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Automobile Sector Analysis

By Sourabh Gupta (FMS-2012)

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Contents
Introduction: ................................................................................................................................................. 3
PEST Analysis:................................................................................................................................................ 3
Social ......................................................................................................................................................... 3
Technological ............................................................................................................................................ 3
Political ...................................................................................................................................................... 4
Economic ................................................................................................................................................... 4
Domestic Market/Sales: ................................................................................................................................ 5
Domestic Market Share for 2009-10 ......................................................................................................... 5
Market share (Company wise): ................................................................................................................. 5
Reasons for expected Growth: ..................................................................................................................... 7
Consolidation prospects: .............................................................................................................................. 8
Recent Developments: .................................................................................................................................. 9
Tata Motors Analysis:.................................................................................................................................... 9
Overview: .................................................................................................................................................. 9
Acquisitions: ............................................................................................................................................ 10
SWOT Analysis: ....................................................................................................................................... 10
Strength............................................................................................................................................... 10
Weakness ............................................................................................................................................ 11
Opportunities ...................................................................................................................................... 11
Threats ................................................................................................................................................ 11
Important Developments:....................................................................................................................... 11
Milestone 2010 ....................................................................................................................................... 12
Conclusion: .................................................................................................................................................. 12
Policy Makers .......................................................................................................................................... 12
Industry Participants ............................................................................................................................... 13
References .................................................................................................................................................. 15
Sector Analysis: Automobile

Introduction:
Growth of the Indian middle class along with the growth of the economy over the past
few years has attracted global auto majors to the Indian market
The supplier segment is also attracting private equity (PE) investments
the country has become the seventh largest vehicle producing nation in the world, six
years ahead of the set target
According to the study by Ernst & Young, the Indian market will clock the fastest
compound annual growth rate between 2009 and 2020, more than double that of China
and the triad of North America, Europe and Japan. India's CAGR between 2009 and 2020
is expected to be 14 per cent compared with China's 6 per cent, other emerging markets' 6
per cent (which includes BRIC nations) and the triad's four per cent.
The automotive industry is one of the key drivers of India‟s economy, accounting for
around 4 percent of India‟s GDP and over 200,000 jobs.

PEST Analysis:
Social
Growth in urbanization, 4th largest economy by PPP index
Upward migration of household income levels
Increase in PPP, led to the increase in market share of compact cars 85% of Cars are
financed in India (15% in China). Cars priced below USD 12000 account 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. The Tata Indica has the lowest
running cost at US 8.5 cents per mile.

Technological
With the entry of global companies into the Indian market, advanced technologies, both
in product and production processes have developed.
With the development or evolution of alternate fuels, hybrid cars have made entry into
the market.
Few global companies have setup their R&D centers in India.
Major global players like Audi, BMW, Hyundai etc have setup their manufacturing units
in India.
Government initiatives regarding tax rebates have led to global players setting up their
R&D centers in India.
Govt. initiatives in establishing NATRIP network across the country will further lead to
enhancing R&D and technological advancements

Political
Indian government auto policy aimed at promoting an integrated, phased and conducive
growth of the Indian automotive industry.
Allowing automatic approval for foreign equity investment up to 100 per cent, with no
minimum investment criteria.
Establish an international hub for manufacturing small, affordable passenger cars as well
as tractors and two wheelers.
Ensure a balanced transition to open trade at minimal risk to the Indian economy and
local industry.
Assist development of vehicles propelled by alternate energy sources.
Laying emphasis on R&D activities carried out by companies in India by giving a
weighted tax deduction of up to 150 per cent for in-house research and R&D weighted
tax deduction of up to 150 per cent for in house research and R&D activities.
Plan to have a terminal life policy for CV along with incentives for replacement for such
vehicles.
Promoting multi-modal transportation and the implementation of mass rapid transport
systems

Economic
The Indian economy has grown at 8.5 per cent per annum.
The manufacturing sector has grown at 8-10 per cent per annum in the
The manufacturing sector has grown at 8–10 per cent per annum in the last few years.
More than 90 per cent 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 number of CVs plying on Indian roads.
Several Indian firms have partnered with global players.
Establishment of India as a Manufacturing hub, for mini, compact cars, OEMs, and for
auto components
Domestic Market/Sales:
Domestic Market Share for 2009-10
Passenger Vehicles - 16%

