Growth And Evolution Of Automobile Industry In India Marketing Essay

4039 words (16 pages) Essay

1st Jan 1970 Marketing Reference this

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Automobile industry contributes 4 of the national GDP and accounts for 5 of the industrial output in India. It is moreover, a major employment generator in the country. The Indian automobile industry provides employment to around 13 million people directly or indirectly at present, a number that is likely to double by 2016.

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The liberalization policies of government have been one of the biggest factors behind the industry’s rapid growth. Supportive policy measures like relaxation of foreign exchange and equity regulations, reduction tariffs on imports, and banking liberalization leading to a boom in financing driven purchases and convenient EMIs have contributed to the present success of the Indian automobile industry.

With a number of foreign brands joining ranks with the domestic manufacturers, the Indian consumer is now flooded with choice. An average Indian can now select from a wide range of Indian and foreign products. Some of the major Indian players are Maruti Udyog, Tata Motors, Mahindra, Ashok Leyland, Hero Honda and Bajaj. Toyota, GM Honda, Daimler Chrysler, Ford, Volvo and Hyundai Suzuki are the key international players in the Indian Automobile market. However, despite the presence of foreign brands, the domestic companies are still the biggest players. Maruti Udyog and Tata vehicles share the top honours for passenger and commercial vehicles respectively.

The ICRA analysis of the Indian market projects heavy growth for competitively priced sports-utility-vehicles or SUVs and two wheelers. A number of major global brands like Honda, Suzuki, General Motors and Hyundai have launched their products in the SUV segment of the Indian automobile market. An average of 11.5% growth in the two-wheelers sales in 2004-2007 has kept a number of global companies interested in this segment as well. The market has been moreover bolstered by a healthy rise in the sales of heavy commercial vehicles, and the presence of a strong auto component industry that now ranks 2nd in the world.

One of the best things to happen for the Indian automobile market in the recent years was its telling improvement in the export sector. There was a 56% growth in exports from 2003 to 2004. Although economy cars continue to hold the lion’s share of the export market, vehicles worth more than USD 1 billion were also exported in 2004, for the first time in history.

This increasing demand for Indian cars on the foreign shores has helped the country’s automobile industry in two significant ways. First, it has decidedly contributed to the economic growth of the industry. Secondly, it has helped to improve the image of the Indian manufacturing infrastructure at a global level. This increased confidence has resulted in more and more foreign brands opening manufacturing units in India, directly contributing to economy and employment.

The Indian automobile industry is now riding high on success, and the bright picture does tend to obscure the problems and challenges that lay on the track of its growth. Poor road conditions, heavy pollution and large scale traffic related accidents are serious impediments in the way of the industry’s growth. However, steps are being initiated by the government to address these problems at various levels, and solutions are being worked out at a steady pace

Evolution of the Indian automobile industry

The Indian automobile industry has evolved into a massive market with lots of potential over the last decade. All the car manufacturing kingpins have come to India and invested in the Indian market. There’s obviously a reason behind it, the Indian automobile industry is booming. And all the international car giants are trying their level best to get a strong hold of the Indian market. A little more than a decade ago the Indian consumer interested in buying a car had just about a handful of options to choose from, today the choices are vast and mind boggling. It is impossible to come to a decision as to which would be the perfect car for you. The likes of Honda, Skoda, Volkswagen, Chevrolet, Nissan, Hyundai and Renault have all entered the Indian market. And these just add to the already existing local players like Maruti Suzuki, Tata and Mahindra who for years prior to this rapid development had shared and enjoyed market dominance.

All these international car manufacturers have set up factories and plants across the country in order to produce their cars within the country to make for cheaper cars.

All these big brands have realized the potential the Indian market has, and this potential is only increasing with time. Companies like Toyota, Honda and Chevrolet produce cars specifically for the Indian market, these cars aren’t manufactured in other parts of the world as they are designed keeping in mind the Indian traffic and road scenario. The market today has such a wide variety of cars to choose from. Every segment has multiple cars. The hatchback segment which is by far the most selling type of cars has so many cars and car makers battling it out to gain supremacy and dominance. Within the hatchback segment there are top end and lower end cars. The top end hatchbacks would include the Skoda fabia, Volkswagen Polo and the top variant of the Maruti Swift. These are considered to be premium hatchbacks. The lower level hatchbacks would be cars like the Maruti Alto, wagonr, and the Hyundai Eon. These are aimed at the common man, who’s looking for a low maintenance car which gives good fuel economy. The sedan segment has the same bifurcation where the premium sedans include the Honda Civic and Toyota Corolla, and the lower level sedans would include the Maruti Sx4 and the Volkswagen Vento.

