kpmg automotive tl 10

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TheIndianAutomotiveIndustry

EvolvingDynamics

KPMG IN INDIA

AUTOMOTIVE


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The automotive industry is one of the focus industries for KPMG globally, given its

importance both in the mature economies of countries such as the US and Germany, and in

the emerging economies of China and India.

The Indian automobile industry has emerged stronger from the recent global downturn, and

sales across all segments have seen record breaking numbers in the recent past.

While the Indian industry has much to look forward to, by way of steady growth in both

domestic and export markets, there are some clear challenges accompanying the

opportunities in greener vehicles and alternative mobility.

In order to capitalize on these opportunities, the industry needs to develop or acquire

technologies and capabilities to produce vehicles that meet future market needs.

The government for its part has much to do to ensure the growth trends are maintained, and

encourage the development of greener vehicles, while also improving compliance to even

existing environmental standards.

This report attempts to capture how the Indian automobile industry is expected to develop in

the longer term, and what role each stakeholder needs to fulfill in order to be geared up for

evolving requirements.

We have been aided in our study by several senior executives from Indias automotive sector

and we would like to express our gratitude to each of them.

It has been an exciting exercise for us to compile this report through discussions with

various industry personnel and by examining similar trends developing in other markets. We

hope that you find it interesting and insightful too.

2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative

(KPMGInternational),aSwissentity.Allrightsreserved.

Foreword


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1 Executive Summary 1

2 Introduction 3

3 Indian Auto Sector Medium term 7

Growth 8

Consolidation 12

4 Indian Auto Sector Long term 17

Green revolution 18

Mobility revolution 25

5 Conclusion 29

6 About KPMG in India 31

Table of Contents


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Introduction: Demographically and economically, Indias automotive industry is well-positioned for growth,

servicing both domestic demand and, increasingly, export opportunities. A predicted increase in Indias working-age

population is likely to help stimulate the burgeoning market for private vehicles. Rising prosperity, easier access to

finance and increasing affordability is expected to see four-wheelers gaining volumes, although two wheelers will

remain the primary choice for the majority of purchasers, buoyed by greater appetite from rural areas, the youth

market and women.

Domestically, some consolidation or alliances might be expected, driven by the need for access to better

technology, manufacturing facilities, service and distribution networks. The components sector is in a strong

position to cash-in on Indias cost-effectiveness, profitability and globally-recognized engineering capabilities. As the

benefits of collaborations become more apparent, super-specialists may emerge in which the automobile is treated

as a system, with each specialist focusing on a sub-system, akin to the IT industry. Though this approach is radical, it

could prove an important step in reducing complexity and investment requirements, while promoting

standardization and meeting customer demands.

Manufacturers are already planning for the future: early advocates of technological and distribution alliances have

yielded generally positive results, enabling domestic OEMs to access global technology and experience, and

permitting them to grow their ranges with fewer financial risks.

This exciting outlook for the industry is set against a backdrop of two potentially game-changing transportation

trends the gradual legislative move towards greener, gas-based public transport vehicles, and a greater

requirement for urban mass mobility schemes to service rapidly-expanding cities.

Green Revolution: Inaprice-consciouseconomysuchasIndias,theshifttowardsgreenvehicleswillbeslowunlessspurredby

governmentmandates.Althoughthemajorplayersarealreadyequippedwiththenecessarycapabilitiestodevelopcleanervehicles,

theydonotseemuchmeritincommercializingthesetechnologiesuntilthegreenrevolutiongainsmomentummostlikelythrough

changesinpoliticallegislationanditachievesthemarketscalerequiredforcommercialviability.

Manufacturersareplacinggreaterfaithindual-fueltechnologiesthaninbattery-poweredalternativesbecausethenecessarysupport

infrastructure,suchasrechargestations,isnotyetinplaceforthewidespreadadoptionofthelatter.Thelaunchofelectricmotorcycles

couldhaveasignificantimpactonthemarket,giventhatmotorcyclesaccountforthemajorityoftwo-wheelersalesinIndia.

Manufacturersoffour-wheelersandcommercialvehiclesinparticularstresstheimportanceofoptimizingconventionalcombustion

enginesbeforeexperimentingtooradicallywithcostlynewtechnologies.



Executive Summary1

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Mobility Revolution: UseofpublictransportinIndiahaswanedasprivatevehicleownershiphasboomed,butincreasingstrainonthe

roadinfrastructureinmajorcitiesmeanspublicinvestmentislikelyinUrbanMassMobilitySchemessuchasmetrosystemsand

buses.Theautomotiveindustryisunlikelytolosemuchofitscustomerbaseinthenear-term,evenastheseschemesbecomemore

prevalent,becausethesocio-economicstatementofcarownershipwillcontinuetomakeprivatevehiclesdesirable.

Atpresentthereisalackofclarityintheautomotiveindustryovertheroleitwillplayinanymobilityrevolution.Althoughsome

industryexpertsbelievetheimpactofthemobilityrevolutionwillbeminimalintheshort-term,theremaybeopportunitiesfor

manufacturerstobecomeinvolvedwiththepublicsectorinareassuchasimprovinglinksbetweendifferentmodesoftransport.

Conclusion: Current low car penetration, rising prosperity and the increasing affordability of private vehicles offer

a healthy prognosis for the Indian automotive industry. The companies benefiting most from this evolving landscape

will be those who forge judicious alliances and resource-sharing agreements, who prepare for the growing

importance of green technologies, and who remain flexible enough to respond to the twin needs of private light

transport and mass transport schemes.



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Introduction2



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Indiaishometoavibrantautomobileofmorethan40millionvehicles.Ithasbeenoneofthefewworldwide

whichsawgrowingpassengercarsalesduringtherecessionofthepasttwoyears.Infact,in2009-10ithas

recordeditshighestvolumesever.Itisbelievedthisupwardtrendwillbesustainedintheforeseeablefuture

duetoastrongdomesticmarketandincreasedthrustonexports.

TheIndianeconomyhasgrownatan

averagerateofaround9percentoverthe

pastfiveyearsandisexpectedtocontinue

thisgrowthinthemediumterm.Thisis

predictedtodriveanincreaseinthe

percentageoftheIndianpopulationableto

affordvehicles.Indiascarpercapitaratio

(expressedincarsper1,000population)is

currentlyamongthelowestintheworlds

top10automarkets.

Thetwinphenomenaoflowcarpenetration

andrisingincomes,whencombinedwith

increasingaffordabilityofcars,areexpected

tocontributetoanincreaseinIndias

automobiledemand.Source: EIU, KPMG Research

Figure 1: Indian GDP growth vs. Annual passenger vehicle volumes

Source: World Bank, KPMG Research

Figure 2: Car population vs. Cars per 1000 population



04

Source: NCAER Estimates

Figure 3: Growth in Population Categories with higher incomes


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Theautomotiveindustryisoneofthekey

driversofIndiaseconomy,accountingfor

around4percentofIndiasGDP1 andover

200,000jobs.Itisalsoafocusareafor

KPMGglobally.KPMGregularlypublishes

reportsonclientindustriesincludingthe

automotivesector.Thisstudywhichis

focusedontheIndianmarketcontains

insightsfromtwosuchglobalreports,the

KPMGGlobalAutoExecutiveSurvey2010

andBrand&OwnershipConcentrationin

theEuropeanAutomotiveIndustry.It

analyzesdataandexaminesthreeemerging

themeswithintheIndiancontext:

Growthandconsolidation

Greenrevolution

Mobilityrevolution

Forthisstudy,KPMGconductedinterviews

withseniorexecutivesfromIndianand

globalautomotivecompaniestogaintheir

viewsontheabovethemes.

Key themes explored in

our study

Inthisstudy,KPMGhasexploredthekey

themesofgrowthandconsolidationinthe

automobileindustryaswellasexaminedthe

impactofgreenerautomobilesandtheneed

foralternativemobilityoptionsonthe

automobileindustry.Webelievethatthese

themeswillhaveasignificantroletoplayin

determiningtheshapeandstructureofthe

Indiaautomotiveindustryofthefuture.