Commercial Vehicles- 4%

Three Wheelers -4%

Two Wheelers -76%

According to data released by the Society of Indian Automobile Manufacturers (SIAM),


the passenger vehicles segment during April-September 2010 grew at 32.91 per cent over
same period last year. Passenger cars grew by 33.58 per cent, utility vehicles grew by
20.69 per cent and multi-purpose vehicles grew by 49.32 per cent during this period.
The overall commercial vehicles segment registered a growth of 41.59 per cent during the
first half of 2010-11, as compared to the same period last year. While medium and heavy
commercial vehicles registered growth of 61.59 per cent, light commercial vehicles grew
at 26.90 per cent.
Two wheelers registered a growth of 25.86 per cent during April-September 2010.
Mopeds, scooters and motorcycles grew by 23.13 per cent, 44.95 per cent and 22.52 per
cent, respectively.

Market share (Company wise):


In commercial vehicle, Tata Motors dominates over 68% of the Indian
commercial vehicle market. Tata Motors is the largest medium and heavy
commercial vehicle manufacturer
Hero Honda contributes around 50 % motorcycles to the market in which Honda
holds 46% share in scooter and TVS makes 82% of the mopeds in the country
In the three wheeler industry in India, Piaggio holds 40% of the market share.
Bajaj is the leader by making 68% of the three-wheelers

Maruti Suzuki is the largest car producer in India and has 46% share in passenger
cars and is a complete monopoly in multi purpose vehicles. In utility vehicles
Mahindra holds 42% share. Hyundai and Tata Motors is the second and third car
producer in India.
Leading Indian Automobile Firms

Firm Products Foreign Market Stock Listing


Partner Value ($
Billions)
Tata Motors Passenger and Commercial Fiat 11.6 Mumbai,New
vehicle Commercial Vehicle
York
Bajaj Auto Two and Three - Wheelers Renault- 9.2 Mumbai,
Nissan for
planned small London
car (Holding Firm)

Maruti Passenger Vehicles Suzuki Motor 8.8 Mumbai


Suzuki

Mahindra & Passenger and Commercial Navistar for 8.7 Mumbai,


Mahindra Vehicles, Farm Equipment, Commercial London
Two-wheelers Vehicles

Hero Honda Two - Wheelers Honda Motor 7.9 Mumbai

The top ten automobile manufacturers(Passenger Vehicles) in India are:

Maruti Suzuki

Hyundai

Tata

Mahindra

GM Chevrolet

Honda

Toyota

Ford
Fiat

Skoda

Reasons for expected Growth:


 Affordability: With increasing income, doubling of sales is expected over the next three
to four years which is going to be driven by both domestic demand and by India
becoming a small car export hub

 Fuel Economy : The volume leaders across two-wheelers and four-wheelers in India are
companies which have been able to offer products with the globally acknowledged best-
in-class fuel economy rates, as well as affordable total cost of ownership

 Alternative Fuels: Vehicles based on alternative fuels remain another area of interest for
both consumers and companies. Reva , a pioneer in electric cars, remains an exception in
the area of electric vehicles in India, although in two wheelers there are multiple
offerings, none of which have as yet taken off in terms of volume. Although both
commercial vehicles and passenger vehicles running on CNG are gaining popularity
among transport service providers and consumers due to their lower cost of operation,
much more needs to be done to improve the fuelling infrastructure before CNG vehicles
become more mainstream.

 The growing population, a significant proportion of which will be of working age over
the next decade, is another source of demand to most automobile companies.

 current data suggests that the demand will be sustained in the medium term. While the
luxury car volumes are only about one percent of the total passenger vehicle sales in
2009-10, the cumulative annual growth rate (in volume) of nearly 40 percent over the last
two years suggests that this share is bound to grow.

 The automobile industry has yet to fully tap into demand from rural areas. steady growth
in demand for passenger vehicles from rural areas, accompanying the growth of the
overall segment. While the Indian automobile industry seeks to double total sales on the
back of steady growth over the next decade, these relatively undertapped demand
segments (rural markets, youth, women and luxury cars) are expected to play a
significant role.
Consolidation prospects:

Major acquisitions/ joint ventures like Tata & JLR and VW & Suzuki have enabled OEMs to
grow their ranges while taking fewer financial risks. Alliances are playing significantly
increasing role in generating economies of scale. Considering the robust growth the industry
is currently witnessing, it is clear that any new entrant would need to demonstrate consistent and
clear differentiators to make a play for a leadership position in the Indian market.

