“THE INDIAN AUTOMOBILE INDUSTRY - RECENT TRENDS & ROAD AHEAD”
IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR
MASTERS OF FINANCIAL MANAGEMENT
2008-2011
Submitted by:
ROLL NO. 64
Submitted to:
JAMNALAL BAJAJ INSTITUTE OF MANAGEMENT STUDIES UNIVERSITY OF MUMBAI
TABLE OF CONTENTS
Acknowledgement 03 1. Welcome 04 2. Background of the Industry 06 3. Key players & segment market share 10 4. Recent Trends & Industry Features 26 5. What triggered this Auto Boom 49 6. The Road Ahead 55 7. Conclusion 70 8. Bibliography 73
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Acknowledgement
At the onset of trying to make a career in the field of Finance, a Final Project is an experience which is extremely necessary.
In carrying out my final project entitled "The Indian Automobile Industry – Recent Trends and
The Road Ahead", I have received help, assistance and guidance from many sources. I take this opportunity to thank all those who took a keen interest in it and enabled the completion of these projects successfully.
I would like to thank my Project Guide for providing me with the valuable inputs. Without his help, guidance and support this project wouldn’t have reached its logical conclusion. He was closely associated with my project work and gave me valuable support, without which I would not have been able to make this a success.
I would like to thank the office staff and other people in the institute for their valuable support and co-operation.
Last but not the least I would like to thank our Course co-coordinator and the Course Co- ordination staff for their support in every aspect.
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Welcome
The automobile sector is a key player in the global and Indian economy. The global motor vehicle industry (four-wheelers) contributes 5 per cent directly to the total manufacturing employment, 12.9 per cent to the total manufacturing production value and 8.3 per cent to the total industrial investment. In addition, the auto industry is linked with several other sectors in the economy and hence its indirect contribution is much higher than this. All over the world it has been treated as a leading economic sector because of its extensive economic linkages.
India’s manufacture of 14 million vehicles includes 2.3 passenger vehicles, 1.1 million commercial vehicles and 10.6 million 2 wheelers. The Indian auto Industry has grown at a 12%
CAGR over the last 8 years. Passenger vehicles have grown the fastest at 17%, followed by CVs at 16%, 3W at 12% and 2W at 11%. The auto-components manufacturing sector is another key player in the Indian automotive industry.
In India, the automobile industry provides direct employment to about 5 lakh persons. It contributes 4.7 per cent to India’s GDP and 19 per cent to India’s indirect tax revenue. Till early
1980s, there were very few players in the Indian auto sector, which was suffering from low volumes of production, obsolete and substandard technologies. With de-licensing in the 1980s and opening up of this sector to FDI in 1993, the sector has grown rapidly due to the entry of global players.
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A rapidly growing middle class, rising per capita incomes and relatively easier availability of
finance have been driving the vehicle demand in India, which in turn, has prompted the
government to invest at unprecedented levels in roads infrastructure.
The Reserve Bank of India’s (RBI) Annual Policy Statement documents an annual growth of 35
per cent in credit flow to vehicles industry in 2010. Given that passenger car penetration rate is
just about 13 vehicles per thousand, which is among the lowest in the world, there is a huge
potential demand for automobiles in the country.
There are two distinct sets of players in the Indian auto industry: Automobile component manufacturers and the vehicle manufacturers, which are also referred to as Original Equipment
Manufacturers (OEMs). While the former set is engaged in manufacturing parts, components, bodies and chassis involved in automobile manufacturing, the latter is engaged in assembling of all these components into an automobile.
The Indian automotive component manufacturing sector consists of 500 firms in the organised sector and around 31,000 enterprises in the unorganised sector. In the domestic market, the firms in this sector supply components to vehicle manufacturers, other component suppliers, state transport undertakings, defence establishments, railways and even replacement market. A variety of components are exported to OEMs abroad and after-markets worldwide.
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Background of the Industry
Auto Industry - Volumes (FY11e) Auto Industry - Revenues (FY11e)
4% 37% 4% Passenger Vehicles Passenger Vehicles Commercial Vehicles Commercial Vehicles 36% Three Wheelers Three Wheelers 17% 75% Two Wheelers Two Wheelers 4%
22%
The automobile manufacturing sector, which involves assembling the automobile components, comprises two-wheelers, three-wheelers, four-wheelers, passenger cars, light commercial vehicles (LCVs), heavy trucks and buses/coaches. In India, mopeds, scooters and motorcycles constitute the two-wheeler industry, in the increasing order of market share.
Driven by extremely deep forward and backward linkages with several key segments of the economy, the automobile industry provides direct and indirect employment to approximately 15 million people and contributing 17% to the country’s indirect tax kitty.
More importantly, an uptick in the automobile sector has a very strong multiplier effect. It is estimated that every car, CV, 2-wheeler and 3-wheeler produced, generates direct and indirect employment of 5.3, 13.3, 0.5 and 3.9 units respectively, which translates into an additional employment of 25 million by 2016
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This makes the automobile sector one of the key drivers for economic growth and leads us to believe that no government will deter the industry growth rate by way of an unfavorable tax regime as it has a direct bearing on the economy.
In 2009-10, the Indian auto sector had produced over 10.6 million two wheelers and 2.4 million
passenger cars and utility vehicles. India is a global major in the two-wheeler industry producing motorcycles, scooters and mopeds principally of engine capacities below 200 cc.
It is the second largest producer of two-wheelers and 13th largest producer of passenger cars in the world. Tata figures among the ten largest global manufacturers of LCVs, heavy trucks, buses and coaches, while it is among the top 25 in passenger car manufacturing.
Commercial Vehicle Growth 50.0% 16.0%
40.0% 14.0%
30.0% 12.0%
20.0% 10.0%
10.0% 8.0% 0.0% 6.0% FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11e -10.0% 4.0%
-20.0% 2.0%
-30.0% 0.0% Commercial Vehicles Growth (LHS) IIP Growth (RHS)
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Three-wheeler Growth 30.0% 16.0%
25.0% 14.0%
20.0% 12.0% 15.0% 10.0% 10.0% 8.0% 5.0% 6.0% 0.0% -5.0% FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11e 4.0% -10.0% 2.0% -15.0% 0.0% Three-wheeler Growth (LHS) IIP Growth (RHS)
The two-wheeler industry in India has grown at a compounded annual growth rate of more than
10 per cent (in number) during the last five years and has also witnessed a shift in the demand mix, with sales of motorcycles showing an increasing trend. Indian two-wheelers comply with some of the most stringent emission and fuel efficiency standards worldwide.
12,000 Two-wheelers 30.0%
10,000 24.0%
Thousands 8,000 18.0%
6,000 12.0%
4,000 6.0%
2,000 0.0%
0 -6.0% FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11e
Two-wheelers volumes (LHS) Per C apita Income Growth (RHS)
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The passenger vehicle segment has been growing at a rapid pace -- from over 6,50,000 vehicles sold during 2001 to 2.4 million vehicles in 2009-10. Visible in the chart below, passenger vehicle growth has a strong linkage to per capita income growth.
Between FY03 – FY10, domestic passenger vehicle volume has grown by 16%, whereas, export volumes of passenger vehicles have grown by 30%. This is on account of India gaining acceptance as a credible and preferred outsourcing hub for several global auto makers.
Passenger Vehicle Growth 30.0% 30.0%
25.0% 25.0%
20.0% 20.0%
15.0% 15.0%
10.0% 10.0%
5.0% 5.0%
0.0% 0.0% FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11e -5.0% -5.0%
Passenger Vehicles Growth (LHS) Per C apita Income Growth (RHS)
Passengar car sales Volumes (Finance vs cash)
29% 31% 40%
Top 10 cities Others 45% 55% 71% 69% 60% November 2008
Peak Low Current Finance Cash
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Key players & segment market share
