Indian Automotive Industry: at The Crossroads: Occasional Paper No. 129

Indian Automotive Industry:
At the Crossroads
Occasional Paper No. 129
EXIM BANK
EXPORT-IMPORT BANK OF INDIA
OCCASIONAL PAPER NO. 129
INDIAN AUTOMOTIVE INDUSTRY :

AT THE CROSSROADS
EXIM Banks Occasional Paper Series is an attempt to disseminate the findings of

research studies carried out in the Bank. The results of research studies can interest
exporters, policy makers, industrialists, export promotion agencies as well as
researchers. However, views expressed do not necessarily reflect those of the
Bank. While reasonable care has been taken to ensure authenticity of information and
data, EXIM Bank accepts no responsibility for authenticity, accuracy or completeness of
such items.
Export-Import Bank of India
Published by Quest Publications
December 2008
CONTENTS
Page No.
List of Tables
List of Exhibits
List of Boxes
11
Executive Summary
13
1.
Introduction
39
2.
Global Scenario
42
3.
Select Trends In Global Automotive Industry
74
4.
The Indian Scenario
84
5.
Indias Exports of Automobiles & Auto-Components
99
6.
Export Competitiveness of Indian Automotive Industry
114
7.
Challenges and Strategies
126
Project Team:
Mr. S. Prahalathan, General Manager
Mr. Rahul Mazumdar, Manager
List of Tables
Table
No.
Title
Pg. No.
1.
Leading Countries Investing in Automobile Industry (2007)
48
2.
Export of Select Automobiles From USA
51
3.
Export of Select Automobiles from Japan
52
4.
Export of Select Automobiles from Canada
53
5.
Export of Select Automobiles from South Korea
55
6.
Export of Select Automobiles from China
56
7.
Export of Select Automobiles from Germany
58
8.
Export of Select Automobiles from Mexico
60
9.
Category-wise Exports of Automobiles in the World
60
10. Category-wise World Export of Auto-Components
66
11. Top Ten Low-Cost Eco-Friendly Cars
75
12. Category-wise Production of Automobiles in India
88
13. Category-wise Sales of Automobiles in India
89
14. Classification of Major Auto-Components Produced in India
95
15. Category-wise Exports of Indian Automobiles
100
16. Export of Select Automobiles in Value-terms from India
101
17. Export of Select Auto-Components in Value-terms from India
107
18. Indicators of Competitiveness of Automobile Exports to Africa
118
19. The African Market for Select Automobiles
118
20. Indicators of Competitiveness of Automobile Exports to

Latin America
120
21. The Latin American Market for Select Automobiles
121
22. Indicators of Competitiveness of Automobile Exports to Asia
122
23. The Asian Market for Select Automobiles
123
24. Indicators of Competitiveness of Auto-Components Exports to USA
124
25. Indicators of Competitiveness of Auto-Components Exports

to Europe
125
26. Changes in Prices of Select Inputs
126
27. Indias Import and Export of Auto Components
130
List of Exhibits
Exhibit
No.
Title
Pg.
No.
1.
Trends Between Indias PFCE and Automobile Sales
41
2.
Product-wise Share in World Production of Automobiles (2007)
44
3.
Trends in Global Production of Automobiles
45
4.
Percentage Change in Global Automobile Production (2000-2007)
45
5.
Country-wise Share in Global Vehicle Production for the Year 2007
46
6.
Top Ten Countries Production of Motor Vehicles in 2007
47
7.
Share of Countries in Investments made in the

Automobile Industry (2007)
48
8.
Regionwise Share in World Export of Automotive Products (2007)
49
9.
Productwise Production of Automobiles in USA (2007)
51
10.
Productwise Production of Automobiles in Japan (2007)
52
11.
Productwise Production of Automobiles in Canada (2007)
54
12.
Productwise Production of Automobiles in South Korea (2007)
55
13.
Productwise Production of Automobiles in China (2007)
56
14.
Productwise Production of Automobiles in Germany (2007)
58
15.
Productwise Production of Automobiles in Mexico (2007)
59
16.
Export of Tractors in the World HS Code 8701
61
17.
Export of Public Transport Type Passenger Vehicles in the World

HS Code 8702
62
18.
Export of Motor Cars and Motor Vehicles in the World

HS Code 8703
63
19.
Export of Motor Vehicles for Transport of Goods in the World

HS Code 8704
63
20.
Export of Special Purpose Motor Vehicles in the World

HS Code 8705
64
21.
Export of Motorcycles (Including Mopeds) and Cycles in the

World HS Code 8711
64
22.
Exports of Gear Boxes in the World HS Code 870840
67
23.
Exports of Brake Systems and Parts for Motor Vehicles in the

World HS Code 870839
68
24.
Exports of Road Wheels & Parts & Accessories thereof in the

World HS Code 870870
68
Exhibit
No.
Title
Pg.
No.
25.
Exports of Clutches & Parts Thereof in the World

HD Code 870893
69
26.
Exports of Non-Driving Axles & Parts Thereof in the World

HS Code 870860
70
27.
Exports of Drive Axles in the World HS Code 870850
70
28.
Exports of Bumpers and Parts Thereof in the World

HS Code 870810
71
29.
Exports of Suspension Shock Absorbers in the World

HS Code 870880
72
30.
Exports of Radiators in the World HS Code 870891
72
31.
Category-wise Share in Automobile Production in India (2007-08)
86
32.
Production Trend in Indian Automobile Industry
87
33.
Trends in Domestic Sales of Vehicles in India
89
34.
Trends in Production, Domestic Sales, and Exports of

Automobiles in India
90
35.
Automobiles Exports as a Percentage of Production in India

(Volume Terms)
91
36.
Trends in Production, Domestic Sales and Exports of

Commercial Vehicles in India
92
37.

Passenger Vehicles in India
92
38.
Trends in Production, Domestic Sales and Exports of

Two Wheelers in India
93
39.

Three Wheelers in India
93
40.
Segment-wise Share in Production of Auto-Components in India
95
41.
Turnover of Auto-Components in India
96
42.
Investments in the Auto-Components Sector in India
96
43.
Trends in Export Orientation of Indian Auto Components Industry
97
44.
Export Orientation of the Indian Automobile Sector
99
45.
Category-wise Share in Vehicle Exports in India (2007-08)
100
46.
Exports of Tractors from India (2007-08) (HS Code 8701)
102
47.
Exports of Public-Transport Type passenger Motor Vehicles

from India (Hs Code 8702) (2007 08)
102
Exhibit
No.
Title
Pg.
No.
48.
Exports of Motor Cars & Other Motor Vehicles from India (2007-08)
(HS Code 8703)
103
49.
Exports of Motor Vehicles for Transport of Goods from India

(HS Code 8704) (2007-08)
104
50.
Exports of Special Purpose Motor Vehicles from India

(HS Code 8705) (2007-08)
104
51.
Motorcycles (Including Mopeds) and Cycles Fitted with an

Auxiliary Motor, with or without Side-cars from India
(HS Code 8711) (2007-08)
105
52.
Trends in Exports of Indian Auto-Components
106
53.
Region-wise Break-up of Exports to OEMs and Tier I Suppliers by

India (2007-08)
106
54.
Export of Bumpers and Parts Thereof by India

HS Code 870810 (2007-08)
108
55.
Export of Other Parts & Accessories of Bodies by India HS Code 870829 (2007-08)
108
56.
Export of Other Brakes and Servo-Brakes and Parts Thereof

by India - HS Code 870839 (2007-08)
109
57.
Export of Gear Boxes by India HS Code 870840 (2007-08)
110
58.
Export of Drive Axles by India HS Code 870850
110
59.
Export of Non drive Axles by India HS Code 870860
111
60.
Export of Road Wheels & Parts & Accessories Thereof by India

HS Code 870870 (2007-08)
111
61.
Export of Radiators by India HS Code 870891 (2007-08)
112
62.
Export of Suspension Shock Absorbers by India HS Code 870880 (2007-08)
112
63.
Growth Comparison of the Indian Automobile Industry vis--vis

the World
114
64.
Trends in Deployment of Gross Bank Credit to Automotive Sector

in India
129
65.
Changing Workforce Population Between 2005 and 2025
134
List of Boxes
Box
No.
Title
Pg.
No.
Hybrid Vehicles Around Us
77
2.
Future Steel Vehicle Programme
78
3.
European Regulatory Framework on Recycling
81
4.
Indicators of International Competitiveness
116
5.
Hybrid Vehicles
136
6.
Kaizen Philosophy
138
7.
EU Directive 2000/53/EC on End-of-Life Vehicles
140
11
EXECUTIVE SUMMARY
INTRODUCTION
The automotive industry is
increasingly becoming the cynosure
of the manufacturing sector across
the globe. The attention and
importance to the automotive
industry
in
the
economic
development and planning policies
of Government and its agencies
has also witnessed significant
uprise. The industry has been
evolving over the years, meeting up
with challenges as diverse as
transitions, consolidations and
restructuring, and thereby adapting
to the new market conditions.
In the last few years, the world
automotive industry has changed its
locational preferences due to various
reasons. Earlier, the automotive
industry was largely confined to the
triad - North America, Europe and
Japan; however, with the emergence
of some vibrant developing
economies, like Brazil, India and
China, the global automotive industry
has been considering a different
growth perspective, and has been
relocating the operations. These
growing developing economies has
been evolving as the manufacturing
hub, as also the newfound markets,
for the global majors like Ford,
General Motors, Chrysler, Toyota,

Honda, Nissan and BMW, who are
competing to enhance their market
share in these markets. Increasing
growth in GDP and the growing
disposable income has catapulted
these emerging economies as
market for automotives, while the low
cost of operations and skills in design
and R&D made them as destinations
for investment and manufacturing
operations.
The entry of global auto-majors
into India has significantly altered the
automobile-manufacturing scenario
in the country. The changes in design
and adaptation of international
technologies have enabled the
Indian automotive industry to
compete globally, and thus are also
exposed to global challenges.
Alongside the challenges, the trend
also presents a plethora of
opportunities to Indian automotive
industry, which needs to be
capitalized, so as to emerge as a
successful global player.
GLOBAL SCENARIO
Global Automobile Industry
In the initial years, most of the
manufacturing activities were
concentrated in the USA and in some
13
of the European countries. Though,

these countries still account for a
significant share in the production,
more and more volume of production
comes from other parts of the world,
like China, Japan and Korea. Around
three-fourths of the global production
is being carried out in top 10
producing countries, in 2007. Of
these, Japan, USA and China,
cumulatively constitute over 40% of
global production.
The
last
decade
has
experienced a growing level of
motorization, as reflected by the
production
of
automobiles.
According
to
International
Organization of Motor Vehicle
Manufacturers (OICA), in the year
2007, the turnover of the world
automotive industry is estimated to
be Euro 2 trillion, with the production
of 73 million vehicles. The
Compounded Annual Growth Rate
(CAGR) of world production of
automobiles during the period 20002007 was a modest 3.82%, while the
annual production growth in the year
2007 was 5.4%, over the previous
year.
According to OICA, Japan is the
largest producer of cars in the world
followed by China, Germany, USA,
South Korea and France. India ranks
9th in the production of cars in the
world ahead of UK, Canada, Russia
and Mexico. USA is the largest
producer of commercial vehicles;
close competitors in production of
commercial vehicles are China,
14
Japan, Canada, Thailand and

Mexico. India ranks 8 th in the
production of commercial vehicles
and is ahead of countries like Brazil,
Germany, France and Turkey.
As per the statistics collated by
World Trade Organisation, global
automotive exports were in the order
of nearly US $ 1.2 trillion in 2007, a
growth of around 17% over the
previous year. The CAGR of world
automotive exports during the
periods 2000-2007 was around 11%.
Region-wise data on export of
automotive products indicate that
Europe is the worlds largest exporter
in the world, with a share of over
55%. In 2000, Europes share in
world exports was about 50%. The
share of automotive products in EUs
total merchandise exports remained
at over 11% in 2007, without much
change from the share witnessed in
the year 2000. A large chunk of
exports is intra Europe constituting
78% of total in 2007. Asia exported
automotive products valued at
around US $ 265 billion in 2007.
Asias share in world automotive
exports has increased from 19.9%
in 2000 to 22% in 2007. The Asian
market has largely been dominated
by Japan with exports worth US $
159 billion in 2007. Though the share
of Japan in world exports have been
around 13% in 2007, the share has
decreased from 15.3% witnessed in
2000. North Americas export of
automotive products was worth at
around US $ 220 billion in 2007, with
a share of around 19%.
In terms of imports, EU, as a

bloc, was one of the largest importers
of automotive products in the world
with a share of almost 46% in the
year 2007, with import in value terms
being US $ 543 billion. In terms of
individual countries, USA was the
largest importer with a share of
around 19%, valued at US$ 221
billion, in 2007, followed by Canada,
at a distant second position, with
imports worth US $ 67 billion, and a
share of 5.6%. Other top importers
of automotive products were Mexico
(2.5%), China (2.0%), Australia
(1.6%) and Japan (1.3%).
Global Auto-Components
Industry
The trends in auto-components
industry are dependent on the
trends in the automobile industry,
as the original equipment
manufacturers are the principal
customers for the auto components
industry. Though there is a
replacement market as well, the
trends in automobiles industry still
influences the growth of autocomponents industry. Since
automobile industry is more
concentrated in developed parts of
the world, like US, Europe and
Japan, the market for auto
components is also concentrated in
these countries. It is estimated that
there are around 2500-3000 tier-I
suppliers in the world, who account
for more than 80% of the total
value of production.
The global auto components

industry is in the process of
undergoing a structural change.
Industry is being influenced by
strategies of OEMs, globalization,
business and technology trends. In
addition, the auto components
industry is faced with rising input
costs. Hence, there is a shift
occurring in the industry with more
and more companies moving to low
cost destinations, so as to be cost
efficient. Due to this trend, countries
like China, India and Thailand stand
to gain significantly. Several global
players have already established
their bases in these countries while
the local companies are also
upgrading themselves to face the
competition.
Auto-component industry is also
witnessing mergers and acquisition
trends. The large sized companies
are acquiring small sized companies
to grow even bigger as global
presence is of extreme importance
in this industry. There is a
consolidation wave sweeping across
the countries; most of the companies
are hiving-off their peripheral
businesses and concentrating on
their core business. There is also a
change in trend with more and more
companies becoming as system
integrators rather than being mere
suppliers.
The size of world auto
components industry has grown in
the last few years principally due to
growth in automobile market and
15
replacement market. However, the

major portion of components
production is meant to cater to the
demand of OEMs and only a small
portion goes towards replacement
market.
SELECT TRENDS IN GLOBAL

AUTOMOTIVE INDUSTRY
Addressing the Challenge of
Volatility in Fuel Prices
One of the major challenges of the
world automotive industry is the
volatile oil prices. The year 2008
witnessed crude oil prices
breaching the US $ 140 mark per
barrel, and thereafter slipped below
US $ 40, in the later part of the
year. The volatility in oil prices does
not directly affect the growth in
automotive industry; however,
volatility in oil prices is one of the
influential factors in automobile
demand. In order to address the
challenge of volatility in oil prices,
the automotive industry is
innovating new technologies and
inventing usage of alternative
energy. Hydrogen cars, driven
either by a combination of fuel cells
and an electric motor; hybrid
electric technology; electric vehicles
with rechargeable batteries; or
alternatively, compressed air
technology to drive the pistons in
a specially designed engine, are
thought to be replacing fossil fuelpowered motors in the decades to
come.
16
Emergence of New Generation

Automobiles
Innovation is expected to drive the
automotive industry in future as the
producers are involved in
differentiating their products and
services. There are already growing
interface of electronics and IT in the
automotive functionalities, such as
entertainment, navigation and
safety. According to a survey,
conducted by IBM across the automajors, majority of them felt that
by 2020 the level of innovation
would be greater in software and
electrical systems of automobiles.
It is also expected that by 2020 the
vehicles may become another node
on internet, connecting with other
vehicles, the transportation
infrastructure,
homes
and
businesses. However, there are
challenges associated with this
trend, with regard to consumer
acceptance,
technological
development and adoption of
standards.
Supply Chain Management in
the World of Global Sourcing
Global auto-component firms are
giving greater level of thrust in
supply chain management to
address the challenge of cost
pressures. This is particularly
important in the context of global
sourcing. Though there is a
perceived belief that global sourcing
helps in reduction of cost of
components, there are logistical
challenges. Thus, it is being

recognised that collaboration
between the OEMs and component
producers are crucial to develop
capabilities and solve the
challenges associated with global
delivery, especially in the areas of
inventory management, scheduling,
and timely delivery. In addition, both
OEMs and suppliers view that the
collaborative efforts in supply chain
management
enhances
the
capacity and performance visibility.
Customer Management
Systems
Earlier, automotive manufacturers
had to get feedback from the
customers through intermediaries,
such as vendors or service
workshops. This trend has been
changing with the introduction of
customer management systems
through ICT interface. Even vehicle
buyers are also browsing the net
to know the features of a new
model, evaluate them with the
existing models, and compare the
prices. IT firms are developing
customer relationship management
(CRM) tools that help the
manufacturers to realise and
optimize individual customer value,
increase the post-warranty service
retention, predict model demand
and provide supply chain solutions.
Growing Small Car Segment
The volatility in crude oil prises
witnessed during the year 2008
1
re-emphasized the need for small

and fuel-efficient vehicles. Some of
the automobile majors have plans
to hike their R & D budget for
designing of small and fuel efficient
vehicles. Added to this is the need
for reduction in prices to target the
middle income groups of population
/ new buyers, especially in
developing countries like India,
where the vehicle penetration is low
as compared to the population. An
auto research firm CSM Worldwide
Inc. has estimated that global
demand for small cars would grow
by 30% per annum to 27 million
vehicles a year by 2013. The fastgrowing small cars market has
encouraged several global automajors (such as Renault, Toyota,
and Nissan) to plan for launch of
small cars.
Green Motoring
Automobile manufacturers are
increasing the thrust on fuel
efficiency than before; the initiatives
are mainly through improvements in
technology and introduction of new
fuel variants, thereby reducing toxic
emissions. It may be mentioned
that China, the EU, Japan and the
USA have already established fuel
economy rules or agreements of
varying stringency. The FIAs 1
declaration for green motoring has
set a fuel economy target of
140 gCO2/km for passenger cars.
Such a global fuel economy target
could be used as an international
Fdration Internationale de lAutomobile (FIA)
17
benchmark to assess progress in

the fuel efficiency of the global fleet
of new motor vehicles. Some
countries are also undertaking
Green Rating of automobiles.
Cross Border M&A Deals

The global automotive industry is
increasingly getting more active in
cross border mergers and
acquisition (M&A) deals. On a
global basis, the number of crossborder deals has grown in the past
few years, and this trend is
expected to continue after the
recovery of economic activity in the
world. The expansion outside the
home markets of some of the major
automotive companies from
traditional low-cost countries, such
as China and India, is bringing in
new capital and a fresh look at
certain sectors of the automotive
market. With the recession in the
US market and its consequent
impact in other markets, automotive
assets in developed countries are
becoming attractive to buyers from
emerging economies, as well.
Entry of Private Equity
Players
The traditional funding model in the
automotive industry is slowly being
replaced with aggressive funding
structures. There has been a
structural change in the automotive
industry with the entry of private
equity players in the past.
Traditional and family-owned
18
businesses were taken over by the

private equity players and hedge
funds, which are expecting more
profit or investment realization from
the industry. Though the business
activities of private equity players
have come down, following the
financial market meltdown, this is
expected to be revived soon, either
when the market sentiments
improve or once consolidation
happens among the private equity
players.
Growing Collaboration for

Technology Enhancement
Technology-enhancing collaboration
in the automotive sector helps in
preserving design integrity, despite
minor engineering adjustments.
There are also softwares /
programmes that make the global
data sharing possible among
designers, engineers, suppliers,
partners and even customers. Such
better and faster integration of
design / engineering ideas help in
necessary adjustments and
adaptations in designs to suit the
requirements.
Trendy Cars, Shorter Life-spans
An automobile is a highlyengineered collection of complex
components, each of which has its
own lifespan and longevity
charecteristics. While some
components require frequent
replacement, others that are
relatively expensive are expected to
have longer lifespan to justify the

economics of a vehicle buyer.
However, change in fashion and
design trends may outweigh the
pure economics, which may lead to
planned obsolescence. In the world
of changing fashion trends, auto
manufacturers are developing new
designs meeting the changing
consumer preferences. More
frequently the new models are
introduced, the shorter will be the
life span of the old models.
Preserving Brand Identity

With growing mergers and
takeovers in automobile industry,
players are carefully devising
strategies to strengthen the
backroom operational synergies, in
terms of common logistics and
supply chain management, but
avoid losing the brand identities. A
group owning different brands
prefers not to use the same
platform that has same kind of
technology, management, and
designers to preserve the brand
identity. In this sense, the
automobile sector is different from
monolythic branding strategies of
consumer goods.
Design for Recycling
It is being increasingly realized that
natural resources of the earth are
depleting fast. Hence, there is a
growing
concern
amongst
manufacturers as also the
consumers to conserve the
resources; one such way is through
recycling. The automobile industry

is one of the pioneers in usage of
recyclable materials. Also, the rising
input prices are making the
automobile manufacturers to design
the vehicles that can be easily
recycled.
Emergence of Design Studios

As efficiency in design and
manufacturing improves, vehicle
manufacturers across the world are
focussing on making models for
niche market, though the sale
would be in lower volume. This is
in contrast to the earlier strategy
of designing models for mass
consumption. With the increase in
number of models to be designed
and developed, auto majors are
outsourcing the designing jobs to
independent design studios who
take care of the design and
execution
of
the
process
management in the value chain.
Outsourcing
Stiff competition to enhance the
market share forces the OEMs in
developed countries to outsource
their engineering requirements to
low cost countries like India. Global
auto-majors such as General
Motors, Ford, Toyota, BMW are
increasingly outsourcing the vehicle
design and engineering services to
developing countries such as India,
either through their captive centers
or through third-party vendors. Long
term trends indicate that global
auto-component outsourcing from
19
the US is expected to reach US $

25 billion by 2015, and India, China
and Mexico are likely to benefit the
most from such trend. An online
survey conducted by A T Kearney,
revealed that around one-fourth of
global auto-majors have considered
India as a favourable destination for
automobile-engineering outsourcing.
Advanced RFID Practices in

Auto Manufacturing
RFID has been in use in the
automotive industry for several
years, though to a limited extent.
The trend is changing now with
adoption of technology in wide
variety of applications, the dominant
being vehicle entry and security.
According to a study by ABI
Research, 40% of new cars
manufactured in North America are
equipped with RFID immobilizers
and the worldwide revenue
generated by this application alone
was estimated to be US $ 3.7
billion. In addition, RFID solutions
are increasingly being used in
automobile
manufacturing
processes and supply chain
applications.
and growing consumer demand.

The Indian automobile and auto
components industry produces a
wide range of models and products.
The industry has witnessed high
sales turnover, in the last few years,
and the exports too have surged
over the years. The industry has
also
started
establishing
manufacturing and marketing bases
abroad. However, the recessionary
trends in world market and financial
sector meltdown has affected the
growth trend of the industry during
2008-09.
THE INDIAN SCENARIO
The norms for foreign

investment and import of technology
have also been progressively
liberalized over the years for
manufacturing of vehicles, including
passenger cars, in order to make this
sector globally competitive. With the
gradual liberalization of the
automobile sector, since 1991, the
number of manufacturing facilities in
India has grown progressively. At
present there are about 15
manufacturers of passenger cars &
multi utility vehicles, around 10
manufacturers of commercial
vehicles, around 15 manufacturers
of 2/3 wheelers, besides 5
manufacturers of engines.
Indian automobile and autocomponents industry, barring

downtrends in few years, was on a
growth trajectory, aided by robust
economic activity and infrastructure
development; growing middle-class
population with disposable income;
It is estimated that the Indian

automotive industry contributes more
than 5% of the national GDP, and tax
contribution of the sector to the
exchequer is estimated to be Rs.
25,000 crores. The industry provides
direct and indirect employment to
20
over 1.3 crore people. The turnover

of the automobile industry was
estimated to be around US $ 35
billion and that for components
industry was at US $ 18 billion in
2007-08. The investment in
automotive industry, comprising of
the automobile and the auto
component sectors, which was
estimated to be at Rs. 50,000 crore
in 2002-03, has gone upto Rs.
80,000 crore by the year 2007-08.
With the saturation of traditional
automobile markets, such as EU,
USA and Japan, the growth
opportunities for emerging markets
such as India have been increasing.
India is aggressively looking forward
to take advantage of its inherent
strengths in automotive design and
manufacturing capabilities and
position itself as an export base for
vehicles as well as components.
Automobile Industry
Over the last few years there has
been an increasing trend in the
production of vehicles, both in value
and quantity terms. The only lean
patch in production was during the
year 2001-02 and recently in 200708, during which the growth in
absolute
numbers
declined
marginally. It is estimated that the
decline in production would
continue in the year 2008-09 also.
The volume of production of
Indian automobile industry has
increased at a CAGR of over 12%
during the period 2000-01 to 200708. The production activity is poised

to be on the lines of the economic
growth in the world and it is likely that
the momentum in production may
slowdown, though India is being
considered favourably as an
outsourcing destination.
In the past, keeping in pace with
the growing demand for automobiles,
the production has increased over
the years. However, sub-segments
such as scooters and mopeds have
witnessed decline in production. It
may be mentioned that the
technological advances and change
in consumer preferences might be
the possible reasons for the decline
in demand for scooters and mopeds,
and increase in demand for
motorcycles. Commercial vehicle
and passenger vehicle production
have seen a significant rise in the last
couple of years, thus implying growth
in these segments.
The two-wheelers segment
constitutes the lump of the total
production of automobiles in the
country with a production share of
almost 75% in the year 2007-08,
followed by the passenger vehicles
segment, with a share of around
16%. The commercial vehicles
constitute 5%, followed by the threewheelers at 4%. The growth in two
wheelers production has been more
or less consistent amongst all
categories of vehicles. The
production of passenger vehicles
segment on the other hand has
21
grown slowly, though consistently,

perhaps due to the growth in middle
class population in the country,
indicating the demand for cars.
There was an increasing trend
in the sales of all the category of
automobiles, in the past, except in
the year 2007-08, wherein a dip in
sales was witnessed in all categories,
except passenger vehicles. The
sales in commercial vehicles have
witnessed a marginal growth, though
in the later few years the growth rate
was accelerated. The sales of two
wheelers have been increasing
almost linearly in the last five years.
Though, there has been a robust
demand for two wheelers, especially
for motorcycles, both in urban as well
as rural areas, the year 2007-08
remained sluggish due to model
fatigue and uninviting rates. The
demand is further sluggish in the
year 2008-09 due to overall
slowdown in economic activity and
non-availability of automobile
finance.
India exports almost all types of
vehicles; among the major
categories of export items, in 200708, two wheelers accounted for
around two-third share in total
vehicles exports, in terms of number
of units. Infact, two wheelers have,
over the years, been the top most
export item among the various
automobile segments, in terms of
number of units. Passenger vehicles,
three wheelers and commercial
22
vehicles account for 17.6%, 11.3%

and 4.7% share, respectively in
Indias total vehicle exports in volume
terms. The export orientation of the
industry has been continuously
growing; from a level of 3.5% in
2001-02 to over 11% in 2007-08.
During the period 2001-02 to 200708, the automobile exports from India
witnessed a CAGR of over 31%.
Nearly half of the two-wheeler
exports in 2007-08 were to Asia
region. While a sizeable volume of
passenger vehicles were exported to
Europe, other regions such as Africa
and Latin America were also the
target regions for export of
passenger vehicles by India.
Following the global financial
meltdown and recessionary trends in
world economy, there has been a
slowdown in demand and supply of
vehicles. This has also reflected in
the production, domestic sales and
exports of vehicles from India. During
the period April-November 2008,
though there has been over 6.5%
growth in vehicles production (from
7.21 million units during AprilNovember 2007 to 7.68 million units
during April-November 2008),
domestic sales have grown by only
2% (from 6.46 million units during
April-November 2007 to 6.60 million
units during April-November 2008).
Auto Components Industry