Such a surge in the industry shows the potential the Indian market has and hence global players are trying everything in their power to capture a share of the Indian market. Even high end premium brands like Rolls Royce Aston Martin and Porche have opened showrooms across cities in India. Ten years ago one wouldn’t have even imagined walking into a Rolls Royce showroom in India or having the liberty of test driving a Jaguar in our own city. Keeping all this in mind it’s a real mystery in judging which would be the best family car in India

Wagonr is considered amongst the best family car which is a low maintenance car and gives great fuel economy as well.

PRODUCT PROFILE

In Automobile industries there are two types of products. One is Passenger vehicle & another is commercial vehicle. There are many manufacturers of vehicle makes both types of product. Like TATA, Maruti Suzuki, Renault, Ashok Leyland, Mahindra & Mahindra, etc.

Products and Services

The primary activities of this industry are:

Motor cars manufacturing

Motor vehicle engine manufacturing

The major products and services in this industry are:

Passenger motor vehicle manufacturing segment (Passenger Cars, Utility Vehicles & Multi Purpose Vehicles)

Commercial Vehicles  (Medium & Heavy and Light Commercial Vehicles)

Two Wheelers

Three Wheelers

Passenger Vehicles

Mahindra & Mahindra jeep

Maruti 800

Hyundai Santro

Zen Estillo

Ford Fiesta

Tata Nano

Tata safari

Mahindra Scorpio

Honda city

Toyota Etios

Toyota Tavera

Mercedes Benz B Class

Mercedes Benz C Class

Mercedes Benz E Class

Volkswagen Polo

Volkswagen Vento

Skoda Fabia

Skoda Laura

Commercial Vehicles

Truck

Semi truck (articulated lorry)

Van

Coach

Bus

Taxicab

Trailers

Box truck

DEMAND DETERMINATION OF THE INDUSTRY

The automotive sector is one of the core industries of the Indian economy. Indian Government’s impetus to the industry by allowing continuous economic liberalization since 1991 has made India one of the sought after destination for many global automotive players. The automotive sector in India is growing at around 18 per cent per annum.

Indian Auto industry has seen a phenomenal growth in the last 20 years. This is due to the convergence of a lot of positive factors. This article aims to examine at some of these to understand the situation better.

The sales trajectory of automobiles has witnessed a sharp increase since 1990s till 2000. Automobile industry has greatly benefitted from a sharp increase in demand and has added extra capacity, better research and development facilities and technological advancement and distribution setup across the country.

Factors Determining Demand of Automotives Indian Auto Sector

The convergences of government policies, economy’s growth, and people’s purchasing power have all contributed to the phenomenal growth of Indian Auto industry. Some of the important growth drivers are explained below.

Demand Determinants

Determinants of demand for this industry include vehicle prices (which are determined largely by wage, material and equipment costs) and exchange rates, preferences, the running cost of a vehicle (mainly determined by the price of petrol), income, interest rates, scrapping rates, and product innovation.

Exchange Rate:

Movement in the value of Rupee determines the attractiveness of Indian products overseas and the price of import for domestic consumption.  

Affordability:

 Movement in income and interest rates determine the affordability of new motor vehicles. Allowing unrestricted Foreign Direct Investment (FDI) led to increase in competition in the domestic market hence, making better vehicles available at affordable prices.

Product Innovation is an important determinant as it allows better models to be available each year and also encourages manufacturing of environmental friendly cars.

Demographics: It is evident that high population of India has been one of the major reasons for large size of automobile industry in India. Factors that may be augment demand include rising population and an increasing proportion of young persons in the population that will be more inclined to use and replace cars. Also, increase in people with lesser dependency on traditional single family income structure is likely to add value to vehicle demand.

Infrastructure: Longer-term determinants of demand include development in Indian’s infrastructure.  India’s banking giant State Bank of India and Australia’s Macquarie Group has launched an infrastructure fund to rise up to USD 3 billion for infrastructure improvements.  India needs about $500 billion to repair its infrastructure such as ports, roads, and power units. These investments are been made with an aim to generate long-term cash flow from automobile, power, and telecom industries. (Source: Silicon India)

Price of Petrol:

Movement in oil prices also have an impact on demand for large cars in India. During periods of high fuel cost as experienced in 2007 and first -half of 2008, demand for large cars declined in favour of smaller, more fuel efficient vehicles. The changing patterns in customer preferences for smaller more fuel efficient vehicles led to the launch of Tata Motor’s Nano – one of world’s smallest and cheapest cars. 