Domestic Sales Exports Category For the month of Cumulative For the month of Cumulative Segment/Subsegment March April-March March April-March Manufacturer 2010 YoY Growth 09-10 YoY Growth 2010 YoY Growth 09-10 YoY Growth Passenger Vehicles(PVs) BMW India Pvt Ltd 605 26.57 3,941 29.72 0 0.00 0 0.00 Fiat India Automobiles Pvt Ltd 2,161 21.34 24,806 208.03 200 - 1,114 85.36 Force Motors Ltd 718 27.53 5,917 16.87 0 - 19 -73.61 Ford India Pvt Ltd 9,478 203.10 36,887 31.85 154 196.15 1,537 132.88 General Motors India Pvt Ltd 11,297 127.17 87,093 41.55 33 17.86 493 314.29 Hindustan Motors Ltd 1,340 49.89 10,714 16.68 0 0.00 1 - Honda Siel Cars India Ltd 5,928 -19.54 61,803 17.90 18 50.00 105 45.83 Hyundai Motor India Ltd 31,501 27.26 314,981 29.05 23,534 9.94 285,658 12.75 International Cars & Motors Ltd 70 -50.00 1,011 -70.98 0 0.00 38 111.11 Mahindra & Mahindra Ltd 14,247 -0.65 150,627 41.60 379 254.21 2,109 -3.52 Mahindra Renault Pvt Ltd 351 -63.51 5,332 -60.28 0 - 1,000 -37.93 Maruti Suzuki India Ltd 79,530 7.68 870,783 20.58 15,593 31.99 147,575 110.75 Mercedes-Benz India Pvt Ltd 440 -0.68 3,760 13.87 0 0.00 0 - Nissan Motor India Pvt Ltd** 89 147.22 306 197.09 0 0.00 0 - SkodaAuto India Pvt Ltd 1,824 39.24 17,502 25.97 0 0.00 16 - Tata Motors Ltd 32,269 22.70 285,846 23.88 370 79.61 6,481 -7.72 Toyota Kirloskar Motor Pvt Ltd 6,911 90.18 63,843 36.15 0 0.00 0 0.00 Volkswagen - Audi* 153 -23.50 1,532 52.59 0 0.00 0 0.00 Volkswagen India Pvt Ltd 197 - 3,092 - 0 0.00 0 0.00 Total 199,109 20.56 1,949,776 25.57 40,281 19.22 446,146 32.89 Commercial Vehicles(CVs) Ashok Leyland Ltd 9,299 110.00 57,951 21.70 768 14.46 5,979 -12.23 Asia Motor W orks Ltd 573 90.37 3,936 8.64 0 0.00 0 0.00 Force Motors Ltd 1,584 105.98 11,509 47.19 17 -45.16 230 -20.42 Hindustan Motors Ltd 54 86.21 293 396.61 0 0.00 0 0.00 JCBL Ltd*** 21 - 179 - 0 0.00 0 0.00 Kamaz Vectra Motors Ltd 0 0.00 0 - 0 0.00 0 0.00 Mahindra & Mahindra Ltd 10,974 71.39 85,790 53.52 1,039 224.69 7,536 24.69 Mercedes-Benz India Pvt Ltd 7 -61.11 215 -1.83 0 0.00 0 0.00 Piaggio Vehicles Pvt Ltd 927 38.98 11,094 23.10 12 - 52 -28.77 Swaraj Mazda Ltd 1,350 15.68 9,364 26.97 30 -55.22 772 23.32 Tata Motors Ltd 38,777 49.27 322,699 38.00 3,735 134.46 27,782 5.47 VE CVs - Eicher 3,649 88.58 26,786 54.47 165 -0.60 2,656 27.39 VE CVs - Volvo 85 23.19 974 6.68 0 0.00 0 - Volvo Buses India Pvt. Ltd. 62 82.35 605 25.00 0 0.00 0 0.00 Total 67,362 61.16 531,395 38.31 5,766 102.46 45,007 5.59 * Cumulative data is only for July-March 2010 *** Cumulative data is only for Oct-March 2010 Date: 09/04/2010 SIAM Page No. 2 Category and Company wise summary report for the month of : March 2010 Report VIII (Number of Vehicles) Domestic Sales Exports Category For the month of Cumulative For the month of Cumulative Segment/Subsegment March April-March March April-March Manufacturer 2010 YoY Growth 09-10 YoY Growth 2010 YoY Growth 09-10 YoY Growth Three Wheelers(3W) Atul Auto Limited 1,502 187.74 12,288 76.40 0 0.00 57 -98.74 Bajaj Auto Ltd 14,274 3.12 176,027 29.94 15,070 98.00 164,909 18.59 Force Motors Ltd 152 4.83 1,699 -29.88 42 - 611 40.14 Mahindra & Mahindra Ltd 4,372 8.14 44,438 -0.21 336 888.24 990 266.67 Piaggio Vehicles Pvt Ltd 16,585 25.95 180,797 25.03 545 751.56 4,999 33.52 Scooters India Ltd 1,395 87.25 11,719 5.26 0 0.00 0 - TVS Motor Company Ltd 2,060 217.41 13,400 191.56 518 51,700.00 1,716 9,994.12 Total 40,340 21.82 440,368 25.92 16,511 114.15 173,282 17.03 Two Wheelers(2W) Bajaj Auto Ltd 194,825 108.64 1,785,507 38.83 50,064 27.51 726,189 14.64 Electrotherm (India) Ltd* NA - 2,482 -85.19 NA -5025.00 Hero Honda Motors Ltd 405,240 16.76 4,502,431 23.68 9,398 49.79 97,699 20.33 Honda Motorcycle & Scooter India (Pvt) Ltd 136,878 81.06 1,192,057 17.34 7,551 21.93 79,504 47.76 India Yamaha Motor Pvt Ltd 17,864 22.71 223,305 37.55 9,596 722.28 65,123 68.99 Kinetic Motor Company Ltd 0 0.00 0 - 0 0.00 0 - Mahindra Two Wheelers Ltd 12,753 - 70,008 - 112 - 1,592 0.00 Royal Enfield (Unit of Eicher Ltd) 4,369 16.04 50,098 17.77 387 36.27 2,356 10.61 Suzuki Motorcycle India Pvt Ltd 21,535 74.47 188,512 45.50 220 - 2,257 907.59 TVS Motor Company Ltd 126,669 19.90 1,356,831 19.36 20,067 22.81 165,414 -14.44 Total 920,133 40.69 9,371,231 26.00 97,395 40.09 1,140,184 13.54 Grand Total of All Categories 1,226,944 37.23 12,292,770 26.41 159,953 40.47 1,804,619 17.90 Jamnalal Bajaj Institute of Management Studies, Mumbai 10
Passenger Vehicles Domestic Sales Market Share Manufacturers ( In Numbers ) (In Percentage) April- March April- March 2008-09 2009-10 2008-09 2009-10 BMW India Pvt Ltd 3,038 3,941 0.20 0.20 Fiat India Automobiles Pvt Ltd 8,053 24,806 0.52 1.27 Force Motors Ltd 5,063 5,917 0.33 0.30 Ford India Pvt Ltd 27,976 36,887 1.80 1.89 General Motors India Pvt Ltd 61,526 87,093 3.96 4.47 Hindustan Motors Ltd 9,182 10,714 0.59 0.55 Honda Siel Cars India Ltd 52,419 61,803 3.38 3.17 Hyundai Motor India Ltd 244,080 314,981 15.72 16.15 International Cars & Motors Ltd 3,484 1,011 0.22 0.05 Mahindra & Mahindra Ltd 106,378 150,627 6.85 7.73 Mahindra Renault Pvt Ltd 13,423 5,332 0.86 0.27 Maruti Suzuki India Ltd 722,144 870,783 46.51 44.66 Mercedes-Benz India Pvt Ltd 3,302 3,760 0.21 0.19 Nissan Motor India Pvt Ltd** 103 306 0.01 0.02 SkodaAuto India Pvt Ltd 13,894 17,502 0.89 0.90 Tata Motors Ltd 230,742 285,846 14.86 14.66 Toyota Kirloskar Motor Pvt Ltd 46,892 63,843 3.02 3.27 Volkswagen - Audi* 1,004 1,532 0.06 0.08 Volkswagen India Pvt Ltd 0 3,092 0.00 0.16 Total 1,552,703 1,949,776 100.00 100.00
Passenger Vehicles
Fiat India Automobiles Pvt Ltd Ford India Pvt Ltd 1.27% BMW India Pvt Ltd 1.89% 0.20% Volksw agen - Audi* Force Motors Ltd General Motors India Pvt Ltd Nissan Motor India Pvt Ltd** 0.08% 0.30% 4.47% 0.02% Volksw agen India Pvt Ltd Hindustan Motors Ltd Tata Motors Ltd 0.16% 0.55% 14.66% SkodaAuto India Pvt Ltd Honda Siel Cars India Ltd 0.90% 3.17% Toyota Kirloskar Motor Pvt Ltd Hyundai Motor India Ltd 3.27% 16.15% International Cars & Motors Mercedes-Benz India Pvt Ltd Ltd 0.19% 0.05% Maruti Suzuki India Ltd Mahindra & Mahindra Ltd 44.66% 7.73% Mahindra Renault Pvt Ltd 0.27%
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Passenger Cars Domestic Sales Market Share Manufacturers ( In Numbers ) (In Percentage) April- March April- March 2008-09 2009-10 2008-09 2009-10 BMW India Pvt Ltd 2,742 3,461 0.22 0.23 Fiat India Automobiles Pvt Ltd 8,053 24,806 0.66 1.62 Ford India Pvt Ltd 25,196 34,290 2.06 2.25 General Motors India Pvt Ltd 45,923 70,636 3.76 4.63 Hindustan Motors Ltd 7,098 9,038 0.58 0.59 Honda Siel Cars India Ltd 50,173 61,329 4.11 4.02 Hyundai Motor India Ltd 244,030 314,967 19.99 20.63 Mahindra Renault Pvt Ltd 13,423 5,332 1.10 0.35 Maruti Suzuki India Ltd 636,707 765,526 52.17 50.14 Mercedes-Benz India Pvt Ltd 3,172 3,611 0.26 0.24 Nissan Motor India Pvt Ltd** 56 126 0.00 0.01 SkodaAuto India Pvt Ltd 13,894 17,502 1.14 1.15 Tata Motors Ltd 160,422 201,399 13.14 13.19 Toyota Kirloskar Motor Pvt Ltd 8,582 10,140 0.70 0.66 Volkswagen - Audi* 1,004 1,532 0.08 0.10 Volkswagen India Pvt Ltd 0 3,092 0.00 0.20 Total 1,220,475 1,526,787 100.00 100.00
Passenger Cars
Fiat India Automobiles Pvt Ltd Toyota Kirloskar Motor Pvt 1.62% Ltd Hindustan Motors Ltd 0.66% BMW India Pvt Ltd Volksw agen - Audi* Ford India Pvt Ltd 0.59% 0.23% 0.10% 2.25% Mercedes-Benz India Pvt Ltd Volksw agen India Pvt Ltd Honda Siel Cars India Ltd 0.24% SkodaAuto India Pvt Ltd 0.20% 4.02% 1.15% Tata Motors Ltd 13.19%
General Motors India Pvt Ltd Nissan Motor India Pvt Ltd** 4.63% 0.01% Hyundai Motor India Ltd 20.63%
Maruti Suzuki India Ltd 50.14% Mahindra Renault Pvt Ltd 0.35%
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Utility Vehicles Domestic Sales Market Share Manufacturers ( In Numbers ) (In Percentage) April- March April- March 2008-09 2009-10 2008-09 2009-10 BMW India Pvt Ltd 296 480 0.13 0.18 Force Motors Ltd 5,063 5,917 2.24 2.17 Ford India Pvt Ltd 2,780 2,597 1.23 0.95 General Motors India Pvt Ltd 15,603 16,457 6.92 6.03 Hindustan Motors Ltd 2,084 1,676 0.92 0.61 Honda Siel Cars India Ltd 2,246 474 1.00 0.17 Hyundai Motor India Ltd 50 14 0.02 0.01 International Cars & Motors Ltd 3,484 1,011 1.54 0.37 Mahindra & Mahindra Ltd 106,378 150,627 47.15 55.23 Maruti Suzuki India Ltd 7,489 3,932 3.32 1.44 Mercedes-Benz India Pvt Ltd 130 149 0.06 0.05 Nissan Motor India Pvt Ltd** 47 180 0.02 0.07 Tata Motors Ltd 41,661 35,516 18.47 13.02 Toyota Kirloskar Motor Pvt Ltd 38,310 53,703 16.98 19.69 Total 225,621 272,733 100.00 100.00
Utility Vehicles
Honda Siel Cars India Ltd 0.17% Ford India Pvt Ltd BMW India Pvt Ltd Force Motors Ltd 0.95% Hyundai Motor India Ltd 0.18% 2.17% General Motors India Pvt Ltd 0.01% 6.03% International Cars & Motors Toyota Kirloskar Motor Pvt Ltd Ltd 0.37% 19.69% Hindustan Motors Ltd 0.61% Nissan Motor India Pvt Ltd** 0.07%
Tata Motors Ltd 13.02%
Mahindra & Mahindra Ltd Mercedes-Benz India Pvt Ltd 55.23% 0.05% Maruti Suzuki India Ltd 1.44%
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Multi Purpose Vehicles Domestic Sales Market Share Manufacturers ( In Numbers ) (In Percentage) April- March April- March 2008-09 2009-10 2008-09 2009-10 Maruti Suzuki India Ltd 77,948 101,325 73.12 67.43 Tata Motors Ltd 28,659 48,931 26.88 32.57 Total 106,607 150,256 100.00 100.00
Multi Purpose Vehicles
Tata Motors Ltd 32.57%
Maruti Suzuki India Ltd 67.43%
