Mohit Goyal

MBA General (Sec A)

Table of Contents
INTRODUCTION............................................................................................................. 3
HISTORICAL BACKGROUND........................................................................................ 3
STATUS AND PREVIEW OF CAR INDUSTRY..................................................................7
REVIEW OF LITERATURE................................................................................................ 9
AUTOMOBILE INDUSTRY WHEELS OF CHANGE......................................................10
STRUCTURE OF AUTOMOBILE INDUSTRY..................................................................12
FEATURES OF THE CAR INDUSTRY............................................................................16
OBJECTIVE OF THE STUDY........................................................................................... 18
DATA RERESENTATION AND INTERPRETATION.............................................................20
AUTO COMPONENTS................................................................................................ 25
CONCLUSION............................................................................................................... 30

INTRODUCTION
HISTORICAL BACKGROUND
The automotive industry has certain trends it has to follow, just like fashion designers and
musical composers. In times of recession and decreasing sales there is less room to take chances
and manufacturers are prone to follow the common pattern as a safer bet rather than releasing a
controversial product or idea that might or might not be successful. However throughout the
automotive industry's history, great innovators have "boldly gone where no man has gone before"
to set new trends which have dynamically altered the industry as a whole.
1880's & early 1900's

About hundred years ago

-The first motor car was imported
-Import duty on vehicles was introduced.
-Indian Great Royal Road (Predecessor of the Grand Trunk Road) was conceived.

First car brought in India by a princely ruler in 1898.

Simpson & Co established in 1840.

-They were the first to build a steam car and a steam bus, to attempt motor car manufacture,
to build and operate petrol driven passenger service and to import American Chassis in
India.

Railways first came to India in 1850's

In 1865 Col. Rookes Crompton introduced public transport wagons strapped to and pulled
by imported steam road rollers called streamers. The maximum speed of these buses was
33 kms/hr.

From 1888 Motors Spirit attracted a substantial import duty.

In 1919 at the end of the war, a large number of military vehicles came on the roads.

In 1928 assembly of CKD Trucks and Cars was started by the wholly owned Indian
subsidiary of American General Motors in Bombay and in 1930-31 by Canadian Ford

Motors in Madras, Bombay and Calcutta In 1935 the proposals of Sir M Visvesvaraya to
set up an Automobile Industry were disallowed.

1942 Hindustan Motors Ltd incorporated and their first vehicle was made in 1950.

In 1944 Premier Automobiles Ltd incorporated and in 1947 their first vehicle was
produced.

In 1947 the Government of Bombay accepted a scheme of Bajaj Auto to replace the cycle
rickshaw by the auto and assembly started in a couple of years under a license from
Piaggio. Manufacturing Programme for the auto and scooter was submitted in 1953 to the
Tariff Commission and approved by the Government in 1959.

In 1953 the Government decreed that only firms having a manufacturing programme
should be allowed to operate and mere assemblers of imported CKD units be asked to
terminate operations in three years.

Only seven firms namely Hindustan Motors Limited, Automobile Products of India
Limited, Ashok Leyland Limited, Standard Motors Products of India Limited., Premier
Automobiles Limited, Mahindra & Mahindra and TELCO received approval. M&M was
manufacturing jeeps. Few more companies came up later.

Government continued with its protectionism policies towards the industry.

In 1956, Bajaj Tempo Ltd entered the Indian market with a programme of manufacturing
Commercial Vehicles, and Simpson for making engines.

1960's

In sixties 2 and 3 Wheeler segment established a foothold in the industry.

Escorts and Ideal Jawa entered the field in the beginning of sixties.

Association of Indian Automobile Manufacturers formally established in 1960.

Standard Motors Products of India Ltd. moved over to the manufacture of Light
Commercial Vehicles in 1965.

1970's

Major factors affecting the industry's structure were the implementation of MRTP Act,
FERA and Oil Shocks of 1973 and 1979.

During this decade there was not much change in the four wheeler industry except the entry
of Sipani Automobiles in the small car market.

Oil Shock of 1973 quickened the process of dieselization of the Commercial Vehicle
segment.

Three other companies, namely, Kirloskar Ghatge Patil Auto Ltd, Indian Automotive Ltd
and Sen & Pandit Engg products Ltd entered the market during 1971-75. They ultimately
withdrew in early eighties.

During the seventies the economy was in bad shape. This and many specific problems
affected the Automobile Industry adversely.

1980's - The period of liberalized policy and intense competition

First phase of liberalisation announced.

Unfair practices of monopoly, oligopoly etc slowly disappeared.

Liberalisation of the protectionism policies of the Government.

Lots of new Foreign Collaborations came up in the eighties. Many companies went in for
Japanese collaborations.

Hindustan Motors Ltd. in collaboration with Isuzu of Japan introduced the Isuzu truck in
early eighties.

ALL entered into collaboration with Leyland Vehicles Ltd. for development of integral
buses and with Hino Motors of Japan for the manufacture of W Series of Engines.

