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mechanic Brezin. It was used by the French Army to haul artiller y at a whopping speed of 2 1/2 mph on only three wheels. The vehicle had to stop every ten to fifteen minutes to build up steam power. The steam engine and boiler were separate from the rest of the vehicle and placed in the front (see engraving above). The following year (1770), Cugnot built a steam-powered tricycle that carried four passengers. In 1771, Cugnot drove one of his road vehicles into a stone wall, making Cugnot the first person to get into a motor vehicle accident. This was the beginning of bad luck for the inventor. After one of Cugnot's patrons died and the other was exiled, the money for Cugnot's road vehicle experiments ended. Steam engines powered cars by burning fuel that heated water in a boiler, creating steam that expanded and pushed pistons that turned the crankshaft, which then turned the wheels. During the early histor y of self-propelled vehicles - both road and railroad vehicles were being developed with steam engines. (Cugnot also designed two steam locomotives with engines that never worked well.) Steam engines added so much weight to a vehicle that they proved a poor design for road vehicles; however, steam engines were very successfully used in locomotives. Historians, who accept that early steampowered road vehicles were automobiles, feel that the first automobile . The automotive industry has certain trends it has to follow, just like fashion designers and musical composers. In times of recession and decreasing sales there is less room to take chances and manufacturers are prone to follow the common pattern as a safer bet rather than releasing a controversial product or idea that might or might not be successful. However throughout the automotive industry's history, great innovators have "boldly gone where no man has gone before" to set new trends which have dynamically altered the industry as a whole. 1880's & early 1900's
About hundred years ago -The first motor car was imported
-Import duty on vehicles was introduced. -Indian Great Royal Road (Predecessor of the Grand Trunk Road) was conceived.
First car brought in India by a princely ruler in 1898. Simpson & Co established in 1840. -They were the first to build a steam car and a steam bus, to attempt motor car manufacture, to build and operate petrol driven passenger service and to import American Chassis in India. Railways first came to India in 1850's In 1865 Col. Rookes Crompton introduced public transport wagons strapped to and pulled by imported steam road rollers called streamers. The maximum speed of these buses was 33 kms/hr. From 1888 Motors Spirit attracted a substantial import duty. In 1919 at the end of the war, a large number of military vehicles came on the roads. In 1928 assembly of CKD Trucks and Cars was started by the wholly owned Indian subsidiary of American General Motors in Bombay and in 1930-31 by Canadian Ford Motors in Madras, Bombay and Calcutta In 1935 the proposals of Sir M Visvesvaraya to set up an Automobile Industry were disallowed. 1942 Hindustan Motors Ltd incorporated and their first vehicle was made in 1950. In 1944 Premier Automobiles Ltd incorporated and in 1947 their first vehicle was produced. In 1947 the Government of Bombay accepted a scheme of Bajaj Auto to replace the cycle rickshaw by the auto and assembly started in a couple of years under a license from Piaggio. Manufacturing Programme for the auto and scooter was submitted in 1953 to the Tariff Commission and approved by the Government in 1959. In 1953 the Government decreed that only firms having a manufacturing programme should be allowed to operate and mere assemblers of imported CKD units be asked to terminate operations in three years. Only seven firms namely Hindustan Motors Limited, Automobile Products of India Limited, Ashok Leyland Limited, Standard Motors Products of India
Limited., Premier Automobiles Limited, Mahindra & Mahindra and TELCO received approval. M&M was manufacturing jeeps. Few more companies came up later.
Government continued with its protectionism policies towards the industr y. In 1956, Bajaj Tempo Ltd entered the Indian market with a programme of manufacturing Commercial Vehicles, and Simpson for making engines.
1960's
In sixties 2 and 3 Wheeler segment established a foothold in the industry. Escorts and Ideal Jawa entered the field in the beginning of sixties. Association of Indian Automobile Manufacturers formally established in 1960. Standard Motors Products of India Ltd. moved over to the manufacture of Light Commercial Vehicles in 1965.
1970's
Major factors affecting the industry's structure were the implementation of MRTP Act, FERA and Oil Shocks of 1973 and 1979. During this decade there was not much change in the four wheeler industry except the entry of Sipani Automobiles in the small car market. Oil Shock of 1973 quickened the process of dieselization of the Commercial Vehicle segment. Three other companies, namely, Kirloskar Ghatge Patil Auto Ltd, Indian Automotive Ltd and Sen & Pandit Engg products Ltd entered the market during 1971-75. They ultimately withdrew in early eighties. During the seventies the economy was in bad shape. This and many specific problems affected the Automobile Industry adversely.
Unfair practices of monopoly, oligopoly etc slowly disappeared. Liberalisation of the protectionism policies of the Government. Lots of new Foreign Collaborations came up in the eighties. Many companies went in for Japanese collaborations. Hindustan Motors Ltd. in collaboration with Isuzu of Japan introduced the Isuzu truck in early eighties. ALL entered into collaboration with Leyland Vehicles Ltd. for development of integral buses and with Hino Motors of Japan for the manufacture of W Series of Engines. TELCO after the expiry of its contract with Daimler Benz, indigenously improved the same Benz model and introduced it in the market. Government approved four new firms in the LCV market, namely, DCM, Eicher, Swaraj and Allwyn. They had collaborations with Japanese companies namely, Toyota, Mitsubishi, Mazda and Nissan respectively. In 1983 Maruti Udyog Ltd was started in collaboration with Suzuki, a Japanese fir m. Other three Car manufacturers namely, Hindustan Motors Ltd., Premier Automobiles Ltd., Standard Motor Production of India Ltd. also introduced new models in the market. At the time there were five Passenger Car manufacturers in India - Maruti Udyog Ltd., Hindustan Motors Ltd., Premier Automobiles Ltd., Standard Motor Production of India Ltd. and Sipani Automobiles. Ashok Leyland Ltd. and TELCO were strong players in the Commercial Vehicles sector. In 1983-84 Bajaj Tempo Ltd. entered into a collaboration with Daimler-Benz of Germany for manufacture of LCVs. Important policy changes like relaxation in MRTP and FERA, delicensing of some ancillar y products, broad banding of the products, modifications in licensing policy, concessions to private sector (both Indian and Foreign) and foreign collaboration policy etc. resulted in higher growth / better performance of the industr y than in the earlier decades.
1990's
Mass Emission Norms were introduced for in 1991 for Petrol Vehicles and in 1992 for Diesel Vehicles.
In 1991 new Industrial Policy was announced. It was the death of the License Raj and the Automobile Industry was allowed to expand.
Further tightening of Emission norms was done in 1996. In 1997 National Highway Policy has been announced which will have a positive impact on the Automobile Industry. The Indian Automobile market in general and Passenger Cars in particular have witnessed liberalisation. Many multinationals like Daewoo, Peugeot, General Motors, Mercedes-Benz, Honda, Hyundai, Toyota, Volvo and Fiat entered the market. Various companies are coming up with state-of-art models of vehicles. TELCO has diversified in Passenger Car segment with Indica.
Despite the adverse trend in the growth of the industry, it is resolutely trying to meet the challenges. Various issues of critical importance to the industr y are being dealt with forcefully.
the country researching on automobile technology, such as BHEL which is developing cell technology as alternative fuel, have also been brought together through the setting up of a national R & D working group. The group is working out a plan to link all major laboratories across the country to give a thrust to automotive research. Indian automobile sector being a driver of product and process technologies, and has become a excellent manufacturing base for global players, because of its high machine tool capabilities, extremely capable component industry, most of the raw material locally produced, low cost manufacturing base and highly skilled manpower Not only a large number of world manufacturers have set up production bases in India but also a large number of foreign companies are collaborating with the auto component suppliers and vendors. Indian Automobile Components Industry has been making rapid strides towards achievement of world-class Quality Systems by imbibing ISO 9000/QS 9000 Quality Systems whereby the Indian Automotive industry has become more competitive in the export market due to its technological and quality advances, so much so that in quality conscious markets such as Europe and America, it is emerging as a major player, based on its performance. India today exports: Engine and engine parts, electrical parts, drive transmission & steering pats, suspension & braking parts among others. The sector is striding inroads into the rural middle class after its inroads into the urban markets and rural rich. It is trying to bring in varying products to suit requirements of different class segments of customers. States like Rajasthan, Uttar Pradesh, Maharashtra, Andhra Pradesh and West Bengal are vying to woo global players with proposals including heavy tax exemptions and to create a more investor friendly regime, each state is proposing to provide all regulator y clearances at express speed. The Government should promote Research & Development in automotive industr y by strengthening the efforts of industry in this direction by providing suitable fiscal and financial incentives. The current policy allows Weighted Tax Deduction under I.T. Act, 1961 for sponsored research and in-house R&D expenditure. This will be improved further for 8
research and development activities of vehicle and component manufacturers from the current level of 125%. In addition, Vehicle manufacturers will also be considered for a rebate on the applicable excise duty for every 1% of the gross turnover of the company expended during the year on Research and Development carried either in-house under a distinct dedicated entity, faculty or division within the company assessed as competent and qualified for the purpose or in any other R&D institution in the countr y. This would include R & D leading to adoption of low emission technologies and energy saving devices. Government will encour age setting up of independent auto design firms by providing them tax breaks, concessional duty on plant/equipment imports and granting automatic approval. Allocations to automotive cess fund created for R&D of automotive industry shall be increased and the scope of activities covered under it enlarged.
commissions. This triggered the start of a protracted legal battle in 1969 between some carmakers and GOI. Simply put, the three decades following the establishment of the passenger car industr y in India and leading upto the early 1980s, proved to be the 'dark ages' for the consumer, as his choice throughout this period was limited to two models viz. Ambassador and Padmini. It was only in 1985, after the entry of Maruti Udyog, that the car makers were given a free hand to fix the prices of cars, thus, effectively abolishing all controls relating to the pricing of the end product. In the early 80's, a series of liberal policy changes were announced marking another turning point for the automobile industr y. The GOI entered the car business, with a 74% stake in Maruti Udyog Ltd (MUL), the joint venture with Suzuki Motors Ltd of Japan. The ver y face of the industr y was changed for ever in 1983 with the entry of public sector Maruti Udyog in a joint venture with the Suzuki Corporation of Japan. Car sales grew by 42 per cent yoy in 1985 after Maruti 800 was launched. Thanks to MUL car sales registered a CAGR of 18.6 per cent i.e. from 1981 to 1990. In 1985, the GOI announced its famous broadbanding policy which gave new licenses to broad groups of automotive products like two and four-wheeled vehicles. Though a liberal move, the licensing system was still ver y much intact. MUL introduced 'Maruti 800' in 1983 providing a complete facelift to the Indian car industry. The car was launched as a "peoples car" with a price tag of Rs 40,000. This changed the industry's profile dramatically. Maruti 800 was well accepted by middle income families in the country and its sales increased from 1,200 units in FY84 to more than 200,000 units in FY99. However in FY2000, this figure came down due to rising competition from Hyundai's 'Santro', Telco's Indica and Daewoo's 'Matiz'. MUL extended its product range to include vans, multi-utility vehicles (MUVs) and mid-sized cars. The company has single handedly driven the sales of cars in the country cornering around 79.6% market share. With increasing competition from new entrants, this market share has plummeted to almost 62% in FY2000.