According to Auto Component
Manufacturers Association of India
(ACMA), the size of the Indian auto
components industry is estimated to

be around US $ 18 billion in 200708. India is estimated to have the
potential to become one of the top
auto component economies by
2020, according to a study by IBM.
According to another study, the
auto component industry in India
has potential to grow at a CAGR
of 13% to reach US $ 40 billion by
2015. Indias share in world auto
components would thus grow from
around 1%, at present, to over
2.5% by 2015. Domestic market is
projected to grow at around 8-10%
per annum in the next 10 years.
Exports are projected to grow at
over 30% per annum in the long
term.
The automotive market in India
has grown significantly owing to the
growth in income and in the living
standards of the middle class
population, and a significant increase
in their disposable incomes.
However, there has been a
slowdown in demand for vehicles, in
2008-09, which is impacting the
auto-component industry adversely.
Responding to emerging scenario,
Indian auto component sector has
shown great advances in recent
years in terms of quality, spread,
absorption of newer technologies
and flexibility. Availability of skilled
manpower, reasonably priced
workforce, together with the
strengths gained by the country in
IT and electronics, have built-up an
environment for significant leap in the
auto component industry.
The turnover of the auto

component industry, over a period of
time, has grown impressively. During
the year 1996-97, the turnover of the
industry was US $ 3.3 billion, which
breached the US $ 10 billion mark,
to reach US $ 12 billion, in 2005-06.
In the year 2007-08, the turnover of
the auto component industry has
reached US $ 18 billion. Indian auto
component industry has a
comprehensive range of products
catering to the market. During the
year 2007-08, engine parts
accounted for the bulk of production
in the Indian auto components
industry, followed by transmission
and steering parts. The combined
production in these two categories
was around 50% of the total value of
the production.
Export growth in Indian autocomponents industry was around
25% during the year 2007-08, with
value of exports being US $ 3.6
billion. India is also an importer of
auto-components; according to the
Ministry of Heavy Industries,
Government of India, the total
imports of auto components by India
in the year 2006-07 were US $ 3.3
billion (Rs. 14,644 crore).
India has been emerging as a
significant exporter of auto
components since the last decade.
From a level of US $ 330 million in
1997-98, exports of autocomponents have reached to over
US $ 3.6 billion in 2007-08. Export
23
orientation of Indian auto-component

industry has also increased from a
level of 11% in 1997-98 to over 20%
in 2007-08. Export of auto
components have grown at a CAGR
of 24% during this period. India
exports its auto components to
almost every part of the world, the
major markets being developed
countries such as USA, Germany
and UK. Some of the important Asian
markets for auto-components
include Bangladesh, Sri Lanka and
Nepal. According to ACMA, the
export potential of auto components
industry is expected to post a CAGR
of around 24% to reach US $ 20-22
billion by 2015.
EXPORT COMPETITIVENESS
OF THE INDUSTRY
The year-on-year growth rates in
vehicles production achieved by the
been outstanding as compared to
the growth rate achieved by the
global automobile industry. In the
year 2007, the automobile
production growth rate in India
stood at around 14% as compared
to the world production growth rate
of 5.4%. Except in the year 2000,
when there was a slump, the Indian
automobile industry has performed
better than the global average, at
the back of both domestic as well
as global demand.
In the auto-components
segment, steered by the countrys
high engineering skills, established
24
production lines, and competitive

manufacturing costs, global auto
majors are increasingly ramping up
the value of components they source
from India. Over 20 OEMs have set
up their International Purchase
Offices (IPOs) in India to source their
global component requirements.
These include firms like General
Motors, Ford Motors, Cummins
International, Bosch, Volkswagen,
BMW, MAN (trucks) and JCB
(earthmoving equipment), among
others. This number is expected to
double by the year 2010. The autocomponent industry was estimated
to achieve an export level of around
US $ 5 billion in 2008-09. However,
the slowdown in demand for
automobiles, both in India and in its
export markets, may downsize the
projections marginally. In such a
scenario, it may be pertinent to
analyse the export competitiveness
of India in the international market.
In this chapter, an attempt has been
made to analyse the export
competitiveness of India in order to
identify potential markets for Indian
automotive industry in select markets
/ regions. The markets / regions
identified for this purpose were USA
and Europe for auto-components,
and developing countries of Africa,
Asia and Latin America for
automobiles. The competitiveness of
Indian automotive industry in the
identified markets have been
analysed using some of the
competitiveness indicators, such as
penetration index, contribution index,

and specialization index.
Auto-components
In the USA market, the penetration
index for components such as
bumpers, drive axles, and radiators
have grown significantly indicating
rise in share of India in USAs total
imports. The contribution index has
also increased for bumpers
indicating growing share of its
exports in Indias total exports to
USA. As a result of such trends,
the specialization index has
increased significantly for bumpers,
drive axles, and steering wheels.
While the specialization index has
decreased significantly for road
wheels and parts, marginal decline
has
been
witnessed
for
components such as brakes and
parts, non-driving axles and parts,
and suspension shock absorbers.
In the European market, the
penetration index has grown
significantly for auto-components
such as bumpers, drive axles,
suspension shock absorbers and
radiators. The contribution index has
also increased for bumpers and drive
axles and radiators indicating
growing share of its exports in Indias
total exports to Europe. As a result
of such trends, the specialization
index has increased significantly for
bumpers, drive axles, suspension
shock absorbers and radiators.
wheels and parts, and parts and

accessories of bodies, marginal
increase has been witnessed for
suspension shock absorbers, and
steering wheels and parts.
Automobiles
The analysis of international
competitiveness
of
Indian
automobile sector in Africa market
reveal that the penetration index
has grown over the years, between
2001 and 2006, for sub-segments
such as tractors, motor cars,
transport vehicles for goods, special
purpose vehicles, and chassis fitted
with engines. The growth in
penetration index, however, has not
been much for public transport type
passenger vehicles, while it has
come down for motorcycles. The
contribution index has also
increased in these sub-categories
(except the public transport type
passenger
vehicles,
and
motorcycles), indicating growing
share of these categories in Indias
exports to Africa. The share of
import of identified categories of
vehicles in total import of Africa has
also increased over the years
indicating growing African market.
As a result of these trends, the
specialization index has grown for
all types of vehicles, except public
transport type passenger vehicles
and motorcycles.
25
Indias automobile penetration

into the Latin American region is
slowly gaining momentum. The
analysis
of
international
competitiveness
of
Indian
automobile sector in Latin America
region reveals that the penetration
index has grown, between 2001 and
2006, for sub-segments such as
tractors, motor cars, and motor
cycles. The growth in penetration
index, however, has not been much
for public transport type passenger
vehicles, and special purpose motor
vehicles, while it has come down for
motor vehicles for goods transport
and chassis fitted with engines. The
contribution index has also increased
in the sub-categories where
penetration index has grown (and
vice versa), indicating growing share
of these categories in Indias exports
to Latin America. The share of import
of identified categories of vehicles in
total import of Latin America has also
increased over the years in most of
the sub-categories, indicating
growing Latin American vehicles
market. As a result of these trends,
the specialization index has grown
for all types of vehicles, except motor
vehicles for transport of goods,
chassis fitted with engines, and
motorcycles.
Indias automobile penetration in
the developing Asian market has
been quite modest across all the
segments. This could be seen from
26
the growing penetration index during

the analysed period (years 2001 and
2006), in almost all segments. The
contribution index has also grown in
all vehicle segments (except motor
vehicles for transport of goods, which
has remained constant), indicating
growing share of these vehicle
segments in Indias exports to
developing Asia. However, the share
of import of identified categories of
vehicles in total import of developing
Asia has declined over the analysed
period, in most of the sub-categories,
indicating growing manufacturing
and self-sufficiency in the region. In
spite of such a trend, the
specialization index has grown for all
types of vehicles, with some
categories, such as tractors, and
chassis fitted with engines, well
pronounced than the others.
CHALLENGES
Rising Input Costs
Prices of core inputs in the
manufacture of vehicles, like steel,
non-ferrous metals and rubber,
have grown over the last few years,
which in turn has increased the
production cost of vehicles. Though
the raw material prices have cooled
in the last few months, they still
prevail more than the prices that
have prevailed few years ago. Such
cost escalation in input prices has
impacted the growth of the Indian
auto industry.
Fuel Price Volatility

Volatility in fuel prices affects the
growth of the automotive industry
all over the world. The effects of
volatility in fuel prices are multipronged. Firstly, the cost of inputs
in car manufacturing increases with
the increase in oil prices. Polymers,
one of the inputs used in
manufacture of vehicles, is a
derivative of crude oil. Bulk
commodities, such as steel and
aluminium, are also used in
manufacture of vehicles; the
transportation cost of which is
influenced by oil prices. Secondly,
the oil price has an impact on
inflation, affecting the saving and
disposable income of the
consumers, thereby affecting the
demand for automobiles. Thirdly,
the fuel price influences the overall
running cost of the vehicle owners;
there could be switch in demand
among the vehicle variants, as also
research in use of alternative fuels.
Thus, the volatility in oil prices
affects the prospects of the
industry.
Slowdown in Demand
As per the RBIs data on sectoral
deployment of gross bank credit,
the automotive industry received
gross bank credit of Rs. 29,152
crores in 2007-08, a growth of 39%
over the corresponding period of
the previous year. In addition, credit
has been extended to transport
operators and retail consumers
(as vehicle buyers) to support the

growth of sales by the automotive
industry. However, the penetration
rate of vehicle ownership in India
(per thousand population) is
estimated to be less than 10 for car
owners and around 40 for two
wheelers. This is low as compared
to the world standards, and
indicates the potential demand for
automobiles in the country.
Following the recent financial sector
crisis, the euphoria of easier / better
availability of auto finances in India
has declined. The recent trends in
vehicle sales also corroborate with
this contention. During the period
April-November 2008, the sales
growth in passenger vehicles
segment was marginally negative at
(-) 0.59% over the corresponding
period of 2007-08; the growth in
sales of commercial vehicles was
negative at around (-) 9.23%.
Similarly, three wheelers sales have
also registered a negative growth
( 3.37%). The two-wheelers
segment registered a positive
growth of 3.76% during this period;
however, the two wheelers sales in
the month of November 2008
witnessed a negative growth
(-14.73%), over the corresponding
month of 2007.
Slowdown in USA
North America has been a
traditional market for the Indian
auto component manufacturers with
exports to the region accounting for
27
around 27% of Indian auto

component exports. The region is
affected by the global financial
crisis, which led to the slowdown
in demand for vehicles, especially
in USA. As the global financial crisis
makes consumers increasingly
reluctant to part with cash and
lenders unwilling to offer credit,
carmakers across the world face
challenges in finding buyers to keep
their production lines running. It
may be mentioned that industry
wide auto sales in USA in the
month of November 2008 were
down nearly by 37%. In annualized
terms, according to analysts, the
US auto industry recorded sales of
10.2 million vehicles in November
2008, down from 16.07 million
vehicles sold in the same month of
last year. With the Detroit majors
like, General Motors, Ford and
Chrysler seeking a bailout from the
Federal Government, the auto
component industry in India is
feeling the brunt with slack in
demand. An emergency bail-out
offering of US $ 17.4 billion loans
to the three auto majors has been
announced with the condition that
within three months restructuring
plans are prepared by them,
including cutting down on costs.
The restructuring plan and cost
cutting measures may affect the
export prospects of Indian autocomponent firms. The Indian auto
components sector, which is one of
the major vendors for the global
auto majors, and to the US in
28
particular, face the challenges of

slowdown in the US automobile
market.
Production Cuts
The production activity in the
automotive industry is poised to be
on the lines of the economic growth
in the world and it is likely that the
momentum in production may
slowdown in the year 2008-09. The
slowdown in demand for vehicles,
both in domestic and export market
has led to the announcement of
production cuts by many vehicle
manufacturers. In the month of
November 2008 (over the month of
October 2008), there has been
decline in production across all
segments. Production of passenger
vehicles have witnessed a negative
growth (-8.50%), commercial
vehicles production declined by
44.27%, three-wheelers production
declined by 5.65%, and two
wheelers by 8.79%. Overall, the
production in November 2008 (over
October 2008) has come down by
9.94% (from 0.95 million units to
0.86 million units). Commercial
vehicles producer, Ashok Leyland,
has reduced its proudction of
vehicles to around 1500 units in
November 2008 (as compared to
an average of 6400 units produced
during April-October 2008). Another
major vehicle manufacturer, Tata
Motors has decided to cut
production of medium and heavy
commercial vehicles by around
50%, while its passenger cars
segment is contemplating a
production cut; as of now, Tata
Motors is undertaking partial shutdown to match the production and
demand for passenger cars. In the
two-wheelers segment also, major
producers are mulling over
production cuts to reduce their
inventory levels and match with the
market demand trends. Bajaj auto
has already announced a prolonged
shut down as part of the exercise
to reduce the inventory levels. Such
trends also affect the market
prospects of Indian auto-component
manufacturers. Several autocomponent units that are catering
to the demand of OEMs in India
are also in line with the production
cuts intended by these OEMs.
Several
auto-component
manufacturers are scheduling
maintenance holidays to tackle the
situation.
Growing Competition
Competition in Indias automobile
and auto-parts industry has been
growing in the recent years. Earlier,
the regulatory framework and
market conditions positioned the
Indian OEMs in monopolistic or
oligopolistic market structure. As
the automotive market in India is
evolving through the dynamics of
open market and deregulation,
many new players have entered the
market. Since liberalisation, over 20
new players entered the market in
the passenger car segment alone.
Though, there has been depletion

of market share for Maruti Suzuki,
it still dominates the passenger car
segment. In the two-wheelers
segment too, foreign majors have
their presence through joint
ventures as also through their
wholly owned subsidiaries. Hero
Honda is the largest player in the
two-wheeler segment, followed by
Bajaj Auto and TVS Motors.
In the commercial vehicles
segment, though the market is
dominated
by
home-grown
companies such as Ashok Leyland
and Tata Motors, competition is
augmented through the entry of
foreign players such as Nissan and
Volvo. Indian players are entering
into joint ventures with these
companies to gain access to the
technological advancement and
design engineering. In the auto-parts
segment, though there are vibrant
units producing high-quality products
and supplying to global OEMs, the
market is attracting global players
such as Delphi Systems, Visteon,
Denso and Bosch, to mention a few.
These global majors have been
expanding their product portfolio and
enhancing
their
production
capacities, thereby increasing the
competition among domestic
players.
Changing Consumer
Preferences
There has been continuous change
in consumer demand in the motor
29
vehicle industry, making the

companies to focus on innovation
continuously.
With
growing
purchasing power among Indian
consumers, the demand for better
and comfort vehicles with greater
efficiency is growing. Intense
industry competition has led to
design of hybrid vehicles and
development of new vehicle
concepts. Apart from customers,
new technology also allows the
designers to change every aspect
of car design. According to a study2
by KPMG, product quality, cost
reduction, new technologies and
environmental issues, influences
the consumer demand for vehicles
and thereby innovation in the
automotive industry.
Chinese Competition
Of late, low-cost imports from China
threaten the business prospects of
domestic
auto-component
manufacturers. According to ACMA,
auto-component imports from China
have grown rapidly in the last few
years. From around 3.3% of share
in all component imports in 200304, China now accounts for close
to 10%. Significant growth in
component imports has been
contributed by China in the last
three years, while Indias exports to
China have stagnated at around
Rs 120-170 crore in the last 5
years. Such imports from China
2
30
have set new benchmark prices

and the component manufacturers
from India face challenges in the
scenario of rising input prices.
Environmental Issues
The automobile sector affects the
environment in multiple ways,
starting from the use of materials
that
causes
environmental
degradation, and ending with the
management of scrap. However, it
is estimated that much of the
environmental damage during the
lifespan of a car happens during
driving, and thus is associated with
fuel emissions. That is why many
countries are discouraging sale of
fuel-inefficient cars, as also
polluting cars, through suitable
taxation policy. It is reported that
Chinese Government has increased
sales tax on cars with engine
capacities more than 1 litre, and
reduced on cars with engine
capacity of less than 1 litre. EU is
proposing to penalize cars that are
emitting more than 130 gms of CO2
per kilometer.
There are estimates that the
automobile industry accounts for
approximately one-fourth of global
anthropogenic GHG emissions.
Therefore, in order to combat the
environmental challenge, firms (as
well as environmentalists and
national
Governments)
are
focussing on avoidance of polluting
Momentum, KPMGs 2008 Global Auto Executive Survey
substances in production, in
addition to concentrating on fuel
efficiency and emission standards.
The industry is also contributing to
combat this challenge by
undertaking research in improving
fuel efficiency and reducing CO2
emissions. In the EU, an end-oflife of vehicles Directive (2000/53/
EC) is in force to prevent polluting
substances in manufacture of
vehicles. Also, a dialogue between
regulators and the automotive
industry in EU inspired a voluntary
commitment for the industry to
reduce emissions.
Low R&D Orientation

It is being realized all over the world
that the competitiveness is not
dependent on factors like
availability of skilled labour, low-cost
operations and infrastructure. The
sustained competitiveness in the
automotive industry comes through
improvement in productivity, which
calls for continuous innovation by
the players. However, Indian
automobile companies spend a
relatively low amount on R&D; thus,
their R&D orientation (R&D
spending as a percentage of total
sales) is low relative to the global
standards. Developing new designs
is an expensive proposition, unless
the market for the new design is
on a global scale. Indian firms are
mainly focussing on, and designing
3
the vehicles for domestic market or

for other developing country
markets, but not completly focusing
on designing a vehicle for a truly
global market, or to create a niche
for them and compete with
international brands. Also, the
efforts of Indian automobile
manufacturers are mainly oriented
towards value engineering or
modification in the existing models
to improve performance, and are not
focused on developing new models.
Infrastructure Constraints
Insufficient road infrastructure and
traffic congestion could be a
bottleneck in the growth of the
automotive industry. In India,
capacity addition in roads has been
lagging behind the traffic growth. It
is reported that China witnessed a
phenomenal growth in automotive
industry due to rapid development
in road infrastructure. Poor port
connectivity is another bottleneck
faced by the industry, especially
when it comes towards exports.
The Chennai and Mumbai Ports
handle bulk of the vehicle export.
In addition to the insufficient porthandling infrastructure, there are
also challenges associated with
space especially for parking and
setting up of repair shops in the
port yard. According to a
comparative analysis 3 on cost
structure of Indian automotive
sector and that of Malaysia,
Working Group on Automotive Industry, Eleventh Five Year Plan, Planning Commission,
Government of India.
31
Thailand
and
China,
the
deficiencies in logistics and
infrastructure adds about 1.1% to
2% in the total cost structure.
Incidence of Levies / Duties

On vehicle sales, currently taxes
are levied at multiple levels at city
level (octroi), state level (sales tax)
and at the central level (excise). It
is estimated that the incidence of
levies and taxes on a vehicle
averages to be around 30% of the
cost of vehicle. The incidence of
taxes increases in cases where the
octroi is also levied. The high
incidence of taxes increases the
cost of ownership of vehicles,
thereby affecting the vehicle
penetration level in India.
Low ICT Interface
The adoption of ICT in the Indian
automotive sector is at low level as
compared
to
international
standards. According to a study4 by
NASSCOM, many SME firms in the
auto-component sector is facing the
challenges of IT adoption, which is
important for enhancing their
productivity and competitiveness,
and the growth of the industry.
Human Resources Challenges
One of the critical enablers for the
growth in the Indian automobile
industry would be adequate
availability of trained manpower. It
is estimated that the industry would
require large numbers of trained
4
32
personnel, if our country has to

become an auto-manufacturing hub
for the world. Countries in North
America and Europe, which has
been the hub for automotive
industries over the years, are
increasingly feeling the pinch of the
aging
workforce
impacting
employment levels from factory
workers to middle and top-level
management, thereby creating a
talent vacuum in the industry. This
crunch in manpower in these
economies is slowly luring the
much-required human capital from
India. This challenge needs to be
addressed on priority basis so that
the country does not loose out on
critical talent that may be important
for positioning India as an
automotive manufacturing hub of
the world.
STRATEGIES
Tackling the Rising Input
Costs
The increase in the cost of crucial
raw materials (such as steel,
aluminium, rubber) that are used in
manufacture of vehicles has
affected the margins of the Indian
automotive industry. Though the
raw material prices are cooling
down, they are still higher than the
prices that prevailed few years ago.
In order to tackle this problem of
rising input costs, and to improve
margins and price realisations,
players in the automotive industry
IT Adoption in the Indian Auto Component Industry
need to adopt multi-pronged

strategies.
These
include
reallocation of product mix, cost
reduction through better adoption of
lean manufacturing solutions, and
renegotiation with suppliers and
vendors.
Some
automobile
manufacturers have already
strengthened their strategy in
tweaking the product-mix, giving
greater emphasize on product
segments that is expected to
provide
better
margins.
Strengthening lean manufacturing
solutions would help the Indian
automotive industry to tackle the
challenge of input cost escalations.
Some automobile manufacturers in
India have already established
programmes to avoid wastages in
production and thereby cut down
the cost of production. Firms also
need to renegotiate the prices (for
purchases with the suppliers) and
margins (for sales with the dealers),
so that the hike in the end price at
the hands of consumers is
minimized due to hike in input
prices.
R&D on Alternate Energy

Sources and Hybrid Vehicles
The share of automobiles on road,
using petroleum products as fuel,
has almost remained the same (at
over 95%) in the past several
decades. This is despite the fact
that the vehicles on road have been
evolving in every other aspect. In
other words, product development
has happened in all other aspects,
except in utilization of alternate

energy sources. The industry,
together with the Government, may
provide
greater
thrust
on
development of products that uses
alternate energy sources, and R&D
on hybrid vehicles.
Market Presence in All

Segments
Globalization is making every player
in the industry to look beyond its
borders. Ironically, in spite of the
increasing number of models being
manufactured, the PLC of the
vehicles are decreasing everyday,
thus putting pressure on the players
to find ways to diversify their
product offerings. Recently, Tata
Motors had acquired the JaguarLand Rover brands from Ford
thereby making an imprint into the
niche segment, eyeing the
European and the developed
country market. This has made the
Tata Motors a truly global player in
the automobile market with a
diversified product offerings,
ranging from the entry level
segment Nano to the much-touted
ownership of premier brands, like
Land Rover and Jaguar, thus
catering to all segments of the
market. Market presence and
product offerings need not be in
one category of vehicles (say
passenger cars) alone; it could also
be across multiple vehicle
categories. Such strategies build
brands and visibility across
33
segments, as also reduce the risks

associated
with
market
concentration and economic
slowdown to some extent.
Enhancing Competitiveness
Cost efficiency is necessary for
Indian automobile industry to
enhance its global competitiveness.
Many global auto-majors, especially
from Japan, have initiated cost
reduction exercises. Some firms
have also shifted from standard
costing to Kaizen costing and target
costing. Some of them have even
established target-costing offices
across the world and established
office structure for implementing
Kaizen. Cost containment strategies
may also include working with
suppliers to reduce the costs in
their processes, implementing lowcost designs / segments of the
product, or through reduction of
wastages. Strengthening the lean
manufacturing practices, being
adopted in India as also across the
world, would also help improve
competitiveness of Indian industry.
Such practices show greater
efficiencies in machine utilization,
fewer labour hours per machine,
shorter machine setup times and
identification of bottlenecks and
cost reduction opportunities swiftly.
Both the automobile and the
auto component industry are interlinked and are dependent on each
other for survival, and hence the hub
34
and spoke model may be another

approach for both of them to contain
the cost. In the hub and spoke model,
the automobile industry help in
establishment of auto-component
units around its assembly plants, and
help them in technological
improvement,
R&D,
and
identification of machineries and
equipments. The auto-component
units concentrate on on-time supply
and servicing of orders and cost
containment in production, and
thereby promote competitive pricing
among the industry players.
Addressing Consumer
Preferences
The dynamics of Indian automobile
market is changing with the
changing consumer preferences.
For example, earlier, the twowheeler segment was dominated by
scooter (with a market share of 7080%), which has been taken over
by motorcycles. The change in
consumer preference was mainly
due to fuel efficiency, as also
design
and
technological
improvement. Though, the newer
versions of scooters (scooty
concept with ignition start) are
slowly reviving the market for
scooters, the market share may not
reach to the previous level.
Similarly, consumer preferences
have changed the demand pattern
in other vehicle segments too,
driven mainly by design and
technology. Indian auto-majors
need to address the changing

consumer preferences and suitably
modify the design or technological
improvement to augment their
market share.
Collaborative
Product
Development (CPD) is being
adopted as a business strategy by
global automobile majors to address
the challenge of changing consumer
preferences. Dealers are also need
to be roped in the design or product
development process as they are
ideal gateway agencies between the
customer and the firm. Hence, a
stronger relationship is required to be
established by the vehicle makers
with the dealers. Synergies are to be
created between the vehicle
manufacturers and dealers though
better
communication
and
understanding in order to offer not
only enhanced customer services but
also to understand the trends in
consumer preferences.
Environmental Compliance
Environmental challenges in
automobile manufacturing does not
relate to emission standards alone.
There are also challenges
associated with end-of-life in
vehicles,
especially
waste
management. Though sufficient
steps are being taken in India
towards achieving international
emission standards, adequate steps
are still required to be taken in
environmental compliance in vehicle
manufacturing. Significant amount

of resources are required as
investment to undertake R&D
programmes to address these
environmental challenges.
Enhancing R&D Orientation

Indian automotive industry needs to
develop a proactive culture with
regard to investments in R&D
rather than responsive culture. This
would help the industry to
understand the complexities of
vehicle users and bring in product
innovation through changes in
design and vehicle engineering.
The R&D orientation in the Indian
auto-component industry is not
comparable with world standards.
However, few firms that are having
large operations are increasing their
stake in innovation to compete in
the global map.
There is also a need to initiate a
programme for research and
development in the Indian
automotive industry, concentrating
on development of intelligent
vehicles adhering to safety
standards, energy efficiency and
emission norms, and alternate fuels.
The programme may also stretch
down to component manufacturers
with active involvement of OEMs.
Infrastructure Development
Infrastructure constraints are
common to all industry; however
there are few specific infrastructure
35
constraints affecting the growth of

Indian automotive industry. Poor
road infrastructure and traffic
congestion can be a bottleneck in
the growth of vehicle industry.
Therefore, in general, improvement
in road infrastructure would help
enhance
the
demand
for
automobiles in India. Secondly,
road infrastructure associated with
last-mile port connectivity would
help enhance supply chain
management strategies of the
vehicle manufacturers. More
importantly, there is a need for
building vehicle terminals in India
for smoother handling of vehicle
exports.
Supply Chain Management

Supply chain management in the
automotive industry helps in
integration of the partners to
improve operational performance,
materials flow and manufacturing
flexibility. Implementing supply chain
solutions as one more module after
Enterprise Resource Planning
(ERP) is not enough. Theres a
need for enterprise-wide process
improvement. This calls for
inculcating mutual respect with the
vendors, dealers and consumers.
Just-In-Time (JIT) production
processes, identification of shorter
transportation routes, e-sourcing
are some of the supply chain
strategies that may be adopted in
large scale by the Indian
36
Enhancing ICT Interface

