Automobile

Indian
Passenger Vehicles
Industry
Indian Passenger Vehicles Industry

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Indian Passenger Vehicles Industry

First Edition - 2008
ISBN
- 978-81-89262-23-5
Printed By
- Srinivas Fine Arts (P) Ltd.
Executive Summary
Executive Summary
The D&B Industry Research Service report on the Indian passenger vehicles industry
attempts to bring out the changing dynamics of the industry by analysing the industry
structure, regulatory and policy framework and how these have altered the nature of
the industry, the demand scenario, and the prospects of the industry. The report also
discusses the global industry and Indias exports scenario, followed by an analysis of
the industrys financial performance and a detailed assessment of four of the leading
players. The final section contains a detailed analysis and discussion of the competitive
environment in which the industry operates; an assessment of the risk parameters;
and finally, the D&B Industry Research Service outlook on the industry.
There are certain key issues/concerns pertaining to the passenger vehicles industry in
India. The key issues and concerns studied in detail in the ensuing chapters are:
Government policies: Influence on industrys size and structure
Robust domestic demand: Shift in demand, favouring compact cars
Key demand drivers: Traditional vis--vis emerging
Growth of the pre-owned vehicles market and entry plans of OEMs
Domestic market attracting more global players
Low share in global trade; but fast growing exports
Greater expansion activities, with impending over-capacity situation
Expected flood of new models/variants in the next 23 years
Changing market dynamics, and changing firm strategies
Intensifying market competition, and the resultant pressure on profit margins
Healthy demand prospects domestic and export markets
Key risk areas impending over-capacity situation; and entry plan of OEMs and
the consequent heightening of market competition
Section I: Industry dynamics From a small, supplier-driven market that was highly
government-regulated and afflicted with slow growth until the early 1990s, the Indian
passenger vehicles industry has transformed over the years into a multi-segment,
consumer-driven and competitive market, witnessing fast growth. Government
policies have played a significant role in the evolution of the structure of the industry.
From being extremely protective, aimed at import substitution and development of an
indigenous manufacturing industry, policies were progressively revised so as to attract
foreign capital and technology, aimed at developing a globally-competitive passenger
vehicles industry.
Passenger vehicles can be classified as passenger cars, multi-utility vehicles, and
multi-purpose vehicles. Passenger cars are classified on the basis of their length and
price, while multi-utility vehicles are classified on the basis of seating capacity. In both
these segments, the market is concentrated, with the top three players controlling
over 80 per cent of sales volume.
VII
Executive Summary
VIII
The demand for passenger vehicles in the domestic market has grown at a CAGR
of 11.5 per cent during FY98 to FY07. Within the passenger cars market, there has
been a distinct shift in demand towards compact cars away from the mini car (Maruti
800), indicating that price alone is no longer the key factor that influences purchase
decisions. Within the multi-utility vehicle segment, there has been growing demand for
7 and 9-seater vehicles, which comes at the expense of the 13-seaters. The burgeoning
middle class with its growing disposable income, easier access to finance, growth in the
services sector, faster introduction of new models/variants, and declining replacement
cycles are some of the key factors driving sales of passenger vehicles in India.
Compact and mid-size cars account for the bulk of car sales, and this trend is expected
to continue in the future. Moderation in interest rates and a slew of launches lined up
in these segments would be chief drivers of demand. Several new launches planned
in the premium and luxury car segments and the sports-utility vehicle segment is an
indication of the high growth potential of such vehicles, which is also the result of
growing aspirations.
The industry is on an expansion spree owing to growing sales and a healthy outlook
on demand. As at the end of March 2007, there were 23 investment projects
aggregating to around Rs 190 billion at various stages (proposed/announced/under
implementation) in the passenger vehicles industry. In a short span of 3 years, the
industrys installed production capacity is expected to double from the current 1.8
million units to an estimated 3.6 million units by 2010. Such large-scale expansion
could result in a demand-supply mismatch, as demand growth is not expected to keep
up with the rate of capacity expansions.
On the raw material front, while there is no shortage of material, the industry remains
vulnerable to fluctuating domestic prices, which move in tandem with international
prices. Input prices have risen sharply in recent years, but D&B Industry Research
Service does not expect this trend to continue over the near term.
Section II: Global perspective The global passenger cars industry grew at a CAGR
(production volume) of 2 per cent during 1995 to 2005. Sales have flat-lined or are
on a downtrend in the key developed markets of the US, Japan, and Western Europe
since the past few years, while emerging markets such as China and India have been
witnessing robust demand for passenger vehicles. Saturation of demand in mature
markets; emerging Asian markets; and increasing fuel and input costs have had a
profound influence in changing the dynamics of the global industry.
India has a small share (2.3 per cent) in the global production of cars. Exports of
passenger vehicles from India have been increasing, following a sharp rise in passenger
car exports. India is fast emerging as a global hub for the manufacture and export of
small cars. Hyundai Motors and Maruti Suzuki, the leading exporters, have ambitious
export plans. Several other players are also aggressively focusing on the exports
markets. Breaking into developed and matured markets such as the US is one of the
key challenges faced by Indian players, as the latter continue to lag in the technology
required to enter and penetrate into these advanced markets.
As per D&B Industry Research Service estimates, by the end of FY09, the share of exports
in the passenger vehicle industrys total sales volume (domestic sales plus exports)
Executive Summary
would go up to nearly 25 per cent from the current 13 per cent. With export markets
becoming a key focus area for players, their financial health is expected to improve
going forward.
Section III: Industry performance Notwithstanding the continuous pressure from
rising input prices and intense market competition, the Indian passenger vehicles
industry has exhibited major improvement in financial performance in the last 34
years. Sales revenues continue to exhibit double-digit growth, but operating margins
continue to remain under pressure. Nevertheless, net margins continue to improve
in each successive year. This has been achieved on the back of higher volumes and
adoption of stringent cost-reduction efforts.
The industrys RoCE nearly doubled to 19.7 per cent in FY06 from 10.7 per cent in FY04.
The increasing return ratios have prompted existing players to augment capacities,
while also enticing more players with plans to establish manufacturing facilities, which
reflects the latters long-term interest and commitment to this market.
Going forward, the anticipated large capital expenditure plans of players could add
to the industrys interest burden, while the expected escalation in market competition
would convert into higher spends on marketing and promotion, thereby putting
margins under pressure again. Thus, while sales revenues would continue to grow,
profit margins may not keep up with the pace.
Section IV: Strategic insight Despite several critical entry barriers, most global
players have entered the Indian passenger vehicles market. The compact and mid-size
car segments are the most competitive, and the number of new model launches
lined up reaffirms that in the future also competition will intensify further in these
segments. D&B Industry Research Service estimates that around 50 new models/
variants of passenger vehicles are to be rolled out on Indian roads during 2008 to
2010. Competition is expected to intensify in the pre-owned vehicles market also,
as this rapidly growing market is attracting more OEMs into the business. With the
industry not likely to gain imminent respite from the strong competitive forces in the
market, there would be continuous pressure on margins as competition is expected
to heat up further, going forward.
Nevertheless, overall prospects for the passenger vehicles industry look bright. D&B
Industry Research Service expects domestic car sales to post a growth of 14.5 per cent
in FY08 and of 12.5 per cent in FY09. Sales of multi-utility vehicles are expected to grow
by a respectable 11 per cent in both years. The contribution of exports to the revenues
of the passenger vehicles industry is likely to improve in the near term. Given the robust
demand outlook, sales revenues would continue to grow at healthy rates. However,
profit margins are not expected to see a commensurate rise because of cost pressures.
Apart from the greater spend expected on advertising and promotion activities in
anticipation of heightened future competition, the large scale capital expenditure
planned could increase the industrys interest burden, thereby putting pressure
on margins. More importantly, as per D&B Industry Research Service estimates,
the passenger vehicles industry is likely to experience an over-capacity situation as
large-scale expansions are going to more than double the industrys production
capacity by 2010, while demand is not likely to surge so sharply in such a short span.
IX
Executive Summary
Apart from the looming over-capacity situation, the industry also faces a high
degree of risk from inter-firm rivalries and potential new entrants. A medium degree
of risk arises from dependency on exports, prices of raw materials and the state of
infrastructure in the country.
Contents
Contents
I. List of Tables VI
II. List of ChartsVIII
III. List of Exhibits XI
IV. List of BoxesXII
Section 1: Industry Dynamics....................... 1

1. Industry Overview.......................................................................... 2
2. Industry Structure: Then & Now..................................................... 6
3. Regulatory & Policy Environment................................................. 16
4. Demand Side Dynamics................................................................ 30
5. Supply Side Dynamics.................................................................. 46
Section 2: Global Perspective..................... 65

6. International Scenario.................................................................. 66
7. Indias Exports Scenario............................................................... 90
Section 3: Industry Performance................ 97

8. Financial Performance.................................................................. 98
9. Company Profiles....................................................................... 104
Section 4: Strategic Insight...................... 121

10. Competitive Landscape.............................................................. 122
11. Risk Assessment......................................................................... 136
12. Outlook...................................................................................... 142
Annexures........................................................................................ 146
Abbreviations................................................................................... 162
XI
List of Tables
XII
List of Tables
Table 2.1 Foreign players in the Indian passenger vehicles industry10
Table 2.2 Length-based classification of cars.............................................................12
Table 2.3 Price-based classification of cars................................................................13
Table 2.4 MUV classification......................................................................................13
Table 2.5 Company plant locations............................................................................15
Table 3.1 Impact analysis of policy changes..............................................................17
Table 3.2 Customs duty rates on passenger vehicles (per cent).................................20
Table 3.3 Excise duty rates on passenger vehicles (per cent)......................................21
Table 3.4 FDI impact on the Indian automotive industry...........................................22
Table 3.5 Overview of emission norms in India: Four-wheelers..................................23
Table 3.6 Indian emission norms for cars...................................................................24
Table 3.7 Diesel vehicles (chassis dynamometer) (g/km)............................................24
Table 4.1 Segmental sales growth (per cent).............................................................34
Table 5.1 Investment snapshot: Passenger vehicles (as of March 2007).....................48
Table 5.2 Expected capacities: Passenger vehicles......................................................48
Table 5.3 Market players: Passenger cars...................................................................49
Table 5.4 Market players: MUVs................................................................................51
Table 5.5 Raw material imports as percentage of raw material purchases56
Table 5.6 Taxes and local levies on sale of a vehicle...................................................57
Table 5.7 Technological tie-ups in the industry..........................................................62
Table 5.8 R&D expenses as percentage of sales.........................................................63
Table 6.1 Manufacturers and assembly plants worldwide.........................................68
Table 6.2 Worlds top 10 car sellers (2005)................................................................69
Table 6.3 Country-wise share in car sales (per cent)..................................................70
Table 6.4 Classification of cars in US..........................................................................72
Table 6.5 US: Sales performance of top players (000 units)......................................74
Table 6.6 Segmentation of passenger cars in Japan..................................................75
Table 6.7 Japan: Sales performance of top players (000 units).................................76
Table 6.8 Passenger vehicle segmentation: China......................................................77
Table 6.9 China: Sales performance of top players (000 units).................................79
List of Tables
Table 6.10 GM: Revenue and profit performance ($ billion)......................................82
Table 6.11 GM: Regional break-up of revenues ($ billion).........................................82
Table 6.12 Ford: Revenue and profit performance ($ billion).....................................83
Table 6.13 Ford: Regional break-up of automotive revenues ($ billion).....................84
Table 6.14 Toyota: Revenue and profit performance ($ billion)..................................85
Table 6.15 Toyota: Regional break-up of revenues ($ billion).....................................85
Tabel 6.16 Volkswagen: Revenue and profit performance ($ billion).........................86
Table 6.17 Volkswagen: Regional break-up of revenues ($ billion)............................87
Table 8.1 Industry: Financial summary . ....................................................................98
Table 8.2 Industry: Operating expenses as percentage of net sales.........................100
Table 8.3 Industry: Key financial ratios....................................................................101
Table 9.1 Maruti: Financial summary.......................................................................106
Table 9.2 Maruti: Cost analysis................................................................................106
Table 9.3 Maruti: Key financial ratios.......................................................................107
Table 9.4 Maruti: Financial summary quarterly...................................................108
Table 9.5 Maruti: Expenses as a percentage of net sales quarterly......................108
Table 9.6 M&Ms product portfolio.........................................................................110
Table 9.7 M&M: Financial summary.........................................................................112
Table 9.8 M&M: Cost analysis..................................................................................112
Table 9.9 M&M: Key financial ratios........................................................................112
Table 9.10 M&M: Financial summary quarterly...................................................113
Table 9.11 M&M: Expenses as percentage of net sales quarterly........................113
Table 9.12 Hyundai Motor India: Financial summary...............................................116
Table 9.13 Hyundai Motor India: Cost analysis........................................................116
Table 9.14 Hyundai Motor India: Key financial ratios...............................................117
Table 9.15 Honda Siel Cars India: Financial summary..............................................119
Table 9.16 Honda Siel Cars India: Cost analysis.......................................................119
Table 9.17 Honda Siel Cars India: Key financial ratios..............................................119
Table 10.1 Automobiles advertising expenditure.....................................................128
Table 10.2 New launches lined up for 2008............................................................132
Table 10.3 Margins of Maruti vs. peers (per cent)....................................................133
XIII
List of Charts
XIV
List of Charts
Chart 2.1 Expansion in size of car market...................................................................7
Chart 2.2 Size of the passenger vehicles industry14
Chart 2.3 Geographical spread: Passenger vehicle units (plant locations)14
Chart 3.1 Impact of FDI on the Indian auto industry.................................................22
Chart 4.1 Domestic sales growth: Automobiles.........................................................30
Chart 4.2 Domestic sales growth: Passenger vehicles................................................31
Chart 4.3 Car sales continue to touch new highs each year......................................32
Chart 4.4 Car sales mix..............................................................................................33
Chart 4.5 Sales growth in mini, compact, and mid-size car segments.......................34
Chart 4.6 MPV sales surge in FY07............................................................................34
Chart 4.7 MUV sales cross 0.2 million units in FY07..................................................35
Chart 4.8 Buoyancy in MUV sales growth continues.................................................35
Chart 4.9 MUV sales mix...........................................................................................36
Chart 4.10 Sales growth in MUV segments...............................................................36
Chart 4.11 Movement of PDI and PV sales................................................................39
Chart 4.12 Movement of interest rates and passenger vehicle sales39
Chart 4.13 Trend in excise duties and car sales..........................................................40
Chart 4.14 Growth trends: Agriculture vs. MUV sales...............................................40
Chart 4.15 Number of high-end PVs launched..........................................................41
Chart 4.16 Declining car ownership period...............................................................42
Chart 4.17 Buyer maturity trends..............................................................................42
Chart 4.18 No. of urban agglomerations/towns........................................................43
Chart 4.19 Proportion of urban and rural population (projected).............................44
Chart 4.20 Trend of urbanisation in India..................................................................44
Chart 5.1 Automobiles production............................................................................46
Chart 5.2 Production growth: Automobiles vs. passenger vehicles46
Chart 5.3 Car production volume..............................................................................47
Chart 5.4 Growth in car production..........................................................................47
Chart 5.5 Sharp increase in capacity utilisation.........................................................47
List of Charts
Chart 5.6 Estimated production capacity: Passenger vehicles industry49
Chart 5.7 Trend in market shares of leading car companies......................................50
Chart 5.8 Market share of car companies..................................................................50
Chart 5.9 Trend in market shares of leading MUV companies...................................51
Chart 5.10 Market share of MUV companies.............................................................51
Chart 5.11 Trend in domestic steel prices (Delhi market)...........................................52
Chart 5.12 Trend in international steel prices (average prices, Japan)52
Chart 5.13 Supply vs. consumption (HR coils/sheets & CR coils/sheets)52
Chart 5.14 Trend in primary aluminium supply and consumption53
Chart 5.15 Aluminium ingot prices (Mumbai market)...............................................53
Chart 5.16 Aluminium rod prices (Delhi market).......................................................53
Chart 5.17 Trend in international aluminium prices (LME rates)................................54
Chart 5.18 Trend in zinc production..........................................................................54
Chart 5.19 Domestic zinc prices (Mumbai market)....................................................55
Chart 5.20 International zinc prices (LME).................................................................55
Chart 5.21 Rubber prices: Domestic vs. international................................................55
Chart 5.22 Trend in rubber production......................................................................55
Chart 5.23 Trend in rubber imports...........................................................................55
Chart 5.24 Excise duty on cars and MUVs.................................................................57
Chart 5.25 Trend in car production...........................................................................57
Chart 5.26 Trend in MUV production........................................................................57
Chart 6.1 Regional share in car production (2005)....................................................66
Chart 6.2 Car penetration levels across countries......................................................67
Chart 6.3 World production of passenger cars and growth performance67
Chart 6.4 World car production (region-wise)...........................................................67
Chart 6.5 Car sales growth in various markets (2005)...............................................68
Chart 6.6 Car sales growth in Asian markets (2005)..................................................69
Chart 6.7 Car sales and sales growth performance: US market.................................72
Chart 6.8 Growing dominance of Japanese brands in US car sales............................73
Chart 6.9 US: Market share composition (car sales volume)......................................73
Chart 6.10 Employment in US motor vehicle industry...............................................74
Chart 6.11 Japan: Segment-wise production of cars.................................................75
Chart 6.12 Car sales and sales growth performance: Japanese market76
XV
XVI
List of Charts
Chart 6.13 Japan: Market share composition (car sales volume)...............................76
Chart 6.14 Export of cars from Japan........................................................................77
Chart 6.15 Car production and production growth performance: Chinese market78
Chart 6.16 China: Market share composition (car sales volume)79
Chart 6.17 GM: Regional composition of revenues...................................................82
Chart 6.18 Ford: Regional composition of revenues..................................................84
Chart 6.19 Toyota: Regional composition of revenues...............................................86
Chart 6.20 Volkswagen: Regional composition or revenues......................................87
Chart 7.1 Forex earnings continue to grow...............................................................91
Chart 7.2 Realisations improve in recent years..........................................................92
Chart 7.3 Exports growth continues..........................................................................92
Chart 7.4 Leading car exporters................................................................................93
Chart 7.5 Composition: Domestic sales vs. exports...................................................95
Chart 8.1 Domestic vs. export sales...........................................................................99
Chart 8.2 Operating profit performance...................................................................99
Chart 8.3 Net profit performance..............................................................................99
Chart 9.1 Maruti: Shareholding pattern as of September 2007...............................104
Chart 9.2 Maruti vs. BSE Sensex..............................................................................108
Chart 9.3 M&M: Shareholding pattern as of September 2007................................109
Chart 9.4 M&M: Profit margins: Automotive vs. farm equipment business.............111
Chart 9.5 M&M vs. BSE Sensex................................................................................114
Chart 10.1 Growth: Sales vs. advtg/mktg expenses (FY06)......................................129
Chart 10.2 Maruti: Hours required to produce a vehicle.........................................133
Chart 10.3 Maruti: Warranty claims ratio................................................................133
Chart 12.1 Growth in car sales (domestic)...............................................................142
Chart 12.2 Growth in MUV sales (domestic)...........................................................143
Chart 12.3 Composition: Domestic sales vs. exports...............................................144
List of Exhibits
List of Exhibits
Exhibit 2.1 Policy changes and impact analysis.........................................................11
Exhibit 2.2 Vehicle segments.....................................................................................12
Exhibit 4.1 What drives the demand for passenger vehicles?....................................38
Exhibit 6.1 Global vs. emerging markets...................................................................71
Exhibit 7.1 Exports scenario......................................................................................90
Exhibit 10.1 Competitive landscape........................................................................123
Exhibit 11.1 Risk matrix: Passenger vehicles industry...............................................136
XVII
List of Boxes
XVIII
List of Boxes
Box 1.1 S-curve for passenger vehicles........................................................................4
Box 4.1 Seasonality in passenger vehicle sales...........................................................37
Industry Dynamics
Industry Overview
Industry Structure: Then & Now
Regulatory & Policy Environment
Demand Side Dynamics
Supply Side Dynamics
Industry Dynamics
Chapter 1
Industry Overview
The passenger vehicles industry in India is over 6 decades old. India is among the
global top 15 countries in the sale of passenger cars and is one of the fastest growing
passenger car markets in the world, with over 1 million cars sold annually. The
passenger vehicles industry has recorded impressive growth in sales in the last decade.
During FY99 to FY07, production of passenger vehicles grew at a CAGR of 15 per
cent. During the same period, domestic sales of passenger vehicles grew at a CAGR
of 13.7 per cent. Growth was exponential even on the exports front, with a CAGR of
27.7 per cent during the same period.
Automotive industry: Importance to the Indian economy
The automotive industry is one among the most revenue-generating sectors in the country, contributing
4.4 per cent to Indias GDP and an estimated 17.0 per cent to the countrys indirect tax collection. The
automotive industry is one of the largest sources of employment due to its deep backward linkages
(in metals like steel, aluminium, copper etc; plastics; paint; glass; electronics; capital equipment;
warehousing and logistics) and forward linkages (including dealership retails; credit and financing;
logistics; advertising; repair and maintenance; petroleum products; gas stations; insurance; service
parts etc). It provides direct and indirect employment to more than 13 million people.
Government policies have played a key role in shaping the structure and size of the
passenger vehicles industry in India. The industry is nearly self-sufficient and has in fact
been exporting small cars to countries across the world, while imports are restricted
to high-end vehicle models.
Until the implementation of liberalisation policies in the early 1990s, the industry was
a heavily government-controlled, small-sized, technologically-backward, slow growing,
sellers market. The entry of Suzuki Motors of Japan in the early 1980s, followed by the
governments liberal foreign direct investment (FDI) policies in the mid-1990s marked
turning points for the industry Suzuki Motors led the entry of foreign players into the
Indian market. This in turn widened the market by providing consumers a choice of several
vehicle models and variants. While these changes have intensified market competition,
they have also enabled the industry to create a presence on the world map.
The adoption of modern production processes and foreign technology has enhanced
the industrys productivity and improved global competitiveness. Exports of passenger
vehicles have been touching new levels every year. With its low-cost, high-quality
manufacturing and its expertise in manufacturing small cars, India is emerging as one
of the most favoured locations in the world for sourcing small cars.
Industry Overview
Due to its long-term attractiveness, more foreign players are planning to enter the
Indian passenger vehicle market. During FY07, the passenger car industry attracted FDI
worth Rs 8,059.8 million, which represented the single largest share of 38.2 per cent of
the total FDI inflow into the overall transportation industry.
The Indian passenger vehicles industry has an installed production capacity estimated
at 1.8 million units per annum; it is on an expansion spree in order to cater to growing
domestic and export demand. There is intense market competition, with numerous
players in each segment. The compact and mid-size segments are the most competitive
and account for the bulk of car sales. Though small in number, growing aspirations
have resulted in burgeoning demand for premium and luxury cars in the past few
years.
Currently, there are over two dozen manufacturers of passenger cars and multi-utility
vehicles (MUVs) in India. Several global majors are present in the passenger vehicles
industry. Despite the entry of new players in the past few years, market share
continues to remain concentrated with the top three players namely, Maruti
Suzuki, Hyundai Motor India, and Tata Motors in the passenger cars market; and
Mahindra & Mahindra (M&M), Tata Motors, and Toyota Kirloskar Motor in the
MUV market.
The passenger vehicles market in India is characterised by intense competition and
escalating price wars. As affordability and fuel-efficiency are key factors that influence
purchase decisions among Indian consumers, small cars are the highest sellers. The
great potential from this segment of cars is also the reason for several players to plan
launch of new models in the small car segment over the next few years. With the
intense competition and a large number of models/variants in this category, players
are sometimes forced to resort to price wars and heavy discounts. Consequently,
firms operate on thin margins, and this category continues to remain a volume-driven
business for players.
In order to boost domestic demand and create volumes for the industry, the government
has been periodically implementing suitable fiscal and promotion policies. These
measures are also aimed at making India a global sourcing hub for small cars and
MUVs.
The industry faces various risks, chief amongst them being: an impending over-capacity
situation due to large-scale expansion activities planned by OEMs; an escalation
in market competition following the entry of new players and a slew of launches
planned in the next 23 years; poor road conditions and inadequate port facilities that
adversely affect transportation and cause hurdles and delays in exports; as also the
high raw material prices that have continued to keep profit margins under pressure.
Nevertheless, there is a potential for much greater growth in the domestic market due
to the fact that current car penetration level in India is just 7 cars per 1,000 persons.
This is much lower than penetration levels in other countries USA (455), UK (500),
Japan (455), Germany (556) etc. Also, a healthy outlook on growth prospects of the
Indian economy, coupled with the numerous model launches lined up in the next
Industry Dynamics
23 years augurs well for expanding the size of the industry. Growing incomes, growth
in the services sector, competitive pricing, easy finance options, and new model
launches are expected to drive sales of passenger vehicles in the future also.
Box 1.1 S-curve for passenger vehicles

Based on S-curve estimation, India is currently at the stage of slow initial growth and is poised to enter
the stage of rapid growth.
700
New Zealand
Italy
Car penetration levels (Car per 1,000 persons)
600
Germany
500
Japan
Luxembourg
USA
400
300
Malaysia
200
100
Thailand
0
India
China
0
10,000
Source: D&B Industry Research Service
20,000
30,000
40,000
GDP per capita (PPP terms)
50,000
60,000
Industry Dynamics
Chapter 2

From a small, supplier-driven market that was highly government-regulated and
afflicted with slow growth until the early 1990s, the Indian passenger vehicles industry
has transformed over the years into a crowded, multi-segment, consumer-driven,
competitive market witnessing fast growth.
The industry is over six decades old. Government policies have played a significant
role in shaping the structure of the industry. Initially, policies were restrictive in terms
of entry, production, and prices. Restrictive FDI policies resulted in inadequate access
to foreign technology and capital, and the industry had to depend on obsolete
technology. Players were unwilling to invest in expansion activities due to the strict
regulations. Constrained supply, repressed demand, high vehicle prices, and slow
growth were characteristics of the market.
In view of these conditions, investment policies were gradually liberalised to attract
foreign players. Much of the foreign interest entered the Indian market as joint
ventures (JV) with Indian counterparts (such as Ford-Mahindra, GM-Birla etc), with
a major portion of shares held by the local partner. However, due to the inability of
the Indian partner to infuse capital for expansion activities or to manage losses in the
initial years of the JV, the foreign partners gradually increased their stake to a majority
holding. Currently, most of these JVs have become wholly-owned subsidiaries of
their foreign parent companies. Consequent to these developments, the industry
received a quantum of investments that has helped it to enhance capacities and
adopt modern technology.
History and evolution

Past government policies are reflected in the size, nature, and evolution trends of
the industry over the past decades. The study on the evolution of the industry can be
explained in the form of phases, as mentioned below:
Pre-Maruti Suzuki phase (1940s to 1981)
The Maruti Suzuki/modernisation phase (1982 to early 1990s)
Post-liberalisation phase (Until late 1990s)
Global competition phase (2001 onwards)

Chart 2.1 Expansion in size* of car market
1400
'000 nos
New Auto
Policy
2002
1200
1000
Liberalisation
800
Entry of
Suzuki
600
400
FY07
FY05
FY03
FY01
FY99
FY97
FY95
FY93
FY91
FY89
FY87
FY85
FY83
FY81
FY79
FY77
FY75
FY73
FY71
200
*Car production
Source: CMIE, D&B Industry Research Service
The pre-Maruti Suzuki phase (1940s to 1981)

The period until the end of the 1940s can be regarded as the import-dependency
phase, when motor vehicles were either imported in the completely built unit (CBU)
form or assembled from vehicle kits imported in the completely-knocked down (CKD)
form. General Motors (GM) and Ford Motors imported vehicles from their foreign
plants and sold them in India.
However, the early 1940s also saw the commencement of vehicle manufacturing
activities with the setting up of Hindustan Motors and Premier Automobiles, in 1942
and 1944, respectively. These two companies established manufacturing plants,
importing technical know-how from GM (US) and Fiat Auto SpA of Italy. As most
of the technology was licensed, and there was no pressure to continuously reduce
costs or launch new models, product design and product technology changes were
slow processes. This indicates the low level of competition in the market during
this period.
The period between 1950 and 1981 can be regarded as the protectionist and the
import-substitution phase. Since the 1950s, with a view to develop the manufacturing
industry in the country, the government encouraged indigenous manufacturing of
vehicles, and devised policies to discourage imports/mere assembly of vehicles.
This phase was marked by a heavily government-controlled industrial environment.
The regime was characterised by regulations where imports, collaborations, and equity
ventures were severely restricted by the government. There were a limited number of
players and the government exercised decision-making control over the number of
players, the quantity of output, and the location of plants.
The passenger cars industry recorded marginal growth estimated at a compounded
annual growth rate (CAGR) of 3.6 per cent during the 1960s and 1970s. The 1980s
also did not witness any major improvement in the slow pace of market growth. Sales
of cars were limited by supply as there were only a couple of manufacturers such
as Hindustan Motors, Premier Automobiles, and Standard Motors (which, after a
10-year gap, had resumed operations in 1985, but permanently shut down production
operations in 1988) and they had limited production capacities.
Industry Dynamics
Capacity expansion was also restricted under the Monopolies and Restrictive Trade
Practices Act (MRTP Act) and the government controlled the issue of the requisite licenses.
Technology transfers from foreign companies were subject to government approval. All
these factors strained the supply of passenger vehicles in the market. Volumes grew
very slowly during this phase, as no new players entered this market and there was little
direct competition permitted by the policies prevalent at that time. Barriers in the form
of high tariffs and import restrictions led to minimal exports, and the domestic market
remained the primary focus. Even within the domestic market, because of the low level of
competition, firms did not consider it necessary to invest in technology.
This phase also saw the rise of a regional auto-parts industry, which was unlicensed and
came up indigenously around production centres where auto makers were permitted
by the government to assemble vehicles.
Hindustan Motors, Premier Automobiles, and Standard Motors (set up in 1952) were
the only three manufacturers of passenger cars in India until 1982. The License Raj
(the policy regime when the government issued licenses for production, imports etc)
that existed between the 1940s and the 1980s restricted the entry of foreign players
and fiercely controlled imports. It was a complete sellers market, and customers were
forced to wait for years together to purchase a car due to limited supplies.
The Maruti Suzuki/modernisation era (1982-early 1990s)

Hindustan Motors and Premier Automobiles monopolised the passenger car market
until the mid-80s. In the 1980s, the government eased regulatory policies and allowed
the entry of foreign players into the Indian market through minority JVs. This was a
major milestone for the industry as it paved the way for the entry of foreign firms into
vehicle manufacturing in India.
This phase marked the start of modernisation in the industry. In 1982, the Government
of India entered into collaboration with Suzuki Motors of Japan and established Maruti
Suzuki (formerly Maruti Udyog Ltd), which launched the Maruti 800 car. Daewoo
Motors was also incorporated around this time (1983).
The passenger car industry underwent a major transformation with the establishment
of Maruti Suzuki. Suzukis entry redefined the Indian automobile sector and led to
tremendous growth. The establishment of Maruti Suzuki India Ltd (Maruti) saw
production of cars and jeeps in the country increase from 45,770 units in 1980
to 223,590 units in 1990. Maruti cashed in on the latent demand for better quality,
low-cost cars by way of its fuel-efficient, affordable family cars. Unlike its peers at
that time, within 10 years or so of commencing operations, Maruti launched four new
models in the market (the Omni in 1984, the Maruti 1000 in 1990, the Zen in 1993,
and the Esteem in 1994), thus fuelling repressed demand.
Maruti introduced the concept of volume production and economies of scale to
local car manufacturers as opposed to capacity fragmentation encouraged by the
licensing policy. The company introduced modern concepts such as zero-defect
manufacturing and also introduced the local industry to the Japanese style of
inventory management including just-in-time (JIT) methods etc. More importantly,

the company transferred technology to its suppliers and also provided them with
continuous technical assistance. Thus, it laid the basis for the current structure
of automobile production in India (high quality suppliers working for the vehicle
manufacturer).
The post-liberalisation phase (until late 1990s)

In the early 1990s, the government amended the policies in the auto sector. Tariffs
were reduced to around 40 per cent, while those on components were reduced to
35 per cent. Although import barriers on components were lowered, the government
exercised restraint on the import of fully assembled cars. Industrial licensing policies
for the vehicles industry were totally abolished, barring those in the passenger cars
segment, which was de-licensed in 1993.
The key policy change introduced in this phase involved foreign firms being
permitted to set up manufacturing facilities in India through JVs (with majority
shareholding) with Indian players. The foreign players were allowed to own up to
51 per cent of equity in such JVs until 1995 and more than 51 per cent after 1995.
As a result, this period saw an influx of numerous foreign players into the Indian
market. Some of the entrants were General Motors, Ford, Fiat, DaimlerChrysler,
Hyundai Motors, Honda, Toyota etc. With this, the passenger vehicles market,
which was hitherto a sellers market, transformed into a buyers market. One of
the key impacts of foreign direct investment (FDI) inflows has been technology
upgradation in the passenger vehicles industry.
Entry of foreign players

The early 1990s saw a series of reform initiatives from the government, including
de-licensing, government de-control, and the deregulation of certain sectors of
the economy. This was aimed at encouraging investments by private and foreign
companies. The new Auto Policy of 1993 allowed foreign investment in the auto
sector, abolished the licensing system, and implemented an across-the-board
reduction in duties to enable the industry to become globally competitive. This
resulted in several new players entering this market, including several foreign auto
companies. Today, many of the global auto players have a presence in the Indian
market.
The foreign auto players have either entered into JVs with Indian players, or are
operating through wholly-owned subsidiaries. The following table Table 2.1 depicts
the presence of various foreign auto players in India.
10
Industry Dynamics
Table 2.1 Foreign players in the Indian passenger vehicles industry
Players
Indian partner
Foreign partner
Maruti Suzuki India Ltd
Government of
India
Suzuki Motor
Company, Japan
DaimlerChrysler India Pvt Ltd
None (erstwhile
partner Tata
Motors)
General Motors India Pvt Ltd
Foreign
promoter
holding
(in %)
Year of
incorporation
54.2
1981
DaimlerChrysler AG
100.0
1994
None (erstwhile
partner C K Birla
Group)
General Motors
Corporation, USA
100.0
1994
Ford India Pvt Ltd
(Erstwhile partner
Mahindra &
Mahindra)
Ford Motor
Company, USA
100.0
1995
Honda Siel Cars India Ltd
Siel Limited
Honda Motor
Company, Japan
99.0
1995
Hyundai Motor India Ltd
None
Hyundai Motor
Company, South
Korea
100.0
1996
Fiat India Pvt Ltd
None
Fiat Auto SpA, Italy
100.0
1997
Toyota Kirloskar Motor Pvt Ltd
Kirloskar Group
Toyota Motor Corp.,

Japan
89.0
1997
SkodaAuto India Pvt Ltd
None
SkodaAuto a. s.,
Czech Republic
100.0
2001
Mahindra Renault Pvt Ltd
Mahindra &
Mahindra
Renault, France
49.0
2005
Nissan Motor India Pvt Ltd
None
Nissan Motor Ltd,

Japan
100.0
2005
BMW India Pvt Ltd
None
BMW AG, Germany
100.0
2006
Volvo Car India
None
Volvo Car
Corporation,
Sweden
100.0
2007
Volkswagen India Pvt Ltd
None
Volkswagen AG,
Germany
100.0
2007
Compiled by D&B Industry Research Service
The global competition phase (2001 onwards)

This phase marked the dismantling of quantitative restrictions on imports. With
effect from April 2001, all quantitative restrictions on the import of automobiles
into India were removed. This in turn meant greater competition for domestic
auto manufacturers. However, with a view to protect the interests of domestic
manufacturers, the government imposed high tariffs on the import of passenger
vehicles.
Market competition further heated up when the New Auto Policy announced in March
2002 allowed automatic approval for foreign equity ownership up to 100 per cent in
entities manufacturing automobiles and automobile components in India.
Thus, the vehicle industry in India has undergone a sea change after the implementation
of liberalisation policies in the early 1990s. As against a handful of manufacturers until
the late 1980s, today the industry boasts the presence of most global auto majors.
As against just twothree vehicle models in the market until the 1980s, today there
are dozens of models available in the market, at multiple price-points. With this, the
level of competition and the fight for market share in the passenger vehicles market
touched a new high. Competitive pressures increased with the entry of foreign players
as companies expanded product lines and competed on price.
11

Exhibit 2.1 Policy changes and impact analysis
Licensing
(Until 1983)
Restriction on imports, no. of players,

output volume, plant location and
foreign collaborations; High tariffs,
phased manufacturing
Slow growth, heavy

government control
Partial liberalisation
(1983-1990)
MNCs entered;
Industry witnessed
tremendous growth;
Maruti established
Limited increase in technology inflow;

Broad banding policy announced;
Restrictions on imports continued
Post liberalisation
(1990 onwards)
Entry of global players;

Increased inflow of foreign
investment;
Gradual reduction in excise
tariffs;
Emergence as global
manufacturing hub
De-licensing of industry;
Phased manufacturing abolished;
100% foreign equity permitted;
Quantitative restrictions abolished;
High import tariffs
Self-sufficient, highly
competitive, growing market
The Indian passenger vehicles industry: Current structure

As discussed previously, the metamorphosis of the industry can be attributed to the
increasingly progressive policies adopted by the government, which ranged from
initially protecting the industry from foreign competition to opening up the market
to global competition in a phased manner, with liberal foreign investment policies,
leading to the current structure of the industry.
The entry of several global players has propelled market competition. At the same time,
the Indian economy has been growing at healthy rates and income levels are rising.
Growing competition and the diverse needs of consumers have led to companies
launching various types of cars/multi-utility vehicles (MUVs) at different price-points,
and thereby, to the need for segmentation. Until the entry of Japans Suzuki and other
foreign auto companies, there were only a handful of passenger vehicle models. With
small size of the market, there was hardly any scope for multiple vehicle segments.
However, today there are several vehicle segments thanks to a growing domestic
market and the growing aspirations of consumers.
12
Industry Dynamics
Segmentation
The passenger vehicles industry comprises passenger cars, utility vehicles (UVs), and
multi-purpose vehicles (MPVs). These three broad segments are further classified on
the basis of length, price, mass, and seating capacity. To maintain consistency in data,
MPV data has been included in cars data across the report.
Exhibit 2.2 Vehicle segments
Passenger vehicles
Passenger cars
Multi-utility vehicles
7-seater
Mini
Compact
9-seater
Mid-size
Multi-purpose vehicles
13-seater
Executive
Premium
Luxury
Classification of cars based on the length and price

Unlike in developed economies such as the US, UK, Japan etc, where passenger
vehicles are classified on the basis of engine displacement (engine capacity) or vehicle
dimension (length, breadth and height), in India, passenger vehicles are classified on
the basis of length and price.
The Society of Indian Automobile Manufacturers (SIAM) classifies passenger cars on
the basis of the length of a car. As per SIAM classification, cars with a length up to
3,400 mm are classified as mini cars (also referred to as the A1 segment). Currently,
the Maruti 800 is the only model in this category.
Table 2.2 Length-based classification of cars
Category
Length
Mini car (segment A1)
Up to 3,400 mm
Compact car (segment A2)
3,4014,000 mm
Mid-size car (segment A3)
4,0014,500 mm
Executive car (segment A4)
4,5014,700 mm
Premium car (segment A5)
4,7015,000 mm
Luxury car (segment A6)
More than 5,000 mm
Note: mm- millimetre

Source: SIAM, D&B Industry Research Service
Slightly bigger than the mini car is the compact car (A2 segment) with a length of
3,4014,000 mm. Some of the models in this category include the Tata Indica, Hyundai
Santro, Maruti Alto etc. These cars are ideal for commuting within city limits, and
are more fuel-efficient than the bigger cars because of their small engines and light
weight.
Mid-sized cars (A3 segment) have larger dimensions and are more spacious vis--vis
compact cars. These cars also have many comfort features and offer better leg-room.
13

