MICROECONOMICS

AUTOMOBILE INDUSTRY (CAR) IN INDIA

TRANSITION FROM MONOPOLY TO COMPETITION

Submitted To
Dr. B. VENKATARAJA

Submitted On
10-10-2021

Submitted By
Section-C
Group-6
PGDM 2021-2023

S. KARTHIK 21151
SAGAR R KURKI 21152
SAHANA P M 21153
SAKSHI KUNDAPUR 21154
SANJAY N 21155
SANKET SHETTY 21156
TABLE OF CONTENTS

INTRODUCTION....................................................................................................................................1

HISTORY OF AUTOMOBILE INDUSTRY IN INDIA...................................................................................1

MARUTI UDYOG LIMITED (MUL)..........................................................................................................2

JOINT UNDERTAKING(VENTURING) RELATED ISSUES......................................................................3

MONOPOLY IN AUTOMOBILE INDUSTRY.............................................................................................3

OLIGOPOLY INFLUENCE IN AUTOMOBILE INDUSTRY...........................................................................4

COMPETITION IN AUTOMOBILE INDUSTRY.........................................................................................5

MARKET SHARE OF CAR MAKERS IN THE AUTOMOBILE SECTOR IN INDIA IN THE PRESENT..............6

DECLINE IN DEMAND OF CARS.............................................................................................................8

MARKET SHARE OF CAR MAKERS IN THE AUTOMOBILE SECTOR IN INDIA IN FROM 2011-2018........9

FUTURE SCOPE.....................................................................................................................................9

CONCLUSION......................................................................................................................................11

MARKET CONCENTRATION OF INDIAN AUTOMOBILE INDUSTRY......................................................11

REFERENCES.......................................................................................................................................12
INTRODUCTION

India's automotive industry setup is one best in the world. We have seen high advancement rates in
terms of design, safety and innovation during the last three decades. Until 1975 India was had only
3 or 4 manufacturing units of cars. Hindustan motors, Premier and Standard motors are major
among them. The development rates have increased from 9% to 18% depending upon the sort of
vehicle.

At present India is ranked third biggest nation for underway of mechanized vehicles. Major
manufacturing companies like Suzuki, Honda, Hyundai, Ford, Toyota and Volvo have arrangement
for their plants in India. The current turnover for this industry is accounted to 38.3 billion USD
which is almost 8% of India's GDP. As the business is expanding, this segment utilizes 19 million
individuals for employment.

The demand for passenger cars can be segmented based on the user such as taxi operators,
government, non-government institutions, and individual customer. A majority of the demand in
India is mainly for personal use. Off late, the Indian car market has seen a lot of increase in the
number of new entries who have the capacity to replace the current market.

As individual income rises and finance being easily available, the number of new aspirants who
want to buy new cars is increasing and the tend to change the cars frequently have made significant
contribution in constant increase in the car prices.

With the advancement in science and technology they R&D of manufacturing industry is making
significant advancements in terms of design, safety, and innovation.

HISTORY OF AUTOMOBILE INDUSTRY IN INDIA

The first vehicle which came on Indian roads was in 1897. Indian did have the required
infrastructure for car manufacturing infrastructure until the late 1930. Until this time the cars were
being imported from other countries. Historic turn to the field of manufacturing cars in India was in
the decade of 1940s when companies like Hindustan Motors, Premier started their manufacturing
units. After the Independence of India in 1947, the government tried to support the automobile
industry by helping in setting up industry. But, due to the trade limitations on imports imposed by
the government, the sector did not evolve to the required extent in the subsequent decade.

Hindustan Motors took the major control of Indian market from the 1960s to 1980s, attaining a
substantial proportion of the market due to their flagship Ambassador model. Soon after this era

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ended, demand increased, but only marginally, which was primarily in the tractor and commercial
vehicle categories.

The Government of India in mid of 1980s started promoting the automotive industry and
encouraged the setting up of manufacturing units. This can be seen evidently when they started
Delhi Auto Expo. The government lifted the restrictions which was imposed during post-
independence time and allowed Foreign Direct Investors to invest the capital in Indian market. This
gave freedom to the international manufacturers to set up industries in India. The merger of Maruti
and Suzuki was the first joint project between an Indian and foreign company. This merger was able
to sweep the automobile market by around 60%. This event happened in 1996. The subsequent
changes in the economy in 2000 led to the arrival of all the major players around the world to enter
India for starting their operations in our country and expand their business. This included arrival of
Honda and Hyundai. Once the major companies started their operations in India, we were able to
export cars to other countries. In 2009 India stood at the 4 th position in terms of passenger cars
export after Japan, Thailand, and South Korea. In 2011 India was the world’s 6 th largest car
manufacturer. This was possible only due to the tight competition and innovation techniques
adopted by different companies.