Commercial Vehicles Domestic Sales Market Share Manufacturers ( In Numbers ) (In Percentage) April- March April- March 2008-09 2009-10 2008-09 2009-10 Ashok Leyland Ltd 47,619 57,951 12.39 10.91 Asia Motor Works Ltd 3,623 3,936 0.94 0.74 Force Motors Ltd 7,819 11,509 2.04 2.17 Hindustan Motors Ltd 59 293 0.02 0.06 JCBL Ltd* 0 179 0.00 0.03 Kamaz Vectra Motors Ltd 6 0 0.00 0.00 Mahindra & Mahindra Ltd 55,881 85,790 14.54 16.14 Mercedes-Benz India Pvt Ltd 219 215 0.06 0.04 Piaggio Vehicles Pvt Ltd 9,012 11,094 2.35 2.09 Swaraj Mazda Ltd 7,375 9,364 1.92 1.76 Tata Motors Ltd 233,843 322,699 60.87 60.73 VE CVs - Eicher 17,341 26,786 4.51 5.04 VE CVs - Volvo 913 974 0.24 0.18 Volvo Buses India Pvt. Ltd. 484 605 0.13 0.11 Total 384,194 531,395 100.00 100.00 Jamnalal Bajaj Institute of Management Studies, Mumbai 14
Commercial Vehicles Ashok Leyland Ltd 10.91% Asia Motor Works Ltd JCBL Ltd* 0.74% 0.03% Volvo Buses India Pvt. Ltd. Kamaz Vectra Motors Ltd VE CVs - Volvo 0.11% 0.00% 0.18% Force Motors Ltd 2.17%
Hindustan Motors Ltd 0.06% VE CVs - Eicher 5.04% Mahindra & Mahindra Ltd 16.14% Mercedes-Benz India Pvt Ltd 0.04% Piaggio Vehicles Pvt Ltd Tata Motors Ltd 2.09% Sw araj Mazda Ltd 60.73% 1.76%
M&HCVs (Passenger Carrier) Domestic Sales Market Share Manufacturers ( In Numbers ) (In Percentage) April- March April- March 2008-09 2009-10 2008-09 2009-10 Ashok Leyland Ltd 16,026 16,405 45.93 38.08 JCBL Ltd* 0 179 0.00 0.42 Swaraj Mazda Ltd 1,605 1,863 4.60 4.32 Tata Motors Ltd 15,442 22,101 44.26 51.30 VE CVs - Eicher 1,335 1,928 3.83 4.48 Volvo Buses India Pvt. Ltd. 484 605 1.39 1.40 Total 34,892 43,081 100.00 100.00
M&HCVs (Passenger Carrier)
Volvo Buses India Pvt. Ltd. VE CVs - Eicher 1.40% 4.48% Ashok Leyland Ltd 38.08%
Tata Motors Ltd JCBL Ltd* 51.30% 0.42% Swaraj Mazda Ltd 4.32%
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M&HCVs (Goods Carrier) Domestic Sales Market Share Manufacturers ( In Numbers ) (In Percentage) April- March April- March 2008-09 2009-10 2008-09 2009-10 Ashok Leyland Ltd 31,067 40,734 20.91 20.17 Asia Motor Works Ltd 3,623 3,936 2.44 1.95 Kamaz Vectra Motors Ltd 6 0 0.00 0.00 Mercedes-Benz India Pvt Ltd 219 215 0.15 0.11 Swaraj Mazda Ltd 2,331 3,864 1.57 1.91 Tata Motors Ltd 98,232 133,036 66.10 65.87 VE CVs - Eicher 12,212 19,218 8.22 9.51 VE CVs - Volvo 913 974 0.61 0.48 Total 148,603 201,977 100.00 100.00
M&HCVs (Goods Carrier)
VE CVs - Volvo Ashok Leyland Ltd 0.48% 20.17% VE CVs - Eicher Kam az Vectra Motors Ltd 9.51% 0.00%
Asia Motor Works Ltd 1.95% Mercedes-Benz India Pvt Ltd 0.11% Swaraj Mazda Ltd 1.91% Tata Motors Ltd 65.87%
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LCVs (Passenger Carrier) Domestic Sales Market Share Manufacturers ( In Numbers ) (In Percentage) April- March April- March 2008-09 2009-10 2008-09 2009-10 Ashok Leyland Ltd 523 812 1.94 2.36 Force Motors Ltd 4,027 5,779 14.94 16.79 Hindustan Motors Ltd 9 14 0.03 0.04 Mahindra & Mahindra Ltd 5,118 5,023 18.99 14.59 Swaraj Mazda Ltd 1,944 1,835 7.21 5.33 Tata Motors Ltd 13,941 19,162 51.73 55.67 VE CVs - Eicher 1,390 1,796 5.16 5.22 Total 26,952 34,421 100.00 100.00
LCVs (Passenger Carrier)
Ashok Leyland Ltd 2.36% Force Motors Ltd 16.79%
VE CVs - Eicher 5.22% Hindustan Motors Ltd 0.04%
Mahindra & Mahindra Ltd 14.59%
Tata Motors Ltd 55.67% Swaraj Mazda Ltd 5.33%
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LCVs (Goods Carrier) Domestic Sales Market Share Manufacturers ( In Numbers ) (In Percentage) April- March April- March 2008-09 2009-10 2008-09 2009-10 Ashok Leyland Ltd 3 0 0.00 0.00 Force Motors Ltd 3,792 5,730 2.18 2.27 Hindustan Motors Ltd 50 279 0.03 0.11 Mahindra & Mahindra Ltd 50,763 80,767 29.22 32.06 Piaggio Vehicles Pvt Ltd 9,012 11,094 5.19 4.40 Swaraj Mazda Ltd 1,495 1,802 0.86 0.72 Tata Motors Ltd 106,228 148,400 61.14 58.91 VE CVs - Eicher 2,404 3,844 1.38 1.53 Total 173,747 251,916 100.00 100.00
LCVs (Goods Carrier)
Force Motors Ltd Hindustan Motors Ltd 2.27% 0.11% VE CVs - Eicher Ashok Leyland Ltd Mahindra & Mahindra 1.53% 0.00% Ltd 32.06%
Tata Motors Ltd 58.91% Piaggio Vehicles Pvt Swaraj Mazda Ltd Ltd 0.72% 4.40%
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Three Wheelers Domestic Sales Market Share Manufacturers ( In Numbers ) (In Percentage) April- March April- March 2008-09 2009-10 2008-09 2009-10 Atul Auto Limited 6,966 12,288 1.99 2.79 Bajaj Auto Ltd 135,470 176,027 38.74 39.97 Force Motors Ltd 2,423 1,699 0.69 0.39 Mahindra & Mahindra Ltd 44,533 44,438 12.73 10.09 Piaggio Vehicles Pvt Ltd 144,606 180,797 41.35 41.06 Scooters India Ltd 11,133 11,719 3.18 2.66 TVS Motor Company Ltd 4,596 13,400 1.31 3.04 Total 349,727 440,368 100.00 100.00
Three Wheelers
TVS Motor Company Ltd 3.04% Atul Auto Lim ited Scooters India Ltd 2.79% 2.66% Bajaj Auto Ltd 39.97%
Piaggio Vehicles Pvt Ltd 41.06%
Force Motors Ltd Mahindra & Mahindra Ltd 0.39% 10.09%
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Three Wheelers (Passenger Carrier) Domestic Sales Market Share Manufacturers ( In Numbers ) (In Percentage) April- March April- March 2008-09 2009-10 2008-09 2009-10 Atul Auto Limited 2,625 4,986 0.98 1.43 Bajaj Auto Ltd 125,273 164,493 46.66 47.04 Force Motors Ltd 579 477 0.22 0.14 Mahindra & Mahindra Ltd 27,170 30,441 10.12 8.71 Piaggio Vehicles Pvt Ltd 102,467 130,138 38.17 37.22 Scooters India Ltd 5,753 5,727 2.14 1.64 TVS Motor Company Ltd 4,596 13,400 1.71 3.83 Total 268,463 349,662 100.00 100.00
Three Wheelers (Passenger Carrier)
TVS Motor Company Ltd 3.83% Scooters India Ltd Atul Auto Lim ited 1.64% 1.43%
Piaggio Vehicles Pvt Ltd Bajaj Auto Ltd 37.22% 47.04%
Force Motors Ltd Mahindra & Mahindra Ltd 0.14% 8.71%
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Three Wheelers (Goods Carrier) Domestic Sales Market Share Manufacturers ( In Numbers ) (In Percentage) April- March April- March 2008-09 2009-10 2008-09 2009-10 Atul Auto Limited 4,341 7,302 5.34 8.05 Bajaj Auto Ltd 10,197 11,534 12.55 12.72 Force Motors Ltd 1,844 1,222 2.27 1.35 Mahindra & Mahindra Ltd 17,363 13,997 21.37 15.43 Piaggio Vehicles Pvt Ltd 42,139 50,659 51.85 55.85 Scooters India Ltd 5,380 5,992 6.62 6.61 Total 81,264 90,706 100.00 100.00
Three Wheelers (Goods Carrier)
Scooters India Ltd Atul Auto Limited Bajaj Auto Ltd 6.61% 8.05% 12.72%
Force Motors Ltd 1.35%
Piaggio Vehicles Pvt Ltd Mahindra & Mahindra 55.85% Ltd 15.43%
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Two Wheelers Domestic Sales Market Share Manufacturers ( In Numbers ) (In Percentage) April- March April- March 2008-09 2009-10 2008-09 2009-10 Bajaj Auto Ltd 1,286,119 1,785,507 17.29 19.05 Electrotherm (India) Ltd* 16,763 2,482 0.23 0.03 Hero Honda Motors Ltd 3,640,357 4,502,431 48.95 48.05 Honda Motorcycle & Scooter India (Pvt) 1,015,890 1,192,057 13.66 12.72 India Yamaha Motor Pvt Ltd 162,341 223,305 2.18 2.38 Kinetic Motor Company Ltd 7,277 00.100.00 Mahindra Two Wheelers Ltd 0 70,008 0.00 0.75 Royal Enfield (Unit of Eicher Ltd) 42,538 50,098 0.57 0.53 Suzuki Motorcycle India Pvt Ltd 129,560 188,512 1.74 2.01 TVS Motor Company Ltd 1,136,774 1,356,831 15.28 14.48 Total 7,437,619 9,371,231 100.00 100.00
Two Wheelers
Royal Enfield (Unit of Eicher Ltd) 0.53% Suzuki Motorcycle India Pvt Ltd Kinetic Motor Company Ltd 2.01% 0.00% TV S Motor Company Ltd 14.48% India Yamaha Motor Pvt Ltd 2.38% Bajaj Auto Ltd Mahindra Tw o Wheelers Ltd 19.05% 0.75% Honda Motorcycle & Scooter India (Pvt) Ltd 12.72% Electrotherm (India) Ltd* 0.03%
Hero Honda Motors Ltd 48.05%
Jamnalal Bajaj Institute of Management Studies, Mumbai 22
Scooter /Scooterettee Domestic Sales Market Share Manufacturers ( In Numbers ) (In Percentage) April- March April- March 2008-09 2009-10 2008-09 2009-10 Bajaj Auto Ltd 9,692 3,759 0.84 0.26 Hero Honda Motors Ltd 153,193 208,440 13.34 14.25 Honda Motorcycle & Scooter India (Pvt) 654,319 739,947 57.00 50.59 Kinetic Motor Company Ltd 5,552 00.480.00 Mahindra Two Wheelers Ltd 0 70,008 0.00 4.79 Suzuki Motorcycle India Pvt Ltd 85,782 140,983 7.47 9.64 TVS Motor Company Ltd 239,469 299,370 20.86 20.47 Total 1,148,007 1,462,507 100.00 100.00
Scooters
TVS Motor Company Ltd 20.47% Bajaj Auto Ltd 0.26%
Hero Honda Motors Ltd Suzuki Motorcycle India 14.25% Pvt Ltd 9.64%
Mahindra Two Wheelers Ltd Kinetic Motor Company Honda Motorcycle & 4.79% Ltd Scooter India (Pvt) Ltd 0.00% 50.59%
Jamnalal Bajaj Institute of Management Studies, Mumbai 23
Motorcycles/Step Throughs Domestic Sales Market Share Manufacturers ( In Numbers ) (In Percentage) April- March April- March 2008-09 2009-10 2008-09 2009-10 Bajaj Auto Ltd 1,276,427 1,781,748 21.89 24.27 Hero Honda Motors Ltd 3,487,164 4,293,991 59.79 58.49 Honda Motorcycle & Scooter India (Pvt) 361,571 452,110 6.20 6.16 India Yamaha Motor Pvt Ltd 162,341 223,305 2.78 3.04 Kinetic Motor Company Ltd 238 00.000.00 Royal Enfield (Unit of Eicher Ltd) 42,538 50,098 0.73 0.68 Suzuki Motorcycle India Pvt Ltd 43,778 47,529 0.75 0.65 TVS Motor Company Ltd 457,896 492,358 7.85 6.71 Total 5,831,953 7,341,139 100.00 100.00
Motorcycles
Royal Enfield (Unit of Eicher Ltd) Suzuki Motorcycle India 0.68% Pvt Ltd 0.65% India Yamaha Motor Pvt Ltd TVS Motor Company Ltd 3.04% 6.71% Bajaj Auto Ltd Kinetic Motor Company 24.27% Ltd 0.00%
Honda Motorcycle & Scooter India (Pvt) Ltd 6.16%
Hero Honda Motors Ltd 58.49%