The Honda City, Tata Indigo, Maruti Esteem, Ford Ikon, Hyundai Accent, Mitsubishi
Lancer are some of the models in this category. This category of cars has a length of
4,0014,500 mm.
Cars with length of 4,5014,700 mm are executive cars (A4 segment). This segment
includes models such as the Hyundai Elantra, Toyota Corolla, Mercedes C Class etc.
This is followed by the premium car segment (A5 segment) cars with length of
4,7015,000 mm. The Toyota Camry, Hyundai Sonata and Honda Accord are some of
the models in this category.
Cars with a length of more than 5,000 mm are classified as luxury cars (A6 segment),
which boasts of models such as the Maybach, the Bentley Rangers, the Mercedes
S Class etc. Cars in this category have powerful engines and larger dimensions, and
offer a high level of comfort, luxury, and safety features.
The demand for cars in India is price-sensitive, and therefore, cars are also classified on
the basis of price. The following table depicts the price-based classification of cars:
Table 2.3 Price-based classification of cars
Category
Price
Segment A
Below Rs 3 lakh
Segment B
Rs 35 lakh
Segment C
Above Rs 5 lakh but below Rs 10 lakh
Segment D
Above Rs 10 lakh but below Rs 25 lakh
Segment E
Above Rs 25 lakh
Source: Maruti Draft Red Herring Prospectus, D&B Industry Research Service
Classification of MUVs
SIAM classifies MUVs on the basis of mass and seating capacity:
Table 2.4 MUV classification
Weight
Up to 3.5 tonnes
Seating capacity
Not exceeding 7 (including the driver)
Between 7 and 9 (including the driver)
Up to 5.0 tonnes
Not exceeding 13 (including the driver)
MUVs can be used to transport passengers and goods over small-to-medium

distances,and are suitable for driving over rough terrain, deserts etc. These vehicles
can also be converted into an ambulance, a mini-van, or a pick-up van. In the last
few years, there has been a shift in the usage pattern of the MUV it is used more
as a passenger carrier than as a multi-purpose vehicle. Multi-purpose vehicles are
van-type vehicles such as the Maruti Omni, which has a cargo version, ambulance
version, passenger carrier version etc.
MUVs are an important mode of economical mass transport in rural areas due to
the poor state of road infrastructure and the lack of an adequate state transport
system. MUVs are the first vehicle purchased by a number of farmers, traders, small
businessmen in rural and semi-urban markets. The Tata Sumo, Tata Safari, Maruti
Grand Vitara and the Toyota Innova are some of the brands in this segment.
14
Industry Dynamics
Market size
The revenues of the passenger vehicles industry have more than doubled to Rs 312.2
billion in FY06 from Rs 153 billion in FY00. In terms of production volumes, the industry
has grown in size to around 1.5 million units in FY07 from close to 0.7 million units
in FY00.
Chart 2.2 Size of the passenger vehicles industry
Revenues
350
Production
2000
Rs bn
300
'000 nos
1600
250
1200
200
150
800
100
400
50
0
FY00 FY01 FY02 FY03 FY04 FY05 FY06
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
Automotive clusters
Manufacturing units of automobile companies are spread across India. However, these
units are concentrated in certain pockets Maharashtra (Pune) in the West, Haryana
and Uttar Pradesh in the North, Jharkhand and West Bengal in the East, Tamil Nadu
and Karnataka in the South, and Madhya Pradesh in Central India. Following the trend
in international markets, most auto component manufacturers are also located near
the vehicle manufacturing units. This has led to the formation of regional automotive
clusters in the country.
Chart 2.3 Geographical spread: Passenger vehicle units (plant locations)
Maruti Suzuki
Honda Siel
Hindustan Motors
North
13%
East
4%
Central
9%
West
39%
Tata Motors
M&M
General Motors
DaimlerChrysler
Hindustan Motors
Force Motors
South Hyundai
35% Toyota
Ford
BMW
Tamil Nadu, Maharashtra, Haryana, and Karnataka remain the top investment
destinations for most auto manufacturers due to the investor-friendly policies,
developed infrastructure, and logistics support provided by these states. However, in
the last few years, several auto companies have set up manufacturing plants or have
announced plans to set up manufacturing bases in Uttaranchal and Jharkhand due
to the various fiscal incentives offered by the state governments. The following table
shows plant locations of PV companies:
15

Table 2.5 Company plant locations
Sr. No.
Company Name
District
State
Products
manufactured
BMW India Pvt Ltd
Chennai
Tamil Nadu
Passenger cars
Chakan*, Pune
Maharashtra
Passenger cars
Fiat India Pvt Ltd
Ranjangaon, Pune
Maharashtra
Passenger cars
Ford India Pvt Ltd
Maraimalai Nagar,
Chennai
Tamil Nadu
Passenger cars
Force Motors Ltd
Pithampur
Madhya Pradesh
MUVs
Halol, Vadodara
Gujarat
Passenger cars
Talegaon*, Pune
Maharashtra
Passenger cars
Hindustan Motors Ltd
Thiruvallur
Tamil Nadu
Passenger cars
Uttarpara, Kolkata
West Bengal
Passenger vehicles
Pithampur, Indore
Madhya Pradesh
MUVs
Greater Noida
Uttar Pradesh
Passenger cars
Alwar*
Rajasthan
Passenger cars
Chennai
Tamil Nadu
Passenger cars
10
International Cars & Motors

Pvt Ltd
Amb, Una
Himachal Pradesh
MUVs
11
MLR Motors Ltd
Hyderabad
Andhra Pradesh
Passenger cars
12
Mahindra & Mahindra Ltd
Kandivali
Maharashtra
MUVs
13
Nissan-Renault JV
Chennai*
Tamil Nadu
Passenger cars
14
Nashik
Maharashtra
Passenger cars
15
Gurgaon
Haryana
Passenger cars
Manesar
Haryana
Passenger cars
16
Reva Electric Car Co Ltd
Bommasandra,
Bangalore
Karnataka
Passenger cars
17
San Motors Ltd
Goa
Goa
Passenger cars
18
Shendra, Aurangabad
Maharashtra
Passenger cars
19
Tata Motors Ltd
Pune
Maharashtra
Passenger cars
20
Bidadi, Bangalore
Karnataka
Passenger cars
21
Chakan*, Pune
Maharashtra
Passenger cars
*Upcoming plants
Industry Dynamics
16
Chapter 3

This chapter is divided into two sections. The first section would discuss the policy
framework in the Indian passenger vehicles industry, while the second section would
focus on the regulatory framework.
Policy framework
The Indian passenger vehicles industry has undergone several policy changes,
particularly with respect to industrial licensing, foreign investment and technology,
and export-import. The industry has transformed from being an import-dependent
one to being an emergent global manufacturing hub.
Like in several countries across the world, government policies in India have
shaped the size and structure of the automobiles industry. At the initial developing
stages, government policies and regulations were extremely protective towards the
industry, and were aimed at import substitution and development of an indigenous
manufacturing industry. However, the policies were progressively liberalised to attract
foreign technology and investment, so as to develop a globally-competitive industry.
The Indian passenger vehicles industry no longer mandates a license to set up
a new unit, except in the case when the unit is being set up within 25 km of
a city with a population in excess of a million. The industry has been thrown
open to foreign competition. The implementation of the New Industrial Policy
1991 abolished industrial licensing for the entire automobiles industry (barring
the passenger cars segment, which was freed from licensing in 1993); foreign
investments were allowed in the automobiles industry. With the introduction of
the New Industrial Policy in 1991, the automotive sector was given priority sector
status that is, the Reserve Bank of India (RBI) granted automatic approval for
foreign equity up to 51 per cent. Since January 2000, the RBI has allowed 100 per
cent FDI through the automatic route.
Liberal FDI policies have led to a greater inflow of foreign capital and technology.
There have been investments in domestic production operations, instead of mere
assembly facilities. JVs have been established with the majority holding remaining
in the hands of the foreign partner. A greater number of models and engines have
also been introduced. The industry has gained export competitiveness in terms of
both cost and quality due to access to foreign technology and the adoption of
modern production systems. There has also been a sharp increase in exports over
the years.
17
Evolution of policies in the Indian passenger vehicles market

Government policies have been framed with a view to develop an indigenous
manufacturing industry. The objective of the policies and regulations is reflected in
the manner in which the industry has evolved and developed over the years. Policy
formulations have progressed from the use of tariffs, quotas, licensing restrictions etc
in the previous avatar, to the use of liberalised investment norms, fiscal incentives,
restrictions on the import of second-hand cars etc.
The following table analyses the impact of the evolution of government policies and
regulations on the passenger vehicles industry.
Table 3.1 Impact analysis of policy changes

Milestones
License regime
(Pre-partial
liberalisation)
(Until 1983)
Partial
liberalisation
(Establishment
of Maruti
Suzuki India)
(19831990)
Policies
Impact
License regime: Government control

on entrants to the industry, how
much could they produce, and where
(location)
Government restrictions on imports,
foreign collaborations, and equity
ventures
Import of fully-built vehicles almost
stopped since 1949
In the early 1950s, assemblers without
a plan for progressive manufacturing
(i.e. those interested only in assembly
of imported vehicle kits) asked to quit
the business within 3 years
In 1953, requirement of minimum
50 per cent indigenous/local content
introduced
In the late 1960s, firms with
production operations in the country
for 5 years or more ordered to export
at least 5 per cent of their annual
output by volume
High tariffs: Cars considered luxury
products
Since 1969, statutory control on
pricing of cars
Price control on cars abolished in 1975
Capacity expansion restricted under
the MRTP Act; government issued
required licenses
Technology transfer from foreign
companies subject to approval from
government
Quantitative restrictions (QRs) on
imports
Only a handful of players in the market: Some

of the established firms were Hindustan
Motors, Standard Motors, and Premier
Automobiles; mostly single-product firms
Licensing policy encouraged capacity
fragmentation
Firms failed to garner scale advantages
Sellers market no pressure to continually
lower costs, or introduce new models
Restrictions in supply; high tariffs and
pent-up demand kept vehicle prices high
Small volumes, limited choice of models,
slow growth, and slow technical change
Limited ownership of vehicles due to high
prices
Most technology was licensed (for example,
in the cases of Fiat and Premier Auto,
Standard Auto and Ambassador-Morris)
JVs with foreign firms, usually with
26 per cent foreign equity
Product design and production technology
evolved very slowly
Obsolete technology and little incentive to
upgrade technology or engage in R&D
Traditional production/management systems
followed
Domestic-market-oriented industry
No concept of car segmentation
High dependence on imported components
Restrictions on imports continued

Partial de-regulation
Limited increase in technology inflow
permitted
Broad-banding policy announced (in
1985) (new licenses given to broad
group of automotive products like
four-wheelers and two-wheelers)
Some MNCs that entered Indian market

Suzuki Motor Corp of Japan in the form of
a JV; and Daewoo Motors, South Korea
Maruti Suzuki introduced the concept of
volume production and economies of scale
Maruti launched affordable (small and fuelefficient) family cars (with improved quality)
Maruti extended its product range to include
MUVs, vans, and mid-sized cars
Maruti introduced modern production/
management systems
Marutis operations brought about
significant improvements in quality and
value for money
Industry witnessed tremendous growth
Limited competition; Maruti was key player
Limited focus on exports
Reduced dependence on imported
components
Concept of car segmentation virtually absent
Industry Dynamics
18
Table 3.1 Continued
Milestones
Liberalisation
(1990
onwards)
Policies
Impact
Auto industry (except passenger cars)

de-licensed in 1991
Passenger car segment de-licensed in
April 1993
The phased manufacturing program,
requiring time-bound indigenisation,
was abolished in 1991; for existing
units, this was abolished in 1994
Approval of foreign technology
agreements and up to 51 per cent
foreign equity investment was allowed
through automatic route from 1991.
Since mid-1990s, 100 per cent foreign
equity was approved (on a case-to-case
basis). Subsequently, the new policy
announced in March 2002 allowed
foreign equity investment up to
100 per cent in this sector, under the
automatic approval route, without any
minimum capitalisation norms
The Auto Policy 1997 enjoined foreign
exchange neutrality (through exports)
and localisation/indigenisation
requirements for new investors
The Auto Policy 1997 emphasised
establishment of production facilities,
instead of mere assembly. Also, any
new car/MUV manufacturer had to
commit, by way of a Memorandum
of Understanding (MoU), to achieve a
minimum indigenisation level of
50 per cent by the third year and
70 per cent by the fifth year of the
firms first consignment of CKD/
SKD imports; and to commit to an
equivalent value of total exports of
vehicles and components, starting the
third year of production, neutralising
foreign exchange spent on CKD/SKD
imports during the currency of the
MoU. Plus, for having operations as a
subsidiary in India, new foreign entrants
had to bring in at least US$ 50 million
In April 2001, QRs on imports were
abolished; imports of cars (CKD/SKD/
CBUs) were put on the Open General
License list, requiring no import license
In August 2002, policies regarding
export commitments made under the
MoU regime were abolished
No local content or foreign exchange
neutrality requirement now
In January 2004, the Directorate
General of Foreign Trade (DGFT)
announced that the import of new
vehicles in CBU form with a CIF
value of US$ 40,000 or more will be
permitted without homologation
Gradual reduction in excise tariffs
High import duties
Several existing firms entered new segments

in the existing business (Tata Motors, for
instance, entered the UVs segment by
launching the Tata Sierra in 1991)
Entry of several foreign firms Pal-Peugeot
(1994); DaimlerChrysler India, General
Motors India and Ford India (during
19941995); Hyundai Motor India (1996);
Honda Siel Cars India (1995); SkodaAuto
India (2001); Mahindra Renault and Nissan
Motor India (2005) etc
JVs with foreign firms; shareholding of
foreign partner in most cases hiked to
majority stake
Existing firms adopted strategies to
introduce technological change and improve
performance (change in plant setup, logistics
and inventory management, materials used
etc)
With de-licensing, some existing auto firms
that formerly lacked a presence in the cars
segment entered the segment; for instance,
Tata Motors launched the Mercedes Benz
models in India in 1994 in JV with
Daimler-Benz
Enhanced industry production capacity
Heating up of market competition
Segmentation one of the key bases of
market competition
Most global giants are present adoption
of modern technology
Manufacturers adopted modern production/
management systems to lower production
costs and improve efficiency
Multi-product firms
Buoyancy in market growth continues
Well defined, multiple vehicle segments
Limited dependency on imported
components
Imports of vehicles in CKD/SKD kit forms did
not involve export obligations
Substantial increase in exports, and high
growth in exports continues
Increased affordability due to reduced prices
Imports restricted to high-end cars/UVs
Major policy measures

The rapid development achieved by the Indian passenger vehicles industry over
the past several years as against the state of the industry under the strict licensing
regime speaks volumes about the series of progressive policy measures adopted
by the government and how OEMs (particularly foreign players) have exploited the
opportunities at hand.
Liberalisation changed the course of the industrys development. The industry is a
direct and a major beneficiary of competition and technology in the liberal regime.

Most of the foreign players have established manufacturing operations in the country,
while a few import vehicles from their overseas plants for sale in India.
The various policies and measures pertaining to or affecting the passenger vehicles
industry have been discussed as: Auto Policy; Export-Import Policy; Fuel Policy, Tariffs/
duties, and Emission Norms.
Auto Policy (2002)
A new Auto Policy was announced in March 2002 with the key objective of promoting
integrated, phased, enduring, and self-sustained growth in the Indian automotive
industry; imparting global competitiveness; and helping India emerge as a global
source for auto components. The policy also aims to steer Indias software industry
into automotive technology, and to assist development of vehicles propelled by
alternate energy sources.
Salient features of the policy:

Automatic approval for foreign equity investment up to 100 per cent for
manufacture of automobiles and components
The incidence of import tariffs to be fixed in such a manner so as to develop

manufacturing capabilities of the industry (as opposed to mere assembly) without
providing undue protection
To support and encourage growth of the small car segment, and provide fiscal
incentives to the MUV sector
Government to encourage setting up of independent auto design firms by

providing them tax breaks, concessional duty on plant and equipment, and
granting automatic approval
Allocations to the automotive cess fund created for automotive R&D to be

increased and the scope of the activities covered under it to be enlarged
Government to work towards harmonisation of standards
Government to continue to promote the use of low-emission fuel auto technology,

and discourage the use of older vehicles.
Export-Import Policy
The Export-Import (EXIM) Policy 2001 imposes certain restrictions on the import of
second-hand vehicles into India. The policy restricts the import of vehicles used for
more than 3 years; the vehicles need to conform to the Central Motor Vehicle Rules,
having a minimum residual life of 5 years, and the importer needs to ensure the
supply of spares and servicing of the vehicle during the period.
The policy also imposes certain restrictions on the import of new vehicles. It allows the
import of vehicles only from the country of manufacture (country of origin). Vehicles
must conform to the provisions of the Motor Vehicles Act, 1988, and a prototype of
the vehicle must be approved by the notified agencies in India.
The policy that required new JV car companies to commit to certain levels of phased
indigenisation, minimum investments in manufacturing facilities, neutralisation
of foreign exchange on imports with the exports of cars and components etc was
19
Industry Dynamics
20
withdrawn in September 2001 as a major initiative to bring policy framework in line

with World Trade Organisation (WTO) requirements.
The import of cars, SUVs and all-purpose vehicles is allowed only to hotels, travel agents,
tour operators or tour transport operators, and companies owning/operating golf resorts,
subject to certain conditions. This policy announcement was made in June 2006.
Tariffs and duties

Import duty
Before the abolishment of QRs (with effect from April 2001), the government policy
allowed the import of capital goods and auto components listed in the Open General
License, but restricted the import of cars in CBU/SKD/CKD form. Car manufacturing
units were issued licences to import components in CKD/SKD form only on executing
an MoU with the DGFT.
In line with Indias WTO commitments (imports to be controlled through tariffs and
not through quantitative means), the Government of India abolished QRs on the
import of new and used vehicles, with effect from April 2001. However, with a view to
protect the domestic industry and to continue with its industrialisation strategy, the
government imposed high customs duties on passenger vehicles. While the customs
duty on new CKD units and components has been brought down (from 35 per cent
in FY02 to 10 per cent in FY08), the duty on second-hand vehicles and new CBUs
continue to remain at almost the same levels as in FY02. This is done to prevent the
domestic market from turning into a dumping ground for foreign cars. Second-hand
cars attract customs duty of 100 per cent. Customs duty of 60 per cent is levied on
cars imported in CBU/SKD form, and of 10 per cent on cars imported in CKD form.
Table 3.2 Customs duty rates on passenger vehicles (per cent)

Year/Category
Cars
MUVs
FY96
50
50
FY97
50
50
FY98
40
40
FY99
40
40
FY00
40
40
FY01
35
35
FY02*
105/60/35
105/60/35
FY03*
105/60/30
105/60/30
FY04*
105/60/25
105/60/25
FY05*
105/60/20
105/60/20
FY06*
100/60/15
100/60/15
FY07*
100/60/12.5
100/60/12.5
FY08*
100/60/10
100/60/10
*For used vehicle/new CBU/CKD and components, respectively

Source: SIAM, Budget documents, D&B Industry Research Service
While the import tariffs on CKD and components of cars and MUVs have been gradually
brought down in line with the WTO commitments, the government continues
to impose high tariffs on used vehicle imports. The steady high import duty on
21
new CBUs (at 60 per cent) is meant to facilitate the development of manufacturing
capabilities in the industry, instead of it remaining limited to mere assembly.
Used vehicles imported into the country have to meet Central Motor Vehicle Rules
(CMVR); environmental requirements as per the public notice issued by the DGFT,
laying down specific standards; and other criteria for such imports.
Excise duty
Passenger vehicles are among the most heavily taxed (excise duties) sectors in India.
A multitude of other taxes and levies keeps vehicle prices high. The demand for
passenger vehicles being price-sensitive, the government has been gradually lowering
the rate of excise duties on passenger vehicles to make them more affordable.
Table 3.3 Excise duty rates on passenger vehicles (per cent)

Year/Category
Cars
MUVs
FY96
40
40
FY97
40
20
FY98
40
25
FY99
40
30
FY00
40
30
FY01
40
32
FY02
32
32
FY03
32
32
FY04
24.24
24.24
FY05
24.24
24.24
FY06
24.24
24.24
FY07
16.16/24.24
24.24
FY08
16.16/24.24
24.24
Note: Rate of 16.16 per cent on specified small cars (length not above
4,000 mm and engine capacity not above 1,200 cc for petrol cars and
1,500 cc for diesel cars); rate of 24.24 per cent on all other cars
The government allows a concessional basic excise duty rate of 16 per cent on certain
types of small cars (see Table no. 3.3). All other types of cars and MUVs attract a
basic excise duty of 16 per cent and a countervailing duty of 8 per cent. There are
two key objectives behind this recent government move: one, to make cars more
affordable so as to boost domestic demand; second, to develop India as a global
manufacturing hub for small cars. The desire of car makers to establish a presence in
this market segment is reflected in the fact that as soon as the new tariff structure
of this category of small cars was announced, several car makers announced plans
to launch new products in this category. Some existing players even announced
plans to launch new versions of existing products, which would be eligible for the
concessional rate of excise duty.
If the government continues to bring down the excise duties on passenger vehicles,
it is bound to have a further positive impact on demand. The small car segment, in
particular, will be the biggest beneficiary, as this segment of cars accounts for the bulk
of cars sold in India.
Industry Dynamics
22
FDI policy
The governments liberalised FDI policies resulted in several foreign auto-makers

entering into JVs with Indian players. This has led to enhanced capacity creation in
the passenger vehicles industry.
One of the most important consequences of liberalised FDI policies has been easier
access to modern foreign technology. This in turn has contributed to improvement in
vehicle quality and performance. And this fact is reflected in the growing acceptance
of made-in-India passenger vehicles and the increasing exports of the same. At the
same time, foreign collaborations and tie-ups have provided the hitherto domesticallyfocused Indian players access to foreign markets, by way of marketing tie-ups with
the foreign partners. Growing exports have not only added to the revenues of these
vehicle manufacturers, but also to the economys foreign exchange reserves.
As per a study conducted by the McKinsey Global Institute (2001) on the impact of FDI
policies on the Indian automobile industry, the removal of FDI restrictions has positively
affected the automotive industry by way of increased competition and investments
in the industry. This in turn has resulted in a sharp increase in productivity (FY00
vis--vis FY93), and thereby, in output. The following chart depicts the improvement
on various fronts.
Chart 3.1 Impact of FDI on the Indian auto industry
400
380
356
350
300
CAGR
20.0%
CAGR
21.0%
250
CAGR
1.5%
200
150
100
100
100
100
111
50
0
Labour productivity
199293
Output
Employment
19992000
(Index: 9293=100)
Source: World Bank
Table 3.4 FDI impact on the Indian automotive industry

Economic impact
Sector productivity
Very positive
Distributional impact
Companies
Sector output
Very positive
Employees
Sector employment
Neutral
Consumers
Suppliers
Very positive
Competitive intensity
Very positive
Overall assessment
Government
Companies with FDI
Very negative
Companies without FDI
Negative
Level
Neutral
Wages
Positive
Reduced prices
Positive
Selection
Very positive
Taxes/other
Very positive
Very positive
Source: United Nations Institute for Training and Research website
23
Other policies
With a view to develop R&D in the industry, the weighted deduction for R&D activities
under the IT Act, 1961 was increased from 125 per cent to 150 per cent in the Union
Budget 200506. The Union Budget 200708 extended this benefit for another 5 years.
In addition, vehicle manufacturers will also be considered for a rebate on the applicable
excise duty for every 1 per cent of the gross turnover of the company expended
during the year on R&D. This would include R&D leading to adoption of low-emission
technologies and energy-saving devices.
However, despite such incentives, auto companies investments in R&D activities are
still abysmally low. R&D expenses as a percentage of sales for the automobiles industry
is less than 2 per cent.
Regulatory framework
In India, rules and regulations related to driving licenses, registration of motor vehicles,
control of traffic, construction and maintenance of motor vehicles etc are governed by
the Motor Vehicles Act 1988 and the Central Motor Vehicle Rules 1989. The Ministry
of Shipping, Road Transport & Highways acts as a nodal agency for the formulation
and implementation of various provisions of the Motor Vehicles Act and the Central
Motor Vehicle Rules.
Emission norms
The government imposes certain regulations for controlling air pollution caused by
automobiles. Emission norms for different categories of vehicles were first introduced
in 1990. Gradually, over the years, emission standards have become more stringent.
These norms are implemented to control emissions from vehicles with the aim to
reduce environmental pollution.
Table 3.5 Overview of emission norms in India: Four-wheelers

Implementation year
Emission norms
1984
Idle emission regulation
1991
Mass emission norms for petrol vehicles
1992
Mass emission norms for diesel vehicles
1995
Mandatory fitment of catalytic converters in new petrol passenger cars in the

four metros (Mumbai, National Capital Region, Kolkata, and Chennai)
2000
India 2000 norms equivalent to Euro I norms for passenger cars, and Bharat
Stage II norms (Euro II equivalent) norms for National Capital Region for
non-commercial fourwheelers
2001
Bharat Stage II norms introduced in National Capital Region, Mumbai, Chennai,

and Kolkata
2003
Bharat Stage II norms for 11* major cities
2005
Bharat Stage III (Euro III equivalent) norms for 11* major cities; Bharat Stage II
norms in the rest of the country
2010
Bharat Stage IV (Euro IV equivalent) emission norms in 11 cities with effect from
April 01, 2010; Bharat Stage III norms in the rest of the country
*The four metros and Bangalore, Hyderabad, Ahmedabad, Agra, Kanpur, Pune, and Surat
Source: SIAM, Emission Controls Manufacturers Association website, D&B Industry Research Service
India is harmonising emission norms for four-wheelers with European regulations

(vehicular technology has to be upgraded accordingly) and has adopted Euro III
Industry Dynamics
24
equivalent norms in 11 metropolitan cities from April 01, 2005. Safety regulations
are also being aligned with the regulations of the Economic Commission for
Europe.
In October 2003, the Union Cabinet approved an Auto Fuel Policy that lays a roadmap
for implementing Euro II, III and IV equivalent vehicular emission standards in India
by the year 2010.
Road map for fuel quality

Euro II equivalent gasoline and diesel supplied nationwide with effect from
April 1, 2005
Euro III equivalent gasoline and diesel supplied in the 11 cities (see Table 3.5)
from April 1, 2005; to be extended to the entire country by 2010
Euro IV equivalent gasoline and diesel proposed to be supplied in the mentioned

11 major cities from April 1, 2010
Table 3.6 Indian emission norms for cars

Petrol vehicles (g/km)
Emission norm
Carbon monoxide
Hydrocarbon
NOx
HC + NOx
BS-II
2.20
0.50
BS-III
2.30
0.20
0.15
Source: Emission Controls Manufacturers Association website
Table 3.7 Diesel vehicles (chassis dynamometer) (g/km)

Emission norm
Carbon
monoxide
Hydrocarbon
NOx
HC + NOx
PM
BS-II
1.00
0.70
0.08
BS-III
0.64
0.50
0.56
0.05
Source: Emission Controls Manufacturers Association website
India has adopted European emission standards and test procedures. Apart from
environmental concerns, the key objective behind adopting international emission
standards has been to encourage global auto players to set up manufacturing bases
in India and meet the vehicle requirements in their overseas markets. Several foreign
players such as Suzuki, Hyundai etc have already made India their hub for sourcing
certain cars. Other players like Skoda, General Motors etc are also contemplating
similar moves.
The adoption of international standards has helped the industry garner greater
acceptance in international markets. The industry today exports heavily to European
markets, thereby cashing in on the growing demand for small, fuel-efficient cars
in these markets. Although currently Bharat Stage III (BS-III) norms are in application
in the Indian market, leading vehicle exporters are already planning to adopt the next
level of emission standards. Maruti Suzuki, for instance, plans to align its engines
capability for Euro IV and Euro V norms. Given the rising prices of fuel and labour in US
markets, if the Indian passenger vehicles industry continues to improve efficiency and
capability, then India could serve as the base to design, build, and export inexpensive
vehicles to US markets.
Recent government initiatives

Automotive Mission Plan 20062016
This is a plan under the Ministry of Heavy Industries & Public Enterprises to develop
the Indian automotive industry into the destination of choice in the world for the
design and manufacture of automobiles and auto components, aiming for an output
reaching US$ 145 billion, accounting for more than 10 per cent of the GDP and
providing additional employment to 25 million people by 2016.
As per the plan, India would emerge as the worlds seventh-largest car producer by
2016, as compared to its current position at number 11. The plan also envisages
the doubling of contribution from the automotive industry to Indias GDP from the
current level of 4.4 per cent. Its contribution to the manufacturing sector would rise
to 30 per cent from the current level of 17 per cent.
Implementation of the Automotive Mission Plan 20062016 would entail investments
to the tune of US$ 3540 billion in the auto industry over the 10-year period ending
2016. The bulk of these investments is expected to come from the capacity expansion
activities of existing players, while the rest would follow from global players such as
Volkswagen, Volvo etc who are setting up or considering setting up manufacturing
bases in India.
Currently, the automotive industry employs 200,000 people in vehicle manufacturing,
250,000 in component companies, and 10 million at different levels of the value
chain through backward and forward linkages. The mission plan envisages the
creation of an additional 25 million jobs (both direct and indirect employment) in
automotive companies and in other parts of the vehicle value chain such as servicing
and repairs, sales and distribution chains etc.
To achieve the plans objectives, the government would play a role in facilitating the
creation of infrastructure, creating a favourable business environment, attracting
investments, and promoting R&D. The industrys role would essentially encompass
designing and manufacturing products of world class quality standards, establishing
cost-competitiveness, improving labour and capital productivity, achieving economies
of scale and enhancing R&D capabilities.
National Automotive Testing and R&D Infrastructure Project (NATRIP)

Objectives

Creation of automotive testing and validation infrastructure to enable the

government to usher in global vehicular safety, emission, and performance
standards
Promoting more manufacturing in India by encouraging greater value-addition

within the country
Enhancing Indias global outreach by facilitating development and mass

production of high-technology-driven, affordable, globally acceptable automotive
products, and by eliminating bottlenecks in their exports
Making available to automotive industry within India and outside a battery of

high-capability product development and validation facilities for significantly
reducing product development and modification cycle, at affordable costs
25
Industry Dynamics
26
The plan
The NATRIP is a joint initiative of the Central government, several state governments,
and the Indian automotive industry to create state-of-the-art testing, validation,
and R&D infrastructure in the country. The project envisages an investment of
Rs 17.18 billion in phases to be completed by September 2011.
The project aims to set up the following broad facilities:

A full-fledged testing and homologation centre within the northern hub of the
automotive industry at Manesar in Haryana
A full-fledged testing and homologation centre within the southern hub of the
automotive industry at Oragadam, 15 miles from Chennai, capital of Tamil Nadu
Comprehensive upgradation of existing testing and homologation facilities

in the western hub at the Automotive Research Association of India (ARAI),
Pune and at Vehicle Research and Development Establishment, Ahmednagar in
Maharashtra
A world-class proving ground on 4,098 acres of land in Central India at Pithampur,

15 miles from Indore, Madhya Pradesh
A centre for testing of off-road vehicles in the northern region of the country,
with a national facility for accident-data-analysis and specialised driving training
at Rae Bareilly, about 60 miles from Lucknow, capital of Uttar Pradesh
A specialised hill-area driving training centre and an in-use vehicle management

centre in the north-eastern region at Silchar in Assam.
Impact of the Union Budget 200708 on the passenger vehicles industry

Pre-budget recommendations
The Society of Indian Automobile Manufacturers (SIAM) had made the following
recommendations to the Ministry of Finance before the Union Budget 200708.
Key recommendations pertained to:

Excise duty structure: SIAM asked for levy of uniform excise duty on all passenger
vehicles at 16 per cent
Customs duty structure: SIAM asked to retain customs duty on passenger cars
and recommended that duties not fall below 12.5 per cent (which is amongst the
lowest in the world)
R&D incentive: SIAM requested that the benefit of weighted deduction at the
rate of 150 per cent of R&D expenditure (set to expire on March 31, 2007) be
extended for another 10 years
Depreciation rate: Increase depreciation rate on plant and machinery, and on

motor vehicles from 15 per cent to 25 per cent
Investment-related issues: To encourage investments in the sector, SIAM requested

tax holidays in the sector for investments exceeding Rs 5 billion; deduction of
30 per cent of net (total) income for 10 years for new industrial undertakings; tax
deductions of 100 per cent on export profits; deduction of 50 per cent on forex
earnings by automotive companies, and concession of import duty on machinery
for setting up new plant or expanding capacity

Budget proposals
The Finance Minister announced the following:

Benefit of 150 per cent weighted deduction on in-house R&D extended by another
5 years, until March 31, 2012
Peak rate of customs duty on non-agricultural products to be reduced from

12.5 per cent to 10.0 per cent
Bio-diesel to be fully exempt from excise duty
Budget impact
The Union Budget 200708 did not accede to all the demands put forth by the
industry. The budget announcements were a mixed bag, though the overall impact
on the sector is positive.
The extension of concession provided to the weighted deduction of 150 per cent for
expenditure related to in-house R&D for another 5 years is a positive for the industry.
Although investments made by auto companies on R&D activities are still abysmally low,
this proposal is expected to encourage more companies to focus on R&D activities.
The reduction in the peak rate of customs duty from 12.5 per cent to 10.0 per cent
will not benefit OEMs significantly due to the high indigenisation levels and costcompetitiveness of the automotive components industry. However, reduced customs
duty would lower the prices of imported auto components. This is expected to reduce
the prices of cars using such imported components though, only marginally and
thereby benefit companies such as DaimlerChrysler, Mitsubishi, Skoda etc that have
high imported content. The budget also brought some cheer to the industry by way
of a 1-percentage-point reduction in central sales tax (CST). The additional education
cess of 1 per cent is likely to be passed on to the consumer. The increased education
cess therefore negates the effect of the reduced CST.
The proposal to fully exempt bio-diesel from excise duty is not likely to have any
impact on vehicle demand, as demand for vehicles running on bio-diesel is almost
non-existent. However, this is an encouraging move as many players are contemplating
the bio-diesel option.
Industry reaction
The auto industry expressed disappointment over the Union Budget 200708. Most of
its demands were passed over, particularly the request to levy a uniform excise duty of
16 per cent on all passenger vehicles.
Certain car makers, including Toyota Kirloskar Motor, whose models do not qualify for
the lower excise duty (applicable on certain small cars) expressed resentment on the
budgets failure to address their issue of implementing a uniform tax structure for all
types of cars.
Although there were only few announcements directly beneficial for the industry,
industry officials expect the focus on rural sector and agriculture to benefit the
auto industry over the long run. The industry has welcomed measures like the
reduction in CST; the extension of the weighted deduction of R&D expenditure for
27
Industry Dynamics
28
the next 5 years; and retention of the current customs duty structure on cars. The
other positive measures from the budget are the increase in spending on roads and
increased outlay on the Urban Renewal Mission.
In view of the 1-percentage-point increase in education cess, several car companies
hiked vehicle prices, thereby passing on the burden of additional costs to consumers.
On the other hand, some companies such as SkodaAuto India, among others, decided
to pass on the benefit of reduced customs duty by slashing vehicle prices.
Industry Dynamics
30
Chapter 4

The demand for passenger vehicles in India continues to be robust. Demand, as
represented by sales (volume), has grown at a CAGR of 11.5 per cent during the
last 9 years. In FY07, while passenger car sales grew by 22.2 per cent to 1.2 million
units, those of MUVs rose by 13.2 per cent to 0.2 million units. Growing incomes,
competitive pricing by players, easier access to cheaper finance, and declining tariff
rates have been the key traditional drivers of this growth in sales, while growing
aspiration, a shrinking replacement cycle, the faster launch of new models, and a
growing used car market are some of the emerging drivers of demand. This chapter
studies the trend in demand for passenger vehicles over the last decade, and analyses
the traditional and emerging drivers of this demand.
Passenger vehicle sales record buoyant growth

The Indian automobile industry is on a high growth trajectory. It has recorded
sustained growth in sales in each year of the past decade ending FY07 (barring a blip
in FY01). The industry recorded a CAGR of 11.5 per cent in sales (volume) during FY98
to FY07. Data for the first 9 months of FY08 shows a 4.5 per cent decline in sales of
automobiles.
Chart 4.1 Domestic sales growth: Automobiles
20
CAGR:11.5%
15
10
FY07
FY06
FY05
FY04
FY03
FY02
FY01
FY00
FY99
Note: CAGR from FY98 to FY07

The passenger vehicles market has moved in tandem with the automobiles industry. The
11.5 per cent CAGR in automobile sales during FY98 to FY07 was complemented by an
11.5 per cent CAGR in the domestic sales of passenger vehicles. Passenger cars account
31
for around 85 per cent of total passenger vehicles sold every year, and hence, the
performance of this category influences the overall trend in passenger vehicle sales.
Chart 4.2 Domestic sales growth: Passenger vehicles

%
CAGR:11.5%
60
50
40
30
20
10
0
FY07
FY06
FY05
FY04
FY03
FY02
FY01
FY00
FY99
10
Note: CAGR from FY98 to FY07

During FY00, passenger vehicle sales surged by 49 per cent. This depicts a whopping
60 per cent jump in the domestic sales of passenger cars. However, due to the
economic slowdown, sales of passenger vehicles declined in the next 2 years, before
improving marginally in FY03.
After the jump of 27.6 per cent in sales (volume) in FY04, followed by strong
growth at 17.7 per cent in FY05, growth in passenger vehicle sales slowed down to
7.7 per cent in the following year. However, this was only a temporary phenomenon,
as sales once again perked up by a high 20.7 per cent in FY07.
Annual passenger car sales crossed the 1-million units mark for the first time in FY07.
In the first 9 months of FY08, passenger car sales grew by 13.8 per cent to 0.9 million
units, over sales in the same period of FY07. We expect the year to end with a growth
in sales by 14.5 per cent, and FY09 to witness growth in sales at 12.5 per cent.
[For more details on our vehicles forecast, please refer to the Outlook chapter].
The turning point for the passenger car industry was FY00, when sales jumped to
0.62 million units a whopping growth rate of 60 per cent over that in FY99. For
3 consecutive years ending FY99, passenger car sales had stagnated at 0.38 million units
a year. The sharp expansion in volumes in FY00 was due to the stellar performance of
Maruti Suzuki India and the significant spurt in sales of certain new entrants. Market
leader Maruti Suzukis car sales rose by 24.3 per cent. Hyundai Motor India and Tata
Motors were new entrants in the Indian passenger car market during this period. In
FY00, Hyundai sold 75,648 cars as compared with 17,648 cars sold in the preceding
year. Similarly, Tata Motors recorded sales of 55,151 cars as compared with a mere
3,224 cars sold in FY99. The now defunct Daewoo Motors was also a significant
contributor to the overall market expansion.
Industry Dynamics
32
Chart 4.3 Car sales continue to touch new highs each year
1,600
'000 nos
60
Sales volume (LHS)
FY09*
10
FY08*
200
FY07
0
FY06
400
FY05
10
FY04
600
FY03
20
FY02
800
FY01
30
FY00
1,000
FY99
40
FY98
1,200
FY97
50
FY96
1,400
Sales growth(RHS)
*D&B Estimate
However, this growth phase was short-lived and growth in car sales once again
headed south in FY01. A large part of the poor performance can be attributed to the
governments move to rationalise the sales tax structure to bring it on par throughout
the country. The introduction of uniform sales tax in May 2000 increased the incidence
of tax from 46 per cent to as much as 12 per cent in certain big states such as Delhi
and Haryana, which severely hit car offtake.
The demand for passenger cars being price-sensitive, consumers have almost always
reacted favourably to government announcements of any reduction in excise duty on
cars. Most car manufacturers usually pass on the benefits of reduced excise duties to
consumers by way of a reduction in car prices. The Union Budget 200102 brought
down special excise duty on cars from 24 per cent to 16 per cent. This brought the
total tariff rate of duty applicable to 32 per cent (16 per cent basic excise duty and
16 per cent special excise duty), from 40 per cent in the previous year. However, this
failed to boost car sales. In FY03, car sales picked up by 4 per cent.
The industry received the much-needed acceleration when the Union Budget 200304
announced a further reduction in excise duty on passenger cars. The special excise
duty was reduced from 16 per cent to 8 per cent, bringing total duty down to 24 per
cent. As in the past, car companies reduced prices and this led to sales surging by
27.3 per cent in FY04. Sales of MUVs also surged by 28.4 per cent in FY04 following a
reduction in excise duty to 24 per cent from the earlier rate of 32 per cent.
In order to further boost the growth in sales, the government announced a reduction
in excise duty from 24 per cent to 16 per cent in the Union Budget 200607 this
time, only on certain types of small cars (up to 4 metres in length and engines with
capacity up to 1,200 cc for petrol cars and up to 1,500 cc for diesel cars). Total
domestic passenger car sales went up by 22.2 per cent to 1.16 million units, while
those of compact cars went up sharply by 31.4 per cent to 0.75 million units. A slew
of new launches and attractive promotional schemes from car companies to attract
customers, coupled with favourable economic factors and cheaper financing options
have ensured continued healthy demand for passenger cars.
33
Maruti Suzuki, Hyundai Motors, and Tata Motors have been the biggest beneficiaries
of the latest reduction in excise duties on small cars. In FY07, growth in these players
car sales accelerated to 21.0 per cent, 23.5 per cent, and 18.6 per cent, respectively.
The high demand potential of the small car market along with the governments
special focus on the segment is encouraging several players to launch new products
in this segment, or modify their existing products to be able to take advantage of the
lower duty. The Union Budget 200708 failed to meet the demands of other segment
car makers to apply a uniform excise duty of 16 per cent on all cars (instead of only
on certain small cars). Nevertheless, in view of the surging sales growth in the small
car segment, several car makers have charted out strategies to roll out small cars in
the future. If plans announced by the car makers materialise, then the next 3 years
(by 2010) will witness the launch of at least 13 new small cars in the Indian market.
This implies impending price wars in the market, greater spend on advertisement/
promotions, and increased pressure on profit margins.
Within the passenger car segment, compact cars account for the bulk of sales. In fact,
this segment continues to consolidate its position in the passenger car market. Its share
in the overall market has expanded from 48 per cent in FY02 to 65 per cent by FY07. The
mid-size car segment, commanding higher margins, is the most competitive and boasts
of the largest number of players vis--vis other segments. The share of this segment
shrank marginally to 17 per cent in FY07 from 20 per cent in the preceding 2 years.
To a certain extent, the decline in share could be attributed to the launch of compact
cars at the premium-end of the segment, which garnered good market response and
thereby higher offtake, at the cost of the mid-sized car models, particularly those at
the entry level.
Chart 4.4 Car sales mix
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Mini
FY02
Compact
FY03
Mid-size
FY04
Executive
Premium
FY05
Luxury
FY06
FY07
MPV
The availability of a wide choice of cars at competitive prices, better performance,

and increased affordability has resulted in declining demand for the Maruti 800, the
cheapest car in India, which is the only model in the mini segment. FY07 was the third
straight year of drop in sales for this car. As compared to the figure of 144,389 units
sold during FY02, sales of the mini car dropped to 79,245 units in FY07. The year FY08
is no exception, with sales dropping by another 13.5 per cent to 51,985 units during the
AprilDecember period as compared with sales figures during AprilDecember FY07.
Industry Dynamics
34
Chart 4.5 Sales growth in mini, compact, and mid-size car segments
%
60
40
20
0
20
40
FY03
Mini
FY04
Compact
FY05
Mid-Size
FY06
FY07
Total Cars
The demand for higher-end cars has been growing, as can be inferred from higher
sales in these segments in the past few years. On account of the low base, the growth
figures appear to be very high.
Table 4.1 Segmental sales growth (percentage)

