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A COMPREHENSIVE PROJECT – 1 Entitled On “AUTOMOBILE INDUSTRY (TWO - WHEELER)”

Submitted to

Anand Institute of Management
Affiliated to SARDAR PATEL UNIVERSITY, V.V.NAGAR In Partial Fulfillment of the Requirement of the Award for the Degree of

MASTER OF BUSINESS ADMINISTRATION Under the Guidance of
Dr. N.N.Patel Shri G.B.Dave

Presented by Students’ of M.B.A Semester-III
Patel Jigar R. Samtani Manoj Parmar Sunil Patel Urvesh 32 43 66 70

ANAND INSTITUTE OF MANAGEMENT
M.B.A PROGRAMME OPP. TOWN HALL, NR.GRID, ANAND December 2005

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PREFACE
As a part of the curriculum of the second Year of MBA Programme of the Sardar Patel University, the students are required to undergo project work in addition to their theoretical study so as to enable them to have the knowledge of the practical aspect of the Business Administration. As students of management it is learning experience to analysis an industry. It is the most essentials tools for us to expose our skill as a future responsible managerial post. So, we decided to Automobile Industry (Two - Wheeler). It helps us to develop our skill & confidence to do better in all respect in management fields. The project work is required to be undertaking where we get the opportunity to know about the real information of the area we have selected, which altogether different from theory. The report contains the detail information about TwoWheeler and all the information, which is important for management student.

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Finally we are thankful to our parents and Lord Almighty without whose blessings tasks are incomplete. We are thankful to all our batch mates. Sinha for her valuable help and support.ACKOWLEDGEMENT This report has been submitting in partial fulfillment of the requirement of the award of MBA (Full Time Programme) from Anand Institute of Management. Anand and Dr N. AIM) and Mr. We take this opportunity to thank Anand Institute of Management. Dave for giving us Valuable Guidance and providing facilities to successfully complete our CP-I. We are highly indebted to Mrs. Samtani Manoj Parmar Sunil Patel Urvesh 4 . we need the support of many people right from the stage of conceiving the idea to completion of report. Patel Sir (Hon. Discussions with friends also have served to provide sought after information. Govind B. N. Kunjal A. Director. It is a universal fact that for study of a project in depth. We are also grateful to other faculty members of Anand Institute of Management for their support whenever required. Patel Jigar R. Anand. It is difficult for a single person to do the job efficiently without interaction & involvement of others.

if any. PARMAR SUNIL. “PATEL JIGAR.DECLARATION We.I” entitled on “Automobile Industry (Two . have been duly acknowledged.Wheeler) ” is a result of our own work and indebtedness to other work publications. PATEL URVESH” hereby declare that the report on “Comprehensive Project . SAMTANI MANOJ. Place: Anand Date: 05/01/2006 Patel Jigar Samtani Manoj Parmar Sunil Patel Urvesh .

01 09 14 22 28 40 54 77 89 95 6 . 1 2 3 4 5 6 7 8 9 10 Particulars Evolution and Growth of Industry in India Product Profile Demand Determinants in the Industry Players in the Industry Distribution Channel in the Industry Key Issues and Trends PESTEL Analysis Industry Analysis using Porter’s Five Force Model Future outlook Conclusions/Suggestions Page No.TABLE OF CONTENT Preface Acknowledgement Declaration Executive summary Objectives of the Study Sr. No.

NO. PARTICULARS 1 2 3 4 5 6 7 8 9 10 11 12 13 Two-Wheelers: Comparative Characteristics Production report Income of target customer Existing Duty Structure Domestic Sales Flash Report Delivery time for different region Cost Structure of Two Wheeler Industry Two-Wheeler Exports from India Company wise two-wheeler exports Growing Prosperity Economic Highlights of India Demand Forecast for Motorcycles and Scooters Projected Export Turnover TABLE NO.Annexure Bibliography LIST OF TABLES SR. 1 2 3 4 5 6 7 8 9 10 11 12 13 PAGE NO. 9 10 15 20 23 39 46 51 52 68 70 91 94 7 .

1 2 6 8 8 8 13 22 33 35 43 47 48 66 8 . 1 2 3 4 5 6 7 8 9 10 11 12 13 14 PARTICULARS Gross Turnover of Automobile Industry Segmentation of Automobile Industry Segmental Growth of the Indian Two Wheeler Industry Demand for Motorcycles. Mopeds & Scooters Changing Scenario In Two Wheeler Industry Shares of Two-Wheeler Manufacturers in Industry Sales 2003 India Dealer Satisfaction Study 2004 DSS Ranking TCS Study Ranking Chart Segmental Classification and Characteristics Trends in Segmental Share in Industry Sales Regional Two Wheeler Market Share GRAPH NO. Mopeds & Scooters Change in status within Two-wheeler Industry Annual Growth in Demand for Motorcycles.NO.LIST OF GRAPHS SR. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 PAGE NO.

1 2 3 4 5 PAGE NO.NO. 29 30 31 37 72 9 . 1 2 3 4 5 PARTICULARS A three-wheeled business Channel Structure Competitive Model for Automobile Dealer Grid Analysis Regulatory Framework DIAGRAM NO.LIST OF DIAGRAMS SR.

CHAPTER 1 EVOLUTION AND GROWTH 10 .

1998. It employs 4. three-wheelers.AUTOMOBILE INDUSTRY In India. It has deep forward and backward linkages with the rest of the economy. 14 of Two/Three Wheelers and 10 of Tractors besides 5 of engines. This results in the auto industry being the driver of economic growth and India is keen to use it as a lever of accelerated growth in the country. the turnover was Rs.1999.00. tractors and related auto components. two-wheelers. It is one of the key sectors of the economy. has a strong multiplier effect.50.000 people directly and 100. the auto industry is one of the largest industries. With an investment of Rs. (in million) 800000 600000 400000 200000 0 1996. passenger cars.2000.200297 98 99 00 01 02 03 YEAR Source: SIAM 11 . The industry has shown great advances since deli censing and opening up of the sector to foreign direct investment (FDI) in 1993. The industry comprises of automobile and the auto component sectors and encompasses commercial vehicles. as in many other countries. multi utility vehicles. 59. 9 of commercial vehicles.1997.500 crores in Automotive Sector during 1999-2000.000 people indirectly Gross Turnover of Automobile Industry Graph: 1 Gross Turnover of Automobile Industry Rs. and hence.50.2001. There are in place 15 manufacturers of cars and multi utility vehicles.000 crores.

12 .90). Two-wheeler has maximum market share (78.44). There are mainly four segments Two-wheeler.63). Segmentation of Automobile Industry Graph: 2 Market Share 2004-05 4. Commercial Vehicles and Three Wheelers. Passenger Vehicles.90% Source: SIAM This graph shows the segmentation of Indian Automobile industry.63% Passenger Vehicle 13.This graph shows last few years’ scenario of Indian automobile industry with considering the gross turnover. Here we can see the rapid increment from the year 2000-01.03) and three Wheeler are at last with market share (3. commercial vehicles is at third place with market share (4. Passenger vehicles is at second place with market share (13.03% Commercial Vehicle Two-Wheeler Three-Wheeler 78.44% 3.

Finally. Bajaj Auto later overtook it. 13 . Ideal Jawa and Escorts. India is the second largest manufacturer and producer of two-wheelers in the world..000 2-wheelers. with only three manufacturers viz Enfield. inefficiency in the public transportation system etc. in 1960. The Indian two-wheeler industry made a small beginning in the early 50s when Automobile Products of India (API) started manufacturing scooters in the country. This distinction was achieved due to variety of reasons like restrictive policy followed by the Government of India towards the passenger car industry. Enfield 350cc bikes and Escorts 175cc bike initially dominated the motorcycle segment. The agreement expired in 1971.HISTORICAL DEVELOPMENT: EVOLUTION OF TWOWHEELER INDUSTRY IN INDIA. In 1948. The motorcycles segment was no different. It stands next only to Japan and China in terms of the number of two-wheelers produced and domestic sales respectively. India manufactures about 38. and mopeds. The two-wheeler industry (henceforth TWI) in India has been in existence since 1955. Although various government and private enterprises entered the fray for scooters. the only new player that has lasted till today is LML. it set up a shop to manufacture them in technical collaboration with Piaggio of Italy. It was a complete seller market with the waiting period for getting a scooter from Bajaj Auto being as high as 12 years. motorcycles. While Enfield bullet was a four-stroke bike. API dominated the scooter segment. scooters. foreign companies were not allowed to operate in India. 00. rising demand for personal transport. Bajaj Auto began trading in imported Vespa scooters and three-wheelers. It consists of three segments viz. Jawa and the Rajdoot were two-stroke bikes. Under the regulated regime. In the initial stages. API and Enfield were the sole producers. Until 1958.

The first Japanese motorcycles were introduced in the early eighties. who were earlier inclined towards moped purchases. TVS Suzuki and Hero Honda brought in the first two-stroke and fourstroke engine motorcycles respectively. towards buying scooters. all the major producers suffered from recession in FY93 and FY94. In line with this. 60s and 70s when the Government prohibited new entries and strictly controlled capacity expansion.were caught unaware by the onslaught of the 100cc bikes of the four Indo-Japanese joint ventures. Factors like increased production in 1992. And the then market leaders . demand swelled.Escorts and Enfield . In 1990. This resulted in a decline of 15% in 1991 and 8% in 1992. the entire automobile industry saw a drastic fall in demand. In the 90s. due to new entrants coupled with the recession in the industry resulted in company either reporting losses or a fall in profits. Barring Hero Honda. The industry had a smooth ride in the 50s.9mn vehicles in 1990. 14 .then the only producer of four stroke bikes (100cc category). The entry of Kinetic Honda in mid-eighties with a variometric scooter helped in providing ease of use to the scooter owners. The industry witnessed a steady growth of 14% leading to a peak volume of 1. The industry saw a sudden growth in the 80s. gaining a top slot. this trend was reversed with the introduction of scooters.The two-wheeler market was opened to foreign competition in the mid80s. Hero Honda showed a marginal decline in 1992. the scooter segment has consistently lost its part of the market share in the two-wheeler market. The reasons for recession in the sector were the incessant rise in fuel prices. resulting in a production loss of 0. This helped in inducing youngsters and working women. resulting in Hero Honda . With the availability of fuel-efficient low power bikes.4mn vehicles. high input costs and reduced purchasing power due to significant rise in general price level and credit crunch in consumer financing.

though the degree of concentration has been lessened over time.The share of two-wheelers in automobile sector in terms of units sold was about 80 per cent during 2003-04. choice of products including capacity mix and technology. and (c) usage of outdated technology. However. capacity expansion. 15 . This controlling mechanism over the industry resulted in: (a) several firms operating below minimum scale of efficiency. weaker players died out giving way to the new entrants and superior products and a sizeable increase in number of brands entered the market that compelled the firms to compete on the basis of product attributes. In the initial years. Monopolies and Restrictive Trade Practices (MRTP) and Foreign Exchange Regulation Act (FERA) were aimed at regulating monopoly and foreign investment respectively. the two-¬wheeler industry in the country has been able to witness a proliferation of brands with introduction of new technology as well as increase in number of players. with various policy measures undertaken in order to increase the competition. Amongst these policies. The lapses in the system had invited fresh policy options that came into being in late sixties. deregulation of the industry has not really resulted in higher level of competition. Finally. entry of firms. the major set of reforms was launched in the year 1991 in response to the major macroeconomic crisis faced by the economy. which ultimately took a more prominent shape with the introduction of the New Economic Policy (NEP) in 1985. effectively controlled all critical areas of functioning of an industry. Two major results of policy changes during these years in two-wheeler industry were that the. (b) under-utilization of capacity. Recognition of the damaging effects of licensing and fettering policies led to initiation of reforms. The industrial policies shifted from a regime of regulation and tight control to a more liberalized and competitive era. the State machinery. This high figure itself is suggestive of the importance of the sector. However.

with the year-on-year sales (volume) growth rate declining to 3% that year. The economic slowdown in FY1998 took a heavy toll of two-wheeler sales. After facing its worst recession during the early 1990s. However.436 units of two-wheelers were sold in the country in 9MFY2005 with 256.613.765 units exported. 4. The total two-wheeler sales of the Indian industry accounted for around 77. sales picked up thereafter mainly on the strength of an increase in the disposable income of middle-income salaried 16 . the momentum could not be sustained and sales growth dipped to 20% in FY1996 and further down to 12% in FY1997.GROWTH OF TWO WHEELER INDUSTRY In terms of volume. Segmental Growth of the Indian Two Wheeler Industry (FY1995-2004) Graph: 3 Source: ICRA Sectoral Analysis .Jan 2005 Graph: 3 presents the variations across various product sub-segments of the two-wheeler industry between FY1995 and FY2004.5% of the total vehicles sold in the period mentioned. the industry bounced back with a 25% increase in volume sales in FY1995. However.

the overall two-wheeler sales increased in FY2002. share and annual growth during the period 1993-94 through 2003-04. this phenomenon proved short-lived and the two-wheeler sales declined marginally in FY2001. In 2003-04. 17 . higher access to relatively inexpensive financing. the share of scooters was about 50 per cent of the total 2-wheeler demand in the Indian market. the scooter and moped segments faced de-growth. This was followed by a revival in sales growth for the industry in FY2002. The composition of the two-wheeler industry has witnessed sea changes in the post-reform period.6 depicting total sales. Healthy growth in two-wheeler sales during FY2004 was led by growth in motorcycles even as the scooters segment posted healthy growth while the mopeds continued to decline.people. Although. Nevertheless.5. the share of motorcycles increased to 78 per cent of the total two-wheelers while the shares of scooters and mopeds declined to the level of 16 and 6 per cent respectively. Motorcycle and moped had been experiencing almost equal level of shares in the total number of twowheelers. In 1991. and increasing availability of fuel efficient two-wheeler models. FY2003 also witnessed a healthy growth in overall two-wheeler sales led by higher growth in motorcycles even as the sales of scooters and mopeds continued to decline. A clear picture of the motorcycle segment's gaining importance during this period is exhibited by the Graph 4.

Source: ICRA Sectoral Analysis .Jan 2005 18 .

CHAPTER 2 PRODUCT PROFILE 19 .

125. Besides. scooterettes. 60 Kick/Electronic 7-8 and above > 100 50-80+ Highest Kick/Electronic 2-3 60-70 70-80 Low Fuel Efficiency (kms per litre) 50-75 Source: ICRA Sectoral Analysis . Examples include 125cc motorcycles. etc. in response to evolving demographics and various other factors. gearless scooters. 100-125 cc gearless scooters. these prominent sub-segments.000 Moped > 12.000 Mainly 4-stroke 2-stroke 100. 4-stroke 90-150 Kick/Electronic 6. the introduction of 4-stroke scooters has followed the imposition of stringent pollution control norms in the early 2000. However. > 125 50. product groups within these sub-segments have gained importance in the recent years. viz. motorcycles and mopeds.5-9 90-100 High Motorcycle > 30.Jan 2005 PRODUCTION OF DIFFERENT COMPANIES DURING MAY-2004 TO JAN2005 20 . and 4-stroke scooters. The characteristics of each of the three broad segments are discussed in Table 1. as in January 2005) Stroke Engine Capacity (cc) Ignition Engine Power (bhp) Weight (kg) Load Carrying > 22.PRODUCT PROFILE The three main product segments in the two-wheeler category are scooters. other sub segments emerged. While the first two emerged as a response to demographic changes.000 2-stroke. Two-Wheelers: Comparative Characteristics Table 1 Scooter Price (Rs.