Mopeds Domestic Sales Market Share Manufacturers ( In Numbers ) (In Percentage) April- March April- March 2008-09 2009-10 2008-09 2009-10 Kinetic Motor Company Ltd 1,487 00.340.00 TVS Motor Company Ltd 429,727 564,584 99.66 100.00 Total 431,214 564,584 100.00 100.00
Jamnalal Bajaj Institute of Management Studies, Mumbai 24
Mopeds
Kinetic Motor Company Ltd 0.00%
TVS Motor Company Ltd 100.00%
Electric Two Wheelers Domestic Sales Market Share Manufacturers ( In Numbers ) (In Percentage) April- March April- March 2008-09 2009-10 2008-09 2009-10 Electrotherm (India) Ltd* 16,763 2,482 63.39 82.71 TVS Motor Company Ltd 9,682 519 36.61 17.29 Total 26,445 3,001 100.00 100.00
Electric Two Wheelers
TVS Motor Company Ltd 17.29%
Electrotherm (India) Ltd* 82.71%
Jamnalal Bajaj Institute of Management Studies, Mumbai 25
Recent Trends & Industry Features
New model launches, easy availability of car loans and stock building by dealers for festive
period has led to the healthy growth in August 2010. The domestic passenger car industry continued its growth trend in August 2010 with an increase of 33.2 per cent y-o-y. The overall
car industry (including exports) grew at a healthy rate of 22.9 per cent despite exports declining
by 7.2 per cent in August 2010.
Domestic passenger car sales trend 2007-08 2008-09 2009-10 2010-11 Apr 84,283 98,752 103,227 143,976 May 96,923 110,745 113,490 148,481 Jun 94,002 99,741 107,531 141,148 Jul 89,250 87,901 115,067 158,764 Aug 98,893 96,081 120,669 160,794 Sep 105,822 108,823 129,683 Oct 105,877 98,900 132,615 Nov 103,031 83,059 133,687 Dec 88,272 82,105 115,235 Jan 113,894 110,212 146,009 Feb 94,757 115,386 153,891 Mar 128,098 129,358 155,600 Total 1,203,102 1,221,063 1,526,704 753,163 Source: CRISIL Research
The domestic sales volumes in A1 mini segment almost doubled in August 2010 with increase in
delivery of Tata motors’ Nano (8,103 units). Maruti 800 continued its declining trend and managed to sell 1,919 units in August 2010 as compared to 2,734 units in August 2009.
In August 2010 the compact segment (A2 segment) grew by 27.3 per cent. Growth in A2 segment is mainly led by the new models launches in the segment. Around 15 per cent of this growth is attributed to just four models Figo (6,382 units), Beat (2,461 units), Polo (3,211 units) Jamnalal Bajaj Institute of Management Studies, Mumbai 26
and Micra (1,182 units). These models contribute to around 12 per cent of A2 segment sales
(within 4-8 months of launched) in August 2010. Top three players, MSIL, HMIL and TML, lost market share to new players like Ford India, Volkswagen, General Motors India and Nissan in the compact segment.
Mid-size segm ent sales trend (Units) 2007-08 2008-09 2009-10 2010-11 Apr 14,332 17,2 94 17,477 25,981 May 19,870 20,2 96 18,933 26,275 Jun 18,065 22,0 35 17,636 24,617 Jul 18,689 20,2 89 21,882 28,333 Aug 19,560 19,7 36 19,385 28,172 Sep 20,452 22,0 96 22,581 Oct 19,070 16,7 55 26,671 Nov 16,066 18,1 71 24,654 Dec 12,316 14,8 23 21,047 Jan 20,480 20,1 59 27,212 Feb 16,381 23,7 68 29,988 Mar 30,333 26,2 60 28,734 Total 225,614 241,682 276,200 133,378 Source: CRISIL Research
Auto volumes (Domestic) 14,000
12,000 CAGR of 11% Thousands 10,000
8,000
6,000
4,000
2,000
0 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11
Two Wheelers Passenger Vehicles Commercial Vehicles Three Wheelers
Jamnalal Bajaj Institute of Management Studies, Mumbai 27
2,200 Auto volumes (Exports)
2,000
1,800 CAGR of 29%
Thousands 1,600
1,400
1,200
1,000
800
600
400
200
0 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11
Two Wheelers Passenger Vehicles Commercial Vehicles Three Wheelers
Key developments
1 Price action: Hyundai hiked car prices by around 1.2 per cent from September 2010. The price increase ranges from Rs 3,500 to Rs 10,000 depending upon various models.
2 New launch: Maruti Suzuki India introduced CNG variants of five of its models – Alto,
Estilo, WagonR, Eeco and SX4. The CNG variants are priced 15-18 per cent higher than the petrol variants which ranges between Rs 3.23 lakh to Rs 7.47 lakh (ex-showroom Delhi).
3 New launch: Maruti Suzuki India also launched limited edition of its compact car Ritz –
Ritz Genus priced at Rs 4.52 lakh and Rs 5.31 lakh (ex-showroom, Delhi). The firm will introduce about 5,000 units of the limited edition available in both petrol and diesel options over the next three months. The new variants cost about Rs 16,000 more from the existing variants. Jamnalal Bajaj Institute of Management Studies, Mumbai 28
4 New launch: Toyota Kirloskar Motor launched a limited edition of its sports utility vehicle Fortuner, priced at Rs 20.45 lakh (ex-showroom, Delhi). The company will roll out only
250 units of this special edition of the Fortuner.
5 New launch: Volkswagen India rolled out a higher variant of its hatchback – Polo with an initial price tag of Rs 6.16 lakh (ex-showroom New Delhi). The new 1.6 L Polo comes with a 4- cylinder petrol engine and is paired with a 5-speed manual gear box and is claimed to have a fuel efficiency of 15.96 km/litre.
6 Investments: Maruti Suzuki India also announced capacity plans of Rs 1,925 crores for setting up sixth plant. The plant which has annual capacity of 2,50,000 units is expected to be commissioned by 2013.
Regulations and policies
· Pre-Auto policy
· Post-Auto policy
· Regulations and
· Taxes and duties
Jamnalal Bajaj Institute of Management Studies, Mumbai 29
A) Pre-Auto policy era
The roadmap adopted for the opening up of the automobile sector to global players was as
follows:
April 1993:
The licensing requirement for cars was abolished, resulting in the entry of various global players
to set up capacities for manufacturing cars and utility vehicles for the domestic market and
exports.
1995:
A policy was framed, whereby automobile companies were required to sign a memorandum of
understanding (MoU) with the Directorate General of Foreign Trade (DGFT) to obtain licences
for importing completely knocked down (CKD)/semi-knocked down (SKD) kits to be assembled
at plants in India. Automobile manufacturers also had to comply with the government's conditions on foreign direct investments, known as trade-related investment measures (TRIMS).
The highlights of this policy are as follows:
· Global manufacturers must be involved in the actual production of cars and must not merely assemble vehicles in the country.
· Manufacturers must achieve indigenisation levels of up to 50 per cent within 3 years, and
70 per cent by the end of 5 years, from the date of starting commercial production.
Jamnalal Bajaj Institute of Management Studies, Mumbai 30
· Foreign manufacturers must invest a minimum of $50 million as equity capital in a joint venture, if the venture involves majority of foreign equity ownership.
· Foreign exchange outflows must be balanced with inflows over a period of 5-7 years.
· In addition to vehicles, the venture will be allowed to export components, in order to meet export obligations.
· The time frame for the export commitment could be extended. A moratorium would be provided to companies to fulfil the obligation.
The main objective of adopting the MoU route was to limit foreign exchange outflow and ensure that foreign companies investing in India commit long-term investments for the manufacture of automobiles, instead of merely importing and selling models.
April 2001:
Quantitative restrictions (QRs) on automobiles were removed as the WTO, of which India is a
member, does not allow QRs, like import licences and import quotas, on foreign trade. Since
then, imports of all new and used automobiles have been allowed.
Jamnalal Bajaj Institute of Management Studies, Mumbai 31
B) Post-Auto policy era
Auto Policy, 2002
The government passed an auto policy, after the WTO rejected the restrictions imposed by India
on foreign car manufacturers. After the abolition of QRs in April 2001, the Indian government continued to impose strictures such as minimum investments, compulsory indigenisation and export commitments.
This prompted many MNC car manufacturers, who had made significant investments in India, to file an appeal with the WTO against these policies, as they felt they were being discriminated
against.
The Auto Policy of 2002 did away with most of the clauses in the earlier auto policy. The
highlights of the policy were:
· The removal of the ruling on indigenisation: Since most companies had already achieved
over 70 per cent indigenisation due to the cost advantages arising out of sourcing components
locally (as compared to paying high customs duty for the import of the same), this is not
expected to benefit the companies in India. However, it may benefit new companies likely to
enter India in the future.
· Removal of the export commitment clause: For all the companies (including those who had
signed agreements with DGFT in 1997) in September 2002, the government removed the export
commitment clause. The removal of this clause benefited manufacturers like Daewoo Motors,
Jamnalal Bajaj Institute of Management Studies, Mumbai 32
Honda SIEL and Hindustan Motors (which is involved in technical collaboration with Mitsubishi
for the Lancer model), as some of them had large outstanding export obligations.
