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Re: Report On Automobile Industry In INdia - February 4th, 2009INDIANAUTOMOBILEINDUSTRY

MARKETING MANAGEMENT

AutomobilesOverviewIndias automobile sector consists of the passenger cars and utility vehicles, commercial vehicle, two

wheelers and tractors segment. The total market size of the auto sector in India is approximately Rs 540billion and has been growing at around 8 percent per annum for the last few years. Since the last four tofive years, the two wheelers segment has driven the overall volume growth on account of the spurt in thesales of motorcycles. However, lately the passenger cars and commercial vehicles segment has also seen agood growth due to high discounts, lower financing rates and a pickup in industrial activity respectively.The automobile industry is fairly concentrated, as in most of the segments two to three players havecornered a major chunk of the total sales. For instance, in passenger cars segment, MUL, Tata Motors andHyundai Motors control around 85 percent of the total annual sales. Similarly, in the two wheelers segment,the sales volumes of Hero Honda, Bajaj Auto and TVS Motors constitute around 80 percent of the total salesand in the commercial vehicles segment, the market leader Telco controls around 56 percent of the totalannual sales. The autocomponents industry on the other hand is highly fragmented, though there aredominant players in some of the critical segments.Investment climateGiven the high growth expectations and a liberal government policy, the investment potential in the Indiaauto sector is huge. CRIS INFAC is forecasting a 12-15% annual growth in the passenger car sales, 6-8% in

commercial vehicles and around 10% in two wheelers. Several passenger car makers have already achievednear full capacity utilisation and are expanding. Almost all the major automobile manufacturers such as GM,Ford, DaimlerChrysler, Honda, Toyota, Hyundai, and Fiat (with the exception of Volkswagen, which isplanning to set up manufacturing shortly) already have made significant investments in India. In the next 2-3 years, the passenger vehicle industry is expected to see investments of more than Rs 30 billion. Similarly,two wheeler industry is expected to attract investment amounting to Rs 10 billion.There has also been a surge in exports of cars, utility vehicles and two wheelers. The expected growth indomestic sales and exports of vehicles also offers significant opportunity for investors to invest in the autoancillary industry. Already several international suppliers such as Delphi, Visteon, TRW, Johnson Controls,Denso and Dana, have set up manufacturing facilities and are expanding rapidly to serve not only thedomestic market but also to supply to their global customers. Another attractive area of investment forvehicle and parts makers is research and design, to take advantage of Indias low cost advantage.However, investment in commercial vehicle manufacturing looks relatively unattractive, given the currentsize and structure of the Indian market.

Recently, government has liberalised the investment norms for the auto sector. Local content requirementsand export obligations have been scrapped, and minimum investment requirements also have been diluted.Import duties on vehicles and parts have been gradually coming down and are expected to decline further inthe next two years. Several state governments also offer attractive incentives, such as sales tax relaxationsand concessional land, to potential investors. However, manufacture of certain components continues to bereserved for the small-scale sector. This reservation is also expected to lifted gradually over the mediumterm.OutlookThe expected rise in income levels, wide choice of models and easy availability of finance at low interestrates will drive growth in passenger cars segment, which is likely to be over 12 percent per annum for the


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next four to five years. Two wheelers growth is likely to marginally slow down, but still grow at an averageannual growth rate of around 10 percent.The commercial vehicles segment is likely to grow at a trend rate of 6-8 percent driven mainly by theincrease in industrial and economic activity on account of the expected growth in the economy, thoughannual growth rates may fluctuate widely with the cyclical ups and downs of the economy. Tractor industrygrowth is likely to turnaround and post a growth in volumes in 2004-05. However, it will post a moderategrowth of around 4-5 percent annual growth rate over the medium term.

Indian Automotive Industry: Opportunities and Challenges Posed By Recent Developments

Executive Summary: The Indian automobile industry is currently experiencing an unprecedentedboom in demand for all types of vehicles. This boom has been triggered primarily by two factors:(1) increase in disposable incomes and standards of living of middle class Indian families estimatedto be as many as four million in number; and (2) the Indian government's liberalization measuressuch as relaxation of the foreign exchange and equity regulations, reduction of tariffs on imports,and banking liberalization that has fueled financing-driven purchases. Industry observers predictthat passenger vehicle sales will triple in five years to about one million, and as the market growsand customer's purchasing abilities rise, there will be greater demand for higher-end models whichcurrently constitute only a tiny fraction of the market. These trends have encouraged many multinationalautomakers from Japan, U. S. A., and Europe to enter the Indian market mainly through

joint ventures with Indian firms. This paper presents an introduction to the key players in theIndian automotive industry, a summary of the recent developments, and an analysis of theopportunities and challenges facing the various players (Indian and multi-national assemblers andcomponent makers) in the areas of product development, production, and distribution.1.1 Introduction to The Indian Automotive IndustryFor forty years since India's independence from the British in 1947, the Indian car market wasdominated by two localized versions of ancient European designs -- the Morris Oxford, known asthe Ambassador, and a old Fiat. This lack of product activity in the Indian market was mainly dueto the Indian government's complex regulatory system that effectively banned foreign-ownedoperations. Within this system (referred to informally as the "license raj"), any Indian firm thatwanted to import technology or products needed a license/permit from the government. Thedifficulty of getting these licenses stifled automobile and component imports, creating a lowvolume high cost car industry that was inefficient, unprofitable, and technologically obsolete. Thetwo dominant products Ambassador and Fiat, although customized to the poor road conditions inIndia, were based on a stale design concept (with outdated features), and were also fuel inefficient.

In the early 1980's, the Indian government made limited attempts at reforming the automotiveindustry, and entered into a joint venture with Suzuki of Japan. The joint-venture, called MarutiUdyog Limited, launched a small but fuel efficient model (called "Maruti 100"). Priced at about$5,500, the product became an instant hit. The joint venture now produces three small-car models,a van, and a utility vehicle at a rate of more than 250,000 a year. Despite being a late entrant,Maruti's vehicles are estimated to account for as much as 70 per cent of India's car population.In 1991, a newly elected Indian government took over and faced with a balance-of-payments crisisinitiated a series of economic liberalization measures designed to open the Indian economy toforeign investment and trade. These new measures effectively dismantled the license raj which hadmade it difficult for Indian firms to import machinery and know-how, and had disallowed equityownerships by foreign firms. In 1993, the government followed up its liberalization measures withsignificant reductions in the import duty on automobile components. These measures have spurredthe growth of the Indian economy in general, and the automotive industry in particular. Since1993, the automotive industry has been experiencing growth rates of above 25%. Data for the1995-96 financial year is yet to be released by all the firms, but estimates indicate that passengervehicle sales may reach or exceed 350,000 for the first time. (Passenger vehicles include cars andvans but not jeeps.) Table 1 presents the production data of passenger vehicles for the top fourIndian assemblers. Foreign vehicle sales have been insignificant until the 1994-95 years.Company Main Products 1992/93Market Share1994/95Market ShareMaruti Udyog Limited(MUL)Maruti 100, Esteem,


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Omni (Minivan)74.8% 73%Premier AutomobilesLimited (PAL)Premier PadminiNE118 (Higher end)9.4% 11%