TELCO after the expiry of its contract with Daimler Benz, indigenously improved the same
Benz model and introduced it in the market.

Government approved four new firms in the LCV market, namely, DCM, Eicher, Swaraj
and Allwyn. They had collaborations with Japanese companies namely, Toyota, Mitsubishi,
Mazda and Nissan respectively.
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In 1983 Maruti Udyog Ltd was started in collaboration with Suzuki, a Japanese firm.

Other three Car manufacturers namely, Hindustan Motors Ltd., Premier Automobiles Ltd.,
Standard Motor Production of India Ltd. also introduced new models in the market.

At the time there were five Passenger Car manufacturers in India - Maruti Udyog Ltd.,
Hindustan Motors Ltd., Premier Automobiles Ltd., Standard Motor Production of India
Ltd. and Sipani Automobiles.

Ashok Leyland Ltd. and TELCO were strong players in the Commercial Vehicles sector.

In 1983-84 Bajaj Tempo Ltd. entered into a collaboration with Daimler-Benz of Germany
for manufacture of LCVs.

Important policy changes like relaxation in MRTP and FERA, delicensing of some
ancillary products, broad banding of the products, modifications in licensing policy,
concessions to private sector (both Indian and Foreign) and foreign collaboration policy
etc. resulted in higher growth / better performance of the industry than in the earlier
decades.

1990's

Mass Emission Norms were introduced for in 1991 for Petrol Vehicles and in 1992 for
Diesel Vehicles.

In 1991 new Industrial Policy was announced. It was the death of the License Raj and the
Automobile Industry was allowed to expand.

Further tightening of Emission norms was done in 1996.

In 1997 National Highway Policy has been announced which will have a positive impact
on the Automobile Industry.

The Indian Automobile market in general and Passenger Cars in particular have witnessed
liberalisation. Many multinationals like Daewoo, Peugeot, General Motors, MercedesBenz, Honda, Hyundai, Toyota, Volvo and Fiat entered the market.

Various companies are coming up with state-of-art models of vehicles.

TELCO has diversified in Passenger Car segment with Indica.

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, 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 upgradation 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 21st 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 AND PREVIEW OF CAR INDUSTRY

The automobile industry, one of the core sectors, has undergone metamorphosis with the advent of
new business and manufacturing practices in the light of liberalization and globalization. The
sector seems to be optimistic of posting strong sales in the next couple of years in view of a
reasonable surge in demand.
The Indian automobile market is gearing towards having international standards to meet the needs
of the global automobile giants and become a global hub. Players are strategizing to consolidate
their position and gradually increase market penetration with the launch of new models, targeting
different segments. Since the sector is price driven, huge investment is envisaged to remain
competitive through cost advantage, for which indigenization is highly important. The product
becomes dearer if it is manufactured using imported parts. IT in the automobile sector plays a
crucial role.. Some players are working towards development of efficient production systems that
control the entire production process with high precision and accuracy. Such systems working on
real time operating systems allow efficient control of different parts of manufacturing and
production. It is essential to leverage skills of different engineering disciplines to build these kinds
of integrated systems.
Analysts foresee high scope in the electronics for auto sector and expect the retailing of such
electronics products to contribute a major chunk of future revenues. The government is increasing
the research and development (R&D) fund for the automobile industry over and above the Rs 1400
crores earmarked for eight years. All laboratories in the country researching on automobile
technology, such as BHEL which is developing cell technology as alternative fuel, have also been
brought together through the setting up of a national R & D working group. The group is working
out a plan to link all major laboratories across the country to give a thrust to automotive research.
Indian automobile sector being a driver of product and process technologies, and has become a
excellent manufacturing base for global players, because of its high machine tool capabilities,
extremely capable component industry, most of the raw material locally produced, low cost
manufacturing base and highly skilled manpower Not only a large number of world manufacturers
have set up production bases in India but also a large number of foreign companies are
collaborating with the auto component suppliers and vendors.
Indian Automobile Components Industry has been making rapid strides towards achievement of
world-class Quality Systems by imbibing ISO 9000/QS 9000 Quality Systems whereby the Indian
Automotive industry has become more competitive in the export market due to its technological
and quality advances, so much so that in quality conscious markets such as Europe and America, it
is emerging as a major player, based on its performance. India today exports: Engine and engine
parts, electrical parts, drive transmission & steering pats, suspension & braking parts among
others.

The sector is striding inroads into the rural middle class after its inroads into the urban markets and
rural rich. It is trying to bring in varying products to suit requirements of different class segments
of customers.
The Indian automobile and auto components 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 86 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.
The automobile industry in the country is one of the key sectors of the economy in terms of the
employment opportunities that it offers. The industry directly employs close to around 0.2 million
people and indirectly employs around 10 million people. The prospects of the industry also has a
bearing on the auto-component industry which is also a major sector in the Indian economy
directly employing 0.25 million people.

