ENTRY LEVEL CAR INDUSTRY by KRISHNADEV S S

ASSIGNMENT ON
ENTRY LEVEL CAR INDUSTRY





SUBMITTED BY
KRISHNADEV S S
First year MBA







Overview
India, in auto sector, is turning to be a sourcing base for the global auto majors. The passenger car and the motorcycle segment is set to grow by 8- Facts & Figures 9 percent in coming couple of years, says the ICRA report. The industry is likely to maintain the growth momentum picked up in 2002-03.

The ICRA's analysis points on the auto sector that the passenger car market in the country was inching towards cars with higher displacements. The sports-utility-vehicle (SUV) that was getting crowded everyday, would witness intense competition as many SUVs had been competitively priced. Honda, Suzuki, General Motors and Hyundai, the global automakers had already launched their premium SUVs in the market to broaden their portfolio and create product excitement in the segment estimated at about 10,000 units annually.
HISTORY
The dawn of automobile actually goes back to 4000 years when the first wheel was used for transportation in India. In the beginning of 15th century Portuguese arrived in China and the interaction of the two cultures led to a variety of new technologies, including the creation of a wheel that turned under its own power. By 1600s small steam-powered engine models was developed, but it took another century before a full-sized engine-powered vehicle was created
All over the world, performance of the automobile industry, especially the passenger car segment, is considered as an index of economic development. In terms of importance it is next only to housing sector. This is mainly due to the fact that these two products are the highest value purchases a typical middle income household and above prefer to own. India is no exception to this, since the middle income population is one of the largest in the world. Automobile industry has strong linkages, both forward and backward, to other major industries, such as, iron and steel, aluminum, tire, etc.
The auto mobile industry has changed the way people live and work. The earliest of modern cars was manufactured in the year 1895. Shortly the first appearance of the car followed in India. As the century tr uned, 3 cars were imported in Mumbai. Within decade there were 1025 cars in the city .

MAJ0R INDUSTRY PLAYERS
The worldwide automobile industry is largely dominated by five leading automobile manufacturing corporations namely Toyota, general motors, Ford Motor Company, Volkswagen AG, and Daimler Chrysler. These corporations have their presence in almost every country and they continue to invest into production facilities in emerging markets namely Latin America, Middle East, Eastern Europe, China, Malaysia and other markets in Southeast Asia with the main aim of reducing their production costs.

Global Automobiles and Components % Share,
• General Motors - 10.10
• Toyota - 7.90 %
• Ford - 7.70 %
• Others - 74.30 %


• Maruti Udyog is the leading player in the Indian passenger vehicle market with a 55 percent market 2008 with sales of 423,353 units, see table 23. It continued to remain the market leader in the mini segment share in sales of its entry-level Maruti 800 growing by 17 percent.
• Tata Motors with a market share of 19 percent in 2006 - 07, gained 1 percent market share.
• Hyundai Motors India with a 14 percent.
• Mahindra & Mahindra with 10 percent market share are other leading players
At present India is the world’s:
• Seventh tractor and three-wheel vehicle producer.
• Second largest two-wheel vehicle producer.
• Fourth largest commercial vehicle producer.
• Eleventh largest passenger car producer.
BUSINESS GROWTH
Production:
According to the Society of Indian Automobile Manufacturers, the Indian automobile industry has reached double-digit growth for the past three years in a row. In 2008, the industry produced 10.9 million vehicles, an increase of 16.22% over 2007. In 2005, production grew 14.5% over the previous year. The production of the automotive industry is expected to achieve a growth rate of over 20 per cent in 2006-07 and about 15 per cent in 2007-08.

Exports:
The cumulative annual growth rate of automotive exports during the period 2000-01 to 2005-06 was 32.92 per cent. Exports during 2006-2006 and 2007-2008 are expected to grow over 20 per cent.

Imports:
Europe is the biggest importer of cars from India, while African nations largely account for the import of buses and trucks. China is most recently making inroads into this market. The South-East Asian region is the prime destination for Indian two wheelers.

Sales:
Passenger Vehicles: Growth in sales of passenger vehicles was 18.45% in 2006. This was almost three times the growth witnessed in 2005. Sale of passenger cars expanded by 20.0%. Export of passenger vehicles increased by 12.9% Utility Vehicles: 12.4% .Two-wheelers, commercial vehicles and three-wheelers: Export growth at a rate of 24%.
Auto Components:
Industry grew by over 28 percent between 1995 and 1998, and has been sustaining double digit growth, clocking 16 percent in 2004-05, and 15 percent in 2005-06. The Indian auto component industry is quite comprehensive with around 500 firms in the organized sector producing practically all automotive components; there are more than 10,000 firms total. India’s component industry now has the capability to manufacture the entire range of auto-components, for example, engine parts, drive, transmission parts, suspension and braking parts, electrical, body and chassis parts, equipment, etc