When compared with the European industry, several observations can be made on the Indian
automobile industry from a consolidation perspective:
 The Indian automobile industry is set to continue its growth trajectory, in the medium
term, on the back of steady economic growth. Some consolidation or alliances could
possibly be expected, driven by the need for access to technology, manufacturing
facilities,service and distribution networks:
- Some evidence of this has already been seen with Fiat‟s diesel engine being used in Suzuki‟s
vehicles, as well as Tata vehicles
- Tata is managing the service and distribution facilities for Fiat India

 India is predominantly a two-wheeler market (by volume) today, and given that
affordability is expected to continue as a key issue for a large part of the Indian
population, this trend is unlikely to change over the medium term regardless of entry/exit
of new players

 Consolidation in the form of brands being bought and sold or companies exiting the
market are more likely to be exceptions. Furthermore, global developments such as
Volkswagen‟s acquisition of a stake in Suzuki will have their own ramifications for
companies in the Indian market. However, it is unlikely that we will see phenomena such
as brands/entire companies being bought and absorbed, as has been seen overseas

 The medium term outlook for the Indian automobile sector, based on the various demand-
drivers as well as the likelihood of consolidation being limited, suggests the industry
should have a relatively stable growth in the medium term. However, in the long term,
there are two interesting scenarios, both of which are relatively nascent as of date, thus
making it difficult
to predict how they might shape the industry
• Green vehicles
• Developments outside the automobile sector, such as a growth in alternative mobility
solutions.
Recent Developments:

The biggest event of the year(2010) was obviously the arrival of Tata Nano on Road. It
finally hit the roads this year and also went into commercial production at Sanand. After
the initial euphoria died down, issues related to quality, manufacturing issues, financial
troubles etc. brought down its sales to a dismal 500 units in November. Even Maruti and
Honda had to recall their A–Star and City models respectively but neither of them had to
face scrutiny like Nano.
But then as Nano was going down, Mercedes and BMW‟s were selling in the country like
hot cakes. The rise of the executive class was displayed when in two days more than 150
BMWs and Mercedes each were sold. When the number of Mercedes sales surpasses
Nano for a month, then some serious changes are happening around.
Our very old Ambassador, the symbol of Indian cars went for strong investment in
innovation and R & D due to falling sales and revenue. But for a car which is slowly but
surely reaching its decline stage, is investing on innovation for such a product useful? I
doubt it! Even Maruti 800 had to withdraw itself from 13 cities due to strict Bharat Stage
IV emission norms. Now this did make many of us nostalgic.
There were also breakups like the Hero–Honda group as well as marriages like the
Mahindra–sang Yong one. The Hero Honda breakup was like a shock to an entire
population because it has really been the true “Desh Ki Dhadkan”. Mahindra‟s
acquisition after Tata‟s acquisition of JLR and Land Rover shows Indian automotive
industry‟s true international reach today.

The launch of Bugatti Veyron at 16 crore, plans of Aston Martin and Spyker to enter
India as well as setting up of a manufacturing facility by Harley Davidson in Haryana
shows that the premium market for cars in India is developing FAST REALLY FAST!
Bajaj tag will be removed from all motorcycles Boxer, Discover, Pulsar and KTM

Tata Motors Analysis:


Overview:

Established in 1945, Tata Motors Ltd is a multinational corporation headquartered in


Mumbai, India. Part of the Tata Group, it was formerly known as TELCO (TATA
Engineering and Locomotive Company)
Tata Motors is India‟s largest automobile company, with consolidated revenues of USD
20 billion in 2009-10
leader in commercial vehicles and among the top three in passenger vehicles
The company is the world's fourth largest truck manufacturer, the world's second largest
bus manufacturer, and employs 24,000 workers
Tata Motors has auto manufacturing and assembly plants in Jamshedpur, Pantnagar,
Lucknow, Ahmedabad, Sanand, Dharwad and Pune in India, as well as in Argentina,
South Africa and Thailand.

