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

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.

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

Patel Jigar R.
Samtani Manoj
Parmar Sunil
Patel Urvesh

DECLARATION
We, PATEL JIGAR, SAMTANI MANOJ, PARMAR SUNIL, PATEL URVESH
hereby declare that the report on Comprehensive Project - I entitled on
Automobile Industry (Two - Wheeler) is a result of our own work and
indebtedness to other work publications, if any, have been duly acknowledged.

Place: Anand
Date: 05/01/2006

Patel Jigar
Samtani Manoj
Parmar Sunil
Patel Urvesh

TABLE OF CONTENT
Preface
Acknowledgement
Declaration
Executive summary
Objectives of the Study

Sr.
No.
1
2
3
4
5
6
7
8
9
10

Particulars

Page No.

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 Porters Five Force

01
09
14
22
28
40
54

Model
Future outlook
Conclusions/Suggestions

Annexure
Bibliography

77
89
95

LIST OF TABLES

SR.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

PAGE

NO.
1
2
3
4
5
6
7
8
9
10
11
12
13

NO.
9
10
15
20
23
39
46
51
52
68
70
91
94

LIST OF GRAPHS
SR.NO.

PARTICULARS

GRAPH

PAGE

NO.
1
2
3

NO.
1
2
6

1
2
3

Gross Turnover of Automobile Industry

Segmentation of Automobile Industry
Segmental Growth of the Indian Two Wheeler

4
5
6

Industry
Demand for Motorcycles, Mopeds & Scooters
Change in status within Two-wheeler Industry
Annual Growth in Demand for Motorcycles, Mopeds

4
5
6

8
8
8

7
8

& Scooters
Changing Scenario In Two Wheeler Industry
Shares of Two-Wheeler Manufacturers in Industry

7
8

13
22

9
10
11
12
13
14

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

9
10
11
12
13
14

33
35
43
47
48
66

LIST OF DIAGRAMS
SR.NO.
1
2
3
4
5

PARTICULARS
A three-wheeled business
Channel Structure
Competitive Model for Automobile Dealer
Grid Analysis
Regulatory Framework

DIAGRAM

PAGE

NO.
1
2
3
4
5

NO.
29
30
31
37
72

CHAPTER 1
EVOLUTION AND GROWTH

AUTOMOBILE INDUSTRY
In India, as in many other countries, the auto industry is one of the largest
industries. It is one of the key sectors of the economy. The industry comprises of
automobile and the auto component sectors and encompasses commercial
vehicles, multi utility vehicles, passenger cars, two-wheelers, three-wheelers,
tractors and related auto components. The industry has shown great advances
since deli censing and opening up of the sector to foreign direct investment (FDI)
in 1993. It has deep forward and backward linkages with the rest of the economy,
and hence, has a strong multiplier effect. 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. There are in place 15 manufacturers of cars and multi
utility vehicles, 9 of commercial vehicles, 14 of Two/Three Wheelers and 10 of
Tractors besides 5 of engines. With an investment of Rs.50,000 crores, the
turnover was Rs. 59,500 crores in Automotive Sector during 1999-2000. It
employs 4, 50,000 people directly and 100, 00,000 people indirectly
Gross Turnover of Automobile Industry
Graph: 1

Rs. (in million)

Gross Turnover of Automobile

Industry
800000
600000
400000
200000
0
1996- 1997- 1998- 1999- 2000- 2001- 200297
98
99
00
01
02
03
YEAR
Source: SIAM

10

This graph shows last few years scenario of Indian automobile industry
with considering the gross turnover. Here I can see the rapid increment from the
year 2000-01.
Segmentation of Automobile Industry
Graph: 2

Market Share 2004-05

13.44%

4.03%

3.90%

Commercial
Vehicle
Two-Wheeler
Three-Wheeler

78.63%

Passenger
Vehicle

Source: SIAM

This graph shows the segmentation of Indian Automobile industry. There

are mainly four segments Two-wheeler, Passenger Vehicles, Commercial
Vehicles and Three Wheelers. Two-wheeler has maximum market share (78.63),
Passenger vehicles is at second place with market share (13.44), commercial
vehicles is at third place with market share (4.03) and three Wheeler are at last
with market share (3.90).

11

HISTORICAL DEVELOPMENT: EVOLUTION OF TWOWHEELER INDUSTRY IN INDIA.

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

12

The two-wheeler market was opened to foreign competition in the mid80s. And the then market leaders - Escorts and Enfield - were caught unaware by
the onslaught of the 100cc bikes of the four Indo-Japanese joint ventures. With
the availability of fuel-efficient low power bikes, demand swelled, resulting in
Hero Honda - then the only producer of four stroke bikes (100cc category),
gaining a top slot. The first Japanese motorcycles were introduced in the early
eighties. TVS Suzuki and Hero Honda brought in the first two-stroke and fourstroke engine motorcycles respectively. The industry had a smooth ride in the
50s, 60s and 70s when the Government prohibited new entries and strictly
controlled capacity expansion. The industry saw a sudden growth in the 80s. The
industry witnessed a steady growth of 14% leading to a peak volume of 1.9mn
vehicles in 1990.
The entry of Kinetic Honda in mid-eighties with a variometric scooter
helped in providing ease of use to the scooter owners. This helped in inducing
youngsters and working women, towards buying scooters, who were earlier
inclined towards moped purchases. In the 90s, this trend was reversed with the
introduction of scooters. In line with this, the scooter segment has consistently
lost its part of the market share in the two-wheeler market.
In 1990, the entire automobile industry saw a drastic fall in demand. This
resulted in a decline of 15% in 1991 and 8% in 1992, resulting in a production
loss of 0.4mn vehicles. Barring Hero Honda, all the major producers suffered
from recession in FY93 and FY94. Hero Honda showed a marginal decline in
1992. The reasons for recession in the sector were the incessant rise in fuel
prices, high input costs and reduced purchasing power due to significant rise in
general price level and credit crunch in consumer financing. Factors like
increased production in 1992, due to new entrants coupled with the recession in
the industry resulted in company either reporting losses or a fall in profits.

13

The share of two-wheelers in automobile sector in terms of units sold was

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

14

GROWTH OF TWO WHEELER INDUSTRY

In terms of volume, 4,613,436 units of two-wheelers were sold in the
country in 9MFY2005 with 256,765 units exported. The total two-wheeler sales of
the Indian industry accounted for around 77.5% of the total vehicles sold in the
period mentioned.
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.
After facing its worst recession during the early 1990s, the industry
bounced back with a 25% increase in volume sales in FY1995. However, the
momentum could not be sustained and sales growth dipped to 20% in FY1996
and further down to 12% in FY1997. The economic slowdown in FY1998 took a
heavy toll of two-wheeler sales, with the year-on-year sales (volume) growth rate
declining to 3% that year. However, sales picked up thereafter mainly on the
strength of an increase in the disposable income of middle-income salaried
15

people, higher access to relatively inexpensive financing, and increasing

availability of fuel efficient two-wheeler models. Nevertheless, this phenomenon
proved short-lived and the two-wheeler sales declined marginally in FY2001. This
was followed by a revival in sales growth for the industry in FY2002. Although,
the overall two-wheeler sales increased in FY2002, the scooter and moped
segments faced de-growth. 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. 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.
The composition of the two-wheeler industry has witnessed sea changes
in the post-reform period. In 1991, the share of scooters was about 50 per cent of
the total 2-wheeler demand in the Indian market. Motorcycle and moped had
been experiencing almost equal level of shares in the total number of twowheelers. In 2003-04, 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. A clear picture of the motorcycle segment's
gaining importance during this period is exhibited by the Graph 4,5,6 depicting
total sales, share and annual growth during the period 1993-94 through 2003-04.

16

Source: ICRA Sectoral Analysis - Jan 2005

17

CHAPTER 2
PRODUCT PROFILE

18

PRODUCT PROFILE
The three main product segments in the two-wheeler category are
scooters, motorcycles and mopeds. However, in response to evolving
demographics and various other factors, other sub segments emerged, viz.
scooterettes, gearless scooters, and 4-stroke scooters. While the first two
emerged as a response to demographic changes, the introduction of 4-stroke
scooters has followed the imposition of stringent pollution control norms in the
early 2000. Besides, these prominent sub-segments, product groups within these
sub-segments have gained importance in the recent years. Examples include
125cc motorcycles, 100-125 cc gearless scooters, etc. The characteristics of
each of the three broad segments are discussed in Table 1.
Two-Wheelers: Comparative Characteristics
Table 1
Scooter

Motorcycle

Moped

> 22,000

> 30,000

> 12,000

Stroke

2-stroke, 4-stroke

Mainly 4-stroke 2-stroke

Engine Capacity (cc)

90-150

100, 125, > 125 50, 60

Ignition

Kick/Electronic

Kick/Electronic

Kick/Electronic

Engine Power (bhp)

6.5-9

7-8 and above

2-3

Weight (kg)

90-100

> 100

60-70

Fuel Efficiency (kms per litre) 50-75

50-80+

70-80

Load Carrying

Highest

Low

Price (Rs. as in January

2005)

High

Source: ICRA Sectoral Analysis - Jan 2005

19

PRODUCTION OF DIFFERENT COMPANIES DURING MAY-2004 TO JAN2005

The table given below shows the production of different companies during
May-2004 to Jan-2005 according to different engine capacity for motorcycle,
scooter and moped segments.
Production report
Table: 2

Category
May
Segment/Subsegme
2004
nt Manufacturer.