Players in the Automobile Industry

Audi

BMW

Chevrolet

Fiat

Force

Ford

General

Hindustan

Honda

Lamborghini

Maruti

Mahindra & Mahindra

Mercedes

Mitsubishi

Nissan Motors

Tata Motors

Top players in India Automobile industry

Some of the important companies and their details include:

Hindustan Motors:

One of the oldest car manufacturing companies in India, it has produced cars like Ambassador and Contessa. Having collaborated with foreign companies like Mitsubishi, and General Motors Corporation of USA, it has made an irrefutable mark in the manufacturing cars like the Lancer. Apart from this, the company has impressive manufacturing statistics in the field of passenger Cars, utility vehicles, and earthmoving equipment.

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Mahindra and Mahindra:

Established in the year 1945, this company has given a cutting-edge dimension to the Indian automobile industry. It began as a general-purpose utility vehicle manufacturing unit and expanded its business to automative, tractor, MSL and inter trade. Presently, the largest company in the private sector, this company boasts of an advanced technological infrastructure and manpower.

Maruti Udyog Limited:

The first ever Indian company to manufacture low cost cars, in collaboration with Suzuki of Japan, Maruti is considered to be the largest automobile company in India. The company is known for producing high quality, fuel-efficient cars with Japanese technology, but adaptive to Indian roads. The company has attained the annual production mark of 3, 20,000, which is a trend setter for any Indian company. Among the cars it has manufactured are the Maruti 800, Zen, Maruti Omni, Wagon R, Baleno and the like.

Tata Motors:

India’s biggest manufacturer of commercial vehicles, the company boasts of an annual turnover of Rs 101.3 billion. It is counted among the top ten vehicle manufacturing companies of the world in 5-15 tonnes segment. Among its chief productions are light commercial vehicles, commercial vehicles, multi-utility vehicles, and passenger cars.

TELCO has launched numerous car brands in collaboration with foreign companies like Cummins Engine Company, USA, Daimler Benz A.G. and Holset Engineering Company, U.K. Using technology that not only cuts out on the pollution but also the cost, the company has manufactured vehicles like Tata Safari, Tata Sierra, Tata Estate, and Tata Mobile.

Presently, the company has a market share of 6.4 % in the luxury car section and 31.2% in the manufacturing segment of multi-utility cars.

Swaraj Mazda:

Swaraj Mazda is a joint venture of Swaraj Enterprise and Mazda of Swaraj symbolises best Indian technology and engineering, and Mazda has R&D and innovation edge on global scale. The company produces vehicles for goods and passenger applications, such as Bus, Ambulance, Water Tanks, Trucks, etc.

Brand name, adaptability to Indian roads, and fuel-efficiency are the key factors that have led to the growth and development of the Indian automobile industry. Moreover, liberalization of government norms and policies for foreign investment, technology and easy loans has added to the advancement of this industrial sector.

DISTRIBUTION CHANNEL IN THE AUTOMOBILE INDUSTRY

Cost and customer-service improvements are necessary but not sufficient to transform auto retailing channels. Realizing the full potential of these programs is not possible without a reasonable view of the different customer segments that should be targeted; the appropriate mix and level of marketing and distribution functions needed for each segment and the best portfolio of distribution formats and channels to reach the targets.

Just as specific groups of customers have their own product requirements; different consumer segments have their own requirements for the purchase and ownership experience. These requirements can be effectively targeted with channel, format and “soft offer” package variations such as service contracts, financing or sales incentives. Ultimately, the consumer-segment requirements will drive the service requirements and in turn help determine the best cost and operating structure for the specific distribution format and customer-value proposition.

Creating purchase and ownership experiences to meet the needs of specific consumers has two other significant implications. First is the need for parallel formats and channels in a given region, each with its own pricing and bundle of service offerings. Parallel sales channels can range from the traditional dealer to the Internet or to direct sales. Similarly, parallel service channels could be created through specialized quick-fix workshops, independent dealers and do-it-yourself stores/garages. (See Exhibit VI.) Parallel channels and formats raise the possibility of channel conflict and the need for expanded skills to manage and reduce it.

The second implication of serving multiple, service-based customer segments is the need to avoid cannibalization. For example, a Mercedes “A” class owner with a limited guarantee and no branded service must be recognized as such and managed appropriately. This requires a system for identifying and distinguishing the “soft offer” packages sold to individual consumers. Mercedes is testing such a system in the form of a chip card. The chip card stores a description of the “soft offers” purchased and requires an explicit payment for additional services.

Creating a more flexible and targeted mix of channels and formats will be hard to do. But it will also require manufacturers to collect continuous and rapid feedback for new retailing ideas and approaches, consistent with a strategic path that is flexible enough to change as the organization learns over time.