Hindustan Motors (HM) AmbassadorContessa (Higher end)13.4% 10.7%Tata Engg. & LocomotiveCompany Ltd. (TELCO)Tata SierraTata Estate2.4% 4.9%Total Passenger Vehicles 163,300 280,000 (est.)Table 1: Estimated Production of Passenger Vehicles By the Top Firms in the IndianAutomotive Industry; Source: Association of Indian Automobile Manufacturers (AIAM),Automotive Components Manufacturers Association of India (ACMA) and other press reports1.1.2 A Brief Introduction to the Top Four Indian Automotive AssemblersAs seen in Table 1, Maruti Udyog Limited (MUL) is the number one Indian automotive assemblercommanding more than a 70% share of the Indian passenger vehicle market. (It also sells a few

thousand jeeps, called Gypsy, which are not included in the passenger vehicle data of Table 1.)Most recent data released by MUL show that it produced a total of 277,000 vehicles in 1995/96resulting in a turnover of approximately $2 billion (Rs. 6673 crore, Source: Financial Express,March 30, 1996). It is also a reasonably profitable venture with after tax profits of about $122million (a 65 % increase over the previous year). MUL's relatively large production volumes offerscale economies in production and distribution, that pose formidable barriers to entry. It has alsoestablished a solid supplier-base located around India (most of its assembly is concentrated inNorthern India near New Delhi). Its products enjoy good reputation in fact, Indian automotiveindustry observers credit Maruti for the rapid improvement in quality and supplier capability inthis industry. (Until last year, new Maruti's have to be booked several months in advance!) MUL'sproduct line is concentrated in the economy car segment, although it has been moving up recentlyto cater to the premium market segments by introducing the higher-end Esteem.1Much of the data presented in this paper has been extracted from the annual reports published by ACMA,and from articles in the business press and trade journals.Page 3

Occupying the second position in 1994/95 is Bombay-based Premier Automobiles Ltd. (PAL),which edged out Calcutta-based Hindustan Motors Ltd. (HM) from the second place. In fact, PALproduced the Fiat, and HM produces the Ambassador both products that dominated the Indianautomotive industry for decades. The advent of Maruti has resulted in the decline of both thesefirms. PAL's main products are the Premier Padmini (in the compact car segment) and the NE118(in the mid-size car segment). Recently, PAL has rejuvenated itself by entering into joint ventureswith Peugeot (for the Peugeot 309), and with Fiat (for the Fiat Uno). Its close competitor HMcontinues to produce Ambassadors in small volumes targeted at the economy/compact car segment.HM also offers a higher end product called Contessa Classic, and has entered into joint ventureagreements with General Motors (GM) to produce the Opel Astra, and with Mitsubishi to makethe Lancer targeted at the higher-end market.Despite occupying the fourth position and producing passenger vehicles only in small volumes,Tata Engg. & Locomotive Company Ltd. (TELCO) is noteworthy, not only because it is a part ofthe powerful Tata industrial family, but also because it is one of the few firms with indigenousproduct development capabilities, and has been a dominant player in the commercial vehiclessegment. (The author, in fact, worked with TELCO for a brief period in the late 80's in their lightcommercial vehicles product development group.) TELCO holds about 70% of the heavycommercial vehicles market, and (after entering the market late) has also managed to fend offJapanese competition by gaining about 50% of the light commercial vehicles segment with its inhouseproduct development. It entered the passenger vehicles market only in 1991-92, and hasquickly established itself in the higher end of this segment with its Estate and Sierra models. Thefirm has entered into a joint venture with Mercedes Benz to assemble the E220's, and is also said tobe planning an entry into the small/economy car segment challenging Maruti's stronghold.1.3 A Brief Introduction to the Indian Component SuppliersComponent suppliers are the backbone of an emerging automotive industry. By all accounts, the


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Indian component industry, based mostly in the southern city of Madras, is tiny. The autocomponent manufacturers association of India (ACMA) estimates that $2.1 billion worth of carparts were produced in the financial year 1995, out of which exports amounted to $228 million. Toput this in perspective, the entire Indian industry's revenue is roughly one-tenth that of GM'scomponent unit, Delphi automotive systems2. But, the component market has been growingrapidly at about 25% a year, and is expected to quadruple in size by the year 2000. This growthhas not only been due to the growing demand for passenger vehicles, but also due to the increasing

trend by multi-national OEM's to resort to global sourcing to improve competitiveness.Leading automotive assemblers and component makers are increasingly turning to India forcomponents. One of the now widely-cited examples of this trend is the Indian component firm,Sundaram Fasteners Limited (SFL), which the author has been studying for the last year. SFLbecame GM's largest supplier of radiator caps, and exports about 300,000 caps from its factories inMadras to GM plants around the world. In 1992, when GM was planning to close one of itsplants in UK., SFL took advantage of the liberalized economic environment in India, bought themachinery from GM, and relocated them to its plant in Madras. The company has continued to2It is also noteworthy that Delphi is in the process of setting up its own units in India to make steeringsystems,chassis, and electrical systems recognizing the needs of the fast-expanding Indian automobile market.Page 4invest heavily in quality and productivity improvements, and a tour around SFL's suburbanMadras Factory shows a world-class plant with minimal inventory and rework. The company'sworkers, trained in statistical tools and control charts, keep processes under statistical control due

to which radiator cap rejection rate is less than 1% of annual production. The company also has avery skilled managerial and engineering workforce, which has helped it develop in-house productdevelopment capabilities. Using these resources and skills, the firm is now seeking to expand itssupply to other manufacturers in Europe, US, and Asia, and also diversify into other components.SFL exemplifies the Indian auto components industry, which although small and fragmented hasthe competitive advantages of a skilled workforce and low labor costs. It is estimated thatcomponents can be produced about 30% cheaper in India than in the west. (The top Indianassembler, Maruti, is able to price its cars at about $5,500 because it sources 90% of itscomponents from Indian suppliers.) Rapid growth and tie-ups with foreign firms will help Indianauto components suppliers further invest in capacity and automation and acquisition of the latestknow-how, thereby closing the productivity gap with other world-class component makers.Exhibit 1 shows a few other notable Indian component suppliers and their exports to OEM's.2. Recent Developments and Issues Facing the Indian Automotive IndustryIn the past two years, more than a dozen multi-national firms have announced plans to enter theIndian market. Most of them have formed joint ventures with Indian firms, while there are

exceptions such as Hyundai which plan to form fully-owned units. Exhibit 2 displays most ofthese firms and their products planned for the Indian market3. Despite the large growth potentialof the Indian market (analysts expect the growth to triple in the next five years), no one expects theindustry to sustain the fragmentation caused by more than a dozen suppliers. Many of these newfirms will not enjoy the scale economies and relationships with suppliers that Maruti does, so theyhave decided not to challenge Maruti at its price of $5,500 in the smaller car segment. Most areplanning to produce between 20,000 and 50,000 higher-end vehicles. The stiffest competition isbuilding up in the mid-sized car range (1,300 cc and above), where several of these multi-nationaland Indian companies are planning to go head-to-head. Although these newly announced vehiclesat $12,000 or above remain expensive by Indian standards and planned capacity exceeds projecteddemand, new entrants are betting on the rising incomes of middle-class families. Notably,Daewoo's new product Cielo, priced at about $15,000 in a joint venture with the Indian firm DCM,drew 76,000 advance bookings last year reflecting the pent-up demand in the market.Amongst the many issues facing the Indian automotive industry, the biggest by far is the poor roadinfrastructure. India's road network, comprising of a modest national highway system (that is only2% or less of the total roadway length) is woefully inadequate and dilapidated, and can barely keeppace with the auto industry's rapid growth. Most roads are single-lane roads built in the 1950'sand 60's, and are crowded with two-wheelers, bullock carts, and even pedestrian humans and cows.Traffic laws are not well enforced leading to one of the highest per-capita accident rates in theworld. It is to be expected that the introduction of bigger and more powerful vehicles will onlyworsen the situation. Upgrading the existing highway system is itself expected to cost $30 billionor more, and resource and land constraints prevent the building of new highways. The Indian3Conspicuous by its absence from this list of new entrants is Toyota, which initially had an arrangement withtheHinduja group that was called off in March, 1996. Toyota is said to be adopting a wait-and-see attitude.