Two Wheelers
A:
Scooter/Scooterette
Wheel size 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

Jun
2004

Jul
2004

Aug
2004

Sep
2004

Oct
2004

Nov Dec
2004 2004

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

20

Jan
2005

125-150 cc
Bajaj Auto**
9316
HMSI
8250
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"

6687
8130
2554
0
17371
82442

7061
8100
2957
0
18118
91428

7496
8500
1929
0
17925
88615

7704
8750
2654
0
19108
90765

4849
9602
2293
0
16744
89830

2777
9616
1616
0
14009
78394

5568
8050
2850
0
16468
78388

6443
9600
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

21

Kinetic Engg
Majestic Auto
TVS Motor
Total C
Total of TW category

3373
6433
19884
29690
486164

2222
6797
21665
30684
487870

2129
6117
25338
33584
516416

2304
5800
24572
32676
499057

2820
5157
23227
31204
562507

2820
860
21900
800656
562507

Source: SIAM

Please Refer Annexure 2 for Product Profile of Companies

22

2620
3258
26579
25580
731419

2820
3699
24321
30840
530409

2350
2983
17982
23315
583008

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. There is rapid increment in the demand of the motorcycle from
35% to 77% between 1998-99 to2003-04. Similarly there is increment in the
market share of ungeared scooters from 7% to 12%. And the remaining has
decrease in the market share.

23

CHAPTER 3
DEMAND DETERMINANTS

24

DEMAND DRIVERS
The demand for two-wheelers has been influenced by a number of factors
over the past five years. The key demand drivers for the growth of the twowheeler industry are as follows:

Inadequate public transportation system, especially in the semi-urban

and rural areas;

Increased availability of cheap consumer financing in the past 3-4 years;

Increasing availability of fuel-efficient and low-maintenance models;

Increasing

transportation;
Changes in the demographic profile;

Difference between two-wheeler and passenger car prices, which makes

two-wheelers the entry level vehicle;

Steady increase in per capita income over the past five years; and

Increasing number of models with different features to satisfy diverse

urbanization,

which

creates

need

for

personal

consumer needs.
While the demand drivers listed here operate at the broad level,
segmental demand is influenced by segment-specific factors.

Price of different company

Price of different model of different manufacturers is shown in Annexure1.
Price factor is main determinant of the demand.

25

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.
The table: 4 show, that just two per cent of those with a family income of
less than Rs. 90,000 p.a. owned a motorcycle in 2001-02.
In the income group above this, that is those earning between Rs. 90,000
and Rs. 2 lakh a year, the number owning motorcycles is as high as 15 per cent.
And in the Rs. 2-5 lakh income earning households, around 29 per cent owned
motorcycles.
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. '000
Less than 90
90-200
200-500
500-1000
1000-2000
2000-5000
5000 and above
All India

Scooters
3
20
30
32
24
23
22
8

Motor-cycles
2
15
29
34
35
44
56
7

Source: NCAER

The same is true of most other categories. Naturally, then, as families

move up the income ladder, their consumption habits change dramatically, giving
rise to a more than expected (based on the usual GDP growth figures, that is)
26

surge in demand. In 1995-96, 80 per cent of Indian families earned less than Rs
90,000 per annum, 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. 2-10 lakh in 1995-96,
this doubled by 2001-02 and is forecast to rise to 13 per cent by the end of the
decade. Those earning over Rs. 10 lakh, around 0.2 per cent of the population in
2001-02, will rise to 1.7 per cent by the end of the decade.

PENETRATION OF TWO-WHEELERS
On a base of around 28mn vehicles on Indian roads and around 175mn
households, there were only 160 motorized two-wheelers per thousand
households in FY98. This compares poorly with countries like Thailand where it is
around 600 per thousand households. Also with a household size of 5.5 persons
and more than one wage earner in about 60% of the households, the potential for
a second vehicle demand is also good. Post-liberalization (ie FY92 to FY96)
Indian households have graduated to higher income groups, 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. In case of some special schemes like the 0%
interest and low down payment scheme, (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

27

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

Sales pattern through out the year

28

There was consent at the opinion that there is a slump in June, July and
August and also during the second half of December. At the time of festivals,
especially Dusshera and Diwali or at the time of the marriage season, the sales
are high. The reason given for slump were a) In summers, people generally go for summer tours and spend a lot of
money so they postpone their purchases.
b) Because of religious reasons (Shraddh) in the month of August.
c) People dont prefer to purchase vehicles during the rainy season.
New policies launched by different companies
A Company has launched a new policy "Passport Programme" for its
customers. In this policy, customers have to pay Rs95 as registration charges.
He can avail of several benefits like One-year free Accident Insurance cover worth Rs100, 000.
Exclusive rewards and surprise gifts from Hero Honda Motors Ltd.
Special

service

discounts

at

all

authorized

Hero

Honda

Dealerships/Service Centers.
Special discounts on the purchase of the spares.
Invitation to events such as movie shows, musical nights and carnivals.
"Crorepati Hungama" a sales promotion scheme started by a company.
Diwali special offer
Navratri special offer etc.

29

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

30

purchases for consumer durables has increased over the years. 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.

EXCISE AND CUSTOMS DUTY STRUCTURE

Existing Duty Structure
Table: 4
Items

Excise
(%)

Duty Customs

Duty

(%) 2001-02

2001-02
2-wheelers
2-wheelers
Secondhand

Upto
Above
Motorcycles

75cc

16%

60%

75cc
(including

16%

60%

mopeds) and cycles fitted with auxiliary

motor
Upto

75cc

16%

105%

Above

75cc

16%

105%

Source: FICCI & SIAM

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%. Thus this will make effect on the price of the vehicle.

31

Changing Income Demographics will Drive Changes in Demand

The rapid rise in the country's middle and upper income classes, more
than overall GDP growth per se, is likely to lead to a dramatic hike in the demand
for big-ticket items like motorcycles, cars/jeeps etc.
As a result, 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,
that for scooters will remain stagnant at around 8 per cent, will double for
motorcycles to over 28 per cent. In terms of demand motorcycles will nearly
touch the 8.5 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.

32

CHAPTER 4
MAJOR PLAYERS

33

MARKET SHARE OF VARIOUS FIRMS OR BRANDS

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

Source: ICRA Sectoral Analysis - Jan 2005

34

Although the three players have dominated the market for a relative long period
of time, their individual market shares have undergone a major change. Bajaj
Auto was the undisputed market leader till FY2000, accounting for 32% of the
two-wheeler industry volumes in the country that year. Bajaj Auto dominance
arose from its complete hold over the scooter market. However, as the demand
started shifting towards motorcycles, the company witnessed a gradual erosion
of its market share. HHML, which had concentrated on the motorcycle segment,
was the main beneficiary, and almost doubled its market share from 20% in
FY2000 to 40% in 9MFY2005 to emerge as the market leader. TVS, on the other
hand, witnessed an overall decline in market share from 22% in FY2000 to 18%
in 9MFY2005. 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, scooter
and moped segments
Domestic Sales flash report for September 2004
Table: 5
Category
Segment/Subsegme
nt Manufacturer.
Two Wheelers
A:

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

Jan

2004

2004

2004

2004

2004

2004

2004

2004

2005

Scooter/Scooterette

35

Wheelsize not over

12"
A1: Engine capacity
<75 cc
Bajaj Auto
2145
Kinetic Engg 2600
LML
1
TVS Motor
5948
Total
10694
A2:
Engine

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

capacity 75-125 cc
Bajaj Auto
366
HMSI
24782
Kinetic Engg 5916
LML
0
Majestic Auto 102
TVS Motor
10690
Total
41856
A3:
Engine

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

capacity 125-150 cc
Bajaj Auto**
HMSI
LML
TVS Motor
Total
Total A
B:

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

1973

1721

1299

1990

1677

1249

1249

1386

7611
8183
2100
0
17894
70444

Motorcycle/StepThrough:
Wheel

size

more than 12"

B1:
Engine
capacity <75 cc
Bajaj Auto
1622
B2:
Engine

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
36

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

3514
6675
698
40282
15384
31968

2901
5121
644
45468
10857
324750

3346
3534
459
4319
12847
315685

21110
10100
2211
3999
4577

22872
13427
1465
3509
7896

20472
14269
413
2522
6841

4539
9698
398
36480
14797
361125

20728
13346
2884
345
19386
5582
41997 49169 44517 62721

3670
8022
167
57064
12712
401505

3915
7349
94
50388
14856
0060

3344
6146
94
48470
11506
381763

3080
4310
51
44094
9553
347414

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

capacity over 250

cc
Royal Enfield 1968
1956
Total B
361147 6560
C: Mopeds:

2259 2214 2200 2700 2611

2103
2816
37789 36371 42803 483763 47921 45945 435665

Engine capacity
<75
cc,
wheels over 12"
Kinetic Engg 2733
Majestic Auto 3071
TVS Motor
19829
Total C
25633
Total of TW
457224
category

2777
3514
21048
27339

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

Source: SIAM
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 20.5 per cent growth in March.

37

Hero Honda sold 2,31,593 bikes in March, up 20.5 per cent from 1,92,181
units in the same month a year earlier. The bike market leader said sales in the
year ending March rose 26.6 per cent to 2,621,400 units from 2,070,157 a year
ago.
Indias second-biggest motor cycle maker Bajaj Auto Ltd today said its
March sales rose 17.8 per cent to 1,63,530 units from 1,38,819 a year ago. Bajaj
said sales of motorcycles rose 42.9 per cent to 1,34,670 units. In the past month,
exports rose 79.1 per cent to 24,404 units, the two-wheeler firm added.
During 2004-05, Bajajs motorcycle sales grew at a scorching rate of 41.6
per cent in an industry growing by 21 per cent. In the past fiscal, almost 1,25,000
motor cycles were sold in international markets, establishing significant presence
in Sri Lanka, Bangladesh, Colombia, Guatemala and other Central American
countries.
TVS Motor Co Ltd said its March vehicle sales rose 5.6 per cent to
1,06,218 from 1,00,591 a year earlier. Indias third-largest two-wheeler maker
said motorcycle sales rose 3.6 per cent to 64,273 units in March from 62,060 a
year earlier. Its scooterettes sales recorded 17 per cent growth to 18,135 units in
the last month against 15,512 units in the year-ago month. On the export front,
TVS Motor saw 101 per cent growth at 6,662 units.