Towardsthis,KPMGhasaskedthefollowing

questions:

Theme 1: Consolidationandchanging

businessmodelsinthecontextofgrowthin

theIndianmarket

Whatarethekeygrowthdriversforthe

Indianautomobileindustry?

Whatarethelikelychallengesinthe

contextofconsolidationbothglobally

andinIndia?

Arecontractmanufacturing/alliancesfor

manufacturingordistributionbecoming

thechoiceforcapacityenhancements?

Theme 2: Greenrevolution

Arecustomerpreferencesshiftingto

alternativefuelbasedcars?

Isconsumeractivismexpectedtodrive

demandforgreenervehiclesinthenear

future(5-10years)?

Whatarethevariousinitiativestakenby

Indiancompaniesintheareasof

greenerautomobiles?

WhatisthepotentialfortheIndian

automotiveindustrytoemergeasa

significantpartofthegreenrevolution?

Theme 3: Mobilityrevolution

AreplannedinvestmentsinUrbanMass

MobilitySolutionsinmajorcitiesacross

Indiaexpectedtoaffectthegrowthof

theautomobilemarket?

Whatroleshouldbeplayedbythe

automotiveindustryinproviding

transportationsolutions?

Whataretheinvestmentplansof

companies(ifany)inalternativemobility

solutions?



1 Business Monitor International

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3 Indian Auto Sector Medium term



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TheIndianautomobileindustryhasseen

interestingdynamicsinrecenttimeswith

theeffectoftheglobaldownturn,followed

byrecoveryindomesticdemand.Thefuture

oftheindustryinthemediumtermbased

oncurrenttrends,isanalyzedherealong

twobroadthemesintheglobalautomobile

industry:

Growth

Consolidation

Asdiscussedbelow,thenatureofdemand

intheIndianautomotiveindustryandthe

associateddriversarelikelytotakeitalong

apath,whichisdifferentfromtheevolving

globalautomotivelandscape.

Growth

Indiasautomobilemarkethasgrown

steadilyoverthelastseventoeightyears,

withtheexceptionoftheprevioustwo

yearswheretheeffectsoftheglobal

downturnwerefelt,primarilyinsalesof

commercialvehicles.However,evenduring

thedownturn,thetwo-wheelerandthree-

wheelersegments,whichwereuntilthen

experiencinglowgrowthorlosingvolumes,

buckedthetrend.

AsFigure5shows,Indiasvehicledemand

isquitedifferentfromothertopautomobile

marketswiththeexceptionofChinain

thattwo-wheelersconstituteasignificant

portionofvehicledemand(morethan3/4th

oftheIndianmarketisintwo-wheelers).

Inthecontextoftheuniquecharacteristics

oftheIndianautomobilemarket,growthis

expectedtobedrivenbythefollowing:

Source: SIAM

Figure 4: Domestic vehicle volumes (annual) vs. Year-on-year growth rates

Source: SIAM

Figure 5: Indian Automobile Market 2009-10 Domestic Sales Volumes



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Affordability

Whilequiteafewnewvehicleslaunchedin

theIndianmarkethavebeendeveloped

locally,vehicleaffordabilityremainsa

significantconcernasseeninFigure6.

Althoughthepriceofanaveragemotorcycle

inIndia(aboutUSD900)iscomparableto

theaveragepercapitaincome,thepricesof

passengercarshavealongwaytogo.

Althoughtheentrylevelcar(Nano)ispriced

ataroundUSD2,500,thepassengercar

marketcouldgrowmulti-foldifthereisa

break-throughofanotherpricelevelinthe

yearstocome.

JohnFlintham,globalCEOofAmtekAuto,

believesfour-wheelersareparticularlywell-

placedtotakeadvantageofthesechanging

trends.IfyoulookattheTataNano,people

buyingtwo-wheelerbikeswhohaveabit

moredisposableincomeandcannowafford

tobuyacarinstead.Ithinkyouregoingto

seeadoublingofsalesoverthenextthree

tofouryearsandIthinkthatsgoingtobe

drivenbybothdomesticdemandandby

Indiabecomingasmallcarexporthub.

FordIndiaManagingDirector,Michael

Boneham,believeschangingdemographics

inIndiawillseeautosalesscalenew

heights.Hearguesthattheincreasing

numberofeducatedpeopleenteringthe

workingagebracketwillprovideafertile

environmentforabuoyanteconomyand

healthydemandforprivatelighttransport.

TheIndianautoindustryshouldhave

doubledigitgrowthlevelsforthenextfive

yearsandbeyond,dependingontaxation,

legislation,infrastructureandglobal

conditions,he says.

Fuel Economy

Thevolumeleadersacrosstwo-wheelers

andfour-wheelersinIndiaarecompanies

whichhavebeenabletoofferproductswith

thegloballyacknowledgedbest-in-classfuel

economyrates,aswellasaffordabletotal

costofownership.Forexample,whilethe

USissettingnormsforcarstoachieve35

mpg1 onpetrol2 ,amajorityofIndiancars

alreadyofferthatmuch3,whiletheleading-

classbikesofferupto200mpg3 andmore

insomecases.Thisperformance

expectationwillonlyincreaseinthefuture.

Fueleconomywillalsobeanimportant

factorinthetrucksector,withMarc

Llistosella,CEOandManagingDirectorof

DaimlerIndiaCommercialVehicles,noting

thatavehiclesmpgratingwillbecomean

increasinglyimportantpurchasingfactor.

Noonebuysatruckforleisure,hesays,

greaterefficiencymeansbetterfuel

consumptionandthisisinourinterest.

Some65percentofthetotalcostof

ownershipofatruckisfuelconsumption.

Thisgoesdirectlytotheprofitandlossof

thecustomer

Alternative Fuels

Vehiclesbasedonalternativefuelsremain

anotherareaofinterestforbothconsumers

andcompanies.Reva4 ,apioneerinelectric

cars,remainsanexceptionintheareaof

electricvehiclesinIndia,althoughintwo-

wheelerstherearemultipleofferings,none

ofwhichhaveasyettakenoffintermsof

volume.Althoughbothcommercialvehicles

andpassengervehiclesrunningonCNGare

gainingpopularityamongtransportservice

providersandconsumersduetotheirlower

costofoperation,muchmoreneedstobe

donetoimprovethefuellinginfrastructure

beforeCNGvehiclesbecomemore

mainstream.Thisreportexploresthistheme

indetailinthesectiononGreenRevolution.

Source: KPMG Research, EIU

Figure 6: Vehicle affordability

1 1 (mile per gallon) mpg = 0.42 km/l (approx)

2 National Highway Traffic Safety Administration (NHTSA)

3 OEM websites, KPMG Research

4 Mahindra & Mahindra (M&M) has recently purchased a controlling

stake in Reva



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Niche Products

WhileIndiaremainspredominantlyacost-

consciousmarket,profitablenichesare

availablefortheproductswhichaddress

specificneeds.Oneexampleisthegrowth

inthesalesofgearlessscooters,asseenin

Figure7.Ofthese,most ofthescootersare

inthe75-125ccsub-segment5,often

targetedatyoungpeopleandwomenin

particular.

Thegrowingpopulation,asignificant

proportionofwhichwillbeofworkingage

overthenextdecade,isanothersourceof

demandtomostautomobilecompanies.

Source: SIAM

Figure 7: Scooter - Domestic sales growth

Source: Planning Commission, India

Figure 8: Indias changing demographic profile (Mn) across age groups

5 SIAM



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Theluxurycarsegment6 hastakenoff

substantiallyinthelastthreeyears(see

Figure9)andcurrentdatasuggeststhatthe

demandwillbesustainedinthemedium

term.Whiletheluxurycarvolumesareonly

aboutonepercentofthetotalpassenger

vehiclesalesin2009-10,thecumulative

annualgrowthrate(involume)ofnearly40

percentoverthelasttwoyearssuggests

thatthisshareisboundtogrow.

Rural Market

Theautomobileindustryhasyettofullytap

intodemandfromruralareas.Previously,

consumersfromtheseareaswouldneedto

gotoautomobiledealershipsintownsand

citiesfortheirvehiclepurchases.However,

inrecentyears,marketplayershavemade

overturestoruralconsumers,withencour

agingsales.Figure10showsagradualbut

steadygrowthindemandforpassenger

vehiclesfromruralareas,accompanyingthe

growthoftheoverallsegment.

