audi project IB

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ITM Business School,Navi Mumbai

Submitted to

Prof. B.V.R. Murty

A Project Report

Submitted by:

ABHISHEK JAIN (06)

PRASHANT CHAUHAN

(37)

SAURABH BOSE (41)

PANKAJ KHATRI (58)

PGDM IB 09-11

A PROJECT ON STUDY OF EUROPEANCAR INDUSTRY WITH MAIN FOCUS ON

AUDI


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[AUDI HUNGARY] Page 2


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CERTIFICATE

I hereby declare that Mr. Abhishek Jain, Prashant Chauhan, Saurabh

Bose and Pankaj Khatri (PGDM-IB), of 2009-11 batch, have successfully

completed a project on The study of European Car Market with focus

on AUDI under my supervision. I also declare that the project entitled is a

secondary data research work.

..

Prof. B.V.R Murty

(Facu

lty Guide)

ITM Business School

Navi Mumbai



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DECLARATION

To whomsoever it may concern

We hereby declare that the project entitled The study of European Carmarket with focus on AUDI is based on the secondary information andthe first hand information provided by the company itself. It is done underthe guidance of company attendant and my faculty guide Prof. B.V.R.Murty.

Abhishek Jain

Prashant Chauhan

Saurabh Bose

Pankaj Khatri

PGDM-IB 09-11

ITM Business School

Navi Mumbai



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ACKNOWLEDGEMENT

We would like to express my deepest gratitude and appreciation to ourfaculty guide Prof. B V R Murty whose support and guidance has

transcended our project to great levels.

We would like to thank Prof. Jozsal (ESSCA, Budapest). He continually andconvincingly conveyed the spirit of motivation and support in regard to this

project.

Without their guidance and persistent help, this project on Study ofEuropean Car Industry would have been far from possible.

We would also like to lend our sincere gratitude to Mr. Olivr Gbor (AUDI,Gyr) who has helped us to pursue our project and whose continuousguidance and support has helped us to successfully complete the project.

We would also like to express our sincere gratitude to Prof. DeepthyRaghvendra for lending her support and guidance whenever we required.



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EXECUTIVE SUMMARY

The objective of this research is to analyze the European Car Market andwho are the major players. This research also helps us to know the majorsuppliers. The other main objective of this research is to understand themanufacturing assembly process of cars and the corporate culture of AUDI,Hungary. Our research is purely based on the secondary information and thefirst hand information available to us from the company attendant. Throughthis research we come to know that Europe is still ahead in the lead ofmanufacturing of Cars. Hungary is becoming the favorite destination for anauto manufacturing company to setup its assembly line. The environmentaland political factors are the keys to attract the major players. The project was

concluded with some recommendations to overcome the areas of concernand to enhance the effectiveness of the scheme. The global downturn had anadverse effect on the European Automobiles.

Our research has find out that the organization culture of AUDI, Hungary isvery vibrant and sound and it is backed by German culture. AUDI Hungaryis the largest exporter of the engines. It is also manufacturing only TTmodel. The various technologies are emerging which will helps the carmakers to produce cars which are more eco-friendly. The marketing

opportunities are emerging day by day which is going to help the Indian carmarket. India is also becoming the major destinations for these giants.The project was concluded with some recommendations to overcome theareas of concern and to enhance the business.



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CONTENTS

1. Introduction6

2. Literature Survey

i. European Car Market..7

ii. Innovation and R&D.15

iii. Hungarian Car Market...20

iv. Reasons for the Decline.23

v. Investment scenario in Hungary26

vi. Why to invest in Hungary..33

vii. Major Automotive suppliers in Hungary...41

3. Company Profile

i. Audi Hungary....42

ii. AUDI TT (Sports Car division).44

4. Company Analysis.45

5. Industry Analysis

i. Suzuki in Hungary.47

ii. Mercedes in Hungary48

iii. Recent investment in Hungary..50

iv. Why India.53

6. Conclusion55

7. Recommendations58

8. References59



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INTRODUCTION

Objectives Of The Report

To study different car makers in Europe.

To compare the European, Hungarian and Indian automobile market.

To analyze the reasons for downturn in automobile market.

To understand the organizational culture of AUDI, Hungary.

To know the potential investment in Hungary.

To understand the new technical designs.

To know the major suppliers and dealers.

Research Methodology

We have collected information through secondary sources of datacollection. The study is based on the collection of data from internetthrough e-journals, reports, etc.

Hungary Autos Report. The Auto channel. Hungarian Investment & Trade Development Agency. Business week.



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Limitations

The research was purely based on secondary data and all the datacollection was done through internet.

There was no first hand information by the investing companies inHungary.

Time constraint.



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EUROPEAN CAR MARKET

From its meager origins of only six Western European members in 1956, theEuropean Community has transformed into the European Union (EU), whichexpanded again from 15 to 25 members on May 1, 2004, with the accessionof 10 Central and Eastern European and Mediterranean countries (Cyprus,the Czech Republic, Estonia, Hungary, Latvia, Lithuania,Malta, Poland, Slovakia, and Slovenia). Today, the EU is composed of 27member states, with the addition of Bulgaria and Romania in 2007.Moreover, additional countries are engaged in negotiations and waiting in

the wings for membership to include: Turkey, Serbia, and Croatia,with Croatia possibly joining as early as next year, during 2011.