Period
Mini
Compact
Mid-size
Executive
Premium
78.9
8.7
61.5
7.3
7.4
41.3
48.8
4.5
173.6
6.0
32.1
FY05
30.6
34.3
26.4
FY06
23.3
15.4
5.8
FY07
11.2
31.4
5.8
CAGR
FY02-FY07
11.3
22.3
18.6
112.7
Luxury
Chart 4.6 MPV sales surge in FY07

85
'000 nos
80
30
20
75
10
70
65
60
-10
55
-20
50
FY03
Sales volume (LHS)
FY04
FY05
FY06
FY07
Sales growth (RHS)
The multi-purpose vehicle (MPV) segment comprising models such as the Maruti
Versa, Omni, etc accounts for a minimal 6 per cent share of the total passenger
vehicles sold domestically every year. MPV sales shot up in FY07, after subdued demand
in the preceding 2 years, solely reflecting Marutis performance. The Tata Ace Magic
seems to have been welcomed by the market. In a short span of 4 months, it has eaten
into market leader Marutis share. The Tata Ace Magic accounted for 10 per cent of total
35
MPVs sold during JulySeptember 2007. Overall MPV sales during the first 9 months of
FY08 were 22 per cent higher than sales in the corresponding period of FY07.
Modest growth in MUV sales

After recording double-digit growth in MUV sales (volume) during FY04 to FY07,
growth slowed down in FY08. From as much as 29 per cent in FY04, sales growth
stabilised to 1013 per cent during FY06 to FY07. The first 9 months of FY08 saw
amodest growth of 11 per cent. After 24 consecutive months, in December 2007,
MUV sales recorded y-o-y decline. D&B Industry Research Service expects FY08 to end
with a growth in MUV sales of 11 per cent. Inthe next year also, sales are expected to
record a growth of around 11 per cent.
[For more details on our vehicle forecast, please refer to the Outlook chapter].
Chart 4.7 MUV sales cross 0.2 million units in FY07
300
'000 nos
250
200
150
100
FY09*
FY08*
FY07
FY06
FY05
FY04
FY03
FY02
FY01
FY00
FY99
FY98
FY97
FY96
50
*D&B Estimate
Chart 4.8 Buoyancy in MUV sales growth continues

120
100
80
60
40
20
FY09*
FY08*
FY07
FY06
FY05
FY04
FY03
FY02
FY01
FY00
FY99
FY98
40
FY97
20
FY96
*D&B Estimate
A study of the long-term trend in annual MUV sales reveals a peculiar pattern growth
in sales for 45 years followed by a decline for 12 years. However, the MUV segment
has defied this trend, with FY08 being the sixth successive year of growth in sales.
Industry Dynamics
36
An increase in excise duty on MUVs from 20 per cent (FY97) to 30 per cent (FY99) had
a severe adverse impact on demand for these vehicles during the late 1990s. Sales
dropped by 16.3 per cent in FY99. A further increase in excise duty to 32 per cent
during FY01 slowed demand even more, with sales growing by a meagre 3.8 per cent.
Had it not been for Toyota Kirloskar Motors Qualis model, the MUV market would
have posted a decline in sales during the year.
The subdued demand for MUVs during FY01 to FY03 was on account of the increase
in sales tax, general economic slowdown, poor monsoons, low agricultural growth,
and the fear of drought conditions.
The demand for MUVs revived after FY03 due to favourable economic conditions
across the country. A reduction in excise duty brought much-needed respite to MUV
manufacturers. Excise duty on MUVs was brought down from 32 per cent to 24 per cent
in the Union Budget 200304. MUV sales shot up by 29 per cent during FY04. Reduced
interest rates, cheaper financing options, easy access to finance, coupled with good
monsoons (during FY04) kept the demand momentum high. In the last 2 years (FY06 and
FY07), growth in MUV sales stabilised at 10.3 per cent and 13.2 per cent, respectively.
Urbanisation and growth in the services sector, particularly in the BPO sector, are among
key drivers of demand for MUVs/SUVs in the recent 34 years.
Chart 4.9 MUV sales mix
100%
80%
57
44
41
45
60%
40%
32
7 Seater
37
25
37
35
34
21
21
27
34
38
18
FY02
FY03
FY04
FY05
FY06
FY07
25
20%
0%
30
9 Seater
13 Seater
Chart 4.10 Sales growth in MUV segments

60
40
20
0
20
40
7 Seater
FY03
9 Seater
FY04
13 Seater
FY05
FY06
FY07
Total MUVs
The demand for MUVs with smaller seating capacity is on a rise since the past few
years a demand that arises at the cost of MUVs with greater seating capacity
37
(13-seater). Until about 6 years ago (FY02), 13-seater MUVs dominated the market
with a share of 57 per cent in total sales. With falling sales, this share has shrunk to
25 per cent currently (FY07). On the other hand, sales of 7-seater and 9-seater MUVs
have been recording stupendous growth. Their combined share in the overall market
has surged from 43 per cent in FY02 to 75 per cent in FY07. Growing sales of MUVs
with smaller seating capacity indicates a growing consumer preference for such
vehicles for personal use. The 13-seater MUVs are used less as a personal vehicle as
even a large family may not have more than 89 members.
The trend of growing sales of MUVs with lower seating capacity and declining demand
for MUVs with greater seating capacity continued into FY08. During the first 9 months
of the year, while sales of 7-seater MUVs shot up by 38 per cent, those of 13-seater
MUVs dropped by 20 per cent.
Box 4.1 Seasonality in passenger vehicle sales
Seasonality of demand: Seasonal factors
The demand for passenger vehicles is seasonal in nature, as can be seen from the following chart. Seasonal
adjustment procedures for monthly data estimate the effects, which appear in the same calendar month
with similar magnitude and direction from year to year. These effects could be captured through seasonal
factors. Seasonal factors are estimates based on current and past experience; and future data may
show similar seasonal movements. The line across 1 shows the monthly average, and the upward and
downward movements are captured by seasonal factors. These points explain the deviation of sales from
monthly averages.
1.40
1.32
1.30
1.20
1.15
1.10
1.05
1.00
0.98
0.94
0.99
1.01
0.95
0.87
0.90
0.80
0.96
0.99
Jan
Feb
Mar
Apr
0.86
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Note: Seasonal factors calculated on the basis of monthly data from FY02 to FY07
The demand for passenger vehicles surges in January after slumping in December, as customers wait to
purchase a new years model. Purchasing vehicle models with a new years tag increases the resale value,
which is why sales usually dip in December as customers defer purchases to January. Driven by the sop
of depreciation benefits, and OEMs pushing sales to meet yearly targets, car sales peak in March. After
the temporary slowdown during the monsoon months, demand once again picks up during the festive
period, before declining in December.
Passenger vehicles demand drivers

Demand drivers for passenger vehicles can be categorised into traditional drivers and
modern drivers. Among significant traditional demand drivers are the growing income
Industry Dynamics
38
in households, falling tariffs on vehicles, performance of the rural economy, increased

competition resulting in competitive pricing by OEMs, and a grossly inadequate public
transport system. There are also certain factors driving demand that have emerged
recently. These are mainly the growing aspirations of people, declining vehicle lifecycles,
the growing concept of a second vehicle in the household, a growing second-hand
vehicles market, and the improving road infrastructure.
Exhibit 4.1 What drives the demand for passenger vehicles?
Demand drivers
Increasing affordability
Rising per capita

income
Growing aspirations
Easy financing
Players initiatives
Favourable economic
conditions
Falling interest rates
New model/variant
launches
Fiscal policy
(excise duty)
Easy access to finance

(Banks, FIs, NBFCs,
OEM finance arms)
Multi-segment and
multi-models
Exports
Exchange offers
State of infrastructure
Promotional schemes
State of public
transport
Concept of second
vehicle
Urbanisation
Traditional demand drivers

Rising income levels
With rising income levels and the consequent increase in disposable incomes (as can
be seen in chart 4.11), purchasing a car or a utility vehicle is not a matter of luxury for
at least a part of the population. Passenger vehicle sales have a strong correlation with
economic growth. Personal disposable income (PDI) in the hands of the consumer
determines their purchasing power, and therefore, their ability to purchase a vehicle.
Rising income levels and growing aspirations of the Indian middle class is driving twowheeler owners to upgrade to a four-wheeler.
Car penetration level in India, at 7 cars per 1,000 persons, continues to be amongst
the lowest in the world. As per D&B Industry Research Service estimates, Indias GDP
would grow by an average 8.7 per cent in FY08 and FY09. This robust economic
scenario would offer tremendous potential for vehicle manufacturers to tap into this
market.
39
Chart 4.11 Movement of PDI and PV sales

Rs per person
28,000
000 nos
1,200
PDI (LHS)
FY06
FY05
400
FY04
12,000
FY03
600
FY02
16,000
FY01
800
FY00
20,000
FY99
1,000
FY98
24,000
PV sales (RHS)
Source: MOSPI, CMIE, D&B Industry Research Service
Competitive pricing
The demand for passenger vehicles (cars represent 85 per cent of sales) in India is
price-sensitive. Price and fuel economy are two critical factors in influencing
the purchase decisions of a prospective buyer. Comfort, brand image, sales and
after-sales service, finance schemes, dealer discounts, and aesthetics are some other
factors influencing purchase decisions. Competition has intensified with the entry
of numerous new players and several players are resorting to price wars. Aggressive
pricing by firms and the various offers/discounts/freebies offered to attract clientele
increases the desirability of the vehicle, which is consequently reflected in its sales.
Cost and access to finance
As per the Federation of Indian Chambers of Commerce and Industry (FICCI), the size
of the car finance industry grew to about Rs 266.8 billion in FY05 from Rs 230.0 billion
in FY04, representing a buoyant growth rate of 16 per cent. One of the key factors
responsible for the healthy sales of automobiles in recent years has been falling interest
rates. From as high as 19.0 per cent in the early 1990s, the rate of interest (maximum
prime lending rate) declined to 12.5 per cent by 2007. D&B Industry Research Service
estimates that the prime lending rate would come down marginally in FY09. This
augurs well for the growth in demand for passenger vehicles.
Chart 4.12 Movement of interest rates and passenger vehicle sales
16
'000 nos
1400
1200
14
1000
800
12
PLR (LHS)
PV sales (RHS)
FY07
FY06
FY05
FY04
FY03
FY02
FY01
FY00
FY99
10
FY98
600
400
Industry Dynamics
40
Falling tariffs
Currently, cars and UVs attract an excise duty of 24 per cent (except certain small cars
that attract a duty of 16 per cent), which is among the highest duty rates in the country.
The government has been gradually bringing down excise duty on these vehicles to
make them more affordable. The effect of this gradual reduction in excise duties is
reflected in the growth in demand over the years. It may be recalled that in the Union
Budget 200607, excise duty on certain types of small cars was brought down from
24 per cent to 16 per cent. In the same year, the sales of passenger cars grew sharply
by 22.2 per cent as compared with a modest growth rate of 7.2 per cent in FY06.
Chart 4.13 Trend in excise duties and car sales
40
80
60
30
40
20
20
10
Excise duty (LHS)
FY07*
FY06
FY05
FY04
FY03
FY02
FY01
FY00
FY99
FY98
FY97
FY96
0
20
Sales growth (RHS)
*16.16 per cent on certain small cars; 24.24 per cent on the remaining car categories
Source: CMIE, SIAM, D&B Industry Research Service
Performance of the rural economy

The performance of the rural economy is one of the key factors driving MUV demand,
as a large part of MUV sales are in this market. MUVs are used in rural and semi-urban
areas for the transportation of goods and people. The following chart indicates that
performance of the agricultural sector affects the demand for MUVs with a 1-year
lag. The performance of the agricultural sector continues to be volatile as it is highly
dependent on the monsoons, thereby affecting the demand for MUVs accordingly.
Chart 4.14 Growth trends: Agriculture vs MUV sales
15
30
10
10
20
Agriculture GDP* (LHS)
MUV sales (RHS)
*GDP at constant prices, with 1 year lag

FY07
FY06
FY05
FY04
10
FY03
FY02
20
FY01
10
41
Lack of adequate public transport services

Public transport facilities continue to be grossly inadequate when compared with the
growing mobility needs of the people. This factor drives the need for a personal mode
of transport. The growing trend of double-income families makes the acquisition of
these vehicles much easier. Also, the lack of well developed public transport facility
amplifies the demand for MUVs, especially in rural and semi-urban areas.
Emerging trends in demand drivers
Growing aspirations
The growing demand for luxury and super-luxury cars indicates growth in the
aspirations of people. The possession of high-end cars is considered a status symbol.
The demographics of this market have also undergone significant change in the past
few years, with the average age of the car buyer declining over the years.
As per D&B Industry Research Service estimates, around eight new models of cars/
SUVs priced above Rs 10 lakh were launched in India during 2004 and during 2006.
The year 2007 has been even more eventful for higher-end passenger vehicles, with
over a dozen new cars/SUVs models launched during the year.
Chart 4.15 Number of high-end PVs* launched

16
Nos.
12
2004
2005
2006
2007 (up to Sept)
*PVs priced above Rs 10 lakh

The period between 2008 and 2010 is expected to see 16 models launched in the
higher-end segment of the passenger vehicles market. This indicates the small, yet fast
growing market for such status-symbol car purchases.
Introduction of new models at faster pace; shrinking replacement cycle
Car companies launch new models of cars and MUVs or new variants of existing
models to attract new clientele and also to retain the interest of existing customers
in the brand. The launch of new models/variants also leads to growth in replacement
demand arising from existing customers, which is facilitated by easy-finance options.
Generally, existing customers upgrade to a higher segment or to a more expensive
model. Often, new launches are accompanied by an exchange offer, wherein the car
maker offers existing customers an option to exchange their current model(s) for the
newly launched one.
Industry Dynamics
42
A plethora of vehicle models at various price points, coupled with access to easy
finance options and rising income levels have resulted in shortened vehicle replacement
cycles. The following chart depicts this trend.
Chart 4.16 Declining car ownership period
Average no. of months
61
62
5%
60
58
58
7%
56
54
54
2%
53
52
50
48
2002
2003
2004
2005
Source: FADA, D&B Industry Research Service
Concept of second vehicle

Rapid urbanisation and the consequent growing transportation needs of people,
along with the inadequate public transport system have led to a greater demand for
personal modes of transport. There has been a growing trend of individuals/families,
particularly in the urban areas, opting for a second vehicle. This trend has been
facilitated by the growth in the number of working women and the prevalence of
double-income, nuclear families, along with availability of easy loan facilities. Growth
of the services sector has further boosted such demand.
Chart 4.17 Buyer maturity trends
100%
90%
80%
70%
60%
60%
50%
40%
30%
20%
10%
0%
2002
First new car
2003
Additional car
2004
2005
Replacement car
Source: FADA, D&B Industry Research Service
Growth in organised used-car market

The second-hand car market is growing rapidly, driven by the aspiration of people
to own a four-wheeler, even a pre-owned one. The shrinking ownership cycle has
contributed to the growth of the used-car market, and thereby, to greater demand
for new cars (replacement demand). This is despite the higher interest component on
loans on second-hand cars vis--vis new cars.
The size of the used-car market is nearly similar to the one for new cars. The growing
size of the second-hand/pre-owned car market is validated by the fact that several car
companies have announced their intention to enter this market. Maruti Suzuki (through
43
the True Value brand), Hyundai Motors (through the Hyundai Advantage brand), M&M
(through the First Choice brand), and Honda (through the Auto Terrace brand) are some
of the players already present in the pre-owned vehicle business. Tata Motors is planning
to enter this business. One of the prime reasons for OEMs entering this business is that it
helps them boost the resale value for their customers, and also encourages exchange.
The attractiveness of the used-car market is luring even premium car makers such
as Bentley to seriously consider foraying into this market. If this market continues to
grow, it is likely to affect the demand for new cars, as this market not only caters to
the additional-car requirements of consumers, but also to first-time car buyers. The
mid-size/sedan segment is more vulnerable to the used-car market as consumers look
for more space, greater power and the status attached to owning a big car, besides
being able to purchase it at a lower price.
As per media reports, ownership periods have declined further to 34 years. If this
trend continues, then vehicle manufacturers can not only reap the benefits of the
growing demand for new vehicles, but can simultaneously exploit the opportunities
in the pre-owned vehicle business.
Urbanisation
The economically active population in the country has led to increased requirement
for transportation/mobility, which in turn adds to the demand for four-wheelers. A
growing population combined with continued urbanisation and the lack of adequate
public transport is expected to fuel the demand for privately owned vehicles (including
passenger vehicles) in India.
Chart 4.18 No. of urban agglomerations/towns
6000
Nos.
5000
4000
3000
2000
1951
1991
2001
Source: Planning Commission, D&B Industry Research Service
As per a report from the Working Group on Urban Development, urban population
is expected to reach 433 million by 2021, taking the level of urbanisation to about
Industry Dynamics
44
32 per cent. This augurs well for passenger vehicle manufacturers as urbanisation is
one of the factors driving demand in this sector.
Chart 4.19 Proportion of urban and rural population (projected)
100%
80%
60%
40%
20%
0%
2001
Urban
2007
2009
2011
2013
2015
2021
2023
2025
Rural
Source: Census of India 2001, D&B Industry Research Service
Chart 4.20 Trend of urbanisation in India

450
million nos.
35
400
30
350
300
25
250
200
20
150
100
50
1951
1991
Urban population (LHS)
2001
2011P
2021P
15
As percentage of total population (RHS)
P: Projected
Source: Planning Commission; Compiled by D&B Industry Research Service
Quality of road infrastructure

The quality of roads also influences the decision-making process in the purchase of a
vehicle. Often, poor road infrastructure acts as a deterrent to buying a car, especially
when it comes to buying high-end models. At the same time, good quality roads and
manageable traffic conditions prompt a family to purchase a second car. The governments
thrust on infrastructure development across the country is expected to lower incidences
of postponed vehicle purchase decisions, though not in the immediate future.
Industry Dynamics
46
Chapter 5

This chapter analyses the trend in the production of passenger vehicles during the
last decade; the increasing capacity utilisation rates arising from growing demand;
and the new capacities coming up to meet this burgeoning demand. This chapter
also analyses the raw material situation in the country in terms of demand-supply and
price movement. Also covered are certain regulatory issues that affect supply and the
current technological scenario in the industry.
Passenger vehicle production continues to increase

The automobile industry as a whole has been on a high growth trajectory, reflected in
the unprecedented growth recorded year after year. During FY99 to FY07, automobile
production recorded an impressive CAGR of 12.8 per cent. During the same period,
the production of passenger vehicles (cars, MUVs, and MPVs) recorded a CAGR of
15 per cent.
Chart 5.1 Automobiles production
12
mn
10
20
15
10
Production volume (LHS)
FY07
FY06
FY05
FY04
FY03
FY02
FY01
FY00
FY99
Production growth (RHS)
Chart 5.2 Production growth: Automobiles vs. passenger vehicles

40
30
20
10
Automobiles
FY07
FY06
FY05
FY04
FY03
FY02
FY01
FY00
FY99
0
10
Passenger vehicles
With a view to boost the sales of passenger vehicles in the market, the Union Budget
200304 brought down excise duty on cars and MUVs from 32 per cent to 24 per cent.
47
In anticipation of a surge in demand, vehicle manufacturers ramped up production.

Consequently, in FY04, 0.99 million passenger vehicles were produced as much as
36.8 per cent more than production in the preceding year. Robust domestic demand
coupled with export commitments from players (such as Hyundai Motors) saw the
production of passenger vehicles grow by another 22.3 per cent in FY05. Another
reduction in excise duty on cars to 16 per cent in Union Budget 200607 further
fuelled production activities. About 1.5 million passenger vehicles were produced in
FY07 18 per cent higher than production in FY06.
Chart 5.3 Car production volume
1,400
Chart 5.4 Growth in car production
'000 nos
50
1,200
40
1,000
30
800
20
10
600
0
400
FY07
FY06
FY05
FY04
FY03
FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07
FY02
20
FY01
FY99
200
FY00
10
Passenger vehicles is the fastest growing segment in the Indian automobiles industry.
During the first 9 months of FY08, the production of passenger vehicles increased
by 14.8 per cent to 1.3 million units. While the production of commercial vehicles
recorded a marginal growth of 4.8 per cent, the production of two and three-wheelers
declined by 5.8 per cent.
Capacity utilisation rates continue to improve

Buoyant domestic demand and a growing potential for exports supports burgeoning
production levels. Capacity utilisation rates in the industry have witnessed a marked
improvement in the past few years as can be seen from the following chart.
Chart 5.5 Sharp increase in capacity utilisation
180
160
140
120
100
80
60
40
20
FY01
FY02
FY03
Maruti Suzuki
Mahindra & Mahindra
FY04
FY05
FY06
FY07
Hyundai Motor India

Honda Siel Cars India
The demand-supply scenario in the industry is favourable to vehicle manufacturers,

with demand exceeding supply. Several manufacturers are facing supply constraints
Industry Dynamics
48
and are hence augmenting production capacities. Many manufacturing units are
already operating in double-shifts to cater to excess demand. However, even these
measures seem to fall short of meeting the current demand. Hyundai Motor India is
unable to supply enough vehicles to the domestic market as well as for exports due
to capacity constraints that the company faces. Several manufacturers are expanding
capacities anticipating a continuance of the healthy domestic demand and Indias
growing prominence as a small car producer.
As at the end of March 2007, there were 23 investment projects aggregating to
around Rs 190 billion at various stages of implementation (proposed/announced/
under implementation) in the passenger vehicles industry.
Table 5.1 Investment snapshot: Passenger vehicles (as of March 2007)

Projects in various stages
No. of projects
Under implementation
Announced
Proposed
Total
Cost (Rs billion)
51.46
10
100.15
39.00
23
190.61
Table 5.2 Expected capacities: Passenger vehicles

Company
Current capacity
(Aug 2007)
Estimated future
capacity
Expected completion
year
BMW India Pvt Ltd
1,700
1,700
4,000
5,000
2007
Fiat India Pvt Ltd
100,000
2008
Ford India Pvt Ltd
100,000
100,000
Force Motors Ltd*
55,000
55,000
85,000
225,000
2008
63,000
63,000
50,000
150,000
2010
300,000
600,000
2007
24,000
24,000
60,000
2009
192,000
192,000
50,000
400,000
2009
International Cars & Motors Pvt. Ltd

MLR Motors Ltd
Mahindra & Mahindra Ltd**
Mahindra Renault Ltd
450,000
650,000
2010
Reva Electric Car Co. Ltd
6,000
6,000
San Motors Ltd
3,000
3,000

Tata Motors Ltd
30,000
30,000
285,000
640,000
2010
60,000
160,000
2010
110,000
2009
*Includes MUVs, CVs, 3-wheelers; **Includes CVs and 3-wheelers

The largest of these is the project announced by Tata Motors. If all the investment
projects under implementation, and those proposed and announced materialise, the
industrys overall capacity would go up to an estimated 3.6 million units by 2010 from
the current estimated capacity of 1.8 million passenger vehicles.
49
Chart 5.6 Estimated production capacity: Passenger vehicles industry

4
mn
3.6
3
1.8
2
1
0.4
0.2
0.7
0.5
0
Present
By 2007
capacity
(August 2007) |------------
By 2008
By 2009
By 2010
Estimated additional capacities --------|
Estimated
total capacity
(2010)
Market players
Today, most global automakers have established a presence in the Indian market;
some of these are either wholly-owned subsidiaries of their foreign parents or are JVs
between Indian players and foreign auto firms. There are over two dozen players in
the Indian passenger vehicles market, having either a manufacturing presence or a
distribution setup in the country.
Table 5.3 Market players: Passenger cars
Segments
Players and market share*
Mini
Maruti (100 per cent)
Compact
Maruti (58 per cent); Hyundai (22 per cent); Tata Motors (19 per cent); General Motors
(<1 per cent); Fiat India (<1 per cent)
Mid-size
Honda Siel (21 per cent); Ford India (20 per cent); Tata Motors (17 per cent); Maruti
(15 per cent); Hyundai (15 per cent); Hindustan Motors (6 per cent); General Motors
(5 per cent); Fiat India (<1 per cent)
Executive
Honda Siel (40 per cent); Skoda (29 per cent); Toyota (16 per cent); General Motors
(9 per cent); Hyundai (4 per cent); DaimlerChrysler (2 per cent)
Premium
Honda Siel (46 per cent); Toyota (17 per cent); DaimlerChrysler (16 per cent); Skoda
(12 per cent); Hyundai (9 per cent)
Luxury
DaimlerChrysler (100 per cent)
*Based on sales volume for FY07

The mid-size car segment offers better margins as compared with the small/compact
segment. The mid-size segment constitutes around 17 per cent of all cars sold. This
is the most crowded and competitive segment, with a concentration of players.
Market shares: Passenger cars
The car market is led by Maruti Suzuki, which dominates with a share of 55 per cent
in car sales (FY07). Hyundai Motor India and Tata Motors together control 32 per cent
of the market (FY07). The remaining players have to be content with paltry market
shares ranging between 1 per cent and 5 per cent.
Maruti started losing dominance over the car market with the entry of the Korean
car major Hyundai Motors in 1996, followed by the launch of the Tata Indica, Indias
first fully indigenous passenger car in 1998. From 79 per cent in FY99, Marutis share
dropped to 58 per cent by FY01, while the combined share of Hyundai and Tata
perked up from 5 per cent to 22 per cent during the same period.
Industry Dynamics
50
Chart 5.7 Trend in market shares* of leading car companies
100
90
80
70
60
50
40
30
20
10
Maruti Suzuki
Hyundai Motors
Tata Motors
FY07
FY06
FY05
FY04
FY03
FY02
FY01
FY00
FY99
Others
Ford India
*Sales volume
Will Maruti, Hyundai, and Tata Motors continue to consolidate their positions?
The past decade has witnessed the entry of several new players. More competition
has also resulted in the increased availability of models/variants at various price
points. Nevertheless, the top three players continue to consolidate their positions. As
compared with a combined market share of 80 per cent in FY01, Maruti, Hyundai and
Tata Motors have enhanced their market share to 87 per cent by FY07.
Chart 5.8 Market share* of car companies

FY01
Ford India
3%
FY07
Ford India
3%
Others
17%
Tata
Motors
8%
Hyundai
Motors
14%
*Sales volume
Others
10%
Tata
Motors
15%
Maruti
Suzuki
58%
Hyundai
Motors
17%
Maruti
Suzuki
55%
*Sales volume
As per D&B Industry Research Service estimates, nearly 50 new models/variants of

passenger vehicles are expected to be launched in the next 3 years. It remains to
be seen if the top three players would be able to consolidate or even maintain their
position once the proposed models are launched in the Indian market.
Market shares: MUVs
Mahindra & Mahindra (M&M) has the single largest market share of 40 per cent
in MUV sales (FY07). Other significant players are Tata Motors and Toyota Kirloskar
Motor, which together account for 42 per cent (FY07) of market share.
51
Table 5.4 Market players: MUVs

Segments
Players and market shares*
7-seater
M&M (54 per cent); Toyota (20 per cent); General Motors (10 per cent); Tata Motors
(9 per cent); Ford India (2 per cent); Honda Siel (2 per cent); Force Motors (1 per cent);
Hindustan Motors (1 per cent); Hyundai (<1 per cent)
9-seater
M&M (38 per cent); Toyota (33 per cent); Tata Motors (21 per cent); Maruti
(4 per cent); General Motors (3 per cent); Force Motors (<1 per cent)
13-seater
Tata Motors (42 per cent); M&M (24 per cent); General Motors (21 per cent); Force
Motors (13 per cent)
*Based on sales volume for FY07

Mahindra & Mahindra
Tata Motors
General Motors
Others
FY07
FY06
FY05
FY04
FY03
FY02
FY01
FY00
70 %
60
50
40
30
20
10
0
FY99
Chart 5.9 Trend in market shares* of leading MUV companies
Toyota Kirloskar
*Sales volume
The launch of Toyotas Qualis in 2000 severely affected the sales of M&Ms utility
vehicles, and to a small extent, the sales of Tata Motors vehicles. In just one year
(FY01), M&Ms market share dropped to 46 per cent from 59 per cent in FY00, while
that of Toyota Kirloskar surged to 21 per cent from 3 per cent in FY00. Although M&M
managed to regain some lost market share with the successful launch of Scorpio a
sports-utility vehicle (SUV) in 2002, increased competition has taken a toll on its
market position once again in recent years. Healthy demand in the domestic market
and a favourable response to its vehicles saw General Motors India garnering a
10 per cent share of the market during the last couple of years.
Chart 5.10 Market share* of MUV companies
FY07
FY01
Others
11%
Toyota
Kirloskar
21%
Mahindra
&
Mahindra
45%
General
Motors
10%
Others
8%
Mahindra
&
Mahindra
40%
Toyota
Kirloskar
20%
Tata
Motors
23%
*Sales volume
Tata
Motors
22%
*Sales volume
Raw materials scenario

Steel, aluminium, zinc, rubber, engineering plastics etc are some of the most important
raw materials used in vehicle manufacturing. While there is adequate availability of these
raw materials, their rising prices are a cause for concern to OEMs. As domestic prices
move in tandem with international prices, OEMs remain vulnerable to fluctuating price
movements. Raw material expenses account for three-fourths of the industrys turnover.
Industry Dynamics
52
With the steady rise in input prices over the last few years, industry margins face severe
pressure. Most OEMs have undertaken several cost reduction programmes. However, if
input prices continue to rise, profit margins would continue to remain pressured.
Steel
Steel is the most critical input in the production of automobiles. The automobiles sector
is one of the largest consumers of steel in India. Domestic prices move in tandem with
the prices in international markets, though domestic prices are generally lower.
Chart 5.11 Trend in domestic steel prices (Delhi market)
45,000
40,000
Rs/tonne
35,000
30,000
25,000
20,000
HR Coils 2.00 mm
CR Coils 0.63 mm
FY07
FY06
FY05
FY04
FY03
FY02
FY01
FY99
5,000
0
FY00
15,000
10,000
GP Sheets 0.63 mm
Chart 5.12 Trend in international steel prices (average prices, Japan)
Steel HR coil sheet
FY07
FY06
FY05
FY04
FY03
FY02
FY01
FY00
$/tonne
FY99
800
700
600
500
400
300
200
100
0
Steel CR coil sheet
Chart 5.13 Supply vs. consumption

HR coils/sheets
16
CR coils/sheets
mn tonnes
14
mn tonnes
6
12
5
10
4
3
2
6
HR Coils/Sheets Supply
HR Coils/Sheets Consumption
FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06
CR Coils/Sheets Supply
CR Coils/Sheets Consumption
1
0
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
The rising international steel prices have had a cascading effect, with domestic steel
companies also hiking prices. Interestingly, there is no dearth of steel in India as the
53
country is among the top 10 producers of steel in the world. Chart 5.13 (Page 52)
explains the relationship between supply and consumption of different types of steel
in the country. During FY99 to FY06, steel supply consistently exceeded consumption.
Indias dependence on imports is also low imports constitute less than 20.0 per
cent of HR coils/sheets (18.3 per cent in FY06) and less than 5.0 per cent of CR coils/
sheets (4.6 per cent in FY06) available for consumption.
Aluminium
Aluminium is another input used in the manufacture of automobiles. Data on aluminium
consumption depicts a steady increase. At the same time, there is sufficient supply.
During FY07, the Indian industry had an estimated supply of 1.26 million tonnes of
primary aluminium, while overall consumption stood at an estimated 1.14 million
tonnes. The countrys dependence on imports is limited, as imports constitute less
than 15 per cent (9 per cent in FY07) of primary aluminium supply every year.
Chart 5.14 Trend in primary aluminium supply and consumption
1300
'000 tonnes
1100
900
Supply
FY07
FY06
FY05
FY04
FY03
FY02
FY01
FY00
500
FY99
700
Consumption
Like those of other metals, the prices of aluminium too have been on a north-bound
journey in the recent few years. Aluminium ingot prices (Mumbai) witnessed the
steepest rise of 24.6 per cent to Rs 136.6 per kg in FY07, the highest year-on-year
increase recorded in the past decade.
Chart 5.15 Aluminium ingot prices
Chart 5.16 Aluminium rod prices
(Mumbai market)
(Delhi market)
140
25
20
15
80
10
60
80
Prices (LHS)
Change (RHS)
2
0
20
-2
-4
Prices (LHS)
Change (RHS)
FY06
FY07
FY06
FY05
FY04
FY03
FY02
FY01
FY00
0
FY99
20
40
40
FY05
60
100
FY04
100
12
10
FY03
120
Rs/kg
120
FY02
140
30
FY01
FY00
Rs/kg
FY99
160
Industry Dynamics
54
Chart 5.17 indicates a steady climb in the prices of aluminium in international markets.
On an annual basis, aluminium prices [as on the London Metal Exchange (LME)] in
FY07 shot up by a steep 31.4 per cent over FY06, it being the fourth consecutive
year of hiked prices. If the trend continues, it is bound to affect domestic prices, and
consequently, procurement prices for vehicle manufacturers.
Chart 5.17 Trend in international aluminium prices (LME rates)
3,000
$/tonne
40
2,500
30
2,000
20
1,500
10
1,000
Average prices (LHS)
FY07
FY06
FY05
FY04
FY03
20
FY02
FY01
10
FY00
500
Change (RHS)
LME: London Metal Exchange

Zinc
Zinc is another raw material used in the manufacture of vehicles. During the period
between FY98 and FY07, zinc production in India recorded a CAGR of 9.7 per cent.
Zinc prices in the domestic market shot up during FY06 and FY07, completely in line
with price movement in the international market.
Chart 5.18 Trend in zinc production

400,000
Tonnes
350,000
300,000
250,000
200,000
FY07
FY06
FY05
FY04
FY03
FY02
FY01
FY00
FY99
FY98
150,000
55
Chart 5.19 Domestic zinc prices
Chart 5.20 International zinc prices
(Mumbai market)
(LME)
120
400
100
80
60
Prices (LHS)
40
20
0
Prices (LHS)
FY07
40
FY06
50
FY05
20
FY04
100
40
Change (RHS)
60
FY03
FY07
FY06
FY05
FY04
FY03
FY02
FY01
FY99
FY00
20
0
80
150
5000
300
200
20
120
100
250
40
10000
FY02
15000
US cent/kg
350
FY01
20000
FY00
Rs/quintal
FY99
25000
Change (RHS)
Rubber
The automobile industry is among the biggest consumers of rubber. Domestic rubber
prices also move in tandem with the price movements in the international market.
Chart 5.21 Rubber* prices: Domestic vs. international
120
Kottayam market
Rs/kg
Thailand market
120
100
100
80
80
60
60
40
FY04
Domestic (LHS)
FY05
FY06
International (RHS)
FY07
40
*RSS-4 variety
Rubber production has grown at a CAGR of 6.8 per cent during FY03 to FY07. During
the same period, imports grew at a higher CAGR of 19.2 per cent. This implies that
despite rising international prices, imports continue to flow in to cater to the growing
demand from various industries, including the automobile industry.
Chart 5.22 Trend in rubber production
1,000,000
Chart 5.23 Trend in rubber imports
Tonnes
350,000
Tonnes
300,000
900,000
250,000
200,000
800,000
150,000
700,000
100,000
50,000
600,000
Industry Dynamics
56
Nevertheless, the outlook on availability of raw materials required to produce the

key inputs for the automobile industry (primarily steel, aluminium, rubber, etc) is
positive, and this augurs well for the industry. India is rich in mineral resources, with
large reserves of several primary metal ores like iron ore, bauxite, chromium etc. The
primary raw material required for the production of aluminium is alumina, which is
extracted from bauxite. India has 13.0 billion tonnes of iron ore reserves, which is the
fifth-largest reserve base in the world, and has 2.3 billion tonnes of bauxite reserves,
which is the fourth-largest reserve base in the world. One of the inherent strengths of
the raw material supplier industry is that Indian deposits of bauxite and iron ore are
among the best in the world in terms of quality and mineability.
The outlook on mineral production is also positive and this augurs well for the
automobile manufacturers. Iron ore production is expected to grow at a CAGR of
1012 per cent over the next 5 years. Bauxite production is expected to grow to over
23 million tonnes by 2010.
As per the estimates of the Rubber Board, although rubber output is likely to be lower
by 60,000 tonnes during FY08 as against its earlier estimate of 0.8 million tonnes,
there will be no dearth of rubber because of adequate stocks.
High dependence on imported inputs for Hyundai and Honda

While domestic companies such as Maruti and M&M have limited or low dependence
on imported raw materials, Hyundai and Hondas Indian subsidiaries are highly import
dependent. In FY07, market leader Maruti Suzukis raw material imports accounted for
a minor 12.6 per cent of its total raw material purchases, while M&Ms raw material
imports stood at a negligible 0.3 per cent. For Hyundai Motors and Honda Siel Cars,
imports accounted for 44.1 per cent and 41.4 per cent, respectively for FY06. Domestic
players like Maruti, M&M, Tata Motors etc have their own auto component manufacturing
subsidiaries/associates, which explains their low dependence on imports.
Table 5.5 Raw material imports as percentage of raw material purchases
Company/Period
FY02
FY03
FY04
FY05
FY06
FY07
19
19.8
17.7
17.7
16.8
12.6
30
26.2
29.4
32.2
44.1
N.A.
1.7
2.5
3.1
6.1
5.2
38
32.9
41.0
40.8
41.4
N.A.
0.4
0.5
0.4
0.7
0.3
Tata Motors Ltd
N.A.: Not Available

Government initiatives to increase sales volumes

Government policies have played an important role in shaping the size and structure
of the industry. A gradual reduction in excise duties over the years has translated into
greater demand for passenger vehicles and the resultant increasing production volumes.
Currently, certain categories of small cars attract an excise duty of 16.16 per cent, while
all other cars continue to attract excise duty at a steep rate of 24.24 per cent. The
passenger vehicles industry is amongst the most heavily taxed in India. Reportedly,
the government is contemplating the levying of a uniform rate of excise duty on all
categories of cars. If implemented, car prices would come down and the car market
could expand further.
57
Chart 5.24 Excise duty on cars and MUVs
MUVs
FY08*
FY06
FY05
FY04
FY03
FY02
FY01
FY00
FY99
FY07*
Cars
FY98
FY97
FY96
45
40
35
30
25
20
15
10
5
0
*16.16 per cent on certain small cars; 24.24 per cent on all other cars
Chart 5.25 Trend in car production
1,400
Excise duty
cut from
32.00%
to
24.24%
'000 nos
1,200
Excise duty
cut from
40% to
32%
1,000
800
Excise duty
cut to
16.16%
600
FY07
FY06
FY05
FY04
FY03
FY02
FY01
FY00
FY99
FY98
FY97
200
FY96
400
Chart 5.26 Trend in MUV production

'000 nos
225
Excise duty cut

from 32%
to 24.24%
Excise duty cut

from 40%
to 20%
200
175
150
125
100
Table 5.6 Taxes and local levies on sale of a vehicle

Items
Car/MUV
Material cost + conversion cost + OHs + margin
87.8
Taxes paid on inputs not set off
12.2
Assessable value
100.0
Excise duty 16% on (A)
16.0
Special excise duty 8% on (A)
8.0
NCCD at 1%
1.0
Automobile cess at 0.125%
0.1
Total excise duty (B+C+D+E)
25.1
Education cess at 2% on (F)
Sub-total
CST at 4%
0.5
125.6
2.5
FY07
FY06
FY05
FY04
FY03
FY02
FY01
FY00
FY99
FY98
FY97
50
FY96
75
Industry Dynamics
58
Table 5.6: Continued
Items
Car/MUV
Transportation cost*
Dealer margin*
Sub-total
LST at 12.5%
Sub-total
Registration at 4% assumed average
Cost to customer
128.1
16.0
144.2
5.8
149.9
Total tax element in vehicles
62.1
Percentage of tax in vehicle
41.0
*Varies regionally
Source: Reproduced from the Report of Working Group on Automotive Industry, Eleventh Five Year Plan (20072012)
Passenger cars in India attract excise duty, sales tax, octroi, lifetime road tax, insurance
etc, which inflates the acquisition cost of a car (as seen in Table 5.6). Unless the
government reduces the multiplicity of taxes and their high rates, vehicle manufacturers
will not be in a position to offer cars at cheaper rates.
Manufacturing process and technology

The manufacture of a car essentially involves the assembly of components procured
from ancillaries or from auto component manufacturers. Motor vehicles are assembled
in factories, referred to as assembly plants, where numerous parts and sub-assemblies
come together on a production line. The manufacturing process is explained below.
Manufacturing process
The production process involves five different shops:

Engine and transaxle shop
Press shop
Weld room
Paint shop
Final assembly
Engine and transaxle shop

At the engine shop, components that constitute the vehicle engine are manufactured
and assembled. These are then tested. The engine shop has three broad operational
areas engine machine shop, engine assembly, and engine testing.
Engine machine shop
The five critical parts of the engine cylinder block, cylinder head, crankshaft,
camshaft and connecting rod are made here.
Engine assembly
The five critical engine parts and other outsourced parts are brought together. The
cylinder block and cylinder head assemblies move in near-parallel conveyor lines
before joining in a confluence zone.
Engine testing
Diesel and petrol engines are tested separately in testing cubicles and test beds for
power, fuel-efficiency, smoke, torque, and leaks. After testing operations, the engines
are moved to where they will be integrated with the gearbox.

