Macroenvironmental Factors Affecting Automobile Industry


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Analysis of various macro environmental factors affecting Indian Automobile Industry

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Macroenvironmental Factors Affecting Automobile Industry

  2. 2. Introduction<br /><ul><li> Tenth largest in the world
  3. 3. Expected to overtake China
  4. 4. Huge attraction for foreign car manufacturers
  5. 5. Dominated by domestic companies
  6. 6. Contributes 3.1% to the nominal GDP</li></li></ul><li>Interesting Figures<br />India’s motorcycle market is the second largest in the world<br />Largest three-wheeler market<br />Second largest tractor manufacturer<br />Fifth largest commercial vehicle manufacturer<br />Largest two-wheeler manufacturer<br />
  7. 7. Evolution of Automobile Industry<br />Initial Years <br />Manufacturing was licensed<br /><ul><li>High Customs duty on import
  8. 8. Steep excise duties &
  9. 9. sales tax
  10. 10. 2 Major players: </li></ul>Premier Automobiles Ltd <br />& Hindustan Motors<br />1980s<br /><ul><li>Entry of MUL, better product, </li></ul>with government support<br /><ul><li>Seller’s Market
  11. 11. Long Waiting Periods</li></ul>Early to mid 90s<br /><ul><li>Seller’s market and long waiting periods
  12. 12. Delicensing in 1993
  13. 13. Removal of capacity restrictions
  14. 14. Decrease in customs & excise
  15. 15. Auto finance boom- more players (foreign banks & non banking companies, better schemes.</li></ul>Mid 90s – Early 2000s<br /><ul><li>Buyers market
  16. 16. Increase in Indigenization
  17. 17. Easy Auto finance
  18. 18. Manufactures diversifying into related activities: finance lease, fleet management, insurance and used car market</li></li></ul><li>Segment wise market share…<br />CVs<br />Three Wheeler<br />Passenger vehicles<br />Two Wheeler<br /><ul><li>The industry has not experienced much change in its structure over the last 6 years
  19. 19. Two- wheelers form the major share of domestic sales
  20. 20. Passenger vehicles lead the exports market(57.4%)
  21. 21. 2 wheelers form the bulk of exports as well, but are losing share to Passenger vehicles
  22. 22. The growth in the two wheeler market is driven by the motorcycle market and is expected to grow at 14-15 % YOY</li></li></ul><li>The Key Players…<br />Two wheeler<br />Passenger vehicle<br />
  23. 23. THE COMPANY’S MARKETING ENVIRONMENT<br />The Economy<br />Social Factors<br /> Suppliers<br />Demography<br />Distributors & Dealers<br />Company<br />Public<br />Customers<br />Cultural Factors<br />Competitors<br />Political & Legal<br />Technology<br />
  24. 24. THE EXTERNAL ENVIRONMENT<br /> There is a need to identify the uncontrollable key factors that will impact on the organization&apos;s operations. The best known method is the SLEPT analysis.<br />8<br />Economic<br />environment<br />Political <br />environment<br />The organisation<br />Social <br />environment<br />Technological <br />environment<br />Legal environment<br />
  25. 25. (B) MACRO-ENVIRONMENT<br />Natural Forces<br />Technological Forces<br />Economic Forces<br />Political Forces<br />Demographic Forces<br />Company<br />Cultural Forces<br />“ It is useless to tell a river to stop running; the best thing is to learn how to swim in the direction it is flowing”<br />
  26. 26. MACRO-ENVIRONMENT<br />An organization’s success depends on the ability of its executives to manage its marketing system in relation to its external environment.<br /> These forces (macro-environmental forces) are uncontrollable and pose opportunities and create threats for the company.<br />TODAY YOU HAVE TO RUN FASTER TO STAY IN THE SAME PLACE.<br />
  27. 27. Brand endorsement by celebrities<br />
  28. 28. Region wise distribution of vehicles<br />
  29. 29. Buy and sell second hand vehicles<br />
  30. 30. THE SMALL CARS DOMINATE<br />Combination of small cars and two wheelers<br />Use of cars as cabs<br />
  31. 31. Natural environment<br />Major global concern<br />Use of alternate biofuels<br />Use of eco friendly cars<br />