The top five CEE automotive markets in terms of sales and production are:the Czech Republic, Hungary, Poland, Romania, and Slovakia. Over the pastfew years, as Western Europe has stagnated, the new EU members from theCEE have contributed what little growth there is in the overall Europeanautomotive market. However, with the arrival of the world recession,ACEA (the European Automobile Trade Association), reported that overall

European new passenger car registrations in 2008 recorded the sharpestdecline since 1993, by 7.8% to 14.7 million units. Specifically, WesternEuropean demand contracted by 8.4%, while sales in new EU Member stateswere down 10.7%; the sharpest decline since ACEA started reporting figuresfor this region in 2004. In an effort to respond to this decline, incentive

programs were implemented across many of the Western European countriesduring 2009, and ACEA reports that overall EU registrations improved to15.8 million units. However, it was Western European sales that fared betteroverall than CEE sales given the extensive national fleet renewal andscrappage schemes introduced to counter these downward trends.



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Production



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MOTOR VEHICLE PRODUCTION IN EUROPE BY COUNTRY

The graph shows the production of passenger car vehicles.



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If we compare the production of passenger car vehicle of EU with the worldwe see that it is almost 30%.

Total Employment Generated:

The automotive sector in Europe is highly competitive. It supports 12million jobs, contributing significantly to economic prosperity.



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International TradeIn 2009, the automotive sector has experienced a positive trade balance of28.6 billion euro, or 35.1% less than from previous year. This decrease isnote first time in last four years due to worldwide crisis. EU has exported53.8 bn euro worth of motor vehicles, and imported 25.2 bn euro worth ofmotor vehiclesThe global framework in which vehicle manufacturers do business isincreasingly important. Export growth in emerging markets like China andRussia, investment in resources abroad and the economic downturn at home

reinforce the goal of trade without barriers. Global trade agreements thatdeliver free markets are most beneficial. The automotive sector fullysupports the gradual dismantling of EU import duties, but this concessionmust be accompanied by equivalent opportunities abroad for Europeanmanufacturers.



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Innovation, Research & Development

Automotive sector is the largest private investor in R&D. Every year 20

billion euros is invested by the industry that is almost 4% of its turnover.

R & D develops technology that reduces the chances of road causalities and

improving vehicle and environmental performance. The another step is to

bring ready technologies to market cause it takes a long time to make R&D

potential a reality.



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New Technologies

Safety

The new technical advancement is made in the direction of Cooperative

systems based on vehicle-to-vehicle and vehicle-to-infrastructure

communication. This is done to improve the safety on the roads.

Energy and Environment



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A total of 15,244,416 cars are produced in the year 2009.

Overall, Europe is dominated by European manufacturers based throughout

the continent. The largest foreign companies are Ford, Toyota, and Opel

(which was owned by GM in 2008). The European market starkly contrasts

the US auto industry with over 80% of sales being cars, and the cars are

generally much smaller than the ones preferred by the US consumer. Europe

is also much more diverse in their number of auto companies, where most

auto companies have single digit market share. This mix prevents any single

company from suffering the losses of the US companies and the steady



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consumer preference for cars allowed most companies to remain

competitive.

In the last three months Opel has been sold to European based Magna

company. Magna will be new to selling and designing new cars but is very

familiar to manufacturing them. Opel is expected to be reorganized under the

new ownership to increase profitability. Opel had been struggle years before

the economic crisis and had overcapacity and disagreements with unions in

Germany. It is yet to be seen how Magna will use the new Opel unit and its

effect on the European market.

Below is a brief description of Europes auto market by manufacturer:

Data as of January 2009:

%Market Share % Change

VW: 10.7 -3.8

Ford: 8.3 -4.1

Opel: 7.9 -14

Renault: 7.5 -8.8

Peugeot: 6.8 -9Fiat: 6.5 -2

Citroen: 5.8 -9.2

Toyota: 5.3 -11.8

Source: Eurostat 2009



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HUNGARY

Hungary is one of central eastern European country having its official name

as republic of Hungary. Its widespread over the area of 93030km2. It is a

landlocked country, strategic location astride main land routes between

Western Europe and Balkan Peninsula as well as between Ukraine and

Mediterranean basin. It is a rich country in terms of natural resources

like bauxite, coal, natural gas, fertile soils, arable land. Its per capita

GDP is EUR 15,700/ USD 20,230 (2008, wiiw, EIU) having its composition

as EUR 15,700/ USD 20,230 (2008, wiiw, EIU). GDP growth in Hungaryhas been driven by the expansion of export and investments. Between 2001

and 2008 export growth was exceptionally high (11.5%) and the structure of

export showed a favourable trend: after 1998 the share of technology-

intensive and high value added sectors such as machinery, transportation

equipments, and ICT products grew significantly.



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HUNGARIAN CAR MARKET

The automotive sector is one of Hungary's core industries and contributes 20

per cent of total exports. In 2007, vehicle sales outside Hungary were worthEUR 8.2 billion and engines accounted for EUR 5.3 billion. Over 600

companies employing a total of 100,000 people are active in the sector. Of

these enterprises, 240 operate according to the ISO and/or TS 16949 quality

management standards. The export ratio of Hungarian made cars is 94 per

cent, a figure that stands at 88 per cent for engine and component

production.

