Automobile Sector in India

AUTOMOBILE SECTOR IN INDIA
CHAPTER-1 INTRODUCTION TO AUTOMOBILE SECTOR

1.1 WHAT IS THE AUTOMOBILE? Automobile occur auto and mobile is composed of words. Auto means spontaneous in Greek and mobile means moving in Latin. Automobile is moving a vehicle that moves itself, rather than being pulled or pushed by a separate animal or another vehicle. It begins as early as 1769.The automobile sector is one of the key segments of the economy having extensive forward and backward linkages with other key segments of the economy. It contributes about 4 per cent in India's Gross Domestic Product (GDP) and 5 per cent in India's industrial production. Indian Automobile sales growth rate would be 9.5 % by 2012. 1.2 FACTS

9th largest automobile industry. 2nd largest two-wheeler market. 4th largest in Heavy Trucks. 2nd largest tractor manufacturer. 11th largest passenger car market and expected to become 7th largest by 2016.
Sale of passenger cars in India is likely to grow at an average of 14.9% each year to touch 2.1 million marks by 2016.
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CHAPTER-2 HISTORICAL DEVELOPMENT OF AUTOMOBILE IN WORLD

1680- The first internal combustion engine built by Dutch guy Christian Huggens, but the engine was not available for use after the powder burned that was first piston engine. 1698 - Thomas JAVERY built the first steam-roller 1769- James Watt built steam roller but in long time it could have working 1769- The motile car built by Fardier. He was one of the first to employ successfully a device for converting the reciprocating motion of a steam piston into rotary motion. A small version of his three-wheeled ran in 1769. The vehicle which weighed 2.5tonnes tare had two wheels at the rear and one in the front where the horses normally have been, this front wheel supported the steam boiler and driving mechanism. 1876- Nikolaus August Otto built the first four stroke piston cycle internal combustion engine. This engine was the prototype of the combustion engine that has since been built. 1880- George Brayton built gasolina-powered engine in America 1886- Karl BENZ built three-wheeler car which was speeding up 14.5km and that car aimed to sell. 1897- Rudolf Diesel designed many heat engines, including a solarpowered air engine. He dubbed the diesel engine. He was almost killed by his engine when it exploded. However his engine was the first that proved that fuel could be ignited without a spark. 1903- Gustave LIEBAU built the first seatbelt and granted patent.
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1905- Turbo is a gas compressor that is used for forced- induction of an internal combustion engine. It was invented by Alfred Bchi. 1908- Henry Ford built T model cars and that was duplicate production. 1912- Two-stroke engine and 12000hp diesel engine was built. 1919- The first mass-production automobile offered to market by type a Citroen. 1920- Voisn firm worked on ABS which was working as hydraulic. 1924- Citroen manufactured the first automobile that has steel carrosserie. 1934- Citroen started to produce front wheel drive 1954- Rotary Wankel engine improved by Felix 1957- The first cruise control used in Imperial 1958- Nils granted patent of 3 point seatbelt in Sweden at the volvo co. 1962- The first mass production turbo engine automobile Chevrolet corvair introduced and then Oldsmobile F85 follow up that. 1978- The first modern abs system applied in Bmw7 and Mercedes s series 1987- Bosch launched to the market ASR system. 1995- Bosch started to produce FDR system. It prevents to dash.
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CHAPTER-3 SCOPE OF INDIAN AUTOMOBILE SECTOR

The Indian automobile industry is going through a phase of rapid change and high growth. With new projects coming up on a regular basis, the industry is undergoing technological change. The major players are expanding their plants and focusing on mass customization, mass production, etc. 3.1 INVESTMENT IN AUTO SECTOR Nearly every automobile company is investing at a higher rate than ever before to achieve a high growth trajectory. The overall investment in the sector has been increasing quite rapidly. It is expected that by the end of 2012 Indian automobile sector will be investing a huge amount as Rs. 30,000 crores. For example, Maruti Udyog has plans of investing Rs. 6,500 crores; the Tata Motors is coming up with more investment of Rs. 2,000 crores in its compact car project. Not only the Indian companies but also foreign players like Hyundai are coming up with the investment of more than Rs. 3,800 crores in India. 3.2 GROWTH IN THE SECTOR At present the industry is enjoying a growth rate of 14-17% per annum, with domestic sales growth at 12.8%. The growth rate is predicted to double by 2015. As it is seen, the total sales of passenger vehicles - cars, utility vehicles and multi-utility vehicles - in the year 2005 reached the mark of
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1.06 million. The current growth rate indicates that by 2012 India will overtake Germany and Japan in sales volumes. Financing schemes have become an important factor in the growth of automobile sales. More and more financial schemes are coming up with easy instalment plans to lure the customers. Apart from domestic production, the industry is consistently focusing on the automobile exports. The auto component segment is contributing a lot in the export arena. The liberalized policies of the government are now making the companies go for more and more exports. The automobile exports are increasing year by year. 3.3 EMPLOYMENT IN THE SECTOR Investment is leading to the employment growth in the sector. With the emergence of new projects and introduction of technological advancements, the focus is more on the skilled and experienced human resource. The companies are looking for skilled and hard working people who can give their best to the organization. The engineers in the automotive or electrical or mechanical field are in demand. Some of the firms going for automation, i.e. planning for CAD (Computer Aided Designs) systems, are also recruiting people with IT specializations.
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CHAPTER-4 AUTOMOBILE INDUSTRY ANALYSIS

4.1 SWOT OF AUTOMOBILE INDUSTRY 4.1.1 Strengths Large domestic market.

Sustainable labour cost advantage. Government incentives for manufacturing plants. Strong engineering skills in design.
Able to achieve significant gains in productivity 4.1.2 Weaknesses

Low labour productivity. High interest costs and high overheads.
Rising cost of production. Low investment in Research and Development 4.1.3 Opportunities Commercial vehicles.

Heavy thrust on mining and construction activity. Increase in the income level.
Cut in excise duties.

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Rising rural demand
4.1.4 Threats Rising interest rates. Cut throat competition. Lack of technology for Indian Companies 4.2 PESTLE ANALYSIS OF AUTOMOBILE SECTOR 4.2.1 Political In 2002, the Indian government formulated an auto policy that aimed at promoting integrated, phased, enduring and self-sustained growth of the Indian automotive industry. Allows automatic approval for foreign equity investment up to 100% in the automotive sector and does not lay down any minimum investment criteria. Formulation of an appropriate auto fuel policy to ensure availability of adequate amount of appropriate fuel to meet emission norms. Confirms the governments intention on harmonizing the regulatory standards with the rest of the world. Establish an international hub for manufacturing small, affordable passenger cars as well as tractor and two wheelers. Ensure a balanced transition to open trade at minimal risk to the Indian economy and local industry.
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Assist development of vehicle propelled by alternate energy source. Plan to have a terminal life policy for CVs along with incentives for replacement for such vehicles. Promoting multi-model transportation and the implementation of mass rapid transport system. 4.2.2 Economic The level of inflation Employment level per capita is right. Economic pressures on the industry are causing automobile companies to reorganize the traditional sales process. Govt. has granted concessions, such as reduced interest rates for export financing. The Indian economy has grown at 8.5% per annum. The manufacturing sector has grown at 8-10 % per annum in the last few years. More than 90% of the CV purchase is on credit. Finance availability to CV buyers has grown in scope during the last few years.
The increased enforcement of overloading restrictions has also contributed to an increase in the no. of CVs plying on Indian roads.
Several Indian firms have partnered with global players. While some have formed joint ventures with equity participation, other also has entered into technology tie-ups.
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Establishment of India as a manufacturing hub, for mini, compact cars, OEMs and for auto components. 4.2.3 Social Since changed lifestyle of people, leads to increased purchase of automobiles, so automobile sector have a large customer base to serve. The average family size is 4, which makes it favourable to buy a four wheeler. Growth in urbanization, 4th largest economy by PPP index. Upward migration of household income levels. 85% of cars are financed in India. Car priced below USD 12000 accounts for nearly 80% of the market. Vehicles priced between USD 7000-12000 form the largest segment in the passenger car market. Indian customers are highly discerning, educated and well informed. They are price sensitive and put a lot of emphasis on value for money. Preference for small and compact cars. They are socially acceptable even amongst the well off. Preference for fuel efficient cars with low running costs. 4.2.4 Technological
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More and more emphasis is being laid on R & D activities carried out by companies in India. Weighted tax deduction of up to 150% for in-house research and R & D activities. The Government of India is promoting National Automotive Testing and R&D Infrastructure Project (NATRIP) to support the growth of the auto industry in India. Technological solutions helps in integrating the supply chain, hence reduce losses and increase profitability.
Customized solutions (designer cars, etc) can be provided with the proliferation of technology.
Internet makes it easy to collect and analyse customer feedback 4.2.5 Environmental Physical infrastructure such as roads and bridges affect the use of automobiles. If there is good availability of roads or the roads are smooth then it will affect the use of automobiles.
Physical conditions like environmental situation affect the use of automobiles. If the environment is pleasant then it will lead to more use of vehicles.
With the entry of global companies into the Indian market, advanced technologies, both in product and production process have developed. With the development or evolution of alternate fuels, hybrid cars have made entry into the market.
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Few global companies have setup R &D centres in India. Major global players like Audi, BMW, and Hyundai etc have setup their manufacturing units in India. 4.2.6 Legal Legal provision relating to environmental population by
automobiles. Legal provisions relating to safety measures. Confirms the governments intention on harmonizing the regulatory standards with the rest of the world. Indian government auto policy aimed at promoting an integrated, phased and conductive growth of the Indian automobile industry. Establish an international hub for manufacturing small, affordable passenger cars as well as tractor and two wheelers. Ensure a balanced transition to open trade at minimal risk to the Indian economy and local industry.
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CHAPTER-5 GLOBAL COMPARISONS

