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Indian automobile industry transformation from oligopoly to monopolistic market

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  • The Industries (Development and Regulation) Act passed in 1951 to implement Industrial Policy Resolution of 1948 – one of the perpetrators of Closed Market – Needed license from Central govt – License raj
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    • 1. Indian Automotive Industry -Transformation fromOligopoly to MonopolisticMarketMembers:Chintan Shah (P1051) Khyati Shah (P1052)Kinnar Majithia (P1026) Fatema Olia (P1035)Vikram Kasbekar (P1021) Kunal Parikh (P)Ankit Tripathi (P1058) Nirav Doshi (P1014)Arjun Mishra (P1028) Umesh Bagul (P)Charusheela K. (P1024) Priyadarshany Parab (P1029)
    • 2. What is Oligopoly market?• Market structure is featured by a few firms• Strategic Interaction - Reaction to competitor’s pricing and marketing strategies• Product can be homogenous or differentiated• Considerable barrier to entry for new firms
    • 3. What is Oligopoly market? (contd..)• Possibility of Collusion, leading to illegal price setting• On the other hand, if no collusion, possibility of fierce competition among the few firms
    • 4. What is Monopolistic market?• Market structure characterized by many firms• Product differentiation allows a Range of prices• Monopoly over a small range of price• Barriers to entry and exit very minor• Branding, advertising and personal selling to differentiate the product
    • 5. Earlier Indian Automobile Industry – The Oligopoly Market • A few facts:  First car ran on India’s roads in 1897  Till 1930, Cars were imported in India  Indian automobile firms started forming in 1940s
    • 6. The Indian Car Industry Oligopoly• Hindustan Motors – the first Indian Car company to start production in India - founded in 1942 by Mr. B.M. Birla; Ambassador – The flagship car• Establishment of other car manufacturing companies like Premier Automobiles(1944); Premier Padmini – The flagship car, now also used for cab services
    • 7. Reasons for the Oligopoly structure• Post 1947, Government of India and private sector launched efforts to create Automotive components manufacturing industry• Slow growth in 1950s and 1960s; Reason: License Raj, Nationalization, Socialistic approach, MRTP Act• The Industries (Development and Regulation) Act passed in 1951 to implement Industrial Policy Resolution of 1948 – one of the reasons for closed market• The Act empowered Government to prescribe Prices, Methods, Volume of Production, Channels of Distribution
    • 8. Reasons for the Oligopoly structure (contd..)• License Raj – Upto 80 government agencies to be satisfied before private companies could produce something and, if granted, the government would regulate production• MRTP Act – To control Monopolies and Monopolistic trade policies• 1970s – Fair Growth but mainly towards Tractors, Commercial vehicles and Scooters
    • 9. Impact of Oligopoly structure and License Raj• Impact on Automobile industry – Growth very slow because of Low Demand and Low Economic Status of the country• Government restrictions provided no motivation or incentive for firms to do technological upgradation.• Supply was low and there weren’t many competitors• Impact on Consumers –Consumers did not have many choices; the Demand was fairly low as Cars were still a Luxury and availability of same models
    • 10. The Causes of Transformation – The First Big Step• Sanjay Gandhi owned Maruti Technical Services Limited which was liquidated• After his death, Indira Gandhi government collaborated with Suzuki Motors, a Japanese firm, for collaboration – Formation of Maruti Udyog Limited and renamed later Maruti Suzuki in 2007 + =
    • 11. The Causes of Transformation• Policy changes introduced in 2 doses: 1. Partial de-regulation in 1985 – eased licensing requirements, allowed selective capacity-expansion, partial relaxation of controls with regard to foreign collaboration, imports. However, trade and investment regulations continued, constraining growth of big business houses. 2. 1991 policy changes – Dispensed with bulk controls and regulations• Partial de-regulation allowed technology inflow into India
    • 12. The Causes of Transformation (contd..)• New Industrial Policy in July 1991 by Congress Government led by Mr. Narsimha Rao:  It unshackled Indian Industrial economy from cobwebs of unnecessary bureaucratic control  It introduced Liberalization policies – Abolishment of License Raj• April 1993 – Government removed motor cars from list of industries reserved for compulsory licensing
    • 13. Effects of the Transformation• New firms, including foreign players, entered with modern engineering, efficient processes and modern shop-floor layouts• Indian automobile industry grew at 14.31% per annum in post-1991 era compared to 8.56% per annum during 1985-91• Delicencing of sector attracted many major Global OEMs (GM, Ford, Honda, Hyundai etc.) to start assembly in India
    • 14. A few Government Initiatives..• Finance Bill 2006 – reduction of excise duty on small motor vehicles, reduction in duty of raw materials from 10% to in-between 5%-7.5% - Infrastructure boost• Extension of 150% weighted tax deduction on R&D expenditure – increase in budgetary allocation towards R&D• Allowing automatic approval for foreign equity investment upto 100%, with no minimum investment criteria
    • 15. More Favorable Factors• NATRIP (National Automotive Testing and R&D Infrastructure Project) – The most critical intervention by the Government in the automotive sector• Growth in Urbanization – currently 4th largest economy by PPP index• Demand for small and compact cars by highly discerning, educated, well- informed Indian customers• Easy Auto Finances attract the buyers leading to sharp rise in the demand
    • 16. Indian Automobile Industry – The Monopolistic Market
    • 17. Automobile Industries associated with India• Quite a few Domestic Indian Automotive companies: Chinkara Motors, Tata Motors, Mahindra, ICML, Hindustan Motors, Premier Automobiles Ltd., San Motors etc.• Foreign Automotive companies in India:  Manufactured or assembled in India: BMW India, Ford India, General Motors India, Chevrolet, Honda Siel, Hyundai Motor India  Imported to India: Audi, Bentley, BMW, Lamborghini, Land Rover, Mercedes Benz, Nissan etc.
    • 18. Price Leadership Model• Intense competition amongst various players• 30th December 1998 - Indica launched by Telco for `2,59,000 (petrol) and `2,85,000 (Diesel)• 31st December 1998 – Maruti slashes prices by 5-12%; Maruti 800 price slashed to `1,85,000 from `2,09,000• Ratan Tata – “Even for those who do not own or buy an Indica, good news, we’ve triggered price drops in Maruti and made the car market a friendlier place”
    • 19. Current Trends• Tata has come up with ` 1 Lakh car – Tata Nano• This again has created price war• Nissan-Renault to develop a $3000 car using India’s “frugal engineering expertise”• Bajaj to experiment with the idea of a small car
    • 20. Market Share – Passenger Car MarketIn the Passenger Car category, Maruti Suzuki is still the market leader witharound 50% market share
    • 21. Current Trends in the Current Monopolistic Automobile Market• Considering huge market potential, production of passenger cars is projected to grow at CAGR of 11% between 2010-11 and 2013-14.Comparison: • 1982 Number of manufacturers: 3 Vehicle sales: 20000 Number of models: 3 • 2009: Number of manufacturers: 15 Vehicle sales: 19,80,000 approx. Number of models: 53
    • 22. ReferencesCRISIL Reportshttp://auto.indiamart.com/http://www.wikinvest.comhttp://india-reports.inhttp://wheelsunplugged.in/http://en.wikipedia.org
    • 23. THANK YOU