Automobile Industry India

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Automobile Industry India

EXECUTIVE SUMMARY

The Indian Automobile Industry is manufacturing over 11 million vehicles and exporting about

1.5 million every year. The dominant products of the industry are two wheelers with a marketshare of over 75% and passenger cars with a market share of about 16%. Commercial vehiclesand three wheelers share about 9% of the market between them. About 91% of the vehicles soldare used by households and only about 9% for commercial purposes. The industry has attained aturnover of more than USD 35 billion and provides direct and indirect employment to over 13million people.

The supply chain of this industry in India is very similar to the supply chain of the automotiveindustry in Europe and America. This may present its own set of opportunities and threats. Theorders of the industry arise from the bottom of the supply chain i. e., from the consumers andgoes through the automakers and climbs up until the third tier suppliers. However the products,

as channelled in every traditional automotive industry, flow from the top of the supply chain toreach the consumers.

Interestingly, the level of trade exports in this sector in India has been medium and imports havebeen low. However, this is rapidly changing and both exports and imports are increasing. Thedemand determinants of the industry are factors like affordability, product innovation,infrastructure and price of fuel. Also, the basis of competition is the sector is high and increasingand the life cycle stage is growth. With a rapidly growing middle class, all the advantages of thissector in India are yet to be leveraged.

Note that, with a high cost of developing production facilities, limited accessibility to new

technology and soaring competition, the barriers to enter the Indian Automotive sector are highand these barriers are study. On the other hand, India has a well-developed tax structure. Thepower to levy taxes and duties is distributed among the three tiers of Government. The coststructure of the industry is fairly traditional, but the profitability of motor vehicle manufacturershas been rising over the past five years. Major players, like Tata Motors and Maruti Suzuki havematerial cost of about 80% but are recording profits after tax of about 6% to 11%.

The level of technology change in the Motor vehicle Industry has been high but, the rate ofchange in technology has been medium. Investment in the technology by the producers has beenhigh. System-suppliers of integrated components and sub-systems have become the order of theday. However, further investment in new technologies will help the industry be more

competitive. Over the past few years, the industry has been volatile. Currently, Indias increasingper capita disposable income which is expected to rise by 106% by 2015 and growth in exports isplaying a major role in the rise and competitiveness of the industry.

Tata Motors is leading the commercial vehicle segment with a market share of about 64%.Maruti Suzuki is leading the passenger vehicle segment with a market share of 46%. HyundaiMotor India and Mahindra and Mahindra are focusing expanding their footprint in the overseasmarket. Hero Honda Motors is occupying over 41% and sharing 26% of the two wheeler market


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in India with Bajaj Auto. Bajaj Auto in itself is occupying about 58% of the three wheelermarket.

Consumers are very important of the survival of the Motor Vehicle manufacturing industry. In2008-09, customer sentiment dropped, which burned on the augmentation in demand of cars.

Steel is the major input used by manufacturers and the rise in price of steel is putting a costpressure on manufacturers and cost is getting transferred to the end consumer. The price of oiland petrol affect the driving habits of consumers and the type of car they buy.

The key to success in the industry is to improve labour productivity, labour flexibility, andcapital efficiency. Having quality manpower, infrastructure improvements, and raw materialavailability also play a major role. Access to latest and most efficient technology and techniqueswill bring competitive advantage to the major players. Utilising manufacturing plants tooptimum level and understanding implications from the government policies are the essentials inthe Automotive Industry of India.

Both, Industry and Indian Government are obligated to intervene the Indian Automotiveindustry. The Indian government should facilitate infrastructure creation, create favourable andpredictable business environment, attract investment and promote research and development.The role of Industry will primarily be in designing and manufacturing products of world-classquality establishing cost competitiveness and improving productivity in labour and in capital.With a combined effort, the Indian Automotive industry will emerge as the destination of choicein the world for design and manufacturing of automobiles.

Table of Contents Industry Definition

o Products and Services Key Statistics

o Priceso Automobile Productiono Automobile Saleso Automobile Exports

Supply Chain

Segmentationo Product and Service Segmentationo Major Market Segmentationo Geographical Segmentationo Exports

Market Characteristicso Market Sizeo Demand Determinants
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o International Marketso Basis of Competitiono Life Cycle

Industry Conditionso Barriers to Entryo

Taxationo Industry Assistanceo Cost Structureo Capital and Labour Intensityo Technology and Systemso Industry Volatility

Key Competitorso Major Playerso Player Performance

Key Factorso Key Sensitivityo

Key Success Factors Appendices

o Appendix 1: Detailed Geographic Segmentationo Appendix 2: Detailed Central VAT (CENVAT) and Customs Tax for

Automobileso Appendix 3: Detailed Market Share of Major Playerso Appendix 4: World Production

References

Industry DefinitionThis class consists of units mainly engaged in manufacturing motor vehicles or motor vehicleengines.

Products and Services

The primary activities of this industry are:

Motor cars manufacturing Motor vehicle engine manufacturing

The major products and services in this industry are:

Passenger motor vehicle manufacturing segment (Passenger Cars, Utility Vehicles &Multi Purpose Vehicles)

Commercial Vehicles (Medium & Heavy and Light Commercial Vehicles) Two Wheelers Three Wheelers
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industryindia.html#Key%20Sensitivityhttp://www.imaginmor.com/automobileindustryindia.html#Key%20Factorshttp://www.imaginmor.com/automobileindustryindia.html#%20Players%20Performancehttp://www.imaginmor.com/automobileindustryindia.html#Major%20Playershttp://www.imaginmor.com/automobileindustryindia.html#KeyCompetitorshttp://www.imaginmor.com/automobileindustryindia.html#Industry%20Volatilityhttp://www.imaginmor.com/automobileindustryindia.html#Technology%20and%20Systemshttp://www.imaginmor.com/automobileindustryindia.html#Capital%20and%20Labour%20Intensityhttp://www.imaginmor.com/automobileindustryindia.html#Cost%20Structurehttp://www.imaginmor.com/automobileindustryindia.html#Industry%20Assistancehttp://www.imaginmor.com/automobileindustryindia.html#Taxationhttp://www.imaginmor.com/automobileindustryindia.html#Barriers%20to%20Entryhttp://www.imaginmor.com/automobileindustryindia.html#Industry%20Conditionshttp://www.imaginmor.com/automobileindustryindia.html#Life%20Cyclehttp://www.imaginmor.com/automobileindustryindia.html#Basis%20of%20Competitionhttp://www.imaginmor.com/automobileindustryindia.html#International%20Markets