The Investment Information and Credit Rating Agency of India (ICRA, 2003) studies the competitiveness of the Indian auto industry, by global comparisons of macro-environment, policies and cost structure. This has a detailed account on the evolution of the global auto industry. The United States was the first major player from 1900 to 1960, after which Japan took its place as the cost-efficient leader. Cost efficiency being the only real means in as mature an industry as automobiles to retain or improve market share, global auto manufacturers have been sourcing from the developing countries. India and China have emerged as favourite destinations for the first-tier OEMs since late 1980s. There are only a few dominant Indian OEMs, while the number of OEMs is very large in China (122 car manufacturers and 120 motorcycle manufacturers). According to this study, the major advantage of the Indian economy is:1. Educated and skilled workforce with knowledge of English. Our disadvantages include:1. poor infrastructure, 2. complicated tax structure, 3. inflexible labour laws, 4. Inter-state policy differences and inconsistencies. The drivers of Chinese economic growth are FDI, labour productivity growth, which was 1.5 times higher than that in India in the
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last decade, and domestic demand. Fiscal pressure is mounting on the Chinese government, while India is in a better state. Based on comparisons of cost composition to pinpoint the areas in which the Indian auto industry is at a disadvantage, this study recommends a VAT regime, speedy procedures, and imports duty cuts on raw materials, common testing and design facility, labour reforms, up gradation of design and engineering capabilities and brand building. ICRA (2004a) analyses the implications of the India-ASEAN Free Trade Agreements for the Indian automotive industry. ASEAN economies are globally more integrated than India. The current size of Indian and ASEAN market for automobiles is more or less the same but the Indian market has a larger growth potential than the ASEAN market due to the low level of penetration. The labour cost is low in India but the stringent labour regulations erode this advantage. The level of infrastructure is better in India than Indonesia and the Philippines but worse than that in other ASEAN countries. The financial and banking sector is better in India than in the ASEAN countries. The study notes that there is a huge excess capacity in ASEAN countries, in comparison with that in India, which will help them to tackle the excess demand that may arise in future. The study finds a 20-30 per cent cost disadvantage for Indian companies on account of taxation and infrastructure and 5-20 per cent labour cost advantage over comparable ASEAN-member-based companies. Similar findings are noted in a study by the Automotive Component Manufacturers Association of India (ACMA, 2004), particularly in comparison with Thailand.
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ICRA (2004b) analyses the impact of Preferential Trade Agreement (PTA) with MERCOSUR on the automobile sector in India. This study finds a significant threat of imports in sub-compact and compact cars and certain auto-components. There is huge excess capacity and intense competition in MERCOSUR countries, propelling them to look for export opportunities. This is true especially of Brazil, which has a well developed autocomponent sector with huge economies of scale. Further, weak currency in all MERCOSUR countries provides a natural tariff barrier. In addition, MERCOSUR countries have an equitable arrangement within themselves to have a balanced trade, with fair level of exports and imports. The Indian auto industry could gain from this PTA with MERCOSUR only if it is assured of the balanced trade, as MERCOSUR countries practise among themselves. ICRA (2005) studies the possible impact of FTA with South Africa on the Indian automobile industry. The study finds that there are a few policies in South Africa that indirectly subsidise the auto industry, unlike India, in terms of financial grants. Hence it is suggested that India could minimise losses only if it goes for inclusion of certain auto components, which involve huge logistic costs of imports, creating a natural protection (for example, stampings, glass, seats, plastics and tyres) and those in which India enjoys economies of scale and is cost-competitive (e.g. castings and forgings) in this FTA. If South Africa is ready to discontinue the schemes such as Motor Industry Development Programme (MIDP), India could include all automotive components in this FTA. There should be a minimum local
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content of 60 per cent and the agreement should not be trade balancing as India will not gain much in that case.
5.1 PRODUCTION In 2005, the global automobile production was 105 million units, of which two /three-wheelers were 38 per cent, passenger cars 52 per cent and commercial vehicles 10 per cent (Organisation International Constructers Automobiles (OICA) Website). Table 5.1.1 gives an overview of quantity and share of production of four wheeler industry in different parts of the world, while Tables 5.1.2 to 5.1.5 show the figures for passenger cars, LCVs, heavy trucks and buses/coaches. As seen in Table 5.1.1, the regions that have seen a decline both in terms of their share and volume of production of motor vehicles are EU, North America and Australia, all of which comprise the developed countries. Japans production has grown in terms of quantity but fallen in terms of share. Though the shares of India, China, South Korea and Taiwan are smaller than the EU and North America, their growth in terms of quantity of production as well as in terms of share has been good. Indonesia, Malaysia, Thailand, Africa, Vietnam and Rest of South Asia have seen double-digit growth rates in terms of both shares and quantity of production, despite the lower production base than other countries.
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Table 5.1.1: Region-wise Production of Motor Vehicles (in Number)
Source: Calculations from Organisation International Constructers Automobiles (OICA) Website Tables 5.1.2 to 5.1.5, which cover global comparison of production of different vehicles, indicate that in the recent years, the emerging market economies have an increasingly bigger role to play in the global auto industry. The global auto industry is witnessing a rapid change, perhaps owing to aggressive outsourcing strategies that are redefining global supply chains with an expanding demand for innovations in technology, products and manufacturing techniques.
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The auto industry worldwide has been facing many problems such as sluggish demand, excess capacity based on escalating customer expectations, resultant capacity under-utilisation and huge investments required to comply with environmental and safety standards. All these factors have squeezed the margins of global auto majors. However, the global auto sector has immense hope in the new and huge markets of India, China and South East Asia. India has already emerged as a major producer in heavy trucks and passenger cars and is a world leader in manufacture of motorcycles. Table 5.1.2 gives a global production scenario for the passenger cars. This shows that the EU, Thailand, Indonesia and Australia have declined both in terms of share and quantity in 2005. Though North Americas quantity of production has risen, its share has fallen, albeit marginally. Growth in Chinese production is high, both in terms of quantity and share, while it is moderate for India, Taiwan, South Korea, Japan and Africa. Table 5.1.2: Region-wise Production of Passenger Cars
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Source: Authors Calculations from OICA (2006). China is the largest producer of buses and coaches, as shown in Table 5.1.3, though its quantity and share of production have declined. South America has gone through a tremendous growth, both in terms of quantity and share, while the EU, Japan and North America have declined in terms of share despite being among the leading producers. Indias role in this segment is negligible and hence is not reported in this table. Table 5.1.3: Region-wise Production of Buses and Coaches
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Source: Authors Calculations from OICA (2006). Table 5.1.4 illustrates the global production scenario in Light Commercial Vehicles (LCVs). North America is the leader despite declined share and quantity, followed by China and EU. South America, Indonesia, Malaysia, Vietnam and Africa have grown very rapidly despite their small share in global production. Indias share is small and its growth is moderate in this segment. China has a share of over 11 per cent, but its share and quantity declined in 2005.
Table 5.1.4: Region-wise Production of Light Commercial Vehicles
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Source: Authors Calculations from OICA (2006). As Table 5.1.5 shows, the EU, North America, South America, China and India have sizeable and expanding shares in production of heavy trucks, while Japans huge share has fallen considerably from around 28 per cent in 2004 to less than 25 per cent in 2005. Other regions, except Africa, have small and further declining shares in this segment.
Table 5.1.5: Region-wise Production of Heavy Trucks

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Source: Authors Calculations from OICA (2006) 5.2 EXPORT PERFORMANCE OF SELECTED COUNTRIES In this section, the export performance of a few countries is compared to gauge Indias relative position in the world auto trade. The following are the summarised inferences, based on Figures 5.2.1 to 5.2.8: Indias shares in the international exports of tractors: Far better than Indonesia, Thailand and Malaysia. Comparable to China, South Korea and South Africa. Far lower than OECD countries, Brazil and Mexico.
Indias shares in the international exports of public transport vehicles:

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Far better than Indonesia, Thailand, Malaysia and South Africa. Comparable to China, Brazil, Mexico and South Africa. Far lower than OECD countries and South Korea. Indias share in the international exports of chassis is better than China, South Korea, Indonesia, Thailand, Malaysia and South Africa, but is far lower than those of OECD countries and Brazil. Indias shares in the international exports of passenger vehicles, commercial vehicles and Special Purpose Vehicles are lower than all major countries, including China, Indonesia, Thailand, South Korea, Taiwan and Malaysia. Indias shares in the international exports of auto-components are comparable to Indonesia, Malaysia and Thailand, but lower than most of the other major players. However, in terms of exports of components of two-wheelers, Indias shares are lower than even that of Indonesia and Thailand. Indias share in the international exports of motorcycles has been its highest among all product categories, at around 2 per cent, which is: Higher than Indonesia, South Africa and Malaysia. Comparable to Thailand. Far lower than OECD countries, south Korea, Brazil, China, Taiwan and Mexico. Thus, India is not yet very competitive in the international arena or its firms are not export-oriented as the domestic market offers sufficient
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scope for expansion and provides reasonable rate of return. Though Indias production shares in the global total are reasonably good, this inference shows that some structural changes in technologies employed and quality are required to bring the Indian automobile industry up to world standards. For example, when we compare a typical Indian company with its counterpart in a developed region such as Europe, it could be inferred that despite huge cost pressures due to labour costs and low profit margins, R&D expenditure is never compromised in such countries. Based on the annual reports of a few Europe-based companies, the following could be inferred: Labour cost shares are higher in Europe (15-30%) than in India (710%). Profit rates are lower in Europe (< 1.5%) than in India (2-10%). Tax cost shares are lower in Europe (<1%) than in India (10-15%). R&D cost shares are higher in Europe (2-4%) than in India (<2%)
Technologies are much more advanced in Europe than in India. It directly follows from the above that R&D efforts in developed
regions such as Europe are much higher despite the fact that they have labour cost pressures, low profit margins and already fairly advanced technologies. On the other hand, Indian companies are reluctant to increase R&D efforts, even though profit margins are higher. Hence concerted efforts are required from both industry and the government in India, for spending more on R&D.
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Source: Calculations from CMIE India trades Database
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Source: Calculations from CMIE India trades Database 5.3 TARIFF STRUCTURE A glance at tariff rates across countries summarised in Table 5.3.1 shows that Indian tariffs on auto products are among the highest in some product categories in the automobile sector, particularly cars and motorcycle. Hence, rationalization of tariff structure could be helpful in further integrating the Indian auto industry into global auto supply and production network. However, the rationalization of import duties, particularly on cars and motorcycles, should be undertaken in a phased manner and only after ensuring that Indian automobile companies get a
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comparable access to ASEAN and Chinese markets. At the same time, due attention is required while negotiating FTAs with above countries. Table 5.3.1: Comparison of Tariff Structure of Auto Products in Different Countries (2004-05).
Source: APEC Tariff Database & WITS (UNCTAD). Notes: Tariff figures of Malaysia and India are for year 2006-07 and 2007-08 respectively. 1. Weighted average of tariff on different types of vehicles in same category. 2. The effective tariff range as it is infeasible to calculate weighted average. ** In addition to the basic duty, 24 per cent countervailing duty, 4 per cent special additional duty and 2+1 per cent educational cess are also levied on vehicle imports. So the total effective border tax on assembled cars and two-wheelers is even higher.
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5.4 FREE TRADE AGREEMENTS: THE CASE OF INDO-THAI FTA In addition to the comparisons made in this section, it is imperative to examine the relative performance of India and a country that is strong in the auto sector, with which India has signed a FTA in the recent years. One of the countries that are a competitor to India in the auto sector is Thailand. The Indo-Thai FTA was signed in October 2003. This was to be operated through an Early Harvest Scheme (EHS), for which there are 84 auto-component products identified over which an accelerated duty reduction formula, given below, was to be applied: By 31st March 2004: 50% reduction from existing rates By 31st March 2005: 75% reduction from existing rates By 31st March 2006: 100% reduction from existing rates The products broadly come under the categories shown in Table 5.4.1. This shows the relative performance of both these countries in the recent years. Indias exports of helical springs, pumps, ball bearings and lighting equipment to Thailand have declined sharply over the years corresponding to the FTA. The exports from India to Thailand have been good over these years, in gear boxes and parts of Spark-Ignition Internal Combustion Piston Engine (SIICPE). Indias imports from Thailand have, however, increased in all these product categories over the years. India has a positive trade balance with Thailand only in Gear Boxes. However, this has been so high that the total balance, added for all these product
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categories, has grown over the years, from a negative Rs. 2 crores in 1999- 00 to a positive Rs. 100 crores in 2005-06. Hence, this FTA has served well as an indicator that when India opens up trade with a country that is competitive in the auto industry, mutual gains are possible, since India is also competitive in certain segments such as in gear boxes, vis--vis Thailand. There would certainly be some sectors that might lose as a result of this, but the net gain could well be positive. However, a careful country-by-country study of subsegments of auto industries and policy/cost regimes is required to decide on any FTA in future. Table 5.4.1: Indo-Thai Trade in Auto-Components in the recent years (in Rs. lakh, Current Prices).
Source: Calculations from Directorate General of Foreign Trade.
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The Global Competitiveness Report, released by the World Economic Forum, ranks India at 43 in 2006, up from 45 in 2005. Compared to other major auto players, India is lagging behind the EU, Korea, Thailand, Malaysia, Taiwan, the USA and Chile, while it is better than China, Indonesia, South Africa, Mexico and Brazil. Figure 5.4.1 shows that Low Cost Countries that compete with India in the auto industry such as Malaysia, Indonesia, Vietnam, Thailand, China and Chile have lower real lending rates (difference between nominal lending interest rate and inflation) than India. This has implications for two main dimensions of the auto industry: bank-financed investments by both small and big players in the Indian auto sector and consumer finance that drives the demand for automobiles. Given the relatively higher lending rates in India, the domestic firms have higher capital costs for scaling up their operations and consumer demand for the auto industry is not likely to go up as much as it could with lower lending rates. A glance through the World Bank statistics shows that Indian tax rates are moderate, but are higher than East Asia and higher-income countries. The effective incidence of taxes in terms of share of taxes in profits, share of taxes in the Governments revenue and in terms of time taken to pay taxes at different levels is also higher than the above mentioned countries (World Development Indicators, 2006). The major feature is that India seriously lags behind countries like China, in terms of roads, power, port infrastructure and other infrastructure-related aspects.
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Figure 5.4.1: Global Comparison of Real Lending Interest Rates.
Source: Calculations from International Financial Statistics. Table 5.4.2: Vehicle Possession in Different Countries.
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Source: World Development Indicators (2006). As Table 5.5.1 brings out, India lags behind most countries in the world in terms of vehicle possession. Only the possession of twowheelers is somewhat comparable with the rest of the world. A positive inference arising from this is that India has a lot of scope and potential to emerge as one of the biggest auto markets in the world, given such a low vehicle possession rate and in light of the emerging income and demographic trends. A related corollary of this is that huge investment is required to improve Indian roads in a well-planned and forward-looking manner, since they are already so congested, despite such a low vehicle possession rate. 5.5 CONCLUSIONS OF GLOBAL COMPARISON o The emerging market economies have an increasingly bigger role to play in the global auto industry. India is a major producer in heavy trucks and passenger cars and is a world leader in manufacture of motorcycles.
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o However, Indias shares in international exports of different auto products have been quite low, the highest being 2 per cent in global motorcycle exports. This shows that India is not competitive enough in the global auto market and also rather weakly integrated into the global production network. o Despite higher profits, lower wage cost shares and less advanced technologies, Indian auto firms spend much less on R&D, relative to those in OECD countries. This needs the attention of both industrialists and policy makers. o Tariff on automobile imports to India is much higher than many countries, while auto component tariffs are lower than our major competitors.
o
FTA with Thailand has had negative impacts on some subsegments, while it has been very constructive for a handful of them, mainly gearboxes, to improve the aggregate balance for the covered commodities to Rs. 100 crores in 2005-06, from a negative balance to begin with.
o Higher interest rates and tax rates, inadequate infrastructure and lower vehicle possession rate are the other features of India compared to her competitors.
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CHAPTER-6 UNION BUDGET 2011