· Automatic approval of foreign equity: The government started the trend of automatic
approval of foreign equity up to 100 per cent for the manufacture of automobiles and components.
· Specific fiscal incentives: The government announced special fiscal incentives for cars of less than 3.8 metres in length, in order to establish India as the Asian centre for the export of small cars and MUVs.
· Rebate and deduction of taxes and duties: Proposal for an increase in weighted deduction, from the existing 125 per cent, for research and development (R&D) activities under the IT Act,
1961. In addition, there was an introduction of a rebate on the applicable excise duty for every 1 per cent of the gross turnover spent on R&D.
· Provision of tax incentives: Provision of tax incentives, automatic approvals and import of equipment under the concessional import duty to encourage the setting up of independent auto design firms.
The ratification of this Auto Policy had the following implications:
· Most major global car manufacturers already had a presence in the Indian market. Hence, the policy did not trigger the entry of many new players. Jamnalal Bajaj Institute of Management Studies, Mumbai 33
· In accordance with its commitment to make India as a hub for small cars, the government,
in the Union Budget of 2006-07, abolished special excise duty (SED) of 8 per cent on small cars
(passenger cars having length less than 4,000 mm and engine capacity of 1,200 cc (petrol) and
1,500 cc (diesel)). However, on MUVs, the special excise duty has been retained.
· In accordance with its commitment to the WTO, the government has gradually lowered import duties within a stipulated time frame. Thus, the government has brought down the import
duties on components/CKDs from 30 per cent in February 2003 to 12.5 per cent in February
2006, which has helped reduce the costs of these components. These were further reduced to
10.3 per cent from 2008-09.
· Fiscal incentives offered by auto manufacturers on R&D have had a marginally positive
impact on their profits, as R&D costs account for 1-2 per cent of sales.
C) Regulations
Environmental regulations
Under the Auto Policy of 2002, the government has announced an Environmental Policy for
automobiles. Some of the key provisions of the policy are as follows:
· Approval of the Dr Mashelkar Committee provisions, which provide the time schedule for
the phased implementation of vehicular emission norms.
Jamnalal Bajaj Institute of Management Studies, Mumbai 34
· Encouragement for the manufacture of automobiles using alternative fuel technologies, like compressed natural gas (CNG) and electric batteries.
· Adopting the international system of levying road tax, based on the principle of higher tax for older vehicles, to discourage the use of old vehicles. At present, road taxes are levied at the time of purchase and are based on the type of the vehicle.
These clauses will encourage manufacturers to produce cars and utility vehicles with improved technologies and alternative fuels, which would be lower in price and emission levels. Sales of new cars are also likely to increase, since customers will be deterred from buying older cars due to higher road tax on the same.
Incentives for the upgradation of auto ancillary units to international standards will result in the availability of good-quality and competitively-priced components in the domestic market.
On September 1, 2001, the government constituted the Mashelkar Committee to:
· Recommend an ‘Auto Fuel Policy' for major cities and the rest of the country
· Formulate a roadmap for its implementation, and
· Recommend suitable auto fuels, automobile technologies and fiscal measures.
Jamnalal Bajaj Institute of Management Studies, Mumbai 35
In October 2003, government accepted the following recommendations of the Mashelkar
Committee report:
· The government should only stipulate vehicular emission standards and corresponding fuel specifications, without specifying vehicle technology and the type of fuel to be used.
· A roadmap for the implementation of vehicular emission norms and auto fuel quality as follows:
Roadmap for new vehicles
Coverage Passenger cars and utility vehicles Applicability
Entire country Bharat Stage II 1st April 2005
Euro III equivalent 1st April 2010
11 major cities* Bharat Stage II 1st April 2003
Euro III equivalent 1st April 2005
Euro IV equivalent** 1st April 2010
*includes Delhi/NCR, Mumbai, Kolkata, Chennai,Bangalore,Hyderabad
Ahmedabad, Pune, Surat, Kanpur and Agra
Source: CRISIL Research
· In order to comply with BS-III equivalent norms, the fuel used has a maximum sulphur content of 0.035 per cent, which was 0.05 per cent for BS-II. For BS-IV compliant, the fuel should have maximum sulphur content of 0.005 per cent..
Jamnalal Bajaj Institute of Management Studies, Mumbai 36
· Matching quality of petrol and diesel, as specified by the committee, should be
simultaneously made available.
· In addition to petrol and diesel as auto fuels, the government has permitted the use of CNG
and LPG as auto fuels. The government has also encouraged the use of di-methyl, bio-diesel,
hydrogen, electric and fuel cells or any other vehicle or fuel technology that will help meet the
prescribed emission norms.
· Other cost-effective measures such as comprehensive inspection and certification system
for in-use vehicles, fitting of emission reduction devices in existing vehicles, traffic management
and construction of by-passes should be established with private sector participation.
· In order to meet the new emissions norms, substantial investments are required to produce the appropriate quality of fuel and vehicles. As per the report, domestic oil companies that have already invested Rs 180 billion by 2005 to achieve Bharat Stage III auto fuel specification would
need to incur an additional Rs 120 billion for upgrading their refineries to produce Bharat Stage-
IV specification auto fuels (petrol and diesel).
Similarly, automobile companies will need to invest Rs 250 billion to manufacture car and utility
vehicle engines, which will meet these norms. In addition, the test facilities currently available in the country are inadequate to meet the new regulations.
Jamnalal Bajaj Institute of Management Studies, Mumbai 37
Hence, the committee recommended that preferential treatment be given to the oil and auto
industry in matters relating to:
- Customs duty on imported capital goods, equipment and machinery needed for the
upgradation of technology/facilities
- Excise duty on indigenously manufactured capital goods, equipment and machinery needed
for up gradation
- 100 per cent depreciation on plant and machinery set up for upgradation
- Soft loans for technology modernisation / upgradation projects
- Adequate incentives, such as tariff differentials and other measures, to enable the domestic
industry to compete with imports.
· The government should provide fiscal and financial incentives to the manufacturers and
users of electric vehicles to make these vehicles competitive.
Foreign investment and trade regulations
Foreign direct investment
At present in India, there are no specific conditions laid down for setting up of cars and utility
vehicle manufacturing plant. Under the Auto Policy framed in 2002, government allows automatic approval of foreign equity investment up to 100 per cent for the manufacture of automobiles and auto components.
This is to encourage India's development as a global hub for small and affordable passenger cars.
The policy promotes the setting up of auto design firms by promising tax breaks, concessional
duty on the import of machinery and auto components used in manufacturing process. Further, it Jamnalal Bajaj Institute of Management Studies, Mumbai 38
also promises fiscal incentives for the manufacture of multi-utility vehicles (MUVs) that can provide a mass transport system in rural areas.
To protect the local industry following the abolition of QRs, the government, in Union Budget
2001-02, imposed a high customs duty on imports of new and used vehicles to counter the unrestricted import of vehicles into India and protect the domestic automobile industry.
A peak customs duty of 35 per cent and a special additional customs duty of 4 per cent were imposed on imports of new cars and utility vehicles in the CKD/SKD format. Since then, the import duty on components and vehicles in the CKD format was lowered to 12.5 per cent in the
Union Budget 2006-07 and to 10.3 per cent in 2007-08; it continued to remain the same even in
Union budget of 2010-11.
The import duties on vehicles in the semi knocked down (SKD)/completely built unit (CBU) format have been retained at 61.8 per cent, while the basic duties on used vehicles were reduced marginally from 105 per cent to 100 per cent in Union Budget 2005-06.
Since then, no change has been made in the Union Budget. Hence, the regulation offers significant protection to Indian OEMs against imports of new vehicles in the SKD/CBU format and import of second-hand vehicles.
Jamnalal Bajaj Institute of Management Studies, Mumbai 39
Regulations for the import
New vehicles
Imports of new automobiles were subject to the following conditions:
· Automobiles can be imported only from the country of manufacture.
· Left-hand drive vehicles cannot be imported.
· Imported vehicles must conform to the provisions of the Motor Vehicles Act, 1988.
· A prototype of the vehicle to be imported must be approved by notified agencies in India.
Used vehicles
Since the removal of QRs allowed the import of used cars, the government, in its Export-Import
Policy of 2001-02, imposed various non-tariff barriers to protect the domestic automobile industry. Accordingly, imports of used automobiles were subject to the following conditions:
· Automobiles must not be over 3 years old
· Left-hand drive vehicles cannot be imported
· Pre-shipment and post-shipment certification would be mandatory to ensure compliance with the above requirements
· Imported automobiles must have a minimum residual life of 5 years, and the importer must ensure the supply of spares and servicing during this period
· Imports will be allowed only through the customs port at Mumbai
Given the stiff import conditions, not many used cars are imported into India. In addition, most
large global manufacturers, who have set up manufacturing bases in India, would not like their
Jamnalal Bajaj Institute of Management Studies, Mumbai 40
own second-hand models to compete with new models manufactured for the Indian market.
Therefore, hardly any of the manufacturers initiated used-car imports of their own models.
Emission norms
There are two focus areas that need changes with change in emission requirements - namely, engine technology and fuel quality. Emission requirements and its linkage with vehicle design and engine technology is high and requires investments from OEMs. The table below shows how these requirements are being met in India.
Safety norms
Safety norms are regulatory in nature and have led to a lot of technological changes in the industry. The systems complying with these norms can be classified as active and passive safety systems. Active safety features provide the driver, better control over the vehicle, whereas passive safety features are a part of the vehicle design and help prevent/ minimise injury to the vehicle’s occupants and the pedestrians in case of a crash.
Although safety standards in India are not much developed, the automobile industry is progressively aligning technically with international safety standards. The Central Motor
Vehicles Rules (CMVR) came into existence from 1989, and deals with construction, equipment, and maintenance of vehicles. Vehicles manufactured in the country have to comply with relevant
Indian Standards (IS) and Automotive Industry Standards (AIS).
Jamnalal Bajaj Institute of Management Studies, Mumbai 41
The government is planning to amend the Central Motor Vehicle Rules, the Bureau of Indian
Standards and other relevant provisions and introduce safety regulations that will conform to
global standards.
Government of India, in co-ordination with various state governments and Indian automotive industry, had initiated to form the National Automotive and R&D Infrastructure Project
(NATRIP) and create a state of the art testing, homologation, validation and R&D infrastructure facility in the country. This project aims at creating core global competencies in the automobile sector in India and position India prominently on the global automotive map. Some of the safety features installed in Indian cars are:
Active safety systems:
Anti-lock Braking System (ABS)
ABS is a system on motor vehicles which prevents the wheels from locking while braking. The purpose of this is two-fold: to allow the driver to maintain steering control under heavy braking and, in most situations, to shorten braking distances (by allowing the driver to hit the brake fully without the fear of skidding or loss of control).
A car with ABS will stop more quickly on most roads and will have improved stability and steering capability on all surfaces. The implementation of ABS is not mandatory in India. An
ABS-equipped car customer needs to pay an additional Rs 14,000- Rs 16,000.