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A brief 3-year downturn till 1993 and car sales bounced back to register a 17 per cent growth rate in 1997.Since then, the economy slumped into recession and sales of cars remained quite stagnant FY97 and FY99. The Financial year 2000 has, however, been the turnaround year for the Auto industry with the economy looking up. The automobile industr y, crossed the half million mark for the first time in FY2000. Overwhelmed by newer models from new and existing players had led to an impressive shift from a constrained supply situation to a surplus one. Within the past decade, about 30 models have entered the Indian market with a number of models still awaiting launch. The de-licensing of auto industr y in 1993 opened the gates to a virtual flood of international auto makers into the country with an idea to tap the large population. Also the lifting of quantitative restrictions on imports by the recent policy is expected to add up to the flurr y of foreign cars in to the countr y. The Indian Automobile industry registered one of the strongest growth rates in FY04. Aided by sustained economic recover y, the industry registered high growth rates in all major segments. The growth story was led by Medium and Heavy Commercial Vehicles (M&HCVs) registering a 40% growth while Light Commercial Vehicles (LCVs) recorded a 32% jump in total sales. Passenger cars also registered an impressive 34% growth in FY04 and total sales volume crossed the 1 million mark for the first time. Interestingly, two wheelers registered the lowest but healthy growth rate of 13% in FY04. While motor cycle volumes tripped on a high base, scooters registered a 10% growth after 4 years of continuous decline. Three wheelers grew by 23% in FY04. Apart from strong economic growth in all sectors, low interest rate regime, normal monsoon, continued infrastructure investment, fiscal measures like cut in excise duty (in case of cars), etc provided impetus for the growth. The year also saw a sharp 56% rise in export volumes with all the sectors registering more than 40% growth, signalling the rising international competitiveness of the industr y.
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Profitability improvements were recorded in companies across segments driven by rise in volumes and lower interest costs to some extent, notwithstanding the rise in prices of certain inputs like steel. Though the peak customs duty had been reduced to 20% in January 2004 and Special Additional Duty was abolished, the domestic industry still enjoys adequate protection, with no import threats. The potential borne by the industry is well exhibited by the growing number of international players setting up base in India and increasing competitiveness in the industry. Many companies have entered the car manufacturing sector, to tap the middle and premium end of car industry.
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Structure
The Indian automobile industry can be broadly classified into: 2 /3 Wheelers Passenger Cars Commercial Vehicles (LCV/HCV/MCV) UV (Utility vehicles) Tractors
The models in the car market can be fitted to different segments as given below:
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Category Models segment (upto Rs 0.25mn) Maruti Omni, Maruti 800 etc. Economy Mid-size segment (Rs 0.25-0.45 mn) Fiat Uno, Hyundai Santro, tata Indica, Maruti Alto etc. Luxury car segment (Rs 0.45- 1mn) Tata Indigo, Honda City, Mitsibushi Lancer, Ford Ikon, Opel Astra, Hyundai Accent & others Super luxury segment (above Rs 1mn) Mercedes Benz & other imported models
The economy segment has a ver y large foothold over the Indian automobile market as compared to the mid-size and luxur y segment. Segment Economy 90.2 Mid-size and luxury Source: SIAM/ Auto Car India Market Share (%) 9.8
Increased urbanisation, low pricing policies, improvement in products and technology have fuelled demand for 4-wheelers. The markets are clearly segmented between economy models and premium models. The easy availability of finance and increased levels of disposable incomes has led to higher demand for premium models. Rural areas have also become an exciting market to cater to. The growth of the economy has also resulted in a shift in consumer preferences in each of the segment. Gradual shift can be seen in buyers from mopeds to economy scooters, from economy scooters to premium and from premium to motorcycles
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The passenger car segment has seen rapid growth on the back of rise in disposable income, increased availability of consumer finance, and reduction in excise and customs duties. Post-1991, this segment has seen maximum foreign investment. There is a clear segmentation of passenger cars based on price and size. While the lower and medium range cars (Maruti, Ford, Cielo) have been moderately successful, luxur y cars such as Mercedes have found the going tough. The CV segment is directly linked to industrial production and foreign trade and is therefore subject to cyclical fluctuations of the economy. The demand for CVs is related to growth in movement of goods transported and freight rate levels, both of which are linked to level of production.
Demand for utility vehicles and tractors come from rural India. These vehicles have witnessed steady demand growth over the past few years due to successive monsoons, better procurement prices, improved irrigation facilities, and availability of finance.
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A strong in-house R&D capability allows a manufacturer to develop and introduce products at lower prices, thus saving costs of importing technology. However, Indian companies spend very little on R&D. Availability of quality components is another factor that determines smooth production without bottlenecks. High rejection rate of auto components has prompted several global majors like Ford, to get their international suppliers
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strategies by which a foreign enterprise can set - up Indian operations. This module aims to give the various entry options available to a foreign investor, especially for foreign direct investment. This module does not deal with portfolio investments. Broadly, entry strategies may be classified into two major types :1. A foreign investor may directly set up its operations in India through a branch office or a representative office or liaison office or project office of the foreign Company ; or 2. It may do so through an Indian ar m i.e. through a subsidiary company set - up in India under Indian laws. Generally, setting up operations through an Indian arm is advisable, especially if the quantum of investment is huge. The impact of Indias initiatives in economic liberalization and globalization (post 1991) is most apparent in the automotive sector. Automotive industry is a key driver of economic growth contributing around four to five percent to the Indian GDP. Introduction of reforms and entry of international companies has intensified competition in the Indian automotive sector. This has resulted in the transformation of a sellers market (created mainly due to the Indian governments protectionist policies) into a buyers market. The changing structure of this industry has posed many challenges and opportunities to the market participants. Previously, Indian automotive market was characterized by weak air pollution regulations. In addition, low labor cost of maintenance and the psyche of Indian consumer to delay the discarding of the old vehicle reduced the scrap rate. All these factors resulted in prolonged operational existence of vehicle on Indian roads. The benefit of this practice is the comparatively higher revenues for automotive component suppliers, due to increased demand in the aftermarket. But recent pronouncement of GoI to prohibit polluting vehicles in the National Capital Region (NCR) is likely to force the old polluting vehicles off road. This will reduce the average life span of vehicles on road and the overall impact would be reduced per vehicle parts consumption. 20
Two wheelers generate the highest volumes and are more popular in rural and semi urban markets primarily due to lower income levels and poor road conditions. Therefore, these could be classified as entry-level vehicles. Within two wheeler segments, progressively mopeds are likely to be replaced by motorcycles. With the growth in the family income of these rural and semi-urban buyers and the option of numerous used cars, it is expected that a significant shift would take place from two wheelers (mainly scooters) to four wheelers. Lucrative finance schemes have made the purchase of midsized cars really affordable. The present owners of the small car are likely to graduate to mid-size cars mainly due to declining importance of small car as status symbol and the marginal increment in repayment installment in the finance options. Good performance of the economy has led to higher all round growth leading to high GDP growth of 8%. Excise duty reduction on passenger vehicles helped to reduce the ultimate price to the customer. Brisk activities on infrastructural development will give a boost to the automobile industry. Softening of interest rates and improved financing of second hand vehicles have made the purchasing of cars financially viable. Availability of finance in rural and semi-urban areas have led the low-end customers to put money in the purchase of vehicles. Emergence of India as a manufacturing hub for the automobile industry is a good sign for the countrys future prospects. The automotive industry performance is closely linked to industrial growth. It is hoped that industrial growth would be around 7 per cent during the year 2003-04 as against around 6.5% last year. Agriculture output during the year 2003-04 increased by over 10% as compared to (-)3.2% in the previous year. Today we are fourth largest economy (USD 2.5 trillion) in the world after USA, Japan and China in terms of purchasing power parity. The outlook for the year 2004-05 is promising and it is expected that the current growth rates of GDP and industrial output will be sustainable, which would ensure robust growth in the automotive sector. Good performance of the economy has led to higher all round growth leading to high GDP growth
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those already adopted in Europe, hence the names Euro I (equivalent to India 2000) and the Indian equivalent of Euro II. 1999 - The Honble Supreme Court passed an order directing all car manufacturers to comply with Euro I emission nor ms (India 2000 nor ms) by the 1st of May, 1999 in National Capital Region(NCR) of Delhi. The deadline was later extended to 1st June, 1999 2004 - Tata Motors becomes the first Indian auto company to be listed on the New York Stock Exchange.
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To establish a globally competitive automotive industry in India and to double its contribution to the economy by 2010. POLICY OBJECTIVES This policy aims to promote integrated, phased, enduring and self-sustained growth of the Indian automotive industry. The objectives are to:
Exalt the sector as a lever of industrial growth and employment and to achieve a high degree of value addition in the countr y; Promote a globally competitive automotive industr y and emerge as a global source for auto components; Establish an international hub for manufacturing small, affordable passenger cars and a key center for manufacturing Tractors and Two-wheelers in the world; Ensure a balanced transition to open trade at a minimal risk to the Indian economy and local industry; Conduce incessant modernization of the industry and facilitate indigenous design, research and development; Steer India's software industry into automotive technology; Assist development of vehicles propelled by alternate energy sources; Development of domestic safety and environmental standards at par with international standards.
SIAM welcomed the announcement of Auto Policy, and feels that the policy would serve as a reference document for all stake holders and other interested parties. The Auto Policy has spelt out the direction of growth for the auto sector in India and addresses most concerns of the automobile sector, includingPromotion of R&D in the automotive sector to ensure continuous technology
upgradation, building better designing capacities to remain competitive; Impetus to Alternative Fuel Vehicles through appropriate long term fiscal structure to facilitate their acceptance; 24
Emphasis on low emission fuel auto technologies and availability of appropriate auto fuels and encouragement to construction of safer bus/truck bodies - subjecting unorganised sector also to 16% excise duty on body building activity as in case of OEMs
The policy has rightly recognised the need for modernising the parc profile of vehicles to arrest degradation of air quality. The terminal life policy for commercial vehicles and move toward international taxing policies linked to age of vehicles, are steps in the right direction. SIAM has always been advocating encouragement of value addition within the country against mere trading activity. However, this aspect has not been fully addressed. The Auto Policy allows automatic approval for foreign equity investment upto 100% in the automotive sector and does not lay down any minimum investment criteria. The recommendation of promoting passenger cars of length upto 3.8 meters through excise benefits is not in line with the free market concept and may lead to market distortion. However, with the Auto Policy in place, the automotive industry would get further fillip to become vibrant and globally competitive. The industry would get the required support from other Ministries and departments of Government of India in achieving the goals laid down in the auto policy
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The government is making efforts to overcome the constraints at their research centers for automobile industry. India can also learn from countries like Japan that are already using these technologies for a wide number of applications. The Indian auto industr y should launch programmes for market development and a wider acceptance of alternative energy-driven vehicles in India. It should also work in tandem with the government to make India a world leader in this area. Indian automobile industry is also consistently trying to meet the emerging challenges of environmental pollution and better safety standard. According to a study, automobile exhaust contributes more than 60% of the atmospheric pollution in metropolitan cities, with the growing number of vehicles, the pollution in the cities is continuously increasing. Government initiated controls by notif ying emission standard from the year 1992 under which were furthers tightened in April 1996 under the Motor Vehicles Act. Euro-I emission norms have already been made applicable throughout the country and Indian is poised to induct Euro-II norms across the country by April 2005. Form that date 7 metropolitan cities are going to switch over to EuroIII norms. To meet this emerging challenges of newer emission norms Indian automobile industr y has already braced itself up with new investment and fresh technological induction. With the growing number of vehicles, the pollution in the cities is ever increasing. Government initiated controls by notifying emission standards from the year 1992 which were further tightened under the Motor Vehicle Act. For meeting these norms, unleaded petrol was also introduced in metropolitan cities from 1995, which enabled fitments of catalytic convertors on new petrol driven vehicles. The norms are being further tightened from April,2000 when Indias stage one norm equivalent to Euro-I will become effective. For 2-wheelers, India has announced one of the tightest norms in the entire world. In the national capital territory region of Delhi, Indias stage 2 nor ms equivalent to Euro-II norms, will be effective from April, 2000, as per the order of Honble Supreme Court. This would apply to passenger cars. The government seems most keen to hand over a huge replacement market on a platter to the automobile industry without ensuring that manufacturers take responsibility
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of the emission performance of the vehicles they produce for its useful life. In fact the most important action point that was recorded after the ministerial consultation was that manufacturers would have to give emissions warranty for two- wheelers from But ultimately, the government could not muster enough courage to push the mighty automobile industr y and enforce it. Government will encourage and assist establishment of specialized training institutes for the automobile sector through the active association of interested automobile industries. These institutes will be set up in Bidadi Industrial area and Dharwad Growth center. The Institute will be managed by the par ticipating automobile industries and will train skilled category of auto workers, in specified skill areas such as painting, welding, auto mechanical, etc. It also is making an effort abe to enlist the support of multilateral aid institutions to provide part of the funding for this project, which promises tremendous environment-improvement benefits for the vehicle, which create pollution. The policy of broadbanding capacities in the eighties led to increased utilization of capacity for four-wheelers in the industry. The liberal policy on foreign participation through technical and financial collaboration in early eighties led to substantial product upgradation and introduction of new models. But it was alleged that the policy was discriminator y in favor of MUL, while others like Telco, PAL, HM were denied permission to produce cars in collaboration with Japanese companies. The GOI controls the car sector by way of framing policies on depreciation norms, import duty on cars and parts used in it, petrol prices and import duty of steel. During the era of socialist inspired controls, the government protected the car industr y from new entrants by making effective use of licenses. However, after liberalization and with the consequent opening up of the auto sector in 1992-93, the license raj ceased to exist .
