Anip DRIVERS Two Wheeler Industry

2010 Anip A.
Shah
Automobile Industry
Flame School of Business
– Two Wheelers 11/13/2010
DRIVERS Report
Two Wheeler Industry

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Sr. No Particulars Page No.
1 Two wheeler Industry – Intro & Growth 3
2 Key Drivers of the Indian Two Wheelers Industry 6
3 Present and Future Trends 8
4 Contribution of the automotive industry to the economy 17
5 Two-Wheeler sales at a glance& Market share 19
6 Production trends 28
7 Challenges in the Indian automotive industry 30
8 Human resource development 34
9 Sentiments of the Indian vehicle buyer 38
10 Technical Regulations 40
11 Income estimates 44
12 47
Segmentation, Pricing Strategies of major players
13 48
Critical Success factors of major players
14 51
TRENDS IN TWO WHEELER INDUSTRY
15 56
Growth drivers for the Indian automotive industry
16 58
Government regulations & policy
17 62
India Advantage and business opportunities
18 63
SWOT Analysis
19 65
New Segment Opportunities – E Bikes

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Growth of Two Wheeler Industry
Two-wheeler segment is one of the most important components of the automobile sector that
has undergone significant changes due to shift in policy environment. The two-wheeler
industry has been in existence in the country since 1955. It consists of three segments viz.
scooters, motorcycles and mopeds. According to the figures published by SIAM, the share of
two-wheelers in automobile sector in terms of units sold was about 80 per cent during 2003-
¬04. This high figure itself is suggestive of the importance of the sector. In the initial years,
entry of firms, capacity expansion, choice of products including capacity mix and
technology, all critical areas of functioning of an industry, were effectively controlled by the
State machinery. The lapses in the system had invited fresh policy options that came into
being in late sixties. Amongst these policies, Monopolies and Restrictive Trade Practices
(MRTP) and Foreign Exchange Regulation Act (FERA) were aimed at regulating monopoly
and foreign investment respectively. This controlling mechanism over the industry resulted
in: (a) several firms operating below minimum scale of efficiency; (b) under-utilisation of
capacity; and (c) usage of outdated technology. Recognition of the damaging effects of
licensing and fettering policies led to initiation of reforms which ultimately took more
prominent shape with the introduction of the New Economic Policy in 1985. However, the
major set of reforms was launched in the year 1991 in response to the major macroeconomic
crisis faced by the economy. The industrial policies shifted from a regime of regulation and
tight control to a more liberalised and competitive era. Two major results of policy changes
during these years in two-wheeler industry were that the, weaker players died out giving way
to the new entrants and superior products and a sizeable increase in number of brands entered
the market that compelled the firms to compete on the basis of product attributes. Finally, the
two-¬wheeler industry in the country has been able to witness a proliferation of brands with
introduction of new technology as well as increase in number of players. However, with
various policy measures undertaken in order to increase the competition, though the degree
of concentration has been lessened over time, deregulation of the industry has not really
resulted in higher level of competition. Indian two wheeler contributes the largest volumes
amongst all the segments in automobile industry. Though the segment can be broadly
categorized into 3 sub-segments viz.; scooters, motorcycles and mopeds; some categories

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introduced in the market are a combination of two or more segments e.g. scooterettes and
step-thru's . In the last four to five years, the two-wheeler market has witnessed a marked
shift towards motorcycles at the expense of scooters. In the rural areas, consumers have come
to prefer sturdier bikes to withstand the bad road conditions. In the process the share of
motorcycle segment has grown from 48% to 58%, the share of scooters declined drastically
from 33% to 25% , while that of mopeds declined by 2% from 19% to 17% during the year
2000-01. The Euro emission norms effective from April 2000 led to the existing players in
the two- stroke segment to install catalytic converters. Excise duty on motorcycles has been
reduced from 32% to 24%, resulting in price reduction, which has aided in propelling the
demand for motorcycles. The competition has strengthened though there are hardly any new
entrants into the industry. There is an increasing emphasis on price and this has led to cost
cutting efforts all across the industry, thereby, making the customer an ultimate beneficiary.
The trend also saw introduction of new motorcycles with capacity ranging from 100 to 180cc
bikes. We anticipate that many more new models will be launched during the year and
provide customers plenty of choice at competitive prices.
Two wheelers in India are the second largest producer and manufacturer of two-wheelers in
the world. It stands next only to Japan and China in terms of the number of two-wheelers
produced and domestic sales respectively. Indian two-wheeler industry has got spectacular
growth in the last few years.
The two-wheeler market was opened to foreign competition in the mid-80s. And the then
market leaders - Escorts and Enfield - were caught unaware by the onslaught of the 100cc
bikes of the four Indo-Japanese joint ventures. With the availability of fuel efficient low
power bikes, demand swelled, resulting in Hero Honda - then the only producer of four
stroke bikes (100cc category), gaining a top slot.
The first Japanese motorcycles were introduced in the early eighties. TVS Suzuki and Hero
Honda brought in the first two-stroke and four-stroke engine motorcycles respectively. These
two players initially started with assembly of CKD kits, and later on progressed to
indigenous manufacturing. In the 90s the major growth for motorcycle segment was brought
in by Japanese motorcycles, which grew at a rate of nearly 25% CAGR in the last five years.

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In 1990, the entire automobile industry saw a drastic fall in demand. This resulted in a
decline of 15% in 1991 and 8% in 1992, resulting in a production loss of 0.4mn vehicles.
Barring Hero Honda, all the major producers suffered from recession in FY93 and FY94.
Hero Honda showed a marginal decline in 1992.
The reasons for recession in the sector were the incessant rise in fuel prices, high input costs
and reduced purchasing power due to significant rise in general price level and credit crunch
in consumer financing. Factors like increased production in 1992, due to new entrants
coupled with the recession in the industry resulted in company either reporting losses or a
fall in profits.
Promising growth of the two-wheeler segment in India two-wheeler sales have grown at a
CAGR of 11 per cent over the last decade and are expected to maintain strong growth rates
as more and more people rise from poverty in India. Most of the population lives in rural and
semi-urban areas where most people use cycles as a mode of transport. So when income
levels increase in those areas, the first vehicle purchased is the two-wheeler. Hence, at its
current growth rate, with increasing incomes, the number of two-wheelers being purchased
will increase manifold. Rapid urbanization of semi-urban and rural areas, easy availability of
finance, and new innovations in manufacturing of two-wheelers is resulting in a large
number of new models being introduced each year, which will facilitate growth in this
segment.
Production trends show maximum growth in the motorcycles sub-segment
Between the years 2005–2006 and 2006–2007, production of scooters has decreased whereas
production of motorcycles has increased. In fact, motorcycles make up 84 per cent of two-
wheeler production and have displayed the highest increase in growth rates. There have been
no changes in the production figures of mopeds and production of electric two-wheelers has
begun recently in India.
The auto component industry has come of age and now forms an important component of the
Indian economy. In recent years, it has grown more impressively, fetch double digit growth.
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More interestingly, it has captured attention as well as business from leading auto makers of
the world. The industry plays a crucial role in the automobile sector. Manufacturing vehicles
typically involve assembling a large number of components out-sourced from number of
ancillaries or component manufacturers. Competitiveness with quality as a theme has been
the watchword for the Indian industry and especially the auto component industry ever since
the Indian economy was opened up to the world in the early 1990s. While economic revival,
lower interest rates and better road infrastructure are driving domestic demand for
automobiles and, therefore, components, increasing outsourcing by global automobile majors
is creating a huge export opportunity for Indian component manufacturers.
Growth Prospects and Key Drivers of the Indian Two Wheelers Industry
The growth witnessed by the Indian two wheeler industry indicates the growing demand for
low cost personal transportation solutions amongst the 300 million Indian middle class
consumers. Despite this spectacular growth rate, the two wheeler penetration (number of two
wheelers per 1000 inhabitants) in India remains lower than other Asian countries. This fact
provides an opportunity for continued growth in the market. India has the lowest Penetration
of two wheelers as compared to countries like Taiwan, Thailand, Malaysia, Vietnam,
Indonesia and China. In the present scenario, growth in the two wheeler industry will be
driven by several factors:
Rise in India’s Young Working Population
With the rising levels of per capita income of people, the Indian two wheeler market offers a
huge potential for Growth. This growth is relevant in the light of the fact that 70 per cent of
India’s population is below the age of 35 Years and 150 million people will be added to the
working Population in the next five years. The number of women in the urban work force is
also increasing; this will lead to the Growth of gearless scooters.
Rise of India’s Rural Economy and Growth in Middle Income Households

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The growth prospects of the Indian rural economy offer a significant opportunity for the
motorcycle industry in India. The penetration of motorcycles amongst rural households with
income levels greater than US$ 2,200 per annum has already increased to over 50 per cent.
The current target Segment for two wheelers, i.e., households belonging to the Income
category of US$ 2,200–12,000 is expected to grow at a CAGR of 10 per cent.
Greater Affordability of Vehicles
The growth in two-wheeler sales in India has been driven by an increase in affordability of
these vehicles. An analysis of the price trends indicates that prices have more or less
stagnated in the past. This has been part of the marketing strategy adopted by the
manufacturers to gain volume, as well as conscious efforts adopted to bring down costs. The
operating expenses of leading manufacturers have declined by around 15 per cent in the last
five years. With greater avenues of financing, the customer’s capacity to own a two wheeler
has improved.
Rapid Product Introduction and Shorter Product Life Cycle
The last five years have witnessed a sharp increase in new product launches in the two-
wheeler industry. It is estimated that close to 50 new products have been launched by
manufacturers during this period, filling up all price points and targeted at various consumer
segments.
Inadequate Public Transport Systems in most Urban Areas

The economic boom witnessed in the country and the increased migration to urban areas have
increased the traffic congestion in Indian cities and worsened the existing infrastructure
bottlenecks. Inadequate urban planning has meant that transport systems have not kept pace
with the economic boom and the growing urban population. This has increased the
dependence on personal modes of transport and the two wheelers market has benefited from
this infrastructure gap.