REVIEW OF LITERATURE

The report of (FICCI-2007) specified the overview of automotive industry of India and explained
the added advantages of automobile industry in India. India has high potential of automobile
industry, which contributes 4%GDP in Indian economy. Indian automobile industry offers different
types of automobiles such as cars, scooters, bikes, busses, trucks, jeeps, tractors and all types of
two wheelers, three wheelers as well as four wheelers.
Indian automobile industry includes nearly 500 huge firms as well as 1000 small scare registered
firms that are offering automobile services to the customers. India is having huge benefits because
of managing automobile industries as its major sector and it is getting many technological benefits,
cost and manpower advantages etc.
The Auto Ancillary Industry is the world famous R&D test center in India for automobile
verifications that can be considered as one of the competitive advantage to Indian automobile
industry. According to the World automobile statistics, India is the fast growing market sector for
cars in the year 2004 and it is the second largest two wheeler market sector in the world and third
largest three wheeler dealer in the world. According to this statistics India is the fourth largest
market, which is having high tractor sales in the world.
Research work is required in order to specify the detailed statistics on these aspects that reveals the
standard of Indian automobile industry in the world.

The information and statistics on Indian automobile industry is included in this article, which can
be considered as the most significant aspect in the entire research process.
According to the report of KPM (2010) Indian automobile industry is a developed industry that is
having high opportunities when we compare among the others industries. Indian market is an open
door for many opportunities and it is having wide range of employment opportunities. Because of
presence of a higher population the work prospects are also high which is allowing Indian
customers to depend on vehicles to manage their daily activities. These reasons lead to huge
demand for automobile vehicles in India and for this reason many automobile companies are
offering wide range of vehicles according to customer preferences. This article even explained the
significant information on automobile sector of India and even specified the information on growth
and development of Indian automobile industry. The information on short term and long term
sectors of Indian automobile industries are explained clearly.
The future work is required in order to give a clear idea on developmental factors that lead to
development of Indian auto industry.

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The significant information on Indian automobile industry is described in this article, which is
significant aspect for research process.

AUTOMOBILE INDUSTRY WHEELS OF CHANGE

India had its date with this wonderful vehicle first time in 1898. Then for the next fifty
years, cars were imported to satisfy domestic demand. Between 1910 and 20's the automobile
industry made a humble beginning by setting up assembly plants in Mumbai, Calcutta and
Chennai. The import/assembly of vehicles grew consistently after the 1920's, crossing the 30,000
mark in 1930. In 1946, Premier Automobile Ltd (PAL) earned the distinction of manufacturing the
first car in the country by assembling 'Dodge DeSoto' and 'Plymouth' cars at its Kurla plant.
Hindustan Motors (HM), which started as a manufacturer of auto components graduated to
manufacture cars in 1949. Thanks to the Licence Raj which restricted foreign competitors to enter
the Indian car market, Indian roads were ruled by Ambassador Car from Hindustan Motors and the
Fiat from Premier Auto Ltd. for many of the initial years.
In 1952, the GOI set up a tariff commission to devise regulations to develop an
indigenous automobile industry in the country. After the commission submitted its
recommendations, the GOI asked assembly plants, which did not have plans to set up
manufacturing facilities, to shut operations. As a result General Motors, Ford and other assemblers
closed operations in the country. The year was 1954 and this decision of the government marked a
turning point in the history of the Indian car industry. The GOI also had a say in what type of
vehicle each manufacturer should make. Therefore, each product was safely cocooned in its own
segment with no fears of any impending competition. Also, no new entrant was allowed even
though they had plans of a full-fledged manufacturing program. The restrictive set of policies was
chiefly aimed at building an indigenous auto industry. However, the restrictions on foreign
collaborations led to limitations on import of technology through technical agreements. In the
absence of adequate technology and purchasing power, the car industry grew at a snail's pace in the
60s. The demand for cars in 1960 was to the tune of 15,714. In the next two decades the number
increased to 30,989 i.e. a CAGR of only 3.5 per cent.
The other control imposed on carmakers related to production capacity and distribution.
The GOI control even extended to fixation of prices for cars and dealer commissions. This
triggered the start of a protracted legal battle in 1969 between some carmakers and GOI. Simply
put, the three decades following the establishment of the passenger car industry in India and
leading upto the early 1980s, proved to be the 'dark ages' for the consumer, as his choice
throughout this period was limited to two models viz. Ambassador and Padmini. It was only in
1985, after the entry of Maruti Udyog, that the car makers were given a free hand to fix the prices
of cars, thus, effectively abolishing all controls relating to the pricing of the end product.

