improved variant of the Toyota Qualis and the GM Panther, which is expected to be launched in the second half of 2003-04. Export Tata Motors has started exporting the Indica to Rover MG of UK, which will sell the same in UK under the CityRover brand from November 2003 onwards. Tata Motors will be exporting around 1,00,000 units of Tata Indica to Rover MG over a five year period. Tata Motors has entered into an agreement with Phoenix Holdings, the parent company of Rover MG, for the distribution of the Safari, the 207 Di pick-up vehicle and auto components for Tata products in the UK. Financials The company's operating income increased 22 per cent Rs 73,352 million in 2001-02 to Rs 89,630 million in 2002-03. Operating margins improved drastically from 6.8 per cent in 2001-02 to 11.6 per cent . As a result, the company posted a net profit of Rs 2,917 million as compared to a net loss of Rs 12,437 million in 2001-02. Future plans Tata Motors is planning to launch the station wagon version of the Indigo in the second half of the current fiscal. The model will be available in both the diesel and petrol versions. Tata Motors is planning to develop a new platform for its utility vehicles and passenger cars and will launch from this platform over the next three years. Cost cutting Tata Motors has undertaken aggressive cost-cutting initiatives by rationalising its vendors and reducing its workforce over the last three years, which has resulted in its operating margins

increasing from 3.7 per cent in 2000-01 to 11.6 per cent in 2002-03. Others In order to shield itself from the cyclicality of the auto and commercial vehicle demand, Tata Motors has decided to increase its revenues from non-cyclical businesses like the sale of spares, castings, engines for non-auto applications, and downstream products. Compiled by CRIS INFAC

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Toyota Kirloskar Motors Ltd


Equity holding Capacity Plant location Model (launch) Cars Total volume (2002-03) UV Total volume (2002-03) Player actions 28,349 units Aggregate market share (per cent) 2002-03: 16.72; Apr-Aug 03: 16.17 1,761 units Aggregate market share (per cent) 2002-03: 0.32; Apr-Aug 03: 1.62 Toyota Motor Corporation, Japan (99 per cent), Kirloskar Group (1 per cent) 50,000 units per annum Bidadi (Karnataka) Qualis (1999), Camry (2002), Corolla (2003)

Chart 13

In February 2003, Toyota launched its Corolla model in the domestic market in the executive segment.The model is available only in a petrol variant, and its base version is priced at Rs 9.75 lakh while the high-end version is priced at Rs 11.95 lakh (ex-showroom, Mumbai).

Product positioning

To meet the competition from the Scorpio, Toyota is trying to position the Qualis as a family vehicle to lure potential customers of the mid-size segment. Towards the same, it has launched a limited edition of the Qualis, with improved features, in September 2003.

Key Issues

To maintain its share in the Indian utility vehicle market in the face of competition from the Mahindra Scorpio and General Motors' to-be-launched MUV, the Panther, by launching new models to replace the Qualis. The company should also increase its volumes in the passenger car segment, by entering the high volume compact car segment.

Financials

Toyota has posted a turnover of Rs 17,690 million and a net loss of Rs 230 million in the calendar year 2002. The company plans to increase its topline to Rs 27,000 million and post a net profit of Rs 670 million in 2003, on the back of the recent launches of the Toyota Camry and Corolla in the passenger car segment. The company has accumulated losses to the tune of Rs 1,690 million which it hopes to recover by 2006.

Future plans

The company is planning to set up an engine assembly facility in India for the Qualis and Corolla models. Currently, the company imports the engines for the Qualis from Thailand and for the Corolla from Japan. Toyota is planning to launch a new utility vehicle to replace the Qualis by 2005. The company plans to source the engine and gearbox of the new model from its production facilities to be set up in Bangalore. Toyota is planning to enter the small car segment in 2005 by launching either the Yaris or the Toyota Vitz in the domestic market. It is also looking at a model from the small car portfolio of its associate company, Daihatsu. Toyota is planning to invest around Rs 2,000-Rs 3,000 million to increase its capacity from the current 50,000 units to 75,000 units over the next two years to meet the increase in demand and enter the small car segment.

