Automobile Industry in India Has Witnessed a Tremendous Growth in Recent Years and is All Set to Carry on the Momentum in the Foreseeable Future

8/8/2019 Automobile Industry in India Has Witnessed a Tremendous Growth in Recent Years and is All Set to Carry on the Mo

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Automobile Industry in India has witnessed a tremendous growth in recent years and is all set to carry on the

momentum in the foreseeable future. Indian automobile industry has come a long way since the first car ran on

the streets of Bombay in 1898. Today, automobile sector in India is one of the key sectors of the economy in

terms of the employment. Directly and indirectly it employs more than 10 million people and if we add the number

of people employed in the auto-component and auto ancillary industry then the number goes even higher.

The automobile industry comprises of heavy vehicles (trucks, buses, tempos, tractors); passenger cars; and two-

wheelers. Heavy vehicles section is dominated by Tata-Telco, Ashok Leyland, Eicher Motors, Mahindra andMahindra, and Bajaj. The major car manufacturers in India are Hindustan Motors, Maruti Udyog, Fiat India

Private Ltd., Ford India Ltd., General Motors India Pvt. Ltd., Honda Siel Cars India Ltd., Hyundai Motors India

Ltd., and Skoda India Private Ltd., Toyota Motors, Tata Motors etc. The dominant players in the two-wheeler

sector are Hero Honda, Bajaj, TVS, Honda Motorcycle & Scooter India (Pvt.) Ltd., Yamaha etc.

In the initial years after independence Indian automobile industry was plagued by unfavourable government

policies. All it had to offer in the passenger car segment was a 1940s Morris model called the Ambassador and a

1960s Suzuki-derived model called the Maruti 800. The automobile sector in India underwent a metamorphosis

as a result of the liberalization policies initiated in the 1991. Measures such as relaxation of the foreign exchange

and equity regulations, reduction of tariffs on imports, and refining the banking policies played a vital role in

turning around the Indian automobile industry. Until the mid 1990s, the Indian auto sector consisted of just a

handful of local companies. However, after the sector opened to foreign direct investment in 1996, global majors

moved in. Automobile industry in India also received an unintended boost from stringent government auto

emission regulations over the past few years. This ensured that vehicles produced in India conformed to the

standards of the developed world.

Indian automobile industry has matured in last few years and offers differentiated products for different segments

of the society. It is currently making inroads into the rural middle class market after its inroads into the urban

markets and rural rich. In the recent years Indian automobile sector has witnessed a slew of investments. India is

on every major global automobile player's radar. Indian automobile industry is also fast becoming an outsourcing

hub for automobile companies worldwide, as indicated by the zooming automobile exports from the country.

Today, Hyundai, Honda, Toyota, GM, Ford and Mitsubishi have set up their manufacturing bases in India. Due to

rapid economic growth and higher disposable income it is believed that the success story of the Indian

automobile industry is not going to end soon.

Some of the major characteristics of Indian automobile sector are:

y Second largest two-wheeler market in the world.

y Fourth largest commercial vehicle market in the world.

y 11th largest passenger car market in the world

y Expected to become the world's third largest automobile market by 2030, behind only China and the US

y AUTOMOBILE SECTOR IN INDIA : 2009 03/07/2009 :y AUTOMOBILESECTORININDIA:2009y Automobile sector in India which was some years ago was termed as the robust sector lead to

the halves in the current recession times. The auto sector comprises of big names such as. Bajaj

Auto (weightage: 17.91%), Tata Motors (17.57%), Mahindra & Mahindra (also known as M&M,

15.19%), Maruti (12.24%), Hero Honda (7.67) are the top 5 in terms of weight age.( as per the

data provided by the BSE Auto index ).It was noticed in the year 2007 that the Auto Index

breached its support level of 5882 and thus indicated that the Auto Index is bearish and thus

the index found its next support level at 4073.

y While as per the latest data of the BSE the Auto index has made a come back with the bull

market and it underwent in one of the longest and positive cycles of the year 2008. Thus the


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Auto index has a negative correlation with the stock market. While On the other hand the sales

growth on year on year basis has shown a decline.