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Page 5government's approach to solving this problem is to privatize the road infrastructure, by havingprivate firms build and operate tollways. However, it is unclear if this alone will be able to solvethis infrastructure problem of enormous proportions, which can severely bottleneck future growth.The significant (about 50%) tariffs imposed on import products and components combined withthe vagaries of currency exchange rates make localization an important imperative for foreigncompanies entering the Indian market. Firms are already making a major effort to localize rapidly;

The Daewoo-DCM venture is expected to raise its local content to 90% by the decade's end.GM's Astra will start with 40% labor content, and go up to 75% within three years. One challengeto localization is a shortage of component suppliers with size and sophistication.Another major uncertainty facing the Indian market is the government's policies toward foreigninvestments and joint ventures. As Amsden and Kang [95] note4, governments play a key role inshaping the growth of the auto industry in emerging economies (as compared with developedcountries). Although many observers say the economic reforms initiated by the ruling Congressparty are not reversible, the difficulties experienced by Enron Corp. in its investments in thepower sector under the hands of the opposition Bharatiya Janata Party (BJP) do not bode well forother foreign investors. With elections in mid-1996 expected to return a coalition group to power,it will be hard for the new government to push the reform measures with the same vigor and paceas the previous government did. It is even unclear if the group in power will be so positivelyinclined to foreign investments and trade as the current government.3. Discussion of the Strengths and Weaknesses of the Various PlayersTo analyze the strengths and weaknesses of the various players in the Indian automotive industry,

it is useful to classify them into the following four categories: (1) Indian Assemblers, (2) MultinationalAssemblers (3) Indian Component Makers, and (4) Multi-national Component Makers.Table 2 presents the strengths and weaknesses of each of these groups.The Indian assemblers, typified by Maruti, have built a formidable distribution and after-salesnetwork. They also have an established supplier base, which gives them cost and delivery timeadvantages, especially in light of import tariffs and currency exchange rate fluctuations/devaluations. Their biggest weakness, with the exception of TELCO, is the lack of product designcapability. In the coming years, they should focus on acquiring product design and lean productionknow-how (as the Korean firms did in the eighties and early nineties [Amsden and Kang 95]).They could acquire know-how with help from their joint-venture partners, and also withinvestments in research and development which at present are at extremely low levels.Multi-national assemblers could really benefit from their lean production capabilities in India,where production runs are expected to be small due to the large number of players entering theIndian market. They could also set themselves apart by incorporating safety and comfort featuresnot currently included in Indian-assembled products. These include seat restraints, airbags, and

anti-lock brakes, and comfort features such as power windows, and central locks. U. S. assemblershave a reputation of safety, which they could leverage to their advantage. Close cooperation with4Amsden, A. H., and J. Kang, "Learning to Be Lean in An Emerging Economy: The Case of South Korea",IMVPSponsors Meeting, Toronto, 1995.Page 6the joint-venture partners can overcome the lack of experience with the Indian market, but the smallsize of the component supplier base will pose a challenge to their need to localize rapidly.Group Strengths WeaknessesIndian Assemblers Established distribution andafter-sales networks, andsupplier base. Understanding of the Indianmarket and ability to liaisonwith the government Lack of product developmentcapabilities (except TELCO) Brand image (especially HMand PAL).Multi-national Assemblers Lean production capability Ability to design productswith differentiating features Deep pockets, brand image. Lack of experience with theIndian market, industry, and


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government. Small component supplierbase and high import tariffs.Indian Component Suppliers Low cost, skilled workforce Learning From exports Small Size, Fragmentation Lack of know-how in certain

areas.Multi-national ComponentSuppliers Size, Deep pockets Experience and Know-how intechnology. Import tariffs, currencyexchange rate fluctuations. Inexperience with Indianworkforce.

Table 2 Strengths and Weaknesses of the Different Groups in the Indian Auto IndustryAs mentioned earlier, the Indian component industry is small and fragmented, but is growing andlearning fast due to exports. It is also estimated to hold a 20-40% cost advantage over multinationalcomponent suppliers who are much larger and are themselves opening up units in India to

take advantage of the lower-cost, skilled workforce. The Indian component industry needs toinvest in capacity and research and development to stay abreast of competition, when the wage gapcloses over time. It is likely that some of the multi-national assemblers or component makers mightbuy some of the small but niche component makers with a reputation for quality.4. ConclusionsThe Indian automotive industry, although growing rapidly, is in a state of flux. The productioncapacities planned by the new joint ventures currently exceed most projections, and unless importPage 7tariffs come down quickly and the economy grows remarkably, a shake-out may be expected fromthe current 20 firms to about half a dozen major firms turning out finished products by the end ofthe decade. However, if multi-national firms decide to use India as a production base from whichvehicles are exported to the rest of the world, more than half a dozen firms may be able to remainprofitable in India. Suzuki has already begun to use its Maruti joint-venture production to export afew thousand cars to the Middle East and Europe. However, the production capacities of otheremerging economies such as Korea and China are also predicted to grow significantly in the coming

years, so exports may also face a highly competitive market situation.In this paper, we have presented a brief introduction to the Indian assemblers and componentsuppliers. We noted that Indian assemblers have a tight hold over the small-car market due to theirlow cost supplier base and the tariffs levied on import components. Maruti with its productionvolumes of over 250,000 enjoys scale economies in production, distribution, and service that arehard to challenge. As Amsden and Kang [95] (cited before) and Womack et al.5 note, productionvolumes do confer several advantages to a firm. However, new entrants can set themselves apartby offering new safety and comfort features that are not currently offered in the Indian market.They can also leverage their low production run (lean) capabilities to stay profitable despite thelow production volumes. Further, they can combine their reputation with the Indian industry'slower production costs to produce cars and export them to the global markets. Many multinationalsare already said to be planning such an approach.For Indian component makers and assemblers, product development capability is key, in order torejuvenate their product lines, enhance their reputation, and export their products to the markets indeveloped countries. The author is currently pursuing a study of product development andproduction systems in the Indian component industry. Since the plants located in India are veryfar from the developed markets of the USA, Europe, and Japan, component suppliers incursignificant transportation and inventory carrying costs in exporting products to global markets.Their situation is worsened by the poor Indian infrastructure, which leads to frequent powerinterruptions and long delays in supply. These companies are adopting innovative techniques tocope with these uncertainties, which will be a topic of another paper.The Indian automotive industry, as a whole, is also severely bottlenecked by the woefullyinadequate road infrastructure. Privatization of the road infrastructure, even if started immediately,can take years to solve this problem. India also experiences an extraordinarily high number oftraffic fatalities, and faces severe pollution problems. As of April 1, 1996, the ministry of surface


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transport has set emission norms (that are modest by international standards), which localautomakers say are hard to meet. Multi-national firms can bring their experience and know-how tobear in these areas, and enhance their reputation as well as attract customers who are safetyconsciousand environmentally aware. This will also result in the gradual reduction of the autorelatedfacilities and pollution (due to the diffusion of these practices), thereby contributing to thefurther growth of the Indian automotive industry.5Womack J. P., D. T. Jones, and D. Roos, "The Machine That Changed The World: The Story of Lean

Production", Harper Publishers, 1990.Page 8Exhibit 1: Notable Indian Component Suppliers and Their Exports To OEM'sSundaram Fasteners: Supplies radiator caps to GM, Caterpillar, and others.Wheels India: Supplies wheels to heavy vehicle and automotive manufacturers in Europe.Eicher Goodearth: Supplies machined castings to Mitsubishi and other major automotive firms.Sona Steering: Supplies steering systems to Japanese component makers.Brakes India: Castings and rubber components to Lucas Industries, Germany.Source: ACMA Annual report and India Today (March 93)Exhibit 2: New Entrants To The Indian Automotive Industry as of March 1996Company Joint Venture Partner Planned Products (Ave. Price)Audi (Volkswagen) Franchise (Imported car) Audi-A4 ($85,000)Daewoo (Korea) DCM Cielo ($15K)Fiat Premier Automobiles (PAL) Fiat Uno 1000 cc ($10,000)Ford Motor Company Mahindra & Mahindra Ford Escort, Festiva ($12K)

General Motors Corp. (GM) Hindustan Motors (HM) Opel Astra ($22K average)Honda Shriram Industries Civic ($18K)Hyundai (Korea) Wholly-owned subsidiary AccentMercedes-Benz TELCO Mercedes E220 ($70K)Mitsubishi Hindustan Motors (HM) Lancer ($15K)Peugeot Premier Automobiles (PAL) Peugeot 309 ($15K)Volkswagen Eicher Ltd. Golf ($20K)Source: Press Reports From India

South Asia

India's auto industry comes of age

Not long ago, India's auto industry was a laughing stock. Its two best-known cars were a 1940s Morrismodel called the Ambassador and a 1960s Suzuki-derived model called the Maruti 800. But that was then.Today, for instance, the Mumbai-based Dilip Chhabria Design Pvt Ltd (DC Design) is seeking to take onPininfarina and Bertone, the Italian standard in international car design, by designing and building conceptcars, prototypes and limited-production runs. Nor is DC Design alone.

