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7/30/2019 KPMG Automotive TL 10
1/36
TheIndianAutomotiveIndustry
EvolvingDynamics
KPMG IN INDIA
AUTOMOTIVE
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The automotive industry is one of the focus industries for KPMG globally, given its
importance both in the mature economies of countries such as the US and Germany, and in
the emerging economies of China and India.
The Indian automobile industry has emerged stronger from the recent global downturn, and
sales across all segments have seen record breaking numbers in the recent past.
While the Indian industry has much to look forward to, by way of steady growth in both
domestic and export markets, there are some clear challenges accompanying the
opportunities in greener vehicles and alternative mobility.
In order to capitalize on these opportunities, the industry needs to develop or acquire
technologies and capabilities to produce vehicles that meet future market needs.
The government for its part has much to do to ensure the growth trends are maintained, and
encourage the development of greener vehicles, while also improving compliance to even
existing environmental standards.
This report attempts to capture how the Indian automobile industry is expected to develop in
the longer term, and what role each stakeholder needs to fulfill in order to be geared up for
evolving requirements.
We have been aided in our study by several senior executives from Indias automotive sector
and we would like to express our gratitude to each of them.
It has been an exciting exercise for us to compile this report through discussions with
various industry personnel and by examining similar trends developing in other markets. We
hope that you find it interesting and insightful too.
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
Foreword
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2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
1 Executive Summary 1
2 Introduction 3
3 Indian Auto Sector Medium term 7
Growth 8
Consolidation 12
4 Indian Auto Sector Long term 17
Green revolution 18
Mobility revolution 25
5 Conclusion 29
6 About KPMG in India 31
Table of Contents
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Introduction: Demographically and economically, Indias automotive industry is well-positioned for growth,
servicing both domestic demand and, increasingly, export opportunities. A predicted increase in Indias working-age
population is likely to help stimulate the burgeoning market for private vehicles. Rising prosperity, easier access to
finance and increasing affordability is expected to see four-wheelers gaining volumes, although two wheelers will
remain the primary choice for the majority of purchasers, buoyed by greater appetite from rural areas, the youth
market and women.
Domestically, some consolidation or alliances might be expected, driven by the need for access to better
technology, manufacturing facilities, service and distribution networks. The components sector is in a strong
position to cash-in on Indias cost-effectiveness, profitability and globally-recognized engineering capabilities. As the
benefits of collaborations become more apparent, super-specialists may emerge in which the automobile is treated
as a system, with each specialist focusing on a sub-system, akin to the IT industry. Though this approach is radical, it
could prove an important step in reducing complexity and investment requirements, while promoting
standardization and meeting customer demands.
Manufacturers are already planning for the future: early advocates of technological and distribution alliances have
yielded generally positive results, enabling domestic OEMs to access global technology and experience, and
permitting them to grow their ranges with fewer financial risks.
This exciting outlook for the industry is set against a backdrop of two potentially game-changing transportation
trends the gradual legislative move towards greener, gas-based public transport vehicles, and a greater
requirement for urban mass mobility schemes to service rapidly-expanding cities.
Green Revolution: Inaprice-consciouseconomysuchasIndias,theshifttowardsgreenvehicleswillbeslowunlessspurredby
governmentmandates.Althoughthemajorplayersarealreadyequippedwiththenecessarycapabilitiestodevelopcleanervehicles,
theydonotseemuchmeritincommercializingthesetechnologiesuntilthegreenrevolutiongainsmomentummostlikelythrough
changesinpoliticallegislationanditachievesthemarketscalerequiredforcommercialviability.
Manufacturersareplacinggreaterfaithindual-fueltechnologiesthaninbattery-poweredalternativesbecausethenecessarysupport
infrastructure,suchasrechargestations,isnotyetinplaceforthewidespreadadoptionofthelatter.Thelaunchofelectricmotorcycles
couldhaveasignificantimpactonthemarket,giventhatmotorcyclesaccountforthemajorityoftwo-wheelersalesinIndia.
Manufacturersoffour-wheelersandcommercialvehiclesinparticularstresstheimportanceofoptimizingconventionalcombustion
enginesbeforeexperimentingtooradicallywithcostlynewtechnologies.
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
Executive Summary1
01
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Mobility Revolution: UseofpublictransportinIndiahaswanedasprivatevehicleownershiphasboomed,butincreasingstrainonthe
roadinfrastructureinmajorcitiesmeanspublicinvestmentislikelyinUrbanMassMobilitySchemessuchasmetrosystemsand
buses.Theautomotiveindustryisunlikelytolosemuchofitscustomerbaseinthenear-term,evenastheseschemesbecomemore
prevalent,becausethesocio-economicstatementofcarownershipwillcontinuetomakeprivatevehiclesdesirable.
Atpresentthereisalackofclarityintheautomotiveindustryovertheroleitwillplayinanymobilityrevolution.Althoughsome
industryexpertsbelievetheimpactofthemobilityrevolutionwillbeminimalintheshort-term,theremaybeopportunitiesfor
manufacturerstobecomeinvolvedwiththepublicsectorinareassuchasimprovinglinksbetweendifferentmodesoftransport.
Conclusion: Current low car penetration, rising prosperity and the increasing affordability of private vehicles offer
a healthy prognosis for the Indian automotive industry. The companies benefiting most from this evolving landscape
will be those who forge judicious alliances and resource-sharing agreements, who prepare for the growing
importance of green technologies, and who remain flexible enough to respond to the twin needs of private light
transport and mass transport schemes.
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
02
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Introduction2
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
03
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Indiaishometoavibrantautomobileofmorethan40millionvehicles.Ithasbeenoneofthefewworldwide
whichsawgrowingpassengercarsalesduringtherecessionofthepasttwoyears.Infact,in2009-10ithas
recordeditshighestvolumesever.Itisbelievedthisupwardtrendwillbesustainedintheforeseeablefuture
duetoastrongdomesticmarketandincreasedthrustonexports.
TheIndianeconomyhasgrownatan
averagerateofaround9percentoverthe
pastfiveyearsandisexpectedtocontinue
thisgrowthinthemediumterm.Thisis
predictedtodriveanincreaseinthe
percentageoftheIndianpopulationableto
affordvehicles.Indiascarpercapitaratio
(expressedincarsper1,000population)is
currentlyamongthelowestintheworlds
top10automarkets.
Thetwinphenomenaoflowcarpenetration
andrisingincomes,whencombinedwith
increasingaffordabilityofcars,areexpected
tocontributetoanincreaseinIndias
automobiledemand.Source: EIU, KPMG Research
Figure 1: Indian GDP growth vs. Annual passenger vehicle volumes
Source: World Bank, KPMG Research
Figure 2: Car population vs. Cars per 1000 population
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
04
Source: NCAER Estimates
Figure 3: Growth in Population Categories with higher incomes
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Theautomotiveindustryisoneofthekey
driversofIndiaseconomy,accountingfor
around4percentofIndiasGDP1 andover
200,000jobs.Itisalsoafocusareafor
KPMGglobally.KPMGregularlypublishes
reportsonclientindustriesincludingthe
automotivesector.Thisstudywhichis
focusedontheIndianmarketcontains
insightsfromtwosuchglobalreports,the
KPMGGlobalAutoExecutiveSurvey2010
andBrand&OwnershipConcentrationin
theEuropeanAutomotiveIndustry.It
analyzesdataandexaminesthreeemerging
themeswithintheIndiancontext:
Growthandconsolidation
Greenrevolution
Mobilityrevolution
Forthisstudy,KPMGconductedinterviews
withseniorexecutivesfromIndianand
globalautomotivecompaniestogaintheir
viewsontheabovethemes.
Key themes explored in
our study
Inthisstudy,KPMGhasexploredthekey
themesofgrowthandconsolidationinthe
automobileindustryaswellasexaminedthe
impactofgreenerautomobilesandtheneed
foralternativemobilityoptionsonthe
automobileindustry.Webelievethatthese
themeswillhaveasignificantroletoplayin
determiningtheshapeandstructureofthe
Indiaautomotiveindustryofthefuture.
