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INTRODUCTION

Since the first car rolled out on the streets of Mumbai (then Bombay) in 1898, the
Automobile Industry of India has come a long way. During its early stages the auto
industry was overlooked by the then Government and the policies were also not
favorable. The liberalization policy and various tax relief by the Govt. of India in
recent years has made remarkable impacts on Indian Automobile Industry. Indian
auto industry, which is currently growing at the pace of around 18 % per annum, has
become a hot destination for global auto players like Volvo, General Motors and
Ford.
A well developed transportation system plays a key role in the development of an
economy, and India is no exception to it. With the growth of transportation system the
Automotive Industry of India is also growing at rapid speed, occupying an important
place on the 'canvas' of Indian economy.
Today Indian automotive industry is fully capable in producing various kinds of
vehicles and can be divided into 03 broad categories: Cars, two-wheelers and heavy
vehicles.

The first automobile in India rolled in 1897 in Bombay.

India is being recognized as potential emerging auto market.

Foreign players are adding to their investments in Indian auto industry.

Within two-wheelers, motorcycles contribute 80% of the segment size.

Unlike the USA, the Indian passenger vehicle market is dominated by cars
(79%).

Tata Motors dominates over 60% of the Indian commercial vehicle market.

2/3rd of auto component production is consumed directly by OEMs.

India is the largest three-wheeler market in the world.

India is the largest two-wheeler manufacturer in the world.

India is the second largest tractor manufacturer in the world.

India is the fifth largest commercial vehicle manufacturer in the world.

The number one global motorcycle manufacturer is in India.


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India is the fourth largest car market in Asia - recently crossed the 1 million mark.

Global Automobile Industry


Growth of Automobile industry:
The production of automobiles in volume began in the early 1890s, in Western
Europe. The USA started the production of both electric and gas automobiles by
1896. In 1903, Ford stepped in. The price of cars reduced from USD 850 in 1908 to
USD 360 in 1916. The great depression and the World Wars saw a drop in sale; but
the 1950s and 1960s were the glorious era for automobiles (driven by Ford, GM and
Chrysler). Production reached 11 million units in 1970. Industry specialists indicate
that international business in the automobile industry dates back to the technology
transfer of Ford Motor Company's mass-production model from the U.S. to Western
Europe and Japan following both World Wars I and II. This gives rise to two important
trends. The first one is that, the advancements in industrialization led to significant
increase in the growth and production of the Japanese and German automotive
markets. The second important trend was that due to the oil embargo from 1973 to
1974, the export of fuel efficient cars from Japan to the U.S.
Earlier due to low fuel prices, US was producing muscle cars but after the oil price
shocks US had to compete with Europe and Japan who succeeded in producing fuel
efficient cars. For the first time, design, marketing, prices, customer satisfaction etc
become important in the automobile market. By 1982, Japan became the world
leader in US market. The potential growth opportunities led to global overcapacity in
automobile industry. 1990s observed the merger and acquisition (M&A) and
formation of strategic alliances to tackle this overcapacity problem.
Increasing global trade also act as a major factor for rising growth in world
commercial distribution systems, which has also increased the global competition
amongst the automobile manufacturers. Japanese automakers have instituted
innovative production methods by modifying the U.S. manufacturing model. They are
also capable of adapting and utilizing technology to enhance production and increase
product competition. There are three major trends of world automotive industry, which
are discussed briefly bellow:
Global Market Dynamics - The world's leading automobile manufacturers continue to
invest into production facilities in emerging markets in order to reduce production

costs and therefore rise in profits. These emerging markets include Latin America,
China, Malaysia and other markets in Southeast Asia.
Establishment of Global Alliances Now-a-days, there is trend of joint venture in
global automotive industry. Most of the giant automobile manufacturers are merging
with each others. The big three U.S. automakers (GM, Ford and Chrysler) have
merged with, and in some cases established commercial strategic partnerships with
other European and Japanese automobile manufacturers. The Chrysler DaimlerBenz merger, were initiated by the European automaker in order to strengthen its
position in the U.S. market. Overall, there has been a trend by the world automakers
to expand by merging with other giant automotive companies in overseas markets *.
Industry Consolidation - Increasing global competition amongst the global
manufacturers and positioning within foreign markets has divided the world's
automakers into three groups, the first group being GM, Ford, Toyota, Honda and
Volkswagen, and the two remaining group manufacturers attempting to consolidate or
merge with other lower group automakers to compete with the first group companies .
Diagram1 provides a snapshot view of this.

World automotive industry, in its early stages of development, was concentrated


mainly in hands of developed countries like U.S., Japan etc. But as automobile
industry become more and more standardized, the production base of most of autogiant companies was shifted from the developed countries to developing countries.
Standardization makes production more profitable in developing countries due to low
cost of labor. Thats why countries like Thailand, China today are the main production
base for many multinational automobile companies, and that explain why this study is
concentrated only on selected countries in Asia.
Production:
Today, the large car manufacturers has a production facility in the different markets
and from each platform a car is produced for that market as well as for exports to
other markets. Big players in automobile industry do not have just one big factory
which exports its products to all other countries. In addition, the products are not
identical in each different market. It may have the same technical platform, but the
design and the options and features differ between countries. They are different
because the demands of customers differ between countries. For example, in South
America, incomes are lower than in Western Europe and customers need more
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affordable cars. In the USA the customers want more space in the car, and that's an
important factor for a car to be successful there. On the contrary, small cars are quite
popular in India. It is not possible to be in the high volume market and to send the
same cars to every market all over the world. So car makers are researching what
their customers want and changing the car for each market otherwise they will loose
customers. More and more CKD (completely knocked down) cars are being
produced for some countries in smaller volumes. That is often the case if there are
barriers to exporting cars to particular countries, and they are only being sold in
smaller volumes. With larger markets, where sales of particular models are high,
companies really need their own plant which has its own suppliers of parts.
Due to sharp competition and changing customer demand, product development
process advances have been more significant than changes in product architecture.
Product cycles continue to grow shorter as more companies adopt the simultaneous
engineering approach pioneered by Japanese automakers . At the same time,
advances in Computer-Aided Design (CAD) and Computer-Aided Engineering (CAE)
tools are being used to replace physical prototypes and testing processes. Now,
major players (in post M&A situation) take greater responsibility for product design
and allow production base to get shifted to advantageous location for low cost.
However, still due to lack of standardization, number of tiers at the supply chain is not
reduced. Moreover, when design is replicated with modification for physical product
development, several domestic issues need to be taken into consideration. These are
mainly legal liability, and regulatory procedures. Furthermore, there is a technological
move towards modules, i.e. self-contained functional units with standardized
interfaces that can serve as building blocks for a variety of different products.
Modularization is expected to reshape the entire supply chain in automobile industry
as component designs will gradually get shifted to supplier companies. This is
expected to reduce cost significantly and increase efficiency.
Supply Chain:
Automobile companies have adopted a strategy of global perspective in their
operation. Growth of transplants in 1990s led to a presence of all competitors in
virtually every corner of the globe. By focusing on common platforms and
interchangeable modules, companies are able to make faster and lower cost
deployment of new solutions across the whole product range, while tailoring vehicles
to a multitude of tastes and preferences of consumers in the world. Moreover, they
can assure enough differentiation between products to cope with proliferation while
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maintaining scale efficiency and a proper management of brand equity (Lung et al.
1999). As a result, major automakers are now operating on a global scale. With new
investments, firms are also trying to replicate supply chain structures, demanding
suppliers to be present in the new regions where they are located, often near their
plants.
The supply chain of auto industry has completely changed over the years. Major
OEM (original equipment manufacturer) players world-wide are increasingly focusing
on basic design and assembly operations as well as servicing the after-sales market
and prefer to deal with a smaller number of large suppliers. Consequently, the supply
chain is morphing into sub-system integrators, component makers, and commodity
players. The segregation is increasingly defined by risk sharing which was earlier
defined by only cost pressure. Tier 1 suppliers (concentrating on system supply,
module assembly and sub supplier management) are taking increasing risk from
major players shifting the cost pressure to Tier 2 supplier who concentrate only on
production of sub components.
In general, suppliers can be divided into few groups such as Systems Integrator
(capable of designing and integrating components, subassemblies), Global
Standardized-Systems Manufacturer (specialist in design, development and
manufacturing of complex systems), Component Specialist (produces specific
component or subsystem for a given car or platform) and Raw Material Supplier.
In Asia-Pacific region, the growth of component manufacturers has taken a different
route. Most of the Japanese producers followed a tight relationship with their
suppliers (independent or quasi-independent). The existence of the keiretsu system
(business affiliation) in Japan greatly facilitated such an arrangement. But other
manufacturers especially Korean, Chinese and Indian gave lot of importance on price
and quality while buying from number of trusted suppliers. As a result of this
indigenous auto-component sectors are thriving in many Asian countries though
some MNCs are also present.

Diagram 1

Pricing:
Pricing of automobiles is a complex issue as it is dependant on fixed cost, economies
of scale, technology and other aspects. Competition and consumer demand also play
important role in this. Currently, most of the automobiles companies consider price
reduction as major strategic move for survival. For price reduction, companies need
to take series of decisions at every stage of production and selling; starting from
managing factors of production and supply chain to negotiation with dealers. Price is
one of the factors that influences sales variability of products and services
significantly.

Many companies take strategy of different pricing policies for different product
segments of the considering the expected value to the customers through the offered
products. Companies develop innovative strategies to maximize profits without
hurting customers. Pricing is adjusted to the qualities, purchase volume,
development potential, loyalty and profitability factors.
In the USA, earlier GM used to announce price in late summer and Chrysler and
Ford would follow suit. However, foreign competition and erosion of domestic
concentration has changed price uniformity. Prices are now continually altered
throughout year. In general, price variation is subject to mark-ups, costs and also
imports duties and other trade barriers (Goldberg and Verboven, 1998).
International Trade:
The dynamics of international trade in automobile sector attracted attention of
economists and policy makers to formulate trade strategy. International trade of
automobiles has been influenced both by liberalization as well as protectionism. In
the 1970s and 1980s, the U.S. auto industry faced its first major challenge from
foreign competition as Japanese automakers aggressively entered the American
market. The decline of automobile sector in USA and rising Japanese imports led to
protectionism in USA through imposition of quota. This led to voluntary export
restraints (VER) from Japan anticipating further restriction.

In contrast to Japanese producers, companies from the USA were catering mainly to
domestic market. In the post quota period, when Japanese players reduced prices in
US market, domestic players were unable to compete. Due to very high level of
output and efficiency, Japanese players achieved significant economies of scale
which was unattainable for US automobile giants.

Chart 1

Source : SIAM

INDIAN AUTOMOBILE INDUSTRY


Industry
Indian automobile industry in India is as well developed as any top industrial nations.
Long years of License Raj and protectionism led to the development of various
segments of automobile industry. There are a large number of well-entered players in
all segments of the automobile industry as depicted in the following table.
Diagram 2
Indian Automobile Industry

Three
Wheelers

Multi Utility
Vehicles

Passenger
Carriers

Commercial
Vehicles

Passenger
Cars

Goods
Carriers

Motor
Cycle

Two
Wheelers

Scooters

Mopeds

There are also exists a huge market and production base fro specialty vehicles like
Tractors, Earthmoving vehicles, Cranes etc. But despite having a well-developed
industry and a large market, the industry still has not been able to realize its full
potential owing to the following reasons.