Jamnalal Bajaj Institute of Management Studies, Mumbai 42
Electronic brakeforce distribution (EBD)
EBD is an automobile brake technology that automatically varies the amount of force applied to each of a vehicle's brakes, based on road conditions, speed, loading, etc. Always coupled with anti-lock braking systems, EBD can apply more or less braking pressure to each wheel to maximise stopping power while maintaining vehicular control. The additional value to be paid for electronic brakeforce distribution varies between Rs 4,000 and Rs 6,000.
Passive safety systems
Seat belts
A seat belt, also called a safety belt, is designed to secure the occupant of a vehicle against harmful movement that may result from a collision or a sudden stop. As part of an overall occupant-restraint system, seat belts are intended to reduce injuries by protecting the user from hitting hard interior elements of the vehicle or other passengers and by preventing the user from being thrown from the vehicle. Most seat belts are equipped with locking mechanisms (or inertia reels) that tighten the belt when pulled hard (e.g. by the force of a passenger's body during a crash) but do not tighten when pulled slowly. Seatbelts in many newer vehicles are also equipped with pretensioners, which are used to tighten the belt to prevent the occupant from jerking forward in a crash. This reduces the load on the occupant in a major crash. Like airbags, pretensioners are triggered by sensors in the car's body, and most pretensioners use explosively expanding gas to drive a piston that retracts the belt. Seat belts in India cost around Rs 500-700 to OEMs. In India, seat belts are compulsory under the traffic rules laid by the Motor Vehicles
Act, 1988 in India, violation of which leads to a penalty.
Jamnalal Bajaj Institute of Management Studies, Mumbai 43
Airbags
Airbags are designed to keep the head, neck, and chest from slamming into the dash, steering wheel, or windshield in a front-end crash. Airbags are fabric bags that are filled quickly with a gas to provide supplemental protection for vehicle passengers during some collisions. Airbags are most effective in protecting vehicle occupants who are properly belted. One or more sensors detect intensity and direction of vehicle deceleration during a collision. The sensor sends an electric signal to start a chemical reaction that inflates the air bag with harmless nitrogen gas.
Airbags have vents, so they deflate immediately after cushioning the passenger. If there is sufficient change in velocity in the direction of protection (frontal or lateral), appropriate airbags are deployed. The additional value to be paid for an airbag varies from Rs 9,000-16,000.
Automotive Mission Plan (AMP)
The AMP 2006-2016 has recommended that the NATRIP act as a Centre of Excellence for
Technical Design Data.
Auto OEM revenues (as a % of GDP)
11.0% 10.4%
9.3% 9.0% 8.3% 7.4% 7.0% 6.6% 5.9% 5.3% 4.8% 4.7% 5.0% 4.1% 4.2% 4.2% 3.6% 3.0% 3.0%
1.0% FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11e FY12e FY13e FY14e FY15e FY16e
Jamnalal Bajaj Institute of Management Studies, Mumbai 44
The principal objectives of NATRIP are as follows:
· Creation of Automotive testing and validation facility which will enable the government to provide vehicular safety, emission and performance of global standards.
· Deepening of manufacturing in India by encouraging larger value addition within the country.
· Enhancing India’s global outreach by facilitating development and mass production of high technology driven, affordable and globally-acceptable automotive products and de-bottlenecking their exports.
· Making available in India facility for high capability product development and validation.
NATRIP envisages an investment of Rs 17.2 billion over a period of six years to be undertaken in two phases. The first phase of NATRIP is focusing on building infrastructure and capabilities for testing and validation to meet emerging requirements in line with the National Automotive
Safety and Emission roadmaps. In the subsequent phase, key ‘Centers of Excellence’ will be set up to develop national capabilities in frontier automotive technologies.
Some of these ‘Centers of Excellence’ will aim at achieving high degree of convergence of
India’s strengths in areas like information technology, electronics, alternative energy sources, etc. Places shortlisted by NATRIP include Manesar, Chennai, Indore, Pune, Ahmednagar and
Silchar. The Global Automotive Research Centre (GARC) at Chennai and National Automotive
Test Tracks (NATRAX) at Indore are already at advanced stage of completion.
Jamnalal Bajaj Institute of Management Studies, Mumbai 45
D) Taxes and duties
One of the key determinants of the demand for automobiles is acquisition cost, which is largely
determined by sale price (ex-showroom price) and current income levels. In India, various taxes
and levies account for 30-35 per cent of the ex-showroom price of a passenger car.
Levies and taxes include excise duty of 8 per cent on small cars (less than length of 4,000 mm) and 20 per cent on others, natural calamity cess of 1 per cent, central sales tax of 2 per cent,
uniform VAT of 12.5 per cent and road and registration tax of 7-8 per cent. Rationalisation of the
tax structure could reduce prices.
The three key fiscal tariffs that influence car prices and hence, demand, include:
Sales tax / VAT
Before May 2000, different state governments levied different rates of sales tax ranging from 4
to 12 per cent. This created disparity in the price of the same model across different states,
encouraging the purchase of vehicles in states with lower sales tax. To prevent this, the
government fixed the sales tax on cars in all states at a uniform rate of 12 per cent, with effect
from May 1, 2000. However, the same has been replaced by VAT with effect from April 1, 2005.
A uniform VAT rate of 12.5 per cent is applicable in all the states of India, except for Uttar
Pradesh from April 1, 2007. VAT has been implemented in Uttar Pradesh from January 1, 2008 with a rate of 12.5 per cent for cars and utility vehicles.
Jamnalal Bajaj Institute of Management Studies, Mumbai 46
Excise duty
Excise duty rates directly affect the price of vehicles, and hence the affordability. The excise duty on cars and UVs has been reduced from a historical high of 40 per cent in 2000-01 to 24 per cent in Union Budget 2003-04. In the Union Budget 2006-07, the special excise duty of 8 per cent was abolished on small passenger cars of length less than 4,000 mm and engine capacity of
1,200 cc for petrol cars and 1,500 cc for diesel cars; however, cars having a length of more than
4,000 mm and UVs were not changed.
In the Union Budget of 2009-10, with the continued support of fiscal stimulus, the excise duty on cars with engine capacity less then 1.2 litre has been maintained at 8 per cent. It was reduced to 8 per cent in December 2008 from the previous level of 12 per cent due to slowdown in the economy. However, in Union Budget 2010-11, with recovery in consumer sentiment, the excise duty was increased by 2 per cent on all cars and utility vehicles.
Current excise duty structure April, 08 June, 08 Dec 7, 2008 Feb 24, 2009 June 7, 2009 Feb 26, 2010
2 Wheelers 12% 12% 8% 8% 8% 10%
3 Wheelers 12% 12% 8% 8% 8% 10%
Passenger Vehicles with engine capacity <1500cc** 12% 12% 8% 8% 8% 10% with engine capacity 1500-2000cc 24% 24% + INR15k 20% + INR15k 20% + INR15k 20% + INR15k 22% + INR15k with engine capacity >2000cc 24% 24% + INR20k 20% + INR20k 20% + INR20k 20% + INR15k 22% + INR15k ** (for petrol - 1300cc)
Commercial Vehicles - Goods 14% 14% 10% 8% 8% 10%
Commercial Vehicles - Passenger 12% 12% 8% 8% 8% 10%
Customs duty
Basic customs duty rates determine the protection the government gives to the domestic industry.
The basic customs duty on cars and UVs was reduced from 65 per cent in 1994-95 to 35 per cent
Jamnalal Bajaj Institute of Management Studies, Mumbai 47
in 2000-01. However, after the removal of quantitative restrictions on imports in April 2001, the basic customs duty on CBUs/SKDs was increased to 60 per cent, while for second-hand cars, the basic customs duty was maintained at 100 per cent to provide protection to domestic OEMs.
Nonetheless, to lower the input costs of the domestic industry, the government has reduced the
import duties on components and CKD units. In Union Budget 2006-07, the customs duty on
cars and UVs in CKD form and components used for manufacturing cars and UVs has been
reduced from 15 per cent to 12.5 per cent. In Union Budget 2007-08, the customs duty was
further reduced to 10.3 per cent and it continues to remain the same in Union Budget 2010-11.
The total effective duties applicable to cars and UVs are given below: ad utility vehicles: Tariff
(per cent) Customs Excise 2009-10 2010-11 2009-10 2010-11 New cars -Completely knocked down units (CKD) 10.3 10.3 - - -Semi-knocked down units (SKD) 61.8 61.8 - - New cars -specified small cars 1 61.8 61.8 8.2 10.3 -others 61.8 61.8 20.6* 22.7* Second-hand cars 103 103 20.6* 22.7* Utility vehicles -6-12 seater 10.3 10.3 20.6* 22.7* -12 seater and above2 10.3 10.3 20.6* 22.7* Steel items 5.2 5.2 8.2 10.3 Engines and engine parts 7.7 7.7 8.2 10.3 Drive transmission, steering, suspension & braking parts 10.3 10.3 8.2 10.3 Electrical parts 7.7 7.7 8.2 10.3 1Specified small cars include cars with length not exceeding 4,000 mm and engine capacity not exceeding 1,200 cc for petrol cars and 1,500 cc for diesel cars. 2 Excluding driver Excise duty for all above items was reduced by 4 per cent in December 2008. In February 2009, for steel items and auto components, it was further reduced by 2 per cent. * Specific additional duty is charged since July 2008 of Rs 15,000 per unit on cars and utility vehicles which are of 1,500 cc and above Source: CRISIL Research
Jamnalal Bajaj Institute of Management Studies, Mumbai 48
What triggered this Auto Boom
Vehicular penetration levels in India is still extremely low, at approximately 13 vehicles per
1,000 people as against approximately 128 per 1,000 in China and 765 per 1,000 in the
United States. Rural vehicular penetration in India remains even lower at 3 vehicles per 1,000
people. Furthermore, favorable demographic changes (with 70% of the population below the
age of 35 years ~ target audience) is expected to bring over 150 million people to the
working population between 2006 and 2012.
Extremely low penetration (per 1,000 people) 800 765
600 558 543
458
400
213 193 200 156 128
13 0 USA Germany Japan UK Russia UAE Brazil China India
The lower penetration levels, rapidly growing middle class, increasing purchase power, local
availability of almost all the raw materials at a competitive cost, well-developed credit and
financing facilities, and availability of trained manpower at a low cost is extremely
conducive for the long-term growth of the automobile sector.
Jamnalal Bajaj Institute of Management Studies, Mumbai 49
Government initiatives like the salary and wage hikes in the sixth pay commission saw a
payout of about INR600bn to about 6m central government employees. This in turn has aided
the growth in urban and semi urban markets.
Furthermore, the consistent increase in rural spends are aiding growth in the rural markets.
Government’s spends under the employment guarantee scheme has witnessed a consistent
increase in the last 3 years.
10.0 CY09/FY10 - GDP growth rates (%) 8.7 7.4 7.5
5.0 4.5
2.5 1.3 0.2 0.0 -0.2 (2.5) -2.0 -2.5 -2.4 (5.0) -3.6 -5.2 -5.0 -4.9 -4.9 (7.5) -7.8 (10.0) UK US Italy India Spain Brazil Japan China Korea Russia France Australia Germany Indonesia Singapore
Government’s strong focus on boosting road infrastructure bodes well for the auto sector.