Transaxle shop
The transaxle (commonly referred to as the gearbox) shop is divided into six areas soft
machining, heat treatment, hard machining, housing, assembly, and testing.
Soft machining and heat treatment
Here, cutting and allied operations are performed on the basic parts (gears) of the
transaxle. Once the gears have been cut, they are treated with heat. This procedure
hardens the outside of the gears (to make them resilient and long-lasting), while
keeping their insides soft (to prevent them from cracking under pressure).
Hard-machining and housing
After the heat treatment, the different gear components come to the hard machining
section, where they are honed and further cut to correct the distortions that are a
by-product of the heat treatment routine. The gearbox and the casings that cover it
are then put together in an assembly area.
Assembly and testing
Each gearbox that emerges is given an identification number before being checked for
air seepage, shifting effort, noise levels etc. After testing, these gearboxes are sent to
a dispatch area from where battery-operated machines take them to the engines. The
gearboxes are attached to the engines at this point.
Once the engine starter and an air-conditioning compressor are added to this
fabrication, the finished engine and transaxle is ready for the final assembly shop.
Press shop
At the press shop, thin sheets of steel are pressed and given a pre-destined shape,
for example, the frame for a door. This is where the inner and outer body of cars are
moulded by presses that generate huge pressures. The pressure thus exerted shape
steel sheets to the specifications of the die cast they are laid out on. The scrap steel
generated falls onto an underground conveyor belt, which carts it out of the shop.
Weld room
This is where the car body is welded, or joined together. There may be multiple
conveyor lines in the weld shop. While one may be for the front portion of the
under-body, another would be for the rear. Similarly, a third line joins the front and
rear of the car under-body, while the fourth does the re-spotting (that is, welding in
areas that are ordinarily unapproachable). At the main tack line the sides of the car
and the roof are attached to the now complete under-body. The closures line brings
in the doors, the tailgate, hood, fenders etc and the slack conveyor completes the
integration job.
After dent rectification, the car is cleaned with a solvent. Gaps are covered using a
thumb sealant and jigs are placed so that the doors remain closed in the paint shop,
to where the car would be taken.
Paint Shop
Here is where the car is painted. The paint shop operates at four levels to cater to the
requirements of its processes. At 10 meters below ground level, everything, specially
59
Industry Dynamics
60
the paint that spills, is exhausted out. At five meters above ground level are the ovens
that bake and dry the coating on the car. At 10 meters above ground level is an air
supply plant that helps keep dust out of the paint shop environs. The car goes through
a five-stage painting process before it can be sent to the final assembly block.
The procedure begins with a dip treatment wherein the car body (the body in white
from the weld shop) is dipped in 14 tanks and gets a phosphate coat. After this the
body is baked. Then comes the cathodic electrolytic deposits coat, following which
the body is baked again.
The body is sealed before it receives a primer surface coat and is brushed clean with
dusters. The base coat and a clear coat of lacquer follow the primer surface coat.
The primer is a water-based coat whereas the base coat is of the same colour as that
the car will sport when the painting operation is complete. The lacquer coat is the
final flourish in the process. Quality audits follow before the car is transported via an
elevated and covered conveyor bridge, to the final assembly block.
Final assembly
Trim line-I
There are four conveyor lines in the final assembly block. The trim line is the first of
these. Each car body is allocated a chassis number. The brand name tags come on
before the car is cabled and wired. The car doors are detached at this point, so as to
enable workers easy manoeuvrability as they move over and inside the vehicle while
fitting and fixing parts.
Noise, vibration, and harshness is minimised by a procedure called foaming (adding
rubber fittings). The brake pipe and hand brake come on, the cabin and the floor
are insulated, the floor is carpeted, and the accelerator is fitted. Then comes the air
conditioner, dashboard, steering mechanism, steering pipeline, roof-lining, and the
instrument cluster (indicators).
Trim line-II
On this conveyor line, a robot applies a sealant on the front glass before it is manually
fixed to the car. Then comes the air-conditioning controls, combination switches, and
seat belts. The rear lights are put on panels. The fuel neck, rear bumper, seats, and
steering wheel are fixed before the car is sent on to the next line.
Under-body line
On this stretch, the car is lifted up to a line that is around 5 feet high. Work is done
on the car from below. This is where the engine, exhaust and wheels are fitted, as also
the radiator, the fuel tank, the condenser, the mudguard, and the catalytic converter.
Mechanical line
The mechanical line is the last stop before the car is sent out of the factory. Fuel, oil and
gas (for the air conditioning) come in before the car gets a battery. The doors are fitted
back, the wheels aligned, and the headlights adjusted. This is followed by a brake test.
A shower test to detect leaks is the final round. Finally, the car goes for a road test.
Automotive technologies
Product lifecycle for automobiles continues to shorten, mostly due to growing customer
expectations and competitive market forces. This is particularly true for passenger
cars. Intensely competitive market forces have resulted in automobile manufacturers
re-designing vehicle models every 45 years.
Developments in the field of automotive technology have resulted in unique and
innovative designs for future automobiles. Alternative fuel technologies such
as electric hybrids and fuel-cell vehicles have received considerable attention.
The development of newer technologies is aimed at enhancing vehicle performance
capability, creating new and innovative designs, keeping in mind the environmental
impact due to gas emissions. There are four prominant parameters in studying
automobile technology engine performance, fuel-efficiency, torque, and weight
reduction.
The technologies currently in use in the automobile industry are:
Engine technologies
A. Multi-point fuel injection system (MPFi)
B. Common-rail direct injection (CRDi)
C. Digital twin spark ignition (DTSi)
Alternative fuel technologies:
A. Compressed natural gas (CNG)
B. Liquefied petroleum gas (LPG)
Emerging automotive technologies include, among others:
A. Hybrid technology
B. Fuel-cell technology
C. Electric vehicles
D. Ethanol, methanol, bio-diesel, hydrogen as fuel
MPFi: A multi-point fuel injection system injects fuel into individual cylinders after
receiving command from the on-board engine management system computer
or engine control unit. This technology results in superior fuel combustion, better
fuel-management, engine performance, and reduced pollution.
CRDi: In a CRDI engine, a tube or a common rail connects all the injectors and contains
fuel at a constant high pressure. This high pressure in the common rail ensures that
when injected, the fuel breaks up into small particles and mixes evenly with air, thereby
leaving little un-burnt fuel and thus reducing pollution. The common rail principle has
been used to cut out the noise factor associated with diesel engines; the technology
has been pioneered by the Fiat group, but has also been adopted by other automobile
companies around the world.
DTSi: DTSi engines have two spark plugs, instead of a single one, which have a
staggered firing sequence. When the fuel-air charge goes into the cylinder and is
compressed, the first plug fires and the mixture explodes. However, a portion of the
61
Industry Dynamics
62
fuel injected remains unburned which is ignited by the second plug. This implies
that almost the entire quantity of fuel in the charge is burned up. So the amount
of fuel that would otherwise escape unburned with the exhaust gases is reduced,
thereby increasing fuel-efficiency. Compared to single spark plug engines, twin spark
engines are more environment-friendly and release more power for the same engine
capacity.
Hybrid vehicle technology: Rising fuel prices are threatening the popularity of
gas-guzzling vehicles. This is prompting global auto majors to explore hybrid
technology. A hybrid vehicle uses an on-board rechargeable energy storage system
and a fuelled power source for vehicle propulsion. A hybrid vehicle provides better
fuel-economy and causes lesser pollution. It uses internal combustion engine and
electric batteries to power electric motors. Most hybrid vehicles use gasoline or diesel
as the sole fuel. Some vehicles use ethanol, or plant-based oils, or hydrogen fuel.
Unlike in the developed markets, hybrid technology is not yet popular in the Indian
market.
Fuel-cell technology: Fuel-cell power is another automobile technology viewed as
the latest catalyst in automobile technology of the future, particularly hydrogen
fuel-cell-powered engines. Fuel-cell systems operate by compressing hydrogen made
from natural gas and gasoline, which is then converted to hydrogen by on-board
systems.
Indian firms need to strengthen R&D base

The Indian subsidiaries of global vehicle manufacturers have an edge over their domestic
counterparts as they have access to the product portfolio of the parent companies.
Many auto players in India have entered into technology tie-ups with foreign auto
majors that involve either technology transfer from the foreign company on payment
of royalty fees, or an arrangement to manufacture vehicles using the foreign partners
technology and distribute the products in India, with equity participation from the
foreign partner. Table 5.7 below lists some of the tie-ups Indian players have with
foreign counterparts for automotive technology.
Table 5.7 Technological tie-ups in the industry
Company
Nature of alliance
Partner company
Product
Collaboration for
manufacturing
Mitsubishi Motors,
Japan
Cars
Collaboration for
manufacturing
OKA Motor Company,

Australia
Road trusted vehicles
Tie-up for manufacturing

and distribution
Honda Motor Co,

Japan
Passenger vehicles

Pvt Ltd
Technical collaboration
MG Rover, UK
MUV
Tie-up for manufacturing

and distribution
Renault, France
Cars
License and JV agreement
Suzuki Motor Corp,

Japan
Passenger vehicles
Collaboration for
manufacturing
Toyota Motor Corp,

Japan
Passenger vehicles
63
Lack of in-house R&D activities or the lack of investments in the same has made
domestic automobile manufacturers dependent on foreign partners for technology.
Unlike global auto companies, Indian investments on R&D activities are still very low.
A majority of Indian companies invest less than 2 per cent of their revenues on R&D.
Table 5.8 R&D expenses* as percentage of sales
Company/Year
FY04
FY05
FY06
FY07
0.4
0.5
0.4
0.4
1.5
1.4
1.5
1.5
Tata Motors Ltd
1.0
1.9
2.0
2.6
0.1
0.0
0.0
N.A.
0.5
0.2
0.1
N.A.
0.9
0.0
0.4
N.A.
*R&D expenses: Capital and current account

N.A.: Not Available
Although a few Indian players like Tata Motors and M&M have developed successful
models using indigenous technology, others continue to depend heavily on their
foreign counterparts. With more foreign players planning to enter the Indian market,
and the expected amplification of market competition, Indian companies will have to
strengthen their R&D skills for product differentiation. With high potential for exports,
a strong in-house R&D base will also help Indian players to improve the quality and
technological strength of their product, and match global standards.
Global Perspective
International Scenario
Indias Exports Scenario
Global Perspective
66
Chapter 6
The automobile industry is one of the pivotal sectors of world economy. It is a large
source of employment, with strong backward and forward linkages. In developed
economies like the US and UK, the automobiles industry contributes an estimated
3.54.0 per cent (2005) to the GDP, while the contribution in developing countries
like India is estimated at 4.4 per cent of the countrys GDP. During 1995 to 2005, the
world production of passenger cars grew by a CAGR of 2 per cent. In 2005, world car
production increased by 3.9 per cent to 44.2 million units, while sales increased by
3.9 per cent to 39.6 million units.
Chart 6.1 Regional share in car production (2005)
Other
countries
2%
Western
Europe
33%
Eastern
Europe
8%
North and
South America
20%
Asia
37%
Note: Other countries include Australia, South Africa, and Egypt

Source: Wards World Motor Vehicle Data 2006, D&B Industry Research Service
The chart 6.2 (see page 67) shows the vast difference in penetration levels between the
matured markets and those in emerging markets. Car penetration levels in matured markets
like USA and UK stood at more than 450 cars per 1,000 persons. In emerging markets such
as China and India, which are the fastest growing automobile markets in the world, car
penetration levels at 7 cars per 1,000 persons are amongst the lowest in the world.
Keeping up with the trend of robust growth in demand, the world production of
motor vehicles (cars and commercial vehicles) touched 65.9 million units in 2005,
as against 63.7 million units produced in 2004. During 19952005, passenger car
production grew by a CAGR of 2 per cent (see Chart 6.3). In 2005, Asia was the largest
producer of passenger cars with an output of 16.7 million cars.
While the production of cars dipped in matured markets like Western Europe in 2005
and was marginally higher in North America (2.8 per cent), it grew considerably in Asia
(9.3 per cent), Eastern Europe (7.7 per cent), and South America (13.7 per cent)
(see Chart 6.4). Worldwide, Japan was the largest producer of cars, with a 20.0 per cent
share in world production, followed by Germany (12.0 per cent) and USA (9.8 per cent).
67
Chart 6.2 Car penetration levels across countries

Cars per 1,000
persons
556
556
556
Australia
500
Canada
Japan
500
Germany
455
500
France
455
USA
600
Spain
667
UK
800
588
400
Italy
New
Zealand
53
Thailand
7
India
7
China
200
Chart 6.3 World production of passenger cars and growth performance

45
mn
44
43
42
41
40
39
38
37
36
35
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Until the end of the 1980s, despite some overseas presence, competition amongst
auto manufacturers was largely among regional brands. American auto manufacturers
dominated the US market, European manufacturers ruled their regional market, while
Japanese OEMs dominated the Asian market.
Chart 6.4 World car production (region-wise)
18
mn
9.3%
16
3.1%
14
12
10
2.8%
8
6
13.7%
7.7%
2
--
2004
Asia
Western
Europe
North
America
South
America
2005
Eastern
Europe
4.5%
Others
Global Perspective
68
In 2005, the production of passenger cars went up to 44.2 million units from
42.5 million units in 2004. Passenger cars accounted for 67 per cent of total motor
vehicles production (cars, trucks and buses). While global car production continues to
go up, companies are implementing new technologies and economising measures, and
producing a growing number of hybrid and crossover vehicles to remain competitive.
In order to gain cost-efficiency, global players have been outsourcing the production of
car parts and components to auto parts suppliers in low-cost destinations, particularly
in the Asia-Pacific region.
In 2005, there were 355 motor vehicle manufacturers with 676 assembly plants across
the world. Asia accounts for the single largest share of 37 per cent of the total number of
assembly plants, followed by Europe accounting for 32 per cent of the assembly plants.
Table 6.1 Manufacturers and assembly plants* worldwide
No. of
manufacturers
Region
Africa
Asia
Total assembly
plants
30
33
174
250
Europe
91
217
Middle East
12
11
North America
22
113
South America
World total
26
52
355
676
*Includes plants that produce cars, trucks and buses

Matured markets witness lower sales or marginal growth

During the last few years, OEMs in the matured markets of US, Japan, and Western
Europe have been facing stagnant demand, product proliferation, and stiff price
competition. In the past two decades or so, the domestic automakers in the US have
lost significant market share to Japanese and Korean players. Europe also experienced
a similar trend.
This led to global auto manufacturers aggressively trying to enter other world
markets. In the wake of poor demand from local markets and growing opportunities
in emerging markets, OEMs from US and Europe are enhancing their presence in these
regions. Auto manufacturers now plan operations on a global scale, launching new
products simultaneously across different markets.
Chart 6.5 Car sales growth in various markets (2005)
40
35
30
25
20
15
10
5
0
Brazil
Russia
Spain
Italy
France
China
India
Germany
Japan
United
Kingdom
United
States
5
10
69
With major automobile markets in developed economies experiencing near-stagnant

demand, the attention of the global industry is shifting towards fast-growing
economies, with Asia as the current focus. Markets experiencing high growth include
developing regions such as South America, Eastern Europe (the Czech Republic,
Hungary, Poland, Slovakia and Slovenia), India, China etc.
Chart 6.6 Car sales growth in Asian markets (2005)
%
Thailand
Taiwan
South Korea
Philippines
Malaysia
Japan
Indonesia
India
China
15
10
10
15
20
25
30
35
40
In 2005, total motor vehicle sales grew by 3.2 per cent to 61 million units, while
passenger car sales augmented by 3.9 per cent to 39.6 million units. Car sales in
Asia increased by 10 per cent to 10 million units, while the western European region
witnessed a marginal drop in sales. Globally, USA, Japan, and Germany were the three
largest sellers of passenger cars, with a combined share of 40 per cent. The leading
10 global players sold 30.2 million cars in 2005, which was 76 per cent of the total car
sales of 39.6 million units.
Table 6.2 Worlds top 10 car sellers (2005)
Rank
Countries
Sales (mn)
Share in global car

sales (%)
Toyota
Japan
5.06
12.8
General Motors
USA
4.81
12.1
Volkswagen
Germany
4.51
11.4
Ford Motors
USA
3.19
8.1
Peugeot Citroen
France
2.39
6.0
Honda
Japan
2.39
6.0
Nissan
Japan
2.14
5.4
Hyundai
South Korea
1.96
5.0
Renault
France
1.91
4.8
DaimlerChrysler
Germany
1.84
10

Company
Share of top 10 players in world car sales
4.6
76.2
Demand saturation in the mature markets of US, Japan, and Western Europe; Chinas
growing economy; and rising fuel and raw material prices have had a profound impact
on changing the dynamics of the global auto industry. American and European auto
manufacturers face severe competition from foreign players (mainly Japanese) in
terms of quality, design, technology, and price.
Global Perspective
70
Table 6.3 Country-wise share in car sales (per cent)
Rank
Country
2005
2004
USA
19.3
19.7
Japan
12.0
12.5
Germany
8.4
8.6
China
7.9
6.1
United Kingdom
6.2
6.7
Italy
5.6
6.0
France
5.2
5.3
Spain
3.9
4.0
Russia
3.5
3.3
10
Brazil
3.4
3.3
11
India
2.2
2.1
77.6
77.6
Share in global car sales
The automobile industry in Asia particularly in India, China, and Thailand has
witnessed tremendous growth in demand for vehicles since 2000. Growing per
capita GDP, an improved middle-class standard of living, and favourable government
policies have resulted in robust growth in the Asian automobile industry. As growth
slowed in matured markets mainly USA, UK, Japan etc auto manufacturers in
these countries focused more on emerging markets, and some of them even shifted
manufacturing bases to these low-cost Asian countries. Shifting manufacturing bases
helped the entrants to gain cost advantages because of the lower labour cost and
overall lower cost of production. With pressure mounting because of weak demand
in their home markets, auto manufacturers in the US and Europe are forming alliances
with domestic players in Asian markets through technical tie-ups, JVs, marketing
agreements, or through acquisitions, independent operations etc.
In Asia, the focus has shifted to two emerging markets China and India. China
emerged as the fastest growing automobile market in the world after its induction
into the WTO (2001). Many global giants have set up their plants in China and have
grabbed market share. The anticipation of healthy demand and the auto manufacturers
consequent capacity expansion programmes have resulted in the Chinese auto industry
facing over-capacity since 2004. This has forced China into concentrating on exporting
vehicles to the rest of the world.
A booming domestic economy, growing incomes, increasing purchasing power of
the middle class, favourable fiscal policies, high future demand potential, and various
incentives offered by different state governments (for OEMs) has led to most of the
global giants setting up their manufacturing bases in India. India is emerging as a
manufacturing hub for small cars.
Major markets
The global industry can be classified into the regions Europe; North America; Latin
America; Asia-Oceania; and Africa. The North American market is a matured market
while the Latin American vehicles market is a growing one. Similarly, in Asia, Japan is a
matured market, while China and India are growing markets. In Europe, the EU vehicles
market is growing slowly, while Eastern and Central Europe markets are growing fast.
71
Exhibit 6.1 Global vs. emerging markets
Automobile sector
contribution to GDP
India (4.4%)
Pakistan (2.6%)
USA (4%), UK (3.5%)
Share in world car

production
Asia 33% (2005)
Europe 41%, North & South

America 20% (2005)
Share in world car

sales
Asia 26% (2005)
Europe 44%, North & South

America 27% (2005)
Car penetration
(Per 1,000 persons)
India 7, China 7, Thailand 53

(2005)
USA 455, UK 500, Japan 455

(2005)
Asia 250 (2005)
North & South America 165,

Europe 217 (2005)
China, India, Thailand,

Malaysia
USA, UK, Germany, Japan
Growing
Saturated
Capacity expansion,
technologically lagging
Capacity reduction,
slow growth in home market,
high manufacturing cost
No. of assembly plants
Major markets
Nature of demand
Supply scenario
Challenges
Strengths
Intense competition, price

wars, cost reduction
Intense competition, price

wars, cost reduction
Fast growth in home market,

low manufacturing cost,
healthy economic growth
outlook
Technologically advanced
Emerging markets
Matured markets
USA
Globally, USA is the largest market for passenger car sales (2005). Car penetration level
in the US is as high as 455 cars per 1,000 persons (2005). USAs share in global car
sales stood at 19 per cent in 2005. The US automobile industry provides employment
to around 246,000 people (2006).
Keeping up the trend, the production of cars grew at 2.4 per cent in 2005 and 2.3 per cent
in 2006. Between 1995 and 2004, US car production recorded a year-on-year decline
almost each year, barring 1999 and 2002.
Segmentation
In the US, passenger vehicles are classified as two-seaters, sedans, and station wagons.
The size class for cars is based on interior passenger and cargo volume as shown in
Table 6.4 (see page 72).
Global Perspective
72
Table 6.4 Classification of cars in US
Passenger and cargo
volume (cubic feet)
Class
Cars designed to seat only

two adults
Two-seaters
Sedans
Mini-compact
<85
Sub-compact
8599
Compact
100109
Mid-size
110119
Large
120
Station wagons
Small
<130
Mid-size
130159
Large
160
Sports-utility vehicles
<8500 pounds*
*Gross Vehicle Weight Rating; the weight of the vehicle and its carrying capacity
Source: US Department of Energy; D&B Industry Research Service
Market trend
In 2006, the production of cars increased to 4.4 million units from 4.3 million in 2005.
Car plant capacity utilisation rate increased to 83 per cent in 2005 from 76 per cent
in 2004. USAs share in world car production dipped marginally to 9.8 per cent from
10.0 per cent in 2004.
In 2006, the domestic automobile industry produced 11.3 million motor vehicles (cars,
light trucks, medium/heavy trucks) as compared with 11.9 million vehicles in 2005. Of
this, the share of passenger cars stood at 39 per cent.
During JanuaryJune 2007, domestic car sales declined by 11.5 per cent to
2.1 million over sales in the same period a year ago. In 2006, the sale of cars went up to
7.8 million from 7.7 million in 2005. With oil prices on a steady upward spiral,
consumers increasingly prefer fuel-efficient cars and crossover vehicles. This is
adversely affecting the fuel-guzzling SUV segment since 2001. In 2006, SUV sales
declined by a steep 14 per cent to 2.1 million units.
Chart 6.7 Car sales and sales growth performance: US market
9.0
mn
8
6
8.5
4
2
8.0
0
7.5
2
4
7.0
Sale volume (LHS)
Sales growth (RHS)
Source: Wards World Motor Vehicle Data 2006, Bureau of Economic Analysis (USA),
D&B Industry Research Service
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
6.5
1995
6
8
73
Japanese brands continue to capture market

Chart 6.8 Growing dominance of Japanese brands in US car sales
100%
80%
60%
40%
20%
0%
2003
American brands
2004
Japanese brands
2005
German brands
2006
Korean brands
Other brands
Source: The Road Ahead for the US Auto Market Dept. of Commerce, US; D&B Industry Research Service
Globalisation and competition from foreign players continue to debilitate the US car
industry. With increased competition, market shares of domestic giants like General
Motors and Ford Motors continue to decline, while those of Japanese manufacturers
continue to grow. Japanese manufacturers, particularly, are strengthening positions by
investing in their assembly plants in the US. In 2006, the share of American companies
in total car sales stood at an estimated 40.0 per cent (as against 41.3 per cent in
2005). Japanese players had a 42.6 per cent market share (41.2 per cent in 2005);
German players had 9.8 per cent share (9.5 per cent in 2005); Korean players had
6.1 per cent share (as against 6.2 per cent in 2005).
USAs largest auto manufacturer General Motors witnessed a 7.0 per cent drop in car
sales in 2005, whereas Toyota registered a sharp 17.1 per cent increase in sales.
Chart 6.9 US: Market share composition (car sales volume)

2004
2005
GM
25%
Others
26%
DaimlerChrysler
9%
Honda
11%
Ford
14%
Toyota
15%
GM
23%
Others
26%
DaimlerChrysler
9%
Honda
11%
Ford
14%
Toyota
17%

Domestic firms face stiff competition from foreign OEMs

Domestic manufacturers are facing intense competition from Japanese and European
vehicle assemblers. To keep up with growing demand, foreign players are investing
heavily in their manufacturing facilities in the US. Japanese major Toyota operates
13 units comprising vehicle-manufacturing, powertrain, and components facilities
in North America with plans to set up more. In February 2007, Toyota announced an
Global Perspective
74
investment plan of US$ 1.3 billion to put up a manufacturing plant in Mississippi. The
cumulative Japanese investment in the US stands at $28 billion. By 2008, Japanese
investment in the US auto and auto parts manufacturing plants is projected to touch
US$ 30.09 billion.
Table 6.5 US: Sales performance of top players (000 units)
Cars
(2005)
Company
Change
(per cent)
GM
1,744
7.0
Toyota
1,289
17.1
Ford
1,039
2.0
Honda
838
0.6
DaimlerChrysler
710
6.2
General Motors and Ford Motors have been losing market shares due to increased
competition, particularly from Japanese and Korean manufacturers. General Motors
and Ford Motors are restructuring their operations in view of the losses incurred in
their North American operations and to control legacy costs. The Chrysler Group too is
restructuring operations following heightened market competition and the companys
weak performance.
Heavy investment plans announced
To recapture lost market share and attain profitability, domestic players have announced
heavy investment plans. During January 2007, Ford announced an investment of
US$ 866 million in six south-eastern Michigan plants. At the same time, GM also
announced an investment of US$ 300 million in its GM Powertrain Tonawanda engine
plant to manufacture an all-new, technically-advanced, dual-overhead cam (DOHC) V-8
engine. GM had also announced an investment of US$ 208 million in December 2006 at
its Fairfax, Kansas assembly plant for the production of the all-new Chevrolet Malibu.
Job cuts continue
Employment in the US motor vehicle industry continues to decline. From 290,000
people in 1999, the number of people employed in this industry steadily fell to
246,000 people by 2006. This drop can largely be attributed to the restructuring plans
undertaken by domestic giants like GM and Ford to reduce their losses.
Chart 6.10 Employment in US motor vehicle industry
300
'000 nos
290
280
270
260
250
240
Source: US Bureau of Labor Statistics; D&B Industry Research Service
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
220
1990
230
75
US vehicle industry to continue to face heat of foreign competition

The future prospects of vehicle manufacturers in the US would depend on certain key
factors such as the movement of fuel prices, low-cost production in emerging markets,
state and federal regulations, international standards, trade policies, and consumer
tastes. The US vehicle industry continues to be affected by globalisation and foreign
competition, and the trend is expected to continue in the future also. Vehicle imports
into the US are not likely to drastically decrease in the near future.
Japan
Japan is among the leading car producing and selling countries in the world. Car
penetration level in Japan stood at 455 cars per 1,000 persons (2005). The Japanese
automobiles industry is one of the core sectors of the nations economy. It contributes
13 per cent to the countrys manufacturing output (2005) and employs 7.8 per cent
of Japans working population (2007). The passenger cars industry is highly
export-oriented. Over 50 per cent of cars produced annually in Japan are exported.
In 2005, three domestic giants Toyota, Nissan, and Honda captured a 24 per cent
share of the world market in the sale of cars.
Segmentation
In Japan, passenger cars are classified on the basis of engine capacities and dimensions
(length, breadth, and height).
Table 6.6 Segmentation of passenger cars in Japan
Segments
Engine
Mini
660cc and under in engine
displacement
Small
6612,000cc in engine displacement,
excluding diesel engines
Standard
Over 2,000cc in engine displacement,
excluding diesel engines
Length
Breadth
Height
3.4m and under
1.48m and under
2m and under
over 3.4m to 4.7m
over 1.48m to 1.7m
2m and under
over 4.7m
over 1.7m
over 2m
Source: The Motor Industry of Japan 2007, JAMA; D&B Industry Research Service
Market trend
In 2006, passenger car production rose to 9.76 million units up by 8.2 per cent
over production in 2005. While the production of standard and mini cars rose by
17.3 per cent to 4.92 million units and 9.2 per cent to 1.54 million units, respectively,
the production of small cars declined by 3.3 per cent to 3.30 million units.
Chart 6.11 Japan: Segment-wise production of cars
100%
80%
60%
40%
Standard
Small
Mini
2006
2005
2004
2003
2002
2001
2000
1999
1998
0%
1997
20%
Global Perspective
76
Sales of passenger cars declined for the second year in a row in 2006. At 4.64 million
units, car sales were 2.2 per cent lower than in 2005. The sales of standard and
small cars dipped by 3.6 per cent and 8.7 per cent to 1.23 million and 1.91 million
units, respectively. However, sales of mini cars went up by 8.7 per cent to 1.51 million
units.
Chart 6.12 Car sales and sales growth performance: Japanese market
5.00
'000 nos
4.80
4
4.60
4.40
4.20
2
4
4.00
3.80
3.60
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Sale volume (LHS)
10
Sales growth (RHS)
Toyota maintains market leadership

The passenger cars market in Japan is concentrated in the hands of some domestic
manufacturers such as Toyota Motor Corp, Honda, Nissan, Mazda, Isuzu, Suzuki
Motor, Fuji Heavy Industries, Daihatsu Corp etc.
Chart 6.13 Japan: Market share composition (car sales volume)

2004
Fuji
(Subaru)
4%
2005
Others
15%
Toyota
41%
Suzuki
11%
Honda
14%
Mazda
5%
Others
13%
Suzuki
11%
Honda
14%
Nissan
15%
Table 6.7 Japan: Sales performance of top players (000 units)

Company
Toyota
41%
Cars (2005)
Change (per cent)
Toyota
1,951
2.3
Nissan
744
7.5
Honda
658
3.4
Suzuki
545
6.3
Mazda
241
0.1
Nissan
16%
77
Toyota is the largest passenger car seller, recording sales of around 2 million cars
in 2005. Though sales decelerated in 2005, over that in 2004, Toyota managed to
maintain the lead in car sales.
Exports peak in 2006
The exports of passenger cars from Japan have grown at a CAGR of 6.35 per cent
during 19962006. USA has been the major destination for Japanese vehicle exporters.
In 2006, the US share in the total Japanese vehicle exports stood at 38.0 per cent,
followed by the EU, which also had a significant share of 15.4 per cent.
Chart 6.14 Export of cars from Japan
5.5
mn
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
China
China is one of the fastest growing automobile markets in the world. The automobile
industry changed radically after the entry of Volkswagen in 1984, followed by Chinas
induction into the WTO in December 2001. With the entry into WTO, there was a
drastic reduction in import tariffs and opening up of the sector to FDI. As a result,
many global giants have set up manufacturing plants in China. In view of the growing
sales of automobiles in China, companies are adding capacities.
Segmentation
The passenger vehicles market in China can be classified into basic passenger vehicles
(cars), multi-purpose vehicles (MPVs), sports-utility vehicles (SUVs), and crossover
passenger vehicles.
Table 6.8 Passenger vehicle segmentation: China
Segments
Basic PV (Car)
Description
By displacement
3 box 4 door
4.0L < displacement
2 box 4 door
2.5L < displacement 4.0L
3 box 2 door
2 box 2 door
Other by boxes & door

displacement 1.0L
4.0L < displacement

MPV

displacement 1.6L
Global Perspective
78
Table 6.8 Continued
Segments
Description
By displacement
4.0L < displacement
Two-wheel drive, four-wheel

drive
SUV

displacement 1.6L
4.0L displacement
Crossover PV

1.0L displacement 1.6L
displacement 1.6L
PV: Passenger vehicle

Source: China Auto Trends Information Network website
For a long time, the Chinese automobiles industry was protected by high tariffs
(200 per cent in the 1980s and 80100 per cent in the 1990s). In the first year
after its entry into the WTO, import tariff (on cars and SUVs) was brought down to
43.8 per cent, which was further reduced to 25.0 per cent in 2006.
Buoyancy in car production

At the end of 2006, the Chinese auto industry had a production capacity of 8.0 million
vehicles per annum, with facilities capable of producing a further 2.2 million vehicles
under construction. With the large scale expansion activities, the Chinese auto industry
is suffering from over-capacity, and the situation is expected to worsen in the next
23 years.
In 2005, the production of motor vehicles (cars, trucks and buses) reached 5.7 million,
including the production of 3.1 million passenger cars. Car production in China grew
at a CAGR of 38.4 per cent during 20022005, as compared to a CAGR of 14.0 per cent
during 19952001.
Chart 6.15 Car production and production growth performance: Chinese market
%
mn
120
100
80
60
40
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
20
1990
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Market players and shares

Prior to the entry of German automaker Volkswagen (in 1984), few domestic companies
like First Auto Works (FAW), Shanghai Automobiles, Second Automotive Works (later
79
renamed Dongfung) were into production. Volkswagen entered China as a JV with

Shanghai Automobile Corporation. From 1985 onwards, the Chinese auto industry
witnessed robust growth.
The Chinese auto industry is highly fragmented, with more than 100 vehicle
manufacturers. Many global players like General Motors, Volkswagen, Toyota, Honda,
Nissan, Ford, Hyundai, Suzuki, and Peugeot have a presence in China. In 2005, the
combined market share of the top five players plummeted to nearly 45 per cent from
60 per cent in 2004.
Chart 6.16 China: Market share composition (car sales volume)
2004
6%
9%
2005
6%
7%
40%
6%
6%
8%
11%
13%
Others
FAW-VW Auto Co.
Guangzhou Honda Auto Co.
FAW-Xiali (Tianjin) Auto Co.
8%
55%
10%
15%
Shanghai VW Auto Co.