Low purchasing power


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Price sensitive market

Pent up/suppressed demand

Existence of a large middle class

Insufficient transportation infrastructure

India as a country has a per capita income of around US$318 per annum. That is
very miniscule compared with that of developing nations like Japan or the USA,
which is in the range of $20000. Hence the emphasis on large market size of a billion
people quietly diminishes. Thereafter the existence of a large middle class and that
too with a majority of them in the lower end ensures that the disposable income left
with the masses is comparatively less. Hence the possession of an automobile is
considered a luxury and often avoided by people.
But the scenario is after all not that bad and the industry as a whole is growing in
terms of volume albeit the profitability and profit margin is of question. To have a
better grasp of the situation let us review each segment individually.
Heavy commercial vehicles:
In India the commercial vehicles are graded according to their Gross Vehicle
Weight (GVW). It is as under:

LCV: Intermediate commercial vehicle with GVW of 8 to 10 ton

MCV: Medium commercial vehicles with GVW of 10 to 15 ton.

HCV: GVW of 16 ton and above.

But the gradation apart, the segment is more recognizes by its utility such as the
vehicles which carry passenger are called buses and those specializing in carrying
loads as trucks. Since 80% of commercial vehicles are purchased on credit, the
availability of credit is a major factor influencing demand. The credit squeeze affects
the demand negatively. The other important factors influencing demand of CV are
depreciation norms, diesel prices and changes in the Motor Vehicle Act.

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Light commercial vehicles:


Like the Heavy vehicles segment, the LCV, which are also essentially freight carriers
are equally important. Small freight loads over small distance are transported through
these vehicles. In India in rural areas, these vehicles also ferry passengers over short
distances. This segment is much more populated and competitive than the HCV. The
liberalization of government policy with respect to foreign, technical and financial
collaboration lead to a sudden spurt in technical collaboration in LCV segment.
The LCV segment is populated with six players with Telco being the traditional market
leader by a wide margin.
Passenger car segment:
The first motorcar on the streets of India was seen in 1898. Mumbai had its first
taxicabs in the early 1900. Then for the next fifty years, cars were imported to satisfy
domestic demand. The Indian car industry can be classified, based on the price of
the car into four segments. The demand for passenger cars can be segmented on
the basis of the user segment as those bought by taxi operators, government/non
government institutions, individual buyers etc. A major portion of the de4mand in
India accrues mainly from personal vehicle owner.
The demand for cars is dependent on a number of factors. The key variables are per
capita income, introduction of new models, availability & cost of car financing
schemes, price of cars, incidence of duties and taxes depreciation norms, fuel cost
and its subsidization, public transport facilities etc. The first four factors have positive
relationship with the demand whereas others have an inverse relationship with
demand for cars.
Two Wheelers Segment:
The two-wheeler segment like the passenger is very heterogeneous and could be
split on basis of usage, load capacity, stroke engine, utility and appeal. In India it is
generally sub-segmented into Motorbikes, Scooters, Scooterettes and Mopeds. The
promotional and marketing outgo would rise steadily for the two-wheelers producers;
the emphasis would now be on aesthetics, design, and product positioning and
market segmentation. As a result, the consumer would be the ultimate beneficiary
with the choice of more models with superior features.

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Special Utility Vehicles:


This segment is also a very important segment but finds very less mention among
the analysts in spite of its direct bearing on the economy. The probable reason for
this trend is that the vehicle seems mundane and lacks the glamour of the luxury
cars. The segment comprises of Tractors, Earth Moving Equipments and Material
Handling.

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HISTORY
The origin of automobile is not certain. In this section of automobile history, we will
only discuss about the phases of automobile in the development and modernization
process since the first car was shipped to India. We will start automotive history from
this point of time.
The automobile industry has changed
the way people live and work. The
earliest of modern cars was
manufactured in the year 1895.
Shortly the first appearance of the car
followed in India. As the century
turned, three cars were imported in
Mumbai (India). Within decade there were total of 1025 cars in the city.
The dawn of automobile actually goes back to 4000 years when the first wheel was
used for transportation in India. In the beginning of 15th century Portuguese arrived
in China and the interaction of the two cultures led to a variety of new technologies,
including the creation of a wheel that turned under its own power. By 1600s small
steam-powered engine models was developed, but it took another century before a
full-sized engine-powered vehicle was created.
The actual horseless carriage was introduced in the
year 1893 by brothers Charles and Frank Duryea. It
was the first internal-combustion motor car of America,
and it was followed by Henry Ford's first experimental
car that same year.
One of the highest-rated early luxury automobiles was
the 1909 Rolls-Royce Silver Ghost that featured a quiet
6-cylinder engine, leather interior, folding windscreens and hood, and an aluminum
body. It was usually driven by chauffeurs and emphasis was on comfort and style
rather than speed.
During the 1920s, the cars exhibited design refinements such as balloon tires,
pressed-steel wheels, and four-wheel brakes. Graham Paige DC Phaeton of 1929
featured an 8-cylinder engine and an aluminum body.
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The 1937 Pontiac De Luxe sedan had roomy interior and rear-hinged back door that
suited more to the needs of families. In 1930s, vehicles were less boxy and more
streamlined than their predecessors. The 1940s saw features like automatic
transmission, sealed-beam headlights, and tubeless tires.

The year 1957 brought powerful high-performance cars


such as Mercedes-Benz 300SL. It was built on compact
and stylized lines, and was capable of 230 kmh (144
mph).
This was the Indian automobile
history, and today modern cars are
generally light, aerodynamically shaped, and compact.

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Overview of Automotive Mission Plan


The Indian Automotive Industry after de-licensing in July, 1991 has grown at a
spectacular rate on an average of 17% for last few years. The industry has now
attained a turnover of Rs. 1,65,000 crores (34 billion USD, assuming 1$ = Rs. 55)
and an investment of Rs. 50,000 crores. Over Rs. 50,000 crores of investment is in
pipeline in the vehicle industry alone. The industry is providing direct and indirect
employment to 1.31 crore people. It is also making a contribution of 17% to the kitty
of indirect taxes. The export of automotive sector has grown on an average 30% per
year during the last five years. The export earnings from this sector is estimated at
over 5 billion USD out of which the share of vehicle sector is 2.8 billion USD during
the year 2006-07.
Even with this rapid growth, the Indian Automotive Industrys contribution in global
terms is very low. This is evident from the fact that even though passenger and
commercial vehicles have crossed the production figure of 2.0 million in the year
2006-07, yet Indias share is about 2.9 percent of world production of 66.46 million
passenger and commercial vehicles. Indian automotive export constitutes only about
0.3% of global trade.
It is a well accepted fact that the automotive industry is a volume driven industry and
certain critical mass is a pre-requisite for attracting the much needed investment in
Research and Development and New Product Design and Development. R&D
investment is needed for innovations which is the life-line for achieving and retaining
the competitiveness in this industry. This competitiveness in turn depends on the
capacity and the speed of the industry to innovate and upgrade. The most important
indices of competitiveness are productivity of both labor and capital. The concept of
attaining competitiveness on the basis of cheap and abundant labour, favourable
exchange rates, low interest rates and concessional duty structure is becoming
inadequate and therefore, not sustainable. In light of the above, it is felt that a greater
emphasis is required on the development of the factors which can ensure
competitiveness on a long-term basis.
India with its rapidly growing middle class (450 million in 2007 as per NCAER
Report), market oriented stable economy, availability of trained manpower at
competitive cost, fairly well-developed credit and financing facilities and local
availability of almost all the raw materials at a competitive cost has offered itself as
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one of the favorite destination for investment for the automotive manufacturers.
These advantages need automotive manufacture to be exploited in a manner to
attain the twin objective of ensuring availability of best quality product at lowest cost
to the consumers on the one hand and developing and assimilating the latest
technology in the industry on the other hand. The Government recognizes its role as
a catalyst and facilitator to encourage the companies to move to higher level of
competitive performance. The Government wants to create a policy environment to
help companies gain competitive advantage. The government policies target to
encourage growth, promote domestic competition and stimulate innovation.
It is also felt that a general improvement in availability of trained manpower and good
infrastructure is required for the sustainable growth of the industry. Besides,
specialized and industry-specific initiatives can lead to competitive advantage.
Keeping in view the above factors, the Government has launched a unique initiative
of National Automotive Testing and R&D Infrastructure Project (NATRIP) to provide
specialized facilities for Testing, Certification and Homologation to the industry. A
similar initiative is required for creating specialized institutions in automotive sector
for education, training and development, market analysis and formulation and
dissemination of courses in automotive sector.
It has been noticed that the Auto Industry has grown in clusters of inter-connected
companies which are linked by commonalities and complementarities. The major
clusters are in and around Manesar in North, Pune in West, Chennai in South,
Jamshedpur-Kolkata in East and Indore in Central India. The Ministry of Heavy
Industries and Public enterprises is envisaging in the Eleventh Five-Year Plan period
to create a National Level Specialized Education and Training Institute for Automotive
Sector and to enhance the transportation, communication and export infrastructure
facilities through concerned Ministries in and around these clusters. The Government
will make attempts to streamline the relevant Government Institutions and
Educational and Research Institutions in and around the clusters to meet the growing
needs of the automotive sector.
Automobile Dealers Network in India
In terms of Car dealer networks and authorized service stations, Maruti leads the
pack with Dealer networks and workshops across the country. The other leading
automobile manufactures are also trying to cope up and are opening their service
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stations and dealer workshops in all the metros and major cities of the country.
Dealers offer varying kind of discount of finances who in tern pass it on to the
customers in the form of reduced interest rates.

Major Manufacturers of Automobiles in India

Daimler Chrysler India Private Ltd

Rolls-Royce Motor

Fiat India Private Ltd

Car Companies In India

Honda Siel Cars India Ltd

Tata Motors

Toyota Kirloskar Motor Ltd

Maruti Udyog Ltd.

Skoda Auto India Private Ltd

General Motors India

Audi Ag

Ford India Ltd.

Bmw

Eicher Motors

Chevrolet

Bajaj Auto

Force Motors

Daewoo Motors India

Nissan Motor Co. Ltd

Hero Motors

Porsche

Hindustan Motors

Reva Electric Car Co

Hyundai Motor India Ltd.

Daimler Chrysler India Private Ltd

Royal Enfield Motors

Fiat India Private Ltd

Tvs Motors

Hero Honda Ltd.

