Indian Auto Industry

Indian Auto Industry Current Scenario & Future Trends Index ? Evolution of Indian Auto Industry ? Market Segmentation ? PEST Analysis ? Porter’s 5 forces Analysis ? Obstacles, advantages and opportunities ? Analysis of Current trends ? Impact of Union Budget ? Impact of Tata Nano ? Impact of Tata Ace ? Future Trends in auto market Evolution of Automobile Industry Initial Years Manufacturing was licensed •High Customs duty on import •Steep excise duties & •sales tax •2 Major players: Premier Automobiles Ltd & Hindustan Motors Early to mid 90s •Seller’s market and long waiting periods Delicensing in 1993 •Removal of capacity restrictions •Decrease in customs & excise •Auto finance boom- more players (foreign banks & non banking companies, better schemes. Mid 90s – Till now •Buyers market •Increase in Indigenization •Easy Auto finance •Manufactures diversifying into related activities: finance lease, fleet management, insurance and used car market 1980s •Entry of MUL, better product, with government support •Seller’s Market •Long Waiting Periods Market Segmentation • Two Wheeler • Three Wheeler • Passenger Vehicle(PV) • Commercial Vehicle(CV)* Category wise market share in 08-09 wheelers 3 Wheelers Passenger Vehicles Commercial Vehicles 4% 16% 4% 76% * This also includes Tractor volumes Market Growth Rate Total Industry Vs. Passenger Car Segment Growth Rate Passenger Cars 37% 22% 15% 17% 8% 15% Total Industry 35% Total Industry Vs. Commercial vehicle Segment Growth Rate Commercial vehicle 29% 17% 11%15% 33% Total Industry 18% 14% 15% 15% 3% 3% 14% 6% -2% 2007-08 3% 2003-04 2004-05 2005-06 2006-07 2008-09 -24% 2003-04 2004-05 2005-06 2006-07 -2% 2007-08 2008-09 Total Industry Vs. Three Wheeler Segment Growth Rate Three Wheelers 29% 28% 15% Total Industry Total Industry Vs.

Two Wheelers Segment Growth Rate Two Wheelers 16% 17% 17% 15% 11%14% 5% Total Industry 15% 11% 14% 17% 5% 16% 15% 0% 2005-06 2006-07 2003-04 2004-05 -2% 2007-08 2008-09 -10% 3% 2003-04 2004-05 2005-06 2006-07 -2% 2007-08 -5% 3% 2008-09 PEST Analysis Political ? ? ? ? ? Economic (-)# ? ? ? ? ? ? Legislation (M*) Home economy situation and trends (H) Overseas economies and trends(H) General/specific taxation issues (H) Market and trade cycles (H) Interest and exchange rates (M) (+/-) (+/-) (+/-) (+/-) (+/-) Regulatory bodies and processes(M) (+/-) Government policies(H) Trading policies (H) Wars and conflict (M) (+/-) (+/-) (-)

International trade/monetary issues (H) (+/-) Social ? ? ? ? ? Technological (+/-) (+/-) ? ? ? ? ? Lifestyle trends (L) Consumer attitudes and opinions(H) Competing technology development (H) Maturity of technology(M) Manufacturing maturity and capacity (H) Information and communications(M) Technology legislation (M) (+) (-) (-) (+) (+/-) Brand, company, technology image(H) (+/-) Major events and influences (M) Advertising and publicity (H) (+) (+) ? Innovation potential(M) (+) *H/M/L = Level of Impact (High/Med/Low) #(+/-) Kind of impact (Pos/Neg)

Porter’s 5 force Analysis Rivalry among competing Sellers: (Strong) • Since a major chunk of the market is shared by two to three major players in all the segments, rivalry among them is pretty high. • Companies are becoming more globalized, ramping up production and putting pressure on others to keep costs low. • The trend of consolidation of firms to keep up with larger companies exists. Threat of substitutes: (Weak) • Substitute for two wheelers is less. Recently launched Tata Nano can act as a substitute. • For new passenger cars the substitute is used cars.

But the used car business has not gained momentum. • For commercial vehicles the substitute is Railways and Air cargo. But currently both the sectors target different segments of the market. • Threat of the substitutes with newer technology is fairly strong, as new technology provides better fuel efficiency which can attract customers. (contd. ) Threat of New Entrants: (Moderate) • Huge initial investment, which acts as a barrier is required to start a new industry. • The larger companies already have leverage over new companies with capital and already existing R/D investment. Government regulations and standards is another hurdle that a new company would have to overcome. • All of the distribution channels are already filled up by major companies with recognizable names that have vehicles that are tailored to the current needs of the buyer. Hence, it would be hard to compete with that as a start-up company. • Globalization has eased the barriers. Threats due to Supplier power: (Moderate) • Some suppliers with monopoly in the market like Mico-bosch have strong bargaining power. • In general the suppliers mainly depend on the Auto manufacturers.