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Challenges faced by the industry
Despite the high growth achieved in the past and the high potential in the future, the two-wheelers
market faces some challenges.
Rising Customer Expectations

The growth witnessed by the Indian two wheeler industry has attracted a number of new entrants to
the market and it is expected that the Indian industry will become more competitive in the future. The
plethora of products introduced in the past has also raised customer expectations with respect to
reliability, styling, performance and economy.
Environmental and Safety Concerns

The increasing demand for two wheelers will need to be managed to address issues relating to
overcrowding of roads. Another problem is the insufficient infrastructure for inspection to ensure
adherence to emission norms. As the industry grows, it is important to regulate the sale of used two
wheelers in a more organised manner for which a mechanism needs to be evolved. Unregulated sale
of two wheelers, especially in the rural areas, are likely to create issues related to emissions and safety
of vehicles.
Creation of Distribution Infrastructure

Leading companies need to ensure that on one hand they build adequate infrastructure in terms of
dealerships and servicing stations in the urban areas and on the other ensure that their distribution
infrastructure also reaches the rural areas.
Present and Future Trends
Two-wheeler domestic sales trend
Motorcycles
2001-02 2002-03 2003-04 2004-05 2005-06

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2887194 3647493 4170445 4964753 5815417
Scooters
2001-02 2002-03 2003-04 2004-05 2005-06
908268 825648 886295 922428 908159

Mopeds
2001-02 2002-03 2003-04 2004-05 2005-06
408263 338985 307509 322584 332741
Summary Forecast‐2011 growth over 2009‐10
Automobile Segment 2010 – 2011 growth over 2009 ( % )

Passenger cars 12 ‐ 13
Utility Vehicles 13 ‐ 14
Commercial Vehicles (goods) 19 ‐ 20
Commercial Vehicles (buses) 4‐5
Two Wheelers 9 ‐ 10
Three Wheelers (goods) 5‐6
Three Wheelers (passenger) 8‐9
Domestic Market Share for 2009-10

Passenger Vehicles 15.86
Commercial Vehicles 4.32
Three Wheelers 3.58
Two Wheelers 76.23

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Automobile Production Trends (Number of
Vehicles)
Category 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Passenger
989,560 1,209,876 1,309,300 1,545,223 1,777,583 1,838,593 2,351,240
Vehicles
Commercial
275,040 353,703 391,083 519,982 549,006 416,870 566,608
Vehicles
Three
356,223 374,445 434,423 556,126 500,660 497,020 619,093
Wheelers
Two
5,622,741 6,529,829 7,608,697 8,466,666 8,026,681 8,419,792 10,512,889
Wheelers
Grand Total 7,243,564 8,467,853 9,743,503 11,087,997 10,853,930 11,172,275 14,049,830
Consumer Preferences
Since 1997–98, motorcycles have become more popular with the Indian consumer than
scooters and mopeds. Over the last decade, sales of motorcycles rose at a sharp rate while
that of scooters and mopeds either declined or recorded marginal growth.
Two wheeler sales growth accelerate in 2009-10

After reporting a decline in 2007-08, two-wheeler demand revived, posting a 4.6 per cent
growth in 2008-09. We expect this growth to accelerate to 6.1 per cent in 2009-10. Sales will
slightly fall short of crossing the 90,00,000 mark at 89,53,462 vehicles in 2009-10. Two
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wheeler demand is expected to grow at a faster pace in the second half than in the first half of
2009-10.We expect motorcycles demand to accelerate in 2009-10. Sales will expand by 5.9
per cent to 72,09,421 vehicles, faster than four per cent growth recorded in 2008-09. New
launches, increasing demand for fuel efficient vehicles and increased rural penetration will
aid growth in motorcycles sales in 2009-10. Scooter demand is expected to continue to grow
at a healthy pace of 8.7 per cent in 2009-10, faster than motorcycles. Incase of scooters too,
new launches are expected to drive growth in demand. Growth in moped sales is expected to
decelerate to below one per cent in 2009-10 compared to 1.5 per cent in 2008-09.
Industry’s capacity expand to 13.6 million two-wheelers in 2009-10
The two & three-wheeler industry continues to attract investments quarter-after-quarter. We

expect two wheelers capacity to have scaled up to 11.5 million vehicles per annum in 2008-
09. However, only 8.4million vehicles were produced during 2008-09. This reflects a
capacity utilisation of around 73 per cent in 2008-09. On commissioning of few projects, we
expect the industry’s capacity to scale to 13.6 million vehicles per annum in 2009-10, up
18.3 per cent y-o-y. As two wheeler production is expected to grow by 6.5 per cent to 8.9
vehicles in 2009-10, the industry’s capacity utilisation rate is expected to fall to around 66
per cent in 2009-10. Among the large companies, Bajaj Auto’s capacity utilisation is
expected to be the lowest in 2008-09. To a large extent it has pulled down the industry’s
capacity utilisation rate. Total outstanding investment in the sector surged to Rs.5,055 crore
as of 31 March 2009. This was spread across 24 projects out of which nine projects of
Rs.2,913 crore were under implementation. During the quarter ended March 2009, CMIE’s
CapEx team captured two investments worth Rs.810 crore. This was the fifth successive
quarter for the industry to attract investment. Of the two, Vibgyor Allied Industries’ Rs.660
crore two-wheeler manufacturing facility at Dhulagori, Howrah was the largest. The
company has already invested Rs.120 towards the project. It has not disclosed details
regarding the capacity and duration of the project. The second project that was captured
during the quarter was Suzuki Motorcycles’ Rs.150 crore brown field expansion project. The
company will ramp up the capacity at its Gurgaon facility from 1,75,000 bikes to 4,50,000
bikes per annum. During the March quarter, Honda Motorcycles & Scooters commissioned
its Rs.400 crore two-wheeler expansion project at Manesar. The company has expanded its

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annual manufacturing facility from nine lakh to 12 lakh vehicles per annum. Eight projects
with total investments of Rs.3,113 crore are expected to be commissioned in the coming 12
months leading to an increase of 21,32,000 vehicles capacity per annum. Among them, Hero
Honda Motors’ Rs.1,450 crore phase - II expansion project of its Haridwar plant (addition of
10,00,000 vehicles capacity) was the largest. This was followed by Mahabharat Motors’
Rs.1,000 crore West Bengal two-wheeler project (5,00,000 vehicles capacity) and Honda
Motorcycles & Scooters’ Rs.300 crore expansion project of its Manesar plant (addition of
3,00,000 vehicles capacity). Ajanta Manufacturing (2,000 vehicles), Suzuki Motorcycles
(80,000 vehicles), Hero Electric (50,000 vehicles) and TVS Motors (2,00,000 vehicles) will
also commission their capacities in 2009-10.
Growth in two-wheeler sales continues to improve

After dipping from 8.7 lakh units in September 2008 to 5.5 lakh units in December 2008,
two-wheeler sales crossed seven lakh units in February 2009 and eight lakh units inMay
2009. Two wheeler sales inMay 2009 were a healthy 11.5 per cent higher than in May 2008.
The recovery was a cumulative effect of several factors such as
• Aggressive interest cuts by lenders over the past six months
• Return of liquidity in the financial markets
• receding of economic uncertainty and revival in consumer confidence
Tight financing conditions due to GLC, fuel price rise impaired recovery
After the Global Liquidity Crisis hit the Indian shores in mid-September 2008, companies
financing vehicles, especially NBFCs, went into a severe funds crunch. Simultaneously,
interest rates had peaked by July-August 2008. Lenders in the two-wheeler finance industry
had become very cautious and tightened credit criteria for two-wheeler loans.
Scooters and bikes perform better than mopeds

Two-wheelers comprise mopeds, scooters and motorcycles. A break of the sales statistics of
these three different types of two-wheelers reveals that the motorcycle segment, which
accounts for about 80 per cent of the total two-wheeler sales, grew by 11.4 per cent in May
2009. As a result, two-wheeler sales grew by 11.5 per cent in May 2009. Nearly 6.6 lakh
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motorcycles were sold in May 2009. This was the highest since September 2008 when a
record 7.2 lakh motorcycles were sold. That motorcycle sales recovered from a low of 4.3
lakh units in December 2008 to 6.6 lakh units in May 2009 indicates that the demand for
motorcycles continues to be robust. Demand for both, the low-power entry level segment as
well as the mid-powered 125-249 cc segment has recovered. Both segments clocked over 11
per cent growth in May 2009. Demand for luxury motorcycles with more than 250 cc engines
appears to be growing even more vigorously This segment never witnessed a year-on year
decline in any month even during October-January 2008. However, it may be noted that the
luxury segment is a very low volume segment with just over 4,000 motorcycles being sold
per month compared to a total of over six lakh motorcycles being sold per month. The
scooters segment, which accounts for less than 15 per cent of total two-wheeler sales, grew
by 10.4 percent in May 2009. About 1.1 lakh scooters were sold in May 2009. The scooters
segment as a whole never recorded a year-on-year decline in any of the months since June
2008. This was mainly because of the continuing robust growth in the mid-sized 75-124 cc
segment. While the other two segments – less than 75 cc and 125-250 cc– are continuously
falling, the 75-125 cc segment has almost never recorded a decline. The segment nearly
accounts for all the scooter sales. From 91.5 per cent in May 2008, the share of this segment
in total scooter sales has risen to 98.5 per cent by May 2009. Company-wise sales numbers
show that Hero Honda Motors, Eicher Motors, Suzuki Motorcycle and Honda Motorcycle
are growing at units sold at double digit rates. Hero Honda continues to dominate the market.
It sells 45-50 per cent of the total two-wheelers sold in the market.
Bajaj Auto is witnessing declining sales since October 2008. During the last 14 months Bajaj
Auto’s monthly sales ranged between 1.2 lakh units and 2.2 lakh units. In January 2009, its
sales had dipped to a low of 1.2 lakh units. Thereafter, the company managed to post a smart
recovery and sell 1.7 lakh units in May 2009. It aims to sell 2.5 lakh bikes per month. In the
second half of June 2009 the company launched the new Pulsar 220 cc bike with 21.04 PS of
power and priced at Rs.70,000. It plans to launch two more models in July 2009 and
December 2009. According to media reports, it plans to launch a powerful sports scooter
next year with a price tag of Rs.45,000-Rs.50,000. At present, the company’s scooter
performance is disastrous. Its scooter sales dropped below 1,000 units per month in

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November 2008 and went further down to 648 units by May 2009. A total of 1.1 lakh
scooters were sold in May 2009.
Two & three wheeler industry sales to grow at CARG of 21.6%during 2010-13
The two-wheeler industry recorded a robust y-o-y sales volume growth of 28.6 percent
during the period April-September 2010. The industry is expected to end the year with a 21.7
per cent rise in sales volumes. Driven by the robust growth in volumes, the two & three
wheeler industry is expected to record an impressive sales growth of 26.1 per cent in 2010-
11. Operating profit margin is, however, likely to contract by 130 basis points to 16.1 per
cent, due to input cost pressures. With the domestic macro-economic environment expected
to remain healthy and corporate and rural incomes expected to rise, the two-wheeler industry
is expected to record a sales volume growth of over 15 per cent during 2011-13. Three-
wheelers sales are also expected to grow at a healthy pace in the coming two years. Hence,
driven by volumes, the industry is expected to record a sales growth of 19-20 per cent during
2011-13. With prices of key raw materials expected to rise in the next two years, the
industry’s operating margin is likely to come under further pressure. It is likely to contract by
100 basis points to around 15 per cent in the next two years. However, a slower rise in
interest, depreciation and tax expense is likely to partially offset the rise in manufacturing
cost, leading to a marginal 40 basis point contraction in net profit margin to 10.5 per cent
during 2011-13.
Two-wheeler industry sales volumes to rise by 21.7%in 2010-11
A robust consumer demand backed by rising income levels, increased rural penetration,
stable interest rates and new models have been driving domestic demand for two-wheelers.
Two-wheeler sales rose by 28.6 per cent during the period April-September 2010. We
expect, the demand for two-wheelers to moderate but remain healthy in the coming quarters.
Hence, we expect domestic two-wheeler sales to rise by 21.7 per cent in 2010-11. Exports
rose by 34.1 per cent during the period April-September 2010 and the major exporters, Bajaj
Auto and TVS Motors are expected to see strong demand even in the coming quarters.
Hence, we expect exports to rise by a robust 27.5 per cent during 2010-11. In order to pass