IT sector has a major role to play
in
development
of
Indian
automotive industry to achieve its
global
aspirations
through
enhanced productivity and product
efficiency. In addition, ICT interface
help the manufacturers to interact
frequently with vendors and
consumers also, and leverage their
ideas / preferences into vehicle
design. Increased IT adoption in the
automotive industry not only
enhances the competitiveness of
the industry in the existing markets,
but also creates new markets for
the Indian automotive industry.
Human Resources
Development
The cost pressure on global auto
majors, who are mainly present in
developed countries, viz., USA,
Europe and Japan, is making the
industry shift to developing nations.
In addition, these countries are
facing shortages of skilled
manpower, which is expected to
grow multi-fold in the years to
come. India has large human
resource base; however, India
needs to enhance the skill-sets that
are required for the industry in
order to become a global
automotive hub.
The Government and industry
need to come together and address
the challenges related to skill
development and workforce
shortages, both in terms of quantity
and quality. In this regard, it may be

mentioned that USA established,
over three decades ago, a National
Institute for Automotive Service
Excellence, to provide training,
testing, and certification of autoservice and repair-professionals to
ensure continuous availability of
trained technicians for the industry.
Government of India, through the
Automotive Mission Plan, has
proposed the setting up of an
Automotive Training Institute to train
people for the automotive industry.
The Society for Indian Automobile
Manufacturers (SIAM) has plans to
set up an online university, first of its
kind in Asia, to cater to the education
needs of the industry. SIAM is
associating with US-based institute,
Adayana, who will provide course
content and certify these courses.
IN SUM
The global financial meltdown of
the year 2008 has created a
precarious condition across various
sectors, which has forced countries
and industries to take a fresh look
at their future strategies; automotive
sector did not remain unscathed
from this turmoil. In the early part
of the year 2008, the rise in crude
oil prices sent shockwaves amongst
various sectors; the automotive
sector was one of them to receive
adverse impact. The financial
crunch, in the later part of the year
2008, slowed-down the supply of
credit and simultaneously increased
the cost of credit, both to

corporates and consumers, and
thereby impacted both the supply
and demand for automobiles. It
may be mentioned that the global
as also the Indian automotive
industry, benefited from the credit
flow provided by the banks and
financial institutions, both at
corporate level and at consumer
level. The operations of several
global auto-majors are affected and
they are seeking bailout plan from
their national governments for their
survival. With the government
institutions across the world infusing
large amount of liquidity into the
respective markets, the core issue
of credit crunch may slowly be
resolved. However, cost associated
pressures may prevail on the
margins of the global auto-majors,
making them vigorously to focus on
emerging markets, for sourcing
components, vehicle design and
manufacturing. It is expected that
the recessionary trends in the
economy and the resultant increase
in margin pressures would further
enhance the need for locational
shift
in
manufacturing
of
automobiles. It is also expected that
the volume of outsourced jobs
coming to India may further rise in
the long term. Such market
opportunities also provide the
acquire assets of beleaguered
companies abroad with a potential
for turnaround and value creation
in the years to come.
37
It may be mentioned that the

Indian automotive industry holds
significant scope for expansion, both
in the domestic market, where the
vehicle penetration level is on the
lower side as compared to world
average, and in the international
market, where India could position
itself as a manufacturing hub. The
current level of share, viz., less than
5% of global production and less
than 1% of global trade, also
corroborates the potential for
expansion in this industry.
At the same time, it should be
recognized that Indias exports of
automobiles have largely been
confined to few countries in Asia and
Africa, and to a very limited extent in
Latin America. Indian automobile
companies are required to
accelerate their momentum and
increase their penetration among
other countries in these regions.
Similarly, the auto components
industry in India, which is now known
across the globe for its quality
deliverables, should try and
capitalize on the European and the
US market either trough the process
of acquisitions of firms in these
countries or simultaneously enhancing
their quality and augmenting the
number of outsourcing businesses
38
from these regions. Indian auto

component industry distinguishes
itself with winning more number of
Deming prize and adopting global
quality management procedures,
and thereby have an edge over other
emerging economies, like China and
Thailand.
Indian economy, which benefits
from strong fundamentals and sound
regulatory framework, is expected to
grow at around 7% in the year 200809; the economy may rebound once
the global economy recovers, and
the domestic automotive industry
would simultaneously regain its
growth momentum. In the interim
period, the Indian automobile and
component industry needs to look
out for opportunities to cut cost,
undertake value engineering and
enhance disciplines into the system.
The industry may also use the interim
period to upgrade the skills of the
employees and enhance the focus
on market research, product
development
and
customer
interactions. An institutional
mechanism, under public-private
partnership model, may be needed
to address such requirements of the
industry in the years of downturn,
with the industry having a lead role
to play.
1. INTRODUCTION
The automotive industry is

increasingly becoming the cynosure
of the manufacturing sector across
the globe. Due to its intense forward
and backward linkages with several
key segments of the economy, the
automotive industry has a strong
multiplier effect and acts as one of
the key drivers of growth across the
globe. The attention and importance
to the automotive industry in the
economic development and planning
policies of Government and its
agencies has also witnessed
significant uprise. The industry has
been evolving over the years,
meeting up with challenges as
diverse as transitions, consolidations
and restructuring, and thereby
adapting to the new market
conditions.
In the last few years, the global
automotive industry has changed its
locational preferences due to various
reasons. Earlier, the automotive
industry was largely confined to the
triad - North America, Europe and
Japan. However, with the emergence
of some vibrant developing
economies, like Brazil, India and
China, the global automotive industry
has been considering a different

growth perspective, and has been
relocating the operations. These
growing developing economies have
been evolving as a manufacturing
hub, as also the newfound markets,
for the global majors like Ford,
General Motors, Chrysler, Toyota,
Honda, Nissan and BMW, who are
competing to enhance their market
share in these markets. Increasing
growth in GDP and the growing
disposable income has catapulted
these emerging economies as
market for automotives, while the low
cost of operations and skills in design
and R&D made them as destinations
for investment and manufacturing
operations.
The automotive industry is a
major employment generator in
many economies, with millions of
people earning their livelihood, both
directly and indirectly. According to
the International Organisation of
Motor Vehicle Manufacturers (OICA),
the current turnover of the
automobile industry is around Euro
2 trillion and is equivalent to the size
of 6th largest economy in the world.
39
While there has been growth

momentum for the global automotive
industry in the past, it is also facing
challenges, of late, especially in view
of the increasing cost of production
and slowing down of demand. The
world automotive industry is also
faced with the challenge of
undertaking R&D and designing fuelefficient vehicles in view of volatile
oil prices. The environmental
challenges have also assumed
critical importance to the automotive
industry at the backdrop of climate
change. Companies across the
globe have been committing to
contribute to an integrated approach
to a cleaner environment and
reduced carbon emissions with more
environmentally friendly vehicles. All
such challenges have taken the
world automotive industry to a new
paradigm.
is also increasingly relocated to these

countries.
With cost playing an important

role in the success of the operations
of the automotive industry, countries
like India, rich in scientific and
engineering skills, and low cost
operations, are increasingly gaining
importance
for
automotive
production in the world. The global
automotive industry is in the verge
of locational shift, not only to cut
down the cost of production, but also
in exploring new markets in
developing countries, including India.
With the growing shift in
manufacturing of automobile industry
to developing countries like India, the
manufacturing of auto-components
According to the World Bank

data, India is the fourth largest
economy in the world, in purchasing
power parity terms. With the increase
in Private Final Consumption
Expenditure (PFCE) in India, the
demand for automobiles too have
increased, thus ascertaining the fact
that the growth in income levels
increases the consumption pattern
in the case of automobiles, among
others.
40
In India, economic liberalization

and foreign investment policies
attracted foreign auto-majors such
as Hyundai, Ford, Toyota and
General Motors to set up their bases
in India. Smooth policies for
technology transfer strengthened the
indigenous auto-component makers
to source the technology and
efficiently meet the buying
requirements of multinational
sourcing
companies.
The
multinational auto-majors started
looking at India, not only as a
manufacturing hub for the vehicles,
but also a growth market for vehicles
demand, and addressed the
requirements of price sensitive
market, through design and product
development.
Indias growing affluent class,

which emphasizes more on quality
and standards, has been facilitating
the entry of multinational auto-majors
Exhibit 1:
TRENDS BETWEEN INDIAS PFCE AND AUTOMOBILE SALES
SOURCE: CSO, SIAM, EXIM Research
like BMW, Volkswagen and

Mercedes to venture into the Indian
market. The Tata owned Jaguar and
Land Rover is also exploring the
possibility of entering into the Indian
market to cater to the niche segment
in the country.
The entry of global auto-majors
into India has significantly altered the
automobile-manufacturing scenario
in the country. The changes in design
and adaptation of international
technologies have enabled the
compete globally, and thus are also
exposed to global challenges. The
global recessionary trends have
impacted the global automotive
sales, which is also percolating into
developing countries like India.
Developed countries such as USA,
EU, and Japan are contemplating the

announcement of a bailout package
for the automotive industry, as many
auto-majors are in the verge of
collapse. Australia has already
announced AU $ 6.5 billion bailout
package for the car industry,
including setting up of AU $ 500
million green car innovation fund.
Since many of the auto-majors have
their operations in India, as also they
source significant volume of autocomponents from India, the growth
in the Indian automotive industry is
also likely to be affected, albeit for a
brief period. However, in the long
term, alongside the challenges, there
are also plethora of opportunities,
which need to be capitalized so as
to emerge as a successful global
automotive player.
41
2. GLOBAL SCENARIO
GLOBAL AUTOMOBILE
INDUSTRY
Origin and Trend
Automotive industry is one of the
most important and widespread
industries in the world. The global
automotive industry has been
evolving through different phases
characterized
by
its
own
developments. Over a period of
time, the industry has witnessed
several ups and downs, only to
emerge stronger and betterequipped to take on the challenges.
The history of automobiles
began with the technological
breakthrough that occurred in
Europe in early 1800s. It was in the
year 1860 when the first practical
internal combustion engine was
invented. Later on, gas powered
vehicles were invented, which
dominated the industry.
General Motors, established in
1908 in Michigan, USA is almost
completing a century of operation.
Later, it was Henry Ford, who in the
year 1914, endeavored in the mass
production of cars, reducing the
costs of manufacturing. Infact, these
two companies are considered to be
42
the pioneers in the automobile

industry for bringing in innovation
and setting high standards in the
industry.
During the early 20th century the
industry made strides forward by
emphasizing on car design. During
the same time, automobile industry
was seen evolving in other parts of
the globe as well. The automobile
industry in Japan and in select
European countries, mainly
Germany, France and Italy, also
witnessed significant growth. The
great depression of 1930s had a
negative bearing on the automobile
industry. Following the great
depression, the industry was faced
with inadequate capital and low
economic activity. This period also
saw a reduction in the number of
manufacturers. Later, the World War
II (1939-1945) also caused a
negative impact on the industry. Post
war period, the automobile
production plummeted in almost all
parts of the world. Many companies
reduced production of passenger
cars during the period, and were
involved in production of war tanks,
military trucks and navigation
equipments.
Automobile
production
witnessed resurgence after the end
of World War II. There was a high
demand but the production was not
high enough to meet this demand.
Again, the energy crisis had a
bearing upon the automobile
industry. There was a need to build
fuel-efficient automobiles. Japanese
producers concentrated on such
evolving needs, and were soon to
become the leading exporters of
automobiles to the world market.
Industry developments since
1980s focused on global expansions
and setting up of joint ventures in
new and emerging markets. At the
start of 21 st century, the growth
trends in global manufacturing
continued to be upwards. The sector,
since the beginning of 21st century,
has witnessed two major trends. The
first trend is the rapidly growing role
and importance of emerging
markets. The year 2007 was the auto
industrys sixth consecutive year of
growth with the sales reaching 73
million units. Faced with the
challenge of reducing cost of
production, the global automobile
industry is slowly shifting to low cost
destinations, like China and India.
Another emerging trend is the need
for addressing the key societal
issues of energy saving and
controlling carbon-di-oxide emission.
Several initiatives have been taken
by the industry to address the
challenges associated with carbon
emission and fuel efficiency.
Industry Growth
Over the years, the industry has
grown significantly to become as
one of the well-established
industries all over the world. Along
with the growth in size, the industry
has
made
technological
advancements also. The industry
utilizes
various
modern
technologies integrated into a
system, to improve the quality of
the vehicles. These include wide
use of modern chips and
electronics to make the vehicles
more efficient and competent.
In the initial years, most of the
manufacturing activities were
concentrated in USA and some of the
European countries. Though, these
countries represent a significant
share in the production even now,
more and more volume of production
comes from other parts of the world,
like China, Japan and Korea. Around
three-fourths of the global production
is being carried out in top 10
producing countries, in 2007. Of
these, Japan, USA and China,
cumulatively constitute over 40% of
global production.
The automobile industry has
also contributed immensely in
providing employment. Building over
70 million vehicles, the world
automobile industry provides
employment to about 10 million
people directly, in making the
vehicles and the parts that go into
them. This is over 5% of the worlds
43
total manufacturing employment. It

is estimated that each direct
employment in this industry supports
at least another 5 indirect jobs in the
community, resulting in more than 50
million jobs created by the
automotive industry. These indirect
employment are created in related
manufacturing and services sectors.
Automobiles are built using the
materials of many sectors, including
steel, iron, aluminum, glass, plastics,

electricals, textiles, electronics,
rubber and chemicals, thus providing
employment as well as growth to
such diverse range of sectors.
Production
The growth in global economy, in
general has kept up the pace of
auto industry growth, barring
cyclical moderations in growth
Exhibit 2:
PRODUCT-WISE SHARE IN WORLD PRODUCTION OF
AUTOMOBILES5 (2007)
Total = 73 million vehicles

SOURCE: OICA, EXIM Research
According to OICA classifications, Passenger cars are motor vehicles with at least four wheels,
used for the transport of passengers, and comprising no more than eight seats in addition to
the drivers seat.
Light commercial vehicles are motor vehicles with at least four wheels, used for the carriage
of goods. Mass given in tons (metric tons) is used as a limit between light commercial
vehicles and heavy trucks. This limit depends on national and professional definitions and
varies between 3.5 and 7 tons. Minibuses, derived from light commercial vehicles, are used
for the transport of passengers, comprising more than eight seats in addition to the drivers
seat and having a maximum mass between 3.5 and 7 tons.
Heavy trucks are vehicles intended for the carriage of goods - maximum authorised mass is
over the limit (ranging from 3.5 to 7 tons) of light commercial vehicles. They include tractors,
vehicles designed for towing semi-trailers.
Buses and coaches are used for the transport of passengers, comprising more than eight
seats in addition to the drivers seat, and having a maximum mass over the limit (ranging
from 3.5 to 7 tons) of light commercial vehicles.
44
momentum and a negative growth

in 2001. The world production and
exports of automobiles have
increased continuously, since 2001,
barring fluctuations with surging
demand pattern. According to
International Organization of Motor
Vehicle Manufacturers (OICA), in

the year 2007, the turnover of the
industry is estimated to be Euro 2
trillion, with the production of 73
million vehicles (two / three
wheelers are excluded, which adds
up to another 50 million units).
Exhibit 3:
TRENDS IN GLOBAL PRODUCTION OF AUTOMOBILES
Exhibit 4:
PERCENTAGE CHANGE IN GLOBAL AUTOMOBILE PRODUCTION
(2000-2007)
45
Analysis of production in the last

eight years shows that there is a
decent growth in the global
automobile production, except
hiccups in few years. The
Compounded Annual Growth Rate
(CAGR) registered a modest 3.82%
during the period 2000-2007. The
global automobile production has
increased by 5.4% in the year 2007,
over the year 2006, thus showing a
significant increase in production.
The production of automobiles is
concentrated in few parts of the
world. Japan, USA, China and
Germany have been the largest
automobile manufacturers in the
world, in the year 2007, followed by
South Korea, France, Brazil, Spain,
Canada and India. India6 holds a
share of 3% in global automobile
production.
The European Union, as a bloc,

is one of the largest automotive
producing regions in the world
providing direct employment to an
estimated 2 million people, while the
total employment effect (direct and
indirect) is estimated to be about 10
million.
According to OICA, Japan is the
largest producer of cars in the world
followed by China, Germany, USA,
South Korea and France. India ranks
9th in the production of cars in the
world ahead of UK, Canada, Russia
and Mexico. USA is the largest
producer of commercial vehicles.
Close competitors are China, Japan,
Canada, Thailand and Mexico. India
ranks 8 th in the production of
commercial vehicles and is ahead of
countries like Brazil, Germany,
France and Turkey.
Exhibit 5:
COUNTRY-WISE SHARE IN GLOBAL VECHICLE PRODUCTION FOR
THE YEAR 2007

6
46
It may be mentioned that OICA production data does not include two/three wheelers, in
which India accounts for significant volume of production.
Exhibit 6:
TOP TEN COUNTRIES PRODUCTION OF MOTOR VEHICLES IN 2007
In terms of two wheelers, China

is the leading producer in the world
with a production level of over 22
million units in 2007, followed by
India (over 8 million units), and
Indonesia (around 5 million units).
Other major two wheeler producers
are Japan, Brazil, Thailand, Vietnam,
Italy, Malaysia and Colombia.
Investment In Automobile
Industry
The automobile industry is one of
the major innovators, investing
significantly in research and
development and production, with
the objectives of increasing the
safety level, energy efficiency, and
enhancing the overall performance.
Due to volatility in energy prices,
the industry is facing a pressing
need to find ways to improve fuel

efficiency. The industry is
responding through innovation
including introduction of electric
cars, bio-fuels, and energy efficient
technologies.
Major investing countries in the
automobile industry in the year 2007
are USA, Germany and Japan. USA
invested approximately Euro 30
billion in 2007, followed by Germany
(Euro 12 billion), Japan and China.
Trade
There was a steady increase in
global trade of automotive products
through out the world during the
analysed period. According to the
data collated by the WTO, world
exports of automotive products in
47
Table 1:
LEADING COUNTRIES INVESTING IN AUTOMOBILE INDUSTRY (2007)
Million Euros
Country
Turnover
Investments
USA
Germany
Japan
China
France
Italy
Spain
Korea
Egypt
UK
425,106
227,666
435,610
86,984
111,901
54,135
75,104
62,993
2,901
58,238
30,416
11,900
6,450
5,330
4,196
3,450
2,740
2,239
1,661
1,590
1,889,840
84,801
Total (including others)

SOURCE: OICA
Exhibit 7:
SHARE OF COUNTRIES IN INVESTMENTS MADE IN THE AUTOMOBILE
INDUSTRY (2007)
48
the year 2007 were valued at nearly

US $ 1.2 trillion. Global exports
grew by around 17% in the year
2007, over the previous year; with
the CAGR during the period 20002007 being around 11%.
Region-wise data on export of
automotive products indicate that
Europes share in worlds exports
have increased from around 50% in
2000 to over 55% in 2007. The share
of automotive products in EUs total
merchandise exports remained at
over 11% in 2007, without much
change from the share witnessed in
the year 2000. A large chunk of
exports is intra-Europe constituting
78% of total in 2007. Exports from
Europe to other regions (and their
corresponding share) include North
America (9.6%), Asia (4.6%), CIS
(2.6%) and Africa (2.4%). The annual
percentage change in export of

automotive products from Europe
stood at 9% over the previous year.
Asia exported automotive
products valued at around US $ 265
billion in 2007. Asias share in world
automotive exports has increased
from 19.9% in 2000 to 22% in 2007.
North America has been a major
importer of automotive products from
Asia. The Asian market has largely
been dominated by Japan with
exports worth US $ 158.6 billion in
2007. Though the share of Japan in
world exports have been around
13.4% in 2007, it has decreased from
the year 2000, when its share had
been around 15.3%.
North Americas export of
automotive products was worth at
around US $ 219.9 billion in 2007,
Exhibit 8:
REGIONWISE SHARE IN WORLD EXPORT OF AUTOMOTIVE PRODUCTS
(2007)
SOURCE: WTO; EXIM Research
49
with a share of 19%. Exports were

mainly confined as intra-regional,
with a share of nearly 77%.
EU, as a bloc, was one of the
largest importers of automotive
products in the world with a share of
almost 46% in the year 2007, with
import in value terms being US$ 543
billion. In terms of individual
countries, USA was the largest
importer with a share of 19%, valued
at US$ 221 billion, in 2007, followed
by Canada, at a distant second
position, with imports worth US $ 67
billion, with a share of 5.6%. Other
top importers of automotive products
were Russian Federation (2.8%),
Mexico (2.5%), China (2%), Australia
(1.6%) and Japan (1.3%).
Profiles of Select Automobile

Producing Countries
United States of America
The motor vehicle industry is one
of the largest manufacturing
industries in the United States. It
is one of the industries linked much
with the US manufacturing sector
and directly generating retail
business
and
employment.
According to industry estimates, the
contribution of US auto industry to
employment generation is about 1.8
million jobs. This represents about
1.7 % of the total private (non-farm)
sector jobs in the US economy.7
7
50
http://www.cargroup.org/pdfs/AIAMFinal.PDF
USA produced nearly 10.8

million vehicles in the year 2007, as
compared to 11.3 million vehicles
produced in the year 2006, thereby
indicating a negative growth (of 4.5%). Light Commercial Vehicles
(LCVs) constituted 60% of the total
production followed by cars at 36%
and Heavy Commercial Vehicles
(HCVs) at 3%. Production of LCVs
increased by around 1.8% in 2007
over the previous year from 6.4
million units in 2006 to 6.5 million
units in 2007. Production of cars and
Heavy Commercial Vehicles (HCVs),
however, declined by around 10%
and 40%, respectively, during the
year 2007, as compared to 2006.
United States contribution to
world automotive exports was 9.2%,
and was ranked at second position,
after Japan. Automotive exports, in
the year 2007, constituted around
9.4% share in USAs total
merchandise exports, which in 2000
stood at a modest 8.6%. Motorcars
and other motor vehicles (HS code8703) formed a significant portion of
exports of automobiles in terms of
value in the year 2006, followed by
motor vehicles for transport of goods
(HS code-8704).
At present, following the financial
sector meltdown, the automobile
industry in USA is struggling with
downtrend in sales. Auto-majors
such as GM is cutting down the
Exhibit 9:
PRODUCTWISE PRODUCTION OF AUTOMOBILES IN USA (2007)
Total = 10.8 million vehicles

Table 2:
EXPORT OF SELECT AUTOMOBILES FROM USA
US $ Million
Commodity
Code
Commodity Name
2003
2004
8703
Motor cars and other

motor vehicles
8704
Motor vehicles for the

transport of goods
7282.28
8713.05
8701
Tractors
2711.34
3378.87
4037.11
4653.69
8711
Motorcycles
(including mopeds)
759.1
808.88
857.48
1083.86
8705
Special purpose
motor vehicles
586.87
610.76
823.22
986.62
8702
Public transport type

passenger motor vehicles
355.32
526.63
585.47
646.44
22776.73 25163.13
2005
2006
31277.22 35401.13
10049.01 11587.50
SOURCE: UN COMTRADE, EXIM Research
production across the world to

overcome the crisis. US Government
is also contemplating to provide a
bailout package for the automotive
sector.
Japan
Japans automotive industry, which
began in the early twentieth
century, is the worlds largest
manufacturer and exporter of
51
around 2% in the year 2007, over

the previous year, thereby implying
a growing demand for cars.
Production of HCVs showed an
increase of 2.8% in the year 2007.
However, production of LCVs
declined by almost 10% during the
same period.
automobiles. Japan has several

worlds largest manufacturers like
Honda, Toyota, Nissan, Suzuki and
Mitsubishi. Japan produced
automobiles to the tune 11.6 million
vehicles in 2007, which is an
increase of around 1% over the
previous year. Share of cars in the
total vehicles production stood at a
staggering
85%.
Japanese
production of cars has increased by
Japans economy is highly

dominated by the automotive sector
though in recent times its contribution
Exhibit 10:
PRODUCTWISE PRODUCTION OF AUTOMOBILES IN JAPAN (2007)

Table 3:
EXPORT OF SELECT AUTOMOBILES FROM JAPAN
US $ Million
ITC HS Code Commodity Name
2003
2004
68390.66 74822.89
2005
2006
8703

motor vehicles
8704

transport of goods
6679.83
8701
Tractors
1288.93
1776.41
1915.84
2068.41
8702

1100.21
1334.04
1606.83
1941.46
8705
Special purpose
motor vehicles
341.1
330.58
294.74
286.30
52
8071.5
79769.27 94485.24
7578.31
8293.84
to world exports has declined. The

share of Japanese automotive sector
in world export of automotive
products has declined from 20.8%
in 1990 to 13.4% in 2007.
Nonetheless, the Japanese
automotive sector contributes a
whopping 22% share in the countrys
total merchandise exports in 2007.
In the year 2006, motorcars and
motor vehicles (HS code-8703)
contributed nearly 87% of exports
from Japan in terms of value.
in automotive assembly and

component manufacturing, and
another 400,000 persons in
distribution and aftermarket sales
and service.8
About 52% of vehicle production
in Canada was cars, followed by
LCVs (47%), in the year 2007.
Canadas overall automobile
production has increased by a
meagre 0.3% in 2007 to reach
around 2.6 million units, which has
largely been contributed by a
significant rise in production of LCVs.
Interestingly, HCVs production
declined by nearly 51% in 2007 as
compared to 2006. Even car
production reduced by 6% from 1.4
million units in 2006 to 1.3 million
units in 2007.
Canada
The automotive industry in Canada
is one of the largest manufacturing
sectors, accounting for 12% of
manufacturing GDP and 24% of
manufacturing trade. The industry
employs more than 100,000 people
Table 4:
EXPORT OF SELECT AUTOMOBILES FROM CANADA
US $ Million
ITC HS
Code
Commodity Name
8703

motor vehicles
8704

transport of goods
8701
8702
2003
2004
31377.98 36662.89
2005
2006
37200.79 37809.90
9135.19
9002.18
9961.63
8941.62
Tractors
883.39
1262.62
1939.22
2636.90

569.19
688.95
599.88
581.41
8705
Special purpose
motor vehicles
102.56
123.99
185.94
199.50
8711
Motorcycles
(including mopeds)
24.01
25.15
18.75
11.95

8
http://www.ic.gc.ca/epic/site/auto-auto.nsf/en/am02177e.html
53
Exhibit 11:
PRODUCTWISE PRODUCTION OF AUTOMOBILES IN CANADA (2007)

Canada is one of the few

countries in the developed world
whose share in world automotive
exports has been declining. During
1980, Canadas share in world
automotive trade stood at 6.9%,
which increased during the next two
decades to touch 8.9% in 1990 and
10.5% in 2000 before declining to a
significant low of 5.6% in 2007.
Although, in terms of value,
Canadas export of automotive
products have increased from US $
60.6 billion in 2000 to US $ 65.8
billion in 2006, the share of
automotive products in Canadas
total merchandise exports has
decreased from 21.9% in 2000 to
15.7% in 2007. Production and
export of cars forms a significant
share in the Canadas automotive
sector.
54
South Korea
South Koreas production of
automobiles
has
increased
modestly by around 6% in 2007,
over the previous year. Apart from
HCVs, which declined by around
7.8%, from 28,621 units in 2006 to
26,397 units in 2007, production
has increased in all other
categories in the year 2007.
Production of buses has witnessed
high growth, 22.4% in 2007.
Production of cars increased by
6.7%, and production of LCVs by
about 3.6% in 2007.
South Korea has also been one
of
the
major
automobile
manufacturers in Asia apart from
Japan. Its share in world export of
automotive products, which stood at
a meager 0.1% in 1980, improved
over the years to touch 0.7% in 1990,

to 2.6% in 2000, and almost to 4.1%
in 2007. Over the years, South Korea
has been giving significant
emphasize to the automotive sector;
this is evident from the growing share
of automotive sector in the
economys total merchandise

exports, which increased to 13.3%
in 2007, as compared to 8.8%, in
2000. Motorcars and other motor
vehicles (HS code 8703) was the
largest export item in terms of value
in 2006.
Exhibit 12:
PRODUCTWISE PRODUCTION OF AUTOMOBILES IN
SOUTH KOREA (2007)