6.1 UNION BUDGET 2011: FOR AUTOMOBILE INDUSTRY, BUDGET IS IN NEUTRAL GEAR (BIG PUSH TO GREEN TECHNOLOGY IN AUTOMOBILE SECTOR) The automobile industry appreciated Finance Minister Pranab Mukherjee for not changing excise duty rates and welcomed the tax concessions for environment friendly vehicles. "It is a neutral budget for the auto sector. We had expected a hike in the excise duty rates. The tax sops given for electric and hybrid vehicles are a move in the right direction. However necessary infrastructure should be there for these technologies to gain ground,"
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Y.V.S. Vijay Kumar, executive vice president and business head, Hindustan Motors said. An industry analyst, preferring anonymity, said: "The tax sops given to the electric vehicles will not make any major impact. It will be for small segment of vehicle." While presenting the budget for 2011-12 in the Lok Sabha, Mukherjee said: "The Indian automobile market is the second fastest growing in the world and has shown nearly 30 per cent growth this year. "World over, substantial investments are being made in the field of hybrid and electric mobility. To provide green and clean transportation for the masses, National Mission for Hybrid and Electric Vehicles will be launched in collaboration with all stakeholders." In order to popularize electric vehicles, Mukherjee proposed full exemption from basic customs duty and a concessional rate of central excise duty of four per cent on batteries imported by manufacturers for the replacement market. This is expected to reduce the battery cost when an electric vehicle user goes for replacement of his old battery. "Fuel cell or hydrogen cell technology is a promising green technology for the automobile sector. I propose to extend the concessional excise duty of 10 per cent to vehicles based on this technology," Mukherjee said. The Minister proposed to cut excise duty on development and manufacturing of hybrid vehicle kits to 5 per cent from 10 per cent, besides fully exempting customs and countervailing duty (CVD) on import of special hybrid parts. Currently hybrid vehicles enjoy a
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concessional excise duty rate of 10 per cent. In addition, a concessional rate of excise duty of 5 per cent is being prescribed to incentivize their domestic production, he added. Mukherjee also proposed to reduce the excise duty to five per cent on manufacture of kits for converting fossil fuel vehicles to hybrid vehicles. While scrapping the refund-based excise duty for factory-built ambulances and offering the tax concession outright, Mukherjee extended the refund-based excise duty concession for taxis with a seating capacity up to 13 people including the driver. According to Angel Broking, a stock broking firm, the broader measures like increased focus on rural and infrastructure spending would support long-term growth of the auto sector.
6.2 CHANGES IN AUTOMOTIVE INDUSTRY Indias automotive sector has some positives to take from the budget announced by Indias Finance Minister Pranab Mukherjee. Contrary to the expectation of an increase in excise duty the Finance minister spared it from any change. The move would be a certain welcome by the industry as it is already fighting rising input costs. Hopefully now we might not witness a significant increase in car prices in the short-term. The announcement has also boosted the market sentiment and has been well-received. Another announcement to benefit carmakers and auto component suppliers is the reduction of custom duty on raw steel. With steel prices
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going down the industry will benefit from strengthening margin lines as it will become cheaper to source finished steel from tier 2 & 3 suppliers. Green cars & technology received a shot in the arm from the Finance Minister as he announced a National Mission for hybrid & electric vehicles to promote their adoption as well as incentivise them. Going forward critical parts/assemblies required to manufacture hybrid vehicles would be granted exemption from the basic custom duty of 10% and special CVD. A concessional rate of 5% excise duty will be granted to hybrid vehicles if manufactured locally. In addition, the excise duty on kits used for conversion of fossil fuel vehicles into hybrid vehicles has been reduced from 10% to 5%, thereby making them cheaper. Technology for such kits has been developed indigenously and the move will not only promote adoption by customers but will also help the R&D for such technologies. Full exemption from basic customs duty and a concessional rate of Central Excise duty of 4 per cent was provided to specified parts of electrical vehicles in the last Budget on actual-user basis. The concession has now been extended to batteries imported by manufacturers for the replacement market as well. Hydrogen/Fuel cell technology is still far from mass usage but the focus on such future technologies was visible in the budget. Such vehicles will now enjoy a concessional excise duty of 10%. The Central Excise duty on LED lights was reduced from 8% to 4% in last years budget but the LED material still attracts an excise duty of 10% and a special CVD of four percent. This duty has now been reduced to 5% with the special CVD fully exempted.
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In a nutshell, the budget has helped in the creation of a growthconducive environment for the Indian automotive industry. Apart from not increasing the excise duty rates and hence not making cars more expensive the budget will also help the manufacturers, especially SMEs to improve their profitability due to reduction of excise duty for raw steel. The focus on green technology along with promoting their adoption is also a welcome move and even though the effects might not be visible right now a continued focus on the sector will ensure growth in the medium and long-term. 6.3 BUDGET HIGHLIGHTS Budget has been positive for the auto industry. Retained excise duty at 10% on all automobiles except large cars. Retained the excise duty on small cars, two wheelers and three wheelers at 10%. To launch National Mission for hybrid and electric vehicles. Reduced excise duty from 10% to 5% on Hybrid kits for conversion of fossil fuel vehicles to hybrid vehicles. A concessional rate of excise duty at 10% is being extended to factory built ambulances and other vehicles retrofitted as ambulances subsequent to their removal from the factory shall continue to be eligible for refund based concession. The scope for taxis is being extended to include vehicles carrying 13 persons including driver. Concessional excise duty structure for taxis is also being rationalized to provide refund of 20% of the excise duty paid on such vehicles, if they are registered as taxi subsequent to removal.
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A concessional rate of excise duty at 5% is being extended to specified part of Hybrid motor vehicles, namely, battery pack, battery charger, AC/DC electric motors and motor controllers till 31.03.2013. A concessional rate of Nil BCD CVD at 5% and full exemption from SAD is being extended to specified parts of the hybrid vehicles, namely, battery pack, battery charger, AC/DC electric motors, and motor controllers. Enhanced and unified the export duty on all types of iron ore to 20% ad valorem. Export duty on iron ore pellets fully exempted. Direct Tax code (DTC) to be effective from 1st April 2012. Increase in allocation towards infrastructure development by 23% to Rs 214000 crores (over 48% of total plan allocation) in FY 2011-12. To index the wage rates under MGNREGA to consumer price index for agricultural labour. Increased the minimum alternative tax to 18.5% in FY 12 from 18% in FY 11. Reduce surcharge on domestic companies from 7.5% in FY 11 to 5% in FY 12. Lower rate of 15 per cent tax on dividends received by an Indian company from its foreign subsidiary. Increased allocation for defence to Rs 1, 64,415 crores from Rs 1, 47,344 crores in 2010-11. It includes capital expenditure of Rs 69,199 crores. 6.4 BUDGET EXPECTATIONS NOT MET
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Lowering the excise duty on large cars. Withdraw the specific excise duty element of Rs 15,000 on cars (other than small cars). Withdraw specific element of excise duty of Rs 10,000 on chassis fitted with engine of vehicles. 6.5 BUDGET IMPACT Currently the automobile industry is amidst high inflation, rising raw material prices which has to some extent being passed on as series of vehicle price hikes; increase in interest rates and fuel prices. In this scenario, nil change in the existing excise duty on all vehicles, sans the large cars, is welcome change for the automobile industry as a whole as well as the end consumers. Another highlight at budget was the plan to launch national mission for hybrid and electric vehicles. This monumental measure, on implementation, would enable in developing the much needed infrastructure to support such vehicles. Also various other measures such as exemption of customs duty and concessional excise duty on imported batteries for electric vehicles, halving the excise duty on kits for conversion of fossil fuel vehicle into hybrid vehicles etc would encourage production of hybrid and electric vehicles. Immediate beneficiaries are Mahindra & Mahindra, TVS Motors, Electro herm - they have presence in hybrid and electric space.
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On indirect basis, indexing the NREGS to consumer index would place more cash in hands of rural population thereby continuing to fuel rural demand for passenger vehicles, two wheelers and three wheelers. The major beneficiaries would be Hero Honda and Maruti Suzuki India as they cater to semi urban and rural market in large scale. Increased allocation in infrastructure would indirectly benefit the commercial vehicle players as it would fuel the demand for construction products such as tippers etc. Also the increased allocation for defence purpose could be utilized to order defence vehicles Thus it could benefit Tata Motors, Mahindra & Mahindra and Ashok Leyland that manufacture defence vehicles. The government proposes to introduce Constitution Amendment Bill soon to initiate the GST regime. This would reduce the various taxes to single tax rate thereby lowering the prices of automobiles across the board. The Auto Components industry is also slated to grow fivefold by the end of this decade, according to Automobile Components Manufacturers (ACMA). The success of automobile industry goes hand in hand with the auto components industry and would be incomplete without the growth of auto components sector. With the budget round the corner, there are several expectations from the Finance Minister and the industry look forward to see steps announced for the development /modernization of infrastructure for SMEs involved in auto components manufacturing. As we are aware that the Indian SMEs are lagging in terms of technology and infrastructure and any investments in these areas would
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improve the competitiveness of the auto components industry both in domestic and international markets. The industry would then be equipped to manufacture good quality products at the most competitive prices. Indian auto components manufacturers would also be able to compete with other countries such as China and may also attract foreign investors in setting up their plants in India and increase exports. Another key expectation from the budget would be the removal of the special additional duty and reduction of duties on items like aluminum and steel which constitute a major part in components manufacturing. As Indian auto components manufacturers face stiff competition from China and other low cost countries like Thailand and Malaysia, any steps taken on this front would further strengthen the domestic industry - as the figures of 30% imports of the total domestic consumption of components are alarming and a cause of concern for the components manufacturers in India. The Finance Minister should also come up with certain pro-sector announcements in the forthcoming Budget. The Budget should touch issues related to uniform VAT for all states, GST, labor reforms, etc, said an industry player. The auto component industry which is slowly on his path to growth requires support from the government and I hope the forthcoming Budget will have something in store for us, he added. 6.6 COMPANIES TO WATCH Bajaj Auto, Hero Honda, TVS Motors, Maruti Suzuki, Tata Motors, Ashok Leyland, Mahindra & Mahindra, Eicher Motor, Force Motors.