38

CHAPTER 5
DISTRIBUTION CHANNEL

39

DISTRIBUTION CHANNEL
In Automobile industry, the basic distribution channel prevailing includes 3
major steps, like Manufacturer: who has the finished products with him. State
wise Authorised dealer: State-wise Authorised Dealers are appointed by the
manufacturers on certain conditions and criterias - Customer: The customer
then can buy the product from the Dealers.

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. While managing
product development and manufacturing is critical in the supply chain, the key to
market success lies in the successful customer acquisition and more importantly
retention.
Automobile dealers are the most significant part of any brand
representation in the market place. A company or brand is as good as its
representation in the market. Establishing a well-planned dealership network is a
bare essential to market products successfully. Importance of sustaining quality
of 'customer touch points' was never felt so relevant before. Hence, in the current
scenario, performance of dealers is an indication of performance of brand itself
and vice versa.

40

A three-wheeled business: How does it balance?

Diagram: 1

Automobile dealers business can be compared to a three-wheeler. The

three wheels of the business are sales, after-sales service and spares. A sale is
like front wheel. A dealer principal on the driving seat always likes to steer this
wheel to give direction to his/her business. However, many a time, the following
two wheels are ignored: the rear two wheels are the ones, which take the
maximum load of passengers (customers) who ultimately pay for the ride while
sales give direction. These are the changing rules of the automobile dealership
business with the change in the distribution channel structure over period of time.
Chart 1 below indicates how automotive distribution structure has changed in the
past few decades.
The distribution has changed from a single channel to multiple channel of
contact, for both sales and after-sales services offered to the customer. With the
multiplying of channels, the competition has also grown multifold. Multi-brand
41

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, only from small time local garages, is evolving into
a larger organised independent service provider.
In the given situation, the business model of automotive dealers is clearly
under tremendous pressure from all the business angles. The forces acting on
the dealer business are indicated in the Chart given below.
Bargaining power of OEMs is making dealers increasingly invest into the
infrastructure to enhance the customer experience. On the other hand,
customers are getting savvier and the bar of minimum service expectation is
rising day by day. There is increasing threat of new entrants as OEMs are
appointing more and more distribution points to enhance reach and penetration
42

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. Discounts and freebies are not a seasonal
affair anymore. All this has lead to drastic shrinking of margins in the new vehicle
sales business. Some progressive dealers confronted these challenges and
worked their way to sustain bottom lines through increased focus on after-sales
business.
However, 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, lubricants, auto components and auto accessories are entering the
lucrative automotive service business. This will be the biggest ever challenge
faced by the automotive dealers in India. The automotive dealer's business was

43

redefined from selling vehicles to servicing customers in the late nineties with the
entry of multinationals in India. However, this new definition of the business itself
is under threat with the newly emerging competition.

A word of caution
Well-known brands in the market like TVS, Cummins, Bosch, Castrol, Gulf
Oil, and Reliance have already forayed into the after sales business in some way
and many more are on the verge of entry. With fast pace of new vehicle sales,
dealers cannot ignore the sales function (even though it may not add much to
bottom line or sometimes negatively impact it). However, if the focus of
dealership remains only on sales, the opportunity to earn from growing aftersales service business would be exploited by the independent service providers.
Any two-wheeler owner evaluates a type of service center on 4 Ps of
service channel selection. 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, given the higher overhead
costs. However, 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. There are very few options left with the automotive dealers of
this era. They either change themselves and their systems to be more customers
focused or concede the business to others.

44

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,
Pricing & margins
Sales & marketing
After-sales service & parts
Warranty
Sales representatives,
Service representatives,
Training, and manufacturer relationship.
The DSS study is based on TRI*M, NFO's proprietary stakeholder
management system. The TRI*M index score provides a measure of the
relationship strength that a given manufacturer enjoys with its dealers.

45

The industry average score of 64 reflects a relatively low level of

satisfaction and indicates that dealers are vulnerable to defections. The study
reveals that there are more 'uninvolved' (neither satisfied nor committed) dealers
than 'partners' (both satisfied and committed) in the automotive industry.
The key to building partners is to focus on the most critical areas that
impact dealer satisfaction and commitment to the manufacturer. They are:
effectiveness of brand positioning, builds high quality products, builds products
according to customer's needs, and concern for dealer profitability.
Honda Scooters and Toyota Kirloskar lead their respective segments with
an identical score of 102, which is significantly higher than the second-ranked
manufacturers. At this level of performance, both these manufacturers have been
able to develop strong relationships with their dealers.
Meeting dealer expectations on issues related to product, branding, and
after-sales support are among the common strengths for both these
manufacturers, Honda Scooters enjoy a high degree of commitment from their
dealers."
TVS

Motor

rank

second

in

the

two-wheeler

segments.

These

manufacturers have also developed strong relationships with their dealers.

According to its dealers, TVS excels in the areas of product quality and service
support.
The DSS study is based on responses from 966 two -wheeler dealers
from over 80 leading cities in India. 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.
DSS Rankings
Rankings for the DSS study are done at the industry segment-level to
provide comparisons among similar groups of dealers. The fact that all three
46

Honda affiliate companies rank among the top four manufacturers shows the
level of commitment by the manufacturer for the Indian market.
2004 DSS Ranking
Graph: 10

Source: ICRA

The chart above provides the make-level rankings. The industry average
score of 59 for two-wheeler reflects a relatively low level of satisfaction and
indicates that dealers are vulnerable to defections.
Using the score range shown earlier as a guide, three manufacturers fall
in the "highly retained/committed" zone, while eight manufacturers are in the
"retained/committed" zone. Based on the dealer evaluations that TNS received,
some of the key findings are as follows:
Honda Scooters lead the two-wheeler segment. Honda Scooters retain its
lead, with a six-point gain over 2002. Products fit with the market;
marketing & sales initiatives, market lead trade and consumer policies are
key areas that drive the segment leading scores for Honda Scooters.
47

 Hero Honda rank second in their segment. Hero Honda dealers rate the
company particularly highly on product quality, service & parts
representatives, and manufacturer relationship.
Bajaj Auto rank third in their segment. Bajaj's improvement in scores is
driven by improved product performance, investments in branding, 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. These groups are defined as follows:
Partners: Dealers that are both satisfied and committed. This group is the
most dedicated.
Mercenaries: Dealers that are satisfied but not committed. This group
needs a compelling reason to stay with the brand.
Hostages: Dealers that are not satisfied but remain committed. Dealers
can become hostages due to lack of viable options or other exit barriers.
Uninvolved: Dealers that are neither satisfied nor committed.

GRID Analysis
In order to identify the unique needs and expectations of dealers for each
manufacturer, dealer evaluations were taken on 92 performance attributes. The
GRID analysis categories these attributes by examining the dealer claimed
importance (y-axis) and impact on dealer commitment (x-axis). The attributes are
categorized under four quadrants:

48

Grid Analysis
Diagram: 4

Source: ICRA

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

49

This provides an indication of the relative strengths and weaknesses for the
two industry segments. 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. They are 'motivators' where the
manufacturers are not able to meet the expectations of the dealers. Honda
Scooters, which leads the segment, has been rated 'average' for both
these attributes.
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.
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.
The difference in expectations from the sales reps and after-sales reps
can be seen in the chart - sales reps related aspects fall in the 'motivator'
segment, while after-sales reps related aspects are 'hygiene' areas.

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. Dealers in east and south for
both segments report a relatively longer time in receiving delivery of new vehicles
and parts. Percentage of dealers recording 80% or more service capacity
utilization is similar across regions. It is critical to maintain this threshold of 80%

50

capacity utilization as the profitability of a dealer records a significant decline

below this number.
Delivery time for different region
Table: 6
North

East

West

South

All India

Time for delivery of

new vehicles (avg.
days)

Time for delivery of fast

moving parts (avg.
days)

10

19

12

12

12

Avg. monthly
volume in units

156

140

214

207

186

Avg. monthly service

volume in units

736

448

1016

871

826

Service
capacity
utilization
(%
responding over 80%
utilization)

57

60

60

60

59

sales

Source : SIAM

51

CHAPTER 6
KEY ISSUES AND TRENDS

52

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

53

 Educate employees the significance of service and it begins with them.

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

54

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.

CUSTOMER SATISFACTION REPORT OF TWO WHEELERS

According to the findings of the 2005 total customer satisfaction (TCS)
study released on 23rd June 2005, by market information provider TNS, the
newly launched Bajaj CT100 and Honda Unicorn rank highest in their respective
segments, while Hero Honda Splendor + leads the competitive 'executive' bikes.
Royal Enfield continues to dominate the niche 'cruiser' bikes with its Bullet 350
recording segment-best ratings.
Representing the responses of more than seven thousand newmotorcycle buyers towards the performance of 40 models in the key areas of
sales satisfaction, product quality, motorcycle performance and design, aftersales service, brand image, and cost-of-ownership, the 2005 Motorcycle Total
Customer Satisfaction (MTCS) study conducted by TNS specialist division, TNS
Automotive, is the largest syndicated motorcycle study in India. The TCS index
score provides a measure of satisfaction and loyalty a given model or brand
enjoys with its customers.

