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The Indian Automobile Industry: Zooming Ahead

Wednesday, August 3rd, 2011
indian cars

The growth of the Indian automobile industry has been phenomenal to say the least. De-licensing there in 1991 set the ball rolling, as it attracted foreign majors to en ter the country with long-term plans. Production facilities were set up, which boosted the Indian automobile production from 5.3 million units in 2001-02 to 10.8 million units in 2007-08.

The large middle class population with growing earning power formed a large customer base. Other growth factors in the auto sector were the remarkable upsurge in technological capabilities and the availability of trained manpower.

In 2006-07, the Indian automotive industry made significant economic contributions by providing direct employment to more than 300,000 people and exporting auto components valued at US$2.87 billion. This contributed to 5 percent of the GDP which encouraged the Indian government to eliminate the need for foreign companies to establish joint ventures. Global auto giants thus made forays into the auto segment, opening manufacturing units and increasing production and exports.

Dominated by the two-wheeler segment some years back, the Indian auto scenario is fast racing towards more passenger cars, especially luxury ones, and more commercial vehicles, owing to industrial development. Passenger car production is expected to cross three million units within a few years, with sales increasing at a CAGR of 10 percent. Auto exports will exceed domestic sales and auto component exports will be substantial by 2013, according to analysts.

The Indian auto industry is predicted to cross the US$50 billion mark by 2015. Its success can be attributed to the efforts of the Society of Indian Automobile Manufacturers (SIAM), which is the apex Industry body representing 46 leading vehicle and vehicular engine manufacturers in India. The society synergizes the efforts made by all stakeholders and serves as a bridge between the industry and government and national and international organizations. It is also responsible for establishing rules, regulations and policies concerning the auto industry in India.

The government’s liberalization policies have spearheaded the industry’s rapid growth. Examples include the relaxation of foreign exchange and equity regulations, reduced tariffs on imports, and banking liberalization. The introduction of convenient EMIs has encouraged customers to buy vehicles, contributing to much of this growth.

The Indian consumer is becoming spoiled for choice. They now get attractive loans to buy even more attractive cars. Foreign brands and Indian manufacturers are in the fray, offering vehicles ranging from the small Tata Nano to Hybrid cars. The major Indian auto companies are Maruti, Tata Motors, Mahindra, Ashok Leyland, Hero and Bajaj. International names like Volkswagen, Toyota, Honda, Ford, Volvo, Audi, BMW, Benz and Hyundai also have a strong presence in India.

The auto manufacturing scenario in India is made up of light passenger vehicles, multi-utility vehicles, SUVs, commercial vehicles like trucks and buses, tractors for farming, earthmoving and construction equipment, two-wheelers including motorcycles, scooters and mopeds, and threewheelers including passenger carriers and goods carriers.

Global Forays by Indian Companies

Indian auto majors are also crossing boundaries and acquiring foreign companies, such as the Tata takeover of Jaguar, and Mahindra & Mahindra’s acquisition of South Korean auto company Ssangyong. Mahindra & Mahindra has planned for eight to ten new model launches within the next twelve months. M & M is expected to introduce its new sports utility vehicles Korando-C and Rexton from Ssangyong in India. The company looks forward to automobile sales in the country to grow by 15-17 percent in 2011-12, with around twenty to thirty new vehicle launches planned by automobile companies overall in India. M & M also witnessed a 20 percent boost in tractor sales in 2010-11. The increase is projected to be 10-12 percent in 2011-12 for tractor sales, owing to the Indian government’s continued focus on developing the rural economy.

Tata Motors began exporting its Nano minicar from April of 2011, which is touted to be the world’s cheapest car, a fact that is helping to reduce its sales dependency on just the domestic market. Besides owning luxury brands like Jaguar and Land Rover, Tata Motors made its presence felt in the world market by exporting 498 units of the Nano in the first month. The company plans to send Nano units to Indonesia, Thailand, Sri Lanka and Africa by December of this year.

In targeting developed and developing markets, Tata Motors will be soon selling its Pixel, a new city car for Europe based on the Nano. The vehicle will be fitted with a 1.2-liter turbo-charged diesel engine, or an electric one similar to that used in its Indica Vista EV hatchback.

The Tata group is even planning to open facilities abroad for the production of Nano cars, as it is considering locations in Latin America, South East Asia or Africa. These places are characterized by a good supply chain of components, along with their good local market potential for car sales. Nepal is also considered a good site for manufacturing, said Tata sources.

Reasons for Growth

Doing well both in the domestic market and internationally, the Indian automotive industry is poised for more growth due to the increase in the working age population. Although many consumers are moving to four-wheelers, demand for two-wheelers, especially fully-loaded ones, will see an increase from the burgeoning youth. Twowheelers are preferred by both women and the rural populace.