The table given below shows the production of different companies during May-2004 to Jan-2005 according to different engine capacity for motorcycle. Jun 2004 Jul 2004 Aug 2004 Sep 2004 Oct 2004 Nov Dec 2004 2004 Jan 2005 Two Wheelers A: Scooter/Scooterette Wheelsize not over 12" A1: Engine capacity <75 cc Bajaj Auto 1792 Kinetic Engg 1604 LML 0 TVS Motor 6465 Total 9861 A2: Engine capacity 75-125 cc Bajaj Auto 50 HMSI 28580 Kinetic Engg 4712 LML 0 Majestic Auto 157 TVS Motor 11294 Total 44793 A3: Engine capacity 125-150 cc Bajaj Auto** 9316 HMSI 8250 2045 2800 0 8950 13795 5105 3635 0 9078 17827 2703 2880 0 7329 12912 2788 3650 0 6949 13387 5132 3020 0 8576 16728 2840 3200 0 6093 12133 744 2832 0 4800 8376 996 2268 0 3447 6711 1113 29690 6820 0 251 13402 51276 2031 32960 5820 0 368 14304 55483 3305 34170 6380 0 213 13710 57778 3714 34001 6890 0 152 13513 58270 3524 31681 6680 0 79 14394 56358 954 31722 6850 0 140 12586 52252 1678 31679 5682 0 66 14439 53544 1320 31851 5282 0 0 12660 51113 6687 8130 7061 8100 7496 8500 7704 8750 4849 9602 2777 9616 5568 8050 6443 9600 21 . Production report Table: 2 Category May Segment/Subsegme 2004 nt Manufacturer. scooter and moped segments.

LML 2080 TVS Motor 0 Total 19646 Total A 74300 B: Motorcycle/StepThrough: Wheel size more than 12" B1: Engine capacity <75 cc Bajaj Auto 1640 B2: Engine capacity 75-125 cc Bajaj Auto 72802 Hero Honda 200940 Kinetic Engg 3446 LML 6638 Majestic Auto 725 TVS Motor 33654 Yamaha Motor 19155 Total 337360 B3: Engine capacity 125-250 cc Bajaj Auto 20852 Hero Honda 9384 HMSI 0 LML 5051 TVS Motor 3212 Yamaha Motor 2757 Total 41259 B4: Engine capacity over 250 cc Royal Enfield 1915 Total B 382174 C: Mopeds: Engine capacity <75 cc. wheels over 12" Kinetic Engg 3373 Majestic Auto 6433 TVS Motor 19884 2554 0 17371 82442 2957 0 18118 91428 1929 0 17925 88615 2654 0 19108 90765 2293 0 16744 89830 1616 0 14009 78394 2850 0 16468 78388 2289 0 18332 76156 1110 1793 2077 1256 1653 1389 1202 1536 72412 190412 3800 5550 735 38040 13140 324089 76154 197480 2599 5402 632 38715 11373 332355 81654 175785 3256 5223 548 53458 9051 328975 98310 210692 4620 6671 530 44190 10037 375050 111171 228550 3538 9383 157 65732 12984 431515 103262 220151 3420 5400 1 49260 12574 394068 100833 223595 3280 7136 0 0 14773 349617 92382 221372 2890 4850 0 47483 16046 385023 23595 10655 0 3500 3778 5790 47318 27155 13666 0 598 4050 9186 54655 19440 14271 0 185 2649 7644 44189 20010 14288 3150 152 15022 9110 61732 49068 11801 5603 880 3607 7036 77995 34467 11870 8401 24 12291 5237 72290 41545 9092 9006 280 4835 2729 67487 57967 10173 11400 0 10398 4475 94413 2227 2601 2525 2500 2531 2601 2875 2565 374744 391404 377766 440538 513694 470348 421181 483537 2222 2129 2304 2820 2820 2620 2820 2350 6797 6117 5800 5157 860 3258 3699 2983 21665 25338 24572 23227 21900 26579 24321 17982 22 .

Total C 29690 30684 33584 32676 31204 800656 25580 30840 23315 Total of TW category 486164 487870 516416 499057 562507 562507 731419 530409 583008 Source: SIAM Please Refer Annexure –2 for Product Profile of Companies 23 .

And the remaining has decrease in the market share. Similarly there is increment in the market share of ungeared scooters from 7% to 12%. 24 . There is rapid increment in the demand of the motorcycle from 35% to 77% between 1998-99 to2003-04.Changing Scenario in Two wheeler industry GRAPH: 7 Source: Analyst meets 2003 of TVS motor company From the above graph we can see the changing scenario of Indian Two wheeler industry.

CHAPTER 3 DEMAND DETERMINANTS 25 .

especially in the semi-urban and rural areas. Increasing urbanization. Difference between two-wheeler and passenger car prices. The key demand drivers for the growth of the twowheeler industry are as follows:         Inadequate public transportation system. Changes in the demographic profile. which creates a need for personal transportation. which makes two-wheelers the entry level vehicle. While the demand drivers listed here operate at the broad level. Steady increase in per capita income over the past five years. and Increasing number of models with different features to satisfy diverse consumer needs. Increasing availability of fuel-efficient and low-maintenance models.DEMAND DRIVERS The demand for two-wheelers has been influenced by a number of factors over the past five years. Price factor is main determinant of the demand. segmental demand is influenced by segment-specific factors. Price of different company Price of different model of different manufacturers is shown in Annexure1. 26 . Increased availability of cheap consumer financing in the past 3-4 years.

that is) 27 . In the income group above this. giving rise to a more than expected (based on the usual GDP growth figures.000 and Rs.000 p. And in the Rs. around 29 per cent owned motorcycles. that is those earning between Rs. 2-5 lakh income earning households. Income of target customer Table: 3 Rapid rise in incomes Per cent of Two-wheeler in each income group that own product Income in Rs. 90. that just two per cent of those with a family income of less than Rs. their consumption habits change dramatically. then. Naturally. 2 lakh a year. the number owning motorcycles is as high as 15 per cent. owned a motorcycle in 2001-02.a. as families move up the income ladder. '000 Less than 90 90-200 200-500 500-1000 1000-2000 2000-5000 5000 and above All India Source: NCAER Scooters 3 20 30 32 24 23 22 8 Motor-cycles 2 15 29 34 35 44 56 7 The same is true of most other categories.INCOME OF TARGET CUSTOMER Different companies target their target customer group according to their income group and thus the total demand is determine according to income group. 90. The table: 4 show.

000 per annum.surge in demand. around 0. there were only 160 motorized two-wheelers per thousand households in FY98. In case of some special schemes like the 0% interest and low down payment scheme. so there is good market for two-wheeler in India. PROMOTIONAL SCHEME Different companies provide different promotional scheme to push-up their sales and attract the customer. Those earning over Rs. 2-10 lakh in 1995-96.7 per cent by the end of the decade. This compares poorly with countries like Thailand where it is around 600 per thousand households.2 per cent of the population in 2001-02. the potential for a second vehicle demand is also good. PENETRATION OF TWO-WHEELERS On a base of around 28mn vehicles on Indian roads and around 175mn households. Post-liberalization (ie FY92 to FY96) Indian households have graduated to higher income groups. (one such was run by Bajaj Auto where the down payment was only Rs999) sales of two-wheelers increased by up to 70% of total sales Support services provided to the customers by various companies 28 .5 persons and more than one wage earner in about 60% of the households. this fell to 72 per cent in 2001-02 and will further fall to 51 per cent by the end of the decade. Just three per cent of families earned between Rs. Also with a household size of 5. this doubled by 2001-02 and is forecast to rise to 13 per cent by the end of the decade. 80 per cent of Indian families earned less than Rs 90. 10 lakh. In 1995-96. will rise to 1.

3 paid services and 1-year warranty for engine. 1-year warranty for engine. Bajaj Auto  3 free services. 1-year warranty for engine in case of 'CD 100'. 1-year warranty for engine in case of scooters. 1-year warranty for engine in case of 'Caliber'. 1-year warranty for engine. LML  3 free services. Sales pattern through out the year 29 .Hero Honda  6 free after sales services.  3 free services. 1-year warranty for engine. Escorts Yamaha  3 free services. 1-year warranty of engine in case for 'Splendor' and 'CBZ'  3 free services. Kinetic Motor  3 free services. Today almost all dealers have the facility of a mobile service in case of a breakdown on the road. TVS Suzuki  3 free services.

b) Because of religious reasons (Shraddh) in the month of August. especially Dusshera and Diwali or at the time of the marriage ‘season’. the sales are high. c) People don’t prefer to purchase vehicles during the rainy season. 30 . July and August and also during the second half of December. 000.  Special service discounts at all authorized Hero Honda Dealerships/Service Centers.  Invitation to events such as movie shows. customers have to pay Rs95 as registration charges. At the time of festivals. New policies launched by different companies A Company has launched a new policy – "Passport Programme" for its customers. In this policy. The reason given for slump were a) In summers.There was consent at the opinion that there is a slump in June.  Diwali special offer  Navratri special offer etc. musical nights and carnivals.  "Crorepati Hungama" a sales promotion scheme started by a company.  Special discounts on the purchase of the spares. He can avail of several benefits like  One-year free Accident Insurance cover worth Rs100.  Exclusive rewards and surprise gifts from Hero Honda Motors Ltd. people generally go for summer tours and spend a lot of money so they postpone their purchases.

the prices of petrol will remain constant at the current prices. This will have multiplier effect on demand for consumer durables including twowheelers. A further drop in second hand car prices will lead to pressure on the two-wheeler majors who plan to release higher end scooters and motorcycles. due to entry of multinationals following liberalization process and fifth pay commission. This is already witnessed in improved demand for 2-wheelers in FY99 compared to a meager growth in FY98. Availability of credit for vehicle purchase: The availability and cost of finance affects the demand for two-wheeler as the trend for increased credit 31 . we expect the demand to be affected only five to seven years down the line. This will shift the demand from higher end two-wheelers to cars and affect the demand for two-wheelers negatively. Improvement in disposable income: With the increase in salary levels. Implementation of mass transport system: Many states have planned to implement mass transport systems in state capitals in the future. Changes in prices of second hand cars: The second hand car prices of small cars have come down sharply in the recent past.KEY EARNING DRIVERS THAT AFFECT THE DEMAND OF TWO WHEELER INDUSTRIES Government policy impact on petrol prices: Petrol prices determine the running cost of two wheelers expressed in Rupees per kilometer. This will have negative impact on demand for two-wheelers in the long run. This will have a positive effect on purchases on two wheelers. the disposable income has improved exponentially over the years. But with the recent change in GOI policy to reduce the subsidy. Petrol prices are the highest in India as GOI subsidies kerosene and diesel. But taking into account the delays involved in implementation of such large infrastructure projects.

EXCISE AND CUSTOMS DUTY STRUCTURE Existing Duty Structure Table: 4 Items Excise (%) 2-wheelers 2-wheelers Secondhand motor Upto Above Source: FICCI & SIAM Duty Customs (%) 2001-02 60% 60% Duty Upto Above Motorcycles 75cc 75cc (including 2001-02 16% 16% mopeds) and cycles fitted with auxiliary 75cc 75cc 16% 16% 105% 105% The table shown above describes the excise and customs duty structure for the two-wheeler industry. For any new or old two-wheeler the excise duty is remain same. means16% and the customs duty for new two-wheeler is 60%and for secondhand 105%. Changing Income Demographics will Drive Changes in Demand 32 . Thus this will make effect on the price of the vehicle. Therefore any change with respect to any of these two parameters as a result of change in RBI policy has to be closely watched to assess the demand for two and three wheelers.purchases for consumer durables has increased over the years.

cars/jeeps etc. As a result. In terms of demand motorcycles will nearly touch the 8. will double for motorcycles to over 28 per cent.The rapid rise in the country's middle and upper income classes. 33 . is likely to lead to a dramatic hike in the demand for big-ticket items like motorcycles. the number of households owning cars will more than double from around 4 per cent right now to over 9 per cent by the end of the decade. more than overall GDP growth per se. that for scooters will remain stagnant at around 8 per cent.5 million mark. Much of the increased demand is not so much demand from existing households in various income groups as it is the one emanating from the migration of households into upper income groups.

CHAPTER 4 MAJOR PLAYERS 34 .

Kinetic Engineering Ltd (KEL). Shares of Two-Wheeler Manufacturers in Industry Sales (FY2000-9MFY2005) Graph: 8 Source: ICRA Sectoral Analysis . Majestic Auto Ltd (Majestic Auto).Jan 2005 35 . The other key players in the two-wheeler industry are Kinetic Motor Company Ltd (KMCL). LML Ltd (LML). with three players-Hero Honda Motors Ltd (HHML).MARKET SHARE OF VARIOUS FIRMS OR BRANDS As the following graph indicates. Yamaha Motors India Ltd (Yamaha).accounting for over 80% of the industry sales as in 9MFY2005. Bajaj Auto Ltd (Bajaj Auto) and TVS Motor Company Ltd (TVS) . Royal Enfield Ltd (REL) and Honda Motorcycle & Scooter India (P) Ltd (HMSI). the Indian two-wheeler industry is highly concentrated.

the company witnessed a gradual erosion of its market share. HHML. However.Although the three players have dominated the market for a relative long period of time. The share of TVS in industry sales fluctuated on a year on year basis till FY2003 as it changed its product mix but has declined since then. SALES OF DIFFERENT COMPANIES DURING MAY-2004 TO JAN2005 The table given below shows the Sales of different companies during May2004 to Jan-2005 according to different engine capacity for motorcycle. witnessed an overall decline in market share from 22% in FY2000 to 18% in 9MFY2005. TVS. Bajaj Auto was the undisputed market leader till FY2000. and almost doubled its market share from 20% in FY2000 to 40% in 9MFY2005 to emerge as the market leader. their individual market shares have undergone a major change. on the other hand. which had concentrated on the motorcycle segment. scooter and moped segments Domestic Sales flash report for September 2004 Table: 5 Category Segment/Subsegme nt Manufacturer. Two Wheelers A: Scooter/Scooterette May 2004 Jun 2004 Jul 2004 Aug 2004 Sept 2004 Oct 2004 Nov 2004 Dec 2004 Jan 2005 36 . Bajaj Auto dominance arose from its complete hold over the scooter market. as the demand started shifting towards motorcycles. was the main beneficiary. accounting for 32% of the two-wheeler industry volumes in the country that year.