WhiletheIndianautomobileindustryseeks

todoubletotalsalesonthebackofsteady

growthoverthenextdecade,these

relativelyundertappeddemandsegments

(ruralmarkets,youth,womenandluxury

cars)areexpectedtoplayasignificantrole.

Source: SIAM, KPMG Research

Figure 9: Luxury car sales

Source: Emkay Research, NCAER

Figure 10: Growth in rural demand for passenger vehicles (1.95 Mn vehicles in 2009-10)



6 Cars costing above USD 32000 (about INR 15 lakh)11


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Consolidation

AsIndiaseekstobecomeoneofthe

worldslargestautomobilemarkets,itis

interestingtolookatitsevolutionoverthe

years.Indiasattractionasadestinationfor

automobilemanufacturershasbeen

underscoredbythenumberofnew

manufacturersenteringthecountryoverthe

lasttwodecades.Unlikeinseveralmarkets,

thenumberofmanufacturershascontinued

togrowinIndiaovertheyearsacross

vehiclesegments.

Globalconsolidationisanaturalprocessof

businessalignmentsbasedontechnologies

andmarket opportunit ies,saysDaimlers

MarcLlistosella.TheIndianmarketis

evolvingasthenextbigopportunityand

playersfromacrosstheworldseeitasa

naturalextensionoftheirbusinessdomain.

AndIndianplayersintheautomotive

componentsectorarenowviewingthe

entireglobalmarketasanopportunity.With

highskilllevelsandacompetitive

environment,theyarenolongerrestricted

toviewingIndiaalone.



Ashok Leyland

Force Motors

VE-CVs Eicher

Swaraj Mazda

JCBL

Asia Motor Works

Kamaz Vectra MotorsAshok Leyland

Force Motors

VE-CVs Eicher

Swaraj Mazda

JCBL

Ashok Leyland

Force Motors

VE-CVs Eicher

Swaraj Mazda

JCBLAshok Leyland

Force MotorsAshok Leyland

Force Motors

Ashok Leyland

Force Motors

Hindustan Motors

Premier Automobiles

Tata MotorsM&M

Maruti Suzuki India

Volkswagen-Audi

Skoda Auto India

Mercedes-Benz India

Ford India

Honda Siel Cars India

Hyndai Motors India

Toyota Kirloskar Motors

Fiat India

BMW India

Mitsubishi

General Motors IndiaVolkswagen India

VE-CVs Eicher

Hindustan Motors

Premier Automobiles

Tata Motors

M&M

Maruti Suzuki India

Sipani

Rover

Mercedes-Benz India

Ford India

Honda Siel Cars India

Hyndai Motors IndiaToyota Kirloskar Motors

Fiat India

Mitsubishi

General Motors India

Hindustan Motors

Premier Automobiles

Tata Motors

M&MMaruti Suzuki India

Sipani

Hindustan Motors

Premier Automobiles

Tata Motors

M&M

StandardSipani

Hindustan Motors

Premier Automobiles

Tata Motors

M&M

Standard

Hindustan Motors

Premier Automobiles

Tata Motors

M&M

Standard

Hindustan Motors

Premier Automobiles

Tata Motors

M&M


Standard

Fiat IndiaFiat India


Passenger Cars and CVs

2W and 3W

Fiat India

Electrotherm

Suzuki Motorcycle India

YamahaM&M

Hero Honda MotorsHMSI

TVS Motor Company

Royal Enfield

Bajaj Auto

HMSI

Kinetic Motor Company

LML IndiaIdeal Java

Mopeds IndiaHero Honda Motors

TVS Suzuki

Escorts Group

Royal Enfield

Bajaj Auto

API

Kinetic Motor Company

LML India

Ideal JavaMopeds India

Hero Honda Motors

TVS Suzuki

Escorts GroupRoyal Enfield

Bajaj Auto

API

LML India

Ideal Java

Mopeds IndiasTVS SuzukiEscorts Group

Royal Enfield

Bajaj Auto

API

Ideal Java

Mopeds Indias

TVS SuzukiEscorts Group

Royal Enfield

Bajaj Auto

API

Royal Enfield

Bajaj Auto

API

API

1

1

2

7 7 7

8

11

19

24

3

7

10

12

14

Piaggio VehiclesAtul Auto

Scooters IndiaPiaggio Vehicles

Atul Auto

Scooters India

Atul Auto

Scooters India

Atul Auto

Scooters India

12

1900 1920 1940 1950 1960 1970 1980 1990 2000

Figure 11: Automobile Manufacturers7

Source: SIAM, Company websites, KPMG Research

7 Kinetic 2W has been acquired by Mahindra & Mahindra recently12


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Majoracquisitions/jointventureslikeTata&

JLRandVW&SuzukihaveenabledOEMstogrowtheirrangeswhiletakingfewer

financialrisks.Alliancesareplaying

significantllyincreasingroleingenerating

economiesofscale.

Butanalliancemustbeamarriageof

equals,warnsSunilRekhi,DeputyCFOof

NissanMotorIndiaandRenaultNissan

Automotive.Wehaveenoughexamples

wheresuchallianceshaventworked,such

asDaimlerChrysler,hesays.Hecites

globalOEMshighregardforIndiaasa

sourcinghubandintellectualpoolasthe

reasonwhyanincreasingnumberare

settingupR&Dandengineeringcentersin

thecountry.

AshokLeylandhasfoundacompatible

partnerinNissantodeveloplight

commercialvehicles.AshokLeylandCFO,K

Sridharanseessuchtechnological

agreementsasamajoropportunityfor

Indianautofirmstonotonlycaterto

domesticdemand,butalsotomakedeeper

inroadsintotheexportmarket.Moreand

moreplayersarestrategicallyeyeingIndia

andasaresulttheindustryisexposedto

advancedfeatures,qualitylevelsand

performancelevels,he notes.

Whilethepassengercarsegmenthasbeen

dominatedbythreevendorsMarutiSuzuki,HyundaiandTataMotors(which

togetheraccountedfor70percentof

passengercarsalesin2009-10)8 thetwo-

wheelersegmentisdominatedbyHero

Honda,BajajandTVSMotors(which

togetheraccountedformorethan80

percentoftwo-wheelersalesin2009-10)9.

Consideringtherobustgrowththeindustry

iscurrentlywitnessing,itisclearthatany

newentrantwouldneedtodemonstrate

consistentandcleardifferentiatorstomake

aplayforaleadershippositionintheIndian

market.

Thedomesticindustryhasnotseentoo

manymergersoracquisitionsintherecent

past.Talkingaboutthetwowheeler

segment,BajajAutoSeniorVP,Business

Development,SRaviKumar,doesnotsee

consolidationasalikelyscenariointhe

immediatefuture.Consideringthelimited

numberofplayersoperatinginmature

marketslikeIndia,wedonotforeseeany

consolidationhappening,hesaid,inall

therewillbehandfulofplayerswhowill

dominatethisindustry.Peoplewhocant

meetqualityandcostexpectationswillfind

ithardtocomein.

8 SIAM

9 Kinetic 2W has been acquired by Mahindra & Mahindra recently



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Oneofthemoreinterestingscenariosbeing

consideredbyvariousindustryobservers

involvesthedevelopmentofsuper-

specialistsintheautomobileindustryakin

totheITindustry,withtheautomobile

beingtreatedasasystem,witheach

specialistsupplyingasub-system.For

example,

BMW,PSAcouldbethetwoengine

manufacturersinthecarindustrylike

Intelisthepredominantsupplierof

processorstotheITindustry,while

othermanufacturerswhowouldbuy

enginesfromitcouldfocusonthe

automobilesbrandinganddistribution

Toyotacouldbecomethemanufacturing

servicesproviderofchoicetoseveral

carmanufacturers

Inthisscenario,ahighdegreeof

collaborationmayberequiredamong

manufacturerswhoarecurrentlyengagedin

vigorouscompetitionformarketshare.