"There can be few more improbable automotive stories than the yarn about the Indian designers creatingbespoke concept and prototype cars," said the United Kingdom's auto magazine Autocar in a recent issue."Yet the hottest ideas in car design are happening right now in the back streets of Mumbai." India is now theninth country in the world to design a vehicle on its own.

In fact, the Indian auto industry is fast becoming an outsourcing hub for automobile companies worldwide,as zooming automobile exports from the country indicate. Surinder Kapur, the chairman of Sona KoyoSteering, which exports car steering assemblies, says, "Car makers over the world have realized that Indiacan design a car on its own and make it globally acceptable."

Passenger car exports have nearly trebled in four years, from 28,122 units in 1998-99 to 71,653 vehicles in2002-3. The industry expects this to gather steam further ahead because car exports in the first quarter of2003-4 leapt by 87 percent over the same period in 2002-3. The two-wheeler segment is booming, too, with


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exports zooming from 100,004 units last year to 179,000 units in 2002-3. By 2005, the industry expects400,000 two-wheelers on foreign shores.

The Indian-made sports utility vehicle Scorpio received a singular response in Detroit early this year, notjust for its design but also because of its cheaper price tag. Tata Motors, the country's second-largest carmaker's small Indica convinced MG Rover of the UK to sell it to the UK market as the City Rover. Others likeFord's mid-sized car model Ikon, Maruti's Altos and Toyota's Indian-made multi-utility vehicle have found

ready buyers in a number of American, European and neighboring countries.

And when cars and two wheeler exports are on a roll, can automobile components be far behind? Pushed toexport last year following a two-year domestic slowdown, the auto component exported $850 million worthof the nuts and bolts that go into making an automobile by March 2003, up from $578 million in March2002. "Indian auto component makers now supply to virtually the best and the biggest in the world," saysSuresh Krishna of Sundaram Fasteners, a leading auto component exporter, adding that he expects thecountry to export a targeted $2 billion by 2006.

"Indeed, India is well on its way to become an outsourcing hub for global auto manufacturers and thecountry stands a good chance against China," says Sundaram Mutual Fund managing director T P Raman,although Joginder Singh, vice president of finance for Ford Motor Company of Canada, thinks that globalauto majors can't ignore either China or India.

Already, 15 global car makers - including GM, Ford, DaimlerChrysler, Mercedes-Benz, Audi, Isuzu and Nissan

have set up outsourcing offices in the country, with a combined budget of approximately $1.5 billion,industry sources say. Leading component makers like Delphi, Visteon and Caterpillar, too, have found Indiatheir best bet. While according to industry estimates the cost of automotive design in Europe ranges as highas $800 per hour, and even higher in the US, costs are as low as $60 per hour in India for equivalentquality.

Whether the next outsourcing wave or simply smart marketing by a local industry, global auto makers areincreasingly turning to India for sourcing a wide range of needs that even include designing models meantonly for global markets. "To begin with," says Deep Kapuria, of Automobile Components ManufacturersAssociation of India, "it's triggered by the overall economic slowdown and large-scale bankruptcies in theglobal auto sector. And as global giants continue losing money, cost pressures are forcing them to opt forsourcing bases in developing countries."

But more importantly, according to industry analysts, the Indian auto industry has finally come of age,having upgraded itself in the past few years to meet global standards. Dilip Chhabria, the head of DC

Designs, makes no bones about taking on the world's best. Earlier this year, the Aston Martin AMV8 Vantagestarred at the Detroit Auto Show. Chhabria developed the prototype as part of a Ford contract.

Until the mid 1990s, the Indian auto sector consisted of just a handful of local companies. However, afterthe sector opened to foreign direct investment in 1996, global majors moved in. By 2002, Hyundai, Honda,Toyota, GM, Ford and Mitsubishi had set up their manufacturing bases here.

"These companies first had to focus on issues like quality, vendors and marketing before they could thinkbig," says Arindam Bhattacharya, vice-president, Boston Consulting Group. Thus, in the past four to fiveyears, these companies have not only fine-tuned their operations but forced transformation on the rest ofthe industry as well.

"Consequently," Bhattacharya adds, "India has not only emerged as a low-cost base but also a source forproducing quality products."

The sector also received an unintended boost from stringent government auto emission regulations over thepast few years. This ensured that vehicles produced in India conformed to the standards of the developedworld. It also drew technology infusion and investment. "Not surprising then that India is also set to becomea preferred research and development [R&D] center," says Ravi Khanna, president and managing director,Delphi India, adding that its Indian facilities are "an integral part of its worldwide engineering and technicalfootprint".

Nevertheless, according to managing director Jagdish Khattar of Maruti Udyog Ltd. India's largest car makerand a Suzuki joint venture, India still has a long way to go to become a global force. "Indian companiesneed to first grow the Indian market to acquire economies of scale," he says. China, for instance, consumes


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four times India's 700,000 annual car sales. Moreover, if Indian companies hope to corner a big chunk of theglobal market they need to ramp up global presence considerably, say others.

Still, Joginder Singh of Ford feels that India's auto industry will continue to make its presence felt, primarilybecause it is one of the few countries the global auto industry cannot ignore. "Two-thirds of a car is builtfrom suppliers. That's a big cost item and companies can cut costs to a large extent in places like India andChina," he says. "We can't ignore either China or India, which are projected to be so huge that it would be

dangerous to look only at one of them. They are showing the highest growth rate of any market in theworld. Any auto maker would be on a fool's errand if it ignores any of them."

Small wonder then that Ravi Khanna of Delphi India is "convinced that with the increasing emphasis onquality, India is fast moving towards becoming a sourcing hub for global automobile makers".

(Copyright 2003 Asia Times Online Co, Ltd. All rights reserved. Please contact forinformation on our sales and syndication policies.)

GREEN RATING FOR AUTOMOBILE SECTORSectoral Performance

Is the Indian automobile sector as environmentally conscious as best in the world?

NO! Automobile sector has fared badly. Under the project rating scale we were to award five leaves award tothe best company. But sadly no auto company deserved this honour. The best company gets less than 45per cent marks getting a mere three leaves award. But the sector as a whole gets even lesser, scoring 31.4per cent, deserving only two leaves award.

The passenger car segment leads the way among the entire automobile segment and is the only segmentwhich gets three leaves. Mass transport vehicle segment comes second. The two and three wheelersegment, with two leaves, lags behind even the mass transport vehicles, which has performed better due tointroduction of CNG fuelled vehicles.

THE GOOD, THE BAD, THE UGLYIn terms of overall performance, the three companies, which top the environmental rating, are DaewooMotor India Ltd., Hyundai Motors India Ltd. and General Motors India. All these three companies haveperformed well in product usage phase.

