No matter which country we talk about, its automotive industry is an integral point. The production of automobiles is simply a very big deal. It is a large contributor in the economic and industrial growth of any country. Our country, as a matter of fact, is a very sound producer of vehicles. In turn, the sound production is supporting various other money making machines of the country as well. It is not just the production of full-fledged vehicles that is a matter of concern, but the components, either big or small, is all an important part of the automobile industry.
The world of automobiles comprises of passenger cars be it light or medium and the heavy commercial vehicles. It also includes the multi-utility vehicles, for instance jeeps, scooters, bikes, three-wheelers and also tractors. Other components such as engine parts, transmission and drive components and all the other small or big doohickeys that get a vehicle running are a part of the automobile industry.
India is no slouch when it comes to producing automobiles. As of now, it is worth almost 34 million dollars and is expected to touch 145 billion dollars within the next decade. The growth of the Indian automobile industry is practically on fire. The sales are touching the sky, breaking previous records with every passing second. This trade is growing by almost 15 percent every year. India ranks second when it comes to worldwide manufacturing of two-wheelers. It is the fifth largest manufacturer of commercial vehicles and the fourth largest producer of passenger cars in all of Asia. The biggest giants in this sector include Tata, Mahindra, General Motors India and Hyundai Motors India, Maruti, Ashok Leyland, Bajaj, Daewoo Motor India, Hero Honda, Ford, Fiat. Many other names are also a part of this list.
When it comes to the production and supply of automobile components, then India is worth almost 10 billion dollars. As make in India is on the rise, the production of components is souring like never before. The industry is in so much heat right now, it is almost impossible to breathe. Business gurus are predicting even more interesting times for the Indian automobile industry in the future. Various firms such as Bharat Forge, Sundaram Fasteners, Minda Industries and Gabrial India Ltd. Are at the top of their growth curves at the moment. Thanks to the robust economy and the heavy demand, the Indian auto component industry is blooming brighter than the season’s first flowers. If a new comer manages to enter this particularly hot market, the potential of money making is off the charts. Entry, of course, is not a very difficult process, as after delicensing, the picture of component manufacturing has changed completely. The end consumers are in huge numbers and everyone is looking for a cheaper alternative. At times like these, any newbie with some knowledge, foresight and a substantial capital can jump on to this money making band wagon. This industry is not going to slow down any time soon.
Future Prospects in India
The automobile market is growing at about 25% for the last three years. The number of persons per car is 200, which is very large compared to other emerging markets like Korea and Brazil which have about 12 persons per car. There is therefore a very huge untapped market. Uncertainty exists about the extent of growth, but a minimum growth rate of 20% is expected until the year 2000. Sales are expected to rise to anywhere between 850,000 to 1.5 million vehicles by the year 2000. Markets are highly price sensitive since a car is about 18 to 24 months salary for the average middle class buyer. However, incomes are rising and the economy has been growing steadily at nearly 6%.
India’s light vehicle market will grow to 5.4 million units by 2020, close to doubling in a little more than five years.
Import duties on CKDs and components is 50%. Reduction of prices because of lower duties and taxes and progressive indigenization, and rising middle class incomes are likely to further increase industry growth rates. Penetration in rural and semi urban areas is extremely low and could provide fresh markets. New entrants will have to deal with uncertainty of demand, different and evolving customer needs, a relatively poor supplier base, a market crowded with competition and industry wide capacity shortages. However, if there is a shake out as many analysts expect, further opportunities for survivors will open up. Another implication is that India could emerge as a significant manufacturing base for exports. The supplier industry is also going through massive growth, although from a small initial base. Except for Telco, indigenous product development capabilities are very low, and the industry has some way to go before it becomes world class.
The long-term prospects for India remain promising. Given the size of India’s population and future economic growth, incomes will most likely rise
Suzuki was the first MNC to enter India in 1981 through a joint venture with the Government of India and set up Maruti Udyog Limited. Currently, Maruti has around 70% of market share, and the Maruti 800 in the small car segment is the best selling model. Since 1995, the industry is witnessing a sea change with the introduction of several new models by MNCs coming into India through joint ventures with Indian partners. In the super-premium segment there is the Mercedes Benz’s E-class sedan. BMW and Audi are also considering plans to sell cars. New introductions in the premium segment are General Motor’s Opel Astra, PAL Peugeot’s 309, Maruti’s Esteem, Telco’s Sumo, Estate and Sierra, DCM Daewoo’s Cielo and Sipani’s Montego. In the economy car segment, Fiat Uno and Telco are expected to produce 60,000 cars each per annum. The power relationship between automobile companies, dealers and customers is going to change substantially as the industry moves from a supply constrained sellers market to a demand driven buyers’ market. Thus dealers and customers are going to acquire greater power
The Indian automobile market is still in its evolutionary stage. Therefore, no fixed or widely accepted method of segmenting the market has evolved as yet. The segmentation we provide is based on an understanding of the current state of the industry. As such, these segments are quite different from the segments known in the US, European or Japanese industries.