MARUTI UDYOG LIMITED (MUL)

Surya Ram Maruti Technical Services Private Limited, at present Maruti Udyog, was founded on
November 16, 1970.  MSTPL's primary focus was on gaining the technical expertise of the suitable
vehicles, as market of India was extremely limited. In 1971, the cabinet proposed a plan to design
and build a "common man's car," a vehicle reasonably priced to most of the Indian families.
MSTPL became Maruti Limited under the Company Act in that year. In 1987, they began exporting
to Hungary, a European country. The company launched the Maruti 1000, India's first sedan, in
1989, and it remained in production for about two years after the Indian economy was deregulated
in 1991.

Zen and Esteem became household names in The US during 1993 and 1994. In the same era, Maruti
generated its millionth vehicle, representing a significant landmark in the company's long and
successful history. They initiated their first Customer Care centre for the customer base,
accompanied by the unveiling of their newest model, the Maruti Alto. After the production of their
four millionth vehicle in India, the company released three models: Esteem Diesel, Maruti Versa
and Suzuki Grand Vitara. The company then formed a partnership with the State Bank of India.
After a ten-fold increase in value, they were listed on the National and Bombay Stock Exchanges.

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Alto surpassed Maruti 800 as the most popular car in India after nearly two decades, then by 2003-
04, the company had marketed its 5 millionth vehicle and was becoming the most financially viable
in Indian brand. The Indian government sold its shareholding in Maruti Suzuki to Banks and other
financial institutions in May 2007.

The Indian government sold its shareholding in Maruti Suzuki to Banks and other financial institutions in
May 2007. In 2006, "Maruti Suzuki Automobiles India" was recognized as a separate vehicle division.
This proposal set the basis for the construction of two new manufacturing plants. One plant was solely
dedicated to the car manufacturing, while the other was purely committed to the manufacturing of
motors.

MONOPOLY IN AUTOMOBILE INDUSTRY

All along, Maruti Suzuki was prevalently a seller of vehicles. In India's closed market, Maruti got
the choice to import 40,000 made Suzuki in the central two years. Following two years in December
1983, the association went ahead and start neighborhood creation with its first plant Gurgaon.
Regardless, the early target was to use 33% area parts as there were a few weights from Suzuki that
the Indian market was too little to even think about evening ponder evening consider evening mull
over attracting the moreover huge creation arranged by Maruti Suzuki. In any case, as things
effectively progressed, the alliance started getting strong interest for its vehicles "Maruti Van" and
"Wanderer". Because of this strong new turn of events and deals, the Japanese association raised its
stake from 26% to 4o% by 1987. During the Pre-development period of the Indian economy, they
had a piece of the overall business close to 90%.

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 MARKET SHARE PERCENTAGE OF MARUTI SUZUKI FROM 1989 TO 1999

Market share of Maruti

Market share of Maruti Suzuki Suzuki
Year Market share
80 78 80 82 80 1989 80
67 1991 67
market share

1993 78
1995 80
1997 82
1989 1991 1993 1995 1997 1999 1999 80
year

The above graph indicates the market share of the company Maruti Suzuki before and after
liberalization.

THE MARKET SHARE% OF AUTOMOBILE COMPANIES FOR THE YEAR 1998

M a r ke t Sha r e % o f a ut o mo bile indus t r y fo r

the y e a r 1 9 9 8
Company Market
Share % 2.72 0.42
2.52 2.36
Maruti Suzuki 82.6 1.22 Maruti Suzuki
Hindustan Motors
Hindustan Motors 6.34 1.82
GM
GM 1.82 Telco
Telco 1.22 Premier Auto-
mobiles
Premier 2.72 6.34
Daewoo
Automobiles Ford India
Daewoo 2.52 Other
82.6
Ford India 0.42
Other 2.36
Total 100

The above graph shows market share % of automobile companies during FY1998.

OLIGOPOLY INFLUENCE IN AUTOMOBILE INDUSTRY

After liberalization Maruti Suzuki, market share got impacted and it led to steady decrease to 50%,
because of the arrival of global joints like Hyundai and new entries like TATA and Mahindra into
automobile sector of India. In 2000, major industrial relations issue happened, labourers went into
an indefinite strike demanding revisions in their salaries, pensions, incentives.