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The perception of a car as a luxury good lead to heavy excise duty on cars. The excise duty doubled from 25% in FY87 to 55% in FY91. Till 1987, the GOI followed a discriminatory policy so as to charge lower duty on fuel efficient car with engine capacity of less than 1000cc. This helped MUL to price its car at a lower price in comparison to others. But with lobbying from PAL and HM government withdrew the provision in 1987. But with the onset of the liberalization process in the early nineties, the government has continually rationalized the excise duty regime. Presently, there is a duty of 40% (16% + 24%) on motor vehicles, designed for transport of not more than six persons (excluding the driver). On vehicles designed for transport of more than six persons, but not more than 12 persons, the duty is 32% (16% + 16%). Over and above the excise duty, cess by the Central Government, states are now charging a uniform sales tax of 12%. This came in being after the 15th of May 2000. Earlier, states used to charge sales tax var ying from 3 to 14%. But MUL vehicles receive favorable treatment in terms of sales tax as well. In line with its treatment for luxur y items import duties for car have been maintained high. In the 80's, import duties varied between 150 to 200% based on the engine capacity of a car. The import duty on cars and components has come down in the last few years in line with general reduction in import tariffs. In the FY98 budget, the import duty on cars has also been further brought down from 50% to 40% ad valorem. Substantial reduction in import duty has been extended in the budget FY98 for import of certain items which would help the industry to reduce the emission level of vehicles. The import duty on catalytic converters and parts thereof has been reduced from 25% to 5%. The duty on CNG kits and parts thereof have been reduced from 10% to 5%. The import duty on auto components will be a key factor in deciding the final pricing of cars as new ventures start with about 50% indigenisation levels. The reduction in import duty on steel in the last few years has helped the industry in reducing raw material costs as major steel requirement of car industr y was imported. Even today, all CKD/SKD imports include metal pressed body panels.
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Reduction in customs duty for alloy and non alloy steel to 15% and 10% respectively.
Excise duty on steel increased to 12% from 8%. Indications of continuing benign interest rate regime. Educational cess of 2% on excise, customs duties and Income Tax. Likely implementation of VAT from April 1, 2005 Strong thrust towards sustainable rural economic growth. Reduction in customs duty on copper as well as some other metals to 15%. Consortium of banks formed to ensure speedy conclusion of loan agreements and implementation of infrastructure projects.
Budget impact:
Tractor manufacturers will benefit from increased demand for tractors once they pass on the benefits of excise duty exemption to the end consumers. The industry has just come out of a three-year slump, having registered a volume growth of 10% in FY04. Thus, the current exemption is likely to give a further boost to demand. The target of doubling the agricultural credit in three years is also likely to make more funds available to the farmers for investment in far m mechanisation. With major auto companies spending sizeable amount on product development and inhouse R&D expenditure in recent times, deduction of 150% allowed on the same will encourage further R&D investments. With cost efficiency no longer the domain of any single player, future survival will depend upon the capability to offer more technologically competent products. From this perspective, the current move is a step in the right direction. The government has pushed for speedy implementation of infrastructure projects, which is a good sign for the auto industry, especially the CV manufacturers. In line with the
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international experience, improvement in road infrastructure will translate into increased demand for higher tonnage CVs. Reduction in customs duty on alloy and non alloy steel would have a positive impact on the auto components and automobile industry. However, it would be nullified to some extend by increase in excise duty on steel. R&D sop will also boost investments in technology related areas. Cess of 2% may result in increase in end product prices if the manufacturers decide to pass on the hike. Rural thrust is likely to result in long term increase in demand of automobiles. Favourable economic scenario, renewed impetus on infrastructure and thrust on rural economy are likely to sustain healthy growth rates across segments. Overall, no significant impact for the automobile industr y (other than tractors).
3: Demand
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The demand for cars in the past was supply driven as demand did not match supply. This led to high premium and long waiting periods for the cars. But change in government policies coupled with aggressive capacity additions and upgradation of models by MUL in the early nineties led to increase in supply and subsequently reduced the waiting periods for economy cars. The demand for cars was suppressed by various supply constraints. The demand for cars increased from 15,714 in FY60 to 30,989 in FY80 at a CAGR of only 3.5%. The entry of Maruti Udyog Ltd (GoI-Suzuki JV) in 1983 with a "peoples" car and a more favorable policy framework resulted in a CAGR of 18.6% in car sales from FY81-FY90. After witnessing a downturn from FY90 to FY93, car sales bounced back to register 17% growth rate till FY97. Since then, the economy slumped into recession and this affected the growth of the automobile industry as a whole. As a result car sales remained almost stagnant in the period between FY97 and FY99. CAGR recorded during the FY94-FY99 period was 14.4%, reaching sales of 409,624 cars in FY99. However, during FY2000, with the revival of economy, the segment went great guns posting a sales growth of 56%yoy. The table below indicates the past sales trend for cars Cars FY94 FY95 FY96 FY97 FY98 FY99 FY2000 Volume 209,203 264,822 345,486 410,992 417,736 409,624 638,815 Growth % yoy 27.0 27.0 30.0 19.0 2.0 -2.0 55.8 Source : SIAM
The demand for cars is dependent on a number of factors. The key variables are per capita income, introduction of new models, availability & cost of car financing schemes, price of cars, incidence of duties and taxes, depreciation norms, fuel cost and its subsidization, public transport facilities etc. The first four factors viz, increase in per capita income, introduction of new models, availability & cost of car financing have
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positive relationship with the demand whereas others have an inverse relationship with demand for cars. The demand for cars in the future can be estimated with the help of making use of macro economic variables like growth in GDP, per capita income etc. or house hold penetration technique. An attempt is made to estimate the potential demand for passenger cars based on the household penetration level of passenger cars as explained in Annexure 4 of the report. The demand f or cars in the future is expected to come predominantly from the existing two-wheeler owners who will be upgrading to a four-wheeler, due to rising income and necessity of car for personal transportation purposes. Therefore, excluding the owners of mopeds, the potential demand for cars in the next fifteen to twenty years can be taken as 50% of the existing two-wheeler population of around 28mn units. But with the release of new models in the higher end of the economy segment, the supply of second hand economy cars is expected to increase substantially, which will be costing just about two times the price of premium range two-wheelers. This could affect the demand for first hand/new cars. Also, with cross demand from utility vehicles, availability of finance and other factors the above mentioned potential for cars will be difficult to realize. Growth in the segment thus is expected to hover around 15-20%yoy. The dominance of economy segment will continue in the future as it will provide large volume to Indian car industry. This is because a majority of customers for cars will graduate from two-wheelers. The demand for mid- sized and premium cars is expected to rise as new models enter the market, income levels rise and present car owners upgrading from the economy segment to higher end cars.
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Supply
The supply of cars in Indian industry till 1991 was dependent upon the production capacity of individual players. The production of cars has increased from 42,475 units to 181,420 units from 1981 to 1991 respectively. The growth in production of cars has varied in the last three decades from just 1% in 1970-80 to 21% in 1980-90 and above 15% in 1991- 96. The table below gives the production numbers of passenger cars in the past few years. Cars FY94 FY95 FY96 FY97 FY98 FY99 FY2000 Production 207,658 264,468 348,146 407,539 401,002 390,355 577,243 Growth % yoy 27.2 27.4 31.6 17.1 (1.6) (2.7) 32.4 Source: SIAM The major increase in production of cars in the 80's was due to the entry of MUL in 1983, which helped increase car production by 20,000 to 30,000 cars per annum till the early nineties. With the entry of MUL, the face of the passenger car industry changed forever. Existing producers who had operated in a protected, high margin environment faced the prospect of not just diminishing market share, but a shift in focus from producing vehicles to selling them. But MUL made use of the opportunity open to its technologically superior product and increased its capacity from 100,000 cars in FY90 to 240,000 cars in FY96 and 350,000 cars in FY98. The opening of economy in 1993, attracted world majors who joined hands with existing auto majors, to start their operations at the earliest. The first ones to enter the field were Mercedes Benz in joint venture with Telco to manufacture E220, E250D models, Peugeot in JV with PAL to manufacture Peugeot 309L, Fiat in JV with PAL to manufacture Fiat Uno.
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This has helped in increasing the number of models available to the customer from 8 to 30 and hence provided a wide choice to him. This has also helped in reducing the average waiting period and premium on cars, which were a part and parcel of car cost in the eighties.
