AUTOMOBILE INDUSTRY : AN OVERVIEW

The automobile industry, along with the auto components industry, is one ofthe core industries in India. A well developed transportation system plays a key rolein the development of an economy, and India is no exception to it. Automobile is oneof the largest industries in the global market. Owing to its strong forward andbackward linkages with several key segments of the economy. Automobile Sectoroccupies a prominent place in the fabric of Indian Economy. Automobile sector isleader in product and process technologies in the manufacturing sector. It has beenrecognized as one of the drivers of economic growth and the domestic automobileindustry is believed to be the barometer of the economy. Such a belief is in line withinternational trends since in most mature economies the automobile industry’sperformance is viewed as a reflection of the economy’s health. This sector hasemerged as sunrise sector in the Indian economy.

According to data published by Department of Industrial Policy and Promotion(DIPP), ministry of Commerce, the amount of cumulative foreign direct investment (FDI)inflow into the auto sector from April 2000 to November 2012 was worth US$7,518 million.The auto sector accounts for 4 per cent of the total FDI Inflows (in terms of US $) in India.According to the recent data released by Society of Indian Automobiles Manufacturers(SIAM) India’s scooter and motorcycle manufacturers have registered 4 per cent growthduring April-November, 2012. The Global and Indian manufacturers are focusing their effortsto develop innovative products, technologies and supply chains. India is one of the keymarkets for Global Manufacturers for hybrid and electronic vehicles, which is the newdevelopment in automobile sector. With a turnover of almost $59 Million US Dollars,Automobile industry Provides employment to 13 million people in the India Work-class.

The automobiles sector is divided into four segments - two-wheelers,passenger vehicles, commercial vehicles and three wheelers. Two wheelers

India is one of the world’s fastest growing passenger car markets it is second largest two wheeler manufacturer and fifth largest commercial vehicle manufacturer. It is also home for the largest motor cycle manufacturer. Moreover, India is fourth largest passenger car market in Asia.

The auto sector in India has achieved a growth rate of 26% in last two years(2010-12). However, it has shown a sluggish growth of 12 percent in 2012. The trendis likely to stay with a 10 percent growth outlined for 2013. The main reason are highownership costs (fuel costs, cost of registration, excise duty, road tax) and slow ruralincome growth. Over the next few Years solid but cautious growth is expected.

The Macquarie equities research reveals that the sale of passenger vehicles is expected to double in the next four years and growth anticipated is higher than the16% achieved in the past 10 years. The automotive Mission Plan 2016 launched bythe Government of India seeks to grow the industry to a size of $145 billion by 2016and make it contribute 10 per cent to the nation’ GDP.

The growth for automotive industry is important for growth in economy,particularly because the automotive industry has strong multiplier effect. It is capableif being the driver if economic growth. High direct to indirect employment ratio ofabout 1:10 Is estimated for the automobile industry, because automobile industry has potential to generate employment for about 10 more for every person employed

directly in automobile manufacturing industry. These indirect employments includesemployments in ancillary and component industries, automobile service stationsmechanics, loaders and cleaners of commercial vehicles, institutions financingpurchase of vehicles and people who drive commercial vehicles and hired vehicles.There is a symbiotic relationship between the growth of economy and the demand for vehicles.

HISTORY OF AUTOMOBILE INDUSTRY

With the invention of the wheel in 4000 BC man’s journey on the road of mechanized transport had begun since then he continually sought to devise an automated. Labor saving machine to replace the horse. Innumerable attempts reached conclusion in the early 1760s with the building of the first steam driven tractor by a French captain. Nicolas Jacob cugnot.

It was however left to Karl benz and gottlieb damlier to produce the first vehicles powered by the internal combustion engine in 1885. It was then that the petrol engine was introduced. Which made the car a practical and safe proposition. The cars in this period were more like the cars on our roads today. The first ever land-speed record was established about a 100 years back, in 1898

The automobile industry finally came to age with Henry ford in 1914 for the bilk production of cars. The several method adopted by ford, made the new invention popular amongst rich as well as the masses.

Then onwards, it has been one big journey on the roads. Automobile industry, the business of producing and selling self-powered vehicles, including passengers cars, trucks. Farm equipment, and other commercial vehicles. By allowing consumers to commute long distance for work, shopping, and entertainment, the auto industry has encouraged the development of an extensive road system.

The auto industry has become one of the largest purchase of many key industrial products, such as steel. The large number of people the industry has encourage the development of AB extensive road system.

In 1953,the government of india and the Indian private sector initiated manufacturing processes to help develop the automobile industry, which had emerged by the 1940 in a nascent form. Between 1970 to the economic liberalization of 1991, the automobile industry continued to grow at a slow pace due to the many government restriction.