  32. 32. Anti pollution pressures<br />Implementation of Euro norms/Bharat norms<br /> Tata Motors is the first Indian Company to introduce vehicles with Euro norms well ahead of the mandated dates.<br /><ul><li>Use of THE CNG </li></ul>Indica V2 Xeta LPG is equipped with dual fuel engine having the options of petrol and LPG. This increases the fuel efficiency and reduces the CO2 emissions by 10%. The car meets Bharat Stage III emission norms and can be upgraded to Euro IV norms.<br />
  33. 33. Use of electric cars<br />The Reva : Indias’ first electrically operated car<br />
  34. 34. Demographic factors<br /><ul><li>Population growth in India
  35. 35. Population age mix
  36. 36. Rural urban ratio</li></ul>Ratio of rural-urban populations<br />
  37. 37. Demographic factors contd…<br />Literacy levels<br />Changing income levels<br />Changing family structure<br />
  38. 38. Stretch in country’s income distribution since last 20 years will continue<br />
  39. 39. Natural environment<br />Shortage of raw materials<br /><ul><li>Due to inflation , prices of iron ore- the main raw material and coal have risen</li></ul>Increased energy cost<br /><ul><li>Rise in oil prices
  40. 40. Introduction of electricity and CNG run automobiles</li></li></ul><li>Legal Factors <br />Pre Liberalization Period<br /><ul><li>Government Protection by use of licenses
  41. 41. Heavy Excise duty on cars
  42. 42. Price Discrimination by government
  43. 43. High Import Duty
  44. 44. Liberal policy on foreign participation</li></li></ul><li>Legal Factors<br />Post Liberalization Period<br /><ul><li>The license raj ceased to exist
  45. 45. Continuous rationalization of the excise duty regime
  46. 46. Reduction in Import Duties
  47. 47. Foreign Direct Investment</li></li></ul><li>Economic Side of the Issue- Current Scenario<br />From a phase when growth rates were more than healthy, the sector has been on a bit of a rocky path now- the industry is in a slowdown phase- sales in the passenger car segment have fallen by 1.71%- from 89250 to 87,724.<br />Dilip Chenoy, director general, SIAM, points out that a combination of factors like high interest rates, rising levels of inflation, lack of easy finance, and global oil prices are staring the auto majors in the face.- raw material prices have increased by about 50% for some players and doubled for the less fortunate ones. <br />Venu Srinivasan, chairman and managing director, TVS Motors- “In 2006-07, sales received a boost and saw a growth surge of 19-20% due to unlimited finance availability. At that time, companies chose to finance customers without any questions.”<br />Overall this has lead to increased costs on the input side and a fall in customer purchasing power due unavailability of unlimited finance <br />
  48. 48. Net Substantial Effects<br />Net effects- passenger car makers have been operating below capacity for a while. Recently, Maruti closed one of its plants for two days. Other volume players like Tata Motors and Mahindra & Mahindra (M&M) have been adjusting production to tide over the lean season.<br />Honda Motorcycle and Scooter India have put off their plans for a second plan<br />Ford Motor India had recently announced a fresh investment of Rs. 2100 Crore, however now that plan is only being carried forward in a tentative manner.<br />Tata Motors’ profit figures for the most recent quarter (second quarter of FY09) was the worst ever for the company in the last six years.<br />
  49. 49. How To Approach the Issue<br />Look towards frontiers out of India- Ashok Leyland recently said quite emphatically- “Leaving aside the large demand markets, which also have large manufacturers to support themselves, there are still 45% of developed markets left for our company to explore. This is especially when there is an estimated 1:4 advantage in development cost that Indian greenfield projects enjoy over European ones,” <br />Exports to neighboring countries and the Middle East have grown by 20-25%<br />The Jaguar and Land Rover companies owned by the Ford Motor Company was acquired by the Tata Motors Ltd for estimated price of US$ 1.5 billion<br />The Maruti Udyog Ltd has captured nearly 60% of the small car market in Indonesia <br />Innovation- TATA Motors and M and M. The former, for instance, is closely looking at the option of launching electric vehicles and hybrid versions- Tata Motors is in dialogue with Norway-based Miljobil Grenland to develop an electric vehicle on the Nano platform and with Chrysler for the Ace<br />