Towardsthis,KPMGhasaskedthefollowing
questions:
Theme 1: Consolidationandchanging
businessmodelsinthecontextofgrowthin
theIndianmarket
Whatarethekeygrowthdriversforthe
Indianautomobileindustry?
Whatarethelikelychallengesinthe
contextofconsolidationbothglobally
andinIndia?
Arecontractmanufacturing/alliancesfor
manufacturingordistributionbecoming
thechoiceforcapacityenhancements?
Theme 2: Greenrevolution
Arecustomerpreferencesshiftingto
alternativefuelbasedcars?
Isconsumeractivismexpectedtodrive
demandforgreenervehiclesinthenear
future(5-10years)?
Whatarethevariousinitiativestakenby
Indiancompaniesintheareasof
greenerautomobiles?
WhatisthepotentialfortheIndian
automotiveindustrytoemergeasa
significantpartofthegreenrevolution?
Theme 3: Mobilityrevolution
AreplannedinvestmentsinUrbanMass
MobilitySolutionsinmajorcitiesacross
Indiaexpectedtoaffectthegrowthof
theautomobilemarket?
Whatroleshouldbeplayedbythe
automotiveindustryinproviding
transportationsolutions?
Whataretheinvestmentplansof
companies(ifany)inalternativemobility
solutions?
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
1 Business Monitor International
05
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2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
06
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3 Indian Auto Sector Medium term
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
07
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TheIndianautomobileindustryhasseen
interestingdynamicsinrecenttimeswith
theeffectoftheglobaldownturn,followed
byrecoveryindomesticdemand.Thefuture
oftheindustryinthemediumtermbased
oncurrenttrends,isanalyzedherealong
twobroadthemesintheglobalautomobile
industry:
Growth
Consolidation
Asdiscussedbelow,thenatureofdemand
intheIndianautomotiveindustryandthe
associateddriversarelikelytotakeitalong
apath,whichisdifferentfromtheevolving
globalautomotivelandscape.
Growth
Indiasautomobilemarkethasgrown
steadilyoverthelastseventoeightyears,
withtheexceptionoftheprevioustwo
yearswheretheeffectsoftheglobal
downturnwerefelt,primarilyinsalesof
commercialvehicles.However,evenduring
thedownturn,thetwo-wheelerandthree-
wheelersegments,whichwereuntilthen
experiencinglowgrowthorlosingvolumes,
buckedthetrend.
AsFigure5shows,Indiasvehicledemand
isquitedifferentfromothertopautomobile
marketswiththeexceptionofChinain
thattwo-wheelersconstituteasignificant
portionofvehicledemand(morethan3/4th
oftheIndianmarketisintwo-wheelers).
Inthecontextoftheuniquecharacteristics
oftheIndianautomobilemarket,growthis
expectedtobedrivenbythefollowing:
Source: SIAM
Figure 4: Domestic vehicle volumes (annual) vs. Year-on-year growth rates
Source: SIAM
Figure 5: Indian Automobile Market 2009-10 Domestic Sales Volumes
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
08
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Affordability
Whilequiteafewnewvehicleslaunchedin
theIndianmarkethavebeendeveloped
locally,vehicleaffordabilityremainsa
significantconcernasseeninFigure6.
Althoughthepriceofanaveragemotorcycle
inIndia(aboutUSD900)iscomparableto
theaveragepercapitaincome,thepricesof
passengercarshavealongwaytogo.
Althoughtheentrylevelcar(Nano)ispriced
ataroundUSD2,500,thepassengercar
marketcouldgrowmulti-foldifthereisa
break-throughofanotherpricelevelinthe
yearstocome.
JohnFlintham,globalCEOofAmtekAuto,
believesfour-wheelersareparticularlywell-
placedtotakeadvantageofthesechanging
trends.IfyoulookattheTataNano,people
buyingtwo-wheelerbikeswhohaveabit
moredisposableincomeandcannowafford
tobuyacarinstead.Ithinkyouregoingto
seeadoublingofsalesoverthenextthree
tofouryearsandIthinkthatsgoingtobe
drivenbybothdomesticdemandandby
Indiabecomingasmallcarexporthub.
FordIndiaManagingDirector,Michael
Boneham,believeschangingdemographics
inIndiawillseeautosalesscalenew
heights.Hearguesthattheincreasing
numberofeducatedpeopleenteringthe
workingagebracketwillprovideafertile
environmentforabuoyanteconomyand
healthydemandforprivatelighttransport.
TheIndianautoindustryshouldhave
doubledigitgrowthlevelsforthenextfive
yearsandbeyond,dependingontaxation,
legislation,infrastructureandglobal
conditions,he says.
Fuel Economy
Thevolumeleadersacrosstwo-wheelers
andfour-wheelersinIndiaarecompanies
whichhavebeenabletoofferproductswith
thegloballyacknowledgedbest-in-classfuel
economyrates,aswellasaffordabletotal
costofownership.Forexample,whilethe
USissettingnormsforcarstoachieve35
mpg1 onpetrol2 ,amajorityofIndiancars
alreadyofferthatmuch3,whiletheleading-
classbikesofferupto200mpg3 andmore
insomecases.Thisperformance
expectationwillonlyincreaseinthefuture.
Fueleconomywillalsobeanimportant
factorinthetrucksector,withMarc
Llistosella,CEOandManagingDirectorof
DaimlerIndiaCommercialVehicles,noting
thatavehiclesmpgratingwillbecomean
increasinglyimportantpurchasingfactor.
Noonebuysatruckforleisure,hesays,
greaterefficiencymeansbetterfuel
consumptionandthisisinourinterest.
Some65percentofthetotalcostof
ownershipofatruckisfuelconsumption.
Thisgoesdirectlytotheprofitandlossof
thecustomer
Alternative Fuels
Vehiclesbasedonalternativefuelsremain
anotherareaofinterestforbothconsumers
andcompanies.Reva4 ,apioneerinelectric
cars,remainsanexceptionintheareaof
electricvehiclesinIndia,althoughintwo-
wheelerstherearemultipleofferings,none
ofwhichhaveasyettakenoffintermsof
volume.Althoughbothcommercialvehicles
andpassengervehiclesrunningonCNGare
gainingpopularityamongtransportservice
providersandconsumersduetotheirlower
costofoperation,muchmoreneedstobe
donetoimprovethefuellinginfrastructure
beforeCNGvehiclesbecomemore
mainstream.Thisreportexploresthistheme
indetailinthesectiononGreenRevolution.
Source: KPMG Research, EIU
Figure 6: Vehicle affordability
1 1 (mile per gallon) mpg = 0.42 km/l (approx)
2 National Highway Traffic Safety Administration (NHTSA)
3 OEM websites, KPMG Research
4 Mahindra & Mahindra (M&M) has recently purchased a controlling
stake in Reva
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
09
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Niche Products
WhileIndiaremainspredominantlyacost-
consciousmarket,profitablenichesare
availablefortheproductswhichaddress
specificneeds.Oneexampleisthegrowth
inthesalesofgearlessscooters,asseenin
Figure7.Ofthese,most ofthescootersare
inthe75-125ccsub-segment5,often
targetedatyoungpeopleandwomenin
particular.
Thegrowingpopulation,asignificant
proportionofwhichwillbeofworkingage
overthenextdecade,isanothersourceof
demandtomostautomobilecompanies.
Source: SIAM
Figure 7: Scooter - Domestic sales growth
Source: Planning Commission, India
Figure 8: Indias changing demographic profile (Mn) across age groups
5 SIAM
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
10
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Theluxurycarsegment6 hastakenoff
substantiallyinthelastthreeyears(see
Figure9)andcurrentdatasuggeststhatthe
demandwillbesustainedinthemedium
term.Whiletheluxurycarvolumesareonly
aboutonepercentofthetotalpassenger
vehiclesalesin2009-10,thecumulative
annualgrowthrate(involume)ofnearly40
percentoverthelasttwoyearssuggests
thatthisshareisboundtogrow.