TCS Study Ranking Chart

Graph: 11

55

Source: SIAM

A commonly observed trend is the strong performance of new models

such as Bajaj CT100, Honda Unicorn, TVS StaR, and Yamaha Fazer. The

56

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

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. 480 billion in
FY2004, with the two-wheeler industry accounting for around 20% of this. The

57

top three two-wheeler manufacturers accounted for around 80% of total twowheeler sales in volume terms in FY2004. Thus, the two-wheeler industrys
performance is closely linked to the performance of these three players.
Raw material costs are the largest cost head for companies in the twowheeler industry. Raw materials alone account for around 65% of the total
operating costs. Companies have been pursuing active cost rationalization and
vendor rationalization programmes to rein in costs and improve margins. Despite
these
Efforts, the raw material cost as a percentage of operating income has
increased, and accounted for 67% of the total operating income in FY2004. This
rise can be attributed partly to the shift towards motorcycles where the material
costs are higher. With new model launches demanding advertisement and
publicity expenses, selling expenses as a percentage of operating expenses
have also moved up. On the other hand, with companies pruning the size of their
workforce, employee expenses, as a percentage of the overall expenses, have
declined.
However, while expenses under the head other expenses declined
between FY1999 and FY2003, they increased significantly in FY2004. While
interest charges as a percentage of operating income came down between
FY1999 and FY2004, on account of increasing investments, depreciation
charges as a percentage of operating income went up marginally over the same
period. Overall, the burden of capital related charges in the two-wheeler industry
increased from 3.6% in FY1999 to 4.2% in FY2004.
In addition to the cost structure and manufacturing expenses, other factors
like Marketing Expenses, Administrative Expenses, Taxes and duties, R& D,
Technological Tie-ups, Safety Criterias, Sales, Distribution and After Sales
Services Expenditures are also added and the final price of the product is
obtained by adding the profit margins.
Cost Structure of Two Wheeler Industry from FY1999-FY2004
58

Table: 7
FY1999 FY2000 FY2001 FY2002

FY2003

FY2004

SOURCE: ICRA

Company Specific Marketing Strategies

Big manufacturers like Bajaj Auto, Tvs, Hero Honda and various other small
players, 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, which give total customer satisfaction.
There has been a common marketing approach in this industry, 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

59

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. The scooters segment was the largest till FY1998, accounting for
around 42% of the two-wheeler sales (motorcycles and mopeds accounted for
37% and 21 % of the market respectively, that year). However, 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. Between
FY1996 and 9MFY2005, 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%, respectively.

Trends in Segmental Share in Industry Sales (FY1996-9MFY2005)

Graph:13
60

While scooter sales declined sharply by 28% in FY2001, motorcycle sales

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

61

motorcycles to scooters. With better ground clearance, larger wheels and better
suspension offered by motorcycles, they are well positioned to capture the rising
demand in rural areas where these characteristics matter most.
Scooters are perceived to be family vehicles, which offer more functional
value such as broader seat, bigger storage space and easier ride. However, with
the second-hand car market developing, a preference for used cars to new twowheelers among vehicle buyers cannot be ruled out. Nevertheless, the past few
years have witnessed a shift in preference towards gearless scooters (that are
popular among women) within the scooters segment. Motorcycles, offer higher
fuel efficiency, greater acceleration and more environment-friendliness. Given the
declining difference in prices of scooters and motorcycles in the past few years,
the preference has shifted towards motorcycles. Besides a change in
demographic profile, technology and reduction in the price difference between
motorcycles and scooters, another factor that has weighed in favor of
motorcycles is the high re-sale value they offer. Thus, 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, viz. Bajaj Auto, HHML, TYS,
HMSI and others have increased there manufacturing capacities in the recent
past. The total capacity of these players stood at 7.8 million units per annum as
against total market sales of 3.8 million units. Most of the players have either
expanded capacity, or converted their existing capacities for scooters and
mopeds into those for manufacturing motorcycles. The move has been prompted
by the rapid growth reported by the motorcycles segment

62

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

63

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

20,188 25,625

28332

30116

53148

27.4

44832

Motorcycles 35,295 41,339

56,880 126122 187287 51.4

188807

Mopeds

27,754 44,174

18,971 23330

22739

Total

83,237 111,138 104183 179568 264669 33.5

24234

-3.3

256378

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

64

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

16112

28527

53366

90210

56.8

87225

HHML

10061

10324

13023

21165

39254

40.5

43441

HMSI

1293

10916

31414

n.a

27734

TVS

7265

6621

7765

9636

28093

40.2

36666

Yamaha

15197

20446

20321

45546

32906

21.3

27539

Others

35790

57635

32752

39053

42792

4.6

33773

Total

83237

111138 103681 179682 264669 33.5

256378

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.

65

The emission norms that are currently in force for two-wheelers and threewheelers are more stringent than the Euro II norms.
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, 2005
Bharat Stage III norms to be applicable preferably from April 1, 2008 but not later
than April 1, 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, 2005.
Inspection & maintenance (I&M) system for all categories of vehicles to be
put place by April 1, 2010.
Performance checking system of catalytic converters and conversion kits
installed in vehicles to be put in place by April 1, 2007.

66

CHAPTER 7
PESTEL ANALYSIS

67

Automobile is one of the largest industries in global market. Being the

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

68

technology revolution to the two-wheelers as Japanese majors entered in

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

69

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. 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. The table below presents the emission norms for twowheelers that were in place in the past, the current India 2000 emission norms,
and the norms have been proposed for 2005 (Stage II) and 2009 (Stage III). The
emission norms that are currently in force (India 2000) for two-wheelers and
three-wheelers are more stringent than the Euro II norms. While the Stage II
(India) norms will be applicable only from April 1, 2005, the Stage (III) norms will
be implemented in 2009 after a technical feasibility review in 2005. 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
manufacturers responded to this by passing on a relatively large part of the
excise cut to customers. The Union Budget thereafter have left the excise duty
on two-wheelers unchanged. But the Union Budget 2004-05 provides for a
weighted deduction of 150% for investments in R&D. This may facilitate
increasing R&D allocations and allow for improvement in the technical as well as
product development skills of the Indian companies.

70

EXIM POLICY

Imports
Starting April 1, 2001 imports of all new and used vehicles have been
freed under commitments to World Trade Organisation (WTO). However, the
customs duty has been set at 60% for new vehicle imports and at 105% on the
import of used vehicles. In terms of effective duty this works out to 93% and
147% respectively. While Imports from China have been meagre till date, they
may increase in the long term, thus posing competition to the domestic
manufacturers. Given the similarity in the demographic and income conditions in
India and China, Chinese two-wheeler manufacturers are suitably placed to cater
to the Indian market.
Exports
Indian export of two-wheelers is primarily to Sri Lanka, Bangladesh, Iran, Egypt,
and the South American Nations, which have similar emission norms. In 2001, India
exported 111,138 two-wheelers, which marks an increase of 34% over the previous year.
Despite this impressive growth, the countrys total two-wheeler exports account for a
mere 3% its total domestic sales.
Foreign direct investment: Automatic approval is proposed to be granted
to foreign equity investment up to 100% for manufacture of automobiles and
components.
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). Further, 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.

71

Environmental aspects: Adequate fiscal incentives are proposed to

promote the use of low-emission auto fuel technology (in line with the Auto Fuel
Policy). 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

Impact factors

Impact
Bajaj Auto Ltd.
Hero

Neutral

A, B, C, D

Honda Neutral

A, B, C, D

Motor Neutral

A, B, C, D

Motors Ltd.
TVS
Company Ltd.
A. The reduction in the import duty on used two-wheelers will not affect the
industry.
B. The hike in the excise duty on steel will not affect the industry, as cenvat credit
can be availed for the same.
C. The extension up to March 2007 of 150 per cent deduction on R&D
expenditure will marginally benefit domestic two-wheeler players, such as TVS
Motors, Bajaj Auto and Kinetic.
D. The reduction in personal tax rates will increase household disposable
income, which is a positive for two-wheeler demand.
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. Poor road infrastructure and traffic congestion can be a bottleneck in the

72

growth of vehicle industry. A balanced and coordinated approach will be

undertaken for proper maintenance, up gradation and development of roads by
encouraging private sector participation besides public investment and
incorporating latest technologies and management practices to take care of
increase in vehicular traffic.
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.
All these initiatives pave the path towards a better future for the Indian
Automobile Sector.

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.
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. 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.
Suitable institutional mechanism will be put in place for certification, monitoring
and enforcement of different technologies/fuel mixes. Appropriate fiscal

73

measures will be devised to achieve milestones in the roadmap for

implementation of auto fuel policy.
In the short run, 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.
There is prime need to support the development and introduction of
vehicles propelled by energy sources other than hydrocarbons by promoting
appropriate automotive technology. Hybrid vehicles and vehicles operating with
batteries and fuel cells are alternatives to the conventional automobile, which in
their early beginnings, lie intreasured. As an impetus for the development of such
vehicles, an appropriate long-term fiscal structure shall be put in place to
facilitate their acceptance vis--vis vehicles based on conventional fuels.
Internationally, 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. Lifetime road tax is also in vogue. The endeavor
will be to move to the international model.
In order to facilitate faster up gradation of environmental quality, the Govt.
will consider having a terminal life policy for commercial vehicles along with
incentives for replacement for such vehicles.
Two-wheelers emit harmful pollutants such as carbon monoxide and
hydrocarbons. The emission norms are becoming stringent the world over. In
India, the norms are being implemented in two phases. While the first phase
Euro 1 norms have become applicable since April 1996, even more stringent
norms Euro 2 will come into effect from April 1, 2000.
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.
To full-fill emission norms the manufacturers have three options: to switch to four-

74

stroke engines, to fit catalytic converters for the existing models, to improve upon
the existing two-stroke engine.
The temporary option for overcoming emission norms is to fit the catalytic
converters; this will increase the cost of vehicles. But as a long-run solution
scooter manufacturers have to opt for four-stroke engines or improvement in two
stroke engines.
The catalytic converters cost in the range of Rs1, 500 - 2,500, but have a
limited life of 10,000 km of vehicle running. Therefore catalytic converter requires
regular maintenance on behalf of the user. Also catalytic converter will be
effective only for unleaded petrol usage, which is not widely available in the
country.
Scooter manufacturers have started responding to the Y2K norms by
introducing four-stroke vehicles in H2 FY98. They plan to fit catalytic converters
to two-stroke scooters to overcome emission norms.
The Japanese motorcycle segment will be able to overcome emission
norms with the technology help of respective Japanese collaborator. The Indian
motorcycles have to either shift to four-stroke technology or make use of catalytic
converter. But this will reduce the price difference between Indian and IndoJapanese motorcycles, reducing the price advantage of Indian motorcycles.
The mopeds segment will be badly affected due to Y2K emission norms,
as none of the existing moped models confirm to the specifications.
Strategies for Environmental Compliance

75

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

Technological tie-up

Company
Kawasaki Heavy Industries Ltd,
Japan

Product
Motorcycles

Technological tie-up Tokya R&D Co Ltd, Japan

Two-wheelers

Technological tie-up Kubota Corp, Japan

Diesel Engines

76

HHML

Joint Venture

KEL

Technological tie-up

Honda Motor Co, Japan

Hyosung Motors & Machinery
Inc

Motorcycles
Motorcycles

Tie up for
KEL

Manufacturing

Italjet, Italy

Scooters

and distribution
LML

Technological tie-up Daelim Motor Co Ltd

Hero
Motors

Technological
tie-up

Aprilia of Italy

Motorcycles
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.