11

In the early 80's, a series of liberal policy changes were announced marking another turning
point for the automobile industry. The GOI entered the car business, with a 74% stake in Maruti
Udyog Ltd (MUL), the joint venture with Suzuki Motors Ltd of Japan. The very face of the
industry was changed for ever in 1983 with the entry of public sector Maruti Udyog in a joint
venture with the Suzuki Corporation of Japan. Car sales grew by 42 per cent yoy in 1985 after
Maruti 800 was launched. Thanks to MUL car sales registered a CAGR of 18.6 per cent i.e. from
1981 to 1990.
In 1985, the GOI announced its famous broadbanding policy which gave new licenses to
broad groups of automotive products like two and four-wheeled vehicles. Though a liberal move,
the licensing system was still very much intact. MUL introduced 'Maruti 800' in 1983 providing a
complete facelift to the Indian car industry. The car was launched as a "peoples car" with a price
tag of Rs 40,000. This changed the industry's profile dramatically. Maruti 800 was well accepted
by middle income families in the country and its sales increased from 1,200 units in FY84 to more
than 200,000 units in FY99. However in FY2000, this figure came down due to rising competition
from Hyundai's 'Santro', Telco's Indica and Daewoo's 'Matiz'.
MUL extended its product range to include vans, multi-utility vehicles (MUVs) and midsized cars. The company has single handedly driven the sales of cars in the country cornering
around 79.6% market share. With increasing competition from new entrants, this market share has
plummeted to almost 62% in FY2000.
A brief 3-year downturn till 1993 and car sales bounced back to register a 17 per cent
growth rate in 1997.Since then, the economy slumped into recession and sales of cars remained
quite stagnant FY97 and FY99. The Financial year 2000 has, however, been the turnaround year
for the Auto industry with the economy looking up. The automobile industry, crossed the half
million
mark
for
the
first
time
in
FY2000.
Overwhelmed by newer models from new and existing players had led to an impressive shift from
a constrained supply situation to a surplus one. Within the past decade, about 30 models have
entered the Indian market with a number of models still awaiting launch. The de-licensing of auto
industry in 1993 opened the gates to a virtual flood of international auto makers into the country
with an idea to tap the large population. Also the lifting of quantitative restrictions on imports by
the recent policy is expected to add up to the flurry of foreign cars in to the country.
The Indian Automobile industry registered one of the strongest growth rates in FY04. Aided
by sustained economic recovery, the industry registered high growth rates in all major segments.
The growth story was led by Medium and Heavy Commercial Vehicles (M&HCVs)
registering a 40% growth while Light Commercial Vehicles (LCVs) recorded a 32% jump in total
sales. Passenger cars also registered an impressive 34% growth in FY04 and total sales volume
crossed the 1 million mark for the first time. Interestingly, two wheelers registered the lowest but
healthy growth rate of 13% in FY04. While motorcycle volumes tripped on a high base, scooters
12

registered a 10% growth after 4 years of continuous decline. Three wheelers grew by 23% in
FY04.

Apart from strong economic growth in all sectors, low interest rate regime, normal
monsoon, continued infrastructure investment, fiscal measures like cut in excise duty (in case of
cars), etc provided impetus for the growth. The year also saw a sharp 56% rise in export volumes
with all the sectors registering more than 40% growth, signaling the rising international
competitiveness of the industry.
Profitability improvements were recorded in companies across segments driven by rise in
volumes and lower interest costs to some extent, notwithstanding the rise in prices of certain inputs
like steel.
Though the peak customs duty had been reduced to 20% in January 2004 and Special
Additional Duty was abolished, the domestic industry still enjoys adequate protection, with no
import threats. The potential borne by the industry is well exhibited by the growing number of
international players setting up base in India and increasing competitiveness in the industry.
Many companies have entered the car manufacturing sector, to tap the middle and premium
end of car industry.

STRUCTURE OF AUTOMOBILE INDUSTRY

The automobiles industry for many years operated in a seller's market. In such a scenario the
manufacturer could offer outdated models and also raise prices at will. Little or no attempt was
made to control costs or to offer new products. Lack of innovation restricted the consumers
options to the models offered by these companies.
The number of manufacturers (domestic and foreign) increased dramatically after the delicensing of the sector. Increased competition has forced companies to focus on cutting costs,
improve technology and styling through research. It has also constrained them to limit price
increases.
Availability of easy credit facilities also resulted in creating demand for automobiles. The car
financing market has boomed from a turnover of Rs 7,000 m in FY95 to nearly Rs 35,000 m in
FY97.

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Structure
The Indian automobile industry can be broadly classified into:
2 /3 Wheelers
Passenger Cars
Commercial Vehicles (LCV/HCV/MCV)
UV (Utility vehicles)
Tractors

The models in the car market can be fitted to different segments as given below:
Category

Models

Economy segment (upto Rs 0.25mn)

Maruti Omni, Maruti 800 etc.

Mid-size segment (Rs 0.25-0.45 mn)

Fiat Uno, Hyundai Santro, tata Indica,

Maruti Alto etc.