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SkodaAuto India Pvt Ltd


Equity holding Capacity Plant location Model (launch) Total volume (2002-03) Product positioning SkodaAuto, Czechoslovakia (100 per cent) 10,000 units per annum (assembly) Aurangabad (Maharashtra) Octavia (2001) 5,499 units

Chart 14

Aggregate market share (per cent) 2002-03: 1.01; Apr-Aug 03: 0.83 SkodaAuto has positioned its Octavia model, both diesel and petrol, in the Rs 10 - Rs 11 lakh bracket, making it one of the cheapest premium segment models in India.This has helped it ramp up its volume sales and grab the highest market share in the premium cars segment. Key Issues To increase the presence in the Indian market by introducing more products. To increase the local content by sourcing more from the local suppliers, thereby reducing the cost of manufacture. Exports Future plans The company is planning to export the Octavia to Nepal, Sri Lanka and Thailand from its Aurangabad plant. SkodaAuto India Ltd is expected to inaugurate its new assembly plant at Aurangabad in Maharashtra in February 2004. The company had to accelerate the setting up of its assembly plant to enable the assembly of its models from CKD kits, after the import duty on SKD kits was increased to 60 per cent in the Union Budget 2003-04. Earlier, the company used SKD kits to assemble the Octavia models in India. SkodaAuto India is likely to launch the Superb model in March 2004 and the Lawrence and Klement model in April 2004 in the domestic market. The Superb is likely to priced at Rs 14 lakh, whereas the L&K may be priced in the range of Rs 20 to 22 lakh. SkodaAuto is planning to enter the pre-owned car business under the brand name Skoda Signature in the last quarter of 2003-04. Initially, the company will only purchase its own second hand cars and exchange them for new models. However, later on, it will also start accepting used cars of other brands. Cost cutting SkodaAuto India is planning to increase the localisation content of its model, Octavia, to reduce the cost of manufacture. The company has initiated negotiations with Indian component suppliers to source components provided they meet stringent quality standards. Compiled by CRIS INFAC

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6.0

International players
Table 1
2000 2001 2002

General Motors
(in $ million) Financial data Operating revenues (OR) Automotive, communication and others Finance and insurance Operating profits Automotive, communication and others Finance and insurance Operating margins Automotive, communication and others Finance and insurance Net profits / (losses) Automotive Financial services Total assets Debt to Equity ratio Automotive, communication and others Financial and insurance Selling, general administration exps (as % of OR) R&D expenses (as % to OR) Average number of employees Sales (units in '000) North America Cars Trucks Total Europe Cars Trucks Total Latin America and the Middle East Cars Trucks Total Asia-Pacific Cars Trucks Total Market share (per cent) Global North America South America Europe Asia - Pacific 15.1 27.5 20.4 9.3 3.7 15.0 27.6 22.4 9.1 4.0 175 283 458 202 258 460 438 196 634 463 203 666 1,744 135 1,879 1,666 94 1,760 2,933 2,842 5,775 2,441 2,746 5,187 0.2 4.4 12.1 3.6 390,000 0.5 7.7 13.1 3.5 378,000 2,839 1,613 303,100 (1,167) 1,768 322,412 3.8 44.3 (0.1) 38.9 6,078 10,638 (172) 10,037 160,627 24,005 151,491 25,769

159,737 27,026 194 9,601 0.1 35.5 (146) 1,882 370,782 2.5 26.9 12.6 3.1 358,000

2,547 3,174 5,721 1,545 100 1,645 443 197 640 185 220 405 14.9 28.0 23.8 8.7 4.2

Continued...
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...continued

(in $ million) Affiliates (with % stake in GM) Fiat Suzuki Isuzu GM Daewoo Fuji Heavy Industries Shanghai General Motors Co Ltd Jinbei General Motors Automotive Co Ltd SAIC-GM Wuling Automobile Co Ltd Main models