77

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.
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
78

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
region, which till a few years back had severe air pollution problem have
introduced an I&M system and also effective traffic management.
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 current policy allows Weighted Tax Deduction under I.T. Act, 1961 for
sponsored research and in-house R&D expenditure. This will be improved further
for research and development activities of vehicle and component manufacturers
from the current level of 125%.
In addition, 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, faculty or division within the company assessed
as competent and qualified for the purpose or in any other R&D institution in the
country. This would include R & D leading to adoption of low emission
technologies and energy saving devices.
Government will encourage setting up of independent auto design firms by
providing them tax breaks, concessional duty on plant/equipment imports and
granting automatic approval.

79

Allocations to automotive cess fund created for R&D of automotive

industry shall be increased and the scope of activities covered under it enlarged.

SOCIO-CULTURE ENVIRONMENT
Geographical Distribution
The Western region continues to be the largest market for two-wheelers in
the country, it accounted for 35% of all two-wheeler sales in 2000. The Southern
is the second largest market with a 32% share in 2000. However, the regional
share varies across different product segments.
Graph: 14

Source: ICRA

Demographic profile
Till a decade ago, the average age at which an Indian purchased a twowheeler was 30-40 years, with the buyer having typically put in about a decades
employment. The purchase of the scooter also marked the familys debut into
personal motorized transport. However, over the last decade the demographic
profile of the typical two-wheeler customer has changed. More often than not, the

80

customer is likely to be salaried and in first job. With a younger audience, the
attributes that are sought of a two-wheeler have also changed.
The marketing pitch of scooters has typically emphasized reliability, price,
comfort and utility across various Applications. Motorcycles on the other hand
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 technologically innovations. With better ground
clearance, larger wheels and better suspension offered by motorcycles, they are
well positioned to capture the rising demand in rural areas where these
characteristics matter most. 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. The figure
goes down to 38 per cent in the case of towns with over 50 lakh persons. By
2009-10, such differences are likely to reduce.
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.

81

Country's Income Distribution - The Past & the Future

In 1995-96, 80 per cent of Indian families earned less than Rs. 90,000 a
year, this fell to 72 per cent by 2001-02 and is projected to fall to 51 per cent by
2009-10. In contrast, those earning over Rs. 10 lakh a year rose from 0.2 per
cent to 0.4 per cent and will rise to 1.7 per cent by the end of the decade.
Growing Prosperity
(Income figs, in Rs. '000 per annum at 2001-02 prices, households in
'000s)
Table: 10

Classification Income class

1995-96 2001-02 2009-10

Deprived

<90

131,176 135,378 114,394

Aspirers

90 - 200

28,901

41,262

75,304

Seekers

200 - 500

3,881

9,034

22,268

Strivers

500 - 1000

651

1,712

6,173

Near Rich

1000 - 2000

189

546

2,373

82

Clear Rich

2000 - 5000

63

201

1,037

Sheer Rich

5000 - 10000

11

40

255

Super Rich

>10000

20

141

Total

164,876 188,192 221,945

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. 90,000 per
annum owned motorcycles in 2001-02, this rose dramatically to 15 per cent in the
case of households earning between Rs. 90,000 and Rs. 2 lakh and to 29 per
cent in the case of the Rs. 2-5 lakh earning households. As more people come
into the higher income groups, demand increases more than proportionately.

ECONOMICAL ANALYSIS
This section is deasling with the latest information on various economics
and commercial aspects governing the Indian Automobile Sector.

83

The present economic situation of the country makes the scenario brighter
for short-term demand. Real GDP growth was at a high level of 7.4 per cent
during the first quarter of 2004. Both industry and the service sectors have shown
high growth during this period at the rates of 8.0 and 9.5 per cent respectively.
However, poor rainfall last year will pull down the GDP growth to some extent.
Taking into account all these factors along with other leading indicators including
government spending, foreign investment, inflation and export growth, NCAER
has projected an average growth of GDP at 6.7 per cent during the tenth fiveyear plan. Its mid-term forecast suggests an expected growth of 7.4 per cent in
GDP during 2004-05 to 2008-09. Very recently, IMF has portrayed a sustained
global recovery in World Economic Outlook. A significant shift has also been
observed in Indian households from the lower income group to the middleincome group in recent years. The finance companies are also more aggressive
in their marketing compared to previous years. Combining all these factors, one
may visualize a higher growth rate in two-wheeler demand, particularly for the
motorcycle segment.
In the first section we have given the Auto Policies of Government of India
to facilitate sustainable development of Indian Automobile industry.
In the second section we have given the current rates of major duties and
taxes applicable to vehicles in India. Excise Duty is essentially a manufacturing
tax imposed on all vehicles manufactured in India. The same rate is applicable to
imported vehicles in the form of Counter Vailing Duty (CVD). Custom Duty is
essentially an import duty applicable on all imports.
VAT has recently replaced Local Sales Tax in India. However, VAT has not
yet been adopted by all states in India.
Economic Highlights of India
Table:11

84

Population ( 2004)

1.073 billion

GDP (2003 - 04 estimates)

US$ 650 billion (approx.)

Per capita GDP

US$ 543

GDP (PPP basis)

US$ 2.86 Trillion

8.5%

GDP growth rate in 2003-04 (revised)

GDP growth rate in 2004-05 (estimated)

6.9%

GDP growth rate in 2005-06 (projected)

7-8%

Composition of GDP

Services 56%, Agriculture 22%

and Industry 22%

Inflation as on July 2005

Foreign

Exchange

4.1%
Reserves US$

145.55

billion

( As of September 02, 2005)

2/09/05)

Exchange rate (September 12, 2005)

US$ 1 = Rs. 43.81

(as

on

Food Grains Production(2004-05 Advance 204.61 million tonnes

estimates)
Food grains buffer stocks (October 2004)

20.2 million tons

Exports (April - March 2004 - 05) (April - US$

July 2005)

79.59

billion

US$ 28.13 billion

Imports (April - March 2004 - 05) (April - US$

106.12

July 2005)

US$ 42.11 billion

Foreign Debt (March 2005)

US$ 123.3 billion

85

billion

Foreign Debt as %ge of GDP (March 2005) 17.4%

Unemployment rate

9.1%

Average literacy rate

65.4%

Life expectancy for males

63.9 yrs

Life expectancy for women

66.9 yrs

FDI

Apr

March

(2004

2005

Apr - March (2003 - 2004 )

) US$

4.67

billion

US$ 4.74 billion

FII investment Apr - March (2004 - 2005 ) US$

Apr - March (2003 - 2004 )

11.37

billion

US$ 8.90 billion

LEGAL ENVIRONMENT
In India the Rules and Regulations related to driving license, registration of
motor vehicles, control of traffic, construction & maintenance of motor vehicles
etc are governed by the Motor Vehicles Act 1988 (MVA) and the Central Motor
Vehicles rules 1989 (CMVR). The Ministry of Shipping, Road Transport &
Highways

(MoSRT&H)

acts

as

nodal

agency

for

formulation

implementation of various provisions of the Motor Vehicle Act and CMVR.

Regulatory Framework
Diagram: 5

86

and

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, namely

CMVR- Technical Standing Committee (CMVR-TSC)

Standing Committee on Implementation of Emission Legislation

(SCOE)

CMVR- Technical Standing Committee (CMVR-TSC)

This Committee advises MoSRT&H on various technical aspects related to

CMVR. This Committee has representatives from various organizations namely;
Ministry of Heavy Industries & Public Enterprises (MoHI&PE)), MoSRT&H,
Bureau Indian Standards (BIS), Testing Agencies such as Automotive Research
of India (ARAI), Vehicle Research Development & Establishment (VRDE),
Central Institute of Road Transport (CIRT), industry representatives from Society
of

Indian

Automobile

Manufacturers

(SIAM),

Automotive

Component

Manufacturers Association (ACMA) and Tractor Manufacturers Association (TMA)

and representatives from State Transport Departments. Major functions the
Committee are:

87

To provide technical clarification and interpretation of the Central

Motor Vehicles Rules having technical bearing, to MoRT&H, as and
when so desired.

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 any other technical issues which

have direct relevance in implementation of the Central Motor
Vehicles Rules.

To make recommendations on the new safety standards of various

components for notification and implementation under Central
Motor Vehicles Rules.

To make recommendations on lead-time for implementation of such

safety standards.

To recommend amendment of Central Motor Vehicles Rules having

technical bearing keeping in view of Changes in automobile
technologies.

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. The major functions of the committee are as
follows:

Preparation of new standards for automotive items related to safety.

To review and recommend amendments to the existing standards.

Recommend adoption of such standards to CMVR Technical

Standing Committee

Recommend commissioning of testing facilities at appropriate

stages.