The number of first- and second-tier equipment manufacturers is continually

rising. Since the early 1990s, several foreign car manufacturers, such as

Suzuki, Audi and General Motors, as well as 14 of the top 20 Tier 1

suppliers, have set up production facilities in Hungary.

But currently, similar to US and Europe automobile market, a steep

downward trend in auto sales and production was happening in Hungary,

and is expected to persist through the rest of the 2009 as a widespread

contraction in Hungarys economy. New car sales in Hungary fell by nearly



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46% year-on-year (y-o-y) to 7,164 units in February 2009, according to the

Association des Constructeurs Europens d' Automobiles (ACEA).New car

sales in Hungary fell by 33.7% year-on-year to 26,372 units at the first

quarter. The chairman of the Hungarian Car Importers Association (MGE)has said that new vehicle sales could plunge by nearly 50% this year to

85,000-90,000 units, while the group's earlier forecast had been for sales to

fall to 120,000 units. The commercial vehicle segment is also feeling the

effects of the sliming economy as business cut back on purchasing new

company cars. In the quarter of 2009, total sales of light commercial vehicles

(LCVs) dropped by 30.1% y-o-y, according to the ACEA.

To react to the hard situation, manufactures are making cost-cutting moves

and slowing down operations at their facilities. Germanys Audi shut car

production and scaled back engine production at its Gyor plant before and

after the Easter holiday in April. The automaker made similar production

cuts during the Christmas holiday in 2008 and then again in February, with

further plans to close the plant for three weeks in August. General Motors

Powertrain (GM Powertrain), the Hungarian subsidiary of US group General

Motors (GM), moved to a four-day week from mid-April at its engine and

transmissions manufacturing plant in Szentgotthard, although later that

month, the plant' s CEO said that the cutback could be temporary. Since

January 2009, Suzuki Motors Hungarian plant has operated on a two-shift, 5

working days basis, resulting in the loss of 1.200 workers. The marketleader, which relies on export-driven growth, expects production to fall to

210,000 units in 2009, which is compared to 282,000 units in 2008.

However, compared to this dull trend, many suppliers still see Hungary as an

attractive location for investment over the long term. German parts supplier



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Continental is looking to move one of its production units from Spain to

Hungary. ContiTech Fluid Automotive Hungary, the suppliers fluid

technology division in the country, will be reportedly investing nearly EUR5

million for the installation of vulcanizing furnaces, the extruder lines andassembling machines at its plants in Mak and Vac.

Part of the reason can be traced back to the special feature of Hungary

automotive investment market that the investment has been concentrated in

automobile component production, while the assembly and manufacture of

cars has played a secondary role. The form of this feature is influenced by

many factors, e.g. the price of labor is relatively low in Hungary compared

to other countries.

Generally, according to the Hungary Autos report Q2 2009, the car sales are

expected to fall by at least 8% y-o-y in 2009. With some economic recovery

expected in H210, the forecasted car sales to end that year is at almost the

same level as 2009, growing by a negligible 0.5%y-o-y in 2010. On the

whole the passenger car market is set for slow recovery, not reaching 2007

levers until 2013.

Here below are the figures of new passenger car registration in Hungary:



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REASONS FOR THE DECLINE

The exploration of the US and European market show that the declines are

much more localized than general global recession. The US market suffered

deeper declines of 18% compared to Europes 7%, so the explanation must

be more than the general economy. The US auto market was considered to

have two difficult obstacles to overcome in 2008.

First, the recession started in December 2007 in the United States so the

entire year was plagued by a shrinking economy and poor consumer

confidence. Unemployment rates started to rise in the beginning of the year

and the housing market was in dire straights for a year already. These are

key indicators to new cars sales because individuals in America use home

equity loans to purchase cars and individuals cannot obtain the credit needed

to buy a car if they are not employed.

The second incident causing the decline of US auto sales was the rapid rise

in petrol prices in the spring and summer months. Barrels of crude oil nearly

doubled within 6 months in 2008 from 70 USD to 140 USD and caused

petrol prices to double as well. The high petrol prices caused consumers tostop buying trucks and SUVs because their poor petrol efficiency and some

opted to purchasing a car instead. Some consumers that were put off by the

high petrol prices opted not to buy in hopes for cheaper petrol prices and

delayed a purchase for another year. The high petrol prices are the cause for



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increase in car sales, loss of US manufacturers market share in 2008, and

decline in overall industry sales.

The US government has not done much action to stimulate the auto industryfor consumers. In the stimulus package passed by the Obama administration

in February 2009 the federal government allowed taxes paid on the purchase

of new vehicles to be deductible. This however, only amounts to be around

200 or 300 USD in savings for the consumer and will not be realized till the

taxes are filed in the first half of 2010. The government has performed

several emergency loans to help GM and Chrysler to remain in businesses

and several divisions have been sold off.

Europes decline can be mostly explained by the global recession. This is

evident in the disparities in the change in auto sales according to country.