The Industry's Challenge:
Even though the automotive industry is robust, car manufacturers are complaining that the government's frequent change in policies is not encouraging the industry. Changing the policies and guidelines frequently severely hurts the companies’ plans. It also affects investment decisions.
Commercial vehicles segment grew at 10.1 per cent with 3, 50,683 units against 3, 18,430 units in 2004-05. The two-wheeler market grew by 13.6 per cent with 70, 56,317 units against 62, 09,765 units in 2004-05. Car sales was 8, 82,094 units against 8, 20,179 units in 2007-08.
Indian Auto Market Growth for the year 2007-08
The domestic automobile industry sales grew 12.8 per cent at 89,10,224 units as against 78,97,629 units in 2006-07. The automotive industry crossed a landmark with total vehicle production of 10 million units. According to the Society of Indian Automobile Manufacturers (SIAM), car sales was 8,82,094 units against 8,20,179 units in 2004-05. The growth of domestic passenger car market was 7.5 per cent Car exports stood at 1,70,193 units against 1,60,670 units in 2004-05. The two-wheeler segment, the market grew by 13.6 per cent with 70,56,317 units against 62,09,765 units in 2004-05. Motorcycles had the upward march, 17.1 per cent in domestic market touching 58,15,417 units against 49,64,753 units in 2004-05. Scooter segment grew by 1.5 per cent, fall at 9,08,159 units against 9,22,428 units in 2004-05. Commercial vehicles segment grew at 10.1 per cent with 3,50,683 units against 3,18,430 units in 2004-05. Medium and heavy commercial vehicles managed a growth of 4.5 per cent against 23 per cent growth in the year ended March 31, 2005. Light commercial vehicles sales growth was 19.4 per cent at 1,43,237 units against 1,19,924 units in 2004-05. Three-wheelers sales rose by 17 per cent at 3,60,187 units against 3,07,862 units in 2004-05.




Auto Component Market
The Indian auto parts industry is significantly fragmented with a large number of players having a turnover of less than US$10 million per year. The industry directly employs about 2, 50,000 people and has an annual turnover over US$ 56.3 billion.
Estimated market size - US$ 6.7 bn and market size by 2012 - US$ 17 bn.
Nearly two-thirds of the auto component production is consumed directly by Original Equipment Manufacturers (OEMs).


Market Advantage
 Fast paced urbanisation to rise from 28% to 40% by 2020.
 Upward migration of household income levels.
 Middle class expanding by 30-40 million every year.
 Growing working population.
By 2010, India is expected to witness over Rs 30,000 crore of investment.
 Maruti Udyog has set up the second car with an investment of Rs 6,500 crore.
 Hyundai will bring in more than Rs 3,800 crore to India.
 Tata Motors will be investing Rs 2,000 crore in its small car project.
 General Motors will be investing Rs 100 crore and Ford about Rs 350.








Future Plans:

The Government has prepared a ten-year Automotive Mission Plan (AMP) to draw a future plan of action and remove obstacles in the way of competition, such as that required infrastructure be put in place well in time to alleviate its constraining impact on the growth.

The plan envisages a tax holiday for the industry on investments exceeding $225,000, 100% tax deductions of export profits, and deductions of 50% on foreign-exchange earnings. It also calls for a one-stop clearance for foreign-direct-investment proposals in the sector and deductions of 30% of net income for 10 years for new industrial undertakings.

To bring down the cost of power and fuel, which accounts for 6% of the manufacturing costs in the auto sector, captive power generation would be encouraged to enable industries to access reliable, quality and cost-effective power.
The automotive industry is witnessing tremendous and unprecedented changes these days. This industry is slowly and gradually shifting towards Asian countries, mainly because of saturation of automobile industry in the western world. The principal driving markets for Asian automotive industry are China, India and ASEAN nations.

Low cost vehicles namely scooters, motorcycles, mopeds and bicycles have led to the massive growth of some of the fastest developing economies like China and India. The future of automotive industry in the Asian countries such as Thailand, Philippines, Indonesia, and Malaysia is bright and promising because of the ASEAN free trade area under which the export tariffs are very less.



On a global scale, the assets of the top ten automotive corporations accounts for 28% of the assets of the world's top 50 companies, 29% of their employment and 30% of their total sales. In the year 2006, the United States of America sold around 16 million of new automobiles. Western Europe sold around 15 million, while China and India sold 4 million and one million respectively. Latin America, Middle East, Eastern Europe, China, Malaysia and other South-Asian nations are now emerging as the dominant markets of the automotive industry.

Most of the major automotive players are shifting their production facilities in these emerging markets with the main purpose of gaining better access and reduction in their production costs. There is estimation that the automotive markets in South America and Asia will witness a boom in the near future. The various factors such as cheap financing and prices discounts, rising income levels and infrastructure developments will assist in the growth and development of automotive sector in the majority of Asian nations.