While competition from railways has increased for movement of passengers and goods
(especially for movement of commodities), roads are still the most preferred mode of
transport.
Jamnalal Bajaj Institute of Management Studies, Mumbai 50
14.5 Segment-wise GDP Growth (%)
12.0
9.5
7.0
4.5
2.0
(0.5)
(3.0) Industry led GDP growth (5.5)
(8.0) FY92 FY94 FY96 FY98 FY00 FY02 FY04 FY06 FY08 FY10 Agriculture Industry Service
This has been driven by last mile connectivity and more convenient service standards for
many routes. As a result, approximately 85% of passenger movement and 65% of goods
movement in the country happens via road. The construction of new highways has also
reduced vehicle turnaround time, which bodes well for freight transportation via road and
given a push to the Hub & Spoke model while distributing goods.
Break-up of road investments in next 5 years
National Highways 36%
State Rural Roads Roads 25% 39%
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Road transportation (and thereby the CV industry) is expected to receive a further boost with
the 11th plan envisaging an expenditure of approximately INR3 trillion on road projects. The
total investment towards road development between 2010 and 2014 is estimated to be
INR5,216bn.
IIP Growth (%) 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% Jul-95 Jul-98 Jul-01 Jul-04 Jul-07 Jul-10
The Ministry of Road Transport & Highways has set a target of completing construction of
20km of National highways per day, which would translate into around 35,000 km at the rate
of 7,000 km per year for the next five years.
Expected length to be constructed (km)
35,000 km at the rate 100,632 of 7,000 km per year 91,483 83,167
72,319
62,886
FY10 FY11e FY12e FY13e FY14e
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Job Market – Picking up
With the economy back on track and most companies expanding their operations, the job
market too is picking up.
A survey conducted by Naukri.com (India’s No. 1 job site, servicing over 34,000 corporate
clients) among recruiters across India reveals a positive hiring outlook.
Hiring Outlook - Survey 1.2% 5% 10% 2.3% 13% 14% 24.2%
38% 38%
72.3%
45% 38%
Dec 2008 Jan 2009 Jan 2010
New jobs will be created Replacement hiring will take place No hiring Layoffs will continue
Overall, 72% of recruiters say new jobs to be added in 2010, while 62% predict increments.
This is a distinct change from a similar survey conducted a year back, where only 45% of the
recruiters predicted the creation of new jobs.
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Hiring - Experience levels
4 - 8 years 1 - 3 years 40% 42%
Freshers Above 8 years 9% 9%
Recruiters ranged across industries (IT, ITeS, Auto, Telecom, Construction, Banking and
Pharma). Hiring optimism was strongest in the IT and BPO sectors, where 80% of recruiters
indicated that new jobs will be created, whereas 70% predicted that the range of increments
will be between 5 to 20%.
Range of Increments
5 - 10% 10 - 20% 43% 41%
<5% >20% 7% 9%
Jamnalal Bajaj Institute of Management Studies, Mumbai 54
The Road Ahead
Domestic cars and UV market to sustain momentum; volumes to double by 2014-15
CRISIL Research expects volumes of domestic cars and UVs to grow at 14-15 per cent, reaching
a market size of Rs 1,750 billion by 2014-15. In the short term, the domestic passenger car
industry is expected to grow by 15-16 per cent in 2010-11, whereas the domestic UVs industry will grow by 13-15 per cent. As a result, the domestic car and UV industry is estimated to reach
Rs 954 billion in 2010-11 from the current size of Rs 788 billion in 2009-10.
1. Short-term review and outlook on domestic passenger car and UV industry.
2. Research methodology of the long-term outlook of domestic cars and UVs and the major
demand drivers.
3. Long-term (2009-10 to 2014-15) outlook on domestic cars and UVs.
Segment-wise demand outlook
Particulars Short term Long term
2009-10 2009-10 2010-11 2011-12 2014-15 2014-15 (units) (% growth) (% growth) (% growth) (units) (5 yr CAGR) A1 - Mini 63378 28.3% 100-102% 109-111% 473500 49-50% A2 - Compact 1128272 27.4% 12.5-13.5% 13-14% 2157000 13-14% A3 - Mid-size 276071 14.2% 9-10% 9-10% 429200 9-10% A4-A6 58538 33.7% 12-13% 12-13% 99700 11-12% Total domestic cars (with ULCC) 1526259 25.1% 15-16% 19-20% 3159400 15-16% Total domestic cars (without ULCC) 1495909 22.6% 11-12% 12-13% 2809400 13-14% UVs 422826 27.4% 13-15% 9-10% 712700 10-11% Total domestic cars and UVs 1949085 25.6% 15-16% 17-18% 3872100 14-15% Source: CRISIL Research
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Framework for the analysis
Source: CRISIL Research
Domestic car and UV industry recovered sharply with 25.6 per cent growth in 2009-10
The domestic passenger car and UV industry grew at 25.6 per cent during 2009-10, over a flat
year of 2008-09. While the domestic car segment increased by 25.1 per cent over a flat last year,
the domestic UV segment grew by 27.4 per cent over a negative growth of 3.7 per cent in 2008-
09. The growth was mainly contributed by:
· Reduction in excise duty by 4 per cent and fuel prices by around 7 per cent, thereby lowering the cost of ownership for consumers in 2009-10.
Jamnalal Bajaj Institute of Management Studies, Mumbai 56
· Lower uncertainty over growth in income levels and better financing environment, both in
terms of lower interest rates and higher finance availability.
· Advancement of purchases in the last quarter of 2009-10, due to expected roll-back of
excise duty and rise in prices with implementation of BS IV norms.
· Deliveries of Tata Nano led to additional volumes of 30,000 units, contributing 2 per cent in growth.
Rise in disposable income and improved supplies of ULCC to drive growth in 2010-11 and
2011-12
The domestic car and UV industry is expected to continue its growth momentum, with sales volumes estimated to grow at 15-16 per cent in 2010-11 and 17-18 per cent in 2011-12. The following will be the key growth drivers:
· Rise in disposable income, due to tax savings offered in Union Budget 2010-11, to more than offset the increase in ownership cost, on account of hike in fuel prices, excise duty and expected vehicle price increases in 2010-11.
· Higher deliveries of Tata Nano with the start of commercial production in Sanand
· More customer choice with 12 new models launched in 2009-10 and another 15 expected in 2010-11 will enable the car market to expand.
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Short-term parameters indicate continued positive sentiment in 2010-11 and 2011-12
Improvement in income levels and tax benefits to aid growth
Rise in income levels and increased consumer confidence levels drive demand in the short term.
While cost of ownership is expected to increase in 2010-11, the resultant savings due to widening of tax slabs in Union Budget 2010-11 will more than offset the cost increase.
Salaries and number of IT employees expected to Tax savings to outweigh increase in ownership grow cost
Source: CRISIL Research Income levels considered for tax savings
· Expected increase in salaries of IT-ITES employees by 8-10 per cent in 2010-11 and 13-
15 per cent in 2011-12, indicating better income levels amongst salaried class.
· Cost of vehicle ownership is likely to increase with 2 per cent hike in excise duty, rise in fuel prices and expected increase in vehicle prices.
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· The increased certainty in income levels is expected to translate into more car sales.
· However, with the widening of taxation slabs in Union Budget 2010-11, the resultant tax savings will far outweigh the increase in ownership cost.
· For the A2 segment, the average increase in cost of ownership is expected to be around Rs
8,300; however, tax savings of Rs 12,000 will far outweigh the cost.
Increasing finance penetration to aid growth despite hardening of interest rates Down payment to reduce with increased LTV and Interest rates and EMI Rs per lakh penetration
Source: CRISIL Research Source: CRISIL Research
With improvement in business confidence and reduction in uncertainty over income growth, we
expect finance penetration and LTV for cars to increase. Average LTV is expected to rise from
71 per cent in 2009-10 to 75 per cent in 2011-12. While interest rates are expected to move up by
100-150 basis points with the expected tightening of monetary policy in 2010-11, the marginal
increase in EMIs will not affect consumer sentiments.
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Increasing model launches in small cars at competitive prices to expand market
Segment-wise expected model launches
2009-10 2010-11 2011-12 A1 Tata Nano Maruti - YR3 Nano [diesel version], Bajaj Auto Ltd/Renault compact car,
A2 Maruti Ritz, GM Beat, Wagon R (facelift) (YR9), Nissan Reva Car Co.NX 4, Hindustan Fiat Punto, VW Polo, Micra, Toyota Etios (Hatch) Motors-Colt Ford Figo, Honda Jazz A3 Tata Manza Hyundai i30, VW Polo Sedan, Skoda Fabia Combi Corolla Altis (Diesel), Toyota Etios (Sedan) A4-A6 GM Cruze Tata Motors Prima,Hyundai Motors - Maruti Suzuki Kizashi Avente UV Maruti Eeco, Premiere Tata Motors (Indicruz/Aria), M&M Audi Q1 Rio, Toyota Fortuner W201, Toyota Motors (Avanza), Maruti Eeco
No. of launches (overall) 12 15 10 No. of launches (A1+A2) 7 4 4 Cumulative models (in A1+A2 market) 24 27 31 Note: Maruti Versa discontinued in 2009-10
Source: CRISIL Research
New models provide latest features and more choice to customers. The significance of new models is increasing with reducing time to develop and launch them.
Sales of new models (less than 1-year old) were at 92,000 units in 2009-10, contributing to 8 per cent of total sales in the A2 segment in 2009-10.
The A2 segment is expected to grow with 6 new model launches in H2 2009-10 and another 3 expected in 2010-11.
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Commissioning of mother plant of ULCC and debottlenecking at major players to improve supplies in domestic market
All major players operating at 100 per cent capacity
· Major players hit by capacity constraints are finding ways to continue supplies in the
domestic market. Players are expanding capacities for domestic markets by debottlenecking existing lines, operating in third shifts and freeing up export capacity for domestic operations.
· Maruti is expected to increase its capacity by 0.1 mn units in 2010-11 by debottlenecking
its existing lines and Hyundai is likely to shift 60,000 units of export capacity for domestic
production.
· The A1 segment will drive overall growth with increased supplies of ULCC from its
mother plant, adding to incremental volumes. ULCCs are expected to contribute additional
volumes of 110 thousand units in 2010-11 and 250 thousand units in 2011-12, contributing to 6 per cent and 12 per cent of total sales in 2010-11 and 2011-12, respectively.
Jamnalal Bajaj Institute of Management Studies, Mumbai 61
Research methodology
Long-term demand forecast methodology
Demand forecasting methodology
Car stock
· Sales of each segment have been used to arrive at car population for a year, after adjusting for scrappage.
Income distribution
· Basic income distribution data has been sourced from a survey conducted by the National
Centre for Applied and Economic Research (NCAER) on household income distribution.
· CRISIL Research has forecast the number of households for each segment for the future
(up to 2014-15), using expected economic growth rates and trends in income distribution patterns.