The distribution chain of automotive industry in India is very similar to the distribution chain of the automotive industry in Europe and America. The order of the industry arises from the bottom of the distribution chain i. e., from the consumers and goes through the automakers and climbs up until the third tier suppliers. However the products, as channelled in every traditional automotive industry, flow from the top of the distribution chain to reach the consumers. Automakers in India are the key to the distribution chain and are responsible for the products and innovation in the industry.

The description and the role of each of the contributors to the distribution chain are discussed below.

Third Tier Suppliers: These companies provide basic products like rubber, glass, steel, plastic and aluminium to the second tier suppliers.

Second Tier Suppliers: These companies design vehicle systems or bodies for First Tier Suppliers and OEMs. They work on designs provided by the first tier suppliers or OEMs. They also provide engineering resources for detailed designs. Some of their services may include welding, fabrication, shearing, bending etc.

First Tier Suppliers: These companies provide major systems directly to assemblers. These companies have global coverage, in order to follow their customers to various locations around the world. They design and innovate in order to provide “black-box” solutions for the requirements of their customers. Black-box solutions are solutions created by suppliers using their own technology to meet the performance and interface requirements set by assemblers.

First tier suppliers are responsible not only for the assembly of parts into complete units like dashboard, breaks-axel-suspension, seats, or cockpit but also for the management of second-tier suppliers.

Automakers/Vehicle Manufacturers/Original Equipment Manufacturers (OEMs): After researching consumers’ wants and needs, automakers begin designing models which are tailored to consumers’ demands. The design process normally takes five years. These companies have manufacturing units where engines are manufactured and parts supplied by first tier suppliers and second tier suppliers are assembled. Automakers are the key to the distribution chain of the automotive industry. Examples of these companies are Tata Motors, Maruti Suzuki, Toyota, and Honda. Innovation, design capability and branding are the main focus of these companies.

Dealers: Once the vehicles are ready they are shipped to the regional branch and from there, to the authorised dealers of the companies. The dealers then sell the vehicles to the end customers.

Parts and Accessory: These companies provide products like tires, windshields, and air bags etc. to automakers and dealers or directly to customers.

Service Providers: Some of the services to the customers include servicing of vehicles, repairing parts, or financing of vehicles. Many dealers provide these services but, customers can also choose to go to independent service providers. 

KEY ISSUES & CURRENT TRENDS

Key Issues

Consumer Sentiment Index

Description: Customer Sentiment Index, 12 month rolling average of the Index; historical and forecast data and analysis.

End customers are very important to ensure the survival of the Motor Vehicle Manufacturing industry. Economic downturns and other events can affect the expenditure decision of households. When customers are not happy or optimistic about the future of the economy, they will tend to postpone expenditure until times are better. In 2008-09, customer sentiment is expected to fall, which will have a brunt on the augmentation in demand of cars.

Domestic Goods Price – Metal – Iron and Steel

Description: The price of input such as steel.

Steel is a major input used when manufacturing a motor vehicle. Rises in the price of steel puts cost pressures on manufacturers, which often leads to a fall in profitability. Over the past five years, the price of steel has been rising rapidly. These rises in price eventually pass from the manufacturers to the end customers’.

Import and Export Taxes (Duties) – Motor Vehicle Tariffs

Description: Tariff rates applicable to the industry

High taffies may restrict flow of trade but may attract investment if domestic market is big enough and growing. Over the last few years India’s tariff policies and conditions of import of vehicles have served the purpose of attracting investments. Industry is keen that the existing tariff structure roadmap and conditions of import of vehicles are retained without any modifications because of certain systematic deficiencies which make manufacturing less cost competitive in India as compared to some of the neighbouring countries like China, Thailand, Indonesia, etc.

Wold Price – Energy – Crude Oil

Description:  The world price of crude oil, $US/barrel, and price analysis.

The price of oil and petrol affect the driving habits of consumers and the type of car they buy. Over the past five years, the price of petrol has been influenced the buying decision of motorists, who are switching more to fuel efficient options. These include cars that run on liquefied petroleum gas (LPG), diesel and small cars that achieve better mileage. The trucking sector has also been struggling with the rise in the price of fuel, which has put enormous pressures on their costs.

Key Success Factors

The Key Success factors in the Motor Vehicle Manufacturing industry are:

Efficiency factor – Improve labour productivity, labour flexibility, and capital efficiency

Resource Availability – Quality manpower availability, infrastructure improvements, and raw material availability

Effective cost controls – Close relationship with supplies and goods distribution channels.