Swaraj Mazda Ltd

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Domestic Sales
The cumulative growth of the Passenger Vehicles segment during April 2007 March
2008 was 12.17 percent. Passenger Cars grew by 11.79 percent, Utility Vehicles by
10.57 percent and Multi Purpose Vehicles by 21.39 percent in this period.
The Commercial Vehicles segment grew marginally at 4.07 percent. While Medium &
Heavy Commercial Vehicles declined by 1.66 percent, Light Commercial Vehicles
recorded a growth of 12.29 percent.
Three Wheelers sales fell by 9.71 percent with sales of Goods Carriers declining
drastically by 20.49 percent and Passenger Carriers declined by 2.13 percent during
April- March 2008 compared to the last year.
Two Wheelers registered a negative growth rate of 7.92 percent during this period,
with motorcycles and electric two wheelers segments declining by 11.90 percent and
44.93 percent respectively. However, Scooters and Mopeds segment grew by 11.64
percent and 16.63 percent respectively.
Table 1

Category
Passenger
Vehicles
Commercial
Vehicles
Three Wheelers
Two Wheelers
Grand Total

2005-06

Automobile Domestic Sales Trends


2006-07
2007-08
2008-09
2009-10

707,198

902,096

190,682

260,114

2010-11

CAGR

1,379,979

1,547,985

17.19

467,765

486,817

28.11

231,529
284,078
307,862
359,920
403,910
364,703
4,812,126 5,364,249 6,209,765 7,052,391 7,872,334 7,248,589
5,941,535 6,810,537 7,897,629 8,906,428 10,123,988 9,648,094

9.39
8.62

1,061,572 1,143,076
318,430

351,041

Source : SIAM

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Chart 2

Source: SIAM

Table 2

Category

Passenger
Vehicles
Growth

Commercial
Vehicles Growth

Three
Wheelers
Growth

Two
Wheelers
Growth

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

28
18
8
21
12

36.41
22.42
10.24
33.25
4.07

23
8
17
12
-10

11
16
14
12
-8

CAGR
17.19
28.11
9.39
8.62
Source : SIAM

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Chart 3

Source : SIAM

21

Exports
Automobile Exports registered a growth of 22.30 percent during the current financial
year.
The growth was led by two wheelers segment which grew at 32.31 percent.
Commercial vehicles and Passenger Vehicles exports grew by 19.10 percent and
9.37 percent respectively. Exports of Three Wheelers segment declined by 1.85
percent.
Table 3

Category
Passenger Vehicles
Commercial Vehicles
Three Wheelers
Two Wheelers
Grand Total

2002-03
72,005
12,255
43,366
179,682
307,308

Automobile Exports Trends


2003-04 2004-05 2005-06
129,291 166,402 175,572
17,432
29,940
40,600
68,144
66,795
76,881
265,052 366,407 513,169
479,919 629,544 806,222

2006-07
198,452
49,537
143,896
619,644
1,011,529

2007-08
218,418
58,999
141,235
819,847
1,238,499

CAGR
24.49
36.61
26.52
35.08

Source : SIAM

Chart 4

Source : SIAM

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Table 4

Category

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

Passenger
Vehicles
Growth
79.558364
28.703467
5.5107511
13.031691
10.060871

Commercial
Vehicles
Growth

Three
Wheelers
Growth

42.243982
71.753098
35.604542
22.012315
19.100874

57.136928
-1.979631
15.099933
87.16718
-1.849252

Two
Wheelers
Growth

CAGR

47.511715
38.239666
40.054366
20.748525
32.309358

24.49
36.61
26.52
35.08
Source : SIAM

Chart 5

Source : SIAM

23

Analysis of Indian Automobile two wheeler Exports:


Strengths:

Cost competitiveness in terms of labor and raw material.

Established manufacturing base. Economics of scale due to

domestic market.
Potential to harness global brand image of the parent company.

Global hub policy for small car like Hyundai, Suzuki, etc.

Perception about quality.

Infrastructure bottlenecks.

Huge export markets such as Europe, America, Africa, and

Weakness

Opportunities
others for Indian cars.
Threats
China, Malaysia, Thailand, etc.
Many other countries also have strategies for export promotion.

Export Imperatives:
Internal Factors:
Attaining high quality for global standards.
Continuous cost reduction for global competitiveness.
Supply chain management (logistics).
Attaining economies of scale & scope.
External Factors:
Improve infrastructure (ports, roads, etc).
Improve EXIM regulations.
Imports
Europe is the biggest importer of cars from India, while African nations largely
account for the import of buses and trucks. China is most recently making inroads

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into this market. The South-East Asian region is the prime destination for Indian two
wheelers.

Indian Automobile Industry Production


According to the Society of Indian Automobile Manufacturers, the Indian automobile
industry has reached double-digit growth for the past three years in a row. In 2006,
the industry produced 10.9 million vehicles, an increase of 16.22% over 2005. In
2005, production grew 14.5% over the previous year. The production of the
automotive industry is expected to achieve a growth rate of over 20 per cent in 200607 and about 15 per cent in 2007-08.
Table 5

Category
Passenger
Vehicles
Commercial
Vehicles
Three
Wheelers
Two
Wheelers
Grand Total

2002-03

Automobile Production Trends


2003-04
2004-05
2005-06
2006-07

723,330

989,560

1,209,876

1,309,300

203,697

275,040

353,703

276,719

356,223

5,076,221
6,279,967

2007-08

CAGR

1,545,223

1,762,131

19.23

391,083

519,982

545,176

21.14

374,445

434,423

556,126

500,592

12.42

5,622,741

6,529,829

7,608,697

8,466,666

8,026,049

9.31

7,243,564

8,467,853

9,743,503

11,087,997

Chart 6

10,833,948
Source : SIAM

25

Source : SIAM

Automobile Industry is the largest industry in India with an impressive growth in the
last two decades. The reason behind the growth was abolition of licensing in 1991
and permitting automatic approval and successive liberalization of the sector.
According to estimation the compound annual growth rate (CAGR) of Indian
Automobile sales will grow at 9.5% and will touch a mark of 13,008 million by 2010.
The figure for FY05 was 8.45 million units. To tap this large opportunity, the Indian
Auto Companies along with the global giants have announced huge expansion plans.
Maruti Udyog Ltd. was the largest 4-Wheelers producer in 2005-06 followed by Tata
Motors. Hyundai did well but the difference was nearly half of Tata Motors. In 2Wheelres segment, Hero Honda is leading putting behind Bajaj Auto Ltd.
Table 6

Category

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

Passenger
Vehicles
Growth
36.80616
22.264037
8.2177016
18.019018
14.037327

Commercial
Vehicles Growth
35.02408
28.600567
10.568189
32.9595
4.8451677

Three
Wheelers
Growth
28.730951
5.1153351
16.01784
28.014861
-9.985867

Two
Wheelers
Growth
10.766277
16.132488
16.522148
11.276162
-5.204138

CAGR
19.23
21.14
12.42
9.31
Source : SIAM

26

Chart 7

Source : SIAM

27

Capacity
The Automobile Manufacturers have put up a robust manufacturing capacity of 95
lakh plus vehicles per annum since 1993. Today India is the worlds second largest
manufacturer of two wheelers, fifth largest manufacturer of commercial vehicles and
manufactures largest number of tractors in the world.
The country offers fourth largest passenger car market in Asia today. A supplier
driven market, having no more than a handful of vehicular models two decades ago,
now offers more than 150 models and variants by way of customer options
The table below gives the production numbers of passenger cars in the past few
years.
Now in financial year 2007-8 2.24million capacity of Four Wheeler. 12.69million of
Two & three Wheeler, 0.79 million of Engine.
Table 7
Installed Capacities in the Indian Automobile Industry 2007-08
2006-07
2007-08
Installed Capacity (In Million)
Installed Capacity (In Million)
a) Four Wheelers
1.79
a) Four Wheelers
2.24
b) Two &Three Wheelers
10.59
b) Two &Three Wheelers
12.69
c) Engines
0.29
c) Engines
0.39
Source : SIAM

28

CURRENT MARKET
INDUSTRY:

SHARES

IN

INDIAN

AUTOMOBILE

Table 8
Domestic Market Share for 2007-08
CVs
Total Passenger Vehicles
Total Two Wheelers
Three Wheelers

5.05%
16.4%
75.13%
3.78%
Source : SIAM

Chart 8

Source : SIAM

29

Indian Automobile two-wheeler industry


Historical Development:
Industry In India.

Evolution

Of

Two-Wheeler

India is the second largest manufacturer and producer of two-wheelers in the world.
India manufactures about 38, 00,000 2-wheelers. It stands next only to Japan and
China in terms of the number of two-wheelers produced and domestic sales
respectively. This distinction was achieved due to variety of reasons like restrictive
policy followed by the Government of India towards the passenger car industry, rising
demand for personal transport, inefficiency in the public transportation system etc.
The Indian two-wheeler industry made a small beginning in the early 50s when
Automobile Products of India (API) started manufacturing scooters in the country.
The two-wheeler industry (henceforth TWI) in India has been in existence since 1955.
It consists of three segments viz., scooters, motorcycles, and mopeds. Until 1958,
API and Enfield were the sole producers. In 1948, Bajaj Auto began trading in
imported Vespa scooters and three-wheelers. Finally, in 1960, it set up a shop to
manufacture them in technical collaboration with Piaggio of Italy. The agreement
expired in 1971.
In the initial stages, API dominated the scooter segment; Bajaj Auto later overtook it.
Although various government and private enterprises entered the fray for scooters,
the only new player that has lasted till today is LML. Under the regulated regime,
foreign companies were not allowed to operate in India. It was a complete seller
market with the waiting period for getting a scooter from Bajaj Auto being as high as
12 years.
The motorcycles segment was no different, with only three manufacturers viz Enfield,
Ideal Jawa and Escorts. While Enfield bullet was a four-stroke bike, Jawa and the
Rajdoot were two-stroke bikes. Enfield 350cc bikes and Escorts 175cc bike initially
dominated the motorcycle segment.
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 fuelefficient low power bikes, demand swelled, resulting in Hero Honda - then the only
30

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. The
industry had a smooth ride in the 50s, 60s and 70s when the Government prohibited
new entries and strictly controlled capacity expansion. The industry saw a sudden
growth in the 80s. The industry witnessed a steady growth of 14% leading to a peak
volume of 1.9mn vehicles in 1990.
The entry of Kinetic Honda in mid-eighties with a variometric scooter helped in
providing ease of use to the scooter owners. This helped in inducing youngsters and
working women, towards buying scooters, who were earlier inclined towards moped
purchases. In the 90s, this trend was reversed with the introduction of scooters. In
line with this, the scooter segment has consistently lost its part of the market share in
the two-wheeler market.
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.
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, the State machinery, effectively controlled all
critical areas of functioning of an industry. 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-utilization 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 a

31

more prominent shape with the introduction of the New Economic Policy (NEP) 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 liberalized 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 twowheeler 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.
Chart 9

Source : SIAM

32

Evolution of the Indian two-wheeler industry


The two-wheeler industry (henceforth TWI) in India has been in existence since 1955.
It consists of three segments viz., scooters, motorcycles, and mopeds. The increase
in sales volume of this industry is proof of its high growth. In 1971, sales were around
0.1 million units per annum. But by 1998, this figure had risen to 3 million units per
annum. Similarly, capacities of production have also increased from about 0.2 million
units of annual capacity in the seventies to more than 4 million units in the late
nineties.
The TWI in India began operations within the framework of the national industrial
policy as espoused by the Industrial Policy Resolution of 1956. (See Government of
India 1980, 1985, 1992). This resolution divided the entire industrial sector into three
groups, of which one contained industries whose development was the exclusive
responsibility of the State, another included those industries in which both the State
and the private sector could participate and the last set of industries that could be
developed exclusively under private initiative within the guidelines and objectives laid
out by the Five Year Plans (CMIE, 1990). Private investment was channelized and
regulated through the extensive use of licensing giving the State comprehensive
control over the direction and pattern of investment. Entry of firms, capacity
expansion, choice of product and capacity mix and technology, were all effectively
controlled by the State in a bid to prevent the concentration of economic power.
However due to lapses in the system, fresh policies were brought in at the end of the
sixties.
These consisted of MRTP of 1969 and FERA of 1973, which were aimed at
regulating monopoly and foreign investment respectively. Firms that came under the
purview of these Acts were allowed to invest only in a select set of industries.
This net of controls on the economy in the seventies caused several firms to a)
operate below the minimum scale of efficiency (henceforth MES), b) under-utilize
capacity and, c) use outdated technology. While operation below MES resulted from
the fact that several incentives were given to smaller firms, the capacity underutilization was the result of i) the capacity mix being determined independent of the
market demand, ii) the policy of distributing imports based on capacity, causing firms
to expand beyond levels determined by demand so as to be eligible for more imports.
Use of outdated technology resulted from the restrictions placed on import of
technology through the provisions of FERA.
33