Rural Market
Theautomobileindustryhasyettofullytap
intodemandfromruralareas.Previously,
consumersfromtheseareaswouldneedto
gotoautomobiledealershipsintownsand
citiesfortheirvehiclepurchases.However,
inrecentyears,marketplayershavemade
overturestoruralconsumers,withencour
agingsales.Figure10showsagradualbut
steadygrowthindemandforpassenger
vehiclesfromruralareas,accompanyingthe
growthoftheoverallsegment.
WhiletheIndianautomobileindustryseeks
todoubletotalsalesonthebackofsteady
growthoverthenextdecade,these
relativelyundertappeddemandsegments
(ruralmarkets,youth,womenandluxury
cars)areexpectedtoplayasignificantrole.
Source: SIAM, KPMG Research
Figure 9: Luxury car sales
Source: Emkay Research, NCAER
Figure 10: Growth in rural demand for passenger vehicles (1.95 Mn vehicles in 2009-10)
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
6 Cars costing above USD 32000 (about INR 15 lakh)11
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Consolidation
AsIndiaseekstobecomeoneofthe
worldslargestautomobilemarkets,itis
interestingtolookatitsevolutionoverthe
years.Indiasattractionasadestinationfor
automobilemanufacturershasbeen
underscoredbythenumberofnew
manufacturersenteringthecountryoverthe
lasttwodecades.Unlikeinseveralmarkets,
thenumberofmanufacturershascontinued
togrowinIndiaovertheyearsacross
vehiclesegments.
Globalconsolidationisanaturalprocessof
businessalignmentsbasedontechnologies
andmarket opportunit ies,saysDaimlers
MarcLlistosella.TheIndianmarketis
evolvingasthenextbigopportunityand
playersfromacrosstheworldseeitasa
naturalextensionoftheirbusinessdomain.
AndIndianplayersintheautomotive
componentsectorarenowviewingthe
entireglobalmarketasanopportunity.With
highskilllevelsandacompetitive
environment,theyarenolongerrestricted
toviewingIndiaalone.
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
Ashok Leyland
Force Motors
VE-CVs Eicher
Swaraj Mazda
JCBL
Asia Motor Works
Kamaz Vectra MotorsAshok Leyland
Force Motors
VE-CVs Eicher
Swaraj Mazda
JCBL
Ashok Leyland
Force Motors
VE-CVs Eicher
Swaraj Mazda
JCBLAshok Leyland
Force MotorsAshok Leyland
Force Motors
Ashok Leyland
Force Motors
Hindustan Motors
Premier Automobiles
Tata MotorsM&M
Maruti Suzuki India
Volkswagen-Audi
Skoda Auto India
Mercedes-Benz India
Ford India
Honda Siel Cars India
Hyndai Motors India
Toyota Kirloskar Motors
Fiat India
BMW India
Mitsubishi
General Motors IndiaVolkswagen India
VE-CVs Eicher
Hindustan Motors
Premier Automobiles
Tata Motors
M&M
Maruti Suzuki India
Sipani
Rover
Mercedes-Benz India
Ford India
Honda Siel Cars India
Hyndai Motors IndiaToyota Kirloskar Motors
Fiat India
Mitsubishi
General Motors India
Hindustan Motors
Premier Automobiles
Tata Motors
M&MMaruti Suzuki India
Sipani
Hindustan Motors
Premier Automobiles
Tata Motors
M&M
StandardSipani
Hindustan Motors
Premier Automobiles
Tata Motors
M&M
Standard
Hindustan Motors
Premier Automobiles
Tata Motors
M&M
Standard
Hindustan Motors
Premier Automobiles
Tata Motors
M&M
General Motors India
Standard
Fiat IndiaFiat India
General Motors India
Passenger Cars and CVs
2W and 3W
Fiat India
Electrotherm
Suzuki Motorcycle India
YamahaM&M
Hero Honda MotorsHMSI
TVS Motor Company
Royal Enfield
Bajaj Auto
HMSI
Kinetic Motor Company
LML IndiaIdeal Java
Mopeds IndiaHero Honda Motors
TVS Suzuki
Escorts Group
Royal Enfield
Bajaj Auto
API
Kinetic Motor Company
LML India
Ideal JavaMopeds India
Hero Honda Motors
TVS Suzuki
Escorts GroupRoyal Enfield
Bajaj Auto
API
LML India
Ideal Java
Mopeds IndiasTVS SuzukiEscorts Group
Royal Enfield
Bajaj Auto
API
Ideal Java
Mopeds Indias
TVS SuzukiEscorts Group
Royal Enfield
Bajaj Auto
API
Royal Enfield
Bajaj Auto
API
API
1
1
2
7 7 7
8
11
19
24
3
7
10
12
14
Piaggio VehiclesAtul Auto
Scooters IndiaPiaggio Vehicles
Atul Auto
Scooters India
Atul Auto
Scooters India
Atul Auto
Scooters India
12
1900 1920 1940 1950 1960 1970 1980 1990 2000
Figure 11: Automobile Manufacturers7
Source: SIAM, Company websites, KPMG Research
7 Kinetic 2W has been acquired by Mahindra & Mahindra recently12
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Majoracquisitions/jointventureslikeTata&
JLRandVW&SuzukihaveenabledOEMstogrowtheirrangeswhiletakingfewer
financialrisks.Alliancesareplaying
significantllyincreasingroleingenerating
economiesofscale.
Butanalliancemustbeamarriageof
equals,warnsSunilRekhi,DeputyCFOof
NissanMotorIndiaandRenaultNissan
Automotive.Wehaveenoughexamples
wheresuchallianceshaventworked,such
asDaimlerChrysler,hesays.Hecites
globalOEMshighregardforIndiaasa
sourcinghubandintellectualpoolasthe
reasonwhyanincreasingnumberare
settingupR&Dandengineeringcentersin
thecountry.
AshokLeylandhasfoundacompatible
partnerinNissantodeveloplight
commercialvehicles.AshokLeylandCFO,K
Sridharanseessuchtechnological
agreementsasamajoropportunityfor
Indianautofirmstonotonlycaterto
domesticdemand,butalsotomakedeeper
inroadsintotheexportmarket.Moreand
moreplayersarestrategicallyeyeingIndia
andasaresulttheindustryisexposedto
advancedfeatures,qualitylevelsand
performancelevels,he notes.
Whilethepassengercarsegmenthasbeen
dominatedbythreevendorsMarutiSuzuki,HyundaiandTataMotors(which
togetheraccountedfor70percentof
passengercarsalesin2009-10)8 thetwo-
wheelersegmentisdominatedbyHero
Honda,BajajandTVSMotors(which
togetheraccountedformorethan80
percentoftwo-wheelersalesin2009-10)9.
Consideringtherobustgrowththeindustry
iscurrentlywitnessing,itisclearthatany
newentrantwouldneedtodemonstrate
consistentandcleardifferentiatorstomake
aplayforaleadershippositionintheIndian
market.
Thedomesticindustryhasnotseentoo
manymergersoracquisitionsintherecent
past.Talkingaboutthetwowheeler
segment,BajajAutoSeniorVP,Business
Development,SRaviKumar,doesnotsee
consolidationasalikelyscenariointhe
immediatefuture.Consideringthelimited
numberofplayersoperatinginmature
marketslikeIndia,wedonotforeseeany
consolidationhappening,hesaid,inall
therewillbehandfulofplayerswhowill
dominatethisindustry.Peoplewhocant
meetqualityandcostexpectationswillfind
ithardtocomein.