Table 5:
EXPORT OF SELECT AUTOMOBILES FROM SOUTH KOREA
US $ Million
ITC
HS Code
Commodity Name
2003
2004
2005
2006
17535.71
24632
27256.1 30597.19
8703

motor vehicles
8704

transport of goods
810.92
1224.1
1454.93
1447.62
8702

577.62
479.26
474.44
523.09
8701
Tractors
139.1
175.39
224.21
237.97
8711
Motorcycles
(including mopeds)
67.11
85.86
114.1
116.25
8705
Special purpose
motor vehicles
29.85
48.79
80.23
90.46
55
China
China witnessed a robust growth in
production of vehicles in the year
2007, across all the categories.
China produced nearly 8.9 million
vehicles in the year 2007, as
compared to 7.3 million vehicles
produced in the year 2006, an
increase of 22%. Sub-segments,

such as HCV, LCV and cars
witnessed
even-growth
in
production (around 22%) in 2007,
while the growth in passenger car
segment was almost 24% in the
same year.
Exhibit 13:
PRODUCTWISE PRODUCTION OF AUTOMOBILES IN CHINA (2007)

Table 6:
EXPORT OF SELECT AUTOMOBILES FROM CHINA
US $ Million
ITC
HS Code
Commodity Name
2003
2004
2005
2006
8711
Motorcycles
(including mopeds)
1448.29
1987.88
2417.77
3195.53
8703

motor vehicles
114.13
317.1
850.19
1536.43
8704

transport of goods
159.19
276.69
686.6
1183.74
8701
Tractors
92.02
141.66
289.55
419.83
8702

42.89
81.03
196.62
416.39
8705
Special purpose
motor vehicles
79.61
84.63
118.27
332.33
56
Chinas share in world export of

automotive products, which was
negligible in 1980, has increased to
0.1% in 1990, and to 1.9% in 2007.
Export share of automotive products
in total merchandise exports of China
has increased modestly to 1.5% in
2006 as compared to 0.6% in 2000.
This indicates growing share of
China in world export of automotive
products. Unlike the developed
countries, motorcycles (including
mopeds) (HS code-8711) formed a
significant portion of exports of
automobiles by China, in terms of
value, in the year 2006, followed by
Motorcars and other motor vehicles
(HS code -8713), at a distant second
The worlds fastest-growing
automotive market, at present, is
China. The Chinese automotive
market tantalizes world auto-majors
with its potential for growth and
profits. American auto-majors see
China as a growth market that could
help make up for falling profits at
home. Even the Japanese and
European carmakers also have
similar views about China. In fact,
some of the car companies are
selling more cars in China than at
home in Germany.
China is building capacity in car
manufacturing with the help of
foreign investments. As per the
provisions, foreign investment is
permitted only with a local partner.
Such provisions, along with financial
backing of the Government, are
expected to landscape the
automotive industry in China. The

low labour cost and momentum in
economic growth would also help the
industry to grow. At present, there are
more than a dozen state-run
automakers in China.
Germany
Germany is the birthplace of the
automobiles; in 1887, Karl Benz
designed a coach fitted with an
internal combustion engine, and the
modern car was born. In 1901,
Germany was producing around
900 cars a year; and presently, the
total vehicles production in
Germany is as high as 6 million
units; nearly half of the cars
produced in Germany are exported.
Daimler-Chrysler, the result of the
merger between Daimler-Benz,
Germanys largest manufacturers of
cars, and the American Chrysler
Corporation, is the third largest car
manufacturer in the world.
Germany has a very robust
automobile sector, which is
renowned for its innovation and
technology infusion in the world.
Germany produced automobiles to
the tune 6.2 million units in 2007, an
increase of around 7% over the
previous year. The production share
of cars was at a staggering 92% of
the total production of vehicles.
Production of cars in Germany has
increased by almost 5.75% in 2007,
over the year 2006. Production of
HCVs witnessed a growth of over
16% in the year 2007. LCVs,
57
comprising 8% share in total

production, witnessed the highest
growth of 24.3% in the year 2007.
Vorsprung durch Technik Progress
Through Technology is a famous
advertising slogan, which sums up
the values of the German car
industry as a whole. At present, the

car industry is the cornerstone of
Germanys
economy
with
recognizable brands such as Audi,
Daimler,
Mercedes,
BMW,
Volkswagen and Porsche as its
leading players.
Exhibit 14:
PRODUCTWISE PRODUCTION OF AUTOMOBILES IN GERMANY (2007)

Table 7:
EXPORT OF SELECT AUTOMOBILES FROM GERMANY
US $ Million
Commodity
Code
Commodity Name
8703

motor vehicles
transport of goods
Tractors
Special purpose motor
vehicles
Motorcycles
(including mopeds)
and cycles
8704
8701
8705
8702
8711
2003
2005
2006
91510.30 99698.49 108685.50 115981.60

7229.69
8633.16
9764.72 10208.45
5426.80
1728.01
7147.80
2246.20
7508.49
2849.26
8077.41
3704.94
1255.20
1512.19
1433.72
1571.48
619.11
703.40
942.08
1073.33
58
2004
Mexico
Mexico is ranked at twentieth
position in the world automotive
production, in 2007, and is
expected to move up further,
competing with countries such as
India, USA, China and Slovakia.
Production of automobiles in
Mexico increased by around 2.4% in
2007, as compared to the previous
year, to reach a level of 2.1 million
units. There has been an increase
of almost 10% in the production of
cars and 2.2% in the production of
LCVs in the year 2007. However,
there has been a marginal decrease
in the production of HCVs, by 0.2%
in 2007.
Export of automotive products by
Mexico was valued at around US $
45.2 billion in 2007. Mexicos share
in world export of automotive
products has increased from 0.3%

in 1980 to 3.8% in 2007. The
automotive sector contributed
around 17% of the countrys total
merchandise exports in 2007.
Motorcars and other motor vehicles
(HS code 8703) was the major
exported item with a value of over
US $ 17 billion in 2006.
Signing of NAFTA has changed
the dynamics of the Mexican
automotive industry. The automotive
sector, which has a crucial berth
under this agreement, became the
largest traded item between Mexico
and the other two signatories,
Canada and the USA. Mexico has
the presence of worlds best
automobile manufacturers like
Daimler Chrysler, General Motors,
Ford,
Renault-Nissan
and
Volkswagen.
Exhibit 15:
PRODUCTWISE PRODUCTION OF AUTOMOBILES IN MEXICO (2007)

59
Table 8:
EXPORT OF SELECT AUTOMOBILES FROM MEXICO
US $ Million
Commodity
Code
Commodity Name
8703

motor vehicles
8704

transport of goods
8701
Tractors
2003
2004
2005
2006
12545.14 11840.72 13404.39 17407.49

6638.89
6668.89
7135.33
8510.65
731.71
1315.43
1203.39
1405.69
8705
Special purpose motor vehicles
3.90
8.09
11.28
34.43
8711
Motorcycles (including mopeds)

and cycles
6.60
10.85
5.87
3.80
8702
Public transport type passenger 15.80

motor vehicles
0.78
4.84
2.93
Category-wise Export of
Automobiles in the World
The growth in automobiles trade
across the globe in the year 2007
has been significant in spite of the
volatility in crude oil prices. As the
production activity is centered in the
Asia Pacific region and in Europe,

the markets for the automobiles
has also been largely centered in
these regions. In fact, the growth
in production in these two regions
has been 8.8% and 6.3%,
respectively, in 2007. However, the
Table 9:
CATEGORYWISE EXPORTS OF AUTOMOBILES IN THE WORLD
US $ Billion
Commodity
Code
Commodity Name
8703

motor vehicles
8701
Tractors
23.56
31.49
34.16
38.92
8704

transport of goods
63.48
73.89
81.10
89.81
8711
Motorcycles
(including mopeds)
12.04
14.71
16.26
18.37
8702

7.27
8.57
9.26
10.08
8705
Special purpose motor vehicles 4.91
6.07
7.02
9.39
60
2003
2004
2005
2006
393.34
453.88
485.22
528.30
share of Europe in world export of

automotive products has been far
greater at 55% as compared to
Asia, which stood at 22%.
The world tractor market has
undergone changes in the last
couple of decades. The growth of the
1970s in the worldwide farm
equipment industry was stimulated
by unusual demands on world
agriculture. The farm equipment
industry, including tractors,
responded to the increase in global
demand for food, by increasing the
tractor production and catering to the
diverse demand of horsepower
capacity. In the process, the export
of tractors in the world also increased
significantly with a CAGR of over
18% during the period 2003-2006.
Tractors HS Code 8701
World trade in tractors in the year
2006 was valued at US $ 38.92
billion. Germany, Netherlands and
USA are the largest exporters of

tractors, cumulatively accounting for
more than 40% of total exports in
2006, in terms of value. Export
value of these three countries
amounted to around US $ 16 billion
in 2006. Other major exporters are
France (8%), Canada (7%),
Belgium (6%) and Japan and Italy
(5% each). Major importers of
tractors are USA (a share of 15%
in world imports), Canada and
France (7% each), Germany (6%),
UK and Spain (5% each).
Public Transport Type
Passenger Vehicles
HS Code - 8702
World trade in public transport
type passenger vehicles (HS code
8702) was estimated at US $ 10
billion in 2006. Japan is the leading
exporter in the world, with a share of
19%, and export value of US $ 1.9
billion. In the year 2006, Germany
Exhibit 16:
EXPORT OF TRACTORS IN THE WORLD HS CODE - 8701
Major Exporters
Major Importers
Total Value = US $ 38.92 billion

61
Exhibit 17:
EXPORT OF PUBLIC TRANSPORT TYPE PASSENGER VEHICLES
IN THE WORLD HS CODE - 8702
Major Exporters
Major Importers

exported over US $ 1.5 billion worth

of public transport type passenger
vehicles with a global export share
of 16% in terms of value. Other major
exporters are USA, Canada and
Poland (6% each). Major importers
include USA (8%), Germany,
Canada and France (6% each),
Russia (4%), Italy and Sweden (3%
each).
Motor Cars and Motor Vehicles
HS Code - 8703
World trade in motorcars and motor
vehicles HS code 8703 was
valued at US $ 528 billion in 2006.
Germany (with a share of 22% in
world exports) and Japan (18%) are
the leading exporters in 2006. Both
the countries have cumulatively
exported motorcars and motor
vehicles worth nearly US $ 210
billion. Other major exporters are
Canada and USA (7% each),
France, South Korea and Belgium
62
(6% each), followed by Spain (5%)

and UK (4%). Major importers of
motorcars and motor vehicles were
USA (share of 27%), Germany
(9%), UK (7%), Italy (6%), France
and Spain (5% each), and Canada
(4%).
Motor Vehicles for Transport of
Goods HS Code - 8704
World trade in motor vehicles for
transport of goods is valued at US $
89.8 billion in 2006. USA, Canada
and Germany together exported
35% of world export of motor
vehicles for transport of goods, in
terms of value. Other major
exporters are Mexico (share of 10%),
Japan (9%) Spain (7%), followed by
France and Italy (5% each). Major
importers of motor vehicles for
transport of goods include USA
(20%), Canada (9%), France (6%),
UK (5%), Germany (5%), followed by
Italy and Australia (at 3% each).
Exhibit 18:
EXPORT OF MOTOR CARS AND MOTOR VEHICLES IN THE WORLD
HS CODE - 8703
Major Exporters
Major Importers

Exhibit 19:
EXPORT OF MOTOR VEHICLES FOR TRANSPORT OF GOODS IN THE
WORLD HS CODE - 8704
Major Exporters
Major Importers

Special Purpose Motor

Vehicles HS Code 8705
World trade in special purpose
motor vehicles (HS code 8705) was
valued at US $ 9.39 billion in 2006.
Germany is the largest exporter,
under this category in the world,

with a share of 38%, in 2006. USA
and Italy are the other major
exporters cumulatively contributing
nearly 23% of export share in the
world. Major importers of special
63
Exhibit 20:
EXPORT OF SPECIAL PURPOSE MOTOR VEHICLES IN THE WORLD
HS CODE - 8705
Major Exporters
Major Importers

purpose motor vehicles are Spain

and USA (8% share each in world
imports), followed by Canada (7%),
Russia, Netherlands and Germany
(6% each).
Motorcycles (including mopeds)

HS Code 8711
In the year 2006, world trade in
motorcycles (including mopeds)
under HS code 8711 was valued
Exhibit 21:
EXPORT OF MOTORCYCLES (INCLUDING MOPEDS) AND CYCLES
IN THE WORLD HS CODE - 8711
Major Exporters
Major Importers

64
at US $ 18.37 billion. Japan

exported motorcycles (including
mopeds) valued US $ 6.4 billion,
and stood as the largest exporter
in the world accounting for 35% of
world exports. Other major
exporters of motorcycles (including
mopeds) are: China (17%), Italy
(9%), USA and Germany (6%
each). USA, France and Italy are
among the largest importers of
motorcycles (including mopeds) in
the world. In the year 2006 alone,
USA imported US $ 3.7 billion worth
of motorcycles (including mopeds),
and accounted for 22% of world
imports.
GLOBAL AUTO-COMPONENTS
INDUSTRY
The trends in auto-components
industry are dependent on the
trends in the automobile industry,
as the original equipment
manufacturers are the principal
customers for the auto components
industry. Though there is a
replacement market as well, the
trends in automobiles sector still
influences the growth of autocomponents industry. Since
automobile industry is more
concentrated in developed parts of
the world, like US, Europe and
Japan, the market for auto
components is also concentrated in
these countries. It is estimated that
there are around 2500-3000 tier-I
suppliers in the world, who account
for more than 80% of the total

value of the production.
The global auto components
industry is in the process of
undergoing a structural change.
Industry is being influenced by
strategies of OEMs, globalization,
business and technology trends. In
addition, the auto components
industry is faced with rising input
costs. Hence, there is a shift
occurring in the industry with more
and more companies moving to low
cost destinations, to be cost efficient.
Due to this trend, countries like
China, India and Thailand stand to
gain enormously. Several global
players have already established
their bases in these countries while
the local companies are also
upgrading themselves to face the
competition.
Auto-component industry is also
witnessing mergers and acquisition
trends. The large sized companies
are acquiring small sized companies
to grow even bigger as global
presence is of extreme importance
in this industry. There is a
consolidation wave sweeping across
the countries; most of the companies
are hiving-off their peripheral
businesses and concentrating on
their core business. There is also a
change in trend with more and more
companies becoming as system
integrators rather than being mere
suppliers.
65
Production
The production of auto components
industry has surged in the recent
years due to growth in automobile
production. The size of world auto
the past principally due to two
reasons.
the world automobile industry

has grown over the years;
as the time is passing, the

replacement market is also
growing.
However, the major portion of

components production is meant to
cater to the demand of OEMs and
only a small portion goes towards
replacement market. The size of
replacement market can be gauged
from the estimate that in the year
2001 there were over 500 million cars
in the world, while on an average
around 40 million new cars were
added annually to the market. Thus,
it may be surmised that there is a
growing replacement market for
auto-components in the world.
Table 10:
CATEGORY-WISE WORLD EXPORT OF AUTO-COMPONENTS
(US $ Billion)
Commodity
Code
Commodity Name
2003
2004
2005
2006
870840
Gear boxes
19.77
23.41
24.73
27.59
870839
Other brakes & servo-brakes

& parts thereof
11.57
13.47
14.02
16.12
870870
Road wheels & parts &

accessories thereof
8.19
9.94
10.94
12.45
870894
Steering wheels, steering

columns & steering boxes
5.26
6.43
6.41
7.40
870893
Clutches & parts thereof
3.59
4.39
4.80
5.52
870860
Non-driving axles &

parts thereof
3.11
3.82
4.01
5.01
870831
Mounted brake linings
3.33
4.20
4.02
4.93
870850
Drive axles with differential

whether or not provided with
other transmission components
2.93
3.65
4.07
4.74
870810
Bumpers and parts thereof
3.18
3.88
4.06
4.70
870880
Suspension shock absorbers
3.31
3.95
4.03
4.55
870891
Radiators
870829
Other parts & accessories

of bodies
66
2.87
3.39
3.37
4.28
34.40
39.48
39.54
44.63
Trade
Exports by the world auto
the past continuously in all subcategories. However, the trend may
not continue in the short-term due
to downtrend in automobile sales
following financial sector meltdown.
Nevertheless, the trend of
outsourcing may further increase as
the companies may be forced to
outsource even critical components
from other countries where the cost
of production is low. Earlier critical
components were produced in or
around the same place of the
automobile manufacturing.
auto-components traded in the

world. Japan and Germany are the
largest exporters under this product
category, cumulatively accounting
for more than 50% share in world
exports in 2006. Export value of
these two countries amounted to
around US $ 14 billion in 2006.
Other major exporters are USA
(14%), France (9%), Canada (4%),
and Mexico and Australia (2%
each). Major importers of
gearboxes for motor vehicles are
USA (a share of 24% in world
imports), followed by Canada
(11%), China (8%), Mexico and
Germany (6% each) and UK (5%).
Gear Boxes for Motor Vehicles

HS Code 870840
In the year 2006, world import of
gearboxes for motor vehicles (HS
code 870840) was valued at US $
27.6 billion, largest among the
Brake Systems and Parts for

Motor VehiclesHS Code 870839
World export of brake systems and
parts for motor vehicles- (HS Code
870839) was valued at
Exhibit 22:
EXPORTS OF GEAR BOXES IN THE WORLD HS CODE 870840
Major Exporters
Major Importers

67
Exhibit 23:
EXPORTS OF BRAKE SYSTEMS AND PARTS FOR MOTOR VEHICLES
IN THE WORLD HS CODE 870839
Major Exporters
Major Importers

US $ 16.1 billion in 2006. Germany

is the largest exporter of this
product group in the world with the
exports being around US $ 2.4
billion in 2006, a share of 15% in
world exports. USA (12%), Japan
(11%), Italy and China (7% each)

are other major exporters of brake
system parts for motor vehicles in
the world. As regards imports,
Germany is the largest importer
(with a share of 15% in world
Exhibit 24:
EXPORTS OF ROAD WHEELS & PARTS & ACCESSORIES THEREOF
Major Exporters
Major Importers

68
imports), followed by USA (12%),

Japan (11%), China and Italy (7%
each).
Road Wheels & Parts &
Accessories Thereof HS Code 870870
World export of road wheels and
their parts (HS code 870870) was
valued at US $ 12.45 billion in
2006. China (share of 19% in world
exports) and Germany (13%) are
the leading exporters of autocomponents under this group in
2006. Both the countries have
cumulatively exported products
worth nearly US $ 3.7 billion. Other
major exporters are USA (US $
1129 million), Italy (US $ 975
million) and Belgium (US $ 559
million). Major importers of road
wheels & parts & accessories
include USA (22%), Germany
(14%), Japan (8%) and Canada
(7%).
Clutches & Parts Thereof HS Code 870893

World export of clutches and parts
(HS code 870893) was valued at
US $ 5.5 billion in 2006. Germany
is the leading exporter of clutches
and parts thereof in the world, with
a share of 14%. In the year 2006,
Germany exported over US $ 1.5
billion worth of clutches and their
parts. Other major exporters are
USA (6%), followed by France and
Hungary (5% each), and UK (4%).
Major importers of clutches & parts
thereof include USA (14%),
Germany (9%) and France (8%).
Non-driving Axles & Parts
Thereof - HS Code 870860
World export of non-driving axles
and parts thereof was valued at US
$ 5.0 billion in 2006. Germany,
Belgium, Sweden, Japan and
France are the largest exporters of
non-driving axles and its parts in
Exhibit 25:
EXPORTS OF CLUTCHES & PARTS THEREOF IN THE WORLD
HS CODE 870893
Major Exporters
Major Importers

69
Exhibit 26:
EXPORTS OF NON-DRIVING AXLES & PARTS THEREOF
Major Exporters
Major Importers

the world with a cumulative share

of over 55%. In 2006, Germany
exported non-driving axles valued
US $ 1237 million, while the exports
by Belgium was valued at US $ 495
million. Other major exporters are
Sweden and France (8% each).
USA and Belgium are the largest

importers of non-driving axles in the
world with a share of 14% and
12%, respectively, in world imports.
Other major importers are Spain
(10%), Netherlands, Germany and
UK (8% each).
Exhibit 27:
EXPORTS OF DRIVE AXLES IN THE WORLD HS CODE 870850
Major Exporters
Major Importers

70
Drive Axles - HS Code 870850

World export of drive axles (HS
code 870850) was valued at US $
4.7 billion in 2006. USA is the
leading exporter of drive axles in
the world, with a share of 26%.
Germany, the second largest
exporter of drive axles had a share
of 14% in world exports valued
over US $ 637 million. Other major
exporters are Italy (11%), Mexico,
France and Sweden (7% each).
Major importers of drive axles
include Canada (21%), USA (17%),
Mexico (7%), UK and Belgium (6%
each).
Bumpers and Parts Thereof
HS Code 870810
World export of bumpers and parts
thereof (HS Code 870810)
amounted to US $ 4.7 billion in
2006. UK is the largest exporter in
the world, accounting for 15% (US
$ 685.42 million) of world exports

in 2006. Other major exporters of
bumpers and parts thereof are
Germany (US $ 631.42 million),
USA (US $ 477.59 million), and
Canada (US $ 467.37 million). USA
is the largest importer of bumpers
and parts thereof in 2006; its import
value being US $ 991 million, a
share of around one-fifth of world
imports. Other major importers are
Germany (US $ 435 million), and
Turkey (US $ 366 million).
Suspension Shock Absorbers HS Code 870880
World export of suspension shock
absorbers in 2006 was valued at
US $ 4.6 billion. Germany is the
leading exporter of suspension
shock absorbers in the world, with
a share of 20%. In the year 2006,
Germany exported over US $ 887
million worth of suspension shock
Exhibit 28:
EXPORTS OF BUMPERS AND PARTS THEREOF IN THE WORLD
HS CODE - 870810
Major Exporters
Major Importers

71
Exhibit 29:
EXPORTS OF SUSPENSION SHOCK ABSORBERS IN THE WORLD
HS CODE 870880
Major Exporters
Major Importers

absorbers. Other major exporters

are Spain (11%), USA (10%),
Belgium (9%), and Japan (8%).
Major importers of suspension
shock absorbers include USA
(16%), Germany (11%), Canada
(7%), France (6%), UK and
Belgium (at 5% each).
Radiators - HS Code 870891

World export of radiators in the
year 2006 was valued at US $ 4.2
billion. Germany was the largest
exporter of radiators in the world.
In 2006, Germany exported over
US $ 575 million worth of radiators
and accounted for 14% of world
Exhibit 30:
EXPORTS OF RADIATORS IN THE WORLD HS CODE 870891
Major Exporters
Major Importers

72
exports. Other major exporters of

radiators are USA (9%) and Mexico
(7%). Major importers of radiators
are USA (16%), Germany (15%),
Canada (8%), France and Mexico
(6% each).
IN SUM
The automobile industry depends
on the economic growth trends,
while the auto-component industry
depends on the growth trends in
automobile industry. Developed
regions are major producers of
automobiles; however, there has
been a shift in production base to

developing countries due to lowcost production and growth in
market. With increasing cost
pressures, automobile manufacturers are increasing their
outsourcing of core components
from developing countries. Though,
the current trends indicate trade
flow of intra-developed countries,
for both automobiles and
components, the trend is likely to
change in view of shift in production
base from developed to developing
countries.
73
3. SELECT TRENDS IN GLOBAL

AUTOMOTIVE INDUSTRY
Addressing the Challenges of

Volatility in Fuel Prices
One of the major challenges of the
world automotive industry is the
volatile oil prices. The year 2008
witnessed crude oil prices
breaching the US $ 140 mark per
barrel, and thereafter slipped below
US $ 40, later in the year. The
volatility in oil prices does not
directly affect the growth in
automotive industry; however,
volatility in oil prices is one of the
influential factors in automobile
demand. In order to address the
challenge of volatility in oil prices,
the automotive industry is
innovating new technologies and
inventing usage of alternative
energy. Hydrogen cars, driven
either by a combination of fuel cells
and an electric motor; hybrid
electric technology; electric vehicles
with rechargeable batteries; or
alternatively, compressed air
technology to drive the pistons in
a specially designed engine, are
thought to be replacing fossil fuelpowered motors in the decades to
come.
74
In hydrogen cars, fuel cell

vehicles are equipped with electric
motors that are powered with the
electricity generated by reacting
oxygen with hydrogen. As the only
waste produced by a hydrogen fuel
cell is water, it is environmentally
friendly too. However, there are also
obstacles in mass-marketing of
hydrogen cars, mainly due to the cost
of hydrogen production by
electrolysis, which requires a
comparatively expensive source of
electrical energy. However, hydrogen
produces five times more energy
than gasoline and thereby cheaper
in terms of overall operating costs.
The electric car in general
appears to be a way forward in
principle; electric motors are far more
efficient than the internal combustion
engines and have a much greater
power to weight ratio. They also
operate efficiently across the full
speed range of the vehicle, and thus
are ideal for cars. However, the ecofriendly feature of electric vehicles is
debated as production of electricity
causes green house gas emissions.
Table 11:
TOP TEN LOW-COST ECO-FRIENDLY CARS
Model / Variety / Variant
CO2 Emission (g/km)
Seat Ibiza, 1.4 TDI 80PS Ecomotive, diesel

Volkswagen Polo Bluemotion, 1.4 TDI 80PS
Honda Civic Hybrid 1.4 IMA ES
Renault Megane Sport Hatch 1.5 dCi 86
Expression 3 door
Citroen C3 1.6HDi
Ford Focus ECOnetic 1.6 TDCi
Renault New Laguna Hatch dCi 110
Skoda Fabia Estate1.4 TDI PD 80PS
Peugot 207 SW, 1.6 HDi
SMART Fortwo Cabrio
Price
99
99
109
117
11,000
11,995
16,300
13,000
118
115
130
109
119-123
113
13,000
15,800
17,100
13,100
13,900
10,500
SOURCE: Smart Planet, UK
In the compressed air

technology, air is compressed to
drive the pistons in a specially
designed engine. The French
engineer, Guy Negre, has developed
this engine. According to Moteur
Developpement International, the
company responsible for producing
Air Cars, the vehicle is available in
two forms: one that uses only
compressed air (meant for urban
usage), and another that uses both
compressed air and conventional
fuels, depending on the speed of the
vehicle.
Emergence of New Generation

Automobiles
Innovation is expected to drive the
automotive industry in future as the
producers are involved in
differentiating their products and
services. There is already growing

interface of electronics and IT in the
automotive functionalities, such as
entertainment, navigation and
safety. According to a survey
conducted by IBM across the automajors, majority of them felt that
by 2020 the level of innovation
would be greater in software and
electrical systems of automobiles.
It is also expected that by 2020 the
vehicles may become another node
on internet, connecting with other
vehicles, the transportation
infrastructure,
homes
and
businesses. According to a survey
of CEOs from the automotive
industry, conducted by IBM, by
2020, the level of innovation is
expected to be more in the
electrical systems of the vehicles,
and in increasing the interface with
75
software in connectivity to help the

driver with better navigation
conditions and to undertake
additional responsibilities. However,
there are challenges associated
with this trend, with regard to
consumer
acceptance,
technological development and
adoption of standards.
Supply Chain Management in

the World of Global Sourcing
Global auto-component firms are
giving greater level of thrust in
supply chain management to
address the challenge of cost
pressures. This is particularly
important in the context of global
sourcing. Though there is a
perceived belief that global sourcing
helps in reduction of cost of
components, there are logistical
challenges. Thus, it is being
recognised that collaboration
between the OEMs and component
producers are crucial to develop
capabilities and solve the
challenges associated with global
delivery, especially in the areas of
inventory management, scheduling,
and timely delivery. In addition, both
OEMs and suppliers view that the
collaborative efforts in supply chain
management
enhances
the
capacity and performance visibility.
As the OEMs compete fiercely in
securing market share, they
consider cooperation with the
component vendors as a strategic
activity for regular supply, cost
reduction and continued innovation.
76
Customer Management
Systems
Earlier, automotive manufacturers
had to get feedback from the
customers through intermediaries,
such as vendors or service
workshops. This trend has been
changing with the introduction of
customer management systems
through ICT interface. Even vehicle
buyers are also browsing the net
to know the features of a new
model, evaluate them with the
existing models, and compare the
prices. Customers are also ordering
the vehicles online which helps the
manufacturers to have the
database of the customers for
interactions. IT firms are developing
customer relationship management
(CRM) tools that help the
manufacturers to realise and
optimize individual customer value,
increase the post-warranty service
retention, predict model demand
and provide supply chain solutions.
While there are increasing use of
IT based solutions for establishing
direct relationship with the buyers,
automobile manufacturers are also
strengthening
there
dealer
management systems with strong
franchisee agreement.
Growing Small Car Segment
The volatility in crude oil prices
witnessed during 2008 reemphasized the need for small and
fuel-efficient vehicles. Some of the
automobile majors have plans to
hike their R&D budget for designing

of small and fuel-efficient vehicles.
Added to this, is the need for
reduction in prices to target the
middle-income groups of population
and the novice customers who are
migrating from two-wheelers to four
wheelers, especially in developing
countries like India, where the
vehicle penetration is relatively low
as compared to other emerging
economies. An auto research firm,
CSM Worldwide Inc., has estimated
that global demand for small cars
will grow by 30% to 27 million
vehicles a year by 2013. The small
car segment account for around
two-thirds of total market demand
in India; the same in the case of
Japan is one-third. Infact, the
passenger car sales in India too
have grown by a CAGR of about
17% during 2002-2007, with the
growth being highly skewed
towards the small car segment.