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Figure 6.6.1: Description of HYBRID CAR.
Source: www.scribd.com 6.7 CAR PRICES TO REMAIN UNCHANGED Its right time to buy a new car as the prices will remain unchanged with the Budget keeping the excise duty on automobiles intact. With interest rates and raw material prices going up, the government decided to retain the current levels of excise duty. Automobile sales, which have been growing at the rate of 30%, will continue to ride high though the sector is still grappling with rising input and fuel costs. Some analysts feel that continuation of duties will give an opportunity for automobile companies to go for increase in prices which were postponed due to the assumption that price hike would lead to reduction in demand.
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This gives an opportunity to car makers to increase prices soon. In April-January, car sales jumped 31% to 15.99 lakh units, while twowheeler sales rose 27% to 96.71 lakh units For the 2006-07 budget, government had drastically cut excise on small cars, vehicles under four metres and 1,200 cc petrol and 1,500 cc diesel engines, to 16% from 24% that catapulted massive demand as the huge price difference expanded domestic market to over 2 million units/year. Currently small cars which are less than 4 metres in length and have engine displacement of up to 1200cc petrol or 1500cc diesel are charged 10% excise duty, and the higher powered vehicles at 22%. Cars more than 2000cc have to pay an additional Rs 15,000. While key automobile stocks were trading lower ahead of the finance minister's budget speech, shares of Tata Motors, Maruti Suzuki, Mahindra & Mahindra and Bajaj Auto went up post Budget announcements. Except for Hero Honda which was down by 0.29%, the other key stocks of Tata Motors, Mahindra, Bajaj Auto, and Maruti Suzuki were up 0.81%, 6.32%, 1.61% and 4.51% respectively. 6.8 GOVERNMENT INCENTIVIZES ELECTRIC, HYBRID
VEHICLES; INDUSTRY WELCOMES The government on Monday proposed to set up a National Mission for Hybrid and Electric Vehicles to encourage manufacturing and selling of alternative fuel-based vehicles. The Budget for 2011-12 also proposed to cut excise duty on development and manufacturing of hybrid vehicle kits to 5 per cent from
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the existing 10 per cent, besides fully exempting customs and countervailing duty (CVD) on import of special hybrid parts. "The Indian automobile market is the second fastest growing in the world and has shown nearly 30 per cent growth this year. To provide green and clean transportation for the masses, National Mission for Hybrid and Electric Vehicles will be launched in collaboration with all stakeholders," Finance Minister Pranab Mukherjee said while presenting the Budget. Substantial investments have been made across the world in the field of hybrid and electric mobility, he added. Currently hybrid vehicles enjoy a concessional excise duty rate of 10 per cent. "In response to the growing demand for green products, a technology has been developed indigenously for the conversion of fossil fuel vehicles into hybrid vehicles through the fitment of a kit. I propose to reduce the excise duty on such kits and their parts from 10 per cent to 5 per cent," he said. Besides, Mukherjee announced withdrawing fully the basic customs duty and special CVD on import of specified parts of such vehicles as "import dependence for their critical parts/sub-assemblies is still quite high". "In addition, a concessional rate of excise duty of 5 per cent is being prescribed to incentivize their domestic production," he added. In November last year, the government had announced an Rs 95 crores incentive package for the electric vehicle makers for the remaining part of the 11th plan. Reacting to the proposals, Society of Indian Automobile Manufacturers President Pawan Goenka said: "This is a very welcome move. It will allow advanced technologies to be developed in India rather than importing technology".
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Society of Manufacturers of Electric Vehicles President Naveen Munjal welcomed the move, saying that the industry will be encouraged by such steps. "The government is finally realizing the importance of electric and hybrid vehicles in the Indian automotive sector. This is bound to give a huge boost to the sector once the final policy is formulated," Munjal said. Indias 2011 budget, which was announced earlier today, seems great for hybrid and electric cars. The government has proposed to set up a National Mission for Hybrid and Electric Vehicles to encourage the manufacturing and selling of eco-friendly vehicles. The government has also eliminated import fees on hybrid parts coming into the country, while proposing to cut excise duty on the development and manufacturing of hybrid vehicle kits to 5 percent from the existing 10 percent. Which means a Toyota Prius selling in the country, just got cheaper. That is also important, since India currently only has one home-grown electric car, the Mahindra Reva. Considering Indias tremendous recent growth (the automobile sector itself grew nearly 30 percent), the move is a smart way to get a new demographic of the population, thats buying its first car, into green and clean transportation. The government has also cut the excise duty on conversion kits that make internal combustion engine cars into hybrids, down to 5 percent from the current 10 percent. Last November, the government had announced a Rs 950 million ($20 million) incentive package for the electric vehicle makers.
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China and India have had two of the fastest growing economies with Indias growth rate at about 8.6 percent and Chinas at 10.3 percent. That has caused a significant rise in CO2 emissions from that part of the world. For the first time this decade, global CO2 emissions decreased 1.3 percent in 2009, according to a study published in the journal Environmental Research Letters. However, that drop was offsite by a significant rise in emissions in China and India by 9 and 6 percent. As Indias economy continues to grow, the only way to curtail a rapid pollution growth is going to be an investment in clean energy and clean cars, and were glad the government is moving towards that end. That being said, no additional taxes have been added on SUVs or diesel cars, which are a huge cause of emissions in Indias urban environment. Kirit Parekh, former member of the Planning Commission and chairperson of the expert group on low carbon strategy for inclusive growth told Hindustan Times, The measures will certainly help in reducing urban air pollution, but I am not sure on what sort of impact it will have on Indias (climate change causing) green house gas inventory. Currently, the countrys infrastructure has not kept up with the rate of vehicular growth further adding to the countrys pollution levels. 6.9 ELECTRIC VEHICLES GET A PUSH A National Mission for Hybrid and Electric Vehicles would enable the electric vehicle (EV) industry clock numbers. At present, EV sales are less than one per cent of the petrol two-wheelers sold in India.
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The category will now grow strategically. After a market research to identify the needs of the consumer, the Centre will formulate policies to promote EVs. Soon we will have 10 cities promoted as model EV cities, Sohinder Gill, CEO- Hero Electric and director (corporate affairs) of Society of Manufacturers of Electric Vehicles (SMEV) said. E-bikes expect a 25-50% growth in two years, Gill says. Electro herm and Hero Electric are key players in the two-wheeler EV category while Mahindra Reva Electric Vehicles Pvt Ltd manufactures e-car. Lucknow, Haridwar, Kanpur, Agra and other tourist and wild life destinations will be promoted as EV cities. The town planning will incorporate dedicated tracks for EVs and creating battery charging points while institutions, corporate and local tourist centres would run EVs in and around those pockets, he said. Against 9 million petrol two-wheelers sold in 2009-10, e-bikes are just 1 lakh in numbers. While the numbers grew to one lakh in 2008-09, they dropped to 90,000 in 2009-10. The category got a push recently after a Central subsidy of Rs 4,000-5,000 on all two-wheeler EVs and Rs 1 lakh on e-cars. The industry expects to close this fiscal at 1 lakh units against 11.5 million petrol two-wheelers. 6.10 CAR COMPANIES SPLIT OVER IMPORT DUTY The proposed India-EU trade agreement has divided car makers with Pawan Goenka, the president of industry body Society of Indian Automobile Manufacturers (SIAM), opposing any move to cut duty on imported cars while several members, including foreign luxury car makers such as Audi, Mercedes and BMW, batting for lower tariffs.
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SIAM has struck a protectionist note, opposing any move to remove car imports from the negative list, which will see a gradual lowering of duty from the current level of 60%, which finally bulges to around 110% after the addition of counter-vailing duty (CVD), VAT and other local levies. The industry lobby has made a strong pitch to the commerce department against the lowering of duty (something sought by the EU), saying it could see a flight of manufacturing investments from India and will negatively affect the domestic players and hurt employment. "We are not being protectionist. Every country should ensure that opening up of trade does not hurt its local industry," Goenka told TOI. Goenka said Indian companies did not have the scale to protect them from an onslaught of imported products if they came in cheaply. But the split within SIAM comes out in the open when you speak to companies such as Audi, BMW and Mercedes. Even Japanese player Honda feels that the stiff import duty should be lowered, at least for green technology vehicles like hybrid cars. "It is a misconception that the Indian industry will suffer if duty is lowered. While we support the argument that duty should remain high where competitive volume products are there, there is no argument to support talk of maintaining higher duty for the luxury-end," said Debashish Mitra , director, sales and marketing at Mercedes-Benz India. "There are no competitive products from India in the luxury end, and thus nobody will be hit. In fact, lower duty will help companies like ours to bring in the latest technology products at cheaper prices, something that will spur their demand and push us to gradually manufacture them here," Mitra added.
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Michael Perschke, MD of Audi India, also sought lower duty, especially for cars above 2000cc. "This way there is no fear of the domestic industry being cannibalised as about 80-90% of Indian car market is below 2000cc." 6.11 AUTO STOCKS END MIXED ON BSE AFTER UNION BUDGET 2011 Auto stocks traded mixed after the Budget for 2011-12 was announced by Finance minister Pranab Mukherjee today. Some of the auto stocks, including Mahindra & Mahindra (M&M), today pared their early losses on the Bombay Stock Exchange bolstered by the governments move of not hiking the Excise duty for the Budget 2011-12. Reversing its initial loses shares of M&M rose by 3.19 per cent to close at Rs 614.10 on the BSE. During the early session, the stock had slipped by 1.68 per cent. Market observers opined that the Budget is likely to benefit the auto sector. "Overall, the Union Budget 2011-12 is positive for the automobile sector as the central excise duty has been kept unchanged. Further, special incentives have been announced for companies manufacturing hybrid vehicles in India. 6.12 OUTLOOK The Union Budget 2011-12 has been positive for the automobile industry - directly through retention of excise duty at 10% and bringing the hybrid and electric vehicles in limelight while indirectly through
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continued thrust on agriculture and infrastructure, primary drivers for the automobile industry.
CHAPTER-7 INTRODUCTION TO TATA MOTORS