Wheelsize not over 12" A1: Engine capacity <75 cc Bajaj Auto 2145 Kinetic Engg 2600 LML 1 TVS Motor 5948 Total 10694 A2: Engine capacity 75-125 cc Bajaj Auto 366 HMSI 24782 Kinetic Engg 5916 LML 0 Majestic Auto 102 TVS Motor 10690 Total 41856 A3: Engine capacity 125-150 cc Bajaj Auto** HMSI LML TVS Motor Total Total A B: Motorcycle/StepThrough: Wheel size 7611 8183 2100 0 17894 70444 2310 3562 2 8181 14055 4853 3682 3 7969 16507 3195 2789 1 5791 11776 2410 3366 1 9823 15600 3998 3120 0 7715 14833 2052 3388 0 7878 13318 1435 2545 0 2433 6413 1327 2280 0 3034 6641 546 24772 5615 0 150 13277 44360 2389 30176 5789 0 222 14215 52791 2036 31629 6588 0 167 1226 52681 3017 2738 31888 28128 7109 6740 00 51 63 13234 13361 55299 51030 2157 30532 6992 0 28 12411 52120 1654 29584 5545 0 25 11958 48766 1455 29248 5230 0 21 11548 47502 8420 8140 216 0 18729 77144 6660 7928 2144 0 16732 86030 641 8633 1840 0 16891 81348 6826 8767 2064 0 17657 88556 5496 9590 1449 0 16535 82398 6392 9595 2243 0 18230 83668 5330 8121 1479 0 14930 70109 5245 9472 163 0 16347 70490 more than 12" B1: Engine capacity <75 cc Bajaj Auto 1622 B2: Engine 1973 1721 1299 1990 1677 1249 1249 1386 capacity 75-125 cc Bajaj Auto 55694 67319 71609 79310 98361 91436 105151 95441 72009 Hero Honda 198449 18586 188150 172996 198882 228434 218855 216792 214317 37 .

wheels over 12" Kinetic Engg 2733 Majestic Auto 3071 TVS Motor 19829 Total C 25633 Total of TW 457224 category Source: SIAM 2777 3514 21048 27339 2259 2214 2200 2700 2611 2103 2816 37789 36371 42803 483763 47921 45945 435665 2745 4206 24576 31527 1908 3294 21279 26481 2126 3261 22145 27532 2915 653 21273 742035 2548 2850 21739 27137 2930 2101 17931 22962 2820 2286 23721 28827 47007 495456 471544 544124 544124 730753 552529 534982 Motorcycle majors Hero Honda. Bajaj Auto and TVS Motors ended the last month of the financial year 2004-05 on a rising sales note with Honda leading the race with 20. 38 .5 per cent growth in March.Kinetic Engg 3507 LML 4242 Majestic Auto 730 TVS Motor 36280 Yamaha Motor 18252 Total 317154 B3: Engine capacity 125-250 cc Bajaj Auto 20750 Hero Honda 9058 HMSI 3748 LML 4145 TVS Motor 2702 Yamaha Motor Total 40403 B4: Engine capacity over 250 cc 3514 6675 698 40282 15384 31968 2901 5121 644 45468 10857 324750 3346 3534 459 4319 12847 315685 4539 9698 398 36480 14797 361125 3670 8022 167 57064 12712 401505 3915 7349 94 50388 14856 0060 3344 6146 94 48470 11506 381763 3080 4310 51 44094 9553 347414 21110 10100 2211 3999 4577 20728 13346 2884 345 19386 5582 41997 49169 44517 62721 22872 13427 1465 3509 7896 20472 14269 413 2522 6841 41560 11483 5617 238 14584 4399 77881 38658 11327 8425 448 11163 4723 74744 41023 8458 9100 283 11791 3688 74343 49617 10276 11284 443 9490 2939 84049 Royal Enfield 1968 1956 Total B 361147 6560 C: Mopeds: Engine capacity <75 cc.

TVS Motor Co Ltd said its March vehicle sales rose 5. Bajaj’s motorcycle sales grew at a scorching rate of 41. India’s second-biggest motor cycle maker Bajaj Auto Ltd today said its March sales rose 17.404 units.218 from 1. establishing significant presence in Sri Lanka.273 units in March from 62.25.530 units from 1. On the export front. During 2004-05. TVS Motor saw 101 per cent growth at 6.63. Its scooterettes sales recorded 17 per cent growth to 18.6 per cent to 1.135 units in the last month against 15. In the past month.00.157 a year ago.400 units from 2.06.92.8 per cent to 1. exports rose 79.38. up 20.181 units in the same month a year earlier.6 per cent to 64.593 bikes in March.9 per cent to 1.Hero Honda sold 2.1 per cent to 24.670 units. 39 .819 a year ago.662 units. India’s third-largest two-wheeler maker said motorcycle sales rose 3.512 units in the year-ago month. Bangladesh. Bajaj said sales of motorcycles rose 42.5 per cent from 1. In the past fiscal. Colombia. the two-wheeler firm added.060 a year earlier.6 per cent to 2.070.000 motor cycles were sold in international markets.31. The bike market leader said sales in the year ending March rose 26.6 per cent in an industry growing by 21 per cent.591 a year earlier.34. almost 1. Guatemala and other Central American countries.621.

CHAPTER 5 DISTRIBUTION CHANNEL 40 .

Importance of sustaining quality of 'customer touch points' was never felt so relevant before.DISTRIBUTION CHANNEL In Automobile industry. Hence. – State wise Authorised dealer: State-wise Authorised Dealers are appointed by the manufacturers on certain conditions and criteria’s . 41 . performance of dealers is an indication of performance of brand itself and vice versa. Establishing a well-planned dealership network is a bare essential to market products successfully. Automobile dealers are the most significant part of any brand representation in the market place. like Manufacturer: who has the finished products with him. the key to market success lies in the successful customer acquisition and more importantly retention. in the current scenario.Customer: The customer then can buy the product from the Dealers. A company or brand is as good as its representation in the market. While managing product development and manufacturing is critical in the supply chain. MANUFACTURER (Finished Product) STATEWISE AUTHORISED DEALER CUSTOMER Automobile industry in India has evolved over the last few decades into a thriving industry with a host of new challenges emerging along. the basic distribution channel prevailing includes 3 major steps.

which take the maximum load of passengers (customers) who ultimately pay for the ride while sales give direction. the competition has also grown multifold. With the multiplying of channels.A three-wheeled business: How does it balance? Diagram: 1 Automobile dealers business can be compared to a three-wheeler. for both sales and after-sales services offered to the customer. A sale is like front wheel. The distribution has changed from a single channel to multiple channel of contact. The three wheels of the business are sales. many a time. after-sales service and spares. However. Chart 1 below indicates how automotive distribution structure has changed in the past few decades. A dealer principal on the driving seat always likes to steer this wheel to give direction to his/her business. Multi-brand 42 . the following two wheels are ignored: the rear two wheels are the ones. These are the changing rules of the automobile dealership business with the change in the distribution channel structure over period of time.

There is increasing threat of new entrants as OEMs are appointing more and more distribution points to enhance reach and penetration 43 . customers are getting savvier and the bar of minimum service expectation is rising day by day.showrooms are emerging to offer convenience to the customer in comparing and evaluating various brands under single roof and take faster decisions Channel Structure Diagram : 2 The earlier competition. the business model of automotive dealers is clearly under tremendous pressure from all the business angles. is evolving into a larger organised independent service provider. In the given situation. only from small time local garages. On the other hand. Bargaining power of OEMs is making dealers increasingly invest into the infrastructure to enhance the customer experience. The forces acting on the dealer business are indicated in the Chart given below.

Some progressive dealers confronted these challenges and worked their way to sustain bottom lines through increased focus on after-sales business. However. lubricants. The automotive dealer's business was 44 .Competitive Model for Automobile Dealer Diagram : 3 Source: SIAM The competition amongst dealers of competing brands as well as within same brand is crossing boundaries. All this has lead to drastic shrinking of margins in the new vehicle sales business. This will be the biggest ever challenge faced by the automotive dealers in India. the sole support of after-sales service business itself is under threat of substitutes in the form of organised (branded) franchised service network. Companies supplying automotive related products in the aftermarket like oil. auto components and auto accessories are entering the lucrative automotive service business. Discounts and freebies are not a seasonal affair anymore.

dealers cannot ignore the sales function (even though it may not add much to bottom line or sometimes negatively impact it). Bosch. proximity and promptness of service are the two key criteria on which they need to work in order to retain the customer within their fold and earn their lifetime value. and Reliance have already forayed into the after sales business in some way and many more are on the verge of entry. Gulf Oil. With fast pace of new vehicle sales. given the higher overhead costs. They either change themselves and their systems to be more customers focused or concede the business to others. Castrol. Any two-wheeler owner evaluates a type of service center on 4 Ps of service channel selection. There are very few options left with the automotive dealers of this era. However. if the focus of dealership remains only on sales. The 4 Ps is:  Price of Parts  Price of Labour  Proximity and  Promptness of service Authorised dealer workshops are always likely to have higher price of parts and labour than the independent after-market. However. 45 .redefined from selling vehicles to servicing customers in the late nineties with the entry of multinationals in India. Cummins. However. A word of caution Well-known brands in the market like TVS. the opportunity to earn from growing aftersales service business would be exploited by the independent service providers. this new definition of the business itself is under threat with the newly emerging competition.

The DSS study is based on TRI*M.  Training. and manufacturer relationship.  Pricing & margins  Sales & marketing  After-sales service & parts  Warranty  Sales representatives. The TRI*M index score provides a measure of the relationship strength that a given manufacturer enjoys with its dealers. NFO's proprietary stakeholder management system.Dealer Satisfaction 2003 India Dealer Satisfaction Study Graph: 9 Source : ICRA The 2003 DSS examines the automotive dealer's satisfaction with the vehicle manufacturer on the following parameters:  Satisfaction with product  Order & delivery.  Service representatives. 46 .

The study reveals that there are more 'uninvolved' (neither satisfied nor committed) dealers than 'partners' (both satisfied and committed) in the automotive industry.The industry average score of 64 reflects a relatively low level of satisfaction and indicates that dealers are vulnerable to defections. Meeting dealer expectations on issues related to product. both these manufacturers have been able to develop strong relationships with their dealers. At this level of performance. branding. Honda Scooters enjoy a high degree of commitment from their dealers. builds products according to customer's needs." TVS Motor rank second in the two-wheeler segments. The key to building partners is to focus on the most critical areas that impact dealer satisfaction and commitment to the manufacturer. The DSS will be conducted on an annual basis to provide the industry with the most up-to-date information on dealer satisfaction in the marketplace. They are: effectiveness of brand positioning. and concern for dealer profitability. DSS Rankings Rankings for the DSS study are done at the industry segment-level to provide comparisons among similar groups of dealers. These manufacturers have also developed strong relationships with their dealers. and after-sales support are among the common strengths for both these manufacturers. TVS excels in the areas of product quality and service support. which is significantly higher than the second-ranked manufacturers. Honda Scooters and Toyota Kirloskar lead their respective segments with an identical score of 102. The DSS study is based on responses from 966 two -wheeler dealers from over 80 leading cities in India. The fact that all three 47 . According to its dealers. builds high quality products.

Honda affiliate companies’ rank among the top four manufacturers shows the level of commitment by the manufacturer for the Indian market. Using the score range shown earlier as a guide. Honda Scooters retain its lead. 48 . three manufacturers fall in the "highly retained/committed" zone. some of the key findings are as follows:  Honda Scooters lead the two-wheeler segment. The industry average score of 59 for two-wheeler reflects a relatively low level of satisfaction and indicates that dealers are vulnerable to defections. with a six-point gain over 2002. market lead trade and consumer policies are key areas that drive the segment leading scores for Honda Scooters. while eight manufacturers are in the "retained/committed" zone. Based on the dealer evaluations that TNS received. Products fit with the market. 2004 DSS Ranking Graph: 10 Source: ICRA The chart above provides the make-level rankings. marketing & sales initiatives.

 Uninvolved: Dealers that are neither satisfied nor committed. service & parts representatives. The attributes are categorized under four quadrants: 49 . GRID Analysis In order to identify the unique needs and expectations of dealers for each manufacturer. The GRID analysis categories these attributes by examining the dealer claimed importance (y-axis) and impact on dealer commitment (x-axis). This group needs a compelling reason to stay with the brand. This group is the most dedicated. investments in branding. Hero Honda rank second in their segment. Hero Honda dealers rate the company particularly highly on product quality. dealer evaluations were taken on 92 performance attributes.  Mercenaries: Dealers that are satisfied but not committed.  Bajaj Auto rank third in their segment. These groups are defined as follows:  Partners: Dealers that are both satisfied and committed. and manufacturer relationship. Dealers can become hostages due to lack of viable options or other exit barriers. and a high dealer confidence on overall marketing strength of the company Dealer Typology Dealers are segmented into four groups based on their satisfaction with and commitment to the manufacturer.  Hostages: Dealers that are not satisfied but remain committed. Bajaj's improvement in scores is driven by improved product performance.

'Sales & service training support' has a greater impact on commitment among 4wheeler dealers as compared.Grid Analysis Diagram: 4 Source: ICRA  Motivators: Attributes with a high stated importance and an equally high impac  Hidden Opportunities: Issues where dealer claimed importance is relatively low but impact on commitment is high. commitment.  Hygienic: Attributes where stated importance is high but impact on commitment is low.  Potential Savers: Attributes with low stated importance and impact on commitment. 50 . Dealers are currently less sensitive to these issues. to 2-wheeler dealers. These are the main drivers of dealer satisfaction and commitment. These reflect the "must be" needs of dealers. These issues are differentiators.

REGIONAL INFORMATION The two-wheeler dealers record an average of 6 days to receive delivery of new vehicles and 12 days for fast-moving parts.sales reps related aspects fall in the 'motivator' segment.This provides an indication of the relative strengths and weaknesses for the two industry segments. They are 'motivators' where the manufacturers are not able to meet the expectations of the dealers. while after-sales reps related aspects are 'hygiene' areas. has been rated 'average' for both these attributes.  Aspects like 'Fair Settlement of warranty claims' & 'Availability of spare parts' are "must-be" attributes (Hygiene factors) and must definitely be provided by the manufacturer. which leads the segment. It is critical to maintain this threshold of 80% 51 .  Marketing related aspects like 'Effectiveness of brand/ product positioning' & 'Relevance of advertising' have a high impact on dealer commitment and are areas where the dealers want improvement from the manufacturers. Honda Scooters. Dealers in east and south for both segments report a relatively longer time in receiving delivery of new vehicles and parts. Some of the key findings are explained below: Two – Wheeler  Manufacturer relationship related aspects like 'concern for dealer profitability' and 'management willingness to resolve dealer problem' are the key concern areas for the dealers. Percentage of dealers recording 80% or more service capacity utilization is similar across regions.  The difference in expectations from the sales reps and after-sales reps can be seen in the chart .

monthly volume in units sales 5 East 8 West 5 South 6 All India 6 10 156 736 19 140 448 12 214 1016 12 207 871 12 186 826 Avg. monthly service volume in units Service capacity utilization (% responding over 80% utilization) Source : SIAM 57 60 60 60 59 52 . Delivery time for different region Table: 6 North Time for delivery of new vehicles (avg. days) Time for delivery of fast moving parts (avg. days) Avg.capacity utilization as the profitability of a dealer records a significant decline below this number.

CHAPTER 6 KEY ISSUES AND TRENDS 53 .