Consolidation in Europe

Europehaswitnessedsomedramatic

powershiftsinthepast.Europehasseen

fourphasesofconsolidation10,beginning

withthebigshakeoutsofthe20s-30s,to

theconsolidationinthewakeoftheendof

theSecondWorldWarinthe50s.Another

waveofconsolidationbeganinthe60s,

followedbyaperiodofslowinggrowth

leadingtothecurrentstateofaglobalized

automobileindustry.

Withinfourkeymarkets(UK,Germany,

FranceandItaly)whichtogetheraccounted

formorethan71percentofnewcar

registrationsinEurope11,thetrendshave

beenmarkedlydifferent,withasignificant

reductioninthenumberofmanufacturers

overthelastfivedecades(seeFigure12).

10 KPMGs Brand & Ownership Concentration in the European Automotive Industry

11 ACEA, Jan-Dec 2009



14

Figure 12 (a): Share of key nations in new car registrations in Europe

for Jan-Dec 2009

Source: KPMG ResearchSource: European Automobile Manufacturers Association (ACEA)

Figure 12 (b): Consolidation among automobile manufacturers in Europe between

1950s and 2000s


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WhencomparedwiththeEuropean

industry,severalobservationscanbemade

ontheIndianautomobileindustryfroma

consolidationperspective:

TheIndianautomobileindustryissetto

continueitsgrowthtrajectory,inthe

mediumterm,onthebackofsteady

economicgrowth.Someconsolidation

oralliancescouldpossiblybeexpected,

drivenbytheneedforaccessto

technology,manufacturingfacilities,

serviceanddistributionnetworks:

- Someevidenceofthishasalready

beenseenwithFiatsdieselengine

beingusedinSuzukisvehicles,as

wellasTatavehicles

- Tataismanagingtheserviceand

distributionfacilitiesforFiatIndia

Indiaispredominantlyatwo-wheeler

market(byvolume)today,andgiven

thataffordabilityisexpectedtocontinue

asakeyissueforalargepartofthe

Indianpopulation,thistrendisunlikely

tochangeoverthemediumterm

regardlessofentry/exitofnewplayers

Consolidationintheformofbrands

beingboughtandsoldorcompanies

exitingthemarketaremorelikelytobe

exceptions.Furthermore,global

developmentssuchasVolkswagens

acquisitionofastakeinSuzukiwillhave

theirownramificationsforcompaniesin

theIndianmarket.However,itis

unlikelythatwewillseephenomena

suchasbrands/entirecompaniesbeing

boughtandabsorbed,ashasbeenseen

overseas.

Thecomponentssectorisoneofthe

biggestchallengesformaintaining

growthbutalsooneofthebiggest

opportunities,according toFords

MichaelBoneham,aviewechoedby

DaimlersMarcLlistosella,whoargues

thatwithhighskilllevelsanda

competitiveenvironment,component

manufacturersarenowviewingthe

entireglobalmarketaspotential

customers.Indiahasshowntothe

world,thehighprofitabilitywehave

hereandefficiencywhichisoutstanding

comparedtomanyEuropeancountries

intermsofcost consciousness,he

said.EngineeringhasavalueinIndia.

Societyacceptsandhasarespectfor

that.AmtekAutosJohnFl intham has

notednoconsolidationinthe

componentindustrysofar,only

expansion,expansion,expansion.And

theIndianmarketdoesnotappear

readyforcontractmanufacturing,

accordingtoAshokTaneja,Managing

DirectorofShriramPistonsandRings,

becausethemarketisgrowingand

thereisspaceforallOE Mstogrow.

ThemediumtermoutlookfortheIndian

automobilesector,basedonthevarious

demand-driversaswellasthelikelihoodof

consolidationbeinglimited,suggeststhe

industryshouldhavearelativelystable

growthinthemediumterm.However,in

thelongterm,therearetwointeresting

scenarios,bothofwhicharerelatively

nascentasofdate,thusmakingitdifficult

topredicthowtheymightshapethe

industry

Greenvehicles

Developmentsoutsidetheautomobile

sector,suchasagrowthinalternative

mobilitysolutions.



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Indian Auto Sector Long Term4



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Thenatureofthelongtermstateofthe

Indianautomobileindustryappearsfluid,

giventhatgloballyevolvingphenomena

suchastheriseofgreener,hybridvehicles

areyettotakeoffinIndia.However,the

Indianautomotiveindustryhasscripteda

differentstoryinthedevelopmentof

greenervehicleswiththeriseofCNGasa

popularoptionamongconsumers.Inthis

context,wediscussthefollowingtrends

Greenrevolution

Mobilityrevolution.

Green revolution

InJuly2010,Toyotaannouncedthesaleof

its200,000 th Prius1 inEurope,aswellasthe

tenthanniversaryofitslaunchofthePrius.

ItisexpectedthatToyotawillsell2million

Priuscarsworldwidesoon.Themilestoneis

allthemoreremarkablegiventhatToyota

soldits100,000th PriusinEuropeonlyabout

twoyearsago,underscoringthegrowing

importanceofelectricvehiclesinthegreen

sector.

Manymanufacturersandmodels(GMsVolt,

FordsFocusRVandNissansLEAFamong

others),despitebeingrelativelatecomersto

thegreensector,havetriedtheirbestto

catchupwithToyotaandHonda.Not

everyonehastakentheplug-inhybridroute.

Evennichemanufacturerssuchas

California-basedTesla2,withofferingssuch

astheRoadster,haveenlivenedaspace

whichsawitsfirstprototypesemerge

decadesbeforethepriceofgasolinewas

evenaconcern.

Commercialvehicles,however,havesofar

notseentheintensityofproduct

developmentwitnessedinpassengercars.

However,thecommercialvehiclessector

hasseenvehiclesdevelopedbasedon

alternativefuels.Fromvehiclesdeveloped

tohandleethanol-basedfuelsinBrazil,to

CNG3 busesinIndia,severalOEMshave

riddenthegreenbandwagon.

Source: KPMGs The Indian Automotive Industry, 2010.

Figure 13: Drivers/Critical Success Factors for Green Vehicle Development Globally

1 www.just-auto.com

2 Silicon Valley based investments

3 CNG - Compressed Natural Gas



18


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Globally,countrieswhichhavetakenthe

leadindevelopinggreenvehicles(US,

Germany,Israel,China,FranceandBrazil),

haveallseensignificantgovernment

involvement.Furthermore,theavailabilityof

investmentsinunproventechnologies,as

wellasclustersofsupportindustries,have

ensuredthatthesectorhassustained

innovation.Intheearlyyearsofhybridcars

intheUS,endorsementsbycelebritiesis

believedtohaveboostedthecars

popularity.

Interestingly,inKPMGsGlobalAuto

ExecutiveSurvey2010,mostindustry

leadersseemedtoagreeonhybrid

technologiesbeingthemostimportant

alternativefueltechnologies,followedby

batteryelectricpower.Thisconsensuswas

almostuniformacrossregions,despite

regionaldifferencesinthepopularityof

vehicletypesandsegments.

Source: KPMG Global Auto Executive Survey 2010

Figure 14: Key alternative fuel technologies in the future - percent of executives who considered it important



19


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Green Vehicles in India

Aswithconventionalautomobiles,the

Indianindustryhastakenapathdifferent

fromthatoftheglobalindustryinthe

developmentofgreenvehicles.The

developmentofcleanervehiclesinIndia

beganwitharegulatorypushforCNG

busesandthree-wheelersinNewDelhi

morethanadecadeago.Inallother

segmentsoftheautomobilemarket,

demandhasgrownlargelybasedon

customerawarenessandapullforproducts

motivatedlargelybyperceivedeconomic

benefits.Forinstance,LPGkitswere

availableinthemarketmorethanayear

beforethefirstentrantinthefield,Maruti

Suzuki,introducedfactory-fittedvehiclesin

2004.Inrecenttimes,electrictwo-

wheelershaveriddenonthebackof

customerdemandforvehicleswithlower

runningcosts,aswellassomeincentives

tousersintheformoflittleornodutieson

electricvehicles(andparts)inareassuchas

NewDelhi.