Coupled with this are the fiscal
incentives the small car owners are
being provided (central excise duty
on small cars in India is 12% as
compared to 20% for larger
models*). The fast-growing small
cars market has encouraged
several global auto-majors (such as
Volksawagen (by 2010), Renault in
collaboration with Bajaj (by 2011),
Toyota (by 2010) and Honda (by
2012) to launch small cars in India.
Green Motoring
Automobile manufacturers are
increasing the thrust on fuel
efficiency than before; the initiatives
are mainly through improvements in
technology and introduction of new
fuel variants, thereby reducing toxic
emissions. It may be mentioned
that China, the EU, Japan and the
Box 1:
HYBRID VEHICLES AROUND US
Any vehicle that combines two or more sources of power that can directly or
indirectly provides propulsion power is a hybrid. For example, a moped (a motorized
pedal bike) is a type of hybrid because it combines the power of a gasoline engine
with the pedal power of its rider. Most of the locomotives we see pulling trains are
diesel-electric hybrids. Cities like Seattle have diesel-electric buses - these can
draw electric power from overhead wires or run on diesel when they are away
from the wires. Giant mining trucks are often diesel-electric hybrids. Submarines
are also hybrid vehicles - some are nuclear-electric and some are diesel-electric.
Most hybrid cars on the road right now are gasoline-electric hybrids, although
French carmaker PSA Peugeot Citroen has two diesel-electric hybrid cars in the
works.
*
Indian Cars with a length of 1400 mm with engine capacities of 1200 cc for petrol and
1500 cc for diesel qualify for the excise sop on small cars. Engine capacity between 1500 cc
and 1999 cc attracts a fixed duty of Rs 15,000, while those above 2000 cc had to pay
Rs 20,000 more. (as on September 2008). As a part of stimulus package, the Government
announced a 4% reduction in central excise duty on various items including automobiles.
77
USA have already established fuel

economy rules or agreements of
varying stringency. The FIAs 9
declaration for green motoring has
set a fuel economy target of 140
gCO 2 / km for passenger cars.
Such a global fuel economy target
could be used as an international
benchmark to assess progress in
the fuel efficiency of the global fleet
of new motor vehicles. Some
countries are also undertaking
Green Rating of automobiles. In
India, a Green Rating project was
started by Centre for Science and
Environment, with support from
United Nations Development
Programme (UNDP) and the
Ministry of Environment and
Forests, Government of India. The
pilot project covered 35 production
facilities in nine states covering
over two-thirds of the vehicles
running on road during that time.

The findings of the project revealed
that the MNCs and domestic
companies were at par in terms of
overall environmental governance.
Organisations like International
Iron and Steel Institute (IISI)
continually explores innovation that
demonstrates the value of steel in
automobile industry. IISI has
established WorldAutoSteel, a group
of members producing innovative
steel for automobiles, which lead the
materials revolution through
research projects like the Advanced
Vehicle Concepts and Ultra-Light
Steel Family of Research, that help
the worlds automotive industry
improve the safety, affordability and
environmental impact of its products.
WorldAutoSteel is involved with a
new project, named Future Steel
Box 2:
FUTURE STEEL VEHICLE PROGRAMME
WorldAutoSteel has launched a Future Steel Vehicle (FSV) Programme, which
is intended to develop steel auto body concepts that addresses alternative power
trains and hybrid motor systems. Under FSV programme WorldAutoSteel has
developed advanced high strength steels that generates around 15 times less
GHG emissions during the material manufacturing phase, which reduces a vehicles
life cycle carbon footprint. The new steel concept help reduce the total body mass
of the vehicle without sacrificing safety of the vehicle.
FSV programme consists of three phases : Phase I includes an engineering
study; Phase II develops concept designs; and Phase III builds demonstration
hardware. WorldAutoSteel commissioned EDAG Engineering and Design AG,
headquartered in Fulda, Germany, to complete the Phase I. Phase II would be
based at EDAGs facility in Michigan.
SOURCE: WorldAutoSteel
78
Fdration Internationale de lAutomobile (FIA)
Vehicle, which is intended to develop

steel auto body concepts that
addresses alternative power trains
and hybrid motor systems.
Cross Border M&A Deals

The global automotive industry is
increasingly getting more active in
cross border mergers and
acquisition (M&A) deals. On a
global basis, the number of crossborder deals has increased in the
past few years, and this trend is
expected to continue after the
recovery of economic activity in the
world. The expansion outside the
home markets of some of the major
automotive companies from
traditional low-cost countries, such
as China and India, is bringing in
new capital and a fresh look at
certain sectors of the automotive
market. With the recession in the
US market and its consequent
impact in other markets, automotive
assets in developed countries are
becoming attractive to buyers from
emerging economies. Global M&As
in automotive industry is turning into
a strategic option for companies
looking to accelerate growth.
In addition to corporate-level
alliances, functional collaborations
are also increasing all over the globe.
In the past, several technology and
platform sharing agreements have
been forged, enabling the firms to
reduce product development time
and costs. According to a survey of

CEOs by KPMG, the automotive
industry has more number of CEOs
pursuing global business designs
than any other industry surveyed.
The study reveals that the CEOs
from automotive industry are focused
on optimizing global operations,
globalizing their products and
brands, and changing their mix of
capabilities, knowledge and assets.
Some companies that have strategic
plans to outperform others have even
more aggressive strategies in such
areas.
Entry of Private Equity

Players
The traditional funding model in the
automotive industry is slowly being
replaced with aggressive funding
structures. There has been a
structural change in the automotive
industry with entry of private equity
players in the past. Traditional and
family-owned businesses were sold
to private equity players and hedge
funds, which are expecting more
profit or investment realization from
the industry. Though the business
activities of private equity players
have come down, following the
financial market meltdown, this is
expected to be revived soon, either
when the market sentiments
improves or once consolidation
happens among the private equity
players.
79
Design for Recycling

It is being increasingly realized that
natural resources of the earth are
depleting fast. Hence, there is a
growing
concern
amongst
manufacturers as also the
consumers to conserve the
resources; one such way is through
recycling. The automobile industry
is one of the pioneers in the field
of recycling. Also, the rising input
prices are making the automobile
manufacturers to design the
vehicles that can be easily recycled.
The complete recycling of a vehicle
is a long process that requires the
involvement of many participants:
dismantlers, recyclers, industries
that use recycled materials,
shredders etc. The success of the
entire recycling chain depends
largely on the efforts of automotive
manufacturers to make the
recycling job easier. This is a
challenging task, especially when
establishing viable recycling chains,
organized by major categories of
materials. Despite challenges,
Renault has established recycling
chains to facilitate the emergence
and success of these paths by
incorporating the demands of
recycling into the design of its
vehicles.
Preserving Brand Identity
With growing mergers and
takeovers in automobile industry,
players are carefully devising
strategies to strengthen the
80
backroom operational synergies, in

terms of common logistics and
supply chain management, but
avoid losing the brand identities. A
group owning different brands
prefers not to use the same
platform that has same kind of
technology, management, and
designers to preserve the brand
identity. In this sense, the
automobile sector is different from
monolythic branding strategies of
consumer goods. To achieve this
objective, players, who are aspiring
to go global, are establishing
design centres that help the
management in image-building
exercises.
Trendy Cars, Shorter

Life-spans
An automobile is a highlyengineered collection of complex
components, each of which has its
own lifespan and longevity
charecteristics. While some
components require frequent
replacement, others that are
relatively expensive are expected to
have longer lifespan to justify the
economics of a vehicle buyer.
However, change in fashion and
design trends may outweigh the
pure economics, which may lead to
planned obsolescence. In the world
of changing fashion trends, auto
manufacturers are developing new
designs meeting the changing
consumer preferences. More
frequently the new models are
Box 3:
EUROPEAN REGULATORY FRAMEWORK ON RECYCLING
Responding to the public concerns about recycling, the European Community
adopted two directives that now serve as a framework for car manufacturers:
European Directive 2000/53/EC
In effect, since 2000, the first directive sets-forth several principles. First,
automakers must consider reuse, recycling and recovery of parts and materials
during the design phase for all new vehicles. This theoretical requirement is
combined with a series of quotas staggered in time, the most important of which is
scheduled for 2015. By that time, all end-of-life vehicles must be 85% recycled
and 95% recovered. In other words, on that date, 85% of the vehicles mass must
embark on a second life, 10% can be recovered for energy production and the
remaining 5% can be sent to industrial landfills. In parallel, the directive requests
that manufacturers boost the percentage of recycled materials used in their vehicles
in order to promote the emergence and development of the recycling industry.
The regulations require the marking of all parts made of polymers weighing more
than 100g and all elastomer parts weighing over 200g. Moreover, the directive
mentions that certain regulated substances, or substances that could be regulated,
be clearly identified on the vehicle to facilitate their recycling. Finally, the directive,
without really specifying the terms, mentions that it will be the responsibility of car
manufacturers to pay residual costs, if any, to meet the quotas. These are, evidently,
very restrictive objectives that could generate major expenses, if they are not met
by 2015.
European Directive 2005/64/EC
The second, more recent, major directive on recycling contains two important
points: a) it asks car manufacturers to present to the European authorities a
recycling strategy based on proven technologies for a specific geographic area.
Such a strategy should, for example, indicate what the manufacturer intends to do
with polypropylene or glass in a given country, and to which recycling path the
materials shall be directed. It is true that recycling cannot be mandated - it presupposes the existence of economically viable industrial support and a favourable
climate. b) the directive mandates that by the end of 2008, for all new vehicle
types entering the market, the manufacturers must prove that the models are
indeed 85% recyclable in their previously mentioned recycling strategy. Therefore,
manufacturers must prove the recycling potential of the vehicles they manufacture
and market. However, it should be noted that by 2010, this requirement shall no
longer apply only to new models, but to all vehicles sold, including those designed
before.
SOURCE: European Union
81
introduced, the shorter will be the

life span of the old models, with
dealers refreshing the showrooms
with fresh models. Previously,
automobile manufacturers used to
keep a model in production for 8
to 10 years, which has come down
now to 5 to 6 years. It is expected
that this may further come down in
near future.
Emergence of Design Studios

As efficiency in design and
manufacturing improves, vehicle
manufacturers across the world are
focussing on making models for
niche market, though the sale
would be in lower volume. This is
in contrast to the earlier strategy
of designing models for mass
consumption. With the increase in
number of models to be designed
and developed, auto majors are
outsourcing the designing job to
independent design studios who
take care of design and execution
of the process management in the
value chain. It is reported that some
of the popular cars such as the
Volkswagen Golf, BMWs M1, the
Chrysler Eagle Premier, Fiats
Punto, the Saab 9000, and Toyotas
Lexus GS300 were designed with
the help of independent design
studios. The global market for
independent automobile design and
engineering is worth several billions
and is growing. Many international
10
82
India Brand Equity Foundation
auto-majors, such as Renault SA

and GM are setting up design
studios in India; the reason being,
the cost of developing an
automobile could go up to US $ 1
billion in developed countries, which
in India may cost only one-fifth10.
Outsourcing
Stiff competition to enhance the
market share forces the OEMs in
developed countries to outsource
their engineering requirements to
low cost countries like India. Global
auto-majors such as General
Motors, Ford, Toyota, BMW are
increasingly outsourcing the vehicle
design and engineering services to
developing countries such as India,
either through their captive centers
or through third-party vendors. In
fact, it has been a long-standing
practice for American OEMs to buy
components from low cost
countries like India, Mexico and
China, whenever their margins are
under pressure. Long term trends
indicate that global auto-component
outsourcing from the US is
expected to reach US $ 25 billion
by 2015, and India, China and
Mexico are likely to benefit the most
from such trend. An online survey
conducted by A T Kearney,
revealed that around one-fourth of
global auto-majors have considered
India as a favourable destination for
automobile-engineering outsourcing.
Advanced RFID Practices in

Auto Manufacturing
RFID has been in use in the
automotive industry for several
years, though to a limited extent.
The trend is changing now with
adoption of technology in wide
variety of applications, the dominant
being vehicle entry and security.
According to a study by ABI
Research, 40% of new cars
manufactured in North America are
equipped with RFID immobilizers
and the worldwide revenue
generated by this application alone
was estimated to be US $ 3.7
billion. In addition, RFID solutions
are increasingly being used in

automobile manufacturing processes
and
supply
chain
applications. According to a report
by
Venture
Development
Corporation, there are compelling
opportunities for RFID usage in the
manufacturing and supply chain
processes for improved visibility
and automation, decreased
shrinkage, increased collaboration
and compliance with vendors. In
the years to come, automobile
manufacturers are expected to
rapidly integrate new solutions as
they become technologically and
financially feasible.
83
4. THE INDIAN SCENARIO
HISTORICAL BACKGROUND
Indian automotive industry has
undergone constant evolution ever
since its establishment. The
automobile industry in India can be
said to have born in 1942 when
Hindustan Motors was set up, to
produce motor vehicles for the
Indian population. The first car that
was produced in India was The
Landmaster,
produced
by
Hindustan Motors, whose upgraded
version was later branded as
Ambassador . Soon, Premier
Automobiles was established in
1944, in collaboration with Chrysler
Corporation, USA, with licenses to
build Plymouth car and Dodge
truck. Indias first car was rolled out
of the Premier factory in 1947. In
collaboration with Fiat SpA, Italy,
Premier Automobiles first started
assembling the Fiat 500 in India.
In 1954, came the Fiat 1100, one
of the most popular models during
this period.
Later, in 1953, the Government
of India had modified the regulatory
framework and ensured that only
those companies, which have a
manufacturing program in India,
84
would be allowed to operate. Seven

companies including, Hindustan
Motors, Premier Automobiles Ltd and
Tata Engineering and Locomotives
Company received approval to
operate in the Indian market. During
the decade of 1960s, the threewheeler industry was established in
India. The decade of 1970s did not
bring any significant change to the
Indian automobile industry. In the
decade of 1980s, Maruti Udyog Ltd.
(MUL) was established and this
catalyzed the growth of automobile
industry
significantly.
The
introduction of Maruti - 800 models
led to the purchase of more and more
vehicles by Indians. MUL (later
renamed as Maruti Suzuki Ltd.) has
a technological tie-up with Suzuki
Motors of Japan, which ensured
substantial
up-gradation
of
technology in the Indian car industry.
With the wave of liberalization
creeping-in, several multi national
players like Mercedes-Benz, Ford,
GM, Peugeot, Hyundai and Volvo
entered the Indian market. Global
auto-component firms have also
established their bases in India with
a view to catering to the demand of
not only the domestic market but also

to the third country export markets.
The later half of 1990s and early part
of 21 st century saw the Indian
automobile industry making
extensive leap forward. Since then,
Indian companies have been
emerging globally competitive; they
have been making significant strides
outside the boundaries, through
mergers and acquisitions.
The evolution of Indian auto
component industry is closely
associated with the trends in the
automobile industry due to the strong
inter-industry linkages. Over a period
of time, the auto components
industry has grown from a size of few
million US dollars to US $ 18 billion
in 2007-08. Auto components
manufacturers in India have
established tie-ups with multi national
players for technology up-gradation.
Earlier a large amount of
components were imported from
other countries; but at present, most
of the manufacturers have started
sourcing components locally.
Moreover, India at present, is being
looked upon as major outsourcing
destination by the auto-majors of the
world. Many global tier-I suppliers
like Delphi and Visteon have set up
their bases in India.
STATUS OF INDIAN
AUTOMOBILE AND AUTOCOMPONENTS INDUSTRY
The Indian automobile and autocomponents industry in the last few
years was on a growth trajectory

aided by robust economic activity,
and infrastructure development;
growing middle-class population
with disposable income; and
availability of consumer finance
facilities. The Indian automobile and
auto components industry produces
a wide range of models and
products. The industry has
witnessed high growth in the last
few years, and its turnover and
exports have surged over the
years. The industry has also started
establishing manufacturing and
marketing bases abroad. However,
the recessionary trends in world
market and financial sector
meltdown has affected the growth
trend of the industry during
2008-09.
The norms for foreign
investment and import of technology
have also been progressively
liberalized over the years for
manufacturing of vehicles including
passenger cars in order to make this
sector globally competitive. FDI upto
100% is permissible under the
automatic route in the automobile
industry. The import of technology/
technological upgradation, with
royalty payment is also allowed
under automatic route in this sector.
With the gradual liberalization of the
automobile sector, since 1991, the
number of manufacturing facilities in
India has grown progressively. There
are around 15 manufacturers of
passenger cars & multi utility
85
vehicles, around 10 manufacturers

of commercial vehicles, around 15
of 2/3 wheelers, and tractors each,
besides 5 manufacturers of engines.
The Indian automotive industry
accounts for more than 5% of
national GDP. The industry provides
direct and indirect employment to
over 1.3 crore people. The turnover
of the automobile industry was
around US $ 35 billion and that for
components industry was at US $ 18
billion in 2007-08. The investment in
automotive industry comprising of
the automobile and the auto
component sectors, which was
estimated to be at Rs. 50,000 crore
in 2002-03, has gone upto Rs.
80,000 crore by the year 2007-08.
With the saturation of traditional
automobile markets, such as EU,
USA and Japan, the growth
opportunities for emerging markets
such as India have been increasing.

India is aggressively looking forward
to take advantage of its inherent
strengths in automotive design and
manufacturing capabilities and
position itself as an export base for
vehicles as well as components.
INDIAN AUTOMOBILE
INDUSTRY
Indian
automobile
industry
manufactures almost all major
transport vehicles such as cars,
multi-utility
vehicles,
light
commercial vehicles, buses, trucks,
tractors, motorcycles, scooters,
mopeds, and three-wheelers. At
present, India is the largest
manufacturer of tractors, second
largest manufacturer of two
wheelers, fifth largest manufacturer
of commercial vehicles, in the
world; and fourth largest passenger
Exhibit 31:
CATEGORY-WISE SHARE IN AUTOMOBILE PRODUCTION
IN INDIA (2007-08)
SOURCE: SIAM, EXIM Research
86
car market in Asia. Worlds largest

manufacturer of two wheelers is
located in India. About two decades
ago, Indian automobile market was
supplier driven with few vehicular
models, which has changed now to
a demand driven market catering
to the cross section of the society,
with more than 150 models and
variants by way of customer
options.
Trends in Production
Over the last few years there has
been an increasing trend in the
production of vehicles, both in value
and quantity terms. The only lean
patch in production was during the
year 2000-01, and recently in 200708, during which the growth in
absolute
numbers
declined
marginally. The volume of
production of Indian automobile
industry has increased at a CAGR
of over 12% during the period

2000-01 to 2007-08. The production
activity is likely to be impacted in
the year 2008-09 also due to
slowdown in demand and
associated challenges in domestic
and international markets. However,
in the long term, the production
growth is expected to improve
again in-line with the expected
growth in the economy, and it is
likely that the momentum in the
production may increase further
with India being considered
favourably as an outsourcing
destination.
Production in Individual
Categories
Keeping in pace with the growing
demand for automobiles, the
production has increased over the
years. However, sub segments
such as scooters and mopeds have
Exhibit 32:
PRODUCTION TREND IN INDIAN AUTOMOBILE INDUSTRY
87
witnessed decline in production. It

may be mentioned that the
technological advances and change
in consumer preferences might be
the possible reasons for the decline
in demand for scooters and
mopeds, and increase in demand
for motorcycles. Commercial
vehicle and passenger vehicle
production have seen a significant
rise in the last couple of years, thus
implying demand growth in these
segments.
The two-wheelers segment
constitutes the lump of the total
production of automobiles in the
country with a production share of
almost 75% in the year 2007-08,
followed by the passenger vehicles
segment, with a share of around
16%. The commercial vehicles
constitute 5% followed by the threewheelers at 4%. During the analysed
period (2001-02 to 2007-08), the
percentage growth of two wheelers
production has been almost
consistent among all the categories
of vehicles. The production of
passenger vehicles segment on the
other hand has been growing slowly
during the analysed period, though

consistently, perhaps due to the
growing middle class population in
the country, indicating the demand
for cars.
Following the global financial
meltdown and recessionary trends in
world economy, there has been a
slowdown in demand and supply of
vehicles due to liquidity crunch, both
at producer-level and at consumerlevel. This has also been reflected
in the production, domestic sales and
exports of vehicles from India. During
the period April-November 2008,
though there has been over 6.5%
growth in vehicles production (from
7.21 million units during AprilNovember 2007 to 7.68 million units
during April-November 2008), there
has been slowdown in production in
the October and November months
indicating recessionary trends in this
sector.
Domestic Sales of
Automobiles
Domestic sales of automobiles in
India have followed an increasing
trend over the past few years,
Table 12:
CATEGORY-WISE PRODUCTION OF AUTOMOBILES IN INDIA
(No. of units)
Category
Commercial Vehicles
Passenger Vehicles
Two wheelers
Three Wheelers
SOURCE: SIAM
88
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
162,508
669,719
4,271,327
212,748
203,697
723,330
5,076,221
276,719
275,040
989,560
5,622,741
356,223
353,703
1,209,876
6,529,829
374,445
391,078
1,308,913
7,608,697
434,424
519,982
1,545,223
8,466,666
556,126
545,176
1,762,131
8,026,049
500,592
except a marginal dip in sales in

the year 2007-08. The buoyant
economy, rising income, easy
availability of finance, together with
several other factors had
contributed to the growth in
automobile sales in India during the
analysed period. This sales growth
trend may not be continuing in the
year 2008-09 due to slowdown in
overall economic activity in the
world and in India. It may be noted
that during the period April-
November 2008, domestic sales of

vehicles have grown by over 2%
(from 6.46 million units during AprilNovember 2007 to 6.60 million
units during April-November 2008).
During the period 2002-03 to
2007-08, there has been an
increasing trend in the sales of all
categories of automobiles, except in
the year 2007-08, wherein a dip in
sales has been witnessed by most
of the categories (except passenger
vehicles). The sales in commercial
Table 13:
CATEGORY-WISE SALES OF AUTOMOBILES IN INDIA
(No. of units)
Category
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
Passenger Vehicles
707,198
902,096
1,061,572
1,143,076
1,379,979
1,547,985
Commercial Vehicles
190,682
260,114
318,430
351,041
467,765
486,817
Three Wheelers
231,529
284,078
307,862
359,920
403,910
364,703
Two Wheelers
4,812,126
5,364,249
6,209,765
7,052,391
7,872,334
7,248,589
Grand Total
5,941,535
6,810,537
7,897,629
8,906,428 10,123,988
9,648,094
SOURCE: SIAM
Exhibit 33:
TRENDS IN DOMESTIC SALES OF VEHICLES IN INDIA
89
vehicles have witnessed a marginal

growth during the analysed period,
though in the later few years the
growth rate has accelerated. The
sales of two wheelers have
increased almost linearly in the last
five years.
The year 2007-08 remained
sluggish due to model fatigue and
uninviting rates. The two-wheeler
ended the year with a decline of
about 8% in sales compared to the
previous year; sales of three wheeled
goods carriers in 2007-08 fell as
much as 20% on a year-on-year
basis. The passenger car segment
was the only bright spot, which grew
by about 12%; a moderation from
22% growth witnessed in 2006-07.
During the period AprilNovember 2008, there was decline
in domestic sales in all vehicle

sub-categories (viz., commercial
vehicles (by -9.23%), three-wheelers
(by -3.37%) and passenger vehicles
(by -0.5%) except two-wheelers,
which witnessed a growth of 3.76%.
Trends in Production,
Domestic Sales and Exports
During the period 2002-03 to 200708, the production and domestic
sales of various categories of
automobiles have grown slowly and
steadily. In the year 2007-08,
exports were around 1.2 million
units. Exports as a percentage of
production has also increased
consistently during the analyzed
period.
If we look at the past trends, all
the three parameters, viz.,
production, domestic sales and
Exhibit 34:
TRENDS IN PRODUCTION, DOMESTIC SALES, AND
EXPORTS OF AUTOMOBILES IN INDIA
90
exports, have registered a

continuous growth in the last few
years, except the year 2007-08.
Exports as a percentage of
production has also increased during
the
analysed
period;
the
improvement in exports as a
percentage of production from
4.89% in 2001-02 to 11.43% in 200708 shows the growing capability of
the Indian automobile industry to
meet the international norms and
standards,
and
increasing
acceptance
of
automobiles
manufactured from India in the global
market.
Domestic Sales, and Export of
Commercial Vehicles
Exhibit-36 shows the trend in
production, domestic sales and
export of commercial vehicles in the
last few years. The production has

increased from 1.62 lakh units in
2001-02 to 5.45 lakh units in 200708. Export of commercial vehicles
has increased from 11,870 units in
2001-02 to 58,999 units in 200708.
Domestic Sales, and Exports
of Passenger Vehicles
Exhibit-37 displays the production,
domestic sales and export trends
in passenger vehicles, in last few
years. It may be noted that the
production of passenger vehicles
2001-02 to 17.62 lakh units in
2007-08. Export of passenger
vehicles during the same period
increased from 53,165 units to
218,418 units.
Exhibit 35:
AUTOMOBILES EXPORTS AS A PERCENTAGE OF PRODUCTION
(VOLUME TERMS)
91
Exhibit 36:
TRENDS IN PRODUCTION, DOMESTIC SALES AND EXPORTS OF
COMMERCIAL VEHICLES IN INDIA
Exhibit 37:
PASSENGER VEHICLES IN INDIA
of Two Wheelers
The production of two wheelers
2001-02 to 80 lakh units in 2007-08.
Motorcycles contribute almost 80%
of total two-wheeler production.
92
Focused on value for money and

economy for users, motorcycles
segment remains the most sensitive
one to price changes as also interest
rate hikes. Exports during the same
period increased from less than one
lakh units to 8.1 lakh units.
of Three Wheelers
Exhibit - 39 displays the trend in
production, sales and exports of
three wheelers in the last few
years. It may be noted that the
production of three wheelers

