Professional Documents
Culture Documents
Automobile Industry
Automobile Industry
Table of Contents
1 Introduction to Industry
2 General Environment
3 Industry Environment
CHAPTER 1: INTRODUCTION
The Indian automotive component industry is dominated by around 500 players
which account for more than 85% of the production. The turnover of this industry
has been growing at a mammoth 28.05% per annum from 2002-03 onwards as
illustrated inFig.1 which clarifies its emergence as one of India's fastest growing
manufacturing sectors.
The liberalized policies of the Indian Government paved towards steady evolution
of India as a stable and market driven economy with the real Gross Domestic
Product growth in excess of 8%, foreign exchange reserves crossing the $150
billion mark, growing value of Indian Rupee compared to US dollar and reducing
inflation rate. 100%Foreign Direct Investment, absence of local content
regulation, manufacturing and imports free from licensing & approvals in the
automobile sector coupled with customs tariff or auto components reducing to
12.5% resulted in increased number of multinationals establishing their bases in
India and with export markets looking up, the Indian automobile industry is poised
for a phenomenal growth. The automobile production in the sub-continent has been
growing steadily @ 18.53% per annum from 2002-03 onwards with total vehicle
production standing at a mammoth 1,00,31,296 nos. in 2005-06 as is shown in Fig.2.
Among the automobiles, 2 wheelers account for 75.77%, cars about 11.09%, 3
wheelers to the tune of 4.33%, tractors about 2.95%, buses & trucks constitute
2.19%, Multi Utility Vehicles (MUVs) to the tune of 1.96% and Light Commercial
Vehicles (LCVs) about 1.71% of the total number of automobiles produced in the
country. Presently, India is the second largest market after China for two & three
wheelers. In tractors production, India is one of the two largest manufacturers in
the world along with China. The subcontinent stands as the 4th largest producer of
trucks in the world. Coming to the passenger car segment, the country is positioned
11th in car production in the world.
The Indian passenger car market is far from being saturated leaving ample
opportunity for volume growth since the per capita car penetration per 1000 is only
7 compared to 500 in Germany. The production of cars in the country has been
growing at a mammoth 27.58% per annum from 2002- 03 onwards as is shown in
Fig.3.
Out of the two wheelers produced in India, motorcycles account for 81.59%,
scooters about 13.42% and mopeds to the tune of 4.99% of the total production.
The production statistics is shown inFig.4 which shows the growth of 2 wheelers
@ 16.58% per annum from 2002-03 onwards. Out of this, motorcycles have
exhibited production growth @ 19.99% per annum, scooters @ 6.74% per annum
& mopeds @ 2.65% per annum from 2002-03 onwards
Two wheeler production units in India constitute of Japanese OEMS (Original
Equipment Manufacturers) which include Hero Honda Motors, Honda Motorcycle
& scooter India (P) Ltd., Yamaha Motor India (P) Ltd. & Suzuki Motorcycle India
(P) Ltd. and Indian OEMs consisting of Bajaj Auto L t d . , TVS Motor Company
Ltd., LML Ltd., Kinetic Engineering Ltd., Majestic Auto Ltd., Kinetic Motor
Company Ltd. and Royal Enfield of Eicher Ltd. Out of the aforementioned, Hero
Honda accounts for 39.55%, Bajaj Auto about 26.87%, TVS Motors 17.98%,
Honda Motors 7.94%, Yamaha Motors 3.27%, LML 1.41% and the remaining
2.98% of the total 2 wheelers production in the country. The exports of two
wheelers made a significant growth from a level of 180,000 in 2002-03 to reach
513,000 nos. in 2005-06. The latest estimates put up production of 2 wheelers to
13.6 million by 2009.
Political:
1. In 2002, the Indian government formulated an auto policy that aimed at
Promoting integrated, phased, enduring and self-sustained growth of the
Indian automotive industry.