Thus. will eventually materialize into customer loyalty. Therefore.CUSTOMER SERVICE Creating value through customer loyalty. And what happens when you lose those "satisfied" customers? Adding new customers is an expensive process. as we can see. Acquiring a new customer and retaining existing customers are the two channels of building a customer base. 54 . In a competitive environment. hassle free service. there is more to building a loyal customer base. when short-term quality is below par. Building and sustaining a long-term relationship with the consumer requires building strong brand.  Give the customer the true ownership feel of the product or service.  Quality: It's hard to build long-term brand loyalty. Latest research findings suggest that high level of customer satisfaction does not necessarily translate into repeat purchases or increased sales. better than what the customer expects. which should help in building trust and relationship with the customer. This necessitates:  Differentiated multiple products. gaining a customer by one company is an opportunity lost for another. If a marketer requires his products to appeal to this segment of customers. customer satisfaction is only the first step towards building a repeat and referral customer base.  Offer differentiated. the company should strive to enhance customer experience and relationship right at the beginning. then he has to build impeccable trust and customer service should be of the highest order. This trust built over a period of time. That is why building a loyal customer base is important for future growth and expansion of your business. About 60 to 70 per cent of them who reported "satisfied" or "very satisfied" have switched. While customer satisfaction is necessary for any successful business model. by making them proud of their purchase and ownership.

robust process. in the process. This calls for revamp of the dealerships in terms of quality of people. 55 . But now.and in turn. They are the true brand ambassadors and can leave lasting impact on the customer. dealers have a greater chance to build closer relationships with them than the manufacturers. Changes need to be brought in to eliminate waste and look at growth drivers. thus helping in establishing customer loyalty programmes. Emergence of Information Technology has enabled efficient and smooth process automating and standardizing the system across the dealership. They enable the customers get loan through hire purchase. etc. exchange their old two-wheelers. The dealer does not sell a vehicle independently. From product push to customer pull. leadership skills of the dealer owner. technology has vastly reshaped the business transaction . So far. Educate employees the significance of service and it begins with them. proactively reaching out to customers. sometimes. adoption of technology. On account of both sales and after sales association with their buyers. Running a dealership is no longer a skill passed down from father to son. both HP and exchange together and. after sales service. IT has also played a huge role in bringing the companies closer to the dealers and customers and this should be adopted to facilitate this relationship in long term. the dealers have been riding on the manufacturers for sustained business growth. they have to be competitive both on site as well as outside the dealership. understanding the customers well. the customer's place in the value chain.  Every marketer should enable the dealers build such close relationship with customers so that the loyal network expands on a continuous basis. The collective bargaining power of the network can be used so as to bring the cost of operation down for the network and increase the value proposition to the customers.

Today. motorcycle performance and design. is the largest syndicated motorcycle study in India. aftersales service. by market information provider TNS. managing the customer relationship has become the single most important dimension of enterprise strategy. It is important to look at each individual walking into your showroom as a ‘Lifetime’ customer and it will be the only time before he/she becomes a proud owner of your product and services for life. the newly launched Bajaj CT100 and Honda Unicorn rank highest in their respective segments. TCS Study Ranking Chart Graph: 11 56 . The TCS index score provides a measure of satisfaction and loyalty a given model or brand enjoys with its customers. the 2005 Motorcycle Total Customer Satisfaction (MTCS) study conducted by TNS specialist division. CUSTOMER SATISFACTION REPORT OF TWO WHEELERS According to the findings of the 2005 total customer satisfaction (TCS) study released on 23rd June 2005. Royal Enfield continues to dominate the niche 'cruiser' bikes with its Bullet 350 recording segment-best ratings. brand image. product quality. TNS Automotive. and cost-of-ownership. while Hero Honda Splendor + leads the competitive 'executive' bikes. Representing the responses of more than seven thousand newmotorcycle buyers towards the performance of 40 models in the key areas of sales satisfaction.

Honda Unicorn.Source: SIAM A commonly observed trend is the strong performance of new models such as Bajaj CT100. and Yamaha Fazer. The 57 . TVS StaR.

". it is important to diffuse focus from fuel efficiency due to the heightened customer expectations. Splendor's universal appeal is also evident from its consistent ratings across regions and over time. Honda Unicorn receives the best ratings to overtake Bajaj Pulsar in the premium segment. This is reflected by TVS Centra's performance where satisfaction with fuel efficiency is relatively lower despite strong mileage figures reported by its owners." "However. "Bajaj CT100 benefits from its segment leading rating on fuel efficiency with its owners also reporting industry-best mileage of 70 kilometers per liter. The 58 . "Hero Honda Splendor+ defies the general trend with a strong performance on all measures of customer satisfaction. PRICING Pricing of the product as whole for the two-wheeler industry consists of the following factors: Cost Structure of Indian Two Wheeler Industry Total automotive sales in the country amounted to Rs. it is particularly relevant for 'standard' and 'executive' bikes where customers attach a high importance to fuel efficiency. "While newness generally has a positive rub-off on customer perceptions. this phenomenon is not universally true. 480 billion in FY2004. "Among the new models." The Indian market is extremely sensitive to mileage/ fuel efficiency.common differentiator for all these models is evident in their relatively higher ratings on product performance & design. Product quality and cost of ownership perception emerge as Unicorn's key strengths. with the two-wheeler industry accounting for around 20% of this. While this sensitivity is generally seen among all types of owners.

on account of increasing investments.2% in FY2004. Overall. However. other factors like Marketing Expenses. R& D. Taxes and duties. selling expenses as a percentage of operating expenses have also moved up. the raw material cost as a percentage of operating income has increased. Raw materials alone account for around 65% of the total operating costs. they increased significantly in FY2004. In addition to the cost structure and manufacturing expenses. employee expenses. Distribution and After Sales Services Expenditures are also added and the final price of the product is obtained by adding the profit margins.6% in FY1999 to 4. as a percentage of the overall expenses. the burden of capital related charges in the two-wheeler industry increased from 3. Cost Structure of Two Wheeler Industry from FY1999-FY2004 59 . With new model launches demanding advertisement and publicity expenses. Administrative Expenses. Raw material costs are the largest cost head for companies in the twowheeler industry. Safety Criteria’s. have declined. Thus. depreciation charges as a percentage of operating income went up marginally over the same period. This rise can be attributed partly to the shift towards motorcycles where the material costs are higher. Sales. Technological Tie-ups.top three two-wheeler manufacturers accounted for around 80% of total twowheeler sales in volume terms in FY2004. On the other hand. Despite these Efforts. while expenses under the head “other expenses” declined between FY1999 and FY2003. While interest charges as a percentage of operating income came down between FY1999 and FY2004. Companies have been pursuing active cost rationalization and vendor rationalization programmes to rein in costs and improve margins. with companies pruning the size of their workforce. the two-wheeler industry’s performance is closely linked to the performance of these three players. and accounted for 67% of the total operating income in FY2004.

Table: 7 FY1999 FY2000 FY2001 FY2002 FY2004 FY2003 SOURCE: ICRA Company Specific Marketing Strategies Big manufacturers like Bajaj Auto. Tvs. There has been a common marketing approach in this industry. which give total customer satisfaction. Hero Honda and various other small players. which is as follows:  Segmenting the Market  Targeting this Market with various Marketing and Advertising strategies  Promotional Activities carried out by the manufacturers  Distribution and Sales Management of their products  After Sales Services offered by the manufacturers 60 . all them have common marketing strategies. The main competition and the winner amongst them stands out on the basis of Technological changes and development in their products.

The scooters segment was the largest till FY1998. that year). Between FY1996 and 9MFY2005. Trends in Segmental Share in Industry Sales (FY1996-9MFY2005) Graph:13 61 . the motorcycles segment that had witnessed high growth (since FY1994) became larger than the scooter segment in terms of market share for the first time in FY1999. However. respectively. the motorcycles segment more than doubled its share of the two-wheeler industry to 79% even as the market shares of scooters and mopeds stood lower at 16% and 5%.SEGMENTATION Segmental Classification and Characteristics Graph: 12 Segmental Market Share The Indian two-wheeler industry has undergone a significant change over the past 10 years with the preference changing from scooters and mopeds to motorcycles. accounting for around 42% of the two-wheeler sales (motorcycles and mopeds accounted for 37% and 21 % of the market respectively.

have been traditionally positioned as vehicles of power and style. which are rugged and more durable. These features have now been complemented by the availability of new designs and technological innovations. The customer is likely to be salaried and in the first job. power and styling are now as important as comfort and utility. Motorcycles. and technological advancements Over the past 10-15 years the demographic profile of the typical twowheeler customer has changed. Given this market positioning of scooters and motorcycles. Moreover. has been prompted by two major factors: change in the country's demographic profile. it is not surprising that the new set of customers has preferred 62 . With a younger audience. The marketing pitch of scooters has typically emphasized reliability. higher mileage offered by the executive and entry-level models has also attracted interest of two-wheeler customer. Following the opening up of the economy and the increasing exposure levels of this new target audience. This shift.While scooter sales declined sharply by 28% in FY2001. price. indicating a clear shift in consumer preference. the attributes that are sought of a two-wheeler have also changed. on the other hand. comfort and utility across various applications. motorcycle sales reported a healthy growth of 20%. which continues.

the preference has shifted towards motorcycles. HMSI and others have increased there manufacturing capacities in the recent past. they are well positioned to capture the rising demand in rural areas where these characteristics matter most. offer higher fuel efficiency. which offer more functional value such as broader seat. Nevertheless. viz. Scooters are perceived to be family vehicles. Bajaj Auto. greater acceleration and more environment-friendliness. bigger storage space and easier ride. or converted their existing capacities for scooters and mopeds into those for manufacturing motorcycles. Given the declining difference in prices of scooters and motorcycles in the past few years. Besides a change in demographic profile. Thus. Most of the players have either expanded capacity.motorcycles to scooters.8 million units. The move has been prompted by the rapid growth reported by the motorcycles segment 63 . with the second-hand car market developing. TYS. The total capacity of these players stood at 7. HHML. technology and reduction in the price difference between motorcycles and scooters. With better ground clearance. a preference for used cars to new twowheelers among vehicle buyers cannot be ruled out. larger wheels and better suspension offered by motorcycles. the customer is willing to pay an up-front premium while purchasing a motorcycle in exchange for lower maintenance and a relatively higher resale value TRENDS IN THE TWO-WHEELER INDUSTRY Companies raising capacity to meet the growing demand All the major two-wheeler manufacturers. the past few years have witnessed a shift in preference towards gearless scooters (that are popular among women) within the scooters segment. another factor that has weighed in favor of motorcycles is the high re-sale value they offer.8 million units per annum as against total market sales of 3. However. Motorcycles.

HHML increased the capacity of its plants from 1.8 million units in to 2.25 million in 2004 and has been able to achieve 92% capacity utilization. In light of the increase in demand for motorcycles, the company plans to set up a new plant. Niche markets also witnessing intense competition A significant trend witnessed over the past five years is the inclination of consumers towards products with superior features and styling. Better awareness about international models has raised expectations of consumers on some key attributes, especially quality, styling, and performance. High competitive intensity has prompted players to launch vehicles with improved attributes at a price less than the competitive models. In an effort to satisfy the distinct needs of consumers, producers are identifying emerging consumer preferences and developing new models. For instance, in the motorcycles segment, motorcycles with engine capacity over 150cc, is a segment that has witnessed significant new product launches and hence, become more competitive. The indigenously launched Pulsar 150 had met with success on its launch and thereafter, a host of models have been launched in this segment by various players. While Bajaj Auto launched the Pulsars (150 and 180 cc) with digital twin spark technology (DTSi) that offers a powerful engine and fuel efficiency of 125 cc models, model launches by other players include LML's Graptor/Beamer, HMSI's Unicorn besides the HHML's CBZ and TVS' Fiero F2. Moreover, in the recent past, the motorcycle segment has witnessed launch of vehicles with higher engine capacity (higher than 150cc) and power (higher than 15bhp). These include models such as Bajaj Auto Eliminator and Royal Enfield's Thunderbird followed by HHML's Karisma. Besides these, KEL has launched premium segment motorcycles GF 170 and GF Laser besides launching products from the portfolio of its technology partner (Hyosung's Aquila

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and Comet 250). The products in this segment cater for style conscious consumers. In the scooters segment, the market for plastic-bodied variometric scooters continues to witness growth in the scenario of overall decline in scooter volumes. Higher volumes and growth are especially true for certain scooter models, such as Honda Activa, that brought in new technology (besides variometric transmission) to further differentiate them. Thus, the need to differentiate and create a niche has led to companies strengthening their research and development (R&D) capabilities and reducing the development time for new models. Increasing focus on exports Two-Wheeler Exports from India (in numbers) Table: 8 FY2000 FY2001 FY2002 FY2003 FY2004 CAGR 9MFY2005 Scooters Mopeds Total 20,188 25,625 27,754 44,174 28332 30116 53148 24234 27.4 -3.3 44832 188807 22739 256378

Motorcycles 35,295 41,339

56,880 126122 187287 51.4 18,971 23330

83,237 111,138 104183 179568 264669 33.5
Source: SIAM

For the first nine months of FY2005, two-wheeler exports increased by 37% over the corresponding previous, led mainly by motorcycles even as exports of other two-wheelers were healthy. While motorcycle exports increased by 40%, scooter and moped exports increased by 29% and 27% respectively. Although the Indian two-wheeler manufacturers have forayed on their own in their target export markets, there have been instances of tie-ups with the

65

technology partners. Bajaj Auto's tie-up with Kawasaki to jointly market Bajaj products in Philippines is a case in point. Under the tie-up, M/s Kawasaki Motors Philippines Corporation has been appointed as exclusive distributors to market select Bajaj two-wheelers that include Byk, Caliber 115 and Wind 125. These vehicles are being sent to Philippines in the completely built unit (CBU) form. Other strategy of expanding international presence considered by few players is that of setting up assembly lines in select South East Asian countries either on their own or in partnership with local players. Company wise two-wheeler exports since FY2000 Table:9 FY2000 FY2001 FY2002 FY2003 FY2004 CAGR FY2005 Bajaj Auto 14924 HHML HMSI TVS Yamaha Others Total 10061 0 7265 15197 35790 83237 16112 10324 0 6621 20446 57635 28527 13023 1293 7765 20321 32752 53366 21165 10916 9636 45546 39053 90210 39254 31414 28093 32906 42792 56.8 40.5 n.a 40.2 21.3 4.6 87225 43441 27734 36666 27539 33773 256378

111138 103681 179682 264669 33.5

Source: SIAM

Vehicle Emission Norms
Emission norms for all categories of petrol and diesel vehicles at the manufacturing stage were introduced for the first time in India in 1990 and were made stricter in 1996. When the 1996 norms were introduced, it resulted in certain models being withdrawn from the market. With Stage I India 2000 emission norms coming into place, the cost of developing suitable technology has remained high.

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SFor two -wheelers the emission norms are recommended to be the same in the entire country: For new vehicles Bharat Stage II norms throughout the country from April 1.  Inspection & maintenance (I&M) system for all categories of vehicles to be put place by April 1. 2005. 2010 For reducing pollution from in-use vehicles  New pollution under control (PUC) checking system for all categories of vehicles to be put in place by April 1. 2008 but not later than April 1.The emission norms that are currently in force for two-wheelers and threewheelers are more stringent than the Euro II norms. 2010.  Performance checking system of catalytic converters and conversion kits installed in vehicles to be put in place by April 1. 2005 Bharat Stage III norms to be applicable preferably from April 1. 2007. 67 .

CHAPTER 7 PESTEL ANALYSIS 68 .