Establishment of export markets – Growth of export markets

Having an extensive distribution/collection network – Goods distribution channels

Successful industrial relations policy – Ethical and tactical industrial relations

Access to the latest available and most efficient technology and techniques – The degree of investment in technological improvements and product development

Optimum capacity utilisation – The level of plant utilisation

Management of high quality assets portfolio – Understanding implications from Government policies

Automobile industry contributes 4 of the national GDP and accounts for 5 of the industrial output in India. It is moreover, a major employment generator in the country. The Indian automobile industry provides employment to around 13 million people directly or indirectly at present, a number that is likely to double by 2016.

The liberalization policies of government have been one of the biggest factors behind the industry’s rapid growth. Supportive policy measures like relaxation of foreign exchange and equity regulations, reduction tariffs on imports, and banking liberalization leading to a boom in financing driven purchases and convenient EMIs have contributed to the present success of the Indian automobile industry.

With a number of foreign brands joining ranks with the domestic manufacturers, the Indian consumer is now flooded with choice. An average Indian can now select from a wide range of Indian and foreign products. Some of the major Indian players are Maruti Udyog, Tata Motors, Mahindra, Ashok Leyland, Hero Honda and Bajaj. Toyota, GM Honda, Daimler Chrysler, Ford, Volvo and Hyundai Suzuki are the key international players in the Indian Automobile market. However, despite the presence of foreign brands, the domestic companies are still the biggest players. Maruti Udyog and Tata vehicles share the top honours for passenger and commercial vehicles respectively.

The ICRA analysis of the Indian market projects heavy growth for competitively priced sports-utility-vehicles or SUVs and two wheelers. A number of major global brands like Honda, Suzuki, General Motors and Hyundai have launched their products in the SUV segment of the Indian automobile market. An average of 11.5% growth in the two-wheelers sales in 2004-2007 has kept a number of global companies interested in this segment as well. The market has been moreover bolstered by a healthy rise in the sales of heavy commercial vehicles, and the presence of a strong auto component industry that now ranks 2nd in the world.

One of the best things to happen for the Indian automobile market in the recent years was its telling improvement in the export sector. There was a 56% growth in exports from 2003 to 2004. Although economy cars continue to hold the lion’s share of the export market, vehicles worth more than USD 1 billion were also exported in 2004, for the first time in history.

This increasing demand for Indian cars on the foreign shores has helped the country’s automobile industry in two significant ways. First, it has decidedly contributed to the economic growth of the industry. Secondly, it has helped to improve the image of the Indian manufacturing infrastructure at a global level. This increased confidence has resulted in more and more foreign brands opening manufacturing units in India, directly contributing to economy and employment.

The Indian automobile industry is now riding high on success, and the bright picture does tend to obscure the problems and challenges that lay on the track of its growth. Poor road conditions, heavy pollution and large scale traffic related accidents are serious impediments in the way of the industry’s growth. However, steps are being initiated by the government to address these problems at various levels, and solutions are being worked out at a steady pace

Evolution of the Indian automobile industry

The Indian automobile industry has evolved into a massive market with lots of potential over the last decade. All the car manufacturing kingpins have come to India and invested in the Indian market. There’s obviously a reason behind it, the Indian automobile industry is booming. And all the international car giants are trying their level best to get a strong hold of the Indian market. A little more than a decade ago the Indian consumer interested in buying a car had just about a handful of options to choose from, today the choices are vast and mind boggling. It is impossible to come to a decision as to which would be the perfect car for you. The likes of Honda, Skoda, Volkswagen, Chevrolet, Nissan, Hyundai and Renault have all entered the Indian market. And these just add to the already existing local players like Maruti Suzuki, Tata and Mahindra who for years prior to this rapid development had shared and enjoyed market dominance.

All these international car manufacturers have set up factories and plants across the country in order to produce their cars within the country to make for cheaper cars.

All these big brands have realized the potential the Indian market has, and this potential is only increasing with time. Companies like Toyota, Honda and Chevrolet produce cars specifically for the Indian market, these cars aren’t manufactured in other parts of the world as they are designed keeping in mind the Indian traffic and road scenario. The market today has such a wide variety of cars to choose from. Every segment has multiple cars. The hatchback segment which is by far the most selling type of cars has so many cars and car makers battling it out to gain supremacy and dominance. Within the hatchback segment there are top end and lower end cars. The top end hatchbacks would include the Skoda fabia, Volkswagen Polo and the top variant of the Maruti Swift. These are considered to be premium hatchbacks. The lower level hatchbacks would be cars like the Maruti Alto, wagonr, and the Hyundai Eon. These are aimed at the common man, who’s looking for a low maintenance car which gives good fuel economy. The sedan segment has the same bifurcation where the premium sedans include the Honda Civic and Toyota Corolla, and the lower level sedans would include the Maruti Sx4 and the Volkswagen Vento.