Recognition of the deleterious effects of these policies led to the initiation of reforms
in 1975 which took on a more pronounced shape and acquired wider scope under
the New Economic Policy (NEP) in 1985. As part of these reforms, several groups of
industries were delicensed and broadbanding was permitted in select industries.
Controls over capacity expansion were relaxed through the specification of the MES
of production for several industries. Foreign investment was allowed in select
industries and norms under the MRTP Act were relaxed.
These reforms led to a rise in the trend rate of growth of real GDP from 3.7% in the
seventies to 5.4% in the eighties. However the major set of reforms came in 1991 in
response to a series of macroeconomic crises that hit the Indian economy in 1990-91
. Several industries were deregulated, the Indian rupee was devalued and made
convertible on the current account and tariffs replaced quantitative restrictions in the
area of trade. The initiation of reforms led to a drop in the growth of real GDP
between 1990 - 1992, but this averaged at about 5.5% per annum after 1992. The
decline in GDP in the years after reforms was the outcome of devaluation and the
contractionary fiscal and monetary policies taken in 1991 to address the foreign
exchange crisis. Thus the Industrial Policy in India moved from a position of regulation
and tight control in the sixties and seventies, to a more liberalized one in the eighties
and nineties.
The two-wheeler industry in India has to a great extent been shaped by the evolution
of the industrial policy of the country. Regulatory policies like FERA and MRTP
caused the growth of some segments in the industry like motorcycles to stagnate.
These were later able to grow (both in terms of overall sales volumes and number of
players) once foreign investments were allowed in 1981. The reforms in the eighties
like broadbanding caused the entry of several new firms and products which caused
the existing technologically outdated products to lose sales volume and/or exit the
market. Finally, with liberalization in the nineties, the industry witnessed a
proliferation in brands.
A description of the evolution of the two wheeler industry in India is usefully split up
into four ten year periods. This division traces significant changes in economic policy
making. The first time-period, 1960-1969, was one during which the growth of the
two-wheeler industry was fostered through means like permitting foreign
collaborations and phasing out of non-manufacturing firms in the industry. The period
1970-1980 saw state controls, through the use of the licensing system and certain
34

regulatory acts over the economy, at their peak. During 1981-1990 significant reforms
were initiated in the country. The final time-period covers the period 1991-1999
during which the reform process was deepened These reforms encompassed several
areas like finance, trade, tax, industrial policy etc. We now discuss in somewhat
greater detail the principal characteristics of each sub period.
a) 1960 1969
The automobile industry being classified as one of importance under the Industrial
Policy Resolution of 1948 was therefore controlled and regulated by the Government.
In order to encourage manufacturing, besides restricting import of complete vehicles,
automobile assembler firms were phased out by 1952 (Tariff Commission, 1968), and
only manufacturing firms allowed to continue. Production of automobiles was
licensed, which meant that a firm required a licensing approval in order to open a
plant. It also meant that a firms capacity of production was determined by the
Government. During this period, collaborations with foreign firms were encouraged.
Table 1 illustrates the fact that most firms existing in this period had some form of
collaboration with foreign firms.
b)
1970 1980
This was a period during which the overall growth rate of the two-wheeler industry
was high (around 15% per annum). Furthermore, the levels of restriction and control
over the industry were also high. The former was the result of the steep oil price
hikes in 1974 following which two-wheelers became popular modes of personal
transport because they offered higher fuel-efficiency over cars/jeeps. On the other
hand, the introduction of regulatory polices such as MRTP and FERA resulted in a
controlled industry. The impact of MRTP was limited as it affected only large firms like
Bajaj Auto Ltd. whose growth rates were curbed as they came under the purview of
this Act. However, FERA had a more far-reaching effect as it caused foreign
investment in India to be restricted. In the motorcycle segment FERA caused
technological stagnation, as a consequence of which, neither new products nor firms
entered the market since this segment depended almost entirely on foreign
collaborations for technology. The scooter and moped segments on the other hand
were technologically more self-sufficient and thus there were two new entrants in the
scooter segment and three in the moped segment.

35

c) 1981 1990
The technological backwardness of the Indian two-wheeler industry was one of the
reasons for the initiation of reforms in 1981. Foreign collaborations were allowed for
all two-wheelers up to an engine capacity of 100 cc. This prompted a spate of new
entries into the industry the majority of which entered the motorcycle segment,
bringing with them new technology that resulted in more efficient production
processes and products. The variety in products available also improved after broad
banding was allowed in the industry in 1985 as a part of NEP. This, coupled with the
announcement of the MES of production for the two-wheeler industry, gave firms the
flexibility to choose an optimal product and capacity mix which could better
incorporate market demand into their production strategy and thereby improve their
capacity utilization and efficiency.
These reforms had two major effects on the industry: First, licensed capacities went
up to 1.1 million units per annum overshooting the 0.675 million units per annum
target set in the Sixth Plan. Second, several existing but weaker players died out
giving way to new entrants and superior products.
d) 1991 1999
The reforms that began in the late seventies underwent their most significant change
in 1991 through the liberalization of the economy. The two-wheeler industry was
completely deregulated. In the area of trade, several reforms were introduced with
the goal of making Indian exports competitive.
The two-wheeler industry in the nineties was characterized by a) an increase in the
product features and b) increase in sales volumes in the motorcycle segment vis-vis the scooter segment reversing the traditional trend.

36

Growth of Two Wheeler Industry


For the month of August, overall two-wheeler segment grew 14.2% yoy and 10.7%
YTD. Growth in the less than 125cc category was strong at 13.7% yoy on account of
exceptional growth by Hero Honda mainly on account of lower base of last year and
its successful model launches. On a YTD basis, the mass segment grew by 6.4%.
125cc & above category continued its upward trend with a growth of 21.4% yoy,
mainly led by newer launches by HHML and TVS Motor in the recent past. At the
same time, better performance by Bajaj Auto (BAL) also supported the growth of the
segment. HHML now enjoys a blended market share of 59.1% in the premium
segment on account of the success of its CBZ-Xtreme and Hunk models, both
150cc segment products. On the other hand, Bajaj Autos blended market share
declined 491 bps to 24.3% on account of its weak performance in the B2 segment.
The two-wheeler sector continues to be impacted by higher cost of financing and
non-availability of finance. We believe this is a negative development as financing is
the key sales driver for two-wheelers. We believe the two-wheeler volume growth for
the next year will remain in a single digit and expect HHML to maintain its market
share. With HHML posting strong growth in volumes, we expect to revise the CAGR
of 6% upward for FY08-FY10E significantly. As far as earnings are concerned, we
expect a CAGR of 16.3% for FY08-FY10E
Chart-10

Source : SIAM

37

Indian auto industry reported one of its worst performances in November 2008 as
economic headwinds continue to plague demand. All companies, except for Hero
Honda registered a decline in volumes. In the two-wheeler pack, Bajaj Auto reported
domestic sales of less than 100,000 for the first time since April 2003. TVS also
reported a decline of 12.7% yoy.
Volumes have plummeted for two wheeler companies except for the leader, Hero
Honda, which reported flattish volumes on a yoy basis. For Bajaj Auto, it was one of
the worst performances with a 51.3% yoy fall in domestic volumes. However a 45.6%
yoy jump in exports brought some respite for the company. TVS was better off when
compared with Bajaj Auto with only 12.7% yoy fall in total volumes. Bucking the trend
with other players, Hero Honda reported a 0.5% yoy rise in total volumes, which was
driven by higher penetration in rural markets.

Domestic two-wheeler sales were down 14.6% Y-o-Y in October, posting negative
growth for the first time in FY09. This was despite October being a festive month,
comprising three major festivals viz., Diwali, Dussera, and Eid. Last year, Diwali
was in November.
Within segments, domestic motorcycle segment was the worst hit, and was down
18.2% Y-o-Y, as financing went totally dry in the market. A few major players
pulled out of two-wheeler financing completely.
Going forward, we see significant challenges for Bajaj Auto (BAL) and TVS Motors
(TVS), which to a greater extent depend on two-wheeler financing to push their
sales. Hero Honda (HH), which generates a substantial portion of its sales on
cash basis (~75-80%), is likely to be relatively better off.
Sequentially, HH gained 330bps market share in the domestic motorcycle
category at the expense of BAL that lost market share by a staggering 660bps.
Motorcycle exports, which continue to be on a high growth trajectory, were up
37.8% Y-o-Y in October, and up 32.2% Y-o-Y YTD.

38

Product Profile
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. Scooterette, 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. Examples include 125cc motorcycles, 100-125 cc
gearless scooters, etc. The characteristics of each of the three broad segments are
discussed in Table 1.
Two-Wheelers: Comparative Characteristics
Table 9

Price (Rs. as in January 2008)


Stroke
Engine Capacity (cc)
Ignition
Engine Power (bhp)
Weight (kg)
Fuel Efficiency (kms per litre)
Load Carrying

Scooter
> 22,000
2-stroke, 4-stroke
90-150
Kick/Electronic
6.5-9
90-100
50-75
High

Motorcycle
> 30,000
Mainly 4-stroke
100, 125, 125<
Kick/Electronic
7-8 and above
> 100
50-80+
Highest

Moped
> 12,000
2-stroke
50, 60
Kick/Electronic
2-3
60-70
70-80
Low
Source : SIAM

39

Demand Drivers
The demand for two-wheelers has been influenced by a number of factors over the
past five years. The key demand drivers for the growth of the two-wheeler industry
are as follows:
Inadequate public transportation system, especially in the semi-urban and rural

areas;
Increased availability of cheap consumer financing in the past 3-4 years;
Increasing availability of fuel-efficient and low-maintenance models;
Increasing urbanization, which creates a need for personal transportation;
Changes in the demographic profile;
Difference between two-wheeler and passenger car prices, which makes two-

wheelers the entry level vehicle;


Steady increase in per capita income over the past five years; and
Increasing number of models with different features to satisfy diverse consumer
needs.
While the demand drivers listed here operate at the broad level, segmental
demand is influenced by segment-specific factors.

Price of different company

Price factor is main determinant of the demand.

40

Penetration of Two-Wheelers
On a base of around 28mn vehicles on Indian roads and around 175mn households,
there were only 160 motorized two-wheelers per thousand households in FY98. This
compares poorly with countries like Thailand where it is around 600 per thousand
households. Also with a household size of 5.5 persons and more than one wage
earner in about 60% of the households, the potential for a second vehicle demand is
also good. Post-liberalization (ie FY92 to FY96) Indian households have graduated to
higher income groups, so there is good market for two-wheeler in India.
Sales pattern through out the year
There was consent at the opinion that there is a slump in June, July and August and
also during the second half of December. At the time of festivals, especially Dusshera
and Diwali or at the time of the marriage season, the sales are high. The reason
given for slump were
a) In summers, people generally go for summer tours and spend a lot of
money so they
postpone their purchases.
b) Because of religious reasons (Shraddh) in the month of August.
c) People dont prefer to purchase vehicles during the rainy season.
New policies launched by different companies
A Company has launched a new policy "Passport Programme" for its customers. In
this policy, customers have to pay Rs95 as registration charges. He can avail of
several benefits like One-year free Accident Insurance cover worth Rs100, 000.
Exclusive rewards and surprise gifts from Hero Honda Motors Ltd.
Special service discounts at all authorized Hero Honda Dealerships/Service
Centers.
Special discounts on the purchase of the spares.
Invitation to events such as movie shows, musical nights and carnivals.
"Crorepati Hungama" a sales promotion scheme started by a company.
Diwali special offer
41

Navratri special offer etc.