Removal of the restrictive environment has helped restructuring. This brought about 69 . Legislation regulating businesses is also often a product of political configuration. aligning itself with the global development and also to realize its potential in the country. GOI has considered the automobile industry as a luxury segment. With development on the political front affecting the economy all the time. the economic environment often becomes a by-product of the political environment. During the last decade. POLITCAL ENVIRONMENT The political environment exercises great impact on industry and business. Steps like abolition of licensing. especially from the population in the middle income group.Automobile is one of the largest industries in global market. which has ultimately resulted in modernization in line with the global standards as well as in substantial cut in prices. But realizing the growing importance of two-wheelers with the increasing necessity of personal transportation for the middle class in eighties. Being the leader in product and process technologies in the manufacturing sector. it has been recognized as one of the drivers of economic growth. and enabled industry to absorb new technologies. Aggressive marketing by the auto finance companies have also played a significant role in boosting automobile demand. well-directed efforts have been made to provide a new look to the automobile policy for realizing the sector's full potential for the economy. Traditionally. priority was given to the sector by favorable foreign policy. The liberalization policies have led to continuous increase in competition. removal of quantitative restrictions and initiatives to bring the policy framework in consonance with WTO requirements have set the industry in a progressive track. Industrial growth depends to a great extent on political environment.

etc are all policy decisions. 70 . Excise duty structure. This mainly affected manufacturers of 100cc category in the early nineties. 2000 that conforms to Euro II norms. the cross subsidy provided by high petrol prices is expected to come down leading to reduction in petrol prices in the country. which previously ranged between 10 to 30%. This will reduce the running cost per km for two-wheelers and have positive impact on demand. To control pollution from automobiles the GOI stipulates emission norms applicable from time to time. The GOI controls availability and price of petrol. 1996. emission control. Since then the excise duty structure for two-wheelers has been left unchanged till 1999. scooter prices were reduced by Rs200-400 per vehicle. as a result of rationalization of duty structure the excise duty up to 75cc vehicles was increased to 16% while for those above 75cc decreased to 24%. The second hurdle was set with a dead line of April 1. This conforms to Euro I standards. Automobile emissions are the major pollutants in the environment. GOI has a moderate intervention in the operations of two-wheeler industry. The same duty regime was continued in the FY2000-01 budget too. The excise duty on two-wheelers. The GOI wants the automobile industry to achieve a major improvement in emission levels in two steps. As a result. The first milestone was achieved by implying stringent norms applicable from April 1. safety of rider. But with the dismantling of Administered Price Mechanism (APM).technology revolution to the two-wheelers as Japanese majors entered in technical and financial participation with Indian majors. according to the engine capacity was rationalized in 1991-92 budget to only two-categories viz 15% upto 75cc and 25% above 75cc. In the 1999-2000 budget. the fuel for two-wheelers.

The emission norms that are currently in force (India 2000) for two-wheelers and three-wheelers are more stringent than the Euro II norms. 71 . The manufacturers responded to this by passing on a relatively large part of the excise cut to customers. But the Union Budget 2004-05 provides for a weighted deduction of 150% for investments in R&D. the cost of developing suitable technology has remained high. The choice of emission control technology has been left to the manufacturers Fiscal Policy The Union Budget for 2001-02 had lowered the excise duty on twowheelers (with engine capacity in excess of 75 cc) from 24% to 16%. The table below presents the emission norms for twowheelers that were in place in the past. When the 1996 norms were introduced it resulted in certain models being withdrawn from the market. This may facilitate increasing R&D allocations and allow for improvement in the technical as well as product development skills of the Indian companies. the Stage (III) norms will be implemented in 2009 after a technical feasibility review in 2005. and the norms have been proposed for 2005 (Stage II) and 2009 (Stage III).Government Policies Vehicle Emission Norms Emission norms for all categories of petrol and diesel vehicles at the manufacturing stage were introduced for the first time in India in 1990 and were made stricter in 1996. the current India 2000 emission norms. The Union Budget thereafter have left the excise duty on two-wheelers unchanged. While the Stage II (India) norms will be applicable only from April 1. With Stage I India 2000 emission norms coming into place. 2005.

Despite this impressive growth. Further.138 two-wheelers. which have similar emission norms. Exports Indian export of two-wheelers is primarily to Sri Lanka. the country’s total two-wheeler exports account for a mere 3% its total domestic sales. which marks an increase of 34% over the previous year. the customs duty has been set at 60% for new vehicle imports and at 105% on the import of used vehicles. However. Egypt. and the South American Nations. 72 . they may increase in the long term. In terms of effective duty this works out to 93% and 147% respectively. India exported 111. While Imports from China have been meagre till date. Iran. Given the similarity in the demographic and income conditions in India and China. 2001 imports of all new and used vehicles have been freed under commitments to World Trade Organisation (WTO).EXIM POLICY Imports Starting April 1. In 2001. Incentives for R&D: The weighted average tax deduction under the Income Tax Act. 1961 for automotive companies is proposed to be increased from current level of 125% (The weighted average deduction for R&D was increased to 150% in the Union Budget 2004-05). the policy proposes to include vehicle manufacturers for a rebate on the applicable excise duty for every 1% of the gross turnover of the company expended during the year on R&D. thus posing competition to the domestic manufacturers. Chinese two-wheeler manufacturers are suitably placed to cater to the Indian market. Foreign direct investment: Automatic approval is proposed to be granted to foreign equity investment up to 100% for manufacture of automobiles and components. Bangladesh.

B. Hero Honda Motors Ltd. such as TVS Motors. TVS Motor Company Ltd. B. as cenvat credit can be availed for the same. C. C. B. up gradation and development of roads by encouraging private sector participation besides public investment and 73 . The reduction in personal tax rates will increase household disposable income. The extension up to March 2007 of 150 per cent deduction on R&D expenditure will marginally benefit domestic two-wheeler players. D. A balanced and coordinated approach will be undertaken for proper maintenance. The auto policy states the Government's intent to align domestic policy with the international practice of imposing higher road tax on old vehicles so as to discourage their use Budget Impact on Major Players Company name Bajaj Auto Ltd. The reduction in the import duty on used two-wheelers will not affect the industry.Environmental aspects: Adequate fiscal incentives are proposed to promote the use of low-emission auto fuel technology (in line with the Auto Fuel Policy). Poor road infrastructure and traffic congestion can be a bottleneck in the growth of vehicle industry. The hike in the excise duty on steel will not affect the industry. Improving Road Infrastructure Traffic on roads is growing at a rate of 7 to 10% per annum while the vehicle population growth for the past few years is of the order of 12% per annum. B. C. D A. D A. Bajaj Auto and Kinetic. C. which is a positive for two-wheeler demand. Impact Neutral Neutral Neutral Impact factors A. D A.

Suitable institutional mechanism will be put in place for certification. The Government will formulate a comprehensive auto fuel policy covering the other related aspects and ensure availability of appropriate auto fuel/fuel mixes at minimum social costs across the country. The Government have approved a road map for implementation for the auto fuel quality consistent with the required levels of vehicular emissions norms and environmental quality. Appropriate fiscal measures will be devised to achieve milestones in the roadmap for implementation of auto fuel policy. All these initiatives pave the path towards a better future for the Indian Automobile Sector. monitoring and enforcement of different technologies/fuel mixes. For the convenience of traveling public the Government shall also promote multi-modal transportation and the implementation of mass rapid transport systems The government has announced certain key initiatives like the Golden Quadrilateral Project and rationalization of excise duty to improve demands. etc.incorporating latest technologies and management practices to take care of increase in vehicular traffic. 74 . ECOLOGICAL ENVIRONMENT ENVIRONMENTAL ASPECTS The automotive and oil industry have to heave together to constantly fulfill environment imperatives. The Government will continue to promote the use of low emission fuel auto technology.

Two-wheelers emit harmful pollutants such as carbon monoxide and hydrocarbons. which in their early beginnings.In the short run. Hybrid vehicles and vehicles operating with batteries and fuel cells are alternatives to the conventional automobile. Lifetime road tax is also in vogue. In India. the norms are being implemented in two phases. Internationally. will consider having a terminal life policy for commercial vehicles along with incentives for replacement for such vehicles. While the first phase Euro 1 norms have become applicable since April 1996. to fit catalytic converters for the existing models. The endeavor will be to move to the international model. In order to facilitate faster up gradation of environmental quality. the Govt. an appropriate long-term fiscal structure shall be put in place to facilitate their acceptance vis-à-vis vehicles based on conventional fuels. For the two-wheelers new emission norm for year 2000 will be an acid test as none of the present models except four stroke vehicles confirm to the norms. There is prime need to support the development and introduction of vehicles propelled by energy sources other than hydrocarbons by promoting appropriate automotive technology. As an impetus for the development of such vehicles. To full-fill emission norms the manufacturers have three options: to switch to four-stroke engines. lie intreasured. the practice is to levy higher road tax on older vehicles in order to discourage their use. In India. the road tax on vehicles varies in nature and quantum among the states. 75 . the Government will encourage the use of short chain hydrocarbons along with other auto fuels of the quality necessary to meet the vehicular emissions norms. even more stringent norms Euro 2 will come into effect from April 1. 2000. The emission norms are becoming stringent the world over. to improve upon the existing two-stroke engine.

but have a limited life of 10. Strategies for Environmental Compliance 76 . which is not widely available in the country. The catalytic converters cost in the range of Rs1. Therefore catalytic converter requires regular maintenance on behalf of the user. They plan to fit catalytic converters to two-stroke scooters to overcome emission norms. reducing the price advantage of Indian motorcycles. But this will reduce the price difference between Indian and IndoJapanese motorcycles. But as a long-run solution scooter manufacturers have to opt for four-stroke engines or improvement in two stroke engines.2. as none of the existing moped models confirm to the specifications. Scooter manufacturers have started responding to the Y2K norms by introducing four-stroke vehicles in H2 FY98. The Indian motorcycles have to either shift to four-stroke technology or make use of catalytic converter. Also catalytic converter will be effective only for unleaded petrol usage. this will increase the cost of vehicles.500.000 km of vehicle running. The Japanese motorcycle segment will be able to overcome emission norms with the technology help of respective Japanese collaborator. 500 .The temporary option for overcoming emission norms is to fit the catalytic converters. The mopeds segment will be badly affected due to Y2K emission norms.

Road & Traffic Management Inadequate and poor quality of road surface leads to increase Vehicle Operation Costs and also increased pollution. It has been estimated that improvements in roads will result in savings of about 15% of Vehicle Operation Costs.

TECHNOLOGY ENVIRONMENT
Up till now, technology transfer to the Indian two-wheeler industry took place mainly through: licensing and technical collaboration and joint ventures A third form - that is, the 100% owned subsidiary route - found favors in the early 2000s. A case in point is HMSI, a 100% subsidiary of Honda, Japan. Table given below details the alliances of some major two-wheeler manufacturers in India. Technological tie-ups of Select Players Table: 10 Nature of Alliance Bajaj Auto HHML KEL Technological tie-up Company Kawasaki Heavy Industries Ltd, Japan Product Motorcycles Two-wheelers Diesel Engines Motorcycles Motorcycles

Technological tie-up Tokya R&D Co Ltd, Japan Technological tie-up Kubota Corp, Japan Joint Venture Technological tie-up Tie up for Honda Motor Co, Japan Hyosung Motors & Machinery Inc Italjet, Italy

KEL LML

Manufacturing and distribution

Scooters Motorcycles

Technological tie-up Daelim Motor Co Ltd

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Hero Motors tie-up

Technological

Aprilia of Italy

Scooters

Source: INGRES

Besides the below mentioned technology alliances, Suzuki Motor Corporation has also followed the strategy of joint ventures (SMC reportedly acquired equity stake in Integra Overseas Limited for manufacturing and marketing Suzuki motorcycles in India). With the two-wheeler market, especially the motorcycle market, becoming extremely competitive and the life cycle of products getting shorter, the ability to offer new models to meet fast changing customer preferences has become imperative. In this context, the ability to deliver newer products calls for sound technological backing and this has become one of the critical differentiating factors among companies in the domestic market. Thus, the players have increased their focus on research and development with some having indigenously developed new models as well as improved technologies to cater to the domestic market. Further, with exports being one of the thrust areas for some Indian two-wheeler companies, the Indian original equipment manufacturers (OEMs) have realized the need to upgrade their technical capabilities. These relate to three main areas: fuel economy, environmental compliance, and performance. In India, because of the cost-sensitive nature of the market, fuel efficiency had been an interest area for manufacturers. It is not only that the OEMs are increasing their focus on in-house R&D, they also provide support to the vendors to upgrade the technology and also assist them striking technological alliances. Two-wheeler is one of the rare industries, which is capital as well as labor intensive. The setting up of a green field venture and ancillary network require enormous capital investment. The assembly operation is highly labor intensive.

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The capital requirement for a venture varies from segment to segment and based on amount of outsourcing. For eg setting up of 0.1mn capacity plant for manufacturing scooter requires approximately Rs1bn and motorcycles Rs1.7bn. Two-wheeler production entails an assembly of over 700 components, including those sourced from vendors / independent manufacturers (about 6070%). In the press shop, sheet metal components like body frame, fuel tank, front fender and rear fender, muffler etc are pressed, welded, painted / plated in respective shops. In the engine plant, engine components (cast/ forged parts) are machined and assembled along-with other components. The engine is then transferred to the main plant and assembled with the body and bought out components. Emission levels, noise levels, color, shape etc regulate all the two-wheeler manufacturers, which vary from country to country. Imports of vehicles therefore have to pass through homologation (approval process) of a sample vehicle.

Other Factors Influencing Emission From Vehicles Inspection & Maintenance (I&M) of in-use vehicles It has been estimated that at any point of time, new vehicle comprise only 8% of the total vehicle population. In India currently only transport vehicles, that is, a vehicle used for hire or reward is required to undergo periodic fitness certification. The large population of personalized vehicles is not yet covered by any such mandatory requirement. In most countries that have been able to control vehicular pollution to a substantial extent, Inspection & Maintenance of all categories of vehicles have been one of the chief tools used. Developing countries in the South East Asian

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faculty or division within the company assessed as competent and qualified for the purpose or in any other R&D institution in the country. The current policy allows Weighted Tax Deduction under I. concessional duty on plant/equipment imports and granting automatic approval. Government will encourage setting up of independent auto design firms by providing them tax breaks. In addition. which till a few years back had severe air pollution problem have introduced an I&M system and also effective traffic management. This would include R & D leading to adoption of low emission technologies and energy saving devices. Act.region. 1961 for sponsored research and in-house R&D expenditure. Vehicle manufacturers will also be considered for a rebate on the applicable excise duty for every 1% of the gross turnover of the company expended during the year on Research and Development carried either in-house under a distinct dedicated entity. SOCIO-CULTURE ENVIRONMENT Geographical Distribution 80 . This will be improved further for research and development activities of vehicle and component manufacturers from the current level of 125%.T. Allocations to automotive cess fund created for R&D of automotive industry shall be increased and the scope of activities covered under it enlarged. Incentive for Research and Development The Government shall promote Research & Development in automotive industry by strengthening the efforts of industry in this direction by providing suitable fiscal and financial incentives.

the average age at which an Indian purchased a twowheeler was 30-40 years. comfort and utility across various Applications. it accounted for 35% of all two-wheeler sales in 2000. with the buyer having typically put in about a decade’s employment. However. Graph: 14 Source: ICRA Demographic profile Till a decade ago. the regional share varies across different product segments. over the last decade the demographic profile of the typical two-wheeler customer has changed. With a younger audience. More often than not. The Southern is the second largest market with a 32% share in 2000. Motorcycles on the other hand have been traditionally positioned as vehicles of power and style. the customer is likely to be salaried and in first job. These features have now been complemented by the availability of new designs and technologically innovations. price.The Western region continues to be the largest market for two-wheelers in the country. which are rugged and more durable. the attributes that are sought of a two-wheeler have also changed. With better ground 81 . The purchase of the scooter also marked the family’s debut into personal motorized transport. However. The marketing pitch of scooters has typically emphasized reliability.

The Past & the Future 82 . Difference of Consumption Patterns across Occupation Groups in Urban and Rural areasAround 41 per cent of urban households owned two wheelers in 2001-02 versus around 11 per cent for rural areas and by the end of the decade this difference will change to 71 per cent versus 31 per cent. they are well positioned to capture the rising demand in rural areas where these characteristics matter most. such differences are likely to reduce. Scooters are perceived to be family vehicles Difference in Consumption Patterns across towns of different sizes Just 35 per cent of households in towns with under five lakh people owned two-wheelers in 2001-02 as compared to 50 per cent for towns with 5-10 lakh persons and 63 per cent in the case of towns with 10-50 lakh persons.clearance. By 2009-10. larger wheels and better suspension offered by motorcycles. Country's Income Distribution . The figure goes down to 38 per cent in the case of towns with over 50 lakh persons.