The companies, which are at the bottom of the pile, are the three non-participating companies, Bajaj TempoLtd., Yamaha Motor Escort Ltd. and Swaraj Mazda Ltd.

Maximum of the companies in top ten are passenger car manufacturers while most of the two and threewheeler manufacturers have shown a poor performance trailing behind in the ratings. However, there is an


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exception, Hero Honda Motors, which has not only achieved three leaves rating but also ranks fifth in overallrating.

The other two and three wheeler companies lag very far behind. Though Bajaj Auto Ltd. and TVS Suzukifollow Hero Honda Motors as the 2nd and 3rd in the segment but in the overall rating they fare poorly.

WINNERS AND LOSERSAs far as individual products are concerned, Daewoo's small car Matiz, has been judged as the mostenvironment friendly vehicle overall, scoring high in terms of vehicle and engine design, and also performingwell in other aspects such as pollution control equipment installed and emissions.Maruti's most popular vehicle in the country Maruti-800 (Euro II model) is the second most eco-friendlyvehicle. It scores less than Matiz in terms of design but scores more in the emissions. The third most eco-friendly vehicle is Hyundai's Santro, which also has the highest fuel efficiency.

Small is beautiful--All the top three eco-friendly vehicles are small cars and have inherent advantages overthe larger ones in the sense that they emit less pollution and consume less fuel compared to larger vehicles.They also use lesser material during manufacturing stages.

Honda City 1.5V-tech gets the recognition of being the most technologically advanced and least pollutingvehicle in India with emission as low as 85 per cent lower than the Euro II norms.The vehicle with the worst performance environmentally is Mahindra & Mahindra's Armada, which comes last

in the passenger car segment. It has scored very low in all criteria.

Among the two and three wheelers, both selected models of Hero Honda (Splendor and CD 100) are themost eco friendly two wheelers. They have scored above average in vehicle and engine design and are oneof the very few four-stroke two wheeler fitted with any kind of pollution control equipment.Bajaj boxer, the latest model of Bajaj Auto that ranks third, has scored well in vehicle and engine design butlacks in emission control equipment and comparatively poorer emission.

The best performing two-stroke model ranks fourth amongst the two wheelers. The lowest score has beenobtained by Kinetic Safari moped, which obtained average scores in design and emissions and very poorscores in pollution control equipment and emissions.

Among the mass transport vehicles Ashok-Leyland's Viking compressed natural gas (CNG) bus scored aboveaverage in design and very high in emissions due to inherent advantages of CNG vehicle making it the bestperformer in this section. The second position is also taken by another CNG fuelled vehicle, that is, Telco

LPO CGS bus. Interestingly, the worst performers in this segment are Ashok Leyland's diesel fuelled Comet1611 and Tusker Turbo tractor.

A total number of 29 automobile manufacturers were selected for the project of which 26 companiesparticipated voluntarily (90 per cent participation). The three companies which refused to participate andchose to continue being non-transparent are Bajaj Tempo Ltd., Yamaha Escorts Motor Ltd. and SwarajMazda Ltd.

MODUS OPERANDIThe Green Rating of Indian Industry project was started by the Centre for Science and Environment (CSE) in1996 to address an array of environmental issues facing all segments of Indian industries. The project issupported by the United Nations Development Programme (UNDP) and the Ministry of Environment andForest (MoEF). The first sectoral rating undertaken under the pilot phase of the project was pulp and papersectoral rating, which was a highly successful exercise and was rated as the best environmental auditproject in last 25 years in Asia by 'Asia Week'.

Spanning over a period of two years, Green Rating of automobile sector was a great challenge owing todiversity between companies in their production processes as well as the products manufactured.Participation of all the major automobile companies in the exercise makes it a unique effort to assess theenvironmental health of the sector. The project has covered 35 production facilities spread in nine statesand almost 80 per cent of the products currently running on Indian roads.

MethodologyThe rating methodology for automobile sector has been developed keeping in mind the life cycle impact ofthe automobile industry. Thus, the weightages were allotted accordingly with 80 per cent of the score


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devoted to life cycle analysis (LCA) and remaining 20 per cent for corporate governance.

The life cycle assessment included determining the environmental impacts at various steps of the productionprocess right from sourcing of raw materials, to the manufacturing and assembly process, to the pollutioncaused by use of the vehicle, and finally the impact caused by its disposal.

Of the 80 per cent on the life cycle assessment, the highest weightage (56 per cent) was allotted to the

product use phase based on the conclusion arrived at by the project that maximum pollution occurs duringuse phase. "Vehicle are the core of the automobile industry since they alone generate about 80 per cent ofthe total life cycle pollution," says Chandra Bhushan, Coordinator, Green Rating Project, CSE. "In order toassess the environmental performance of the product, a combination of engine design, pollution controlequipment fitted and the emission test data supplied by the test agencies were considered, making thisexercise the most comprehensive ever taken anywhere in the world. Even the green automobile ratingsdone in the US and in Europe only consider emissions and fuel consumption data to rank the vehicles. Greenrating project has taken a quantum leap over the existing automobile rating methodology" he adds.

Robustness of the Rating methodology'Engine design analysis should represent the emissions from the vehicles,' was the main focus for arriving atthe robustness of the product rating criteria, developed by GRP, since the engine and vehicle rating wasgiven by the project and the emissions rating was given on the basis of the test data of certified testagencies. Therefore, the litmus test for GRP was to correlate the ratings given by two separate institutionswith no interaction between them. This was very well reflected in high coefficient of correlation found

between the scores obtained in engine design and pollution control equipment, and the score obtained inemission. For example, in petrol passenger cars in 78 per cent cases the engine design did represent theemission characteristics of the vehicles.

Testing the effectiveness of the rating methodology in replicating the life cycle analysis, the test undertakenby the project was to correlate the overall rating with the vehicle's rating. Since, as per life cycle analysis, acompany with poor product should get poor results, however good it may be on other aspects. This too wasvery well established in the rating with product rating having a very high correlation (97 per cent) with theoverall rating. However, the analysis brought out the fact that the other criteria were as important and wereseen to have high degree of correlation with the overall ratings.

REVELATIONSGreen rating project findings draw its process on the principle that root of the cure of any disease lies in theproper diagnosis rather than just medication!!!

More miles per litreA fuel-efficient car would be the cheapest vehicle in the long run and an important consideration for thecustomer as well. The Hyundai Santro was judged the most fuel-efficient petrol passenger vehicle followedby Fiat Uno and Maruti-800 Euro-II model. In case of diesel passenger car, Mitsubishi Lancer was judged themost fuel-efficient and Toyota Qualis Euro-I model was most fuel-efficient multi-utility vehicle.

Clean fuel, clean vehicleWe did a comparative analysis of impact of fuels on emissions.

Study based on analysis of three diesel-fuelled mass transport vehicles and two CNG fuelled mass transportvehicles clearly showed that CNG fuelled vehicles are far better in terms of tail pipe emissions than thediesel fuelled mass transport vehicles. CNG-fuelled vehicles have as much as five times lower particulatesand overall 73 per cent lower emissions than their diesel counterparts.

Overall petrol vehicles show an inherent advantage over the diesel-fuelled vehicles with all the top 14 carsbeing petrol ones. The best diesel car, which is Mercedes E 220, ranks as low as 15. While the best multi-utility vehicle, Toyota Qualis Euro II model ranks a dismal 20th among all the 31 models.

Are MNCs better than Indian Companies?Green rating project reveals that contrary to the prevalent belief there is hardly any difference in the overallperformance of Indian companies and MNCs. Both of them meet the same environmental standards in eachand every aspect. A double standard was perceptible in the business pattern of MNCs as they were followinga practice of dumping obsolete products on the pretext of poor fuel and existing regulatory norm in theIndian market. Other than corporate environmental governance and pro-active initiatives, Indian companiesare at par with the MNCs.