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Key Statistics

Prices

2004-2005 2005-2006 2006-2007 2007-2008 2008-20

Motor Vehicle

Production8,467,853 9,743,503 11,087,997 10,853,930 11,175,4

Industry Revenue 24,379 26,969 30,507 32,383 33,34

Exports (Units) 629,544 806,222 1,011,529 1,238,333 1,530,6

Exports (Revenue) 1,915 2,231 2,552 3,008 3,71

Source: Department of Heavy Industry, Society of Indian Automotive Manufacturing (SIAM),National Accounts Division, *ImaginMor estimates, USD 1 = INR 46

Automobile Production

Type of Vehicle 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 Units

Passenger Vehicles 1,209,876 1,309,300 1,545,223 1,777,583 1,838,697 Number

Commercial

Vehicles353,703 391,083 519,982 549,006 417,126 Number

Three Wheelers 374,445 434,423 556,126 500,660 501,030 Number

Two Wheelers 6,529,829 7,608,697 8,466,666 8,026,681 8,418,626 Number

Total 8,467,853 9,743,503 11,087,997 10,853,930 11,175,479 Number

Source: Society of Indian Automotive Manufacturing (SIAM)

Automobile Sales

Type of Vehicle 2004-2005 2005-2006 2006-2007 2007-2008 20

Passenger Vehicles 1,061,572 1,143,076 1,379,979 1,549,882 1

Commercial Vehicles 318,430 351,041 467,765 490,494

Three Wheelers 307,862 359,920 403,910 364,781

Two Wheelers 6,209,765 7,052,391 7,872,334 7,249,278 7Total 7,897,629 8,906,428 10,123,988 9,654,435 9


Automobile Exports


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Type of Vehicle 2004-2005 2005-2006 2006-2007 2007-2008 20

Passenger Vehicles 166,402 175,572 198,452 218,401

Commercial Vehicles 29,940 40,600 49,537 58,994

Three Wheelers 66,795 76,881 143,896 141,225

Two Wheelers 366,407 513,169 619,644 819,713 1

Total 629,544 806,222 1,011,529 1,238,333 1


Supply Chain

Supply Chain of Automobile Industry:


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Source: ImaginMor, Inderscience Enterprises Ltd and United Nations Industrial DevelopmentOrganisation

The supply chain of automotive industry in India is very similar to the supply chain of theautomotive industry in Europe and America. The orders of the industry arise from the bottom of

the supply chain i. e., from the consumers and goes through the automakers and climbs up untilthe third tier suppliers. However the products, as channelled in every traditional automotiveindustry, flow from the top of the supply chain to reach the consumers. Automakers in India arethe key to the supply chain and are responsible for the products and innovation in the industry.

The description and the role of each of the contributors to the supply chain are discussed below.

Third Tier Suppliers: These companies provide basic products like rubber, glass, steel, plasticand aluminium to the second tier suppliers.

Second Tier Suppliers: These companies design vehicle systems or bodies for First Tier

Suppliers and OEMs. They work on designs provided by the first tier suppliers or OEMs. Theyalso provide engineering resources for detailed designs. Some of their services may includewelding, fabrication, shearing, bending etc.

First Tier Suppliers: These companies provide major systems directly to assemblers. Thesecompanies have global coverage, in order to follow their customers to various locations aroundthe world. They design and innovate in order to provide black-box solutions for therequirements of their customers. Black-box solutions are solutions created by suppliers usingtheir own technology to meet the performance and interface requirements set by assemblers.

First tier suppliers are responsible not only for the assembly of parts into complete units like

dashboard, breaks-axel-suspension, seats, or cockpit but also for the management of second-tiersuppliers.

Automakers/Vehicle Manufacturers/Original Equipment Manufacturers (OEMs): Afterresearching consumers wants and needs, automakers begin designing models which are tailored

to consumers demands. The design process normally takes five years. These companies havemanufacturing units where engines are manufactured and parts supplied by first tier suppliersand second tier suppliers are assembled. Automakers are the key to the supply chain of theautomotive industry. Examples of these companies are Tata Motors, Maruti Suzuki, Toyota, andHonda. Innovation, design capability and branding are the main focus of these companies.

Dealers: Once the vehicles are ready they are shipped to the regional branch and from there, tothe authorised dealers of the companies. The dealers then sell the vehicles to the end customers.

Parts and Accessory: These companies provide products like tires, windshields, and air bagsetc. to automakers and dealers or directly to customers.


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Service Providers: Some of the services to the customers include servicing of vehicles,repairing parts, or financing of vehicles. Many dealers provide these services but, customers canalso choose to go to independent service providers.

SegmentationProduct and Service Segmentation


The automotive industry of India is categorised into passenger cars, two wheelers, commercialvehicles and three wheelers, with two wheelers dominating the market. More than 75% of thevehicles sold are two wheelers. Nearly 59% of these two wheelers sold were motorcycles andabout 12% were scoters. Mopeds occupy a small portion in the two wheeler market however;electric two wheelers are yet to penetrate.

The passenger vehicles are further categorised into passenger cars, utility vehicles and multi-purpose vehicles. All sedan, hatchback, station wagon and sports cars fall under passenger cars.Tata Nano, is the worlds cheapest passenger car, manufactured by Tata Motors - a leadingautomaker of India. Multi-purpose vehicles or people-carriers are similar in shape to a van andare taller than a sedan, hatchback or a station wagon, and are designed for maximum interiorroom. Utility vehicles are designed for specific tasks. The passenger vehicles manufacturingaccount for about 15% of the market in India.


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Commercial vehicles are categorised into heavy, medium and light. They account for about 5%of the market. Three wheelers are categorised into passenger carriers and goods carriers. Threewheelers account for about 4% of the market in India.

Product and Service Segmentation

Segment 2003-04 2004-05 2005-06 2006-07 2007-08 Unit

Passenger Vehicles (PVs)

Passenger Car 10.22 10.39 9.91 10.65 12.42 %

Utility Vehicles (UVs) 2.15 2.23 2.18 2.18 2.39 %

Multi Purpose Vehicles (MPVs) 0.87 0.82 0.75 0.82 0.98 %

Total Passenger Vehicles 13.25 13.44 12.83 13.65 15.79 %

Commercial Vehicles (CVs)

Medium and Heavy

Commercial Vehicles

(M&HCVs)

Passenger Carriers 0.36 0.32 0.32 0.28 0.43 %

Goods Carriers 2.01 2.19 2.01 2.44 2.10 %

Total M&HCVs 2.37 2.51 2.33 2.73 2.53 %

Light Commercial Vehicles

(LCVs)


Goods Carriers 1.17 1.27 1.36 1.67 1.77 %

Total LCVs 1.45 1.52 1.61 1.90 2.10 %

Total Commercial Vehicles 3.82 4.03 3.94 4.63 4.63 %

Three Wheelers


Goods Carriers 1.61 1.73 1.65 1.65 1.51 %

Total Three Wheelers 4.17 3.90 4.04 4.00 4.01 %

Two Wheelers

Scoters/Scooterettee 13.01 11.68 10.21 9.31 11.57 %

Motorcycles/Step-Throughs 61.24 62.86 65.24 64.83 59.35 %

Mopeds 4.52 4.08 3.74 3.52 4.47 %

Electric Two Wheelers - - - 0.07 0.19 %

Total Two Wheelers 78.76 78.63 79.18 77.73 75.57 %

Grand Total 100.00 100.00 100.00 100.00 100.00 %


Vehicle Registration:

India had over 100 million vehicles registered on its roads in the year 2008. This is a growth ofabout 100% in the past 9 years. Over 77% and about 77 million of these vehicles are two


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wheelers, about 14% and over 14 million are cars, jeeps and taxis. Over 5 million and over 1million vehicles registered are goods vehicles and buses respectively.