2001-02 to over 5 lakh units in
2007-08. Exports during the same
period increased from 15,462 units
to 1,41,235 units.
Exhibit 38:
TWO WHEELERS IN INDIA
Exhibit 39:
TRENDS IN PRODUCTION, DOMESTIC SALES, AND EXPORTS OF
THREE WHEELERS IN INDIA
93
AUTO COMPONENTS
The growth of auto-components
industry is closely linked to the
growth of automotive industry, as
substantial quantity produced by
auto component industry is supplied
to original equipment manufacturers. Keeping in line with the
growth in production/sales of
automobile over the past few years
the Indian auto component sector
has witnessed well-pronounced
growth.
Auto
component
manufacturers supply to three kinds
of buyers original equipment
manufacturers (OEM), Tier-I and
Tier II vendors, and the replacement market. The replacement
market is characterized by the
presence of several small-scale
suppliers who score over the
organized players in terms of
excise duty exemptions and lower
overheads. The demand from the
OEM market, on the other hand, is
dependent on the demand for new
vehicles.
Indian
auto-components
industry is being considered for
outsourcing by developed countries
owing to its low cost of production.
During the analysed period, global
automobile manufacturers and
Tier-I suppliers have increased their
sourcing requirements from India
and many global manufacturers have
also established their manufacturing
centres in India, either through joint
ventures or through wholly owned
11
94
subsidiaries. This has led to an

increasing turnover of Indian autocomponents industry in the last few
years.
According to Auto Component
Manufacturers Association of India
(ACMA), the size of the Indian auto
components industry is estimated to
be around US $ 18 billion in 200708. Though there may be a
slowdown in auto-component
production in 2008-09, due to
recessionary trends in the world and
sluggish new vehicle demand, in the
long term, India is estimated to have
the potential to become one of the
top auto component economies by
2020, according to a study by IBM.
According to another study, the auto
component industry in India has
potential to grow at a CAGR of 13%
to reach US $ 40 billion by 2015.
Indias share in world auto
components would thus grow from
around 1%, at present, to over 2.5%
by 2015. Domestic market for autocomponents is projected to grow at
around 8-10% per annum and
exports are projected to grow at over
30% per annum in the long term.11
Responding to the emerging
scenario, Indian auto component
industry has shown great advances
in recent years in terms of product
spread, absorption of newer
technologies and flexibility. Indias
reasonably priced skilled workforce,
availability of technology-oriented
workers, together with strengths
http://www.investmentcommission.in/auto_components.htm
gained by the country in IT and

electronics, build-up an environment
for significant leap in the autocomponent industry.
Major Products
Indian auto components industry
manufactures almost all kinds of
products. ACMA classifies the autocomponents into six categories, as

given in Table 14.
During the year 2007-08, engine
parts accounted for the bulk of
production in the Indian auto
components industry, followed by
transmission and steering parts. The
Table 14:
CLASSIFICATION OF MAJOR AUTO-COMPONENTS PRODUCED IN INDIA
Engine Parts
Pistons, piston rings, engine valves, fuel pumps, fuel

ignition system, carburetor, bimetallic bearings.
Electrical parts
Starter motor, generators, ignition system, spark plugs.
Driving transmission
and steering parts
Gears, steering gears and systems, clutch plates and

discs, axle assembly and wheels.
Suspension and
braking parts
Leaf springs, shock absorbers, brake assembly and

facing.
Equipment
Head lights, wiping systems, wiping motors, electric

horns and dashboard instruments.
Others
Sheet metal parts, pressure discs, castings, glass,

rubber and plastic parts.
SOURCE: ACMA
Exhibit 40:
SEGMENT-WISE SHARE IN PRODUCTION OF AUTO-COMPONENTS
IN INDIA
SOURCE: ACMA, EXIM Research
95
combined production in these two

categories was around 50% of the
total value of the production.
Turnover
The turnover of the auto
component industry, over a period
of time, has grown impressively.
During the year 1996-97, the
turnover of the sector was US $
3.3 billion, which breached the
US $ 10 billion mark, to reach US

$ 12 billion, in 2005-06. In the year
2007-08, the turnover of the auto
component sector has reached US
$ 18 billion.
Investment in Auto
Components Industry
In the last few years, the auto
components industry has attracted
significant volume of investment.
Exhibit 41:
TURNOVER OF AUTO-COMPONENTS
Exhibit 42:
INVESTMENTS IN THE AUTO-COMPONENTS SECTOR IN INDIA
96
Investments in the industry have

reached US $ 7.2 billion in 200708, as the industry continued to
invest in capacity enhancements
and new green-field projects to
cope with the increasing demand.
The trend in investment is an
indication of the growth in Indian
auto-component industry, building
upon the achievements, and
simultaneously positioning India as
a manufacturing hub for auto
components. Though majority of the
investment plans of the autocomponent industry is being
postponed due to sluggish demand,
the investment in the components
industry is likely to grow in the long
term, as the industry plans to expand
its manufacturing base in the days
to come with greater interests from
both the domestic as well as foreign
manufacturers.
On the quality and productivity

front, auto component industry
maintained its leadership with more
than 95% companies being certified
with ISO 9000 system standards and
more than 70% of the companies are
certified as per ISO/TS 16949
standards. This industry has also the
distinction of having the maximum
number of (11) Deming awardwinning companies.
Exports
Global OEMs and Tier 1 companies
have identified India as one of the
major countries for sourcing their
requirements of auto components
for their global production. In the
long term, Indian auto-component
industry is poised to grow with
outsourcing of not only the
manufacturing of components, but
Exhibit 43:
TRENDS IN EXPORT ORIENTATION OF INDIAN AUTO
COMPONENTS INDUSTRY
Exports as % of Turnover
97
also design and R&D in the new

era of automobiles demand. The
auto component industrys export
growth has been around 25%
during the year 2007-08 as
compared to the previous year, with
exports valued at US$ 3.6 billion.
98
India is also an importer of autocomponents; according to the

Ministry of Heavy Industries,
Government of India, the total
imports of auto components by
India in the year 2006-07 were
US $ 3.3 billion (Rs. 14,644 crore).
5. INDIAS EXPORTS OF AUTOMOBILES

& AUTO-COMPONENTS
AUTOMOBILES
evolved into a transnational player
both in exports as also setting up
of assembly and manufacturing
operations abroad. India is an
exporter of all kinds of vehicles.
The export orientation of the
industry has grown over the
analysed period, from a level of
3.5% in 2001-02 to over 11% in
2007-08. During the period 200102 to 2007-08, the automobile
exports from India witnessed a
CAGR of over 31%. This shows
Indias capacity in catering to the
demand of not only the domestic

market but also the demand of
other countries as well. The
increase in exports from India
corroborates the industrys efforts to
upgrade the production process,
adoption of high-end technologies,
and meeting the international
quality standards.
Category-Wise Exports
India exports almost all types of
vehicles; among the major
categories of export items, in 200708, two wheelers accounted for
around two-third share in total
vehicles exports, in terms of
Exhibit 44:
EXPORT ORIENTATION OF THE INDIAN AUTOMOBILE SECTOR
99
number of units. Infact, two

wheelers have, over the years,
been the top most exported item
among the various automobile
segments, in terms of number of
units. Passenger vehicles, three
wheelers and commercial vehicles
account for 17.6%, 11.3% and
4.7% share, respectively.
Nearly half of the two-wheeler

exports in 2007-08 were to Asia
region. While a sizeable volume of
passenger vehicles were exported to
Europe, other regions such as Africa
and Latin America were also the
target regions for export of
passenger vehicles by India.
Table 15:
CATEGORY-WISE EXPORTS OF INDIAN AUTOMOBILES
Category
2001-02
2002-03
Commercial Vehicles
11,870
12,255
17,432
29,940
40,600
49,537
58,999
Passenger vehicles
53,165
72,005
129,291
166,402
175,572
198,452
218,418
104,183
179,682
265,052
366,407
513,169
619,644
819,847
15,462
43,366
68,144
66,795
76,881
143,896
141,235
184,680
307,308
479,919
629,544
Two wheelers
Three-wheelers
Total
2003-04 2004-05
2005-06
(No. of units)
2006-07
2007-08
806,222 1,011,529 1,238,499
SOURCE: SIAM
Exhibit 45:
CATEGORY-WISE SHARE IN VEHICLE EXPORTS IN INDIA (2007-08)
1.24 million vehicles
100
Table 16:
EXPORT OF SELECT AUTOMOBILES IN VALUE-TERMS FROM INDIA
US$ Million
Commodity
Code
Commodity Name
8701
Tractors
131.59
223.85
285.69
376.09
8702

141.16
175.84
202.31
253.84
8703
Motor cars & other motor

vehicles for transport of
persons
766.36
938.85
1133.86
1385.46
8704
Motor vehicles for transport

of goods
157.12
197.36
192.32
257.29
8705
Special Purpose
Motor Vehicles
1.95
11.87
9.63
10.79
85.99
129.49
120.33
161.57
245.28
252.9
305.47
293.34
8706
Chassis fitted with engines
8711
Motorcycles
(including mopeds)
2004-05
2005-06
2006-07
2007-08
SOURCE: DGCIS, EXIM Research
In value terms, passenger cars

(Motor cars & other motor vehicles
for transport of persons HS Code
8703) are the largest export item,
followed by tractors (HS Code 8701),
motorcycles (including mopeds) (HS
Code 8711), other motor vehicles for
transport of goods (motor vehicles
for transport of goods HS Code
8704) and buses (Public-transport
type passenger motor vehicles HS
Code 8702). During the last few
years, passenger cars have
consistently been the largest export
item among Indias vehicle exports,
in value terms, followed by two
wheelers and tractors.
Tractors
Indias export of tractors (HS Code
- 8701) was valued US $ 376
million in the year 2007-08. More
than 50% of the tractors are being
exported
to
USA.
Nepal,
Bangladesh and Sri Lanka are
amongst the developing countries
accounting for 5% each in Indias
total export of tractors in 2008-09.
Buses
Indias export of buses (Public
transport type passenger motor
vehicles (HS Code -8702) were
valued at US $ 253.84 million in
2007-08. Asian countries are the
101
Exhibit 46:
EXPORTS OF TRACTORS FROM INDIA (2007-08) (HS CODE - 8701)
major destination for Indias export

of buses; UAE alone account for
35% of Indias total export of buses,
followed by Sri Lanka and Qatar
with 14% share, Kuwait (5%),
Ghana, Saudi Arabia and

Bangladesh at 4% each. Apart from
Ghana, Mozambique and Nigeria
are other important destinations for
Indian buses.
Exhibit 47:
EXPORTS OF PUBLIC-TRANSPORT TYPE PASSENGER MOTOR
VEHICLES FROM INDIA (HS CODE - 8702) (2007- 08)
102
Passenger Cars
Export of passenger cars (Motor
Cars & Other Motor Vehicles - HS
Code 8703) during the year 200708 was valued at US $ 1385.46
million. Italy is the largest market
for passenger cars, a share of 11%
in total exports from India. A
substantial
percentage
of
passenger cars are being exported
to African countries like Algeria
(10%), Egypt (7%), and South
Africa (5%). In the Asian region, Sri
Lanka (5%) is the major destination
for passenger cars, while in Latin
America region Columbia and
Mexico (4% each) are the major
markets.
Motor Vehicles For Transport
of Goods
Indias export of motor vehicles for
transport of goods (HS Code 8704)
was valued at US $ 257.29 million
in 2007-08. Sri Lanka and South

Africa are the leading markets for
India for export of motor vehicles
under this category with a share of
12% each, followed by Singapore
(9%), Italy (8%), Turkey and Ghana
(6% each), and Bangladesh (5%).
Special Purpose Motor

Vehicles
This category consists mainly of
crane lorries, fire fighting vehicles,
concrete mixer lorries, etc. Indias
exports of special purpose motor
vehicles rose by around US$ 1
million from US$ 9.63 million in
2006-07, and to US$ 10.79 million
in 2007-08. Singapore remained the
primary export destination with a
share of over 41%. Major export
destinations in Africa were Ghana
(14%), Kenya (7%), Morocco and
Zambia (4% each) and Nigeria and
Mozambique (2% each).
Exhibit 48:
EXPORTS OF MOTOR CARS & OTHER MOTOR VEHICLES FROM INDIA
(2007-08) (HS CODE 8703)
US $ 1385 Million
103
Exhibit 49:
EXPORTS OF MOTOR VEHICLES FOR TRANSPORT OF GOODS
FROM INDIA (HS CODE - 8704) (2007-08)
Exhibit 50:
EXPORTS OF SPECIAL PURPOSE MOTOR VEHICLES
FROM INDIA (HS CODE - 8705) (2007-08)
Two wheelers
Two wheelers (Motorcycles
including mopeds - HS Code
8711) are the third largest export
item, in value terms, in the
104
automobile export basket of India.

A large part of this segment is
exported to Asian countries like Sri
Lanka (19%), Colombia (18%),
Nigeria (11%), Nepal (9%),
Exhibit 51:
MOTORCYCLES (INCLUDING MOPEDS) AND CYCLES FITTED WITH AN
AUXILIARY MOTOR, WITH OR WITHOUT SIDE-CARS; SIDE-CARS
FROM INDIA (HS CODE 8711) (2007-08)
Philippines and Bangladesh each

with 8%. Apart from Nigeria in
Africa, other significant importers of
two wheelers from India are Kenya
(4%), Guinea (3%), Tanzania and
Angola at 2% each and Uganda,
Namibia and Guatemala at around
1% each.
AUTOCOMPONENTS
Export of auto components have

grown at a CAGR of 24% during
this period. India exports its auto
components to almost every part of
the world, the major markets being
developed countries such as USA,
Germany and UK. Some of the
important Asian markets for autocomponents include Bangladesh,
Sri Lanka and Nepal.
Exports
India has been emerging as a
significant exporter of auto
components since the last decade.
From a level of US $ 330 million in
1997-98, exports of autocomponents have reached to over
US $ 3.6 billion in 2007-08. Export
orientation of Indian autocomponent industry has also
increased from a level of 11% in
1997-98 to over 20% in 2007-08.
As the need for cutting down the

cost is increasingly being felt among
the automobile firms from the
developed countries, they seek to
either set up their operations or
source
their
component
requirements from developing
countries. Indian auto-component
manufacturers are increasingly
gearing themselves to utilize this
opportunity. According to ACMA, the
export potential of auto components
105
Exhibit 52:
TRENDS IN EXPORTS OF INDIAN AUTO-COMPONENTS
SOURCE: ACMA
industry is expected to post a long

term CAGR of around 24% to reach
US $ 20-22 billion by 2015.
Region-wise Distribution of
Indian Auto Components
Exports
In 1990s, exports of India to OEMs
and Tier I suppliers accounted for
around 35% of total exports, and
the aftermarket sales accounted for

65%. In 2007-08, Indias exports to
OEMs and Tier I suppliers
accounted for 75%. Europe and
North America regions are Indias
two major export destinations,
cumulatively accounting for around
two-thirds of Indias total auto
components exports to OEMs and
Tier I suppliers. Asia (including
Exhibit-53:
REGION-WISE BREAK-UP OF EXPORTS TO OEMS AND TIER I
SUPPLIERS BY INDIA (2007-08)
SOURCE: ACMA
106
Table 17:
EXPORT OF SELECT AUTO-COMPONENTS IN VALUE TERMS FROM INDIA
US $ million
HS Code
Commodity
2004-05
2005-06
2006-07
2007-08
870810
Bumpers & parts thereof
87.54
118.65
156.29
131.22
870829
Other parts & accessories

of bodies
6.34
10.99
9.97
40.25
870839
Other brakes & servo-brakes

& parts thereof
15.60
28.20
63.34
89.84
870840
Gear boxes
21.16
87.67
116.20
135.66
870850
Drive axles
5.32
8.02
37.37
76.58
870860
Non-driving axles &

parts thereof
3.21
9.28
13.79
6.29
870870
Road wheels
870880
Suspension shock absorbers
870891
Radiators
870894

columns & steering boxes
19.70
18.29
20.05
28.67
8.47
13.68
15.88
15.17
13.42
23.36
25.89
30.35
3.69
4.77
4.82
5.74
Middle East) and Africa account for

a share of around 19% and 11%,
respectively. The rest of the regions
accounted for around 4% of Indias
total exports of auto-components.
Category-wise Autocomponents Exports from

India
Bumpers
Exports of bumpers (HS Code
870810) from India to the world
were valued at around US $ 131
million in 2007-08. USA is the
largest market for export of
bumpers from India with a share
of 30%, followed by Mexico (13%),
South Africa (7%) and Italy (6%).
It may be mentioned that most of

the exports of bumpers are towards
developed countries of America and
Europe, and the market share of
Asia in Indias exports under this
category is not much.
Other parts & accessories of
bodies
Indias export of other parts &
accessories of bodies was valued
at US $ 40 million in 2007-08 with
exports being highly skewed
towards South Korea which has a
share of 58%. Developed countries
like USA, Germany, Australia, Spain
and UK are the other major
markets for Indias export of parts
& accessories of bodies.
107
Exhibit 54:
EXPORT OF BUMPERS AND PARTS THEREOF BY INDIA
HS CODE 870810 (2007-08)
Exhibit 55:
EXPORT OF OTHER PARTS & ACCESSORIES OF BODIES BY INDIA
HS CODE 870829 (2007-08)
US $ 40 Million
Brakes and Servo-Brakes and

Parts Thereof
Indias export of brakes and parts
of brakes (HS Code 870839) was
valued at US $ 89 million in the
108
year 2007-08. USA is the largest

export market with a share of 26%,
followed by UK (23%), Mexico
(12%), Italy (6%), and the
Netherlands (4%).
Exhibit 56:
EXPORT OF OTHER BRAKES AND SERVO-BRAKES AND
PARTS THEREOF BY INDIA HS CODE 870839 (2007-08)
Gear Boxes
Exports of gear boxes (HS Code
870840) from India to the world
were valued at around US$ 135.66
million in 2007-08. South Africa is
the largest market for export of
gear boxes from India with a share
of 24%, followed by Thailand and
Argentina at 22% each. Singapore
and Italy account for a share of 7%
each.
Drive Axles
Indias export of drive axles was
valued at US $ 76 million in 200708. Developed countries are the
major markets for Indias export of
drive axles. USA is the largest
market with a share of 35% in total
exports, followed by Italy (17%), UK
(15%), and France (14%).
Non Drive Axles

Exports of Non Drive Axles (HS
Code 870860) from India to the
world were valued at just around
US$ 6 million in 2007-08. Italy is
the largest market for export of
non-drive axles from India with a
share of 28%, followed by Turkey
(17%) and Sweden (14%). Amongst
the Asian countries China and
Indonesia have a share of 4%
each.
Road Wheels and Parts &
Accessories Thereof
Export of road wheels and parts
and accessories thereof HS Code
870870 from India in the year
2007-08 was valued at US $ 28.67
million. UK is the largest market for
India for export of road wheels and
109
Exhibit 57:
EXPORT OF GEAR BOXES BY INDIA HS CODE 870840 (2007-08)
Exhibit 58:
EXPORT OF DRIVE AXLES BY INDIA - HS CODE - 870850
parts, with a share of 41%, followed

by USA (14%), Australia (8%) and
Egypt (6%). In fact, most of the
110
exports of radiators from India are

towards the developed countries in
the world.
Exhibit 59:
EXPORT OF NON DRIVE AXLES BY INDIA- HS CODE - 870860
Exhibit 60:
EXPORT OF ROAD WHEELS & PARTS & ACCESSORIES THEREOF
BY INDIA - HS CODE 870870 (2007-08)
111
Radiators
Radiators - HS Code 870891
worth US $ 30 million were
exported from India during 2007-08;
an increase of around US $ 5
million as compared to 2006-07.
Majority of the exports were to the
developed economies, like USA
(15%),
Netherlands
(14%),
Germany (9%) and UK (8%).
Suspension and Shock

Absorbers
Indias export of suspension and
shock absorbers was valued at
US$ 15.67 million 2007-08. USA is
the largest market for India with a
share of 27%, followed by Italy
(10%), Germany and Sri Lanka (7%
each) and UAE (6%).
Exhibit 61:
EXPORT OF RADIATORS BY INDIA - HS CODE 870891 (2007-08)
US $ 30 Million
Exhibit 62:
EXPORT OF SUSPENSION SHOCK ABSORBERS BY INDIA
HS CODE 870880 (2007-08)
112
IN SUM
On the whole, exports by the Indian
automotive industry have increased
over the years. As per the data
collated by WTO, Indias share in
world automotive exports has
increased from 1.4% in the year
2000 to almost 2.4% in 2007.
Among automobiles, though two
wheelers formed the largest export
item in terms of volume (number
of units), passenger-type motorcars
category was the largest exported
item in terms of value. In the autocomponent industry, gearboxes
have emerged as the largest export

item in terms of value during the
year 2007-08. During 2006-07,
bumpers were the largest export
item in terms of value, which have
slipped to the second position in
2007-08. It is also worth noting that
Indias automobile exports are
mainly confined to the developing
countries in Asia, Africa and Latin
America, whereas Indias autocomponent exports are skewed
towards the developed nations of
Europe and USA.
113
6. EXPORT COMPETITIVENESS OF
INDIAN AUTOMOTIVE INDUSTRY

automotive industry happens to be
the cornerstone of some of the most
influential economies in the world,
like USA and Japan. Indian
automotive industry has also been
increasingly playing similar role
contributing to the economic and
industrial development in the country.
In the last few years, Indian
automotive market has emerged as
one of the most vibrant markets in
the world, with increasing number of
technology transfers, foreign

investments and R&D. Though there
is slowdown in demand for
automobiles due to recessionary
conditions, in the long term there are
opportunities for Indian automotive
industry with an increasing trend in
outsourcing of engineering design,
assembly and manufacturing. As the
world economy recovers from the
recessionary trends of 2008, the
Indian automotive industry would
progress at the backdrop of a
Exhibit 63:
GROWTH COMPARISON OF THE INDIAN AUTOMOBILE INDUSTRY
VIS--VIS THE WORLD
114
relatively healthy economy and

buoyed by factors like quality
manpower and lower operaitonal
costs. Global majors may
increasingly look towards countries
like India in order to safeguard their
margins and thereby making India an
export hub.
The growth rate12 in vehicles
production achieved by the Indian
automobile industry has been
outstanding as compared to the
growth rate achieved by the global
automobile industry. Except in the
year 2000, when there was a slump,
the Indian automobile industry has
performed better than the global
average, at the back of both
domestic as well as global demand.
In the auto-components
segment, steered by the countrys
high engineering skills, established
production lines, growth in domestic
automobile market, and competitive
manufacturing costs, global auto
majors have increasingly ramped up
the value of components they source
from India. Over 20 OEMs have set
up their International Purchase
Offices (IPOs) in India to source their
global component requirements.
These include firms like General
Motors, Ford Motor Company,
Cummins International, Bosch,
Volkswagen, BMW, MAN (trucks)
and JCB (earthmoving equipment),
among others. The number of OEMs
present in India is expected to double
by the year 2010.
12
In such a scenario, it may be

pertinent to analyse the export
competitiveness
of
Indian
automobile and auto-component
industry in the international market.
In this chapter, an attempt has been
made to analyse the export
competitiveness of India, in select
automotive sub-segments, in order
to identify the potential products and
their prospects in select markets /
regions. The markets / regions
identified for this purpose were USA
and Europe for auto-components,
and developing countries of Africa,
Asia and Latin America for
automobiles.
The competitiveness of Indian
automotive industry in the identified
markets have been analysed using
some of the competitiveness
indicators, such as penetration index,
contribution index, and specialization
index. These indices are explained
in Box - 4.
AUTOMOBILES
India is not a major exporter of
automobiles in the world; however,
Indias automobile exports have
grown during the analysed period.
India is ranked at seventh position
in the world with regard to export
of chassis fitted with engines (HS
code 8706); tenth position with
regard to export of work trucks (HS
code 8709), eleventh position with
regard to export of motor cycles
and mopeds (HS code 8711),
Based on data collated by OICA and do not include two wheelers
115
Box 4:
INDICATORS OF INTERNATIONAL COMPETITIVENESS
To evaluate the competitiveness of Indias automotive industry, the study
examined its performance in select markets (such as USA and Europe for autocomponents; and developing countries of Africa, Asia and Latin America for
automobiles) by assessing certain indicators of Indias trade with the respective
regions and countries:
- Penetration (Pi) = Share of Indian exports (X) of product i to the specific
region/country, relative to the region/country imports (M) of product i:
Pi = Xi / Mi*
- Contribution (Ci) = Indian exports (X) of product i to the specific region/
country, as a share of total Indian exports to the specific region/country:
Ci = Xi / X
- Specific region/country share (Si) = Specific region/country imports (M) of
product i relative to specific region/countrys total imports. An increase in
Si from one period to another implies that product i was relatively dynamic
in specific region/country demand for foreign products:
Si = Mi* / M
- Specialization (Ei). Obtained by dividing Ci by Si. Corresponds to the
indicator of revealed comparative advantage of Indias automotive sector;
comparative advantage in product i if the indicator Ei is higher than 1.0:
Ei = (Xi / Mi*) / (X / M)
Where:
Xi
= Indian exports of product i
Mi* = Specific region/country imports of product i

X
= Total exports from India to the specific region/country
= Total imports of the specific region/country
fifteenth position with regard to

export of public transport passenger
vehicles (HS code 8702), and
seventeenth position with regard to
export of tractors (HS code 8701).
Vehicle exports of India (in most
of the sub-categories) are directed
towards developing countries of Asia,
Africa and Latin America. For
116
example, about 90% of Indias export

of public transport type vehicles (HS
code 8702), special purpose vehicles
(HS code 8705), motor cycles (HS
code 8711), and goods transport
vehicles (HS code 8704); nearly
three-fourth of Indias export of
chassis (HS code 8706), and bodies
and parts of vehicles (HS code
8707); and over 50% of Indias export

of passenger cars are directed
towards these countries. Developed
country markets, such as USA and
Europe, are principal markets for
tractors and passenger cars,
accounting for a share of over 50%
and 40% respectively. Thus, in this
study, analyses have been carried
out on the export competitiveness of
Indias automobile exports to the
developing country regions of Latin
America, Africa and Asia.
Africa Region
Doing business in Africa was once
perceived to be difficult and
complex.
However,
with
improvement in the business
environment, infrastructure growth
and investment climate, the African
nations are competing with other
developing regions in attracting
business entities for trade and
investment. According to African
Economic Outlook 2008, the
continent
experienced
high
economic growth, averaging about
5.7% in 2007, and projected to
maintain a growth of over 5% in
2008 and 2009. Countries like
Egypt (12.5%) and Morocco
(25.9%) had witnessed significant
increase
in
production
of
automobiles in 2007, as compared
to 2006. Though, the automobile
production in South Africa
witnessed a negative growth rate,
it remained the largest producer of
automobiles in the African region,
in 2007. Other countries involved

in the production of automobiles,
albeit in small numbers, are
Botswana, Kenya, Libya, Morocco,
Nigeria and Sudan. This, in fact,
provides India the opportunity to
explore such a lucrative market in
the automobile industry, especially
when global companies like
General Motors and Chevrolet have
already started operations and
Chinese automobile manufacturer,
Cherry, is on the verge of entering
the market soon.
competitiveness
of
Indian
automobile industry in Africa market
reveals that the penetration index
has grown over the years, between
2001 and 2006, for sub-segments
such as tractors, motor cars,
transport vehicles for goods, special
purpose vehicles, and chassis fitted
with engines. The growth in
penetration index, however, has not
been much for public transport type
passenger vehicles, while it has
come down for motorcycles. The
contribution index has also increased
in these sub-categories (except the
public transport type passenger
vehicles, and motorcycles),
indicating growing share of these
categories in Indias exports to Africa.
The share of import of identified
categories of vehicles in total import
of Africa has also increased over the
years indicating growing African
117
Table 18:
INDICATORS OF COMPETITIVENESS OF AUTOMOBILE
EXPORTS TO AFRICA
Penetration
(Pi)
Contribution
(Ci)
Africas Share
(Si)
(%)
Specialisation
(Ei)
Automobile Segment
2001
2006
2001
2006
2001
2006
2001
2006
Tractors
0.19
3.03
0.04
0.78
0.31
0.75
12.16
103.66