y Undertaking the current scenario of the auto industry in India it will be appropriate to comment

that with weak macroeconomic indicators such as liquidity crunch, credit unavailability and the

slower industrial production with negative consumer sentiments which are unlikely to improve in

the coming future, the rosy picture of auto index which was seen in the year 2007 may not

repeat very soon.

y While the investor still bet on the strong fundamentals of the auto sector in India but seeing the

export figures of these companies, it is assumed that due to decrease of exports in their

respective markets, theses companies will take one more cycle to rectify their valuations listed

on the exchange.

y The other possible causes of weakness in the auto sector which can lead to bearish phase are:

y Negative sales : seeing the higher interest rates which are prevailing in the banking system of

India discourage the consumer, the increased financing costs and lack of credit availability add

more to the worries . Domestic car sales remained largely flat as shown in the current year

data. The extent of decline is also due to the launch of new models in the markets which led to

the re-alignment of market share away from players with aging product portfolios.

y Increased working capital: slower demand with lag of payments has led to inventory pileups

thus the companies are having excess inventories in the plants. However, corrective measures

have been taken up by the companies, primarily in the form of cutting back on production to

prevent further inventory pile-ups. But these production cuts have taken place with a lag effect,

resulting in stretched working capital cycles for most OEMs and putting further pressure on their

liquidity.

y In the current scenario there are negative outlook in the auto sector however it is

limited for short term period, but in the long term the fundamentals looks firm and

positive. The recovery of sector is entirely dependent on the improved liquidity

crunch, availability of credit and improvisation in the demand side with reconstruction

of inventories. The U.S government has already come out with the stimulus packagefor the automobile sector in U.S. However the requirement of such bail out package

will not be required urgently in the Indian market if there is better credit availability

for these companies.

y Fast track Automobile Industry of Indiay In the race to be a superpower, India is making frequent and astounding advancements in

all fields. From power generation to constructing modern roads, every sector has a huge

impetus. Rising above all in a very distinct and appreciable way is the Automobile Sector of

India. The automobile sector forms one of the fastest growing sectors in the Indian

economy and so is the popularity of automobiles in India. A number of cars and other

automobiles are imported and exported every year. Indian Automobile market witnesses alarge scale manufacturing of cars, bikes, vans, buses and tractors.

y Indian automobile industry is the tenth largest in the world. Every year new and advanced

model of cars, bikes and other vehicles are launched by various leading manufacturers

suiting the consumer needs. Occupied by various major automobile manufacturers like

Tata Motors, Ford Motors, Volkswagen, Maruti Udyog, Hero Honda, Bajaj Auto, Yamaha

Motor etc, Indian Autombile industry has become a battlefield of technology, performance

and styling. Automobile industry in India is one of the fastest growing automobile

industries and has made its position in the world market.


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y The Indian automobile Industry is currently growing at a remarkable pace of around 18 %

per annum. The technological changes and progress successfully led to the progress of

automobile sector in India. The main reason behind this tremendous progress is the

economic liberalization by Indian government.

y Ever since the foreign direct investment has been allowed, the automobile market has got

its foot on the accelerator. The growth of Indian middle class with increasing purchasing

power and availability of trained manpower at reasonable cost is another reason for theeminent growth and has pushed it to new capacities. International automobiles giants have

helped Indian automobile sector to enlarge by setting up local basis. The increasing

competition in auto companies has opened up many choices for Indian consumers at

competitive costs. The Indian Automobile industry is growing in all respects and it is also

serving as an important source of employment. Innovation and new product launches are

a major factor driving growth in sales of cars. A wide distribution & service station network

is a key to growth in India. The automobile sector is expected to witness strong growth

and improve its share in global markets too.

y 1 2View All

y An Overview of the Indian Automobile Industry

y Starting its journey fromthe day when the first car rolled on the streets of Mumbai in 1898, the Indian

automobile industry has demonstrated a phenomenal growth to this day. Today, the

Indian automobile industry presents a galaxy of varieties and models meeting all

possible expectations and globally established industry standards. Some of the leading

names echoing in the Indian automobile industry include Maruti Suzuki, Tata Motors,