Two wheelers account a significant market share. Tata Motors with the launch of Tata Nano istrying to attract some of these two wheeler buyers to buy a small, cheap and affordable passenger

car.

Total Number of Vehicle Registrations in India from 2001 to 2008

Year

All Vehicles Two WheelersCars, Jeeps

and TaxisBuses

Goods

VehiclesOther

Vehicles

2001 54,991 38,556 70,58 634 2,948 5,795

2002 58,924 41,581 76,13 635 2,974 6,121

2003 67,007 47,519 85,99 721 3,492 6,676

2004 72,718 51,922 94,51 768 3,749 6,828

2005* 80,045 57,417 10,460 822 4,053 7,337

2006* 88,068 63,487 11,571 879 4,345 7,891

2007* 96,808 70,141 12,810 936 4,652 8,464

2008* 106,591 77,588 14,222 1,003 5,018 9,065

Source: Department of Road Transport & Highways, includes tractors, trailors, three wheelers(passenger vehicles), and vehicles which are not separately classified, *ImaginMor estimates

Major Market Segments


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Geographic Segmentation


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Source: Department of Road Transport & Highways, *ImaginMor estimates

The total number of new vehicles registered in the 28 states and 7 union territories of India in theyear 2008 were about 106,591,000. The diagram above displays the registration of new vehiclesin various states and union territories. About 16 states and 1 union territory had over a millionnew vehicles registered. Tamil Nadu had about 16 million new vehicles registered, Maharashtrahad over 13 million, and Gujarat had over 10 million. About 91% of these vehicles are non-commercial vehicles purchased by households looking for a two wheeler, or a car. Only about9% of new vehicles registered are used for commercial purposes. Details of category wise new


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vehicle registrations in the various states and union territories are displayed in Appendix 1. Thenumber of new vehicles registrations has grown by about 66% in the past five years.

Exports

India exports automobiles in about 203 countries. The total revenues from exports ofautomobiles, in the year 2008-2009 were USD 6,001.81 million with a growth of 33.85% fromthe previous year. The total exports from India in the year 2008-2009 were USD 185,295.36million and in the year 2007-2008 were USD 163,132.18 million. The automobile industry inIndia contributes 3.24% of total exports in the year 2008-2009 compared to 2.75% in the year2007-2008.

Top 20 Export destinations in 2007-2008 and growth from previous year

Rank CountryValue in USD Millions

Percen2007-2008 2008-2009

1 United States of America 593.64 525.24

2 Italy 332.35 359.68

3 Sri Lanka 249.14 216.11

4 South Africa 224.93 188.57

5 United Kingdom 165.57 246.32

6 United Arab Emirates 164.44 192.74

7 Algeria 147.34 265.63

8 Bangladesh 137.26 164.86

9 Egypt 134.43 143.54

10 Germany 133.52 409.63

11 Colombia 118.88 120.71

12 Nepal 111.33 98.13

13 Mexico 93.80 94.10

14 Turkey 83.53 73.82

15 Spain 81.01 56.96

16 France 76.77 134.21

17 Nigeria 66.01 148.74

18 Greece 65.75 127.63

19 Netherland 65.19 163.66

20 Ghana 59.91 38.30

Source: Ministry of Commerce and Industry

Market Characteristics


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Market Size

The Indian Automotive Industry after de-licensing in July 1991 has grown at a spectacular rateon an average of 17% for last few years. The industry has attained a turnover of USD 35.8billion, (INR 165,000 crores) and an investment of USD 10.9 billion. The industry has provided

direct and indirect employment to 13.1 million people. Automobile industry is currentlycontributing about 5% of the total GDP of India. Indias current GDP is about USD 650 billionand is expected to grow to USD 1,390 billion by 2016. The projected size in 2016 of the Indianautomotive industry varies between USD 122 billion and UDS 159 billion including USD 35billion in exports. This translates into a contribution of 10% to 11% towards Indias GDP by

2016, which is more than double the current contribution. (Source: Department of HeavyIndustry & Public Enterprises Government of India)

Demand Determinants

Determinants of demand for this industry include vehicle prices (which are determined largely

by wage, material and equipment costs) and exchange rates, preferences, the running cost of avehicle (mainly determined by the price of petrol), income, interest rates, scrapping rates, andproduct innovation.

Exchange Rate:Movement in the value of Rupee determines the attractiveness of Indianproducts overseas and the price of import for domestic consumption.

Affordability: Movement in income and interest rates determine the affordability of new motorvehicles. Allowing unrestricted Foreign Direct Investment (FDI) led to increase in competition inthe domestic market hence, making better vehicles available at affordable prices.

Product Innovation is an important determinant as it allows better models to be available eachyear and also encourages manufacturing of environmental friendly cars.

Demographics: It is evident that high population of India has been one of the major reasons forlarge size of automobile industry in India. Factors that may be augment demand include risingpopulation and an increasing proportion of young persons in the population that will be moreinclined to use and replace cars. Also, increase in people with lesser dependency on traditionalsingle family income structure is likely to add value to vehicle demand.

Infrastructure: Longer-term determinants of demand include development in Indiansinfrastructure. Indias banking giant State Bank of India and Australias Macquarie Group has

launched an infrastructure fund to rise up to USD 3 billion for infrastructure improvements.India needs about $500 billion to repair its infrastructure such as ports, roads, and power units.These investments are been made with an aim to generate long-term cash flow from automobile,power, and telecom industries. (Source: Silicon India)

Price of Petrol:Movement in oil prices also have an impact on demand for large cars in India.During periods of high fuel cost as experienced in 2007 and firsthalf of 2008, demand for largecars declined in favour of smaller, more fuel efficient vehicles. The changing patterns in


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customer preferences for smaller more fuel efficient vehicles led to the launch of Tata MotorsNanoone of worlds smallest and cheapest cars.

