India Automobile Industry

REPORT SUBTITLE

Omar Zafar Ansari

Zara Shah Nawaz
Fahad Fida
Shahrukh Ahmed
Nazia Ikram
Komal Devi
Jennifer Nerrissa | Strategic Market Management | 07-10-2017

Indian Automobile Industry

1.1 Introduction
The case study is focused on the Indian Automobile industry, more precisely it is
concentrated to niche market of small cars, where India being one of the top automobile
production countries is in the limelight of global industry for small car niche. The primary
reason for the inclination towards the production of mini cars is based upon consumers
needs.

1.2 Industry Scanning

The domestic market in India is growing very rapidly, and it may perhaps have
somewhat less demanding customers and lesser regulatory constraints. Which is
opportunity for foreign car manufactures to enter in lucrative Indian automobile
market. Below are the key aspects that are creating boom in automobile market
especially in passenger car segment. Due to the Indias strong base of auto ancillary
manufacturers significantly increases its appeal as an investment destination for
foreign car makers. It gives the opportunity to the manufactures to gain the advantage
of low cost components and which also gives the manufactures to have competitive
cost advantage in the international market. Many of these companies have acquired
facilities in Indian market and successfully grown their international business.Car
makers are themselves taking the initiative to develop vendor bases in India. Logan
[sedan] project, Renault facilitated the entry of a couple of vendors from Europe into
India. They have set up shop here. Hyundai has brought in a few vendors from Korea,
and they are located close to its plant in Chennai.

Frances Renault and its Japanese affiliate, Nissan, announced plans to team up with
Indian tractor giant Mahindra & Mahindra to build the countrys largest passenger car
manufacturing plant. Industry rumors suggest that eventually the number could
double to 800,000. Were that to happen, it would almost match and thus double the
number of cars 1.1 million that the entire Indian auto industry now produces
each year.

Indias passenger vehicle business has evolved from rather modest beginnings in the
mid-1950s, and was a near duopoly for more than three decades with two domestic
manufacturers Hindustan Motors and Premier Automobiles. So government
encouraged new entrants in the manufacturing sector of automobile Maruti Udyog a
government-supported joint venture with Japans Suzuki. This also increased the
imagination demand of the customers.

As per the industry experts, below will be the projected summary of overall passenger
car making capacity in India.

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 Car Making Capacity in India

3.9

2
1.1 0.8
CURRENT NEW PREDICTED TOTAL
PREDICTED
PRODUCTION

1.3 Market Scanning

INTRODUCTION:
The case study is focused on the Indian Automobile Market, more precisely it is
concentrated to niche market of small cars, where India being one of the top
automobile production countries is in the limelight of global industry for small car
niche. The primary reason for the inclination towards the production of mini cars is
based upon consumers needs. Foreign investors is another aspect of attraction which
is injecting huge financial resources, subsequently resulting in growing GDP which is
also evident from the growth in GDP by 9% due to automobile sector growing rapidly.
However India is losing its overall global presence for luxury cars. This triggers to a
risk that India will be only concentrated to this specific stream of business, which
alone cannot bring a drastic change in the overall countrys economy. Following are
the viewpoints drafted, which elaborates the strength, weakness, threats and
opportunities along with PESTLE Analysis.

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 STRENGTH:

Amalgamation with international automobile production giants, is one of key

elements revolving around the Indian automobile industry, such as Renault and
Nissan has planned to integrate with Mahindra & Mahindra for manufacturing
Indias largest passenger car. Moreover it is suggested that this amalgamation will
result in production of around 800,000 cars per annum which is close to current
production of vehicles throughout in India i.e., 1.1 million, this amalgamation will
contribute 73% to total current production of vehicles.
India is endeavoring to produce the large volumes of vehicles, it was estimated that it
would be able to produce volume of cars as China which is the largest manufacture of
the vehicles around the globe.
The low production costs such as cheaper labor and growing vendor base for
components makes India global hub for small cars. This is evident from the presence
of 9 out of top 10 automobiles giants.
About two-third of planned investments in the Indian passenger car industry about 5.4
billion are supposed to come from Tata Motors, Maruti and Hyundai. Specifically
Tata Motors has quite a great experience in the manufacture of low budget cars, Tata
Nano is a great example of it.

