The automobile industry in India is emerging as an important sector of the Indian economy. Key factors driving growth include rising incomes, a young population, and urbanization. The industry is dominated by two-wheelers but passenger vehicles are the fastest growing segment. Major players include Tata Motors, Mahindra & Mahindra, Maruti Suzuki, and Bajaj Auto. The government has increasingly liberalized policies governing the sector since the 1990s to encourage investment and competition. India now has a large automotive manufacturing base across the country.

1. 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

2. 1) Introduction:
Automotive industry in India is emerging as a 'sunrise sector' in the Indian economy and is now working
in terms of dynamics of an open market. Many joint ventures have been initiated in India in both
technical as well as financial aspects and the pace at which these activities are going to be increased in
the near future is high. The Government of India is also helping these initiatives to be successful. India is
also one of the world's fastest growing passenger car markets and second largest two wheeler
manufacturer. It is also the largest motor cycle manufacturer and stands fifth as commercial vehicle
manufacturer.
According to the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce, the
amount 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 to
grow 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 is
providing employment to almost 13 million people in the Indian work class. This industry is considering
as one of the most competitive industries because the manufacturers in India have to face challenges
such as increasing fuel efficiency and reducing emissions apart from innovating.
2) Evolution of Indian Automotive Sector
Indian automobile sector can be traced back to the British Raj days, when automobiles were for a rich
and wealthy few. Almost all of these vehicles were imported. To study the evolution of the industry in
India, 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)

3. 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
1980's : 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.

4. 3) Segmentation
India is fast developing nation with a middle-class that is ever-growing. The resultant growth in industry
and services and also the rising per-capita incomes have ensured a deep penetration of automobiles in
the lives of people and businesses alike. In order to guage the magnitude of this growth, we can
segment the sector into Commercial, Passenger and 2-3 Wheeler vehicles. Let us have a quick look at
how they are performing.
a. Commercial Vehicles
Some 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 Vehicles
The market share of the various companies in the passenger car segment is illustrated below.

5. Fig: Percentage Market Share of Passenger Vehicles
c. 2-3 Wheeler Vehicles
This includes vehicles such as Scooters, Motorcycles and Mopeds. Two wheelers form the major
segment 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 and
police services but today the scenario is completely different. The entry of Japanese bike majors such as
Honda and Suzuki has completely changed the Indian two wheeler market. They introduced bikes with
fuel efficient engines and also with advanced features. Indian two wheeler markets consist of various
segments such as entry level bikes, medium level bikes, super bikes, scooters and recently electric bikes
were added to the list. At present, some of the major bike manufacturers across the world started their
business 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.

6. Fig: Percentage Market Share of Two Wheeler
Fig: Percentage Market Share of Three Wheelers

7. 4) Key Players
While studying the key players in the Indian Auto Sector, we shall concentrate mainly upon the
passenger car and 2-3 wheeler vehicles segment since they are the fastest growing segment and with
the 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

8. 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

9. Commercial
Passenger
Vehicles
Vehicles
4.66%
15.07%
Three
Wheelers
2.95%
Two Wheelers
77.32%
Fig: Domestic Market Share for 2011-12
18000000
16000000
14000000
12000000
10000000 Passenger Vehicles
Commercial Vehicles
8000000
Three Wheelers
6000000 Two Wheelers
4000000
2000000
0
2005-062006-072007-082008-092009-10 2010-112011-12
Fig: Automobile Production Trends

10. 16000000
14000000
12000000
10000000
Passenger Vehicles
8000000 Commercial Vehicles
Three Wheelers
6000000
Two Wheelers
4000000
2000000
0
2005-062006-07 2007-082008-092009-10 2010-112011-12
Fig: Automobile Domestic Sales Trends
2500000
2000000
1500000 Passenger Vehicles
Commercial Vehicles
1000000 Three Wheelers
Two Wheelers
500000
0
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
Fig: Automobile Exports Trends

11. 6) Auto Finance Industry
Auto finance for passenger and commercial vehicles in India has been an industry of solid and
continuous growth for the past 5 year (at roughly 16%) which is more than twice the rate of GDP
growth. Auto Finance penetration in the passenger cars section was whooping 72% in Dec, 2011 and
has 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 India
The automobile industry was heavily regulated back in till the 1970’s. The government relaxed some
regulations during the 1980’s that encouraged foreign firms to participate in the Indian market. The
automobile industry was liberalized in the 1990’s. India’s automobile and the auto-component
industries 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 recognized
under the category ‘ basic industries of importance’ whose” location must be governed by economic
factors of all-India importance, or which require a considerable investment of a high degree of technical
skill” were subject to regulation from the central government. The state played a controllers role. State
had the authority to prevent unfair foreign competition. Import of vehicles very virtually banned
because of high tariffs.

12. The industries (development and regulation) act(IDRA) was drafted in 1951.according to the act “an
industrial license was required for a unit with 50 or more workers (100 or more without power) in order
to establish a new unit, expand output by more than 5% annually, change location, manufacture a new
product, and to conduct business if a change was introduced in policies” starting from 1975 the
government introduced minor relaxations to the licensing requirements following which in 1978 the
government relaxed control on foreign equity collaborations. The industrial policy statement presented
in july 1980 encouraged limited liberalization and foreign collaborations. Poor performance of the public
sector undertakings led to the phase of liberalization and globalization starting from 1991. India’s
declining 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 Hubs
Ever since 1944, when PAL manufactured the first Indian Car, automobile manufacturing and
assembling, along with the manufacturing of automobile parts has been on the rise. Today, India is one
of the largest exporters of Automobiles and Automotive parts in the world. This has been due to solid
infrastructure 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 the
country, with Chennai springing as a hub. Chennai is poised to live up to its name of the Detroit of India
due 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)

13. Fig: Map of Indian Automobile Manufacturing Units

14. 11) Supply Chain
The following graphic shows how Supply Chain works in the Automobile Industry. (Source:
http://www.imaginmor.com/automobileindustryindia.html)
Fig: Supply Chain for Automobile Industry
Third Tier Suppliers: Basic materials like rubber, glass, aluminum, steel to 2nd Tier Suppliers
Second Tier Suppliers: Engineering resources, design, fabrication, shearing etc as services
First Tier Suppliers: Provides parts directly to manufacturers for assembling, small component assembly
to make bigger components, etc
OEMs: They Design, Assemble, Manufacture, Market, Brand automobiles.
Dealers: Important part of the Sales, Distribution and Services Network
Parts & Accessories: Produce products like tires, windshields, and air bags and sell directly to OEMs

15. 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 & Forecasts
Except a few hiccups and little corrections, the growth in the Indian Automotive sector has been seeing
the green for the past 5 years. The rising incomes and the growth of the service sector will continue to
ensure this growth in the passenger vehicles segment. More fuel efficient and hybrid cars will be
demanded and made thanks to the new emission rules that are set to be applied on the lines of the
European standards.
In the 2 wheeler market, the growth prospects will depend if companies like Hero will be able to forge
newer partnerships like its previous partner Honda. A the same time, the 3-wheeler and light
commercial vehicle market is set to grow on the cue of improved last-mile delivery needs.

16. With the success of new entrants like Asia Motor Works (AMW) and with Mercedes’ India growth
targets for 2020, the commercial vehicles sector is going to expand widely; especially on the demand by
the 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