International Markets

International Markets Exports

The level of trade export is medium

The level of trade export is increasing

International Markets Imports

The level of trade import is low

The level of trade import is increasing

International Markets Analysis

The Indian automotive industry embarked a new journey in 1991 with de-licensing of the sectorand subsequent opening up for 100% foreign direct investment (FDI). Since then almost allglobal majors have set up their facilities in Indian taking the level of production from 2 millionin 1991 to over 10 million in recent years. The exports in automotive sector have grown on anaverage compound annual growth rate of 30% per year for the last seven years. The exportearnings from this sector are over USD 6 billion.

Even with this rapid growth, the Indian automotive industrys contribution in global terms is

very low. This is evident from the fact that even thought passenger and commercial vehicleshave crossed the production figures of 2.3 million in the year 2008, yet Indias share is about3.28% of world production of 70.53 million passenger and commercial vehicles. Indias

automotive exports constitute only about 0.3% of global automotive trade.

(Source: Department of Heavy Industry & Public Enterprises Government of India)

Basis of Competition

Competition in this industry is high

Competition in this industry is increasing

Automotive industry is a volume driven industry and certain critical mass is a pre-requisite forattracting the much needed investment in research and development and new product design anddevelopment. Research and development investment is needed for innovations which is thelifeline for achieving and retaining competitiveness in the industry. This competitiveness in turndepends on the capacity and the speed of the industry to innovate and upgrade. The mostimportant indices of competitiveness are productivity of both labour and capital.


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The concept of attaining competitiveness on the basis of low cost and abundant labour,favourable exchange rates, low interest rates and concessional duty structure is becominginadequate and therefore, not sustainable. A greater emphasis is required on the development ofthe factors like innovation which can ensure competitiveness on a long-term basis.

India with a rapidly growing middle class (450 million in 2007 as per NCAER Report), marketoriented stable economy, availability of trained manpower at competitive cost, fairly well-developed credit and financing facilities and local availability of almost all the raw materials at acompetitive cost has emerged as one of the favourite investment destinations for the automotivemanufacturers. These advantages need to be leveraged in a manner to attain the twin objective ofensuring availability of best quality product at lower cost to the consumers on the one hand anddeveloping and assimilating the latest technology in the industry on the other hand.

As per Automotive Mission Plan 2006-2016 (2008), the Indian Government recognises its role asa catalyst and facilitator to encourage the companies to move to higher level of competitiveperformance. The Indian Government wants to create a policy environment to help companies

gain competitive advantage. The government aims that with its policies its encourage growth,promote domestic competition and stimulate innovation.


Life Cycle

The life cycle stage is growth

Life Cycle Reasons

The market for manufacturing motor vehicles is consistently increasing.

The products manufactured by this industry are profitable. Companies have been consistently opening new plats and employing over the past five

years. Japanese and European manufacturers of motor vehicles have entered the market. Industry value added has been rising, along with the rise in GDP.

Life Cycle Analysis

General improvement in availability of trained manpower and good infrastructure is required forsustainable growth of the industry. Keeping this in view, the Indian Government has launched a

unique initiative of National Automotive Testing and R&D Infrastructure Project (NATRIP) toprovide specialised facilities for Testing, Certification and Homologation to the industry. Asimilar initiative is required for creating specialised institutions in automotive sector foreducation, training and development.

The auto industry has grown in the clusters of interconnected companies which are linked bycommonalities and complementarities. The major clusters are in and around Manesar in North,Pune in West, Chennai in South, Jamshedpur-Kolkata in East and Indore in Central India. The


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Government is planning to create a National Level Specialises Education and Training Institutefor Automotive Sector and to enhance the transportation, communication and exportinfrastructure facilities.

The contribution of automotive sector in the GDP of India is expected to double by 2016 through

major spotlight on export of small cars, Multi-Utility Vehicles, Two and Three wheelers.


Industry Conditions

Barriers to Entry

Barriers to entry in this industry is high

These barriers are study

The cost of developing high volume production facilities. The ability to gain access to technology of major global operators. The relatively high competition between established domestic companies and foreign

companies.

The automobile manufacturing sector is characterised by a high cyclical growth patterns, highfixed cost and break-even point levels, and an excessive number of participants. Barriers to entryinto automobile manufacturing activity are formidable. Some of the barriers that need to be

overcome by a new entrant include: the cost of developing high volume production facilities, inorder to benefit from economies of scale; and the ability to gain access to technology of majoroperators, as the present incumbents include some of the largest multinationals, that haveconsiderable claims to new technology. The relative large size of domestic market, together withhigh competition, has already seen significant rationalisation of this industry.

Taxation

India has a well developed tax structure. The power to levy taxes and duties is distributed amongthe three tiers of Government, in accordance with the provisions of the Indian Constitution. Themain taxes/duties that the Union Government is empowered to levy are:- Income Tax (except tax

on agricultural income, which the State Governments can levy), Customs duties, Central Exciseand Sales Tax and Service Tax. The principal taxes levied by the State Governments are:- SalesTax (tax on intra-State sale of goods), Stamp Duty (duty on transfer of property), State Excise(duty on manufacture of alcohol), Land Revenue (levy on land used for agricultural/non-agricultural purposes), Duty on Entertainment and Tax on Professions & Callings. The LocalBodies are empowered to levy tax on properties (buildings, etc.), Octroi (tax on entry of goodsfor use/consumption within areas of the Local Bodies), Tax on Markets and Tax/User Chargesfor utilities.


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Excise Duty

Central Excise duty is an indirect tax levied on those automobiles which are manufactured inIndia and are meant for home consumption. The taxable event is 'manufacture' and the liability ofcentral excise duty arises as soon as the automobiles are manufactured. It is a tax on

manufacturing, which is paid by a manufacturer, who passes its incidence on to the customers.

Types of Excise Duties

Basic Excise Duty: This is the duty leviable under First Schedule to the Central Excise TariffAct, 1985 at the rates mentioned in the said Schedule.

Special Excise Duty: This is the duty leviable under Second Schedule to the Central ExciseTariff Act, 1985 at the rates mentioned in the said Schedule. At present this is leviable on veryfew items.