Acquisitions:

In 2004 Tata Motors acquired Daewoo's truck manufacturing unit, now known as Tata
Daewoo Commercial Vehicle, in South Korea.
In 2005, Tata Motors acquired 21% of Aragonese Hispano Carrocera giving it controlling
rights of the company.
In 2007, Formed a joint venture with Marcopolo of Brazil and introduced low-floor buses
in the Indian Market.[7]
In 2008, Tata Motors acquired British Jaguar Land Rover (JLR), which includes the
Daimler and Lanchester brand names.
In 2010, Tata Motors acquired 80% stake in Italy-based design and engineering company
Trilix for a consideration of €1.85 million. The acquisition is in line with the company‟s
objective to enhance its styling/design capabilities to global standards.

SWOT Analysis:

Strength

TATA motors is market leader in Automobile Industry with high market share
TATA Motors Company have huge employee base
TATA motors employee productivity percentage is higher
TATA motors produce low price car with low fuel consumption
TATA motors is the reputable brand in Indian Industry.
Tata Motors Limited is India‟s largest automobile company, with revenues of Rs.
35651.48 crores (USD 8.8 billion) in 2007-08.
The company‟s dealership, sales, services and spare parts network comprises over 3500
touch points.
Tata Motors has been aggressively acquiring foreign brands to increase its global
presence.
The research and development department of TATA motors is very strong
TATA motors posses High corporate responsibility
Weakness

Return on Investment on TATA motors shares in low.


TATA motors is not able to meet safety standards in their vehicles.
The domestic sales of the company are not up to the mark.
Tata has not got a foothold in the luxury car segment in its domestic market.

Opportunities

TATA motors can take the advantage of their low cost car by entering into third world
countries where people have low purchasing power.
TATA motors should focus in developing luxury cards.
TATA motors can introduce more safety features in vehicles to gain more customer
satisfaction.
Joint ventures in other countries allow TATA motors to easily enter into new market.

Threats

TATA motors have low cost advantage over its competitors, once the competitors find
out the low cost production methodology then there will no competitive advantage.
Other companies are starting to compete for some of this market share. In fact, the
Pakistan‟s Transmission Motor Company has built a basic four-wheeler for only $2,100.
This car is considerably cheap and the Pakistan Transmission Motor company started
exporting them to Sudan, Qatar, and Chile. This is going to be the beginning of new
emerging car manufactures that will be producing low priced cars.
The major challenge for TATA motors is the rising prices of steel, Aluminum and plastic
which is heavily used in vehicle manufacturing.
The low safety standards can impact the sales

Important Developments:

Tata Nano

In January 2008, Tata Motors launched Tata Nano, the least expensive production car
in the world at about US $3000. Tata has faced controversy over developing the Nano
as some environmentalists are concerned that the launch of such a low-priced car
could lead to mass motorization in India with adverse effects on pollution and global
warming. Tata has set up a factory in Sanand, Gujarat . A small number of fire
incidents involving the Nano were reported. This led Tata to add safety devices to the
vehicle, although no recall was initiated and according to Tata, the car is safe

Tata Ace

Tata Ace, India's first indigenously developed sub-one ton mini-truck, was launched
in May 2005. The mini-truck was a huge success in India with auto-analysts claiming
that Ace had changed the dynamics of the light commercial vehicle (LCV) market in
the country by creating a new market segment termed the small commercial vehicle
(SCV) segment. Ace rapidly emerged as the first choice for transporters and single
truck owners for city and rural transport. By October 2005, LCV sales of Tata Motors
had grown by 36.6 percent to 28,537 units due to the rising demand for Ace. The Ace
was built with a load body produced by Autoline Industries.[19] By 2005, Autoline
was producing 300 load bodies per day for Tata Motors. Tata Ace - Apka Pyaara
Chota Hathi.. Ace is still a top seller for TML with 5M units sold to date (June 2010)

Milestone 2010 (taken from Tata motors website)