Shanghai GM Auto Co.
Beijing Hyundai Motor Co.
Others
Shanghai GM Auto Co.
Shanghai VW Auto Co.
FAW-VW Auto Co.
Beijing Hyundai Motor Co. Guangzhou Honda Auto Co.
FAW-Xiali (Tianjin) Auto Co.
In 2005, China was the fourth-largest producer and seller of passenger cars. During
2005, China sold 3.14 million passenger cars and its share in world car sales went up
to 8.0 per cent from 6.1 per cent in 2004. Car ownership in China is estimated to have
increased to 30 million in 2005 from 6.25 million in 2000. Car penetration level in
China continues to be amongst the lowest at 7 cars per 1,000 persons.
Table 6.9 China: Sales performance of top players (000 units)
Company
Car sales (2005)
Change (per cent)
Shanghai GM Auto Co
299
18.4
Shanghai VW Auto Co
245
31.1
Beijing Hyundai Motor Co
225
55.9
Guangzhou Honda Auto Co
203
0.6
FAW-Xiali (Tianjin) Auto Co
190
46.1
Market trend
In order to control the overheating economy, in October 2004, the government
tightened the rules on credit for car purchases and increased vehicle licensing and
registration fees. This resulted in a decline in demand and an over-capacity situation
in the industry. In 2005, China produced over 5.7 million motor vehicles, 2.0 million
more than what was required. Over-capacity has forced domestic auto manufacturers
to slash vehicles prices and to focus on exporting the vehicles to the rest of the
world.
Global Perspective
80
In 2006, Chinas automobile exports more than doubled to 340,000 units over that
in 2005. Of this, exports of sedans surged by 200 per cent to 90,000 units. Chinese
automobiles are mainly sold to emerging markets such as the Middle East, Latin America,
and Russia. Chinas vehicle and auto parts exports account for a mere 0.7 per cent
share of the worlds total vehicle trading volume. Chinas Ministry of Commerce
expects the countrys share in world vehicle trading volume to grow to 10 per cent
over the next 10 years.
Key challenges faced by the global industry

Excess capacity
Automobile sales are growing at marginal rates in the matured markets of the world.
Idle capacities, or the infeasibility of running capacities below a certain level of
utilisation, are forcing some global giants to cut production or shut down some of
their assembly plants. Leaders GM and Ford Motors have already announced
restructuring plans, which include downsizing jobs and discontinuing production by
shutting down plants for extended periods.
The scenario of global over-capacity is unlikely to change significantly in the near
future, especially since auto majors in emerging markets such as China, India etc
are augmenting capacities. D&B Industry Research Service expects the over-capacity
situation in China to worsen going forward, and India to face an over-capacity situation
by 2010. While the near-saturation of demand explains idle capacities in developed
economies, the anticipation of greater demand in the future is leading to capacity
creation in emerging Asian economies.
Extremely competitive market and price wars
The demand for new vehicles is growing slowly in western markets. In the emerging
markets, the customer is price-value-conscious. This has led to extreme competition in
the global market. Auto firms are resorting to price wars, offering freebies/discounts
to attract new customers and retain the existing ones, and are even willing to forego
a portion of their profit margins. Declining product lifecycles coupled with growing
consumer expectations for newer, innovative products, is exerting even more pressure
on these auto manufacturers.
Cutting costs and improving efficiency
In order to withstand the possible hit on margins, auto majors are attempting to cut costs
and improve efficiencies at all stages in the supply chain. Outsourcing their requirements
to low-cost countries for sourcing auto components, design, R&D activities etc has
emerged as a key strategy adopted by auto manufacturers, particularly those in matured
markets. Some players are even shifting manufacturing bases, partially or fully, to other
locations to benefit from the low operating costs in those regions or to take advantage
of the proximity to markets with a high demand potential.
Prospects of the global industry

Going forward, competition in the global market is expected to heat up further.
The major emerging markets are likely to drive global demand for automobiles.
In the West European markets, including Germany, the number of new registrations
is expected to decline, while the North American markets are likely to experience
slight growth.
With growing demand for vehicles arising from emerging markets in China, India,
Vietnam, East Europe, and Latin America, global auto companies are reworking
strategies to accommodate and benefit from the potential growth opportunity. These
regions are sources of low-cost labour and are also growing markets themselves,
especially for small cars.
With growing competition and increasing costs (inputs, oil etc), product quality and
cost-savings remain priorities for vehicle manufacturers across the world. Also, the
demand for fuel-efficient cars and crossovers is growing, while the demand for SUVs,
which enjoy higher profit margins, is declining. This trend is expected to continue in
the future. With escalating prices, players are looking at three key options to cut costs
manufacturing innovations such as plant flexibility, change in product materials,
and outsourcing.
In view of the near-saturation in demand in some markets, and buoyant demand in
others, vehicle manufacturers across the world are exploring the medium of strategic
alliances (technology tie-ups, financial tie-ups, marketing arrangements etc). This
trend is expected to continue in the future.
Major players in the global industry

The global industry is dominated by North American, Japanese, and European players.
The auto giants General Motors, Ford Motors etc have traditionally dominated the
market. However, these players are now losing market share to Japanese biggies
Toyota Motor Corp, Honda, Nissan Motors etc. The following section profiles the four
leading players.
General Motors Corporation
General Motors Corporation, founded in 1908 in Detroit, USA, is one of the largest
automobile manufacturers of the world. It has manufacturing operations in 33 countries
and its vehicles are sold in 200 countries. GM markets its vehicles under the brands
Buick, Cadillac, Chevrolet, GMC, GM Daewoo, Holden, Hummer, Opel, Pontiac, Saab,
Vauxhall, and Saturn.
A slowdown in demand, particularly in the North American market, which is also
GMs largest market, resulted in the companys poor financial performance in 2005.
The company incurred a huge loss of US$ 10.4 billion, and lower consolidated net
sales and revenues of US$ 194.6 billion (decline of 0.4 per cent). Inept operational
efficiencies and mounting costs (particularly, health care costs) also contributed to
the weak performance.
In 2006, GMs net sales and revenues stood at US$ 207 billion 6.5 per cent higher
than sales in 2005. Revenues from North American operations grew in 2006, after
2 years of decline, while those from Europe posted meagre growth. Emerging markets
such as Latin American and Asia-Pacific continue to record double-digit growth.
81
Global Perspective
82
The company expects emerging markets such as China, Brazil, Russia, and India to
continue to increase their share in GMs total vehicle sales.
Table 6.10 GM: Revenue and profit performance ($ billion)
Year
2004
Total net sales and revenues

Growth (per cent)
Net income
Total automotive net sales and revenues
Growth (per cent)
Share of auto in net revenues
2005
2006
195.3
194.6
207.3
5.1
0.4
6.5
2.7
10.4
1.9
162.4
160.1
173.1
4.2
1.4
8.1
83.2
82.3
83.5
Source: Annual Reports, D&B Industry Research Service
The company managed to curtail overall losses at US$ 1.9 billion because of higher
sales from its automotive business and lower losses in its North American operations.
GM attributes the reduced losses from the North American operations at US$ 4.6
billion (US$ 8.2 billion in 2005) to the Turnaround Plan. The Turnaround Plan for North
America encompasses incorporating product excellence, reinforcing sales and marketing
strategies, reducing cost and improving quality, and addressing healthcare cost concerns.
GM pared its employee strength to 280,000 in 2006 from 330,000 in 2005.
Table 6.11 GM: Regional break-up of revenues ($ billion)

Region/Year
2004
North America
2005
2006
148.1
141.3
Growth (per cent)
0.3
4.6
5.4
Europe
33.1
33.5
34.3
Growth (per cent)
13.0
1.2
2.4
5.7
7.6
9.7
42.5
33.3
27.6
6.2
8.6
11.2
N.A.
38.7
30.2
2.2
3.5
3.0
42.1
59.1
14.3
Latin America
Growth (per cent)
Asia-Pacific
Growth (per cent)
Others
Growth (per cent)
149.0
N.A. Not Applicable

Chart 6.17 GM: Regional composition of revenues

2005
Latin
America
4%
Europe
17%
Asia
Pacific
4%
2006
Latin
America
5%
Others
2%
Asia
Pacific
5%
Others
1%
Europe
17%
North
America
73%
North
America
72%
83
GMs overall strategies for 2007 essentially included, among others:

Continue to act on the North America turnaround plan
Grow strongly in emerging markets
Continue to manage business globally by integrating world-wide operations
Improve automotive earnings from further cost reductions and increased unit
sales
Focus on fuel and other technologies, making energy diversity a critical element
of its ongoing strategy
For 20072008, GM plans to spend US$ 8.59.0 billion on capital investments. New
vehicles will be launched across the globe, including the Opel GT and the Cadillac
BLS Wagon in Europe, the new Brick Park Avenue in China, the Chevrolet Captiva in
Latin America, Africa, and Middle-East regions, while the Chevrolet HHR would be
expanded into Europe and the Asia-Pacific region.
Ford Motor Company

Incorporated in 1903 in Michigan, USA, the Ford Motor Company is among the
worlds top three automobile manufacturers. The company has over 100 plants
worldwide, and manufactures and distributes automobiles in 200 markets across
6 continents. As of 2006, it had an employee strength of 283,000. It markets its
products under the brands Ford, Lincoln, Mercury, Aston Martin, Mazda, Volvo,
Jaguar, and Land Rover.
In 2006, the companys revenues stood at US$ 160.1 billion a decline of 9.5 per cent
over revenues in 2005. This is attributable to the 6.6 per cent decline in revenues from
automotive operations, which account for nearly 90 per cent of Fords total revenues.
Automotive operations suffered heavy losses to the tune of US$ 0.2 billion, US$ 3.9
billion, and US$ 17.0 billion in 2004, 2005, and 2006. The losses can be attributed to
the companys poor performance in the North American market.
Table 6.12 Ford: Revenue and profit performance ($ billion)

Year
2004
Total sales and revenues

Growth (per cent)
Net income
Growth (per cent)
Profit margin (per cent)
Automotive sales
Growth (per cent)
Automotive operations income*/(loss)
2005
2006
172.3
176.9
160.1
4.9
2.7
9.5
3.0
1.4
12.6
500.0
53.3
1.7
0.8
7.9
147.1
153.5
143.3
6.4
4.4
6.6
0.2
3.9
17.0
*Before taxes
There was a steady decline in revenues from North America during the last 3 years.
The share of Fords North American revenues declined from 56 per cent in 2004 to
53 per cent in 2005 and further to 48 per cent in 2006, due to restructuring costs,
lower volumes, and a less profitable product mix.
Global Perspective
84
Table 6.13 Ford: Regional break-up of automotive revenues ($ billion)

Region/Year
2004
2005
2006
Ford North America
83.0
80.6
69.4
Growth (per cent)
0.7
2.9
13.9
Ford South America
3.0
4.4
5.7
Growth (per cent)
57.9
46.7
29.5
Ford Europe
26.5
29.9
30.4
Growth (per cent)
19.4
12.8
1.7
PAG
27.6
30.3
30
Growth (per cent)
11.3
9.8
Ford Asia/Pacific
and Africa/Mazda
7.0
8.3
7.8
Growth (per cent)
20.7
18.6
6.0
Chart 6.18 Ford: Regional composition of revenues

2005
5%
2006
3%
6%
21%
20%
4%
48%
52%
20%
21%
North America
PAG
Asia Pacific & Africa/Mazda
South America
Europe
North America
Europe
Asia Pacific & Africa/Mazda
South America
PAG
The company, in order to make the North American operations profitable by 2009,
has charted out certain strategies key among them are:

Achieve reduction of US$ 5 billion in operating costs by the end of 2008 vis--vis
2005

Accelerate new product development, and speed-up the launch of new products
by 3050 per cent

Retire 16 North American manufacturing facilities by the end of 2012, and reduce
manufacturing staff by 25,00030,000 during the same period

Reduce capacity of North American operations by 1.2 million units (26 per cent)
by 2008 to improve utilisation rate and reduce material costs by US$ 6.0 billion
by 2010.
Toyota Motor Corporation
Toyota Motor Corporation of Japan was established in 1937. It is engaged in the
design, manufacture, and sale of sedans, mini-vans, compact cars, SUVs, trucks and
related parts and accessories. It also provides financing, vehicle and equipment leasing,
and certain other financial services.
Besides 12 owned plants and a number of manufacturing subsidiaries and affiliates
in Japan, Toyota has 52 manufacturing companies in 26 countries and regions. It
markets vehicles in more than 170 countries. The Toyota Group (which includes
Daihatsu Motor Co Ltd and Hino Motors Ltd) sells its vehicles under the brand names
85
of Toyota, Lexus, Daihatsu, and Hino. Unlike the other leading global auto companies
who have been downsizing employee strength, Toyota expanded its employee base in
2006 as well as in 2007. From 285,977 employees at the end of financial year 2006
(March 31), consolidated employee strength went up to about 299,394 by the end of
financial year 2007.
In the year ended March 2006, Toyotas revenues increased over that in 2005 by
3.7 per cent to US$ 179.1 billion. A snapshot of Toyotas performance for the past
3 years is captured in the following table:
Table 6.14 Toyota: Revenue and profit performance ($ billion)
Year
2004
Total net revenues
2005
163.6
Growth (per cent)

Automotive operation revenues
2006
172.7
179.1
26.8
5.6
3.7
151.1
159.3
164.6
Growth (per cent)
26.9
5.4
3.3
Share of automotive operations

to total revenues (per cent)
92.4
92.2
91.9
Net income
11.0
10.9
11.7
Growth (per cent)
77.4
0.9
7.3

Exchange rates (from to $)
6.7
6.3
6.5
105.69
107.39
117.47
Growth in revenues from the automotive operations slowed down sharply from
27 per cent in 2004 to just 5.4 per cent and 3.3 per cent in 2005 and 2006, respectively.
Nevertheless, net income from overall operations increased by 7.3 per cent to US$
11.7 billion in 2006.
In Toyotas total revenues, Japan and North America dominate with shares of 37 per
cent (40 per cent in 2005) and 35 per cent (33 per cent in 2005), respectively. In 2006,
revenues from Japan decreased by 4.6 per cent over that of the previous year.
Table 6.15 Toyota: Regional break-up of revenues ($ billion)
Region/Year
2004
2005
2006
Japan
67.8
Growth (per cent)
23.0
1.8
4.6
North America
55.9
57.6
63.5
Growth (per cent)
13.4
3.0
10.2
Europe
19.1
21.5
21.9
Growth (per cent)
51.6
12.6
1.9
Asia
11.3
14.6
15.6
Growth (per cent)
N.A.
29.2
6.8
Other regions
Exchange rates ( to $)
69.0
65.8
9.5
10.0
12.2
105.69
107.39
117.47
N.A. Not Applicable

As part of future expansions, with new plants yet to start operations in Thailand,
China, Russia and Canada, the company plans to increase production capacity by
more than 0.7 million units worldwide by 2008. Toyota estimates consolidated vehicle
sales for 2008 at 8.89 million units. It also forecasts an increase in consolidated net
Global Perspective
86
revenues by 19.1 per cent, and the operating and net income by 19.7 per cent each
over those in 2006.
Chart 6.19 Toyota: Regional composition of revenues

2005
Asia
9%
2006
Other
Regions
6%
Japan
40%
Europe
12%
Other
Regions
7%
Asia
9%
Europe
12%
North
America
33%
Japan
37%
North
America
35%
Volkswagen AG
Volkswagen AG was originally founded by the name of Gesellschaft zur Vorbereitung
des Deutschen Volkswagens mbH in 1937, with headquarters in Wolfsburg,
Germany.
The group consists of the automotive unit and the financial services unit employing
324,875 people (as on December 31, 2006). It markets products under the brands
Volkswagen, Audi, Bugatti, Lamborghini, Seat, Skoda, Bentley and Volkswagen
Commercial Vehicles. The financial services unit comprises the finance, lease,
insurance, and fleet business. The group operates 46 production plants worldwide,
manufacturing vehicles at a total of 32 group locations. It sells its vehicles in more
than 150 countries.
The group earned revenues of US$ 138 billion in 2006 a growth of 23.3 per cent
over that in 2005. Profit after tax registered growth of 176.9 per cent over that in
2005, to reach US$ 3.6 billion in 2006 from US$ 1.3 billion. There was healthy growth
of 23.8 per cent in the automotive division revenues in 2006, which contributed
91.5 per cent share in the companys total revenues.
Table 6.16 Volkswagen: Revenue and profit performance ($ billion)

Year
2004
2005
Sales revenue
111.9
138
Growth (per cent)
12.0
6.9
23.3
Profit after tax
0.9
1.3
3.6
Growth (per cent)
30.8
44.4
176.9
0.7
1.2
2.6
Automotive sales revenue
Growth (per cent)
12.1
5.9
23.8
0.74
0.84
0.76
Exchange rates (C to $)
120.2
108.4
2006
102.0
126.3
Note: All figures converted into USD; exchange rate as on the last day of the companys fiscal year.
Exchange rate conversion sourced from Pacific Exchange Rate Service.
87
In Europe/remaining markets region and North America, there was a significant

increase in sales revenue due to the increase in unit sales and the steady trend of
producing higher-value vehicles. In South America/South Africa, higher unit sales and
the appreciation of the Brazilian Real helped the company achieve a robust growth of
41.5 per cent over that in 2005.
Table 6.17 Volkswagen: Regional break-up of revenues ($ billion)
Region/Year
2004
2005
Europe/remaining markets
86.8
Growth (per cent)

North America
Growth (per cent)
2006
81.0
98.4
16.2
6.7
21.5
17.9
16.3
19.2
5.8
8.9
17.8
7.5
8.2
11.6
41.5
9.3
41.5
7.9
6.3
8.8
Growth (per cent)
4.8
20.3
39.7
Exchange rates (C to $)
0.74
0.84
0.76
South America/South Africa

Growth (per cent)
Asia-Pacific
Note: All figures converted into USD; exchange rate as on the last day of the companys fiscal year.
Exchange rate conversion sourced from Pacific Exchange Rate Service.
The share of North America declined while that of South America/South Africa grew,
with regards to total revenues in 2006.
Chart 6.20 Volkswagen: Regional composition of revenues
2005
North
America
15%
South America/
South Africa
7%
2006
Asia-Pacific
6%
South America/
South Africa
8%
North
Asia-Pacific
6%
America
14%
Europe/Remaining
Markets
72%
Europe/Remaining
Markets
72%
In 2006, Volkswagen continued a number of successful joint projects for example,

working with Porsche in the production of the Volkswagen Touareg, Audi Q7, and
Porsche Cayenne models. During 20072009, the company plans an investment of
C24.7 billion of which C17.7 billion will be utilised in acquisition of property, plant,
and equipment.
Volkswagens overall strategies for 2008 include:

Gaining consolidated profits of at least C5.1 billion

Growing strongly in Asia, especially in China and India, and in South America

Pursuing their ForMotionplus performance enhancement programme with focus
on sales performance, material costs, capital employment, and the process
Global Perspective
88

Generating returns on investment at least 9 per cent as against the current
2 per cent

Receiving an operating return of sales before tax of 6.9 per cent

Increasing productivity for VW passenger cars brand by 10 per cent and saving
material cost (C1 billion)
Global Perspective
90
Chapter 7

This chapter discusses the current trend in Indias exports and imports of passenger
vehicles, and the likely future export prospects. Passenger vehicle exports have been
increasing and are driven by strong growth in the export of passenger cars. Hyundai
Motors has overtaken Maruti as the largest exporter of cars from India, and both
players have ambitious export plans for the future. Passenger vehicle exports have been
recording sharp growth in the last few years, and the trend is expected to continue
over the near term. Nearly 80 per cent of cars exported from India belong to the small
car segment. It is unlikely that this composition would change in the near future.
India emerging as global sourcing hub for small cars

Government policies are aimed at developing India as an international manufacturing
hub for small cars. With this objective, the Union Budget 200607 brought down
excise duty on certain types of small cars from 24 per cent to 16 per cent.
On account of steadily rising fuel prices, the demand for small and fuel-efficient cars
is expected to remain firm in developed markets in the near future.
Exhibit 7.1 Exports scenario
Exports growth at
15.4% CAGR (FY04FY07)
Unit realisation
improvement at 7.8%
CAGR (FY04-FY07)
Attractive export
prospects
General Motors
SkodaAuto
Suzuki Motor
Hyundai Motor
Low-cost
manufacturing
India emerging as
international small car
manufacturing hub
Export pie to grow to 25%

(FY09) from 13%(FY07)
Proximity to other
emerging markets
91
With the government implementing a favourable tax regime for the manufacturers
of small cars, this segment is attracting new players. It is also a potential beneficiary
of large investment plans being announced by companies to cater to the burgeoning
domestic demand and increase exports.
Several global auto majors have announced huge investments in the Indian market,
with an aim of establishing India as their regional manufacturing hub for Asian and
Far-East markets.
Suzuki has already declared India its global sourcing hub for small cars
General Motors proposed new plant in Talegaon, Maharashtra is likely to serve
as an export hub for its new small car the Chevy Spark
Czech auto major koda intends to use its Indian subsidiary, kodaAuto India,
to export cars to Southeast-Asian markets including Thailand, Indonesia, and
Malaysia
Exports on the fast track

Exports have emerged as a significant revenue earner for the passenger vehicle
manufacturers in India, particularly in the last 4 years. The year FY03 was the turning
point for the industry, when exports crossed the Rupees 10-billion-mark, recording
a whopping growth of 127 per cent over growth in FY02. This buoyancy in exports
continued into FY04, with exports recording growth of over 100 per cent yet again to
the tune of Rs 22 billion. This surge in export revenues during FY04 is largely attributable
to Hyundai Motor Indias increased forex revenues, which rose to Rs 10.0 billion from
Rs 1.9 billion in FY03. The industrys export revenues grew by a modest 10.2 per cent
to Rs 37.7 billion in FY06 after surging by 56.1 per cent in the preceding year. With
players aggressive export plans, the next few years are set to witness new levels of
industry revenues from exports.
Chart 7.1 Forex earnings continue to grow
40
Rs bn
35
30
25
20
15
10
Forex earnings (LHS)
FY06
FY05
FY04
FY03
FY02
FY01
FY00
FY99
FY98
FY97
FY96
140
120
100
80
60
40
20
0
20
40
Change (RHS)
A study of foreign exchange (forex) earnings and export volumes of listed/public

limited manufacturers of passenger vehicles reveals an optimistic trend in the last
2 years. Unit realisations from exports have increased during FY05 and FY06, as against
drops in the preceding few years. Although OEMs have been temporarily affected
by the rupee appreciation, D&B Industry Research Service does not expect further
appreciation of the rupee. The rupee-US dollar exchange rate is expected to remain at
Rs 39.7540.25 during FY08 and at Rs 39.5040.00 during FY09.
Global Perspective
92
Chart 7.2 Realisations improve in recent years
280,000 Rs
CAGR 7.8%
270,000
260,000
CAGR -4.4%
250,000
240,000
230,000
220,000
210,000
FY01
FY02
FY03
FY04
FY05
FY06
Passenger vehicle exports touch new highs

The Indian passenger vehicle industry has been exporting over 100,000 passenger
vehicles since FY04. In FY07, the export numbers reached 198,478 13 per cent
higher than exports in FY06. Exports grew by a CAGR of 15.4 per cent during FY04
to FY07.
Chart 7.3 Exports growth continues
15.4% CAGR (FY04-07)
200
'000 nos
150
100
FY07
FY06
FY05
FY04
FY03
FY02
FY01
FY00
FY99
FY98
FY97
FY96
50
Passenger vehicles contributed 20 per cent to Indias automobile exports in FY07.

Exports of passenger vehicles almost entirely made up of passenger cars (98 per cent
of passenger vehicle exports) are touching new highs every year. Within passenger
cars, compact cars make up the largest portion, with three out of every four cars
exported belonging to this category. Until a decade ago, only 7 per cent (FY98) of
the annual car production was exported. This share has now more than doubled to
15 per cent (FY07).
Hyundai emerges as leading exporter

Hyundai Motors, Maruti Suzuki, Ford India and Tata Motors are key exporters of cars
from India. To take advantage of the Indian industrys expertise in manufacturing small
cars at lower costs, several global players source their small-car requirements from
India. India has the potential to become a hub for small cars for more multinational
players due to the industrys in-house product development skills (such as the Tata
Indica) and the concentration of small cars in total domestic car demand. Indias
capability in small cars can also be attributed to a well developed auto components
industry that has made possible high indigenisation levels for small cars.
93
This also explains Hyundai Motor Indias emergence as the largest exporter of cars
from India, accounting for 60 per cent (FY07) of car exports. The South Korean auto
major has selected its Indian operations as the global export hub for compact cars.
The Indian operations export to over 65 countries.
The Japanese auto major Suzuki Motors had long ago declared India as its small
cars hub. Its Indian subsidiary, Maruti Suzuki, exports cars to 45 countries, including
Sri Lanka and Algeria, among others. It exports the Alto, Omni, and Maruti 800
to these markets. The company has witnessed robust growth in demand from
non-European countries like Algeria, Sri Lanka, Guatemala, Saudi Arabia, and Morocco.
Until FY00, Maruti accounted for 90 per cent of Indian car exports. However, this
share has currently dropped to a mere 20 per cent (FY07), mainly because Maruti
stopped exporting the Alto to Europe after its Japanese parent started exporting the
Swift from its Hungarian plant to other European countries. The Alto had accounted
for the bulk of Marutis exports.
Maruti is now trying to increase exports to non-European countries such as in
West Asia, Latin America, and Sri Lanka. In FY05, Marutis car exports decreased by
4.5 per cent, followed by a plunge of 28.9 per cent in the following year. In FY07, the
company managed to shore up exports by 12.7 per cent to 39,090 units.
Chart 7.4 Leading car exporters
100%
80%
60%
40%
20%
Maruti
Hyundai
Tata Motors
FY07
FY06
FY05
FY04
FY03
FY02
FY01
FY00
FY99
0%
Others
Maruti Suzuki was the undisputed leader in the passenger car market (domestic sales and
exports) for a long time. However, in the last 3 years, Hyundai Motor India has overtaken
Maruti Suzuki in exports. Consequently, Marutis share of exports has plummeted from
around 90 per cent during the late 1990s to a mere 20 per cent (FY07).
Car exports set to reach record levels

Hyundais Korean parent has chosen its Indian operations as the global sourcing
hub for small cars. Among Hyundais global operations, India is the only country
where the Santro is manufactured. Hyundai Motor India is gearing up to increase its
penetration into new overseas markets. During the past few years (FY04 to FY07),
Hyundai exported 2540 per cent of its production. Exports are set to increase once
its second plant becomes operational, which would double the production capacity
Global Perspective
94
to 600,000 units per annum. Once this plant becomes operational, 50 per cent of the
cars produced by Hyundai would cater to export demand. Most of the cars produced
in the two plants would be shipped to Europe, Latin America, and the Middle East.
The South Korean auto major also plans to double its capacity in China to 600,000 units
by 2007. India, along with China, would account for nearly 70 per cent of Hyundais
total overseas production.
Maruti Suzuki is also optimistic about export operations. The company targets exports
of over 50,000 cars in FY08 after exporting an estimated 39,000 cars in FY07. In its
efforts to push exports, Maruti Suzuki will be launching a new compact car model
during 200809, mainly for export to Europe. The company aims to export 100,000
units of this car annually. With the proposed new compact car, committed supply
of 50,000 units to Nissan, and exports to non-European countries, Maruti Suzuki is
confident of exporting 200,000 cars a year by 200809.
Exports to remain strong

Small car exports would continue to dominate Indias passenger vehicle exports.
D&B Industry Research Service does not expect any significant shift in favour of
other segments in the Indian passenger vehicle exports basket, in the near future.
The industry is optimistic about prospects in the exports market. Several players
are ramping up capacities to cater to growing demand from local markets and to
meet export commitments. Some global automakers have announced plans to set
up manufacturing bases in India. If the buoyant trend in exports continues, with
expanded capacities and the industrys cost-competitiveness, exporters can expect
to reap the benefits of economies of scale and achieve price/cost benefits. Export
markets are turning into a key focus area for companies, and this is expected to be
reflected in the financial health of these players, going forward.
Companies that have been traditional exporters (Hyundai, Maruti etc) and
manufacturing allies (E.g. the proposed Bajaj Auto-Renault-Nissan alliance) are
expected to be in a more advantageous position to achieve the benefits of economies
of scale. In the case of existing exporters such as Hyundai, Maruti etc, they anticipate
healthy demand in the domestic and overseas markets, and are hence expanding
capacities. In the case of manufacturing alliances between Indian and foreign
automakers, production costs can be optimised through economies of scale due to
the joint investment in plant and infrastructure, apart from purchasing synergies.
Proportion of exports expected to increase

Exports account for 13 per cent of total sales (domestic plus exports volume) (FY07)
of the passenger vehicles industry. In the first half of FY08, Hyundai Motor India and
Maruti Suzuki India together accounted for nearly 90 per cent of the total passenger
vehicle exports from India. Given the ambitious export plans of these two companies,
and the plans of the other passenger vehicle manufacturers to focus more on exports,
D&B Industry Research Service expects the share of exports in the industrys total
passenger vehicle sales to grow to 25 per cent in FY09 from a current share of 13 per
cent. This indicates greater future revenues for the industry, both from exports as well as
from the domestic market, which is expected to continue to witness healthy demand.
95
Chart 7.5 Composition: Domestic sales vs. exports

FY07
FY09 (D&B estimate)
Exports
13%
Exports
24%
Domestic
87%
Domestic
76%
Challenges and opportunities in exports

The growing volume of Indian car exports reiterates the fact that India manufactures
products of international quality, and is hence gaining worldwide acceptance. However,
the Indian industry continues to lag its global counterparts on the technology front.
A key weakness of global automakers is their inability to deliver a car that meets basic
needs at a low price. And this is where low-cost countries such as India and China
garner an edge.
One of the key challenges for Indian players would be breaking into developed
markets like the US, which are already mature and witnessing slow growth. One of
the most practical routes that Indian players could adopt is local partnerships like
Tata Motors partnered MG Rover in the UK to sell their cars. The proposed Bajaj
Auto-Renault-Nissan JV is another example of joint synergies in investment,
manufacturing, purchasing, logistics, and engineering.
Imports limited to high-end vehicles

India is a net exporter of passenger vehicles. Imports are limited to high-end models
and the import volume is also small, mainly due to high duties. While completely-built
units (CBUs) and semi-knocked down (SKD) units attract a basic duty of 60 per cent,
second-hand vehicles attract basic duty as high as 100 per cent. Audi, Bentley, BMW,
Lamborghini, Land Rover, Maybach, DaimlerChrysler, Nissan, Porsche, and Rolls Royce
are some players that import cars/SUVs into India. The attractiveness of the Indian
luxury car market is drawing more foreign players. Swedish carmaker Volvo launched
the S80 luxury sedan and the SUV XC90 in September 2007. It is expected to launch
the C30, C70, and S40 models during 2008 to 2009.
With import duty on cars continuing to remain high, several foreign luxury carmakers
are considering setting up manufacturing facilities in India, instead of importing.
Nissan Motors of Japan is currently importing its luxury car Teana, (available at about
Rs 2.1 million) from its manufacturing facility in Japan. By 2009, the car would be
manufactured at Nissans Chennai facility. In early 2007, German carmaker BMW
AG opened its first factory in Chennai to meet the growing demand for luxury cars.
German carmaker Audi is also exploring the option of manufacturing in India.
With several global players studying the Indian small car market, local manufacturing
would be the most viable option for them to achieve competitiveness, rather than
importing cars to cater to the high-potential, high-volume domestic small car market.
96
Global Perspective
Local manufacturing will also enable these niche carmakers to manufacture their
vehicles at lower prices as against selling them at imported prices. Super-luxury car
manufacturers such as Lamborghini, Rolls Royce, Maybach etc are expected to be
content with small sales numbers, at least for the short term. However, manufacturers
of the comparatively lower-priced luxury cars such as DaimlerChrysler, BMW, Audi etc
are expected to reap the benefits of the growing demand for such cars, particularly
when these players stop importing cars and initiate local manufacturing.
Industry Performance
Financial Performance
Company Profiles
98
Chapter 8
The following chapter discusses the financial performance of the passenger vehicles
industry. As most companies in this industry are closely held or wholly-owned
subsidiaries of foreign auto companies, financial results for many of them are not
available in the public domain. D&B Industry Research Services sample of financial
aggregates includes financial results of six companies Maruti Suzuki, M&M, Hyundai
Motor India, Honda Siel Cars India, Hindustan Motors, and Daewoo Motors India.
The passenger vehicles industry has witnessed major improvements in financial
performances over the last 34 years. Buoyant demand in the domestic market and a
sharp increase in exports resulted in high topline and bottomline growth.
Although the industry has not been able to augment margins significantly as it
continues to face the pressure of increasing input costs, mainly, due to rising metal
prices, it managed to maintain margins; thanks to its cost reduction efforts.
Table 8.1 Industry: Financial summary
Parameters
Unit
FY02
FY03
FY04
FY05
FY06
148,562.4
159,948.2
210,287.2
272,420.4
313,655.1
2.52
3.17
33.33
29.63
16.6
38,590.0
44,867.6
Net sales
Rs million
Growth*
Per cent
Operating profit
Rs million
Growth
Per cent
Net profit
Rs million
Growth
Per cent
Operating margin
Per cent
9.57
Net margin
Per cent
0.11
0.52
Capital employed
Rs million
113,219.1
115,339.0
Growth
Per cent
3.83
1.87
RoCE
Per cent
0.15
No. of companies
14,210.0
169.9
15,389.0
8.30
80.13
39.21
16.7
837.8
10,840
16,919
22,675.3
56.08
31.38
9.62
13.18
14.17
14.30
5.15
6.21
7.23
87,968.2
103,331.4
127,036.1
23.73
17.46
22.94
0.73
10.66
17.69
19.70
40.37
27,719.8
*Growth calculated on common sample; - Not applicable

A pick-up in economic growth after FY03 led to the acceleration in demand for vehicles
across categories in the automobile industry. Further, a reduction in excise duty on cars
and MUVs to 24 per cent in FY04 (from the previous rate of 32 per cent) provided
much-needed boost to the demand for passenger vehicles. The year FY06 was the third
successive year when the passenger vehicles industry posted double-digit growth in
sales revenues. Rising income levels, better affordability, and favourable interest rates
amplified the demand for passenger vehicles during these years. The industry posted
buoyant sales growth of 16.6 per cent in FY06, on top of the 30.033.0 per cent growth
recorded in the preceding 2 financial years. The healthy growth can be attributed
99
more to the boost in sales volumes than a hike in vehicle prices. Extreme competitive
pressures at play prevent players from hiking prices significantly or frequently, despite
increasing input costs.
Sales revenues from the domestic market grew at 15.9 per cent in FY06, over the
26.0 per cent growth in the preceding 2 years. Revenues from overseas sales (exports)
have also grown sharply during this period. However, exports continue to make up a
rather small share in the total revenues of the passenger vehicles industry. The share
was just 12 per cent during FY06.
Chart 8.1 Domestic vs. export sales
350,000
Rs mn
300,000
250,000
200,000
150,000
100,000
50,000
0
FY02
Domestic sales
FY03
FY04
FY05
FY06
Exports
Export turnover in the passenger vehicles industry is expected to receive a fillip in the next
12 years. Hyundai will continue to lead exports. The company plans to export 50per cent
of its annual production, once its second plant becomes operational, thereby doubling
its total annual production capacity to 0.6million vehicles. Maruti Suzuki exported less
than 40,000 cars in FY07. The company expects to sell 100,000 cars annually from FY09.
Other players also have export plans as they want to reduce their dependence on the
domestic market. Thus, collectively, the industrys revenues from exports are likely to see
a significant increase going forward.
Growth in the industrys overall sales revenues has been complemented by an increase in
profits. In fact, profits have been growing at a higher rate than sales in the past 34 years.
This is despite the input cost pressure that the industry faced in the past few years.
Chart 8.2 Operating profit performance
50,000
45,000
40,000
35,000
Rs mn
25,000
16
14
Rs mn
15,000
10
8
4
Operating profits (LHS)

Operating margins (RHS)
4
3
5,000
2
FY02 FY03 FY04 FY05 FY06
10,000
15,000
10,000
2
1
FY02 FY03 FY04 FY05 FY06

5,000
8
7
20,000
12
30,000
25,000
20,000
5,000
0
Chart 8.3 Net profit performance
Net profits (LHS)

Net margins (RHS)
0
1
100
Cost analysis
Steel, aluminium, plastics, rubber, copper, lead, paints, pig iron, nickel, tin, tyres and
tubes, and precious metals like rhodium and palladium are some of the raw materials
used in the manufacture of passenger vehicles. Raw material and stores costs account
for three-fourths of the sales of the industry.
The rise in raw material prices, particularly those of steel, aluminium, plastic, rubber
etc in the past few years is clearly reflected in the industrys cost structure. Other than
rising prices, the increased share of raw materials and stores in sales can be attributed
to increased import content. The proportion of imported raw materials and stores
in total raw materials and stores expenses has gone up to 21.7 per cent (FY06) from
17.0 per cent during FY02 to FY03.
Table 8.2 Industry: Operating expenses as percentage of net sales
Expenses
Raw materials, stores etc
FY02
FY03
FY04
FY05
FY06
74.13
72.22
72.98
75.63
74.48
Wages and salaries
5.71
5.38
4.13
3.45
3.38
Advertising and marketing expenses
4.17
4.84
3.35
2.57
2.37
Distribution expenses
1.67
1.87
1.22
1.16
1.27
The industry has managed to partially absorb the rise in commodity prices. Operating
margins have improved each year during FY02 to FY06. From 9.6 per cent in FY02,
operating profit margins increased significantly to 14.3 per cent by FY06.
The industry experienced a slowdown in demand during the early 2000s. Slow
sales and intense competition amongst players led to companies spending more on
sales/promotional activities. Consequently, advertising, marketing and distribution
expenses as a proportion to sales rose to 5.16.7 per cent during FY01 to FY03. This
was mainly due to increased ad spends by Maruti and Hyundai. The ratio came down
steadily each year thereafter, and was pegged at 3.6 per cent during FY06.
The industry has benefited from the operational efficiencies gained over the years,
despite continuously rising commodity prices. Net margins of the industry went up
from 5.1 per cent in FY04 to 6.2 per cent in FY05 and further to 7.2 per cent in FY06.
The improvement in net margins was achieved on the back of a considerable decline
in the share of financial charges as a proportion of sales from 2.9 per cent in FY02
to a meagre 0.2 per cent by FY06. Players took advantage of the falling interest rates
during this period by restructuring their debts.
There have been improvements on other fronts as well, such as wages and salaries,
power and fuel costs etc. Hence, despite a rise in prices of several raw materials,
the industry has managed to protect the bottomline with a combination of product
expense management and various cost-reduction programmes, apart from the debtrestructuring exercises undertaken by players.
Ratio analysis
The passenger vehicle manufacturing industry continues to be a profitable one. Despite
cost pressures from spiralling input prices, increased expenditure on advertising and
101
promotional activities due to new launches, and heightened market competition, the
industry as a whole continues to improve profitability.
Table 8.3 Industry: Key financial ratios
Parameters
Unit
FY02
FY03
FY04
FY05
FY06
Profitability ratios
Operating margin
Per cent
9.57
9.62
13.18
14.17
14.30
Net margin
Per cent
0.11
0.52
5.15
6.21
7.23
RoCE
Per cent
0.15
0.73
10.66
17.69
19.70
RoNW
Per cent
0.29
1.46
16.72
21.81
23.11
Activity ratios
Fixed asset turnover ratio
Times
Average receivable days

Average payable days
1.66
1.81
3.06
5.37
5.99
Days
34
31
20
15
14
Days
43
43
39
38
39
Average inventory days
Days
14
13
10
14
Average raw materials,

stores & spares days
Days
42
32
23
21
21
Liquidity ratios
Current ratio
Times
1.27
1.47
1.55
1.78
1.91
Quick ratio
Times
0.58
0.76
0.88
0.97
1.1
Leverage ratio
Debt-equity ratio
Times
1.21
1.05
0.31
0.24
0.16
Interest cover
Times
1.05
1.55
9.62
23.70
56.38
Interest incidence
Per cent
6.64
5.86
7.79
5.66
3.47
The industry continues to strengthen its liquidity position and its current ratio has
steadily risen, particularly since FY02. From 1.27 times during FY01 to FY02, it rose to
1.91 times by FY06.
The passenger vehicles industry has also been utilising capital efficiently, as reflected
in the increasing return ratios. RoCE nearly doubled to 19.7 per cent in FY06 from
10.7per cent in FY04. Combined capital employed by the companies in our sample
stood at Rs 127,036.1 million in FY06 23 per cent higher than that in FY05.
Apart from the robust demand for vehicles in the domestic market, the increasing
return ratios also explain why new players are eager to enter this market and why
existing players have announced expansion plans. As at the end of March 2007, there
were 23 investment projects aggregating to around Rs 190 billion at various stages
(proposed/announced/under implementation), vis--vis investments amounting to
Rs 83.1 billion outstanding as at the end of March 2006.
The industrys growing profits are also mirrored in the RoNW moving into the positive
in FY04, and rising significantly each year thereafter. The industry earned RoNW of
23.1 per cent in FY06 as compared with 21.8 per cent in FY05 and16.7 per cent
in FY04.
Improvement in operational efficiencies

As the industry faced weak demand and intense pressure on margins during the
early 2000s with the economic slowdown, players adopted several measures to bring
down costs and improve operational efficiencies. As the demand for vehicles revived,
102
the industry earned higher profits, and profitability also improved in the subsequent
years. Higher profit margins were achieved as a result of better utilisation of resources.
The industrys fixed asset turnover ratio leaped to over 5 times post FY04 (5.9 times
in FY06) from less than 2 times before FY04. The increase in the asset turnover ratio is
in tandem with the movement of profit margins, thus indicating that performance is
improving on both fronts operational efficiencies and business profitability.
The industry enjoys favourable credit terms from creditors. The average days payable
have remained relatively stable at 3839 days during FY04 to FY06. Credit period
availed from creditors also remains much higher than that allowed to debtors, thus
enabling the industry to utilise its financial resources more effectively. In fact, players
have become more stringent in dealing with debtors. The average debtor days have
steadily come down from 34 days in FY02 to 14 days in FY06.
Major gains have also been achieved on raw material cycle days. The implementation
of manufacturing best practices such as just-in-time inventory management systems
has helped the industry to avoid blocking unnecessary stocks of raw materials, stores
and spares. The raw material holding period halved to 21 days by FY05 and FY06 from
as high as 42 days in FY02.
Improving cash flows have also enabled the industry to repay borrowings/reduce debt
burden. The debt-to-equity ratio came down to 0.16 times in FY06 from 0.31 times in
FY04 and 0.24 times in FY05. Thus, overall interest burden has declined. Consequently,
the industry has been enjoying higher interest cover in successive years.
Outlook
Going forward, the domestic demand for passenger vehicles is expected to remain
healthy. Additionally, players are aggressively focusing on exports. Most players have
favourable liquidity positions, and the industry as a whole continues to improve
its performance on various fronts (working capital management, short-term and
long-term liquidity etc). Several players, including several new entrants, have lined up
a slew of new launches in the next 23 years. This in turn implies increased expenditure
on advertising and sales promotion activities. Greater competition is also likely to lead
to more aggressive pricing strategies from the players. Input prices are not expected
to go up sharply in the near term, but large scale capital expenditure planned for the
next few years (for capacity expansions etc) could add to the industrys interest burden.
Thus, although sales revenues would continue their upward climb, the increase in
profit margins is not expected to be commensurate.
104
Chapter 9
Company Profiles
This chapter profiles the leading players in the Indian passenger vehicles industry,
analysing their financial performance in the recent past, and discussing their future plans
and outlook. The companies profiled are Maruti Suzuki India, Mahindra & Mahindra,
Hyundai Motor India and Honda Siel Cars India.

