1958 2014

Team Members: Peeyush Sahu

Divyanshu Sharma Ishanu Sharma

Samiullah Ansari Rahul Prasad

The Indian automobile sector is one of its most vibrant industries.

The industry accounts for 22 per cent of the country's manufacturing gross

domestic product (GDP).

The Indian Automobile sector consists of four segments viz. Passenger Vehicles,

Commercial Vehicles, Two-wheeler, and Three-wheeler.

It is one of the largest and the fastest-growing sectors in the world.

From the 15th position in 2000, India automobile market has emerged as the 7th

largest market in the world in 2010. In 2013, India manufactured around 140 lakh

vehicles of which around 122 lakh vehicles were sold in the domestic market &

18 lakh were exported.

The next few years are projected to show solid but cautious growth due to improved

affordability, rising incomes and untapped markets.

All these open up an opportunity for automobile manufactures in India. In addition, with

the government's backing and a special focus on exports of small cars, multi-utility

vehicles (MUVs), two and three-wheelers and auto components, the automotive sector's

contribution to the GDP is expected to double, reaching a turnover of US$ 145 billion in

2016, according to the Automotive Mission Plan (AMP) 2006-2016.

What does the past say ?

Effects in auto

industry after

various

government

policies and

liberalization

Growth drivers of auto industry :

Demand-Supply scenario

Interest rates and availability of finance

Consumer Preference

Wide distribution channel and excellent service after sales

Export and Exchange rates

Demand-Supply Scenario :

Interest rates and availability of finance:

The purchase of vehicles in India is heavily dependent on bank loans.

Decrease in interest rates make loans cheaper and helps in boosting up the demand for

automobiles, whereas increase in interest rates make loans more expensive.

Consumer Preference:

Consumers purchase vehicles by looking at mileage, after sales service, value for money,

brand, etc. So, for the auto industry following are important growth drivers:

Brand

New and better products

Technology

Wide distribution channel and excellent service after sales:

Having a wide distribution network for sales and an excellent after sales service is an

essential to survive and be successful in this industry.

The wider the network, the better it is. Transportation & distribution costs constitute

around 20% of the total cost.

Export and Exchange rates:

The fluctuating exchange rate brings volatility in the export and import earnings.

Depreciation of rupee reduces foreign earnings whereas weakening increases the export

and import earnings.

Factors affecting the growth of industry:

Shortage of skilled manpower

Though the labor costs are amongst the lowest in India owing to the large population, the industry as

a whole is facing the critical challenge of the shortage of skilled manpower.

Increasing cost

Rise in steel price, vehicle emission norms as well as increase in excise duty will affect the production

and hence, the growth of industry.

Tax structure

The current tax structure in India can be a deterrent to the growth of the industry. The burden of

direct and indirect taxes is higher in India than in other countries.

Apart from all these factors there are several other issues that affects the growth i.e. social

issues, political issues etc. for example : TATA NANO case in West Bengal.

What is the future outlook of this industry ?

Today, India has become a favorite investment destination as an Auto Hub. This has

attracted a lot of foreign investment along with higher competition, thus driving the

domestic players to become more efficient.

Rapid urbanization is another factor driving the demand for the industry. There is a vast

untapped rural market as well as a huge potential for exports.

Government supports this industry with favorable policies like the Automotive Mission Plan

2016 in which it has envisaged the Indian auto industry to contribute 10% to GDP by 2016.

The government is gradually trying to bring about the necessary changes in the tax structure

to make it more conducive for investment.

What is the future outlook of this industry ?

It seems that in the long-run, the automobile industry is all set to grow.

But, if we talk about the future prospects of different segments of the automobile

industry, studying above mentioned facts, we see the long-term outlook for passenger

vehicles and two-wheeler segments seems to be bright, whereas for three-wheeler and

the commercial vehicles segments the outlook looks subdued.

Having seen that the auto sector is expected to show good growth in the long term, the

next step is to find investment-worthy companies in the sector.

Maruti Suzuki India

Ltd

Mahindra &

Mahindra

TATA Motors

Road Ahead:

Faster economic growth coupled with the government's policies is likely to drive volumes

and revive the Indian automobile sector.

A fall in interest rates and stable fuel prices are expected to create an environment

conducive for growth in this industry.

Many foreign companies have also started to show their presence in India leading to a very

competitive automobile market in the country, which augurs well for the sector's growth.

It has been predicted by IHS Automotive, a global market information provider that India

will become the third largest automotive market in the world by 2016 ahead of Japan,

Germany and Brazil, riding on its domestic automotive sales.

Thank You …