Capacity
The present production capacities is detailed in the table below. This has increased from an estimated 600,000 units in FY98 to the present 727,000 units in FY2000. Car Capacity FY2000 Expected Maruti Udyog 250,000 350,000 Hyundai Telco Daewoo Ford India Fiat India General Motors 25,000 100,000 Honda Siel Hindustan Motors 30,000 50,000 Total 30,000 30,000 727,000 1,070,000 110,000 130,000 100,000 150,000 72,000 130,000 50,000 70,000 60,000 60,000
Thus, capacity utilization in FY2000 stands at 79.4%. This is still better than utilization levels the world over which stands at around 40%. Production capacities are expected to increase in the next two years as players introduce new models. The major increase in supply, as was witnessed in FY2000, will be in the mid-size and luxury segment. The supply in the future, taking into account the plans announced by the car majors are expected to grow to 1,070,000 cars by 2002. The segment which has seen a number of new entrants in the recent past will see two new models from the stable of Maruti namely the 'Alto', which will be available in the 800cc and 1000cc configuration. However, industry sources have indicated that after the hectic action of the past two years, this segment will slowly witness some stability in terms of sales volumes and prices. The entry of new players is expected to create a marketing 35
warfare in the car industry. A start has already been made by sharp reduction in prices of Daewoo 'Cielo' and Maruti 800. Lately, the price of Wagon R was also lowered by MUL to face the intensifying competition. However, with manufacturers having to comply with Euro emission norms, car manufacturers have sold their products at lowered margins. This is expected to affect their ability to reduce prices in the future. Increased support through finance from auto manufacturers was quite evident in FY2000. This has and will in the future induce existing owners of cars to go for technologically superior products in the same segment leading to sharp drop in prices of second-hand cars. This will also create a platfor m for upgradation of existing two-wheeler owners to four-wheelers. The luxury segment will see more new entrants namely Toyota of Japan, Skoda of Czech Republic and Proton of Malaysia in the years to come. Recently, companies like MUL, GM and Hindustan Motors have come out with new models to cover the present gap in the segment. Therefore, the customer will be having a wider choice to choose depending on his specific needs
industr y as we see today is relatively recent in origins. Except the ubiquitous Ambassador and the Premier Padmini there was not much moving around with an Indian tag. The official mascot of the Indian political system, the Triassic-era Ambassador has little Indian-ness in it. To start with, the name isn't Indian and that's only the tip of the iceberg. The design came from Morris Motors and the present petrol power plant and drive train are Isuzu throwaways. The diesel version has a BMC engine. Of course everything is made in India now, but do you call a tree your own if its roots are in someones courtyard. The other pre-Cambrian relic, the Premier Padmini, which till a few months back was adorning showrooms throughout the country. Its in the market since my grandpa learnt driving and at the time of its going to grave, the Padmini was a completely made in India product. But again, there's very little Indian-ness about the car, except maybe the name Padmini. The entry of Maruti Udyog Ltd, a GoI JV with Suzuki of Japan, in 1983 with a so-called "peoples" car and a more favorable policy framework resulted in a growth rate of 18.6% in car sales from FY81-FY90. After witnessing a downturn from FY90 to FY93, car sales bounced back to register 17% growth rate till FY97. Since then, the economy slumped into recession and this affected the growth of the automobile industr y as a whole. As a result car sales remained almost stagnant in the period between FY97 and FY99. However, with the revival in the economy, FY2000 turned out to be a significant year for the industry in which it recorded volume sales of 638,815 units as against 409,951 units in the previous year. Thus, the CAGR for the period FY96 FY2000 stands at 16.6%. The present day stunner from HM is the Lancer. As with HM products from the past, the Lancer is a borrowed from abroad product. The saving grace is only that this Lancer is a contemporary model and not some. The erstwhile Premier Auto Ltd. no longer exists. The nearest thing to it in the present is Ind Auto Ltd. Ind is an acronym for India or Indian, but the products are all borrowed from Italy. The Uno came to India after the Mafiosi had their fill with it. The Siena is a very contemporary model. It being a good car and all, but I always wonder why Fiat doesn't launch it in their motherland. What's this 'special' car for India, Brazil, Africa, Latin America inc.
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Ford did take the pains to design an India specific car, the Ikon. So does the quest for an Indian car end with the Ikon. No I don't think so. First thing, the company is American. Secondly, the Ikon's platform is that of the Fiesta, nothing else. So the only thing Indian about the car is the 'Josh' advertising gimmick. Starting with the official one, i.e. Maruti, the company, since its inception has changed the automobile scene in India completely. It's has been the number one manufacturer, churning out close to 300,000 cars last year. At last count it held a 64% market share in the passenger car market with four out of every five cars . on Indian roads being Marutis. Every year it rakes in multi-billion rupee profits, and, yet the company is nothing more than Suzuki India Ltd. Telco is a completely Indian carmaker with no major foreign collaborations. Their Indica was much touted as 'The Indian car', but it was styled by I.D.E.A of Italy. The engine technology had inputs from 'Moteur Modern' of France. In effect it was the case of an Italian body being wrapped around Indian mechanicals. Frankly I would have preferred an Indian body wrapping an Indian platform. India is also the largest manufacturer of agricultural tractors, motor scooters and the world's fifth largest commercial vehicle manufacturer. Each of these sectors experienced rapid growth during the last three years Demand in these sectors is driven by industrial, individual and agricultural consumers respectively. The increases have resulted from improved overall economic trends in India including large doses of foreign investment a more liberalized economy and higher productivity. The fortune of the Auto component industry is inextricably linked with that of the automobile industry which in turn is influenced by the general economic trends of the country the countr y's economic growth is projected to grow at more than six percent per annum in the coming years. The estimated growth will automatically emphasize the need for better transport infrastructure facilities. This means demand for automobiles and hence for auto components, is bound to grow accordingly. Therefore, good growth prospects are assured for the automobile industry.
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World-wide, cars are segmented on the basis of their size. However,in India, price is the main factor determining the choice of car. Hence, cars are segmented on the basis of price into three segments :
Segment
Approximate Main Models Features of Market Share of the segment the Segment M-800, Omni, Uno, Ambassador Zen, Uno, 118NE,Ambassador 1800 ISZ, Contessa, Indica, Santro, Matiz Price, Fuel Efficiency 46.9% Price, Performance, 43.1% Diesel Option
Medium 250-500
Lancer, Esteem, Status Value, Cielo, Accent, Performance, 10.1% City, Opel Features. Astra, Ikon
Absence of adequate mass transportation system and rising income levels have resulted in personal vehicles becoming an important mode of transportation in the urban and semiurban areas. By international standards however, the Indian car volumes remain small at just over 1% of the world market with penetration rates of approximately 3.7 cars per thousand people as against 24 in Thailand, 144 in Malaysia, 204 in Poland and 90 in Brazil. Cars currently constitute approximately 12% of the total stock of personal vehicles in India. Rising household income, increased urbanisation, introduction of new models and availability of cost effective finance are the key demand drivers in the industry. The
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premium segment cars are mainly targeted at corporates or businessmen and are usually bought on consumer finance. The midsize segment witnessed an increase of around 115% in sales volume during the period April 1999-March 2000. Currently the economy, medium and premium segments constitute 46.9%, 43.1% and 10.1% respectively of the market.
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Segment-wise Performance
Passenger Vehicles The excise duty reduction on passenger vehicles given in the union budget 2003-04 has directly impacted the sales of passenger vehicles positively as it has reduced the acquisition cost to the customer. The cumulative passenger vehicle sales in the domestic market in April-March 2003-04 have grown by over 27% over the same period last year. However, this is against relatively low and negative growth rates in the previous years. Within the passenger vehicle segment, while passenger cars and utility vehicles have grown at a brisk pace of 28.6% and 27.6% respectively, MPVs have grown at a lower rate of around 14.5%. However, the growth of MPVs this year is significant as it was (-) 15.7% in the last year. Passenger Cars & MUVs Annual Production FY 2003 TO 2004 in Nos MUV -16%; CARS 84%
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Passenger Cars Sales Segment-Wise Market Distribution FY 2002 TO 2003 in Nos Upper C3% Misc 3% Lower C10% Luxury D 2% A Seg32% Upper B Lower B34% Commercial Vehicles The performance of the commercial vehicle segment during the course of the year was ver y satisfying. It has clocked over 30% growth rate in consecutive years. The growth rate of all commercial vehicles during the year 2003-04 grew by 36.5%. M&HCV segment has grown by 39.5% whereas LCVs grew by 32%. With improved economic performance especially in the agricultural sector besides expansion of the national highways and expressways, we are also witnessing fleet rationalisation in the country. This has also led to increased penetration of multi-axle vehicles on our roads. During the year 1998-99 sale of Multi axle vehicles was 4539. Whereas, in the year 2003-04, 59251 multi-axle vehicles were sold. In percentage terms an increase of 67% per annum over a five year period. The share of multi-axle vehicles during the same period has gone up from hardly 5% to around 40%. Commercial Vehicles Annual Production FY 2002 TO 2003 in Nos BUSES LCV 10% 41% 32%% 16%% 3%
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TRUCKS Exports
49%
The performance of the automobile industry in exports is also encouraging. Passenger vehicle exports have crossed the hundred thousand mark and clocked sales of around 1,30,000 and two & three wheelers have crossed three hundred thousand mark for the first time clocking around 3,33,000. Commercial vehicle exports have also increased to an all time high of over 17,000. In percentage terms the growth during the year over the previous year have been almost 80% for passenger vehicles, over 49% for two & three wheelers and over 40% for commercial vehicles.
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The Indian market confounds global carmakers simply because of the way it is segmented. In the West, automobiles are generally segmented according to platforms -that is chassis-engine combinations. Price plays a factor but only up to a point. In India, though, price plays the primar y role in segmentation. Consider first the segments in the European or American market. At the bottom, you have city cars' -- which include the Daewoo Matiz, the Hyundai Santro, the Maruti 800, Alto, Fiat Uno, the Zen as well as the Wagon R. Next come the budget minis -which would include cars like the Suzuki Swift (our own Esteem). The next segment, the superminis, would take in cars like the Opel Corsa, the Ford Ikon. Above the superminis are small family cars -- which include models like the Opel Astra and the Ford Escort. Medium-sized family cars are bigger and include cars like the Opel Vectra and Peugeot 406. Compact executive cars are small but immensely prestigious and include the BMW 3 series and the Mercedes C class. Executive cars embrace their bigger brothers -- the BMW 5 series and the Mercedes E class. Only a handful of cars are classified as true-blue luxur y cars namely-- Jaguar XJ8, the BMW 7 series. And of course there are the niches like sports, sports utility, and exotics. The Indian market, of course, is quite differently segmented. The Maruti 800 and Zen fall in a class by their own -- and are referred to as the sub-Rs 2.5-lakh cars. The next is the Rs 3-4 lakh segment -- which includes all the other cars that would normally be classified as city cars in Europe. Strictly speaking, the Tata Indica should fall in the super-mini category because of its specifications -- but because of price, it competes in the same segment. Above Rs 4 lakh and all the way up to Rs 10 lakh is the luxury car range. It is loosely divided into two halves -- with Maruti Esteem, Ford Ikon, Hyundai Accent, Daewoo Cielo, Opel Corsa and Honda City 1.3 falling in the bottom layer, and the Opel Astra, Honda City 1.5 and Ford Escort in the upper range. The last segment is of premium car segment, which includes cars like Mercedes Benz and BMW. Scooters India Ltd (SIL), US-based Amerigon and Bangalore-based Maini Group are negotiating a joint venture to manufacture an electrical passenger car. Priced at Rs 1.75 lakhs, the car will target the segment between two-wheelers and petrol/diesel based cars. Assembly from imported Completely Knocked Down (CKD) kits will start as soon as an agreement is finalised among the partners. This venture represents a major
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manufacturing shift for SIL, a public sector enterprise, which so far has only produced two- and three-wheelers. It also plans to introduce an electric three-wheeler model, already in use in Nepal, into the Indian market. Bajaj Auto has introduced its diesel three-wheeler in Hyderabad. The vehicle has a 416 cc engine and is priced at Rs 83,000, lower than its nearest competitor the Greaves Garuda, which is priced at Rs 85,000 (in Hyderabad). Bajajs petrol three-wheelers already account for 85 per cent of the India market. Its new product, consequentially, could erode its own base. Indian Automobile industry has become more competitive in the export market due to its technological and quality advances, so much so that in quality conscious markets such as Europe and America, Indian automobile industry is emerging as a major player judging by its performance. India today exports: Engine and engine parts, electrical parts, drive transmission & steering pats, suspension & braking parts among others.
Low labor cost : India enjoys a comparative cost advantage in labour as compared to western countries.
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Skilled Manpower : India has vast pool of skilled manpower and qualified engineers among the largest in the world. On a scale of 1-10, 1 = low, 10 = high. Availability of Skilled labour. Sr No Points. 1 8.5 2 7.5 3 7.4 4 6.6 5 6.6 Country India Brazil US Germany Mexico
Availability of Qualified Engineers. Sr No Points. 1 7.5 2 7.4 3 7.2 4 6.4 5 6.3 Country Germany India US Brazil Mexico
Defect rates high : We have a higher defect rate about 10 times the world average.