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on the cost of BSIV implementation and higher input expenses to customers, two wheeler
makers have already hiked prices by around two per cent in the June 2010 quarter. Prices of
steel, aluminum and rubber are expected to rise in the second half of 2010-11. This is
expected to lead to another 2-3 per cent price hike by two-wheeler makers. Thus, we expect
average realisations to rise by 4.5 per cent in 2010-11. The twowheeler industry’s market
size is expected to expand by 25.5 per cent to Rs.40,636 crore in 2010-11, mainlydriven by
volume growth.With the domestic macro-economic environment expected to rise, the two-
wheeler industry is expected to continue its strong sales performance in the next two years.
We, therefore, expect the industry to record a sales volume growth of 17.6 and 15.8 per cent
in 2011-12 and 2012-13, respectively.
Industry’s capacity to scale up to 18 million by 2010-11
After commissioning a capacity of 2.4 million vehicles in 2009-10, the two & three wheeler
industry is expected to witness a capacity addition of 1.2 million vehicles in 2010-11. This
will take the outstanding capacity of the industry to 18 million vehicles by March 2011. Of
the total Rs.658 crore investments to be made in 2010-11, more than 80 per cent is scheduled
to be commissioned in the coming six months. Of these projects, Bajaj Auto’s capacity
expansion plan entails the largest investment. The company’s project at Pantnagar is under
implementation and will be commissioned in March 2011. As per company officials, this
will take the company’s total production capacity to 50 lakh vehicles per annum. With
demand for two-wheelers expected to remain robust, the industry is likely to see fresh
investments worth Rs.4,193 crore in the coming two years. This is expected to take the
outstanding capacity of the industry to 20 million vehicles by March 2013. Hero Honda
Motors’ has not disclosed the capacity of its Rs.2,000 crore Greenfield Motorcycles &
Ancillary unit. Hence, the actual capacity addition in the next two years is expected to be
higher. Among the projects scheduled to be commissioned in 2011-13, the largest one
belongs to Honda Motorcycles & Scooters’. Its Bhiwadi project is expected to add a capacity
of six lakh vehicles each, in two phases. While the first phase is expected to be completed in

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June 2011 and will entail an outlay of Rs.500 crore, the second phase is scheduled for
completion in March 2013 and is expected to entail a cost of Rs.600 crore. Hero Honda
Motors has announced a total outlay of Rs.2,265 crore for capacity expansion and
modernisation over the next two years. Of this, the company will invest Rs.115 crore for a
capacity expansion of three lakh vehicles per annum at Haridwar. This project is scheduled
for completion in November 2011. However, the commissioning of its Rs.2,000 crore
Greenfield project (fourth plant) is likely to be delayed by six months to June 2012, as the
company has still not finalized the location of the plant. The industry has enough capacity
tomeet the forecasted demand for next two years. However, Hero Honda is likely to face
capacity constraints on account of delay in the commissioning of its fourth plant. This is
expected to lead to a contraction in its market share by to 37.5 per cent in 2012-13. Its share
in the motorcycle segment is also expected to contract by 510 basis point this year to 46.9 per
cent and further to 45 per cent by 2012-13.
Sales expected to grow by 29.1%in December 2010 quarter
We expect the two & three wheeler industry to register a sales growth of 29.1 per cent in the
December 2010 quarter. While the growth will be volume driven, an expected 3-4 per cent
rise in realisations will also supplement the overall sales growth. The industry’s sales
volumes are expected to rise by 24.6 per cent during the quarter, aided by an increased
demand during the festive season. Prices of key raw materials like steel, rubber and
aluminium are expected to rise in the December 2010 quarter. However, the industry will not
be able to pass on the entire price rise to consumers. Hence, operating expenses are expected
to grow at faster pace of 31.9 per cent as compared to income. Therefore, PBDIT margin is
expected to contract by 170 basis points to 16.1 per cent (y-o-y). As none of the listed
companies in our sample are expected to commission their projects during the December
2010 quarter depreciation expenses are not expected to rise significantly. The industry’s
interest expenses are also expected to grow by a mere five per cent during the quarter. Thus,
a slower rise in post PBDIT expenses is expected to limit the erosion in PAT margin to 110
basis points during the December 2010 quarter. For the year 2010-11 we expect, the industry

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to record a sales growth of 26.1 per cent. However, due to input cost pressures, profit
margins are likely to contract.
Industry sales expected to grow over 19% during 2011-13
Two-wheeler sales volumes are expected to rise by 17.4 and 15.8 per cent in 2011-12 and
2012-13, respectively, aided by a healthy rise in domestic demand. Sales volumes of three
wheelers are also expected to grow by 9- 13 per cent during 2011-13. Hence, driven by
volumes, the industry is expected to record a sales growth of 20.3 per cent in 2011-12 and
19.1 per cent in 2012-13. This will be over an expected sales growth of 26.1 per cent in
2010-11. An expected 2-3 per cent rise in average realisation will also support the overall
industry sales growth. Price of major raw materials like steel, aluminum and rubber are
expected to rise by 5-9 per cent in the coming two years. Hence, raw material cost is
expected to rise by 20-22 per cent in the next two years. The steep rise in raw material
expenses is expected to be partially offset by a relatively slower growth in salaries and other
expenses. Hence, the industry’s PBDIT margin is expected to contract by 100 basis points y-
o-y to around 15 per cent in the next two years. Of the 11 listed companies in the industry,
Hero Honda Motors, Bajaj Auto and Eicher Motors are expected to commission projects
worth Rs.2,390 crore over the next two years. Hence, we expect depreciation to rise by
around 11-18 per cent. However, the leading companies like Bajaj Auto and Hero Honda are
almost debt free and are likely to fund their capex largely through internal reserves. Hence,
we expect interest expenses to grow by a slow 4-5 per cent. Thus, PAT margin is expected to
contract by a marginal 40 basis points to around 10.5 per cent during 2011-13. Two- wheeler
sales in the country have sky rocketed in the recent years, and the annual sales of
motorcycles in India expected to cross the 10 million mark by 2010. The low penetration of
two-wheelers in the country 31 two-wheelers per 1000 citizens (2004) leaves immense scope
for the growth of the market. Overall the industry sales of two-wheelers have grown by 15%
from 6.57 million in 2004/2005 to 7.57 million in 2005/2006.
The buoyant Indian economy with a growth rate of around 8% per annum is further expected
to fuel the growth of two wheelers in the country. The share of motorcycles have increased
over the years, while that of other two-wheelers like geared scooters, scooterettes and
mopeds have shown a negative growth or remained stagnant. The two-wheelers have

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penetrated 7% of rural house hold and 24% of urban markets, thus it leaves an immense
scope for the market to grow.
Contribution of the automotive industry to the economy
Importance of the automotive industry in relation to the transport sector in India
The automotive industry has been contributing an increasing amount to the transport sector
over the past few years and is also the largest contributor to the transport sector. The
following table shows the share of the transport sector in the GDP of India.
INCREASING SHARE OF THE TRANSPORT SECTOR IN GDP
The table shows the share of the transport sector in GDP in 2003–2004 and 2004–2005.
Share is in percentage:
From the table shown herewith, it can be inferred that the automotive industry plays a major
role in the transport sector. This is because the share of turnover of the automotive industry
in the turnover of the transport sector increased from 64.5 per cent in the year 2003–2004 to
89 per cent in the year 2004–2005.5 This phenomenon explains the increasingly important
role the automotive industry plays in the development of the transport sector in India. With
development of the national highways and construction of more roads in rural and semi-
urban areas, both freight and passenger traffic is expected to increase manifold. This would

19
lead to an increase in demand for different types of vehicles produced in the automotive
industry in India.
SHARE OF AUTOMOTIVE INDUSTRY IN THE TRANSPORT

SECTOR IS THE HIGHEST
Shares of the transport sector and automotive industry are given for the years 2003–2004 and
2004–2005. All figures on the shares are in percentage.
Increasing share of the automotive industry in GDP of the economy
The contribution of the automotive industry to GDP in 2006–2007 was 5 per cent. In the
same year the automotive industry produced more than 11 million vehicles registering a
growth of 13.56 per cent and achieving a turnover of USD 34 billion. With regard to
international trade, exports earnings were USD 2.76 billion in the year 2006–2007 and have
been growing at a CAGR of approximately 30 per cent for the last five years. However, even
though automotive exports were USD 2.28 billion in 2005–2006, they constituted only 0.3
per cent of global automotive trade in the same year. Thus it can be inferred that exports of
automotive products do not form a major part of the total output in the automotive industry
currently.
Production trends across industry segments
The growth of the automotive industry has been due to increase in production across
segments. The most notable increases in growth have been seen in the passenger cars
segment, commercial vehicles segment and the three-wheelers segment. The largest volume
20
in production is in the two-wheelers segment, followed by the passenger cars segment and
the commercial vehicles segment in that order. During the last few years, certain
macroeconomic conditions have helped the automotive industry to grow. The GOI has
undertaken supportive policies for the automotive industry, there is easier availability of
finance as compared to the 1990s and the real income of the Indian consumer is increasing.
This is leading to increased purchasing power which is driving demand in the passenger cars
segment and the two-wheelers segment. Demand for commercial vehicles has increased due
to further development of the manufacturing sector, more trade and commerce between
regions, increased road transport (passenger and freight) owing to the construction of more
national highways and better roads.
Two-Wheeler sales at a glance
Details Apr 2009-May 2010 Apr 2008-May 2009 Var %

Scooter/Scooterettes 209,031 182,293 14.67%
Motorcycles 1,282,316 1,172,775 9.34%
Mopeds 83,658 69,570 20.25%
Electric Two wheelers 1,332 2,390 -44.27%
Total 1,576,337 1,427,028 10.46%
Premium Segment
If we analyze the motorcycle sub-segments then it would be visible that Bajaj Auto has a
significant presence in the premium segment with a market share of ~55% followed by Hero
Honda (~22%), TVS Motors (~13%) and HMSI (10%).
Executive Segment
Hero Honda dominates this segment with a market share of ~70% followed by Bajaj Auto
(20%), HMSI (~6%) and TVS Motors (1%). This segment retrieves higher revenues from the
rural areas, which are less dependence on finance; therefore comparatively it is among the
best performing segments YTD.