The countries that saw the largest decline, like the UK, were the countries

that were hardest hit the recession with high unemployment and housing

declines. France, whom had the smallest decline in Europe, did not enter the

recession until the last month of 2008 and explains why sales remained fairly

stable. Germany was hit hard by the recession but strong government action

stimulated the consumers to purchase new cars. Their program involved

consumers turning in old fuel inefficient cars and receiving government

credit worth a few thousand euros for a new car.

Hungary is facing its most trying economic challenge since its post-

communist transition of the early 1990s. While growth is contracting across

Europe, Hungary's recession is expected to be particularly deep. There are

significant risk factors: falling domestic demand, declining GDP growth, the



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sliding value of the forint, rising unemployment, government austerity

measures. Compared to Europe, Hungarian auto sector is being hit on two

fronts: on the one hand, consumers are tightening their wallets, which is

pulling down domestic sales. New car sales in Hungary show a strongcorrelation with economic growth and with the change in disposable income

of the population. On the other hand, falling export demand is forcing

manufactures to scale back production and dismiss workers. So the global

economic downturn has dried up demand for autos both at home and in key

export markets in Western Europe.

Once the global economy picks up again, especially in the Europe, output

should begin to rise. The scrap page plans announced by several European

governments may also provide short-term support for exports.



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INVESTMENT IN HUNGARY

FDI

Since the beginning of the transition to democratic market economy at the

end of the 1980s, Hungary has attracted a steady stream of foreign capital,

well-balanced across the various sectors of the economy. Hungary, a country

of 10 million inhabitants, can currently boast of having attracted ForeignDirect Investment (FDI) of more than 60 billion Euros to date which

represents the highest per capita rate in the Central-Eastern European region.

FDI nflow data in 2008 do not show the effect of the global economic crisis

yet.

FDI stock per capita in the CEE region, 2008



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Source: wiiw, Analysis and forecasts, 2009

In the early 1990s, market-based privatization, a unique phenomenon in the

region at that time, was the main incentive for foreign investment - although

even then investments in new industrial facilities were becoming

increasingly frequent. Foreign direct investment (FDI) has been crucial in

boosting economic performance and remains the driving force behind

Hungary's economic success, fuelling its strong export growth and

significantly increasing productivity.

A new structure for Foreign Direct Investment (FDI)

While privatisation is still in progress in other central European countries,Hungary has been focusing more intensively on the introduction of advanced

technologies and innovation into production of goods representing higher

added value. Investment in the automotive sector, research and development,

ICT, biotechnology, shared services operations and logistics has become



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especially important. Today, not only have a number of the largest

multinational manufacturers and service providers established their facilities

in Hungary, their major international suppliers have also come and brought

along their subcontractors with them. Currently there are more than 30,000companies operating with foreign participation in Hungary.

FDI Stock in Hungary by Sectors

Nearly half of foreign investments in Hungary have been cumulated in the

manufacturing sector. At the beginning of the 1990's manufacturing was the

main target of all investments. Since 1995, however, services have gainedgrounds as well, partly because privatization in the services sector started

later than in the manufacturing sector. Also, in the late 1990s, as other

Visegrd countries opened up their markets and started privatisation

Hungary had to face more competition in the manufacturing sector. Today

FDI spreads more evenly among sectors in Hungary than in other countries

in the region.

Source: Hungarian National Bank, 2009



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Distribution of FDI by the most important sectors

Real estate and business services: 20%

Transportation equipment: 11%

Financial services: 12.3%

Electronics: 6%

Energy and water: 5%

Food: 3%

Metals: 3%

Chemicals and pharmaceuticals: 2%

Machinery: 2%

Plastic and rubber: 1%

Source: wiiw, Analysis and forecasts, 2009



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FDI Stock by Countries of Origin

Like in other CEE countries, foreign investors from the EU-15 countries

have accounted for the majority of investments (79%) in Hungary

(Hungarian National Bank, 2009). Geographical proximity and historical

links explain the dominance of the European investors.

Germany is by far the most important country of origin with 25% of all FDI,

followed by the Netherlands (14%) and Austria (13%). The United States

has been the largest non-European investor (5%) and in many cases the

investments going through the Netherlands and other European countries

also originate from the US. Among the Asian countries Japan and South-

Korea have played an increasing role in FDI.



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Source: Hungarian National Bank, 2009

Contrary to expectations, in 2008, FDI inflow to Hungary did not decrease

compared to 2007, and reached EUR 4.4 billion (Hungarian National Bank,

2009). In line with global trends, however, in 2009 and 2010 FDI inflow is

expected to fall to EUR 1.5-2.5 billion in Hungary (EIU, 2008; wiiw, 2009).

However, experts forecast a recovery in 2011. The new EU-12 region is

likely to keep its favourable position as an investment destination and

Hungary may again receive an annual average of EUR 3.5-4 billion FDI in

the medium term.

AUTOMOTIVE SECTOR

The automotive sector is one of Hungary's core industries and contributes 20

per cent of total exports. In 2007, vehicle sales outside Hungary were worth

EUR 8.2 billion and engines accounted for EUR 5.3 billion. Over 600

companies employing a total of 100,000 people are active in the sector. Of

these enterprises, 240 operate according to the ISO and/or TS 16949 quality

management standards. The export ratio of Hungarian made cars is 94 per

cent, a figure that stands at 88 per cent for engine and component

production. There are total 630 automotive companies in hungary out of

which 290 have quality certificates. In the year 2007, 290,235 passenger



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cars, 5,045 commercial vehicles and buses and 50,000 motor cycles wer

manufactured.

