Anip DRIVERS Two Wheeler Industry

Sr. No Particulars Page No.1 Two wheeler Industry – Intro & Growth 32 Key Drivers of the Indian Two Wheelers Industry 63 Present and Future Trends 84 Contribution of the automotive industry to the economy 17

5 Two-Wheeler sales at a glance& Market share 196 Production trends 287 Challenges in the Indian automotive industry 308 Human resource development 349 Sentiments of the Indian vehicle buyer 3810 Technical Regulations 4011 Income estimates 4412 Segmentation, Pricing Strategies of major players 47

13 Critical Success factors of major players 48

14 TRENDS IN TWO WHEELER INDUSTRY 51

15 Growth drivers for the Indian automotive industry 56

16 Government regulations & policy 58

17 India Advantage and business opportunities 62

18 SWOT Analysis 63

19 New Segment Opportunities – E Bikes 65

Two Wheeler Industry 2

Growth of Two Wheeler Industry

Two-wheeler segment is one of the most important components of the automobile sector that

has undergone significant changes due to shift in policy environment. The two-wheeler

industry has been in existence in the country since 1955. It consists of three segments viz.

scooters, motorcycles and mopeds. According to the figures published by SIAM, the share of

two-wheelers in automobile sector in terms of units sold was about 80 per cent during 2003-

¬04. This high figure itself is suggestive of the importance of the sector. In the initial years,

entry of firms, capacity expansion, choice of products including capacity mix and technology,

all critical areas of functioning of an industry, were effectively controlled by the State

machinery. The lapses in the system had invited fresh policy options that came into being in

late sixties. Amongst these policies, Monopolies and Restrictive Trade Practices (MRTP) and

Foreign Exchange Regulation Act (FERA) were aimed at regulating monopoly and foreign

investment respectively. This controlling mechanism over the industry resulted in: (a) several

firms operating below minimum scale of efficiency; (b) under-utilisation of capacity; and (c)

usage of outdated technology. Recognition of the damaging effects of licensing and fettering

policies led to initiation of reforms which ultimately took more prominent shape with the

introduction of the New Economic Policy in 1985. However, the major set of reforms was

launched in the year 1991 in response to the major macroeconomic crisis faced by the

economy. The industrial policies shifted from a regime of regulation and tight control to a

more liberalised and competitive era. Two major results of policy changes during these years

in two-wheeler industry were that the, weaker players died out giving way to the new entrants

and superior products and a sizeable increase in number of brands entered the market that

compelled the firms to compete on the basis of product attributes. Finally, the two-¬wheeler

industry in the country has been able to witness a proliferation of brands with introduction of

new technology as well as increase in number of players. However, with various policy

measures undertaken in order to increase the competition, though the degree of concentration

has been lessened over time, deregulation of the industry has not really resulted in higher

level of competition. Indian two wheeler contributes the largest volumes amongst all the

segments in automobile industry. Though the segment can be broadly categorized into 3 sub-

segments viz.; scooters, motorcycles and mopeds; some categories introduced in the market

are a combination of two or more segments e.g. scooterettes and step-thru's . In the last four

to five years, the two-wheeler market has witnessed a marked shift towards motorcycles at

the expense of scooters. In the rural areas, consumers have come to prefer sturdier bikes to


withstand the bad road conditions. In the process the share of motorcycle segment has grown

from 48% to 58%, the share of scooters declined drastically from 33% to 25% , while that of

mopeds declined by 2% from 19% to 17% during the year 2000-01. The Euro emission

norms effective from April 2000 led to the existing players in the two- stroke segment to

install catalytic converters. Excise duty on motorcycles has been reduced from 32% to 24%,

resulting in price reduction, which has aided in propelling the demand for motorcycles. The

competition has strengthened though there are hardly any new entrants into the industry.

There is an increasing emphasis on price and this has led to cost cutting efforts all across the

industry, thereby, making the customer an ultimate beneficiary. The trend also saw

introduction of new motorcycles with capacity ranging from 100 to 180cc bikes. We

anticipate that many more new models will be launched during the year and provide

customers plenty of choice at competitive prices.

Two wheelers in India are the second largest producer and manufacturer of two-wheelers in

the world. It stands next only to Japan and China in terms of the number of two-wheelers

produced and domestic sales respectively. Indian two-wheeler industry has got spectacular

growth in the last few years.

The two-wheeler market was opened to foreign competition in the mid-80s. And the then

market leaders - Escorts and Enfield - were caught unaware by the onslaught of the 100cc

bikes of the four Indo-Japanese joint ventures. With the availability of fuel efficient low

power bikes, demand swelled, resulting in Hero Honda - then the only producer of four stroke

bikes (100cc category), gaining a top slot.

The first Japanese motorcycles were introduced in the early eighties. TVS Suzuki and Hero

Honda brought in the first two-stroke and four-stroke engine motorcycles respectively. These

two players initially started with assembly of CKD kits, and later on progressed to indigenous

manufacturing. In the 90s the major growth for motorcycle segment was brought in by

Japanese motorcycles, which grew at a rate of nearly 25% CAGR in the last five years.

In 1990, the entire automobile industry saw a drastic fall in demand. This resulted in a decline

of 15% in 1991 and 8% in 1992, resulting in a production loss of 0.4mn vehicles. Barring

Hero Honda, all the major producers suffered from recession in FY93 and FY94. Hero Honda

showed a marginal decline in 1992.


The reasons for recession in the sector were the incessant rise in fuel prices, high input costs

and reduced purchasing power due to significant rise in general price level and credit crunch

in consumer financing. Factors like increased production in 1992, due to new entrants

coupled with the recession in the industry resulted in company either reporting losses or a fall

in profits.

Promising growth of the two-wheeler segment in India two-wheeler sales have grown at a

CAGR of 11 per cent over the last decade and are expected to maintain strong growth rates as

more and more people rise from poverty in India. Most of the population lives in rural and

semi-urban areas where most people use cycles as a mode of transport. So when income

levels increase in those areas, the first vehicle purchased is the two-wheeler. Hence, at its

current growth rate, with increasing incomes, the number of two-wheelers being purchased

will increase manifold. Rapid urbanization of semi-urban and rural areas, easy availability of

finance, and new innovations in manufacturing of two-wheelers is resulting in a large number

of new models being introduced each year, which will facilitate growth in this segment.

Production trends show maximum growth in the motorcycles sub-segment

Between the years 2005–2006 and 2006–2007, production of scooters has decreased whereas

production of motorcycles has increased. In fact, motorcycles make up 84 per cent of two-

wheeler production and have displayed the highest increase in growth rates. There have been

no changes in the production figures of mopeds and production of electric two-wheelers has

begun recently in India.

The auto component industry has come of age and now forms an important component of the

Indian economy. In recent years, it has grown more impressively, fetch double digit growth.

More interestingly, it has captured attention as well as business from leading auto makers of

the world. The industry plays a crucial role in the automobile sector. Manufacturing vehicles

typically involve assembling a large number of components out-sourced from number of

ancillaries or component manufacturers. Competitiveness with quality as a theme has been

the watchword for the Indian industry and especially the auto component industry ever since

the Indian economy was opened up to the world in the early 1990s. While economic revival,


lower interest rates and better road infrastructure are driving domestic demand for

automobiles and, therefore, components, increasing outsourcing by global automobile majors

is creating a huge export opportunity for Indian component manufacturers.

Growth Prospects and Key Drivers of the Indian Two Wheelers Industry

The growth witnessed by the Indian two wheeler industry indicates the growing demand for

low cost personal transportation solutions amongst the 300 million Indian middle class

consumers. Despite this spectacular growth rate, the two wheeler penetration (number of two

wheelers per 1000 inhabitants) in India remains lower than other Asian countries. This fact

provides an opportunity for continued growth in the market. India has the lowest Penetration

of two wheelers as compared to countries like Taiwan, Thailand, Malaysia, Vietnam,

Indonesia and China. In the present scenario, growth in the two wheeler industry will be

driven by several factors:

Rise in India’s Young Working Population

With the rising levels of per capita income of people, the Indian two wheeler market offers a

huge potential for Growth. This growth is relevant in the light of the fact that 70 per cent of

India’s population is below the age of 35 Years and 150 million people will be added to the

working Population in the next five years. The number of women in the urban work force is

also increasing; this will lead to the Growth of gearless scooters.

Rise of India’s Rural Economy and Growth in Middle Income Households

The growth prospects of the Indian rural economy offer a significant opportunity for the

motorcycle industry in India. The penetration of motorcycles amongst rural households with

income levels greater than US$ 2,200 per annum has already increased to over 50 per cent.

The current target Segment for two wheelers, i.e., households belonging to the Income

category of US$ 2,200–12,000 is expected to grow at a CAGR of 10 per cent.

Greater Affordability of Vehicles


The growth in two-wheeler sales in India has been driven by an increase in affordability of

these vehicles. An analysis of the price trends indicates that prices have more or less

stagnated in the past. This has been part of the marketing strategy adopted by the

manufacturers to gain volume, as well as conscious efforts adopted to bring down costs. The

operating expenses of leading manufacturers have declined by around 15 per cent in the last

five years. With greater avenues of financing, the customer’s capacity to own a two wheeler

has improved.

Rapid Product Introduction and Shorter Product Life Cycle

The last five years have witnessed a sharp increase in new product launches in the two-

wheeler industry. It is estimated that close to 50 new products have been launched by

manufacturers during this period, filling up all price points and targeted at various consumer

segments.

Inadequate Public Transport Systems in most Urban Areas

The economic boom witnessed in the country and the increased migration to urban areas have

increased the traffic congestion in Indian cities and worsened the existing infrastructure

bottlenecks. Inadequate urban planning has meant that transport systems have not kept pace

with the economic boom and the growing urban population. This has increased the

dependence on personal modes of transport and the two wheelers market has benefited from

this infrastructure gap.

Challenges faced by the industry

Despite the high growth achieved in the past and the high potential in the future, the two-wheelers

market faces some challenges.

Rising Customer Expectations

The growth witnessed by the Indian two wheeler industry has attracted a number of new entrants to

the market and it is expected that the Indian industry will become more competitive in the future. The


plethora of products introduced in the past has also raised customer expectations with respect to

reliability, styling, performance and economy.

Environmental and Safety Concerns

The increasing demand for two wheelers will need to be managed to address issues relating to

overcrowding of roads. Another problem is the insufficient infrastructure for inspection to ensure

adherence to emission norms. As the industry grows, it is important to regulate the sale of used two

wheelers in a more organised manner for which a mechanism needs to be evolved. Unregulated sale of

two wheelers, especially in the rural areas, are likely to create issues related to emissions and safety of

vehicles.

Creation of Distribution Infrastructure

Leading companies need to ensure that on one hand they build adequate infrastructure in terms of

dealerships and servicing stations in the urban areas and on the other ensure that their distribution

infrastructure also reaches the rural areas.