21
Economy Segment
This segment is a strong foothold for Bajaj Auto which has a market share of ~45% followed
by Hero Honda (~34%) and TVS Motors (~24%). This is the most competitive segment as
all the 3players relatively have a higher presence in the same. But this segment continues to
be the worst hit due to the credit unavailability and global slowdown. The industry has
shown a CAGR of ~15% from FY04-FY07 on account of finance availability from PSU
Banks and private banks like ICICI Bank. But from FY08 – FY09 YTD the industry has
shown shrinkage as most of the banks reduced their exposure in the auto finance domain
given the unfavourable macro economic situation.
In the initial phase, the market was predominantly in the executive segment. Later on BJAUT
developed the premium segment with their Pulsar range of vehicles. At the same time, BJAUT and
TVSL started to focus on entry level segment. This segmentation became much more visible during
FY02-07. With lower price points, BJAUT and TVSL stimulated the market and this led to market
expansion for the motorcycles. Easy financing accelerated in this process.
Table 3

22
Figure 8
Entry Level Segment
This segment was the major reason behind the growth in the domestic motorcycle market.
TVSL was the first one to penetrate this segment with their 'Max' range; however this market was
stimulated by BJAUT with 'Boxer'. This segment was then strengthened by 'Platina'. Easy
availability of financing and aggressive pricing led to strong growth of this segment till FY09. High
defaults in the loan repayment led to exit of many financiers from the segment in 1HFY08 leading to
demand contraction. Even for the manufacturers this segment started to become a problem with wafer
thin margins. To overcome this, BJAUT
started to increasingly focus on development of >100 cc segment. Pulling out of major financiers and
inventory correction in the system led to 24% contraction in the primary sales of entry level segment
products. This trend has continued during the current year with further decline of 17% till January
2009. This trend will continue till 1HFY10.

23
Figure 9
Executive Segment
Executive segment is the largest motorcycle segment and this is the stronghold of market
leader HH. Competitors have tried to challenge HH in this segment, however all such challenges have
fizzled out over time. With higher growth in economy segment, the contribution of this segment had
come below 50% in FY06. However over the last three years, it has made a strong come back and
now accounts for almost 60% of the motorcycle share.

24
Figure 10
Premium Segment
This segment was creation of HH with 'CBZ'; however major boost to the segment was given by
BJAUT through 'Pulsar' which has dominated the segment. HH has remained a marginal player in this
segment and one of the reasons for this is presence of HMSI in this segment. This segment remains a
small segment in the Indian market with contribution of around 14% to the motorcycle industry. This
is the performance segment and customers pay a premium for the novelty. Hence constant
upgradation in the product is a requisite for success in this segment.
Figure 11
Scooters
Advent of fuel efficient motorcycles in the Indian 2-wheelers industry led to decline of Scooters.
However, over the last five years, it has made a recovery and is emerging as a niche segment targeted
towards women commuters. One of the reasons for this is the increasing need of mobility for the
women commuters especially in the urban areas is due to higher number of college going girls and
greater participation of women in urban work force.

25
The product itself has gone for a complete revamp and now this category mainly consists of gearless
products. This segment is now dominated by Japanese manufacturers with HMSI having the
leadership. HH, which is a late entrant in this segment, has also cornered a sizeable market share in
the scooter segment. Another development in this segment is the launch of battery operated scooters.
However, given the high replacement cost for the batteries, this has remained a marginal segment.
Figure 12
Figure 13

26
Mopeds
Over the last 15 years, moped’s contribution in overall 2-wheelers has declined significantly and now
it remains a marginal category with just one manufacturer for the product. Its contribution in the 2-
wheelers industry now stands at 5% and we expect that this segment will continue to be marginalised.
The only player in this segment is TVS Motor.
Figure 14
Fleet Composition
Market share

27
Exports
Majority of exports are to Bangladesh, Sri Lanka, Nepal and Bhutan
Highest growth (Y-o-Y of 79%) witnessed in segment above 125cc which constituted
36% of the exports
The table shows the production trends across segments in the industry
from the year 2002–2003 till 2006–2007.

28
Imports
Imports have decreased substantially over the past decade. The most notable decline in
imports can be seen in the commercial vehicles segment. This can be attributed mainly to a
substantial increase in production capacities of commercial vehicles in India from 2000–
2001 onwards. Imports of passenger cars declined between 1996–1997 and 2000–2001. This
was due to the expansion of manufacturing facilities of cars in India during the period.
However, imports of passenger cars have increased in recent years. Growth in passenger car
imports took place between 2001–2002 and 2005–2006 due to increase in demand for
premium and luxury cars.
DECLINING IMPORTS ACROSS MOST SEGMENTS
The figures are for two periods, 1996–1997 to 2000–2001 and 2001–2002 to 2005–2006.
Figures are in percentage, based on constant prices for 1993–1994.

29
Challenges in the Indian automotive industry
Costs, infrastructure and human resource development are the underlying concerns in the
automotive industry and manufacturers are being challenged on these counts. Labour costs
are rising and economies of infrastructural improvements are not being realized efficiently.
Companies are searching for technological advancements that can help contain costs of
production and help in using resources efficiently to increase overall productivity.
Composition of costs and productivity
Raw material costs are by far the single largest costs where steel and rubber constitute the
two main materials used by manufacturers. However, the variation in cost of raw materials is
not as much as that in cost of labour. Further, labour costs constitute a much higher share of
the total cost in the automotive industry in American and West European countries compared
to India. In addition to the absolute costs involved in the automotive industry, the tax
structure also plays an important role. India has higher indirect taxes compared to some of
the other countries in Asia, which reduces the cost advantages it has. A cost comparison
study between Indian and Chinese automotive manufacturing companies revealed that the
cost to manufacture a passenger vehicle in China is 23 per cent lower than it is in India with
the main difference being higher taxes and their cascading impact in India, rather than cost of
raw materials or labour costs.
Advantage of low labour costs in India
Low labour costs and easy availability of management and engineering skills is one of the
prime advantages of manufacturing in India. Among the costs incurred to manufacture automotive
products, it is the cost of labour that foreign companies can cut most easily by manufacturing
in India. The cost per hour in India is only between 7 and 10 per cent of the cost of labour in
the developed countries. However it needs to be assessed if India can maintain the cost
advantage.
Low employee welfare leading to reduction in labour productivity

30
There is a significant increase in the number of contract workers being used in the
automotive industry which helps to keep labour costs low, but this practice of hiring labour
under contract also leads to exploitation in many cases. Thus, there is need for labour
reforms aimed at increasing the welfare of workers. Manufacturing companies are being
encouraged to retain and employ more permanent workers which will lead to higher levels of
productivity.
A survey conducted by Indian Council for Research on International Economic Relations

(ICRIER) found that the much needed labour reforms would increase the level of
productivity as reforms induce workers to work more efficiently. The survey found that
between 10 and 30 per cent of the total production workers in the automotive industry are
employed on contract basis. Further, wages paid to temporary workers are on an average
only 25 to 50 per cent of wages paid to permanent workers.

31
Technological advancements leading to cost reductions
Manufacturers are looking for ways to contain costs. With decreasing cost of technology,
manufacturers are exploring ways to develop low cost automation and use it to reduce labour
costs. Regarding efficiency in production, according to an econometric analysis conducted by
ICRIER, it has been found that increase in foreign participation is directly correlated with
higher technical efficiency. Thus, the government is inducing more foreign participation, so
that technologically advanced products can be developed at lower costs overall.
Infrastructure
Continued investment in infrastructure is essential for India to be able to realize the targets
set in the AMP. There are inadequate ports, insufficient feeder rail lines to the ports, and bad
roads. Despite the bottlenecks in this regard there are companies that have made the most out
of the existing infrastructure. For instance, Hyundai has setup its factory very strategically
near the port in Chennai and has built a supply chain hub around surrounding areas. It has
now become the second largest passenger car manufacturer in India after entering the Indian
market in 1998.
Roads
With respect to roads, the Golden Quadrilateral, a corridor connecting the four metro cities of
India, New Delhi in the North, Mumbai in the West, Chennai in the South and Kolkata in the
East spanning 6 500 kilometres is being built. The GOI has also launched a program for the
construction of 66 500 kilometres of national highways of which 50 000 kilometres is
expected to be completed by 2015. With better road infrastructure, significant growth is
expected in the automotive industry. For instance, better roads are leading to greater demand
for multi-axle vehicles.
Railways
The Ministry of Railways is in the process of developing freight corridors in Railways.

Drawn on similar lines of highway projects linking east with west and north with south, the
ministry are planning for an east-west corridor and a north-south corridor. Connectivity
between rails and ports (both dry and sea ports) is essential and a blueprint for railway
development is being prepared.38
32
Ports
For India to develop into a global automotive hub, port development is imperative.
Specialized port infrastructure for handling vehicle exports is being developed especially
near the main automotive clusters near Mumbai and Pune in the West, Chennai in the South,
and Kolkata in the East. Two new deep ports are being developed that have special emphasis
on the automotive industry. One is in Dhamra in the state of Orissa (East India) which will be
completed by 2010, and the second is in Sutrapada in the state of Gujarat (West India).
Power
The high cost and relatively lower quality of power in many parts of India is also an issue
highlighted by many manufacturers. Many companies face fluctuations in supply of power
and power outages that in turn affect the quality of production. The average manufacturer in
India loses 8.4 per cent in sales due to power cuts as opposed to less than 2 per cent in China
and Brazil. It is estimated that the power outages alone cost India 1 per cent of GDP.40
Several companies are willing to pay more for power in return for consistent and good
quality of power. The Eleventh Five Year Plan of India 2007–2012, issued by the Planning
Commission of India, has set ambitious targets to generate and distribute more and better
quality power.
Human resource development
Skill shortages and skill mismatches may emerge as a constraint to achieve the growth
targets set in the AMP. Thus one of the main areas of focus cited by the Ministry of Heavy
Industries and Public Enterprises is to develop advanced capabilities in the workforce. A
large workforce consisting of both skilled and unskilled workers will be required to sustain
the increased level of production. The challenge is to ensure that the demand–supply gap
does not arise either in quantitative or in qualitative terms. The employment generated can be
divided into direct and indirect employment. While direct employment is employment by
way of workers being engaged in the production of automobiles and automotive components,
indirect employment is generated in feeder and supplier industries in the areas of finance,
insurance, mechanics and after-sales personnel for semi-skilled and unskilled workers in
33
rural and semi-urban areas. According to the AMP, it is estimated that the automotive
industry would require the following:
• Management and General: 28 per cent or 7 million
• Skilled workers: 62 per cent or 15.5 million
• Unskilled workers: 10 per cent or 2.5 million
The need for top level engineering and managerial manpower is being met by the Indian
Institutes of Technology and Indian Institutes of Management. However more such institutes
are required to impart high quality technical education to the workforce. Although there are
several engineering institutes all over India, there is a growing need for more engineering
institutes. The GOI has begun to take some initiatives in this regard. The National
Automotive Institute is being set up that will serve as a knowledge bank for the automotive
industry, conduct market research and analysis and develop training modules. The plan is to
establish the institute in all the major clusters in India, so that the institute can benefit from
active participation from automotive companies in those clusters.
Working Conditions
The working hours in Two wheeler industry are determined and regulated by TACT time
under the system of production. All team members are liable to work under the SWC within
cycle times to meet targets, which are set by customer demand. Higher demand in the market
decreases TACT time (TACT DOWN) and leads to compulsory overtime. Management
generally reduces the TACT time to increase production when market demand is high, which
ultimately leads to excessive hours of work.
The normal duration of work in both Two wheeler industry is eight hours but extends very
often up to nine hours and to compulsory overtime. There are six days of work in a week and
total hours of work is thus 54 hours in a week under normal conditions, going up to 55 to 56
hours including compulsory overtime, far exceeding the provisions of hours of work under
the Factories Act12. Workers get two breaks of 10 and 20 minutes, one for breakfast/tea and
another for lunch in each shift. It is reported that most of the workers in both Two wheeler
industry stay more than 50 kilometres away from the unit, normally travelling around three