88

Recommend the necessary funding of such facilities to the CMVR

Technical Standing Committee, 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). BIS also convert the standards formulated by AISC
into Indian Standards. The standards formulated by both BIS and AISC are
considered by CMVR-TSC for implementation.

Standing

Committee

on

Implementation

of

Emission

Legislation (SCOE) This Committee deliberates the issues related to

implementation of emission regulation. 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.
Based on the recommendations from CMVR-TSC and SCOE, MoSRT&H
issues notification for necessary amendments / modifications in the in Central
Motor Vehicle Rules.
Vehicular Safety Standards & Regulations
Environmental imperatives and safety requirements are two critical issues
facing the automotive industry, worldwide. Indian Automobile Industry in the last
decade has made significant progress on the environmental front by adopting
89

stringent emission standards, and is progressively aligning technically with

international safety standards.
Central Motor Vehicle Rules (CMVR) came into force from 1989 and
serious enforcement of regulations came into effect. Chapter V of the Central
Motor Vehicle Rules, 1989 deals with construction, equipment and maintenance
of vehicles and in addition to rules governing emission limits, there are several
rules in this chapter requiring motor vehicles to comply with safety regulations.
Vehicles being manufactured in the country have to comply with relevant
Indian Standards (IS) and Automotive Industry standards (AIS). 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.
Regulations are reviewed periodically by the Technical standing
Committee on MCVR (CMVR-TSC). States also have their State Motor Vehicle
Rules
Since 2000 ECE Regulations have been used as basis for Indian
regulations and since 2003, increased efforts are being made to technically align
with ECE. Variance from ECE exists on formatting phraseology and
administration related issues.
Alignment of Indian regulations (AIS/ BIS) with ECE is being attempted as
per the broad roadmap drafted by SIAM.
The current traffic conditions, driving habits, traffic density and road user
behavior necessitate that maximum safety be built into the vehicles. 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.

90

CHAPTER 8
PORTERS FIVE FORCE
MODEL

91

Renowned management writer Peter Drucker called the automobile

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

92

This can be explained best with the help of Porter Five-Force Model. Profit
potential of an industry depends on the combined strength of the following five
basic competitive forces:

Threat of new entrants.

Rivalry among existing firms.

Threat of substitute products.

Bargaining power of Suppliers.

Bargaining power of Buyers.

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.

93

94

Threat of New Entrants

New entrants add capacity, inflate costs, push prices down, and reduce
profitability. Hence, if an industry faces the threat of new entrants, its profit
potential would be limited. The threat from new entrants is low if the entry
barriers confer an advantage on existing firms and deter 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. Costs related to

manufacturing or production cost of producing 80,000 units per month on an
average needs a huge initial investment.

Costs related to Research and

Development, Marketing of the product like Advertising and Promotion cost,

Sales and Distribution cost and after sales services cost included to the total
investments. Thus, large investment is a big barrier to the new entrant.

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, on an average the established
player like BAJAJ, TVS, HERO HONDA produce about 80,000 units per month.
To produce such large amount of units for the new players is very difficult and
would require huge investments also.

Product Differentiation: New entrants do not have good product

differentiation as that of the other established players in the industry. That also
matters about the looks, styles and the different product features. Product
differentiation in terms of engine capacity likes that of 50 cc, 75 cc, 100cc, 125
cc, and 150 cc and above. Depending on the wheel sizes and also on geared
and non-geared two wheelers. Thus, new entrants have a hard time coping up
with the different variety of products available in the market.

Distribution Channels: Established players have high market

penetration in terms of distribution system. They have their dealers appointed in

95

almost all the possible cities or towns of India. 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. Now days, companies are
increasing their efforts to enhance and upgrade their distribution channel system
to provide good customer service in time.

So, the new entrants have to

establish a good and an efficient distribution channel to serve it customers in

time, which will again require a high amount of investment.

Industry Growth Rate: This is also a barrier to the new entrants if

the over-all industry growth rate is declining. 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. This can give them advantage in terms of cost and/or
customer/supplier loyalty. It is difficult for a competitor to break into a market if
there is an established player which knows the market well, has good
relationships with the key buyer and suppliers and knows how to over come
market and operating problems.

Government Policies: Legal restraints on competition vary from

patent protection, to regulation of markets, through to direct government action. If

the policies are stringent and not industry friendly then this would act as barriers
for the new entrants and vice-versa.

96

Threat of Substitutes
Substitution reduces demand for a particular class of products as
customers switch to the alternatives- even to the extent that this class of products
or services becomes obsolete. This depends on whether a substitute provides a
higher perceived benefit or value. Performing the same function as the original
product, 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.
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. In two wheeler industries,
there is no as such product for product substitution present. The only substitute
possible is cycle or public transport or cars. Cycle has got its limitations that it
cannot be used for long distance traveling. Cars prove to be expensive and
public transport has got its mobility limitations. Thus, there is no as such product
substitute possible for a two wheeler and so threat from product substitute is
decreased a lot.

Relative Price Substitute: In this type of substitute price is

compared. Substitute products, which have the same functions but not the same
good quality like that of the original product but very near to it, are available at
cheaper prices than that of the original product. Than in this case the substitute
becomes threats to the original products or company and if substitutes like cars,
in two wheeler market, does not pose threat to them as the functions are not
same and there is much of price difference between them.

Substitution of Need: Substitution of need by a new product or

service, rendering as existing product or service redundant. In this the customer

wants more reliable, cheaper and maintenance free products to use. His/her

97

need to use user-friendly products, which are cheaper in rates and have good
quality and gives years or service. A classic example for this is the two-wheeler
industry specially the scooter segment. Earlier scooters were used a lot and
motorcycles were less used, but now more of motorcycles are used and less
scooters. The reason behind this is that technically motorcycles are more stable
and easy to control while scooters have engines on right hand side, which
causes imbalance. Motorcycle gives more fuel mileage than scooters and
motorcycles give less maintenance than scooters. Also, motorcycles are
available almost at same price as that of scooters or with little price difference. In
this way substitution of need can cause threat to a particular product.
Bargaining Power of the Buyers
Buyers are a competitive force. They can bargain for price cut, ask for
superior quality and better service, and induce rivalry among competitors. If they
are powerful, they can depress the profitability of the supplier industry. Buyer
power is likely to be high when some of the following conditions prevail:

When there is concentration of buyers particularly if the volume

purchases of the buyers are high.

Supplying industry comprises of large number of small operators.

There are alternative sources of supply, perhaps because the

product required is undifferentiated between suppliers.

Component or material cost is a high percentage of total cost, since

buyers will be likely to shop around to get the best price and therefore squeeze
suppliers.

The cost of switching a supplier is low or involves little risk.

There is threat of backward integration by the buyer if satisfactory

prices or quality from suppliers cannot be obtained.

The two-wheeler industry is concentrated with buyers presently. Suppliers
are moderate in that comparison. Though there are not volume purchases but

98

there are large numbers of buyers present. Supplier industry has less number of
large suppliers. There are about 9-10 odd suppliers in the market. As there are
large amount of buyers and moderate amount of suppliers, choices left are
moderate. The market was mainly dominated by big players like BAJAJ, TVS,
HERO HONDA but now the scenario is changing and we have more players in
the market like KINETIC MOTOR COMPANY LTD, HONDA MOTORCYCLE AND
SCOOTER INDIA (P) LTD, LML, YAMAHA etc and so the market is now
becoming a buyers market. This has led to more competition and buyers will
likely to shop around to the best price and service and so squeeze the suppliers.
Cost of switching here is more, as the price of a unit is more.
Bargaining Power of Suppliers
Suppliers, like buyers, can exert a competitive force in an industry as they
can raise prices, lower quality, and curtail the range of free services that they
provide. Powerful suppliers can hurt the profitability of the buyer industry.
Suppliers have strong bargaining power when:

Few suppliers dominate and the supplier group is more

concentrated than the buyer group.

There are hardly any viable substitutes for the products supplied.

The switching cost for the buyers is high.

Suppliers do present a real threat of forward integration.

The Indian two-wheeler industry was passing through a phase when the
bargaining power suppliers were high. There were fewer suppliers who
dominated the market and the switching cost for the buyers were high. There
were no substitutes present. 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.

99

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.

Information is easily available now days.

Thus, these two forces are considered together because they are linked.
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.
Rivalry Among Exisiting Firms
Competitive Rivals are organizations with similar aimed at the same
customer group. Firms in an industry compete on the basis of price, quality,
promotion, service, warranties and so on. Generally, a firms attempt to improve
its competitive position provoke retaliatory actions from others. If the rivalry
between the firms in an industry is strong, competitive moves and counter moves
dampen the average profitability of the industry. These wider competitive forces
will impinge on the direct competitive rivalry between an organization and its
most immediate competitors. There are number of factors that affect competitive
rivalry:

Market Growth Rates: The idea of the life cycle suggests that

conditions in markets, primarily between growth stages and maturity, are

important, not least in terms of competitive behavior. Supposing, in situations of
market growth, an organization might expect to achieve, its own growth through
the growth in the marketplace; whereas when markets are mature, this has to be
achieved by taking market share from competitor. Earlier the two wheeler market
growth rates were low because of the economic recession which increased the

100

competition between the rivals to strive for higher market share. In 1990, the
entire automobile industry saw a drastic fall in demand. This resulted in a decline
of 15% in 1991 and 8% in 1992, resulting in a production loss of 0.4mn vehicles.
But, 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.
The total two-wheeler sales of the Indian industry accounted for around 77.5% of
the total vehicles sold.