Maruti Suzuki India is the market leader in the passenger vehicles industry
Year of incorporation
1981
D&B D-U-N-S No.
65-005-8878
CEO & MD
Shinzo Nakanishi
Outstanding shares (FY07)
288,910,060
Listing details
BSE, NSE
Face value (Rs)
5.00
Current market price (Rs)
1,073.55 as on October 31, 2007
Market capitalisation (Rs million)
310,159.4 as on October 31, 2007
52-week high/low (Rs)
1,252/713
Year ending
March 31
Maruti Suzuki India Ltd (Maruti) is Indias largest car manufacturer. A subsidiary of
Suzuki Motor Corporation of Japan, Maruti was incorporated in 1981 in collaboration
with the Government of India. The company has four assembly lines three at its
production facilities at Gurgaon, and the fourth assembly line at Manesar, also in
Haryana. While the Gurgaon plant has a total installed capacity of 350,000 cars per
year, the new assembly plant at Manesar has a capacity of 100,000 cars per year.
Maruti is primarily in the business of manufacture and sale of motor vehicles and
spare parts. It also has a presence in the pre-owned vehicles and the car financing
businesses. The company is the leader in the compact car segment and excels in small-car
technology. It also draws advantage from its widespread sales and service network. It
has a sales network of 500 dealerships covering 312 cities across the country.
Chart 9.1 Maruti: Shareholding pattern as of September 2007
Others
29%
Public
3%
Promoters
54%
FIIs
14%
Company Profiles
Product portfolio
Maruti operates in the passenger vehicles market, with an emphasis on passenger
cars. The companys product portfolio encompasses the mini car Maruti 800; compact
cars Zen Estilo, Alto, WagonR, and Swift; mid-sized cars Esteem and SX4; MPVs Omni
and Versa; and SUV models Gypsy and Suzuki Grand Vitara.
Market position
Maruti dominates the compact car segment with a 58 per cent share in sales volume.
Despite the fierce competition, it is perhaps the only automobile company in India
that has expanded profit margins in each successive year between FY02 and FY07.
However, the companys overall market share has fallen at an alarming rate from as
much as 80 per cent in FY99 to 50 per cent by FY07. This is largely due to diminishing
sales of the Maruti 800 which currently has a mere 7 per cent share (FY07) in
domestic car sales, as compared with a market share of 24 per cent in FY02 as also
due to the entry of new firms in the market.
Though present in the MUV segment for 2 decades, the companys share in this market
has been gradually dwindling and was a meagre 1.5 per cent in FY07. The small share
can be attributed to the fact that diesel vehicles dominate the MUV market with a
share of over 90 per cent, while Maruti does not have a diesel vehicle in this segment.
International operations
Maruti exports vehicles to 45 countries the top five destinations being Algeria,
Sri Lanka, UK, Chile, and Denmark. Until FY00, 92 per cent of total cars exported
from India were the Maruti brand, but gradually the share has come down and is
currently (FY07) only 20 per cent. In FY05 and FY06, exports had fallen due to Maruti
stopping exports of the Alto (which had been accounting for the bulk of its exports) to
Europe, after its parent, Suzuki, started exporting the Swift from its Hungarian plant
to other European countries. However, in FY07, Marutis exports grew by 12.7 per cent,
which can be attributed to its efforts in exploring newer markets like West Asia, Latin
America, and Sri Lanka.
Maruti: Key strategies
Some of the key strategies of the company include cost reduction, increasing local
sourcing of components as against importing them, innovative schemes for specific
customer segments (teachers, panchayats etc), apart from launching new vehicle
models.
Maruti has adopted certain innovative strategies to reduce its costs. It procures
raw materials at a price below the prevalent market price, as it clubs raw material
requirements of its suppliers along with its own, thereby successfully negotiating
a better price. Another strategy is to replace expensive materials with cheaper
alternatives, without compromising on quality.
The company has been steadily reducing dependence on imported raw materials.
As of FY07, imported raw material, stores and spares accounted for 13 per cent of
the companys total consumption of raw material, stores and spares, as compared
105
106
with a much higher proportion (33 per cent) during FY00. Maruti also helps its own
suppliers in cutting down costs by helping them source materials locally, instead of
importing them.
In a bid to push sales, Maruti has periodically launched new schemes targeted at
specific customer segments. The schemes launched include Wheels of India for
state government employees; First Class Offer for railway employees; Power Deal for
NTPC staff; Steel Wheel for SAIL; scheme for teachers; the Panchayat scheme for rural
consumers; and Lalkaar, an employee referral scheme.
Financial analysis
Maruti continues to fare well
The company recorded double-digit growth in sales and profits in each year between
FY04 and FY07. During FY03 to FY07, net sales and net profits posted impressive
growth at a CAGR of 19.2 per cent and 88.0 per cent, respectively. However, due to
the mounting pressure of raw material costs each year, the company has managed
to improve its margins only slightly. During FY07, net sales grew by 20.7 per cent to
Rs 149,841 million. Profits at the PBDIT (NNRT) level increased by 21.9 per cent, while
those at the net level rose by 28.9 per cent. During FY04, the excise duty on cars and
MUVs was reduced to 24.24 per cent from 32.0 per cent in FY03; as a result, the
companys net profit surged by 247.0 per cent to Rs 4,136 million. Net profits have
recorded impressive growth in the subsequent years as well.
Table 9.1 Maruti: Financial summary
Indicators/Year
Unit
Net sales
Rs million
Growth
Per cent
Operating expenses
Rs million
Growth
Per cent
Operating profit
[PBDIT (NNRT)]
Rs million
Growth
Per cent
Net profit
Rs million
Growth
Per cent
Operating margin
Per cent
Net profit margin
Per cent
Capital employed
Rs million
Growth
RoCE
FY03
FY04
FY05
FY06
FY07
74,113.0
92,134.0
110,933.0
124,099.0
149,841.0
2.4
24.3
20.4
11.9
20.7
67,089.3
78,977.0
94,776.0
105,852.0
122,261.0
1.4
17.7
20.0
11.7
15.5
6,171.0
12,034.0
17,860.0
20,552.0
25,044.0
18.1
95.0
48.4
15.1
21.9
1,192.0
4,136.0
7,734.0
11,564.0
14,901.0
19.4
247.0
87.0
49.5
28.9
8.3
13.1
16.1
16.6
16.7
1.6
4.5
7.0
9.3
9.9
33,093.0
38,749.0
46,788.0
55,226.0
74,614.0
Per cent
14.6
17.1
20.7
18.0
35.1
Per cent
3.9
11.5
18.1
22.7
23.0
Table 9.2 Maruti: Cost analysis

Expenses as percentage of net sales
FY03
FY04
FY05
FY06
FY07
Raw material, stores etc
76.4
76.5
78.3
76.0
72.5
Power and fuel expenses
1.1
1.0
0.5
0.6
0.9
Salaries and wages
2.9
2.2
1.8
1.8
1.9
Advt. and mktg. expenses
5.4
3.1
2.0
2.0
2.4
2.8
1.3
1.0
0.9
0.9
Company Profiles
107
Despite the rise in commodity prices, Maruti managed to reduce its ratio of
raw-materials-to-net-sales to 72.5 per cent in FY07 from 76.0 per cent in the previous
fiscal, mainly due to cost reduction. The new launches and added competition
resulted in the companys spend on advertisements going up by 50 per cent to
Rs 3,389 million in FY07.
The robust growth in profits over the years resulted in higher profitability, both at
operating and net levels. The capital employed yielded high returns, as reflected in the
RoCE, which increased six-fold to 23 per cent in FY07 from around 4 per cent in FY03.
Table 9.3 Maruti: Key financial ratios

Ratios
Unit
FY03
FY04
FY05
FY06
FY07
Debtor days
Days
29
22
17
15
14
Creditor days
Days
20
15
16
17
20
Net working capital days
Days
45
30
24
26
18
Current ratio
Times
1.7
2.3
2.7
2.8
2.8
Debt-equity ratio
Times
0.2
0.1
0.1
0.03
0.1
Interest incidence
Per cent
7.6
8.1
8.6
7.1
8.5
Effective tax rate
Per cent
0.5
0.4
0.4
0.3
0.3
Marutis debt-to-equity ratio increased to 0.11 times in FY07 from 0.03 times in FY06.
In FY07, the company had raised huge borrowings of Rs 7,236 million most of this
comprised foreign borrowings (Rs 5,673 million). For FY08, the company has planned
a capital expenditure of Rs 20 billion.
Maruti continues to improve its working capital management. Its net working capital
days have steadily come down from 45 days in FY03 to 18 days by FY07. It enjoys
favourable credit terms, with the average creditor days increasing to 20 days in FY07
from 15 days in FY04. On the other hand, the company has managed to halve average
debtor days to 14 days in FY07 from 29 days in FY03.
Marginal pressure on margins in Q2FY08

An escalation in expenses kept Marutis profit margins under pressure in the quarter
ended September 2007, despite buoyant performance on the sales revenue front. Net
sales grew by 33.2 per cent (11.9 per cent in Q2FY07), while operating and net profits
shot up by 31.6 per cent and 27.0 per cent, respectively. However, a steeper rise in
operating expenses pulled down the operating margin, though slightly, to 17.4 percent
(17.6 per cent in Q2FY07). Margins at the net level declined by 50 basis points to
10.3 per cent.
Nevertheless, the company maintained growth momentum in sales and profits during
the first half of FY08. Sales revenue grew by 30 per cent to Rs 84,605.2 million, while
profits at the operating and net levels grew by 32.3 per cent (Rs 15,842.9 million) and
31.1 per cent (Rs 9,661 million). The higher profits were realised on the back of increased
sales volumes. Margins were a tad higher, with an operating margin of 18.7 per cent
(18.3 per cent in H1FY07) and net margin of 11.4 per cent (11.3 per cent H1FY07).
108
Table 9.4 Maruti: Financial summary quarterly
Indicators/Year
Unit
Net sales
Rs million
y-o-y growth
Per cent
Operating expenses
Rs million
y-o-y growth
Per cent
Operating profit [PBDIT (NNRT)]
Rs million
y-o-y growth
Per cent
Net profit
Rs million
y-o-y growth
Operating margin
Net profit margin
Q2FY07
Q3FY07
Q4FY07
Q1FY08
Q2FY08
34,005.9
36,641.9
44,297.6
39,308.2
45,297.0
11.9
18.0
35.2
25.8
33.2
29,762.7
28,693.0
39,036.4
35,031.5
39,930.6
16.5
7.4
29.0
30.2
34.2
5,973.2
6,226.7
7,560.1
7,980.4
7,862.5
30.2
8.8
25.7
33.0
31.6
3,674.4
3,764.1
4,485.6
4,996.0
4,665.0
Per cent
39.9
11.0
24.3
35.2
27.0
Per cent
17.6
17.0
17.1
20.3
17.4
Per cent
10.8
10.3
10.1
12.7
10.3
Table 9.5 Maruti: Expenses as a percentage of net sales quarterly

Expenses
Q2FY07
Raw materials/trading goods
Q3FY07
Q4FY07
Q1FY08
Q2FY08
76.2
67.2
76.6
79.0
77.6
Personnel cost
2.1
2.0
1.8
2.0
2.0
Other expenses
9.3
9.1
9.7
8.1
8.5
Chart 9.2 Maruti vs. BSE Sensex

1,150
BSE Sensex closing
Maruti Suzuki (Rs)
22,000
1,100
20,000
1,050
1,000
18,000
950
900
16,000
850
800
14,000
Maruti Suzuki* (LHS)
Oct-07
Sep-07
Aug-07
Jul-07
Jun-07
May-07
Apr-07
Mar-07
Feb-07
Jan-07
Dec-06
700
Nov-06
750
12,000
BSE Sensex closing (RHS)
*30 days average closing

Future plans and outlook

Maruti has been selling over 500,000 cars a year since FY05. It aims to sell 1 million
cars per year by 2010. On the export front, apart from European markets, Maruti has
been increasing focus on non-European countries, exports to which have grown by
47 per cent and 65 per cent in the last 2 years.
The company has planned a capital expenditure of Rs 90 billion during 20062010
the sum to be used for the capacity augmentation at the Manesar plant, a diesel
facility, a new engine series, and the upgradation of the Gurgaon plant. The company
has decided to increase the capacity of the Manesar plant to 300,000 units by 2010.
Maruti also expects to launch five new models in the next 5 years. The company
believes that commodity prices are unlikely to soften in the near term. All these
Company Profiles
109
factors imply continued pressure on margins for the company in the ensuing quarters
due to increased expenditure on advertising/promotions and increased financial
charges, while growth in revenue would continue to be driven by the increase in
sales volumes.

Mahindra & Mahindra is the largest MUV manufacturer in India
1945
D&B D-U-N-S No.
65-007-2630
MD
Anand Mahindra
245,529,091
Listing details
BSE, NSE
Face value (Rs)
10.00
Current market price (Rs)
754.7 as on October 31, 2007
Market capitalisation (Rs million)
185,300.8 as on October 31, 2007
52-week high/low (Rs)
1,002/608
Year ending
March 31
Mahindra & Mahindra (M&M) is the flagship company of the US$-6-billion Mahindra
Group. Established in 1945, M&M is the leading manufacturer of UVs in India, offering
a range of over 20 models. The company is also the leader in the tractors market as
also among the top three tractor manufacturers in the world. M&M also manufactures
light commercial vehicles (LCV) and three-wheelers.
M&M has established a strong presence in semi-urban and rural markets. The company
has a strong in-house R&D base, with indigenous product development capability.
Exports account for a minor 7 per cent of M&Ms sales revenues. Nevertheless, the
company has been aggressively focusing on exports and export revenues are growing
at the rate of 4050 per cent since FY05.
Chart 9.3 M&M: Shareholding pattern as of September 2007
FIIs
27%
Others
39%
Public
11%
Promoters
23%
Product portfolio
M&M has two main operating divisions an automotive division, which manufactures
UVs, LCVs, and three-wheelers; and a farm equipment division, which manufactures
agricultural tractors and implements. The company also manufactures special vehicles,
diesel generator (DG) sets, and industrial engines. The automotive and farm equipment
range is listed in Table 9.6 (Page 110).
110
Table 9.6 M&Ms product portfolio
Segments
Brand names
UVs
Bolero, Commander, Maxx, Scorpio
Cars
Logan
Tractors
Arjun, Bhoomiputra, Sarpanch, Shaan,

Yuvraj
Pick-ups/vans
Maxx Maxxi truck, Pik-up, Maxx Pik-up,

Bolero Pik-up, Bolero Camper
LCVs
Cabking, Loadking, Tourister minibus
Three-wheelers
Champion, Alfa
Defence vehicles
Rakshak, MM550XDB
Alternative fuel vehicles
Bijlee, CNG minibus, Tourister
Market position
M&M dominated the UV market with nearly 60 per cent share until FY00. However,
the entry of Toyota led to heavy erosion in the companys market share which, as
of FY07, stood at 41 per cent. In the tractor market also, M&M leads with a share of
32.1 per cent. It has the second-largest share of 24.4 per cent (FY07) in the domestic
LCV market, and a modest 8.3 per cent share (FY07) in the three-wheeler market.
M&M: Key strategies
M&Ms strategies are focused on innovation and technology. It follows a
three-pronged strategy of product expansion, innovation, and globalisation. On the
cost front, M&M initiated measures such as right-sizing and achieving economies of
scale by maintaining single-point suppliers for all its brands, which boosted growth
in profits. Longer-term contracts with steel suppliers provided a cushion against
fluctuations in input costs. In order to focus on its core businesses, the company
divested from instrumentation, oil drilling and sintering businesses, and from Otis and
the JV it had with Ford for manufacturing Fords line of cars.
Some of the key strategies of the company are to diversify into new segments, become
a global player, grow the business in related industry, continue to increase new product
development capability, and ensure continuous improvement in productivity, among
others.
Diversification
Within the passenger vehicles market, while M&M has been dominating the MUV
segment, it lacked presence in the fast-growing passenger cars market. For this, in
2005, it set up a JV with French car manufacturer Renault to manufacture the Logan
car in India. In order to enter the medium and heavy commercial vehicle (MHCV)
market and enhance its overall presence in the CV market, M&M set up a JV in 2005
with the International Truck and Engine Corporation of USA for the manufacture of
trucks and buses in India.
Exports: Become a global player
One of the key strategies of M&M is to be a global player, and the US forms a crucial
part of this strategy. In November 2006, M&M entered into a deal with Global Vehicles
Company Profiles
111
USA Inc to distribute Mahindras SUV and pick-up vehicles in the US. It plans to earn
about a fifth of revenues from exports in the next few years, as compared with the
current small share of less then 10 per cent (FY07).
Its strategy for overseas markets is to identify niche markets for its automotive products,
particularly geographical areas that have sales, distribution, and marketing conditions
similar to that in India. In the last 34 years, M&M has launched products in Europe, the
Middle East, South America, South-East Asia, and Africa, with a customised business
model in each of these countries.
New product development

M&M plans to launch the hybrid version of its SUV Scorpio in 2008. It plans to launch
an MPV model Ingenio in FY09, followed by the MHCV New Truck Series in FY10
and a new SUV in FY11.
Financial analysis
Robust growth continues
Financial year 2007 was the fifth consecutive year in which M&M reported double-digit
growth in net sales. The companys net sales grew by a healthy CAGR of 28 percent
during FY03 to FY07, riding on robust growth in sales volume. Its recent foray into
the passenger cars segment with the successful launch of the mid-size sedan Logan
and healthy growth in exports resulted in the sound financial performance.
While the share of the automotive business in M&Ms sales declined to 59 per cent
(62 per cent in FY06), the share of the farm equipment business grew to 36 per cent
(34 per cent in FY06). A similar trend is apparent in profit performance. Share of
profits (before interest and taxes) from the auto business increased to 56 per cent
(64 per cent in FY06), while share of profits from the farm equipment business rose
to 42 per cent (35 per cent in FY06). Profit margin from the auto business saw a
slight improvement, while that from the farm equipment business swelled sharply
and surpassed the margins earned from the auto business.
Chart 9.4 M&M: Profit margins: Automotive vs. farm equipment business
14
12
10
8
6
4
FY02
Automotive
FY03
FY04
Farm equipment
FY05
FY06
FY07
112
Table 9.7 M&M: Financial summary
Indicators/Year
Unit
Net sales
Rs million
Growth
Per cent
Operating expenses
Rs million
Growth
Per cent
Rs million
Growth
Per cent
Net profit
Growth
Operating margin
FY03
FY04
FY05
FY06
FY07
36,965.0
49,125.3
65,759.5
81,119.1
98,992.2
14.0
32.9
33.9
23.4
22.0
31,967.8
42,438.1
57,135.9
70,521.7
84,543.1
15.5
32.8
34.6
23.4
19.9
4,193.9
6,365.4
8,850.7
10,629.2
15,058.9
25.6
51.8
39.0
20.1
41.7
Rs million
861.1
3,038.1
4,740.7
5,505.5
9,107.7
Per cent
14.4
252.8
56.0
16.1
65.4
Per cent
11.3
13.0
13.5
13.1
15.2
Net profit margin
Per cent
Capital employed
Rs million
2.3
6.2
7.2
6.8
9.2
26,314.7
23,325.3
29,161.1
37,231.2
50,845.4
Growth
RoCE
Per cent
3.1
11.4
25.0
27.7
36.6
Per cent
3.2
12.2
18.1
16.6
20.7
The year FY07 has been one of the best for M&M so far, with a sharp rise in sales revenues,
profits, and profit margins. Net sales grew by 22 per cent to Rs 98,992.2 million.
The share of raw materials and stores in net sales at 67.7 per cent (FY07) is much lower
than that of its peers such as Maruti Suzuki India, Tata Motors, Honda Siel Cars India,
and Hyundai Motor India. The ratio of raw materials to net sales shrank from 69.6 per
cent due to the strategic outsourcing and reengineering initiatives undertaken by the
company. A strict control on expenses resulted in profits increasing by 41.7 per cent
to Rs 15,058.9 million (at operating levels) and by 65.4 per cent to Rs 9,107.7 million
(at net levels), respectively. Profit margins have been much higher than that in the
preceding years. The capital employed has yielded high returns as reflected in the
RoCE, which increased seven-fold to 20.7 per cent in FY07 from 3.2 per cent in FY03.
Table 9.8 M&M: Cost analysis
FY03
FY04
FY05
FY06
FY07
64.8
66.7
70.3
69.6
67.7
1.2
0.9
0.8
0.7
0.7
10.4
8.7
7.1
6.8
7.0
3.2
3.5
3.1
2.4
2.7
2.1
2.3
2.6
3.2
3.7
Salaries and wages
Table 9.9 M&M: Key financial ratios

Ratios
Unit
FY03
FY04
FY05
FY06
FY07
Debtor days
Days
47
28
21
22
21
Creditor days
Days
87
74
69
70
72
Days
14
Current ratio
Times
1.3
1.0
1.3
1.5
1.4
Debt-equity ratio
Times
0.8
0.4
0.5
0.3
0.5
Interest incidence
Per cent
9.5
8.3
3.4
2.8
1.6
Effective tax rate
Per cent
0.4
0.2
0.3
0.3
0.3
During FY07, M&M raised an external commercial borrowing of US$ 20 million for
the partial funding of modernisation and expansion plans. The debt-to-equity ratio
Company Profiles
113
went up to 0.5 times from 0.3 times in FY06. The company has announced investment
projects worth Rs 53 billion in the automobile businesses. This is likely to add to
the interest burden. Also, despite no new launches in FY07, M&Ms advertising and
marketing expenses shot up by 36 per cent. In 2008, a new MPV model Ingenio
and the hybrid version of the SUV Scorpio is slated for launch. This could further
increase the companys ad spend.
M&M enjoys a negative net working capital cycle. The credit period enjoyed by
M&M has been continuously falling from 87 days in FY03 to 72 days in FY07.
Nevertheless, this continues to be much higher than the credit period it allows to
its debtors.
Profits fall in H1FY08
A sharp increase in expenses, particularly raw material, coupled with slower growth
in sales revenues resulted in M&Ms profits declining in the first 2 quarters of FY08. In
the quarter ended September 2007, net sales grew by 8.8 per cent to Rs 27,095 million,
as compared with a sharp growth of 30.1 per cent during JulySeptember 2006.
Profit at the operating level and net level declined by 21 per cent and 26 percent,
respectively. Operating and net margins in the quarter ended September 2007, though
higher than in the preceding quarter, were much lower than that during the same
period a year ago.
JulySeptember 2007 was the third consecutive quarter when M&M posted lower
net profits, after 15 successive quarters of higher profits. The company attributes the
sluggish growth in profits during H1FY08 to a decline in tractor demand, the adverse
effect of rupee appreciation on export profitability, increase in finance costs due to
recent large acquisitions, and increased operating costs for investing in facilities,
product/market development and people to meet the companys growth plans.
Table 9.10 M&M: Financial summary quarterly

Indicators/Quarter
Unit
Net sales
Rs million
y-o-y growth
Per cent
Operating expenses
Rs million
y-o-y growth
Per cent
Rs million
y-o-y growth
Per cent
Net profit
Rs million
y-o-y growth
Per cent
Operating margin
Net profit margin
Q2FY07
Q3FY07
Q4FY07
Q1FY08
Q2FY08
24,905.0
25,760.6
27,474.4
26,127.7
27,095.1
30.1
16.7
20.0
16.8
8.8
23,529.1
22,231.1
22,770.7
23,458.8
26,015.0
31.7
9.7
23.1
21.1
10.6
4,579.2
3,715.2
3,692.7
3,138.2
3,616.4
81.4
10.3
28.0
5.0
21.0
3,864.8
2,416.9
2,360.4
1,911.7
2,859.5
145.8
3.5
26.5
6.4
26.0
Per cent
18.4
14.4
13.4
12.0
13.3
Per cent
15.5
9.4
8.6
7.3
10.6
Table 9.11 M&M: Expenses as percentage of net sales quarterly

Expenses
Raw materials/trading goods
Q2FY07
Q3FY07
Q4FY07
Q1FY08
Q2FY08
74.4
66.6
64.5
68.8
Personnel cost
6.6
6.9
5.9
7.2
8.5
Other expenses
13.5
12.8
12.5
13.7
14.8
72.7
114
M&M is expected to incur considerable expenditure for expansion of capacities,

investment in R&D and product development in the next few years to sustain the
growth trend. To fund these activities, the company may borrow funds, which could
increase its interest burden and also result in a higher debt-to-equity ratio in the
near future.
Chart 9.5 M&M vs. BSE Sensex
950
M&M (Rs)
BSE Sensex closing
900
22,000
20,000
850
18,000
800
16,000
750
14,000
700
M&M* (LHS)
Oct-07
Sep-07
Aug-07
Jul-07
Jun-07
May-07
Apr-07
Mar-07
Feb-07
10,000
Jan-07
600
Dec-06
12,000
Nov-06
650
BSE Sensex closing (RHS)
*30 days average closing

Future plans and outlook

The companys prospects for the medium term look bright, given its strategy of
cost reduction, new launches and focus on exports. For the remaining part of FY08,
M&Ms focus would be on maintaining the lead position in the UV market; enhancing
market share in the LCV and three-wheeler segments; ramping up production on Logan;
embarking on an aggressive costreduction drive; maintaining focus on customer
satisfaction; developing new products; enhancing capacity; and assembling vehicles in
Brazil and Egypt. M&M expects moderate growth in the tractor industry in the near to
long term. It expects an industry CAGR of 710 per cent in the next 34 years.
M&M plans to incur a capital expenditure of Rs 64 billion in the next 3 years for
the expansion of capacities, investment in R&D, and product development. For its
overseas operations, M&M aims to drive growth through an expansion of markets,
introduction of new products, and use of new business models.

Hyundai Motor India is the largest exporter of cars from India
1996
D&B D-U-N-S No.
65-068-5217
MD
Heung Soo Lheem
8,125,411
Face value (Rs)
1,000.00
Year ending
March 31
Source: Company Annual Report & website
Hyundai Motor India Ltd (HMIL) is a wholly-owned subsidiary of Hyundai Motor

Company, South Korea. It has emerged as Indias second-largest car manufacturer and
Company Profiles
the largest car exporter. HMIL has a production unit at Irrungattukottai near Chennai
(Tamil Nadu), which has a capacity to manufacture 300,000 vehicles per annum. HMIL
exports cars to over 65 countries and exports account for 37 per cent of the companys
annual production volume (FY07).
Product portfolio
The company has a presence in the compact, mid-size, premium, and SUV segments. It
markets 34 variants under the following brands: Santro, Getz Prime and i10 (compact
cars); Accent and Verna (mid-size cars); Elantra (executive car); Sonata Embera
(premium car), and Tucson (SUV).
Market share
HMIL has a share of 17 per cent in total annual car sales (FY07). It has a negligible
share in the UV market (less than 1 per cent). The company recorded a robust
14.6 per cent CAGR in car sales during FY04 to FY07. This was a result of healthy sales
of the Santro, and new launches during this period, which included Elantra and Getz
in 2004, Sonata Embera in 2005, Verna in 2006, and Getz Prime in 2007.
Sales performance
The company has been consistently posting double-digit growth in car sales volumes
since FY03. As compared with annual sales below 100,000 cars up to FY02, the
company currently sells more than 300,000 cars a year. Total car sales (domestic and
exports) grew by a robust 19.5 per cent to 310,000 units in FY07. This growth was
caused purely by higher sales of compact cars, as sales of other segment cars (mid-size,
executive, and premium) dropped vis--vis sales in FY06. While domestic car sales grew
by 23.5 per cent to 194,000 units, exports rose by 13.2 per cent to 115,000 units.
Export performance
HMIL exports passenger cars to 67 countries across the world. The Indian entity is
positioned as its Korean parents global export hub for compact cars. HMIL exports to
countries in Latin America (Panama and Bermuda); Middle East (Turkey, South Cyprus,
Afghanistan, Qatar, Lebanon, and Ceuta); Europe (United Kingdom, Malta, Serbia, and
Montenegro); and Africa. The Santro is the leading export brand, followed by the Accent
and the Getz. Once the companys production capacity is doubled to 600,000 units, it
plans to export 50 per cent of total production, as against the current 35 per cent (share
of exports in production).
Financial analysis
HMIL has been recording sharp growth in revenues consequent to robust sales in
the domestic and export markets. During the last 5 years (FY02 to FY06), it posted
impressive growth at a CAGR of 31.5 per cent in net sales and at 15.7 per cent in
net profits. Although operating margins improved in FY06, margins at the net level
continue to be under pressure. In FY06, the companys sales revenues grew sharply
by 18 per cent to Rs 77,763.1 million. While domestic sales of passenger vehicles
rose by 11.8 per cent to 159,000 units over FY05, exports grew by 24.4 per cent to
102,000 units.
115
116
HMILs operating expenses increased by 15.8 per cent to Rs 67,448.4 million due
to the increase in raw materials cost and a sharp 80 per cent increase in marketing
expenses. Nevertheless, profits at the operating level rose by 25.4 per cent to
Rs 11,116.6 million, and those at the net level rose by 17.1 per cent to Rs 4,906
million.
Table 9.12 Hyundai Motor India: Financial summary
Indicators/Year
Unit
Net sales
Rs million
Growth
Per cent
Operating expenses
Rs million
Growth
Per cent
Rs million
Growth
Per cent
Net profit
Rs million
Growth
FY02
25,992.8
FY03
31,133.9
FY04
49,271.5
FY05
65,911.5
FY06
77,763.1
16.0
19.8
58.3
33.8
18.0
21,079.3
26,920.3
41,983.4
58,248.2
67,448.4
15.6
27.7
56.0
38.7
15.8
5,263.7
4,405.7
7,794.5
8,862.6
11,116.6
35.2
16.3
76.9
13.7
25.4
2,733.2
1,617.1
3,929.2
4,189.1
4,906.0
Per cent
59.1
40.8
143.0
6.6
17.1
Operating margin
Per cent
20.3
14.2
15.8
13.4
14.3
Net profit margin
Per cent
10.5
5.2
8.0
6.4
6.3
Capital employed
Rs million
17,599.5
15,924.7
18,583.0
19,480.1
25,769.7
Growth
Per cent
5.4
9.5
16.7
4.8
32.3
RoCE
Per cent
15.9
9.7
22.8
22.0
21.7
Raw materials and stores account for three-fourths of the companys sales revenues.
The pressure of rising input costs is reflected in its cost components. During FY02
to FY03, the raw materials-to-sales ratio was much lower, at around 72 per cent. At
3.2 per cent (FY06), the proportion of advertising and marketing expenses in HMILs
net sales is the highest amongst peers like Maruti, Tata Motors, Mahindra & Mahindra,
and Honda Siel Cars India.
Table 9.13 Hyundai Motor India: Cost analysis
FY02
FY03
FY04
FY05
FY06
72.7
71.7
73.1
76.4
75.2
1.1
1.2
0.9
0.9
0.8
Salaries and wages
2.3
2.9
2.2
2.1
2.1
4.3
5.8
3.8
3.4
3.2
0.2
0.3
0.3
0.4
0.3
HMIL is managing working capital requirements well. During FY06, the company
enjoyed 42 days credit from suppliers, while it recovered dues from debtors in
10 days. It has a healthy short-term liquidity position, with a current ratio of 1.54
times in FY06. The company has brought down its debt-to-equity ratio from 0.6 times
in FY03 to 0.3 times by FY06.
The company has been enjoying RoCE of around 22 per cent since FY04. Profitability
at the operating level increased to 14.3 per cent in FY06 from 13.4 per cent in FY05,
whereas net profit margin declined marginally to 6.3 per cent from 6.4 per cent over
the same period. HMIL plans to scale up its investment at the Irrungattukottai plant
(near Chennai) to around Rs 70 billion by 2010. This would increase the companys
Company Profiles
117
interest burden if the expansion is going to be funded through debt, thereby keeping
profit margins under pressure going forward.
Table 9.14 Hyundai Motor India: Key financial ratios
Ratios
Unit
FY02
FY03
FY04
Debtor days
Days
Creditor days
Days
27
Days
21
Current ratio
Times
Debt-to-equity ratio
Times
Interest incidence
Effective tax rate
FY05
FY06
10
10
36
43
43
42
11
11
2.1
2.1
1.3
1.4
1.5
0.5
0.6
0.5
0.3
0.3
Per cent
5.1
2.8
2.5
2.6
0.7
Per cent
0.1
0.4
0.3
0.3
0.4
Future plans
HMIL has been operating at over 100 per cent of its production capacity. In order to
meet the growing demand for its vehicles in the domestic and export markets, the
company is doubling its annual capacity to 600,000 units.
The company is also contemplating the launch of new models. It intends to launch
the small car Pa in 2008, likely to be pitted against Marutis Zen Estilo; an SUV
Santa Fe also in 2008; and another new car in 2009, which would be positioned
between the Verna and Sonata models. The company is also considering launching the
i30 model (C segment hatchback) in India.

Honda Siel Cars India is the market leader in the premium car segment
1995
D&B D-U-N-S No.
65-064-6839
CEO
Masahiro Takadegawa
360,000,000
Face value (Rs)
10.00
Year ending
March 31
Source: Company Annual Report and website
Honda Siel Cars India Ltd (HSCIL) was incorporated in December 1995 as a JV between
Honda Motor Co Ltd. of Japan and the Siddharth Shriram Group company, Siel Limited.
The companys manufacturing unit is located at Greater Noida, Uttar Pradesh, with
a capacity to manufacture 50,000 cars per annum. Its second car-manufacturing
plant is set to come up at Alwar, Rajasthan with an initial annual capacity of 60,000
vehicles. HSCILs sales and distribution network includes 62 facilities in 43 cities across
the country.
Product portfolio
HSCIL markets products under four brands namely, Honda City (a mid-size car);
Honda Accord (a premium car); Honda Civic (in the executive segment); and Honda
CR-V (SUV segment). While the SUV is imported in CBU form from Japan, the other
models are manufactured in India.
118
Market share
HSCIL has a small share of 4 per cent (FY07) in overall passenger vehicle sales. While
the company yet lacks presence in the mass-volume, compact-car segment, it has
established itself in the premium and mid-size car segments. It is the market leader
in the premium car segment, with a share of 46 per cent in sales (FY07). It has the
second-largest share in the mid-size car segment. Sales of Honda City captured
17per cent of the mid-size car market in FY07. Hyundai Motors and Tata Motors are
HSCILs closest competitors in this segment, with market shares of a little less than
17 per cent each.
Sales performance
Ever since the launch of the new version of Honda City in October 2003, HSCIL has
witnessed stupendous growth in car sales. During FY07, its total car sales (domestic)
recorded a growth of 45.4 per cent at 59,440 units, which followed a growth of
14.5 per cent in the preceding year. Annual sales of Honda City have grown from
less than 20,000 units up to FY04 to over 40,000 units by FY07. However, in the
premium segment, where HSCIL positions Honda Accord, there was a sharp drop of
18 per cent in sales in FY07. In view of the plummeting sales of Accord, in January
2007, the company launched the new Accord, which has received good market
response, as reflected in the improved offtake. During the first 6 months of FY08,
sales of the new Accord grew by 24.6 per cent as against a drop of 23.1 per cent in
the corresponding period of FY07.
Financial analysis
HSCIL reported healthy growth of 16.6 per cent in net sales to Rs 25,005 million in
FY06. Net profits surged by 24.3 per cent to Rs 1,465 million. The strong performance
was achieved on the back of robust growth in sales volumes. The companys annual
passenger vehicle sales touched a peak of 42,776 units during FY06, which was
14.1per cent higher than sales in FY05.
Operating margin under pressure

HSCILs operating profit margin at 11.6 per cent in FY06 has been the lowest
in the last 5 years. The companys operating expenses escalated at a rate faster
(22.7 per cent) than growth in net sales (16.6 per cent) due to the increase in
costs of raw materials, and power and fuel expenses. The share of raw materials
and stores in net sales has risen to almost 80 per cent in FY06 from 69 per cent
in FY02.
The double-digit increase in operating expenses brought down operating profits to
Rs 2,888.3 million in FY06 from Rs 3,141.5 million in FY05. This resulted in the operating
margin shrinking to 11.6 per cent as against 14.6 per cent in FY05. Nevertheless, the
companys net profits rose sharply by 24.3 per cent to Rs 1,465 million. This can be
attributed to a drastic fall in depreciation charges (by 45.3 per cent) and interest costs
(by 94.0 per cent). The companys net margin improved marginally to 5.9 per cent in
FY06 from 5.5 per cent in FY05.
Company Profiles
119
Table 9.15 Honda Siel Cars India: Financial summary

Indicators/Year
Unit
FY02
FY03
6,564.7
7,522.0
13,130.6
21,448.6
25,005.2
26.3
14.6
74.6
63.3
16.6
5,350.5
6,507.5
11,175.9
18,382.7
22,547.8
9.0
21.6
71.7
64.5
22.7
Rs million
888.0
1,092.3
1,590.9
3,141.5
2,888.3
Per cent
200.6
23.0
45.6
97.5
8.1
Net profit
Rs million
251.0
320.6
768.1
1,178.5
1,464.9
Growth
Per cent
27.7
139.6
53.4
24.3
Operating margin
Per cent
13.5
14.5
12.1
14.6
11.6
Net profit margin
Per cent
Capital employed
Rs million
Growth
RoCE
Net sales
Rs million
Growth
Per cent
Operating expenses
Rs million
Growth
Per cent

Growth
FY04
FY05
FY06
3.8
4.3
5.8
5.5
5.9
2,643.5
3,085.6
3,850.4
5,177.2
6,711.0
Per cent
8.4
16.7
24.8
34.5
29.6
Per cent
9.1
11.2
22.2
26.1
24.6
Table 9.16 Honda Siel Cars India: Cost analysis

FY02
FY03
FY04
FY05
FY06
68.7
73.0
75.7
78.3
79.7
0.7
0.8
0.7
0.7
0.8
Salaries and wages
2.5
2.4
1.9
1.5
1.9
2.1
3.0
2.1
1.3
1.2
HSCIL enjoys favourable credit terms. Creditor days, to some extent, have remained
range-bound at 2535 days during FY02 to FY06. The company brought down the net
working capital days to 2 days from 55 days during the same period. HSCIL became a
debt-free company in FY05, with zero borrowings after FY04. This has boosted its net
profits and net margins.
Table 9.17 Honda Siel Cars India: Key financial ratios
Ratios
Unit
Debtor days
Days
FY02
FY03
FY04
FY05
FY06
30
31
12
0
35
Creditor days
Days
28
34
28
25
Days
55
43
17
Current ratio
Times
1.2
1.6
1.7
2.7
2.0
Debt-equity ratio
Times
0.6
0.1
0.1
0.0
0.0
Interest incidence
Per cent
10.3
4.1
2.0
3.5
Effective tax rate
Per cent
0.4
0.3
0.4
0.4
Future plans
HSCIL is doubling production capacity at its greater Noida plant to 100,000 units. This
would further be scaled up to 150,000 units by 2010. The company will be setting
up a second car manufacturing plant (at Alwar, Rajasthan) in India at an estimated
investment of Rs 10 billion.
The company plans to enter the small car market by 2009. The proposed car Jazz is
likely to be pitted against the Maruti Swift and the Hyundai Getz. HSCIL also wants to
increase the number of dealer outlets from the current 56 to 100 by 2009, based on
its strategy of one dealer per 1,000 cars.
Strategic Insight
Competitive Landscape
Risk Assessment
Outlook
Strategic Insight
122
Chapter 10
The passenger vehicles industry is amongst the most competitive industries in India.
Car penetration level in India, at 7 cars per 1,000 persons, is among the lowest in the
world. Nevertheless, the market has been witnessing a sharp increase in the annual
sales of passenger vehicles since the past few years. The huge growth potential in
the Indian market, and the near-saturation demand for vehicles in the matured US
and European markets, have resulted in most global players foraying into the Indian
market.
Market concentrated with top three players