Highlights: Advertising

Print advertising of Two Wheelers decreased by 30% during MARCH '08


compared to MARCH '07.
Motorcycle' garnered a high share of 71% of 'Two Wheelers' advertising in Print
during MARCH '08.
TVS Motor Company' was number one advertiser under 'Two Wheeler' category in
Print during MARCH '08.
TVS Motor Company' was number one advertiser under 'Two Wheeler' category in
Print during MARCH '08.
Two Wheelers advertising skewed towards Non Metro Newspapers during
MARCH '08.
Chart 11
Share of Two Wheelers advertising in Auto* Sector during MARCH 08

Two Wheelers' category had contributed for 29% share of overall Auto* sector
advertising in Print during MARCH '08.

42

Note: Auto* sector includes Cars/Jeeps, Two Wheelers, Commercial Vehicle,


Tractors and Two/Three/Four Wheeler Range.
Chart 12
Share of Two Wheelers advertising (Retail and Non Retail) during MARCH '08

During MARCH 08, print advertising by the Non Retail and Retail advertisers of
Two Wheelers in the ratio of 92:8.
Chart 13
Share of Sub Categories of Two Wheelers in Print during MARCH '08

During MARCH '08, 'Motorcycle' category had the largest share i.e. 71% of overall

43

'Two Wheelers' advertising in Print followed by 'Scooterette' and 'E-bike' with 9% and
8% share respectively.
Top Advertisers of Two Wheelers in Print during MARCH '08
Table 10

During MARCH '08, 'TVS Motor Company', 'Hero Honda Motors Ltd' and 'Bajaj Auto
Ltd' were the top 3 advertisers and had contributed for 67% share of overall
advertising of 'Two Wheelers' in Print..

44

Advertising of Two Wheelers in (Non Metro, Metro and Mini Metro) Newspapers
Chart 14

During MARCH '08 among the Sales Promotional ads, maximum usage of 'Add on
Promotion', followed by 'Multiple Promotion' and 'Finance Schemes'.

Key Earning Drivers That Affect The Demand Of Two Wheeler


Industries
Government policy impact on petrol prices: Petrol prices determine the running
cost of two wheelers expressed in Rupees per kilometer. Petrol prices are the highest
in India as GOI subsidies kerosene and diesel. But with the recent change in GOI
policy to reduce the subsidy, the prices of petrol will remain constant at the current
prices. This will have a positive effect on purchases on two wheelers.
Improvement in disposable income: With the increase in salary levels, due to entry
of multinationals following liberalization process and fifth pay commission, the
disposable income has improved exponentially over the years. This will have
multiplier effect on demand for consumer durables including two-wheelers. This is
already witnessed in improved demand for 2-wheelers in FY99 compared to a
meager growth in FY98.

45

Changes in prices of second hand cars: The second hand car prices of small cars
have come down sharply in the recent past. This will shift the demand from higher
end two-wheelers to cars and affect the demand for two-wheelers negatively. A
further drop in second hand car prices will lead to pressure on the two-wheeler
majors who plan to release higher end scooters and motorcycles.
Implementation of mass transport system: Many states have planned to
implement mass transport systems in state capitals in the future. This will have
negative impact on demand for two-wheelers in the long run. But taking into account
the delays involved in implementation of such large infrastructure projects, we expect
the demand to be affected only five to seven years down the line.
Availability of credit for vehicle purchase: The availability and cost of finance
affects the demand for two-wheeler as the trend for increased credit purchases for
consumer durables has increased over the years. Therefore any change with respect
to any of these two parameters as a result of change in RBI policy has to be closely
watched to assess the demand for two and three wheelers.
Changing Income Demographics will Drive Changes in Demand
The rapid rise in the country's middle and upper income classes, more than overall
GDP growth per se, is likely to lead to a dramatic hike in the demand for big-ticket
items like motorcycles, cars/jeeps etc.
As a result, the number of households owning cars will more than double from
around 4 per cent right now to over 9 per cent by the end of the decade, that for
scooters will remain stagnant at around 8 per cent, will double for motorcycles to over
28 per cent. In terms of demand motorcycles will nearly touch the 8.5 million mark.
Much of the increased demand is not so much demand from existing households in
various income groups as it is the one emanating from the migration of households
into upper income groups.

46

Excise And Customs Duty Structure


Existing Duty Structure
Table: 11

Items

2-wheelers

Excise Duty (%) Customs Duty (%)


2007-08
2007-08
Upto

12%

60%

2-wheelers
Above
75cc
12%
Secondhand Motorcycles (including mopeds)
and cycles fitted with auxiliary motor

60%

Upto
Above

75cc

75cc
12%

100%

12%

100%

75cc
Source: FICCI & SIAM

The table shown above describes the excise and customs duty structure for the twowheeler industry. For any new or old two-wheeler the excise duty is 12% and the
customs duty for new two-wheeler is 60%and for secondhand 100%. Thus this will
make effect on the price of the vehicle.

47

SEGMENTATION OF THE INDUSTRY


Segment wise Production Growth
Table 12
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
CAGR

Growth Of Scooters
-9.500952527
10.235917
5.583253767
3.292664897
-7.45765005
13.87677659
2.61

Growth Of Motor Cycles


33.37041341
12.35736261
19.25817787
19.39431186
14.69175229
-8.559124703
17.21

Growth Mopeds
-17.7512
-5.49412
4.858047
8.936192
0.108806
13.37941
-2.31
Source : SIAM

Chart 15

Source : SIAM

48

Segment wise Sales Growth


Table 13
Growth Of Motor Cycles
2002-03
2003-04
2004-05
2005-06
2006-07
CAGR

Growth Of Scooters

Growth Mopeds

26.33
14.34
19.05
17.13
12.69

(9.10)
7.35
4.08
(1.55)
3.58

(16.97)
(9.29)
4.90
3.15
6.95

17.50

0.64

-2.79
Source : SIAM

Chart 16

Source : SIAM

49

Segment wise Export Growth


Table 14
Growth of scooters

2002-03
2003-04
2004-05
2005-06
2006-07
CAGR

14.9442327
64.8559848
13.06089
38.2790491
-57.4844521
4.62

Growth of MOTOR CYCLES


117.519339
51.37361083
47.96702387
39.30781638
41.401721
56.67

Growth MOPEDS
23.2987191
2.937027062
18.71833209
51.06174567
-13.00340428
14.22
Source : SIAM

Chart 17

Source : SIAM

50

Major Players
Bajaj Auto Ltd.
Established in 1945, Bajaj Auto Ltd. was incorporated as a trading company. Till
1959, they imported scooters and three-wheelers from Italy and sold them in India.
The company got a production license in the year 1959 and fastened a technical
collaboration with Italian PIAGGIO in 1960.
Bajaj Auto Ltd. is one among India's top ten companies in terms of market
capitalization and among the top five in terms of annual turnover.
The company started producing scooters in the year 1961 and followed threewheelers production in 1962. Its collaboration with Piaggio expired in 1971 and since
then, their scooters and three-wheelers are being sold with the brand name BAJAJ.
Maharashtra Scooters Ltd., a Company with 24% equity participation by the
Company and 27% participation from Maharashtra State Government's Western
Maharashtra Development Corp. was formed in the year 1975 under the "Horizontal
transfer of technology" policy.
The first production unit is located at Satara, Maharashtra. The unit continues to
collect scooters from CKDs supplied by the Company. These scooters are marketed
through the Company's distribution network and under the Company's brand name.
In 1984, the second production plant was set up at Aurangabad, Maharashtra. This
plant started scooter production in 1986, three-wheeler production in 1987 and
scooterettes and motorcycle facilities were commissioned in 1990 & 1991
respectively.
Today, the company has become a market leader with annual production in excess of
1.35 million units which was about 4000 units in 1961. These days, Bajaj Auto Ltd.
has started offering products in all segments (mopeds & scooterettes, scooters,
motorcycles, three wheelers).

Hero Honda Motors Ltd.


Hero Honda Motors Ltd. is a result of the joint venture between India's Hero Group
and Japanese Honda Motors Company in the year 1983. This joint venture has not
only created the world's single largest two wheeler company but also one of the most
successful joint ventures worldwide. Hero Honda is globally known of being the most
fuel-efficient and the largest CBZ selling Indian motorcycle company. This is a
51

relationship so harmonious that Hero Honda has managed to achieve indigenisation


of
over
95
percent,
a
Honda
record
worldwide.
The company is committed to provide the customer with excellence. A rich
background of producing high value products at reasonable prices led the world's
largest manufacturer of motorcycles to collaborate with the world's largest bicycle
manufacturer. During 80s, Hero Honda became the first company in India to prove
that it was possible to drive a vehicle without polluting the roads. They company
possess three manufacturing units based at Dharuhera, Gurgaon and Haridwar are
capable to produce 4.4 million units per year. They introduced new generation
motorcycles that set industry benchmarks for fuel thrift and low emission.
The unique features like fuel conservation, safety riding courses and mobile
workshops helped the group reach in the interiors of the country. Well-entrenched in
the domestic market, Hero Honda Motors Ltd. turned its attention overseas, and
exports have been steadily on the rise.
Over the years, the Company has received its share of accolades, including the
National Productivity Council's Award ( 1990-91), and the Economic Times - Harvard
Business School Association of India Award, against 200 contenders. The gross
sales of Hero Honda by March end'2008 was 33,371,43 Crores
The below chart shows the golden years in the history of HERO HONDA :1985

CD-100

1989

SLEEK

1991

CD-100 SS

1994

Splendor

1997

Street

1999

CBZ

2001

PASSION

2002

DAWN, AMBITION

2003

CD-DAWN, SPLENDOR +, PASSION +KARIZMA

2005

SUPER-SPLENDOR, CD-DELUX, GLAMOUR, ACHIEVER

Kinetic Motor
52

Established in year 1970, Kinetic Engineering Ltd. is the reliable and trusted
manufacturer and exporter of 2-wheelers. Born of the vision of the late Shri H. K.
Firodia, Kinetic Engineering Ltd. has produced useful, heart - winning products for
over
two
decades.
Kinetic Engineering Ltd. ( KEL ), manufactures a vast variety of scooters,
motorcycles and mopeds which are well recognized and popular for their fuel
economy, quality and reliability in whole country. The company advanced
manufacturing set up has enabled them to reach high quality standards.
Its three manufacturing plants are located at Ahmednagar (for scooterettes and
mopeds), Pitampur (Indore, for scooters) and Goregaon (Pune, for motorcycles and
step-thrus)) with the capacity to manufacture 4 lakh vehicles per year. Along with this,
KEL export these vehicles to various countries like USA, Canada, Sweden, Latin
America, Denmark and the Middle East
Kinetic Honda Motor Ltd. is the joint venture of Kinetic Engineering and
internationally known Honda Motor Company of Japan. Most famous bike among two
wheeler motorists in the country is Kinetic Honda 100cc bike. Strong service
network set up in India is the backbone of KEL.
Always been conscious of quality and customer oriented production, the company
has been a trendsetter in the Indian two-wheeler industry. The company sales
recorded in June'08 is around 23.66 crore. By the end of this year KEL will invest up
to Rs 30 crore in Mahindra Two Wheelers Pvt Ltd to buy 2.95 crore equity shares of
the latter.
MOTORCYCLES