Thislackoftechnologicalconsensusmaybe

hinderingthecreationofanadequategreen

infrastructure,accordingtoAshokTaneja,

ManagingDirectorofShriramPistons.

EachOEMcurrentlyseemstobepursuing

multipletechnologiessuchasCNG,bio-fuel,

hybrids,hydrogen,fuelcells,Plug-insor

EVs,hesays.Itislikehedgingbets,not

knowingwhichtechnologywilleventually

provesuccessful.Whenthereis

consensusitwillhavetobeapublic-private

partnershipbecausethegovernmentalone

doesnthavethecapacitytobuildthe

infrastructure.Hearguesthat the

governmentmustbringmanufacturerson

boardandfinalizea10-20yearblueprintfor

theintroductionofgreenervehicles.

Nevertheless,theIndianautoindustrytoday

seemstobeevaluatingtwopathsinits

movetowardsgreenervehicles:

CNG/DualFuel4

Vehicles

Electric/HybridVehicles

CNG/Dual Fuel Vehicles

Thispartoftheindustryhasdeveloped

largelybasedonlegislativeandjudicial

activismandthesubsequentavailabilityof

CNGfuelingoutletsacrossmajorpartsof

thecountry.AsshowninFigure15,the

governmentorderedtheconversionof

existingdiesel/petrol-basedpublictransport

vehicles(buses,taxis,andauto-rickshaws)

toCNGinseveralcitiesincludingNewDelhi

andMumbai,inresponsetogrowing

concernsoveremissions.

Source: KPMG Research, Company Websites

Figure 15: Key Milestones in Green Vehicles in India



4 With one fuel being CNG/ LPG

20


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Whilethereisdebateovertheeffectiveness

ofCNGinreducingpollutantemissions,

thereseemstobesupportforCNG-based

vehiclesinNewDelhi5,andsustainable

urbantransportinothercities(Mumbai,

Ahmedabad,andSurat)6.Furthermore,other

theoreticalstudiesalsosupportthe

introductionofCNGbusesinplaceofdiesel

asaneffectivemethodinreducing

emissions7.Indiahastheworldsfifth

largestnumberofnaturalgasvehicles8,

amountingtoalittlelessthanamillion

vehicles.

Itisbelievedthatatleast5percentofnew

carbuyersoptforaCNGvariantwhere

available.Thiscouldgrowinthefutureas

thedemandincreasesforvehicleswithlowerrunningcosts,althoughcurrently

mostLPG/CNGvariantsofpassengercars

costaboutINR15,000to50,000morethan

theirconventionalcounterparts9.Thehigher

purchasepriceofdual-fuelcarsisnormally

compensatedinlessthantwoyearsbased

oncostperkm,becausedual-fuelcarsoffer

upto50percentsavings10 basedoncurrent

pricesofpetrolandCNG.Theincreasing

availabilityoffuelingstationsincitiesand

onmajorhighwaysisalsoencouraging

sales.ThestateofGujaratisacaseinpoint

onCNG,accountingforaboutafourthofall

CNGvehiclesinIndiain2009,whilehaving

onlyaboutathirdofthe560CNGrefueling

stations11.

5 Narain Urvashi, Krupnick, Alan. 2007. The Impact of Delhis CNG

Program on Air Quality, Resources for the Future

6 Rayle, Lisa, Pai, Madhav. 2010. Urban Mobility Forecasts: Emissions

Scenarios for Three Indian Cities

7 Takeuchi, Akie et al. 2007. The Impact of Policies to Control Motor

Vehicle Emissions in Mumbai, India. Journal of Regional Science

8 International Association for Natural Gas Vehicles, Dec 2009

9 Various OEM product launch announcements

1 USD is about INR 46.5 (xe.com) as of 26 July 2010

10 KPMG Research. Assumption of 20,000 km of travel per year per car

11 Ministry of Road Transport and Highways, Infraline, KPMG Research

and Analysis

Source: International Association for Natural Gas Vehicles

Source: KPMG Research

Figure 17: Comparison of Cost/km for CNG and Petrol

Figure 16: Growth of CNG Vehicles in India

Note: Assumptions of mileage of 12 km/kg for CNG and 13 km/litre for petrol for a sub 1200 cc engine car, Rates as in Delhi in May 2010



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Electric/Hybrid Vehicles

Batterypowered/plug-inhybridelectric

vehicles(BEV/PHEV)havecontinuedtheir

steadygrowthworldwide,despite

accountingforonlyabout1percentofall

vehiclessoldin200912.InIndia,electric

vehicleshavejustbegunmakingsome

inroadsintothemarket.Inpassengercars,

thereisonlyoneestablisheddomestic

manufacturer,Reva,whosesalesaccount

forlessthan1percentofallpassengercars

soldinIndia.Howeverthiscouldchange

soonwithMahindra&Mahindras(M&M)

acquisitionofamajoritystakeinReva.

Inthetwo-wheelermarket,anelectric

scooterisavailableforless(aboutUSD600)

thanaconventionalscooter(aboutUSD

900)13.Soon,Indianelectricvehicle

manufacturersareexpectedtolaunch

electricmotorcycles.Giventhat

motorcyclesaccountformorethan80

percentofalltwo-wheelerssoldinIndia,

theintroductionofelectricmotorcycles

couldhaveasignificantimpactonthe

marketforelectricvehicles.However,

electrictwo-wheelershaveseenarecent

reversaloffortunes,withsalesdippingfrom

ahighofmorethan26,000vehiclesin

2008-09toaround3,000in2009-1014,

attributedbyindustrysourcestotherushof

cheap,butlow-qualityvehicleswhich

floodedthemarketin2008-09butthen

weresubsequentlyrejectedbyconsumers.

ArunPratapSingh,SeniorVPofelectric

vehiclebusinessElectrotherm,arguesthat

thiswaspartiallyduetoahugeinfluxoflow

costChinesemodelswhichhadquality

constraints.Alotoffly-by-nightcompanies

hadstartedoperatinginIndiawhosold

inferiorqualitymodelsatcheappricesbut

didnotprovideanyservicesupport,he

says.Asthecustomersbecameaware,

thesecompanieshadtoshutupshop

resultinginadeclineinnumbers.Asa

result,theentireelectricvehicleindustry

hasearnedabadnameandbecauseofthis

theindustryoverallwitnessedfewersales

inthissegment.However,thingsare

changingnow,withtheintroductionofnew

models,Electrothermisseeinggrowthin

electrictwowheelersalesmonthover

monthHeisalsoexpecting2010numbers

tobouncebackonthestrengthofaservice

supportnetworkbeingdevelopedto

addressanycustomerproblems.

Electric/hybridcommercialvehiclesare

mostlyintheexperimentalstageatthe

timeofwritingsoitisnotyetclearhow

thisindustrywillshapeupinIndia.

DaimlersMarcLlistosellasuggeststhe

movetowardsgreenercommercialvehicles

iscurrentlylimitedtothemajor

metropolisesbecauseconsumeractivismis

stillgainingmomentum.

Posthybrid,therearetrialsanderrorsin

theindustrybecausenooneknowswhat

willhappen,he says.Theresno blueprint,

whichmakesitbothinterestingand

challenging.Therearedifferenttheoriesbut

nobodyhastheonesolution.Indiscussions

atthestartofthecentury,hybridwascalled

abridgetechnology,inotherwordsitwas

neverthefinaldestination.5,10,15,20

years,howlongwillthenextstagetake?

Theindustrystillhasto defineaclearpath.

Other Fuels

AsinBrazil,wheremorethan90percentof

newvehiclessoldcanrunoneitherethanol

orgasoline15

,Indiahasbeenexploringthe

prospectofreducingitsdependenceon

crudeoil.Therearemandatoryblending

requirementsforethanolandthe

governmenthasannouncedapolicyfor

biofuels(suchasbiodiesel/biopetrol)from

varioussources.However,noneofthese

havetakenoffinasustainablemanner.

Aswithanydevelopingmarkettrend,

greenervehiclesfaceseveralchallengesto

theirgrowthinIndia(seeFigure18).Addressingthemwouldhelpexpandthe

marketmultifold.