More consolidations and alliances are expected to meet demands for advanced technology, manufacturing facilities, service and distribution networks. The components sector in particular will benefit from India’s cost-effectiveness, profitability and engineering capabilities.

Collaborations will result with different companies taking over various specializations, opine experts. This will allow standardization and simplify the industry and investment requirements, while catering to customer needs. Growth is envisioned owing to preferences and government legislations that are focusing on green technology. Gas-based public transport vehicles and the need for urban mass mobility systems to cover the expanding boundaries of cities will further boost vehicle production.

In India, the push for green vehicles may be relatively slow due to the high prices involved. Dual-fuel technologies are preferred by manufacturers more than battery-powered sources, as support infrastructure (i.e., recharge stations) is not yet fully available. Electric motorcycles may garner a huge portion of the market as they are very prevalent in India. Emphasis is, however, being given to optimizing conventional combustion engines for all sorts of vehicles before the industry venturers into newer, more expensive technologies.

The increase in private vehicle ownership has reduced the use of public transport. To bear the huge traffic problems that are expected, road infrastructure in major cities needs an urgent makeover. More public investment has to be made in Urban Mass Mobility Schemes such as metro systems and buses to transport the newly migrated population, the elderly and students. Also important is the improvement of links between various modes of transport.

The changes in the Indian automobile market are conducive for companies which have made suitable alliances and resourcesharing agreements and for those who have invested in green technologies. Auto manufacturers also have to be flexible to face demands for light transport vehicles and mass transport systems.

Some of the milestones reached by the Indian auto industry are the largest three-wheeler market in the world, the second largest two-wheeler market in the world, the fourth largest passenger vehicle market in Asia, the fourth largest tractor market and the fifth largest commercial vehicle market in the world.

Reasons behind this phenomenal growth include a higher GDP, extensive mass transport systems, increasing disposable income with the service sector and the rapid replacement of aging four-wheel vehicles. Safety and convenience is driving many to change from operating four-wheelers to twowheelers. In rural areas good agricultural yield and compensation for land takeovers by government projects has resulted in more disposable income which is being converted to plush cars. In urban areas the concept of having a second car is fast catching on.

Green Is In

The recent budget proposals for 2011-12 were vociferous about using green and clean technology for the fastgrowing Indian automobile sector. Tax sops to promote environment-friendly vehicles were proposed, along with the establishment of the ‘National Mission for Hybrid and Electric Vehicles’. Excise duty cuts were made for the development and manufacturing of hybrid vehicle kits to 5 percent from 10 percent, besides fully exempting customs and countervailing duty (CVD) on the import of special hybrid parts. The National Mission for Hybrid and Electric Hybrid Vehicles will give a fillip to the manufacturing of environmentfriendly vehicles while promoting the development, manufacturing and sale of hybrid vehicles in India. This initiative highlights the Indian government’s interest in electric and hybrid vehicles.

The Automotive Component Manufacturers’ Association of India (ACMA) said that this will improve the environmental impact of the automotive industry. It stressed the need to encourage local manufacturing so that the complete supply chain, including components, is manufactured within India.

The ACMA is the nodal agency for the Indian auto component industry. It strives to develop the industry with activities like trade promotion, technology up-gradation, quality enhancement and the collection and dissemination of information.

The ACMA has signed Memoranda of Understandings with similar organizations in the USA, Canada, UK, France, Italy, Spain, Japan, South Korea, Malaysia and many other nations. It represents over 479 companies that supply components to vehicle manufacturers, Tier-1 suppliers, state transport undertakings, defense establishments, railways and even to the replacement and export market.

Pollution Control

According to the 2010 Environmental Performance Index (EPI) published by environmental experts at Yale University and Columbia University, India has been ranked 123rd in pollution control, which is an improvement from previous rankings. This shows that original equipment manufacturers are making less polluting vehicles with support from the government which is &&&& Y,keen on reducing carbon emissions at all levels.

Reva Electric Car Co., Honda, Toyota and other manufacturers have launched green vehicles, but they have not yet garnered substantial markets owing to their higher prices. But the interest is fast catching on. The need of the hour is to deploy more charging facilities for electric cars and more fueling stations for CNG vehicles, along with a more cost effective technology for manufacturing.

Bharat Forge, a supplier of forged and machined components and engineering, and KPIT Cummins Infosystems Limited, an IT consulting company, have joined to develop a new hybrid technology for India. The new parallel hybrid system would allow the motor and engine to work together. This makes the vehicle operate as a conventional fuel vehicle even if the batteries are completely drained. The vehicle can then be charged using a standard external electricity source.

Although growing at break neck speed the Indian automobile industry has problems to reckon with. Poor road conditions, pollution and road accidents due to traffic act as damp squibs. However, massive highway projects launched a few years back and extensive land allocations for factories with easy accessibility to ports in some cities like Chennai are expected to help sustain the growth.

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