34
hours a day. Therefore the total time spent for work in a day becomes more than 12 hours.
The burden is not limited to the time of travel and hours of work as it seizes a considerable
amount of time from their social lives since workers prepare their day for travel and work
well in advance. In order to report at 5.15 am for the morning shift one has to get up by 3 am.
It is notable here that a worker reaches his place of residence after the first shift only by 5 pm
and gets very limited time for his personal life and even for sleep. All the workers whom the
research team interviewed reported that they get less than five hours of sleep a day. The
situation is similar for all shifts. The case cited below gives an account of the impact of
workload and resulting excessive hours of work on the family and social life of the workers.
The case of this worker reflects many unnoticed aspects of work in TNCs. Overwork and
workload in many situations seriously hamper workers’ personal, family and social lives.
This has far reaching sociological implications as well. All workers in Two wheeler industry
whom the reported that their personal and social lives were disturbed because of the busy
work schedule.
The burden of overwork varies for regular and contract workers. It is observed that, though
working hours and shift system is equally applicable for contract and permanent workers,
contract workers often bear the additional burden of overwork when there are instances of
labour shortage and ‘ad hoc jobs’. The intrinsic job insecurity and lack of organisation put
them in a more disadvantageous situation than the regular workers.
The present system of work shift and hours of work in Two wheeler industry is therefore
unfair and exploitative for both permanent and contract workers. It is unambiguously clear
that the workers are overstrained by working hours. One notable thing is that working time
for the shift is only eight hours for the workers. Thus the company adheres to the provisions
of the Factories Act in principle. Nevertheless, in actual practice, it exceeds eight hours
excluding overtime in every situation. The total time spent for work by the workers generally
comes to around 14 to 15 hours a day including preparations for the day, work, travel and
compulsory overtime. It is therefore inferred that working hours under the provisions of the
law is not enforced.
Employment Contract and Wage System

35
There are considerable discrepancies in employment contracts and wages within units in
Indian Two Wheeler Industry. The company signs direct employment contracts with regular
workers. Conversely, contract workers have no direct employment contracts with the
company and are recruited through contractors. The contract for regular workers is formally
established through the appointment letter, which is served after confirmation. Contract
workers engage in contracts, normally for six months, with the contractor who fixes the
terms and conditions pertaining to their employment and wages. The practice is the same in
both units of Indian Two Wheeler Industry.
Fixing and revision of wages for regular workers in Indian Two Wheeler Industry is largely
based on experience and performance. Though fixing and revision of wages is at the
discretion of the management, collective negotiation through the employees’ union plays a
major role in wages revision in Indian Two Wheeler Industry. Wages for workers vary across
tasks and units in Indian Two Wheeler Industry, which has different wage structures for
mother plant and ancillary units. The basic salary for confirmed workers in TKAPL, which is
an ancillary unit, is reported to be 15 percent less than the basic salary of counterparts in the
mother plant. Wages for full-time confirmed workers in Indian Two Wheeler Industry are
distributed under the heads of DA, FDA, washing allowance, medical allowance, education
allowance, conveyance allowance, house rent allowance, good attendance appreciation and
other allowance along with the basic salary.
The company does not keep any yardstick for increment or salary revision of the workers.
Increments in two wheeler industry are fixed on the basis of a performance appraisal system.
Nevertheless, union intervention has been the single effective instrument for facilitating
salary revision in Indian Two Wheeler Industry. Under this memorandum of settlement,
management revised salary, leave benefits, shift allowance, ad hoc payments, medical
allowance, emergency advance and death relief and introduced incentives for good
attendance for regular workers There is no common criterion for wage fixing for contract
workers in Indian Two Wheeler Industry. It is reported that contract workers normally get
40-50 percent of the salary of the regular employee on main line production. Wages for work
other than production are determined by the contractors. These are fixed on consolidated
terms and contract workers are not eligible for provisions and incentives such as wage
revision, leave benefits, ad hoc payments, medical allowance, education allowance, house

36
rent allowance and emergency advance. Provisions such as double wages for overtime, shift
allowance and night allowance are equally provided for both regular and contract workers.
The wage structure for regular employees in Indian Two Wheeler Industry more or less
conforms to market rates. However, contract workers are getting wages far below market
rates. It has been noted that there are no mechanisms for regulating wages for contract
workers in heavy industries. Labour laws pertaining to regulation of wages such as Payment
of Wages Act and Payment of Bonus Act are irrelevant for the contract workers in the auto
industry as the company does not officially keep contract workers’ records. Though there are
provisions in the recent state amendment of the Contract Labour (Regulation and Abolition)
Act, 1970, for fixing wages at more than 125 percent of the minimum wage of the specific
task, they are not enforced in Indian Two Wheeler Industry. Since the contract workers are
not part of the employees union in both Indian Two Wheeler Industry, scope for negotiation
is also limited for this section of workers.
Sentiments of the Indian vehicle buyer
Rising incomes and favourable demographic trends
Per capita incomes in India are rising and the demographic changes taking place are expected
to fuel further growth in the Indian economy through increase in demand for products. India
has one sixth of the world’s total population. The median age in India was 24.8 in 2007.41
According to an analysis done by the Population Research Centre, Institute for Economic
Growth in India, 67 per cent of the Indian population will be aged between 15 and 64 in
2025. Thus increasing incomes combined with a very large young population will drive
growth of the automotive industry as an automobile is a symbol of increasing prosperity for
the young Indian consumer.
Prices and fuel efficiency

37
The Indian automotive market has been characterized as a small car market. Prices of cars
form a larger percentage of the disposable income in India compared to persons in the same
income group in western countries. Indians are very conscious about the fuel efficiency of
their cars. A safe and therefore heavy small car being sold at a competitive price giving low
mileage will not sell. One example of this is the Fiat Palio. On the other hand, a light weight
car like the Hyundai Santro that gave good mileage became the second largest selling car
after it was launched. Safety therefore is still not one of the main concerns of the Indian car
buyer and price and fuel efficiency remain the most important considerations.
Alternative fuels
Most of the vehicles in India run on Petrol and Diesel where Diesel is increasing in
popularity as a fuel for personal cars because of the element of subsidy in diesel prices. The
Economist Intelligence Unit (EIU) forecasts that demand for fossil fuels in India is expected
to grow at a relatively high rate of 7.2 per cent annually. Given the global energy crisis,
development of techniques for using alternative fuels is now high on the agenda. Bio-fuels
are not used on a large scale at all in India and efforts have recently started to introduce these
fuels. India is behind many other big markets in Europe and the Americas in terms of
emission controls. However in order to address the emission norms being followed
worldwide, India is considering the price and availability of these fuels and enforcement of
new emission controls. The GOI is also promoting R&D in this area to develop low emission
technologies and energy saving devices.
Research and development
Research & Development (R&D) expenditure as a proportion of turnover is low in India. In

the automotive industry, spend on R&D ranges between 0.5 and 3 per cent. R&D hubs are
expected to develop in three of the four main automotive clusters in the country, in the South
near Chennai, in the North at Manesar, and in Pune and Ahmednagar in West India. To
provide support to companies in this regard, the GOI is promoting R&D in the automotive
industry by providing financial incentives. Other measures are also being taken such as
relaxing tariffs for plant and equipment imports, and setting up of automotive design firms.

38
Thus allocation towards R&D of automotive industry is being increased and the scope of
activities is being widened. Facilities for carrying out R&D are also being developed. For
instance, the National Automotive Testing and R&D Infrastructure Project (NATRIP) was
setup in July 2005 to create testing, validation and R&D infrastructure in India. Core
facilities for NATRIP will be in Indore city in Central India. Testing and validation facilities
including field tracks for tractors, trailers, construction equipment and various other vehicles
will be done at Rae Bareilly in Northern India. In fact, global majors such as Toyota, BMW,
Honda and Volkswagen get their vehicles tested in India and get international certification.
More and more companies now prefer India over China in this regard due to a stronger
Intellectual Property Rights (IPR) system in India.
India is increasingly being perceived to become a key source of R&D services in the near
future. 125 Fortune 500 companies have already setup their R&D bases in India and more
automotive manufacturers are expected to do the same. Earlier, manufacturers used to
depend on imported designs whereas now, Tata Motors and Mahindra & Mahindra are able
to develop new models entirely locally. Global Advisory firm KPMG conducted a survey in
2007 with leading industry experts and senior management of automotive companies. The
study revealed that low wages were the primary driver of growth of R&D, combined with
superior quality of manpower. In a survey conducted by ICRIER it was found that there is a
direct correlation between turnover and the number of workers in R&D. The results of this
survey indicate that as a company’s turnover increases, the proportion of R&D workers out
of total workers increases.
Technical Regulations
The automobile industry has to address the following issues at all the stages of vehicle
manufacture:
• Environmental Imperatives
• Safety Requirements
• Competitive Pressures and
• Customer Expectations

39
There is a strong interlinking amongst all these forces of change, influencing the
automobile industry. These have to be addressed consistently and strategically to ensure
competitiveness.
Since pollution is caused by various sources, it requires an integrated, multidisciplinary

approach. The different sources of pollution have to be addressed simultaneously in order
to stall widespread damage.
THE PARAMETERS DETERMINING EMISSION FROM VEHICLES
• Vehicular Technology
• Fuel Quality
• Inspection & Maintenance of In-Use Vehicles
• Road and Traffic Management
While each one of the four factors mentioned above have direct environmental
implications, the vehicle and fuel systems have to be addressed as a whole and jointly
optimised in order to achieve significant reduction in emission.
VEHICULAR TECHNOLOGY
In India, the vehicle population is growing at rate of over 5% per annum and today the
vehicle population is approximately 40 million. The vehicle mix is also unique to India in
that there is a very high proportion of two wheelers (76%).
History of Emission Norms in India
The significant environmental implications of vehicles cannot be denied. The need to

reduce vehicular pollution has led to emission control through regulations in conjunction
with increasingly environment-friendly technologies.
It was only in 1991 that the first stage emission norms came into force for petrol vehicles

40
and in 1992 for diesel vehicles.
From April 1995 mandatory fitment of catalytic converters in new petrol passenger cars
sold in the four metros of Delhi, Calcutta, Mumbai and Chennai along with supply of
Unleaded Petrol (ULP) was affected. Availability of ULP was further extended to 42
major cities and now it is available throughout the country.
The emission reduction achieved from pre-89 levels is over 85% for petrol driven and
61% for diesel vehicles from 1991 levels.
In the year 2000 passenger cars and commercial vehicles will be meeting Euro I
equivalent India 2000 norms, while two wheelers will be meeting one of the tightest
emission norms in the world.
Euro II equivalent Bharat Stage II norms are in force from 2001 in 4 metros of Delhi,
Mumbai, Chennai and Kolkata.
Since India embarked on a formal emission control regime only in 1991, there is a gap in
comparison with technologies available in the USA or Europe. Currently, we are behind
Euro norms by few years, however, a beginning has been made, and emission norms are
being aligned with Euro standards and vehicular technology is being accordingly
upgraded. Vehicle manufactures are also working towards bridging the gap between Euro
standards and Indian emission norms.
FUEL TECHNOLOGY
In India we are yet to address the vehicle and fuel system as a whole. It was in 1996 that
the Ministry of Environment and Forests formally notified fuel specifications. Maximum
limits for critical ingredients like Benzene level in petrol have been specified only recently
and a limit of 5% m/m and 3% m/m has been set for petrol in the country and metroes
respectively.
In place of phase-wise upgradation of fuel specifications there appears to be a region-wise

introduction of fuels of particular specifications. The high levels of pollution have

