Role of Automobile Industry in India GDP

Automobiles
[Key Points | Financial Year '11 | Prospects | Sector Do's and Dont's] y The Indian automobile segment can be divided into several segments viz. twowheelers (motorcycles, geared and ungeared scooters and mopeds), three wheelers, commercial vehicles (light, medium and heavy), passenger cars, utility vehicles (UVs) and tractors.
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y Demand is linked to economic growth and rise in income levels. Per capita
penetration at around nine cars per thousand people is among the lowest in the world (including other developing economies like Pakistan in segments like cars).

y While the industry is highly capital intensive in nature in case of four-wheelers,

capital intensity is a lot less for two-wheelers. Though three-wheelers and tractors have low barriers to entry in terms of technology, four wheelers is technology intensive. Costs involved in branding, distribution network and spare parts availability increase entry barriers. With the Indian market moving towards complying with global standards, capital expenditure will rise to take into account future safety regulations.

y As compared to their global counterparts, both the two-wheeler as well as four

wheeler segments are relatively lesser fragmented. However, things are changing, especially on the passenger cars front as many foreign majors are eyeing the Indian market. As a result, pricing power is likely to diminish going

forward.

y Automobile majors increase profitability by selling more units. As number of units

sold increases, average cost of selling an incremental unit comes down. This is because the industry has a high fixed cost component. This is the key reason why operating efficiency through increased localization of components and maximizing output per employee is of significance. Key Points Supply The Indian automobile market has some amount of excess capacity. Demand Largely cyclical in nature and dependent upon economic growth and per capita income. Seasonality is also a vital factor. Barriers to entry High capital costs, technology, distribution network, and availability of auto components. Bargaining power of Low, due to stiff competition. suppliers Bargaining power of Very high, due to availability of options. customers Competition High. Expected to increase even further.. TOP Financial Year '11 y A total of 11.8 m two-wheelers were sold in India in FY11, a growth of a strong 26% over the previous year. Motorcycles accounted for 76% of the total two wheelers sold. The growth came in despite the series of interest rate hikes undertaken by the RBI to bring inflation under control. The scooters (geared & ungeared) improved their sales considerably, largely due to improved performance of the ungeared scooter segment. The 3-wheeler segment also performed well as domestic volumes improved 19% YoY, led by 22% growth in passenger carriers.

y The medium and heavy commercial vehicles (M/HCVs) segment saw its volumes
grow by a huge 32% after having grown by an impressive 34% in FY10 as well. LCVs on the other hand, underperformed their HCV peers as volumes increased at a relatively lower rate of 23%. The strong growth in the overall CV segment was due to high growth rates during the first half of the fiscal supported by sustained economic growth and impact of a lower base in the corresponding period last year. Healthy growth in the agricultural and industrial sectors also fuelled demand for CVs.

y The tractor industry, the worlds largest also logged in good growth in FY11.

Domestic volumes grew by 20% as against a growth of 32% in the previous year. After increasing by 26% in FY10, sales of passenger cars did well in FY11 as well as volumes grew by 30% YoY. A strong growth in GDP aided by recovery in agriculture and good performance in the industry and services sector had a positive impact on the same of passenger vehicles as well. Utility Vehicles also logged in a strong growth of 19% in FY11.

y While raw material prices softened considerably in FY10 and bolstered operating

margins, the scenario reversed in FY11. Although sales growth in FY11 remained strong, auto companies began to feel the pressure on operating margins on the back of rising raw material prices.

TOP Prospects y The government spending on infrastructure in roads and airports and higher GDP growth in the future will benefit the auto sector in general. We expect a slew of launches in the Segment 'B' and Segment 'C' of passenger cars. Utility vehicle segment is expected to grow at around 8% to 9% in the long-term.

y In the 2-wheeler segment, motorcycles are expected to witness a flurry of new

model launches. Though the market size is expected to grow by 10% to 12%, competitive pressure could keep prices and margins under control. TVS, Honda and Hero Motocorp are poised to benefit from higher demand for ungeared scooters in the urban and rural markets.