8 SIAM
9 Kinetic 2W has been acquired by Mahindra & Mahindra recently
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
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Oneofthemoreinterestingscenariosbeing
consideredbyvariousindustryobservers
involvesthedevelopmentofsuper-
specialistsintheautomobileindustryakin
totheITindustry,withtheautomobile
beingtreatedasasystem,witheach
specialistsupplyingasub-system.For
example,
BMW,PSAcouldbethetwoengine
manufacturersinthecarindustrylike
Intelisthepredominantsupplierof
processorstotheITindustry,while
othermanufacturerswhowouldbuy
enginesfromitcouldfocusonthe
automobilesbrandinganddistribution
Toyotacouldbecomethemanufacturing
servicesproviderofchoicetoseveral
carmanufacturers
Inthisscenario,ahighdegreeof
collaborationmayberequiredamong
manufacturerswhoarecurrentlyengagedin
vigorouscompetitionformarketshare.
Consolidation in Europe
Europehaswitnessedsomedramatic
powershiftsinthepast.Europehasseen
fourphasesofconsolidation10,beginning
withthebigshakeoutsofthe20s-30s,to
theconsolidationinthewakeoftheendof
theSecondWorldWarinthe50s.Another
waveofconsolidationbeganinthe60s,
followedbyaperiodofslowinggrowth
leadingtothecurrentstateofaglobalized
automobileindustry.
Withinfourkeymarkets(UK,Germany,
FranceandItaly)whichtogetheraccounted
formorethan71percentofnewcar
registrationsinEurope11,thetrendshave
beenmarkedlydifferent,withasignificant
reductioninthenumberofmanufacturers
overthelastfivedecades(seeFigure12).
10 KPMGs Brand & Ownership Concentration in the European Automotive Industry
11 ACEA, Jan-Dec 2009
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
14
Figure 12 (a): Share of key nations in new car registrations in Europe
for Jan-Dec 2009
Source: KPMG ResearchSource: European Automobile Manufacturers Association (ACEA)
Figure 12 (b): Consolidation among automobile manufacturers in Europe between
1950s and 2000s
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WhencomparedwiththeEuropean
industry,severalobservationscanbemade
ontheIndianautomobileindustryfroma
consolidationperspective:
TheIndianautomobileindustryissetto
continueitsgrowthtrajectory,inthe
mediumterm,onthebackofsteady
economicgrowth.Someconsolidation
oralliancescouldpossiblybeexpected,
drivenbytheneedforaccessto
technology,manufacturingfacilities,
serviceanddistributionnetworks:
- Someevidenceofthishasalready
beenseenwithFiatsdieselengine
beingusedinSuzukisvehicles,as
wellasTatavehicles
- Tataismanagingtheserviceand
distributionfacilitiesforFiatIndia
Indiaispredominantlyatwo-wheeler
market(byvolume)today,andgiven
thataffordabilityisexpectedtocontinue
asakeyissueforalargepartofthe
Indianpopulation,thistrendisunlikely
tochangeoverthemediumterm
regardlessofentry/exitofnewplayers
Consolidationintheformofbrands
beingboughtandsoldorcompanies
exitingthemarketaremorelikelytobe
exceptions.Furthermore,global
developmentssuchasVolkswagens
acquisitionofastakeinSuzukiwillhave
theirownramificationsforcompaniesin
theIndianmarket.However,itis
unlikelythatwewillseephenomena
suchasbrands/entirecompaniesbeing
boughtandabsorbed,ashasbeenseen
overseas.
Thecomponentssectorisoneofthe
biggestchallengesformaintaining
growthbutalsooneofthebiggest
opportunities,according toFords
MichaelBoneham,aviewechoedby
DaimlersMarcLlistosella,whoargues
thatwithhighskilllevelsanda
competitiveenvironment,component
manufacturersarenowviewingthe
entireglobalmarketaspotential
customers.Indiahasshowntothe
world,thehighprofitabilitywehave
hereandefficiencywhichisoutstanding
comparedtomanyEuropeancountries
intermsofcost consciousness,he
said.EngineeringhasavalueinIndia.
Societyacceptsandhasarespectfor
that.AmtekAutosJohnFl intham has
notednoconsolidationinthe
componentindustrysofar,only
expansion,expansion,expansion.And
theIndianmarketdoesnotappear
readyforcontractmanufacturing,
accordingtoAshokTaneja,Managing
DirectorofShriramPistonsandRings,
becausethemarketisgrowingand
thereisspaceforallOE Mstogrow.
ThemediumtermoutlookfortheIndian
automobilesector,basedonthevarious
demand-driversaswellasthelikelihoodof
consolidationbeinglimited,suggeststhe
industryshouldhavearelativelystable
growthinthemediumterm.However,in
thelongterm,therearetwointeresting
scenarios,bothofwhicharerelatively
nascentasofdate,thusmakingitdifficult
topredicthowtheymightshapethe
industry
Greenvehicles
Developmentsoutsidetheautomobile
sector,suchasagrowthinalternative
mobilitysolutions.
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
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2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
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Indian Auto Sector Long Term4
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
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Thenatureofthelongtermstateofthe
Indianautomobileindustryappearsfluid,
giventhatgloballyevolvingphenomena
suchastheriseofgreener,hybridvehicles
areyettotakeoffinIndia.However,the
Indianautomotiveindustryhasscripteda
differentstoryinthedevelopmentof
greenervehicleswiththeriseofCNGasa
popularoptionamongconsumers.Inthis
context,wediscussthefollowingtrends
Greenrevolution
Mobilityrevolution.
Green revolution
InJuly2010,Toyotaannouncedthesaleof
its200,000 th Prius1 inEurope,aswellasthe
tenthanniversaryofitslaunchofthePrius.
ItisexpectedthatToyotawillsell2million
Priuscarsworldwidesoon.Themilestoneis
allthemoreremarkablegiventhatToyota
soldits100,000th PriusinEuropeonlyabout
twoyearsago,underscoringthegrowing
importanceofelectricvehiclesinthegreen
sector.
Manymanufacturersandmodels(GMsVolt,
FordsFocusRVandNissansLEAFamong
others),despitebeingrelativelatecomersto
thegreensector,havetriedtheirbestto
catchupwithToyotaandHonda.Not
everyonehastakentheplug-inhybridroute.
Evennichemanufacturerssuchas
California-basedTesla2,withofferingssuch
astheRoadster,haveenlivenedaspace
whichsawitsfirstprototypesemerge
decadesbeforethepriceofgasolinewas
evenaconcern.
Commercialvehicles,however,havesofar
notseentheintensityofproduct
developmentwitnessedinpassengercars.
However,thecommercialvehiclessector
hasseenvehiclesdevelopedbasedon
alternativefuels.Fromvehiclesdeveloped
tohandleethanol-basedfuelsinBrazil,to
CNG3 busesinIndia,severalOEMshave
riddenthegreenbandwagon.
Source: KPMGs The Indian Automotive Industry, 2010.
Figure 13: Drivers/Critical Success Factors for Green Vehicle Development Globally
1 www.just-auto.com
2 Silicon Valley based investments
3 CNG - Compressed Natural Gas
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
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Globally,countrieswhichhavetakenthe
leadindevelopinggreenvehicles(US,
Germany,Israel,China,FranceandBrazil),
haveallseensignificantgovernment
involvement.Furthermore,theavailabilityof
investmentsinunproventechnologies,as
wellasclustersofsupportindustries,have
ensuredthatthesectorhassustained
innovation.Intheearlyyearsofhybridcars
intheUS,endorsementsbycelebritiesis
believedtohaveboostedthecars
popularity.
Interestingly,inKPMGsGlobalAuto
ExecutiveSurvey2010,mostindustry
leadersseemedtoagreeonhybrid
technologiesbeingthemostimportant
alternativefueltechnologies,followedby
batteryelectricpower.Thisconsensuswas
almostuniformacrossregions,despite
regionaldifferencesinthepopularityof
vehicletypesandsegments.