Basic Central VAT (CENVAT) or Excise Tax Structure for Automobiles

YearCommercial

VehiclesMUVs Cars

2 Wheelers3 Wheelers Unit

75 CC > 75CC

2001-02 16 32 32 16 16 16 %

2002-03 16 32 32 16 16 16 %

2003-04 16 24+1* 24+1* 16+1* 16+1* 16 %

2004-05 16 24+1* 24+1* 16+1* 16+1* 16 %

2005-06 16 24+1* 24+1* 16+1* 16+1* 16 %

2006-07 16 24+1* 24/16**+1* 16+1* 16+1* 16 %

2007-08 16 24+1* 24/16**+1* 16+1* 16+1* 16 %

Source: Society of Indian Automotive Manufacturing (SIAM) - Based on Government of IndiaNotifications, Additional higher & Secondary Education Cess of 1%, *National Calamity ContingentDuty (NCCD) of 1 %, **16% on cars (up to 4000mm in length &1200cc for petrol & up to 4000mm inlength & 1500cc for diesel) and 24% for rest

National Calamity Contingent Duty (NCCD): Normally known as NCCD. This duty is leviedas per section 136 of the Finance Act, 2001, as a surcharge on specified goods.

Excise Duties and Cesses Leviable under Miscellaneous Act:On certain specified goods, in

addition to the aforesaid duties, prescribed rate of excise duty and cess is also leviable.

Education Cesson excisable goods is levied in addition to any other duties of excise chargeableon such goods, under the Central Excise Act, 1944 or any other law for the time being in force.

MODVAT and CENVAT


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Taxation of inputs, like raw materials, components and other intermediaries has a number oflimitations. In production process, raw material passes through various processes stages till afinal product emerges. Thus, output of the first manufacturer becomes input for secondmanufacturer and so on. When the inputs are used in the manufacture of product À', the cost ofthe final product increases not only on account of the cost of the inputs, but also on account of

the duty paid on such inputs. As the duty on the final product is on ad valorem basis and the finalcost of product À' includes the cost of inputs, inclusive of the duty paid, duty charged onproduct À' meant doubly taxing raw materials. In other words, the tax burden goes on increasingas raw material and final product passes from one stage to other because, each subsequentpurchaser has to pay tax again and again on the material which has already suffered tax. This iscalled cascading effect or double taxation.

This very often distorted the production structure and did not allow the correct assessment of thetax incidence. Therefore, the Government tried to remove these defects of the Central ExciseSystem by progressively relieving inputs from excise and countervailing duties. An ideal systemto realize this objective would have been to adopt value added taxation (VAT). However, on

account of some practical difficulties it was not possible to fully adopt the value added taxation.

Hence, Government evolved a new scheme, `MODVAT' (Modified Value Added Tax).MODVAT Scheme which essentially follows VAT Scheme of taxation. i.e. if a manufacturer Apurchases certain components(raw materials) from another manufacturer B for use in its product.B would have paid excise duty on components manufactured by it and would have recovered thatexcise duty in its sales price from A. Now, A has to pay excise duty on product manufactured byit as well as bear the excise duty paid by the supplier of raw material B. Under the MODVATscheme, an Original Equipment Manufacturer can take credit of excise duty paid by First Tierand Second Tier suppliers. It amounts to excise duty only on additions in value by eachmanufacturer at each stage.

MODVAT Scheme ensures the revenue of the same order and at same time the price of the finalproduct could be lower. Apart from reducing the costs through elimination of cascade effect, andbringing in greater rationalization in tax structure and also bringing in certainty in the amount oftax leviable on the final product, this scheme will help the consumer to understand precisely theimpact of taxation on the cost of any product.

Subsequently, MODVAT scheme was restructured into CENVAT (Central Value Added Tax)scheme. A new set of rules 57AA to 57AK , under The CENVAT Credit Rules, 2004, wereframed and whatever restrictions were there in MODVAT Scheme were put to an end andcomparatively, a free hand was given to the assesses.

Under the CENVAT Scheme, a manufacturer of final product or provider of taxable service shallbe allowed to take credit of duty of excise as well as of service tax paid on any input received inthe factory or any input service received by manufacturer of final product. Inputs include goodsused in the manufacture of capital goods which are further used in the factory of themanufacturer.

Customs Duty


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Customs Duty (Import duty and Export tax) is a type of indirect tax levied on goods importedinto India as well as on goods exported from India. Taxable event is import into or export fromIndia. In India, the basic law for levy and collection of customs duty is Customs Act 1962. Itprovides for levy and collection of duty on imports and exports, import/export procedures,prohibitions on importation and exportation of goods, penalties, offences, etc.

Basic Customs Tax Structure for Automobiles

Year CVs1 MUVs

2 Cars Two Wheelers Three Wheele

2001-02 35 105/60/35 105/60/35 105/60/35 105/60/35

2002-03 30 105/60/35 105/60/35 105/60/35 105/60/35

2003-04 25 105/60/35 105/60/35 105/60/35 105/60/35

2004-05 20 105/60/35 105/60/35 105/60/35 105/60/35

2005-06 15 100/60/15 100/60/15 100/60/15 100/60/15

2006-07 12.5 100/60/12.5 100/60/12.5 100/60/12.5 100/60/12.5

2007-08 10 100/60/10 100/60/10 100/60/10 100/60/10

Source: Society of Indian Automotive Manufacturing (SIAM) - Based on Government of IndiaNotifications, *For Used Vehicle/New CBU/CKD & Components respectively, 1CVs =Commercial Vehicles 2MUVs = Multi-Utility Vehicles

Export duties are levied occasionally to mop up excess profitability in international prices ofgoods in respect of which domestic prices may be low at the given time. But the sweep of importduties is quite wide.

For detailed Central Value Added Tax and Customs Tax on each category of vehicle refer toAppendix 2.

Service Tax

Service tax is a tax levied on services rendered by a person and the responsibility of payment ofthe tax is cast on the service provider. It is an indirect tax as it can be recovered from the servicereceiver by the service provider in course of his business transactions. Service Tax wasintroduced in India in 1994 by Chapter V of the Finance Act, 1994. It was imposed on an initialset of three services in 1994 and the scope of the service tax has since been expanded

continuously by subsequent Finance Acts. The Finance Act extends the levy of service tax to thewhole of India, except the State of Jammu & Kashmir.

(Source: National Information Centre)

Industry Assistance


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The automobile industry has a defined its target in the Automotive Mission Plan as To emergeas the destination of choice in the world for design and manufacture of automobiles with outputreaching a level of USD 145 billion accounting more than 10% of GDP and providing additionalemployment to 25 million people by 2016. In order to achieve this plan interventions are

required from both Industry and Indian Government. The Indian Government would play a key

enabling role in facilitating infrastructure creation, promote the countrys capabilities, create afavourable and predictable business environment, attract investment and promote research &development. The role of Industry will primarily be in designing and manufacturing products ofworld-class quality standards, establishing cost competitiveness, improving productivity of bothlabour and capital, achieving scale and R&D enhancing capability and showcasing Indiasproducts in potential markets.