WEAKNESS:

High taxes on the fuel in the India and poor road infrastructure restrains the
attraction for the production of luxury cars to be manufactured by automobile
producers, this can be easily observed when Ford, GM and Peugeot introduced some
international models through their Indian joint ventures, which could not meet the
Indian consumer needs, who are more inclined towards higher fuel efficiency and low
cost cars.

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 OPPORTUNITIES:

Based on the fiscal year 15-16 results, Indian automobile contributed 7.1% of GDP as
this is quite a good contribution from a single stream from which it is highly likely that
a government may express reduction in the tax levies, which is a positive sign and
Indian automobile may expand their operations.
As per survey conducted by Economist it is expected 60% of the incremental demand
of 2.8 million vehicles to come from Asia by 2020, with China and India topping the
charts. It can be proved to be a great opportunity for India.
India has strong base of auto ancillary manufacturing which could significantly appeal
as an investment destination for foreign car makers.

THREATS:

India is cost effective for the manufacture of cars but more cost effective options are
still available in the market such as China which could be cheaper by about 12 to 15
percent. This triggers a risk that, car maker targeting only the export market will
prefer China as a manufacturing base. India need to work on this aspect to save the
market share.
Some critics as also say that investment by auto majors in Indian auto industry is yet at
immature stage yet it would be early to say India to be hub for small cars due to
presence of other countries offering more facilities in cheaper rates like Korea and
China.

POLITICAL:

Indian government auto policy is aimed at promoting an integrated, phased and

conductive growth of the Indian automobile industry such is evident from the
establishment of National Automotive Testing and R&D Infrastructure Project
(NATRiP) which act as a middleware to convey the market trends to the government
for taking new initiatives for the further development of the automobile industry of
country. Government has also been involved in emphasizing R&D activities carried
out by companies in India by giving a weighted tax deduction of up to 150% for in
house research activities.

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 ECONOMIC:

The economic environment of India is very favorable for Automobile industry, due to
good contribution to GDP. Based upon the fiscal year 15-16 results, Indian
automobile contributed 7.1% of GDP overall 22% of the countrys manufacturing
GDP. http://www.makeinindia.com/article/-/v/make-in-india-sector-survey-automobile
India has strong base of auto ancillary manufacturing which forms a great proportion
in the countrys exports business, such as Mercedes Benz also exports more
components out of India than the revenues it generates from its domestic vehicle
sales. A well reputed international presence from the aspect of cheap cars is famous
for India, it has been quoted by the CEO of Nissan and Renault that importing cars
from India is 35% cheaper than to import from Europe.
The country is also currently the 6th largest market in the world for automobiles and
is expected to become the world's third-biggest car market by the year 2020. As per
the Automotive Components Manufacturers Association of India (ACMA), the world
standings for the Indian automobile sector are described following;

o Largest tractor manufacturer

o 2nd largest two wheeler manufacturer
o 2nd largest bus manufacturer
o 5th largest heavy truck manufacturer
o 6th largest car manufacturer
o 8th largest commercial vehicle manufacturer

SOCIAL:

Since changed lifestyle of people, leads to increased purchase of automobiles, so

automobile sector have a large customer base to serve however most of it is inclined
towards cheap cars with efficient fuel mileage. Average household size in India is
around 5 persons.
(https://en.wikipedia.org/wiki/Indian_states_ranking_by_household_size) The
vehicles on the road especially if three-wheelers and commercial vehicles are added
now are comparable to the total number of households in India.

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 TECHNOLOGICAL:

The Government of India aims to develop India as a global manufacturing as well as

research and development (R&D) hub. In this regard it has established National
Automotive Testing and R&D Infrastructure Project (NATRiP) centres as well as a
National Automotive Board to act as facilitator between the government and the
industry. Moreover as per Yezdi Nagporewalla, head of automotive practice at
consulting firm KPMG, many companies are transferring their research work to
India.

LEGAL:

The automotive industry is regulated by the Ministry of Shipping, Road Transport &
Highways. The principal instrument governing the automotive sector in India is the
Motor Vehicles Act, 1988 (MVA) along with the Central Motor Vehicles Rules 1989
(CMVR), the Act governs emission norms and safety standards in India for preparing
safety standards, consideration is on various aspects. The Indian standards and norms
are at par with international standards.