Source: KPMG Global Auto Executive Survey 2010
Figure 14: Key alternative fuel technologies in the future - percent of executives who considered it important
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
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Green Vehicles in India
Aswithconventionalautomobiles,the
Indianindustryhastakenapathdifferent
fromthatoftheglobalindustryinthe
developmentofgreenvehicles.The
developmentofcleanervehiclesinIndia
beganwitharegulatorypushforCNG
busesandthree-wheelersinNewDelhi
morethanadecadeago.Inallother
segmentsoftheautomobilemarket,
demandhasgrownlargelybasedon
customerawarenessandapullforproducts
motivatedlargelybyperceivedeconomic
benefits.Forinstance,LPGkitswere
availableinthemarketmorethanayear
beforethefirstentrantinthefield,Maruti
Suzuki,introducedfactory-fittedvehiclesin
2004.Inrecenttimes,electrictwo-
wheelershaveriddenonthebackof
customerdemandforvehicleswithlower
runningcosts,aswellassomeincentives
tousersintheformoflittleornodutieson
electricvehicles(andparts)inareassuchas
NewDelhi.
Thislackoftechnologicalconsensusmaybe
hinderingthecreationofanadequategreen
infrastructure,accordingtoAshokTaneja,
ManagingDirectorofShriramPistons.
EachOEMcurrentlyseemstobepursuing
multipletechnologiessuchasCNG,bio-fuel,
hybrids,hydrogen,fuelcells,Plug-insor
EVs,hesays.Itislikehedgingbets,not
knowingwhichtechnologywilleventually
provesuccessful.Whenthereis
consensusitwillhavetobeapublic-private
partnershipbecausethegovernmentalone
doesnthavethecapacitytobuildthe
infrastructure.Hearguesthat the
governmentmustbringmanufacturerson
boardandfinalizea10-20yearblueprintfor
theintroductionofgreenervehicles.
Nevertheless,theIndianautoindustrytoday
seemstobeevaluatingtwopathsinits
movetowardsgreenervehicles:
CNG/DualFuel4
Vehicles
Electric/HybridVehicles
CNG/Dual Fuel Vehicles
Thispartoftheindustryhasdeveloped
largelybasedonlegislativeandjudicial
activismandthesubsequentavailabilityof
CNGfuelingoutletsacrossmajorpartsof
thecountry.AsshowninFigure15,the
governmentorderedtheconversionof
existingdiesel/petrol-basedpublictransport
vehicles(buses,taxis,andauto-rickshaws)
toCNGinseveralcitiesincludingNewDelhi
andMumbai,inresponsetogrowing
concernsoveremissions.
Source: KPMG Research, Company Websites
Figure 15: Key Milestones in Green Vehicles in India
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
4 With one fuel being CNG/ LPG
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Whilethereisdebateovertheeffectiveness
ofCNGinreducingpollutantemissions,
thereseemstobesupportforCNG-based
vehiclesinNewDelhi5,andsustainable
urbantransportinothercities(Mumbai,
Ahmedabad,andSurat)6.Furthermore,other
theoreticalstudiesalsosupportthe
introductionofCNGbusesinplaceofdiesel
asaneffectivemethodinreducing
emissions7.Indiahastheworldsfifth
largestnumberofnaturalgasvehicles8,
amountingtoalittlelessthanamillion
vehicles.
Itisbelievedthatatleast5percentofnew
carbuyersoptforaCNGvariantwhere
available.Thiscouldgrowinthefutureas
thedemandincreasesforvehicleswithlowerrunningcosts,althoughcurrently
mostLPG/CNGvariantsofpassengercars
costaboutINR15,000to50,000morethan
theirconventionalcounterparts9.Thehigher
purchasepriceofdual-fuelcarsisnormally
compensatedinlessthantwoyearsbased
oncostperkm,becausedual-fuelcarsoffer
upto50percentsavings10 basedoncurrent
pricesofpetrolandCNG.Theincreasing
availabilityoffuelingstationsincitiesand
onmajorhighwaysisalsoencouraging
sales.ThestateofGujaratisacaseinpoint
onCNG,accountingforaboutafourthofall
CNGvehiclesinIndiain2009,whilehaving
onlyaboutathirdofthe560CNGrefueling
stations11.
5 Narain Urvashi, Krupnick, Alan. 2007. The Impact of Delhis CNG
Program on Air Quality, Resources for the Future
6 Rayle, Lisa, Pai, Madhav. 2010. Urban Mobility Forecasts: Emissions
Scenarios for Three Indian Cities
7 Takeuchi, Akie et al. 2007. The Impact of Policies to Control Motor
Vehicle Emissions in Mumbai, India. Journal of Regional Science
8 International Association for Natural Gas Vehicles, Dec 2009
9 Various OEM product launch announcements
1 USD is about INR 46.5 (xe.com) as of 26 July 2010
10 KPMG Research. Assumption of 20,000 km of travel per year per car
11 Ministry of Road Transport and Highways, Infraline, KPMG Research
and Analysis
Source: International Association for Natural Gas Vehicles
Source: KPMG Research
Figure 17: Comparison of Cost/km for CNG and Petrol
Figure 16: Growth of CNG Vehicles in India
Note: Assumptions of mileage of 12 km/kg for CNG and 13 km/litre for petrol for a sub 1200 cc engine car, Rates as in Delhi in May 2010
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
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Electric/Hybrid Vehicles
Batterypowered/plug-inhybridelectric
vehicles(BEV/PHEV)havecontinuedtheir
steadygrowthworldwide,despite
accountingforonlyabout1percentofall
vehiclessoldin200912.InIndia,electric
vehicleshavejustbegunmakingsome
inroadsintothemarket.Inpassengercars,
thereisonlyoneestablisheddomestic
manufacturer,Reva,whosesalesaccount
forlessthan1percentofallpassengercars
soldinIndia.Howeverthiscouldchange
soonwithMahindra&Mahindras(M&M)
acquisitionofamajoritystakeinReva.
Inthetwo-wheelermarket,anelectric
scooterisavailableforless(aboutUSD600)
thanaconventionalscooter(aboutUSD
900)13.Soon,Indianelectricvehicle
manufacturersareexpectedtolaunch
electricmotorcycles.Giventhat
motorcyclesaccountformorethan80
percentofalltwo-wheelerssoldinIndia,
theintroductionofelectricmotorcycles
couldhaveasignificantimpactonthe
marketforelectricvehicles.However,
electrictwo-wheelershaveseenarecent
reversaloffortunes,withsalesdippingfrom
ahighofmorethan26,000vehiclesin
2008-09toaround3,000in2009-1014,
attributedbyindustrysourcestotherushof
cheap,butlow-qualityvehicleswhich
floodedthemarketin2008-09butthen
weresubsequentlyrejectedbyconsumers.
ArunPratapSingh,SeniorVPofelectric
vehiclebusinessElectrotherm,arguesthat
thiswaspartiallyduetoahugeinfluxoflow
costChinesemodelswhichhadquality
constraints.Alotoffly-by-nightcompanies
hadstartedoperatinginIndiawhosold
inferiorqualitymodelsatcheappricesbut
didnotprovideanyservicesupport,he
says.Asthecustomersbecameaware,
thesecompanieshadtoshutupshop
resultinginadeclineinnumbers.Asa
result,theentireelectricvehicleindustry
hasearnedabadnameandbecauseofthis
theindustryoverallwitnessedfewersales
inthissegment.However,thingsare
changingnow,withtheintroductionofnew
models,Electrothermisseeinggrowthin
electrictwowheelersalesmonthover
monthHeisalsoexpecting2010numbers
tobouncebackonthestrengthofaservice
supportnetworkbeingdevelopedto
addressanycustomerproblems.
Electric/hybridcommercialvehiclesare
mostlyintheexperimentalstageatthe
timeofwritingsoitisnotyetclearhow
thisindustrywillshapeupinIndia.
DaimlersMarcLlistosellasuggeststhe
movetowardsgreenercommercialvehicles
iscurrentlylimitedtothemajor
metropolisesbecauseconsumeractivismis
stillgainingmomentum.