12 KPMG Research

13 Yo Bike prices for electric scooters and Honda scooter prices (both in

Mumbai) have been used for comparison

14 As tracked by SIAM. However there seems to a parallel segment of

vehicles with lower speeds including Chinese imports that arent

tracked by SIAM, which have achieved sales of more than twice that

the number tracked by SIAM. Source: Various news reports on

Electric Vehicle Sales

15 Reuters

Source: Infraline

Figure 18: Challenges for Green Vehicles



Customer Power:

Fuel economy is the primary driver in the Indian market

Range anxiety for customers of both electric and CNG vehicles

Government/Regulatory Support:

There is no national policy for electric vehicles/CNG vehicles (the state of Delhi has

incentives)

Biofuel/ethanol pricing

Coordination among various government agencies, such as the ministries of petroleum,

forests and environment, agriculture, etc.

Fuelling/Charging Infrastructure:

Low number of CNG pumps (about 560) vs. about 38,000 conventional fuel (petrol/diesel)

pumps as of April 2010

Inadequate number of charging stations and that too limited to select cities

22


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Inthecontextoffuelling/charging

infrastructurebeingasignificanthurdleto

thegrowthofgreenervehiclesnotjustin

Indiabutalsoglobally,thefollowingcase

studyofBetterPlace,oneofthepromising

start-upsintheelectricvehiclesector,

illustrateshowthegreensectorcanbe

encouragedtogrow.

Case Study of Better Place16

BetterPlaceisaninnovativestart-upwhichplanstopositionitselfasaproviderofEV

mobilitysolutionstotheconsumer.Itisexperimentingwithmultiplebusinessmodels

includingbatteryexchangepoints,chargingstationsandasuiteofin-carservicesto

boostthedrivingexperience.Itisworkingincollaborationwithbatteryandautomobile

OEMs,governments/policymakersandinvestors.IthasraisedaroundUSD350

millioninfunds.

BetterPlaceaimstolaunchcommercialoperationsinIsraelandDenmarkbytheend

of2011.Severalkeyprojectshavealreadybeenundertaken:

Itlaunchedthefirstofaplanned500,0 00batterychargingstationsinIsrael inDec

2008

InFebruary2010,itannouncedthesigningof92corporate fleetowners,aswell

asapartnershipwithDorAlon(oneofIsraelsleadinggasstationoperators)for

batteryswitchstationsatDorAlonsfacilities

ItispartneringwithTokyoslargesttaxi operator,NihonKotsu,tointroduceelectric

taxiswithswitchablebatteriesinJapan.ThisprojectisbeingfundedbyJapans

MinistryofEconomy,TradeandIndustrysNaturalResourcesandEnergyAgency.

Ithas signedanMoUwithCheryAutomobileCo,Chinaslargestindependent

autoproducerandexporter,tojointlydevelopswitchable-batteryEVprototypes

withthegoalofsecuringregionalChinesegovernmentEVpilotprojects.

Someindustryplayersbelievethatthe

automotiveindustrywillmakemost

headwayinaddressinggreenconcernsnot

byadoptingradicalnewtechnologiesbutby

optimizingtheperformanceofconventional

engines.

FordIndiasMichaelBonehamsays

alternativefuel-basedcarswillhappen

eventually,buttheprocesswillbegradualbecausefuelcellsandsolarcellsare

unavailablewithinthepricingparametersof

mostcarssoldinIndia.FromaFord

perspectivewerelookingattechnologies

forimprovingtheperformanceofinternal

combustion,suchasEcoBoost.Wecould

perhapsseemanufacturersbringinginsmall

andinterestingnichesegmentationathigh

costforhybridvehiclesinitially,andyoull

seeothernichealternative-fuelbasedcars

suchaselectric.Buttheissueisntjustauto

manufacturersinvestinginthismarket

wheredopeoplewithelectriccarsrecharge

theirbatteriesincountrieswherepower

shortagesaresoprevalent?hesays.

ThisdoesnotdeterElectrothermsArun

PratapSingh,whosaysthathiscompanyis

currentlyfocusingondemographicgroupswithlowermobilityneeds,suchaswomen,

youngpeopleandtheelderly.Oncethe

companyhastechnologytoenhancethe

speedsofthevehicleitwouldliketotarget

othercustomersegmentsalso,hesays.

Wearecurrentlyworkingonpowertrain

developmentwhichcouldachieveaspeed

enhancementofthevehicle.

Honingthetechnologyofengine

managementsystemistheprimaryfocus

concernformanymanufacturers.Unlikein

theEuropeanmarkets,inIndia,focuson

environmentislesspronouncedandisnot

apurchasingconsiderationformanybuyers.



16 Better Place website, KPMG Research23


27/36

ThisisastanceechoedbyBajajAutosS

RaviKumar,whostressesthatIndiastwo-

wheelersalreadyproducelessemissions

thansimilarvehicleselsewhereinthe

world.Wellkeepimprovingfuelefficiency

onregularinternalcombustionengines,he

says,Beyondthat,switchingtoalternate

technologieswillhappenonlywhenbattery

costisslashedto0.5to0.25(times)of

currentlevels.Onlythenwillitcomewithin

thegraspofmillionsratherthanjustafew

people.

AshokLeylandsKSridharan,citinghis

companyasanearlypioneerofCNGand

battery-poweredvehicles,ismoreconfident

ofmanufacturersreadinessforgreen

technologies.Thelevelofpreparednesson

thepartofOEMsforgreenervehiclesis

veryhigh,hesays.Itjustneeds

governmentsupport.Forexample,inthe

caseoftheCommonwealthGames,when

thegovernmentmandatedspeciallow-floor

CNGbuses,theOEMswereableto

deliver.

Despitewhatseemlikesignificant

challengestotheIndianautomobile

industrysgreenfuture,thereareseveral

potentialopportunitiesnotjustfor

automobilemanufacturersbutalsofor

supplierbasestoridethegreenrevolution

asdetailedintheboxbelow.

Opportunities for Indian Automotive

Industry in Green Vehicles

Green Vehicle Export Hub

Leverageexpertisewithsmallcars

(especiallydualfuelcars)

Makesignificantinvestments

Research and Development Hub

ExtendexperienceforleadingOEMs

andengineeringcompaniestothe

areaofgreentechnologies

Globalalternativeenergycompanies

(forex.,Suzlon)couldbecomenew

leaders

Sourcing Hub for Parts for Green

Vehicles

Indiaisalreadyone oftheworlds

leadingsourcesforpartsfor

conventionalautomobiles

Vendorscouldleveragetheirexisting

relationships,tosupplypartsfor

greenvehicles

Source:



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Mobility revolution

Globally,OEMsrecognizethepotentialof

othermodesoftransporttocomplement

traditionalprivatevehicleuse.Alternative

transportationrepresentsanotherareaof

interestfortheautomobileindustry,but

opinionisdividedonwhetheritrepresents

anopportunityorathreat.

InIndia,theshareofpublictransportation

(excludingquasi-publictransportlikeauto-

rickshaws/taxiservices)hasdeclinedwhile

privatevehicleownershiphasbeen

booming,drivenbygrowingurbanization

andincreasedaffluence17.Acomparisonof

twostudies(1994-RITESand2008-WSA)

clearlyshows(Figure19)therehasbeena

declineintheshareofpublictransport

acrossthecities.

ThealternatemobilityrevolutionisjusttakingoffinIndia.Asshownbelow(Figure20),

thereareseveralalternativestoprivatetransportation/personalmobilitythatneedtobe

closelymonitoredbyindustryplayerstoidentifyopportunitiesandrisks.

Source:Study on Traffic and Transportation Policies and Strategies in Urban areas in India, May 2008, WSA,

Ministry of Urban Development

Figure 19: Public Transport Share in total transportation

Source: KPMG Research

Figure 20: Alternative Mobility options

17 Study on Traffic and Transportation Policies and Strategies in Urban

areas in India, May 2008, WSA, Ministry of Urban Development



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Inthefuture,itisbelievedthatplanned

investmentsbyboththeprivateandpublic

sectorwillrequiremoreinteraction

betweenpublictransportoptionsand

privatevehicles(drivenbytheintroduction

ofmetros,BusRapidTransitSystems

(BRTS),fleettaxis/busesandincreasedrural

mobility).Currentlyinter-systemmobility

hasnotbeenasignificantareaoffocusand

isthereforelargelyconsumerdrivenand

unregulated.