Passenger Vehicles
1.05
1.08
0.22
0.12
0.35
0.31
68.93
36.83
Motor Cars and other

motor vehicles
0.52
3.63
0.79
5.48
2.31
4.42
34.15
124.00
Motor Vehicles for

Transport of Goods
0.57
1.51
0.39
1.15
1.04
2.22
37.57
51.55
Special Purpose
Motor Vehicles
0.23
0.94
0.02
0.09
0.13
0.29
14.81
32.21
Chassis fitted
with engines
1.65
15.09
0.03
0.72
0.03
0.14
108.14
515.68
Motorcycles
(including mopeds)
9.83
4.58
0.78
0.65
0.12
0.41
643.29
156.62
SOURCE: UN Comtrade; EXIM Research
Table 19:
THE AFRICAN MARKET FOR SELECT AUTOMOBILES
Segment
Major Markets for India in Africa
Competing Countries
Tractors
South Africa, Sudan, Morocco,

Algeria, Nigeria
Germany, USA, France,

Italy, Netherlands
Public Transport
Type Passenger
Vehicles
Algeria, Nigeria, Egypt,

South Africa, Angola
Japan, UK, Brazil,

Korea, China
Motor Cars and

other motor vehicles
Algeria, South Africa, Egypt,

Nigeria, Morocco
Germany, Japan, France,

Korea, Spain, China
Motor Vehicles for

Transport of Goods
South Africa, Egypt, Algeria,

Sudan, Angola
Japan, Saudi Arabia,

France, China
Special Purpose
Motor Vehicles
Algeria, South Africa, Angola,

Nigeria, Egypt
France, Germany, China,

USA, Italy
Motorcycles
(including mopeds)
Nigeria, South Africa, Egypt,

Togo, Angola
China, Japan, Germany,

USA, Austria
118

for all types of vehicles, except public
transport type passenger vehicles
and motorcycles.
Major export markets for Indian
automobiles in the African region for
the select vehicle segments and the
competing exporters in the region are
tabulated in Table-19. Competing
exporters in these markets are
mainly European countries (such as
Germany, France and Italy), USA
and Japan. Among developing
countries, China is a major
competitor for India.
Latin America Region

The Latin American market has
been changing and is becoming
more and more attractive to Indian
business, despite the prevailing
geographical
distance
and
communication challenges. The
Governments of Latin American
countries have, over the years,
liberalised their markets and
reduced import tariffs. They are
also
privatizing
the
state
enterprises, and have prioritized
modernization and improvement of
existing infrastructure and creation
of new infrastructure. Countries like
Brazil, Chile, Mexico, Colombia and
Argentina have been playing
important role in Indias trade with
the region. Brazil is being
considered as one of the emerging
economies of the world. Similarly,
Mexico, with its close association
with North America, is also
emerging stronger as a low cost

destination for the manufacturing
industry.
Indias automobile penetration
into the Latin American region is
slowly gaining momentum. Indian
automobile manufacturers are
eyeing the Latin American market
with greater anticipation of increasing
their market share in the region. With
notable ventures, such as TataMarco Polo, and Marutis entry in the
remanufactured car market,
business cooperation in the
automobile segment between India
and Latin America are stronger than
before.
competitiveness
of
Indian
automobile industry in Latin America
region reveal that the penetration
index has grown over the years,
between 2001 and 2006, for subsegments such as tractors, motor
cars, and motor cycles. The growth
in penetration index, however, has
not been much for chassis fitted with
engines, and special purpose motor
vehicles, while it has come down for
motor vehicles for goods transport,
and public transport type passenger
vehicles. The contribution index has
also increased in the sub-categories
where penetration index has grown
(and vice versa), indicating growing
share of these categories in Indias
exports to Latin America. The share
of import of identified categories of
vehicles in total import of Latin
119
Table 20:
EXPORTS TO LATIN AMERICA
Penetration
Contribution
(Pi)
(Ci)
Latin Americas
Share
(Si)
Automobile Segment
2001
2006
2001
2006
2001
2006
Tractors
0.02
0.37
0.01
0.16
0.18

Passenger Vehicles
0.10
0.02
0.04
0.00
0.18
Motor Cars and other

motor vehicles
0.05
0.87
0.37
4.30
Motor Vehicles for

Transport of Goods
0.09
0.00
0.26
Special Purpose
Motor Vehicles
0.00
0.01
Chassis fitted
with engines
0.00
Motorcycles
(including mopeds)
6.96
(%)
Specialisation
(Ei)
2001
2006
0.31
5.57
51.12
0.12
23.96
3.19
3.37
3.55
11.09
121.17
0.00
1.14
1.22
22.44
0.02
0.00
0.00
0.08
0.08
0.00
1.99
0.02
0.00
0.00
0.08
0.10
0.00
2.86
6.23
1.59
1.97
0.10
0.23 1661.75
867.74
America has also increased over the

years in most of the sub-categories,
indicating growing Latin American
for all types of vehicles, except the
public transport type passenger
vehicles, motor vehicles for transport
of goods, and motorcycles.
Major Indian markets in the Latin
American region for select vehicle
segments and the competing
exporters in the region are tabulated
in Table - 21. It may be noted that
Venezuela,
Brazil,
Mexico,
Argentina, and Chile are among the
major export destinations of vehicles
from India to Latin America.
Competing exporters in these
120
markets are mainly USA, Latin

American countries (such as Brazil
and Mexico) and Japan. Among
developing Asian countries, China
and Korea are major competitors for
India.
Developing Asia Region

The Asian growth story has been
phenomenal, especially after their
bounce-back from the financial
crisis in late 90s. Developing Asias
economy is expected to expand by
7.6% in 2008, and declining further
to 7% in 2009. Inspite of a
projected slowdown in growth, the
growth projections for the next two
years are reflecting a reasonable
performance in an unsteady global
economy.
Table 21:
THE LATIN AMERICAN MARKET FOR SELECT AUTOMOBILES
Segment
Major Markets for India

in Latin America
Competing Exporters
Tractors
Venezuela, Argentina,
Colombia, Chile, Mexico
Brazil, Uruguay,
Mexico, USA, UK
Public Transport
Type Passenger
Vehicles
Venezuela, Chile, Mexico,

Cuba, Brazil
Brazil, Japan,
Netherlands, China,
Argentina
Motor Cars and

other motor
vehicles
Mexico, Venezuela, Argentina,

Brazil, Chile
USA, Brazil, Korea,

Japan, Mexico,
Argentina
Motor Vehicles for

Transport of Goods
Mexico, Chile, Venezuela,

Brazil, Argentina
USA, Brazil, Mexico,

Argentina, Uruguay
Special Purpose
Motor Vehicles
Venezuela, Brazil, Mexico,

Chile, Argentina
Argentina, Germany,
USA, Spain
Motorcycles
(including mopeds)
Colombia, Argentina, Mexico,

Brazil, Venezuela
China, Brazil, USA,

Japan, Colombia
The automotive industry has

high potential, both with regard to
production and consumption, in the
developing Asian region, as there
would be growing linkages between
the region, especially the two large
economies of the region, viz., China
and India, with other parts of the
world. In the long term, countries of
the Asian region are also expected
to increase the market share, in
global vehicle production and sales,
at the cost of developed regions of
the world, viz., USA and EU.
Countries in the developing Asia,
especially China and India, may also
emerge as hubs for vehicle design
and R&D.
Indias automobile penetration in

the developing Asian market has
been quite modest across all the
segments. This could be seen from
the growing penetration index during
the analysed period (years 2001 and
2006), in almost all segments, some
with greater intensity and some with
lesser intensity. The contribution
index has also grown in all vehicle
segments, indicating growing share
of these vehicle segments in Indias
exports to developing Asia. However,
the share of import of identified
categories of vehicles in total import
of developing Asia has more or less
remained constant or marginally
improved over the analysed period,
121
especially motorcycles, are largely

confined to countries like Sri Lanka,
Bangladesh, Nepal and Philippines;
whereas Indonesia, Hong Kong and
Vietnam (for motorcycles), and
Thailand and Malaysia (for
passenger transport vehicles)
remained almost unexplored, though
these countries import large volume
of vehicles. Many Asian countries are
generally agrarian economies, and
thus the demand for tractors remains
promising. India has been exporting
tractors to countries like Sri Lanka
and Bangladesh, but penetration in
markets like Thailand, Korea,
Taiwan, and Malaysia still remain
almost abysmal or nil. It is important
for India to diversify the market base
focussing on these countries.
in most of the sub-categories,

indicating growing manufacturing
and self-sufficiency in the region. In
spite of such a trend, the
specialization index has grown for all
types of vehicles (except special
purpose vehicles), with some
categories, such as tractors, public
transport type passenger vehicles,
chassis fitted with engines, and
motorcycles well pronounced than
the others.
Public transport and motorcycles
are popular means of transportation
in developing Asian countries, and
Indias penetration in these two
segments has been quite high in the
region. However Indias export of
these categories of vehicles,
Table 22:
EXPORTS TO ASIA
Penetration
Contribution
Asias Share
(Pi)
(Ci)
(Si)
Automobile Segment
2001
2006
2001
2006
2001
2006
Tractors
0.16
3.30
0.01
0.14
0.05

Passenger Vehicles
1.94
8.04
0.12
0.21
0.07
Motor Cars and

other motor vehicles
0.22
0.69
0.14
0.37
Motor Vehicles for

Transport of Goods
0.77
1.65
0.11
Special Purpose
Motor Vehicles
0.18
0.13
Chassis fitted
with engines
0.55
Motorcycles
(including mopeds)
1.44
Specialisation
(Ei)
2001
2006
0.06
15.59
225.30
0.04
183.81
549.87
0.68
0.78
20.94
47.02
0.18
0.16
0.16
72.92
112.84
0.01
0.00
0.05
0.05
17.46
9.09
6.16
0.01
0.10
0.02
0.02
51.91
420.87
8.60
0.05
0.42
0.04
0.07
136.28
588.32
122
(%)
Indias major export markets in

the Asian region for select vehicle
segments and the competing
exporters in the region are tabulated
in Table-23. It may be noted that
China, Thailand, Malaysia, and
South Korea are amongst the major
export markets for India in this
region. Competing exporters in these
markets are mainly Japan, European
countries (such as Germany and
Italy), and USA. Among developing
Asian countries, China and South
Korea are major competitors for
India.
AUTO-COMPONENTS
More than two-thirds of autocomponent exports from India are
directed towards North America and

Europe. Thus the analyses of
competitiveness of auto-component
exports have been restricted to
these two regions alone.
USA
In the USA market, the penetration
index for components such as
bumpers, drive axles, and radiators
have grown significantly indicating
rise in share of India in USAs total
imports. The contribution index has
also increased for bumpers
USA. The share of import of
identified components in total
imports of USA has either
Table 23:
THE ASIAN MARKET FOR SELECT AUTOMOBILES
Segment
Major Markets for India
Competing Exporters
Tractors
Thailand, Malaysia, Taiwan,

South Korea, China
Japan, Brazil,
Netherlands, Germany,
Sweden
Public Transport
Type Passenger
Vehicles
Thailand, Malaysia, Sri Lanka,

Hong Kong, China
Japan, South Korea,

China
Motor Cars and

other motor
vehicles
China, South Korea,

Singapore, Taiwan and
Malaysia
Germany, Japan,
Thailand, South Africa,
Sweden
Motor Vehicles for

Transport of Goods
Indonesia, China, Singapore,

Thailand, Vietnam
Japan, Germany, USA,

South Korea
Special Purpose
Motor Vehicles
China, Singapore, Thailand,

South Korea, Taiwan
Germany, USA, Japan,

Belgium
Motorcycles
(including mopeds)
Indonesia, Hong Kong,

China, Japan, Taiwan,
Sri Lanka, Vietnam, Philippines Italy, Thailand
123
marginally increased or decreased

or remained the same, between
2001 and 2006, indicating no
significant increase in imports of
these products in USA market. As
a result of all these trends, the
specialization index has increased
tremendously for bumpers, drive
axles, and steering wheels. While
the specialization index has
wheels and parts, marginal decline
has
been
witnessed
for
and suspension shock absorbers.
Europe
In the European market, the
penetration index has grown
significantly for auto-components
such as bumpers, brakes and
parts, drive axles, suspension
shock absorbers, and radiators.
The contribution index has also
increased for bumpers, brakes and
parts, drive axles, and radiators
Europe. The share of import of
identified components in total
imports of Europe has either
marginally increased or decreased
Table 24:
INDICATORS OF COMPETITIVENESS OF AUTO-COMPONENTS
EXPORTS TO USA
Penetration
(Pi)
Contribution
(Ci)
USAs Share
(Si)
(%)
Specialisation
(Ei)
Auto-components
Segment
2001
2006
2001
2006
2001
2006
2001
2006
Bumpers
0.01
4.82
0.00
0.23
0.06
0.06
0.68
414.87
Other parts and

accessories of bodies
0.03
0.02
0.02
0.01
0.52
0.48
4.09
1.38
Brakes and servo

brakes and parts thereof
0.39
0.45
0.08
0.08
0.18
0.20
45.72
38.70
Gear boxes
0.02
0.06
0.01
0.02
0.39
0.34
2.63
4.99
Drive axles
0.09
1.54
0.01
0.06
0.07
0.04
10.48
132.19
Non-driving axles and

parts thereof
0.65
0.52
0.02
0.18
0.02
0.04
76.68
45.04
Road wheels and

parts thereof
1.66
0.11
0.23
0.02
0.12
0.16
194.47
9.49
Suspension shock
absorbers
0.72
0.63
0.02
0.02
0.03
0.04
84.07
54.44
Radiators
0.49
0.81
0.02
0.03
0.04
0.04
57.06
69.85

columns and boxes
0.03
0.28
0.00
0.01
0.04
0.06
3.56
24.49
124
or remained the same, between

2001 and 2006, indicating no
significant increase in imports of
these products in European market.
As a result of all these trends, the
specialization index has increased
tremendously for bumpers, brakes
and parts, drive axles, suspension
shock absorbers and radiators.

wheels and parts, and parts and
accessories of bodies, marginal
increase has been witnessed for
components such as gear boxes,
non-driving axles and parts,
suspension shock absorbers, and
steering wheels and parts.
Table 25:
INDICATORS OF COMPETITIVENESS OF AUTO-COMPONENTS
EXPORTS TO EUROPE
Penetration
(Pi)
Contribution
(Ci)
Europes Share
(Si)
Auto-components
Segment
2001
2006
2001
2006
2001
2006
Bumpers
0.04
2.09
0.00
0.17
0.03
Other parts and

accessories of bodies
0.06
0.02
0.05
0.01
0.36
Brakes and servo

brakes and parts thereof
0.17
0.30
0.05
0.08
Gear boxes
0.01
0.08
0.00
Drive axles
0.12
1.07
0.01
Non-driving axles and

parts thereof
0.15
0.24
Road wheels and

parts thereof
0.31
Suspension shock
absorbers
(%)
Specialisation
(Ei)
2001
2006
0.04
8.10
377.44
0.36
12.75
3.80
0.14
0.15
34.84
54.70
0.03
0.19
0.20
1.38
13.87
0.08
0.05
0.04
24.82
193.26
0.02
0.03
0.06
0.07
32.40
43.13
0.13
0.08
0.03
0.12
0.12
65.05
23.26
0.10
0.24
0.01
0.02
0.04
0.05
20.11
43.85
Radiators
0.20
0.55
0.02
0.05
0.04
0.05
42.68
98.85

columns and boxes
0.01
0.02
0.00
0.00
0.08
0.08
3.01
4.37
125
7. CHALLENGES AND STRATEGIES
has impacted the growth of the

Indian automotive industry.
CHALLENGES
Growth in Input Costs
Prices of core inputs in the
manufacture of vehicles, like steel,
non-ferrous metals and rubber,
have grown over the last few years,
which in turn has increased the
production cost of vehicles. Though
the raw material costs have cooled
down, in the last two months, they
still prevail more than the prices
that have prevailed few years ago.
Such cost escalation in input prices
Fuel Price Volatility

Volatility in fuel prices affects the
growth of the automotive industry
all over the world. The effects of
volatility in fuel prices are multipronged. Firstly, the cost of inputs
in car manufacturing increases with
the increase in oil prices. Polymers,
one of the inputs used in
manufacture of vehicles, is a
derivative of crude oil. Bulk
Table 26:
CHANGES IN PRICES OF SELECT INPUTS
(Rs. Per Tonne)
Prices of crucial inputs

Steel Categories
HR Coils
CR Coils
GP/GC Sheets
Melting Scrap
Aluminium
Rubber
PVC
* relates to January 2005
September 2003
24500
27500
34500
11000
93000*
52500*
45000
September 2008
45000
48000
53000
25000
120000
141000
70000
SOURCE: Joint Plant Committee for Steel; Multi-Commodity Exchange for Aluminium
and Rubber; EXIM Research
126
commodities, such as steel and

aluminium, are also used in
manufacture of vehicles; the
transportation cost of which is
influenced by in oil prices.
Secondly, the oil price has an
impact on inflation, affecting the
saving and disposable income of
the consumers, thereby affecting
the demand for automobiles.
Thirdly, the fuel price influences the
overall running cost of the vehicle
owners; there could be switch in
demand among the vehicle
variants, as also research in use
of alternative fuels. Thus, the
volatility in oil prices affects the
prospects of the industry.
Slowdown in Demand
As per the RBIs data on sectoral
deployment of gross bank credit,
the automotive industry received
gross bank credit of Rs. 29152
crores in 2007-08, a growth of 39%
the previous year. In the last 10
years (during the period 1996-97 to
2007-08), the CAGR of deployment
of bank credit to automobile sector
was over 26%. In addition, credit
has been extended to transport
operators and retail consumers (as
motor finance) to support the
growth of sales by the automotive
industry. However, the penetration
rate of vehicle ownership in India
(per thousand population) is
estimated to be less than 10 for car
owners and around 40 for two
wheelers. This is low as compared
to the world standards, and

indicates the huge potential
demand for automobiles in the
country. Following the recent
developments in the financial
sector, and the economic
slowdown, the euphoria of easier /
better availability of auto finances
in India has come down. The recent
trends in vehicle sales also
corroborate with this contention.
During the period April-November
2008, the sales growth in
passenger vehicles segment was
marginally negative at (-) 0.59%
2007-08; the growth in sales of
commercial vehicles was negative
at around () 9.23%. Similarly, three
wheelers sales have also registered
a negative growth (of 3.37%).
The
two-wheelers
segment
registered a positive growth of
3.76% during this period; however,
the two wheelers sales in the month
of November 2008 witnessed a
negative growth (of -14.73%), over
the corresponding month in 2007.
Slowdown in USA
North America has been a
traditional market for the Indian
auto component manufacturers with
exports to the region accounting for
around 27% of Indian auto
component exports. The region is
affected by the global financial
crisis, which led to the slowdown
in demand for vehicles, especially
in USA. As the global financial crisis
makes consumers increasingly
127
reluctant to part with cash and

lenders unwilling to offer credit,
carmakers across the world face
challenges in finding buyers to keep
their production lines running. It
may be mentioned that industry
wide auto sales in USA in the
month of November 2008 were
down nearly by 37%. In annualized
terms, according to analysts, the
US auto industry recorded sales of
10.2 million vehicles in November
2008, down from 16.07 million
vehicles sold in the same month of
last year. With the Detroit majors
like, General Motors, Ford and
Chrysler seeking a bailout from the
Federal Government, the auto
component industry in India is
feeling the brunt with slack in
demand. An emergency bail-out
offering of US $ 17.4 billion loans
to the three auto majors has been
announced with the condition that
within three months restructuring
plans are prepared by them,
including cutting down on costs.
The restructuring plan and cost
cutting measures may affect the
export prospects of Indian autocomponent firms. The Indian auto
components sector, which is one of
the major vendors for the global
auto majors, and to the US in
particular, face the challenges of
slowdown in the US automobile
market.
Production Cuts
The production activity in the
automotive industry is poised to be
128
on the lines of the economic growth

in the world and it is likely that the
momentum in production may
slowdown in the year 2008-09. The
slowdown in demand for vehicles,
both in domestic and export market
has led to the announcement of
production cuts by many vehicle
manufacturers. In the month of
November 2008 (over the month of
October 2008), there has been
decline in production across all
segments. Production of passenger
vehicles have witnessed a negative
growth (-8.50%), commercial
vehicles production declined by
44.27%, three-wheelers production
declined by 5.65%, and two
wheelers by 8.79%. Overall, the
production in november 2008 (over
October 2008) has come down by
9.94% (from 0.95 million units to
0.86 million units. Commercial
vehicles producer, Ashok Leyland,
has reduced its proudction of
vehicles to around 1500 units in
November 2008 (as compared to
an average of 6400 units produced
during April-October 2008). Another
major vehicle manufacturer, Tata
Motors has decided to cut
production of medium and heavy
commercial vehicles by around
50%, while its passenger cars
segment is contemplating a
production cut; as of now, Tata
Motors is undertaking partial shutdown to match the production and
demand for passenger cars. In the
two-wheelers segment also, major
producers are mulling over
production cuts to reduce their

inventory levels and match with the
market demand trends. Bajaj auto
has already announced a prolonged
shut down as part of the exercise
to reduce the inventory levels. Such
trends also affect the market
prospects of Indian auto-component
manufacturers. Several autocomponent units that are catering
to the demand of OEMs in India
are also in line with the production
cuts intended by these OEMs.
Several
auto-component
manufacturers are scheduling
maintenance holidays to tackle the
situation.
evolving through the dynamics of

open market and deregulation,
many new players have entered the
market. Since liberalisation, over 20
new players entered the market in
the passenger car segment alone.
Though there has been depletion
of market share for Maruti Suzuki,
it still dominates the passenger car
segment. In the two-wheelers
segment too, foreign majors have
their presence through joint
ventures as also through their
wholly owned subsidiaries. Hero
Honda is the largest player in the
two-wheeler segment, followed by
Bajaj Auto and TVS Motors.
Growing Competition
Competition in Indias automobile
and auto-parts industry has been
growing in the recent years. Earlier,
the regulatory framework and
market conditions positioned the
Indian OEMs in monopolistic or
oligopolistic market structure. As
the automotive market in India is
In the commercial vehicles

segment, though the market is
dominated
by
home-grown
companies such as Ashok Leyland
and Tata Motors, competition is
augmented through the entry of
foreign players such as Nissan and
Volvo. Indian players are entering
into joint ventures with these
companies to gain access to the
Exhibit 64:
TRENDS IN DEPLOYMENT OF GROSS BANK CREDIT TO
AUTOMOTIVE SECTOR IN INDIA
SOURCE: RBI, EXIM Research
129
technological advancement and

design engineering. In the auto-parts
segment, though there are vibrant
units producing high-quality products
and supplying to global OEMs, the
market is attracting global players
such as Delphi Systems, Visteon,
Denso and Bosch, to mention a few.
These global majors have been
expanding their product portfolio and
enhancing
their
production
capacities, thereby increasing the
competition among the domestic
players.
Changing Consumer
Preferences
There has been continuous change
in consumer demand in the motor
vehicle industry, making the
companies to focus on innovation,
continuously.
With
growing
purchasing power among Indian
consumers, the demand for better
and comfort vehicles with greater
efficiency is growing. Intense
industry competition has led to

design of hybrid vehicles and
development of new vehicle
concepts. Apart from customers,
new technology also allows the
designers to change every aspect
of car design. According to a
study13 by KPMG, product quality,
cost reduction, new technologies
and
environmental
issues,
influences the consumer demand
for vehicles and thereby innovation
in the automotive industry.
Chinese Competition
Of late, low-cost imports from China
threaten the business prospects of
domestic
auto-component
manufacturers. According to ACMA,
auto-component imports from China
have grown rapidly in the last few
years. From around 3.3% of all
component imports in 2003-04,
China now accounts for close to
10%. Significant growth in
component imports has been
Table 27:
INDIAS IMPORT AND EXPORT OF AUTO COMPONENTS
(Rs. Crores)
Import
Period
2003-04
2004-05
2005-06
2006-07
2007-08E
From China
Total
Export
To China
214
371
766
1376
2052
6562
8546
10988
16301
21338
126
128
158
113
177
SOURCE: ACMA
13
130
Momentum, KPMGs 2008 Global Auto Executive Survey
contributed by China in the last

three years, while Indias exports to
China have stagnated at around
Rs 120-170 crore in the last
5 years. Such imports from China
have set new benchmark prices
and the component manufacturers
from India face challenges in the
scenario of rising input prices.
Environmental Issues
The automobile sector affects the
environment in multiple ways,
starting from the use of materials
that
causes
environmental
degradation, and ending with the
management of scrap. However, it
is estimated that much of the
environmental damage during the
lifespan of a car happens during
driving, and thus is associated with
fuel emissions. That is why many
countries are discouraging sale of
fuel-inefficient cars, as also
polluting cars, through suitable
taxation policy. It is reported that
Chinese Government has increased
sales tax on cars with engine
capacities more than 1 litre, and
reduced on cars with engine
capacity of smaller than 1 litre. EU
is proposing to penalize cars that
are emitting more than 130 gms of
CO2 per kilometer.
There are estimates that the
automobile industry accounts for
approximately one-fourth of global
anthropogenic GHG emissions.
Therefore, in order to combat the
environmental challenge, firms (as
well as environmentalists and

national Governments) are focussing
on avoidance of polluting substances
in production, in addition to
concentrating on fuel efficiency and
emission standards and owners. The
industry is also contributing to
combat this challenge by
undertaking research in improving
fuel efficiency and reducing CO 2
emissions. In the EU, an end-of-life
of vehicles Directive (2000/53/EC) is
in force to prevent polluting
substances in manufacture of
vehicles. Also, a dialogue between
regulators and the automotive
industry in EU inspired a voluntary
commitment for the industry to
reduce emissions.
Low R&D Orientation

It is being realized all over the world
that the competitiveness is not
dependent on factors like
availability of skilled labour, low-cost
operations and infrastructure. The
sustained competitiveness in the
automotive industry comes through
improvement in productivity, which
calls for continuous innovation by
the players. However, Indian
automobile companies spend a
relatively low amount on R&D; thus,
their R&D orientation (R&D
spending as a percentage of total
sales) is low relative to the global
standards. Developing new designs
is an expensive proposition, unless
the market for the new design is
on a global scale. Indian firms are
mainly focussing on, and designing
131
the vehicles for domestic market or

for other developing country
markets, but not designing for a
truly global market, to create a
niche for them and compete with
international brands. Also, the
efforts of Indian automobile
manufacturers are mainly oriented
towards value engineering or
modification in the existing models
to improve performance, and not on
new models.
Infrastructure Constraints
Insufficient road infrastructure and
traffic congestion could be a
bottleneck in the growth of the
automotive industry. In India,
capacity addition in roads has been
lagging behind the traffic growth. It
is reported that China witnessed a
phenomenal growth in automotive
industry due to rapid development
in road infrastructure. Poor port
connectivity is another bottleneck
faced by the industry, especially
when it comes towards exports.
The Chennai and Mumbai Ports
handle bulk of the vehicle export.
In addition to the insufficient port
handling infrastructure, there are
also challenges associated with
space especially for parking and
setting up of repair shops in the
port yard. According to an
analysis 14 on cost structure of
Indian automotive sector and that
of Malaysia, Thailand and China,
the deficiencies in logistics

infrastructure adds up the cost by
1.1% to 2% in the automotive
sector.
Incidence of Levies / Duties