The number of first- and second-tier equipment manufacturers is continually

rising. Since the early 1990s, several foreign car manufacturers, such as

Suzuki, Audi and General Motors, as well as 14 of the top 20 Tier 1

suppliers, have set up production facilities in Hungary.

W HY TO INVEST IN HUNGARIAN AUTOMOTIVE

SECTOR

Tradition of innovation

Access to a talented, creative, flexible and qualified labour pool atcompetitive costs

Central location - a possible hub for Europe

Excellent local supplier network

Major automotive suppliers in Hungary

Tradition of innovation

Innovation has always been a tradition for hungarians. The hungarian

automotive industry recently celebrated its centennial in year 2006. Hungary

has been a large contributor in terms of science and technology. Major

Hungarian scientific and technical contributions include:



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o electrical engine (1828) - Dr. nyos Jedlik

o carburettor (1890) - Jnos Csonka and Dont Bnki

o NASA's Moon Rover and Mars vehicles (19611988) - Ferenc

Pavlicso BMW diesel engine development (19811999) - Ferenc Anisits

o safety concept of vehicles (1939-1972) - Bla Barnyi

o combined engine charger system (1968) - Gyula Cser

o organizer of Ford-T's mass production (1905-15) - Jzsef Galamb

Access to a talented, creative, flexible and qualified labour pool at

competitive costs

Hungarian automotive industry consists of 100,000 employees which are

well trained and educated. Major cities provied world class training and

Universities in Hungary educating engineers:



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To go by the composition, Over 50% are mechanical engineers, 11%

information-systems engineers, 10% electrical engineers, 9% automotive

engineers and 39 % quality-assurance engineers and chemical engineers out

of which Nearly 20% of engineers are engaged in product-improvement,

while the rest are active in technological development, production, quality

assurance and sales. Though the wages are lower as compared to western

europe,productivity level is still high.



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Labour Market

Hungarys labour force of about 4.2 million is highly educated and highly

skilled.

About two-thirds of the employed population has completed some form ofsecondary, technical or vocational education. Hungary has great traditions

and high standards in many areas including engineering, medicine,

economics, and sciences.

Foreign employers find Hungarian workers extremely flexible, highly

motivated and very efficient. Most of young Hungarians speak English

and/or other Western languages.

Employment within Hungary varies regionally: in the North-West

temporary shortages of skilled workers occur, particularly in the financial

and marketing sectors. East of the Danube unemployment levels are usually



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higher than the national average, sometimes exceeding 10-15%.

The basic elements of employment agreements are regulated by the

Hungarian Labour Code (Act XXII of 1992), which is broadly similar to

employment law in other European Union countries. The Law provides a

basis for organized labour negotiations with trade unions or other

representatives of employees (e.g., works councils).

The terms of employment are established by a written labour contract, and

may be terminated by mutual consent of the parties. The normal daily

working time is eight hours; weekly working time is maximum 48 hours

with 2-day rest period. Employees cannot be obliged to work on public

holidays. Each employee is entitled to a regular vacation every calendar

year. The duration of the vacation is 20 days, but the number of vacation

days is increased according to the age of the employee. An employment

agreement may not contradict the Labour Code or any collective agreementin force. An employment agreement can provide more benefits for the

employee than those required by the Labour Code or a collective

agreement.Social security contributions are mandatory for Hungarian

employees, employees not otherwise subject to but wishing to benefit from

the Hungarian social security system may still be allowed to contribute. The

pension system is now a three pillar system of a mandatory public scheme aprivate scheme and a voluntary scheme.

Current rate of the employers contribution:



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24% pension insurance

5% health insurance

1,950 HUF/month health care contribution

3% unemployment insurance premium

1.5% training contribution

As of January 2009, the minimum gross monthly wage is HUF 71,500 =

about 247 .

Central location - an optional hub for Europe

Hungary has a location which is just perfect and makes it a optimal hub for

europe. Due to its favourale geographical position in europe, it has got a

potential logistics and production base and hence has got direct access to

balkans and eastern europe

Infrastructure and Transport

Hungary's central location in Europe and the dense motorway network is one

of its most important competitive advantages. Four vital European transport

corridors pass through Hungary, providing unparalleled access to all parts of

Europe, including major European ports and the fast-growing CIS market

In order to exploit these benefits, Hungary is determined not only to

preserve, but also to enhance its infrastructural network and to improve its

integration into the European network



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. Road Network

As a result of intensive construction works along main transport corridors,

major motorways and trunk roads reach national borders, ensuring faster and

safe transportation.

Hungary has an extensive road system, centred in Budapest, and the most

developed highway network among new EU member states. 70 % of the

road traffic is passing through the motorways and main roads of the country.

The length of the country's expressway network is 1,110 km.

The improvement of the highway network and four-lane motorways linking

all the major cities in Hungary will result in an approximately 40% decrease

of driving times on the main inter-city routes.

Seven of the eight main roads start from Budapest (designated by single digit

numbers, running clockwise from the Vienna motorway M1) and all of them



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link up with the European road network.