Present and Future Trends

Two-wheeler domestic sales trend

Motorcycles

2001-02 2002-03 2003-04 2004-05 2005-06

2887194 3647493 4170445 4964753 5815417

Scooters

2001-02 2002-03 2003-04 2004-05 2005-06

908268 825648 886295 922428 908159

Mopeds

2001-02 2002-03 2003-04 2004-05 2005-06

408263 338985 307509 322584 332741


Summary Forecast‐2011 growth over 2009‐10

Automobile Segment 2010 – 2011 growth over 2009 ( % )

Passenger cars 12 ‐ 13

Utility Vehicles 13 ‐ 14

Commercial Vehicles (goods) 19 ‐ 20

Commercial Vehicles (buses) 4 ‐ 5

Two Wheelers 9 ‐ 10

Three Wheelers (goods) 5 ‐ 6

Three Wheelers (passenger) 8 ‐ 9

Domestic Market Share for 2009-10

Passenger Vehicles 15.86

Commercial Vehicles 4.32

Three Wheelers 3.58

Two Wheelers 76.23


Automobile Production Trends (Number of

Vehicles)

Category 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Passenger

Vehicles989,560 1,209,876 1,309,300 1,545,223 1,777,583 1,838,593 2,351,240

Commercial

Vehicles275,040 353,703 391,083 519,982 549,006 416,870 566,608

Three

Wheelers356,223 374,445 434,423 556,126 500,660 497,020 619,093

Two

Wheelers5,622,741 6,529,829 7,608,697 8,466,666 8,026,681 8,419,792 10,512,889

Grand Total 7,243,564 8,467,853 9,743,503 11,087,997 10,853,930 11,172,275 14,049,830

Consumer Preferences

Since 1997–98, motorcycles have become more popular with the Indian consumer than

scooters and mopeds. Over the last decade, sales of motorcycles rose at a sharp rate while that

of scooters and mopeds either declined or recorded marginal growth.

Two wheeler sales growth accelerate in 2009-10

After reporting a decline in 2007-08, two-wheeler demand revived, posting a 4.6 per cent

growth in 2008-09. We expect this growth to accelerate to 6.1 per cent in 2009-10. Sales will

slightly fall short of crossing the 90,00,000 mark at 89,53,462 vehicles in 2009-10. Two

wheeler demand is expected to grow at a faster pace in the second half than in the first half of

2009-10.We expect motorcycles demand to accelerate in 2009-10. Sales will expand by 5.9

per cent to 72,09,421 vehicles, faster than four per cent growth recorded in 2008-09. New

launches, increasing demand for fuel efficient vehicles and increased rural penetration will

aid growth in motorcycles sales in 2009-10. Scooter demand is expected to continue to grow

at a healthy pace of 8.7 per cent in 2009-10, faster than motorcycles. Incase of scooters too,

new launches are expected to drive growth in demand. Growth in moped sales is expected to

decelerate to below one per cent in 2009-10 compared to 1.5 per cent in 2008-09.


Industry’s capacity expand to 13.6 million two-wheelers in 2009-10

The two & three-wheeler industry continues to attract investments quarter-after-quarter. We

expect two wheelers capacity to have scaled up to 11.5 million vehicles per annum in 2008-

09. However, only 8.4million vehicles were produced during 2008-09. This reflects a

capacity utilisation of around 73 per cent in 2008-09. On commissioning of few projects, we

expect the industry’s capacity to scale to 13.6 million vehicles per annum in 2009-10, up 18.3

per cent y-o-y. As two wheeler production is expected to grow by 6.5 per cent to 8.9 vehicles

in 2009-10, the industry’s capacity utilisation rate is expected to fall to around 66 per cent in

2009-10. Among the large companies, Bajaj Auto’s capacity utilisation is expected to be the

lowest in 2008-09. To a large extent it has pulled down the industry’s capacity utilisation

rate. Total outstanding investment in the sector surged to Rs.5,055 crore as of 31 March

2009. This was spread across 24 projects out of which nine projects of Rs.2,913 crore were

under implementation. During the quarter ended March 2009, CMIE’s CapEx team captured

two investments worth Rs.810 crore. This was the fifth successive quarter for the industry to

attract investment. Of the two, Vibgyor Allied Industries’ Rs.660 crore two-wheeler

manufacturing facility at Dhulagori, Howrah was the largest. The company has already

invested Rs.120 towards the project. It has not disclosed details regarding the capacity and

duration of the project. The second project that was captured during the quarter was Suzuki

Motorcycles’ Rs.150 crore brown field expansion project. The company will ramp up the

capacity at its Gurgaon facility from 1,75,000 bikes to 4,50,000 bikes per annum. During the

March quarter, Honda Motorcycles & Scooters commissioned its Rs.400 crore two-wheeler

expansion project at Manesar. The company has expanded its annual manufacturing facility

from nine lakh to 12 lakh vehicles per annum. Eight projects with total investments of

Rs.3,113 crore are expected to be commissioned in the coming 12 months leading to an

increase of 21,32,000 vehicles capacity per annum. Among them, Hero Honda Motors’

Rs.1,450 crore phase - II expansion project of its Haridwar plant (addition of 10,00,000

vehicles capacity) was the largest. This was followed by Mahabharat Motors’ Rs.1,000 crore

West Bengal two-wheeler project (5,00,000 vehicles capacity) and Honda Motorcycles &

Scooters’ Rs.300 crore expansion project of its Manesar plant (addition of 3,00,000 vehicles

capacity). Ajanta Manufacturing (2,000 vehicles), Suzuki Motorcycles (80,000 vehicles),

Hero Electric (50,000 vehicles) and TVS Motors (2,00,000 vehicles) will also commission

their capacities in 2009-10.


Growth in two-wheeler sales continues to improve

After dipping from 8.7 lakh units in September 2008 to 5.5 lakh units in December 2008,

two-wheeler sales crossed seven lakh units in February 2009 and eight lakh units inMay

2009. Two wheeler sales inMay 2009 were a healthy 11.5 per cent higher than in May 2008.

The recovery was a cumulative effect of several factors such as

• Aggressive interest cuts by lenders over the past six months

• Return of liquidity in the financial markets

• receding of economic uncertainty and revival in consumer confidence

Tight financing conditions due to GLC, fuel price rise impaired recovery

After the Global Liquidity Crisis hit the Indian shores in mid-September 2008, companies

financing vehicles, especially NBFCs, went into a severe funds crunch. Simultaneously,

interest rates had peaked by July-August 2008. Lenders in the two-wheeler finance industry

had become very cautious and tightened credit criteria for two-wheeler loans.

Scooters and bikes perform better than mopeds

Two-wheelers comprise mopeds, scooters and motorcycles. A break of the sales statistics of

these three different types of two-wheelers reveals that the motorcycle segment, which

accounts for about 80 per cent of the total two-wheeler sales, grew by 11.4 per cent in May

2009. As a result, two-wheeler sales grew by 11.5 per cent in May 2009. Nearly 6.6 lakh

motorcycles were sold in May 2009. This was the highest since September 2008 when a

record 7.2 lakh motorcycles were sold. That motorcycle sales recovered from a low of 4.3

lakh units in December 2008 to 6.6 lakh units in May 2009 indicates that the demand for

motorcycles continues to be robust. Demand for both, the low-power entry level segment as

well as the mid-powered 125-249 cc segment has recovered. Both segments clocked over 11

per cent growth in May 2009. Demand for luxury motorcycles with more than 250 cc engines

appears to be growing even more vigorously This segment never witnessed a year-on year

decline in any month even during October-January 2008. However, it may be noted that the

luxury segment is a very low volume segment with just over 4,000 motorcycles being sold

per month compared to a total of over six lakh motorcycles being sold per month. The

scooters segment, which accounts for less than 15 per cent of total two-wheeler sales, grew


by 10.4 percent in May 2009. About 1.1 lakh scooters were sold in May 2009. The scooters

segment as a whole never recorded a year-on-year decline in any of the months since June

2008. This was mainly because of the continuing robust growth in the mid-sized 75-124 cc

segment. While the other two segments – less than 75 cc and 125-250 cc– are continuously

falling, the 75-125 cc segment has almost never recorded a decline. The segment nearly

accounts for all the scooter sales. From 91.5 per cent in May 2008, the share of this segment

in total scooter sales has risen to 98.5 per cent by May 2009. Company-wise sales numbers

show that Hero Honda Motors, Eicher Motors, Suzuki Motorcycle and Honda Motorcycle are

growing at units sold at double digit rates. Hero Honda continues to dominate the market. It

sells 45-50 per cent of the total two-wheelers sold in the market.

Bajaj Auto is witnessing declining sales since October 2008. During the last 14 months Bajaj

Auto’s monthly sales ranged between 1.2 lakh units and 2.2 lakh units. In January 2009, its

sales had dipped to a low of 1.2 lakh units. Thereafter, the company managed to post a smart

recovery and sell 1.7 lakh units in May 2009. It aims to sell 2.5 lakh bikes per month. In the

second half of June 2009 the company launched the new Pulsar 220 cc bike with 21.04 PS of

power and priced at Rs.70,000. It plans to launch two more models in July 2009 and

December 2009. According to media reports, it plans to launch a powerful sports scooter next

year with a price tag of Rs.45,000-Rs.50,000. At present, the company’s scooter performance

is disastrous. Its scooter sales dropped below 1,000 units per month in November 2008 and

went further down to 648 units by May 2009. A total of 1.1 lakh scooters were sold in May

2009.

Two & three wheeler industry sales to grow at CARG of 21.6%during 2010-13

The two-wheeler industry recorded a robust y-o-y sales volume growth of 28.6 percent during

the period April-September 2010. The industry is expected to end the year with a 21.7 per

cent rise in sales volumes. Driven by the robust growth in volumes, the two & three wheeler

industry is expected to record an impressive sales growth of 26.1 per cent in 2010-11.

Operating profit margin is, however, likely to contract by 130 basis points to 16.1 per cent,

due to input cost pressures. With the domestic macro-economic environment expected to

remain healthy and corporate and rural incomes expected to rise, the two-wheeler industry is

expected to record a sales volume growth of over 15 per cent during 2011-13. Three-wheelers


sales are also expected to grow at a healthy pace in the coming two years. Hence, driven by

volumes, the industry is expected to record a sales growth of 19-20 per cent during 2011-13.

With prices of key raw materials expected to rise in the next two years, the industry’s

operating margin is likely to come under further pressure. It is likely to contract by 100 basis

points to around 15 per cent in the next two years. However, a slower rise in interest,

depreciation and tax expense is likely to partially offset the rise in manufacturing cost,

leading to a marginal 40 basis point contraction in net profit margin to 10.5 per cent during

2011-13.

Two-wheeler industry sales volumes to rise by 21.7%in 2010-11

A robust consumer demand backed by rising income levels, increased rural penetration,

stable interest rates and new models have been driving domestic demand for two-wheelers.