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Labourers took advantage of slowdown in the year 2000, to press the company so that they consider
revisions in salaries, incentives. But the management refused citing increased competition in the
market and lower margins. Since, there were only few competitors holding the major market share
there was an oligopolistic behaviour during the year 2002.

New vehicle deliveries in India tilt into negative in 2001 at -3.1% to 729.496 units. Leader Maruti
(+5%) has reacted and sees its share rally back to 47.5% but Tata (-5%) can’t say the same and is
down slightly to 14.5%. Meanwhile Hyundai (+2%) continues to spread its wings, cementing its
third place at 11.4%. Below Mahindra (-4%), Toyota soars 30% to 5th place, overtaking Daewoo (-
57%), while Ford (-14%), Fiat (+13%) and Honda (-3%) keep the foreigners total at 6 in the Top
10. A foreign influence that is receding this year, with total sales down faster than the market at -
11% and 25.7% share vs. 28% a year ago.

MARKET SHARE PERCENTAGE OF THE COMPANIES FOR THE YEAR 2002

Market share % of companies for

the year 2002 Companies market share
Maruti Suzuki 50.4
16.8
Hyundai 13
6.6
Tata 13.2
50.4 Mahindra 6.6
other companies 16.8
13.2

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The above graph indicates the
Maruti Suzuki hyundai Tata market share% of companies for
Mahindra other companies
year 2002

COMPETITION IN AUTOMOBILE INDUSTRY

After the Fiscal year 2002, the entry of global recognized companies ‘and introduction of new
Indian companies in the Indian market started, they steadily captured the larger portions of car
market. The companies which entered Indian market were Hyundai, Tata, Toyota, M&M, GM,
Ford, Honda, Kia, Morrison Garage, Renault, and Nissan etc.

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 MARKET SHARE OF DIFFERENT COMPANIES IN THE FISCAL YEAR 2010

Market Share % of companies for

Company name Market the year 2010
share
1.9 3.2 3.8
Maruti Suzuki 45.3 3.3
Hyundai 16.4 The 8.1 4.5
45.3
Tata 13.4
M&M 8.1
GM 4.5 13.4
Toyota 3.3 16.4
Ford 1.9
Honda 3.2
Others 3.8
Maruti Suzuki Hyundai Tata M&M GM
above graph shows the market Toyata Ford Honda others

share % of automobile companies for the year 2010

MARKET SHARE OF CAR MAKERS IN THE AUTOMOBILE SECTOR IN INDIA IN

THE PRESENT

The leader in Indian car market is Maruti Suzuki India Ltd. and the second largest carmaker is the
Hyundai Motor India. They have the largest market share due to the demand among Indians for
having a personal car while keeping budget in mind, thus having a higher preference for small,
compact cars due to the slowdown in the economy.

Preference for a trusted brand that has been around from years plays an important factor too along
with the company’s innovative efforts to stay competitive in the market.

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Comparing the market share from 2020 to 2019, it can be seen that some new entrants to the car
manufacturing industry have gained market share while few older players are losing share. The
South Korean automaker Kia Motors which entered the Indian automobile market in August 2019
with its Seltos SUV, has made its place into the list of top five carmakers in the country in terms of
market share in FY21. Established players like Toyota Kirloskar Motors and Honda Cars India were
struggling to keep up with the slowdown. MG Motor which entered Indian automobile market
around June 2019, did not gain as much importance as Kia, but it has managed to make its place in
the top 10 carmakers of the country in the fiscal year.

Mahindra and Mahindra (M&M) is country’s third largest auto-maker, during 2021, a drop of 2% in
sales is seen as compared to FY20. Skoda, Nissan, Fiat, and Volkswagen had a market share below
1%. With reduced sales, market share of these companies is reducing. Lack of innovation and
higher pricing has led to this drop-in sales. French carmaker Renault India captured considerable
amount of market share compared to the Japanese carmaker Honda Cars India with its recently-
launched Triber model. During the lockdown period in April 2020, the car industry witnessed a
complete month of zero sales. This was followed by no production, supply chain challenges and
labour shortage. By end of May 2020 as lockdown restrictions began to ease, production plants
began operation. The partial lockdown restrictions in certain states increased the supply chain
issues.

During August-October, sales started to get back on its foot with the gradual relaxations in
restrictions, return of migrant labour and better supply chain movement. Segment leaders
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outperformed as usual, but others seemed to reach their pre-COVID demand level. They started
aggressive production in view increased sales due to the festive season ahead that year. Due to the
pandemic, prediction of future demand has become ambiguous (Economic Times, 2020)

DECLINE IN DEMAND OF CARS

The car sector in the automobile industry from past five years has seen steep decline in sales.
According to data from SIAM, CAGR of car sector dropped from 12.9% in 2004-05, to 1.3% in
2014-15 and 2019-20.