A top priority of the Hungarian government is to further extend and

reconstruct the road network in Hungary.

Excellent local supplier network

Hungary - as one of the Detroit East countries - can supply manufacturers

and customers in the whole of Europe. The number of orders are on an

increasing scale due to heavy investments by CBU manufacturers to expand.



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MAJOR AUTOMOTIVE SUPPLIERS IN HUNGARY

Prior to the global crisis manufacturers, such as Suzuki and Audi were

steadily expanding capacities and workforce to meet growing demand.14 of

the worlds top 20 TIER-1s have already established operations in

Hungary .Several multinationals have set up R&D centres in Hungary

including Audi, Bosch, Knorr-Bremse, Magna-Steyr, ThyssenKrupp, Arvin

Meritor, Denso, Continental, Visteon, WET, Draxlmaier, Edag,Temic

Telefunken, DENSO and ZF. In 2007/2008 two of the top awards presented

by the Minister of National Development and Economy to most outstandingforeign investors was received by Daimler AG for its new investment in

Kecskemt.

CAR MANUFACTURING AND ASSEMBLY

SUZUKI: 233,253 cars assembled in 2007, 300,000 pcs in 2008

AUDI: 56,982 cars assembled in 2007( TT coupe, A3 cabriolet)

DAIMER: 100,000 mercedes A and B class planned for 2011



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ENGINE MANUFACTURING

AUDI: 1.913 million engines produced in 2007,(379 variants of 24 differenttypes of powertrain)

GM POWERTRAIN: 434,617 engines produced in 2007

AUDI IN HUNGARY

In 2007 1.913 million engines produced, 15 new, innovative engine

models introduced

56,982 cars assembled (41.5 % increase on 2006)

New TT model introduced in 2006, new A3 cabriolet introduced in

2007

Turnover in 2007: EUR 5.87 billion (16.7% increase on 2006)

Hungarys largest exporter

Employs 5,845 people

24 different engines in 379 variants of four-, six- and eight-cylinder

engines for the VW concern in a 375 th. sq meter area

Since 1993 Audi has invested a total of EUR 3.3 billion in Hungary,

and is planning to invest 200-250 mn EUR per year is planned until

2011

Audi Hungria is going to manufacture the 10-cylinder, 560 HP

engine for the luxurious sports car Lamborghini Gallardo

AUDI AG chose the Hungarian city of Gyr as its new production location

in November 1992. The new engine plant was officially opened less than



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two years later. A workforce of around 4,900 was employed there at the start

of 2001. Audi has access to a good supply of skilled workers and highly

qualified graduates from the Institute of Technology. The Gyr site is a duty-

free area, permitting the flexible delivery and collection of productioncomponents and engines. Almost the entire range of Audi engines is now

produced in Gyr.

Production of Audi TT models in Hungary commenced in April 1998. More

than 145,000 of the Audi TT Coup and Audi TT Roadster have left the

assembly lines in Gyr. Final assembly of the Audi A3 commenced there in

April 2001. Environmental protection is likewise practiced in an exemplary

manner in Gyr. Modern recycling management avoids unnecessary waste.

The parts for the engine assembly process are delivered in returnable

containers. Wherever waste does occur, its progress right up to recycling is

monitored. A closed cooling and lubricating circuit guarantee effluent-free

production. Dust and oil are removed from the exhaust air from the machine

rooms, and 40% of thermal energy is recovered. Audi Hungaria Motor

Ltd.. in the year 2009, following the methodology of IFRS 49 (2008 -

in: 54) million euros for research and development expenditure has been

activated.



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AUDI TT

The Audi TT is a sports car manufactured by German automaker AUDI AGsince 1998 in Gyr, Hungary. It is now in its second generation andavailable as 2+2 coupe or two-seater roadster.

The development of the Audi TT began in September 1994 at the AudiDesign Center in California. The TT was first shown as a concept car at the1995 Frankfurt Motor Show. The design is credited to J. Mays and FreemanThomas, with Martin Smith and Romulus Rost contributing to the awardwinning interior design. A previously unused laser welding adaptation whichenabled seamless design features on the first-generation. TT also delayed itsintroduction. Audi did not initially offer an automatic transmission optionfor the TT. A direct-shift Gearbox (DSG) became available, the first for a

production car, in 2003.

In the last financial year, a total of 32,603 motor vehicles (2008:60,359)wipes production have not reached the previous year's level. The totalnumber of items within the 18,010 (in 2008:31,101) Audi TT Coupe, 4811



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(2008: 10,688) Audi TT Roadster and Audi AG on behalf of 9782 (2008:18,570) Audi A3 Cabriolet made.

PORTERS MODEL FOR AUDI HUNGARY


1. Potential

Entrants

2. Suppliers3. Buyers

5. Existing

industry

Competitors


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1. Potential Entrants: (Strong)

Many players like Ferrari, Aston Martin, Nissan, Jaguar etc are penetratinginto the Hungarian market.

2. Bargaining power of suppliers: (Strong)

The numbers of supplier are more and easily available so bargaining powerof the supplier is high.

3. Bargaining power of Buyers: (Medium)

The AUDI cars are highly customized so buyers cannot influence the priceand so price is not the important factors when it comes to luxury cars.