Mahindra and Mahindra, Hyundai Motors, Hero Honda and Hindustan Motors in

addition to a number of others.

y During the early stages of its development, Indian automobile industry heavily

depended on foreign technologies. However, over the years, the manufacturers in

India have started using their own technology evolved in the native soil. The thriving

market place in the country has attracted a number of automobile manufacturers

including some of the reputed global leaders to set their foot in the soil lookingforward to enhance their profile and prospects to new heights. Following a temporary

setback on account of the global economic recession, the Indian automobile market

has once again picked up a remarkable momentum witnessing a buoyant sale for the

first time in its history in the month of September 2009.

y The automobile sector of India is the seventh largest in the world. In a year, the

country manufactures about 2.6 million cars making up an identifiable chunk in the

worlds annual production of about 73 million cars in a year. The country is the

largest manufacturer of motorcycles and the fifth largest producer of commercial


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vehicles. Industry experts have visualized an unbelievably huge increase in thesefigures over the immediate future. The figures published by the Asia Economic

Institute indicate that the Indian automobile sector is set to emerge as the global leaderby 2012. In the year 2009, India rose to be the fourth largest exporter of automobiles

following Japan, South Korea and Thailand. Experts state that in the year 2050, India

will top the car volumes of all the nations of the world with about 611 million cars

running on its roads.y At present, about 75 percent of Indias automobile industry is made up by small cars,

with the figure ranking the nation on top of any other country on the globe. Over the

next two or three years, the country is expecting the arrival of more than a dozen new

brands making compact car models.

y Recently, the automotive giants of India including General Motors (GM),

Volkswagen, Honda, and Hyundai, have declared significant expansion plans. On

account of its huge market potential, a very low base of car ownership in the country

estimated at about 25 per 1,000 people, and a rapidly surging economy, the nation is

firmly set on its way to become an outsourcing platform for a number of global auto

companies. Some of the upcoming cars in the India soil comprise Maruti A-Star(Suzuki), Maruti Splash (Suzuki), VW Up and VW Polo (Volkswagen), Bajaj small

car (Bajai Auto), Jazz (Honda) and Cobalt, Aveo (GM) in addition to several others.y History of the Automobile industry in India

y The economic

liberalization that dawned in India in the year 1991 has succeeded in bringing about a

sustained growth in the automotive production sector triggered by enhanced

competitiveness and relaxed restrictions prevailing in the Indian soil. A number of

Indian automobile manufacturers including Tata Motors, Maruti Suzuki and Mahindra

and Mahindra, have dramatically expanded both their domestic and international

operations. The countrys active economic growth has paved a solid road to the

further expansion of its domestic automobile market. This segment has in fact invited

a huge amount of India-specific investment by a number of multinational automobile

manufacturers. As a significant milestone in its progress, the monthly sales ofpassenger cars in India exceeded 100,000 units in February 2009.

y The beginnings of automotive industry in India can be traced during 1940s. After the

nation became independent in the year 1947, the Indian Government and the privatesector launched their efforts to establish an automotive component manufacturing

industry to meet the needs of the automobile industry. The growth of this segmentwas however not so encouraging in the initial stage and through the 1950s and 1960s

on account of nationalization combined with the license raj that was hampering theprivate sector in the country. However, the period that followed 1970s, witnessed a


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sizeable growth contributed by tractors, scooters and commercial vehicles. Even tillthose days, cars were something of a sort of a major luxury. Eventually, the country

saw the entry of Japanese manufacturers establishing Maruti Udyog. During theperiod that followed, several foreign based companies started joint ventures with

Indian companies.

y During 1980s, several Japanese manufacturers started joint-ventures for

manufacturing motorcycles and light commercial-vehicles. During this time, that theIndian government selected Suzuki for a joint-venture to produce small cars.

Following the economic liberalization in 1991 and the weakening of the license raj,

several Indian and multi-national car companies launched their operations on the soil.