y Riding the wave of structural changes taking place in the country, the tractor

industry registered good growth in FY10 as well as FY11. However, while fiscal FY09 saw volumes grow marginally, the same roared back in FY10, witnessing a growth of 32%. The strong performance continued in FY11 as well as volumes grew by 20%. While good monsoon is a positive for the sector, given the fact that non-farm incomes have continued to climb up, volumes should still hold up pretty well despite a year or two of poor monsoons. The longer-term picture is impressive in light of poor mechanisation levels in the countrys farm sector and the thrust of the government on improving rural infrastructure.

y With an estimated 40% of CVs plying on the roads being 10 years old, demand

for HCVs is expected to grow by 7% to 8% over the long term. While the industry is going through cyclical hiccups currently, we expect this factor to weaken in the future on account of strong structural tailwinds. The privatisation of select state transport undertakings bodes well for the bus segment.

Indian Automobile Sector Analysis

De-licensing in 1991 put the Indian automobile industry on a new growth trajectory, which attracted foreign auto giants to set up their production facilities in the country to take advantage of various benefits it offers. Large middle class population, growing earning power and strong technological capability have been boosting automobile demand for past few years. Despite economic slowdown, the Indian automobile sector is expected to see high growth in coming years, especially in passenger cars segment, said our new research report, "Indian Automobile Sector Analysis. The passenger vehicle market, which constitutes around 80% of automobile sales, has immense growth potential as passenger car stock stood at around 11 per 1,000 people in 2008. Anticipating the future market potential, the production of passenger vehicle is forecasted to grow at a CAGR of around 11% from 2009-10 to 2012-13. The recent launch of Tata Nano has brought about a new revolution in the countrys small car segment. Seeing the good initial response from consumers, many other players in the industry are chalking out their plans to launch cars in this segment in the next few years. Our research foresees a CAGR growth of around 12% in domestic volume sales of passenger vehicles during the forecast period. Other segments, such as two-wheelers, multi-purpose vehicle and light commercial vehicle, are also expected to witness fast growth in coming years. The report covers various aspects of the Indian automobile market and gives detailed analysis of its various segments such as passenger vehicle, commercial vehicle, utility vehicles, multi-purpose, two wheelers and three wheelers. Each section succinctly explains the current and future market trends, and developments in the Indian automobile market. There are immense opportunities for various industry players including automobile manufacturers and players of automobile components.

Besides, we have also comprehensively analyzed the auto component industry and its future outlook. The study has evaluated growth avenues available for the automobile market, which include automotive design market, nonconventional vehicle market, domestic tyre industry, India as global manufacturing hub, green car market etc.

De-licensing in 1991 has put the Indian automobile industry on a new growth track, attracting foreign auto giants to set up their production facilities in the country to take advantage of various benefits it offers. This took the Indian automobile production from 5.3 Million Units in 2001-02 to 10.8 Million Units in 2007-08. The other reasons attracting global auto manufacturers to India are the countrys large middle class population, growing earning power, strong technological capability and availability of trained manpower at competitive prices. These are the major findings of our new report, "Indian Automobile Sector - A Booming Market In 2006-07, the Indian automotive industry provided direct employment to more than 300,000 people, exported auto component worth around US$ 2.87 Billion, and contributed 5% to the GDP. Due to this large contribution of the industry in the national economy, the Indian government lifted the requirement of forging joint ventures for foreign companies, which attracted global to the Indian market to establish their plants, resulting in heightened automobile production. The Indian automobile market is currently dominated by two-wheeler segment but in future, the demand for passenger cars and commercial vehicles will increase with industrial development. Also, as India has low vehicle presence (with passenger car stock of only around 11 per 1,000 population in 2008), it possesses substantial potential for growth. Key Research Highlights - Passenger car production in India is projected to cross three million units in 2014-15. - Sales of passenger cars during 2008-09 to 2015-16 are expected to grow at a CAGR of around 10%. - Export of passenger cars is anticipated to rise more than the domestic sales during 2008-09 to 2015-16. - Motorcycle sales will perform positively in future, exceeding 10 Million units by 2012-13. - Value of auto component exports is likely to attain a double digit figure in 2012-13. - Turnover of the Indian auto component industry is forecasted to surpass US$ 50 Billion in 2014-15. Key Issues & Facts Analyzed in the Report - Study of the Indian automobile industry structure. - Analysis of performance of industry sub-segments and their future outlook. - Understanding the Indian auto component market and its growth aspects. - Evaluation of factors fuelling growth in the Indian automobile market. - Discussion of the forces countering the market growth. - Identification of future prospects for the Indian automobile industry. Research Methodology Used in the Report Information Sources The information has been sourced from various authentic and reliable sources like books, newspapers, trade journals and white papers, industry portals, government agencies, trade associations, monitoring industry news and developments, and through access to more than 3000 paid databases. Analysis Method RNCOS industry forecast and analysis is based on various macro- and microeconomic factors, sector and industry specific databases, and our in-house statistical and analytical model. This model takes into account the past and current trends in an economy, and more specifically in an industry, to bring out an objective market analysis.