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Does cleanliness make business sense?Yes it does. A fairly tangible correlation was observed between the environmental performance andeconomic performance of companies in the automobile sector. On an average, in total automobile segmentsit was found that about 67 per cent of time there was direct relation between the environmental rating andprofit of company. That is, if a company is good on the environment front, it is also sound in its balancesheet. In specific vehicle segment, this correlation was very high, as high as 81 per cent in two and three

wheeler companies.

Consumer awarenessAlthough, insufficiently informed consumers contribute to 80 per cent of the pollution generated byautomobile companies on road. Yet the sector in itself or through its dealers has not taken any proactiveeffort to educate these consumers. Two and three wheeler companies are the worst in consumer awarenessraising initiatives. Except for giving free servicing not much has been done to educate people.

Maintenance of the vehiclesThe project found that though the maintenance of the vehicle plays a major role in the overallenvironmental performance during the vehicle use, the strategy adopted by the automobile companies donot provide enough incentive to the consumers to go to the authorised service stations/ workshops. The costof maintenance at authorised service stations were found to be as high as 50 to 100 per cent than theunauthorised stations, and this was the main reason why consumers avoided going to the authorisedstations once their vehicle became a bit old. Automobile companies need to work on economy of scale and

provide enough incentive to the consumer to use authorised service stations. This will not only reduce thepollution load but will also improve company's bottom line. Companies need to think in terms of annualmaintenance contract to facilitate this recommends green rating project.

Impact of fuel qualityGRP analysis on Indian automobile segment clearly shows that the companies are holding fuel qualityresponsible for pollution. Whereas, the truth is that current engine design in India is at least a decade oldcompared to similar type of vehicles manufactured in western countries. Basic initiative towards improvingthe engine design is lacking. Use of alternative fuels over conventional fuels is yet to take its start in majorway and their needs to be a big boost in the development of this concept in India.

The automobile sector in general has not taken much effort to establish the impact of fuel quality onemissions. Some studies undertaken by companies have shown that there is hardly any consistent trend toshow that the fuels are mainly responsible for the poor emission quality. Role of age factor on theeffectiveness of catalytic converters too needs a comprehensive study to establish a relation as it plays a

great role in determining the pollution scenario on roads.

Impact of various parameters on fuel efficiencyImpact of various design parameters of vehicles on the tail pipe emission and fuel efficiency was carried outby the project. Weight of the vehicle and its engine size was found to have inverse relationship with fuelefficiency, though compression ratio had a direct relationship.

The project also found that a Indian passenger car switching over to multi point fuel injection system fromthe carburettor system can expect a reduction in the tail pipe emission in the range of 25 per cent to 40 percent.

Another interesting finding was that majority of the petrol passenger cars running on the Indian roads areusing catalytic converters which does not suit their engine design.

Which is better? Two stroke or Four Stroke.On the comparative performance undertaken for two-stroke and four-stroke two wheelers, the outcomeclearly established that four stroke two-wheelers are better that two stroke two-wheelers with respect toboth emission and fuel efficiency.The carbon monoxide (CO) and hydrocarbons and nitrogen oxides(HC+NOx) emitted by two-stroke two-wheelers (with catalytic converter) are 23 per cent and 38 per cent,respectively higher than their equivalent four-stroke two-wheelers without catalytic converter.

Meeting of regulationsWhile some Indian vehicles are meeting Euro II equivalent norms in the national capital region of Delhi andEuro I equivalent norms in the rest of the country, it was found that overall, automobiles in all the segmentsare meeting the regulatory norms well. However, GRP found that this is not enough as there are companies


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that can go much beyond the minimum regulatory requirement but absence of incentives from governmentdiscourages them. Government should come out with some incentive mechanism to differentiate betweenjust a good performer and excellent performers.

Supply Chain ManagementGreen rating project closely scrutinised the practice of outsourcing by Indian automobile companies andfound that majority of pollution during automobile production takes place at the supplier and vendor's site,

most of them being small and medium scale companies. Overall automobile companies had a very poorperformance on this aspect. The project found a clear trend of transferring of pollution by automobilecompanies to its supply chain. Companies urgently need to adopt a green procurement policy and green uptheir supply chain.

Importance of ISO 14001Almost half of the automobile sector has adopted environment management systems (EMS) standards.However ISO 14001 adopted by automobile companies is not the actual reflection of their environmentmanagement as these companies are just assembly plants. Most of their processes are outsourced and themajor pollution happens at vendor's site and during product use and disposal. Thus, ISO 14001 only takescare of very small percent of pollution generated by the companies. The project has recommendedautomobile sector to adopt an environment management system, which reflects the environmental aspectsof automobile business and not to use the existing system, which is production centric.

Some other findings related to production process:

1) The entire sector uses paints that contain heavy metals and are based on solvents. No company useswater based paints2) The regulatory standards for wastewater characteristic applicable to the automobile sector are lax as wellas irrational

THE WAY AHEAD"Business Planning but with the ingredients of Social, Environmental and above all Ethical considerationimbibed in it will define the future of Indian Automobile Sector", says Sunita Narian, Director, CSE. "Werecommend a coherent approach to be adopted by automobile industry, government and consumers. Oncethe consumer starts including environment in their buying decisions, which they should becauseenvironment in automobile actually means economy and savings, companies will be pushed to improve,"adds Chandra Bhushan, coordinator of Green Rating Project.

Companies cannot afford to loose their market given the kind of cutthroat competition existing in Indiatoday. Consumers need to build on the research outcome of green rating project, and ask for emission and

fuel efficiency performance of automobiles as their buying criterion along with price.Government on its part should come out with economic instruments as its major tool to regulate automobilecompanies. Pollution control body too needs a complete rethinking of its regulatory approach to this sector.Wastewater characteristics, solid/hazardous waste management, paint sludge incineration, dioxin and furansare some major aspects of automobile pollution during manufacturing process-regulations for which areeither weak or non-existent. Downstream pollution checks and supply chain management are also someissues where regulatory bodies will have to do some soul searching.

Automobile companies need to do a lot of rethinking. Extensive research and development, option ofalternate fuels, clean technologies and quality control to oversee adherence to product conformance willshape the future of automobile sector in India.

Companies must come forward and be more active in shouldering their responsibilities in educatingconsumers regarding good and bad features of vehicles.

Proactive dialogue between this sector and society in general could pave the way for long-term solution tothe various pollutions caused by the automobile sector. All stakeholders need to come together to improvethe environmental performance of this sector. We have just made a start, a lot more needs to be done.Current status of Indian Automotive IndustryOn the canvas of the Indian Economy, Auto Industry occupies a prominent place. Due to its deep forwardand backward linkages with several key segments of the economy, automotive industry has a strongmultiplier effect and is capable of being the driver of economic growth. A sound transportation system playsa pivotal role in the country's rapid economic and industrial development. The well-developed Indianautomotive industry ably fulfils this catalytic role by producing a wide variety of vehicles: passenger cars,light, medium and heavy commercial vehicles, multi-utility vehicles such as jeeps, scooters, motorcycles,