Luxury car segment (Rs 0.45- 1mn)

Tata Indigo, Honda City, Mitsibushi

Lancer, Ford Ikon, Opel Astra, Hyundai
Accent & others

Super luxury segment (above Rs 1mn)

Mercedes Benz & other imported models

The economy segment has a very large foothold over the Indian automobile market as compared to
the mid-size and luxury segment.

Segment

Market Share (%)

Economy

90.2

Mid-size and luxury

9.8

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 Increased urbanisation, low pricing policies, improvement in products and technology have
fuelled demand for 4-wheelers. The markets are clearly segmented between economy models
and premium models. The easy availability of finance and increased levels of disposable
incomes has led to higher demand for premium models. Rural areas have also become an
exciting market to cater to.
The growth of the economy has also resulted in a shift in consumer preferences in each of the
segment. Gradual shift can be seen in buyers from mopeds to economy scooters, from
economy scooters to premium and from premium to motorcycles
Figure -Structure of Passenger Vehicle Market (India)

15

 The passenger car segment has seen rapid growth on the back of rise in disposable income,
increased availability of consumer finance, and reduction in excise and customs duties. Post1991, this segment has seen maximum foreign investment. There is a clear segmentation of
passenger cars based on price and size. While the lower and medium range cars (Maruti, Ford,
Cielo) have been moderately successful, luxury cars such as Mercedes have found the going
tough.
The CV segment is directly linked to industrial production and foreign trade and is therefore
subject to cyclical fluctuations of the economy. The demand for CVs is related to growth in
movement of goods transported and freight rate levels, both of which are linked to level of
production.
Commercial Vehicle Sales Growth v/s IIP Growth

Demand for utility vehicles and tractors come from rural India. These vehicles have witnessed
steady demand growth over the past few years due to successive monsoons, better procurement
prices, improved irrigation facilities, and availability of finance.
A strong in-house R&D capability allows a manufacturer to develop and introduce products at
lower prices, thus saving costs of importing technology. However, Indian companies spend
very little on R&D.
Availability of quality components is another factor that determines smooth production without
bottlenecks. High rejection rate of auto components has prompted several global majors like Ford,
to get their international suppliers
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FEATURES OF THE CAR INDUSTRY

The structure of the auto market has been changing at a faster pace along with the global changes
in the Industry. There are several global automobile companies who were averse to come and
invest in India ten years ago, now have kept India as a priority destination for their investment.
Along with the entry of multinational auto companies, the profile of domestic auto companies too
witnessed a structural change. The stiff competition to access market prompted companies to go
for different models with differing qualities and efficiency. The market too expanded at a rapid
pace with the entry of soft financial assistance from several financial institutions to middle income
households.
MNCs need to carefully plan their entry into emerging markets. Early commitment to a
market often results in first mover advantages that are difficult to replicate. On the other hand, later
entrants have the opportunity to learn from the mistakes of the first entrant. The Indian car market
offers useful lessons in this context. In the 1990s, the Indian Government removed several
restrictions in a bid to attract foreign investors into the automobile industry. Among the first to
enter was Daewoo of South Korea, with its model Cielo, targeted at the upper end of the market.
Other MNCs such as Ford and General Motors also entered the Indian market, followed by
Hyundai, Honda, Toyota, Volkswagen etc.
Most MNCs began their operations in India as joint ventures with local partners. Examples
include Suzuki, G.M, Ford and Daewoo. With the exception of Suzuki, these joint ventures have
become fully owned subsidiaries of the foreign partners. In all these cases, the local partners have
just not had enough resources to chip in whenever the equity base has been expanded.
Consequently, the foreign partners have pumped in the additional capital and raised their equity
stakes
With the liberalization of the India economy, the Rs 18,500 crore Indian car market is being
opened up to foreign investors. Several companies are setting up or have already set up operations
in India to cater to the Indian market. There are several strategies by which a foreign enterprise can
set - up Indian operations. This module aims to give the various entry options available to a foreign
investor, especially for foreign direct investment. This module does not deal with portfolio
investments. Broadly, entry strategies may be classified into two major types1. A foreign investor may directly set up its operations in India through a branch office or a
representative office or liaison office or project office of the foreign Company ; or
2. It may do so through an Indian arm i.e. through a subsidiary company set - up in India
under Indian laws.
The impact of Indias initiatives in economic liberalization and globalization (post 1991) is most
apparent in the automotive sector. Automotive industry is a key driver of economic growth
17