2000

2001

2002 20.0 20.0 48.5 67.0 21.0 50.0 50.0 34.0

Opel, Vauxhall, Holden, Isuzu, Saab, Buick, Chevrolet, Cadillac, Hummer Expansion plans GM China plans to invest around $ 240 million to double the capacity of its joint venture plant with Shanghai Automotive Industry Corp to 200,000 units by 2005. Key issues In 2002, the worldwide pension deficit of GM touched $ 25.4 billion. The company has announced sale of $ 12 billion in bonds to plug this deficit. It also completed the sale of its defence unit in the first quarter of 2003 for $ 1.1 billion and agreed to sell a 20 per cent stake in its satellite communication company, Hughes Electronic Corporation to NewCorp for $ 3.8 billion. However, over the long term, the company will have to meet this liability by generating cash internally by selling higher volumes of its passenger cars and light trucks. In addition, to succeed in the US market, the company will have to sustain the incentive war, by constantly lowering its costs and introducing new models. In September 2000, the European parliament passed a directive requiring member states to adopt a legislation stating that car manufacturers would be financially responsible for at least a portion of the cost of taking back vehicles placed in service after July 2002 and of all vehicles placed in service prior to July 2002 that are still in operation in January 2007. If most European nations adopt the above legislation, the company's net profits will be adversely affected in the short- to medium-term. Compiled by CRIS INFAC

Ford Motors
(in $ million) Financial data Operating revenues (OR) Automotive division Financial services Operating profits / (losses) Automotive division Financial services Operating margins Automotive division Financial services 3.8 10.5 (5.7) 4.8 5,288 2,976 (7,395) 1,440 170,579 140,777 28,314 161,519 130,827 29,927 2000 2001

Table 2
2002 163,420 134,425 28,161 (531) 2,109 (0.4) 7.5
Continued...

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...continued

(in $ million) Net profits / (losses) Automotive division Financial services Total assets Debt to Equity ratio Automotive Financial services Selling, administrative and other exps R & D expenses R&D expenses (as % to OR) Average number of employees Sales (units in '000) United States Canada Mexico Europe Others Total Market share (per cent) USA Europe Mazda Changan Ford Main models

2000 1,681 1,786 283,390 0.6 4.7 23,721 6,800 4.0 352,360 3,947 280 175 2,003 568 6,973 23.7 10.0

2001 (6,267) 814 276,543 1.7 13.7 25,195 7,300 4.5 358,675 3,885 245 162 2,161 555 7,008 22.8 10.7

2002 (1,956) 976 295,222 2.4 19.1 25,150 7,700 4.7 350,321 4,486 300 147 1,882 609 7,424 21.1 10.9 33.4 50.0

Ford, Volvo, Lincoln, Mercury, Aston Martin, Jaguar, Land rover and TH!NK Expansion plans Ford has set up its first production facility in Russia with an intial investment of $ 150 million. This facility, which has a capacity of 25,000 units a year, will produce the Ford Focus. Ford plans to increase its capacity in its China joint venture from the current 50,000 units to 150,000 units in the short term. Key Issues The company is facing severe competition in its main market in the US as well as in Europe and is losing market share to Asian and European competitors in these markets. As a result, in 2002, the company's European and North American operations posted losses of $ 725 million and $ 278 million, respectively due to intense pricing pressures in these markets. The company has massive unfunded pension and retiree medical liabilities. At the end of 2002, Ford's worldwide unfunded pension liability increased to $ 15.6 billion from $ 2.5 billion at the end of 2001. Ford's unfunded retiree medical liability at the end of 2002 was higher at $ 27.4 billion. In the medium- to long-term, the company will have to generate cash flows from its automobile operations to fund these deficits.
Compiled by CRIS INFAC