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mopeds, three wheelers, tractors etc.Although the automotive industry in India is nearly six decades old, until 1982, only three manufacturers -M/s. Hindustan Motors, M/s. Premier Automobiles & M/s. Standard Motors tenanted the motorcar sector.Owing to low volumes, it perpetuated obsolete technologies and was out of sync with the world industry. In1982, Maruti Udyog Limited (MUL) came up as a Government initiative in collaboration with Suzuki of Japanto establish volume production of contemporary models. After the lifting of licensing in 1993, 17 newventures have come up, of which 16 are for manufacture of cars. There are at present 12 manufacturer of

passenger cars, 5 manufacturers of MUVs, 9 manufacturers of Commercial Vehicles, 12 of two wheelers, 4 ofthree wheelers and 14 of tractors besides 5 manufacturers of engine.The industry comprising of the automobile and the auto component sectors has shown great advances sincedelicensing and opening up of the sector to FDI in 1993. The industry has an investment of a sum exceedingRs. 50,000 crore. During the year 2003-04 the turnover of the automotive sector was around Rs. 1,00,000crore. The industry provides direct employment to 4.5 lakhs and generates indirect employment of 1 crore.The contribution of the automotive industry to GDP has risen from 2.77% in 1992-93 to 4% in 2003-04.Automobile IndustryInstalled capacityThe Automobile Manufacturers have put up a robust manufacturing capacity of 95 lakh plus vehicles perannum since 1993. Today India is the world's second largest manufacturer of two wheelers, fifth largestmanufacturer of commercial vehicles and manufactures largest number of tractors in the world. The countryoffers fourth largest passenger car market in Asia today. A supplier driven market, having no more than ahandful of vehicular models two decades ago, now offers more than 150 models and variants by way ofcustomer options. The installed capacity of the automobile sector during the year 2003-04 was as under:

ProductionOne of the largest industries in India, automotive industry has been witnessing impressive growth during thelast two decades. Abolition of licensing in 1991, permitting automatic approval and successive liberalisationof the sector over the years have led to all round development of this industry. The freeing of the industryfrom restrictive environment has, on the one hand, helped it to restructure, absorb newer technologies,align itself to the global developments and realise its potential and on the other hand, this has significantlyincreased industry's contribution to overall industrial growth in the country. Overall automobile sectorbagged a growth of 15.12% in 2003-04. During the year 2004- 05 (upto April-Sept. 2004) the Industry hasregistered a growth rate of 15.06%. The details of actual production during 2003- 04 and 2004-05 (uptoApril-Sept.2004) are given below:In no.sS. No. Name of the Sector No. of units Production2003-04 2004-05(April-Sept. 04)1. Commercial Vehicles 9 275224 156815

2. Cars 12 842437 4659833. Multi-Utility Vehicles 5 146103 1147394. 2-wheelers 12 5624950 30238055. 3-wheelers 4 340729 177554Total 42 7229443 3938896ExportAutomotive industry of India is now finding increasing recognition worldwide and a beginning has been madein exports of vehicles as well as components. The automobile industry along with the component industry isalso contributing to the export effort of the country. During the year 2002-03 the export of automobileindustry had registered a growth rate of 65.35% while it was 55.98% during the year 2003-04. The detailsof exports during 2003-04 and 2004-05 (upto April-Sept. 2004) are given below:-(in Nos.)S. No EXPORT 2003-04 2004-05(April-Sept. 04)1. Commercial vehicles 17227 125752. Passenger cars 126249 760763. Multi- Utility Vehicles 3067 21644. 2-wheelers 264669 1709785. 3-wheelers 68138 37901TOTAL 479350 299704Auto Components IndustrySurge in automobile industry since the nineties has led to robust growth of the auto component sector in thecountry. Responding to emerging scenario, Indian auto component sector has shown great advances inrecent years in terms of growth, spread, absorption of newer technologies and flexibility, despite multiplicityof technology platforms and low volumes. India's reasonably priced skilled workforce, large population oftechnology workers coupled with strengths gained by the country in IT and electronics all build up an


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environment for significant leap in component industry.The Indian auto component sector is being written up as the next industry, after software, that has thepotential of becoming globally competitive. Indian Auto Component Industry, with a turn over of an approxRs. 36,300 crore (2004-05,prov.) and manufacturing all the key components required for vehiclemanufacturing, is an important sector of the Automotive industry. The phased Manufacturing Policy (PMP)followed in the 1980s enabled the component industry to induct new technologies, new products and a muchhigher level of quality in their operations that enabled quick and effective localization of the component

base. The Indian auto component industry over the years has played a key role in the growth anddevelopment of the country's automotive industry. The Indian auto component sector today has 420 keyplayers who contribute more than 85% of the output of this sector. The vital statistics of the autocomponent sector during 2002-03 and 2003-04 are as under:Indicators 2002-03 2003-04InvestmentRs. 12,500 crore Rs. 13,400 croreOutput Rs. 24,500 croreRs. 30,640 croreExportsRs. 3,800 crore Rs. 4,550 croreEmployment 5,00,000 persons5,00,000 personsIndian auto component industry has seen major growth with the arrival of world vehicle manufacturers fromJapan, Korea, US & Europe. Due to diversities in the technological profiles of these OEMs, the sector today

produces large variety of components. Today, India is emerging as one of the key auto components centerin Asia and expected to play a significant role in the global automotive supply chain in the near future.ProductionIndian auto component industry is wide (over 420 firms in the organized sector producing practically allcomponents and more than 10,000 firms in small unorganized sector, in tierized format) and has been oneof the fastest growing segments of automotive industry, growing by over 28%, in nominal terms, between1995-98. During the year 2003-04, the sector has recorded a growth of 25.06% by recording a productionof the order of Rs. 30,640 crore. During the year 2004-05, the output of the Auto Component Industry isexpected to be around Rs. 36,300 crore.ExportComponent exports in the year 2003-04 have already crossed US $ 1 billion. This,however, represents only about 0.8% of global component trade currently estimatedat around US $1.2 trillion. This is reflective of significant opportunities that lie ahead.Several export units have reached rejection rate below 5 parts per million (PPM) with many of themtouching a zero PPM. On export front, auto component industry has registered a growth of 29% in the year

2003-04 which is expected to be around 30% in the year 2004-05. During the year 2003-04, total exportwas of the order of Rs. 4550 crore as compared to Rs. 3497 crore during the year 2002-03. up in thecurrent year with the reduction in the excise duty and improvement in the credit delivery system for thesector.

This months briefing looks at Indias automotive industry, it gives a political and economic overview, light

vehicle market, and the manufacturing and components industry. The manufacturing sector has registered a

steady growth in the past few years. Exports of manufactured goods from India surpassed US$22bn in

2005, up from US$6bn in 2000, and the Indian automotive supplier industrys sales are expected to grow by

around 14% in 2006 and 15 to 16% in 2007. Growth would be driven by strong demand for automobiles in

the country, and high growth in exports of components. India is fast becoming a global outsourcing andstrong skills base, and with the emergence of Indian suppliers into the global market, the Indian

manufacturing industry is gearing up for expansion.

Bajaj may ride Ghosn dream

Nissan Renault boss Carlos Ghosn may partner with Bajaj Auto (BAL) for their small car project.

Renault already has a partnership with Mahindra & Mahindra for selling the Logan in India. The two partners,

along Nissan, are also putting up a greenfield plant in Chennai which will be used by all three. Renault is


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also putting up a powertrain plant in India as a 100% subsidiary. M& M plans to focus on the SUV market.

For Bajaj Auto it makes business sense to diversify. It can foray into the small car segment and leverage the

dealership, distribution and service networks already in place for its two wheeler market.

Source: Economic Times

Not a smooth ride for automobile

A study was jointly conducted by the Automotive Analysis Division at the University of

MichiganTransportation Research Institute (UMTRIAAD) and IBM's Institute for Business Value (IBV), to

highlight the rapid growth & challenges of the Indian automotive industry.

The report titled Inside India - Indians view their automotive future is based on analysis of extensive

research and interviews conducted with the Indian automotive executives and experts from the

government, industry and academia.

The report clearly highlights the need for the government to focus on infrastructure and services to support

the automotive industry to meet global standards. If India is to become a global automotive production and

sales hub, the focus areas are:

* A better transportation infrastructure;

* Improved product quality;

* More skilled workers;

* Changes in labor and tax regulations;

* An increase in the scale of exports of automotive companies.

* Intellectual property protection

* Improve transportation infrastructure hghways, ports and country's infrastructure, air quality, and oil

supply are possible inhibitors to the growth of the domestic automotive market.

