India automobile sector_report_feb_2013Document Transcript
2013 Sector Report: Indian Automobile Industry Where is the Growth Going! Gaurav Dadhich, Bejoy Bernanrd, DVN Sukesh, Devesh Kushwaha Department of Management Studies, IIT Roorkee 2/4/2013
1) Introduction:Automotive industry in India is emerging as a sunrise sector in the Indian economy and is now workingin terms of dynamics of an open market. Many joint ventures have been initiated in India in bothtechnical as well as financial aspects and the pace at which these activities are going to be increased inthe near future is high. The Government of India is also helping these initiatives to be successful. India isalso one of the worlds fastest growing passenger car markets and second largest two wheelermanufacturer. It is also the largest motor cycle manufacturer and stands fifth as commercial vehiclemanufacturer.According to the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce, theamount of FDI inflow into the automobile industry during 2000 and 2012 was worth US$ 6,992 million,which is almost 4 per cent of the total FDI inflows.In a report titled, Strategic Assessment of Small and Light Commercial Vehicles Market in India by Frost& Sullivan, it is mentioned that the Indian small and light commercial vehicle segment is expected togrow at 18.5% compound annual growth rate (CAGR) in the next five years.Automobile Industry in India is now making an annual turnover of $59 Million US dollars and also it isproviding employment to almost 13 million people in the Indian work class. This industry is consideringas one of the most competitive industries because the manufacturers in India have to face challengessuch as increasing fuel efficiency and reducing emissions apart from innovating. 2) Evolution of Indian Automotive SectorIndian automobile sector can be traced back to the British Raj days, when automobiles were for a richand wealthy few. Almost all of these vehicles were imported. To study the evolution of the industry inIndia, let us have a look at the pre-liberalization and post-liberalization times together. a) Pre-Liberalization (data source : http://shodhganga.inflibnet.ac.in/bitstream/10603/3722/13/13_chapter%204.pdf)
1955-1970 : Moped 1898 : First Car Brought production begins. 1965 : Bajaj begins to India Other 2 wheelers came manufacturing Tempo in Govt. notifies to 1928 : Trucks and Cars terminate assemblers in 1972 : Kinetic Assembled In India by 3 years. Only Engineering gets license Hindustan Motors manufacturers permitted then on 1980s : New Foreign 1947 : Bajaj recieves 1931 : Auto Assembly by Collaborations and Auto-Rickshaw license Ford India beginning of from GoI and Piaggio deregulation 1983 : Maruti Udyog 1935 : Proposal to 1944 : PAL was setup. M&M launch Automobile manufactured first car in started manufacturing Industry disallowed India Jeeps b) Post-Liberalization (data source : http://shodhganga.inflibnet.ac.in/bitstream/10603/3722/13/13_chapter%204.pdf)1991 : Mass Emission Norms introduced for Petrol 1997 : National Highway Policy Introduced 1992 : Mass Emission Norms introduced 1997 : Many multinationals like for Diesel Daewoo, GM, Mercedes- Benz, Honda, Hyundai, Toyota, Mitsubishi, Suzuki, Volvo, Ford & Fiat entered the market.
3) SegmentationIndia is fast developing nation with a middle-class that is ever-growing. The resultant growth in industryand services and also the rising per-capita incomes have ensured a deep penetration of automobiles inthe lives of people and businesses alike. In order to guage the magnitude of this growth, we cansegment the sector into Commercial, Passenger and 2-3 Wheeler vehicles. Let us have a quick look athow they are performing. a. Commercial VehiclesSome of the commercial vehicles are Light commercial vehicles – Goods carrier, Multi Utility Vehicles,Sports Utility and mini vans, Heavy commercial vehicles – Trucks, Tempo, Tractor and Tipper /Dumper.The market share of the various companies in the commercial vehicles segment is illustrated below. Fig: Percentage Market Share of Commercial Vehicles b. Passenger VehiclesThe market share of the various companies in the passenger car segment is illustrated below.