In order to achieve these goals the following key recommendations have been made in theAutomotive Mission Plan to the Indian Government and Industry:

1. Manufacturing and export of small cars, multi-utility vehicles, two and three wheelers,tractors, components to be promoted2. Care to be taken of negative like and rules of the country with current negotiation of FreeTrade Agreement and Regional Trade agreement with countries like Thailand, Singapore,Malaysia, China, Korea, Egypt, Gulf etc.

3. Attractive Tariff Policy which may follow attractive investment.4. Specific measures will be taken for expansion of domestic market.5. Incremental investment of USD 35 to 40 billion to Automotive Industry during the next

10 years.6. National Road Safety Board to act as the coordinating body for promoting safety.7. Inspection and Certification system to be strengthened by encouraging public-private

partnership.8. National level Automotive Institute for training on automobile at International Training

Institutes (ITIs) and Automotive Training Institute (ATIs) to be set up.9. An Auto Design Centre to be established at National Institute of Design, Ahmadabad.10.National Automotive Testing and R&D Implementation Project (NATRIP) to act as

Centre of Excellence for Technical Design Data.11.Integration of Information Technology in manufacturing to be promoted.12.R&D for product, process and technology to be incentivised.13.Road Map for Auto Fuel Policy beyond 2010 would be drawn.

Cost Structure


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Source: Maruti Suzuki 2008-2009

The profitability of motor vehicle manufacturers has been rising over the past five years, mainlydue to rising demand and growth of Indian middle class. Major players of the industry, likeMaruti Suzuki India and Tata Motors have been recording profits of 6% to 11% from the pastfive years. Whereas, earlier profit margins in the industry were only 1.5% to 3%.

Cost of material has reduced from over 85% in the year 2001-2002 to under 80% in theyear2008-2009. Wages and salary as a percentage of revenue has been declining and with theincreasing labour productivity this is expected to decline further in the coming years.

Capital and Labour Intensity

The level of Capital Intensity is high

The level of Labour intensity in medium

The motor vehicle manufacturing industry requires significant level of capital investment. Value is added through the automated manufacturing and assembly of costly components. Labour input is required in the manufacturing, assembly, and finishing processes.

In order to achieve and retain competitiveness, vehicle manufacturing industry depends on itscapacity and speed to innovate and upgrade. The most imperative indices for competitiveness inthe industry are productivity in both labour and capital.


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Technology and Systems

The level of technology change is high

The rate of change in technology is medium

Investment in technology by producers has been on the rise. The automobile industry in India hasseen an enormous development in the engines which are being used. Carburettor engines havebecome obsolete and Multi Point Fuel Injection (MPFI) engines are the order of the days inpatrol cars. The Diesel engines have also under gone a sea change from the time Rudolf Dieselinvented it way back in the 1892. Today Common Rail Direct Injection (CRDI) is the order ofthe day.

Multi Point Fuel injection (MPFI)

The fuel injects were used to meet stricter emission norms as it keeps pollutants to bare

minimum and drives the maximum performance out of a vehicle by squeezing out the maximummileage even from the last drop of fuel that goes into the engine.

MPFI system injects fuel into individual cylinders after receiving command from the on boardengine management system computer or Engine Control Unit (ECU).

This technology results in superior fuel combustion, better fuel management, engineperformance and reduced pollution. To get the maximum out from these types of engine oneshould use Premium petrol like XTRA Premium, Speed, and Power.

Common Rail Direct Injection (CRDI)

CRDI engine cars offer 25% more power than the normal direct injection engine with a superiorpickup and torque, offering sometimes up to 70% more power than the conventional dieselengines.

They are smooth, less strident, and immensely fuel efficient giving around 24 kilometres to alitre of Diesel. The fact that Diesel is cheaper than petrol in India further attributes greatness tothe engine. In a CRDI engine, a tube or a common rail connects all the injectors and contains fuelat a constant pressure.

The high pressure in the common rail ensures that when injected, the fuel breaks up into small

particles and mixes evenly with the air, thereby leaving little un-burnt fuel thus reducingpollution. The common rail principle has been used to reduce the noise which used to be adownside with earlier Diesel engines; the technology has been pioneered by the Fiat group, onlyto be adopted by other automobile companies around the world.

However, these engines are 25% more costly than the conventional engines. They also requirehigher degree of maintenance and spares are also expensive.


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The Indian automotive industry is in the mindset of a major structural transformation in todays

globalised scenario. System Supplies of integrated components and sub-systems has becomethe order of the day, with individual small components being supplied to the system integratorsinstead of vehicle manufacturers. In this process most of the Small Scale Industrial units,manufacturing smaller individual components, have become tier 2 and tier 3 suppliers, while the

large companies including most Multi National Companies are being transformed into tier 1companies who purchase from tier 2 and tier 3, and sell to the auto manufacturers. (Source:Department of Heavy Industry)

Investment in new technology such as supply-chain management and collaborative forecasting(where members of the supply chain share forecasting data to reduce bottlenecks) will help makeindustry more competitive.

Industry Volatility

The level of volatility is medium.

Over the past few years, the Motor Vehicle Manufacturing industry has become more volatile.This has been the result of fluctuations in metal prices and fuel prices, as well as changes inlegislation and assistance packages. Indias increasing per capita disposable income and growthin exports is playing a major role in the rise and the competitiveness of the industry. As per theBRIC report Indias per capita disposable income from current year will rise by 106% in 2015.This increase in the spending power has been a forefront of the economic development.According to the Economic Times of India, economic liberalizationallowing unrestrictedForeign Direct Investment (FDI) and removing foreign currency neutralisation and exportobligationshas been also been one of the key to Indias automotive volatility.

(Source: Quantum Information Services Ltd. & The Truth About Cars)

Key Competitors

Major Players


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Players Performance:


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Tata Motors

Market Share: Commercial Vehicles 63.94%, Passenger Vehicles 16.45%

Tata Motors Limited is Indias largest automobile company, with consolidated revenues of USD

14 billion in 2008-09. It is the leader in commercial vehicles and among the top three inpassenger vehicles. Tata Motors has winning products in the compact, midsize car and utilityvehicle segments. The company is the world's fourth largest truck manufacturer, and the world'ssecond largest bus manufacturer with over 24,000 employees. Since first rolled out in 1954, TataMotors as has produced and sold over 4 million vehicles in India.

Tata Motors is the first company from India's engineering sector to be listed in the New YorkStock Exchange (September 2004), has also emerged as an international automobile company.Through subsidiaries and associate companies, Tata Motors has operations in the UnitedKingdom, South Korea, Thailand and Spain. Among them is Jaguar Land Rover, a businesscomprising the two British brands which was acquired in 2008. In 2004, it acquired the Daewoo

Commercial Vehicles Company, South Korea's second largest truck maker. The rechristenedTata Daewoo Commercial Vehicles Company has launched several new products in the Koreanmarket, while also exporting these products to several international markets. Today two-thirds ofheavy commercial vehicle exports out of South Korea are from Tata Daewoo. In 2005, TataMotors acquired a 21% stake in Hispano Carrocera, a reputed Spanish bus and coachmanufacturer, and subsequently the remaining stake in 2009. Hispano's presence is beingexpanded in other markets.