Japanese manufactures entered the Indian market ultimately leading to the establish of maruti udyog. A number of foreign firms imitated joint venture with Indian companies.

PRESENT SCENARIO OF AUTOMOBILE INDUSTRY

Real growth journey of automobile industry started in 1991 by theannouncement of New Industrial Policy delicensing of Automobile industry by Govt.Of India. The New Industrial Policy of 1991 provided that except in some special

cases industrial license is not required for setting I of automobile manufacturing unit.Progressive liberalization was made by Govt. Of India in he norms for ForeignInvestment and import of technology. This was done with a view to make theautomobile industry globally competitive. Continuous economic liberalization since1991 witnessed a rapid growth of automobile industry in India, thereby making Indiaas one of the sought after destination by global automotive players. Due to continuousgrowth of the industry in India, the automobile sector has been aptly described as thesunrise sectors of the Indian economy. Due to relaxed restrictions, positive support byGovernment and increased competitiveness, the Indian automobile industry hasdemonstrated sustained growth in last two decades. Tata Motors, Maruti Suzuki, and Mahindra and Mahindra, are among those several automobile manufacturers whohave expanded their domestic and international operations. Continuous rapid growthof automobile industry resulted in further expansion of domestic automobile market.This rapid expansion attracted investment by multinational automobile manufacturersin India. Hyundai, Suzuki, General Motors and other foreign automobile players.

Have set up their base and India is emerging as a strong automotive R&D hub.Owing to Government support of liberalization policy combined with entrepreneurialskills and managerial talent that the industry has, India has come a long way. Today,this sector is one of the shining examples of what can be achieved in a relatively shortspan of time. The past ten years have witnessed a six fold increase in the industry andthe automotive exports growing by almost twenty times. Starting from Tata’s smallcar Tata Nano’s successful entry in India Automobile Sector, Indian market hassteamed up the opportunities of growth available in alternative segments like electriccars, natural gas run vehicles etc. During April 2000 to November 2012 totalcumulative FDI inflow in Automobile Industry in India was worth US$7,518 million,as per data published by Department of Industrial Policy and Promotion (DIPP),Ministry of Commerce. India’s scooter and motorcycle manufacturers have registered4 per cent growth during April-November 2012, according to the recent data releaseby the Society of Indian Automobile Manufacturers (SIAM). Moreover, the passengervehicles segment grew at 9.71 per cent during April-June 2012, while overallcommercial vehicles segment registered an expansion of 6.06 per cent year-on-year(yo-y). According to a report titled, “Strategic Assessment of Small and LightCommercial Vehicles in India’ by Forst & Sullivan, the Indian small and lightcommercial vehicle segment is expected to more than double by 2015-16 and to growat 18.5 per cent compound annual growth rate (CAGR) for the next five years. Theautomobile industry in India has become one of the largest manufacturing sectors allover the World. However, there has been a sudden spurt in the Indian AutomobileIndustry, especially since last two years. The automobile industry has posted doubledigits growth in India during these two years.

The automotive Industry in India is now working in terms of the dynamics ofan open market. Number of Multinational Companies are now operating in India.They are operating either as wholly owned subsidiaries of in collaboration with theirIndian partners. The automobile sector has been benefitted by liberalization of Indianeconomy to a large extent. The automobile manufacturers in India have madeavailable various international brands for Indian consumers. Taking advantage offavorable Government policies, locally available efficient and cost competitivemanpower, modern technology, firms like Hyundai Motors are supplying cars in theInternational market using its manufacturing facility in India. A large number if joint

ventures have been set up both in automobile industry and auto-component sector. Allthis has become possible because of the Government of India’s keenness to provide asuitable economic and business environment. In the last two decades, the contributionof automotive sector is prominent in the growth of Indian Economy. The contributionof automobile industry in the growth of economy is in financial as well as qualityterms. In financial terms, it is in terms of revenues, profits, taxes and employment. Inquality terms it is in terms of quality processes, efficiency improvements, and productinnovation.

As of now, india is the seventh largest vehicle manufacturer, second largesttwo wheeler manufacturer and the fifth largest commercial vehicle manufacturer inthe world. Following are some of the facts which witness the India’s position in theWorld’s automobile production:

Indian auto ancillary industry is well developed and globally competitive. Established automobile testing and R&D centers are set up in various parts of the country. India is among one of the lowest cost producers of steel. As of now, India is World, second largest manufacturers of two wheelers, fifth largest commercial

vehicle manufacturer and seventh largest vehicle manufacturer in the world.

