TERM PAPER

ON
PESTLE ANALYSIS OF AUTOMOBILE
SECTOR OF INDIA

Submitted to:
(LOVELY INSTITUTE OF MANAGEMENT)
MBA Ist ± B(Ist Sem.)
(Session 2009-2011)
Date- 05 Dec 2009

Submitted To: Submitted By:

Miss Impreet Kaur Suman Tiwari

Roll No. A-22

Reg. No.10904478
 ACKNOWLEDGEMENT

I would like to confer my heartiest thanks to my coordinator of 

Business Environment and class teacher Miss Impreet Kaur for giving
me the opportunity to expel and work in the field of Environmental
Analysis, especially its practical applications. While preparing my
project I got to have an in depth knowledge of practical applications of 
the theoretical concepts and definitely the things which I have learned
will undoubtedly help me in future, to analyze many processes going
on in our economy.

I would also like to thank all those people who directly or indirectly
helped us in accomplishing this project.
 Literature Review

Competitiveness of manufacturing sector is a very broad multi-dimensional concept that

embraces numerous aspects such as price, quality, productivity, efficiency and macro-
economic environment. The OECD definition of competitiveness, which is most widely
quoted, also considers employment and sustainability, while being exposed to
international competition, as features pertaining to competitiveness. There are numerous
studies on auto industry in India, published by industry associations, consultancy
organizations, research bodies and peer-reviewed journals. In this section, various studies
on the Indian auto industry are reviewed, under different heads pertaining to
competitiveness, namely, global comparisons, policy environment and evolution of the
Indian auto industry, productivity, aspects related to supply-chain and industrial structure
and technology and other aspects.
PESTLE Analysis
PESTLE Analysis is a simple, useful and widely-used tool that helps you
understand the "big picture" of your Political, Economic, Socio-Cultural and
Technological, Legal and Environmental aspects. As such, it is used by business
leaders worldwide to build their vision of the future.

PESTLE analysis is concerned with the environmental influences on a business.

Identifying PESTLE influences is a useful way of summarizing the external
environment in which a business operates. However, it must be followed up by
consideration of how a business should respond to these influences.

It is important for these reasons:

y First, by making effective use of  PESTLE Analysis, you ensure that what
you are doing is aligned positively with the powerful forces of change that
are affecting our world. By taking advantage of change, you are much more
likely to be successful than if your activities oppose it;
y Second, good use of PESTLE Analysis helps you avoid taking action that is
doomed to failure from the outset, for reasons beyond your control; and
y Third, PESTLE is useful when you start operating in a new country or 
region. Use of PESTLE helps you break free of unconscious assumptions,
and helps you quickly adapt to the realities of the new environment.
The table below lists some possible factors that could indicate important
environmental influences for a business under the PESTLE headings:
Political / Legal Economic Social Technological
- Environmental regulation - Economic growth - Income distribution - Government spending on
and protection research

- Taxation - Monetary policy - Demographics - Government and industry

focus on technological
effort

- International trade regulation - Government spending - Labor / social mobility - New discoveries and
development

- Consumer protection - Policy towards - Lifestyle changes - Speed of technology

unemployment transfer 

- Employment law - Taxation - Attitudes to work and - Rates of technological

leisure obsolescence

- Government organization / - Exchange rates - Education - Energy use and costs

attitude

- Competition regulation - Inflation - Fashions and fads - Changes in material

sciences

- Stage of the business - Health & welfare - Impact of changes in

cycle Information technology

- Economic "mood" - - Living conditions - Internet!

consumer confidence
Over view of Indian Automobile Industry
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. In general, cars are broadly classified as Mini, Compact, Mid-Size,
Executive & Premium varieties. There has been a steady rise in compact car 
 production from 333,000 in 2002-03 to 715,000 in 2005- 06, mid-size cars from
122,000 to 204,000 nos., executive cars from 2000 to 23,000 nos. and premium
variety cars from 4000 in 2002-03 to 5000 nos. in 2005-06. The mini car segment
 production reduced from 150,000 in 2002-03 to 98,000 nos. in 2005-06. These
statistics vividly reveal the increasing capacity of the Indian customer, thus driving
the passenger car demand rapidly up the price ladder. Analysts speculate car 
 production in the sub-continent to touch 1575,000 in 2009 and 2654,000 by 2014.
Cars and MUVs exports rose from 72,000 in 2002-03 to reach 176,000 nos. in
2005-06 with growth @ 48.155 per annum from 2002-03 onwards.

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 in Fig.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.
development. Fragmented and limited research in each country may lead to delay
and more expensive results.
Affordability of quality automobiles should be focus of industry across the world
to facilitate volumes and widespread ownership.

Reasons of Growth
Economic liberalization, increase in per capita income, various tax relief policies,
easy accessibility of finance, launch of new models and exciting discount offers
made by dealers all together have resulted in to a stupendous growth of India
automobile industry.

Market Share
Automobile industry of India can be broadly classified under passenger vehicles,
commercial vehicles, three wheelers and two wheelers, with two wheelers having a
maximum market share of more than 75%. Automobile companies of India, Korea,
Europe and Japan have a significant hold on the Indian market share. Tata Motors
 produces maximum numbers of mid and large size commercial vehicles, holding
more that 60% of the market share. Motorcycles tops the charts of two wheelers
with Hero Honda being the key player. Bajaj by far is the number one
manufacturer of three wheelers in India.

Passenger vehicle section is majorly ruled by the car manufacturers capturing over 
82% of the total market share. Maruti since long has been the biggest car 
manufacturer and holds more that 50% of the entire market.

Global recession has impacted, the Indian automobile industry also and can be seen
clearly in the sales figures of the last financial year. Even then this industry has
high hopes in 2009-2010, as banks have reduced loan interest rates and the major 
chuck of automobile customers belong to the middle income group who are
 becoming economically stronger with every passing day.
Conclusions

Easier and faster mobility of people and goods across the regions, countries and
continents is a cherished yearning of mankind. The automobile industry¶s potential
for facilitating this mobility is enormous. Wheels of development across the globe
would have to be powered by this industry. However, a seamless development of 
this industry across countries and continents alone will help in realization of this
objective. For such seamless and barrier-free development of the sector, countries
will have to come together and develop better understanding. Industry across
countries will have to meet challenges of newer technologies, alternative fuels and
affordability of automobiles by people at large through constructive cooperation.
The earlier we are able to achieve this the better it would be for the world
development.