The main factors for this drop are increase in price of the cars. This increase is due to
 Environmental regulations that increased the cost of production
 Taxation policies
 Liquidity crunch after the NBFC crisis in 2018 lead to lower demand for cars, since a large
portion of cars bought are financed by NBFCs.
 Fuel price hikes
 Unstable economic conditions
 New insurance norms which demand upfront payment for three years insurance premium
 The pandemic (Economic Times, 2021)

29.8%
25.8% drop

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MARKET SHARE OF CAR MAKERS IN THE AUTOMOBILE SECTOR IN INDIA IN
FROM 2011-2018

CAR MAKERS MARKET SHARE (IN PERCENTAGE)

2011 2012 2013 2014 2015 2016 2017 2018
MARUTI SUZUKI 41.53 40.56 43.80 45.88 47.25 47.74 52.51 51.00
HYUNDAI 15.56 14.92 15.64 16.38 17.45 17.13 16.94 16.20
MAHINDRA 8.18 9.90 9.66 8.19 7.52 7.70 7.55 7.30
HONDA 1.98 2.79 4.43 7.16 7.42 5.34 4.55 5.20
TATA 12.36 11.08 5.83 5.06 5.07 4.89 4.38 7.00
TOYOTA 5.67 6.57 5.98 5.29 5.12 4.59 4.40 4.50
RENAULT 0.06 1.34 2.65 1.79 1.96 4.53 3.48 2.40
FORD 3.85 3.26 3.27 3.07 2.85 2.96 2.72 2.90
VOLKSWAGEN 3.26 2.55 2.49 1.76 1.58 1.62 1.26 1.48

FUTURE SCOPE

India's car industry is the world's 4 th biggest, with the nation currently positioning as the fourth
biggest maker of cars and the 7th biggest producer of business vehicles in 2018. By 2026, the Indian
auto industry (counting segment manufacture) is relied upon to be worth Rs 16.16-18.18 trillion
(US$ 251.4-282.8 billion). Private vehicle creation expanded at a 6.96 percent build yearly
development rate (CAGR) from FY13 to FY19, with 30.92 million vehicles delivered in FY19.
Business vehicles developed at the quickest rate in local bargains in FY19, with 17.55 % year-on-
year development, trailed by three-wheelers with 10.27 % year-on-year development. In FY19,
India's traveller vehicle deals outperformed 3.37 million units, with development expected to arrive
at 10 million units by FY20. The public authority needs to make India a worldwide assembling
centre just as a middle for creative work (R&D). It has set up the National Automotive Testing and
R&D Infrastructure Project (NATRiP), which fills in as a scaffold between the organization and the
business local area. Beginning around 2015, five testing and exploration focuses have been set up
the nation over under (TRIP). It isn't stunning that the high advancement rates found in the Indian
vehicle industry for several years have concurred with practically identical high GDP improvement
rates recorded by the country close by improvement in compensations.

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The growing purchasing power of country India accelerated the improvement of roads and
expressways are factors that will help fuel with propelling revenue for adaptability and vehicles.
Anyway, near the home taste and lifestyles of customers are changing, associations should
encourage new designs for the vehicles which may fulfil the interest of current customers. As per
the examination done by Industry trained professionals, electric vehicles may be the elective for
Indian buyers of auto vehicles. These vehicles are more environmentally all around discarded than
run-of-the-mill vehicles. By and by, Mahindra and Mahindra have dispatched the super electric
vehicle (Reva vehicle) in the country. Besides the Reva, Toyota Prius is a combination of vehicles
that have been found in the Indian market. Given all of the disadvantages, industry experts feel that
electric vehicles will gain obvious quality in the Indian vehicle market in the coming years. In the
2013 Union Budget, the Indian government ensured that it will offer resources to help the making
of blend and electric models. OEMs should zero in on filling the openings in their portfolios
similarly to arranging and making a motivator for cash things. Associations should have the top
tendency for R&D activities to consider methods of achieving higher eco-agreeableness. There
should be tireless headway of current and new resources and methods to convey the parts that are
cost-effective and biodegradable.

Today, it is the extraordinary commitment of the top organization of every vehicle association to
share their knowledge and capacity to get down to business for the new time of vehicles. There
should be another improvement in the Indian automobile industry to deal with the issue of the
stoppage.