11.Plan to have a terminal life policy for CVs along with incentives for
replacement for such vehicles.
Economic:
1.The level of inflation Employment level per capita is right.
4.Govt. has granted concessions, such as reduced interest rates for export
financing.
6.The manufacturing sector has grown at 8-10 % per annum in the last few
years.
8.Finance availability to CV buyers has grown in scope during the last few
years.
10.Several Indian firms have partnered with global players. While some have
formed joint ventures with equity participation, other also has entered into
technology tie-ups.
Social:
1.Since changed lifestyle of people, leads to increased purchase of
automobiles, so automobile sector have a large customer base to serve.
6.Car priced below USD 12000 accounts for nearly 80% of the market.
7.Vehicles priced between USD 7000-12000 form the largest segment in the
passenger car market.
8.Indian customers are highly discerning, educated and well informed. They
are price sensitive and put a lot of emphasis on value for money.
9.Preference for small and compact cars. They are socially acceptable even
amongst the well off.
Technological:
1.More and more emphasis is being laid on R & D activities carried out by
companies in India.
7.With the entry of global companies into the Indian market, advanced
technologies, both in product and production process have developed.
8.With the development or evolution of alternate fuels, hybrid cars have made
entry into the market.
6.With the entry of global companies into the Indian market, advanced
technologies, both in product and production process have developed.
7.With the development or evolution of alternate fuels, hybrid cars have made
entry into the market.
9.Major global players like Audi, BMW, Hyundai etc have setup their
manufacturing units in India.
Legal:
1.Legal provision relating to environmental population by automobiles.
to price (i.e., demand is inelastic with respect to price). The existence of closesubstitutes means
that customers will switch to substitutes in response to priceincreases for the product (i.e.,
demand is elastic with respect to price).
The extent to which substitutes limit prices and profits depends on the propensity
of buyers to substitute between alternatives. This, in turn, is dependent on their
price performance characteristics. The more complex the needs being fulfilled by
the product and the more difficult it is to discern performance differences, the
lower the extent of substitution by customers on the basis of price differences.
Threat of Entry
If an industry earns a return on capital in excess of its cost of capital, that industry
acts as a magnet to firms outside the industry. Unless the entry of new firms is
barred, the rate of profit will fall toward its competitive level. The threat of entry
rather than actual entry may be sufficient to ensure that established firms constrain
their prices to the competitive level.
Economies of Scale: Since Indian automobile market is of order $ 350 billion, the
economies of scale are very high. Thus, threat of new entrants is low.
Product Differences: Since there is hardly any difference in the offerings of the various
providers, so product differentiation is low. So threat of new entrants is high .
Brand Identity: Since there is no big Retailer like Amazon.com or Wal-Mart in India.
So threat of new entrants is high.
Government Policy: Since the Government Policy has been quite restrictive till now
with respect to the Retail market &FDI, so threat of new entrants is low.
Capital Requirements: The capital requirements for entering in the automobile sector
are substantially high( high fixed cost and cost of infrastructure), so only big names can
think of venturing into this area So, in that respect threat of new entrants is low.
Product Differences: Since there is hardly any difference in the offerings of the various
providers, so product differentiation is low. So bargaining power of buyers is high.
Buyer Information: Today’s customers are well educated about the various product
offerings in the sector. So bargaining power of buyers is high.
Buyer Switching Costs: Since customers don’t have to pay a fat premium to be
Registered for provision of services , so bargaining power of buyers is high.
Brand Identity: High Brand Identity and trustworthiness reduce the bargaining power
of buyers but, otherwise the bargaining power of buyers is high.
Buyer Profits: Since dealers offers discounts and various bundling services like 0%
insurance, old car sale, etc, on different items. Hence bargaining power of buyers is high.
Product Differences: Since there is hardly any difference in the offerings of the various
suppliers, so product differentiation is low. So bargaining power of Suppliers is low.
