Project Report

Cost Analysis of Automotive Companies

Using Regression Analysis

Presented by:
Akanksha Goyal – 10IB-006
Harshil Gupta – 10IB-066
Shweta Gulati – 10DM-151
Vishal Pahariya – 10HR-047
Vishwajeet Chopra – 10FN-120
Willie Ahuja – 10IB-064
Automotive Industry

The automotive industry designs, develops, manufactures, markets, and sells motor
vehicles, and is one of the world's most important economic sectors by revenue. The term
automotive industry usually does not include industries dedicated to automobiles after
delivery to the customer, such as repair shops and motor fuel filling stations.

The Automotive industry in India is one of the largest in the world and one of the fastest
growing globally. India manufactures over 11 million 2 and 4-wheeled vehicles and exports
about 1.5 million every year. It is the world's second largest manufacturer of motorcycles,
with annual sales exceeding 8.5 million in 2009. India's passenger car and commercial
vehicle manufacturing industry is the seventh largest in the world, with an annual
production of more than 2.6 million units in 2009. In 2009, India emerged as Asia's fourth
largest exporter of passenger cars, behind Japan, South Korea and Thailand.

Maruti Suzuki India Limited

Maruti Suzuki India Limited: A partial subsidiary of Suzuki Motor Corporation of Japan, is
India's largest passenger car company, accounting for over 45% of the domestic car market.
The company offers a complete range of cars from entry level Maruti 800 and Alto, to stylish
hatchback Ritz, A star, Swift, Wagon-R, Estillo and sedansDZire, SX4 and Sports Utility vehicle
Grand Vitara.

It was the first company in India to mass-produce and sell more than a million cars. It is
largely credited for having brought in an automobile revolution to India. It is the market
leader in India and on 17 September 2007, Maruti Udyog Limited was renamed Maruti
Suzuki India Limited. The company's headquarters are located in Delhi.

Hyundai Motor India Limited

Hyundai Motor India Limited (HMIL) is a wholly owned subsidiary of Hyundai Motor
Company (HMC), South Korea and is the largest passenger car exporter and the second
largest car manufacturer in India. HMIL presently markets 6 models of passenger cars across
segments. The A2 segment includes the Santro, i10 and the i20, the A3 segment includes the
Accent and the Verna, the A5 segment includes the Sonata Transform and the SUV segment
includes the Santa Fe.
 
HMIL’s fully integrated state-of-the-art manufacturing plant near Chennai boasts of the
most advanced production, quality and testing capabilities in the country. To cater to rising
demand, HMIL commissioned its second plant in February 2008, which produces an
additional 300,000 units per annum, raising HMIL’s total production capacity to 600,000
units per annum.

Mahindra & Mahindra Limited

Mahindra & Mahindra Limited is part of the Indian Industrial Conglomerate Mahindra Group
based in Mumbai. Initially set up to manufacture general-purpose utility vehicles, Mahindra
& Mahindra (M&M) was first known for assembly under licence of the iconic Willys Jeep in
India. M&M introduced Jeeps to India and in no time they established themselves as the
Jeep manufacturers of India. The company later branched out into the manufacture of light
commercial vehicles (LCVs) and agricultural tractors, rapidly growing from being a
manufacturer of army vehicles and tractors to an automobile major with a growing global
market presence. At present, M&M is the leader in the utility vehicle segment in India with
its flagship UV Scorpio. They entered into the two-wheeler segment by taking over the
Kinetic Motors in India. M&M also has controlling stake in REVA Electric Car Company.

Types of costs

Direct Cost

Direct costs are those for activities or services that benefit specific projects, e.g., salaries for
project staff and materials required for a particular project. Because these activities are
easily traced to projects, their costs are usually charged to projects on an item-by-item
basis.

Components of direct costs

 Direct Materials

 Direct Labour

 Direct Costs or Expenses( eg carriage Inwards)

Indirect Cost

Indirect costs are those for activities or services that benefit more than one project. Their
precise benefits to a specific project are often difficult or impossible to trace. For example, it
may be difficult to determine precisely how the activities of the director of an organization
benefit a specific project. Indirect costs do not vary substantially within certain production
volumes or other indicators of activity, and so are considered to be fixed costs.

Components of indirect costs

 Factory Overheads

o Indirect Labour

o Insurance

o Land

o Depreciation on machinery
 o Power and fuel

o Supervisors salary

o Costs of maintenance

o Warehouse Expenses

 Office and Administrative Overheads

o Office Rent

o Salary to staff

o Office and general Expenses

o Telephone Expenses

o Electricity and Lightings

 Sales and Distribution Overheads

o Sales Commission

o Discounts allowed

o Salary of salesmen

o Carriage Outwards

Data Analysis

On the basis of data collected, we carried out regression analysis to determine various cost
dependencies of the 3 companies and could draw following inferences:

 Large companies bank upon their core competencies. Value of R 2 (in the SPSS
Reports Attached) between Raw Material Costs and Direct Cost is very high. Also,
%age contribution of Raw Material towards Total Cost is considerable, which shows
the companies spend significant amount towards Core Competencies.

 Over the period of time, companies are increasing their %contribution of Raw
Materials towards Total Cost. This also means they are reducing upon their other
overheads and improving upon quality of the products to be delivered and increasing
company’s efficiency. Excellent Example is of Mahindra & Mahindra Ltd. which has
increased the contribution from 53% to 90% over a period of 6 years.
 Mahindra & Mahindra Ltd. is spending high over Employees Compensation which is a
good practice altogether.

 Change in Sales and Distribution changes the cost (direct as well as total) by a
substantial amount. Which means, advertising and marketing is also important for a
company’s sales-revenues and overall cost.