Fig: Percentage Market Share of Passenger Vehicles c. 2-3 Wheeler VehiclesThis includes vehicles such as Scooters, Motorcycles and Mopeds. Two wheelers form the majorsegment of Indian Industry with almost 75 percent market share with all other segments far behind.Motor bikes in India were introduced in the year 1955. Initially bikes are introduced for defence andpolice services but today the scenario is completely different. The entry of Japanese bike majors such asHonda and Suzuki has completely changed the Indian two wheeler market. They introduced bikes withfuel efficient engines and also with advanced features. Indian two wheeler markets consist of varioussegments such as entry level bikes, medium level bikes, super bikes, scooters and recently electric bikeswere added to the list. At present, some of the major bike manufacturers across the world started theirbusiness in India and introduced bikes starting from 100cc to 1200cc.The market share of the various companies in the 2-3 wheeler vehicles segment is illustrated below.
Fig: Percentage Market Share of Two WheelerFig: Percentage Market Share of Three Wheelers
4) Key PlayersWhile studying the key players in the Indian Auto Sector, we shall concentrate mainly upon thepassenger car and 2-3 wheeler vehicles segment since they are the fastest growing segment and withthe largest impact on the economy. Key Indian players: Tata motors. Mahindra & Mahindra Ashok Leyland. Maruti Udyog Ltd. Bajaj Auto. Company name Products Manufacturing Total group manufactured locations turnover in USD $ TATA MOTORS Cars, commercial Pune, Jamshedpur, 27.6 billion vehicles. Ahmedabad Mahindra & Commercial Nashik, 7.4 billion Mahindra vehicles Zahidarabad, Chennai Ashok Leyland Commercial Hosur, Pantnagar, 2.5 billion vehicles Alwar, Bhandara, Chennai Maruthi Udyog Cars Gurgaon 7.5 billion Ltd. Bajaj auto Motorcycles Pune, Pantnagar, 3.39 billion Aurangabad Tata Motors: Tata Motors is India’s largest automobile company. It ranks among the top 3 in passenger vehicles in India. It has around 64% market share in commercial vehicles market and 16% market share in passenger vehicles market. Tata Motors also operates in United Kingdom, South Korea, Thailand and spain. It acquired the jaguar land rover in 2008. It has to its credit the development of the first indigenously developed light commercial vehicle, India’s first sports utility vehicle and the first indigenously developed light commercial vehicle. In January 2008 it unveiled the much awaited people’s car The Tata Nano. The standard version’s price was INR 1,00,000. Mahindra & Mahindra: Mahindra and Mahindra concentrate its production mainly in multi utility vehicles and 3 wheeler segments. It has two joint venture subsidiaries Mahindra Navistar automotives ltd. And Mahindra Renault in commercial vehicle and passenger car segments respectively. It has a market share of around 10 % in commercial vehicles and 7% in passenger vehicles. Mahindra and Mahindra is expanding into overseas market. It launches XYLO in South Africa in 2009. Ashok Leyland: It has a market share of around 16% in the commercial vehicles market. Ashok Leyland was formed in 1955 and is an wholly owned subsidiary of the Hinduja group. It
manufactures trucks, buses and diesel engines. It produces special utility vehicles such as fire fighters and modern army vehicles. Maruthi Udyog ltd: It has a market share of around 46% in passenger vehicles market. Maruthi Udyog ltd. Is India’s largest passenger car company and holds almost half of the passenger car market. Its range of cars include the entry level maruth-800 and Alto, hatchback Ritz, A-STAR, SWIFT,WAGON-R etc. and sedans Dzire, sx4 etc. Bajaj Auto: It has a market share of around 27% in two wheeler and 59% in 3 wheeler segments. It operates in several countries in Latin America, Africa, middle east, south and south east Asia. Bajaj auto is India’s largest exporter of 2 and 3 wheelers and is ranked 4th in the world.Key International Companies in the Indian Automotive Sector: Skoda Auto Toyota BMW Company products manufacturing Total group Turnover in Name Manufactured Location Turnover in India in USD $ USD $ Skoda auto Cars Pune 13.5 billion 767million Toyota Cars Gurgaon 192 billion Na BMW Cars Mumbai,Pune 69 billion Na Skoda Auto: Skoda started its operations in India from 2001 under SkodaAuto. It has a state of the art facility in Aurangabad. It has 4 models in India Skoda Superb, Skoda Octavia, Skoda Fabia, Skoda Laura. It has had a growth of 89% in June 2012. Toyota: It is one of the world’s top automobile manufacturers. Toyota has sold 9.75 million vehicles worldwide last year. Since its inception Toyota has been having a steady growth in India Toyota Kirloskar is a joint venture between Toyota Motor Corporation and the Kirloskar group. BMW: BMW is a German automobile company founded in 1917. It has 11 models available in India. The BMW group has invested more than 180 Cr. In India, BMW has production plants in Chennai. 5) Market Scenario of Automobile Sector in India during 2011-12