The following segments have been identified :
- Off-road or utility vehicles e.g., Maruti Gypsy, Mahindra Armada, Tata Sumo.
- Economy segment, comprising cars priced at less than $ 13,333, e.g., Ambassador,Premier Padmini, Maruti 800.
- Luxury segment, comprising cars in the $ 13,333 to $ 33,333 price bracket, e.g., Zen,118NE, Contessa, Esteem, Sierra, Peugeot, Astra, Cielo, Ford Escort, VW, MitsubishiLancer.
- Super-luxury segment, comprising cars priced at higher than $ 33,333, e.g., Mercedes-Benz, BMW, Audi.
Production of passenger vehicles, commercial vehicles, three wheelers and two wheelers grew at 14.41 per cent year-on-year between April-February 2017-18 to 26,402,671 vehicles.
The auto industry is set to witness major changes in the form of electric vehicles (EVs), shared mobility, Bharat Stage-VI emission and safety norms. Electric cars in India are expected to get new green number plates and may also get free parking for three years along with toll [email protected] India’s electric vehicle (EV) sales increased to 25,000 units during FY 2016-17 and are poised to rise further on the back of cheaper energy storage costs and the Government of India’s vision to see six million electric and hybrid vehicles in India by 2020.
The Government of India encourages foreign investment in the automobile sector and allows 100 per cent FDI under the automatic route.
Some of the recent initiatives taken by the Government of India are –
- The Government of Karnataka is going to obtain electric vehicles under FAME Scheme and set up charging infrastructure across Bengaluru, according to Mr R V Deshpande, Minister for Large and Medium Industries of Karnataka.
- The Ministry of Heavy Industries, Government of India has shortlisted 11 cities in the country for introduction of electric vehicles (EVs) in their public transport systems under the FAME (Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles in India) scheme.
- Energy Efficiency Services Limited (EESL), under Ministry for Power and New and Renewable Energy, Government of India, is planning to procure 10,000 e-vehicles via demand aggregation, and has already awarded contracts to Tata Motors Ltd for 250 e-cars and to Mahindra and Mahindra for 150 e-cars.
- The government is planning to set up a committee to develop an institutional framework on large-scale adoption of electric vehicles in India as a viable clean energy mode, especially for shared mass transport, to help bring down pollution level in major cities.
FDI in India’s automobile industry
Foreign direct investment (FDI) equity inflow into the automobile sector increased by 72 percent during 2014-2016 from US$3.05 billion (during 2012-2014) to US$5.25 billion. From April 2016 to September 2016, the automobile sector received US$728.65 million in FDI equity inflows. Leading global players like ISUZU Motors, Ford Motors, Tata Motors, Honda, and Suzuki Motors have already invested heavily in the manufacturing sector resulting in the establishment of new assembly lines, manufacturing, and greenfield units, thereby boosting the automotive manufacturing ecosystem in India.
Some of the major foreign investments into the Indian automotive sector in the last two years are listed below:
The automotive industry is at the core of India’s manufacturing economy. India is positioned to become one of the world’s most attractive automotive markets for both manufacturers and consumers. The resulting benefits to society—in economic growth, increased jobs, and stability for families employed by the automotive industry—are considerable.
What does this mean for motor vehicle businesses? The total cost of ownership of two-wheelers over the past few years has increased while that of entry-level passenger cars has declined, primarily due to rising fuel prices and lower prices for Sub-A segment vehicles. This shift will result in increased entry-level passenger vehicle sales in urban areas. Hence, the two-wheeler manufacturers should focus on penetration of sales in rural markets where infrastructure is relatively underdeveloped. Motorbikes will still be attractive to younger consumers as a primary mode of transport; the product strategy must be focused on that segment. The two-wheeler manufacturers must also work to further improve fuel efficiency.
Automobile penetration in India is only seven or eight per 1,000 people, compared with nearly 500 per 1,000 people in mature markets. To increase this ratio, manufacturers should campaign for better infrastructure, further reduce the total cost of car ownership, and bring financing and insurance models up to modern global standards. To beat rising input costs, manufacturers must improve their net cost position by increasing productivity and performance. Indian auto manufacturers such as
Tata must increase their global sales for faster recovery of their fixed costs and match the product cycle times of international manufacturers like Hyundai.
The government can help by mandating higher fuel efficiencies for passenger vehicles and by setting antipollution policies that take older cars off the road. The government can also address the heavy blow dealt by the economy to the motor vehicle industry by providing funds to improve credit availability, especially for noncommercial vehicle buyers. To further promote the market, manufacturers must adopt new technologies that improve comfort, safety, and durability.
By promoting fuel efficiency, India can reduce its dependence on foreign oil. By reducing its fuel subsidies, the government could direct that spending to social programs. But to ensure that the benefits come to fruition, India and its automakers must act now