Our industry experts study the relationship between various industry and economic variables to ensure the required accuracy and desired check on the quality of data and information given in the report.

The automotive Industry in India is now working in terms of the dynamics of an open market. Many joint ventures have been set up in India with foreign collaboration, both technical and financial with leading global manufacturers. Also a very large number of joint ventures have been set up in the auto-components sector and the pace is expected to pick up even further. The Government of India is keen to provide a suitable economic, and business environment conducive to the success of the established and prospective foreign partnership ventures. $5.7 billion is the investment envisaged in the new vehicles projects. The market research report "Indian Automobile Industry - An Analysis (2005-2010)" clarifies all doubts regarding sales satisfaction index and customer satisfaction index. With the inclusion of initial quality study, and the Government policy and competitive analysis, this report in itself is a complete guide to the producers and consumers in the auto industry. REPORT HIGHLIGHTS - Examines the production, sales, and export growth rates of the sector, along with a mention of the major manufacturers. - Identification of the opportunities for foreign companies in terms of exports, technology transfers, strategic alliances, financial collaborations and JV's, in the Indian vehicle sector. - The component-wise share of production is assessed. - Assessment of the implications of vehicle emissions - Porter's Five Forces Analysis of the Industry - Demand forecasts till 2010. - An overview of the major changes occurring in the Indian market - A study of the market access strategies for companies - An insight into the profiles of big players of the Indian automotive sector REPORT FEATURES The chapter 4 of the market research report "Indian Automobile Industry - An Analysis (20052010)" talks of the global automotive scenario whereas chapter 5 covers the Automotive Industry in India. Chapter 6 discusses the automotive component sector. Chapter 7 discuss about the performance of various Indian Vehicle Sectors. Chapter 8 provides a Five Forces competitive analysis of the Indian automotive Industry, while Chapter 9 highlights the advantages, opportunity and the obstacles of Indian auto industry. Chapter 10 provides an overall assessment of the industry. Chapter 11 contains the demand forecasts up till 2009-10. The market strategies and the current status of the industry are highlighted in Chapter 12. Chapter 13 covers the automotive dealer satisfaction study whereas

chapter 14 includes the recent issues & developments in the industry. Finally, chapter 15 and 16 details the key players in the industry and company analysis of auto ancillary industry.