The Indian government is currently focusing its endeavours on advancing the utilization of electric
vehicles in the nation's most dirtied urban areas. Distinction means "Quick Adoption and
Manufacturing of Electric Vehicles and Hybrids in India," and a program will help 11 urban areas
in presenting electric transports, taxicabs, and e-carts. Ahmedabad, Delhi, Bangalore, Jaipur,
Mumbai, Lucknow, Hyderabad, Indore, and Kolkata, just as two towns that fall under an
uncommon classification - Jammu and Guwahati - are among the urban communities focused on.
Quick forward to 2021, when organizations are endeavouring hard to assemble cheaper electric
vehicles to negate the possibility that electric vehicles are restrictively costly. The Indian
government intends to build up plans and proposition impetuses for electric battery batteries by
2024 to urge more individuals to contribute 25% of all new vehicle enrolments. Electric vehicles
represent just 0.29 percent of complete vehicle enlistments in India. With the end goal for this to
occur, a two-pin approach should be utilized. Above all else, India should be ready for the creation
of electric vehicles by fostering the fundamental framework and advances. Second, to keep away

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from expanded contamination levels, arrangements should be made for the old auto to be once again
introduced as a mixture electric vehicle.

By 2020, the Indian electric vehicle market is anticipated to be esteemed USD 5 billion, ascending
to USD 47 billion by 2026, with a CAGR of more than 44% over the figure time frame (2021-
2026). Because of proceeded with terminations and travel limitations across the district, the Indian
Electric Vehicle Market has been affected by the COVID-19 scourge, which has disturbed
obtainment and constrained the suspension of creation units.

In India, in any case, the electric vehicle (EV) area is as yet in its beginning phases. Because of
various government endeavours and arrangements, it is anticipated to develop at a generally high
rate during the conjecture time frame. To bring down their carbon impression, internet business
organizations (like Amazon) are declaring plans to utilize e-Mobility for start to finish conveyance.
In FY19, vehicle tolls expanded by 14.50 %. It is relied upon to develop at a CAGR of 3.05 percent
from 2016 to 2026. During FY19, the local bicycle industry is relied upon to develop at a yearly
pace of 8-10 percent. Likewise, the extravagance vehicle market in India is relied upon to develop
at a 25% CAGR until 2020. By 2023, the Indian government expects the vehicle market to produce
US$ 8-10 billion in nearby and worldwide theories.

CONCLUSION

In theory, a perfect competitive market may be considered an ideal market with two pivotal
assumptions: i) huge numbers of (buyer) and (ii) There is no prospect of a price-marginal income
discrepancy to maximise profit on the basis of these two assumptions. However, actual world
marketplaces are largely different in the number and size of companies. The general public worries
about the economic and political impact of industry concentration. Therefore, the economist should
at least analyse and evaluate their economic impact (Citovsky 1955)

MARKET CONCENTRATION OF INDIAN AUTOMOBILE INDUSTRY

Concentration of the market is the ratio between sales of 'n' companies and sales of industry. The
concentration of markets has been investigated as it is a measure of monopolistic power and has
helped shape government policy. The Indian automotive sector has a concentration level measured
by Mukherjee and Chakrabarti (2000). They found that few companies in the Indian car industry
produced the bulk of output, considering such companies as oligopoly companies (oligopoly refers
to a situation where few firms say 5 to 6 dominate the entire industry). In the car business, they
discovered that Maruti Udyog Limited, Hindustan Motors, Premier Automobiles Ltd. are three main
manufacturers. For commercial vehicles, they also noted the dominance for the primary share of

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industry performance and sales of 2 big companies, Telco, and Ashok Leyland, and in the Jeep
sector, Mahindra & Mahindra, and Tata Account.

References

 Economic Times. (2020, Nov 12). Retrieved from

https://auto.economictimes.indiatimes.com/news/passenger-vehicle/cars/what-is-altering-the-
market-share-story-of-the-indian-pv-makers/79193071

 Economic Times. (2021, Jan 29). Retrieved from

https://auto.economictimes.indiatimes.com/news/passenger-vehicle/cars/auto-industry-slump-is-
systemic-covid-19-worsens-it-siam-study/80550582

 https://scholar.google.co.in/scholar?
hl=en&as_sdt=0%2C5&as_vis=1&q=electric+vehicle+in+india&oq=electric+vehicle+in+#d=gs_qabs
&u=%23p%3DkN_WmBU8nhwJ

 https://scholar.google.co.in/scholar?
q=electric+vehicle+journal&hl=en&as_sdt=0&as_vis=1&oi=scholart#d=gs_qabs&u=%23p
%3DrSJdURKU0xcJ

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