Kinetic Aquila
Kinetic Velocity
Kinetic Challenger
Kinetic Comet
Kinetic Stryker
Kinetic GF
Kinetic Boss

SCOOTERS

Kinetic Blaze

MOPEDS

Kinetic 4S
Kinetic Honda Dx/Zx 100 cc
Kinetic Honda Marvel
Kinetic K4 100
Kinetic Kine
Kinetic Luna Super
Kinetic Luna TFR
Kinetic Pride FX
Kinetic Style
Kinetic Zing
Kinetic Zoom
Kinetic Flyte
Kinetic V2 Range

TVS Motor
53

TVS Motor is a leading and trusted two wheeler company began with the vision of
TVS Scooty. Scooterthe founder of the Sundaram Clayton Group, the late T.S.
Srinivasan - 'to design, develop and produce an affordable moped for the Indian
family.' This vision was realized in 1980 when TVS 50, India's first two-seater moped
rolled out of the factory at Hosur in Tamil Nadu, Southern India.
The company has been known for its ruggedness and reliability. TVS 50 was
successful and it has smoothened the way for many successes for TVS Suzuki even
before its launch in the market. The TVS 50 XL is especially designed for individuals
who want economy fused with sporty looks. Recently new XL Super With a 70 cc
high-tech Power Pack is all set to redefine the category of mopeds in the country.
The Suzuki Samurai was launched for the time conscious urban commuter. The Max
100 R was engineered for those who demanded strength and ruggedness. Along with
them all, Suzuki Shogun was for those who wanted raw power.
TVS Motor has continually worked on innovating the motorcycle segment along with
two wheeler range. The Suzuki Shaolin, developed by TVS Suzuki is India's first 5
speed, 140 cc motorcycle. Another example of the company success is TVS Scooty,
a 60 cc Scooterette which keep one step ahead of its time in India.
TVS Motor has been coveted 2 IT awards, one of them is bagging the SAP ACE
2008 award for Customer Excellence and the other one is 2008 Symantec South
Asia Visionary Award. Along with this, it is the first company in the world to be
honored with The Deming Prize for Total Quality Management. In September 2008,
the company has got 19% growth for registering total two wheeler sales of 137,246
units .
The company is the third largest two-wheeler manufacturer in India and ranks
among the top ten globally. The company was the first in India to launch 2-seater
50cc moped and 100cc Indo-Japanese motorcycles. At present TVS Apache, TVS
Victor, TVS Scooty, TVS Centra and TVS Fiero are the popular bikes in Indian
market.

54

In all, team TVS has triumphed each and every race and rally in the country from the
road to racetrack, with each of the TVS bikes being a winner. And each time the
'Team TVS' has won on the track or off it, our customers have secured a better
product for their personal transportation.
MOTORCYCLES
SCOOTERETTES/MOPEDS

TVS Apache RTR


TVS Centra
TVS Fiero

Suzuki Max 100


Suzuki Max 100R
Suzuki Samurai
Suzuki Shogun
Suzuki Shaolin
TVS Flame
TVS Victor

TVS Scooty

TVS Spectra DX/AX


TVS XL

TVS Scooty ES
TVS Scooty Pep
TVS Pep Plus
TVS XL Super
TVS XL Super HD

TVS XL Super
TVS XL Super HD
Scooty Teenz Electric

TVS Victor GLX


TVS Victor GX
TVS Victor Edge

TVS Star

TVS Fiero F2
TVS Fiero FX

TVS Star
TVS Star City

TVS Apache RTR FI

Yamaha Motor
Situated at Faridabad, Haryana, Yamaha Motor India Private Limited is a 100%
owned subsidiary of Yamaha Motors Company Limited of Japan. Total employee
strength of the company is more than 3000 people. The company has opened
"Yamaha One"- a branded dealership at Delhi and plans to open more in the future.
Along with this, Japan has also set up another subsidiary-Yamaha Motors India Sales
Pvt. Ltd.(YMIS) that deals with the sales and after sales services for Yamaha brand
of bikes. It is located at Surajpur, outside Delhi with an employee strength of 120.
Yamaha's association with India began in 1985 for the first time when it provided
technical assistance to the Escorts Group in manufacturing of motorcycles. On July
1, 1955, Yamaha Motors was founded as a motorcycle manufacturer which build
products that stand out for their quality wherever they are sold. In the year 1960, the
company began manufacturing powerboats and outboard motors. In June 2000, the
equity holdings were revised and company acquired 74% of the share.

55

The company has its manufacturing unit in Faridabad and Surajpur, which supports
the production of motorcycles for domestic as well as overseas market. Considering
environment sensitive issues, Yamaha Motors also goes into the concept of
environment friendly technology that brags of effluent treatment plant, rain water harvesting mechanism and a motivated forestation drive. The company believe in
taking care of not only customers motoring needs but also the needs of future
generations.
MODEL

Rajdoot Excel-T
Yamaha RXZ
Rajdoot Deluxe
Rajdoot Standard
Yamaha Enticer
Yamaha Escorts Ace
Yamaha RX 135
Yamaha YBX 125
Yamaha Gladiator

Gladiator Std
Gladiator DX

Yamaha Libero G5
Yamaha Crux
Yamaha Gladiator Type JA
Yamaha Alba 106
Yamaha YZF R1
Yamaha MT 01
Yamaha YZF-R15
FZ 150

56

MAJOR PLAYER COMPARISON


Table 15

HERO HONDA

BAJAJ

KEY POLICIES

- Environment policy: cleaner


production processes and better
environmental performance.
- Quality policy: provide innovative
products
services and focus on TQM.
- Safety policy: provide a safe work
environment for employees to
enhance productivity.

- Total Productivity
Maintenance: provide safe work
environment to enhance
efficiency of processes.
- Quality policy: provide value
for money through enhanced
quality, safety and service.

PRODUCT LINE

- Large number of products in all


market segments.
- Market leader in Executive
segment.
- Mixed results with new product
launches Pleasure and Achiever
achieved contrasting responses.

R&D

SERVICES

EXPORT
BRAND PROMOTION

- Large number of products in all


market segments.
- Market leader in Premium and
Entry segments.
- Cashes in on the success of the
previous variants for new product
launches e.g. variants of PulsarPulsar 200cc and 220cc DTS-Fi.

- Does not have own R&D facility


Dependence on HONDA means
slow response to competition.
- Also faces a threat of Honda
withdrawing its support with HMSI
(subsidiary of Honda) entering the
market.

- Fully integrated R&D facility;


Pulsar was a product of this inhouse department.
- Major strength in quality but
not in new product development

- More than 1000 dealerships in the


country.
- Renowned for its excellent after
sales services.
- Most suppliers and distributors
known to the Munjal family high
degree of control and efficiency
possible.

- 600 dealers across the country.


- Poor after sales services as
inferred from customer feedback

As per the agreement with HMSI, it


cannot export to countries where
Honda bikes are already present.
- Aggressive promotion strategies
especially for launch of new bikes or
variants.
- Extensive use of celebrity

Largest 2 and 3 wheeler exporter;


leader in Sri Lanka and Central
America
- Aggressive promotion
campaigns for new products
- No celebrity endorsements;
prefers to emphasize on the

57

endorsements and event


sponsorships
MARKET SHARE
CHANGE

LEADERSHIP

Losing market share (40% overall in


2006) in all segments due to greater
competition.
Family owned business
Suppliers and distributors are known
to the family and hence able to
maintain control over the supply
chain, thereby enhancing efficiency .

lifestyle aspect with the


Definitely male and Feel like
God.
Steadily rising market share (34%
overall in 2006) on the back of
superior performance of Pulsar.
Family owned business

Source : SIAM

58

Domestic Sales report for Jan-2008 to sep-2008


The table given below shows the Sales of different companies during Jan-2008 to
sep-2008 according to different engine capacity for motorcycle, scooter and moped
segments
Table 16
Category
Segment/Subsegment
Manufacturer.
Two Wheelers
A:
Scooter/Scooterette
Wheelsize not over
12"
A1: Engine capacity
<75 cc
Bajaj Auto
Kinetic Engg
LML
TVS Motor
Total
A2: Engine capacity
75-125 cc
Bajaj Auto
HMSI
Kinetic Engg
LML
Majestic Auto
TVS Motor
Total
A3: Engine capacity
125-150 cc
Bajaj Auto**
HMSI
LML
TVS Motor
Total
Total A
B: Motorcycle/StepThrough:
Wheel size more than
12"
B1: Engine capacity
<75 cc
Bajaj Auto

Jan
2008

Mar
2008

Apr
2008

May
2008

Jun
2008

Jul
2008

Aug
2008

Sep
2008

0
107

0
157

0
148

0
231

0
0

0
0

0
0

0
0

1950
2057

2600
2757

2366
2514

2437
2668

1438
1438

1212
1212

1479
1479

1874
1874

1100
47664
3203
0
0
16005
67972

779
48900
384
0
0
12564
62627

693
43988
448
0
0
16040
61169

1026
51842
511
0
0
19785
73164

1053
49927
0
0
0
18387
69367

979
52664
0
0
0
21354
74997

1097
49448
0
0
0
21523
72068

973
55392
0
0
0
22750
79115

0
3772
0

0
4076
0

0
3408
0

0
4016
0

0
3448
0

0
3920
0

0
3660
0

0
3468
0

3772
73801

4076
69460

3408
67091

4016
79848

3448
74253

3920
80129

3660
77207

3468
84457

59

B2: Engine capacity


75-125 cc
Bajaj Auto
Hero Honda
Kinetic Engg
LML
Majestic Auto
TVS Motor
Yamaha Motor
Total
B3: Engine capacity
125-250 cc
Bajaj Auto
Hero Honda
HMSI
LML
TVS Motor
Yamaha Motor
Total
B4: Engine capacity
over 250 cc
Royal Enfield
Total B
C: Mopeds: Engine
capacity
<75 cc, wheels over
12"
Kinetic Engg
Majestic Auto
TVS Motor
Total C

56039
259303
136
0
0
21335
4845
341658

55710
283141
127
0
0
31879
5914
376771

68633
245107
114
0
0
32666
5371
351891

53788
282928
124
0
0
27555
5469
369864

41189
264325
0
0
0
25186
4171
334871

44105
246183
0
0
0
29215
4930
324433

41537
269048
0
0
0
27256
5800
343641

63791
351247
0
0
0
40411
4908
460357

78665
21360
23024
0
6362
1419
130830

57947
18676
24188
0
17662
4100
122573

69484
31473
20220
0
16520
4815
142512

76280
14459
27066
0
14346
3817
135968

78954
13329
22153
0
12050
5526
132012

69335
14141
23395
0
10233
6853
123957

75350
15704
27820
0
8836
6174
133884

98283
14383
31925
0
14666
5230
164487

3758
476246

3463
502807

2858
497261

3155
508987

3111
469994

3311
451701

3855
481380

3243
628087

884
40
34625
35549

798
0
39270
40068

777
0
32167
32944

710
0
34576
35286

0
0
35715
35715

0
0
39486
39486

0
0
35683
35683

0
0
38050
38050

Source : FADA

Production report for Jan-2008 to sep-2008


The table given below shows the Production of different companies during Jan-2008
to sep-2008 according to different engine capacity for motorcycle, scooter and moped
segments.
Table 17
Category
Segment/Subsegment
Manufacturer.
Two Wheelers