After this, automotive component and automobile manufacturing growth remarkably

speeded up to meet the demands of domestic and export needs.

y Experts have an opinion that during the early stages the policies and the treatment by

the Indian government were not favorable to the development of the automobile

industry. However, the liberalization policy and various tax reliefs announced by the

Indian government over the recent past have pronounced a significantly encouraging

impact on this industry segment. Estimates reveal that owing to several boostingfactors, Indian automobile industry has been growing at a pace of about 18% per year.

Therefore, global automobile giants like Volvo, General Motors and Ford have startedlooking at India as a prospective hot destination to establish and expand their

operations.y Like many other nations Indias highly developed transportation system has played a

very important role in the development of the countrys economy over the past to thisday. One can say that the automobile industry in the country has occupied a solid

space in the platform of Indian economy. Empowered by its present growth, today the

automobile industry in the country can produce a diverse range of vehicles under

three broad categories namely cars, two-wheelers and heavy vehicles

AGOODYEARFORTHE INDIANAUTOMOBILE SECTOR

The dawn of a new year brings with it a lot of insights into what transpired in the year just

gone by.In the industry , it is even more relevant when companies take a look at their YearOn Year numbers.Well, the Indian Auto Sectorseems to have come out tops reporting

impressive numbers for the year 2009.Almost all major automakers reported increasinggrowth numbers.This assumes even more significance since the U.S. Automobile industry is

yet to get back on its feet completely.So, the Indian advantage is showing in all its glamour.

What is even more heartening to note is that the major automakers in India have reportedincreasing Export revenues too.Now, a few automobile manufactures like Hyundai are not

necessary Indian but their Indian operations have been doing brisk business and this brings

home the fact that the Indian Economy is getting back in shape.


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Hyundai Motor India Ltd, the countrys second largest car manufacturer and the largest

passenger car exportersurpassed its target for 2009 and reported a 42% increase in domestic

sales.The exports grew by around 9% , a lot of contribution to this coming from the latest

flagship model i10 and the advanced version i20.Hyundai opened its second plant in Chennai

to cater to the increasing export demand for its i10 models.

Maruti Suzuki , one the leading car maker in India did get its bearings right in anincreasingly competitive Indian Car market by gradually shunning down the traditional M800model.Maruti represented a ~31% increase in sales on a YOY basis.Maruti has been very

aggressively rolling out a gamut of new models specially in the small car segment as it isknown.Maruti has also increased its market share in the A3 segment with its SX4 and Dzire

models giving the likes of Honda City a run for its money.

General Motors India registered a phenomenal >100% increase in sales for the month

ending Dec against the same in the year 2008.This marked the highest ever sales number in a

month for General Motors India.The company has gained good traction with its new

hatchback Chevrolet Spark and the Chevrolet Tavera.The company registered a 16% growth

for the 3rd quarter ending Dec 09.

Mahindra and Mahindra , a major player in the tractor market has launched into the

passenger car market for sometime and has reported tremendous number for the monthending December 2009.It reported a whopping 122% increase in the sales for the last month

of the year and a phenomenal increase in export by 203%. Talk about explosive growth.

All in all, the month ofDecember in the year 2009 turned out to be fruitful for the automakers in general.However, the Indian Auto makers are getting even more hotter.The german

car maker Volkswagen has made an impressive entry into India and they seem to have theirfocus right on the money, the small car segment.This year should be an interesting one too

for the auto makers and the auto makers are happy with the demand.So much so that the likes

of Ford India have raised the prices for their models and the industry analysts claim that a 5%increase in car prices is around the corner.It will also be a worth watching how Tata Motors

shapes up this year.Nano has enjoyed tremendous publicity and hype and it will be great if

the sales numbers justify the same.Tata Motors will also be looking to get aggressive with its

recently acquired Jaguar and Land Rover models.

With the economy growing at a healthy rate, the future looks promising for the Indian AutoMarket.


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What are your thoughts on the Indian Auto Industry? Do you think they will be able tomaintain the growth momentum this year in an ever increasing competitive marketplace

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Automobile Industry in India Has Witnessed a Tremendous Growth in Recent Years and is All Set to Carry on the Momentum in the Foreseeable Future