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DaimlerChrysler Motors
(Euros in million) Financial data Operating revenues (OR) Mercedes Car Group Chrysler Group Commercial Vehicles Group Services Operating profits Mercedes Car Group Chrysler Group Commercial Vehicles Group Services Operating margins Mercedes Car Group Chrysler Group Commercial Vehicles Group Services Net profits / (losses) Total assets Debt to Equity ratio Selling, administrative and other exps R & D expenses R&D expenses (as % to OR) Average number of employees Sales (units in '000) Mercedes Car Group Western Europe NAFTA Japan Rest of the world Chrysler Group NAFTA Rest of the world Market share (per cent) Mercedes Group Western Europe USA Japan Chrysler Group Passenger cars USA Trucks USA Overall market share: USA & Canada Affiliates (with % stake in DaimlerChrysler) Mitsubishi Hyundai 7.3 20.9 14.4 6.6 19.0 13.2 14.6 6.7 9.7 14.7 7.0 10.8 2,858 187 2,570 186 788 221 43 103 839 229 48 113 4.9 0.7 4.1 14.0 7,894 199,274 1.99 18,303 7,395.0 4.6 441,720 6.2 (8.3) (1.8) 3.6 (662.0) 207,410 2.33 18,331 6,008.0 3.9 394,486 2,145 501 1,212 2,457 2,951 (5,281) (514) 612 43,700 68,372 29,804 17,526 47,705 63,483 28,572 16,851 2000 2001

Table 3
2002

50,170 60,181 28,401 15,699 3,020 609 (343) 3,060 6.0 1.0 (1.2) 19.5 4,718 187,327 2.26 18,293 6,156.0 4.1 369,021

836 232 47 118 2,651 172

15.1 8.5 9.0 6.6 18.4 13.0 37.1 10.5

Continued...

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...continued

(Euros in million) Main models

2000

2001

2002

Mercedes, Smart, Maybach, Dodge, Chrysler, Setra, Jeep, Freightliner, Western Star Trucks Key Issues The intense competition in the US and European markets, coupled with a drop in sales has resulted in price wars, which has adversely affected realisations. As a result, the financial performance of the Chrysler Group has suffered, with DM's North-American heavy duty truck unit registering large losses. Consequently, in the second quarter of 2003, the Chrysler group posted an operating loss of $ 948 million. Compiled by CRIS INFAC

Volkswagen
(Euros in million) Financial data Operating revenues (OR) Automotive Financial services Operating profits Automotive Financial services Operating margins by division Automotive Financial services Net profits / (losses) Total assets Debt to Equity ratio Distribution expenses R&D expenses (as % to OR) Average number of employees Sales (units in '000) Western Europe Eastern Europe North America South America/ South Africa Asia Pacific Rest of the world Market share (per cent) Global North America South America/ South Africa Eastern Europe Western Europe Asia - Pacific China Japan 12.2 6.3 23.1 14.0 18.7 5.3 53.2 26.5 12.4 6.6 22.7 14.8 18.9 5.4 50.1 27.3 3,000 300 657 535 430 141 2,978 328 669 555 461 88 4.5 8.6 2,614 92,565 1.6 7,080 4.8 315,339 6.1 6.4 2,926 104,424 1.8 7,554 3.0 324,413 3,473 551 4,872 552 76,700 6,427 79,966 8,574 2000 2001

Table 4
2002

77,489 9,459 4,040 721 5.2 7.6 2,597 108,996 1.9 7,560 3.3 323,865 2,827 322 663 477 621 73 12.1 6.7 20.4 14.2 18.4 6.4 42.0 28.0

Continued...
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(Euros in million) Affiliates (with % stake in VW) Audi AG, Germany Skoda, Czech Republic FAW-Volkswagen Shanghai-Volkswagen Scania, Sweden Main models

2000

2001

2002 99.1 100.0 40.0 50.0 18.7

Golf, Passat, Polo, Lupo, New Beetle, Bora, Sharan and Phaeton Expansion Plans The VW Group plans to double its capacity in China from the current 800,000 units to 1.6 million in the next five years by investing around 6 billion euros. From 2003-07, Volkswagen is expected to invest around 33 billion euros for developing new models and for capacity expansions. Around 67 per cent of this investment is expected to be made in the company's German operations. Key Issues Sluggish markets in North America and Europe, heavy capital expenditure and product launch costs may affect the profitability of the company. Compiled by CRIS INFAC