Strengths
The internationalization strategy so far has been to keep local managers in new
acquisitions, and to only transplant a couple of senior managers from India into the new
market. The benefit is that Tata has been able to exchange expertise. For example after
the Daewoo acquisition the Indian company leaned work discipline and how to get the
final product 'right first time.'
The company has a strategy in place for the next stage of its expansion. Not only is it
focusing upon new products and acquisitions, but it also has a programme of intensive
management development in place in order to establish its leaders for tomorrow.
The company has had a successful alliance with Italian mass producer Fiat since 2006.
This has enhanced the product portfolio for Tata and Fiat in terms of production and
knowledge exchange. For example, the Fiat Palio Style was launched by Tata in 2007,
and the companies have an agreement to build a pick-up targeted at Central and South
America.
Weaknesses
The company's passenger car products are based upon 3rd and 4th generation platforms,
which put Tata Motors Limited at a disadvantage with competing car manufacturers.
Despite buying the Jaguar and Land Rover brands (see opportunities below); Tat has not
got a foothold in the luxury car segment in its domestic, Indian market. Is the brand
associated with commercial vehicles and low-cost passenger cars to the extent that it has
isolated itself from lucrative segments in a more aspiring India?
One weakness which is often not recognised is that in English the word 'tat' means
rubbish. Would the brand sensitive British consumer ever buy into such a brand? Maybe
not, but they would buy into Fiat, Jaguar and Land Rover (see opportunities and
strengths).
Opportunities
In the summer of 2008 Tata Motor's announced that it had successfully purchased the
Land Rover and Jaguar brands from Ford Motors for UK £2.3 million. Two of the
World's luxury car brand have been added to its portfolio of brands, and will undoubtedly
off the company the chance to market vehicles in the luxury segments.
Tata Motors Limited acquired Daewoo Motor's Commercial vehicle business in 2004 for
around USD $16 million.
Nano is the cheapest car in the World - retailing at little more than a motorbike. Whilst
the World is getting ready for greener alternatives to gas-guzzlers, is the Nano the answer
in terms of concept or brand? Incidentally, the new Land Rover and Jaguar models will
cost up to 85 times more than a standard Nano!
The new global track platform is about to be launched from its Korean (previously
Daewoo) plant. Again, at a time when the World is looking for environmentally friendly
transport alternatives, is now the right time to move into this segment? The answer to this
question (and the one above) is that new and emerging industrial nations such as India,
South Korea and China will have a thirst for low-cost passenger and commercial
vehicles. These are the opportunities. However the company has put in place a very
proactive Corporate Social Responsibility (CSR) committee to address potential
strategies that will make is operations more sustainable.
The range of Super Milo fuel efficient buses are powered by super-efficient, eco-friendly
engines. The bus has optional organic clutch with booster assist and better air intakes that
will reduce fuel consumption by up to 10%.
Threats
Other competing car manufacturers have been in the passenger car business for 40, 50 or
more years. Therefore Tata Motors Limited has to catch up in terms of quality and lean
production.
Sustainability and environmentalism could mean extra costs for this low-cost producer.
This could impact its underpinning competitive advantage. Obviously, as Tata globalises
and buys into other brands this problem could be alleviated.
Since the company has focused upon the commercial and small vehicle segments, it has
left itself open to competition from overseas companies for the emerging Indian luxury
segments. For example ICICI bank and DaimlerChrysler have invested in a new Pune-
based plant which will build 5000 new Mercedes-Benz per annum. Other players
developing luxury cars targeted at the Indian market include Ford, Honda and Toyota. In
fact the entire Indian market has become a target for other global competitors including
Maruti Udyog, General Motors, Ford and others.
Rising prices in the global economy could pose a threat to Tata Motors Limited on a
couple of fronts. The price of steel and aluminium is increasing putting pressure on the
costs of production. Many of Tata's products run on Diesel fuel which is becoming
expensive globally and within its traditional home market.