contributing around four to five percent to the Indian GDP. Introduction of reforms and entry of
international companies has intensified competition in the Indian automotive sector. This has
resulted in the transformation of a sellers market (created mainly due to the Indian governments
protectionist policies) into a buyers market. The changing structure of this industry has posed
many challenges and opportunities to the market participants.
Previously, Indian automotive market was characterized by weak air pollution regulations.
In addition, low labor cost of maintenance and the psyche of Indian consumer to delay the
discarding of the old vehicle reduced the scrap rate. All these factors resulted in prolonged
operational existence of vehicle on Indian roads. The benefit of this practice is the comparatively
higher revenues for automotive component suppliers, due to increased demand in the aftermarket.
But recent pronouncement of GoI to prohibit polluting vehicles in the National Capital Region
(NCR) is likely to force the old polluting vehicles off road. This will reduce the average life span
of vehicles on road and the overall impact would be reduced per vehicle parts consumption.
Two wheelers generate the highest volumes and are more popular in rural and semi urban
markets primarily due to lower income levels and poor road conditions. Therefore, these could be
classified as entry-level vehicles. Within two wheeler segments, progressively mopeds are likely to
be replaced by motorcycles. With the growth in the family income of these rural and semi-urban
buyers and the option of numerous used cars, it is expected that a significant shift would take place
from two wheelers (mainly scooters) to four wheelers. Lucrative finance schemes have made the
purchase of mid-sized cars really affordable. The present owners of the small car are likely to
graduate to mid-size cars mainly due to declining importance of small car as status symbol and the
marginal increment in repayment installment in the finance options.
Good performance of the economy has led to higher all round growth leading to high
GDP growth of 8%. Excise duty reduction on passenger vehicles helped to reduce the ultimate
price to the customer. Brisk activities on infrastructural development will give a boost to the
automobile industry. Softening of interest rates and improved financing of second hand vehicles
have made the purchasing of cars financially viable. Availability of finance in rural and semi-urban
areas have led the low-end customers to put money in the purchase of vehicles. Emergence of
India as a manufacturing hub for the automobile industry is a good sign for the countrys future
prospects
The automotive industry performance is closely linked to industrial growth. It is hoped
that industrial growth would be around 7 per cent during the year 2003-04 as against around 6.5%
last year. Agriculture output during the year 2003-04 increased by over 10% as compared to
(-)3.2% in the previous year. Today we are fourth largest economy (USD 2.5 trillion) in the world
after USA, Japan and China in terms of purchasing power parity. The outlook for the year 2004-05
is promising and it is expected that the current growth rates of GDP and industrial output will be
sustainable, which would ensure robust growth in the automotive sector.

18

OBJECTIVE OF THE STUDY

The objectives of the present study are to study the production trend of Automobile industry, study
the sales trend of Automobile industry and analyse the overall growth and development of
Automobile industry.
Classification of Automobile Industry
The automobiles sector is categorized in four different sectors which are as follows:
Two-wheelers which comprise of mopeds, scooters, motorcycles and electric two-wheelers
Three Wheelers that are passenger carriers and goods carriers.
Passenger Vehicles which include passenger cars, utility vehicles and multi-purpose vehicles
Commercial Vehicles that are light and medium-heavy vehicles
The Indian automobile industry, comprising passenger cars, two-wheelers, three-wheelers and
commercial vehicles, is the seventh-largest in the world with an annual production of 23.4 million
vehicles, of which 3.5 million are exported. The dominant products of the industry are twowheelers with a market share of over 81% and passenger vehicles with a market share of about
13%. Commercial vehicles and three-wheelers share about 6% of the market between them. About
91% of the vehicles sold are used by households and only about 9% for commercial purposes. The
major companies present in the automobiles market in India include Tata Motors Limited, Maruti
Suzuki India Limited, Mahindra & Mahindra Limited, Ashok Leyland Limited,
Hero MotoCorp Limited, Bajaj Auto Limited, Echier Motors Limited and Force Motors Limited.
Tata Motors is Indias largest automobile company; the company manufactures commercial and
passenger vehicles, and is the worlds fourth-largest truck manufacturer and the second-largest bus
manufacturer. Maruti Suzuki is Indias largest passenger car company, accounting for 45% share of
the Indian car market. Hero MotoCorp is the worlds largest two-wheeler manufacturing company
in the world. Its market share in the Indian two-wheeler segment is 41%. Bajaj Auto is the worlds
fourth-largest two-wheeler and three-wheeler manufacturer. Today, India is the largest
manufacturer of tractors, second largest manufacturer of two wheelers, 5 th largest manufacturer of
commercial vehicles and the 7th largest passenger car market in Asia.
Current status of Autosmobile Industry in India.
The world standings for the Indian automobile sector, as per the Confederation of Indian Industry
is as follows:
Largest three-wheeler market
Second largest two-wheeler market
Tenth largest passenger car market
Fourth largest tractor market
Fifth largest commercial vehicle market
Fifth largest bus and truck segment
19