Commercial Passenger Vehicles Vehicles 4.66% 15.07% Three Wheelers 2.95% Two Wheelers 77.32% Fig: Domestic Market Share for 2011-121800000016000000140000001200000010000000 Passenger Vehicles Commercial Vehicles8000000 Three Wheelers6000000 Two Wheelers40000002000000 0 2005-062006-072007-082008-092009-10 2010-112011-12 Fig: Automobile Production Trends
6) Auto Finance IndustryAuto finance for passenger and commercial vehicles in India has been an industry of solid andcontinuous growth for the past 5 year (at roughly 16%) which is more than twice the rate of GDPgrowth. Auto Finance penetration in the passenger cars section was whooping 72% in Dec, 2011 andhas been increasing since then. This rapid growth has been a significant driver of auto sales in India.Both Banks and NBFCs have tapped the Auto Finance market and some of the players involved are SBI,ICICI, HDFC, Bajaj Auto Finance, Kotak Mahindra Prime Ltd, Sundaram Auto Finance, etc. 7) Few Important Facts and Statistics: Automobile sector’s contribution to Indian GDP is approximately : 7% Direct and Indirect Employment provided by the Auto Sector : 17 million 4% of the total Foreign Direct Investment that reaches India is for the Automobile Sector 22% of India’s Manufacturing GDP comes from the Automobile Sector 8) Policies and regulation of Automobile Industry in IndiaThe automobile industry was heavily regulated back in till the 1970’s. The government relaxed someregulations during the 1980’s that encouraged foreign firms to participate in the Indian market. Theautomobile industry was liberalized in the 1990’s. India’s automobile and the auto-componentindustries is one of its biggest industries. Phase Period Major policies 1 1947-1965 Related to protection, indigenisation and regulation of industry 2 1966-1979 Related to protection, indigenisation and regulation of industry 3 1980-1990 Relaxation on technology acquisition 4 1991 onwards Liberalizing foreign investment.Industry policy regulation (IPR) was passed in the year 1948. India’s automotive industry was recognizedunder the category ‘ basic industries of importance’ whose” location must be governed by economicfactors of all-India importance, or which require a considerable investment of a high degree of technicalskill” were subject to regulation from the central government. The state played a controllers role. Statehad the authority to prevent unfair foreign competition. Import of vehicles very virtually bannedbecause of high tariffs.
The industries (development and regulation) act(IDRA) was drafted in 1951.according to the act “anindustrial license was required for a unit with 50 or more workers (100 or more without power) in orderto establish a new unit, expand output by more than 5% annually, change location, manufacture a newproduct, and to conduct business if a change was introduced in policies” starting from 1975 thegovernment introduced minor relaxations to the licensing requirements following which in 1978 thegovernment relaxed control on foreign equity collaborations. The industrial policy statement presentedin july 1980 encouraged limited liberalization and foreign collaborations. Poor performance of the publicsector undertakings led to the phase of liberalization and globalization starting from 1991. India’sdeclining foreign reserves was also a reason for this shift. 9) Why is India witnessing such growth in Automobile Sector?India has a good market for automobiles because of several factors. Some of them are: Rapid Urbanization: Currently just 21 percent of population is present in urban areas. So by 2020 and 2030 it is expected to grow to 35 percent and 40 percent respectively. Rising per capita GDP: The per capita of India in the year 2011 was $1200 USD and now it has become to $1330 USD in 2012. It is expected to touch $2000 USD by 2015. So, this increase in the per capita GDP signifies the purchasing power and hence the demand for automobiles increases in the successive years. Overall growth of other Industries: Industries are usually independent of each other but as the transportation is the basic need of every industry, demand for automobiles will rise with every positive change in industry. Car buyers getting younger: India is one of the youngest countries in the world with media age to be around 26 years, it resembles that work force mainly constitute the young individuals and hence the car buying age has become on a decline. Growing middle class: With the middle class of India growing annually, benefits of this sector are still untapped. It is the transition from the lower class to middle class which converts car into a need from luxury. 