Indian Automobile sector is high on growth trajectory. And is expected to touch 10 million marks of which Commercial Vehicle Segment will contribute maximum. According to industry experts Indian Automobile sales will grow at a CAGR of 9.5% to 13008 million by 2010 from current 8.45 million units in FY05. To tap this large opportunity, Indian automobile companies and global automotive giants have announced huge expansion plans and are seeking answers for some critical questions like - Demand that drives the automobile industry - Strategies required to enter Indian market - Government policy initiatives and their impact on business - The emerging trends in the Automobile Industry - Behavior of different competitive forces, during next short term - The impact of these different competitive forces We have attempted to answer these questions, through the RNCOS Industry Information Service on Automobile Industry. We believe that our analysis and outlook of Indian Automobile industry would serve as a key input for your business decisions and performance evaluation. The market research report by RNCOS provides a detailed analysis of competition in the industry, the future prospects, opportunities and roadblocks in the growth of the Auto sector. This report gives an insight into the Indian automobile sector with respect to recent trends and happenings. RNCOS has undertaken porter's Five Forces Analysis to evaluate the auto industry on the level of competition. Apart from inter industry rivalry there are other forces also with which company competes in a business environment. This report provides a detailed porter analysis for the benefit of industry participants to analyze their competition and help them in better decision-making. REPORT HIGHLIGHTS Examines the production, sales, and export growth rates of the sector, along with a mention of the major manufacturers. Identification of the opportunities for foreign companies in terms of exports, technology transfers, strategic alliances, financial collaborations and JV's, in the Indian vehicle sector. The component-wise share of production is assessed. Assessment of the implications of vehicle emissions - Porter's Five Forces Analysis of the Industry. - An overview of the major changes occurring in the Indian market - A study of the market access strategies for companies REPORT FEATURES All the aspects related to the auto industry are taken into account in the report "Indian Auto Industry - Market Overview" by RNCOS. Chapter 1 provides the global scenario of automotive industry. Chapters 2 and 3 of the report discuss the market overview, background of the Indian Automotive Industry and the automotive component sector. Chapter 4 talks about Porter's five forces model. Chapter 5 covers the opportunities and challenges faced by the industry and the obstacles related to them. Chapter 6 discusses the market access strategies for foreign firms whereas chapter 7 covers the recent issues and developments in the industry.

India to be No. 3 auto market by 2015

Auto makers in India will make thrice the investment in creating capacities in the coming decade than what they have done between 1983 and 2010. This will in turn create 300,000-500,000 new jobs.
China, the US and Indiathat will be the pecking order of the global automobiles market by volumes by 2015, according to Rothschild, the UK-based global financial advisory firm. Currently, India is the sixth largest market after China, the US, Germany, Japan and Brazil. The market, which includes cars, trucks and auto parts, is expected to be 3.5 million units by the end of 2011-12, Vikas Sehgal, global head of automotive industry at Rothschild, said at a press briefing. Auto makers in India will make thrice the investment in creating capacities in the coming decade than what they have done between 1983 and 2010, Sehgal said. Car production capacity in the country is expected to increase from 4.8 million units in 2010 to 12 million in 2018. These numbers will roll out from 30 new factories in eight years. To create this capacity, fresh investment of $30 billion to $40 billion would be made by manufacturers, which will in turn create 300,000-500,000 new jobs, according to Rothschild. India is an attractive but not an easy market and there will be losses and casualties in the coming years, said the Rothschild report titled India 2030An Automotive Powerhouse. According to Sehgal, market leader Maruti Suzuki India Ltd is set to further lose market share and margins in this period as competition will intensify. Marutis market share has whittled down from 82% in 1997 to 39.5% in the first half of the current fiscal. With rival car makers pricing models at a premium compared with Maruti, Sehgal expects Marutis share of gross profit to shrink to 16% in 2015 from 24% in 2010. Its market share is also likely to drop to 27% in the same period. With the Chinese market reaching a sizeable scale for global auto firms such as Volkswagen, General Motor Corp. and Toyota Motor Corp., India is the only market to be tapped, making it difficult for firms such as Maruti to maintain margins and market share, the report said. According to the report, an average Volkswagen car costs $17,000 compared with Marutis $7,000. Suzuki Motor Corp. has been taking a beating from rival car makers like Volkswagen AG in all the major markets of the world, Sehgal said. Theres no reason why India should be different. While it may be difficult for newer entrants in the commercial vehicle market to dent the market share of incumbents such as Tata Motors Ltd, which, by virtue of having a first mover advantage, have established a wide sales and service network, for newer entrants in the car market replicating the success of Maruti is not so tough, he said. To be able to maintain its current market share in 2020, Maruti needs to invest $12 billion; this is three times the investment made by the firm since the 1980s and is equivalent to building 12 new plants and increasing annual production capacity by three million vehicles.

Rothschild is bullish in its outlook for the Indian automotive industry and predicts a flurry of mergers and acquisitions in the coming decade. This will primarily be in the commercial vehicle and two-wheeler sectors, it said. The firm expects auto companies to make large acquisitions to access markets and gain technical wherewithal.