The industry produced a total of 23,366,246 vehicles including passenger vehicles, commercial
vehicles, three wheelers and two wheelers in April-March 2015 as against 21,500,165 in AprilMarch 2014, registering a growth of 8.68 percent over the same period last year. The sales of
Passenger Vehicles grew by 3.90 percent in April-March 2015 over the same period last year.
Within the Passenger Vehicles segment, Passenger Cars and Utility Vehicles grew by 4.99 percent
and 5.30 percent respectively, while Vans declined by (-) 10.19 percent in April-March 2015 over
the same period last year. The overall Commercial Vehicles segment registered a de-growth of (-)
2.83 percent in April-March 2015 as compared to same period last year. Medium & Heavy
Commercial Vehicles (M&HCVs) grew by 16.02 percent and Light Commercial Vehicles declined
by (-) 11.57 percent. Three Wheelers sales grew by 10.80 percent in April-March 2015 over the
same period last year. Passenger Carriers and Goods Carriers grew by 12.16 percent and 5.27
percent respectively in April-March 2015 over April-March 2014.Two Wheelers sales registered
growth of 8.09 percent in April-March 2015 over April- March 2014. Within the Two Wheelers
segment, Scooters, Motorcycles and Mopeds grew by 25.06 percent, 2.50 percent and 4.51 percent
respectively in April-March 2015 over April-March 2014. In April-March 2015, overall automobile
exports grew by 14.89 percent over the same period last year. Passenger Vehicles, Commercial
Vehicles, Three Wheelers and Two Wheelers grew by 4.42 percent, 11.33 percent, 15.44 percent
and 17.93 percent respectively during April-March 2015 over the same period last year.

20

DATA RERESENTATION AND INTERPRETATION

Indian automobile industry manufactures almost all major transport vehicles such as cars, multiutility 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 car market in Asia.

Domestic Market share of Vehicles by volume (2015-16)

14%

Passenger Vehicles

Commercial Vehicles

3%

3%
Three Wheelers

Two Wheelers

80%

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
21

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 in 2007- 08, 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 2012-13. The production
activity is likely to be impacted in the year 2007-08 also due to slowdown in demand and
associated challenges in domestic and international markets.
It can be easily interpreted that the maximum share of the vehicles is dominated by the two
wheelers. It is nearly 80% of the total domestic market. It is followed by the passenger vehicles
segment which stands at 14%. The three wheelers and the commercial vehicles both comprises of
3%-3% each. According to the condition of the Indian roads and also the population, mostly people
prefer to buy two wheelers. The commercial vehicles also include those vehicles which are used to
carry goods from one place to another. The two-wheeler industry has performed well. While sales
of scooters increased by 35.86 per cent to 468,368 units, the demand for motorcycles shot up by a
strong 16.24 per cent to 1,024,926 units. The share of the passenger vehicles is increasing with
time, which shows that the Indian economy is increasing with time and India is developing over
the period.

Production of Cars in Indian Automobile Industry

Number of Vehicles

2775124
2453113 2668633
3000000
1932620
2500000
1516967
1426212
2000000
1238021
1046133
960487
782562
1500000 513415
557410
500301
1000000
500000
0

Fiscal Year

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 production of passenger
22

vehicles segment 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.
During the period April-November 2008, though there has been over 6.5% growth in vehicles
production (from 7.21 million units during April November 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, 89 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 201617 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).

23

Domestic Sales of Passenger Vehicles in India(2010-2016)

2900000

2789678

2800000
2700000

Sales Unit

2629839

2665015
2601236

2600000
2501542
2500000

2503509

2400000
2300000
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

Year

It can be seen that the sales of Passenger Vehicles grew by 7.24 percent in April-March 2016
compared to the same period of the last year i.e 2015. Within the Passenger Vehicles, Passenger
Cars, Utility Vehicles and Vans grew by 7.87 percent, 6.25 percent and 3.58 percent respectively
during April-March 2016 compared to the same period of the last year. It may be that the passenger
vehicle segment showed a continuous growth from 2010 till 2013. However, during 2013-14 the
industry saw a fall of 6.06% over the same period last year. There had been various factors which
may have caused this such as economic slowdown, less demand for new cars etc. Overall the
passenger vehicles grew by 2.20 % Compound Annual Growth Rate from 2010 to 2016. It can be
predicted that the sales of the vehicles in the coming years will rise along with the rise in
population. The sales can only go down if there will be a better public transport in India in the
coming years.
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 April November 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 2007- 08,
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 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 2007- 08 shows the growing capability of the

24

Indian automobile industry to meet the international norms and standards, and increasing
acceptance of automobiles manufactured from India in the global market.

Trends in Production, Domestic Sales, and Export of Commercial Vehicles 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 2007- 08. Export of commercial
vehicles has increased from 11,870 units in 2001-02 to 58,999 units in 2007- 08. Trends in
Production, Domestic Sales, and Exports of Passenger Vehicles 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 increased from 6.69 lakh units in 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.

25

Export Trend for Passenger Vehicles from India(2010-2016)

653889

2015-16

621341

2014-15

596142

2013-14

Year

559414

2012-13

508783

2011-12

444326

2010-11
0

100000 200000 300000 400000 500000 600000 700000

Export Volume

Export Trends for Passenger Vehicles in India displays the export trends in passenger vehicles, in
last few years. Export of passenger vehicles has increased from 444326 units in 2010-11 to 653889
units in 2015- 16.