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, more will be the competitive rivalry
between them so as to acquire high market share. Where competitors are
roughly of equal size, there is danger of intense competition as one competitor
attempts to gain dominance over another. While the less competitive markets
tend to be those with dominant organizations within them and the smaller players
have accommodated them to this situation. Earlier in 80s, 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, Ideal Jawa
and Escorts. Thus the rivalry between the competitors was less in comparison
with todays market wherein there are many manufactures viz Hero Honda
Motors Ltd (HHML), Bajaj Auto Ltd (Bajaj Auto), TVS Motor Company Ltd (TVS),
Kinetic Motor Company Ltd (KMCL), Kinetic Engineering Ltd (KEL), LML Ltd
(LML), Yamaha Motors India Ltd (Yamaha), Majestic Auto Ltd (Majestic Auto),
Royal Enfield Ltd (REL) and Honda Motorcycle & Scooter India (P) Ltd (HMSI)
which has increased the competitive rivalry amongst them.

Product Differentiation: Here product differentiation is related to

the different kinds of product of the same category available in the market. 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

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.

102

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

With consumerism on an upswing in India, demand for two-wheelers is on the

rise.Two wheelers in India are considered as a very efficient means of transport.
With consumerism on an upswing in India, demand for two-wheelers is on the
rise for a long time to come. Its boom time for the Indian two-wheeler industry.
Market leader Hero Honda Motors Ltd (HHML), Bajaj Auto Ltd (BAL) and TVS
Motors Ltd (TVS) reported their highest monthly sales in October. HHML
dispatched over 3 lakh vehicles in the month; BAL 2.05 lakh motorcycles and
TVS reported a 17% rise in two-wheeler sales to 1.38 lakh units. 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.
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, which increased 20% to 27 lakh units. This
is primarily a reflection of the galloping 8.1% Q1 GDP growth leading to higher
disposable incomes and also the monsoons, which drove up rural demand. Hero
Honda Motors, Bajaj Auto and TVS Motor, which together constitute over 86% of
the domestic two-wheeler market, have reported an average growth rate of 20%
as they sustained the excitement by a slew of new launches like Hero Honda
Glamour, TVS Star and Bajaj Avenger.
However, it is interesting to see consolidation in the motorcycle segment
as the big three, especially HHML and BAL, leave the other players behind. In
2002-03, HHML's marketshare in the motorcycle stood at 44.56%, BAL's at
24.03% and TVS' at 18.71%. By the first half of 2005-06, the former two
increased it to 50.9% and 29.5% respectively. All the other smaller players have
seen shares skidding during the period with even TVS's marketshare falling to
12.4%.
National Council of Applied Economic Research (NCAER) had forecast
two-wheeler demand during the period 2002-03 through 2011-12. The forecasts
had been made using econometric technique along with inputs obtained from a
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primary survey conducted at 14 prime cities in the country. Estimations were

based on Panel Regression, 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. The models considered
a large number of macro-economic, demographic and socio-economic variables
to arrive at the best estimations for different two-wheeler segments. The
projections have been made at all India and regional levels. Different scenarios
have been presented based on different assumptions regarding the demand
drivers of the two-wheeler industry. The most likely scenario assumed annual
growth rate of Gross Domestic Product (GDP) to be 5.5 per cent during 2002-03
and was anticipated to increase gradually to 6.5 per cent during 2011-12. The allIndia and region-wise projected growth trends for the motorcycles and scooters
are presented in Table 1. The demand for mopeds is not presented in this
analysis due to its already shrinking status compared to' motorcycles and
scooters.
It is important to remember that the above-mentioned forecast presents a
long-term growth for a period of 10 years. 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. 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. However, this will not alter the regional distribution to a
significant extent.

Table suggests two important dimensions for the two-wheeler industry.

The region-wise numbers of motorcycle and scooter suggest the future market
for these segments. At the all India level, the demand for motorcycles will be
almost 10 times of that of the scooters. The same in the western region will be

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almost 20 times. It is also evident from the table that motorcycle will find its major
market in the western region of the country, which will account for more than 40
per cent of its total demand. The south and the north-central region will follow
this. The demand for scooters will be the maximum in the northern region, which
will account for more than 50 per cent of the demand for scooters in 2011-12.
Demand Forecast for Motorcycles and Scooters for 2011-12 (in 000)
Table: 12

Regions

2-Wheeler
Segment
Motorcycle
Scooter

North-

East &

Central

North-East

4327

2624

883

10669

219

602

99

1124

South

West

2835
203

All India

Source: NCAER

There is a large untapped market in semi-urban and rural areas of

the country. Any strategic planning for the two-wheeler industry needs to identify
these markets with the help of available statistical techniques. Potential markets
can be identified as well as prioritized using these techniques with the help of
secondary data on socio-economic parameters. For the two-wheeler industry, 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, the two-wheeler industry needs to upgrade its market information system to
capture the new market and to maintain its already existing markets. Availability
of easy credit for two-wheelers in rural and smaller urban areas also requires

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more focused attention. It is also imperative to initiate measures to make the

presence of Indian two-wheeler industry felt in the global market. 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.
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. What's more
HHML and BAL can also derive benefits from economies of scale as volumes
grow robustly and companies increase capacity.
If the present sales trend is any indication, 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. In 2004-05, for instance, H2 sales were 54% of total volumes.
Manufacturers, too, are boosting capacity to meet increased demand. Bajaj Auto
is raising its production capacity to reach 2 lakh vehicles per month from around
1.5 lakh per month at present. TVS Motor is raising capacity from 1lakh units to
1.6 lakh units per month. Hero Honda, which is lining up a 150-cc model called
the Achiever besides a scooter called Pleasure, is hiking capacity at its existing
plant from around 2 lakh vehicles a month to 2.5 lakh units a month.
In other industries too, sheer numbers will turn India into an economy that
can't be ignored. The auto industry, for instance, is behind target but it should
touch 1 million vehicles a year by 2005/06 according to SIAM (the Society of
Indian Automotive Manufacturers). And by 2011/12 the production of motorcycles
should climb to over 10 million from the current 3.2 million today, according to
another research company.
Companies like Bajaj and TVS are already exploring fast-moving markets
in south-east Asia and even Latin America. TVS, for example is already studying

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

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Projected Export Turnover

Table: 13

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CHAPTER 10
CONCLUSION AND
SUGGESTIONS

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CONCLUSION
The business and economic environment is favorable. The market is
dynamic and is becoming more and more customer centric. The customer is
open to novel products, services and concepts and has the money and the
knowledge to rightly invest in products and service they desire.
Two Wheeler segment as a whole during the year 2004-05 grew by over
15%. Backed by Governments initiative on rural roads and better connectivity
with major towns and cities, improved agricultural performance, upward trend of
purchasing power in the hands of rural people, the two wheeler industry was able
to achieve the record performance of crossing 6 million two wheelers with exact
sales standing at 6,208,860 during the year 2004-05.
The two-wheelers market has had a perceptible shift from a buyers market
to a sellers market with a variety of choices. Players will have to compete on
various fronts viz pricing, technology, product design, productivity, after sale
service, marketing and distribution. In the short term, market shares of individual
manufacturers are going to be sensitive to capacity, product acceptance, and
pricing and competitive pressures from other manufacturers.
All the three segments, motorcycles, 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. Over this
period, only the motorcycle segment is expected witness higher demand vis--vis
supply, while the scooters and mopeds supplies have outstrip demand.
As incomes grow and people feel the need to own a private means of
transport, sales of two-wheelers will rise. 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. Motorcycle sales is expected to increase by

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20%yoy as compared to 1% growth in the scooter market and 3% by moped

sales respectively for the next coming years.
The Indian market is a very interesting market, because it is defying global
trends. But for how long? And if it aligns with global trends, many an apple cart
would be upset. On the other hand, we may find a new way.
Firstly, we are a two-wheeler market rather than a car market, as befits our
per capita income. And, for the next 10 years we may remain so. But cars will
gain in importance even in this period. This is aided by the skewed development
of the Indian economy, wherein IT jobs are growing faster than manufacturing
jobs.
There were 30 million 2-wheelers sold in the world. Of these over 70%
were sold in Asia. Large markets were China-10 million, India-5 million, Indonesia
& Vietnam - 2 million, Thailand, Japan, Taiwan- 1 million each and EU-2 million.
The SE Asian market is essentially a step-through motorcycle, like Street,
market, which has failed in India. Unless Indian producers make this animal for
export, they will not be able to make any significant dent in Asian markets. In 2wheelers; two major events happened. Suzuki re-entered into the market and
Honda has arrived via HMSI into the motorcycle market.
Dealership Networks

The profitability of auto dealerships has always been an issue. The issue
was obfuscated by the premia earlier and the eagerness of those in building
trade to get into auto dealerships. Now, however, given the stark realities, we are
witnessing a churn first amongst weaker company's dealerships. A number of 2W
& CV companies are unable to attract or retain good dealerships. There is a
throughput required in each dealership.
For example, unless you are selling 300 2-wheelers a month, you are not
viable. That means that a company selling less than 90,000 2Ws a month is not
going to be viable from purely a dealership angle. The number also ties up with
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the volumes required to generate profits to develop new products in pace with
the market.
Will this lead to multi brand outlets? In most countries of the world, for
brands other than Honda, 2-wheelers are sold through multi brand outlets. In
India, legally, there is no bar, but in practice there is. For companies not able to
provide economical volumes to their dealers, there may be no other way forward.
In Mumbai and elsewhere, "informal" multi-brand outlets have started to take
roots.
Lower interest rates, (compared to earlier; in my view, they are unlikely to
go down further; a risk of interest rates going up is quite likely), better finance
availability in smaller towns and a more open economy will continue to generate
a decent growth rate in the industry. Attendant hazards would be that competition
will intensify further and company and dealer performances will get increasingly
uneven as unviable players get squeezed. Dealers would have to be both - lucky
to be with the right producer(s) and be first-rate operators to be profitable. Honda
is playing the end game of its India strategy and, like an efficient chess player,
squeezing the opposition into a corner.
Today, the automobile sector is the epitome of mass production, mass
marketing and mass consumption, with some of the strongest brands in the
world. Therefore, companies are in an obligation to respond rapidly to customers,
deliver what customers need and provide increasingly diverse products.
The fast changing business environment makes urgent necessity of
product innovation and strategic management awareness. Firms can no longer
produce and market huge amounts of standard products with a relatively stable
market and technological climate. Instead, they have to grapple with unstable,
rapidly changing markets and technologies in order to run their organizations and
be able to sell their brands.
Today, there are various parameters on which a dealership is adjudged
like convenience of location, hours of operation, appearance of the facility, the
neighborhood, comfort of transactions, ease of viewing and selecting vehicles,
availability of information, inviting & friendly layout. Product ownership

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experience will not be restricted to purchase alone but would span the complete
ownership cycle of the car. It would begin from enquiry management to vehicle
selection. Also, work like vehicle documentation & processing and delivery would
be important components of customer satisfaction. This would also spill over to
after-sales service and spare parts support. This clearly proves that with the
evolution of the Auto Industry in India, the auto dealership has also evolved.