10) Manufacturing HubsEver since 1944, when PAL manufactured the first Indian Car, automobile manufacturing andassembling, along with the manufacturing of automobile parts has been on the rise. Today, India is oneof the largest exporters of Automobiles and Automotive parts in the world. This has been due to solidinfrastructure provided by the national and state governments, as well as policy gifts such as tax-breaks,the advent of the SEZs, etc. India now has major automobile manufacturing facilities all over thecountry, with Chennai springing as a hub. Chennai is poised to live up to its name of the Detroit of Indiadue to its attraction to almost all major auto manufacturing companies of the world.Some of the hubs of Indian Manufacturing can be seen as: (source: MapOfIndia.com)
Fig: Map of Indian Automobile Manufacturing Units
11) Supply ChainThe following graphic shows how Supply Chain works in the Automobile Industry. (Source:http://www.imaginmor.com/automobileindustryindia.html) Fig: Supply Chain for Automobile IndustryThird Tier Suppliers: Basic materials like rubber, glass, aluminum, steel to 2nd Tier SuppliersSecond Tier Suppliers: Engineering resources, design, fabrication, shearing etc as servicesFirst Tier Suppliers: Provides parts directly to manufacturers for assembling, small component assemblyto make bigger components, etcOEMs: They Design, Assemble, Manufacture, Market, Brand automobiles.Dealers: Important part of the Sales, Distribution and Services NetworkParts & Accessories: Produce products like tires, windshields, and air bags and sell directly to OEMs
Service Providers: Servicing, Repairs, Financing, etc are provided by these players.Note: Challenges in the Supply Chain of Automobile Sector in India (Source: KPMG) Integrating the end-to-end supply chain : Perceived as the biggest challenge in the coming years Managing Inbound Logistics/JIT Supplies Managing supply chain costs Managing Product/Parts Proliferation 12) Key Bodies The Indian Automobile Industry has been able to scale such levels thanks to a well-organized structure and various bodies that ensure healthy competition and sustainability. Some of the important bodies that help reorient Indian Automobile Industry are: ACMA : Automotive Component Manufacturers Association of India SIAM : Society of Indian Automobile Manufacturers ARAI : Automotive Research Association of India SAFE : Society for Automotive Fitness & Environment 13) Major Events:Key Indian automobile players meet regularly to share ideas, vision and to exhibit the R&D, concepts,new launches, etc. Some of the major events that facilitate these are: Indian Auto Expo : Largest Indian Auto show packed with new launches and concept cars India Automotive Summit SIAM Annual Convention 14) Future Prospects & ForecastsExcept a few hiccups and little corrections, the growth in the Indian Automotive sector has been seeingthe green for the past 5 years. The rising incomes and the growth of the service sector will continue toensure this growth in the passenger vehicles segment. More fuel efficient and hybrid cars will bedemanded and made thanks to the new emission rules that are set to be applied on the lines of theEuropean standards.In the 2 wheeler market, the growth prospects will depend if companies like Hero will be able to forgenewer partnerships like its previous partner Honda. A the same time, the 3-wheeler and lightcommercial vehicle market is set to grow on the cue of improved last-mile delivery needs.
With the success of new entrants like Asia Motor Works (AMW) and with Mercedes’ India growthtargets for 2020, the commercial vehicles sector is going to expand widely; especially on the demand bythe Supply Chain restructuring thanks to the new prospects brought in by Retail FDI deregulation.Forecasts:Forecast for Financial Year 2013-14 (source: SIAM Report) Segment F13 Growth (Jan 13 Est.) Cars 0-1% UVs 56-64% Vans 3-6% PV TOTAL 7-10% LCV 15-18% MHCV 21-23% Passenger Buses 0-2% Total 0-2% 2W 3-5% 3W Goods 9-12% 3W Passenger 8-11% 3W Total 4-7% Auto Total 3-5% 15) References CMIE: http://www.cmie.com SIAM: http://siamindia.com Maps of India: http://www.mapsofindia.com INFLIBNET: http://www.inflibnet.ac.in Excerpts from assorted KPMG Reports Excerpts from assorted DIBD - OMI Reports Excerpts from assorted ACMA Reports