The passenger car industry in India is highly concentrated, with the top three
players Maruti Suzuki, Hyundai Motor India, and Tata Motors accounting for a
majority share of 87 per cent in sales volumes (FY07). In the MUV market also, the
top three players namely, Mahindra & Mahindra (M&M), Tata Motors, and Toyota
Kirloskar Motors command a major portion of market share (82 per cent of sales
volume; FY07).
In both these markets, the nature and extent of competition are similar the second
and third players are far behind the market leader in terms of market share. This
disparity is more pronounced in the passenger car market, where Maruti leads with a
55 per cent market share, followed by the below par shares of Hyundai (17 per cent)
and Tata Motors (15 per cent).
Yet, interestingly, in both these markets, despite the greater share of the market leader
or the combined dominance of the top three players, these players, either individually
or in a combined manner, can not exercise strong price control. This is mainly due to
the extreme competition arising from the presence of all the (other) players in the
market, despite their individual (and mostly small) market shares.
Several entry barriers

The passenger vehicles industry in India has high as well as various entry barriers.
The industry is highly capital-intensive. Huge investments are involved in setting up
manufacturing facilities. For example, Honda Siel Cars India is setting up a new car
manufacturing facility in Rajasthan. The company is investing about Rs 10 billion in this
plant, which will have an initial annual production capacity of 60,000 cars. The work at
the plant started in mid-2007 and the plant is expected to begin operations by 2009.
Other than huge investments in terms of capital and time required to set up
manufacturing facilities, investments are also required to establish a strong vendor
123
network, distribution/sales network, and service network. This is a reason for some
new entrants to tie-up with the existing players to leverage the latters established
sales/distribution network. The Logan car launched by Mahindra Renault, the JV
between M&M and Renault of France, is sold through M&Ms showrooms spread
across the country. Similarly, the Fiat Group of Italy entered into an agreement with
Tata Motors in 2006, under which the Fiat brand of cars would be sold through
select Tata Motors outlets (including service and sale of spare parts). As part of this
agreement, reportedly, Tata Motors could market Fiats luxury brands such as the Alfa
Romeo, Lancia, and sports cars Ferrari and Maserati in India.
Exhibit 10.1 Competitive landscape
Despite high entry barriers.
Capital-intensive
Vendor/distribution/sales/
service network
High import duties
Scale economies
Multi-segments
Multi-models
Entry of new firms
Dynamic and growing

customer demand
Frequent introduction
of new models
Entry of foreign players

Intense
competition
Due to
Declining
replacement cycle
Robust domestic demand

Weak demand in matured
markets
India as a low-cost export
hub
Price &
Non-price
Growing usedvehicle market
Entry of more OEMs
Margin pressure
Competitive Strategies
Cost control
Productivity improvement
programmes;
Increase local content;
Use of common platforms;
Vendor rationalisation
Creating niche
segments
Premium compact cars

(Getz, Swift);
Tata Nano
New markets
Product
differentiation
Export markets;
Technology;
Rural focus
Features (safety, VFM);

Branding (mktg/advtg
activities)
High duties imposed on the import of vehicles also act as entry barriers in the passenger
vehicles industry. Currently, a customs duty of 60 per cent is levied on cars imported
in CBU/SKD form. This is to encourage local production instead of merely importing
and selling in the domestic market. Customs duty on second-hand cars is steeper at
100 per cent. This is to prevent the Indian market from turning into a dumping ground
for used vehicles. Apart from government restrictions on imports by way of high import
duties, government policies are no longer entry barriers for the passenger vehicles
industry. Progressive government policies have resulted in large-scale production
capacities in the industry, access to modern technology from abroad, and availability
of a plethora of vehicle models.
Strategic Insight
124
The availability of multiple vehicle models along with their respective variants within
a segment, and the aggressive pricing and strong marketing by companies tends
to sway the loyalty of consumers towards a particular brand. In such a scenario, it
becomes critical for vehicle manufacturers to retain existing customers, leading to the
introduction of loyalty programmes for existing customers, aimed at retaining their
interest in their current brand.
In a highly competitive market such as the passenger vehicles industry, attaining
economies of scale is critical and lacking the same could be a strong entry barrier.
The high-volume, low-margin small car market, particularly, is one of the most
competitive. This is precisely why companies are playing the volumes game, as they
cannot frequently/easily hike prices in the face of cut-throat competition.
However, despite the high entry barriers, the industry has witnessed an influx of most
major global vehicle manufacturers. While the robust growth of the domestic market
has attracted some foreign players to set up shop in India, some are attracted to the
low-cost manufacturing and outsourcing opportunities on offer. Some foreign firms
in the matured markets of US and Europe have entered the Indian market due to
stagnancy or poor sales in their domestic markets.
Compact and mid-size segments remain most competitive

Among the various segments in the passenger vehicles industry, the compact and
mid-size car segments are the most competitive. With numerous players chasing
customers in these two segments, there are frequent launches of new models and
variants from time to time in these segments, so as to keep customer interest alive
and brand loyalty high amidst the plethora of models on offer.
In January 2008, Tata Motors unveiled the Nano, the worlds lowest-priced car. The small
car, to be launched in the latter half of 2008, would be cheaper than the Maruti 800,
which is currently the least-priced car in the world. The Nano has created lot of excitement
in the industry, with several other firms also looking at the possibility of introducing a
car in this price range. To be pitted against Tata Nano, Suzuki, the worlds biggest player
in the small car segment, is believed to be working on developing a 660cc, low-cost
small car, also scheduled to be launched in 2008. Meanwhile, Renault is also looking to
develop a small car priced at US$ 3,000 for India and other emerging markets.
The much-awaited Tata Nano is expected to adversely affect the demand for entrylevel cars in the used-car market. In anticipation of the demand for second-hand cars
taking a hit after the launch of Tata Motors car, used-car dealers are already planning
to shift focus to higher-end models.
Competition from the pre-owned vehicles market

The current market for new passenger cars continues to face intense competition from
the pre-owned vehicle market. The size of the second-hand car market is estimated
at an annual figure of 0.81.0 million units, a little less than the market for new cars
(1.3 million units in FY07). The rapidly growing pre-owned vehicle market is attracting
new players to the business.
Market leader Maruti Suzuki (True Value), Hyundai Motor India (Hyundai Advantage),
Mahindra & Mahindra (First Choice), Ford India (Ford Assured), Honda (Auto Terrace)
etc are some auto manufacturers who already have pre-owned vehicle businesses.
Toyota Kirloskar Motors recently (November 2007) entered this business with its Toyota
U Trust brand. Several other players are contemplating this business opportunity in
the face of its attractiveness. General Motors India is looking at entering this business.
Tata Motors too is contemplating on entering the used-car business and so are luxurycar-makers. Reportedly, German luxury-car-maker Porsche has already ventured into
the used-car business, while Bentley has also drawn up plans to enter the pre-owned
vehicle business.
The used-car market is currently dominated by unorganised players, and vehicle
companies have a small market share. If more players enter this segment, then not
only will the existing vehicle companies have to compete with unorganised players,
they will also have to compete aggressively with new entrants to the business.
With competition expected to intensify, players are gearing up to face the challenge.
M&M recently revamped its used vehicle business (earlier called Automartindia), and
has re-christened it First Choice. It is looking at a brand makeover with new advertising
and branding, with an investment of over Rs 250 million in the next few years. This
is an indication of the high advertising/marketing expenditure that companies would
have to incur as competition intensifies.
As part of their strategies to become end-to-end solution providers, apart from a
presence in pre-owned vehicle business, vehicle manufacturers have also ventured
into vehicle finance and vehicle insurance businesses.
MUV market continues to remain competitive

For MUV manufacturers, traditionally, rural and semi-urban markets were key segments,
where such vehicles are used for mass transport. Lack of adequate transport facility and
poor road conditions rendered the ruggedness and reliability of MUVs very important
for these market segments. However, the demand for MUVs in these markets has
been, to a large extent, vulnerable to the vagaries of farm incomes (which in turn
are dependent on the monsoons). Hence, MUV manufacturers have, over the years,
increased their strategic focus to cater to urban personal transport segments with
these vehicles. The Toyota Qualis was positioned as a family car to target the urban
consumer. It was later replaced with the Innova. Similarly, M&M, which traditionally
focused on rural and semi-urban markets with its UVs, launched Bolero (in 2000) and
later, Scorpio (in 2002), targeting urban markets.
The Tata Safari, Mahindra Scorpio, Toyota Innova, Suzuki Grand Vitara, Hyundai
Terracan, Honda CR-V, Nissan X-Trail are just some MUVs/SUVs that have been
launched to cater mainly to the urban consumer. This new breed of UVs is not only
more stylish in looks, but is also more technology-intensive and provides better
driving comfort.
There is intense competition in the MUV market also. In fact, many MUV models
are pitted against several car models. For instance, the Toyota Qualis (launched
125
Strategic Insight
126
in 2000, and later withdrawn in 2005 with the launch of the Innova) was positioned
as an MUV with the attributes of a family car. Even the Mahindra Scorpio, for that
matter, was positioned as a car. Tata Motors also launched new versions of the
Sumo such as the Sumo+ and Sumo Ex+ as a personal transport vehicle in the
urban market.
Heightened competition in the utility vehicle market has forced companies to phase
out old models and roll out new ones. Within 3 years of the launch of the Qualis,
Toyota Kirloskar Motors launched an upgraded version in 2002. The company invested
around Rs 440 million in upgrading the vehicle. Toyota faced a new threat to Qualis
when M&M launched the aggressively-priced Scorpio. It was another factor that
prompted Toyota to upgrade the Qualis. Finally, the Qualis was withdrawn from the
market within 5 years of its launch, even when it was one of the largest-selling UV
models in India, only to be replaced with the Innova.
Mahindra & Mahindra is the market leader in the MUV market. The company first faced
competition when Maruti Suzuki launched the Gypsy in the mid-80s. Liberalisation
policies saw Tata Motors foray into this segment with the launch of the Sierra, Sumo
and Safari (in 1991, 1994, and 1998, respectively). Expectedly, with competition in
the market intensifying with several new entrants, M&Ms leadership position was
threatened. Currently, M&M holds a 41 per cent share (FY07) in the MUV segment.
Chinese firms entering India through tie-ups

Apart from the used vehicles market, the passenger vehicles industry also faces a
threat from potential new entrants, particularly from countries like China, which
are experiencing an over-capacity situation in their home markets, and are therefore
looking out for new markets. Some Chinese auto companies plan to enter the Indian
market with local partners. For instance, Guangzhou Motors Company of China
recently (in early 2007) signed an MoU with the Kolkata-based Xenitis Group, to set
up an automobiles manufacturing unit (for cars, trucks, and buses) in the Hooghly
district, West Bengal. The Xenitis Group, which started operations in early 2000 in
the infotech business, diversified into automobiles in 2007 by collaborating with
Guangzhou. It also plans to manufacture cars, buses, and trucks by 2008. Chery
Automobiles of China is likely to join hands with the Delhi-based International Cars
& Motors Ltd (manufacturers of the Rhino brand of MUVs) to roll out its cars in India
in the next year. These are indications of the impending threat of potential entrants
that the Indian industry faces, not only in the passenger vehicles industry, but across
segments in the automobiles industry.
With the entry of foreign players and greater market competition, new segments
have emerged in the passenger vehicles industry. The intensity of competition often
results in company margins being adversely affected. In such a scenario, containing
costs is critical for survival. Players are adopting various strategies to achieve their
goals. Several players such as Maruti Suzuki, Tata Motors, M&M, among others, have
adopted cost reduction programmes. One of their key strategies is to increase the
localisation of content (using locally-manufactured parts instead of imported ones) in
their vehicles. Additionally, the growing focus of firms on export is indirectly helping
them reap economies of scale. Apart from traditionally export-focused players such
as Hyundai and Maruti, players like Tata Motors and M&M have also, in the recent
years, increased focus on overseas markets. High volumes of output to meet growing
demand in the domestic market as well as increased thrust on exports are expected to
benefit these firms in the future also.
Common platforms: Key to saving on costs and time

In a dynamic industry such as the passenger cars industry in India, customers demand
more choice and companies have to churn out newer models/variants rapidly.
Developing a new platform involves huge investments in terms of money, time,
and manpower. In such a scenario, players are launching new models and variants
based on common platforms. Rolling out different vehicles using the same platform
provides cost and time advantages to players. Tata Motors, for instance, developed the
Indica, Indigo and the Indigo Marina on the same indigenously developed platform.
Similarly, market leader Maruti Suzuki developed three products the Alto, WagonR
and the recently-launched Zen Estilo all on a single platform. This has provided
Maruti Suzuki with tremendous manufacturing and cost advantages. This is a practice
followed globally by auto companies. Since design is a huge cost in any car, using the
same platform cuts costs to a large extent.
Another key cost-reduction strategy is to rationalise the vendor base. For instance,
Maruti and Tata Motors had, in the past, undertaken vendor rationalisation, which
helped them save the cost and time involved in dealing with a large number of
vendors. Some players such as Maruti use common auto parts for some of their
different vehicle models (Alto and WagonR). In a competitive scenario, when prices
cannot be hiked to the extent that the players want, it is vital to reduce costs and
improve productivity. Maruti Suzuki, Tata Motors, Hyundai Motors, and M&M, among
others, have employed productivity improvement programmes. These measures have
also been complemented by some firms by introducing manpower rationalisation
programmes (or VRS). Maruti, Tata Motors, and M&M are among the leading players
that have adopted workforce reduction programmes.
Need for product differentiation

Although firms in this market manufacture similar products (passenger vehicles: car
or MUV/SUV), there is high differentiation based on style, price, brand image, quality,
performance, after-sales service, and other features such as safety, comfort etc.
For instance, Swedish auto major Volvo launched its passenger vehicles in India in
the second half of 2007 the sedan S80 and the sports-utility vehicle XC90. For its
passenger vehicle models, Volvo is leveraging on the high brand awareness created
with its range of commercial vehicles. It intends to use vehicle safety as the product
differentiator for its cars in the Indian market.
Companies differentiate their products in terms of features or the technology used
in the vehicle. However, most companies are backed by their foreign parent/partner
and have access to sophisticated technology, and also have the capability to offer
similar features. Thus, product differentiation in terms of features and technology is
somewhat blurred.
127
Strategic Insight
128
Maruti Suzuki leverages its image as a supplier of fuel-efficient, value-for-money (VFM)

cars. Low maintenance costs of its vehicles and easy availability of genuine parts are
some of its other key strengths.
Advertising: Key tool in product differentiation

Advertising and promotion is a key method to achieve product differentiation. The Indian
passenger vehicles industry remains one of the most competitive. As per a study by
The Nielsen Company, India ranked third among 12 countries in the Asia-Pacific region
on Automobile Advertising Expenditure in 2006. India accounted for the highest share
(nearly 15 per cent) of total automobiles advertising spending in 12 countries in Asia
Pacific, after China and Australia. In fact, Tata Motors is among the top 10 advertisers
(in automobiles advertising spending by firms) as per the study.
Table 10.1 Automobiles advertising expenditure*

Country
China
Spending
Share (per cent)
1,855,653
47.0
Australia
677,257
17.2
India
577,770
14.6
South Korea
216,840
5.5
Thailand
118,531
3.0
New Zealand
111,875
2.8
Hong Kong
98,189
2.5
Malaysia
73,762
1.9
Indonesia
67,648
1.7
Taiwan
64,863
1.6
Singapore
55,628
1.4
Philippines
27,369
0.7
3,945,385
100.0
Total Spending
*(US$ 000)
Source: www.acnielsen.com
Expenditure on advertising and marketing typically increases sharply when a new model
is launched. With players lining up new models for launch in the coming few years,
competition is expected to intensify further, as also the advertising spend. A study of
advertising and marketing expenses of Maruti, Tata Motors, Hyundai Motors, Honda
Siel, M&M, and Hindustan Motors reveals that Tata Motors spends the most on such
activities (Rs 4.98 billion in FY06), followed by Maruti (Rs 2.49 billion) and Hyundai
Motors (Rs 2.47 billion). While Tata Motors advertising and marketing expenses were
21.7 per cent higher than that incurred in FY05, those of Maruti and Hyundai were 911
per cent higher over that in the preceding year. M&M, the marker leader in the MUV
segment, expended Rs 1.97 billion during FY06 on advertising and marketing, which
was 2 per cent lower than that spent in FY05.
It is interesting to note that among these six companies, Honda Siels spending on
advertising and marketing activities grew by a whopping 218 per cent (FY06 vis--vis
FY01). Greater competition and new launches (such as the new Honda City in 2003
and the City ZX launched in 2005) pushed up the companys expenses on this front.
Market leader Maruti Suzuki, on the other hand, saw a meagre 3 per cent increase
129
in advertising/marketing expenses (FY06 over FY01). However, with Marutis plan of

launching five new models in 5 years starting 2006, its advertising/marketing expenses
are likely to increase over the next few years.
Nevertheless, product differentiation is not a deterrent to the entry of new firms as
the products within the same segment are close substitutes. However, the presence
of multiple players within a segment, offering close substitutes, results in low brand
loyalty from consumers. Add to that the aggressive marketing and pricing strategies of
firms to pull customers. Thus the intensity of competition in the market has increased
buyers bargaining powers.
Greater inter-firm rivalry

The Indian passenger vehicles market witnesses high inter-firm rivalry. This is despite
the high market concentration (over 80 per cent) among the top twothree players
both in the passenger car and in the MUV market. Not only do the smaller firms have
to fight for the remaining fragmented share in the market, even leading players have to
compete hard to retain/increase their respective market shares. In fact, for some leading
players (including Maruti Suzuki, Tata Motors etc), advertising and marketing expenses
are growing at a faster rate than sales. The chart below depicts the same:
Chart 10.1 Growth: Sales* vs. advtg/mktg expenses (FY06)

25
21.7
20
16.2
16.5
15
10.5
11.3
10
9.1
5
0
Maruti Suzuki
Tata Motors
Sales Advtg/Mktg Expenses
Hyundai Motors
*Revenues
This trend (of advertising/marketing expenses growing at a faster rate than sales) is a
cause for concern. Without any imminent respite from the strong competitive forces
operating in the market, the industry as a whole would witness pressure on margins
as competition is expected to intensify, going forward.
The degree of rivalry is further heightened by the high fixed costs associated with
manufacturing such vehicles and the low switching costs for consumers when
purchasing different models. Rivalry among firms is so high that players engage in
price wars to attract customers that is, when a certain player launches a new vehicle
model, manufacturers of existing models in the same category slash prices to make
their products more attractive to potential customers. Players are willing to go to such
extreme lengths due to intense market competition, and the strategy often reflects
on their bottomline. In the long run, this is not a practical strategy to be adopted
Strategic Insight
130
by companies, particularly for those operating in the low-margin, high-volume entry

level segment, which remains the most competitive. This vicious cycle may even leave
the whole industry worse off on the profitability front, in the long run.
Low threat from other modes of transportation

The passenger vehicles industry in general faces a low degree of threat from other
modes of transportation (buses, two-wheelers, auto-rickshaws, trains etc). Although
there are numerous modes of transportation available, none of them offer the utility
(luggage capacity), independence (personal time), convenience, and comfort offered
by a car or an MUV.
There are two other reasons for why this industry faces, and would continue to face,
low threat from substitutes. On the one hand, personal disposable incomes are growing
(due to rising income levels), and so is affordability, while the public transport system
remains highly inadequate vis--vis the transportation needs of the people. This is a
factor that boosts demand for personal means of transport. Also, owning a vehicle is
considered a status symbol in India, often irrespective of the necessity of owning one.
Limited bargaining power of auto component firms

In the relationship between auto component manufacturers and vehicle manufacturers,
the former have limited bargaining power. This is due to the presence of numerous
suppliers in the market, with a few among these manufacturing differentiated and/or
high-value-added products. More importantly, the auto industry being the key customer
group, most auto component manufacturers do not have a diversified customer base.
Also, some of these auto component firms, particularly smaller ones, depend heavily
on a few vehicle manufacturers for offtake, thereby making the former vulnerable to
the whims and fancies of the vehicle manufacturers. Although exports are a lucrative
option, not all component firms have the scale or capability to exploit this market. In
fact, Indian suppliers are vulnerable to imports from other low-cost destinations like
China, Thailand etc, which are already supplying auto parts to some Indian OEMs.
Indian auto parts suppliers also face a threat of backward-integration by OEMs, who
are aggressively trying to reduce costs and improve efficiencies.
Buyers enjoy bargaining power

The availability of multiple models at competitive prices and the low switching costs
(associated with selecting from among competing brands) for consumers gives them
the upper hand.
More action expected in SUV market

The SUV market is expected to see the launch of at least eight new models/variants in
the next 23 years. Volvo Motors, BMW, Skoda, GM, Hyundai, and Tata Motors are a
few of the players that are planning new launches. Players are becoming aggressive
in this segment also. Recently (in July 2007), Maruti Suzuki launched a new version of
its premium SUV the Grand Vitara at an aggressive price of Rs 13.814.8 lakh
(ex-showroom Delhi). This makes the SUV cheaper than competing brands such as the
Honda CR-V (Rs 17.8 lakh), and the Ford Endeavour and Hyundai Tucson, which are
priced at Rs 14.518.0 lakh.
Competition stiffer for domestic share than exports

Players in the passenger vehicles industry do not compete with each other as much
for exports sales as they do for augmenting their share in the domestic market. And
this is mainly because the bulk of exports goes towards meeting the overseas vehicle
demand of the parent companies. For example, both Maruti and Hyundai Motors are
the global sourcing hub for small cars for their parent companies, Suzuki of Japan and
Hyundai of Korea, respectively. Hyundai Motors India exports cars to over 65 countries
worldwide.
Barring Hyundai Motors and Ford India, for the remaining passenger vehicle
companies, exports account for less than 10 per cent of total sales volume (domestic
plus exports). For Hyundai and Ford, this share is as high as 3637 per cent, as their
parent companies are exploiting the low cost advantage offered by India. In order to
reap the benefits of economies of scale, the other players must look at exports more
aggressively.
Competition to intensify in small and mid-size segments

The small car segment will see further competition in the next few years, as many
players are planning to launch new models in this segment. At least 13 new small cars
are expected to be rolled out on the Indian roads in the next 3 years. And almost each
of these cars is going to be in the price bracket Rs 15 lakh.
The mid-size segment will not be far behind. This is the second most important segment
(after small cars) that players compete in. Although this segment recorded modest
sales growth in the last 2 years (5.8 per cent in FY06 and FY07), we expect growth to
accelerate, going forward. As income levels rise and affordability improves, consumers
are bound to upgrade from small or compact cars to bigger ones. Looking at the huge
potential of this segment, which also brings in better margins for car companies as
compared with compact cars, a slew of launches have been planned in this segment for
the next 34 years. Around nine new models are likely to be rolled during 20082010
in the mid-size/sedan category.
Therefore, for the consumer, it implies a wider range of models and better bargaining
power. For the industry, it translates into an expansion in the market as consumers
would lap up the new launches, as economic growth and income level growth are
expected to continue at a healthy rate. The implication for players is to again play
the volumes game, produce at minimum possible cost, without compromising on
safety and environment norms, and expend heavily on advertising and promotional
activities to differentiate their products from the flood of competing models. In such
a scenario, players would be left with no choice but to focus on increasing efficiency,
reducing costs and tap the export markets, so as to remain competitive, survive, and
grow eventually.
To summarise, our outlook on the competitive scenario is that competition in the
passenger vehicles market is expected to heat up further, especially in the small, midsize, and luxury car segments, and SUV market, all of which are expected to witness
several new launches in the coming years. For the overall passenger vehicles market,
competitive pressures are likely to intensify due to rising costs, shortening product life
131
Strategic Insight
132
cycles, the plethora of new models lined up for launch, the likely entry of more foreign
players (such as Chery of China), the growing pre-owned vehicles market, more OEMs
entering the pre-owned vehicles market, and growing consumer awareness and
aspirations.
Table 10.2 New launches lined up for 2008
Sr. No.
Company
Vehicle type
Model name
Bentley Motors Ltd
Mid-size sedan
Jetta
BMW India Pvt Ltd
Sports car
M series
Chery Automobiles
Small car
N.A.
Luxury car
Mercedes C Class
Fiat India Pvt Ltd
Sedan
Grand Punto
C-segment car
Linea
Ford India Pvt Ltd
Premium
mid-size sedan
Focus
Small car
Chevy Beat
Global Automobiles (in collaboration

with Guangzhou Motors)
Compact car
N.A.
Car
Civic (Hybrid)
10
Small car
Pa
Compact car
Santro (LPG)
Car
i20
Sedan
Swift
Compact car
Splash
Compact car
Concept A-Star
SUV
Cayenne GTS
11
12
Porsche Cars India Pvt Ltd
Sports car
Cayman S
13
Small car
Fabia
14
Tata Motors Ltd
Small car
Nano
Compact car
Indica (next
generation)
15
Executive car
Corolla (new model)
16
Volvo Car India
C-segment car
C 30
C-segment car
C 70
N.A. Not Available

Maruti Suzuki: A case study

Maruti enjoys several competitive advantages, and thereby cost leadership over its
peers, with size as the key. The company has the first-mover advantage. Being one
of the first entrants in the passenger vehicles market, Maruti ramped up production
capacities in a phased manner. It has the largest installed production capacity among
its peers. More importantly, it has a presence in several passenger vehicles segments,
unlike most of its peers who have a presence in just one or two segments.
Also, since it was set up as a JV between the Government of India and Suzuki of Japan,
it enjoyed certain concessions and unstinting government support. Another strategy
that Maruti adopted right since establishment is to source component requirements
locally. The company has also cut costs by adopting modern manufacturing practices
and inventory management systems (just-in-time delivery etc).
To make available fuel-efficient, VFM cars, Maruti has adopted various cost-reduction
programmes and productivity improvement programmes (such as the Challenge
133
50 campaign undertaken during FY02-FY05). It has also undertaken vendor

rationalisation programmes and increased the localisation content of its vehicles.
This has helped the company achieve cost reductions at various levels. Maruti Suzuki
enjoys higher profit margins vis--vis many of its peers.
Table 10.3 Margins* of Maruti vs. peers (per cent)
Companies
Operating Margin
Net Margin
11.6
5.9
14.3
6.3
13.1
9.2
16.6
9.3
Tata Motors Ltd
13.6
6.9
*FY06
Marutis efforts to adopt its Japanese parents production management techniques

and supplier relationship strategy at its Gurgaon plant helped the company achieve
high levels of efficient production and product quality.
Chart 10.2 Maruti: Hours required to produce a vehicle

100
Index of hours
100
76.17
80
59.36
60
46.12
41.86
37.95
Mar'05
Mar'06
40
20
0
Apr'01
Mar'02
Mar'03
Mar'04
Source: Annual Report FY06, D&B Industry Research Service
Chart 10.3 Maruti: Warranty claims ratio

100 %
100
77
80
62
60
50
37
40
26
24
21
FY04
FY05
FY06
20
0
FY99
FY00
FY01
FY02
FY03
Note: The chart is indexed to FY99 warranty claim ratio

Source: Annual Report FY06, D&B Industry Research Service
Given the already intense level of competition in the passenger vehicles market, and the
expected addition to the same in the coming years, Marutis cost leadership strategy is
expected to further work to its advantage, going forward. In the long run, when the
industry matures, the company that is able to produce more cheaply (vis--vis competitors)
Strategic Insight
134
would also remain profit-making for a longer period of time. When competition peaks
and players wage price wars (when one company slashes price, others follow suit), the
lower-cost producers are at a more advantageous position as they can absorb the loss
(from price cut) better.
Strategic Insight
136
Chapter 11
Risk Assessment
The passenger vehicles industry in India has been growing at healthy rates since the
past few years; however, it remains vulnerable to a multitude of risk factors, which
could upset the industrys growth story going forward. While some of these risk
factors are inherent to the nature of the industry, some are beyond its control.
This chapter discusses the types of risks that the industry faces, and also analyses
the extent of risk posed by these factors on the industrys performance, survival,
and growth prospects. The risk assessment has been performed on a two-year
horizon.
Exhibit 11.1 Risk matrix: Passenger vehicles industry
RISK PARAMETERS
DEGREE
OF
RISK
Business risk
Competition risk
LOW
Domestic scenario Threat of

substitutes
Exports scenario
Threat of buyers
Technology
Threat of suppliers
MEDIUM
Export dependency
Input prices
Excess capacity
HIGH
Regulatory risk
Fiscal policies
Investment policies
Environment risk
Macroeconomic
scenario
Infrastructure
Threat of new
entrants
Threat of rivalry
Business risk
Demand risk
This parameter assesses the risk arising due to demand conditions, in both the
domestic market as well as the export market.
Domestic scenario: Low risk
Given the low penetration of passenger vehicles and the growth in per capita income
resulting in greater affordability, the demand outlook for passenger vehicles in the
domestic market is positive. Although the rise in interest rates has marginally affected
demand in the recent months, D&B Industry Research Service estimates interest rates
to come down in FY09, and expects the buoyancy in sales to continue over the medium
term. Hence, it can be concluded that the industry faces low risk on the demand front
in the domestic market.
Risk Assessment
Exports scenario: Low risk
Growing demand for small and fuel-efficient vehicles in the developed markets,
Indias proximity to other growing economies in Asia as well as emerging markets
such as Africa, coupled with Indias low-cost manufacturing capabilities in small
cars augurs well for the Indian passenger vehicle exports. Therefore, the passenger
vehicles industry faces low risk on the exports front.
Export dependency risk: Medium
This parameter assesses the risk arising from dependence on exports. Currently, the
share of exports in terms of production volumes as well as industry revenues is
less than 15 per cent. Given the aggressive export plans of the OEMs, D&B Industry
Research Service estimates that by FY09, the share of exports in the total sales
(domestic plus export volumes) of passenger vehicles would climb up to a significant
25 per cent from 13 per cent during FY07. This anticipated rise in the share of exports
coupled with the appreciated rupee would lead the industry to face a medium degree
of risk over the short term.
Excess capacity risk: High
This parameter assesses the risk arising out of the production capacity situation in
the industry. The industry is approaching an excess-capacity situation, as demand is
expected to be much lower than the available production capacity in 2010. As per D&B
Industry Research Service estimates, by 2010, the industry would have the capacity
to produce 3.6 million passenger vehicles vis--vis the current estimated capacity of
1.8 million units. In financial terms, this translates into investments to the tune of
Rs 190 billion (outstanding investments as of March 2007). The costs to be incurred
on putting up the additional capacities on the one hand and the idle capacity due
to the expected demand-supply mismatch on the other hand, do not augur well for
the industrys bottomline and margins. Thus, the risk emanating from excess capacity
front can be considered to be high.
Input price risk: Medium
This parameter assesses risk arising due to the industrys vulnerability to fluctuating
input prices. In general, input prices in the domestic market move in tandem with
international prices. So, any upward revision in input prices has a direct and significant
adverse impact on the industrys cost structure and profitability, as raw material costs
account for over 80 per cent of the industrys cost of sales. In the last few years, when
domestic prices went up sharply, the industrys profit margins came under pressure.
However, going forward, D&B Industry Research Service estimates that input prices
may rise in the near term, but not sharply, and therefore, the industry is likely to face
a medium degree of risk on the input price front.
Technology risk: Low
This parameter assesses the risk emanating from the industrys access to modern
technology and level of technology adoption. While certain domestic players such
as Tata Motors and Mahindra & Mahindra have robust, successful in-house product
137
Strategic Insight
138
development capability, most other OEMs have some form of tie-ups, either in terms
of R&D, design, or technology JVs, with global auto majors. This equips Indian auto
majors with access to the latest, modern technologies necessary to meet the changing
and dynamic needs of the consumers. Thus, the industrys vulnerability to technology
risk can be considered to be low.
Competition risk
Threat of new entrants: High
This parameter assesses the risk arising from potential new market entrants on industry
performance and business margins. Despite several entry barriers, new players continue
to enter the passenger vehicles market, as India is among the fastest growing markets
in the world. Apart from the threat from vehicle manufacturers in matured markets
of US and Europe, the Indian industry faces a high threat from potential new entrants
from low-cost manufacturing countries, particularly China, which is suffering from
over-capacity in its home market.
The entry of more players will bring in more models into the market, and consequently,
intensify competition. This would exert additional pressure on players to spend more
on advertising, and consequently, would pressure their profit margins. Hence, the
passenger vehicles industry is likely to face high threat from potential new entrants.
Threat of rivalry: High
This parameter assesses the risk arising from the extent of rivalry among firms. Market
competition is intense, and going forward, it is expected to heat up further as the
existing players have planned several new launches in the next 23 years. Also, a
few foreign firms are expected to enter the Indian passenger vehicles market with
aggressive launch plans. Greater competition and plans for new model launches imply
increased spending on advertising and promotional activities, while firms may not
be in a position to raise prices easily due to competitive pressures. This ultimately
indicates greater pressure on business margins. Thus, the industry is likely to face high
levels of rivalry in the future.
Threat of substitutes: Low
This parameter evaluates the risk posed by substitute modes of transport on the
demand for passenger vehicles. The passenger vehicles industry faces low threat from
substitute modes of transport, which include buses, two-wheelers, auto-rickshaws,
trains etc. This is because none of these alternate modes of transport offer the utility
(luggage capacity), independence (personal time), convenience, and comfort offered
by a car or an MUV. More importantly, personal disposable incomes are growing
(due to rising income levels) and so is affordability, while the public transportation
system continues to remain quite inadequate vis--vis the transportation needs of
the people.
Threat of buyers: Low
This parameter assesses the risk faced by the industry due to the bargaining power
of the consumers. In India, over 60 per cent of the cars sold each year belong to the
Risk Assessment
compact car segment, for which the middle class is the largest customer segment.
Aplethora of models are available in the market at competitive prices and the
switching costs for buyers are low, thereby giving them better bargaining powers.
Thus, this buyer segment (the middle income group) enjoys bargaining power with
the vehicle manufacturers. However, on account of the large market size, the industry
as a whole faces a low degree of risk from buyers.
Threat of suppliers: Low
This risk parameter assesses the threat posed by the auto component suppliers.
There are many auto component suppliers in India, with just a few that manufacture
differentiated and high-value-added products. So there is intense competition amongst
them, in addition to the pressure exerted by OEMs to moderate pricing and cut down
on costs. Hence, OEMs enjoy bargaining power over auto component suppliers. More
importantly, component suppliers also face the threat of backward-integration by
OEMs, who are aggressively trying to minimise costs and improve efficiencies. Thus,
the industry faces low risk from auto component suppliers.
Regulatory risk
Risk from fiscal policies: Low
This parameter evaluates the risk arising from changes in fiscal policies on the industrys
performance. The governments fiscal policies have aimed at boosting demand for
passenger vehicles in the country and to develop India as the preferred destination
for sourcing small and affordable cars. The government has been steadily bringing
down excise duty rates on PVs, to increase affordability. Certain categories of small
cars enjoy concessional excise duty rates, and the government and industry are in talks
to lower duty rates on other categories of cars also. If such a plan is implemented, the
industry stands to benefit immensely.
Other government measures such as incentives for in-house R&D etc remain conducive
for the industrys growth. Import duty on passenger vehicles continues to be maintained
at a high level to protect the domestic industry. Although passenger vehicles fall under
the category of unbound items, import duty is not expected to plummet in the near
future. Thus, the industry continues to face low risk from changes in governments
fiscal policies.
Risk from investment policies: Low
This parameter evaluates the risk arising from changes in investment policies on
the industrys performance. The Auto Policy 2002 aims at establishing a globally
competitive automotive industry in India. It aims to establish India as an international
hub for manufacturing small and affordable cars. The liberal FDI policies and favourable
investment norms for new entrants has resulted in the entry of several new players into
the market, despite the entry barriers. The pro-active government policies have led to
growth, expansion, and international recognition of the Indian vehicle manufacturing
industry, and these policies would continue to remain supportive and progressive
for the industrys future growth as well. Hence, the industry faces low risk from the
governments investment policies.
139
Strategic Insight
140
Environment risk
Risk from macroeconomic scenario: Low
This parameter assesses the industrys vulnerability to the macroeconomic situation
in the country. The Indian economy has been growing at a healthy rate since the past
few years. The agricultural sector fared well in the last couple of years, and so did
sales of utility vehicles. D&B Industry Research Service expects this positive trend to
continue, which is bound to positively affect the demand for PVs.
The industrial sector has been recording buoyant growth on the back of robust
performances in the manufacturing sector. The manufacturing sector has been
attracting more investments each year. Given the positive outlook on the overall
economys performance in the near-to-medium term, we expect the passenger vehicles
industry to face low risk on this front.
The industry has been affected by the appreciation of the rupee (against the US dollar)
over the recent months. However, we do not expect the rupee to appreciate further,
and expect the domestic market to continue to be the primary focus for OEMs. Hence,
the exchange rate scenario is not likely to have any major impact on overall industry
revenues.
Risk from infrastructure: Medium
This parameter assesses the risk arising from the state of infrastructure in the country
and its impact on the industrys functioning as well as growth prospects. Infrastructure
in India is highly inadequate and poorly maintained. Currently, Indian ports are
congested and are incapable of handling high volumes of vehicles, and while road
infrastructure is undergoing a revamp, the pace is extremely slow. If India wants to
leverage its position as a leading global sourcing hub for small cars, then infrastructure
has to be developed to match global standards. Unless a robust infrastructure is
developed at a fast pace, the industry would continue to face a medium degree of
risk arising from the lack of proper infrastructure facilities.
Strategic Insight
142
Chapter 12
Outlook
Robust outlook on domestic demand
D&B Industry Research Service is optimistic about the near-term outlook on the
passenger vehicles industry. After a modest 7.2 per cent growth in sales in FY06,
domestic car sales bounced back in FY07, recording a sharp 22.2 per cent growth.
Even after this stellar performance, there seems to be no slack in the momentum. The
first 9 months of FY08 have seen a healthy 13.8 per cent growth in car sales over that
in AprilDecember FY07. We expect the growth momentum to continue for the rest
of the year and FY08 to end with growth of 14.5 per cent. Compact cars and mid-size
cars would together dominate sales, while luxury car sales are expected to witness
heightened demand. D&B Industry Research Service expects FY09 to be a good year
for the passenger cars industry, with domestic sales expected to grow by a robust
12.5 per cent over sales in FY08.
Chart 12.1 Growth in car sales (domestic)
25
22.2
20
14.5
15
12.5
10
5
0
FY07
FY08E
FY09E
E: D&B Industry Research Service estimate

The MUV segment has also witnessed a trend similar to that in passenger cars. In fact,
after a growth of over 20 per cent in FY04 and FY05, this segment posted healthy
sales growth at 10.3 per cent and 13.2 per cent in the following 2 years. Growth
during AprilDecember 2007 was 10.9 per cent. After 24 consecutive months of y-o-y
growth, MUV sales declined in December 2007. D&B Industry Research Service expects
FY08 to conclude with domestic MUV sales of 0.24 million units, representing growth
of 11 per cent over sales in FY07. D&B Industry Research Service also expects 11 per cent
growth in domestic sales of MUVs in FY09.
The healthy macroeconomic factors would continue to drive demand for passenger
vehicles as a whole. As per D&B Industry Research Service estimates, the Indian economy
Outlook
143
(GDP) is expected to grow by an average rate of 8.7 per cent during FY08 and FY09.
Along with traditional drivers such as economic growth, moderation in interest rates,
and growing incomes (PDI), sales of new vehicles would receive a boost from new model
launches, the growing used-vehicles market, and a declining replacement cycle. Although
moving at a slow pace, the infrastructure development activities being implemented
across the country, growing urbanisation and the increasing mobility needs of people
would stimulate the demand for cars and utility vehicles, going forward.
Chart 12.2 Growth in MUV sales (domestic)
14
13.2
12
11.0
11.0
FY08E
FY09E
10
8
6
4
2
0
FY07