378 114.500 500 .304 22.034 1. 10 lakh a year rose from 0.000 a year.2000 2000 .876 188.901 3. 83 .000 per annum owned motorcycles in 2001-02. 2 lakh and to 29 per cent in the case of the Rs. As more people come into the higher income groups.037 255 141 164. In contrast.176 135. Growing Prosperity (Income figs.268 6.173 2. 90. households in '000s) Table: 10 Classification Income class Deprived Aspirers Seekers Strivers Near Rich Clear Rich Sheer Rich Super Rich <90 90 .10000 >10000 Total 1995-96 2001-02 2009-10 131.881 651 189 63 11 5 41.2 per cent to 0. '000 per annum at 2001-02 prices. in Rs.945 Effect of Change in Income Distribution on Demand for various Consumer Durables in Future While just two per cent of households who earned under Rs. 80 per cent of Indian families earned less than Rs.4 per cent and will rise to 1. this fell to 72 per cent by 2001-02 and is projected to fall to 51 per cent by 2009-10.192 221. 90. 90.000 and Rs.262 9. 2-5 lakh earning households.373 1.In 1995-96.712 546 201 40 20 75.7 per cent by the end of the decade.200 200 . those earning over Rs. this rose dramatically to 15 per cent in the case of households earning between Rs.5000 5000 . demand increases more than proportionately.394 28.1000 1000 .

The finance companies are also more aggressive in their marketing compared to previous years. foreign investment.0 and 9. However. Taking into account all these factors along with other leading indicators including government spending. Combining all these factors. Real GDP growth was at a high level of 7. The present economic situation of the country makes the scenario brighter for short-term demand. Very recently. inflation and export growth.4 per cent during the first quarter of 2004. NCAER has projected an average growth of GDP at 6. 84 . poor rainfall last year will pull down the GDP growth to some extent.4 per cent in GDP during 2004-05 to 2008-09.7 per cent during the tenth fiveyear plan.5 per cent respectively. particularly for the motorcycle segment.ECONOMICAL ANALYSIS This section is deasling with the latest information on various economics and commercial aspects governing the Indian Automobile Sector. A significant shift has also been observed in Indian households from the lower income group to the middleincome group in recent years. one may visualize a higher growth rate in two-wheeler demand. Both industry and the service sectors have shown high growth during this period at the rates of 8. IMF has portrayed a sustained global recovery in World Economic Outlook. Its mid-term forecast suggests an expected growth of 7.

81 1. VAT has not yet been adopted by all states in India.86 Trillion 8. Economic Highlights of India Table:11 Population ( 2004) GDP (2003 .2 million tons 85 . However. Agriculture 22% and Industry 22% 4. 43. 2005) US$ 1 = Rs.073 billion US$ 650 billion (approx.) US$ 543 US$ 2. The same rate is applicable to imported vehicles in the form of Counter Vailing Duty (CVD).In the first section we have given the Auto Policies of Government of India to facilitate sustainable development of Indian Automobile industry.9% 7-8% Services 56%.5% 6.04 estimates) Per capita GDP GDP (PPP basis) GDP growth rate in 2003-04 (revised) GDP growth rate in 2004-05 (estimated) GDP growth rate in 2005-06 (projected) Composition of GDP Inflation as on July 2005 Foreign Exchange ( As of September 02. In the second section we have given the current rates of major duties and taxes applicable to vehicles in India. VAT has recently replaced Local Sales Tax in India.61 million tonnes estimates) Food grains buffer stocks (October 2004) 20.55 billion (as on 2/09/05) Food Grains Production(2004-05 Advance 204. Excise Duty is essentially a manufacturing tax imposed on all vehicles manufactured in India. Custom Duty is essentially an import duty applicable on all imports. 2005) Exchange rate (September 12.1% Reserves US$ 145.

March (2004 .67 11. control of traffic.US$ 79.March (2003 . construction & maintenance of motor vehicles etc are governed by the Motor Vehicles Act 1988 (MVA) and the Central Motor Vehicles rules 1989 (CMVR).2005 ) US$ LEGAL ENVIRONMENT In India the Rules and Regulations related to driving license. The Ministry of Shipping.Exports (April .9 yrs 66.March (2003 .US$ July 2005) July 2005) Foreign Debt (March 2005) Unemployment rate Average literacy rate Life expectancy for males Life expectancy for women FDI Apr March (2004 2005 Apr .2004 ) Imports (April .9 yrs ) US$ 4. Regulatory Framework 86 .March 2004 .05) (April .March 2004 .11 billion US$ 123.13 billion US$ 42.59 106.2004 ) Apr .12 billion billion US$ 28.1% 65.37 billion billion US$ 4.4% FII investment Apr .4% 63. Road Transport & Highways (MoSRT&H) acts as a nodal agency for formulation and implementation of various provisions of the Motor Vehicle Act and CMVR.74 billion US$ 8.3 billion 9.90 billion Foreign Debt as %ge of GDP (March 2005) 17.05) (April . registration of motor vehicles.

Technical Standing Committee (CMVR-TSC) – Standing Committee on Implementation of Emission Legislation (SCOE) • This Committee advises MoSRT&H on various technical aspects related to CMVR. Testing Agencies such as Automotive Research of India (ARAI). Ministry of Heavy Industries & Public Enterprises (MoHI&PE)). Bureau Indian Standards (BIS). Central Institute of Road Transport (CIRT). Major functions the Committee are: 87 .Technical Standing Committee (CMVR-TSC) CMVR.Diagram: 5 In order to involve all stake holders in regulation formulation. MoSRT&H has constituted two Committees to deliberate and advise Ministry on issues relating to Safety and Emission Regulations. Automotive Component Manufacturers Association (ACMA) and Tractor Manufacturers Association (TMA) and representatives from State Transport Departments. Vehicle Research Development & Establishment (VRDE). namely – • • CMVR. industry representatives from Society of Indian Automobile Manufacturers (SIAM). This Committee has representatives from various organizations namely. MoSRT&H.

as and when so desired. To make recommendations on the new safety standards of various components for notification and implementation under Central Motor Vehicles Rules. To make recommendations on any other technical issues which have direct relevance in implementation of the Central Motor Vehicles Rules. To recommend amendment of Central Motor Vehicles Rules having technical bearing keeping in view of Changes in automobile technologies. Recommend commissioning of testing facilities at appropriate Preparation of new standards for automotive items related to 88 . Recommend adoption of such standards to CMVR Technical Standing Committee  stages.       CMVR-TSC is assisted by another Committee called the Automobile Industry Standards Committee (AISC) having members from various stakeholders in drafting the technical standards related to Safety. To recommend to the Government the International/ foreign standards that can be used in lieu of standard notified under the CMVR permit use of components/parts/assemblies complying with such standards. To make recommendations on lead-time for implementation of such safety standards. The major functions of the committee are as follows:  safety. To provide technical clarification and interpretation of the Central Motor Vehicles Rules having technical bearing.   To review and recommend amendments to the existing standards. to MoRT&H.

BIS also convert the standards formulated by AISC into Indian Standards. MoSRT&H issues notification for necessary amendments / modifications in the in Central Motor Vehicle Rules. worldwide. •  Standing Committee on Implementation of Emission Legislation (SCOE) – This Committee deliberates the issues related to implementation of emission regulation. The standards formulated by both BIS and AISC are considered by CMVR-TSC for implementation. and Advise CMVR Technical Standing Committee on any other issues referred to it The National Standards for Automotive Industry are prepared by Bureau of Indian Standards (BIS). Major functions of this Committee are –  To discuss the future emission norms  To recommend norms for in-use vehicles to MoSRT&H  To finalize the test procedures and the implementation strategy for emission norms  Advise MoSRT&H on any issue relating to implementation of emission regulations. Indian Automobile Industry in the last decade has made significant progress on the environmental front by adopting 89 . Recommend the necessary funding of such facilities to the CMVR Technical Standing Committee. Vehicular Safety Standards & Regulations Environmental imperatives and safety requirements are two critical issues facing the automotive industry. Based on the recommendations from CMVR-TSC and SCOE.

there are several rules in this chapter requiring motor vehicles to comply with safety regulations. 90 . Alignment of Indian regulations (AIS/ BIS) with ECE is being attempted as per the broad roadmap drafted by SIAM.stringent emission standards. Progressive tightening of safety standards taking into account unique India requirements has been addressed by the Road Map with a view to reducing the impact of accidents and thereby improving safety of the vehicle occupants and vulnerable road users. Regulations are reviewed periodically by the Technical standing Committee on MCVR (CMVR-TSC). increased efforts are being made to technically align with ECE. Indian Standards (IS) have been issued since the late 1960s and these standards for Automotive Components were based on EEC/ISO/DIN/BSAU/FMVSS etc at that time. traffic density and road user behavior necessitate that maximum safety be built into the vehicles. The current traffic conditions. Chapter V of the Central Motor Vehicle Rules. and is progressively aligning technically with international safety standards. Vehicles being manufactured in the country have to comply with relevant Indian Standards (IS) and Automotive Industry standards (AIS). Variance from ECE exists on formatting phraseology and administration related issues. driving habits. Central Motor Vehicle Rules (CMVR) came into force from 1989 and serious enforcement of regulations came into effect. equipment and maintenance of vehicles and in addition to rules governing emission limits. States also have their State Motor Vehicle Rules Since 2000 ECE Regulations have been used as basis for Indian regulations and since 2003. 1989 deals with construction.

CHAPTER 8 PORTER’S FIVE FORCE MODEL 91 .

the government policies influenced by socialism. one has to look at its historical developments. central planning and bureaucracy controlled the Indian Automobile Market. the management practices of such a vast and inter-meshed sector attain prime substance. Therefore. The statement in itself is exhaustive. But the challenges in the globalize environment are far more severe. To understand the growing pulse of the Indian Automobile market. the production and management systems have revolutionized in the automobile industry. Over the last few years. necessitating an apt eye on the best practices to eliminate nonvalue added activities and streamlining the value-added activities with a consumer-oriented approach. Till the early 80's.Renowned management writer Peter Drucker called the automobile industry as "the industry of industries". The Indian government has switched over its role from a controller to an enabler as they continue to focus on better infrastructure. particularly considering the sector's vast areas of concern. We have witnessed a sea change from Henry Ford's traditional moving assembly line to the present day leanmanufacturing techniques. 92 . growth oriented economic policies and creating the right environment to attract investments in the country and sectors. It was a sellers market dominated by a handful of manufacturers. All production capacities were licensed and import duties were maintained high to protect the domestic industry from foreign invasion.

Bargaining power of Buyers. Bargaining power of Suppliers. Rivalry among existing firms. Figure below dramatically shows the forces that drive competition and determine industry profit potential. Factors are shown in the diagram which when are increased or are high results in high competition and threats in an industry. Threat of substitute products. 93 . Profit potential of an industry depends on the combined strength of the following five basic competitive forces:      Threat of new entrants.This can be explained best with the help of Porter Five-Force Model.

94 .

on an average the established player like BAJAJ. new entrants have a hard time coping up with the different variety of products available in the market. Thus. TVS. To produce such large amount of units for the new players is very difficult and would require huge investments also. 75 cc. and reduce profitability.000 units per month on an average needs a huge initial investment. its profit potential would be limited. if an industry faces the threat of new entrants. Some barriers are discussed as below:  Large Investments: One of the factors is Large Investments needed for set-up of a two-wheeler manufacturing unit.  Economies of Scale: Many of the established companies in the industry in pursue of decreasing their manufacturing cost have tried to produce or increased their production capacity. Presently.000 units per month. They have their dealers appointed in 95 . HERO HONDA produce about 80. and 150 cc and above.Threat of New Entrants New entrants add capacity. Costs related to manufacturing or production cost of producing 80. Thus. Depending on the wheel sizes and also on geared and non-geared two wheelers.  Distribution Channels: Established players have high market penetration in terms of distribution system. styles and the different product features. That also matters about the looks. Costs related to Research and Development. The threat from new entrants is low if the entry barriers confer an advantage on existing firms and deter new entrants. large investment is a big barrier to the new entrant. 125 cc. Hence. 100cc. Marketing of the product like Advertising and Promotion cost.  Product Differentiation: New entrants do not have good product differentiation as that of the other established players in the industry. Sales and Distribution cost and after sales services cost included to the total investments. inflate costs. Product differentiation in terms of engine capacity likes that of 50 cc. push prices down.

to regulation of markets. If the policies are stringent and not industry friendly then this would act as barriers for the new entrants and vice-versa.  Government Policies: Legal restraints on competition vary from patent protection.almost all the possible cities or towns of India. the new entrants have to establish a good and an efficient distribution channel to serve it customers in time. Now days. has good relationships with the key buyer and suppliers and knows how to over come market and operating problems. which will again require a high amount of investment. If there is a negative growth rate in the two-wheeler industry then the new entrants would not like to enter into this industry but this is also vice-versa that if the industry growth rate is high than this would favor the new entrants with good sales and good profit.  Experience: Early entrants into the market gain experience sooner than others. So. More deep and good is the distribution channel system more good is the service provided and in turn increases the image of a particular company. 96 . through to direct government action. companies are increasing their efforts to enhance and upgrade their distribution channel system to provide good customer service in time. It is difficult for a competitor to break into a market if there is an established player which knows the market well.  Industry Growth Rate: This is also a barrier to the new entrants if the over-all industry growth rate is declining. This can give them advantage in terms of cost and/or customer/supplier loyalty.

This depends on whether a substitute provides a higher perceived benefit or value.even to the extent that this class of products or services becomes obsolete. Performing the same function as the original product. In this the customer wants more reliable.  Substitution of Need: Substitution of need by a new product or service. there is no as such product for product substitution present. Than in this case the substitute becomes threats to the original products or company and if substitutes like cars. are available at cheaper prices than that of the original product. there is no as such product substitute possible for a two wheeler and so threat from product substitute is decreased a lot. In two wheeler industries. Thus. rendering as existing product or service redundant. Cars prove to be expensive and public transport has got its mobility limitations. Two wheeler industries have got Medium or Moderate threat from substitutes. Some of the different forms of substitutes that might affect the industry are:  Product-for-product Substitution: This means a substitute of the original product that is having same basic functions. which have the same functions but not the same good quality like that of the original product but very near to it. Cycle has got its limitations that it cannot be used for long distance traveling. cheaper and maintenance free products to use. in two wheeler market.  Relative Price Substitute: In this type of substitute price is compared. The only substitute possible is cycle or public transport or cars. substitute products may limit the profit potential of the industry by imposing a ceiling on the prices that can be charged by the firms in the industry. Substitute products.Threat of Substitutes Substitution reduces demand for a particular ‘class’ of products as customers switch to the alternatives. does not pose threat to them as the functions are not same and there is much of price difference between them. His/her 97 .