Two-wheeler sales rose by 28.6 per cent during the period April-September 2010. We expect,

the demand for two-wheelers to moderate but remain healthy in the coming quarters. Hence,

we expect domestic two-wheeler sales to rise by 21.7 per cent in 2010-11. Exports rose by

34.1 per cent during the period April-September 2010 and the major exporters, Bajaj Auto

and TVS Motors are expected to see strong demand even in the coming quarters. Hence, we

expect exports to rise by a robust 27.5 per cent during 2010-11. In order to pass on the cost of

BSIV implementation and higher input expenses to customers, two wheeler makers have

already hiked prices by around two per cent in the June 2010 quarter. Prices of steel,

aluminum and rubber are expected to rise in the second half of 2010-11. This is expected to

lead to another 2-3 per cent price hike by two-wheeler makers. Thus, we expect average

realisations to rise by 4.5 per cent in 2010-11. The twowheeler industry’s market size is

expected to expand by 25.5 per cent to Rs.40,636 crore in 2010-11, mainlydriven by volume

growth.With the domestic macro-economic environment expected to rise, the two-wheeler

industry is expected to continue its strong sales performance in the next two years. We,

therefore, expect the industry to record a sales volume growth of 17.6 and 15.8 per cent in

2011-12 and 2012-13, respectively.


Industry’s capacity to scale up to 18 million by 2010-11

After commissioning a capacity of 2.4 million vehicles in 2009-10, the two & three wheeler

industry is expected to witness a capacity addition of 1.2 million vehicles in 2010-11. This

will take the outstanding capacity of the industry to 18 million vehicles by March 2011. Of

the total Rs.658 crore investments to be made in 2010-11, more than 80 per cent is scheduled

to be commissioned in the coming six months. Of these projects, Bajaj Auto’s capacity

expansion plan entails the largest investment. The company’s project at Pantnagar is under

implementation and will be commissioned in March 2011. As per company officials, this will

take the company’s total production capacity to 50 lakh vehicles per annum. With demand for

two-wheelers expected to remain robust, the industry is likely to see fresh investments worth

Rs.4,193 crore in the coming two years. This is expected to take the outstanding capacity of

the industry to 20 million vehicles by March 2013. Hero Honda Motors’ has not disclosed the

capacity of its Rs.2,000 crore Greenfield Motorcycles & Ancillary unit. Hence, the actual

capacity addition in the next two years is expected to be higher. Among the projects

scheduled to be commissioned in 2011-13, the largest one belongs to Honda Motorcycles &

Scooters’. Its Bhiwadi project is expected to add a capacity of six lakh vehicles each, in two

phases. While the first phase is expected to be completed in June 2011 and will entail an

outlay of Rs.500 crore, the second phase is scheduled for completion in March 2013 and is

expected to entail a cost of Rs.600 crore. Hero Honda Motors has announced a total outlay of

Rs.2,265 crore for capacity expansion and modernisation over the next two years. Of this, the

company will invest Rs.115 crore for a capacity expansion of three lakh vehicles per annum

at Haridwar. This project is scheduled for completion in November 2011. However, the

commissioning of its Rs.2,000 crore Greenfield project (fourth plant) is likely to be delayed

by six months to June 2012, as the company has still not finalized the location of the plant.

The industry has enough capacity tomeet the forecasted demand for next two years. However,

Hero Honda is likely to face capacity constraints on account of delay in the commissioning of

its fourth plant. This is expected to lead to a contraction in its market share by to 37.5 per

cent in 2012-13. Its share in the motorcycle segment is also expected to contract by 510 basis

point this year to 46.9 per cent and further to 45 per cent by 2012-13.


Sales expected to grow by 29.1%in December 2010 quarter

We expect the two & three wheeler industry to register a sales growth of 29.1 per cent in the

December 2010 quarter. While the growth will be volume driven, an expected 3-4 per cent

rise in realisations will also supplement the overall sales growth. The industry’s sales

volumes are expected to rise by 24.6 per cent during the quarter, aided by an increased

demand during the festive season. Prices of key raw materials like steel, rubber and

aluminium are expected to rise in the December 2010 quarter. However, the industry will not

be able to pass on the entire price rise to consumers. Hence, operating expenses are expected

to grow at faster pace of 31.9 per cent as compared to income. Therefore, PBDIT margin is

expected to contract by 170 basis points to 16.1 per cent (y-o-y). As none of the listed

companies in our sample are expected to commission their projects during the December

2010 quarter depreciation expenses are not expected to rise significantly. The industry’s

interest expenses are also expected to grow by a mere five per cent during the quarter. Thus, a

slower rise in post PBDIT expenses is expected to limit the erosion in PAT margin to 110

basis points during the December 2010 quarter. For the year 2010-11 we expect, the industry

to record a sales growth of 26.1 per cent. However, due to input cost pressures, profit margins

are likely to contract.

Industry sales expected to grow over 19% during 2011-13

Two-wheeler sales volumes are expected to rise by 17.4 and 15.8 per cent in 2011-12 and

2012-13, respectively, aided by a healthy rise in domestic demand. Sales volumes of three

wheelers are also expected to grow by 9- 13 per cent during 2011-13. Hence, driven by

volumes, the industry is expected to record a sales growth of 20.3 per cent in 2011-12 and

19.1 per cent in 2012-13. This will be over an expected sales growth of 26.1 per cent in 2010-

11. An expected 2-3 per cent rise in average realisation will also support the overall industry

sales growth. Price of major raw materials like steel, aluminum and rubber are expected to

rise by 5-9 per cent in the coming two years. Hence, raw material cost is expected to rise by

20-22 per cent in the next two years. The steep rise in raw material expenses is expected to be

partially offset by a relatively slower growth in salaries and other expenses. Hence, the

industry’s PBDIT margin is expected to contract by 100 basis points y-o-y to around 15 per

cent in the next two years. Of the 11 listed companies in the industry, Hero Honda Motors,


Bajaj Auto and Eicher Motors are expected to commission projects worth Rs.2,390 crore over

the next two years. Hence, we expect depreciation to rise by around 11-18 per cent. However,

the leading companies like Bajaj Auto and Hero Honda are almost debt free and are likely to

fund their capex largely through internal reserves. Hence, we expect interest expenses to

grow by a slow 4-5 per cent. Thus, PAT margin is expected to contract by a marginal 40 basis

points to around 10.5 per cent during 2011-13. Two- wheeler sales in the country have sky

rocketed in the recent years, and the annual sales of motorcycles in India expected to cross

the 10 million mark by 2010. The low penetration of two-wheelers in the country 31 two-

wheelers per 1000 citizens (2004) leaves immense scope for the growth of the market.

Overall the industry sales of two-wheelers have grown by 15% from 6.57 million in

2004/2005 to 7.57 million in 2005/2006.

The buoyant Indian economy with a growth rate of around 8% per annum is further expected

to fuel the growth of two wheelers in the country. The share of motorcycles have increased

over the years, while that of other two-wheelers like geared scooters, scooterettes and mopeds

have shown a negative growth or remained stagnant. The two-wheelers have penetrated 7%

of rural house hold and 24% of urban markets, thus it leaves an immense scope for the market

to grow.

Contribution of the automotive industry to the economy

Importance of the automotive industry in relation to the transport sector in India

The automotive industry has been contributing an increasing amount to the transport sector

over the past few years and is also the largest contributor to the transport sector. The

following table shows the share of the transport sector in the GDP of India.

INCREASING SHARE OF THE TRANSPORT SECTOR IN GDP

The table shows the share of the transport sector in GDP in 2003–2004 and 2004–2005.

Share is in percentage:


From the table shown herewith, it can be inferred that the automotive industry plays a major

role in the transport sector. This is because the share of turnover of the automotive industry in

the turnover of the transport sector increased from 64.5 per cent in the year 2003–2004 to 89

per cent in the year 2004–2005.5 This phenomenon explains the increasingly important role

the automotive industry plays in the development of the transport sector in India. With

development of the national highways and construction of more roads in rural and semi-urban

areas, both freight and passenger traffic is expected to increase manifold. This would lead to

an increase in demand for different types of vehicles produced in the automotive industry in

India.

SHARE OF AUTOMOTIVE INDUSTRY IN THE TRANSPORT

SECTOR IS THE HIGHEST

Shares of the transport sector and automotive industry are given for the years 2003–2004 and

2004–2005. All figures on the shares are in percentage.

Increasing share of the automotive industry in GDP of the economy

The contribution of the automotive industry to GDP in 2006–2007 was 5 per cent. In the

same year the automotive industry produced more than 11 million vehicles registering a

growth of 13.56 per cent and achieving a turnover of USD 34 billion. With regard to


international trade, exports earnings were USD 2.76 billion in the year 2006–2007 and have

been growing at a CAGR of approximately 30 per cent for the last five years. However, even

though automotive exports were USD 2.28 billion in 2005–2006, they constituted only 0.3

per cent of global automotive trade in the same year. Thus it can be inferred that exports of

automotive products do not form a major part of the total output in the automotive industry

currently.

Production trends across industry segments

The growth of the automotive industry has been due to increase in production across

segments. The most notable increases in growth have been seen in the passenger cars

segment, commercial vehicles segment and the three-wheelers segment. The largest volume

in production is in the two-wheelers segment, followed by the passenger cars segment and the

commercial vehicles segment in that order. During the last few years, certain macroeconomic

conditions have helped the automotive industry to grow. The GOI has undertaken supportive

policies for the automotive industry, there is easier availability of finance as compared to the

1990s and the real income of the Indian consumer is increasing. This is leading to increased

purchasing power which is driving demand in the passenger cars segment and the two-

wheelers segment. Demand for commercial vehicles has increased due to further

development of the manufacturing sector, more trade and commerce between regions,

increased road transport (passenger and freight) owing to the construction of more national

highways and better roads.

Two-Wheeler sales at a glance

Details Apr 2009-May 2010 Apr 2008-May 2009 Var %

Scooter/Scooterettes 209,031 182,293 14.67%

Motorcycles 1,282,316 1,172,775 9.34%

Mopeds 83,658 69,570 20.25%

Electric Two wheelers 1,332 2,390 -44.27%

Total 1,576,337 1,427,028 10.46%


Premium Segment

If we analyze the motorcycle sub-segments then it would be visible that Bajaj Auto has a

significant presence in the premium segment with a market share of ~55% followed by Hero

Honda (~22%), TVS Motors (~13%) and HMSI (10%).

Executive Segment

Hero Honda dominates this segment with a market share of ~70% followed by Bajaj Auto

(20%), HMSI (~6%) and TVS Motors (1%). This segment retrieves higher revenues from the

rural areas, which are less dependence on finance; therefore comparatively it is among the

best performing segments YTD.

Economy Segment

This segment is a strong foothold for Bajaj Auto which has a market share of ~45% followed

by Hero Honda (~34%) and TVS Motors (~24%). This is the most competitive segment as all

the 3players relatively have a higher presence in the same. But this segment continues to be

the worst hit due to the credit unavailability and global slowdown. The industry has shown a

CAGR of ~15% from FY04-FY07 on account of finance availability from PSU Banks and

private banks like ICICI Bank. But from FY08 – FY09 YTD the industry has shown

shrinkage as most of the banks reduced their exposure in the auto finance domain given the

unfavourable macro economic situation.

In the initial phase, the market was predominantly in the executive segment. Later on BJAUT

developed the premium segment with their Pulsar range of vehicles. At the same time, BJAUT and

TVSL started to focus on entry level segment. This segmentation became much more visible during

FY02-07. With lower price points, BJAUT and TVSL stimulated the market and this led to market

expansion for the motorcycles. Easy financing accelerated in this process.


Table 3

Figure 8

Entry Level Segment

This segment was the major reason behind the growth in the domestic motorcycle market.