  50. 50. Overall Economic Outlook<br />Although the Indian Auto Industry is in a slowdown phase- this is part of cyclical cycle and therefore this slowdown is not a great matter of concern according to experts such as T. T. Srinivasaraghavan, Sundaram Finance.<br />High demand should eventually overpower these current forces- this is mainly because Indian consumers are still “Demand Hungry” and their net “purchasing power” is on the rise. <br />
  51. 51. TECHNOLOGY<br />Greater emphasis on R & D<br />Accelerating the pace of change<br />Innovation<br />Increased regulation of technological change<br />
  52. 52. Innovation<br />Fuel Efficiency<br />Common Rail Diesel technology<br />Variable Valve Timing<br />Hybrid Cars<br />Fuel efficient<br />Low emission<br />Quietness<br />Concept Cars <br />i-unit <br />
  53. 53. Regulations<br />Safety Technology<br />Wheel lock up<br />Additional breaking force<br /> Air Bag<br />FrontSideRear end collision<br />Whiplash Injury lessening<br />Vehicle stability control<br />
  54. 54. Acceleration of change <br />Assembly line<br />Product life cycle reduced<br />Better technology at a lower price<br />
  55. 55. Research and development – auto industry<br />Global auto and component makers invest between 5 and 8% in R&D.<br />Spending on R&D in India up from 243cr to 954cr in past four years.<br />Cost advantage India offers makes more players likely to scale up R&D outsourcing to India.<br />GM, Daimler, Volvo, Honda and Bosch are scaling up R&D investments out of India.<br /> “Indian engineers are very efficient and have a <br /> sense of frugality” – executive VP(product planning) ,Renault<br />
  56. 56. Cost advantage India offers makes more players likely to scale up R&D outsourcing to India.<br />GM, Daimler, Volvo, Honda and Bosch are scaling up R&D investments out of India.<br /> “Indian engineers are very efficient and have a <br /> sense of frugality” – executive VP(product planning) ,Renault<br />Research and development – auto industry<br />
  57. 57. Increasing role of IT in automotive space<br /> a) apart from IT support systems like supply chain management , CRM - IT companies are <br /> developing solutions for the automotive sector.<br /> b)“making automobiles more intelligent like building collision avoidance systems ,engine management systems and even entertainment features in cars”<br />$1bn auto vertical has the potential to grow to $50 - $60 bn by 2020.<br /> This requires the 3 stakeholders – global auto firms, their Indian counterparts and IT companies to get into collaborative research.<br />
  58. 58. Numbers Speak the Potential<br />
  59. 59. The Path Ahead<br />Growth of transport sector will boost automobile industry<br />Automobile Industry on an Investment overdrive<br />Over 30000 crore to be invested by 2010<br /><ul><li> Hyundai will bring in more than Rs 3,800 crore
  60. 60. Tata Motors will be investing Rs 2,000 crore
  61. 61. General Motors will be investing Rs 100 crore and Ford about Rs 350 crore
  62. 62. Ashok Leyland will be investing over Rs 1,000 crore </li></li></ul><li>Future Perfect…<br />India becoming export hub of Automobile Giants will boost employment opportunities <br />Study says Per Capita Income may triple by 2025<br />Over 100 million households would own a car compared to just 11 million now<br /> A dramatic reshape of Automobile demand<br />Aspirers<br />Strivers<br />Globals<br />
  63. 63. Challenges<br />Better transportation infrastructure<br />Improved product quality to meet Global Standards<br />Changes in tax regulations<br />
  64. 64. The New Giants waiting to hit the Indian Roads…<br />
  65. 65. The New Giants waiting to hit the Indian Roads…<br />
  66. 66. Thank You<br />