Tata Motors scans interior India for Nano sales points

Tata Motors is banking on dealership expansion into virgin geographies across India. In a bid to take Nano to tier III and tier IV towns, where Tata Motors has no presence so far, it is intensely scanning the interior India.
With just 80 exclusive Nano dealership outlets operational at present, Tata Motors needs to do a lot to achieve its target of 300 by March 2012. When sales are falling below expectations, the company is banking on dealership expansion into virgin geographies across India. In a bid to take Nano to tier III and tier IV towns (with less than 200,000 population), where Tata Motors has no presence so far, it is intensely scanning the interior India. Finding good dealer partners in these locations also pose huge challenge for the company. We have recently commenced operations in cities like Balurghat (West Bengal), Naihati, (West Bengal), Bhadrak (Orissa), Gajraula (Uttar Pradesh), Rajpura (Punjab), Barshi (Maharashtra), Vita (Maharashtra), Patanjali (Andhra Pradesh), Suryapet (Andhra Pradesh), Dehgam (Gujarat) and more such tier-III and tier-IV small towns, where we did not have presence, said the company spokesperson. Nano is being sold from about 704 outlets at present. This will increase further, he added. However, Nano sales are yet to show substantial improvement although the sales in November was 12-fold high (6,401 units) when compared to the particularly low number of 509 units in the same month a year ago. Cumulative sales of Nano this fiscal so far is lower by 3% at 39,646 units against 40,976 units for the year-ago period. In small town India, Tata Motors will have to battle it out with Maruti Suzuki which currently has the largest dealership network of 980 plus and is expanding. Hyundai, which recently launched its Rs 2.7 lakh small car Eon, is putting together a blueprint to establish its dealer presence in similar geographies.

While Maruti Suzuki India (MSI) posted 17.2% decline in domestic vehicle sales due to labour unrest at its Manesar plant disrupting production, others like Hyundai Motor India Ltd (HMIL), Tata Motors and Toyota Kirloskar Motor and General Motors India didnt face such problems. Cars sales in the country had declined in July and August, as high interest rates and rising petrol prices kept customers away from new purchases. MSI said its total passenger car sales in the domestic market declined to 66,667 units in September from 81,060 units in the same month of 2010.

The disruption in production owing to the labour issue at the companys Manesar plant during September adversely impacted the sales numbers during the month, it said. HMIL on the other hand said its car sales grew by 13.2% to 35,955 units from 31,756 units in same month last year. Commenting on the sales performance, HMIL director (marketing and sales) Arvind Saxena said: We will launch our much awaited compact car Eon this month. In spite of a sluggish market we expect Eon to boost our sales and increase market share. Tata Motors also reported 10.22% increase in total passenger vehicles sales in the domestic market at 26,319 units in September, as against 23,877 units in the same month last year. Keeping the positive trend, General Motors India reported 17.35% jump in sales in September at 10,112 units as compared 8,617 units in the same month last year. GM India vice-president P Balendran said: The market continues to be sluggish due to repeated hike in interest rates and rising fuel prices, which is creating tremendous pressure in the automobile market. Most of the companies, which are witnessing sales growth during the month are mainly driven by new models, he added. Riding on strong demand for its latest models Etios and Liva , Toyota Kirloskar Motor (TKM) posted over two-fold jump in sales to 12,807 units in September from 6,235 units in the same month last year. This is a positive sign for us at the onset of the festive season, TKM deputy managing director (marketing) Sandeep Singh said. Ford Indias domestic sales dipped 6.9% to 7,801 units as against 8,380 units in the same month last year. In the two-wheeler segment, Chennai-based TVS Motor Company reported 16% increase in domestic sales last month to 1,92,027 units, as against 1,65,418 units in the same month last year. Honda Motorcycle & Scooter India (HMSI) also reported 44% jump in its total sales to 1,78,462 units during the month as against 1,23,831 units in September last year. Suzuki Motorcycle India posted 29% increase in sales in September this year to 29,094 units as against 22,545 units in the same month last year. Yamaha Motor said its September sales grew 28% at 43,462 units, as against 33,944 units in the same month last year.