Low Investment in R & D: The Industry has a ver y low investment in R & D as compared to their foreign counterparts which will their sustainability in the future. Not reached critical mass : Indian companies are in nascent stage and hence not able to cater to the requirements of OEMs. Our auto- ancillary industry is of 2.4 bn $ while Fords outsourcing budget is 86 bn $.
Poor infrastructure : Poor infrastructure like roads, ports, railways which lead to higher logistics cost and lower reliability.
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increase in export volumes during the period April to March. This trend is expected to continue with more global OEMs sourcing vehicles from their Indian plants. Additionally, the introduction of newer technologies such as Electronic Diesel Control Systems to reduce emission levels, safety devices such as Air Bags, Anti-lock Braking Systems, etc. augur well for the Company and the automotive sector as a whole. These technologies not only offer increased safety for drivers and passengers, but also result in greater comfort and better drivability. While there exist many opportunities for growth in business, there are also quite a few factors, which act as an impediment. In my last year s speech I mentioned about the need for a well thought out and clearly defined policy on emission norms. It is now fairly certain that Bharat Stage II norms (equivalent of Euro II norms) will be implemented countrywide starting 2005. It is important that this plan is implemented in time in the interest of a cleaner environment. Technology is available to meet the advanced emission norms using gasoline and diesel fuel; Bosch and many other companies have proved this worldwide. There is no need for the authorities to specify the type of technical solution required for this purpose as long as the end objectives are met. The spurious and reconditioned goods market, which I also dealt with in detail in my speech last year, continues to be a worrying factor as it directly affects our market share. The Company on its part has intensified the anti-spurious operations by conducting several raids across the country with the help of local regulatory authorities. Large quantities of spurious and fake products have been seized and legal action has been taken against those indulging in such activities. The Company believes that continued focus and concerted action against spurious activities would improve safety and fuel efficiency of the vehicles and at the same time help in expanding our market share in the Aftermarket. The Company is also continuously educating the users about the benefits of using genuine spares in place of spurious and reconditioned spares. The lack of any significant change in the labor law reforms also continues to be a matter of concern. It is essential that legal reforms be put in place at the earliest to provide more flexibility in manufacturing operations and enable the industry to quickly adjust the work force in line with fluctuating market conditions.
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To add to the problems, come April 2001, under the WTO agreement, India will have to per mit import of fully built automobiles, which hitherto was not permitted. The foreign manufacturers such as GM, Ford and Daimler Chr ysler will almost certainly import vehicles from their large portfolio of models and makes, further segmenting the market into niches, although how competitive they are in terms of price remains to be seen. The challenge before the industry is to figure out the strategy for survival and growth. It is clear from the picture painted above that the industry will have to increase volumes in each segment to achieve lower cost of manufacture. One way to achieve this will be to go for exports in a big way. Maruti is alr eady exporting vehicles, as are Mahindra, Telco, Daimler Chrysler and more recently Daewoo. The overseas markets will have to be exploited more aggressively, but this will mean the companies will have to invest more in Research and Development of new models with better features. The second opportunity is to become contract manufacturers for overseas companies. A number of Japanese and Korean companies have been following this strategy very successfully. Hindustan Motors is said to be considering this option. The third opportunity is to overcome the vulnerability of the automobile market to oil prices by designing vehicles, which can offer lower fuel consumption. Recent reports suggest the government is exploring the possibility of introducing Gasohol, which is a mixture of Petrol and Alcohol. Gasohol has been very successful in Brazil. Since Alcohol is a byproduct of the Sugar industry (of which India has the worlds largest), this is a very logical step that should have been taken many years ago. Even a small percentage reduction in the consumption of petroleum per vehicle can make a big difference to the balance of payments. The industry must focus its R&D efforts in line with the global trends, which is to build vehicles that are considerably more fuel efficient and less polluting. With growing awareness among the public about pollution and the effective campaigns carried out by the NGO's, this will increasingly become an important selling feature. It was surprising to see how the industry kept stalling the introduction of pollution norms for vehicles on the pretext that they needed more time to get the technology. Even Maruti despite its foreign
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affiliation was caught off guard when the Supreme Court finally ruled that all new vehicles should strictly adhere to the Euro II norms. The inadequacy of road infrastructure in India is well known. This is compounded by the fact that traffic management is very poor or non-existent and the drivers are mostly ill trained and in disciplined. As more vehicles come on the road, this will become a major bottleneck. The industry will need take initiatives firstly to train all drivers in safe driving and proper road discipline and manners. They will also need to assist government agencies in better road design and in building of multilevel parking lots. Training of police personnel in better traffic management and advising them on better equipping themselves to deal with various problems will also have to be done. In terms of the world averages, India's vehicle density is very low and if we have to achieve those density levels, the industry can look forward to a bright future. However in the industr y's interest care must be taken to see that we also achieve the safety and convenience levels of using automobiles.
The Challenges
External Level : Integrating into Global Supply Chains WTO Multilateral trade regimes FTAs (i.e. Bi-lateral Trade)
Country Level : Infrastructure Cascading effect of Taxes Cost of Capital Cost of Power Inflexible labor laws Inflexible labor laws
Firm Level : 51
Export as a mind set QCDDM equation taken for granted Logistics Warranties & Liabilities
Challenges for CEOs Dilemma of Investment Addressing fast Global Business Environment Changing mind set of teams Developing & Employing people with right right skills skills
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ACMA in collaboration with CII or FICCI should organize Trade fairs showcasing Indian Auto ancillary industr y both in India and abroad. Acquiring Auto ancillary companies in potential markets : Acquiring companies in overseas market gives a direct entry in that market to Indian companies. For e.g. Bharat Forge acquired one of the largest forging companies in Germany, Carl Dan Peddinghaus GmbH (CDP). Moving up the value chain : Automobiles companies are going for aggregate buying, hence company should try to acquire tier I status and ultimately target OEM status. Leveraging Software skills Culture change: Auto ancillar y industry should adopt concepts like six sigma rather than continuing with post Morton analysis. R & D spending : Industry should target at allocating at least 5 % of their revenues on R & D expenditures for achieving cutting edge in technology.
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reliance on foreign partners for technology is likely to drive the trend of collaborations followed by consolidations. Foreign companies are now all over the Indian market. There is a need for a level playing field to bolster Indian auto industry.It is already a level playing field for companies setting up shop in India. Even in the case of imports, entr y barriers in commercial vehicle industr y are among the lowest, with tariff at half that of cars. However, on the global plane, things are different. Though the Indian industry, in the last few years especially, has gained considerably in internal efficiencies, in ter ms of external factors such as cost of finance, infrastructure and labour legislation, we have a long way to go for parity with the developed world Competition is heating up in the sector with a host of new players coming in and others like Porshe, Bentley, Audi, BMW all set to venture in the Indian markets. We take a look at the key factors that are vital for gaining a stronghold in such a competitive scenario.
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High Quality & Productivity Indian Auto Companies have achieved a High level of Productivity by embracing Japanese Concepts and Best Practices: TQM TPM Toyota Production Systems In fact cost productivity is our key differentiator viz-a-viz competition from other low cost economies.
Just-In-Time Delivery & Logistics Indian Auto Companies have proven capability to supply on JIT basis out of Warehouses situated near the Customers 57
Most Indian companies have arrangements with major Logistic Providers for JIT Supplies. Adequate Warehousing support and onsite Engineering support
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Chrysler. A few more players are expected to join the fray in the next few years so as to strengthen their hold in the world market. Among the top car manufacturing companies General Motors and Ford Motors group of USA lead with a contribution of 15.8% and 11.6%, of world car production, respectively. Volkswagen and Toyota stand third and fourth with more than 9% contribution each to the world car production.
The global domination of the larger automotive manufacturers is slowly on the wane and the trend in sales is shifting towards more "regio-centric" products. Automakers that have been enjoying a generally prosperous spell would have to rethink on the way vehicles are designed, manufactured, distributed or sold. Already, players like General Motors Volkswagen and Toyota have begun to re-examine their dealer relationships and pricing strategies. Car makers would now have to think in terms of a new customer focus and provide better financing and servicing. Strategic tie-ups, mergers and acquisitions have become the talk of the day. A few instances are Daimler Benz's tie-up with Chr ysler of the US, Ford's acquiring of Daewoo and tie up with Volvo Car Corporation and Renault acquiring a stake in Nissan. Such deals will certainly lead to economy in terms of costs but it remains to be seen whether they will also create significant new opportunities for growth. With global consolidation in the car industry, it is expected that more international players will work closely to bring about operational efficiencies. B y nature, the car industr y is highly capital-intensive and vast amounts of money are being spent on R&D. With the players getting together to produce more technologically superior cars, they can derive greater benefits from their R&D efforts. Profits, which are under pressure due to wafer thin margins will be boosted due to greater economies of scale. Moreover, bigger capacities among players means lesser fixed costs per car produced. Even if mergers are not on the cards in the near future (one can see that the Daimler-Chrysler merger has not brought about synergies as expected by automobile exper ts), technology-sharing and the offering of equity stakes is inevitable.
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In India, the car market has become extremely competitive and come April 2001, India's automobile market will be thrown open to imports of completely built up vehicles, which hitherto was prohibited. With the international acquisitions and alliances, one can expect to see a dramatic change in the auto market. If GM were to acquire Daewoo in Korea, then GM would be in a commanding position in India with its alliance with FIAT and Suzuki motors as well. Already Daimler Chrysler and Ford are contemplating introducing new models in India from their various associate companies through their local subsidiaries. The situation could become very difficult for the purely Indian automakers such as Telco, Mahindra and Hindustan Motors unless they rethink their strategy. It can easily be seen why TELCO has been in the news on rumors that it wants to hive off its car division and bring in an overseas partner. Reports suggest that HM is thinking of exporting parts from its manufacturing units and also assembling and distributing other makes of vehicles who may wish to enter into India, but cannot enter full scale manufacture due to the small market sizes. Clearly exports will be the big opportunity for Indian automobile companies if they can control costs and deliver good quality output. Already Maruti, Hyundai and Ford as well as Mercedes Benz have started exports in a small way and this can grow. Majors like TELCO and Ashok Leyland are already exporting their products in reasonable volumes. Availability of easy financing options has been a major reason for the dramatic growth the automobile market has witnessed in recent times. Maruti has set up a separate financing unit in association with banks. GM has one of the largest financing companies in the US and can easily bring them into India should it so decide. Clearly the customer is in for some good times with a wide range of models to choose from, better quality and prices and easy financing options - a far cry indeed from the days when one had to book a Premier car and wait for years after paying an advance.
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7.3: Global OEMs Sourcing from India: They have already come
Toyota: Hub for Transmissions Hyundai: Export Base for Small Cars Fiat:Plans US $ 200 Mill outsourcing Volvo:started outsourcing Ford: sourcing engines, & Plans 500 Mill USD outsourcing Renault : Sourcing Truck Parts
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DC: exported Euro 70 Mill to its subsidiaries abroad Two Chinese Truck OEMs : Sourcing Drive Trains
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Maruti registered sales of 39,838 units in April 2004, up 38.4% yoy from 28,793 vehicle units in April 2003. This includes 2,910 units of exports compared to 3,150 in April 2003, decreasing by 7.6%.