According to the President and Managing Director of Ford India, Mr. JoginderSingh, India is expected to become the third largest automobile market in the world.According to Tomas Ernberg, Managing Director, Volvo Auto India, by 2020 theluxury car segment is estimated to be around three per cent of the overall passengercar market in India and there is huge opportunity for growth. India is the largest baseto export compact car to Europe.

Major investments are made by almost every major car maker – Ford. PSA &Maruti. They have set up new plan in Gujarat. Tata’s and Mahindra’s are launchingthe new models based on global platforms. Government has line up some challengesin Automotive Mission Plan (AMP) 2006-2016. Sharp increase in demand has greatlybenefitted the automobile industry. It has also added extra capacity, better R&Dfacilities and technological advancement across the country.

The production of automobiles has greatly increased in the last decades. It isevidence from the production figures given if Fig./Table-1.1 below that AutomobileIndustry passed the 1 million mark during 2003-04 and has more than double sincethen. The growth rate barring 2007-08 and 2008-09 (due to recession in USA andEurope) from 2001-02 to 2011-12 ranges between 13.80% and 27.2% over itspreceding year.

Category PassengerVehicles

CommercialVehicles

ThreeWheelers

TwoWheelers

GrandTotal

Growth% age

2001-02 669719 162508 212748 4271327 53163022002-03 723330 203697 276719 5076221 6279967 18.1272003-04 989560 275040 356223 5622741 7243564 15.3442004-05 1209876 353703 374445 6529829 8467853 16.902

2005-06 1309300 391083 434423 7608697 9743503 15.0652006-07 1545223 519982 556126 8466666 11087997 13.7992007-08 1777583 549006 500660 8026681 10853930 -2.1112008-09 1838593 416870 497020 8419792 11172275 2.9332009-10 2357411 567556 619194 10512903 14057064 25.8212010-11 2982772 760753 799553 13349349 17892427 27.2842011-12 3123528 911574 877711 15453619 20366432 13.827

Automobile Production Trend (Number of Vehicles)

Timeline of Indian automobile industry 1897 first person to own a car in india-Mr.Foster of M/s Crompton greaves company, Mumbai 1901 First Indian to own a car in india - Jamshedji Tata. 1905 First women to drive a car in India- Mrs. Suzanne RD Tata. 1905 Fiat motors 1911 first taxi in india 1924 formation of traffic police 1928 Chevrolet motors 1942 Hindustan motors 1944 Premier Auto LTD. 1945 Tata motors 1947 Mahindra motors 1948 Ashok motors 1948 Standard motors 1974 Sipani motors 1981 Maruti Udyog 1994 Rovers motors 1994 Mercedes benz 1994 opel 1995 Ford motors 1995 Honda SIEL 1995 Reva Electric Car company 1995 Daewoo motors 1996 Hyundai motors 1997 Toyota kirloskar motors 1998 san motors 1998 Mitsubishi motors 2001 Skoda motors 2003 Chevrolet motors (Re-entry)

EVOLUTION OF INDIAN AUTOMOBILE INDUSTRY:While the automobile industry in India started developing in the 1940s, distinct growth rates started

only in the 1970s. Cars were considered ultra luxury products, manufacturing was strictly licensed, expansion

was limited and there was a restrictive tariff structure. The decade 1985 to 1995 saw the entry of Maruti

Udyog in the passenger car segment in collaboration with Suzuki of Japan, and Japanese manufacturers in the

two-wheeler and commercial vehicle segments.

After economic reforms took place in India in 1991, it is only in the mid-1990s, that the automobile

industry started opening up. Thus, the mid-1990s are characterized by the entry of global automobile

manufacturers through joint ventures in India. Till the 1990s, Maruti Suzuki, Tata Motors, Hindustan Motors

and Premier Padmini primarily dominated the automobile industry in India in the passenger car segment.

Ashok Leyland, Tata Motors and Mahindra & Mahindra dominated the commercial vehicle segment while

Bajaj Auto dominated the two-wheeler segment. After the year 2000, further policy changes were introduced

and focus on exports in the industry started increasing. Following that, the Core Group on Automobile

Research & Development (CAR) was set up in the year 2003 to identify priority areas for Research and

Development (R&D) in India.