4. Threat of substitutes: (Low)

While there is possible competition from lower segments cars, chartedplanes and sport bikes but nothing can give customers, the kind ofexperience of owning these luxurious cars.


4.Substitutes


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5. Rivalry among competitors: (Strong)

The luxury car in the Europe has become very competitive, but in India stillit is untapped. But there are so many players in Europe so competition is toohigh.

SUZUKI IN HUNGARY

1991 Foundation of Suzuki Hungary in Esztergom on a 35,000 m2

plot

1992 Serial production Swift models

1999 The 250,000th Hungarian-made Suzuki

2000 Wagon R+ launched

2003 Introduction of Ignis

2004 - Awarded for the biggest reinvestment (EUR 100 million) by

the Prime Minister

2005 new Swift; 146,870 cars were manufactured, record turnover

of EUR 1,262.3 million was reached

2006 - production of new SUV the SX4 launched

Number of employees: 6,200

Production in 2007: 233,253 cars; (Swift, SX4, Ignis, Wagon R+)



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By having invested EUR 199.44 mn in 2007 total volume of

investments reached EUR 1.27 bn

Production of the Splash started in February 2008 (planned

production: 60,000 per annum)

Production planned for 2008: 300,000 Units.

MERCEDES IN HUNGARY

Mercedes-Benz will release four new compact cars to replace the current A

and B-Class models when they reach the end of their product cycles in

2010/11. The family of compact cars will be built at a new plant in

Kecskemt, Hungary, and will likely include a coupe, cabriolet, MPV and

soft-roader.

The new plant will cost more than 800 million ($1.24 billion) to establish

and will create some 2,500 jobs. Moving to a plant in Hungary will allow

Mercedes to manufacture the cars at a lower cost than if they were producedin Germany, and the fact that its a new plant means the build process should

be efficient thanks to latest construction techniques.

"We are planning a new plant in Hungary to boost our competitiveness and



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to gain access to potential of the Eastern European markets,"

- Daimler CEO Dieter Zetsche

Mercedes hasnt forgotten its Rastatt plant back in Germany, and plans to

invest 600 million ($928 million) to increase capacity for more small cars.

The new family of small cars is designed to help Mercedes meet tougher

fuel-consumption and emissions regulations as well as providing it with a

range of exciting compact models to launch in North America, although such

an export program is yet to be confirmed.

They will also drop the expensive 'sandwich' design of the current A and B-

Class in favor of a new MFA (Mercedes Frontwheel Architecture) FWD

platform. This means the new cars will sit much lower than current models,

possibly even lower than the BMW 1-series and Audi A3, and will also be

much sportier.

WHY DID MERCEDES CHOSE HUNGARY?

Good location and developed infrastructure

Good quality of labour

A large network of automotive suppliers are already present

Professional services



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RECENT INVESTMENTS

DAIMLER

Daimler has decided to assemble its A class and B class Mercedes Benz cars

in Kecskemt, Central Hungary. The 800 million investment will create2,500 jobs and production is to start in 2012. The Hungarian Government

supports the investment of Daimler with a package of measures giving the

project a clear prioritization.

BOSCH

Bosch Budapest Development Centre has been expanded by 120 new

engineers in 2008. Research activities in Budapest have started in 1999 with

a few engineers, and by now already 430 engineers work in the development



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centre. Bosch has spent 36 million EUR on R&D in Hungary last year,

which means a one and a half growth within one year. The company is

cooperating with several education institutes like the Budapest Technical

College with whom the development of an intelligent small car is underway.

F.SEGURA

Spanish Grupo F.Segura has chosen the city of Szolnok to establish a new

facility to design and manufacture metal components for the automotive

industry. Initially the factory will be 11,000 sqm large, over a total area of 10

hectares. The overall cost of investment will reach EUR 11 million.

From this privileged position in the centre of Europe and bordering on seven

countries, F.Segura Hungaria KFT wants to obtain a major presence in the

current and future European context. With this strategic decision F.Segura

establishes itself in a multi-customer environment where privileged logistics

conditions and additional benefits take profit of the new emergence marketsin the region.

KNORR-BREMSE BRAKE SYSTEMS



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Knorr-Bremse Brake Systems Kft. announced that it will invest more than

EUR 10 million in a research and development (R&D) project in Hungary

which will employ 60 engineers.

The Knorr-Bremse Group is the world's leading manufacturer of braking

systems for rail and commercial vehicles. The Hungarian branch has the

most employees among the European factories. Knorr Bremse has

established its development centre in 1999 in Hungary.

GEDIA

The GEDIA Group - GEDIA Gebrder Dingerkus GmbH develops and

manufactures pressings and welded assemblies for the automotive industry,

technical products and fastening systems for the household goods industry.

The company announced that it will create 103 new jobs and an investment

of EUR 21 million in Tata, Hungary to manufacture body parts for the

vehicle industry.

AUDI

Audi Hungaria has long been a significant automotive company in Hungaryand it is one of the largest exporters. In the last 15 years more than fifteen

million engines have been manufactured. Audi TT sportcars and Audi A3

Cabriolets are only assembled in Gyor.



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AUDI HUNGARIA MOTOR Kft. has closed a successful year in 2008, too.