TVSL was the first one to penetrate this segment with their 'Max' range; however this market was

stimulated by BJAUT with 'Boxer'. This segment was then strengthened by 'Platina'. Easy availability

of financing and aggressive pricing led to strong growth of this segment till FY09. High defaults in

the loan repayment led to exit of many financiers from the segment in 1HFY08 leading to demand


contraction. Even for the manufacturers this segment started to become a problem with wafer thin

margins. To overcome this, BJAUT

started to increasingly focus on development of >100 cc segment. Pulling out of major financiers and

inventory correction in the system led to 24% contraction in the primary sales of entry level segment

products. This trend has continued during the current year with further decline of 17% till January

2009. This trend will continue till 1HFY10.

Figure 9

Executive Segment

Executive segment is the largest motorcycle segment and this is the stronghold of market

leader HH. Competitors have tried to challenge HH in this segment, however all such challenges have

fizzled out over time. With higher growth in economy segment, the contribution of this segment had

come below 50% in FY06. However over the last three years, it has made a strong come back and

now accounts for almost 60% of the motorcycle share.


Figure 10

Premium Segment

This segment was creation of HH with 'CBZ'; however major boost to the segment was given by

BJAUT through 'Pulsar' which has dominated the segment. HH has remained a marginal player in this

segment and one of the reasons for this is presence of HMSI in this segment. This segment remains a

small segment in the Indian market with contribution of around 14% to the motorcycle industry. This

is the performance segment and customers pay a premium for the novelty. Hence constant

upgradation in the product is a requisite for success in this segment.

Figure 11


Scooters

Advent of fuel efficient motorcycles in the Indian 2-wheelers industry led to decline of Scooters.

However, over the last five years, it has made a recovery and is emerging as a niche segment targeted

towards women commuters. One of the reasons for this is the increasing need of mobility for the

women commuters especially in the urban areas is due to higher number of college going girls and

greater participation of women in urban work force.

The product itself has gone for a complete revamp and now this category mainly consists of gearless

products. This segment is now dominated by Japanese manufacturers with HMSI having the

leadership. HH, which is a late entrant in this segment, has also cornered a sizeable market share in

the scooter segment. Another development in this segment is the launch of battery operated scooters.

However, given the high replacement cost for the batteries, this has remained a marginal segment.

Figure 12


Figure 13

Mopeds

Over the last 15 years, moped’s contribution in overall 2-wheelers has declined significantly and now

it remains a marginal category with just one manufacturer for the product. Its contribution in the 2-

wheelers industry now stands at 5% and we expect that this segment will continue to be marginalised.

The only player in this segment is TVS Motor.

Figure 14


Fleet Composition

11%

74%

15%0%

Sales<75 cc 75-125 cc 125-250 cc >250 cc

Market share

43%

27%

19%

4%6%

SalesHero Honda Bajaj Auto TVS Motors HMSI Others


Exports

446,146

45,007

173,2821,140,184

Automobile Exports Trends 2009 - 10

Passenger VehiclesCommercial VehiclesThree WheelersTwo Wheelers

59%17%

11%

9%4%

Exports (08-09)Bajaj Auto Hero Honda TVS Motors Honda Others

Majority of exports are to Bangladesh, Sri Lanka, Nepal and Bhutan

Highest growth (Y-o-Y of 79%) witnessed in segment above 125cc which constituted

36% of the exportsTwo Wheeler Industry

27

The table shows the production trends across segments in the industry

from the year 2002–2003 till 2006–2007.

1994-95

1995-96

1996-97

1997-98

1988-99

99-2000

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,030,803

1,225,895

1,322,928 1,279,549 1,315,055

1,259,408

879,759 937,506

848,434

935,279 987,498

1,020,013 943,944

1,074,933 1,161,276

1,494,409

SCOOTERS PRODUCTION (in Nos)


1994-95

1995-96

1996-97

1997-98

1988-99

99-2000

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

647,521

809,097 988,709 1,125,958 1,387,276

1,794,093 2,183,430

2,906,323

3,876,175

4,355,168

5,193,894

6,201,214

7,112,281 6,503,532 6,798,118

8,444,852

MOTORCYCLES PRODUCTION (in Nos)

1994-95

1995-96

1996-97

1997-98

1988-99

99-2000

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

516,936

623,114

668,666 667,242 671,699 724,510

694,974

427,498

351,612 332,294

348,437 379,574 379,987

430,827 436,219

571,070

MOPEDS PRODUCTION (in Nos)


Imports

Imports have decreased substantially over the past decade. The most notable decline in

imports can be seen in the commercial vehicles segment. This can be attributed mainly to a

substantial increase in production capacities of commercial vehicles in India from 2000–2001

onwards. Imports of passenger cars declined between 1996–1997 and 2000–2001. This was

due to the expansion of manufacturing facilities of cars in India during the period. However,

imports of passenger cars have increased in recent years. Growth in passenger car imports

took place between 2001–2002 and 2005–2006 due to increase in demand for premium and

luxury cars.

DECLINING IMPORTS ACROSS MOST SEGMENTS

The figures are for two periods, 1996–1997 to 2000–2001 and 2001–2002 to 2005–2006.

Figures are in percentage, based on constant prices for 1993–1994.

Challenges in the Indian automotive industry

Costs, infrastructure and human resource development are the underlying concerns in the

automotive industry and manufacturers are being challenged on these counts. Labour costs

are rising and economies of infrastructural improvements are not being realized efficiently.

Companies are searching for technological advancements that can help contain costs of

production and help in using resources efficiently to increase overall productivity.


Composition of costs and productivity

Raw material costs are by far the single largest costs where steel and rubber constitute the

two main materials used by manufacturers. However, the variation in cost of raw materials is

not as much as that in cost of labour. Further, labour costs constitute a much higher share of

the total cost in the automotive industry in American and West European countries compared

to India. In addition to the absolute costs involved in the automotive industry, the tax

structure also plays an important role. India has higher indirect taxes compared to some of the

other countries in Asia, which reduces the cost advantages it has. A cost comparison study

between Indian and Chinese automotive manufacturing companies revealed that the cost to

manufacture a passenger vehicle in China is 23 per cent lower than it is in India with the main

difference being higher taxes and their cascading impact in India, rather than cost of raw

materials or labour costs.

Advantage of low labour costs in India

Low labour costs and easy availability of management and engineering skills is one of the

prime advantages of manufacturing in India. Among the costs incurred to manufacture automotive products,

it is the cost of labour that foreign companies can cut most easily by manufacturing in India.

The cost per hour in India is only between 7 and 10 per cent of the cost of labour in the

developed countries. However it needs to be assessed if India can maintain the cost

advantage.

Low employee welfare leading to reduction in labour productivity

There is a significant increase in the number of contract workers being used in the automotive

industry which helps to keep labour costs low, but this practice of hiring labour under

contract also leads to exploitation in many cases. Thus, there is need for labour reforms

aimed at increasing the welfare of workers. Manufacturing companies are being encouraged

to retain and employ more permanent workers which will lead to higher levels of

productivity.

A survey conducted by Indian Council for Research on International Economic Relations

(ICRIER) found that the much needed labour reforms would increase the level of

productivity as reforms induce workers to work more efficiently. The survey found that


between 10 and 30 per cent of the total production workers in the automotive industry are

employed on contract basis. Further, wages paid to temporary workers are on an average only

25 to 50 per cent of wages paid to permanent workers.

Technological advancements leading to cost reductions

Manufacturers are looking for ways to contain costs. With decreasing cost of technology,

manufacturers are exploring ways to develop low cost automation and use it to reduce labour

costs. Regarding efficiency in production, according to an econometric analysis conducted by

ICRIER, it has been found that increase in foreign participation is directly correlated with

higher technical efficiency. Thus, the government is inducing more foreign participation, so

that technologically advanced products can be developed at lower costs overall.

Infrastructure

Continued investment in infrastructure is essential for India to be able to realize the targets

set in the AMP. There are inadequate ports, insufficient feeder rail lines to the ports, and bad Two Wheeler Industry

32

roads. Despite the bottlenecks in this regard there are companies that have made the most out

of the existing infrastructure. For instance, Hyundai has setup its factory very strategically

near the port in Chennai and has built a supply chain hub around surrounding areas. It has

now become the second largest passenger car manufacturer in India after entering the Indian

market in 1998.

Roads

With respect to roads, the Golden Quadrilateral, a corridor connecting the four metro cities of

India, New Delhi in the North, Mumbai in the West, Chennai in the South and Kolkata in the

East spanning 6 500 kilometres is being built. The GOI has also launched a program for the

construction of 66 500 kilometres of national highways of which 50 000 kilometres is

expected to be completed by 2015. With better road infrastructure, significant growth is

expected in the automotive industry. For instance, better roads are leading to greater demand

for multi-axle vehicles.

Railways

The Ministry of Railways is in the process of developing freight corridors in Railways.

Drawn on similar lines of highway projects linking east with west and north with south, the

ministry are planning for an east-west corridor and a north-south corridor. Connectivity

between rails and ports (both dry and sea ports) is essential and a blueprint for railway

development is being prepared.38

Ports

For India to develop into a global automotive hub, port development is imperative.

Specialized port infrastructure for handling vehicle exports is being developed especially near

the main automotive clusters near Mumbai and Pune in the West, Chennai in the South, and

Kolkata in the East. Two new deep ports are being developed that have special emphasis on

the automotive industry. One is in Dhamra in the state of Orissa (East India) which will be

completed by 2010, and the second is in Sutrapada in the state of Gujarat (West India).

Power

The high cost and relatively lower quality of power in many parts of India is also an issue

highlighted by many manufacturers. Many companies face fluctuations in supply of power

and power outages that in turn affect the quality of production. The average manufacturer in Two Wheeler Industry

33

India loses 8.4 per cent in sales due to power cuts as opposed to less than 2 per cent in China

and Brazil. It is estimated that the power outages alone cost India 1 per cent of GDP.40

Several companies are willing to pay more for power in return for consistent and good quality

of power. The Eleventh Five Year Plan of India 2007–2012, issued by the Planning

Commission of India, has set ambitious targets to generate and distribute more and better

quality power.

Human resource development

Skill shortages and skill mismatches may emerge as a constraint to achieve the growth targets

set in the AMP. Thus one of the main areas of focus cited by the Ministry of Heavy Industries

and Public Enterprises is to develop advanced capabilities in the workforce. A large

workforce consisting of both skilled and unskilled workers will be required to sustain the

increased level of production. The challenge is to ensure that the demand–supply gap does

not arise either in quantitative or in qualitative terms. The employment generated can be

divided into direct and indirect employment. While direct employment is employment by

way of workers being engaged in the production of automobiles and automotive components,

indirect employment is generated in feeder and supplier industries in the areas of finance,

insurance, mechanics and after-sales personnel for semi-skilled and unskilled workers in rural

and semi-urban areas. According to the AMP, it is estimated that the automotive industry

would require the following:

• Management and General: 28 per cent or 7 million

• Skilled workers: 62 per cent or 15.5 million

• Unskilled workers: 10 per cent or 2.5 million

The need for top level engineering and managerial manpower is being met by the Indian

Institutes of Technology and Indian Institutes of Management. However more such institutes

are required to impart high quality technical education to the workforce. Although there are

several engineering institutes all over India, there is a growing need for more engineering

institutes. The GOI has begun to take some initiatives in this regard. The National

Automotive Institute is being set up that will serve as a knowledge bank for the automotive

industry, conduct market research and analysis and develop training modules. The plan is to


establish the institute in all the major clusters in India, so that the institute can benefit from

active participation from automotive companies in those clusters.