41
necessitated eliminating leaded petrol, throughout the country.
To address the high pollution in 4 metro cities 0.05% sulphur petrol & diesel has been
introduced since 2000-2001. The benzene content has been further reduced to 1% in Delhi
and Mumbai.
There is a need for a holistic approach so that upgradation in engine technology can be
optimised for maximum environmental benefits.
Other factors influencing emission from vehicles are:
INSPECTION & MAINTENANCE (I&M) OF IN-USE VEHICLES
It has been estimated that at any point of time, new vehicle comprise only 8% of the total
vehicle population. In India currently only transport vehicles, that is, vehicles used for hire
or reward are required to undergo periodic fitness certification. The large population of
personalised vehicles are not yet covered by any such mandatory requirement.
In most countries that have been able to control vehicular pollution to a substantial extent,
Inspection & Maintenance of all categories of vehicles have been one of the chief tools
used. Developing countries in the South East Asian region, which till a few years back had
severe air pollution problem have introduced an I&M system and also effective traffic
management.
ROAD & TRAFFIC MANAGEMENT
Inadequate and poor quality of road surface leads to increased Vehicle Operation Costs
and also increased pollution. It has been estimated that improvements in roads will result
in savings of about 15% of Vehicle Operation Costs.
CONCLUSION
The need for an integrated, holistic approach for controlling vehicular emission cannot be
over-emphasised. More importantly, it is time now for the auto and oil industry to come
together under the guidance of the Government in evolving fuel quality standards and
vehicular technology to meet air quality targets.

42
Vehicular Safety Standards & Regulations
Environmental imperatives and safety requirements are two critical issues facing the
automotive industry, worldwide. Indian Automobile Industry in the last decade has made
significant progress on the environmental front by adopting stringent emission standards,
and is progressively aligning technically with international safety standards.
Central Motor Vehicle Rules (CMVR) came into force from 1989 and serious
enforcement of regulations came into effect. Chapter V of the Central Motor Vehicle
Rules, 1989 deals with construction, equipment and maintenance of vehicles and in
addition to rules governing emission limits, there are several rules in this chapter requiring
motor vehicles to comply with safety regulations.
Vehicles being manufactured in the country have to comply with relevant Indian
Standards (IS) and Automotive Industry standards (AIS). Indian Standards (IS) have been
issued since the late 1960s and these standards for Automotive Components were based
on EEC/ISO/DIN/BSAU/FMVSS etc at that time.
Regulations are reviewed periodically by the Technical standing Committee on MCVR

(CMVR-TSC). States also have their State Motor Vehicle Rules
Since 2000 ECE Regulations have been used as basis for Indian regulations and since
2003, increased efforts are being made to technically align with ECE. Variance from ECE
exists on formatting phraseology and administration related issues.
Alignment of Indian regulations (AIS/ BIS) with ECE is being attempted as per the broad
roadmap drafted by SIAM.
In order to have a planned approach to introduction of advanced safety features, SIAM

drew up a Road Map for Automobile Safety Standards. The Roadmap was prepared by the
CMVR, Safety & Regulations Committee.
The current traffic conditions, driving habits, traffic density and road user behaviour
necessitate that maximum safety be built into the vehicles. Progressive tightening of safety
standards taking into account unique India requirements has been addressed by the Road
Map with a view to reducing the impact of accidents and thereby improving safety of the
43
vehicle occupants and vulnerable road users.
The Roadmap was presented to the Government in January 2002 which received an in-
principle approval of the Ministry of Shipping, Road Transport & Highways. Based on
discussions with all stakeholders, a roadmap has been finalized by the Ministry and work
has commenced on the standards and notifications for the various stages.
Income estimates
The World Bank estimates that 456 million Indians (41.6% of the total Indian population)
now live under the global poverty line of US$ 1.25 per day (PPP). This means that a third
of the global poor now reside in India. However, this also represents a significant decline
in poverty from the 60 percent level in 1981 to 42 percent in 2005. The rupee has
decreased in value since then, while the official standard of 538 (urban)/ 356 (rural) per
month has remained the same income inequality in India is increasing, with Gini
coefficient of 32.5 in 1999-2000. However, according to the latest NCAER estimates, in
2009, only 15.6% of the households or 200 million people, had income levels less than
45,000 annually (US$ 1.4 PPP per person).On the other hand, the Planning
Commission of India uses its own criteria and has estimated that 27.5% of the population
was living below the poverty line in 2004–2005, down from 51.3% in 1977–1978, and
36% in 1993-1994. The source for this was the 61st round of the National Sample Survey
(NSS) and the criterion used was monthly per capita consumption expenditure below
356.35 for rural areas and 538.60 for urban areas. 75% of the poor are in rural areas,
most of them are daily wages, self employed householders and landless labourers.
Although the Indian economy has grown steadily over the last two decades, its growth has
been uneven when comparing different social groups, economic groups, geographic
regions, and rural and urban areas. Between 1999 and 2008, the annualized growth rates
for Gujarat (8.8%), Haryana (8.7%), or Delhi (7.4%) were much higher than for Bihar
(5.1%), Uttar Pradesh (4.4%), or Madhya Pradesh (3.5%). Poverty rates in rural Orissa
(43%) and rural Bihar (41%) are among the world's most extreme. A study by the Oxford
Poverty and Human Development Initiative using a Multi-dimensional Poverty
44
Index (MPI) found that there were 421 million poor living under the MPI in Bihar,
Chattisgarh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan, Uttar Pradesh and West
Bengal. This number is higher than the 410 million poor living in the 26 poorest African
nations.
Despite significant economic progress, one quarter of the nation's population earns less
than the government-specified poverty threshold of 12 rupees per day
(approximately US$ 0.25). Official figures estimate that 27.5% of Indians lived below the
national poverty line in 2004-2005. A 2007 report by the state-run National Commission
for Enterprises in the Unorganised Sector (NCEUS) found that 77% of Indians, or 836
million people, lived on less than 20 rupees (approximately US$0.50 nominal; US$2 PPP)
per day. It is relevant to view poverty in India on a PPP basis as food etc. are purchased in
Rupees. So the annual income of a family of four at US$2 PPP/day (current exchange rate
of 47 = US$1) would be 137,240 (i.e. 1.37 lakh). According to a recently released

World Bank report, India is on track to meet its poverty reduction goals. However by
2015, an estimated 53 million people will still live in extreme poverty and 23.6% of the
population will still live under US$1.25 per day. This number is expected to reduce to
20.3% or 268 million people by 2020. However, at the same time, the effects of the
worldwide recession in 2009 have plunged 100 million more Indians into poverty than
there were in 2004, increasing the effective poverty rate from 27.5% to 37.2%.
As per the 2001 census, 35.5% of Indian households availed of banking services, 35.1%
owned a radio or transistor, 31.6% a television, 9.1% a phone, 43.7% a bicycle, 11.7% a
scooter, motorcycle or a moped, and 2.5% a car, jeep or van; 34.5% of the households had
none of these assets. According to Department of Telecommunications of India the phone
density has reached 33.23% by Dec 2008 and has an annual growth of 40%. These tallies
with the fact that a family of four with an annual income of 1.37 lakh Rupees could afford
some of these luxury items.
The different income groups for people in India are:
‣ A+ class : people having unlimited, unspecified and uncountable Income like our
Politicians, Bureaucrats, drug traffickers and underworld people;

45
‣ Affluent Class : people having very high income like Industrialists, top notch
CEO's and directors;
‣ Upper Middle Class : People with handsome pay packets or earnings like High
academicians, Directors of PSU's etc.;
‣ Medium middle Class : People with attractive incomes like GM's, GGM's and
alied class;
‣ Middle income group : People just managing their standard of living by
manipulations and adjustments;
‣ Lower middle income group : people with just to survive status of affairs;
‣ Poor Income Group: People just able to make their both ends meet;
Below Poverty Line : People who could not get opportunity to excel in life, always
living in the world of hardships and deficiencies .
CO existence of all these groups of people in the same locality, society and
community is really praiseworthy.
1. Over 70m households (34% of total) earn Rs. 80,000 to Rs. 18,00,000 per annum
2. Six hundred thousand households earn more than Rs. 18,00,000 per annum.
3. Households earning between Rs. 80,000 – Rs. 18,00,000 to hit 106m by 2010
4. Market researchers believe that household income is massively understated –

baggage of the era of controls and usurious taxes
5. Independent studies suggest 1.6 million households earn over Rs 40 lakh per
annum and about 100,000 people have more than Rs. 4 crore in assets.
6. Real Incomes increased by 12%; However, real GDP per capita has grown at 10%
over FY02-07.
7. 50% of the people have seen incomes rise in the past 12 months; 9% have seen
their Incomes decline.
8. Of those with income increases, one-third saw a more than 10% rise.
9. Average rise in income was lowest in west India at 10% and highest in the east at
46
18%.
10. 63% expect their incomes to rise in the next 12 months; average expected increase
is 12.7%
11. 83% of people believe that they are better off than 10 years ago 84% expect further
improvement in their lives over the next five years
Segmentation, Pricing Strategies of major players
Demographic Segmentation
• Income: Our customer survey indicates that the segments available for the
Hero Honda bike are the people with monthly income of Rs. 10,000 and
above.
• Age: The main segmented group for the motorcycle are 18 years and above.
• Occupation: All kinds of people are taken into account. Students,

professionals, Govt. Servants, etc.
Geographic Segmentation:
The potential customers are basically from every regions of India.
Psychographic segmentation:
People purchasing bikes are very stylish, brand conscious.
Behavioral segmentation:
This segmentation is done considering user status, benefit wise.
Product – This which includes the product quality, design, features, branding and
packaging. The product is perfectly designed and all the switch are well placed,
which provides a good riding condition

47
Price – Determining the prices of different products of a firm is a very difficult
task of the marketing manager. Price denotes money value of a product. It
represents the amount of money for which a product can be exchanged. In other
words, prices represent the money which the buyer pays to the seller for a product
price represents the exchange value of goods and services in terms of money.
Price is all around.
Price factor has very well been touched by the manufactures. The manufactures
(Hero Honda) are charging very comparatively cheaper prices then their
competitors. The pricing strategy of the company is very set. They price their
product according to the cost of production and also by keeping an eye on the
price of the competitors of that segment & demand of the product in the market.
The pricing strategies adopted by Hero Honda Ltd.
The management of a firm decide to fix the price at the competitive level. This
method is adopted by Hero Honda because the bike market is highly competitive.
The amount of money that customer pays for the product. The price of the product should
commensurate with its perceived value. If does not, the buyers will turn to competitors
products.
Critical Success factors of major players
Player analysis
Hero Honda Largest two-wheeler manufacturer in the world