Jamnalal Bajaj Institute of Management Studies, Mumbai 62
Threshold income calculation
The threshold income level for each segment has been calculated using EMI and other operating
costs. EMIs are estimated based on CRISIL Research’s outlook on loan to value, interest rates
and average loan tenure. Operating costs include fuel cost, insurance cost and maintenance
charges.
Equated monthly installments (EMI)
The EMI for cars in each segment is calculated at the current interest rates for the entry-level
model or the highest selling model in each segment. The loan component is assumed at 70-75 per
cent for cars of different segments.
Car penetration
· The propensity to purchase a personal vehicle has been calculated using the threshold
income and income distribution pattern.
· The expected propensity for 2014-15 has been forecast using the past trend of propensity.
Demand forecast
· The forecasted propensity for 2014-15 has been used to calculate annual sales in 2014-15 for each segment [mini (A1), compact (A2), mid-size (A3), and executive, premium, and luxury
(A4-A6)].
· The demand forecast has been further divided into new car demand and upgrade demand.
Jamnalal Bajaj Institute of Management Studies, Mumbai 63
Domestic car and UV industry posted a CAGR of 12.9 per cent between 2004-05 and 2009-
10
The domestic passenger car and UV industry registered a CAGR of 12.9 per cent during 2004-05
and 2009-10 to reach 1.9 million units. The increase was mainly driven by growth of the
compact car segment, contributing 74 per cent of total domestic car sales. The compact car
segment clocked a CAGR of 17.9 per cent on the back of new model launches in the segment
and rising affordability. Affordability over the past five years increased with rise in per capita
income and reduction in car prices. While total domestic car segment has registered a CAGR of
13.2 per cent to reach 1.53 mn units, the UV segment has posted an 11.9 per cent CAGR between 2004-05 and 2009-10 to reach 0.42 mn units
Increased deliveries of ULCC and rise in income are expected to help domestic car and UV industry to grow by 14-15 per cent over the next 5 years
Domestic passenger car and UV industry is expected to register a CAGR of 14-15 per cent over the next 5 years to reach a size of 3.8 million units. Domestic car sales are expected to grow by
13-14 per cent, mainly driven by increased supplies of ULCC in the A1 segment. Thus, the mini
(A1) segment is expected to post a CAGR of 48-50 per cent over the next five years.
Domestic utility vehicle sales are expected to clock a CAGR of 10-11 per cent over the next five years, with new model launches driving demand for personal usage and increased demand in the taxi and tourist segment driving commercial demand.
Jamnalal Bajaj Institute of Management Studies, Mumbai 64
Long-term growth to be driven by increase in addressable market and stable penetration
levels
Addressable market is a function of household income and annual cost of ownership of entry
level model. Total addressable households increased substantially from 8.6 mn households in
2004-05 to 5.2 mn households in 2009-10. In the next five years, total addressable households
are expected to increase to 118 mn, mainly driven by rising income.
The car and UV penetration level in India is expected to remain stable at 19 per cent, after a sharp fall from 38 per cent in 2008-09. With penetration levels expected to be stable, the rapid
increase in the addressable market will drive the growth in sales in the next 5 years.
Addressable market will continue to grow Growth in income to drive growth in addressable market FY00- Increase in HH (thousands) FY05 FY05-FY10 FY10-FY15 Total addr HHs 4,713 43,133 66,788 - Owing to change in ownership cost (including 3,094 36,559 27,388 ULCC) - Owing to income growth 1,620 6,574 39,400 Contribution in incr addr 100 100 100 HHs (%) - Owing to change in ownership cost (including 66 85 41 ULCC) - Owing to income growth 34 15 59
Source: CRISIL Research Source: CRISIL Research
Jamnalal Bajaj Institute of Management Studies, Mumbai 65
The following factors affected the addressable households in 2005-10:
· Between 2004-05 and 2009-10, rise in income contributed to 6.5 mn households, while substantial reduction in cost of ownership, owing to the launch of Tata Nano, contributed to
36.6mn households.
However, excluding the contribution of Tata Nano, the number of addressable households would have increased by 9.6 mn only between 2004-05 and 2009-10.
· Average car prices decreased due to reduction in excise duty from 24.5 per cent in 2004-05 to 10.2 per cent in 2009-10.
With rising income levels, addressable market to more than double in next five years
The growth in addressable market will be led by:
· Income growth between 2009-10 and 2014-15 is expected to add 39.4 mn households, while reduction in ownership cost will contribute only 27.4 mn additional households.
· Expected fall in annual cost of ownership by 17 per cent to Rs 63,000 for a compact (A2) segment car.
· Advent of technology and usage of alternate fuel are expected to reduce expense on fuel.
· Reduced cost of maintenance and wear and tear with manufacturers focusing on lowering total cost of ownership.
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Small cars to drive
Particulars Units sold (in millions) 5-year CAGR ( in per cent)
2004-05 to 2009-10 to 2009-10 2014-15 E 2009-10 2014-15 E
A1 - Mini 63378 473,500 -11.4% 49-50% A2 - Compact 1128272 2,157,100 17.9% 13-14% A3 – Mid-size 276071 429,200 9.1% 9-10% A4-A6 58538 99,700 15.4% 11-12% Total domestic cars (with ULCC) 1526259 3,159,400 13.2% 15-16% Total domestic cars (without ULCC) 1495909 2,809,400 12.8% 13-14% UVs 422826 712,800 11.9% 10-11% Total domestic cars and UVs 1,949,085 3,872,200 12.9% 14-15% Source: CRISIL Research
Segment-wise key growth drivers for next 5 years
Mini (A1) segment to grow at a CAGR of 49-50 per cent, driving overall growth
· Increase in addressable household (addressable household is the function of disposable
income and prices) due to reduction in entry level prices of cars with the launch of Tata Nano,
positioned as an ultra low-cost car, is expected to contribute 11 per cent of total sales by 2014-
15.
· Bajaj-Renault has announced the launch of a ULCC by 2011-12; however, considering the
current status of the project, the launch may get delayed.
· MSIL has plans to launch a sub Rs 2 lakh car with a stripped-down variant of its entry
level car Alto in the compact segment.
Jamnalal Bajaj Institute of Management Studies, Mumbai 67
Compact (A2) car segment to grow at a CAGR of 13-14 per cent
· Competitively priced new models with latest features will provide wider choice to customers, thereby advancing purchases.
· New model launches from existing and new players in the upper compact segment to enable increased sales growth of the compact segment.
· Increase in sales volume of ULCC in the A1 segment is expected to bring down the share of compact car from 74 per cent in 2009-10 to 64 per cent in 2014-15
Mid-size (A3) segment to grow at a lower CAGR of 9-10 per cent than the industry
· Mid-size segment is expected to grow slower than the industry as higher compact segment cars and competitively-priced utility vehicles are likely to cannibalise lower mid-size segment cars.
· Share of mid-size segment is expected to drop from 18.1 per cent in 2009-10 to 13.6 per cent in total passenger car volumes by 2014-15. Further, with the top two players in terms of dealerships – MSIL and HMIL– having a limited mid-sized car product portfolio, is limiting the reach of mid-size cars in semi urban and rural markets.
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A4-A6 segment to grow at a CAGR of 11-12 per cent
· Growth in the A4-A6 segment is driven by model launches and player actions.
· Entry of new players and more model launches to increase competition, thereby expanding
the market.
· Any change in tax structure and price reduction by OEMs on account of shifting of
assembly bases to India can lead to significant growth in volumes in these segments.
· The segment is also expected to continue to derive demand from hotels and tourists, with
continuing tax incentives.
UV sales to grow at a moderate CAGR of 10-11 per cent
· The growth in the UV segment will be mainly led by strong growth in the personal UV
segment, with the launch of new models at competitive prices and increase in the addressable
market led by rise in per capita income.
· Newer models like Maruti Eeco have expanded the market, increasing sales in the rural and urban areas.
· Higher-end sports utility vehicles will also grow aggressively, albeit on a low base, due to the launch of new models and the perceived higher status attached to owning one.
Jamnalal Bajaj Institute of Management Studies, Mumbai 69
Conclusion
Increasing Income levels coupled with Low Penetration Levels and Positive
Consumer Sentiment to augur well for the Indian Automobile Sector
● Over a longer term, favorable macro-economic factors and the overwhelming demand
from the Indian consumer will keep growth rates in the auto sector very healthy.
● With commodity prices inching up, possibilities of interest rates hardening, fuel prices
increasing, another excise rollback, etc., the bad news might outweigh the good news for
the auto industry.
Population by Income Class
2% 4% 3% 6% 6% 4% 12% 7% 6% 9% 9% 8% 17% 15%
33% 47%
55% 83% 72% 39% Annual Income(in 1000s) 37%
18% 8%
1985 1995 2005 2015e 2025e Deprived (<90) Aspirers (90-200) Seekers (200-500) Strivers (500-1000) Global (>1000)
Jamnalal Bajaj Institute of Management Studies, Mumbai 70
● However, the mother of all drivers for discretionary spending especially for aspirational
products like automobiles remains sentiment and affordability, both of which are showing
no signs of coming down.
180 Business Confidence Index 50%
160 40% 140 30% 120 20% 100 10% 80 0% 60 -10% 40
20 -20%
0 -30% Jul-07 Oct-07Jan-08 Apr-08 Jul-08 Oct-08 Jan-09Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10
Business confidence index (LHS) Growth (RHS)
Dependency Ratio
66.9% 65.1% 62.0%
49.6%
1995 1997 2000 2020e
Jamnalal Bajaj Institute of Management Studies, Mumbai 71
● One factor that has boosted income levels (and also sentiment) is the alteration in
personal income tax levels. This has made the average urban middle-class tax payer (with
an annual income of over USD8,500) 3-8% richer.
Income Tax Slab Pre-budget Post-budget Upto 1.6 la cs 0% Upto 1.6 lacs 0% 1.6 lacs - 3 lacs 10% 1.6 lacs - 5 lacs 10% 3 lacs - 5 lacs 20% 5 lacs - 8 lacs 20% 5 lacs + 30% 8 lacs + 30%
Annual Income Post-tax income Inc in disposable income (INR) Pre-bud get Post-b udget Annual Monthly 100,000 100,000 100,000 0 0 200,000 196,000 196,000 0 0 300,000 286,000 286,000 0 0 400,000 366,000 376,000 10,000 833 500,000 446,000 466,000 20,000 1,667 600,000 516,000 546,000 30,000 2,500 700,000 586,000 626,000 40,000 3,333 800,000 656,000 706,000 50,000 4,167 900,000 726,000 776,000 50,000 4,167 1,000,000 796,000 846,000 50,000 4,167
● From the given table, the alteration in income tax levels, coupled with a buoyant job
market and consequently lower dependency ratio will continue to increase income and
affordability levels and in turn, continue to keep the automobile market buoyant for the
years to come.
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Bibliography
1. Society of Indian Automobile Manufacturers (SIAM) – http://www.siam.com
2. CRISIL Research – http://www.crisilresearch.com
3. Bloomberg – http://www.bloomberg.com
4. Naukri.com – http://www.naukri.com
5. Auto Car – http://www.autocar.com
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