Tata Motors Limited is a multinational corporation headquartered in Mumbai, India, part of the Tata Group. Established in 1945, when the company began manufacturing locomotives, the company manufactured its first commercial vehicle in 1954 in collaboration with Daimler-Benz AG, which ended in 1969.
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Tata Motors has consolidated revenue of USD 16 billion after the acquisition of British automotive brands Jaguar and Land rover in 2008. It is India's largest company in the automobile and commercial vehicle sector. The company is the worlds fourth largest truck manufacturer, and the worlds second largest bus manufacturer in India. Tata Motors is a dual-listed company traded on both the Bombay Stock Exchange as well as on the New York Stock Exchange. In 1998 it launched Tata Indica, India's first fully indigenous passenger car. Tata ranks as the leader in every commercial vehicle segment, and is in the top 3 makers of passenger cars. Tata Motors is also the designer and manufacturer of the iconic Tata Nano, which is the cheapest car in the world. 7.1 TATA-JAGUAR LAND ROVER DEAL-INTRODUCTION In June 2008, India-based Tata Motors Ltd. announced that it had completed the acquisition of the two iconic British brands - Jaguar and Land Rover (JLR) from the US-based Ford Motors for US$ 2.3 billion. Forming a part of the purchase consideration were JLR's manufacturing plants, two advanced design centres in the UK, national sales companies spanning across the world, and also licenses of all necessary intellectual property rights. There was widespread scepticism in market over an Indian company owning the luxury brands. According to industry analysts, some of the issues that could trouble Tata Motors were economic
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slowdown in European and American markets, funding risks, currency risks etc. Market conditions were extremely tough, especially in the key US market. Tatas needed to invest a lot in brand building to make JLR profitable. Onset of recession not only made investment look mistimed, but also started wiping out the JLR market. 7.2 TATA-JLR deal Tata had completed this biggest buy-out in the automobile space by an Indian company on June 2, 2008 as it bought the ownership of luxury brands - Jaguar and Land Rover. The deal included the purchase of JLR's manufacturing plants, two advanced design centers in the UK, national sales companies spanning across the world and also licenses of all necessary intellectual property rights. Tata Motors was interested in acquiring JLR as it will reduce the companys dependence on the Indian market, which accounted for 90% of its sales. Morgan Stanley reported that JLRs acquisition appeared negative for Tata Motors, as it had increased the earnings volatility, given the difficult economic conditions in the key markets of JLR including the US and Europe. Tata Motors raised $3 billion (about Rs 12,000 crores) through bridge loan for 15 months from a clutch of banks, including JP Morgan, Citigroup, and State Bank of India. Tata came under cash crisis because of the Corus deal and the huge investments in the TATA Nano project which itself was surrounded in a lot of uncertainties. The credit rating companies also took a negative outlook toward this deal because of the huge debt requirement to complete the deal. Ford Motors Company (Ford) is a leading automaker and the third largest multinational corporation in the automobile industry. The
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company acquired Jaguar from British Leyland Limited in 1989 for US$ 2.5 billion. After Ford acquired Jaguar, adverse economic conditions worldwide in the 1990s led to tough market conditions and a decrease in the demand for luxury cars. The sales of Jaguar in many markets declined, but in some markets like Japan, Germany, and Italy, it still recorded high sales. In March 1999, Ford established the PAG with Aston Martin, Jaguar, and Lincoln. During the year, Volvo was acquired for US$ 6.45 billion, and it also became a part of the PAG. In September 2006, Allan Mulally (Mulally), President and CEO of Ford, as part of the restructuring exercise called the Way Forward' plan decided to dismantle the PAG. In March 2007, Ford sold the Aston Martin sports car unit for US$ 931 million. In June 2007, Ford announced that it was considering selling JLR. After failing to re-brand and integrate these luxury brands with its product portfolio, Ford Motors felt that acquisition was not the right way of penetrating into the upscale segment. 7.3 WHY DID TATA GO FOR JLR DEAL? Tata Motors had several major international acquisitions to its credit. It had acquired Tetley, South Korea-based Daewoo's commercial vehicle unit, and Anglo-Dutch Steel maker Corus. Tata Motors' longterm strategy included consolidating its position in the domestic Indian market and expanding its international footprint by leveraging on inhouse capabilities and products and also through acquisitions and strategic collaborations. On acquiring JLR, Ratan Tata, Chairman, Tata Group, said, "We are very pleased at the prospect of Jaguar and Land Rover being a significant part of our automotive business. We have enormous respect
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for the two brands and will endeavor to preserve and build on their heritage and competitiveness, keeping their identities intact. We aim to support their growth, while holding true to our principles of allowing the management and employees to bring their experience and expertise to bear on the growth of the business." Tata Motors stood to gain on several fronts from the deal. One, the acquisition would help the company acquire a global footprint and enter the high-end premier segment of the global automobile market. After the acquisition, Tata Motors would own the world's cheapest car - the US$ 2,500 Nano, and luxury marquees like the Jaguar and Land Rover. Two, Tata also got two advance design studios and technology as part of the deal. This would provide Tata Motors access to latest technology which would also allow Tata to improve their core products in India, for e.g., Indica and Safari suffered from internal noise and vibration problems. Three, this deal provided Tata an instant recognition and credibility across globe which would otherwise would have taken years. Four, the cost competitive advantage as Corus was the main supplier of automotive high grade steel to JLR and other automobile industry in US and Europe. This would have provided a synergy for TATA Group on a whole. The whole cost synergy that can be created can be seen in the following diagram. Figure 7.3.1: TATA-JLR DEAL CHART
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Source: www.scribd.com Five, in the long run TATA Motors will surely diversify its present dependence on Indian markets (which contributed to 90% of TATAs revenue). Along with it due to TATAs footprints in South East Asia will help JLR do diversify its geographic dependence from US (30% of volumes) and Western Europe (55% of volumes). Analysts were of the view that the acquisition of JLR, which had a global presence and a repertoire of well established brands, would help Tata Motors become one of the major players in the global automobile industry. 7.4 IS DEAL REALLY WORTHY? Morgan Stanley reported that JLRs acquisition appeared negative for Tata Motors, as it had increased the earnings volatility, given the difficult economic conditions in the key markets of JLR including the US and Europe. Moreover, Tata Motors had to incur a huge capital expenditure as it planned to invest another US$ 1 billion in JLR. This was in addition to the US$ 2.3 billion it had spent on the acquisition. Tata Motors had also incurred huge capital expenditure on the development and launch of the small car Nano and on a joint venture with Fiat to
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manufacture some of the companys vehicles in India and Thailand. This, coupled with the downturn in the global automobile industry, was expected to impact the profitability of the company in the near future. Worldwide car sales are down 5% as compared to the previous year. The automobile industry the world over is rationalizing production facilities, reducing costs wherever possible, consolidating brands and dropping model lines and deferring R&D projects to conserve funds. The Chinese and Indian domestic markets for cars have been exceptions. While China has witnessed a significant reduction in its automotive-related exports and supplies to automobile companies, the Chinese domestic car market has grown by 7%. In India the passenger car market has remained more or less flat compared to the previous year. Since then, its fortunes have been unsure, as the slump in demand for automobiles has depressed its revenues at the same time Tata has invested nearly $400 million in the Nano launch and struggled to pay off the expensive $3 billion loans it racked up for the Jaguar/Land Rover shopping bill. Within the space of a year, Tata Motors has gone from being a developing-world success story to a cautionary tale of bad timing and overly ambitious expansion plans. Tata Motors' standalone Indian operations' profits declined by 51% in 2008-09 over the previous year. All through the fiscal year ended March 2009 the company bled money, losing a record $517 million on $14.7 billion in revenues, just on its India operations. Jaguar and Land Rover lost an additional $510 million in the 10 months Tata owned it until March 2009.
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In January 2009, Tata Motors announced that due to lack of funds it may be forced to roll over a part of the US$ 3 billion bridge loan after having repaid around US$ 1 billion. The financial burden on Tata Motors was expected to increase further with the pension liability of JLR coming up for evaluation in April 2009. 7.5 DISADVANTAGES BY NOT GOING FOR THIS
ACQUISITION. There was immense pressure from the shareholders, analysts community etc to abort the deal as they unanimously agreed that it was over priced and the balance sheet of TATA was not in a position to absorb more loan (as discussed in the previous section). Ford purchased JLR at $5 billion and sold at almost half the price to TATA after operating it for losses for few years. As the market would have recovered from recession the valuation would have increased since there would have been growth in the demand of JLR thus creating more problems for TAMO. Tata would not have been able enter into the premium segment (>10 lakhs) in India. TAMO would have lacked in robust designing capabilities. Above all, at that time no other major automobile brand was available for acquisition with such designing and R&D capabilities.
7.6 SWOT MATRIX OF TATA-JLR DEAL Opportunities: Threats :
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Rising
appetite
for Volatility in market
luxury automobiles in driven by new products growing markets like India and China Strong presence of like BMW,
competitors at Lexus and Infinity
Established European Mercedes, brands available affordable investment
Receding sales and
Support from Jaguar brand image in Technology, Engine, IT, Accounting Downturn making
Investment riskier and
Complete product line costlier with addition of luxury brands 90% of TAMO
revenues comes from
Access to European one market alone-India and American Market.
Strengths: Tatas strong
JLR TAMO
would an
give Acquisitions like JLR
in-house will help TAMO in like Merc etc. Management building
management capability Strong monetary base to invest
R&D and designing competing with brands capabilities
Better utilization of Proven cash reserves available and
brand
Synergy due to Corus, with TAMO capabilities would TACO and TCS facilitate faster JLR Reduce production Experience in cost of JLR by turnaround growing market like synergizing better with Strong financial
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India New development brand experience. product and building
other TATA cos like muscle Corus.
will
help
TAMO to invest in R&D and produce new better products Improve risk profile of TAMO with in diversification different markets
Weaknesses: Inexperience Handling automobile brand Inexperience turning around making company in luxury
JLR experience and Leverage designing improving existing would help TAMO in Corus products in
experience allaying
capability gained with Tetley and their market apprehensions in about acquisition
in Indian markets. Make Jaguar design loss JLRs strong brand center as their global image will ease design HQ
R & D and designing acceptance of TAMO Use Jaguar channel to capabilities in international distribute TAMO markets brands without Keeping the existing merging the brands. management team of JLR make turning around easier.
CHAPTER-8 ANNUAL RESULT: 2010 OF TATA MOTORS
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Consolidated Net Revenue grows by 30.5% in FY10 over previous year to Rs. 92,519 crores. Consolidated Profit of Rs. 2,571 crores (Loss of Rs.2505.25 crores in the previous year) Consolidated Financial Results for the year ended March 31, 2010 Tata Motors today reported consolidated revenues (net of excise) at Rs. 92,519.25 crores posting a growth of 30.5% over Rs. 70,880.95 crores in the previous year. There has been strong volume growth both at Tata Motors and at Jaguar Land Rover. The Consolidated Profit before Tax (PBT) for the year was Rs. 3,522.64 crores compared to a Loss before Tax of Rs. 2,129.25 crores. The Consolidated Profit after tax (PAT) for the year was Rs. 2,571.06 crores, a significant turnaround from a loss of Rs. 2,505.25 crores in the previous year. The consolidated financial performance is not comparable to the previous year 2008-09 on account of the acquisition of Jaguar Land Rover in June 2008. On March 30, 2010, the company has divested its controlling stake (20%) in Telco Construction Equipment Company Ltd. The resultant profit of Rs 1057.92 crores is included in other income. Tata Motors has reported a Basic Earnings Per Share (EPS) of Rs. 48.64 in 2009-10 for its consolidated operations in 2009-10 as against a Loss Per Share of Rs. 56.88 in 2008-09.
8.1 Tata Motors Stand-Alone Financial Results Financial year ended March 31, 2010.
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Tata Motors gross revenue for the financial year 2009-10 was Rs. 38,364.10 crores (2008-09: Rs. 28,568.21 crores). The revenues (net of excise) at Rs. 35,593.05 crores representing a growth of 38.9% over Rs.25, 629.73 crores in the previous year. The PBT for the year is Rs. 2,829.54 crores, an increase of 179.1% over Rs. 1,013.76 crores previous year. The PAT for the year is Rs. 2,240.08 crores, an increase of 123.7% over Rs. 1,001.26 previous last year (after exceptional item of a loss of Rs.850.86 crores recognized on redemption of preference shares by TML Holdings Pte Ltd, Singapore, a wholly owned subsidiary of the company). Volume recovery led by introduction of new products and strong continued growth in the existing portfolio, continued focus on cost efficiencies and price increases undertaken by the company to combat strengthening commodity prices aided the company to grow realizations and deliver double digit operating margin of 11.74%. Operating profit (EBITDA) came in at Rs. 4,178.28 crores in FY 2009- 10 compared with Rs. 1,752.44 crores in the previous year. Overall economic recovery, a benign liquidity environment along with government stimulus has driven domestic demand revival during the current year. In the domestic market, companys commercial vehicles sales increased by 41% to 373,842 units leading to a market share of 64.2%, up from 63.8% of last year. The growth was well supported by both the Medium and Heavy Commercial Vehicles and the Light Commercial Vehicles which grew by 36.5% and 44.4% respectively. During the year, the company launched and started sales of the Prima range of globally benchmarked Heavy Trucks. A number of variants from the Ace family were also introduced.
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Passenger Vehicles, including Fiat and Jaguar and Land Rover vehicles distributed in India grew by 25.3% in the domestic market to 260,020 units. The market share for Tata passenger vehicles for the period stood at 12.4%. The company launched the new Indigo Manza and the Sumo Grande MK II during the second half of the year which improved companys market position in H2 compared with H1 in these segments. The company also ramped up the production of the Nano at the plant in Uttarakhand, and delivered 30,763 units of Nano during the year. Along with Fiat, the company has a joint market share of 13.7% in the industry. The company has planned several new product launches in the near future to defend and improve its market position.
8.2 SUBSIDIARY HIGHLIGHTS We are pleased with the performance of the Jaguar Land Rover business which turned profitable for the year ended March 31, 2010 reporting a Profit before Tax of GBP 32 million. The financial results are not comparable over the previous year where the business was under the companys ownership for the 10 month period from June 2, 2008 March 31, 2009. With the positive market reception of the enhanced product range in an improved market environment as well as continued cost reduction efforts, the business was able to show sustained quarter on quarter improvement towards solid profitability in Q3 and Q4 of FY10. During the year the company put in place a long term financing plan including the drawdown of GBP 340 million EIB loan and syndication of inventory
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financing. Wholesale volumes for FY 2009-10 were 193,982 units compared with sale of 167,348 units in the 10 month period June08 March09. Both Land Rover and Jaguar launched the updated 2010 Model Year products (Range Rover, Range Rover Sport, Discovery 4, XF and XK) to critical acclaim with the respective wholesale sales for the year coming in at 146,564 units and 47,418 units. Jaguar Land Rover retail sales improved favourably in the second half of the year, after addressing the effects of the global economic turndown and launching new model year products. There was strong recovery in the UK where Land Rover retail sales were up 25% year on year. The Jaguar XF improved in the UK by 28% year on year. China also continued to show significant growth for JLR with Jaguar growing by 38% and Land Rover 55% year on year. Tata Daewoo Commercial Vehicles Company Limited, companys subsidiary based in South Korea, continued to see improvement in domestic demand while exports came under pressure resulting in overall sales decline of 4% over the previous year. Tata Motors Finance Limited, the companys captive financing subsidiary reported net profit of Rs. 44.16 crores and improved its NPA performance through better collection efficiency.
8.3 DIVIDEND The Board of Directors has recommended a dividend of Rs.15/- per
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Ordinary share and Rs.15.50 per A Ordinary share each for the financial year 2009-10 (2008-09: Rs.6/- for Ordinary share and Rs. 6.50 for A Ordinary share). The dividend is subject to approval of shareholders; tax on the dividend will be borne by the Company.
8.4 The Audited Financial Results for the financial year ended March 31, 2010, are enclosed.
TATA MOTORS LIMITED Regd.Office: Bombay House, 24, Homi Mody Street, Mumbai 400 001. AUDITED CONSOLIDATED FINANCIAL RESULTS FOR THE YEAR ENDED MARCH 31, 2010
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Notes: 1) Figures for previous year have been regrouped / reclassified wherever necessary, to make them comparable. 2) On June 2, 2008, the Company acquired from Ford Motor Company, Jaguar Land Rover business. The financial results for the year ended March 31, 2009, include the results of the operations of Jaguar Land Rover business for the period June 02, 2008 to March 31, 2009 The financial results for the year ended March 31, 2010, are not comparable to this extent, with the previous year. 3) Other income for the year ended March 31, 2010 includes profit (net) of Rs 175154 lakhs (Rs. 71816 lakhs for the year ended March 31, 2009) on sale of investments [including profit on sale of shares in Telcon (refer note 4 below)]. 4) During the quarter ended March 31, 2010, the Company has sold 20% stake in Telco Construction Equipment Company Ltd (Telcon) to Hitachi Construction Machinery Co. Ltd. Consequently, w.e.f. March 30, 2010, Telcon is accounted for as an associate in the consolidated financial statements. 5) For the year ended March 31, 2010, Exceptional Items - others mainly consist of (a) employee separation cost of Rs. 19112 lakhs of Jaguar and Land Rover and (b) unamortised debt issue cost of Rs. 10504 lakhs written off on prepayment of bridge loan for acquisition of Jaguar Land Rover business.
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6) The tax expense is not comparable with the profit before tax, since it is aggregate of the tax expense appearing in the separate financial statements of the Company and its subsidiaries. This accounting treatment is as per accounting standard AS-21. 7) The actuarial losses (net) of Rs. 26540 lakhs for the year ended March 31, 2010 (Rs. 145721 lakhs for the year ended March 31, 2009), of pension plans of Jaguar Cars Ltd and Land Rover, UK, have been accounted in Reserves and Surplus in accordance with IFRS principles and permitted by AS 21 in the consolidated financial statements. This treatment is consistent with the accounting principles followed by Jaguar Cars Ltd and Land Rover, UK, under IFRS. 8) Automotive operations of the Company and its consolidated subsidiaries represents the reportable segment, rest are classified as 'Others'. 9) Automotive segment consists of all types of commercial and passenger vehicles including financing of the vehicles sold by the Company. Others primarily include construction equipment, engineering solutions and software operations.
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10)
The results for the year ended March 31, 2010, include profit
/ loss of two subsidiaries, a joint venture company and two associates, considered on the basis of Unaudited Financial Statements, impact of which is not material.
11)
The Consolidated financial results should be read in
conjunction with the notes to the individual financial results of the Company for the year ended March 31, 2010.
12)
The Statutory Auditors have carried out an audit of the
above results for the year ended March 31, 2010. The above Results have been reviewed by the Audit Committee of the Board and were approved by the Board of Directors at its meeting held on May 27, 2010.
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CHAPTER-9 FUTURE PROSPECT OF INDIAN AUTOMOBILE SECTOR