The Global Majors In Automobile Industry In India

Global Majors

Company Foreign Partner Year of Establishment

Maruti Suzuki 1983

Hyundai Hyundai(Korea) 1998

Tata Daimaler Chrysler 1998

Hindustan Motors Mitsubishi 1942

Fiat Fiat 1996

Honda Siel Honda 1997

Ford Ford 1996

GM GM 1996

Mercedes Benz Daimler Chrysler 1995

Skoda Volkswagen 2002

Toyota Kirloskar 1997

Daewoo Daewoo (Korea) 1995

Now more and more foreign manufacturers are coming to India and existingcompanies are coming up with new models. India’s automotive industry is now $34

billion worth and expected to grow $145 in another 10 years.Presently following is the segment-wisee position of market share in AutomobileIndustry:

Passenger Vehicles 15.07%Commercial Vehicles 4.66%

Three Wheelers 2.95%Two Wheelers 77.32%

Segment wise domestic market share for 2011-12

Segment wise scenario of major automobile manufacturers is as mentionedbelow:Passenger VehiclesIn the passenger vehicle segment market share of Maruti Udyog is 52%. HyundaiMotor’s share is 19%. Share of Tata motors is 16%. Other players in this segment areHonda Siel cars and Ford India Pvt. Ltd. Thus Maruti Udyog is still leader inpassenger vehicle segment in automobile industry.Utility VehiclesThe leader in utility vehicles segment with market share of 42% is Mahindra andMahindra. It is followed by Toyota Kirlosker and Tata Motors. Other utility vehiclemanufacturers are Maruti Udyog, General Motors and Hyundai India.

Medium and heavy Commercial VehiclesIn this segment Tata Motors is leader with 61%market share. It is followed by AshokLeyland, Eicher Motos and Swaraj Mazda.

Light Commercial VehiclesWith 46% share in the market, Tata Motors leads the passenger carriers segment. It is

followed by Mahindra and Mahindra, Swaraj Mazda and Force Motors. In goodcarriers segment also with 58% shares Tata Motors is the leader. Other players in thissegment are Mahindra and Mahindra, Swaraj Mazda and Force Motors.

GROWTH OF THE AUTOMOBILE INDUSTRY:

The high GDP growth rate of India of 8–9 per cent over the last five years, combined with the development of

a large domestic market due to increase in prosperity and incomes in the country and a large pool of a skilled

workforce at lower costs has attracted several major global automobile manufacturers to India. Higher growth

rate of the Indian automobile industry vis-à-vis the stagnant growth rate of the automobile industry in United

States of America (USA), European Union (EU) and Japan has led to large scale shifting of capacity creation

to India. This is facilitated by the easy availability of trained manpower at low cost and increasing

productivity in the industry. According to the AMP, increasing competition between manufacturing

companies has led to improvement in productivity by 20 per cent each year in the automobile industry that is

one of the highest in the manufacturing sector.

Low share in world production despite high growth:

Despite rapid growth in productivity and expansion of the automobile industry, its contribution in global

terms is still quite low. This is evident from the fact that even though the total production of automobiles was

more than 11 million in 2006–2007, India’s share in world production was very low. In the year 2005–2006,

India’s share in world production of passenger cars and commercial vehicles was only 2.37 per cent

Growth targets set in the Automobile Mission Plan:The AMP aims at increasing the growth rate of the automobile industry and doubling the contribution of the

industry to 10 per cent of GDP by 2016. However, there are challenges to achieve this target. There is

growing concern about whether India can sustain the cost advantage it enjoys, challenges of retaining

engineering talent and the slow pace of consolidation in the industry.

On the other hand, some industry experts foresee Indian automobile companies of being able to replicate the

success of the Information Technology (IT) industry in the 1990s. It is believed that India will become a

strong export base for automobile manufacturers in the near future. Of course, India will get stiff competition

from other BRIC countries, namely Brazil, Russia and China and the East European countries in this regard.

Growth of the industry is taking place in clusters:The automobile industry is developing in clusters. There are four major clusters in the automobile industry in

India. They are in and around New Delhi, Gurgaon and Manesar in North India, Pune, Nasik, Halol and

Aurangabad in West India, Chennai, Bangalore and Hosur in South India and Jamshedpur and Kolkata in East

India. Of course there are several manufacturing units in many other parts of India but these four clusters are

expected to become the main hubs for manufacturing in the automobile industry.

The Government of India (GOI) is taking initiatives to develop the automobile clusters. For example, the GOI,

in its 11th Five Year Plan (2007–2012), is planning to create the Specialized Education and Training Institute

for the automobile industry. It is also taking measures to enhance transportation, communication, and

infrastructure facilities in these clusters.

THE AUTOMOTIVES MARKET IS SPLIT INTO FOUR SEGMENTS

PRESENCE OF A CLEAR LEADER IN EACH MARKET SEGMENTThe automotives industry is concentrated with leader of each segment commanding a share of over 40 per

cent except three wheelers.

EMERGENCE OF LARGE AUTOMOTIVE CLUSTERS IN THE COUNTRY