In 2006, Tata Motors formed a joint venture with the Brazil-based Marcopolo, a global leader inbody-building for buses and coaches to manufacture fully-built buses and coaches for India andselect international markets. In 2006, Tata Motors entered into joint venture with Thonburi

Automotive Assembly Plant Company of Thailand to manufacture and market the company'spickup vehicles in Thailand. The new plant of Tata Motors (Thailand) has begun production ofthe Xenon pickup truck, with the Xenon having been launched in Thailand in 2008. Tata Motorsis also expanding its international footprint by franchises and joint ventures assembly operationsin Kenya, Bangladesh, Ukraine, Russia, Senegal and South Africa.

With over 3,000 engineers and scientists, the company's Engineering Research Centre,established in 1966, has enabled pioneering technologies and products. The company today hasR&D centres in Pune, Jamshedpur, Lucknow, Dharwad in India, and in South Korea, Spain, andthe UK. It was Tata Motors, which developed the first indigenously developed LightCommercial Vehicle, India's first Sports Utility Vehicle and, in 1998, the Tata Indica, India'sfirst fully indigenous passenger car. Within two years of launch, Tata Indica became India'slargest selling car in its segment. In 2005, Tata Motors created a new segment by launching theTata Ace, India's first indigenously developed mini-truck.

In January 2008, Tata Motors unveiled its People's Car, the Tata Nano, a development whichsignifies a first for the global automobile industry. Nano brings the comfort and safety of a carwithin the reach of thousands of families. The standard version has been priced at USD 2,200 or


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100,000 (excluding VAT and transportation cost). The Tata Nano has been subsequentlylaunched as planned, in India in March 2009.

Maruti Suzuki India

Market Share: Passenger Vehicles 46.07%

Maruti Suzuki India Limited, a subsidiary of Suzuki Motor Corporation of Japan, is India'slargest passenger car company, accounting for over 45% of the domestic car market. Thecompany offers a complete range of cars from entry level Maruti-800 and Alto, to stylishhatchback Ritz, A star, Swift, Wagon-R, Estillo and sedans DZire, SX4 and Sports Utilityvehicle Grand Vitara.

Since inception in 1983, Maruti Suzuki India has produced and sold over 7.5 million vehicles inIndia and exported over 500,000 units to Europe and other countries. The companys revenue forthe fiscal 2008-2009 stood over USD 4 billion and Profits After Tax at over USD 243 million.

Hyundai Motor India

Market Share: Passenger Vehicles 14.15%

Hyundai Motor India Limited is a wholly owned subsidiary of worlds fifth largest automobilecompany, Hyundai Motor Company, South Korea, and is the largest passenger car exporter.Hyundai Motor presently markets 49 variants of passenger cars across segments. These includesthe Santro in the B segment, the i10, the premium hatchback i20 in the B+ segment, the Accentand the Verna in the C segment, the Sonata Transform in the E segment.

Hyundai Motor, continuing its tradition of being the fastest growing passenger car manufacturer,registered total sales of 559,880 vehicles in the year 2009, an increase of 14.4% over 2008. In thedomestic market it clocked a growth of 18.1% as compared to 2008 with 289,863 units, whileoverseas sales grew by 10.7%, with export of 270,017 units. Hyundai Motor currently exportscars to more than 110 countries across European Union, Africa, Middle East, Latin America andAsia. It has been the number one exporter of passenger car of the country for the sixth year in arow.

In a little over a decade since Hyundai has been present in India, it has become the leadingexporter of passenger cars with a market share of 66% of the total exports of passenger cars fromIndia, making it a significant contributor to the Indian automobile industry. In 2009, in spite of a

global slowdown, Hyundai Motor Indias exports grew by 10.7%. In 2010 Hyundai plans to add10 new markets with Australia being the latest entrant to the list. The first shipment to Australiais of 500 units of the i20 and the total i20 exports to Australia are expected to be in the region of15,000 per annum.

Mahindra & Mahindra

Market Share: Commercial Vehicles 10.01%, Passenger Vehicles 6.50%, Three Wheelers 1.31%


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Mahindra & Mahindra is mainly engaged in the Multi Utility Vehicle and Three Wheelersegments directly. The company competes in the Light Commercial Vehicle segment through itsjoint venture subsidiary Mahindra Navistar Automotives Limited and in the passenger carsegment through another joint venture subsidiary Mahindra Renault. In the year 2009, on thedomestic sales front, the Company along with its subsidiaries sold a total of 220,213 vehicles

(including 44,533 three wheelers, 8,603 Light Commercial Vehicles through Mahindra NavistarAutomotives and 13,423 cars through Mahindra Renault), recording a growth of 0.6% over theprevious year.

The companys domestic Multi Utility Vehicle sales volumes increased by 3.3%, as against a

decline of 7.4% for industry Multi Utility Vehicle sales. A record number of 153,653 MultiUtility Vehicles were sold in the domestic market in 2009 compared to 148,761 MUVs in theprevious year.Hence, Mahindra & Mahindra further strengthened its domination of the domesticMulti Utility Vehicle sub-segment during the year, increasing its market share to 57.2% over theprevious years market share of 51.3%.

Mahindra & Mahindra is expanding its footprint in the overseas market. In 2009 the Xylo waslaunched in South Africa. The company formed a new joint venture Mahindra AutomotiveAustralia Pty. Limited, to focus on the Australian Market.

(Source: Mahindra & Mahindra Annual Report)

Ashok Leyland

Market Share: Commercial Vehicles 16.47%

Against the backdrop of the sharp slump in demand for commercial vehicles, during 2008-09,

Ashok Leyland registered sales of 47,118 medium and heavy commercial vehicles (M&HCV),37.5% less than in the previous year. This includes 16,049 M&HCV buses and 31,069 M&HCVtrucks respectively, 8.7% and 46.3% less than in the previous year.

The company lost 1.8% market share in the Indian medium and heavy commercial vehiclemarket during the financial year 2008-09, mainly due to loss of sales in the truck segment. Thiswas because the Eastern Region, where the Companys presence had been historically weak, was

relatively stable, whilst the market declined sharply in other regions.

While total industry volume of the medium and heavy duty buses declined by about 8.7%, theCompanys market share grew marginally and Ashok Leyland retained its number one position

in this segment.

The Company sold 6,812 vehicles in the overseas markets during 2008-09. This represents adecrease of approximately 6.5% over the previous year. Total industry volume related tooverseas markets to which the Company exports (such as Sri Lanka, the Middle East) witnesseda reduction of about 25% over the previous year.