On vehicle sales, currently taxes
are levied at multiple levels at city
level (octroi), state level (sales tax)
and at the central level (excise). It
is estimated that the incidence of
levies and taxes on a vehicle
averages to be around 30% of the
cost of vehicle. The incidence of
taxes increases in cases where the
octroi is also levied. The high
incidence of taxes increases the
cost of ownership of vehicles,
thereby affecting the vehicle
penetration level in India.
Low ICT Interface
The adoption of ICT in the Indian
automotive sector is at low level as
compared
to
international
standards. According to a study15
by NASSCOM, many SME firms in
the auto-component sector is facing
the challenges of IT adoption,
which is important for enhancing
their
productivity
and
competitiveness, and the growth of
the industry.
Human Resources Challenges
One of the critical enablers for the
growth in the Indian Automobile
industry would be adequate
14
Working Group on Automotive Industry, Eleventh Five Year Plan, Planning Commission,
Government of India.
15
IT Adoption in the Indian Auto Component Industry
132
availability of trained manpower. It

is estimated that the industry would
require huge numbers of trained
personnel, if our country has to
become an auto-manufacturing hub
for the world. Countries in North
America and Europe, which had
been the hub for automotive
industries over the years, are
increasingly feeling the pinch of the
aging workforce impacting the
employment levels from factory
workers to middle and top-level
management, thereby creating a
talent vacuum in the industry. This
crunch in manpower in these
economies is slowly luring the
much-required human capital from
India. This challenge needs to be
addressed on priority basis so that
the country does not loose out on
critical talent that may be important
for India to become an important
automotive hub.
STRATEGIES
Tackling the Rising Input
Costs
The increase in the cost of crucial
raw materials (such as steel,
aluminium, rubber) that are used in
manufacture of vehicles has
affected the margins of the Indian
automotive industry. Though, the
raw material prices are cooling
down, they are still higher than the
prices that prevailed few years ago.
In order to tackle this problem of
rising input costs, and to improve
margins and price realisations,

players in the automotive industry
need to adopt multi-pronged
strategies.
These
include
reallocation of product mix, cost
reduction through better adoption of
lean manufacturing solutions, and
renegotiation with suppliers and
vendors.
Some
automobile
manufacturers have already
strengthened their strategy in
tweaking the product-mix, giving
greater emphasize on product
segments that is expected to
provide
better
margins.
Strengthening lean manufacturing
solutions would help the Indian
automotive industry to tackle the
challenge of input cost escalations.
Some automobile manufacturers in
India have already established
programmes to avoid wastages in
production and thereby cut down
the cost of production. Maruti
Udyog Limited has introduced a
programme of one component, one
gram, thereby bringing down the
overall weight of a car by 2.5 Kg.,
and thereby save about Rs. 10
crores per annum. Ashok Leyland
Ltd has introduced the Mission
Gemba, which aims to improve
productivity while reducing the cost
of production. Firms also need to
renegotiate the prices (for
purchases with the suppliers) and
margins (for sales with the dealers),
so that the hike in the end price at
the hands of consumers is
minimized due to hike in input
prices.
133
Exhibit 65:
CHANGING WORKFORCE POPULATION (AGES 20-64)
BETWEEN 2005 AND 2025
SOURCE: Department of Economics & Social Affairs of UN Sectt (2006), World

Population Prospects: The 2004 Revision, New York; UN; EXIM Research
R&D on Alternate Energy

Sources and Hybrid Vehicles
The share of automobiles on road,
using petroleum products as fuel,
has almost remained the same (at
over 95%) in the past several
decades. This is despite the fact
that the vehicles on road have been
evolving in every other aspect. In
other words, product development
has happened in all other aspects,
except in utilization of alternate
energy sources. The industry,
together with the Government, may
provide
greater
thrust
on
development of products that uses
alternate energy sources, and R&D
on hybrid vehicles.
Market Presence in All
Segments
Being competitive and growing
profitably, in an environment in
134
which business routinely transcends

borders, is an ever-growing
challenge for the Indian automobile
industry. Globalization is making
every player in the industry to look
beyond its borders. Ironically, in
spite of the increasing number of
models being manufactured, the
PLC of the vehicles are decreasing
everyday, thus putting pressure on
the players to find ways to diversify
their product offerings. Recently,
Tata Motors has acquired the
Jaguar-Land Rover brands from
Ford thereby making an imprint into
the niche segment, eyeing the
European and other developed
country markets. This has made
the Tata Motors a truly global player
in the automobile market with a
diversified product offerings,
ranging from the entry level
segment Nano to the much-touted
ownership of premier brands, like
Land Rover and Jaguar, thus

catering to all segments of the
market. Market presence and
product offerings need not be in
one category of vehicles (say
passenger cars) alone; it could also
be across multiple vehicle
categories. For example, Volvo
India, which is known for selling
commercial vehicles, has been into
smaller way in selling luxury cars,
which the company plans to
expand. Bajaj Auto, which is wellknown in the two/three wheelers
segment has also announced its
interest in the small car segment.
Ashok
Leyland,
leading
manufacturer of commercial
vehicles, has tied up with Nissan
for production of light commercial
vehicles. Such strategies build
brands and visibility across
segments, as also reduce the risks
associated
with
market
concentration and economic
slowdown to some extent.
Enhancing Competitiveness
Cost efficiency is necessary for
Indian automobile industry to
enhance its global competitiveness.
Many global auto-majors, especially
from Japan, have initiated cost
reduction exercises. Some firms
have also shifted from standard
costing to Kaizen costing and target
costing. Some of them have even
established target-costing offices
across the world and established
office structure for implementing
Kaizen. Cost containment strategies
may also include working with

suppliers to reduce the costs in
their processes, implementing lowcost designs / segments of the
product, or through reduction of
wastages. Strengthening the lean
manufacturing practices, being
adopted in India as also across the
world, would also help improve
competitiveness of Indian industry.
Such practices show greater
efficiencies in machine utilization,
fewer labour hours per machine,
shorter machine setup times and
identification of bottlenecks and
cost reduction opportunities swiftly.
Both the automobile and the
auto component industry are interlinked and are dependent on each
other for survival, and hence the hub
and spoke model may be another
approach for both of them to contain
the cost. In a country like India,
where customers are highly price
sensitive, localization of industries
are of paramount importance. In the
hub and spoke model, the
automobile industry help in
establishment of auto-component
units around its assembly plants, and
help them in technological
improvement,
R&D,
and
identification of machineries and
equipments. The auto-component
units concentrate on on-time supply
and servicing of orders and cost
containment in production, and
thereby promote competitive pricing
among the industry players.
135
Box 5:
HYBRID VEHICLES
Hybrids are vehicles that use two sources of fuel - one of which is generally
an electric battery - and have lower emissions as well as reduced operating costs.
Hybrid vehicles are basically driven by a conventional petrol engine, with an assisting
electric motor that is powered by a battery. Due to the presence of assisting electric
motor, the petrol engine for the hybrid vehicles are designed to be smaller, but it
delivers the same performance with lower emissions and higher fuel efficiency.
Global auto leaders such as Honda Motors (Civic Hybrid) and Toyota Motors (Toyota
Prius) have already successfully launched commercially viable hybrid vehicles;
however, in India, not many companies have come forward for developing hybrid
technology. Mahindra Group is developing a hybrid vehicle, which may soon be
launched. Tata Motors has recently bought majority stake in Norway-based Miljo
Grenland Innovasjon, which specializes solutions for electric vehicles. Tata Motors
is expected to develop electric version of Indica through this arrangement. Tata
Motors has also been embarking on a programme for making hybrid buses,
targeting the city transportation segment.
The Government, in the latest budget announcements, has cut the excise
duty on hybrid vehicles from 24% to 14%, (subsequently by another 4% reduction
across the board to boost the demand) to promote hybrid vehicles in the country.
A National Hybrid Propulsion Programme (NHPP) has been launched by the
automobile industry, bringing together the academia, Tier-I suppliers, and the
representatives from the Government of India.
SOURCE: EXIM Research
Addressing Consumer
Preferences
The dynamics of Indian automobile
market is changing with the
changing consumer preferences.
For example, earlier, the twowheeler segment was dominated by
scooter (with a market share of 7080%), which has been taken over
by motorcycles. The change in
consumer preference was mainly
due to fuel efficiency, as also
design
and
technological
improvement. Though, the newer
versions of scooters (scooty
136
concept with ignition start) are

slowly reviving the market for
scooters, the market share may not
reach to the previous level.
Similarly, consumer preferences
have changed the demand pattern
in other vehicle segments too,
driven mainly by design and
technology. Indian auto-majors
need to address the changing
consumer preferences and suitably
modify the design or technological
improvement to augment their
market share.
Collaborative
Product
Development (CPD) is being
adopted as a business strategy by
global automobile majors to address
the challenge of changing consumer
preferences. These auto-majors
work with the consumers in
development of a design and
improvement in features of an
existing product. Such an approach
is also being adopted collectively,
through suitable alliances by the
auto-majors, either through
investment-sharing or through
innovation-sharing in order to orient
the consumers ideas in the design /
product development process.
Dealers are also need to be
roped in the design or product
development process, as they are
ideal gateway agencies between the
customer and the firm. Hence, a
stronger relationship is required to be
established by the vehicle makers
with the dealers. Synergies are to be
created between the vehicle
manufacturers and dealers through
better
communication
and
understanding in order to offer not
only enhanced customer services but
also to understand the trends in
consumer preferences. Appropriate
incentive plans may also be devised
for the dealers so that desired goals
are achieved.
There are also challenges

associated with end-of-life in
vehicles,
especially
waste
management. EU has estimated
that every year, end of life in
vehicles generate about 10 million
tonnes of waste in the region. USA
has been promoting the concept of
Environmentally
Benign
Manufacturing in all sectors, and
has also established Design for the
Environment (DfE) project through
the Environment Protection Agency.
The DfE programme is working with
the automobile industry, especially
in the refinishing sub-segment to
increase awareness of the health
and environmental concerns, and
encourage the use of best practices
and technologies. Though sufficient
steps are being taken in India
towards achieving international
emission standards, adequate steps
are still required to be taken in
environmental compliance in vehicle
manufacturing. Significant amount
of resources are required as
investment to undertake R&D
programmes to address these
environmental challenges. The
industry needs to develop a similar
strategy of designing vehicles for
environment, especially if India is
to emerge as a global manufacturing hub for vehicles.
Environmental Compliance
Environmental challenges in
automobile manufacturing does not
relate to emission standards alone.
Enhancing R&D Orientation

Indian automotive industry needs to
develop a proactive culture with
regard to investments in R&D
137
Box 6:
KAIZEN PHILOSOPHY
The Japanese word Kaizen refers to continual and gradual improvement
through small betterment activities, rather than large or radical improvement made
through innovation or large investments in technology. Kaizen, thus, is a daily
activity whose purpose goes beyond simple productivity improvement. It is also a
process that provides improvement in the workplace and teaches the people how
to perform experiments on their work using the scientific method and how to learn
to spot and eliminate waste in business processes.
To be most effective Kaizen must operate with three principles in place:
consider the process and the results together, and not the results alone;
systemic thinking of the whole process in a broader manner, and not
in a narrow view;

a learning, non-judgmental process that will allow re-examination of
the assumptions that resulted in the current process.
In the Kaizen philosophy, people at all levels, starting from the lowest level of
staff to the level of CEO, as also the external stakeholders participate and contribute
to the process of improvement. It is believed that these continuous small
improvements add up to major benefits, such as enhanced productivity, improved
quality, safety standards, faster delivery, cost control, and greater level of customer
satisfaction. It is also believed that employees working in Kaizen-based
organizations generally find the work environment enjoyable, leading to job
satisfaction and low turn-out of employees.

Kaizen costing is the process of cost reduction during the manufacturing phase
of an existing product. Kaizen costing is most consistent with the saying slow and
steady wins the race.
rather than responsive culture. This

would help the industry to
understand the complexities of
vehicle users and bring in product
innovation through changes in
design and vehicle engineering.
The R&D orientation in the Indian
auto-component industry is not
comparable with world standards.
However, few firms that are having
large operations are increasing their
16
138
stake in innovation to compete in

the global map. According to a
study 16 , large auto-component
suppliers with investment over
Rs. 100 crores are having better
understanding of the relationship
between R&D orientation and
business development. SME autocomponent units, especially those
with low man-power strength, low
management skills, and low
Assessing innovation quotient of Indian auto component manufacturers, MDI, Gurgaon.
turnover, have not fully understood

the power of innovation.
Thus, there is also a need to
initiate a programme for research
and development in the Indian
automotive industry, concentrating
on development of intelligent
vehicles adhering to safety
standards, energy efficiency and
emission norms, and alternate fuels.
The programme may also stretch
down to component manufacturers
with active involvement of OEMs.
Government of India has already
announced several initiatives and
support for R&D in Indian automotive
industry. A National Automotive
Testing and R&D Infrastructure
Project (NATRiP) has been set up by
the Government, joining hands with
the industry, to create a state of the
art testing, validation and R&D
infrastructure in India. In addition,
Government has also taken steps to
encourage collaboration of industry
with research and academic
institutions for development of
appropriate technology.
Infrastructure Development
Infrastructure constraints are
common to all industry; however
there are few specific infrastructure
constraints affecting the growth of
Indian automotive industry. Poor
road infrastructure and traffic
congestion can be a bottleneck in
the growth of vehicle industry.
Therefore, in general, improvement
in road infrastructure would help
enhance
the
demand
for
automobiles in India. Secondly,
road infrastructure associated with
last-mile port connectivity would
help enhance supply chain
management strategies of the
vehicle manufacturers. More
importantly, there is a need for
building vehicle terminals in India
for smoother handling of vehicle
exports. Countries like South Africa
(Durban), South Korea (Ulsan) and
Mexico (Lazero Cardinas) have
already established exclusive
vehicle terminals for handling
vehicles meant for exports. In India,
several initiatives have been
announced by the industry, both by
vehicle manufacturers and private
port developers, to construct vehicle
terminals. For example, Hyundai
has plans to build a vehicle terminal
in Chennai; Maruti Suzuki entered
into an arrangement with Mundra
port for development of a car
terminal; Japans Mitsubishi Motors
plans to develop a car terminal in
India, in association with Maruti
Suzuki. Toyofuji Shipping has plans
to build an exclusive car terminal
in Chennai. However, the proposals
are yet be concretized and come
up in full term.
Supply Chain Management

Supply chain management in the
automotive industry helps in
integration of the partners to
improve operational performance,
materials flow and manufacturing
139
Box 7:
EU DIRECTIVE 2000/53/EC ON END-OF-LIFE VEHICLES
Directive 2000/53/EC lays down specific requirements for the management
of end-of-life vehicles. The principal objective of this Directive is to prevent waste
from vehicles and, in addition, the reuse, recycling and other forms of recovery of
end-of-life vehicles and their components so as to reduce the disposal of waste.
Further, through this Directive, it is envisaged to achieve environmental
performance of all economic operators directly involved in the vehicle value chain,
including those involved in the treatment of end-of-life of vehicles. The Directive
focusses on dismantability, recoverability, and recyclability requirements of vehicles,
compliance with coding standards and dismantling information, and the reporting
requirements. According to the Directive, producers should meet all, or a significant
part of the costs on the collection and treatment of end-of-life vehicles. Producers
are thus expected to enter into contracts or undertakings while transferring the
responsibility.
Most EU member states have, either through legal obligations or national
directive, introduced prevention measures with the objective of limiting the use of
hazardous substances (like lead, mercury, cadmium and hexavalent chromium)
in manufacture of vehicles, and prevention of their release in the environment.
Some countries, who are manufacturers of vehicles or spare parts, are focussing
on mainly substance restrictions. Some EU member states have encouraged
establishment of vehicle treatment facilities as collective responsibility of all
stakeholders in the vehicle value chain.
SOURCE: European Union
flexibility. The process of planning,

implementing and controlling cost
effective flow of materials;
maintenance
of
in-process
inventory, finished goods and
related information from the pointof-production to the point-ofconsumption; and efficiency in
conforming
to
customer
requirements in the Indian
automotive sector need to be
improved to compete efficiently in
a
global
market
place.
Implementing
supply
chain
solutions as one more module after
140
Enterprise Resource Planning

(ERP) is not enough. Theres a
need for enterprise-wide process
improvement. This calls for
inculcating mutual respect with the
vendors, dealers and consumers.
In India, logistics account for
significant amount of inventory
carrying cost, which is affecting the
cost competitiveness of the autocomponent industry. Supply chain
management thus forms as an
important strategy for Indian
automotive industry. Just-In-Time
(JIT) production processes,
identification of shorter transportation

routes, e-sourcing are some supply
chain strategies for Indian
Enhancing ICT Interface

IT sector has a major role to play
in
development
of
Indian
automotive industry to achieve its
global
aspirations
through
enhanced productivity and product
efficiency. In addition, ICT interface
help the manufacturers to interact
frequently with vendors and
consumers also, and leverage their
ideas / preferences into vehicle
design. Increased IT adoption in the
automotive industry not only
enhances the competitiveness of
the industry in the existing markets,
but also creates new markets for
the Indian automotive industry.
Human Resources
Development
The cost pressure on global auto
majors, who are mainly present in
developed countries, viz., USA,
Europe and Japan, is making the
industry shift to developing nations.
In addition, these countries are
facing shortage of skilled
manpower, which is expected to
grow multi-fold in the years to
come. India has large human
resource base; however, India
needs to enhance the skill-sets that
are required for the industry in
order to become a global
automotive hub.
According to SIAM, there are

over 200,000 people employed in
vehicle manufacturing, around
250,000
in
component
manufacturing, and over 10 million
persons indirectly, at different levels
in the value chain. The Automotive
Mission Plan, drawn by the
Government of India, has also given
thrust on human resources
development and skill upgradation
through development of training
modules and special courses. The
Automotive Mission Plan has
projected a workforce requirement of
an additional 25 million by 2016, both
in manufacturing and down-stream
and up-stream activities; of which
nearly two-third would be required
under skilled category.
The Government and industry
need to come together and address
the challenges related to skill
development and workforce
shortages, both in terms of quantity
and quality. In this regard, it may be
mentioned that USA has established,
over three decades ago, a National
Institute for Automotive Service
Excellence, to provide training
testing, and certification of autoservice and repair professionals to
ensure continuous availability of
trained technicians for the industry.
Government of India, through
the Automotive Mission Plan, has
proposed the setting up of an
Automotive Training Institute to train
people for the automotive industry.
SIAM has plans to set up an online
141
university, first of its kind in Asia to

cater to the education needs of the
industry. SIAM is associating with
US-based institute, Adayana, who
will provide course content and
certify these courses.
IN SUM
The global financial meltdown of
the year 2008 has created a
precarious condition across various
sectors, which has forced countries
and industries to take a fresh look
at their future strategies; automotive
sector did not remain unscathed
from this turmoil. In the early part
of the year 2008, the rise in crude
oil prices sent shockwaves amongst
various sectors; the automotive
sector was one of them to receive
adverse impact. The financial
crunch, in the later part of the year
2008, slowed-down the supply of
credit and simultaneously increased
the cost of credit, both to
corporates and consumers, and
thereby impacted both the supply
and demand for automobiles. It
may be mentioned that the global
as also the Indian automotive
industry, benefited from the credit
flow provided by the banks and
financial institutions, both at
corporate level and at consumer
level. The operations of several
global auto-majors are affected and
they are seeking bailout from their
national governments for their
survival. With the government
institutions across the world infusing
142
large amount of liquidity into the

respective markets, the core issue
of credit crunch may slowly be
resolved. However, cost associated
pressures may prevail on the
margins of the global auto-majors,
making them vigorously to focus on
emerging markets, for sourcing
components, vehicle design and
manufacturing. It is expected that
the recessionary trends in the
economy and the resultant increase
in margin pressures would further
enhance the need for locational
shift
in
manufacturing
of
automobiles. It is also expected that
the volume of outsourced jobs
coming to India may further rise in
the long term. Such market
opportunities also provide the
acquire assets of beleaguered
companies abroad with a potential
for turnaround and value creation
in the years to come.
Indian automotive industry holds
significant scope for expansion, both
in the domestic market, where the
vehicle penetration level is on the
lower side as compared to world
average, and in the international
market, where India could position
itself as a manufacturing hub. The
current level of share, viz., less than
5% of global production and less
than 1% of global trade also
corroborates the potential for
expansion in this industry.
At the same time, it should be

recognized that Indias exports of
automobiles have largely been
confined to few countries in Asia and
Africa, and to a limited extent in Latin
America. Indian automobile
companies are required to
accelerate their momentum and
increase their penetration among
other countries in these regions.
Similarly, the auto components
industry in India, which is now known
across the globe for its quality
deliverables, should try and
capitalize on the European and the
US market either through the
process of acquisitions of firms in
these countries or simultaneously
enhancing their quality and
augmenting the number of
outsourcing businesses from these
regions. Indian auto component
industry distinguishes itself with
winning more number of Deming
prize and adopting global quality
management procedures, and
thereby have an edge over other
emerging economies, like China and

Thailand.
Indian economy, which benefits
from strong fundamentals and sound
regulatory framework, is expected to
grow at around 7% in the year 200809; the economy may rebound once
the global economy recovers, and
the domestic automotive industry
would simultaneously regain its
growth momentum. In the interim
period, the Indian automobile and
component industry needs to look
out for opportunities to cut cost,
undertake value engineering and
enhance disciplines into the system.
The industry may also use the interim
period to upgrade the skills of the
employees and enhance the focus
on market research, product
development
and
customer
interactions. An institutional
mechanism, under public-private
partnership model, may be needed
to address such requirements of the
industry in the years of downturn,
with the industry having a lead role
to play.
143
RECENT OCCASIONAL PAPERS

OP. No.
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144
Title
Sports Goods : A Sector Study
International Joint Ventures and Technology Transfer in Developing
Countries : Theoretical Analyses
Union of Myanmar : A Study of Indias Trade and Investment Potential
Foreign Direct Investment and Host Country Interaction :
A Strategic Approach
Exports in Indias Growth Process.
Latin American Countries : A Study of Indias Trade and Investment
Potential
Peoples Republic of China: A Study of Indias Trade and Investment
Potential
lnstitutional Support Systems for SMEs in India and International
Experiences
Export Processing Zones in Select Countries : Critical Success Factors
Essays in International Economics
Institutional Support to SMEs : A Study of Select Sectors
Indian Handicrafts : A New Direction for Exports
Israel and India : A Study of Trade and Investment Potential
Indian Handloom : A Sector Study
Mumbai as an International Financial Centre - A Roadmap
Indian Export and Economic Growth Performance in Asian Perspective
The Architecture of the International Capital Markets : Theory and
Evidence
International Technology Transfer and Stability of Joint Ventures in
Developing Economies : A Critical Analysis
The Peoples Republic of Bangladesh : A Study of Indias Trade and
Investment Potential
Australia and New Zealand: A Study of Indias Trade and Investment
Potential
Machine Tools: A Sector Study
Agro and Processed Foods: A Sector Study
Currency Risk Premia and Unhedged, Foreign-Currency Borrowing in
Emerging Market
Mercosur: A Gateway to Latin American Countries
Indian Silk Industry: A Sector Study
Select COMESA Countries: A Study of Indias Trade and Investment
Potential
Sri Lanka: A Study of Indias Trade and Investment Potential
Potential for Export of IT Enabled Services from North Eastern Region
of India
94.
95.
96.
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Potential for Export of Horticulture Products from Bihar and Jharkhand

Increasing Wage Inequality in Developed Countries: Role of Changing
Trade, Technology and Factor Endowments
Essays on Trade in Goods and Factor Movements Under Increasing
Returns to Scales
Export of Organic Products from India: Prospects and Challenges
Export Potential of Indian Medicinal Plants and Products
Select Southern African Countries: A Study of Indias Trade and
Investment Potential
BIMST-EC Initiative: A Study of India's Trade and Investment Potential
with Select Asian Countries
Some Aspects of Productivity Growth and Trade in Indian Industry
Intra-Industry Trade In Indias Manufacturing Sector
Export Potential of Indian Plantation Sector: Prospects and Challenges
Fresh Fruits, Vegetables and Dairy Products: India's Potential For
Exports to Other Asian Countries
Biotechnology: Emerging Opportunities for India
ASEAN Countries: A Study of India's Trade and Investment Potential
Essays on Globalisation and Wages in Developing Countries
Select West African Countries: A Study of India's Trade and Investment
Potential
Indian Leather Industry: Perspective and Export Potential
GCC Countries: A Study of Indias Trade and Export Potential
Indian Petroleum Products Industry : Opportunities and Challenges
Floriculture : A Sector Study
Japanese & U.S. Foreign Direct Investments in Indian
Manufacturing : An Analysis
Maghreb Region: A Study of Indias Trade and Investment Potential
Strengthening R & D Capabilities in India
CIS Region: A Study of Indias Trade and Investment Potential
Indian Chemical Industry: A Sector Study
Trade and Environment: A Theoretical and Empirical Analysis
Indian Pharmaceutical Industry : Surging Globally
Regional Trade Agreements: Gateway to Global Trade
Knowledge Process Outsourcing: Emerging Opportunities for India
Indian Mineral Sector and its Export Potential
SAARC: An Emerging Trade Bloc
Indian Capital Goods Industry - A Sector Study
Financial Liberalization and Its Distributional Consequences
ECOWAS: A Study of Indias Trade and Investment Potential
Indian Textile and Clothing Industry in Global Context: Salient
Features and Issues
Fair Trade: Fair Way of Enhancing Export Value
145
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Indian Automotive Industry: at The Crossroads: Occasional Paper No. 129

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Indian Automotive Industry: at The Crossroads: Occasional Paper No. 129

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Indian Automotive Industry:

Occasional Paper No. 129

EXPORT-IMPORT BANK OF INDIA

OCCASIONAL PAPER NO. 129

INDIAN AUTOMOTIVE INDUSTRY :

EXIM Banks Occasional Paper Series is an attempt to disseminate the findings of

Select Trends In Global Automotive Industry

The Indian Scenario

Indias Exports of Automobiles & Auto-Components

Export Competitiveness of Indian Automotive Industry

Challenges and Strategies

Leading Countries Investing in Automobile Industry (2007)

Export of Select Automobiles From USA

Export of Select Automobiles from Japan

Export of Select Automobiles from Canada

Export of Select Automobiles from South Korea

Export of Select Automobiles from China

Export of Select Automobiles from Germany

Export of Select Automobiles from Mexico

Category-wise Exports of Automobiles in the World

10. Category-wise World Export of Auto-Components

11. Top Ten Low-Cost Eco-Friendly Cars

12. Category-wise Production of Automobiles in India

13. Category-wise Sales of Automobiles in India

14. Classification of Major Auto-Components Produced in India

15. Category-wise Exports of Indian Automobiles

16. Export of Select Automobiles in Value-terms from India

17. Export of Select Auto-Components in Value-terms from India

18. Indicators of Competitiveness of Automobile Exports to Africa

19. The African Market for Select Automobiles

20. Indicators of Competitiveness of Automobile Exports to

21. The Latin American Market for Select Automobiles

22. Indicators of Competitiveness of Automobile Exports to Asia

23. The Asian Market for Select Automobiles

24. Indicators of Competitiveness of Auto-Components Exports to USA

25. Indicators of Competitiveness of Auto-Components Exports

26. Changes in Prices of Select Inputs

27. Indias Import and Export of Auto Components

Trends Between Indias PFCE and Automobile Sales

Product-wise Share in World Production of Automobiles (2007)

Trends in Global Production of Automobiles

Percentage Change in Global Automobile Production (2000-2007)

Country-wise Share in Global Vehicle Production for the Year 2007

Top Ten Countries Production of Motor Vehicles in 2007

Share of Countries in Investments made in the

Regionwise Share in World Export of Automotive Products (2007)

Productwise Production of Automobiles in USA (2007)

Productwise Production of Automobiles in Japan (2007)

Productwise Production of Automobiles in Canada (2007)

Productwise Production of Automobiles in South Korea (2007)

Productwise Production of Automobiles in China (2007)

Productwise Production of Automobiles in Germany (2007)

Productwise Production of Automobiles in Mexico (2007)

Export of Tractors in the World HS Code 8701

Export of Public Transport Type Passenger Vehicles in the World

Export of Motor Cars and Motor Vehicles in the World

Export of Motor Vehicles for Transport of Goods in the World

Export of Special Purpose Motor Vehicles in the World