A classic example for this is the two-wheeler industry specially the scooter segment. which causes imbalance.need to use user-friendly products. they can depress the profitability of the supplier industry. Suppliers are moderate in that comparison. since purchases of the buyers are high. Motorcycle gives more fuel mileage than scooters and motorcycles give less maintenance than scooters.   The cost of switching a supplier is low or involves little risk. There are alternative sources of supply. motorcycles are available almost at same price as that of scooters or with little price difference. Earlier scooters were used a lot and motorcycles were less used. There is threat of backward integration by the buyer if satisfactory buyers will be likely to ‘shop around’ to get the best price and therefore ‘squeeze’ prices or quality from suppliers cannot be obtained. Buyer power is likely to be high when some of the following conditions prevail:  When there is concentration of buyers particularly if the volume Supplying industry comprises of large number of small operators. In this way substitution of need can cause threat to a particular product. The two-wheeler industry is concentrated with buyers presently. ask for superior quality and better service. which are cheaper in rates and have good quality and gives years or service.  suppliers. The reason behind this is that technically motorcycles are more stable and easy to control while scooters have engines on right hand side. Also. Bargaining Power of the Buyers Buyers are a competitive force. They can bargain for price cut. and induce rivalry among competitors. If they are powerful. Though there are not volume purchases but 98 .   product required is undifferentiated between suppliers. but now more of motorcycles are used and less scooters. perhaps because the Component or material cost is a high percentage of total cost.

LML. Powerful suppliers can hurt the profitability of the buyer industry. HONDA MOTORCYCLE AND SCOOTER INDIA (P) LTD. lower quality. concentrated than the buyer group. The market was mainly dominated by big players like BAJAJ. There were fewer suppliers who dominated the market and the switching cost for the buyers were high. But this scenario is changing now as the suppliers have increased and more substitutes are available like easy financing of cars which might tempt a customer to switch to a four wheeler rather than going for a two wheeler. Bargaining Power of Suppliers Suppliers. and curtail the range of free services that they provide. as the price of a unit is more.    The Indian two-wheeler industry was passing through a phase when the bargaining power suppliers were high. like buyers. YAMAHA etc and so the market is now becoming a buyers market. Suppliers have strong bargaining power when:  Few suppliers dominate and the supplier group is more There are hardly any viable substitutes for the products supplied. Suppliers do present a real threat of forward integration. can exert a competitive force in an industry as they can raise prices. TVS. As there are large amount of buyers and moderate amount of suppliers. choices left are moderate. Supplier industry has less number of large suppliers. This has led to more competition and buyers will likely to shop around to the best price and service and so squeeze the suppliers. 99 . Cost of switching here is more. HERO HONDA but now the scenario is changing and we have more players in the market like KINETIC MOTOR COMPANY LTD.there are large numbers of buyers present. The switching cost for the buyers is high. There are about 9-10 odd suppliers in the market. There were no substitutes present.

competitive moves and counter moves dampen the average profitability of the industry. warranties and so on. Information is easily available now days. in situations of market growth. These wider competitive forces will impinge on the direct competitive rivalry between an organization and its most immediate competitors. not least in terms of competitive behavior. an organization might expect to achieve. quality. The relationship with buyers and sellers can have similar effects in constraining the strategic freedom of an organization and in influencing the margins of those organizations. There are number of factors that affect competitive rivalry:  Market Growth Rates: The idea of the life cycle suggests that conditions in markets. are important. If the rivalry between the firms in an industry is strong. promotion. whereas when markets are mature. this has to be achieved by taking market share from competitor. primarily between growth stages and maturity. Rivalry Among Exisiting Firms Competitive Rivals are organizations with similar aimed at the same customer group. Supposing. a firms attempt to improve its competitive position provoke retaliatory actions from others. service. these two forces are considered together because they are linked. Firms in an industry compete on the basis of price. Generally. its own growth through the growth in the marketplace. Earlier the two wheeler market growth rates were low because of the economic recession which increased the 100 .Bargaining power of the buyer is increasing as now days:     Many choices are available now Easy availability of finance This leads to low switching cost. Thus.

resulting in a production loss of 0. Thus the rivalry between the competitors was less in comparison with today’s market wherein there are many manufactures viz Hero Honda Motors Ltd (HHML).4mn vehicles.competition between the rivals to strive for higher market share. But. the two-wheeler market was dominated by BAJAJ Auto in scooter segment and other was LML and motorcycle segment with only three manufacturers viz Enfield. there is danger of intense competition as one competitor attempts to gain dominance over another. the entire automobile industry saw a drastic fall in demand. Ideal Jawa and Escorts. Where competitors are roughly of equal size. TVS Motor Company Ltd (TVS). Majestic Auto Ltd (Majestic Auto). While the less competitive markets tend to be those with dominant organizations within them and the smaller players have accommodated them to this situation. presently the market growth rates have increased and witnessed a healthy growth in overall two-wheeler sales led by higher growth in motorcycles even as the sales of scooters and mopeds continued to decline which has relaxed competition to some extent between the rivals. The share of two-wheelers in automobile sector in terms of units sold was about 80 per cent during 2003-04. If there is less product differentiation than there would more competition between the manufactures and if there is more product differentiation then there would be 101 . Earlier in 80’s.  Number of Competitors in the Industry: If number of Competitors in the industry are less than the competitive rivalry will be less and conversely if there are more competitors in an industry. Royal Enfield Ltd (REL) and Honda Motorcycle & Scooter India (P) Ltd (HMSI) which has increased the competitive rivalry amongst them. Bajaj Auto Ltd (Bajaj Auto). The total two-wheeler sales of the Indian industry accounted for around 77. This resulted in a decline of 15% in 1991 and 8% in 1992. more will be the competitive rivalry between them so as to acquire high market share.  Product Differentiation: Here product differentiation is related to the different kinds of product of the same category available in the market. LML Ltd (LML). Kinetic Engineering Ltd (KEL).5% of the total vehicles sold. In 1990. Yamaha Motors India Ltd (Yamaha). Kinetic Motor Company Ltd (KMCL).

less competition present between the players. Earlier, in two wheeler market, there was more product differentiation as there were less players in the market with limited products. So there was less competition between the players where as today, there are more players in the market with more products. Thus the product differentiation is decreased which has increased the competition between the existing players.  Exit Barriers: The Indian two wheeler industries has got high exist barriers. One of the main reasons is the high initial capital investment required for starting up a manufacturing unit. Shutting down and switching over to other industry may cost fortunes. Thus in this way, with the help of Porter Five Force Model the Competetive Analysis of two wheeler industry is done. In regard to this some important success factors are also consisdred which are helpful for the development of two wheeler industry in India.

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CRITICAL SUCCESS FACTORS FOR TWO WHEELER INDUSTRY IN INDIA
 Access to technology: models using Japanese technology

dominate the two-wheeler industry in India. With increasing competition, access to technology through collaboration or in-house research would emerge as a crucial enabling factor for a company to retain market share.  Introduction of new products: The rate of introduction of new products is an important criterion for sustained growth in the two-wheeler industry. With the change in the user profile, models need to be constantly upgraded to cater to all consumer segments and their changing needs.  Diversification of product portfolio: The two-wheeler industry has witnessed a shift towards motorcycles, with the segment experiencing a higher growth than any other within the industry. Consequently, it has become important for companies to diversify and gain a share in the fast growing motorcycles segment.  Need for focused marketing: As against a one-size-fits-all approach adopted during the 1980s, it is imperative for manufacturers to clearly define target segments and cater to their needs with specific offerings.  Economies of scale: Volume turnover is considerably important for companies in the two-wheeler industry. As most companies significantly expanded capacities, it has become imperative for players to increase volumes to optimize their asset utilization rate. This factor is expected to have a strong bearing on the level of returns for all players.

103

CHAPTER 9 FUTURE OUTLOOK

104

HHML dispatched over 3 lakh vehicles in the month. With consumerism on an upswing in India. This surge may have been due to the traditional spike in demand as the festival and marriage season begins at this time of the year. have reported an average growth rate of 20% as they sustained the excitement by a slew of new launches like Hero Honda Glamour. Bajaj Auto Ltd (BAL) and TVS Motors Ltd (TVS) reported their highest monthly sales in October. which increased 20% to 27 lakh units. which together constitute over 86% of the domestic two-wheeler market. In 2002-03. This is primarily a reflection of the galloping 8.71%. The forecasts had been made using econometric technique along with inputs obtained from a 105 . BAL 2. Bajaj Auto and TVS Motor.03% and TVS' at 18.With consumerism on an upswing in India.38 lakh units. HHML's marketshare in the motorcycle stood at 44. especially HHML and BAL. BAL's at 24.9% and 29. leave the other players behind. Hero Honda Motors.Two wheelers in India are considered as a very efficient means of transport.05 lakh motorcycles and TVS reported a 17% rise in two-wheeler sales to 1. demand for two-wheelers is on the rise. However. National Council of Applied Economic Research (NCAER) had forecast two-wheeler demand during the period 2002-03 through 2011-12. Market leader Hero Honda Motors Ltd (HHML). which drove up rural demand. the former two increased it to 50.56%.1% Q1 GDP growth leading to higher disposable incomes and also the monsoons.4%. it is interesting to see consolidation in the motorcycle segment as the big three. demand for two-wheelers is on the rise for a long time to come. It’s boom time for the Indian two-wheeler industry. All the other smaller players have seen shares skidding during the period with even TVS's marketshare falling to 12.5% respectively. But then the industry has recorded double-digit hike in sales during the first six-months of the current fiscal. Total sales during the period rose 15% to 33 lakh units riding on motorcycle sales. TVS Star and Bajaj Avenger. By the first half of 2005-06.

At the all India level. The models considered a large number of macro-economic. which takes into account both time series and cross section variation in data. A panel data of 16 major states over a period of 5 years ending 1999 was used for the estimation of parameters. It is important to remember that the above-mentioned forecast presents a long-term growth for a period of 10 years.5 per cent during 2002-03 and was anticipated to increase gradually to 6. Estimations were based on Panel Regression. The demand for mopeds is not presented in this analysis due to its already shrinking status compared to' motorcycles and scooters.5 per cent during 2011-12. The high growth rate in motorcycle segment at present will stabilize after a certain point beyond which a condition of equilibrium will set the growth path. this will not alter the regional distribution to a significant extent. The most likely scenario assumed annual growth rate of Gross Domestic Product (GDP) to be 5. Different scenarios have been presented based on different assumptions regarding the demand drivers of the two-wheeler industry. The region-wise numbers of motorcycle and scooter suggest the future market for these segments. the demand for motorcycles will be almost 10 times of that of the scooters. The same in the western region will be 106 . The projections have been made at all India and regional levels. The allIndia and region-wise projected growth trends for the motorcycles and scooters are presented in Table 1.primary survey conducted at 14 prime cities in the country. Table suggests two important dimensions for the two-¬wheeler industry. However. Another important thing to keep in mind while interpreting these growth rates is that the forecast could consider the trend till 1999 and the model could not capture the recent developments that have taken place in last few years. demographic and socio-economic variables to arrive at the best estimations for different two-wheeler segments.

Demand Forecast for Motorcycles and Scooters for 2011-12 (in ‘000) Table: 12 2-Wheeler Segment Motorcycle Scooter South 2835 203 West 4327 219 Regions NorthCentral 2624 602 East & North-East 883 99 All India 10669 1124 Source: NCAER There is a large untapped market in semi-urban and rural areas of the country. The south and the north-central region will follow this. it is also important to identify the target groups for various categories of motorcycles and scooters. With the formal introduction of secondhand car market by the reputed car manufacturers and easy loan availability for new as well as used cars. Any strategic planning for the two-wheeler industry needs to identify these markets with the help of available statistical techniques. For the two-wheeler industry. which will account for more than 50 per cent of the demand for scooters in 2011-12. The demand for scooters will be the maximum in the northern region. Potential markets can be identified as well as prioritized using these techniques with the help of secondary data on socio-economic parameters. It is also evident from the table that motorcycle will find its major market in the western region of the country. the two-wheeler industry needs to upgrade its market information system to capture the new market and to maintain its already existing markets.almost 20 times. which will account for more than 40 per cent of its total demand. Availability of easy credit for two-wheelers in rural and smaller urban areas also 107 .

is behind target but it should touch 1 million vehicles a year by 2005/06 according to SIAM (the Society of Indian Automotive Manufacturers). Manufacturers. TVS Motor is raising capacity from 1lakh units to 1. for example is already studying 108 . It is also imperative to initiate measures to make the presence of Indian two-wheeler industry felt in the global market. Companies like Bajaj and TVS are already exploring fast-moving markets in south-east Asia and even Latin America. growth is likely to be even better in the second half due to a spate of festivals and a slew of promotions launched by companies as they scramble to beat sales targets at end of the fiscal. The auto industry. for instance.6 lakh units per month. is hiking capacity at its existing plant from around 2 lakh vehicles a month to 2. If the present sales trend is any indication. according to another research company. too. What's more HHML and BAL can also derive benefits from economies of scale as volumes grow robustly and companies increase capacity. Adequate incentives for promoting exports and setting up of institutional mechanism such as Automobile Export Promotion Council would be of great help for further surge in demand for the Indian two-wheeler industry. In 2004-05.2 million today. Operating margins of two-wheeler companies and consequently net profit margins are expected to stabilize at current levels as steel prices are easing up and companies pursue aggressive cost cutting measures. Hero Honda. In other industries too.5 lakh units a month. are boosting capacity to meet increased demand.requires more focused attention.5 lakh per month at present. Bajaj Auto is raising its production capacity to reach 2 lakh vehicles per month from around 1. sheer numbers will turn India into an economy that can't be ignored. And by 2011/12 the production of motorcycles should climb to over 10 million from the current 3. H2 sales were 54% of total volumes. which is lining up a 150-cc model called the Achiever besides a scooter called Pleasure. for instance. TVS.

Main export destinations for Two-wheelers are African countries.the possibility of setting up factories in countries like Vietnam and the Philippines and Bajaj is even looking as far a field as Brazil. India’s export turnover is expected to move in the following manner in next few years. As mentioned earlier. Turkey. Germany. In such environment. Projected growth of exports The Two Wheelers also crossed three hundred thousand mark for the first time clocking around 366. United Kingdom. This is also due to India’s competitiveness and qualityconsciousness now finding increasing acceptability across the world. United Arab Emirates. Paraguay. Mexico. the Indian economy is now increasingly in step with the world environment of free trade and liberal movement of goods and services cutting across intercountry barriers.724 numbers and recorded a growth rate of plus 38% over the last year. China. Bangladesh. Indian exports in sectors such as automobile and auto components are expected to grow faster than many other sectors. Argentina. 109 . Keeping these in view. Sri Lanka. Hong Kong. Australia.

Projected Export Turnover Table: 13 110 .