Working Conditions

The working hours in Two wheeler industry are determined and regulated by TACT time

under the system of production. All team members are liable to work under the SWC within

cycle times to meet targets, which are set by customer demand. Higher demand in the market

decreases TACT time (TACT DOWN) and leads to compulsory overtime. Management

generally reduces the TACT time to increase production when market demand is high, which

ultimately leads to excessive hours of work.

The normal duration of work in both Two wheeler industry is eight hours but extends very

often up to nine hours and to compulsory overtime. There are six days of work in a week and

total hours of work is thus 54 hours in a week under normal conditions, going up to 55 to 56

hours including compulsory overtime, far exceeding the provisions of hours of work under

the Factories Act12. Workers get two breaks of 10 and 20 minutes, one for breakfast/tea and

another for lunch in each shift. It is reported that most of the workers in both Two wheeler

industry stay more than 50 kilometres away from the unit, normally travelling around three

hours a day. Therefore the total time spent for work in a day becomes more than 12 hours.

The burden is not limited to the time of travel and hours of work as it seizes a considerable

amount of time from their social lives since workers prepare their day for travel and work

well in advance. In order to report at 5.15 am for the morning shift one has to get up by 3 am.

It is notable here that a worker reaches his place of residence after the first shift only by 5 pm

and gets very limited time for his personal life and even for sleep. All the workers whom the

research team interviewed reported that they get less than five hours of sleep a day. The

situation is similar for all shifts. The case cited below gives an account of the impact of

workload and resulting excessive hours of work on the family and social life of the workers.

The case of this worker reflects many unnoticed aspects of work in TNCs. Overwork and

workload in many situations seriously hamper workers’ personal, family and social lives.

This has far reaching sociological implications as well. All workers in Two wheeler industry

whom the reported that their personal and social lives were disturbed because of the busy

work schedule.


The burden of overwork varies for regular and contract workers. It is observed that, though

working hours and shift system is equally applicable for contract and permanent workers,

contract workers often bear the additional burden of overwork when there are instances of

labour shortage and ‘ad hoc jobs’. The intrinsic job insecurity and lack of organisation put

them in a more disadvantageous situation than the regular workers.

The present system of work shift and hours of work in Two wheeler industry is therefore

unfair and exploitative for both permanent and contract workers. It is unambiguously clear

that the workers are overstrained by working hours. One notable thing is that working time

for the shift is only eight hours for the workers. Thus the company adheres to the provisions

of the Factories Act in principle. Nevertheless, in actual practice, it exceeds eight hours

excluding overtime in every situation. The total time spent for work by the workers generally

comes to around 14 to 15 hours a day including preparations for the day, work, travel and

compulsory overtime. It is therefore inferred that working hours under the provisions of the

law is not enforced.

Employment Contract and Wage System

There are considerable discrepancies in employment contracts and wages within units in

Indian Two Wheeler Industry. The company signs direct employment contracts with regular

workers. Conversely, contract workers have no direct employment contracts with the

company and are recruited through contractors. The contract for regular workers is formally

established through the appointment letter, which is served after confirmation. Contract

workers engage in contracts, normally for six months, with the contractor who fixes the terms

and conditions pertaining to their employment and wages. The practice is the same in both

units of Indian Two Wheeler Industry.

Fixing and revision of wages for regular workers in Indian Two Wheeler Industry is largely

based on experience and performance. Though fixing and revision of wages is at the

discretion of the management, collective negotiation through the employees’ union plays a

major role in wages revision in Indian Two Wheeler Industry. Wages for workers vary across

tasks and units in Indian Two Wheeler Industry, which has different wage structures for

mother plant and ancillary units. The basic salary for confirmed workers in TKAPL, which is

an ancillary unit, is reported to be 15 percent less than the basic salary of counterparts in the Two Wheeler Industry

36

mother plant. Wages for full-time confirmed workers in Indian Two Wheeler Industry are

distributed under the heads of DA, FDA, washing allowance, medical allowance, education

allowance, conveyance allowance, house rent allowance, good attendance appreciation and

other allowance along with the basic salary.

The company does not keep any yardstick for increment or salary revision of the workers.

Increments in two wheeler industry are fixed on the basis of a performance appraisal system.

Nevertheless, union intervention has been the single effective instrument for facilitating

salary revision in Indian Two Wheeler Industry. Under this memorandum of settlement,

management revised salary, leave benefits, shift allowance, ad hoc payments, medical

allowance, emergency advance and death relief and introduced incentives for good

attendance for regular workers There is no common criterion for wage fixing for contract

workers in Indian Two Wheeler Industry. It is reported that contract workers normally get 40-

50 percent of the salary of the regular employee on main line production. Wages for work

other than production are determined by the contractors. These are fixed on consolidated

terms and contract workers are not eligible for provisions and incentives such as wage

revision, leave benefits, ad hoc payments, medical allowance, education allowance, house

rent allowance and emergency advance. Provisions such as double wages for overtime, shift

allowance and night allowance are equally provided for both regular and contract workers.

The wage structure for regular employees in Indian Two Wheeler Industry more or less

conforms to market rates. However, contract workers are getting wages far below market

rates. It has been noted that there are no mechanisms for regulating wages for contract

workers in heavy industries. Labour laws pertaining to regulation of wages such as Payment

of Wages Act and Payment of Bonus Act are irrelevant for the contract workers in the auto

industry as the company does not officially keep contract workers’ records. Though there are

provisions in the recent state amendment of the Contract Labour (Regulation and Abolition)

Act, 1970, for fixing wages at more than 125 percent of the minimum wage of the specific

task, they are not enforced in Indian Two Wheeler Industry. Since the contract workers are

not part of the employees union in both Indian Two Wheeler Industry, scope for negotiation

is also limited for this section of workers.


Sentiments of the Indian vehicle buyer

Rising incomes and favourable demographic trends

Per capita incomes in India are rising and the demographic changes taking place are expected

to fuel further growth in the Indian economy through increase in demand for products. India

has one sixth of the world’s total population. The median age in India was 24.8 in 2007.41

According to an analysis done by the Population Research Centre, Institute for Economic

Growth in India, 67 per cent of the Indian population will be aged between 15 and 64 in

2025. Thus increasing incomes combined with a very large young population will drive

growth of the automotive industry as an automobile is a symbol of increasing prosperity for

the young Indian consumer.

Prices and fuel efficiency

The Indian automotive market has been characterized as a small car market. Prices of cars

form a larger percentage of the disposable income in India compared to persons in the same

income group in western countries. Indians are very conscious about the fuel efficiency of

their cars. A safe and therefore heavy small car being sold at a competitive price giving low

mileage will not sell. One example of this is the Fiat Palio. On the other hand, a light weight

car like the Hyundai Santro that gave good mileage became the second largest selling car

after it was launched. Safety therefore is still not one of the main concerns of the Indian car

buyer and price and fuel efficiency remain the most important considerations.

Alternative fuels

Most of the vehicles in India run on Petrol and Diesel where Diesel is increasing in popularity

as a fuel for personal cars because of the element of subsidy in diesel prices. The Economist

Intelligence Unit (EIU) forecasts that demand for fossil fuels in India is expected to grow at a

relatively high rate of 7.2 per cent annually. Given the global energy crisis, development of

techniques for using alternative fuels is now high on the agenda. Bio-fuels are not used on a

large scale at all in India and efforts have recently started to introduce these fuels. India is

behind many other big markets in Europe and the Americas in terms of emission controls.

However in order to address the emission norms being followed worldwide, India is

considering the price and availability of these fuels and enforcement of new emission


controls. The GOI is also promoting R&D in this area to develop low emission technologies

and energy saving devices.

Research and development

Research & Development (R&D) expenditure as a proportion of turnover is low in India. In

the automotive industry, spend on R&D ranges between 0.5 and 3 per cent. R&D hubs are

expected to develop in three of the four main automotive clusters in the country, in the South

near Chennai, in the North at Manesar, and in Pune and Ahmednagar in West India. To

provide support to companies in this regard, the GOI is promoting R&D in the automotive

industry by providing financial incentives. Other measures are also being taken such as

relaxing tariffs for plant and equipment imports, and setting up of automotive design firms.

Thus allocation towards R&D of automotive industry is being increased and the scope of

activities is being widened. Facilities for carrying out R&D are also being developed. For

instance, the National Automotive Testing and R&D Infrastructure Project (NATRIP) was

setup in July 2005 to create testing, validation and R&D infrastructure in India. Core facilities

for NATRIP will be in Indore city in Central India. Testing and validation facilities including

field tracks for tractors, trailers, construction equipment and various other vehicles will be

done at Rae Bareilly in Northern India. In fact, global majors such as Toyota, BMW, Honda

and Volkswagen get their vehicles tested in India and get international certification. More and

more companies now prefer India over China in this regard due to a stronger Intellectual

Property Rights (IPR) system in India.

India is increasingly being perceived to become a key source of R&D services in the near

future. 125 Fortune 500 companies have already setup their R&D bases in India and more

automotive manufacturers are expected to do the same. Earlier, manufacturers used to depend

on imported designs whereas now, Tata Motors and Mahindra & Mahindra are able to

develop new models entirely locally. Global Advisory firm KPMG conducted a survey in

2007 with leading industry experts and senior management of automotive companies. The

study revealed that low wages were the primary driver of growth of R&D, combined with

superior quality of manpower. In a survey conducted by ICRIER it was found that there is a

direct correlation between turnover and the number of workers in R&D. The results of this


survey indicate that as a company’s turnover increases, the proportion of R&D workers out of

total workers increases.

Technical Regulations

The automobile industry has to address the following issues at all the stages of vehicle

manufacture:

Environmental Imperatives

Safety Requirements

Competitive Pressures and

Customer Expectations

There is a strong interlinking amongst all these forces of change, influencing the

automobile industry. These have to be addressed consistently and strategically to ensure

competitiveness.

Since pollution is caused by various sources, it requires an integrated, multidisciplinary

approach. The different sources of pollution have to be addressed simultaneously in order

to stall widespread damage.

THE PARAMETERS DETERMINING EMISSION FROM VEHICLES

Vehicular Technology

Fuel Quality

Inspection & Maintenance of In-Use Vehicles

Road and Traffic Management

While each one of the four factors mentioned above have direct environmental

implications, the vehicle and fuel systems have to be addressed as a whole and jointly

optimised in order to achieve significant reduction in emission.


VEHICULAR TECHNOLOGY

In India, the vehicle population is growing at rate of over 5% per annum and today the

vehicle population is approximately 40 million. The vehicle mix is also unique to India in

that there is a very high proportion of two wheelers (76%).