Posthybrid,therearetrialsanderrorsin
theindustrybecausenooneknowswhat
willhappen,he says.Theresno blueprint,
whichmakesitbothinterestingand
challenging.Therearedifferenttheoriesbut
nobodyhastheonesolution.Indiscussions
atthestartofthecentury,hybridwascalled
abridgetechnology,inotherwordsitwas
neverthefinaldestination.5,10,15,20
years,howlongwillthenextstagetake?
Theindustrystillhasto defineaclearpath.
Other Fuels
AsinBrazil,wheremorethan90percentof
newvehiclessoldcanrunoneitherethanol
orgasoline15
,Indiahasbeenexploringthe
prospectofreducingitsdependenceon
crudeoil.Therearemandatoryblending
requirementsforethanolandthe
governmenthasannouncedapolicyfor
biofuels(suchasbiodiesel/biopetrol)from
varioussources.However,noneofthese
havetakenoffinasustainablemanner.
Aswithanydevelopingmarkettrend,
greenervehiclesfaceseveralchallengesto
theirgrowthinIndia(seeFigure18).Addressingthemwouldhelpexpandthe
marketmultifold.
12 KPMG Research
13 Yo Bike prices for electric scooters and Honda scooter prices (both in
Mumbai) have been used for comparison
14 As tracked by SIAM. However there seems to a parallel segment of
vehicles with lower speeds including Chinese imports that arent
tracked by SIAM, which have achieved sales of more than twice that
the number tracked by SIAM. Source: Various news reports on
Electric Vehicle Sales
15 Reuters
Source: Infraline
Figure 18: Challenges for Green Vehicles
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
Customer Power:
Fuel economy is the primary driver in the Indian market
Range anxiety for customers of both electric and CNG vehicles
Government/Regulatory Support:
There is no national policy for electric vehicles/CNG vehicles (the state of Delhi has
incentives)
Biofuel/ethanol pricing
Coordination among various government agencies, such as the ministries of petroleum,
forests and environment, agriculture, etc.
Fuelling/Charging Infrastructure:
Low number of CNG pumps (about 560) vs. about 38,000 conventional fuel (petrol/diesel)
pumps as of April 2010
Inadequate number of charging stations and that too limited to select cities
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Inthecontextoffuelling/charging
infrastructurebeingasignificanthurdleto
thegrowthofgreenervehiclesnotjustin
Indiabutalsoglobally,thefollowingcase
studyofBetterPlace,oneofthepromising
start-upsintheelectricvehiclesector,
illustrateshowthegreensectorcanbe
encouragedtogrow.
Case Study of Better Place16
BetterPlaceisaninnovativestart-upwhichplanstopositionitselfasaproviderofEV
mobilitysolutionstotheconsumer.Itisexperimentingwithmultiplebusinessmodels
includingbatteryexchangepoints,chargingstationsandasuiteofin-carservicesto
boostthedrivingexperience.Itisworkingincollaborationwithbatteryandautomobile
OEMs,governments/policymakersandinvestors.IthasraisedaroundUSD350
millioninfunds.
BetterPlaceaimstolaunchcommercialoperationsinIsraelandDenmarkbytheend
of2011.Severalkeyprojectshavealreadybeenundertaken:
Itlaunchedthefirstofaplanned500,0 00batterychargingstationsinIsrael inDec
2008
InFebruary2010,itannouncedthesigningof92corporate fleetowners,aswell
asapartnershipwithDorAlon(oneofIsraelsleadinggasstationoperators)for
batteryswitchstationsatDorAlonsfacilities
ItispartneringwithTokyoslargesttaxi operator,NihonKotsu,tointroduceelectric
taxiswithswitchablebatteriesinJapan.ThisprojectisbeingfundedbyJapans
MinistryofEconomy,TradeandIndustrysNaturalResourcesandEnergyAgency.
Ithas signedanMoUwithCheryAutomobileCo,Chinaslargestindependent
autoproducerandexporter,tojointlydevelopswitchable-batteryEVprototypes
withthegoalofsecuringregionalChinesegovernmentEVpilotprojects.
Someindustryplayersbelievethatthe
automotiveindustrywillmakemost
headwayinaddressinggreenconcernsnot
byadoptingradicalnewtechnologiesbutby
optimizingtheperformanceofconventional
engines.
FordIndiasMichaelBonehamsays
alternativefuel-basedcarswillhappen
eventually,buttheprocesswillbegradualbecausefuelcellsandsolarcellsare
unavailablewithinthepricingparametersof
mostcarssoldinIndia.FromaFord
perspectivewerelookingattechnologies
forimprovingtheperformanceofinternal
combustion,suchasEcoBoost.Wecould
perhapsseemanufacturersbringinginsmall
andinterestingnichesegmentationathigh
costforhybridvehiclesinitially,andyoull
seeothernichealternative-fuelbasedcars
suchaselectric.Buttheissueisntjustauto
manufacturersinvestinginthismarket
wheredopeoplewithelectriccarsrecharge
theirbatteriesincountrieswherepower
shortagesaresoprevalent?hesays.
ThisdoesnotdeterElectrothermsArun
PratapSingh,whosaysthathiscompanyis
currentlyfocusingondemographicgroupswithlowermobilityneeds,suchaswomen,
youngpeopleandtheelderly.Oncethe
companyhastechnologytoenhancethe
speedsofthevehicleitwouldliketotarget
othercustomersegmentsalso,hesays.
Wearecurrentlyworkingonpowertrain
developmentwhichcouldachieveaspeed
enhancementofthevehicle.
Honingthetechnologyofengine
managementsystemistheprimaryfocus
concernformanymanufacturers.Unlikein
theEuropeanmarkets,inIndia,focuson
environmentislesspronouncedandisnot
apurchasingconsiderationformanybuyers.
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
16 Better Place website, KPMG Research23
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ThisisastanceechoedbyBajajAutosS
RaviKumar,whostressesthatIndiastwo-
wheelersalreadyproducelessemissions
thansimilarvehicleselsewhereinthe
world.Wellkeepimprovingfuelefficiency
onregularinternalcombustionengines,he
says,Beyondthat,switchingtoalternate
technologieswillhappenonlywhenbattery
costisslashedto0.5to0.25(times)of
currentlevels.Onlythenwillitcomewithin
thegraspofmillionsratherthanjustafew
people.
AshokLeylandsKSridharan,citinghis
companyasanearlypioneerofCNGand
battery-poweredvehicles,ismoreconfident
ofmanufacturersreadinessforgreen
technologies.Thelevelofpreparednesson
thepartofOEMsforgreenervehiclesis
veryhigh,hesays.Itjustneeds
governmentsupport.Forexample,inthe
caseoftheCommonwealthGames,when
thegovernmentmandatedspeciallow-floor
CNGbuses,theOEMswereableto
deliver.
Despitewhatseemlikesignificant
challengestotheIndianautomobile
industrysgreenfuture,thereareseveral
potentialopportunitiesnotjustfor
automobilemanufacturersbutalsofor
supplierbasestoridethegreenrevolution
asdetailedintheboxbelow.
Opportunities for Indian Automotive
Industry in Green Vehicles
Green Vehicle Export Hub
Leverageexpertisewithsmallcars
(especiallydualfuelcars)
Makesignificantinvestments
Research and Development Hub
ExtendexperienceforleadingOEMs
andengineeringcompaniestothe
areaofgreentechnologies
Globalalternativeenergycompanies
(forex.,Suzlon)couldbecomenew
leaders
Sourcing Hub for Parts for Green
Vehicles
Indiaisalreadyone oftheworlds
leadingsourcesforpartsfor
conventionalautomobiles
Vendorscouldleveragetheirexisting
relationships,tosupplypartsfor
greenvehicles
Source:
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
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Mobility revolution
Globally,OEMsrecognizethepotentialof
othermodesoftransporttocomplement
traditionalprivatevehicleuse.Alternative
transportationrepresentsanotherareaof
interestfortheautomobileindustry,but
opinionisdividedonwhetheritrepresents
anopportunityorathreat.