Such a surge in the industry shows the potential the Indian market has and hence global players are trying everything in their power to capture a share of the Indian market. Even high end premium brands like Rolls Royce Aston Martin and Porche have opened showrooms across cities in India. Ten years ago one wouldn’t have even imagined walking into a Rolls Royce showroom in India or having the liberty of test driving a Jaguar in our own city. Keeping all this in mind it’s a real mystery in judging which would be the best family car in India

Wagonr is considered amongst the best family car which is a low maintenance car and gives great fuel economy as well.

PRODUCT PROFILE

In Automobile industries there are two types of products. One is Passenger vehicle & another is commercial vehicle. There are many manufacturers of vehicle makes both types of product. Like TATA, Maruti Suzuki, Renault, Ashok Leyland, Mahindra & Mahindra, etc.

Products and Services

The primary activities of this industry are:

Motor cars manufacturing

Motor vehicle engine manufacturing

The major products and services in this industry are:

Passenger motor vehicle manufacturing segment (Passenger Cars, Utility Vehicles & Multi Purpose Vehicles)

Commercial Vehicles  (Medium & Heavy and Light Commercial Vehicles)

Two Wheelers

Three Wheelers

Passenger Vehicles

Mahindra & Mahindra jeep

Maruti 800

Hyundai Santro

Zen Estillo

Ford Fiesta

Tata Nano

Tata safari

Mahindra Scorpio

Honda city

Toyota Etios

Toyota Tavera

Mercedes Benz B Class

Mercedes Benz C Class

Mercedes Benz E Class

Volkswagen Polo

Volkswagen Vento

Skoda Fabia

Skoda Laura

Commercial Vehicles

Truck

Semi truck (articulated lorry)

Van

Coach

Bus

Taxicab

Trailers

Box truck

DEMAND DETERMINATION OF THE INDUSTRY

The automotive sector is one of the core industries of the Indian economy. Indian Government’s impetus to the industry by allowing continuous economic liberalization since 1991 has made India one of the sought after destination for many global automotive players. The automotive sector in India is growing at around 18 per cent per annum.

Indian Auto industry has seen a phenomenal growth in the last 20 years. This is due to the convergence of a lot of positive factors. This article aims to examine at some of these to understand the situation better.

The sales trajectory of automobiles has witnessed a sharp increase since 1990s till 2000. Automobile industry has greatly benefitted from a sharp increase in demand and has added extra capacity, better research and development facilities and technological advancement and distribution setup across the country.

Factors Determining Demand of Automotives Indian Auto Sector

The convergences of government policies, economy’s growth, and people’s purchasing power have all contributed to the phenomenal growth of Indian Auto industry. Some of the important growth drivers are explained below.

Demand Determinants

Determinants of demand for this industry include vehicle prices (which are determined largely by wage, material and equipment costs) and exchange rates, preferences, the running cost of a vehicle (mainly determined by the price of petrol), income, interest rates, scrapping rates, and product innovation.

Exchange Rate:

Movement in the value of Rupee determines the attractiveness of Indian products overseas and the price of import for domestic consumption.  

Affordability:

 Movement in income and interest rates determine the affordability of new motor vehicles. Allowing unrestricted Foreign Direct Investment (FDI) led to increase in competition in the domestic market hence, making better vehicles available at affordable prices.

Product Innovation is an important determinant as it allows better models to be available each year and also encourages manufacturing of environmental friendly cars.

Demographics: It is evident that high population of India has been one of the major reasons for large size of automobile industry in India. Factors that may be augment demand include rising population and an increasing proportion of young persons in the population that will be more inclined to use and replace cars. Also, increase in people with lesser dependency on traditional single family income structure is likely to add value to vehicle demand.

Infrastructure: Longer-term determinants of demand include development in Indian’s infrastructure.  India’s banking giant State Bank of India and Australia’s Macquarie Group has launched an infrastructure fund to rise up to USD 3 billion for infrastructure improvements.  India needs about $500 billion to repair its infrastructure such as ports, roads, and power units. These investments are been made with an aim to generate long-term cash flow from automobile, power, and telecom industries. (Source: Silicon India)

Price of Petrol:

Movement in oil prices also have an impact on demand for large cars in India. During periods of high fuel cost as experienced in 2007 and first -half of 2008, demand for large cars declined in favour of smaller, more fuel efficient vehicles. The changing patterns in customer preferences for smaller more fuel efficient vehicles led to the launch of Tata Motor’s Nano – one of world’s smallest and cheapest cars. 