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To combat the impact of decline in CV sales, the Company focused on non-cyclical businesses inthe portfolio.

The Company produced in all 54,049 vehicles during the year. To contain costs and conservecash, the Company worked only about 50% of the working days in all its manufacturing units

during the second half of the year.

(Source: Ashok Leyland Annual Report)

Hero Honda Motors

Market Share: Two Wheelers 41.35%

Hero Honda has been the largest two wheeler company in the world for eight consecutive years.The company crossed the 15 million unit milestone over a 25 year span. Hero Honda sold moretwo wheelers than the second, third and fourth placed two-wheeler companies put together.

As one of the world's technology leaders in the automotive sector, Honda has been able toconsistently provide technical know-how, design specifications and R&D innovations. This hasled to the development of world class, value - for- money motorcycles and scooters for theIndian market. On its part, the Hero Group has took the responsibility of creating world-classmanufacturing facilities with robust processes, building the supply chain, setting up an extensivedistribution networks and providing insights into the mind of the Indian customer. Since bothpartners continue to focus on their respective strengths, they have been able to complement eachother. In the process, Hero Honda is recognized today as one of the most successful jointventures in the world. It is therefore no surprise that there are more Hero Honda bikes on thiscountry's roads than the total population of some European countries.

Hero Honda's bikes are sold and serviced through a network of over 3500 customer touch points,comprising a mix of dealers, service centres and stockists located across rural and urban India.Hero Honda has built two world-class manufacturing facilities at Dharuhera and Gurgaon inHaryana, and

Hero Honda was the torchbearer for the two-wheeler industry during 2008-2009. It sold moretwo-wheelers during the year than the combined volumes of the second, third and fourth placedcompetitor. Overall, the company sold 3.72 million two-wheelers, growth of 12% over previousyear. Motorcycle sales in the domestic market, which account for more than 95 per cent of HeroHonda's sales, were up by 11%. The company posted sales of USD 2.4 billion and profits after

tax of USD 256.40 million during the year 2008-2009. During the year under review, yourCompany exported 81,194 two-wheelers, a decline of 10%. Its third and most sophisticatedmanufacturing plant at Haridwar has just completed a full year of operations.

During the year, the company also turned in a rollicking performance with its scooter portfolio,with a 49% growth in domestic sales to 156,210 units. This performance allowed Hero Honda toincrease its share in the domestic scooter market by more than three percentage points. HeroHonda's performance in the two-wheeler industry was the only standout performance during the


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year amongst the large players. Without Hero Honda's numbers, the two wheeler industry growthwould have been marginal.

(Source: Hero Honda Motors Annual Report 2008-2009)

Bajaj Auto

Market Share: Two Wheelers 26.70%, Three Wheelers 58.60%

Bajaj Auto is ranked as the world's fourth largest two and three wheeler manufacturer and theBajaj brand is well-known across several countries in Latin America, Africa, Middle East, Southand South East Asia. Despite falling demand in the motorcycle segment, the company hassucceeded in maintaining an operating EBITDA (earnings before interest, taxes, depreciation andamortisation) margin of 13.6% of net sales and other operating income. From 1.66 millionmotorcycles in 2007-2008, the companys domestic sales fell by 23% to 1.28 million units in2008-2009.

Bajaj Auto is the countrys largest exporter of two- and three-wheelers.During 2008-2009, BajajAutos international sales achieved an all-time high of 772,519 units of two and three wheelers,representing a growth of 25% over the previous year.The growth was driven by the export oftwo-wheelers, which increased by 31% over 2007-2008 to achieve sales of 633,463 units in2008-2009. The company expanded its footprint in Africa and Middle East, where the regionsshare rose from 30% of the export business in 2007-2008 to 43% in 2008-2009. The total valueof exports was USD 528 million, representing a growth of 29%.

The companys domestic sales of three wheelers in 2008-209 were 12% lower compared to theprevious year, and stood at 135,473 units. Exports of three wheelers grew at 2% to 139,056 units

(Source: Bajaj Auto Annual Report)

Key Factors

Key Sensitivity

Consumer Sentiment Index

Description: Customer Sentiment Index, 12 month rolling average of the Index; historical andforecast data and analysis.

End customers are very important to ensure the survival of the Motor Vehicle Manufacturingindustry. Economic downturns and other events can affect the expenditure decision ofhouseholds. When customers are not happy or optimistic about the future of the economy, theywill tend to postpone expenditure until times are better. In 2008-09, customer sentiment isexpected to fall, which will have a brunt on the augmentation in demand of cars.


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Domestic Goods PriceMetalIron and Steel

Description: The price of input such as steel.

Steel is a major input used when manufacturing a motor vehicle. Rises in the price of steel puts

cost pressures on manufacturers, which often leads to a fall in profitability. Over the past fiveyears, the price of steel has been rising rapidly. These rises in price eventually pass from themanufacturers to the end customers.

Import and Export Taxes (Duties)Motor Vehicle Tariffs

Description: Tariff rates applicable to the industry

High taffies may restrict flow of trade but may attract investment if domestic market is bigenough and growing. Over the last few years Indias tariff policies and conditions of import of

vehicles have served the purpose of attracting investments. Industry is keen that the existing

tariff structure roadmap and conditions of import of vehicles are retained without anymodifications because of certain systematic deficiencies which make manufacturing less costcompetitive in India as compared to some of the neighbouring countries like China, Thailand,Indonesia, etc.

Wold Price - EnergyCrude Oil

Description: The world price of crude oil, $US/barrel, and price analysis.

The price of oil and petrol affect the driving habits of consumers and the type of car they buy.Over the past five years, the price of petrol has been influenced the buying decision of motorists,

who are switching more to fuel efficient options. These include cars that run on liquefiedpetroleum gas (LPG), diesel and small cars that achieve better mileage. The trucking sector hasalso been struggling with the rise in the price of fuel, which has put enormous pressures on theircosts.

Key Success Factors

The Key Success factors in the Motor Vehicle Manufacturing industry are:

Efficiency factor - Improve labour productivity, labour flexibility, and capital efficiency Resource Availability - Quality manpower availability, infrastructure improvements, and

raw material availability Effective cost controls - Close relationship with supplies and goods distribution channels. Establishment of export markets - Growth of export markets Having an extensive distribution/collection network - Goods distribution channels Successful industrial relations policy - Ethical and tactical industrial relations Access to the latest available and most efficient technology and techniques - The degree

of investment in technological improvements and product development Optimum capacity utilisation - The level of plant utilisation


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Management of high quality assets portfolio - Understanding implications fromGovernment policies

Automobile Industry India

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