26

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 subsidiaries. This has led to
an increasing turnover of Indian auto components industry in the last few years. 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 $ 60 billion by 2020. Indias share in world auto components
would thus grow from around 1%, at present, to over 2.5% by 2015. Domestic market for auto
components 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
11
http://www.investmentcommission.in/auto_components.htm 95 gained by the country in IT and
electronics, build-up an environment for significant leap in the auto component industry. Major
Products Indian auto components industry manufactures almost all kinds of products. ACMA
classifies the auto components into six categories, as given in below table.

27

28

Being the top three automobile brands in India has its perks. India is the only country in the world
where the top three auto manufacturers increased their market share to 70% for April-December
2015 compared to 67% in 2012, according to industry data. The pecking order has largely
remained unchanged in the last five years. Also, the share of the top 10 models in the total sales
has remained more than 50% for the last three years. The only change in the pecking order has
been Mahindra & Mahindra moving into the third slot in 2013-14, ousting Tata Motors.
Auto marketers say this overwhelming dominance of a few players in a market, which has 18 car
and SUV manufacturers, is something peculiar to India alone. R S Kalsi, ED (marketing & sales),
Maruti Suzuki India, said, "There is no other example of this trend anywhere else in the world and
the highest market share by a single company, apart from Maruti in India, is Toyota in Japan with
around 30%.
The Indian car market was at its peak in the year 2012 with 67607 million USD gross turnovers. At
this time the market was red hot and the people were buying cars much often. The next year saw a
drastic change in the figures when there was a decline of 18% in the gross turnovers of the various
automobile manufacturers in India. There was a rise in the turnover rate in the next two years and
the manufacturers were able to regain their value in the market.

Gross Turnover of the Automobile Manufacturers in India(2009-2015)

70000
60000
50000

67607
66264
58909
58583
55212
43296

40000

Gross Turnover(In USD Million)

30000
20000
10000
0

Year

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 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
29

reached US $18 billion. Investment in Auto Components Industry In the last few years, the auto
components industry has attracted significant volume of investment.

Investments in the industry have reached US $ 7.2 billion in 2007- 08, 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 auto component 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 award winning companies. Exports Global OEMs and Tier 1
companies have identified India as one of the major countries for sourcing their requirements of
30

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, 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. 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).

FDI Inflow in India in Automobile Sector(2010-2015)

FY2015

12.4

FY2014

9.8

FY2013

8.3

Year FY2012

6.7

FY2011

5.9

FY2010

4.6
0

10

12

14

FDI Inflow(in USD billion)

The automobile sector in India was opened up to foreign investments in the year 1991. 100%
Foreign Direct Investment (FDI) is allowed in the automobile industry in India. The production
level of the automobile sector has increased from 2 million in 1991 to 9.7 million in 2006 after the
participation of global players in the sector. Healthy FDI growth in the automobile sector has
helped to push the overall growth in the foreign investment in the country.
During April-February 2014-15, FDI in India has increased by 39 per cent to $28.81 billion.
The other sectors where foreign direct inflows have recorded growth include telecommunication,
computer
software
and
hardware
and
pharmaceuticals
during
the
period.
To attract foreign investments, the government is taking several steps, including improving ease of
doing business in the country and relaxing FDI policy. As shown in the above figure the FDI
inflow is constantly increasing in the coming years.

31

CONCLUSION
Indian automobile sector has become synonymous to success. The passenger car segment in
particular is great due to healthy economic condition, easy finance schemes and low ownership
costs. The Indian car manufacturing industry is expanding its horizons. The car industry has been
able to amaze the world with its innovation of cars in terms of car sizes and prices. The scenario in
India is similar to that in China where demand for affordable cars is increasing. Moreover, India
has begun to muse over mass production of clean cars such as hybrid cars and electric cars in the
near future. The other Alternative fuel car that we have in India is the electric car. Currently, Maini
Reva is the only electric car maker in India. The key to continued FDI in Indias auto sector rests
with continued expansion of the domestic market, which seems ensured and the further
development of India as an automotive exports hub. The slow progress on improvements to the
transportation infrastructure and the uncertain availability of inputs such as steel may make it
difficult for India to meet its AMP targets.
Automobiles have become an indispensable part of our lives, an extension of the human body that
provides us faster, cheaper and more convenient mobility every passing day. Behind this
betterment go the efforts of those in the industry, in the form of improvement through
technological research.
What actually lie behind this betterment of the automobiles are the opinions, requirements, likes
and dislikes of those who use these vehicles.
These wheeled machines affect our lives in ways more than one. Numerous surveys and research
are conducted throughout the world every now and then to reveal one or the other aspect of
automobiles, be it about the pollution caused due to vehicle population in cities, or rising motor
accidents and causes, vehicular technology, alternative medicine and so on.
This section keeps you updated on the latest and the most interesting researches conducted in the
field of automobiles, and help you draw the right conclusion.

32