Players in the Automobile Industry

Audi

BMW

Chevrolet

Fiat

Force

Ford

General

Hindustan

Honda

Lamborghini

Maruti

Mahindra & Mahindra

Mercedes

Mitsubishi

Nissan Motors

Tata Motors

Top players in India Automobile industry

Some of the important companies and their details include:

Hindustan Motors:

One of the oldest car manufacturing companies in India, it has produced cars like Ambassador and Contessa. Having collaborated with foreign companies like Mitsubishi, and General Motors Corporation of USA, it has made an irrefutable mark in the manufacturing cars like the Lancer. Apart from this, the company has impressive manufacturing statistics in the field of passenger Cars, utility vehicles, and earthmoving equipment.

Mahindra and Mahindra:

Established in the year 1945, this company has given a cutting-edge dimension to the Indian automobile industry. It began as a general-purpose utility vehicle manufacturing unit and expanded its business to automative, tractor, MSL and inter trade. Presently, the largest company in the private sector, this company boasts of an advanced technological infrastructure and manpower.

Maruti Udyog Limited:

The first ever Indian company to manufacture low cost cars, in collaboration with Suzuki of Japan, Maruti is considered to be the largest automobile company in India. The company is known for producing high quality, fuel-efficient cars with Japanese technology, but adaptive to Indian roads. The company has attained the annual production mark of 3, 20,000, which is a trend setter for any Indian company. Among the cars it has manufactured are the Maruti 800, Zen, Maruti Omni, Wagon R, Baleno and the like.

Tata Motors:

India’s biggest manufacturer of commercial vehicles, the company boasts of an annual turnover of Rs 101.3 billion. It is counted among the top ten vehicle manufacturing companies of the world in 5-15 tonnes segment. Among its chief productions are light commercial vehicles, commercial vehicles, multi-utility vehicles, and passenger cars.

TELCO has launched numerous car brands in collaboration with foreign companies like Cummins Engine Company, USA, Daimler Benz A.G. and Holset Engineering Company, U.K. Using technology that not only cuts out on the pollution but also the cost, the company has manufactured vehicles like Tata Safari, Tata Sierra, Tata Estate, and Tata Mobile.

Presently, the company has a market share of 6.4 % in the luxury car section and 31.2% in the manufacturing segment of multi-utility cars.

Swaraj Mazda:

Swaraj Mazda is a joint venture of Swaraj Enterprise and Mazda of Swaraj symbolises best Indian technology and engineering, and Mazda has R&D and innovation edge on global scale. The company produces vehicles for goods and passenger applications, such as Bus, Ambulance, Water Tanks, Trucks, etc.

Brand name, adaptability to Indian roads, and fuel-efficiency are the key factors that have led to the growth and development of the Indian automobile industry. Moreover, liberalization of government norms and policies for foreign investment, technology and easy loans has added to the advancement of this industrial sector.

DISTRIBUTION CHANNEL IN THE AUTOMOBILE INDUSTRY

Cost and customer-service improvements are necessary but not sufficient to transform auto retailing channels. Realizing the full potential of these programs is not possible without a reasonable view of the different customer segments that should be targeted; the appropriate mix and level of marketing and distribution functions needed for each segment and the best portfolio of distribution formats and channels to reach the targets.

Just as specific groups of customers have their own product requirements; different consumer segments have their own requirements for the purchase and ownership experience. These requirements can be effectively targeted with channel, format and “soft offer” package variations such as service contracts, financing or sales incentives. Ultimately, the consumer-segment requirements will drive the service requirements and in turn help determine the best cost and operating structure for the specific distribution format and customer-value proposition.

Creating purchase and ownership experiences to meet the needs of specific consumers has two other significant implications. First is the need for parallel formats and channels in a given region, each with its own pricing and bundle of service offerings. Parallel sales channels can range from the traditional dealer to the Internet or to direct sales. Similarly, parallel service channels could be created through specialized quick-fix workshops, independent dealers and do-it-yourself stores/garages. (See Exhibit VI.) Parallel channels and formats raise the possibility of channel conflict and the need for expanded skills to manage and reduce it.

The second implication of serving multiple, service-based customer segments is the need to avoid cannibalization. For example, a Mercedes “A” class owner with a limited guarantee and no branded service must be recognized as such and managed appropriately. This requires a system for identifying and distinguishing the “soft offer” packages sold to individual consumers. Mercedes is testing such a system in the form of a chip card. The chip card stores a description of the “soft offers” purchased and requires an explicit payment for additional services.

Creating a more flexible and targeted mix of channels and formats will be hard to do. But it will also require manufacturers to collect continuous and rapid feedback for new retailing ideas and approaches, consistent with a strategic path that is flexible enough to change as the organization learns over time.

The distribution chain of automotive industry in India is very similar to the distribution chain of the automotive industry in Europe and America. The order of the industry arises from the bottom of the distribution chain i. e., from the consumers and goes through the automakers and climbs up until the third tier suppliers. However the products, as channelled in every traditional automotive industry, flow from the top of the distribution chain to reach the consumers. Automakers in India are the key to the distribution chain and are responsible for the products and innovation in the industry.