Automobile industry expert predicts that by 2050 every sixth car in the world will be for Indians. By 2010 India will take over Germany in sales volumes and Japan by 2012 The Indian automobile component industry is estimated to triple from USD 63 billion to USD 190 billion within a span of six years by 2012. Industry analysts predict this industry to touch USD 13000 million marks by 2010, a cumulative growth of 9.5% annually. It is said that for every Re 1 spent, the auto sector returns Rs. 2.24 to the Indian economy.
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CHAPTER-10 CONCLUSION
Industry across countries will have to meet challenges of newer technologies, alternative fuels and affordability of automobiles by people at large through constructive cooperation. The earlier we are able to achieve this the better it would be for the world performance. The automotive industry has created employment, value added and export opportunities and quality of leading sectors. Competitiveness of the automotive industry today has developed in the future and be able to maintain the required order for measures to be taken are: Business partnerships between the cluster and network structures should be developed, invest in R & D work should be increased, studies relating to brand image intensive, Cost reduction measures only the reduction of input prices should not be limited to, process improvement studies should be given importance, Value in the process of creating new trends in the world similar to outsourcing "outsourcing" and virtual engineering "virtual engineering" work intensively, The automotive sector in a strong position in the market to maintain the security, design, product quality and an alternate engine development work (hybrid motor), Active participation should increase,
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In the future, qualitative growth will be the driving force envisaged in the new automotive electronic products and systems development work should be invested.
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ANNEXURE
INTERVIEW WITH-KARTIK K. KOTHADIA, ELECTRONIC ENGINEER, DIRECTOR OF JIK INDUSTRIES LIMITED. Phone. No: 9820531444. Q1. Will Jaguar and Land Rover drive Tata Motors off bumpy roads?
Probably NO, because the infrastructure facilities in India is not commensurate to the jaguar land rover cars and its technologies.
Q2. Was TATA JLR deal a case of wrong timing/ price or wrong strategy or both or none?
The deal is no wrong strategy or timing as it seems to be the most profitable deal of Tata motors as reflected in their balance sheet.
Q3. Will India be able to compete with global automobile companies? Yes, because of the major acquisition vis--vis JLR deal, M&M and Ssangyong deal and many others have proved that Indian companies are quite competitive in global scenario. Also the improvement in technology and skilled labour force has set a mark. Q4. Among all the auto stocks which one is the most volatile? Why?
The two major stocks are Maruti-Suzuki and Tata Motors. The main clutch being that both these stocks are widely traded in derivative segment. The dynamic business behavior of the stocks
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including mergers and acquisition, cut throat competition, quick launches, etc, has made these stocks more volatile. Q5. What are your views on union budget 2011? What changes you recommend in budget in terms of automobile sector?
The union budget is literally in neutral gear. I would recommend more flexibility in duties with respect to auto components and spare parts. The industry also requires more encouragement in green technology though.
Q6. According to you what are the strength and weaknesses of automotive sector?
Strengths- Large domestic market, labour cost advantage, Government productivity. Weaknesses- Low labour productivity, High interest costs and high overheads, rising cost of production and Low investment in Research and Development incentives for manufacturing plants, Strong engineering skills in design and able to achieve significant gains in
Q7. Is R&D important in automobile sector? What are your suggestions regarding R&D in automobile sector? Yes, R&D is at most important for automobile sector. The R&D investment in India is low so Indian automobile company should invest high in R&D to gain competitive advantage over the global companies.
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Q8. Big push to green technology in automobile sector, Present your views.
The big push to green technology have made automobile sector more competitive than any other sector. Keeping in view the environmental issues the move seems to be just superb. The concessions in excise duty in the recent budget are going to be a biggest push for both green technology and automobile sector.
Q9. What is HYBRID CAR? Should all automobile company design a hybrid car, why?
Yes, hybrid car are the one which works on electricity to save petrol and switches on to petrol line automatically if the battery is low or if desired by the owner. They are eco-friendly cars and are much required due to global warming issues. Yes they should, as specified they overcome global warming issues. Hybrid cars are costlier but with higher acceptance and sales figure. The prices are expected to come down and probably all vehicles will move towards hybrid.
Q10. Is TATA MOTORS the most promising automobile company in India, why?
Yes, because of the recent JLR deal it seems to the most promising company. The TATA group being adopting the best corporate governance have made it more promising.
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REFERENCES
WEBSITES REFERED http://www.automobileindia.com http://www.moneycontrol.com http://www.nseindia.com http://www.moneycontrol.com http://www.economywatch.com http://www.scribd.com http://www.slideshare.com http://www.autoblogs.in http://www.indianauto.org http://www.theautomotiveindia.com http://www.tatamotors.com http://www.autoexpo.in http://www.365automobile.com
http://www.cleanairnet.org
http://acmainfo.com
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BLOGS Indian Council for Research on International Economic
Relations(ICRIER)
ICRA (2003). Report on the Competitiveness of Indian Auto Industry, Society of Indian Automobile Manufacturers, Automotive Component Manufacturers Association of India and Investment Information and Credit Rating Agency of India.
ICRA (2004a). The Thailand & ASEAN India Free Trade Agreement: Implications for the Indian Auto Industry, Automotive Component Manufacturers Association of India and Investment Information and Credit Rating Agency of India.
ICRA (2004b). The MERCOSUR-India Preferential Trade Agreements Implications for the Indian Automotive Industry, Automotive Component Manufacturers Association of India and Investment Information and Credit Rating Agency of India. ICRA (2005). Implications of an FTA with South Africa for the Indian Auto Industry, Automotive Component Manufacturers Association of India and Investment Information and Credit Rating Agency of India.
ACMA (2004). A Report on ACMA CEOs Mission to Thailand, Automotive Component Manufacturers Association of India.
ACMA (2006). Indian Automotive Component Industry: Engine of Growth Driving the Indian Manufacturing Sector.
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CHAPTER-1 INTRODUCTION TO AUTOMOBILE SECTOR