Sales for April 2004: Segment Models April 2004 A1 M800 11,097 10,741 3.3% 167,561 C Omni, Versa 4,816 3,972 21.2% 59,526 A2 Alto, WagonR, Zen 19,296 9,668 99.6% 176,132 A3 Baleno, Esteem 1,313 952 37.9% 14,173 MUV Gypsy, Vitara 406 310 31.0% 3,555 Domestic 36,928 25,643 44.0% 420,947 Export 2,910 3,150 -7.6% 51,175 Total Sales 39,838 28,793 38.4% 472,122 April % change April'03 2003 March'04
The A1 segment has grown by 3.3% yoy from 10,741 units in April 2003 to 11,097 units. This is lower compared to some of its other segments. The A2 segment comprising of the Alto, WagonR and Zen registered a 100% growth from 9,668 units in April 2003 to 19,296 units, mainly driven by rising Alto sales. The A3 segment has grown by 38% yoy to 1,313 in April 2004 from 952 in the same period last year. The C segment comprising of the Omni and the Versa has shown a 21.2% growth yoy from 3,972 in the same period last year to 4,816. In the multi utility vehicle (MUV) comprising Gypsy and Vitara, it sold 406 units in April 2004 from 310 units in April 2003, a rise of 31% yoy.
Models of MUL
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was in no position to offer the car off-the-shelf like its rivals. Buyers had to wait for three months to get a Santro after booking it. Hyundai is moving fast to sort out its capacity problem. Work will soon start on the second phase of its Sriperumbudur car project, one year ahead of what was initially planned. An additional investment of $400 million will help expand capacity from 1.2 lakh cars to 2 lakh cars per annum. This expansion is likely to be completed by December, 2001, ahead of schedule. But even that could be a bit too late as it gives rivals that much time to grab sales that would otherwise have gone to Hyundai. That apart, the big worry for Hyundai is that other than the Santro (the Atos in Korea), it doesn't have any other small car in its armoury. Unlike Suzuki, which is primarily a small car specialist, Hyundai can only introduce bigger cars in the Indian market either from its own product range, or those of Kia Motors, which it took over last year. Hyundai is looking a bit vulnerable now because globally it is a minnow in the car market. It lacks the sheer money power and product muscle to keep fighting the Fords and GMs in any market. And if Ford does take over Daewoo Motors, Hyundai's number two position in India could be seriously under threat.
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model at Rs 2.98 lakh. Given that the car was considerably smaller than the Zen, the Santro and the Indica, the Daewoo Matiz almost sank. Two things have helped Daewoo bounce back though. First, in the case of the Matiz, it moved fast to introduce lower-priced, stripped-down variants that got the pricevalue-technology equation correct. In May, 1999, it introduced new variants, including the stripped-down, non-AC Matiz SS, and saw its volumes rise 165% to 1,996 from the previous month's 754. It touched a peak volume of 5,853 in March, 2000, before slipping to 3,500 in July, 2000. More importantly, the announcement of the Euro-II norms helped it grab the image of being the small car with the best technology since all its variants met the norms, unlike its rivals. And now that the Matiz has been voted the best small car in the world by several prestigious motoring magazines worldwide, Daewoo image has got a further boost. But these problems could vanish overnight if Ford takes over Daewoo. The FordDaewoo combine could be the strongest challenger to Maruti here. Despite the success of the Ikon, Ford's share in the total passenger car market will still be less than 5% this year. With no small car in its portfolio, Ford can never dream of playing the numbers game. Daewoo and Matiz, Ford could become the number two player in Indian market.
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car battles.
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Models of Hindustan Motors Ambassador 1800 ISZ Ambassador 2000 DSL Ambassador Nova Diesel Contessa motors
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passenger cars. Always the innovators, the Mitsubishi Model-A were the pioneers of vehicles in Japan. In early years, the ship and aircraft-manufacturing arm of Mitsubishi produced vehicles. Therein the provenance of Mitsubishi Motors engineering excellence and the resultant reputation for outstanding reliability and all around performance of its vehicles. Today, Mitsubishi Motors ranks as one of the largest vehicle manufacturer, and one of the very few that can boast a vehicle lineup which extends from mini cars to heavyduty trunk buses and other specialized commercial vehicles. The all new Mitsubishi Lancer comes to you from two automotive giants: Hindustan Motors and Mitsubishi Motors. A technical collaboration between the two, the project brings together their for midable expertise and experience to provide you with a whole new automotive experience. Mitsubishi Motors brings the most contemporary technology on Indian roads. The Lancer has an impeccable rallying pedigree and has proven it's mettle in the toughest conditions. The combination of high technology and classic build quality continues to woo customers the world over. Mitsubishi provided you with a comfortable and intuitive environment to explore the Lancer. There's virtual reality so you can view the car as you would in one of our showrooms, and ever y aspect of the car is explored in detail to let you get a good feel for the car from the comfort of your own home. There are useful tools to make your buying process easier. Not only has HM cleared any doubts pertaining to the quality of its locally-made Lancer, but it has also proved that its mid-size car is the one customers like or appreciate most. The Lancer scores superbly in all but the Ride, Handling and 71
Braking categories, where customers find comparatively more problems, as a result of the stiffened and raised suspension. The Lancer wins hands down in the APEAL study too, scoring a full 33 points more than its closest rival, the Honda City a substantial lead. This performance in the APEAL study has been achieved due to the fact that the Lancer scores extremely well in each of the nine categories and this makes it the pick of the mid-size cars by a fair margin.
Models of Mitsubishi
MITSUBISHI 3.5XS Montero Endeavor Montero sports Outlander Lancer Evolution Lancer Eclipse Eclipse Spyder Galant Dimant MONTERO SPORT
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from Ashok Leyland. At 60 million passengers a day, Ashok Leyland buses carry more people than the Indian rail network. In 1948, when independent India was one year old, Ashok Leyland was born. Ashok Motors then, assembling Austin cars at the first plant, at Ennore near Chennai. In 1950 started assembly of Leyland commercial vehicles and soon local manuf actur ing under license from British Leyland. With British Leyland participation in the equity capital, in 1954, the Company was rechristened Ashok Leyland. In 1987, the overseas holding by LRLIH (Land Rover Leyland International Holdings Limited) was taken over by a joint venture between the Hinduja Group, the Non-Resident Indian transnational group and IVECO Fiat SpA, part of the Fiat Group and Europe's leading truck manufacturer. Ashok Leyland embarked on a major product and process technology upgradation to world-class standards of technology. Since then Ashok Leyland has been a major presence in India's commercial vehicle industry. These years have been punctuated by a number of technological innovations which went on to become industry standards. This tradition of technological leadership was achieved through tie-ups with international technology leaders and through vigorous in-house R&D.1994 was also the year, when international technology changed the way India perceived trucks. The year when a new breed of world class trucks - technologically superior and eco-friendly - rolled out on Indian roads. Ashok Leyland vehicles have built a reputation for reliability and ruggedness. The 375,000 vehicles we have put on the roads have shared the additional pressure placed on road transportation in independent India. The share of goods movement by road rose from 12% in 1950 to 60% in 1995. In passenger transportation, the jump is equally dramatic: from 25% to 80%. At 60 million passengers a day, Ashok Leyland buses carry more people than the entire Indian rail network. In the populous Indian metros, four out of the five State Transport Undertakings (STUs) buses come from Ashok Leyland. Some of them like double-decker and vestibuled buses are unique models from Ashok Leyland, tailor-made for high-density routes. From our state-of-the-art manuf acturing Plant at Hosur, near Bangalore. They carried the name Cargo. Cargo brought with it, a new set of values and an unmatched basket of benefits, ushering in a change Cargo and the state-ofthe-art Rs. 6 billion factory at Hosur were built with IVECO'S global plan in mind. The
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Hosur plant servers as a world-class manufacturing base for IVECO supporting its extraEuropean markets. To Ashok Leyland, it meant retaining its technological edge against potential global competition. The Cargo range of trucks meets contemporary emission norms and have gained acceptance internationally. Besides fully built vehicles exported to many markets, Cargo is locally assembled in South Africa, East Africa and Egypt from SKD/CKD packs exported from Hosur. A recognized trading house, Ashok Leyland exports to over 40 countries. Ashok Leyland's export turnover touched Rs.1.5 billion in 1997-98. Committed to Total Quality Management, Ashok Leyland is the country's first automotive manufacturer to obtain the coveted ISO 9002 certificate followed by the more comprehensive ISO 9001: 1994 certification and in late 1998, the latest version of QS 9000. These are major milestones in the company's TQM journey. In the journey towards global standards of quality, Ashok Leyland reached a milestone in 1993 when it became the first in India's automobile industry to win the ISO 9002 certification. The more comprehensive ISO 9001 certification came in 1994 and ISO 14001 certification for all vehicle manufacturing units in 2002. Group Companies Automotive Coaches & Components Ltd (ACCL) Lanka Ashok Leyland Ashok Leyland Finance Ashok Leyland Project Services Limited Ennore Foundries Models Viking / Cheetah Panther Vestibuled Bus Cargo 1512 Comet (4x4) Tusker Super
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Taurus 2516 (6x4) Beaver Haulage Comet Tractor Beaver Tractor Hippo Turbo Tractor Alrd 20 Rear Dumper Comet Tipper Cargo 1614 Taurus Tipper Cargo 909 Cargo 759 Tipper Cargo 709
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market segment coverage. It has achieved progress towards compliance of Bharat State-ll emission norms, for implementation in the National Capital Region and other 3 Metros. SML has products like Super, Prestige and Sartaj in the 6-9 ton category and the Cosmo in the 5 ton category providing cost effective transport solutions in terms of larger wheelbase, powerful engine and higher payload, which is gaining increased acceptance in the market. In the passenger segment, the differentiation is in terms of end use rather than the gross vehicle weight. SML products caters to intra-city transport for short haulage, covering services like ambulance, post office delivery vans, school buses etc. The Company has introduced the CNG bus in the National Capital Region and also the new `Sartaj` model in the 5-ton range. The happier component of this growth has been the improvement in product-mix as also the wider market segment covered. SML has stayed ahead of competition with respect to cost efficiency and product customisation. Against odd industry condition and performance, Swaraj Mazda has been able to achieve a sale of 1,302 vehicles, an improvement of 33% over previous fiscal. Swaraj Mazda sale volumes cross the 5000 level mark for the first timeand has made a sales- growth of 27% over previous year as a result the Company`s Profit has increased. Against odd industry condition and performance, Swaraj Mazda has been able to achieved a sale of 1,302 vehicles an improvement of 33% over previous fiscal. The Company introduces the CNG bus in the National Capital Region and also the new `Sartaj` model in the 5 ton range. The happier component of this growth has been the improvement in product-mix as also the wider market segment covered. SML is planning to grow by making structural changes in the industry, meeting the regulatory requirements, privatizing the passenger segment and replacing demand. SML`s is also strategizing to building market share through cost competitive pricing backed by its engineering capability to provide customized product offerings for niche applications like defense and other service sectors. It is also in the process of strengthening its dealer network by activating more dealers so as to increase its presence in the western parts of the country.
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Models of Swaraj Mazda 4 WD BT Swaraj Mazda premium Swaraj Mazda fire fighter Swaraj Mazda prestige Trunks Swaraj Mazda Dual cab
8,309 utility vehicles were sold in April 2004 as compared to 5,971 units during the same period last year registering a 39% yoy growth. Utility vehicle sales included 2,007 units of the Scorpio model compared to 1,604 units last year. It sold 496 LCV units compared to 431 LCV units in April 2003 and 1,540 threewheelers from 833 three-wheeler units in April 2003. The LCV segment showed a 15% growth compared to last year, however the company saw a huge growth in its threewheeler business, which grew by almost 85% yoy.
Tata Motors registered a 57.7% increase yoy in total sales at 24,961 units in April 2004, compared to 15,829 units in the same period last year. The company's sales in the domestic market increased by 60.5% yoy at 24,026 vehicles from 14,966 units in April 2003. Volumes April 2004 April 2003 yoy (%) Domestic 24,026 14,966 60.54 Exports 935 863 8.34 Total 24,961 15,829 57.69
The company exported 935 units in April 2004 as compared to 863 vehicles in April last year, which is an 8.3% yoy growth. CV segment Commercial vehicle sales at 12,050 units compared to 7,037 units in April last year growing by 71.2% yoy. Segment April 2004 April 2003 yoy(%) M/HCV 7,975 4,530 76.05 LCV 4,075 2,507 62.54 Total 12,050 7,037 71.24
Medium and heavy commercial vehicles sales grew by 76.1% yoy at 7,975 units and light commercial vehicle sales showing a growth of 62.5% yoy at 4,075 units.
