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Indian Automobile Industry: Passenger Car

Essay by   •  July 9, 2012  •  Research Paper  •  2,647 Words (11 Pages)  •  1,669 Views

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Indian Automobile Industry: Passenger car

A well developed transportation system plays a key role in the development of an economy and India is no exception to it. With the growth of the transportation system, the automobile industry is also growing at rapid speed, occupying an important place on the canvas of Indian economy. Considering huge market potential, production of passenger cars is projected to grow at a CAGR of around 11% between 2010-11 and 2013-14 (Business Wire, May 2010). With over $11 billion investments in foreign automotive business, India has already become a competitive market (Biggs, 2008). India portrays itself as a lower cost country with additional benefits of highly educated workforce and emphasis on advanced technology and R&D. By 2016, the automobile industry will possibly create employment for 25 million people in India, and India will be destination for both vehicle and component manufacturing (Biggs, 2008).

In 1940, Ambassador (Morris Model) was introduced as first automobile in India (Lee and Anderson, 2006). In the early days, the automobile sector was based around the needs of the indigenous vehicle assembly industry, an industry restricted by regulation protection. Maruti 800 was introduced in 1960s. This was joint venture between Japan's Suzuki and Indian car maker Maruti (Basu, 2003). In 1990's, the government changed the policy to encourage foreign investments by abolishing the licensing requirements, promotion of exports, relaxation of MRTP and the general liberalizing of the economy (Singh etal, 2007). India turbo charged its auto industry by removing all investment constraints (Hilton, 2008). The government does not control equity interest and it is completely market drive. However, the foreign firms still prefer to enter into joint ventures (Lee and Anderson, 2006). Many global automobile manufacturers such as Ford, General motors, Suzuki, Honda, Mercedes, Daewoo (in the car segment) and Piaggio, Suzuki, Honda, Yamaha, Kawasaki (in the motorbike segment) have established a manufacturing base or international purchase operations in India (Singh et al., 2004).

The automobile industry comprises of two-wheelers, passenger cars, three-wheelers and commercial vehicles (trucks, buses, tractors). India ranks second in the world in the production of two-wheelers (motorcycles, scooters and mopeds of engine capacities below 200cc) and 13th in the production of passenger cars. Two-wheelers dominate the automobile market with 76.49% of market share followed by passenger cars (15.96%), commercial vehicles (3.95%) and three wheelers (3.60%), (SIAM, 2010). In the past 10 years, the total vehicle production has doubled, and the production of cars and SUVs has risen over by 500,000 units, which is more than double the output in 1995. The major Car manufacturer 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., Skoda India Private Ltd., Toyota Kirloskar Motor Ltd. The two-wheeler manufacturing is dominated by companies like TVS, Honda Motorcycle & Scooter India (Pvt.) Ltd., Hero Honda, Yamaha, Bajaj, etc. The heavy motors like buses, trucks, defense vehicles, auto rickshaws and other multi-utility vehicles are manufactured by Tata-Telco, Ashok Leyland, Eicher Motors, Bajaj, Mahindra and Mahindra, etc.

Among the two wheelers segment, motorcycles have major share in the market. Hero Honda contributes 50% motorcycles to the market and holds 46% share in scooter. TVS makes 82% of the mopeds in the country.

40% of the three-wheelers are used as goods transport purpose. Piaggio holds 40% of the market share. Among the passenger transport, Bajaj is the leader by making 68% of the three-wheelers.

Cars dominate the passenger vehicle market by 79%. Maruti Suzuki has 52% share in passenger cars and is a complete monopoly in multi-purpose vehicles. In utility vehicles Mahindra holds 42% share.

In commercial vehicle, Tata Motors dominates the market with more than 60% share. Among the commercial vehicle makers, Tata figures at number six among the ten largest global manufacturers (Hilton 2008).

India is the second most populated nation in the world and is projected to surpass China by 2015 (CNN, 2006). India's GDP ratio has doubled over the past 20 years and is expected to quadruple by 2020 (Biggs, 2008). A report on Indian auto industry (2005) suggests that the household income is growing at a double-digit pace and estimates that 24 million households will be able to afford a new car in 2007. The Indian automobile industry is projected to grow by approximately 7% in 2006. With a large and growing middle class estimated to be in the hundreds of millions, along with a small wealthy sub-population, the Indian population provides a largely untapped opportunity for growth in the automotive sector. The majority of the two-wheeler and three-wheeler owners does not own a car and belong to the lower or middle income groups. The passenger car in India is still not perceived as a need-based product, the price of the car as a proportion of the income is still quite high, therefore the buying process is quite involved, with the buyer going through a complex decision process wherein he tends to evaluate all the available products/ choices that he can possibly afford. Apart from being a substitute for the increasingly crowded and user-unfriendly public transport systems in most cities and towns, the car is seen as a status symbol for an average image-conscious middle class person in India. It is seen to announce his social and economic success as he follows the typical trajectory from owning a scooter to a 'small car' to multiple cars or a larger premium end car. Rising incomes of the middle class and changing attitudes and lifestyles in terms of willingness to spend for comforts are critical factors influencing the purchase of passenger cars. Strong influencing factors in the buying process include price, established brand name, after sales service, availability of spares, operating costs, perception of technology and quality associated with the product.

The liberalization of the automobile industry in 1990s encouraged foreign investors and Indian companies to enter into joint ventures. India became the largest and fastest growing car markets in the world in 2005-06 and it was reported that the passenger car market grew by 25% per year and the passenger vehicle exports grew by 12.7% annually. India has a well established regulatory framework under the Ministry of Shipping, Road Transport and Highways in which SIAM (Society of Indian Automobile Manufacturers) plays a very important role. All the stake holders are part of the regulation formulation setup. The Indian Auto Industry is implementing both

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