If manufacturers switch suppliers then the suppliers will lose their business. Threats due to Buyer power: (Strong) • Demanding customers • Quality consciousness • Price sensitivity • Rising fuel price making customers seeking fuel efficient vehicles Obstacles, Advantages and Opportunities in Indian Automobile Industry Obstacles • • • • Roads and Infrastructure Technology infrastructure shortage of skilled workers difficulty in understanding foreign customers and foreign regulations • Tough competition from china regarding low cost auto components Advantages The Indian government’s aggressive mission plan for the industry • Auto loans are more widely available in India • India is an almost an unlimited source of labor • India is also becoming a destination for automobile research and development. •Car penetration is about 7 cars per 1000 where as in US its more than 460 per 1000 and in Germany is about 500 •Being a low cost country its becoming the global hub. •increase in disposable incomes and standards of living •Recent study shows 11% of US car buyers are open to Indian cars •Collaboration with foreign players to produce superior quality products

Opportunities Analysis of PV Segment • Domestic sales recorded a double-digit growth for a period of five years in a row till FY08, but has slowed down to 0. 12% in FY09. Sales of multi-purpose vehicles (MPVs) rose by 6. 3%, reflecting a buoyant rural market. • The industry is facing a liquidity crunch, with nonavailability of credit and stringent lending norms. PV sales (with financing) have declined from 85% a year ago to around 65% today. • Exports grew at 53. 7%, driven by the strong growth posted by Hyundai and Maruti Suzuki. However, the global economic slowdown may affect export sales.

Analysis of CV Segment • Domestic sales declined by 21. 6%, with a huge drop of 37% in M/HCV and 8% in LCV. The lesser decline in LCV was largely due to low tonnage vehicles of the likes of ‘Ace’. • Sluggish industrial activity and the credit crunch have severely affected sales. This segment is the most dependent on financing with ~90% of vehicles being sold through financing. Analysis of Two-wheeler Segment • Reported a mild growth of 2. 5% in domestic sales in FY09 since the segment is now relatively less dependent on financing. Scooters and electric two wheelers have posted a growth of 8. 4% and 38. 4% y-o-y, respectively. The highest growth rate in electric two-wheeler indicates a shift in the demand toward fuelefficient vehicles. • The growth in scooter sales was fuelled by new launches and the growing demand for scooters without gears, primarily from new customer segments, including working women and older people. contd… • Better rural distribution networks and increased focus on rural areas by manufacturers, has helped the segment maintain a moderate growth. The growth in sales in rural areas is driven by the rise in agricultural income. The number of cash purchases is very high. • New engine technologies that increase horsepower while maintaining the high fuel efficiency of the four-stroke engine have strong potential to further boost sales. Three-wheeler segment • Domestic sales in the segment declined by 4. 1% y-o-y. From April 08-Jan 09, the passenger carrier segment grew by 12. 3% y-oy, while the goods carrier segment declined by 39% y-o-y due to increasing replacement by sub 1–tonner LCVs. Three-wheeler manufacturers have also increased their focus on exports owing to their strong performance. Auto Component Business • This sector has also seen its growth rates coming down from over 20% during 2002–08 to a single digit figure in the current financial year. • The slowing down of domestic automobile industry and declining exports due to low demand from global markets has resulted in a number of small ancillary units being under severe financial stress. • Also, there has been a severe liquidity crunch due to delayed payments from OEMs.

Impact of Union Budget 09-10 • National Highway Development Plan(NHDP) being implemented will increase freight movement and create demand in CV segment. • Reduction in excise duty applicable to large cars/utility vehicles with engine capacity of 2000 cc or more resulting in price reduction. • Demand may increased owing to the increase in disposable income due to alteration in income tax slabs. • Increase in allotment to Jawaharlal Nehru National Urban Renewal Mission will increase bus sales. • Extension of the tax holiday for 100% export oriented units (EOU) till 2010- 11.

Impact of Tata Nano • The Nano is BS-III compliant • Comes with all-new 2-cylinder aluminium MPFI 624cc petrol engine • A close substitute for 2 wheelers • Has created a new segment . • Low cost vehicle with high penetration • Example of operational excellence • Appreciation of Indian Auto Industry at the world level Impact of Tata Ace ? Competing with 3-wheeler goods carriers from Bajaj Auto, Piaggio and Force Motors. ? Created a new segment. Ace has been a major hit in the tier II and tier III cities as it catered to the right market with the right product. The Ace not only created a large impact in the Indian market but also exported to Sri Lanka and Nepal and plans to export to Russia, Indonesia, South Africa, Latin America and Europe. ? The improved engines performance allows Ace to travel 500 Kms in a day. Future Projections -PV Segment •Indian automotive industry has an advantage low- cost and fuel-efficient product range and manufacturing capabilities. •Global OEMs now have an opportunity to develop cars in India and even manufacture them for export to the Western markets. • Alternative fuel segment is gaining importance.

Players like Maruti and Mahindra Renault are planning to introduce factory fitted CNG kit to offer the benefits of lower running costs. Future projections – CV Segment •India is the 3rd-largest market for commercial vehicles. It is also the world’s one of the fastest growing CV market. •30% of agricultural produce in India now perishes en route to the market due to refrigeration gaps in the supply chain; hence, there is a nationwide need for refrigerated trucks. •An expected increase in defence spending will prompt new demand for commercial vehicles for military use.

Recent development in Auto Sector • • • • • • • • • Jaguar and Land Rover got launched in June 2009 Chevrolet Beat expected in Sep 2009 Toyota Fortuner, Prius(Hybrid vehicle) in Sep 2009 Volkswagen plans to launch Beetle ,Phaeton in Nov 2009 General Motors plans to launch Chevrolet Volt (Hybrid Vehicle) Nissan launched its new all-electric car, the Leaf Malaysian automaker, Proton is in discussion with M&M to enter Indian market M&M in talks with Renault to re-engineer Logan Hyundai i30 – Expected in November 2009 with hatch back Thank You

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