Passenger cars The passenger car business reported total sales of 11,976 vehicles in the domestic market registering an increase of 51% over April 2003.
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Indica sales recorded a 43.3% growth yoy at 7,251 units, while Indigo sales grew 84.9% yoy at 2,723 units. Utility Vehicles Utility vehicles registered a sale of 2,002 units, showing a 43.4% increase as compared to the same period last year. Sumo sales grew by 48% and Safari sales grew by 16% over the April 2003.
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Best quality materials are used so as to meet the international standards. Automobile Accessories such as Wheel Caps, Car Speakers, Fog Lights, Car Care Products, CAR AC PARTS, Car AC Condenser, Car Cooling Coil, Car AC Hoses, Car Reciver Drier, FLCD Kit and Car Batteries are available in India.
Automobile Finance
The availability of finance at lower interest rates, have made car purchase an affordable option for even young executives. Financing schemes varies from Margin Money Scheme, Installment in advance scheme, stepped schemes and as varying as balloon schemes, No income schemes etc The new schemes available in the market has made it possible for salaried individual to realize their aspirations to won a Car in India, early in Life. Businessmen and professionals can treat the interest amount as a business expense and avail tax deductions against the depreciation of the Car. Companies can also acquire cars for eligible employees without affecting cash flows. The interest amount can be claimed as business expense.
Automobile Insurance
Taking insurance cover for your vehicle is a must especially in Indian roads. There is danger at every corner when it comes to Indian roads. There is always the chance of your brand new vehicle hit by someone who mistakes a highway for space. Insurance can pay for your financial loss. There are various insurance schemes available in India. Major Insurance companies in India offering Auto insurance include The Oriental Insurance Company Ltd and New India Assurance Company.
Automobile Services
This is a section where the buyers and sellers meet. Sellers can place details of their products and buyers can specify details of their requirements in this section .
Auto technology
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The drive is a long one. Or let's put it this way, it's a never-ending driveway. Since the invention of the wheel, man's quest for automotive mobility led him to experiment with various kinds of vehicles. Vehicles that have used diverse technologies to make them function. From the steam - driven engine to the jet propelled aircraft, we sure have come a long way. And of course, besides the shapes, it is the technology behind them that has transfor med the automotive landscape. Different systems like the engine, electrical, cooling etc. combine to make up a vehicle. Each works on disparate principles, yet collectively, it is on them that the perfor mance of the vehicle depends. It would need only one of the many subsystems to dysfunction for the entire automobile to come to a halt. We drive our cars and our bikes, but seldom know the mechanics involved. Here, we give detailed explanations on the different systems and sub-systems that go in the making of an automobile. Read on about those that are being phased out like the carburetor, and those that are talking its place, the fuel injection system.
Auto consumables
What are the constituents that keep your vehicle moving? Is it the wheels, the axle, the engine, what? Of course they do. But what keeps them running? It is actually the fuel that keeps it running. These include fuel, engine oil, and various other lubricants that are responsible to keep a vehicle 'alive'. It won't be an exaggeration to term these as the lifeblood of your favorite automobile. This is why today consumers in all vehicle segments have grown cautious about the quality of fuel and lubricants that they use. Unbranded lubricants and fuel from unauthorized sources is a complete no-no, while big brands are spending extensively on positioning their products as 'guards for your engine'. The environment factor is the latest to hit the market and has forced manufacturers and consumers alike to make and use environment friendly consumables. Same is the case with the other products like battery, tyres etc. which account for the running expense of any vehicle. We present a list of such and other consumables that will aid you in looking after your vehicle .
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Auto Maintenance
Maintenance means taking care of all the parts, even those that are inside the bonnet. These are the ones that directly concern the performance of your vehicle. Besides taking it to the service station at regular periods, it is a good idea to go through the owner's manual that will give a fair idea about its routine maintenance. Checking the battery, keeping a check on the oils, changing the oils, checking the electrical system, are some of the absolutely unavoidable things to keep your vehicle in good shape. Keeping a log book in which you keep all the details regarding repair, maintenance, routine check-ups etc. will not only give you an accurate idea of what needs to be done when. Maintenance is something most of us ignore, until our vehicle stops functioning, which is. And then we wonder what went wrong, where. Maintenance is one of the most serious aspects of ownership. It determines the longevity, performance and reliability of whichever vehicle you drive. Looking after your vehicle involves more than taking care of its external coat of paint and keeping it clean and shiny.
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price barrier, which is very difficult for competition to penetrate. This coupled with governmental support have perhaps been the clinchers for MUL's progress, despite recent competition from the likes of global players like Daewoo, Hyundai, General Motors Ford and the indigenously designed Tata - Indica. However, what auto companies need to do is develop ergonomic products, with slick styling, at an affordable price for the quality conscious Indian market. This can easily be done by commissioning any international design house. Indian auto companies need to take corrective measur es to counter balance the shift in demands from motorcycles to cars. This is where Indian companies which do not have joint ventures with international automotive majors might well lag behind. Especially since, the development of fuel-efficient cars in-house is a long and arduous task, involving huge financial and manpower investments. It is in this department that foreign companies are already miles ahead. Thus one option, which might well become quite popular for Indian auto companies, is the joint venture route with an international major. The projected growth factors in an anticipated export thrust, as product quality and cost efficiencies go up in the auto industry.
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International companies like Hyundai, Honda, Toyota, etc. are gaining market share. Technological up gradation will be primary requisite for success in the market. With the entry of new models, medium sized cars segment is further divided into low prestige and high prestige cars. Customers are upgrading from entry level small cars to sophisticated small cars and from sophisticated small cars to prestige car segment. Stricter Pollution norms are likely to force vehicle manufacturers to adopt latest technology in maintaining emission standards. This is likely to curtail the average life span of vehicle on road while the maintenance cost and the genuine parts consumption per vehicle is expected to increase. Due to free imports local industr y is expected to face increased competition from international automotive companies. With the increasing number of vehicle population the two wheeler owners will have viable option of used cars. The vehicle with higher resale value and good service network is likely to dominate the market.
All the trends derived out of present dynamics of the Indian automotive vehicle market are indicators of internationalization of this market. India has become focus of international growth seeking companies as not only a cost competitive sourcing base but also a growing high potential market. In the near future the competition will be prominent in all the functions of business and only the companies with global standards are likely to survive. Indian manufacturers are gearing up for the challenge but surely the current scenario is apparently in favor of international players. The early movers are likely to secure a position to command the global competition Local market trends
Sales, particularly in the small car segment, will drive passenger car sales in the near term. However, within the next two years, capacity is expected to be twice the total demand for cars.
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With developments in the small car segment acquiring a degree of stability in terms of price competition, the action is shifting to the mid-size car segment. Sales in this segment will pick up as new models come in and income levels rise but it is still some time till it comes anywhere close to the economy sized segment. What will also drive car sales is the wide availability of finance schemes by a variety of banks and FI's. Sales in the used car market is also expected to do well as more and more older models get replaced by newer ones at a faster pace. The coming in of Euro III and IV norms will also increase scrap page rates. In view of expected surplus in the domestic market, India will emerge as one of the leading car sourcing point in the Indian subcontinent. Consumers will be the beneficiaries as a result of marketing war, as they will be offered technologically superior products at better prices and terms and conditions. But the customer has a risk of model discontinuation as a result of shake-out expected in the industry.
International trend
The global automotive car market is growing at a rate of only 2% per annum and is not expected to pick up in the near term. Growth has dropped due to the increasing levels of saturation in the larger car markets of the world. Worldwide the trend is towards ensuring that one's products are superior in terms of quality. This will enhance the useful life of cars and, hence, slow down growth in sales. The South-East Asian crises has been a dampener to the collective fortunes of various carmakers worldwide. According to EIU estimates, some countries in the region have witnessed cumulative falls of 70% this year. In Indonesia record sales 85
reported in 1997 are not expected to be matched until 2005. In Malaysia it is expected to be 2003 before peak sales and production volumes are repeated and in the Philippines the market will take seven years to recover. In Thailand, the market for cars and commercial vehicles is expected to fall from almost 600,000 units per year to 125,000 this year.
The global domination of the larger automotive manufacturers is slowly on the wane and the trend in sales is shifting towards more "regio-centric" products. Automakers that have been enjoying a generally prosperous spell would have to rethink on the way vehicles are designed, manufactured, distributed or sold. Already, players like GM, Volkswagen and Toyota have begun to re-examine their dealer relationships and pricing strategies. Carmakers would now have to think in terms of a new customer focus and provide better financing and servicing. Strategic tie-ups, mergers and acquisitions have become the order of the day. A few instances are Daimler Benz's tie-up with Chrysler of the US, Ford's acquiring of Daewoo and tie up with Volvo Car Corporation and Renault acquiring a stake in Nissan. Such deals would certainly lead to economy in terms of costs but it remains to be seen whether they will also create significant new opportunities for growth.
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OEM Own Design and Manufacture (ODM) Strategic partnership for technology Overseas acquisition equity
These are the ten entry strategies for positioning a countr y. It could be through joint ventures, FDI, marketing network, licensing arrangement, sub-contracting or even by infor mal means (training, hiring and returnees). It is generally agreed that a countrys pattern of participation in international trade is determined to a large extent by its resource endowments and the efficiency with which resources are utilized. OEM and ODM contracts occur based on the resource endowments of the countries. It is possible to establish virtuous circle between investment, exports and growth by investing in sectors with significant productivity and market potential, and using the export proceeds to finance imports of capital goods and intermediate inputs required for further productivity increases.
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MICO is India's largest auto-ancillar y company. German-based Robert Bosch group hold 60.5% after the company brought back its shares in February 2002. The company is the pioneer of automotive Spark Plugs and Diesel Fuel Injection Equipment
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in India. It had been bearing the brunt of the recession in the tractor and commercial vehicle (CV) segment in the past few years. However the, sharp recovery in sales of CV in FY 2002 has compensated for the continued fall in tractor sales. For the full year ended Dec. 2002, the company had registered a growth of 7% in sales to Rs 1550.71 crore. This was achieved mainly due to the better performance in the quarter ended June 2002 and Sept. 2002. Net profit after adjusting for EO expenses rose 64% stood at Rs 134.06 crore. Very recently, Andreas Nobis, managing director of the company has taken over new responsibility in Robert Bosch GmbH with effect from 1 May 2003 to oversee the recent acquisition and integration of Buderus AG and hence could not attend the AGM. Robert Bosch has entered into an agreement to buy 30.2% of the share capital of Buderus AG in addition to 17% already held by the company. The successor to Andreas Nobis is expected to be known at a later date. MICO registered a 104% jump in bottom line to Rs 52.29 crore for the first quarter ended March 2003. Net sales during the quarter rose 17% to 432.08 crore. In continuation of the strategy to boost exports, focused efforts were made to get additional business from Robert Bosch, Germany. This led to a significant 29% growth in exports during the year, accounting for 16% of total turnover. From this, MICO expects to touch 20% in three years. Its spark plug business is growing in the US and expects an increase in turnover from new products, from the common rail system and the Electronic control units, which are based on the Euro II norms and potential navigation systems from Blaupunkt. The Union Budget 2003-04 is also positive for the sector as it has increased its thrust on infrastructure (especially roadway) projects, which is sure to usher in increased demand for the CV sector especially in the multi-axle segment.