AUTOMOBILE SECTOR IN INDIA

CHAPTER-2 HISTORICAL DEVELOPMENT OF AUTOMOBILE IN WORLD

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CHAPTER-3 SCOPE OF INDIAN AUTOMOBILE SECTOR

AUTOMOBILE SECTOR IN INDIA

AUTOMOBILE SECTOR IN INDIA

CHAPTER-4 AUTOMOBILE INDUSTRY ANALYSIS

Able to achieve significant gains in productivity 4.1.2 Weaknesses

Low labour productivity. High interest costs and high overheads.

Cut in excise duties.

AUTOMOBILE SECTOR IN INDIA

Rising rural demand

AUTOMOBILE SECTOR IN INDIA

AUTOMOBILE SECTOR IN INDIA

AUTOMOBILE SECTOR IN INDIA

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CHAPTER-5 GLOBAL COMPARISONS

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Table 5.1.1: Region-wise Production of Motor Vehicles (in Number)

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Table 5.1.4: Region-wise Production of Light Commercial Vehicles

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Table 5.1.5: Region-wise Production of Heavy Trucks

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Indias shares in the international exports of public transport vehicles:

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Source: Calculations from CMIE India trades Database

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Source: Calculations from Directorate General of Foreign Trade.

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Figure 5.4.1: Global Comparison of Real Lending Interest Rates.

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CHAPTER-6 UNION BUDGET 2011

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Figure 6.6.1: Description of HYBRID CAR.

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AUTOMOBILE SECTOR IN INDIA