ENVIRONMENTAL:

Physical infrastructure such as roads and bridges affect the use of automobiles. If
there is good availability of roads or the roads are smooth then it will affect the use of
automobiles. Physical conditions like environmental situation affect the use of
automobiles. If the environment is pleasant then it will lead to more use of vehicles.

1.4 COMPETITION ANALYSIS

India likely to become a global hub for small car production low cost and
growing vendor base

9/10 global automobile companies present in India

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 Increased competition for Ford and GM

Autopoliss prediction Top 6 global companies to lose market share

85% of Indian automobile market owned by 3 domestic companies

Competition Analysis

1950 - Indian passenger vehicle industry a duopoly of manufacturers Hindustan

Motors and Premier Automobiles for 30 years

1980 Maruti Udyog enters with Japanese Suzuki and dominates market for 10
years

1990 Korean Hyundai introduces Santro Model

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 Tata Motors launches a diesel driven small car Indica.

International cars by Ford, GM and Puegot fail

Demand for high fuel efficient, low purchase cost and comfortable cars

1.5 ECONOMIC ANALYSIS

The biggest factor that is driving auto sales is Indias rapidly growing domestic market,
encouraged by 9%-plus GDP growth and rising incomes across its much-touted
250million-strong middle class.India is moving in this direction from the opening up
of the economy, they are welcoming foreign investment and other things that were
helping economic growth. As it would also decrease unemployment in the country and
uplift the living standard of the people. So, it would ultimately increase the buying
power of consumer. One of the reason of increase of car demand in domestic market
is penetration of vehicle financing in India is an important factor. Such financing
accounts for 85% to 90% of all total cars bought; typically up to 80% of the cars value
is financed.The increase of per capita income and constant decrease of unemployment
are two important factors which is positively shifting the demand of the passenger car
in the domestic market.

Below are some of the important economic indicators which justify the growth in
Indian automobile sector.

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India is an attractive base for exporting the cars to the other country markets. As
sourcing cars from India for the world markets is 35% cheaper than Europe. A
survey by the Economist in 2007 expects that 60% of the incremental demand of
2.8 million vehicles to come from Asia by 2020, with China and India topping the
charts which will result in loss of global share of world top six car manufactures.
Below mentioned is the data of Indian car export which shows demand of Indian
cars in world.

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 Importer Country Total Value in Million
USD

Mexico 443.7

South Africa 118.26

Saudi Arabia 66.72

Italy 51.89

United Kingdom 45.74

Spain 36.27

Chile 36.08

Belgium 33.17

Netherlands 29.34

United Arab Emirates 28.09

1.6 Counter Strategy

To maintain auto industry growth, India must make the right moves at all critical
stages of growth.

India should focus on how the industry, government, and key stakeholders in
other countries have sustained their auto industries

How India can use the same strategies to build growth momentum in their auto
industries

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 The core automobile industry supports a wide range of business divisions, this
leads to a multiplier effect for growth and economic development. Furthermore,
R&D and innovation within automotive can benefit the auto industry.

Economic Development

The automotive industry is important to global economic development. Globally,

automotive contributes roughly 3 percent of all GDP output; the share is even
higher in emerging markets.

There is also a close correlation between foreign direct investment (FDI) inflows
and automotive output, particularly in developing economies.

Economic development is primarily in two areas:

Industrial development

Mobility.

Fostering R&D And Innovation

R&D investment by automakers is driven by consumer demands for more product

variety, better performance, improved safety, higher emission standards, and lower
costs. Auto companies spend the third most on R&D of any industry.

Demand for fuel efficient cars needs to be encouraged by offering consumers

incentives to adopt these products, such as an expansion of the policy of little or
no duty being payable on electric vehicle parts.

A greater focus on export opportunities, India can provide cost-effective cars to

global standards.

Revenue Generation

The automotive sector contributes significant tax revenues from vehicle sales,
usage-related levies, personal income taxes, and business taxes. Production and
sales of new and used vehicles, parts, and services deliver excise, sales, value-
added, and local taxes and import duties.

Additionally, as automakers reap the benefits of globalization through exports,

they also generate foreign exchange earnings.

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