InIndia,theshareofpublictransportation
(excludingquasi-publictransportlikeauto-
rickshaws/taxiservices)hasdeclinedwhile
privatevehicleownershiphasbeen
booming,drivenbygrowingurbanization
andincreasedaffluence17.Acomparisonof
twostudies(1994-RITESand2008-WSA)
clearlyshows(Figure19)therehasbeena
declineintheshareofpublictransport
acrossthecities.
ThealternatemobilityrevolutionisjusttakingoffinIndia.Asshownbelow(Figure20),
thereareseveralalternativestoprivatetransportation/personalmobilitythatneedtobe
closelymonitoredbyindustryplayerstoidentifyopportunitiesandrisks.
Source:Study on Traffic and Transportation Policies and Strategies in Urban areas in India, May 2008, WSA,
Ministry of Urban Development
Figure 19: Public Transport Share in total transportation
Source: KPMG Research
Figure 20: Alternative Mobility options
17 Study on Traffic and Transportation Policies and Strategies in Urban
areas in India, May 2008, WSA, Ministry of Urban Development
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
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Inthefuture,itisbelievedthatplanned
investmentsbyboththeprivateandpublic
sectorwillrequiremoreinteraction
betweenpublictransportoptionsand
privatevehicles(drivenbytheintroduction
ofmetros,BusRapidTransitSystems
(BRTS),fleettaxis/busesandincreasedrural
mobility).Currentlyinter-systemmobility
hasnotbeenasignificantareaoffocusand
isthereforelargelyconsumerdrivenand
unregulated.
AshokLeylandsKSridharanishopeful,
seeingmassrapidtransportsystemsasa
necessitywhichwillimpacttheautomotive
industrybyprovidingopportunitiesto
participateinsolutions.Oneexamplecould
becoachsharinginairports/railwaysbeing
implementedby OEMs,he says.Theresa
lotofscopefordifferentsolutionsto
enhancetheconnectivitynetworksinIndia.
AshokLeylandisalreadyworkingonthese
lines.
Whilethereseemtobesignificant
opportunitiesforautomobileplayersto
exploit,therearesomeclearchallenges
ahead,mostnotablyininfrastructure.Most
largecitiesinIndiahaveoutgrowntheir
plannedsizesandareunabletoadopt
alternativetransportsystemsina
meaningfultimeframe.Forexample,aBRTS
requiresdedicatedfastlanesforbuses,
whichisverydifficultgiventheexisting
congestionontheroadsofcitiessuchas
Mumbai.
Limitedexpansionpossibilitieswillmeanan
integratedtransportsystembecomesa
necessity.Thisneedwillbemore
pronounced,oncealloptionstoenhance
roadtransportlikebuildingflyoversetcare
exhausted.However,industryobservers
believethatsuchsolutions/technologiesare
likelytobedevelopedoutsidethe
automotiveindustryandautomotive
companys'immediatefocusislikelytobe
onmakingtheircarsgreener.
BajajAutosSRaviKumarconcurs:
Businesshouses,likeTata,Bajajand
M&M,willgoforitonlyiftheywantto
enterthatbusinessandthereisbusiness
meritintheproposition,hesays.Itfalls
outsidethescopeofautoindustrys
backward-forwardintegrationperimeter,
autoguysareautoguys.Bridgeandroad
guysarebridgeandroadguys.
Vehiclemanufacturersarecertainto
becomeembroiledintherevolutionevenif
theirinvolvementisinitiallyperipheral.
NissanIndiasSunilRekhisays:TheIndian
automotiveindustrywillplayarolein
providingfeederservicestothedifferent
modesofpublictransportationintheform
ofsupplyingbusservicesandfleet
services.
Clearly,giventhehugetransportationneeds
ofthefuture,anincreasingproportionof
thepopulationmayshifttheirallegiance
towardspublictransport,therebyreducing
thepowerofautomobilemanufacturers.
Thefollowingcasestudyofametrorail
corporationinIndiahighlightsan
opportunityinwhichmassmobility
providerscouldleadthewayin
transportationsolutionsinafuturescenario.
Insuchacase,neithervehicle
manufacturersnortheoriginatorsofthefuelsthatthosevehiclesrunon,would
dominate.
18 DMRC website, KPMG Research
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
Case Study of DMRC18
TheDelhiMetroRailCorporation(DMRC)
wasborninresponsetotheneedto
decongestthecitysroadsduetoa
rapidlygrowingvehiclepopulation.
TheDMRCcurrentlytransportsmore
thanonemillionpeopleeveryday,
roughly6percentofthecityspopulation.
Whileithasbeeninoperationforabout
fiveyears,itspopularitycanbegauged
fromthefactthatitnowlinks/willbe
soonlinkingallthreekeyterritories
withintheNationalCapitalRegion
Gurgaon,NoidaandFaridabad.These
areashaveamongthehighestcar
densitiesper1,000populationinIndia.
Delhisdensityoffour-wheelersper
1,000populationisnearlyeighttimesthe
ratioforthecountry.
AlthoughDMRChasseenamultifold
jumpinitstraffic,fromabout150,000at
thetimeofitsintroduction,thenumbers
arestillwellbelowtheplannedestimates
ofmorethanthreemilliondailyusers.
AsFigure21shows,whiletheDelhi
Metrospassengertraffichasgrownata
healthyrate,Delhisrateofincreasein
privatevehiclenumbers(increaseof
about0.7mn)comparedtoitspopulation
growth(increaseofaboutamillion)
between2005-06and2007-08,indicates
thatinthenear-termroadcapacitymight
becomeaconstraintforvehiclesales
growth.
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OnereasontheDelhiMetrohasnot
dampenedcarsalesisthesocio-economic
statementofcarownership,accordingto
FordIndiasMichaelBoneham.Urban
MassMobilitySchemesareanabsolute
must,butIdontseethemimpactingthe
growthoftheautomotivemarketbecause
theyhavetogohand-in-hand,hesays,
Theresnoabatementinthedemandfor
vehiclesbecauseofeconomic
demographicsoneofthekeyidentifiersof
successinIndiaisapersonbuyingafour-
wheeler,andthatwillcontinuesignificantly
fortheforeseeablefuture.Itsakeypartof
theIndianpsyche.
Growingprosperitywillkeeptheautomotive
marketrobust,agreesBajajAutosSRavi
Kumar.Peopleareenjoyingtheirlives,he
says,Theywanttobuybikesandcars.
Manymorearegettingintotheaffordability
thresholdjustIfyoutellthemtositinthe
Bombaymetro,thatmightnotcuttheice.I
dontseeareductioninautosalesbecause
ofthisshifttoUrbanMassMobility
Schemes.
AmtekAutosJohnFlinthamagreesdemand
willremainhealthy,despitepredictinga
boomingrailsectorinthegoldentriangle
ofMumbai,ChennaiandDelhi.Ifyoulook
atawesternizedcountrysuchasLondon
wherethereisapublictransport
infrastructure,althoughpeopleinthecentre
probablydontbuymanycars,alotofother
peopleinthecitywill,hesays.Ithinkthe
overalldemandisstillgreat.AndIthink
someoftheinvestmentintherailstructure
withinIndiawillactuallymakeitmoreviable
intermsofbecominganexportnation.
Basedoncurrenttrends,intermsofboth
greenervehiclesandalternativemobility
solutions,Indiaisperhapsfiveyearsor
more,awayfromthesetrendsbecoming
mainstream.However,thiscouldrapidly
changebasedonregulatoryinterventionsor
globalpolitical/economicturmoilakintothe
aftermathofthe1970soilshockortheGulf
war,acceleratingtransformationofthe
Indianautomobileindustry.