Last year more than 1.900.333 engines have been manufactured in Gyor. As

for vehicle assembly, production volume has grown by 6% last year,

alltogether 60 thousand cars have been assembled. The Hungarian branchhas invested EUR 309 million in 2008.

WHY INDIA:

The economy of India is emerging. The automotive sector is one of the key

segments of the economy which contributes about 4 per cent in India's Gross

Domestic Product (GDP) and 5% of Industrial production. This sector hasgenerated about 4.5 lakh of direct employment and about one crore of

indirect employment. Globally competitive Auto Ancillary Industry and

established automobile testing and R&D centers.

9th largest automobile industry.

2nd largest two-wheeler market

11th largest Passenger Cars producers

4th largest in Heavy Trucks

2nd largest tractor manufacturer

The monthly sales of passenger cars in India exceed 100,000 units.

In the year 2009-10 the Despite economic slowdown production and exports



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of the sector went up last fiscal, said the Economic Survey 2008-09, andunderlined that the industry employs over one crore people. Overallautomobile production went up by 3 per cent to reach 1.11-crore, exportsincreased by over 23 per cent to over 15-lakh and domestic turnover of thesector stood at Rs. 2.19-lakh crore.

Government Support in India

Automobile production from 5.3 Million Units in 2001-02 to 10.8 MillionUnits in 2007-08. 100 percent Foreign Direct Investment (FDI) is

permissible. This liberalization has helped this sector to restructure itself,absorb newer technologies, and keep pace with the global developments

realizing its full potential.

Indian Passenger Vehicle Market in 2008-09

Company Name Market ShareSuzuki 52%Tata 17%Hyundai 19%

Toyota 1%Honda 5%GM 2%Ford 2%Others 6%

The total production of passenger car in India is 1.83 millions.

Growth of Passenger Vehicle Segment

The domestic Passenger vehicles market has grown at a 14.8 per cent overthe last six years to reach 1.5 million units in 2007-08.Passenger cars,contributing to 78 per cent of volumes, grew at a CAGR of 15 per cent. Theremaining share is with utility vehicles and sports vehicles.



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Future prospect of Indian Automotive Sector

Future prospect of Indian Automotive Sector is looking bright. Passenger carproduction in India is projected to cross three million units in 2014-15. Salesof passenger cars during 2008-09 to 2015-16 are expected to grow at aCAGR of around 10%. Motorcycle sales will exceed 10 Million units by2012-13. Value of auto component exports is likely to attain a double digitfigure in 2012-13. Turnover of the Indian auto component industry isforecasted to surpass US$ 50 Billion in 2014-15.

AUDI IN INDIA

As a manufacturer of high-quality and innovative luxury cars, Audi is oneof the worlds leading premium brands and is among the most admired onthe world market. The basis of its success comprises pioneering concepts inthe domains of advanced technology and design.

Audi is represented in 110 countries worldwide and since 2004, Audi hasbeen selling its products on the Indian market.

In March 2007, Audi set up its own sales company for India. By establishingAudi India as a Division of Volkswagen Group Sales India Pvt. Ltd. inMumbai, Audi is making a clear long-term statement in the country withambitious growths plans. Audis goal is to become the leading automobileluxury brand in the Indian market in the next few years.

The Audi India strategy encompasses significant investments in branding,

marketing, exclusive dealerships and after sales service for the upcomingyears.

At present, Audi is assembling the Audi A6 and the Audi A4 for the Indianmarket in Aurangabad.



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CONCLUSION

Europe and India has always been a great interest for automobile companies.With India market being dominated by Indian and Japanese manufacturers,Europe was always an interest for local manufacturers. India is a big marketfor small cars whereas Europe has an affinity towards luxury cars.

With the global downturn in automobile market it has been analyzed thatEuropean market has also shown the signs of market slimming, Europeanautomobile market decline is not that steep and countries like France andGermany has shown a fall of less than 2%.

Hungary being central location of Europe serves as hub for many sectors.With high FDI, Hungary serves automobile industry as its core business.Many companies have been investing in Hungary like Audi, Suzuki, Raba,etc.

Hungary with highly innovative tradition, skilled labor, and strong suppliernetwork can prove to be an important hub for automobile companies. WithMercedes entering Hungary in 2010, it opens a new door for Hungary todevelopment. An open door for competition is also invoked and many more

companies might also like to join the campaign.



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RECOMMENDATIONS

Audi should conduct mass potential activity when it is entering in a new

market like India. It is not that Audi has the potential customers only in Tier1 and Tier 2 cities, people from the remote places of India are also buyingluxury cars, even though the number is small. It should also carry out jointmarketing activities with their exclusive dealer.

Audi should launch more sports cars or coupe/roadsters in Asian Market asthe number of young people is more and youths mostly preferCoupe/Roadster.

To motivate the employees and workers, some kind of extra benefits shouldbe awarded on the basis of performance.

Audi should starts hiring the employees from other than Hungary andGermany so that organization culture will be more diversified in the global

perspective.

Audi should provide the facility of parking in their premises for their loyal

customers.

Besides TT model, Audi should start the manufacturing of other sportsmodel because AUDI Hungary is becoming the most important automobilehub.



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