However, the industry does face a few concerns. Interest rates started firming up since the
beginning of 2007. From 11.50 per cent at the end of 2006, the prime lending rate (PLR)
rose to 13.25 per cent in April 2007, and has remained at this level until December 2007.
Nevertheless, given the international interest rate cycle and the situation in the domestic
market, D&B Industry Research Service expects interest rates to come down marginally
in FY09. This is expected to provide the much-needed boost to vehicle demand.
Industry heading towards over-capacity

Car sales have been robust in the domestic market. Players have firmed up aggressive
export plans. In order to meet the growing domestic and export demand, vehicle
manufacturers are on an expansion spree. As per D&B Industry Research Service
estimates, currently (as of August 2007) the passenger vehicles industry has an
installed production capacity of 1.8 million units per annum. Additional capacities of
0.35 million units were scheduled to be added by end-2007. With the commencement
of the various projects announced/proposed/under implementation, the industry
is expected to have additional installed capacities to the tune of 0.24 million units
by end-2008; 0.52 million units by end-2009; and 0.71 million units by end-2010.
Thus, the industry would have an estimated capacity of 3.6 million units at the
end of 2010. As of March 2007, there were 23 investment projects in different
stages of implementation in the passenger vehicles industry, aggregating to around
Rs 190 billion (to be invested in the next 34 years).
The passenger vehicles industry seems to be fast approaching an over-capacity
situation. In FY07, passenger vehicle production peaked at 1.54 million units, with
the industry having an estimated production capacity of 1.8 million units. Even
assuming that production grows at an ambitious rate of 21.4 per cent which was
Strategic Insight
144
the average annual growth rate between FY04 and FY07 then post the production
of 2.80 million vehicles in 2010, the industry would be still left with an excess capacity
of 0.8 million units. Unfortunately, this also translates into the amount of capital
expenditure incurred by players to fund these expansion activities and the consequent
financial burden on them to repay funds.
Pie of exports set to swell

Even in the event of an unexpected slowdown in domestic demand, companies will
push their exports volumes. Leading exporters Hyundai Motors, for instance
are in fact augmenting capacities as they face supply constraints. Hyundai Motors
anticipates the export of 300,000 cars a year once its second plant becomes
operational. Maruti also has major export plans as it intends to export 200,000 cars
annually by FY09. Also, some global auto manufacturers have announced plans to
set up manufacturing bases in India. All these factors augur well for the Indian
passenger vehicles industry in the export arena.
Currently, passenger vehicle exports contribute 13 per cent (FY07), while domestic
sales contribute 87 per cent to total passenger vehicle sales volumes. As per D&B
Industry Research Service estimates, in FY09, nearly one-fourth of total passenger
vehicle sales (domestic and exports) will be made up by exports.
Chart 12.3 Composition: Domestic sales vs. exports

2.5
2.0
24% of sales
Mn nos
0.5
13% of sales
1.5
0.2
1.0
1.8
1.4
0.5
87% of sales
76% of
sales
0.0
FY07
Domestic
FY09E
Exports

Appreciation of the rupee against the US dollar adversely affected export revenues in
the first half of FY08. Nevertheless, D&B Industry Research Service does not expect the
rupee to appreciate further. The rupee-dollar exchange rates are expected to remain at
Rs 39.7540.25 during FY08 and at an estimated Rs 39.50-40.0 during FY09. Thus, the
overall impact of the estimated increase in share of export volumes in the industrys
total sales is expected to be positive for the passenger vehicles industry.
New model launches to be key demand driver

Another important factor expected to add to the demand for new vehicles is the slew
of new model launches and new versions lined up for the next 23 years. According
Outlook
to D&B Industry Research Service estimates, as many as 31 new models/variants of
cars/MUVs are expected to be launched in 2008, and another 16 models are likely
to be rolled out during 2009 to 2010. The increased availability of models and lower
interest rates are expected to drive sales in the near term.
Competition expected to intensify further

The availability of multiple models, along with variants, within the same category,
has led to competitive pricing and intensified competition among players in the last
few years. The industry witnessed the launch of as many as 50 new car/MUV models
between 1999 and 2007. With another 42 new models expected to be launched
during 2008 to 2010, market competition is slated to scale new levels.
The small, mid-size, and luxury car segments, and the SUV market are likely to experience
greater competition in the future as these categories will see several new launches in
the next few years. Competitive pressures in the overall industry are likely to intensify
due to increasing costs, shortening vehicle replacement cycles, new models lined up
for launch, the likely entry of more foreign players, the burgeoning pre-owned vehicles
market, more OEMs entering the pre-owned vehicles market, and growing consumer
awareness and demands/aspirations.
Revenues to grow, but margin pressure likely to continue

Given the buoyant outlook on domestic sales and high export potential, although
the industry is expected to record higher sales revenues in the future, the expansion
in profit margins may not be commensurate, because of increased cost pressures.
Expenditure on advertising and marketing/promotion activities is expected to increase
significantly as brand differentiation becomes more critical in the next 23 years, when
there will be an even greater number of vehicle models in the market. This would exert
further pressure on the industrys profitability. Moreover, several players have planned
large capital expenditures for the next few years (for capacity expansions etc), which
would add to their interest burden.
Vehicle manufacturers would have to continue with the volume game if they want
to earn profits, and would need to continue with their aggressive cost reduction
programmes if they intend to achieve significant improvement in profit margins. Thus,
although sales revenues will continue on an upward journey, margins are unlikely to
grow at the same rate.
With the large-scale capacity expansion plans announced by companies and the
imminent threat of over-capacity, the government, to boost demand, should reduce
excise duty on all categories of cars (a certain category of small cars already enjoys
a concessional excise duty rate of 16 per cent) from the current level of 24 per cent.
Providing greater export benefits/incentives and improved infrastructure would also
help vehicle manufacturers boost overall sales volumes.
145
Annexures
146
Annexures
Table A1: Trend in car statistics
Period
Production
Volume
Domestic sales
Change (%)
Volume
Exports
Change (%)
Volume
Change (%)
Nov-06
112,328
10.1
95,651
4.5
13,726
7.1
Dec-06
90,797
19.2
87,556
8.5
17,720
29.1
Jan-07
125,969
38.7
112,091
28.0
15,665
11.6
Feb-07
123,564
1.9
100,663
10.2
15,243
2.7
Mar-07
135,994
10.1
122,856
22.0
17,930
17.6
Apr-07
116,921
14.0
89,052
27.5
14,048
21.7
May-07
120,937
3.4
103,418
16.1
14,730
4.9
Jun-07
112,457
7.0
102,145
1.2
16,583
12.6
Jul-07
127,064
13.0
97,334
4.7
19,375
16.8
Aug-07
128,780
1.4
107,724
10.7
19,312
0.3
Sep-07
117,090
9.1
113,227
5.1
15,230
21.1
Oct-07
132,071
12.8
115,235
1.8
16,257
6.7
Nov-07
125,060
5.3
111,235
3.5
15,550
4.3
Apr-Nov FY07
846,434
18.9
736,501
22.4
127,495
11.8
Apr-Nov FY08
974,442
15.1
840,870
14.2
131,524
3.2
1,322,739
18.9
1,159,499
22.2
194,075
13.4
FY07
Table A2: Production of cars, MUVs, and PVs

Year
Cars
Volume
FY72
39,610
FY73
FY74
Multiutility vehicles
Change (%)
Volume
Passenger vehicles
Change (%)
Volume
Change (%)
9.9
11,230
14.0
50,840
10.8
36,990
6.6
13,000
15.8
49,990
1.7
42,270
14.3
12,360
4.9
54,630
9.3
FY75
30,900
26.9
9,630
22.1
40,530
25.8
FY76
21,660
29.9
7,130
26.0
28,790
29.0
FY77
36,330
67.7
8,370
17.4
44,700
55.3
FY78
34,260
5.7
9,190
9.8
43,450
2.8
FY79
33,330
2.7
11,500
25.1
44,830
3.2
FY80
33,000
1.0
12,770
11.0
45,770
2.1
FY81
31,280
5.2
15,670
22.7
46,950
2.6
FY82
42,480
35.8
17,870
14.0
60,350
28.5
FY83
43,560
2.5
20,230
13.2
63,790
5.7
FY84
46,900
7.7
21,680
7.2
68,580
7.5
FY85
76,090
62.2
23,210
7.1
99,300
44.8
FY86
102,800
35.1
27,960
20.5
130,760
31.7
FY87
125,870
22.4
28,780
2.9
154,650
18.3
FY88
151,880
20.7
32,040
11.3
183,920
18.9
FY89
165,800
9.2
35,750
11.6
201,550
9.6
FY90
179,280
8.1
44,310
23.9
223,590
10.9
Annexures
147
Table A2: Continued

Year
Cars
Volume
Change (%)
Volume
Passenger vehicles
Change (%)
Volume
Change (%)
FY91
181,820
1.4
37,370
15.7
219,190
2.0
FY92
166,390
8.5
31,530
15.6
197,920
9.7
FY93
163,300
1.9
39,180
24.3
202,480
2.3
FY94
207,660
27.2
49,840
27.2
257,500
27.2
FY95
264,470
27.4
49,680
0.3
314,150
22.0
FY96
348,150
31.6
67,640
36.2
415,790
32.4
FY97
407,540
17.1
134,590
99.0
542,130
30.4
FY98
401,002
1.6
134,653
535,655
1.2
FY99
390,709
2.6
113,328
15.8
504,037
5.9
FY00
577,347
47.8
124,308
9.7
701,655
39.2
FY01
513,415
11.1
127,519
2.6
640,934
8.7
FY02
564,052
9.9
105,667
17.1
669,719
4.5
FY03
608,851
7.9
114,479
8.3
723,330
8.0
FY04
843,235
38.5
146,325
27.8
989,560
36.8
FY05
1,027,858
21.9
182,018
24.4
1,209,876
22.3
FY06
1,112,794
8.3
196,506
8.0
1,309,300
8.2
FY07
1,322,739
18.9
222,111
13.0
1,544,850
18.0
Note: -Share is negligible

Table A3: Domestic sales of cars, MUVs, and PVs

Year
Cars
Volume
Change (%)
Volume
Passenger vehicles
Change (%)
Volume
Change (%)
FY96
316,639
29.6
63,500
34.5
380,139
30.4
FY97
373,829
18.1
132,516
108.7
506,345
33.2
FY98
388,213
3.8
130,368
1.6
518,581
2.4
FY99
384,483
1.0
109,063
16.3
493,546
4.8
FY00
615,318
60.0
118,323
8.5
733,641
48.6
FY01
567,728
7.7
122,832
3.8
690,560
5.9
FY02
570,863
0.6
104,253
15.1
675,116
2.2
FY03
593,578
4.0
113,620
9.0
707,198
4.8
FY04
755,708
27.3
146,388
28.8
902,096
27.6
FY05
885,212
17.1
176,360
20.5
1,061,572
17.7
FY06
948,574
7.2
194,502
10.3
1,143,076
7.7
FY07
1,159,499
22.2
220,199
13.2
1,379,698
20.7
Table A4: Category-wise exports of cars, MUVs, and PVs

Year
Cars
Volume
Multi-utility vehicles
Change (%)
Volume
Change (%)
Passenger vehicles
Volume
Change (%)
FY97
37,161
28.8
2,044
17.2
39,205
25.2
FY98
29,722
20.0
3,288
60.9
33,010
15.8
FY99
25,468
14.3
2,654
19.3
28,122
14.8
FY00
23,272
8.6
5,148
94.0
28,420
1.1
FY01
22,990
1.2
4,122
19.9
27,112
4.6
FY02
50,088
117.9
3,077
25.4
53,165
96.1
FY03
70,828
41.4
1,177
61.7
72,005
35.4
FY04
126,242
78.2
3,049
159.0
129,291
79.6
FY05
161,897
28.2
4,505
47.8
166,402
28.7
FY06
171,083
5.7
4,489
0.4
175,572
5.5
FY07
194,075
13.4
4,403
1.9
198,478
13.0
N.A.
Ford India Pvt Ltd
N.A.
390,709
Note: N.A. Not Applicable

*Data not exhaustive
Industry total
4,498
N.A.
Tata Motors Ltd
330,395
N.A.
18,056
N.A.
20,248
3,240
9,869
Fiat India Pvt Ltd
1,188
FY99
Company
577,347
N.A.
56,926
N.A.
398,669
N.A.
75,410
N.A.
26,673
3,108
N.A.
16,039
436
FY00
513,415
N.A.
49,239
N.A.
342,248
N.A.
86,950
N.A.
25,774
8,324
N.A.
880
FY01
Table A5: Company-wise car production* (volume)
564,052
N.A.
64,328
N.A.
351,974
N.A.
93,888
10,568
19,397
7,964
14,307
1,412
FY02
608,851
1,350
81,821
N.A.
356,457
N.A.
112,527
13,773
18,524
7,553
15,562
1,057
FY03
843,235
9,270
118,217
3,427
469,475
N.A.
170,942
19,995
14,424
15,172
20,604
1,600
FY04
1,027,858
10,423
154,331
7,429
535,064
N.A.
226,532
36,156
14,373
16,074
25,596
1,812
FY05
1,112,794
8,592
169,875
9,767
567,992
N.A.
260,251
41,371
14,909
12,292
25,294
671
1,780
FY06
1,322,739
6,621
195,482
12,748
663,289
614
314,604
59,152
12,523
14,515
39,423
1,715
2,053
FY07
148
Annexures
3,520

N.A.
615,318
384,483
55,151
N.A.
376,643
75,648
9,684
26,860
3,029
8,023
20,589
601
39,021
FY00
N.A.

Industry total
3,224
N.A.
Tata Motors Ltd
17,648
303,077
9,631
20,115
3,233
Ford India Pvt Ltd
10,101
1,116
10,121
FY99
Fiat India Pvt Ltd
Daewoo Motors India Ltd
Company
567,728
N.A.
44,055
N.A.
329,438
80,961
9,997
25,677
8,183
17,922
9,370
716
41,409
FY01
Table A6: Company-wise domestic car sales* (volume)

0
570,863
N.A.
64,136
N.A.
335,470
87,822
10,921
19,571
8,541
15,131
21,277
1,399
FY02
0
593,578
1,761
79,360
N.A.
326,941
103,536
13,300
17,833
8,240
15,385
25,936
1,109
FY03
0
755,708
10,685
108,138
3,712
417,392
129,472
20,459
14,920
17,808
21,025
10,428
1,640
FY04
0
885,212
10,873
144,827
7,269
482,198
141,821
35,680
14,601
15,649
24,845
5,417
2,018
FY05
0
948,574
9,660
150,951
10,082
522,664
157,731
40,869
14,893
11,667
27,047
1,245
1,765
FY06
1,159,499
7,784
179,000
12,444
632,408
194,870
59,452
12,481
16,986
39,822
2,198
2,054
FY07
Annexures
149
Annexures
150
Table A7: Company-wise market share in domestic car sales* (per cent)
Company
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
Daewoo Motors India Ltd
2.6
6.3
7.3
0.0
0.0
0.0
0.0
0.0
0.0
DaimlerChrysler India
Pvt Ltd
0.3
0.1
0.1
0.2
0.2
0.2
0.2
0.2
0.2
Fiat India Pvt Ltd
2.6
3.3
1.7
3.7
4.4
1.4
0.6
0.1
0.2
Ford India Pvt Ltd
0.8
1.3
3.2
2.7
2.6
2.8
2.8
2.9
3.4
General Motors India

Pvt Ltd
0.9
0.5
1.4
1.5
1.4
2.4
1.8
1.2
1.5
5.2
4.4
4.5
3.4
3.0
2.0
1.6
1.6
1.1
2.5
1.6
1.8
1.9
2.2
2.7
4.0
4.3
5.1
4.6
12.3
14.3
15.4
17.4
17.1
16.0
16.6
16.8
78.8
61.2
58.0
58.8
55.1
55.2
54.5
55.1
54.5
N.A.
N.A.
N.A.
N.A.
N.A.
0.5
0.8
1.1
1.1
0.8
9.0
7.8
11.2
13.4
14.3
16.4
15.9
15.4
N.A.
N.A.
N.A.
N.A.
0.3
1.4
1.2
1.0
0.7
Tata Motors Ltd

Toyota Kirloskar Motor
Pvt Ltd

Table A8: Passenger cars: Segment-wise share of firms in domestic sales (per cent)
Segments
Mini
Compact*
Fiat India Pvt Ltd
FY02
FY03
FY04
FY05
FY06
FY07
25.3
24.1
22.2
13.1
9.4
6.8
100.0
100.0
100.0
100.0
100.0
100.0
48.2
50.4
48.9
56.1
60.4
64.9
7.4
7.8
2.6
0.8
0.1
0.2
N.A.
N.A.
0.9
0.5
0.1
0.3
24.7
27.7
27.1
22.8
21.7
21.8
42.3
40.3
47.7
54.7
58.5
58.5
Tata Motors Ltd
23.3
24.2
21.7
21.3
19.5
19.2
Mid-size
14.7
15.6
18.4
19.9
19.6
17.0
Fiat India Pvt Ltd
1.1
2.8
0.5
0.8
0.2
0.3
Ford India Pvt Ltd
17.5
16.2
15.0
14.1
14.5
20.2
10.2
8.7
10.1
6.1
2.5
5.4
23.3
19.3
10.7
8.3
8.0
6.3
11.4
13.0
13.2
18.6
20.2
20.5
21.1
20.7
20.3
13.0
16.3
14.7
15.4
12.0
10.2
16.8
17.1
15.1
Tata Motors Ltd
N.A.
7.4
20.1
22.3
21.1
17.4
Executive*
0.2
0.4
1.9
2.9
2.9
3.5
94.9
27.8
5.4
3.5
3.0
2.1
N.A.
N.A.
N.A.
10.8
22.3
9.4
5.1
2.1
0.3
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
39.7
N.A.
N.A.
N.A.
18.6
7.8
3.6
N.A.
N.A.
25.9
28.1
34.7
28.6
N.A.
59.1
66.6
38.9
32.2
16.6
0.8
0.7
0.7
0.7
0.7
0.5
9.9
10.4
14.3
16.4
13.7
15.7
10.7
10.9
2.7
0.7
0.4
N.A.
Premium
Ford India Pvt Ltd
Annexures
151
Table A8: Continued

Segments
FY02
FY03
FY04
FY05
FY06
FY07
29.7
31.4
38.9
51.8
53.2
45.7
49.7
36.1
22.9
15.0
11.7
9.5
N.A.
N.A.
N.A.
0.9
8.4
12.3
N.A.
11.2
21.3
15.2
12.7
16.8
100.0
100.0
100.0
100.0
100.0
100.0
10.9
8.9
8.0
7.5
7.1
7.3
Luxury
Multi-purpose vehicles
0.3
0.3
N.A.
N.A.
99.7
99.7
99.9
99.9
99.9
99.9

Share is negligible
Table A9: Company-wise MUV production (volume)

Company
FY99
FY00
FY01
FY02
FY03
FY04
5,000
4,435
3,805
Ford India Pvt Ltd
N.A.
N.A.
N.A.
N.A.
N.A.
648
2,470
1,825
2,028
General Motors
India Pvt Ltd
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
13,608
18,405
22,364
2,898
2,604
2,340
1,397
1,065
833
293
206
958
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
215
N.A.
Mahindra &
Mahindra Ltd
65,118
70,487
56,792
44,031
52,034
69,183
82,636
87,647
91,216
Maruti Suzuki
India Ltd
7,704
8,899
5,869
5,153
3,503
3,433
5,324
4,105
3,646
Tata Motors Ltd
32,337
32,719
32,124
25,693
25,493
33,348
36,749
40,378
50,074
Toyota Kirloskar
Motor Pvt Ltd
N.A.
3,580
25,394
24,958
28,579
31,827
34,077
36,383
43,589
Industry total
7,342
FY07
6,019
Hyundai Motor
India Ltd
6,861
FY06
5,271
Hindustan
Motors Ltd
7,053
FY05
Force Motors Ltd
8,236
113,328 124,308 127,519 105,667 114,479 146,325 182,018 196,506 222,111

N.A.
N.A.
6,596
109,063
N.A.
30,235
118,323
3,519
27,738
8,200
70,084
N.A.
N.A.
2,649
N.A.
N.A.
6,133
FY00
122,832
25,375
27,900
5,916
56,285
N.A.
N.A.
2,407
N.A.
N.A.
4,949
FY01
104,253
25,007
24,831
4,713
44,045
N.A.
N.A.
1,401
N.A.
N.A.
4,254
FY02
N.A.

Share is negligible
27.7
Tata Motors Ltd
6.0
N.A.
58.6
N.A.
2.7
N.A.
N.A.
Ford India Pvt Ltd
FY99
4.9
Company
Force Motors Ltd
5.2
3.0
23.4
6.9
59.2
N.A.
N.A.
2.2
N.A.
N.A.
FY00
4.0
20.7
22.7
4.8
45.8
N.A.
N.A.
2.0
N.A.
N.A.
FY01
4.1
24.0
23.8
4.5
42.2
N.A.
N.A.
1.3
N.A.
N.A.
FY02
25.1
21.9
2.9
45.7
N.A.
N.A.
0.9
N.A.
FY03
3.5
113,620
28,538
24,847
3,241
51,872
N.A.
N.A.
1,040
52
N.A.
4,030
FY03
Table A11: Company-wise market share in MUV domestic sales (per cent)

Industry total
Tata Motors Ltd
63,915
N.A.
2,938
N.A.
5,379
Ford India Pvt Ltd
FY99
Force Motors Ltd
Company
Table A10: Company-wise MUV domestic sales (volume)
0.2
0.8
0.6
0.1
0.5
4.7
21.8
21.8
2.4
47.1
FY04
146,388
31,870
31,852
3,555
68,941
318
1,200
866
179
688
6,919
FY04
0.2
0.9
0.2
7.7
1.4
3.9
18.3
19.4
3.0
45.1
FY05
176,360
32,260
34,249
5,204
79,579
378
1,645
306
13,523
2,414
6,802
FY05
0.6
1.0
0.1
9.8
0.9
3.7
18.9
19.5
2.2
43.2
FY06
194,502
36,688
37,905
4,374
84,026
1,253
1,858
213
19,144
1,818
7,223
FY06
0.2
0.9
0.5
9.9
0.9
3.9
19.8
21.7
1.5
40.8
FY07
220,199
43,559
47,893
3,221
89,734
391
1,873
1,182
21,871
1,976
8,499
FY07
152
Annexures
Annexures
153
Table A12: MUV: Segment-wise share of firms in domestic sales (per cent)
Segments
7-seater UVs
FY02
FY03
FY04
FY05
FY06
FY07
17.9
20.5
20.8
26.9
33.8
38.4
Force Motors Ltd
4.4
7.8
3.9
2.7
0.8
1.5
Ford India Pvt Ltd
N.A.
N.A.
2.3
5.1
2.8
2.3
N.A.
0.2
0.6
0.9
6.8
9.6
1.5
1.6
0.5
0.3
0.3
1.4
N.A.
N.A.
3.9
3.5
2.8
2.2
N.A.
N.A.
1.0
0.8
1.9
0.5
75.9
65.9
60.7
62.8
56.2
54.1
N.A.
N.A.
0.7
0.2
0.1
0.0
Tata Motors Ltd
18.3
23.6
19.9
17.8
12.5
8.8
N.A.
0.9
6.5
6.0
15.8
19.5
9-seater UVs
25.0
34.7
33.7
31.9
36.6
36.7
0.1
0.2
0.1
0.4
Force Motors Ltd

N.A.
N.A.
N.A.
10.0
5.1
2.8
52.0
60.2
69.5
56.0
44.6
38.4
18.1
8.2
6.8
9.1
6.1
4.0
Tata Motors Ltd
10.6
10.5
8.0
7.0
7.2
21.4
19.2
21.1
15.6
17.5
37.0
33.4
13-seater UVs
57.1
44.2
45.5
41.2
29.6
24.9
Force Motors Ltd

5.7
4.3
8.5
7.3
11.5
13.2
N.A.
N.A.
N.A.
10.3
19.2
21.0
1.9
1.3
1.1
0.2
N.A.
27.4
24.8
24.3
25.1
26.7
23.5
Tata Motors Ltd
31.4
30.0
32.8
30.1
42.6
42.3
33.6
39.6
33.4
27.0
N.A.
N.A.
Note: Share is negligible, N.A. Not Applicable

BMW India Pvt Ltd
Chery Automobiles
Fiat India Pvt Ltd
Ford India Pvt Ltd
Global Automobiles (in collaboration with

Guangzhou Motors)
Company
Sr. No.
Table A13: New launches lined up
Korea
Japan
India (China)
USA
USA
Italy
Germany
China
Germany
Country of origin
Chevy Beat
Cadillac
Pontiac
Saab
Hummer
Small car
Luxury car
Passenger vehicle
Passenger vehicle
SUV
Pa
Jazz
Small car
Small car
Civic (Hybrid)
Car
N.A.
Epica
Luxury sedan
Compact car
Chevrolet Captiva
SUV
Mazda2
Mid-size
Alfa Romeo
Luxury car
Focus
Linea
C-segment car
Premium mid-size sedan
Grand Punto
Mercedes C Class
Sedan
Luxury car
N.A.
Mini Cooper
Small car
M series
Premium car
Model name
Sports car
Vehicle type
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
Under
Rs 2 lakh
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
Rs 34 lakh
Rs 15 lakh
N.A.
Expected price
2008
2009
2008
2008
2010
2010
2010
2010
2008
2008
2008
200910
2008
2008
2008
2008
2008
2008
2009
2008
Year of launch
Maruti Zen Estilo
Maruti Swift, Hyundai Getz,

Chevy U-VA, Fiat Grand Punto,
Volkswagen Polo
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
Toyota Camry, Honda Accord
Honda CR-V, Hyundai Tucson
Maruti Swift, Hyundai Getz,

Volkswagen Polo, Honda Jazz,
Fiat Grand Punto
N.A.
N.A.
Chevrolet Aveo, Ford Fiesta, and

Hyundai Verna
Maruti Swift, Hyundai Getz, the

new Tata Indica
N.A.
Maruti, Hyundai and Tata

Motors small cars
N.A.
N.A.
Competing brands
154
Annexures
International Car & Motors Pvt Ltd
Mitsubishi Motors
MLR Motors Pvt Ltd
Nissan Motor India Pvt Ltd
Porsche Cars India Pvt Ltd
Renault (in collaboration with Bajaj)
Tata Motors Ltd
11
12
13
14
15
16
17
18
19
20
Company
10
Sr. No.
Table A13: Continued
Japan
India
Czech Republic
France
Germany
Japan
India
Japan
India
India
India
Country of origin
N.A.
Car
Concept A-Star
Compact car
Cayman S
Sports car
N.A.
Corolla (new model)
Lexus
Executive car
Luxury car
Indica (next
generation)
Compact car
Small car
Nano
Fabia
Small car
Small car
N.A.
Cayenne GTS
Compact car
New GT2
SUV
N.A.
N.A.
Car
Compact car
Compact car
N.A.
Splash
Compact car
SUV
Swift
Scorpio (Hybrid
version)
SUV
Sedan
Ingenio
MPV
N.A.
i20
Car
SUV
Santro (LPG)
Compact car
Model name
Santa Fe
Vehicle type
SUV
Expected price
N.A.
N.A.
N.A.
N.A.
Rs 1 lakh
N.A.
Rs 1.4 lakh
N.A.
N.A.
Rs 1.4 crore
N.A.
N.A.
Rs 1525 lakh
N.A.
N.A.
N.A.
N.A.
N.A.
Rs 10 lakh
N.A.
N.A.
N.A.
N.A.
200809
2008
2010
2008
2008
2008
2010
2008
2008
2008
200910
2009
2008
2008
2008
2008
2008
2008
200910
2009
2008
2008
2008
Year of launch
Competing brands
N.A.
N.A.
Maruti Alto, Hyundai Santro,

Tata Indica Xeta
N.A.
Maruti 800
Maruti Swift
Tata small car
N.A.
N.A.
N.A.
Zen, Alto, Wagon R, Maruti

Swift
N.A.
N.A.
N.A.
N.A.
Tata Indigo, Hyundai Accent
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
Annexures
155
Volvo Car India
22
Note: MPV: Multi-purpose vehicle; SUV: Sports utility vehicle

N.A. Not Available
Company
21
Sr. No.
Table A13: Continued
Sweden
Germany
Country of origin
C 30
C 70
S40
C-segment car
Small sedan
Polo
Compact car
C-segment car
Jetta
Mid-size sedan
Vehicle type
Model name
N.A.
N.A.
N.A.
N.A.
Rs 79 lakh
Expected price
2009
2008
2008
2009
2008
Year of launch
N.A.
N.A.
N.A.
Maruti Swift, Hyundai Getz
Honda City, and cars in the

same category
Competing brands
156
Annexures
Annexures
157
Table A14: Company plant locations

Sr. No.
Company name
District
State
Products
manufactured
BMW India Pvt Ltd
Chennai
Tamil Nadu
Passenger cars
Chakan*, Pune
Maharashtra
Passenger cars
Fiat India Pvt Ltd
Ranjangaon, Pune
Maharashtra
Passenger cars
Ford India Pvt Ltd
Maraimalai Nagar,
Chennai
Tamil Nadu
Passenger cars
Force Motors Ltd
Pithampur
Madhya Pradesh
MUVs
Halol, Vadodara
Gujarat
Passenger cars
Talegaon*, Pune
Maharashtra
Passenger cars
Thiruvallur
Tamil Nadu
Passenger cars
Uttarpara, Kolkata
West Bengal
Passenger vehicles
Pithampur, Indore
Madhya Pradesh
MUVs
Greater Noida
Uttar Pradesh
Passenger cars
Alwar*
Rajasthan
Passenger cars
Chennai
Tamil Nadu
Passenger cars
10

Pvt Ltd
Amb, Una
Himachal Pradesh
MUVs
11
MLR Motors Ltd
Hyderabad
Andhra Pradesh
Passenger cars
12
Kandivali
Maharashtra
MUVs
13
Nissan Renault JV
Chennai*
Tamil Nadu
Passenger cars
14
Nashik
Maharashtra
Passenger cars
15
Gurgaon
Haryana
Passenger cars
Manesar
Haryana
Passenger cars
16
Reva Electric Car Co Ltd
Bommasandra,
Bangalore
Karnataka
Passenger cars
17
San Motors Ltd
Goa
Goa
Passenger cars
18
Shendra,
Aurangabad
Maharashtra
Passenger cars
19
Tata Motors Ltd
Pune
Maharashtra
Passenger cars
20
Bidadi, Bangalore
Karnataka
Passenger cars
21
Chakan*, Pune
Maharashtra
Passenger cars
Note: *Upcoming plants

Table A15: Excise duty structure (per cent)

Category
Year
Cars
MUVs
199596
40
40
199697
40
20
199798
40
25
199899
40
30
199900
40
30
200001
40
32
200102
32
32
200203
32
32
200304
24
24
200405
24
24
200506
24
24
200607
16*/24#
24
200708
16*/24#
24
Note: *On specified small cars (length not above 4,000mm and engine
capacity not above 1,20 cc for petrol cars; and 1,50 cc for diesel cars)
#All other cars
Annexures
158
Table A16: Customs duty structure (per cent)
Category
Year
Cars
MUVs
199596
50
50
199697
50
50
199798
40
40
199899
40
40
199900
40
40
200001
35
35
200102
105/60/35*
105/60/35*
200203
105/60/30*
105/60/30*
200304
105/60/25*
105/60/25*
200405
105/60/25*
105/60/25*
200506
100/60/15*
100/60/15*
200607
100/60/12.5*
100/60/12.5*
200708
100/60/10*
100/60/10*
Note: *For used vehicle/new CBU/CKD and components respectively

Table A17: General Motors: Region-wise break-up of revenues

Region
Unit
2004
2005
2006
North America
US $
148,096
141,384
149,020
Y-o-y growth
Per cent
0.4
4.5
5.4
Share in total sales revenue
Per cent
75.8
72.6
71.9
Europe
US $
33,141
33,536
34,346
Y-o-y growth
Per cent
12.9
1.2
2.4
Per cent
17.0
17.2
16.6
Latin America
US $
5,683
7,642
9,729
Y-o-y growth
Per cent
41.6
34.5
27.3
Per cent
2.9
3.9
4.7
Asia-Pacific
US $
6,204
8,580
11,204
Y-o-y growth
Per cent
N.A.
38.3
30.6
Per cent
3.2
4.4
5.4
All other
US $
2,227
3,513
3,050
Y-o-y growth
Per cent
42.1
57.7
13.2
Per cent
1.1
1.8
1.5

Annexures
159
Table A18: Toyota Motor Corporation: Region-wise break-up of revenues

Region
Unit
2004
2005
67,818
2006
Japan
US $
68,983
65,847
Y-o-y growth
Per cent
23.1
1.7
4.5
Per cent
41.4
39.9
36.8
North America
US $
55,922
57,618
63,470
Y-o-y growth
Per cent
13.4
3.0
10.2
Per cent
34.2
33.4
35.4
Europe
US $
19,102
21,468
21,912
Y-o-y growth
Per cent
51.6
12.4
2.1
Per cent
11.7
12.4
12.2
Asia
US $
11,324
14,639
15,637
Y-o-y growth
Per cent
N.A.
29.3
6.8
Per cent
6.9
8.5
8.7
Other regions
US $
9,469
10,040
12,217
Y-o-y growth
Per cent
20.7
6.0
21.7
Per cent
5.8
5.8
6.8

Table A19: Ford Motors: Region-wise break-up of revenues

Region
Unit
2004
2005
2006
North America
US $
83
80.6
69.4
Y-o-y growth
Per cent
0.7
2.9
13.9
Share in total automotive sales and revenue
Per cent
56.4
52.5
48.4
South America
US $
4.3
5.7
Y-o-y growth
Per cent
57.9
43.3
32.6
Per cent
2.0
2.8
4.0
Europe
US $
26.5
30
30.4
Y-o-y growth
Per cent
19.4
13.2
1.3
Per cent
18.0
19.5
21.2
PAG
US $
27.6
30.3
30
Y-o-y growth
Per cent
10.8
9.8
1.0
Per cent
18.8
19.7
20.9
Asia-Pacific and Africa/Mazda
US $
8.3
7.8
Y-o-y growth
Per cent
20.7
18.6
6.0
Per cent
4.8
5.4
5.4
Annexures
160
Table A20: Volkswagen AG: Region-wise break-up of revenues
Region
Unit
Europe/remaining markets
US $
Y-o-y growth
Per cent
Per cent
North America
US $
Y-o-y growth
Per cent
Per cent
South America/South Africa
US $
Y-o-y growth
Per cent
Per cent
Asia-Pacific
US $
Y-o-y growth
2004
2005
80,619
98,645
17.0
7.3
22.4
72.2
72.4
71.3
18,014
16,250
19,280
4.7
9.8
18.6
15.0
14.6
13.9
7,487
8,198
11,658
41.3
9.5
42.2
6.2
7.4
8.4
7,939
6,229
8,807
Per cent
4.1
21.5
41.4
Per cent
6.6
5.6
6.4
86,981
2006
Abbreviations
162
Abbreviations
A
ARAI Automotive Research Association of India
B
BS-II Bharat Stage II
BS-III Bharat Stage III
BSE Bombay Stock Exchange
C
CAGR Compounded annual growth rate
CBU Completely-built units
cc Cubic centimetre
CKD Completely-knocked down
CMIE Centre for Monitoring Indian Economy
CMVR Central Motor Vehicle Rules
CNG Compressed natural gas
CR coils Cold-rolled coils
CRDi Common rail direct injection
CST Central Sales Tax
CV Commercial vehicle
D
DGFT Directorate General of Foreign Trade
DOHC Dual-overhead Cam
DTSi Digital twin spark ignition
E
ECB External commercial borrowing
ECE Economic Commission for Europe
Abbreviations
EU European Union
EXIM Export import
F
FDI Foreign direct investment
FICCI Federation of Indian Chambers of Commerce and Industry
FII Foreign institutional investor
FIs Financial institutions
FY Financial year
G
GDP Gross domestic product
GC sheets Galvanised corrugated sheets
GM General Motors
GP sheets Galvanised plain sheets
H
HMIL Hyundai Motor India Limited
HP Horse power
HR coils Hot-rolled coils
HSCI Honda Siel Cars India
H&MCV Heavy and medium commercial vehicle
I
IT Act Income Tax Act
J
JAMA Japan Automobile Manufacturers Association
JIT Just-in-time
JV Joint venture
K
Kg Kilogram
L
LCV Light commercial vehicle
LHS Left hand side
163
Abbreviations
164
LME London Metal Exchange
LPG Liquefied petroleum gas
LST Local Sales Tax
M
Maruti Maruti Suzuki India
mm Millimetre
mn Million
MNC Multinational corporation
MOSPI Ministry of Statistics and Programme Implementation
MoU Memorandum of understanding
MPFi Multi-point fuel injection
MPV Multi-purpose vehicle
MRPL Mahindra Renault Private Limited
MRTP Act Monopolistic and Restrictive Trade Practices Act
MUV Multi-utility vehicle
M&M Mahindra and Mahindra
N
NATRIP National Automotive Testing and R&D Infrastructure Project
NBFCs Non-banking financial companies
NCCD National Calamity Contingency Duty
Nos Numbers
O
OEM Original equipment manufacturer
Q
QR Quantitative restriction
P
PBDIT (NNRT) Profit before depreciation, interest and tax (net of non-recurring
transactions)
PBIT Profit before interest and tax
PDI Personal disposable income
PLR Prime lending rate
PV Passenger vehicle
Abbreviations
R
RBI Reserve Bank of India
RHS Right hand side
RoCE Return on capital employed
RoNW Return on net worth
Rs Rupees
R&D Research and development
S
SIAM Society of Indian Automobile Manufacturers
SKD Semi-knocked down
SUV Sports utility vehicle
U
UV Utility vehicle
V
VFM Value for money
VRS Voluntary retirement scheme
VTEC Variable valve timing and lift electronic control
VW Volkswagen
W
WTO World Trade Organisation
Y
Y-o-y Year-on-year
165

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Indian

Indian Passenger Vehicles Industry

D&B Predictive Sciences &

Seema Changam (Email : ChangamS@mail.dnb.co.in)

Vidya Kanitkar (Email : KanitkarV@mail.dnb.co.in)

Indian Passenger Vehicles Industry

- Srinivas Fine Arts (P) Ltd.

Section 1: Industry Dynamics....................... 1

Section 2: Global Perspective..................... 65

Section 3: Industry Performance................ 97

Section 4: Strategic Insight...................... 121

Industry Structure: Then & Now

Regulatory & Policy Environment

Demand Side Dynamics

Supply Side Dynamics

Box 1.1 S-curve for passenger vehicles

Car penetration levels (Car per 1,000 persons)

Source: D&B Industry Research Service

Industry Structure: Then & Now

History and evolution

Industry Structure: Then & Now

The pre-Maruti Suzuki phase (1940s to 1981)

The Maruti Suzuki/modernisation era (1982-early 1990s)

Industry Structure: Then & Now

The post-liberalisation phase (until late 1990s)

Entry of foreign players

Maruti Suzuki India Ltd

DaimlerChrysler India Pvt Ltd

General Motors India Pvt Ltd

Ford India Pvt Ltd

Honda Siel Cars India Ltd

Hyundai Motor India Ltd

Fiat India Pvt Ltd

Fiat Auto SpA, Italy

Toyota Kirloskar Motor Pvt Ltd

Toyota Motor Corp.,

SkodaAuto India Pvt Ltd

Mahindra Renault Pvt Ltd

Nissan Motor India Pvt Ltd

Nissan Motor Ltd,

BMW India Pvt Ltd

BMW AG, Germany

Volvo Car India

Volkswagen India Pvt Ltd

Compiled by D&B Industry Research Service

The global competition phase (2001 onwards)

Industry Structure: Then & Now

Restriction on imports, no. of players,

Slow growth, heavy

Limited increase in technology inflow;

Entry of global players;

Source: D&B Industry Research Service

The Indian passenger vehicles industry: Current structure

Compiled by D&B Industry Research Service

Classification of cars based on the length and price

Mini car (segment A1)

Compact car (segment A2)

Mid-size car (segment A3)

Executive car (segment A4)

Premium car (segment A5)

Luxury car (segment A6)

More than 5,000 mm

Note: mm- millimetre

Industry Structure: Then & Now

License regime: Government control

Only a handful of players in the market: Some

Restrictions on imports continued

Some MNCs that entered Indian market

Auto industry (except passenger cars)

Several existing firms entered new segments