AshokLeylandsKSridharanishopeful,

seeingmassrapidtransportsystemsasa

necessitywhichwillimpacttheautomotive

industrybyprovidingopportunitiesto

participateinsolutions.Oneexamplecould

becoachsharinginairports/railwaysbeing

implementedby OEMs,he says.Theresa

lotofscopefordifferentsolutionsto

enhancetheconnectivitynetworksinIndia.

AshokLeylandisalreadyworkingonthese

lines.

Whilethereseemtobesignificant

opportunitiesforautomobileplayersto

exploit,therearesomeclearchallenges

ahead,mostnotablyininfrastructure.Most

largecitiesinIndiahaveoutgrowntheir

plannedsizesandareunabletoadopt

alternativetransportsystemsina

meaningfultimeframe.Forexample,aBRTS

requiresdedicatedfastlanesforbuses,

whichisverydifficultgiventheexisting

congestionontheroadsofcitiessuchas

Mumbai.

Limitedexpansionpossibilitieswillmeanan

integratedtransportsystembecomesa

necessity.Thisneedwillbemore

pronounced,oncealloptionstoenhance

roadtransportlikebuildingflyoversetcare

exhausted.However,industryobservers

believethatsuchsolutions/technologiesare

likelytobedevelopedoutsidethe

automotiveindustryandautomotive

companys'immediatefocusislikelytobe

onmakingtheircarsgreener.

BajajAutosSRaviKumarconcurs:

Businesshouses,likeTata,Bajajand

M&M,willgoforitonlyiftheywantto

enterthatbusinessandthereisbusiness

meritintheproposition,hesays.Itfalls

outsidethescopeofautoindustrys

backward-forwardintegrationperimeter,

autoguysareautoguys.Bridgeandroad

guysarebridgeandroadguys.

Vehiclemanufacturersarecertainto

becomeembroiledintherevolutionevenif

theirinvolvementisinitiallyperipheral.

NissanIndiasSunilRekhisays:TheIndian

automotiveindustrywillplayarolein

providingfeederservicestothedifferent

modesofpublictransportationintheform

ofsupplyingbusservicesandfleet

services.

Clearly,giventhehugetransportationneeds

ofthefuture,anincreasingproportionof

thepopulationmayshifttheirallegiance

towardspublictransport,therebyreducing

thepowerofautomobilemanufacturers.

Thefollowingcasestudyofametrorail

corporationinIndiahighlightsan

opportunityinwhichmassmobility

providerscouldleadthewayin

transportationsolutionsinafuturescenario.

Insuchacase,neithervehicle

manufacturersnortheoriginatorsofthefuelsthatthosevehiclesrunon,would

dominate.

18 DMRC website, KPMG Research



Case Study of DMRC18

TheDelhiMetroRailCorporation(DMRC)

wasborninresponsetotheneedto

decongestthecitysroadsduetoa

rapidlygrowingvehiclepopulation.

TheDMRCcurrentlytransportsmore

thanonemillionpeopleeveryday,

roughly6percentofthecityspopulation.

Whileithasbeeninoperationforabout

fiveyears,itspopularitycanbegauged

fromthefactthatitnowlinks/willbe

soonlinkingallthreekeyterritories

withintheNationalCapitalRegion

Gurgaon,NoidaandFaridabad.These

areashaveamongthehighestcar

densitiesper1,000populationinIndia.

Delhisdensityoffour-wheelersper

1,000populationisnearlyeighttimesthe

ratioforthecountry.

AlthoughDMRChasseenamultifold

jumpinitstraffic,fromabout150,000at

thetimeofitsintroduction,thenumbers

arestillwellbelowtheplannedestimates

ofmorethanthreemilliondailyusers.

AsFigure21shows,whiletheDelhi

Metrospassengertraffichasgrownata

healthyrate,Delhisrateofincreasein

privatevehiclenumbers(increaseof

about0.7mn)comparedtoitspopulation

growth(increaseofaboutamillion)

between2005-06and2007-08,indicates

thatinthenear-termroadcapacitymight

becomeaconstraintforvehiclesales

growth.

26


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OnereasontheDelhiMetrohasnot

dampenedcarsalesisthesocio-economic

statementofcarownership,accordingto

FordIndiasMichaelBoneham.Urban

MassMobilitySchemesareanabsolute

must,butIdontseethemimpactingthe

growthoftheautomotivemarketbecause

theyhavetogohand-in-hand,hesays,

Theresnoabatementinthedemandfor

vehiclesbecauseofeconomic

demographicsoneofthekeyidentifiersof

successinIndiaisapersonbuyingafour-

wheeler,andthatwillcontinuesignificantly

fortheforeseeablefuture.Itsakeypartof

theIndianpsyche.

Growingprosperitywillkeeptheautomotive

marketrobust,agreesBajajAutosSRavi

Kumar.Peopleareenjoyingtheirlives,he

says,Theywanttobuybikesandcars.

Manymorearegettingintotheaffordability

thresholdjustIfyoutellthemtositinthe

Bombaymetro,thatmightnotcuttheice.I

dontseeareductioninautosalesbecause

ofthisshifttoUrbanMassMobility

Schemes.

AmtekAutosJohnFlinthamagreesdemand

willremainhealthy,despitepredictinga

boomingrailsectorinthegoldentriangle

ofMumbai,ChennaiandDelhi.Ifyoulook

atawesternizedcountrysuchasLondon

wherethereisapublictransport

infrastructure,althoughpeopleinthecentre

probablydontbuymanycars,alotofother

peopleinthecitywill,hesays.Ithinkthe

overalldemandisstillgreat.AndIthink

someoftheinvestmentintherailstructure

withinIndiawillactuallymakeitmoreviable

intermsofbecominganexportnation.

Basedoncurrenttrends,intermsofboth

greenervehiclesandalternativemobility

solutions,Indiaisperhapsfiveyearsor

more,awayfromthesetrendsbecoming

mainstream.However,thiscouldrapidly

changebasedonregulatoryinterventionsor

globalpolitical/economicturmoilakintothe

aftermathofthe1970soilshockortheGulf

war,acceleratingtransformationofthe

Indianautomobileindustry.

Inthecontextofleadtimeforimplementing

newstrategiesanddevelopingnewvehicle

platforms,playerswoulddowelltobegin

planningforthatevolvinglandscapenow.

4W

population (lakh)

2005-06 2007-08

2W

population (lakh)

Population (Mn) Delhi Metro Traffic

in passengers/day

(lakh)

-

10.0

20.08.4%

7.8%

2.7%

29.1%

30.0

40.0

Source: Economic Survey of Delhi, DMRC, KPMG Analysis

Figure 21: Delhi: Population Growth vs Vehicle Population Growth



27


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28


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Conclusion5



29


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Indiasautomobileindustryispoisedatthe

startofanexcitingphaseofgrowth,notall

ofwhichmayderivefrommanufacturing

conventionalfuel-basedvehicles.Various

possibilitiesrangingfromdeveloping

vehiclesbasedonalternatefuelsto

collaboratingwithsome-timerivals,have

thepotentialtoopenfreshavenuesfor

growth.

Inordertocapitalizeontheemerging

scenariosinthefuture,thefollowingarea

fewkeyactionpointsforeachofthe

industryskeystakeholders:

Policy Makers

Indiahasnodutybenefitsforeven

hybridcars,whichneedtobeimported

duetolowvolumes.IfIndias

automobileindustrywantstoplayarole

intheglobalarenaforalternativefuel-

basedvehicles,suchlimitingmeasures

needtobereexaminedandan

appropriateredesignoftheframework

needstobeenactedimmediately

Whileglobalcompaniesarepursuing

innovationsinthirdandfourth

generationbiofuels,Indiaisyetto

decideonapurchasepriceforthefuel.