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increase of 21% and 14% respectively. This, together with a steady 4 the Company to post the 7% growth in sales for the entire year.
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quarter, enabled
Sales to OEMs, which constitute near ly 45% of the total sales, increased by 6.8%. This growth was mainly due to increase in volumes of Multi Cylinder Pumps, Nozzle Holder Assemblies, Starters and Alternators. The general decline in the service business of the transport sector led to a fall in demand for fuel injection components in the Aftermarket. In spite of all counter measures, overall sales in this area declined by 3.6% as compared to 2001. In continuation of our strategy to boost exports, focused efforts were made to get additional business from Robert Bosch, Germany. This has led to a significant 29% growth in exports during the year, accounting for 16% of total turnover. The non-automotive businesses comprising of Power Tools and Packaging Machines, grew by 18% due to a strategic marketing thrust and introduction of new products such as "Marble Cutters" and "Terra 25" packaging machines. Cost cutting has now become integral to staying competitive. During the year, cost reduction measures such as strict control on additions to fixed assets, programs for rationalization and reduction of asset base, reduction in material cost through import substitution, rationalization of supplier base, improvement in labour productivity, budgetary control on overheads, etc. were further intensified. This has significantly contributed to an improvement in operational efficiency. As a result of growth in sales accompanied by the various cost reduction initiatives, the Profit Before Tax increased by more than 50% and stood at Rs. 200.5 crore. The Profit After Tax also increased by more than 60%. After taking into account the proposed dividend and transfer to capital redemption reserve, an amount of Rs. 90 crore is proposed to be transferred to general reserve, retaining a balance of Rs. 29.3 crore in the Profit & Loss Account. In 2002, the investments in fixed assets amounted to Rs. 94 crore, accounting for 6.1% of sales, as compared to Rs. 1,13.3 crore in 2001, which accounted for 7.8% of sales. 94% of the total investments made in 2002 are in Plant and Machinery. Of this 34% is for new products, 26% for quality improvement, 9% for R&D activities and the balance 31% for auxiliar y and other services.
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initiatives to counter the adverse impact of the rise in input costs and to maintain its profitability. In the automotive aftermarket the focus areas include aggressive marketing and promotional initiatives to increase sales turnover, strengthening of 4-wheeler dealer network, increasing the number of 2-wheeler dealers, expanding the product range through introduction of Bosch branded products and further intensification of antispurious activities. Exports continue to be a strategic thrust area for the Company. Continuous and vigorous efforts are being made to increase the share of exports to 20% of the overall sales turnover of the Company by 2005. This would mean that the Company must be in a position to continuously offer state-of-the-art products of international quality at a competitive price. In the Power tools business, our focus will be on gaining additional market share through expansion of product range, superior service levels and offering value for money products. In the Packaging machines business, the Company plans to further consolidate its position after the successful launch of "Terra 25" packaging machine.
The most it can do is generate interest in the product or create a buzz around it. Take the case of Maruti Versa, which was launched amidst a lot of fanfare about three years ago. In spite of Maruti signing up superstar Amitabh Bachchan and his son Abhishek Bachchan as brand ambassadors for Versa, the brands sales remained sluggish. To be fair, the Big B magic did work and the ads created significant interest, drawing people into the showroom. But perhaps the positioning itself was faulty as people were expecting a larger than life car, just like the brands ambassador. Last year, we saw Versa being repositioned as a family car, with the core proposition being, the joy of travelling together. In the words of Ravi Bhatia, General Manager of Marketing at Maruti, Versa has started doing well and has witnessed an upswing since the new positioning. Last year, the average sales were 80-100 vehicles a month. Now they are selling 450 vehicles a month.
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A company cannot sell an ordinary product just by making a celebrity endorse it. In fact, if anything, the product will fail faster because the presence of the celebrity will create a buzz and more people will know about the ordinariness of the product. Unfortunately using a celebrity seems to be the easy way out of a parity product situation. Sachin Tendulkars endorsement of Fiat Palio was quite a success initially. But as word about the poor fuel efficiency of Palio spread, its sales took a beating. In this case, Sachins presence couldve worked wonders but for the poor performance of the car in a market that is highly performance conscious.
Key Positives
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Increasing affluence of the Indian middle class and introduction of better quality cars has led to strong growth in the industr y in terms of both market size and production capacities. Exports buoyancy: On account of its low cost technical manpower and ever increasing focus on quality, the auto industry has emerged as an export hub, especially for the compact car segment. Exports of passenger cars from the country have increased at a healthy CAGR of nearly 38% during the past five years and increasingly more and more auto majors are lining up to set up their production bases in the countr y. Infrastructure thrust: Improvement in road infrastructure has led to increased movement of goods through roadways. Close to 65% of all the goods movement in the country takes place by roads as opposed to 55% a decade ago. Also, owing to the fact that an estimated 39% of CVs plying on the roads are 10 years old, demand for HCVs is expected to grow by a robust rate in the long ter m. Low interest rate regime: Close to 80% of the new cars being purchased in the country are financed, thus underlying the importance of a low interest rate regime to the fortunes of the industry. Given that interest rates are unlikely to rise at a rapid rate in the future, we expect the buoyancy in auto sales to continue over the medium to long term. Environment led benefits: Any implementation of pollution nor ms in metros, whereby vehicles beyond certain age need to be phased out could further translate into higher volume growth for all vehicles, courtesy the replacement demand
Key Negatives
Concerning income growth: The per capita income in the country has been growing at a slow rate. Since the auto industry growth has a strong correlation with the same, the
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momentum has to continue to ensure robust automobiles demand. Reforms need to be accelerated. Competition from imports: With India coming under the WTO purview, competition is expected to rise multifold. Indian companies also have to contend with imports in the future. Already a number of companies are introducing vehicles in the CKD route. Taxation anomalies: Duties on some select and key raw materials including steel and components are still pretty high and are thus hurting profit margins of the companies. Also, multiple tax rules that exist in different states are eroding the comparative advantage of a large domestic market thus making it important to implement VAT (Value Added Tax) as soon as possible.
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Emission norms, infrastructure development, economic growth and low interest rates are causing change in dynamics.
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The future of manufacturing in India, including the automobile sector, would undoubtedly be affected by the outcome of the Non-Agricultural Market Access (Nama) discussions. The challenge is to get an agreement that would make India a value-adding automotive and manufacturing hub. The manufacturing sector is going through a period of revival, growth and investment. The automobile sector is set to grow from a projected 7.5 million this year to over 10m in the year 2007. Investment in this sector is over Rs 65,000 crore. The turnover of the component industry is set to double over the current level of Rs 25,000 crore. By 2012, their combined output would exceed Rs 2,00,000 crore. Indian industry has been able to acquire, assimilate and develop technology. It is this capability, production capacity, value addition and employment potential that should be kept in mind during trade negotiations. For some sectors, including the automotive sector, the treatment for completely built products and SKD kits would be critical.
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The passenger car segment has continued to report a strong 30%+ growth in the first month of FY04, partly due to low base effect. The transporters strike had impacted volumes in April 2003. The car segment is likely to grow by 20-22% during the current year. Commercial vehicle segment is expected to grow at a higher pace on the low base of the previous year and accelerated GDP growth in the current year. Growth in the short ter m is likely to be higher following increased consumer spending (improved economic performance) and launch of new models. The midsize segment is expected to record the highest growth followed by the premium and economy segments. In the economy and medium segments, it is estimated that total capacity is expected to more or less match the expected demand by 2003-04. The premium segment of the industr y is however expected to witness acute over-capacity. The premium segment is likely to emerge as the largest segment over the very long term as people graduate to more expensive models. In the meantime, exports are also expected to increase because of over capacity in the domestic car industry and the Government's policy to bring about a more liberal regime on the foreign exchange front. It is worth mentioning that the car production capacity has increased significantly in the last three years.
The industry will witness substantial over capacity in the next few years unless there is a substantial spurt in sales. If not, Low capacity utilization will lead to an inevitable marketing war between the car manufacturers which is most likely to lead to a shake out which will see some of today's major players withdrawing from particular segments in the coming years. Consumer will however continue to remain the KING. The prospective buyer will be the main beneficiary of the marketing war in the industry not only in terms of prices but also better technology. There is always a fear of the shakeout eating into your favourite brand you own, for example discontinuation of a model. India would have the largest young population of the world in next 20 years - If India is to achieve a sustainable 7-8% GDP growth and 9-10% growth of industrial production,
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we should have 50 million people every year moving up from middle class to upper middle class. This defines the future vehicle owners of the countr y. Based on SIAM analysis, it is estimated that we should have a healthy growth of sales (including exports) in the automobile sector in 2004-05. Segment wise growth expectations, provided the Government takes necessary steps that promote growth are: Passenger vehicles : 10 15% Commercial vehicles : 12 15% Two wheelers : 10 15% Three wheelers : 10 15%
Ending the briefing on an optimistic note, Mr Khattar concluded that the passenger vehicle manufacturers would easily cross a domestic sale of one million vehicles during the year excluding exports. However, the real challenge before the Indian automobile industr y is to catch up with China which was at par with us till recently and currently aspiring to be the third largest market in the world. With current penetration level of six cars per thousand people, the potential for growth is significant. In view of a couple of positive measures such as the excise duty exemption on tractors and 150% deduction on R&D expenditure, we remain positive on the future prospects of the industry. Also, with government pressing for improvement in road infrastructure, the position of railways as the main carriers of goods such as food grains and cement has come under significant threat. Since most manufacturers have a technology tie-up with a foreign major, the incentive to do R&D with the Indian counterpart has increased. Since operating margins of auto majors have increased over the last three years, significant further improvement from the current level is limited and to that extent, we remain cautious.
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Firstly, the international car market is growing by around 2% pa and this set to continue for the next few years. This slow down is due to the increasing level of saturation in the largest car markets of the world. Analysts from EIUstate that this saturation level may even translate into negative growth, given the recent trend of carmakers to opt for quality components which will increase the vehicles useful life. Secondly, the South-East Asian crises has been a dampener to the collective fortunes of various carmakers worldwide. According to EIU estimates, some countries in the region have witnessed cumulative falls of 70% this year. In Indonesia record sales reported in 1997 are not expected to be matched until 2005. In Malaysia it is expected to be 2003 before peak sales and production volumes are repeated and in the Philippines the market will take seven years to recover. In Thailand, the market for cars and commercial vehicles is expected to fall from almost 600,000 units per year to 125,000 this year. Thirdly, the global domination by the large automotive players has slowly abated with local manufacturers getting hold over the market. Japan, Western Europe and the North American Free-Trade Agreement area comprising USA, Mexico and Canada are expected to account for 71% of the global park by 2005, down from almost 77% at the start of the 1990s. This has come about, as the concept of "regio-centric" cars is becoming popular.
11.3: Conclusion
Automobiles have become an indispensable part of our lives, an extension of the human body that provides us faster, cheaper and more convenient mobility every passing day.
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Behind this better ment go the efforts of those in the industry, in the form of improvement through technological research. What actually lie behind this betterment of the automobiles are the opinions, requirements, likes and dislikes of those who use these vehicles. These wheeled machines affect our lives in ways more than one. Numerous surveys and research are conducted throughout the world every now and then to reveal one or the other aspect of automobiles, be it about the pollution caused due to vehicle population in cities, or rising motor accidents and causes, vehicular technology, alternative medicine and so on. This section keeps you updated on the latest and the most interesting researches conducted in the field of automobiles, and help you draw the right conclusion.
Bibliography
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Websites www.altavista.com www.askjeeva.com www.google.com www.aol.com www.hindustan.com www.projecthubs.com www.indiainfoline.com Newspapers Times of India The Economic Times
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