History of Emission Norms in India

The significant environmental implications of vehicles cannot be denied. The need to

reduce vehicular pollution has led to emission control through regulations in conjunction

with increasingly environment-friendly technologies.

It was only in 1991 that the first stage emission norms came into force for petrol vehicles

and in 1992 for diesel vehicles.

From April 1995 mandatory fitment of catalytic converters in new petrol passenger cars

sold in the four metros of Delhi, Calcutta, Mumbai and Chennai along with supply of

Unleaded Petrol (ULP) was affected. Availability of ULP was further extended to 42

major cities and now it is available throughout the country.

The emission reduction achieved from pre-89 levels is over 85% for petrol driven and 61%

for diesel vehicles from 1991 levels.

In the year 2000 passenger cars and commercial vehicles will be meeting Euro I equivalent

India 2000 norms, while two wheelers will be meeting one of the tightest emission norms

in the world.

Euro II equivalent Bharat Stage II norms are in force from 2001 in 4 metros of Delhi,

Mumbai, Chennai and Kolkata.

Since India embarked on a formal emission control regime only in 1991, there is a gap in

comparison with technologies available in the USA or Europe. Currently, we are behind

Euro norms by few years, however, a beginning has been made, and emission norms are

being aligned with Euro standards and vehicular technology is being accordingly

upgraded. Vehicle manufactures are also working towards bridging the gap between Euro

standards and Indian emission norms.


FUEL TECHNOLOGY

In India we are yet to address the vehicle and fuel system as a whole. It was in 1996 that

the Ministry of Environment and Forests formally notified fuel specifications. Maximum

limits for critical ingredients like Benzene level in petrol have been specified only recently

and a limit of 5% m/m and 3% m/m has been set for petrol in the country and metroes

respectively.

In place of phase-wise upgradation of fuel specifications there appears to be a region-wise

introduction of fuels of particular specifications. The high levels of pollution have

necessitated eliminating leaded petrol, throughout the country.

To address the high pollution in 4 metro cities 0.05% sulphur petrol & diesel has been

introduced since 2000-2001. The benzene content has been further reduced to 1% in Delhi

and Mumbai.

There is a need for a holistic approach so that upgradation in engine technology can be

optimised for maximum environmental benefits.

Other factors influencing emission from vehicles are:

INSPECTION & MAINTENANCE (I&M) OF IN-USE VEHICLES

It has been estimated that at any point of time, new vehicle comprise only 8% of the total

vehicle population. In India currently only transport vehicles, that is, vehicles used for hire

or reward are required to undergo periodic fitness certification. The large population of

personalised vehicles are not yet covered by any such mandatory requirement.

In most countries that have been able to control vehicular pollution to a substantial extent,

Inspection & Maintenance of all categories of vehicles have been one of the chief tools

used. Developing countries in the South East Asian region, which till a few years back had

severe air pollution problem have introduced an I&M system and also effective traffic

management.

ROAD & TRAFFIC MANAGEMENT

Inadequate and poor quality of road surface leads to increased Vehicle Operation Costs

and also increased pollution. It has been estimated that improvements in roads will result


in savings of about 15% of Vehicle Operation Costs.

CONCLUSION

The need for an integrated, holistic approach for controlling vehicular emission cannot be

over-emphasised. More importantly, it is time now for the auto and oil industry to come

together under the guidance of the Government in evolving fuel quality standards and

vehicular technology to meet air quality targets.

Vehicular Safety Standards & Regulations

Environmental imperatives and safety requirements are two critical issues facing the

automotive industry, worldwide. Indian Automobile Industry in the last decade has made

significant progress on the environmental front by adopting stringent emission standards,

and is progressively aligning technically with international safety standards.

Central Motor Vehicle Rules (CMVR) came into force from 1989 and serious enforcement

of regulations came into effect. Chapter V of the Central Motor Vehicle Rules, 1989 deals

with construction, equipment and maintenance of vehicles and in addition to rules

governing emission limits, there are several rules in this chapter requiring motor vehicles

to comply with safety regulations.

Vehicles being manufactured in the country have to comply with relevant Indian Standards

(IS) and Automotive Industry standards (AIS). Indian Standards (IS) have been issued

since the late 1960s and these standards for Automotive Components were based on

EEC/ISO/DIN/BSAU/FMVSS etc at that time.

Regulations are reviewed periodically by the Technical standing Committee on MCVR

(CMVR-TSC). States also have their State Motor Vehicle Rules

Since 2000 ECE Regulations have been used as basis for Indian regulations and since

2003, increased efforts are being made to technically align with ECE. Variance from ECE

exists on formatting phraseology and administration related issues.

Alignment of Indian regulations (AIS/ BIS) with ECE is being attempted as per the broad

roadmap drafted by SIAM.

In order to have a planned approach to introduction of advanced safety features, SIAM


drew up a Road Map for Automobile Safety Standards. The Roadmap was prepared by the

CMVR, Safety & Regulations Committee.

The current traffic conditions, driving habits, traffic density and road user behaviour

necessitate that maximum safety be built into the vehicles. Progressive tightening of safety

standards taking into account unique India requirements has been addressed by the Road

Map with a view to reducing the impact of accidents and thereby improving safety of the

vehicle occupants and vulnerable road users.

The Roadmap was presented to the Government in January 2002 which received an in-

principle approval of the Ministry of Shipping, Road Transport & Highways. Based on

discussions with all stakeholders, a roadmap has been finalized by the Ministry and work

has commenced on the standards and notifications for the various stages.

Income estimates

The World Bank estimates that 456 million Indians (41.6% of the total Indian population)

now live under the global poverty line of US$ 1.25 per day (PPP). This means that a third

of the global poor now reside in India. However, this also represents a significant decline

in poverty from the 60 percent level in 1981 to 42 percent in 2005. The rupee has

decreased in value since then, while the official standard of 538 (urban)/ 356 (rural) per

month has remained the same income inequality in India is increasing, with Gini

coefficient of 32.5 in 1999-2000. However, according to the latest NCAER estimates, in

2009, only 15.6% of the households or 200 million people, had income levels less than

45,000 annually (US$ 1.4 PPP per person).On the other hand, the Planning Commission of

India uses its own criteria and has estimated that 27.5% of the population was living below

the poverty line in 2004–2005, down from 51.3% in 1977–1978, and 36% in 1993-1994.

The source for this was the 61st round of the National Sample Survey (NSS) and the

criterion used was monthly per capita consumption expenditure below 356.35 for rural

areas and 538.60 for urban areas. 75% of the poor are in rural areas, most of them

are daily wages, self employed householders and landless labourers.

Although the Indian economy has grown steadily over the last two decades, its growth has

been uneven when comparing different social groups, economic groups, geographic

regions, and rural and urban areas. Between 1999 and 2008, the annualized growth rates

for Gujarat (8.8%), Haryana (8.7%), or Delhi (7.4%) were much higher than for Bihar


http://en.wikipedia.org/wiki/Indian_rupee





(5.1%), Uttar Pradesh (4.4%), or Madhya Pradesh (3.5%). Poverty rates in rural Orissa

(43%) and rural Bihar (41%) are among the world's most extreme. A study by the Oxford

Poverty and Human Development Initiative using a Multi-dimensional Poverty

Index (MPI) found that there were 421 million poor living under the MPI in Bihar,

Chattisgarh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan, Uttar Pradesh and West

Bengal. This number is higher than the 410 million poor living in the 26 poorest African

nations.

Despite significant economic progress, one quarter of the nation's population earns less

than the government-specified poverty threshold of 12 rupees per day

(approximately US$ 0.25). Official figures estimate that 27.5% of Indians lived below the

national poverty line in 2004-2005. A 2007 report by the state-run National Commission

for Enterprises in the Unorganised Sector (NCEUS) found that 77% of Indians, or 836

million people, lived on less than 20 rupees (approximately US$0.50 nominal; US$2 PPP)

per day. It is relevant to view poverty in India on a PPP basis as food etc. are purchased in

Rupees. So the annual income of a family of four at US$2 PPP/day (current exchange rate

of 47 = US$1) would be 137,240 (i.e. 1.37 lakh). According to a recently released

World Bank report, India is on track to meet its poverty reduction goals. However by

2015, an estimated 53 million people will still live in extreme poverty and 23.6% of the

population will still live under US$1.25 per day. This number is expected to reduce to

20.3% or 268 million people by 2020. However, at the same time, the effects of the

worldwide recession in 2009 have plunged 100 million more Indians into poverty than

there were in 2004, increasing the effective poverty rate from 27.5% to 37.2%.

As per the 2001 census, 35.5% of Indian households availed of banking services, 35.1%

owned a radio or transistor, 31.6% a television, 9.1% a phone, 43.7% a bicycle, 11.7% a

scooter, motorcycle or a moped, and 2.5% a car, jeep or van; 34.5% of the households had

none of these assets. According to Department of Telecommunications of India the phone

density has reached 33.23% by Dec 2008 and has an annual growth of 40%. These tallies

with the fact that a family of four with an annual income of 1.37 lakh Rupees could afford

some of these luxury items.

The different income groups for people in India are:

‣ A+ class : people having unlimited, unspecified and uncountable Income like our





Politicians, Bureaucrats, drug traffickers and underworld people;

‣ Affluent Class : people having very high income like Industrialists, top notch

CEO's and directors;

‣ Upper Middle Class : People with handsome pay packets or earnings like High

academicians, Directors of PSU's etc.;

‣ Medium middle Class : People with attractive incomes like GM's, GGM's and

alied class;

‣ Middle income group : People just managing their standard of living by

manipulations and adjustments;

‣ Lower middle income group : people with just to survive status of affairs;

‣ Poor Income Group: People just able to make their both ends meet;

Below Poverty Line : People who could not get opportunity to excel in life, always

living in the world of hardships and deficiencies .

CO existence of all these groups of people in the same locality, society and

community is really praiseworthy.

1. Over 70m households (34% of total) earn Rs. 80,000 to Rs. 18,00,000 per annum

2. Six hundred thousand households earn more than Rs. 18,00,000 per annum.

3. Households earning between Rs. 80,000 – Rs. 18,00,000 to hit 106m by 2010

4. Market researchers believe that household income is massively understated –

baggage of the era of controls and usurious taxes

5. Independent studies suggest 1.6 million households earn over Rs 40 lakh per

annum and about 100,000 people have more than Rs. 4 crore in assets.

6. Real Incomes increased by 12%; However, real GDP per capita has grown at 10%

over FY02-07.

7. 50% of the people have seen incomes rise in the past 12 months; 9% have seen

their Incomes decline.

8. Of those with income increases, one-third saw a more than 10% rise.

9. Average rise in income was lowest in west India at 10% and highest in the east at


18%.

10. 63% expect their incomes to rise in the next 12 months; average expected increase

is 12.7%

11. 83% of people believe that they are better off than 10 years ago 84% expect further

improvement in their lives over the next five years

Segmentation, Pricing Strategies of major players

Demographic Segmentation

Income: Our customer survey indicates that the segments available for the

Hero Honda bike are the people with monthly income of Rs. 10,000 and

above.

Age: The main segmented group for the motorcycle are 18 years and above.

Occupation: All kinds of people are taken into account. Students,

professionals, Govt. Servants, etc.