CHAPTER 10 CONCLUSION AND SUGGESTIONS 111 .

and pricing and competitive pressures from other manufacturers. Motorcycle sales is expected to increase by 112 . The customer is open to novel products. Players will have to compete on various fronts viz pricing. scooters and mopeds have witnessed capacity additions in previous years and it will continue in the upcoming period after the openening of Honda as a local subsidiary. The market is dynamic and is becoming more and more customer centric. The two-wheelers market has had a perceptible shift from a buyers market to a sellers market with a variety of choices. upward trend of purchasing power in the hands of rural people. after sale service. only the motorcycle segment is expected witness higher demand vis-à-vis supply. motorcycles. In the short term. Two Wheeler segment as a whole during the year 2004-05 grew by over 15%. sales of two-wheelers will rise. product design. As incomes grow and people feel the need to own a private means of transport. technology. Over this period. product acceptance.CONCLUSION The business and economic environment is favorable. while the scooters and mopeds supplies have outstrip demand. improved agricultural performance. Backed by Government’s initiative on rural roads and better connectivity with major towns and cities.208.860 during the year 2004-05. market shares of individual manufacturers are going to be sensitive to capacity. All the three segments. productivity. services and concepts and has the money and the knowledge to rightly invest in products and service they desire. the two wheeler industry was able to achieve the record performance of crossing 6 million two wheelers with exact sales standing at 6. Penetration is expected to increase to approximately to more than 40% by 2008 The motorcycle segment will continue to lead the demand for twowheelers in the coming years. marketing and distribution.

we may find a new way. The SE Asian market is essentially a step-through motorcycle. And. For example. market. as befits our per capita income. which has failed in India. unless you are selling 300 2-wheelers a month. they will not be able to make any significant dent in Asian markets. There is a throughput required in each dealership. The Indian market is a very interesting market.2 million. The number also ties up with 113 . two major events happened. Dealership Networks The profitability of auto dealerships has always been an issue. Firstly.000 2Ws a month is not going to be viable from purely a dealership angle. Now. we are a two-wheeler market rather than a car market.20%yoy as compared to 1% growth in the scooter market and 3% by moped sales respectively for the next coming years. Taiwan. many an apple cart would be upset. however. for the next 10 years we may remain so. A number of 2W & CV companies are unable to attract or retain good dealerships. Thailand. Of these over 70% were sold in Asia. The issue was obfuscated by the premia earlier and the eagerness of those in building trade to get into auto dealerships. India-5 million. But for how long? And if it aligns with global trends. In 2-wheelers. On the other hand. like Street. This is aided by the skewed development of the Indian economy. wherein IT jobs are growing faster than manufacturing jobs. Large markets were China-10 million. Indonesia & Vietnam . we are witnessing a churn first amongst weaker company's dealerships. you are not viable. There were 30 million 2-wheelers sold in the world. given the stark realities. That means that a company selling less than 90.1 million each and EU2 million. Suzuki re-entered into the market and Honda has arrived via HMSI into the motorcycle market. But cars will gain in importance even in this period. Japan. because it is defying global trends. Unless Indian producers make this animal for export.

Attendant hazards would be that competition will intensify further and company and dealer performances will get increasingly uneven as unviable players get squeezed. they are unlikely to go down further. better finance availability in smaller towns and a more open economy will continue to generate a decent growth rate in the industry. legally. with some of the strongest brands in the world. a risk of interest rates going up is quite likely). Dealers would have to be both . there may be no other way forward. (compared to earlier. rapidly changing markets and technologies in order to run their organizations and be able to sell their brands. the neighborhood. In India. Will this lead to multi brand outlets? In most countries of the world. In Mumbai and elsewhere. for brands other than Honda.lucky to be with the right producer(s) and be first-rate operators to be profitable. 2-wheelers are sold through multi brand outlets. mass marketing and mass consumption. Therefore. squeezing the opposition into a corner. companies are in an obligation to respond rapidly to customers. but in practice there is. they have to grapple with unstable. Product ownership 114 . Honda is playing the end game of its India strategy and. The fast changing business environment makes urgent necessity of product innovation and strategic management awareness. Lower interest rates. deliver what customers need and provide increasingly diverse products. Today. there are various parameters on which a dealership is adjudged like convenience of location. the automobile sector is the epitome of mass production. Firms can no longer produce and market huge amounts of standard products with a relatively stable market and technological climate. appearance of the facility. hours of operation. comfort of transactions. in my view. Today. Instead. "informal" multi-brand outlets have started to take roots. there is no bar. availability of information. For companies not able to provide economical volumes to their dealers. inviting & friendly layout. ease of viewing and selecting vehicles. like an efficient chess player.the volumes required to generate profits to develop new products in pace with the market.

Any potential entrant could consider launching the products targeted at the Value Conscious segment in the country. an in-depth analysis of the value perception of the target segment needs to be conducted. It includes core issues like:  Matching brand image with consumer expectations  Developing a future "brand oriented" product strategy  Developing "Piggyback" products which can create revenue. To satisfy the customers and to remain competitive. The Market Both 'Value Conscious' and 'Price Conscious' customer segments co-exist in the Indian market today. a firm 115 . however. building the brand successfully is complex. This would also spill over to after-sales service and spare parts support. However. work like vehicle documentation & processing and delivery would be important components of customer satisfaction. A successful brand is widely recognized by the customer. The latter is losing its share rapidly. Thus. building on the image of the core product range  Selecting and managing the right distribution channels  Selecting marketing media and advertising  Continuously "understanding the customer" and managing feedback.experience will not be restricted to purchase alone but would span the complete ownership cycle of the car.price' package should ensure an attractive value proposition appealing to the increasingly knowledgeable Indian Customer. This clearly proves that with the evolution of the Auto Industry in India. expensive and time taking. It would begin from enquiry management to vehicle selection. strategies that determine the direction of product innovation and cost management have become more crucial to corporate management today than ever before. The 'feature . the auto dealership has also evolved. Also.

Any new entrant therefore needs to have a specialized focus on Brand Building in the market. The consumers today are a highly informed mass and therefore. should be well selected and meaningful to understand a complete turn around or a distinct positioning. The intangible offerings have gained as much importance as the tangible product features itself. Such benchmarks. it would be better to plan how to make the products get to them.its people. Pursuing perfection is the only mantra to success in the highly competitive market of the present times. It is also helpful to look out for lessons that can be learnt from other brands inside and outside the automotive industry. If efficiency is not maximized throughout the entire value chain. As the average disposable income continues to grow amongst the Indian consumers and they grow to become more lifestyle and brand conscious. thereby losing the battle even before it is actually fought. The changing automobile industry in India has also given rise to a new business opportunity where dealerships are not just selling two-wheelers but 116 . durability and prices of products.needs to maximize its efficiency throughout its entire value chain. particularly because the competition is only bound to increase. Products don't sell themselves but if producers can understand market demand and consumer needs. With the recent strides in communication technologies. the marketing war presently revolves round the brands and the image as perceived by the potential customer. This entails strengthening the company's most valuable resource . there has been effortless flow of information enabling consumers to compare quality. costs can rise above those of rivals. it has lead to the completion of the Automobile evolution from Products to Brands. through market research. however.

frequent new model launches and the increasing penetration of finance and distribution will act as key growth drivers. led by the sales of motorcycles. to ensure that the dealership becomes a landmark. two-wheeler sales surged by over 17 per cent year-on-year (Y-o-Y) for the first 10 months of 2004-05. The ones who do not make the investment are likely to lose out in this race. and the success of certain new models launched during the period.7 per cent Yo-Y) in 2003-04. while moped sales are expected to stagnate or decline marginally in 2005-06.providing Mobility Solutions. which the customers will reckon with. escalated consistently during the April to January period due to increasing household incomes. The segment is expected to grow by 12-13 per cent in 2005-06. Sales growth.  Two-wheeler demand is expected to grow at a healthy rate of 11-12 per cent from 2004-05 to 2005-06.  The motorcycle segment witnessed stupendous growth in 2004-05 (20.4 per cent growth in 2003-04. scooter sales are likely to grow by 8 per cent. Robust Demand to Continue  After an 11. The idea has evolved to reduce the burden on the customer by making the right investments in infrastructure and HR. Rising household incomes.  Led by the ungeared segment. 117 . The buoyant growth in this segment will be maintained on account of the entry of global players like Honda Motors and Suzuki and the domestic players' growing focus on motorcycles.3 per cent Y-o-Y) after a moderate performance (growth of 13. easy availability of finance.

which require addressing at the national and international levels. And where does this leave smaller players like LML (going through some very tough times as of now). Or. and inter-Sectoral industrial growth and thus conduce conditions for general economic and social well being. There is need for coordinated research and development. So. SUGGESTIONS AT THE NATIONAL LEVEL As products get complicated. actually more like God! But there is always a doubt if this price based competition is good for the health of the industry. dealers should work hard to improve the service end of their operations. Some suggested steps at both levels are listed below. standardization of designs and broader technologies. Honda has already announced that all its scooters would be fuel injected by 2010. The Indian two wheeler market is increasingly becoming a price warfield.Suggestions SUGGESTED MEASURES FOR MORE CONDUCIVE GROWTH OF TWO WHEELER AUTOMOBILE INDUSTRY IN INDIA The automobile industry across the world has great potential to trigger sustained employment. Everyone and their competitor wants to win the title of the 'World's cheapest bike' and the cutsomer has become the King. Everyone eating their own margins in the quest for greater marketshare and farther market expansion. My educated guess about the Honda bikes in future will be fuel injected.most dealers in the country are not-should stand to gain. dealers who are services oriented . Fuel Injection on 2-wheelers is round the corner. Kinetic (good 118 . because. effective cost cutting to enhance affordability and loosening of trade barriers across the globe. However. There are separate measures. one can expect that there will be greater drive-ins at the dealers' workshops. mobility. there is need to promote and sustain international cooperation between Governments and industry. and that is largely a matter of attitude & culture.

Without volumes. trying hard in motorcycles) and even Yamaha. like TVS. questionable field network.TVS and Hero Motors.scooters. Fighting with Bajaj Auto will require reduction in the selling price of the bike thus decreasing the profit margins. Or in some cases. high volume game and smaller manufacturers need to get out of this rut to survive. So a Centra loses its technical advantage to a CT 100 very quickly. it is mostly copied very quickly by rivals as most of the R&D is supplier driven. where R&D does get a priority. the price of the final product goes up. The only way out seems to be technical innovation which can give a low volumes company advantage over a high volume one. which the suppliers won't mind doing considering the volumes that these offer. A high percentage of the market is shifting to a low margin. So Kinetic should not be doing a Boss and TVS should not be putting its energies into a Star or even a 119 . one is not in a position to get the best prices and without the best component prices. Big Manufacturers like Hero Honda or Bajaj Auto can arm twist suppliers to deliver parts cheaper. The other way out of this vicious circle is by concentrating on niches. Indian bike manufacturers till now have focussed on street commuters only. Thus the fat gets fatter while the small gets smaller and may eventually get wiped out. This is like a vicious circle : Low volumes > High component prices > High final price > Still lower volumes > Low profitability or another way forward may be Low volumes > High component prices > Low final prices > Compromise on margins > Low profitability. Unfortunately low volumes > low profitability also means that less investment in R&D. Still another way forward may be like this Low volumes > Low component prices (by compromising on component quality) > Low final product price > High volumes > Low dependability > Low customer satisfaction > Low volumes > Low profitability.

8 in the case of motorcycles and from 3. the share of demand from the rural areas is projected to rise steadily . but present demand profile inhibits volume production.Centra. In the case of the upper income groups (those who earn more than Rs 180.000 per annum). World over.7. this difference is projected to fall from 5. Need for a Comprehensive Automotive Policy The extant policy has drawn many overseas companies into India but needs to be more investor friendly. 120 . Performance and quality should be the marketing weapons rather than price Rural Market Rise Thanks to the rapid rise projected in rural incomes over the next few years. cut costs and engraft versatility. access new markets. the majors have consolidated to elevate technology. especially in the upper income groups.by the end of the decade. As a result. While some part of this is clearly due to the fact that rural areas are home to the majority of the country's population.9 to 4. the gap between rural and urban usage patterns is also projected to decline significantly. address emerging problems and be WTO compatible. while roughly 2 per cent of 1995-96 demand came from rural areas and this rose to 9 per cent in 2003-04. enlarge product range.4 to 2. this is expected to rise to just under 12 per cent in 2009-10. The Indian car market is full of possibilities. and conduces contention rather than competition. save by a few. modular assemblies and systems integration by component suppliers and E-Commerce. Small companies should be focussing on 150cc + niches and experiment with new bodystyles. the change is even starker. They have resorted to common platforms. In the case of scooters.5 to 1.5 in the case of mopeds. from 2.

Volume is important for any manufacturing enterprise. limited resources for international marketing and establishment of an efficient supply chain. However. which purchase from tier 2 & 3. it is more important for automobile sector. This would require three pronged marketing strategy: exports through OEMs for their global sourcing requirements. However. concerted efforts will be required to take auto manufacturing to a self-sustaining level where they shall have volumes. India has the potential to be a global automotive power. The main challenges are lower volume – low scale. In this process. 121 . inadequate R&D/technology support. lower productivity levels. with individual small components being supplied to the system integrators instead of the vehicle manufacturers. most of the SSI units manufacturing smaller individual components are on their way to become tier 2 and tier 3 suppliers. fragmentation. both for the manufacture of vehicles as well as auto components. "System Supply" of integrated components and sub-systems is becoming the order of the day. generate requisite technology and meet evolving emission requirements. The investment and fiscal policies should create an environment for volume production and indigenous capability for innovation for small cars and auto components. Indian auto sector needs to grow collaterally and in harmony with world industry. It should be possible to achieve an export target of US $ 1 billion by 2005 and US $ 2.The automotive industry is in the midst of a major structural transformation in today's globalized scenario.7 billion by 2010. while the larger companies including most MNC’s are being transformed into tier 1 companies. export to tier I manufacturers as a part of their international supply chain and direct exports to aftermarket. Lack of volume will not only inhibit efficient manufacture but also R&D and introduction of new models. and sell to the auto manufacturers. Auto components manufacturers have been slowly gaining global recognition and maintaining a certain level of exports despite the recent downturn.

4% & RNR in addition to 1% on precious metal 122 . Total taxes from both Center and State as proposed by SIAM not to exceed 25%.VAT in all States VAT system of taxation required to be implemented simultaneously throughout the country in all States and Union Territories at the same time. This should be long term and the share of taxation in the total value of the ultimate customer needs to be defined. checks unhealthy competition and reduces tax evasion. No separate classification of Capital Goods Multiple levies and Industrial input One of the stated objectives of VAT is to reduce multiple levies. It helps automobile industry to plan and commit long-term investments. Designated rate should not exceed 9%. State VAT Rate and Classification of goods Uniform rate structure across the country helps in avoiding diversion of trade from one State to another. SIAM recommends such a policy in taxing goods and services under VAT. Homogeneity is the essence of VAT and all States should come together to accept a common law under VAT. Uniform classification across all States and central taxes would create favorable environment for growth of industry. Basic rationale needs to be developed for generation of revenue from industrial products. Considering Cenvat at 16%. All forms. The classification of goods should be aligned to central taxes to reduce litigation. This will avoid serious market distortions and enhances industry's competitiveness. returns & declarations should be common to avoid artificial barriers and complexities. Number of rates under VAT should be 0%.

All other levies like Octroi. which are in phases in unviable locations. Automobile manufacturers having one manufacturing facility in the country sells more than 80% of the production outside the Sate and forced to seek refund from the State Government for excess input tax credit.and 20% on petroleum products. Any detrimental variations or withdrawal will affect the viability of such investments. SIAM suggests VAT rate of 4% on all industrial input to mitigate the refund issue. These location disadvantages are partially offset by fiscal incentives. All interstate transactions should be at zero rate. It is heartening to note that all states have agreed in principle to honor all existing incentives under vat. Entry Tax should be abolished. manufacturer selling predominantly in interstate ends up having huge input tax credit without set-off. 123 . Further when interstate transactions are zero rated. This mechanism should not be affected even under VAT. Sales Tax Incentives Automobile manufacturers have made huge investments. Further automobile manufacturers 'Stock Transfer' goods by setting up huge facilities to strengthen distribution network in order to reach the product to the customer at the earliest and at least cost. This may adversely impact the country's image as an attractive investment destination.

ANNEXURES 124 .

Detailed list of product profile of different manufacturers with their prices Contd… On next page Source : Auto India. 2006 BIBLIOGRAPHY 125 . Jan .

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