Tata Ace becomes India's first 1-lakh brand in goods commercial vehicles.
Appointment of Mr.Carl-Peter Forster as Managing Director of Tata Motors.
Jaguar Land Rover announces opening of its Dealership in New Delhi
Tata Motors to construct heavy truck plant in Myanmar under Government of India‟s
Line of Credit.
Tata Motors declared as the Commercial Vehicle Maker of the Year.
Tata Motors Passenger Car Division launches „Tata Motors Service Edge‟ for leading
edge customer service.
Tata Motors displays Tata Nano EV at the 80th Geneva Motor Show.
Chief Minister of Punjab inaugurates Tata Motors supported State Institute of
Automotive and Driving Skills.
Jaguar Land Rover announces Dr Ralf Speth as Chief Executive Officer.
Tata Motors appoints Mr. Carl-Peter Forster as Group CEO.
Tata Motors Group displays the widest range of products and environment-friendly
technologies at Auto Expo 2010.
Tata Motors launches Magic Iris

Conclusion:
India‟s automobile industry is poised at the start of an exciting phase of growth, not all of which
may derive from manufacturing conventional fuel-based vehicles. Various possibilities ranging
from developing vehicles based on alternate fuels to collaborating with some-time rivals, have
the potential to open fresh avenues for growth. In order to capitalize on the emerging scenarios in
the future, the following are a few key action points for each of the industry‟s key stakeholders:

Policy Makers

India has no duty benefits for even hybrid cars, which need to be imported due to low
volumes. If India‟s automobile industry wants to play a role in the global arena for
alternative fuelbased vehicles, such limiting measures need to be reexamined and an
appropriate redesign of the framework needs to be enacted immediately

While global companies are pursuing innovations in third and fourth generation biofuels,
India is yet to decide on a purchase price for the fuel. Such a delay in key policy
decisions, which have the potential to unlock innovation, need to be remedied based on
the recommendations of industry associations/participants

Demand for nascent technologies and fuel efficient cars needs to be encouraged by
offering consumers incentives to adopt these products, such as an expansion of the policy
of little or no duty being payable on electric vehicle parts. This can in turn spur
innovation for better products.

Likewise, manufacturers could be encouraged to commercialize their green technologies,


which are currently expensive and under-utilized by the market, by being offered
subsidies where appropriate

Increase dialogue with manufacturers and oil marketing companies to establish a better
infrastructure for greener vehicles. The government should consider finalizing a short,
mid and long-term blueprint for the development of this infrastructure, encompassing
elements such as battery recharge stations or CNG pumps, through public-private
partnerships

The government should stimulate debate on how the public and private sectors can
collaborate on the establishment of Urban Mass Mobility Schemes. Manufacturers could
become key players in terms of developing new technologies, or inter-system mobility.

Industry Participants

• The market for greener vehicles opens up a whole new world of possibilities for Indian
companies, even outside the automobile sector (such as leaders in renewable energy), to make a
global foray

• A greater focus on export opportunities could tap into a worldwide market hungry for green
technology, which India can provide cost-effectively and to global standards. Business models of
global green vehicle manufacturers should be examined to see how mass market penetration can
be enhanced

• Collaboration is likely to be the theme for the next decade as new markets and products are
created by companies forging previously unimagined partnerships. Companies will need to think
beyond existing business models. Concentrations of resources and technical ingenuities may be
vital to generate workable economies of scale. There may be merit in greater specializations,
such as that witnessed in the IT industry, to simplify processes and reduce investment need
• Across all vehicle types, under-served demographics such as young people, women and rural
customers could be targeted by making greater overtures to these markets and by improving
distribution networks

• Better links should be forged with support industries such as battery manufacturers to help
drive down costs of making and maintaining green vehicles

• Manufacturers should form a greater consensus than exists at present on the most appropriate
focus for emerging green technologies. The industry is slightly fragmented currently, with
numerous options being explored ranging from battery power to hybrid fuels, from biodiesel to
LPG
References

1. The Indian Automotive Industry – KPMG Report


2. http://www.ibef.org/sector.aspx
3. http://en.wikipedia.org/wiki/Automotive_industry_in_India
4. http://www.2indya.com/2010/05/26/automobile-industry-in-india/
5. http://www.mba-tutorials.com/marketing/251-tata-motors-swot-analysis.html
6. http://en.wikipedia.org/wiki/Tata_motors
7. http://marketingteacher.com/swot/tata-motors-swot.html
8. http://www.slideshare.net
9. http://www.scribd.com/doc/29103898/Pestle-Analysis-of-Automobile-Sector-of-India
10. http://www.automobileindia.com/automobile-industry/
11. http://business.mapsofindia.com/automobile/