Geographic Segmentation:

The potential customers are basically from every regions of India.

Psychographic segmentation:

People purchasing bikes are very stylish, brand conscious.

Behavioral segmentation:

This segmentation is done considering user status, benefit wise.

Product – This which includes the product quality, design, features, branding and

packaging. The product is perfectly designed and all the switch are well placed,

which provides a good riding condition

Price – Determining the prices of different products of a firm is a very difficult


task of the marketing manager. Price denotes money value of a product. It

represents the amount of money for which a product can be exchanged. In other

words, prices represent the money which the buyer pays to the seller for a product

price represents the exchange value of goods and services in terms of money.

Price is all around.

Price factor has very well been touched by the manufactures. The manufactures

(Hero Honda) are charging very comparatively cheaper prices then their

competitors. The pricing strategy of the company is very set. They price their

product according to the cost of production and also by keeping an eye on the

price of the competitors of that segment & demand of the product in the market.

The pricing strategies adopted by Hero Honda Ltd.

The management of a firm decide to fix the price at the competitive level. This

method is adopted by Hero Honda because the bike market is highly competitive.

The amount of money that customer pays for the product. The price of the product should

commensurate with its perceived value. If does not, the buyers will turn to competitors

products.

Critical Success factors of major players

Player analysis

Hero Honda Largest two-wheeler manufacturer in the world

Bajaj Auto 2nd largest two-wheeler manufacturer in the world and the

largest 3-wheeter manufacturer

TVS Motors 3rd largest manufacturer with facilities in India & Indonesia

Honda Motors Recently entered the Indian market through its direct subsidiary

(in addition to its JV with Hero)

Suzuki Recently entered the Indian market through its direct subsidiary


(earlier JV with TVS was withdrawn)

The various promotional activities adopted by the Hero Honda Company.

The company has 100crore rupees for its promotional activities out of which 75% is

sponsored by the company and 25% from the dealers.

They may sign a celebrity for its promotional activities in recent futures.

The company provides six free services to its customers in comparison to its

competitors.

The company provides good services facilities to its customers through dealer’s

service station.

Dealers encourage its customers by giving discount, providing 0% interest loan

schemes, prices, coupons etc.

The various promotional activities adopted by Hero Honda bikes are as follows

Credit & finance schemes

Free services to the consumers

Advertisements on Televisions, Newspapers, Magazines

Road Shows

Free trials for the new consumers

Price factor has very well been touched by the manufacturers. The manufacturers are

charging very comparatively cheaper price i.e. Rs 45000 approx. The pricing strategy of

the company is very set. They price their product according to the cost of production and

also by keeping an eye on the price of the competitors of that segment and demand of the

product in the market.


Hero Honda group ensures an easily affordable pricing through excellent transportation to

common man. I fixes customer centric pricing that provide customer total satisfaction.

Hero Honda group ensures an easily affordable pricing through excellent transportation to

common man. It fixes customer centric pricing that provides the customer with total

satisfaction.

PROMOTION BY HERO HONDA

Advertisement, local events sponsorship and promotions and inviting a prominent

personality for the inaugural or first like delivery function would contribute effectively in

generating a wider local interest and attention.

Hero Honda’s latest DKD –2 commercial its two brand starring its Ambassador and

India’s heart throbs, Hritik Roshan and Sourav Ganguly, truly reflects the multi fact roles

that today’s new generation plays. The commercial reflecting the charisma and vibrancy of

these two stars, takes Desh Ki Dhadkan to dazzling new heights. It is young, colorful and

vibrant and represents the icons of contemporary times. And it will go a long way in

strengthening the leadership status of the product by the mile.

ADVERTISEMENT OF TVS MOTORS

TWO-WHEELER major, TVS Motor Company, has come up with an improved

performance for the first quarter of this fiscal. The company continues to ride on the

success of the recently-launched four-stroke model, Victor. For the quarter ended June

2002, the turnover increased about 54 per cent to Rs 629.97 crore.

The `Victor' ride: The sharp spurt in motorcycle sales volume has been the key driver of

revenues. The sustained demand growth for Victor, coupled with the recovery in sales

volume of the two-stroke model, Max 100, aided an 88 per cent jump in motorcycle sales

volume.

TVS Motor had signed up Sachin Tendulkar as its brand ambassador. Notably, other

expenditure (including advertisement and promotional costs) increased to Rs 98.66 crore


from Rs 69.42 crore. TVS customers will get an opportunity to participate in 'pitch on

wheels', which is a 'hit wicket get ticket promotion" which began on October 19. 'Pitch on

wheels' is a promotional activity wherein a vehicle promoting the match would make a

round of the whole city prior to each match. The spectators at the stadium too will be

treated to a whole lot of entertainment in the form of music and dance during breaks in the

games. There would also be lucky draws for everyone in the stadium with TVS bikes as

prizes.

ADVERTISING STRATEGY BAJAJ

Bajaj is always known for its ads without well-known brand ambassadors which is again a

plus point to its cart as it saves a huge cost in terms of brand ambassadors unlike Hero

Honda and TVS. Bajaj used to convey the feeling of ‘Indianness’ in its ads. With a punch

line ‘Hamara Bajaj’ Bajaj drove into everybody’s hearts and the title song of ‘Naye Bharat

Ki Naye Tasveer’ added a great value to its mobikes and scooters.

But recently, Bajaj had changed its brand logo along with its punch line i.e. ‘Hamara

Bajaj’ got converted to ‘Inspiring Confidence’. The reason for this change as told by the

company officials was to keep pace with the new technologies in the fast moving world.

TRENDS IN TWO WHEELER INDUSTRY


Mo-tor-

cycles83%

Scooters

12%

Mopeds5%

Breakup of the Industry by Segment

MotorcyclesScootersMopeds

In order to make India a power to reckon with in the automotive sector the government

launched the Automotive Mission Plan (AMP) 2006-2016. As per the AMP, it is estimated

that the total turnover of the automotive industry in India would be in the order of USD

122 billion - USD 159 billion in 2016. It is expected that in real terms, India would

continue to enjoy its eminent position of being the largest tractor and three-wheeler

manufacturers in the world and the world's second largest two-wheeler manufacturer. By

2016, India will emerge as the world's seventh largest car producer (as compared to the

eleventh largest currently) and retain the fourth largest position in world truck

manufacturing sector. Further, by 2016, the automotive sector would double its

contribution to the country's GDP from current levels of five per cent to 10 per cent. The

Indian automotive industry consists of the following five segments:


The total two-wheeler sales of the Indian industry accounts for around 77% of the total

vehicles sold in India. With 26,12,881 two wheelers already sold in India in the quarter

from Jun-Sep 2009, the Indian wheeler industry is poised for high growth In the coming

years. In terms of volume, about 6% of the two wheelers manufactured are exported.

16%4%

4%

76%

Domestic Market Share for 2008-09

Passenger VehiclesCommercial VehiclesThree WheelersTwo Wheelers

FIGURE 1: DOMESTIC MARKET SHARE FOR 2008-09

The following table1 illustrates the growth of the auto industry in India.

1


Indian Automotive Industry

Multi-Utility vehicles Cars

Two wheelers

Scooters

Moped

s

Motorcycles

Three wheelers Tractors

Category 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Passenger

Vehicles

7,23,33

0

9,89,56

0

12,09,8

76

13,09,3

00

15,45,223 17,77,583 18,38,697

Commerci

al

Vehicles

2,03,69

7

2,75,04

0

3,53,70

3

3,91,08

3

5,19,982 5,49,006 4,17,126

Three

Wheelers

2,76,71

9

3,56,22

3

3,74,44

5

4,34,42

3

5,56,126 5,00,660 5,01,030

Two

Wheelers

50,76,2

21

56,22,7

41

65,29,8

29

76,08,6

97

84,66,666 80,26,681 84,18,626

Grand

Total

62,79,9

67

72,43,5

64

84,67,8

53

97,43,5

03

1,10,87,9

97

1,08,53,9

30

1,11,75,4

79

TABLE 1: AUTOMOBILE PRODUCTION TRENDS

The following table2 gives the number of vehicles exported in each category.

Category 2002-

03

2003-

04

2004-

05

2005-

06

2006-07 2007-08 2008-09

Passenger

Vehicles

72,005 1,29,29

1

1,66,40

2

1,75,57

2

1,98,452 2,18,401 3,35,739

Commercial

Vehicles

12,255 17,432 29,940 40,600 49,537 58,994 42,673

Three Wheelers 43,366 68,144 66,795 76,881 1,43,896 1,41,225 1,48,074

Two Wheelers 1,79,68

2

2,65,05

2

3,66,40

7

5,13,16

9

6,19,644 8,19,713 10,04,17

4

Grand Total 3,07,30

8

4,79,91

9

6,29,54

4

8,06,22

2

10,11,52

9

12,38,33

3

15,30,66

0

TABLE 2: AUTOMOBILE EXPORT TRENDS

Two Wheeler Segmental Classification and its Growth

2


The three main product segments in the two-wheeler category are scooters, motorcycles

and mopeds. However, in response to evolving demographics and various other factors,

other sub-segments emerged, viz. scooterettes, gearless scooters, and 4-stroke scooters.

While the first two emerged as a response to demographic changes, the introduction of 4-

stroke scooters has followed the imposition of stringent pollution control norms in the

early 2000. Besides, these prominent sub-segments, product groups within these sub-

segments have gained importance in the recent years.

The two wheeler industry has been growing at a CAGR of 9.45% from 2004 to 2009, with

the production being about 63 lakh vehicles in 2004 to an estimated 100 lakhs in 2009.

Motorcycles have always been the major contributor to the two wheeler industry in India.

From a share of about 77.39% in 2004, it has steadily grown to about 80.38%. The share

of scooters has gone down from 16.63% in 2004 to 13.88% in 2009. The following table

gives the percentage share of motorcycles, scooters and mopeds in the two wheeler

industry in India.

Scooters Motorcycles Mopeds Base

2004 15.76% 78.76% 5.48% 63,44,365

2005 13.31% 81.64% 5.05% 72,89,442

2006 11.52% 83.62% 4.59% 83,89,265

2007 13.18% 81.35% 5.20% 81,54,068

2008 13.70% 80.79% 5.24% 83,57,140

2009e 13.76% 80.64% 5.55% 99,66,806

TABLE 3: PERCENTAGE SHARE OF TWO WHEELERS IN INDIA


Mar/04

Aug/04

Jan/0

5

Jun/05

Nov/05

Apr/06

Sep/0

6

Feb/0

7Jul/0

7

Dec/07

May/0

8

Oct/08

Mar/09

Aug/09

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

Two wheeler industry in India

Two wheeler overallScootersMotorcyclesMopeds

Prod

uctio

n (in

lakh

s)


Growth drivers for the Indian automotive industry

Growth potential of the Indian automotive industry

Projected size of Auto Components industry - 2015


• The Indian auto component industry is well positioned to capitalize on the growth in

outsourcing to low cost countries

• Exports would lead the growth in the component industry, which is expected to be

around USD 33- 40 bn by 2015

• The total investments required to support the growth is estimated at around USD 35 -

40 bn

• The size of Indian automotive industry is expected to grow at 13% p.a over the next

decade to reach around USD 120 - 159 bn by 2016


2015-16

0 5 10 15 20 25 30

2.65

0.640000000000002

27.8

0.870000000000002

Potential Vehicle sales in India in 2015 - 16 ( in mn)

Three Wheelers Two wheelers CVs Cars

Government regulations & policy

• In 2002, the Indian government formulated an auto policy that aimed at promoting

integrated, phased, enduring and self-sustained growth of the Indian automotive

industry

• Allows automatic approval for foreign equity investment upto 100%

in the automotive sector and does not lay down any minimum investment criteria.