Bajaj Auto 2nd largest two-wheeler manufacturer in the world and the
largest 3-wheeter manufacturer
TVS Motors 3rd largest manufacturer with facilities in India & Indonesia
Honda Motors Recently entered the Indian market through its direct subsidiary
(in addition to its JV with Hero)
Suzuki Recently entered the Indian market through its direct subsidiary
48
(earlier JV with TVS was withdrawn)
The various promotional activities adopted by the Hero Honda Company.
The company has 100crore rupees for its promotional activities out of which 75% is
sponsored by the company and 25% from the dealers.
They may sign a celebrity for its promotional activities in recent futures.
• The company provides six free services to its customers in comparison to its
competitors.
• The company provides good services facilities to its customers through dealer’s
service station.
• Dealers encourage its customers by giving discount, providing 0% interest loan

schemes, prices, coupons etc.
The various promotional activities adopted by Hero Honda bikes are as follows
 Credit & finance schemes
 Free services to the consumers
 Advertisements on Televisions, Newspapers, Magazines
 Road Shows
 Free trials for the new consumers
Price factor has very well been touched by the manufacturers. The manufacturers are
charging very comparatively cheaper price i.e. Rs 45000 approx. The pricing strategy of
the company is very set. They price their product according to the cost of production and
also by keeping an eye on the price of the competitors of that segment and demand of the
product in the market.
49
Hero Honda group ensures an easily affordable pricing through excellent transportation
to common man. I fixes customer centric pricing that provide customer total satisfaction.
Hero Honda group ensures an easily affordable pricing through excellent transportation to
common man. It fixes customer centric pricing that provides the customer with total
satisfaction.
PROMOTION BY HERO HONDA
Advertisement, local events sponsorship and promotions and inviting a prominent

personality for the inaugural or first like delivery function would contribute effectively in
generating a wider local interest and attention.
Hero Honda’s latest DKD –2 commercial its two brand starring its Ambassador and
India’s heart throbs, Hritik Roshan and Sourav Ganguly, truly reflects the multi fact roles
that today’s new generation plays. The commercial reflecting the charisma and vibrancy
of these two stars, takes Desh Ki Dhadkan to dazzling new heights. It is young, colorful
and vibrant and represents the icons of contemporary times. And it will go a long way in
strengthening the leadership status of the product by the mile.
ADVERTISEMENT OF TVS MOTORS
TWO-WHEELER major, TVS Motor Company, has come up with an improved

performance for the first quarter of this fiscal. The company continues to ride on the
success of the recently-launched four-stroke model, Victor. For the quarter ended June
2002, the turnover increased about 54 per cent to Rs 629.97 crore.
The `Victor' ride: The sharp spurt in motorcycle sales volume has been the key driver of
revenues. The sustained demand growth for Victor, coupled with the recovery in sales
volume of the two-stroke model, Max 100, aided an 88 per cent jump in motorcycle sales
volume.
TVS Motor had signed up Sachin Tendulkar as its brand ambassador. Notably, other
50
expenditure (including advertisement and promotional costs) increased to Rs 98.66 crore
from Rs 69.42 crore. TVS customers will get an opportunity to participate in 'pitch on
wheels', which is a 'hit wicket get ticket promotion" which began on October 19. 'Pitch on
wheels' is a promotional activity wherein a vehicle promoting the match would make a
round of the whole city prior to each match. The spectators at the stadium too will be
treated to a whole lot of entertainment in the form of music and dance during breaks in the
games. There would also be lucky draws for everyone in the stadium with TVS bikes as
prizes.
ADVERTISING STRATEGY BAJAJ
Bajaj is always known for its ads without well-known brand ambassadors which is again a
plus point to its cart as it saves a huge cost in terms of brand ambassadors unlike Hero
Honda and TVS. Bajaj used to convey the feeling of ‘Indianness’ in its ads. With a punch
line ‘Hamara Bajaj’ Bajaj drove into everybody’s hearts and the title song of ‘Naye Bharat
Ki Naye Tasveer’ added a great value to its mobikes and scooters.
But recently, Bajaj had changed its brand logo along with its punch line i.e. ‘Hamara
Bajaj’ got converted to ‘Inspiring Confidence’. The reason for this change as told by the
company officials was to keep pace with the new technologies in the fast moving world.
TRENDS IN TWO WHEELER INDUSTRY
In order to make India a power to reckon with in the automotive sector the government
launched the Automotive Mission Plan (AMP) 2006-2016. As per the AMP, it is
estimated that the total turnover of the automotive industry in India would be in the order
of USD 122 billion - USD 159 billion in 2016. It is expected that in real terms, India
would continue to enjoy its eminent position of being the largest tractor and three-wheeler
51
manufacturers in the world and the world's second largest two-wheeler manufacturer. By
2016, India will emerge as the world's seventh largest car producer (as compared to the
eleventh largest currently) and retain the fourth largest position in world truck
manufacturing sector. Further, by 2016, the automotive sector would double its
contribution to the country's GDP from current levels of five per cent to 10 per cent. The
Indian automotive industry consists of the following five segments:
The total two-wheeler sales of the Indian industry accounts for around 77% of the total
vehicles sold in India. With 26,12,881 two wheelers already sold in India in the quarter
from Jun-Sep 2009, the Indian wheeler industry is poised for high growth In the coming
years. In terms of volume, about 6% of the two wheelers manufactured are exported.
FIGURE 1: DOMESTIC MARKET SHARE FOR 2008-09
The following table1 illustrates the growth of the auto industry in India.
Category 2002- 2003- 200 200 200 20 2008-09

03 04 4-05 5- 6- 07-
06 07 08
Passenger 7,23,3 9,89, 12,0 13, 15, 17, 18,38,697
Vehicles 30 560 9,87 09, 45, 77,
6 300 223 58
3
Commerci 2,03,6 2,75, 3,53 3,9 5,1 5,4 4,17,126

52
al 97 040 ,703 1,0 9,9 9,0
Vehicles 83 82 06
Three 2,76,7 3,56, 3,74 4,3 5,5 5,0 5,01,030
Wheelers 19 223 ,445 4,4 6,1 0,6
23 26 60
Two 50,76, 56,22 65,2 76, 84, 80, 84,18,626
Wheelers 221 ,741 9,82 08, 66, 26,
9 697 666 68
1
Grand 62,79, 72,43 84,6 97, 1,1 1,0 1,11,75,479
Total 967 ,564 7,85 43, 0,8 8,5
3 503 7,9 3,9
97 30
TABLE 1: AUTOMOBILE PRODUCTION TRENDS
The following table2 gives the number of vehicles exported in each category.
Category 2002 200 200 20 20 20 2008-09

-03 3-04 4- 05 06 07
05 - - -
06 07 08
Passenger 72,0 1,29 1,6 1,7 1,9 2, 3,35,739
Vehicles 05 ,291 6,4 5,5 8,4 18
02 72 52 ,4
01
Commercial 12,2 17,4 29, 40, 49, 58 42,673
Vehicles 55 32 940 60 53 ,9
0 7 94
Three Wheelers 43,3 68,1 66, 76, 1,4 1, 1,48,074
66 44 795 88 3,8 41
1 96 ,2
25

53
Two Wheelers 1,79, 2,65 3,6 5,1 6,1 8, 10,04,174
682 ,052 6,4 3,1 9,6 19
07 69 44 ,7
13
Grand Total 3,07, 4,79 6,2 8,0 10, 12 15,30,660
308 ,919 9,5 6,2 11, ,3
44 22 52 8,
9 33
3
TABLE 2: AUTOMOBILE EXPORT TRENDS
Two Wheeler Segmental Classification and its Growth
The three main product segments in the two-wheeler category are scooters, motorcycles
and mopeds. However, in response to evolving demographics and various other factors,
other sub-segments emerged, viz. scooterettes, gearless scooters, and 4-stroke scooters.
While the first two emerged as a response to demographic changes, the introduction of 4-
stroke scooters has followed the imposition of stringent pollution control norms in the
early 2000. Besides, these prominent sub-segments, product groups within these sub-
segments have gained importance in the recent years.
The two wheeler industry has been growing at a CAGR of 9.45% from 2004 to 2009, with
the production being about 63 lakh vehicles in 2004 to an estimated 100 lakhs in 2009.
Motorcycles have always been the major contributor to the two wheeler industry in India.
From a share of about 77.39% in 2004, it has steadily grown to about 80.38%. The share
of scooters has gone down from 16.63% in 2004 to 13.88% in 2009. The following table
gives the percentage share of motorcycles, scooters and mopeds in the two wheeler
industry in India.
Scooters Motorcyc Mop Base

les eds
2004 15.76% 78.76% 5.48 63,44,365
54
%
2005 13.31% 81.64% 5.05 72,89,442
%
2006 11.52% 83.62% 4.59 83,89,265
%
2007 13.18% 81.35% 5.20 81,54,068
%
2008 13.70% 80.79% 5.24 83,57,140
%
2009e 13.76% 80.64% 5.55 99,66,806
%
TABLE 3: PERCENTAGE SHARE OF TWO WHEELERS IN INDIA

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Growth drivers for the Indian automotive industry
Growth potential of the Indian automotive industry
Projected size of Auto Components industry - 2015

56
• The Indian auto component industry is well positioned to capitalize on the growth in
outsourcing to low cost countries
• Exports would lead the growth in the component industry, which is expected to be
around USD 33- 40 bn by 2015

57
• The total investments required to support the growth is estimated at around USD 35 -
40 bn
• The size of Indian automotive industry is expected to grow at 13% p.a over the next
decade to reach around USD 120 - 159 bn by 2016
Government regulations & policy
• In 2002, the Indian government formulated an auto policy that aimed at promoting
integrated, phased, enduring and self-sustained growth of the Indian automotive
industry
• Allows automatic approval for foreign equity investment upto 100%

in the automotive sector and does not lay down any minimum investment criteria.
• Lays emphasis on R & D activities carried out by companies in India
• Weighted tax deduction of up to 150% for in-house research and R & D activities
• Formulation of an appropriate auto fuel policy to ensure availability of adequate

amount of appropriate fuel to meet emission norms
• Confirms the government’s intention on harmonizing the regulatory standards

with the rest of the world
• The Government of India is promoting National Automotive Testing and R&D

Infrastructure Project (NATRIP) to support the growth of the auto industry in India

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• NATRIP envisages setting up of five independent and up gradation of existing test
centres
• Testing centres at Manesar (Haryana), Chennai (Tamil Nadu), Pune

(Maharashtra)
• Proving ground at Indore (MP)
• Tractor testing facility at Rae Bareilly (UP)
• Hill Driving Training Centre at Silchar (Assam)
Automobile industry in India also received an unintended boost from stringent government
auto emission regulations over the past few years. This ensured that vehicles produced in
India conformed to the standards of the developed world. Though it has an advantage in
India, thanks to low costs and government policies it soon faces stiff competition from it
multinational competitors all eyeing for a share in the ever growing Indian auto sector. The
policies adopted by Government will increase competition in domestic market, motivate
many foreign commercial vehicle manufactures to set up shops in India, whom will make
India as a production hub and export to nearest market.
• Bring in a minimum foreign equity of US $ 50 Million if a joint venture involved

majority foreign equity ownership.
• Automatic approval for foreign equity investment up to 100% of manufacture of
automobiles and component is permitted.
• FIIs including overseas corporate bodies (OCBs) and NRIs are permitted to invest up
to 49 per cent of the paid-up equity capital of the investee company, subject to
approval of the board of directors and of the members by way of a special resolution.
• Investments in making auto parts by a foreign vehicle maker will also be considered a
part of the minimum foreign investment made by it in an auto-making subsidiary in
India. The move is aimed at helping India emerge as a hub for global manufacturing
and sourcing for auto parts.
• Specific component of excise duty applicable to large cars and utility vehicles will be
reduced to 15,000 rupees per vehicle from 20,000 rupees earlier.