Jan
2008

Mar
2008

Apr
2008

May
2008

Jun
2008

Jul
2008

Aug
2008

Sep
2008

60

A:
Scooter/Scooterette
Wheelsize not over
12"
A1: Engine capacity
<75 cc
Bajaj Auto
Kinetic Engg
LML
TVS Motor
Total
A2: Engine capacity
75-125 cc
Bajaj Auto
HMSI
Kinetic Engg
LML
Majestic Auto
TVS Motor
Total
A3: Engine capacity
125-150 cc
Bajaj Auto**
HMSI
LML
TVS Motor
Total
Total A
B: Motorcycle/StepThrough:
Wheel size more
than 12"
B1: Engine capacity
<75 cc
Bajaj Auto
B2: Engine capacity
75-125 cc
Bajaj Auto
Hero Honda
Kinetic Engg
LML
Majestic Auto
TVS Motor
Yamaha Motor
Total
B3: Engine capacity
125-250 cc

0
49

0
230

0
49

0
61

0
0

0
0

0
0

0
0

1262
1311

3072
3302

2148
2197

1756
1817

1446
1446

1175
1175

1572
1572

1784
1784

1402
49347
2820
0
0
18054
71623

645
47632
0
0
0
14521
62798

865
45621
40
0
0
13313
59839

1062
53001
0
0
0
11658
65721

1146
51314
0
0
0
18845
71305

1223
56883
0
0
0
22231
80337

1201
53543
0
0
0
23194
77938

1171
52579
0
0
0
23846
77596

0
3836
0

0
3794
0

0
3669
0

0
3817
0

0
3638
0

0
4003
0

0
3564
0

0
3405
0

3836
76770

3794
69894

3669
65705

3817
71355

3638
76389

4003
85515

3564
83074

3405
82785

88186 89496 87372 97139 75652 79856 95069


267388 289432 261126 295471 272496 291456 276880
0
148
84
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
36394 36288 33446 34228 36632 38847 40513
3684
4930
8820 10363
5661
8811
5045
395652 420294 390848 437201 390441 418970 417507

83973
345822
0
0
0
49118
6512
485425

61

Bajaj Auto
Hero Honda
HMSI
LML
TVS Motor
Yamaha Motor
Total
B4: Engine capacity
over 250 cc
Royal Enfield
Total B
C: Mopeds: Engine
capacity
<75 cc, wheels over
12"
Kinetic Engg
Majestic Auto
TVS Motor
Total C

93536
23759
25631
0
9434
2328
154688

77595 81249 94525 105896 105760 97640


16184 13466 16159 13262 16489 16903
24975 23336 29772 25979 29102 31494
0
0
0
0
0
0
19321 20218 18783 17404 15356 16629
10035
9625
7589 10691 12103
9267
148110 147894 166828 173232 178810 171933

133496
13460
32559
0
16279
9093
204887

3416
3727
3211
3254
3372
3693
3550
553756 572131 541953 607283 567045 601473 592990

3505
693817

796
0
33926
34722

251
0
39057
39308

274
0
31888
32162

307
0
34038
34345

0
0
36836
36836

0
0
42129
42129

0
0
37312
37312

0
0
36415
36415

Source : FADA

Exports report for Jan-2008 to sep-2008


The table given below shows the Exports of different companies during Jan-2008 to
sep-2008 according to different engine capacity for motorcycle, scooter and moped
segments.
Table 18
Category
Segment/Subsegment
Manufacturer.
Two Wheelers
A:
Scooter/Scooterette
Wheelsize not over
12"
A1: Engine capacity
<75 cc
Bajaj Auto
Kinetic Engg
LML
TVS Motor
Total
A2: Engine capacity

Jan
2008

Mar
2008

Apr
2008

May
2008

Jun
2008

Jul
2008

Aug
2008

Sep
2008

0
15

0
0

0
105

0
113

0
0

0
0

0
0

0
0

0
15

0
0

0
105

0
113

0
0

0
0

0
0

0
0

62

75-125 cc
Bajaj Auto
HMSI
Kinetic Engg
LML
Majestic Auto
TVS Motor
Total
A3: Engine capacity
125-150 cc
Bajaj Auto**
HMSI
LML
TVS Motor
Total
Total A
B: Motorcycle/StepThrough:
Wheel size more
than 12"
B1: Engine capacity
<75 cc
Bajaj Auto
B2: Engine capacity
75-125 cc
Bajaj Auto
Hero Honda
Kinetic Engg
LML
Majestic Auto
TVS Motor
Yamaha Motor
Total
B3: Engine capacity
125-250 cc
Bajaj Auto
Hero Honda
HMSI
LML
TVS Motor
Yamaha Motor
Total
B4: Engine capacity
over 250 cc
Royal Enfield
Total B
C: Mopeds: Engine

0
838
12
0
0
639
1489

260
834
42
0
0
778
1914

156
898
12
0
0
628
1694

260
903
52
0
0
709
1924

156
1169
0
0
0
345
1670

156
1036
0
0
0
560
1752

260
967
0
0
0
929
2156

156
702
0
0
0
1218
2076

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
1504

0
1914

0
1799

0
2037

0
1670

0
1752

0
2156

0
2076

17412
7037
237
0
0
8341
424
33451

27930
11094
244
0
0
8548
1028
48844

34577
2700
477
0
0
7297
240
45291

30097
4828
389
0
0
10183
2860
48357

33896
7284
0
0
0
10415
1503
53098

32976
7616
0
0
0
9623
690
50905

30263
7388
0
0
0
11546
739
49936

35350
6593
0
0
0
12616
504
55063

14376
672
2432
0
2923
2688
23091

12710
1112
2016
0
2819
4282
22939

30387
1140
2479
0
1754
2255
38015

19484
680
2256
0
2633
908
25961

21864
523
3808
0
3758
3595
33548

22420
640
2328
0
4971
3569
33928

28124
944
2668
0
4666
1541
37943

19941
640
2471
0
3585
2222
28859

57
56599

201
71984

184
83490

166
74484

246
86892

140
84973

262
88141

110
84032

63

capacity
<75 cc, wheels over
12"
Kinetic Engg
Majestic Auto
TVS Motor
Total C

0
0
1205
1205

60
0
925
985

130
0
534
664

130
0
546
676

0
0
492
492

0
0
861
861

0
0
942
942

0
0
810
810

Source : FADA

Market Share Of The Two Wheeler Company In 2007 &2008


Chart 18

2007

Source : SIAM

Chart 19

2008

64

Source : SIAM

Distribution Channel
In Automobile industry, the basic distribution channel prevailing includes 3 major
steps, like Manufacturer: who has the finished products with him. State wise
Authorised dealer: State-wise Authorised Dealers are appointed by the
manufacturers on certain conditions and criterias - Customer: The customer then
can buy the product from the Dealers.
Diagram 3
Manufacturer
(Finished Product)

STATEWISE AUTHORISED
DEALER

Customer

Automobile industry in India has evolved over the last few decades into a thriving
industry with a host of new challenges emerging along. While managing product
development and manufacturing is critical in the supply chain, the key to market
success lies in the successful customer acquisition and more importantly retention.
Automobile dealers are the most significant part of any brand representation in the
market place. A company or brand is as good as its representation in the market.
Establishing a well-planned dealership network is a bare essential to market products
successfully. Importance of sustaining quality of 'customer touch points' was never
felt so relevant before. Hence, in the current scenario, performance of dealers is an
indication of performance of brand itself and vice versa.
65

66

A three-wheeled business: How does it balance?


Diagram 4

Source : SIAM

Automobile dealers business can be compared to a three-wheeler. The three wheels


of the business are sales, after-sales service and spares. A sale is like front wheel. A
dealer principal on the driving seat always likes to steer this wheel to give direction to
his/her business. However, many a time, the following two wheels are ignored: the
rear two wheels are the ones, which take the maximum load of passengers
(customers) who ultimately pay for the ride while sales give direction. These are the
changing rules of the automobile dealership business with the change in the
distribution channel structure over period of time. Chart below indicates how
automotive distribution structure has changed in the past few decades.
The distribution has changed from a single channel to multiple channel of contact, for
both sales and after-sales services offered to the customer. With the multiplying of
channels, the competition has also grown multifold. Multi-brand showrooms are
emerging to offer convenience to the customer in comparing and evaluating various
brands under single roof and take faster decisions

67

Channel Structure
Diagram 5

Source: SIAM

The earlier competition, only from small time local garages, is evolving into a larger
organized independent service provider.
In the given situation, the business model of automotive dealers is clearly under
tremendous pressure from all the business angles. The forces acting on the dealer
business are indicated in the Chart given below.
Bargaining power of OEMs is making dealers increasingly invest into the
infrastructure to enhance the customer experience. On the other hand, customers
are getting savvier and the bar of minimum service expectation is rising day by day.
There is increasing threat of new entrants as OEMs are appointing more and more
distribution points to enhance reach and penetration

68

Competitive Model for Automobile Dealer


Diagram 6

Source: SIAM

The competition amongst dealers of competing brands as well as within same brand
is crossing boundaries. Discounts and freebies are not a seasonal affair anymore. All
this has lead to drastic shrinking of margins in the new vehicle sales business. Some
progressive dealers confronted these challenges and worked their way to sustain
bottom lines through increased focus on after-sales business.
However, the sole support of after-sales service business itself is under threat of
substitutes in the form of organised (branded) franchised service network.
Companies supplying automotive related products in the aftermarket like oil,
lubricants, auto components and auto accessories are entering the lucrative
automotive service business. This will be the biggest ever challenge faced by the
automotive dealers in India. The automotive dealer's business was redefined from
selling vehicles to servicing customers in the late nineties with the entry of
multinationals in India. However, this new definition of the business itself is under
threat with the newly emerging competition.

69

A word of caution
Well-known brands in the market like TVS, Cummins, Bosch, Castrol, Gulf Oil, and
Reliance have already forayed into the after sales business in some way and many
more are on the verge of entry. With fast pace of new vehicle sales, dealers cannot
ignore the sales function (even though it may not add much to bottom line or
sometimes negatively impact it). However, if the focus of dealership remains only on
sales, the opportunity to earn from growing after-sales service business would be
exploited by the independent service providers.
Any two-wheeler owner evaluates a type of service center on 4 Ps of service channel
selection. The 4 Ps is:
Price of Parts
Price of Labour
Proximity and
Promptness of service
Authorized dealer workshops are always likely to have higher price of parts and
labour than the independent after-market, given the higher overhead costs. However,
proximity and promptness of service are the two key criteria on which they need to
work in order to retain the customer within their fold and earn their lifetime value.
There are very few options left with the automotive dealers of this era. They either
change themselves and their systems to be more customers focused or concede the
business to others.