The description and the role of each of the contributors to the distribution chain are discussed below.

Third Tier Suppliers: These companies provide basic products like rubber, glass, steel, plastic and aluminium to the second tier suppliers.

Second Tier Suppliers: These companies design vehicle systems or bodies for First Tier Suppliers and OEMs. They work on designs provided by the first tier suppliers or OEMs. They also provide engineering resources for detailed designs. Some of their services may include welding, fabrication, shearing, bending etc.

First Tier Suppliers: These companies provide major systems directly to assemblers. These companies have global coverage, in order to follow their customers to various locations around the world. They design and innovate in order to provide “black-box” solutions for the requirements of their customers. Black-box solutions are solutions created by suppliers using their own technology to meet the performance and interface requirements set by assemblers.

First tier suppliers are responsible not only for the assembly of parts into complete units like dashboard, breaks-axel-suspension, seats, or cockpit but also for the management of second-tier suppliers.

Automakers/Vehicle Manufacturers/Original Equipment Manufacturers (OEMs): After researching consumers’ wants and needs, automakers begin designing models which are tailored to consumers’ demands. The design process normally takes five years. These companies have manufacturing units where engines are manufactured and parts supplied by first tier suppliers and second tier suppliers are assembled. Automakers are the key to the distribution chain of the automotive industry. Examples of these companies are Tata Motors, Maruti Suzuki, Toyota, and Honda. Innovation, design capability and branding are the main focus of these companies.

Dealers: Once the vehicles are ready they are shipped to the regional branch and from there, to the authorised dealers of the companies. The dealers then sell the vehicles to the end customers.

Parts and Accessory: These companies provide products like tires, windshields, and air bags etc. to automakers and dealers or directly to customers.

Service Providers: Some of the services to the customers include servicing of vehicles, repairing parts, or financing of vehicles. Many dealers provide these services but, customers can also choose to go to independent service providers. 

KEY ISSUES & CURRENT TRENDS

Key Issues

Consumer Sentiment Index

Description: Customer Sentiment Index, 12 month rolling average of the Index; historical and forecast data and analysis.

End customers are very important to ensure the survival of the Motor Vehicle Manufacturing industry. Economic downturns and other events can affect the expenditure decision of households. When customers are not happy or optimistic about the future of the economy, they will tend to postpone expenditure until times are better. In 2008-09, customer sentiment is expected to fall, which will have a brunt on the augmentation in demand of cars.

Domestic Goods Price – Metal – Iron and Steel

Description: The price of input such as steel.

Steel is a major input used when manufacturing a motor vehicle. Rises in the price of steel puts cost pressures on manufacturers, which often leads to a fall in profitability. Over the past five years, the price of steel has been rising rapidly. These rises in price eventually pass from the manufacturers to the end customers’.

Import and Export Taxes (Duties) – Motor Vehicle Tariffs

Description: Tariff rates applicable to the industry

High taffies may restrict flow of trade but may attract investment if domestic market is big enough and growing. Over the last few years India’s tariff policies and conditions of import of vehicles have served the purpose of attracting investments. Industry is keen that the existing tariff structure roadmap and conditions of import of vehicles are retained without any modifications because of certain systematic deficiencies which make manufacturing less cost competitive in India as compared to some of the neighbouring countries like China, Thailand, Indonesia, etc.

Wold Price – Energy – Crude Oil

Description:  The world price of crude oil, $US/barrel, and price analysis.

The price of oil and petrol affect the driving habits of consumers and the type of car they buy. Over the past five years, the price of petrol has been influenced the buying decision of motorists, who are switching more to fuel efficient options. These include cars that run on liquefied petroleum gas (LPG), diesel and small cars that achieve better mileage. The trucking sector has also been struggling with the rise in the price of fuel, which has put enormous pressures on their costs.

Key Success Factors

The Key Success factors in the Motor Vehicle Manufacturing industry are:

Efficiency factor – Improve labour productivity, labour flexibility, and capital efficiency

Resource Availability – Quality manpower availability, infrastructure improvements, and raw material availability

Effective cost controls – Close relationship with supplies and goods distribution channels.

Establishment of export markets – Growth of export markets

Having an extensive distribution/collection network – Goods distribution channels

Successful industrial relations policy – Ethical and tactical industrial relations

Access to the latest available and most efficient technology and techniques – The degree of investment in technological improvements and product development

Optimum capacity utilisation – The level of plant utilisation

Management of high quality assets portfolio – Understanding implications from Government policies

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