Inthecontextofleadtimeforimplementing
newstrategiesanddevelopingnewvehicle
platforms,playerswoulddowelltobegin
planningforthatevolvinglandscapenow.
4W
population (lakh)
2005-06 2007-08
2W
population (lakh)
Population (Mn) Delhi Metro Traffic
in passengers/day
(lakh)
-
10.0
20.08.4%
7.8%
2.7%
29.1%
30.0
40.0
Source: Economic Survey of Delhi, DMRC, KPMG Analysis
Figure 21: Delhi: Population Growth vs Vehicle Population Growth
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
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2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
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Conclusion5
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
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Indiasautomobileindustryispoisedatthe
startofanexcitingphaseofgrowth,notall
ofwhichmayderivefrommanufacturing
conventionalfuel-basedvehicles.Various
possibilitiesrangingfromdeveloping
vehiclesbasedonalternatefuelsto
collaboratingwithsome-timerivals,have
thepotentialtoopenfreshavenuesfor
growth.
Inordertocapitalizeontheemerging
scenariosinthefuture,thefollowingarea
fewkeyactionpointsforeachofthe
industryskeystakeholders:
Policy Makers
Indiahasnodutybenefitsforeven
hybridcars,whichneedtobeimported
duetolowvolumes.IfIndias
automobileindustrywantstoplayarole
intheglobalarenaforalternativefuel-
basedvehicles,suchlimitingmeasures
needtobereexaminedandan
appropriateredesignoftheframework
needstobeenactedimmediately
Whileglobalcompaniesarepursuing
innovationsinthirdandfourth
generationbiofuels,Indiaisyetto
decideonapurchasepriceforthefuel.
Suchadelayinkeypolicydecisions,
whichhavethepotentialtounlock
innovation,needtoberemediedbased
ontherecommendationsofindustry
associations/participants
Demandfornascenttechnologiesand
fuelefficientcarsneedstobe
encouragedbyofferingconsumers
incentivestoadopttheseproducts,
suchasanexpansionofthepolicyof
littleornodutybeingpayableon
electricvehicleparts.Thiscaninturn
spurinnovationforbetterproducts.
Likewise,manufacturerscouldbe
encouragedtocommercializetheir
greentechnologies,whicharecurrently
expensiveandunder-utilizedbythe
market,bybeingofferedsubsidies
whereappropriate
Increasedialoguewithmanufacturers
andoilmarketingcompaniesto
establishabetterinfrastructurefor
greenervehicles.Thegovernment
shouldconsiderfinalizingashort,mid
andlong-termblueprintforthe
developmentofthisinfrastructure,
encompassingelementssuchasbattery
rechargestationsorCNGpumps,
throughpublic-privatepartnerships
Thegovernmentshouldstimulate
debateonhowthepublicandprivate
sectorscancollaborateonthe
establishmentofUrbanMassMobility
Schemes.Manufacturerscouldbecome
keyplayersintermsofdevelopingnew
technologies,orinter-systemmobility.
Industry Participants
Themarketforgreenervehiclesopens
upawholenewworldofpossibilities
forIndiancompanies,evenoutsidethe
automobilesector(suchasleadersin
renewableenergy),tomakeaglobal
foray
Agreaterfocusonexportopportunities
couldtapintoaworldwidemarket
hungryforgreentechnology,which
Indiacanprovidecost-effectivelyandto
globalstandards.Businessmodelsof
globalgreenvehiclemanufacturers
shouldbeexaminedtoseehowmass-
marketpenetrationcanbeenhanced
Collaborationislikelytobethetheme
forthenextdecadeasnewmarkets
andproductsarecreatedbycompanies
forgingpreviouslyunimagined
partnerships.Companieswillneedto
thinkbeyondexistingbusinessmodels.
Concentrationsofresourcesand
technicalingenuitiesmaybevitalto
generateworkableeconomiesofscale.
Theremaybemeritingreater
specializations,suchasthatwitnessed
intheITindustry,tosimplifyprocesses
andreduceinvestmentneed
Acrossallvehicletypes, under-served
demographicssuchasyoungpeople,
womenandruralcustomerscouldbe
targetedbymakinggreateroverturesto
thesemarketsandbyimproving
distributionnetworks
Betterlinksshouldbeforgedwith
supportindustriessuchasbattery
manufacturerstohelpdrivedowncosts
ofmakingandmaintaininggreen
vehicles
Manufacturersshouldformagreater
consensusthanexistsatpresentonthe
mostappropriatefocusforemerging
greentechnologies.Theindustryis
slightlyfragmentedcurrently,with
numerousoptionsbeingexplored
rangingfrombatterypowertohybrid
fuels,frombiodieseltoLPG.
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
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KPMGisaglobalnetworkofprofessionalfirmsprovidingAudit,TaxandAdvisoryservices.
Weoperatein146countriesandhave140,000peopleworkinginmemberfirmsaroundthe
world.TheindependentmemberfirmsoftheKPMGnetworkareaffiliatedwithKPMG
InternationalCooperative(KPMGInternational),aSwissentity.EachKPMGfirmisa
legallydistinctandseparateentityanddescribesitselfassuch.
KPMGinIndia,theaudit,taxandadvisoryfirm,istheIndianmemberfirmofKPMG
InternationalCooperative(KPMGInternational.)wasestablishedinSeptember1993.As
membersofacohesivebusinessunittheyrespondtoaclientserviceenvironmentby
leveragingtheresourcesofaglobalnetworkoffirms,providingdetailedknowledgeoflocal
laws,regulations,marketsandcompetition.Weprovideservicestoover2,000international
andnationalclients,inIndia.KPMGhasofficesinIndiainMumbai,Delhi,Bangalore,
Chennai,Hyderabad,Kolkata,PuneandKochi.ThefirmsinIndiahaveaccesstomorethan
3000Indianandexpatriateprofessionals,manyofwhomareinternationallytrained.We
strivetoproviderapid,performance-based,industry-focusedandtechnology-enabled
services,whichreflectasharedknowledgeofglobalandlocalindustriesandourexperience
oftheIndianbusinessenvironment.
About KPMG in India6
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
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Wewouldsincerelyliketoacknowledgeandthankthefollowingindustryleadersforprovidingtheirvaluableviews
forthisreport
Arun Pratap Singh,SeniorVicePresidentElectricVehicle,Electrotherm(India)Ltd.
Ashok Taneja,ManagingDirector,ShriramPistons&RingsLtd
John Flintham,GlobalCEO,AmtekAutoLimited
K Sridharan,ChiefFinancialOfficer,AshokLeylandLimited
Marc Llistosella,ManagingDirectorandCEO,DaimlerIndiaCommercialVehiclesPvt.Ltd.
Michael Boneham,ManagingDirector,FordIndia
S Ravi Kumar,SeniorVicePresidentBusinessDevelopmentandAssurance,BajajAutoLimited
Sunil Rekhi,DeputyChiefFinancialOfficer,NissanMotorsIndiaPvtLtdandRenaultNissanAutomotivePvtLtd
Thisreportwouldalsonothavebeenpossiblewithoutthecommitmentandcontributionofcertainindividuals
withinKPMG.
Acknowledgements
2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative
(KPMGInternational),aSwissentity.Allrightsreserved.
Yezdi Nagporewalla
Head-Automotive
Sonica Bajaj
AssociateDirector-Markets
Ashwin Jacob
AssociateDirector-BusinessPerformanceServices
D Dharmendra
Manager-BusinessPerformanceServices
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kpmg.com/in
2010KPMG,anIndianPartnershipandamemberfirmofthe
KPMGnetworkofindependentmemberfirmsaffiliatedwithTheinformationcontainedhereinisofageneralnatureandisnotintendedtoaddressthecircumstancesof
Dieter Becker
Managing Partner and
Global Head Automotive
+49 711 9060-41720
Yezdi Nagporewalla
Head Automotive
+91 22 3090 2488
Sonica Bajaj
Associate Director - Markets
+91 22 3091 3257
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