* Quality, scale and resources for support services for export - managing global supply chain logistics,

resources to support potential global warranty claims.

* High quality research and development.

Source: CIOL

Car sales looking up at home, but limp abroad

The Indian passenger car industry saw a revival of sorts after a gap of four months, with sales rising fastest

in June. New models (Maruti SX4, Mahindra Renault Logan and GM Spark) attracted new buyers. Sales in

June helped car companies post a cumulative 13% growth at 275,147 units in the April-June quarter.

Overseas markets witnessed negative growth. The April-June quarter saw car sales exports down 8%.


Mahindra-Renault to increase Logan capacity

Mahindra-Renault, a 51:49 partnership between Mahindra & Mahindra and Renault, will gradually increase

the production capacity of Logan.

As of now, the company manufactures 90 units per day at its Nashik plant.

Logan sales were 2,786 units in May and 2,386 units in June.


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Source: PTI via Economic Times

Bajaj Auto plans biking merchandise

Bajaj Auto is planning to foray into biking merchandise - hi-quality branded accessories such as, riding

jackets, gloves and helmets.

Bajaj has taken the lesson from the global players. Harley-Davidson, Kawasaki, Yamaha, Ducati and Suzuki

have their own range of biking accessories.


Car to jostle for space with super bikes

Cars for Rs 1 lakh and high-speed super bikes for Rs 8-15 lakh, such is the paradox of

Indiasautomobile market.

Estimating a good market of high network individuals, all Japanese bike makers are launching their mean

machines in the Indian market. Yamaha, Suzuki and Honda are lining up their top bikes for the Indian

market by 2007 end and 2008.

Over a period of more than two decades the Indian Automobile industry has been driving its own growth

through phases. The entry of Suzuki Corporation in Indian passenger car manufacturing is often pointed as

the first sign of India turning to a market economy. Since then the automobilesector witnessed rapid growth

year after year. By late-90's the industry reached self reliance in engine and component manufacturing from

the status of large scale importer.

With comparatively higher rate of economic growth rate index against that of great global powers, India has

become a hub of domestic and exports business.

The automobile sector has been contributing its share to the shining economic performance of India in the

recent years. With the Indian middle class earning higher per capita income, more people are ready to own

private vehicles including cars and two-wheelers. Product movements and manned services have boosted in

the sales of medium and sized commercial vehicles for passenger and goods transport.

Side by side with fresh vehicle sales growth, the automotive components sector has witnessed big growth.

The domestic auto components consumption has crossed rupees 9000 crores and an export of one half size

of this figure.

The market shares of the segments of the automobile industry


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The automobile industry had a growth of 15.4 % during April-January 2007, with the average annual growth

of 10-15% over the last decade or so. With the incremental investment of $35-40 billion, the growth is

expected to double in the next 10 years

Consistent growth and dedication have made the Indian automobile industry the second- largest tractor and

two-wheeler manufacturer in the world. It is also the fifth-largest commercial vehicle manufacturer in the

world. The Indian automobile market is among the largest in Asia.

The key players like Hindustan Motors, Maruti Udyog, Fiat India Private Ltd, Tata Motors, Bajaj Motors, Hero

Motors, Ashok Leyland, Mahindra & Mahindra have been dominating the vehicle industry. A few of the

foreign players like Toyota Kirloskar Motor Ltd., Skoda India Private Ltd., Honda Siel Cars India Ltd. have

also entered the market and have catered to the customers needs to a large extent.

Not only the Indian companies but also the international car manufacturing companies are focusing on

compact cars to be delivered in the Indian market at a much smaller price. Moreover, the automobile

companies are coming up with financial schemes such as easy EMI repayment systems to boost sales.

There have been exhibitions like Auto-expo at Pragati Maidan, New Delhi to share the technological

advancements. Besides, there are many new projects coming up in the automobile industry leading to the

growth of the sector.

The Government of India has liberalized the foreign exchange and equity regulations and has also reduced

the tariff on imports, contributing significantly to the growth of the sector. Having firmly established its

presence in the domestic markets, the Indian automobile sector is now penetrating the international arena.

Vehicle exports from India are at their highest levels. The leaders of the Indian automobile sector, such as

Tata Motors, Maruti and Mahindra and Mahindra are leading the exports to Europe, Middle East and African

and Asian markets.

The Ministry of Heavy Industries has released the Automotive Plan 2006-2016, with the motive of making

India the most popular manufacturing hub for automobiles and its components in Asia. The plan focuses onthe removal of all the bottlenecks that are inhibiting its growth in the domestic as well as international

arena.

Scope of Indian Automobile Sector

The Indian automobile industry is going through a phase of rapid change and high growth. With new

projects coming up on a regular basis, the industry is undergoing technological change. The major players

are expanding their plants and focusing on mass customization, mass production, etc.

INVESTMENT IN AUTO SECTOR


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Nearly every automobile company is investing at a higher rate than ever before to achieve a high growth

trajectory. The overall investment in the sector has been increasing quite rapidly. It is expected that by the

end of 2010 Indian automobile sector will be investing a huge amount as Rs. 30,000 crores.

For example, Maruti Udyog has plans of investing Rs. 6,500 crores; the Tata Motors is coming up with more

investment of Rs. 2,000 crores in its compact car project. Not only the Indian companies but also foreign

players like Hyundai are coming up with the investment of more than Rs. 3,800 crores in India.

GROWTH IN THE SECTOR

At present the industry is enjoying a growth rate of 14-17% per annum, with domestic sales growth at

12.8%. The growth rate is predicted to double by 2015.

As it is seen, the total sales of passenger vehicles - cars, utility vehicles and multi-utility vehicles in the

year 2005 reached the mark of 1.06 million. The current growth rate indicates that by 2012 India will

overtake Germany and Japan in sales volumes.

Financing schemes have become an important factor in the growth of automobile sales. More and more

financial schemes are coming up with easy installment plans to lure the customers.

Apart from domestic production, the industry is consistently focusing on the automobile exports. The autocomponent segment is contributing a lot in the export arena. The liberalized policies of the government are

now making the companies go for more and more exports.

The automobile exports are increasing year by year. According to the Society of Indian Automobile

Manufactures (SIAM) automobile exports in the last five years are as follows:

Export trend over the last five years

NEW LAUNCHES

The Indian automobile sector is experiencing changes in every arena. Changes in the looks of the vehicles

are taking place; the vehicles are being made more user-friendly. Each and every firm is competing to give

the customers more customized vehicles with respect to speed, mileage, and maintenance. At present there

are many new models entering the Indian market. To name a few, Suzuki Heat 125 and Suzuki Zeus 125X

are the two bikes in the motorcycle segment; Kinetic Blaze and Honda DIO in the scooter segment; Marutis


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Zen Estillo in the car segment, so on and so forth.

EMPLOYMENT IN THE SECTOR

Investment is leading to the employment growth in the sector. With the emergence of new projects and

introduction of technological advancements, the focus is more on the skilled and experienced human

resource. The companies are looking for skilled and hard working people who can give their best to the

organization.

The engineers in the automotive or electrical or mechanical field are in demand. Some of the firms going for

automation, i.e. planning for CAD (Computer Aided Designs) systems, are also recruiting people with IT

specializations.

Top ten players in the Indian automobile sector

The domestic players as well as the foreign players dominate the Indian automobile sector. The key players

contributing to the growth of the sector are discussed below.

The key players in Indian automobile industry are:

1) Maruti Udyog Limited

2) Hero Motors Limited3) Tata Group

4) Bajaj Auto Limited

5) Mahindra Group

6) Ashok Leyland

7) Yamaha Motor India

8) Hyundai Motors India Limited

9) Toyota Kirloskar Motor Private Limited

10) Honda Siel Cars India Limited

Documents

Pankaj Rep. Mater