• Lays emphasis on R & D activities carried out by companies in India

• Weighted tax deduction of up to 150% for in-house research and R & D activities

• Formulation of an appropriate auto fuel policy to ensure availability of adequate

amount of appropriate fuel to meet emission norms

• Confirms the government’s intention on harmonizing the regulatory standards

with the rest of the world

• The Government of India is promoting National Automotive Testing and R&D

Infrastructure Project (NATRIP) to support the growth of the auto industry in India

• NATRIP envisages setting up of five independent and up gradation of existing test

centres

• Testing centres at Manesar (Haryana), Chennai (Tamil Nadu), Pune

(Maharashtra)

• Proving ground at Indore (MP)

• Tractor testing facility at Rae Bareilly (UP)

• Hill Driving Training Centre at Silchar (Assam)

Automobile industry in India also received an unintended boost from stringent government

auto emission regulations over the past few years. This ensured that vehicles produced in

India conformed to the standards of the developed world. Though it has an advantage in

India, thanks to low costs and government policies it soon faces stiff competition from it

multinational competitors all eyeing for a share in the ever growing Indian auto sector. The

policies adopted by Government will increase competition in domestic market, motivate


many foreign commercial vehicle manufactures to set up shops in India, whom will make

India as a production hub and export to nearest market.

Bring in a minimum foreign equity of US $ 50 Million if a joint venture involved

majority foreign equity ownership.

Automatic approval for foreign equity investment up to 100% of manufacture of

automobiles and component is permitted.

FIIs including overseas corporate bodies (OCBs) and NRIs are permitted to invest up

to 49 per cent of the paid-up equity capital of the investee company, subject to

approval of the board of directors and of the members by way of a special resolution.

Investments in making auto parts by a foreign vehicle maker will also be considered a

part of the minimum foreign investment made by it in an auto-making subsidiary in

India. The move is aimed at helping India emerge as a hub for global manufacturing

and sourcing for auto parts.

Specific component of excise duty applicable to large cars and utility vehicles will be

reduced to 15,000 rupees per vehicle from 20,000 rupees earlier.

The Proposal by the Govt. to set up an expert group to advise on a viable and

sustainable system of pricing petroleum products, as this will surely had an impact on

the Automobile Industry.

The announced reduction on the basic customs on bio-diesel is great news for all

companies working on environmental saving technologies.

Rules and Regulations for Importing Bikes in India :-

Bike enthusiasts from different corners of India have been importing high-performance bikes

to satiate their zeal for high-speed biking. Not withstanding their astronomical price tags,

these cult machines do have a fair number of admirers in India.

Post Dhoom, the Bollywood pot-boiler which featured John Abraham in a Suzuki Hayabusa,

this small community of high-power bike aficionados is growing with every passing day. To

import a brand new bike, one will have to pay 105 percent duty and 100 percent on a used

one. The Exim Policy 2001 lifted quantitative restrictions on the import of second-hand

vehicles.


The import of vehicles shall be subject to the following guidelines of the Government of

India:

1 (I) A new imported vehicle shall mean a vehicle that: - Has not been

manufactured/assembled in India; and Has not been sold, leased or loaned prior to

importation into India; or Has not been registered for use in any country according to the laws

of that country, prior to importation into India.

1. (II) The import of new vehicles shall be subject to the following conditions:

The new vehicle shall - Have a speedometer indicating the speed in km / h; Have right hand

steering, and controls (applicable on vehicles other than two and three wheelers); Have

photometry of the headlamps to suit "keep-left" traffic; and

Be imported from the country of manufacture.

(b) In addition, the new vehicle shall conform to the provisions of the Motor Vehicles Act,

1988 and the rules made there under, as applicable, on the date of import.

(c) The import of new vehicles shall be permitted only through the Customs port at Nhava

Sheva (Mumbai) Calcutta and Chennai.

2. (I) A second hand or used vehicle shall mean a vehicle that :- Has been sold, leased or

loaned prior to importation into India; or Has been registered for use in any country

according to the laws of that country, prior to importation into India;

2. (II). The import of second had or used vehicles shall be subject to the following

conditions:-

The second hand or used vehicle shall not be older than three years from the date of

manufacture; the second hand or used vehicle shall: Have right hand steering, and controls

(applicable on vehicles other than two and three wheelers); Have a speedometer indicating

the speed km / h; and Have photometry of the headlamps to suit "keep left" traffic.


In addition, the second hand or used vehicle shall conform to the provisions of the Motor

Vehicle Act, 1988 and the rules made there under, as applicable, on the date of import.

Import of second hand vehicles shall be allowed only through the customs port at Mumbai.

The second hand or used vehicles imported into India should have minimum road worthiness

for a period of 5 years from the date of importation into India with assurance for providing

service facilities within the country during the five year period. For this purpose, the importer

shall, at the time of importation, submit a declaration indicating the period of roadworthiness

in respect of every individual vehicle being imported, supported by a certificate issued by any

of the testing agencies, which the Central Government may notify in this regard.

The vehicle has to be submitted for testing to Vehicle Research and Development

Establishment (VRDE), Ahmednagar, of the Ministry of Defence or the Automotive

Research Association of India, Pune or the Central Farm and Machinery Training and Testing

Institute, Budni, Madhya Pradesh, and such other agencies as may be specified by the Central

Government, for granting a certificate by that agency as to the compliance of the provisions

of the Motor Vehicles Act,1988 and any rules made there under.

Automotive regulations in India

Indian automotive regulations are closely aligned to the ECE regulations. The table below

shows the level of alignment of the Indian regulations with the ECE regulations.


The key regulations that are likely to impact the auto industry in the future are:

‣ Crash Related Regulations

‣ Introduction of Bharat Stage IV norms

India Advantage and business opportunities

Attractiveness of Indian Automobile Industry

Opportunities in Indian Automobile sector


Large and growing domestic demandDemand growth expected to be around 10 % CAGR making India one of the fastest growing markets

Proven product Development capabilitiesCapabilities to develop complete vehicles and systemsMore than 125 Fortune 500 (including large auto companies) have R&D centres in IndiaCompanies can leverage India’s acknowledged leadership in the IT industry

Stable economic policiesContinuity in reforms and policiesIndia targets to emerge as the “manufacturing hub” for small cars

Export Potential Increased outsourcing has led to a large potential to export components and vehicles to other markets

High quality standards12 Indian component manufacturers have won the Deming Prize for qualityMost leading component manufacturers are QS and ISO certified

Competitive manufacturing cost Implementation of VAT, has positioned India as one of the leading low cost manufacturing sources

• Potential investors can capitalize on opportunities both in the domestic and export

oriented segments

• Investment potential of up to USD 35 - 40 bn in this sector over the next 10 years

• Investments in the Indian automotive industry can be in various forms

• 100 % subsidiary - 100 % FDI through automatic route allowed in this sector

• JVs with local firms

• Technology support or sharing agreements

SWOT Analysis

A scan of the internal and external environment is an important part of the strategic planning

process. Environmental factors internal to the firm usually can be classified as strengths (S)

or weaknesses (W), and those external to the firm can be classified as opportunities (O) or

threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis

SWOT analysis of the Indian automobile sector gives the following points:

Strengths:-

Large domestic market

Sustainable labour cost advantage

Competitive auto component vendor base


Participate in domestic

growth opportunitiesExports of vehiclesExports of componentsEngineering and Design Services

Indian

Automotive

Sector

Domestic

Opportunities

Government incentives for manufacturing plants

Strong engineering skills in design etc

Weaknesses:-

Low labour productivity

High interest costs and high overheads make the production uncompetitive

Various forms of taxes push up the cost of production

Low investment in Research and Development

Infrastructure bottleneck

Opportunities:-

Commercial vehicles: SC ban on overloading

Heavy thrust on mining and construction activity

Increase in the income level

Cut in excise duties

Rising rural demand

Threats:-

Rising input costs

Rising interest rates

Cut throat competition


E-bikes Market:-

In 2008-09 more then 11 millions two wheelers were sold in country. Of these, 7.81 millions

were motorcycles or step-thoughts, 11.08 lakh were largely scooterettes and another 5.32

lakh were mopeds. A bare 70,000 were electric two wheelers. By the end of this financial

year in March, two wheeler sales will surge past the 8 million mark, and EV sales should be 3

lakh vehicles in India the years.

Overview:-Electric vehicles are virtually maintenance free. It has no gears, no engine, no belt

or chain drive, zero emission, no pollution, electronic start and accelerator, besides it is

exempted from the Central Vehicles registration act by the Automotive Research Association

of India (ARAI) and does not require any registration or license. These bikes are usually

chargeable at 220V which your refrigerator requires. For charging bikes require special

adapter. Batteries, Motor sand other electrical kits are imported from china and other

countries whereas mechanical design and assembly of these bikes are done here. Electric

bikes target School students, women and who are under 18 years of age. Following is there

view on some of the manufacturers and their products in India.

Yo Bykes:

Indus - division of Electrotherm a Gujrat based company is the recent player in electric

vehicle market. It offers two scooterette and four bikes models with the motor power range

200-250W. YO-smart scooter model from Indus come with a very compact dimension. The

vehicle weighs less and has a pay load of 75kg. YO-smart vehicle clocks a top speed of

25km/hr and the vehicle offers arrange /charge mileage of 75km. Charge duration required is

6 – 8hours.Electrotherm’s YOBikes are ranged between Rs 13,999 and Rs 23,249.

EKO vehicle:-

EKO vehicle a Bangalore based company offers EKO cosmic –I scooter and EGO bike. This

company has been in this business for a long time and has dealers in various locations in

India than its counterparts. Battery weighs at 28kgsand has a life of 12000 – 15000kms. The

company offers a rapid charger which will charge the bike at 10 – 15 minutes (good for

intuitional consumers). Cosmi coffers a variable mileage depends on your payload. The

maximum speed is 40km/hr and Cosmic noise is less than 60decibel. Cosmic is offered in

five colour sand is exported many countries.


Hero/ultra motors:-

Hero cycles (Hero Honda group) - UK Ultra Motor Group will launch electric three wheeler

by the end of fiscal 2007. Hero - Ultra also has plans to tap the nascent electric vehicle

market in a big way. Hero - Ultra plans to sell 1 lakh electric vehicles by 2008. They have

launched India’s first exclusive electric vehicle showroom in New Delhi. By April 2007 they

also plan to establish 15more dealership in North India. Investment for a dealership requires

15-20 lakhs.

Currently Hero - Ultra offers E-Bikes in the range of 14500 - 19000 and E-Scooters in the

range of 22500 – 28000.


Documents

Anip DRIVERS Two Wheeler Industry