Suchadelayinkeypolicydecisions,

whichhavethepotentialtounlock

innovation,needtoberemediedbased

ontherecommendationsofindustry

associations/participants

Demandfornascenttechnologiesand

fuelefficientcarsneedstobe

encouragedbyofferingconsumers

incentivestoadopttheseproducts,

suchasanexpansionofthepolicyof

littleornodutybeingpayableon

electricvehicleparts.Thiscaninturn

spurinnovationforbetterproducts.

Likewise,manufacturerscouldbe

encouragedtocommercializetheir

greentechnologies,whicharecurrently

expensiveandunder-utilizedbythe

market,bybeingofferedsubsidies

whereappropriate

Increasedialoguewithmanufacturers

andoilmarketingcompaniesto

establishabetterinfrastructurefor

greenervehicles.Thegovernment

shouldconsiderfinalizingashort,mid

andlong-termblueprintforthe

developmentofthisinfrastructure,

encompassingelementssuchasbattery

rechargestationsorCNGpumps,

throughpublic-privatepartnerships

Thegovernmentshouldstimulate

debateonhowthepublicandprivate

sectorscancollaborateonthe

establishmentofUrbanMassMobility

Schemes.Manufacturerscouldbecome

keyplayersintermsofdevelopingnew

technologies,orinter-systemmobility.

Industry Participants

Themarketforgreenervehiclesopens

upawholenewworldofpossibilities

forIndiancompanies,evenoutsidethe

automobilesector(suchasleadersin

renewableenergy),tomakeaglobal

foray

Agreaterfocusonexportopportunities

couldtapintoaworldwidemarket

hungryforgreentechnology,which

Indiacanprovidecost-effectivelyandto

globalstandards.Businessmodelsof

globalgreenvehiclemanufacturers

shouldbeexaminedtoseehowmass-

marketpenetrationcanbeenhanced

Collaborationislikelytobethetheme

forthenextdecadeasnewmarkets

andproductsarecreatedbycompanies

forgingpreviouslyunimagined

partnerships.Companieswillneedto

thinkbeyondexistingbusinessmodels.

Concentrationsofresourcesand

technicalingenuitiesmaybevitalto

generateworkableeconomiesofscale.

Theremaybemeritingreater

specializations,suchasthatwitnessed

intheITindustry,tosimplifyprocesses

andreduceinvestmentneed

Acrossallvehicletypes, under-served

demographicssuchasyoungpeople,

womenandruralcustomerscouldbe

targetedbymakinggreateroverturesto

thesemarketsandbyimproving

distributionnetworks

Betterlinksshouldbeforgedwith

supportindustriessuchasbattery

manufacturerstohelpdrivedowncosts

ofmakingandmaintaininggreen

vehicles

Manufacturersshouldformagreater

consensusthanexistsatpresentonthe

mostappropriatefocusforemerging

greentechnologies.Theindustryis

slightlyfragmentedcurrently,with

numerousoptionsbeingexplored

rangingfrombatterypowertohybrid

fuels,frombiodieseltoLPG.



30


34/36

KPMGisaglobalnetworkofprofessionalfirmsprovidingAudit,TaxandAdvisoryservices.

Weoperatein146countriesandhave140,000peopleworkinginmemberfirmsaroundthe

world.TheindependentmemberfirmsoftheKPMGnetworkareaffiliatedwithKPMG

InternationalCooperative(KPMGInternational),aSwissentity.EachKPMGfirmisa

legallydistinctandseparateentityanddescribesitselfassuch.

KPMGinIndia,theaudit,taxandadvisoryfirm,istheIndianmemberfirmofKPMG

InternationalCooperative(KPMGInternational.)wasestablishedinSeptember1993.As

membersofacohesivebusinessunittheyrespondtoaclientserviceenvironmentby

leveragingtheresourcesofaglobalnetworkoffirms,providingdetailedknowledgeoflocal

laws,regulations,marketsandcompetition.Weprovideservicestoover2,000international

andnationalclients,inIndia.KPMGhasofficesinIndiainMumbai,Delhi,Bangalore,

Chennai,Hyderabad,Kolkata,PuneandKochi.ThefirmsinIndiahaveaccesstomorethan

3000Indianandexpatriateprofessionals,manyofwhomareinternationallytrained.We

strivetoproviderapid,performance-based,industry-focusedandtechnology-enabled

services,whichreflectasharedknowledgeofglobalandlocalindustriesandourexperience

oftheIndianbusinessenvironment.

About KPMG in India6



31


35/36

Wewouldsincerelyliketoacknowledgeandthankthefollowingindustryleadersforprovidingtheirvaluableviews

forthisreport

Arun Pratap Singh,SeniorVicePresidentElectricVehicle,Electrotherm(India)Ltd.

Ashok Taneja,ManagingDirector,ShriramPistons&RingsLtd

John Flintham,GlobalCEO,AmtekAutoLimited

K Sridharan,ChiefFinancialOfficer,AshokLeylandLimited

Marc Llistosella,ManagingDirectorandCEO,DaimlerIndiaCommercialVehiclesPvt.Ltd.

Michael Boneham,ManagingDirector,FordIndia

S Ravi Kumar,SeniorVicePresidentBusinessDevelopmentandAssurance,BajajAutoLimited

Sunil Rekhi,DeputyChiefFinancialOfficer,NissanMotorsIndiaPvtLtdandRenaultNissanAutomotivePvtLtd

Thisreportwouldalsonothavebeenpossiblewithoutthecommitmentandcontributionofcertainindividuals

withinKPMG.

Acknowledgements



Yezdi Nagporewalla

Head-Automotive

[email protected]

Sonica Bajaj

AssociateDirector-Markets

[email protected]

Ashwin Jacob

AssociateDirector-BusinessPerformanceServices

[email protected]

D Dharmendra

Manager-BusinessPerformanceServices

[email protected]


36/36

kpmg.com/in

2010KPMG,anIndianPartnershipandamemberfirmofthe

KPMGnetworkofindependentmemberfirmsaffiliatedwithTheinformationcontainedhereinisofageneralnatureandisnotintendedtoaddressthecircumstancesof

Dieter Becker

Managing Partner and

Global Head Automotive

+49 711 9060-41720

[email protected]

Yezdi Nagporewalla

Head Automotive

+91 22 3090 2488

[email protected]

Sonica Bajaj

Associate Director - Markets

+91 22 3091 3257

[email protected]

KeyContactsKPMGinIndiaBangalore

Maruthi Info-Tech Centre

11-12/1, Inner Ring Road

Koramangala, Bangalore 560 071

Tel: +91 80 3980 6000

Fax: +91 80 3980 6999

Chandigarh

SCO 22-23 (Ist Floor)

Sector 8C, Madhya Marg

Chandigarh 160 009

Tel: +91 172 393 5777/781

Fax: +91 172 393 5780

Chennai

No.10, Mahatma Gandhi Road

Nungambakkam

Chennai 600 034

Tel: +91 44 3914 5000

Fax: +91 44 3914 5999

Delhi

Building No.10, 8th Floor

DLF Cyber City, Phase IIGurgaon, Haryana 122 002

Tel: +91 124 307 4000

Fax: +91 124 254 9101

Hyderabad

8-2-618/2

Reliance Humsafar, 4th Floor

Road No.11, Banjara Hills

Hyderabad 500 034

Tel: +91 40 3046 5000

Fax: +91 40 3046 5299

Kochi

4/F, Palal Towers

M. G. Road, Ravipuram,

Kochi 682 016

Tel: +91 484 302 7000

Fax: +91 484 302 7001

Kolkata

Infinity Benchmark, Plot No. G-1

10th Floor, Block EP & GP, Sector V

Salt Lake City, Kolkata 700 091

Tel: +91 33 44034000

Fax: +91 33 44034199

Mumbai

Lodha Excelus, Apollo Mills

N. M. Joshi Marg

Mahalaxmi, Mumbai 400 011

Tel: +91 22 3989 6000

Fax: +91 22 3983 6000

Pune

703, Godrej Castlemaine

Bund GardenPune 411 001

Tel: +91 20 3058 5764/65

Fax: +91 20 3058 5775

kpmg automotive tl 10

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