The Market
Both 'Value Conscious' and 'Price Conscious' customer segments co-exist
in the Indian market today. The latter is losing its share rapidly. Any potential
entrant could consider launching the products targeted at the Value Conscious
segment in the country. However, an in-depth analysis of the value perception of
the target segment needs to be conducted. The 'feature - price' package should
ensure

an

attractive

value

proposition

appealing

to

the

increasingly

knowledgeable Indian Customer.

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

providing Mobility Solutions. The idea has evolved to reduce the burden on the
customer by making the right investments in infrastructure and HR, to ensure that
the dealership becomes a landmark, which the customers will reckon with. The
ones who do not make the investment are likely to lose out in this race.
Robust Demand to Continue
After an 11.4 per cent growth in 2003-04, two-wheeler sales surged by
over 17 per cent year-on-year (Y-o-Y) for the first 10 months of 2004-05.
Sales growth, led by the sales of motorcycles, escalated consistently
during the April to January period due to increasing household incomes,
easy availability of finance, and the success of certain new models
launched during the period.
Two-wheeler demand is expected to grow at a healthy rate of 11-12 per
cent from 2004-05 to 2005-06. Rising household incomes, frequent new
model launches and the increasing penetration of finance and distribution
will act as key growth drivers.
The motorcycle segment witnessed stupendous growth in 2004-05 (20.3
per cent Y-o-Y) after a moderate performance (growth of 13.7 per cent Yo-Y) in 2003-04. 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. The segment is
expected to grow by 12-13 per cent in 2005-06.
Led by the ungeared segment, scooter sales are likely to grow by 8 per
cent, while moped sales are expected to stagnate or decline marginally in
2005-06.

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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, mobility, and inter-Sectoral industrial growth and thus
conduce conditions for general economic and social well being. However, there is
need to promote and sustain international cooperation between Governments
and industry. There is need for coordinated research and development,
standardization of designs and broader technologies, effective cost cutting to
enhance affordability and loosening of trade barriers across the globe. There are
separate measures, which require addressing at the national and international
levels. Some suggested steps at both levels are listed below.

SUGGESTIONS AT THE NATIONAL LEVEL

As products get complicated, one can expect that there will be greater
drive-ins at the dealers' workshops. Fuel Injection on 2-wheelers is round the
corner. My educated guess about the Honda bikes in future will be fuel injected,
because, Honda has already announced that all its scooters would be fuel
injected by 2010. So, dealers who are services oriented - most dealers in the
country are not-should stand to gain. Or, dealers should work hard to improve the
service end of their operations; and that is largely a matter of attitude & culture.
The Indian two wheeler market is increasingly becoming a price warfield.
Everyone and their competitor wants to win the title of the 'World's cheapest bike'
and the cutsomer has become the King, actually more like God!
But there is always a doubt if this price based competition is good for the health
of the industry. Everyone eating their own margins in the quest for greater
marketshare and farther market expansion. And where does this leave smaller
players like LML (going through some very tough times as of now), Kinetic (good

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scooters, questionable field network, trying hard in motorcycles) and even

Yamaha,TVS and Hero Motors.
Big Manufacturers like Hero Honda or Bajaj Auto can arm twist suppliers
to deliver parts cheaper, which the suppliers won't mind doing considering the
volumes that these offer. Without volumes, one is not in a position to get the best
prices and without the best component prices, the price of the final product goes
up. Fighting with Bajaj Auto will require reduction in the selling price of the bike
thus decreasing the profit margins.
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.
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. Thus the fat gets fatter while
the small gets smaller and may eventually get wiped out.
The only way out seems to be technical innovation which can give a low
volumes company advantage over a high volume one. Unfortunately low volumes
> low profitability also means that less investment in R&D. Or in some cases, like
TVS, where R&D does get a priority, it is mostly copied very quickly by rivals as
most of the R&D is supplier driven. So a Centra loses its technical advantage to
a CT 100 very quickly.
The other way out of this vicious circle is by concentrating on niches.
Indian bike manufacturers till now have focussed on street commuters only. A
high percentage of the market is shifting to a low margin, high volume game and
smaller manufacturers need to get out of this rut to survive. So Kinetic should not
be doing a Boss and TVS should not be putting its energies into a Star or even a
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Centra. Small companies should be focussing on 150cc + niches and experiment

with new bodystyles. 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, especially in the upper income groups, the share of demand from the rural
areas is projected to rise steadily - by the end of the decade. While some part of
this is clearly due to the fact that rural areas are home to the majority of the
country's population, the gap between rural and urban usage patterns is also
projected to decline significantly.
In the case of scooters, this difference is projected to fall from 5.9 to 4.7,
from 2.5 to 1.8 in the case of motorcycles and from 3.4 to 2.5 in the case of
mopeds. In the case of the upper income groups (those who earn more than Rs
180,000 per annum), the change is even starker.
As a result, while roughly 2 per cent of 1995-96 demand came from rural
areas and this rose to 9 per cent in 2003-04, this is expected to rise to just under
12 per cent in 2009-10.
Need for a Comprehensive Automotive Policy
The extant policy has drawn many overseas companies into India but
needs to be more investor friendly, address emerging problems and be WTO
compatible. The Indian car market is full of possibilities; but present demand
profile inhibits volume production, save by a few, and conduces contention rather
than competition. World over, the majors have consolidated to elevate
technology, enlarge product range, access new markets, cut costs and engraft
versatility. They have resorted to common platforms, modular assemblies and
systems integration by component suppliers and E-Commerce.

120

The automotive industry is in the midst of a major structural transformation

in today's globalized scenario. "System Supply" of integrated components and
sub-systems is becoming the order of the day, with individual small components
being supplied to the system integrators instead of the vehicle manufacturers. In
this process, most of the SSI units manufacturing smaller individual components
are on their way to become tier 2 and tier 3 suppliers, while the larger companies
including most MNCs are being transformed into tier 1 companies, which
purchase from tier 2 & 3, and sell to the auto manufacturers.
Indian auto sector needs to grow collaterally and in harmony with world
industry. India has the potential to be a global automotive power. However,
concerted efforts will be required to take auto manufacturing to a self-sustaining
level where they shall have volumes, generate requisite technology and meet
evolving emission requirements.
Volume is important for any manufacturing enterprise. However, it is more
important for automobile sector, both for the manufacture of vehicles as well as
auto components. Lack of volume will not only inhibit efficient manufacture but
also R&D and introduction of new models. The investment and fiscal policies
should create an environment for volume production and indigenous capability
for innovation for small cars and auto components.
Auto components manufacturers have been slowly gaining global
recognition and maintaining a certain level of exports despite the recent
downturn. It should be possible to achieve an export target of US $ 1 billion by
2005 and US $ 2.7 billion by 2010. This would require three pronged marketing
strategy: exports through OEMs for their global sourcing requirements, export to
tier I manufacturers as a part of their international supply chain and direct exports
to aftermarket. The main challenges are lower volume low scale,
fragmentation, inadequate R&D/technology support, lower productivity levels,
limited resources for international marketing and establishment of an efficient
supply chain.

121

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

122

and 20% on petroleum products. All other levies like Octroi, Entry Tax should be
abolished.
Further when interstate transactions are zero rated, manufacturer selling
predominantly in interstate ends up having huge input tax credit without set-off.
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. SIAM suggests VAT rate of 4%
on all industrial input to mitigate the refund issue.
All interstate transactions should be at zero rate. 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 mechanism should not be affected even under VAT.
Sales Tax Incentives
Automobile manufacturers have made huge investments, which are in phases in
unviable locations. These location disadvantages are partially offset by fiscal
incentives. Any detrimental variations or withdrawal will affect the viability of such
investments. This may adversely impact the country's image as an attractive
investment destination. It is heartening to note that all states have agreed in
principle to honor all existing incentives under vat.

123

ANNEXURES

124

Detailed list of product profile of different manufacturers with their prices

Contd On next page

Source : Auto India, Jan , 2006

BIBLIOGRAPHY
125

BIBLIOGRAPHY
Books
1. Kazmi Azhar, Business Policy & Strategic Management, 2 nd Edition, Tata
McGraw Hill Publishing Company Limited, New Delhi, 2000.
2. Johnson Gerry & Scholes Kevan, Exploring Corporate Strategy Text &
Cases, 6th Edition, Pearson Education (Singapore) Pte. Ltd., Delhi, India.
3. Ramaswamy V S & Namakumari S, Strategic Planning Formulation Of
Corporate Strategy Text & Cases , 1 st Edition, MACMILLAN Business
Books, New Delhi, India.
Magazine
1. Business Today Published By India Today Group

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2. Business World.
3. Auto India, January 2006.
4. Auto Car
News Paper
1. Times Of India
2. Economics Times
3. Business Standard
Web Sites
1. www.ibef.org
2. http://www.ficci.com
3. http://www.indiainfoline.com
4. www.financialexpress.com
5. www.crisil.com
6. http:/indiabudget.nic.in
7. www.siam.com
8. www.ncra.com
9. www.icra.org

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