Fiat Group
(Euros in million) Financial data Group Operating revenues (OR) Operating profits Operating margins Net profits / (losses) Automobile division Revenues Operating profits Operating margins Total assets Debt to Equity ratio Advertising costs R&D expenses (as % to automotive division revenues) Average number of employees Sales (units in '000) Italy Europe (excluding Italy) Brazil Poland Rest of the world Market share (per cent) Italy Western Europe Brazil Poland 35.4 4.9 27.6 26.8 34.6 4.6 28.5 23.2 969 718 362 133 168 825 631 416 76 144 25,361 44 0.2 95,755 2.4 1,147 3.1 230,544 24,440 (549) (2.2) 100,749 2.9 1,185 3.6 214,172 57,555 855 1.5 664 58,006 318 0.5 (445) 2000 2001

Table 5
2002

55,649 (762) (1.4) (3,948) 22,147 (1,343) (6.1) 95,521 4.3 1,106 3.9 190,405 759 543 358 61 139 30.2 4.0 25.8 17.7

Continued...

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...continued

(Euros in million) Main models

2000

2001

2002

Marea, Stillo, Siena, Doblo, Punto, Palio, Panda, Barchetta, Ducato, Strada Affiliates (with % stake in Fiat) General Motors Expansion plans The company plans to reopen its plant at Sicily, Italy after buoyant demand for its restyled Punto. Key Issues Fiat's automotive division has been suffering operational losses due to a fall in its sales volumes on account of intense competition. The group has initiated plans to improve the company's operational and financial condition. Further, the company has signed an agreement for the sale of its aerospace activities and has carried out a rights issue of 1.8 billion euros to reduce its high debt burden. Compiled by CRIS INFAC 5.9

Toyota Motors
(Yen in billion) Financial data Operating revenues (OR) Automotive Financial services Operating profits Operating margins Net profits / (losses) Total assets Debt to Equity ratio Selling, general and administrative exps R & D expenses R&D expenses (as % to AR) Average number of employees Sales (units in '000) Japan North America Europe Other regions Market share (per cent) Japan North America Europe Affiliates (with % stake in Toyota) Daihatsu Motors Co Ltd, Japan Hino Motors Ltd, Japan Tianjin Toyota Motor, China Sichuan Toyota Motor, China Main models 2000 12,650 10,944 534 696 5.5 482 16,441 0.3 1,709 442 4.0 na 2,178 1,689 634 682 42.2 8.3 2.9 2001 13,137 11,591 571 791 6.0 675 17,020 0.3 1,700 476 4.1 215,648 2,323 1,734 691 779 43.1 8.7 3.3

Table 6
2002 14,317 13,067 698 1,088 7.6 557 19,306 0.4 1,890 589 4.5 246,702 2,217 1,780 727 818 42.2 9.4 3.4 51.3 50.2 50.0 45.0

Celica, Matrix, Camry, Corolla, Avalon, Prius, Lexus, Land Cruiser, RAV4Highlander Expansion plans By 2005, the company plans to increase its capacity in China by 100,000 units to manufacture models such as Crown and Corolla sedans as well as the Land Cruiser SUV. The company plans to invest around $ 800 million to set up a fresh capacity of 150,000 units by 2006 to manufacture the Tundra pick-up truck. na: Not available Compiled by CRIS INFAC

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Honda Motors
(Yen in billion) Financial data Operating revenues (OR) Motorcycle business Automobile business Financial services Operating profits Motorcycle business Automobile business Financial services Operating margins Motorcycle business Automobile business Financial services Net profits / (losses) Total assets Debt to Equity ratio Selling, general administration exps R & D expenses R&D expenses (as % to OR) Average number of employees Japan North America Europe Others Main models Accord, Civic, City, CR-V, Passport, Acura, Insight Expansion plans 6.6 7.0 13.2 262 4,898 0.43 1,133 334 5.5 112,300 706 1,295 249 223 7.0 6.1 18.2 232 5,667 0.53 1,147 353 5.5 113,350 776 1,346 191 267 47 348 18 56 320 31 719 4,961 137 805 5,231 169 2000 2001

Table 7
2002

948 5,930 202 70 521 45 7.3 8.8 22.3 363 6,941 0.52 1,292 395 5.4 117,450 878 1,368 176 244

Honda has planned an investment of RMB 1,032 million to expand its annual production capacity in China to 50,000 units in 2004. Compiled by CRIS INFAC

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