59
• The Proposal by the Govt. to set up an expert group to advise on a viable and
sustainable system of pricing petroleum products, as this will surely had an impact on
the Automobile Industry.
• The announced reduction on the basic customs on bio-diesel is great news for all
companies working on environmental saving technologies.
Rules and Regulations for Importing Bikes in India :-
Bike enthusiasts from different corners of India have been importing high-performance bikes
to satiate their zeal for high-speed biking. Not withstanding their astronomical price tags,
these cult machines do have a fair number of admirers in India.
Post Dhoom, the Bollywood pot-boiler which featured John Abraham in a Suzuki Hayabusa,
this small community of high-power bike aficionados is growing with every passing day. To
import a brand new bike, one will have to pay 105 percent duty and 100 percent on a used
one. The Exim Policy 2001 lifted quantitative restrictions on the import of second-hand
vehicles.
The import of vehicles shall be subject to the following guidelines of the Government of
India:
1 (I) A new imported vehicle shall mean a vehicle that: - Has not been
manufactured/assembled in India; and Has not been sold, leased or loaned prior to
importation into India; or Has not been registered for use in any country according to the
laws of that country, prior to importation into India.
1. (II) The import of new vehicles shall be subject to the following conditions:
The new vehicle shall - Have a speedometer indicating the speed in km / h; Have right hand
steering, and controls (applicable on vehicles other than two and three wheelers); Have
photometry of the headlamps to suit "keep-left" traffic; and
Be imported from the country of manufacture.

60
(b) In addition, the new vehicle shall conform to the provisions of the Motor Vehicles Act,
1988 and the rules made there under, as applicable, on the date of import.
(c) The import of new vehicles shall be permitted only through the Customs port at Nhava
Sheva (Mumbai) Calcutta and Chennai.
2. (I) A second hand or used vehicle shall mean a vehicle that :- Has been sold, leased or
loaned prior to importation into India; or Has been registered for use in any country
according to the laws of that country, prior to importation into India;
2. (II). The import of second had or used vehicles shall be subject to the following
conditions:-
The second hand or used vehicle shall not be older than three years from the date of
manufacture; the second hand or used vehicle shall: Have right hand steering, and controls
(applicable on vehicles other than two and three wheelers); Have a speedometer indicating
the speed km / h; and Have photometry of the headlamps to suit "keep left" traffic.
In addition, the second hand or used vehicle shall conform to the provisions of the Motor
Vehicle Act, 1988 and the rules made there under, as applicable, on the date of import.
Import of second hand vehicles shall be allowed only through the customs port at Mumbai.
The second hand or used vehicles imported into India should have minimum road worthiness
for a period of 5 years from the date of importation into India with assurance for providing
service facilities within the country during the five year period. For this purpose, the importer
shall, at the time of importation, submit a declaration indicating the period of roadworthiness
in respect of every individual vehicle being imported, supported by a certificate issued by
any of the testing agencies, which the Central Government may notify in this regard.
The vehicle has to be submitted for testing to Vehicle Research and Development
Establishment (VRDE), Ahmednagar, of the Ministry of Defence or the Automotive
Research Association of India, Pune or the Central Farm and Machinery Training and
Testing Institute, Budni, Madhya Pradesh, and such other agencies as may be specified by

61
the Central Government, for granting a certificate by that agency as to the compliance of the
provisions of the Motor Vehicles Act,1988 and any rules made there under.
Automotive regulations in India
Indian automotive regulations are closely aligned to the ECE regulations. The table
below shows the level of alignment of the Indian regulations with the ECE regulations.
‣ Crash Related Regulations

‣ Introduction of Bharat Stage IV norms
Status o
The key regulations that are likely to impact the auto industry in the future are:
India Advantage and business opportunities
Attractiveness of Indian Automobile Industry

Fully / Partia
62
Opportunities in Indian Automobile sector
• Potential investors can capitalize on opportunities both in the domestic and export
oriented segments
• Investment potential of up to USD 35 - 40 bn in this sector over the next 10 years
• Investments in the Indian automotive industry can be in various forms
• 100 % subsidiary - 100 % FDI through automatic route allowed in this sector
• JVs with local firms
• Technology support or sharing agreements
SWOT Analysis
A scan of the internal and external environment is an important part of the strategic planning
process. Environmental factors internal to the firm usually can be classified as strengths (S)
or weaknesses (W), and those external to the firm can be classified as opportunities (O) or
threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis
SWOT analysis of the Indian automobile sector gives the following points:
Strengths:-
• Large domestic market
• Sustainable labour cost advantage

63
• Competitive auto component vendor base
• Government incentives for manufacturing plants
• Strong engineering skills in design etc
Weaknesses:-
• Low labour productivity
• High interest costs and high overheads make the production uncompetitive
• Various forms of taxes push up the cost of production
• Low investment in Research and Development
• Infrastructure bottleneck
Opportunities:-
• Commercial vehicles: SC ban on overloading
• Heavy thrust on mining and construction activity
• Increase in the income level
• Cut in excise duties
• Rising rural demand
Threats:-
• Rising input costs
• Rising interest rates

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• Cut throat competition
E-bikes Market:-
In 2008-09 more then 11 millions two wheelers were sold in country. Of these, 7.81 millions
were motorcycles or step-thoughts, 11.08 lakh were largely scooterettes and another 5.32
lakh were mopeds. A bare 70,000 were electric two wheelers. By the end of this financial
year in March, two wheeler sales will surge past the 8 million mark, and EV sales should be
3 lakh vehicles in India the years.
Overview:-Electric vehicles are virtually maintenance free. It has no gears, no engine, no belt
or chain drive, zero emission, no pollution, electronic start and accelerator, besides it is
exempted from the Central Vehicles registration act by the Automotive Research Association
of India (ARAI) and does not require any registration or license. These bikes are usually
chargeable at 220V which your refrigerator requires. For charging bikes require special
adapter. Batteries, Motor sand other electrical kits are imported from china and other
countries whereas mechanical design and assembly of these bikes are done here. Electric
bikes target School students, women and who are under 18 years of age. Following is there
view on some of the manufacturers and their products in India.
Yo Bykes:
Indus - division of Electrotherm a Gujrat based company is the recent player in electric
vehicle market. It offers two scooterette and four bikes models with the motor power range
200-250W. YO-smart scooter model from Indus come with a very compact dimension. The
vehicle weighs less and has a pay load of 75kg. YO-smart vehicle clocks a top speed of
25km/hr and the vehicle offers arrange /charge mileage of 75km. Charge duration required is
6 – 8hours.Electrotherm’s YOBikes are ranged between Rs 13,999 and Rs 23,249.
EKO vehicle:-
EKO vehicle a Bangalore based company offers EKO cosmic –I scooter and EGO bike. This
company has been in this business for a long time and has dealers in various locations in
India than its counterparts. Battery weighs at 28kgsand has a life of 12000 – 15000kms. The
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company offers a rapid charger which will charge the bike at 10 – 15 minutes (good for
intuitional consumers). Cosmi coffers a variable mileage depends on your payload. The
maximum speed is 40km/hr and Cosmic noise is less than 60decibel. Cosmic is offered in
five colour sand is exported many countries.
Hero/ultra motors:-
Hero cycles (Hero Honda group) - UK Ultra Motor Group will launch electric three wheeler
by the end of fiscal 2007. Hero - Ultra also has plans to tap the nascent electric vehicle
market in a big way. Hero - Ultra plans to sell 1 lakh electric vehicles by 2008. They have
launched India’s first exclusive electric vehicle showroom in New Delhi. By April 2007 they
also plan to establish 15more dealership in North India. Investment for a dealership requires
15-20 lakhs.
Currently Hero - Ultra offers E-Bikes in the range of 14500 - 19000 and E-Scooters in the
range of 22500 – 28000.

66

Anip DRIVERS Two Wheeler Industry

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Anip DRIVERS Two Wheeler Industry

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2010 Anip A.

– Two Wheelers 11/13/2010

Two Wheeler Industry

Two Wheeler Industry

Two Wheeler Industry

Two Wheeler Industry

Production trends show maximum growth in the motorcycles sub-segment

Rise in India’s Young Working Population

Rise of India’s Rural Economy and Growth in Middle Income Households

Two Wheeler Industry

Greater Affordability of Vehicles

Rapid Product Introduction and Shorter Product Life Cycle

Inadequate Public Transport Systems in most Urban Areas

Two Wheeler Industry

Rising Customer Expectations

Environmental and Safety Concerns

Creation of Distribution Infrastructure

Present and Future Trends

Two-wheeler domestic sales trend

2001-02 2002-03 2003-04 2004-05 2005-06

Two Wheeler Industry

2001-02 2002-03 2003-04 2004-05 2005-06

908268 825648 886295 922428 908159

2001-02 2002-03 2003-04 2004-05 2005-06

408263 338985 307509 322584 332741

Summary Forecast‐2011 growth over 2009‐10

Automobile Segment 2010 – 2011 growth over 2009 ( % )

Domestic Market Share for 2009-10

Two Wheeler Industry

Two wheeler sales growth accelerate in 2009-10

Industry’s capacity expand to 13.6 million two-wheelers in 2009-10

The two & three-wheeler industry continues to attract investments quarter-after-quarter. We

Two Wheeler Industry

Growth in two-wheeler sales continues to improve

Scooters and bikes perform better than mopeds

Two Wheeler Industry

Two-wheeler industry sales volumes to rise by 21.7%in 2010-11

Two Wheeler Industry

Industry’s capacity to scale up to 18 million by 2010-11

Two Wheeler Industry

Sales expected to grow by 29.1%in December 2010 quarter

Two Wheeler Industry

Industry sales expected to grow over 19% during 2011-13

Two Wheeler Industry

Contribution of the automotive industry to the economy

Importance of the automotive industry in relation to the transport sector in India

INCREASING SHARE OF THE TRANSPORT SECTOR IN GDP

Two Wheeler Industry

SHARE OF AUTOMOTIVE INDUSTRY IN THE TRANSPORT

Increasing share of the automotive industry in GDP of the economy

Production trends across industry segments

Two-Wheeler sales at a glance

Details Apr 2009-May 2010 Apr 2008-May 2009 Var %

Two Wheeler Industry

Two Wheeler Industry

Entry Level Segment

Two Wheeler Industry

Two Wheeler Industry

Two Wheeler Industry

Two Wheeler Industry

Two Wheeler Industry

Majority of exports are to Bangladesh, Sri Lanka, Nepal and Bhutan

Two Wheeler Industry