70

PESTEL Analysis
Automobile is one of the largest industries in global market. Being the leader in
product and process technologies in the manufacturing sector, it has been
recognized as one of the drivers of economic growth.
During the last decade, well-directed efforts have been made to provide a new look to
the automobile policy for realizing the sector's full potential for the economy. Steps
like abolition of licensing, removal of quantitative restrictions and initiatives to bring
the policy framework in consonance with WTO requirements have set the industry in
a progressive track. Removal of the restrictive environment has helped restructuring,
and enabled industry to absorb new technologies, aligning itself with the global
development and also to realize its potential in the country. The liberalization policies
have led to continuous increase in competition, which has ultimately resulted in
modernization in line with the global standards as well as in substantial cut in prices.
Aggressive marketing by the auto finance companies have also played a significant
role in boosting automobile demand, especially from the population in the middle
income group.
POLITCAL ENVIRONMENT
The political environment exercises great impact on industry and business. With
development on the political front affecting the economy all the time, the economic
environment often becomes a by-product of the political environment. Industrial
growth depends to a great extent on political environment. Legislation regulating
businesses is also often a product of political configuration.
Traditionally, GOI has considered the automobile industry as a luxury segment. But
realizing the growing importance of two-wheelers with the increasing necessity of
personal transportation for the middle class in eighties, priority was given to the
sector by favorable foreign policy. This brought about technology revolution to the
two-wheelers as Japanese majors entered in technical and financial participation with
Indian majors.
GOI has a moderate intervention in the operations of two-wheeler industry. Excise
duty structure, emission control, safety of rider, etc are all policy decisions.
71

The excise duty on two-wheelers, which previously ranged between 10 to 30%,


according to the engine capacity was rationalized in 1991-92 budget to only twocategories viz 15% upto 75cc and 25% above 75cc. This mainly affected
manufacturers of 100cc category in the early nineties. Since then the excise duty
structure for two-wheelers has been left unchanged till 1999.
In the 1999-2000 budget, as a result of rationalization of duty structure the excise
duty up to 75cc vehicles was increased to 16% while for those above 75cc
decreased to 24%. As a result, scooter prices were reduced by Rs200-400 per
vehicle. The same duty regime was continued in the FY2000-01 budget too.
Automobile emissions are the major pollutants in the environment. To control
pollution from automobiles the GOI stipulates emission norms applicable from time to
time. The GOI wants the automobile industry to achieve a major improvement in
emission levels in two steps. The first milestone was achieved by implying stringent
norms applicable from April 1, 1996. This conforms to Euro I standards. The second
hurdle was set with a dead line of April 1, 2000 that conforms to Euro II norms.
The GOI controls availability and price of petrol, the fuel for two-wheelers. But with
the dismantling of Administered Price Mechanism (APM), the cross subsidy provided
by high petrol prices is expected to come down leading to reduction in petrol prices in
the country. This will reduce the running cost per km for two-wheelers and have
positive impact on demand.
In the 2007-08 budget, as a result of rationalization of duty structure the excise duty
up to 75cc vehicles was Decreased to 12% while for those above 75cc decreased to
12%.

72

Government Policies
Vehicle Emission Norms
Emission norms for all categories of petrol and diesel vehicles at the manufacturing
stage were introduced for the first time in India in 1990 and were made stricter in
1996. When the 1996 norms were introduced it resulted in certain models being
withdrawn from the market. With Stage I India 2000 emission norms coming into
place, the cost of developing suitable technology has remained high. The table below
presents the emission norms for two-wheelers that were in place in the past, the
current India 2000 emission norms, and the norms have been proposed for 2005
(Stage II) and 2009 (Stage III). The emission norms that are currently in force (India
2000) for two-wheelers and three-wheelers are more stringent than the Euro II
norms. While the Stage II (India) norms will be applicable only from April 1, 2005, the
Stage (III) norms will be implemented in 2009 after a technical feasibility review in
2005. The choice of emission control technology has been left to the manufacturers
Fiscal Policy
The Union Budget for 2007-08 had lowered the excise duty on two-wheelers (with
engine capacity in excess of 75 cc) from 16% to 12%. The manufacturers responded
to this by passing on a relatively large part of the excise cut to customers. The Union
Budget 2007-08 provides for a weighted deduction of 150% for investments in R&D.
This may facilitate increasing R&D allocations and allow for improvement in the
technical as well as product development skills of the Indian companies.
Exim Policy

Imports
Starting April 1, 2008 imports of all new and used vehicles have been freed under
commitments to World Trade Organization (WTO). However, the customs duty has
been set at 60% for new vehicle imports and at 100% on the import of used vehicles
While Imports from China have been meager till date, they may increase in the long
term, thus posing competition to the domestic manufacturers. Given the similarity in
the demographic and income conditions in India and China, Chinese two-wheeler
manufacturers are suitably placed to cater to the Indian market.

73

Exports
Indian export of two-wheelers is primarily to Sri Lanka, Bangladesh, Iran, Egypt, and
the South American Nations, which have similar emission norms. In 2008, India
exported 819847 two-wheelers, which marks an increase of 32% over the previous
year. Despite this impressive growth, the countrys total two-wheeler exports account
for a mere 3% its total domestic sales.
Foreign direct investment: Automatic approval is proposed to be granted to foreign
equity investment up to 100% for manufacture of automobiles and components.
Incentives for R&D: The weighted average tax deduction under the Income Tax Act,
1961 for automotive companies is proposed to be increased from current level of
125% (The weighted average deduction for R&D was increased to 150% in the Union
Budget 2004-05). Further, the policy proposes to include vehicle manufacturers for a
rebate on the applicable excise duty for every 1% of the gross turnover of the
company expended during the year on R&D. Budget 2008-09 The weighted
deduction of 150% of the expenses incurred on scientific research should be
extended for a further period of at least 10 years even after 2012. Small cars, which
attract 16% excise duty, should be defined on the basis of the length of 4,000 mm
and the criteria based on engine capacity should be removed.
Environmental aspects: Adequate fiscal incentives are proposed to promote the
use of low-emission auto fuel technology (in line with the Auto Fuel Policy). The auto
policy states the Government's intent to align domestic policy with the international
practice of imposing higher road tax on old vehicles so as to discourage their use
Table 19
Budget Impact on Major Players
Company name
Bajaj Auto Ltd.
Hero Honda Motors Ltd.
TVS Motor Company Ltd.

Impact
positive
positive
Neutral

Impact factors
A, B
A, B,
A, B, C,
Source : India Budget

74

A. The reduction in the import duty on used two-wheelers will positive affect the
industry.
B. The reduce in the excise duty on two-wheelers will positive affect the industry
C. The extension up to March 2007 of 150 per cent deduction on R&D expenditure
will marginally benefit domestic two-wheeler players, such as TVS Motors, Bajaj Auto
and Kinetic.
D. The reduction in personal tax rates will increase household disposable income,
which is a positive for two-wheeler demand.

Negatives
Competition from imports:
With India coming under the WTO purview and the increasing free trade agreements
(FTAs), competition is expected to rise multifold. Indian companies also have to
contend with imports in the future. Already a number of global auto companies are
introducing vehicles through the completely knocked down (CKD) route.
Improving Road Infrastructure
Traffic on roads is growing at a rate of 7 to 10% per annum while the vehicle
population growth for the past few years is of the order of 12% per annum. Poor road
infrastructure and traffic congestion can be a bottleneck in the growth of vehicle
industry. A balanced and coordinated approach will be undertaken for proper
maintenance, up gradation and development of roads by encouraging private sector
participation besides public investment and incorporating latest technologies and
management practices to take care of increase in vehicular traffic.
For the convenience of traveling public the Government shall also promote multimodal transportation and the implementation of mass rapid transport systems
The government has announced certain key initiatives like the Golden Quadrilateral
Project and rationalization of excise duty to improve demands, etc. All these
initiatives pave the path towards a better future for the Indian Automobile Sector.

75

ECOLOGICAL ENVIRONMENT
ENVIRONMENTAL ASPECTS
The automotive and oil industry have to heave together to constantly fulfill
environment imperatives. The Government will continue to promote the use of low
emission fuel auto technology.
The Government have approved a road map for implementation for the auto fuel
quality consistent with the required levels of vehicular emissions norms and
environmental quality. The Government will formulate a comprehensive auto fuel
policy covering the other related aspects and ensure availability of appropriate auto
fuel/fuel mixes at minimum social costs across the country. Suitable institutional
mechanism will be put in place for certification, monitoring and enforcement of
different technologies/fuel mixes. Appropriate fiscal measures will be devised to
achieve milestones in the roadmap for implementation of auto fuel policy.
In the short run, the Government will encourage the use of short chain hydrocarbons
along with other auto fuels of the quality necessary to meet the vehicular emissions
norms.
There is prime need to support the development and introduction of vehicles
propelled by energy sources other than hydrocarbons by promoting appropriate
automotive technology. Hybrid vehicles and vehicles operating with batteries and fuel
cells are alternatives to the conventional automobile, which in their early beginnings,
lie intreasured. As an impetus for the development of such vehicles, an appropriate
long-term fiscal structure shall be put in place to facilitate their acceptance vis--vis
vehicles based on conventional fuels.
Internationally, the practice is to levy higher road tax on older vehicles in order to
discourage their use. In India, the road tax on vehicles varies in nature and quantum
among the states. Lifetime road tax is also in vogue. The endeavor will be to move to
the international model.
In order to facilitate faster up gradation of environmental quality, the Govt. will
consider having a terminal life policy for commercial vehicles along with incentives for
replacement for such vehicles.

76

Two-wheelers emit harmful pollutants such as carbon monoxide and hydrocarbons.


The emission norms are becoming stringent the world over. In India, the norms are
being implemented in two phases. While the first phase Euro 1 norms have become
applicable since April 1996, even more stringent norms Euro 2 will come into effect
from April 1, 2000.
For the two-wheelers new emission norm for year 2000 will be an acid test as none
of the present models except four stroke vehicles confirm to the norms. To full-fill
emission norms the manufacturers have three options: to switch to four-stroke
engines, to fit catalytic converters for the existing models, to improve upon the
existing two-stroke engine.
The temporary option for overcoming emission norms is to fit the catalytic converters;
this will increase the cost of vehicles. But as a long-run solution scooter
manufacturers have to opt for four-stroke engines or improvement in two stroke
engines.
The catalytic converters cost in the range of Rs1, 500 - 2,500, but have a limited life
of 10,000 km of vehicle running. Therefore catalytic converter requires regular
maintenance on behalf of the user. Also catalytic converter will be effective only for
unleaded petrol usage, which is not widely available in the country.
Scooter manufacturers have started responding to the Y2K norms by introducing
four-stroke vehicles in H2 FY98. They plan to fit catalytic converters to two-stroke
scooters to overcome emission norms.
The Japanese motorcycle segment will be able to overcome emission norms with the
technology help of respective Japanese collaborator. The Indian motorcycles have to
either shift to four-stroke technology or make use of catalytic converter. But this will
reduce the price difference between Indian and Indo-Japanese motorcycles, reducing
the price advantage of Indian motorcycles.
The mopeds segment will be badly affected due to Y2K emission norms, as none of
the existing moped models confirm to the specifications.

Strategies for Environmental Compliance

77

Source : SIAM

Road & Traffic Management


Inadequate and poor quality of road surface leads to increase 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.

78

TECHNOLOGY ENVIRONMENT
Up till now, technology transfer to the Indian two-wheeler industry took place mainly
through: licensing and technical collaboration and joint ventures
A third form - that is, the 100% owned subsidiary route - found favors in the early
2000s. A case in point is HMSI, a 100% subsidiary of Honda, Japan. Table given
below details the alliances of some major two-wheeler manufacturers in India.
Table 20
Technological tie-ups of Select Players
Nature of Alliance
Technological tie-up
Technological tie-up

Company
Kawasaki Heavy Industries Ltd, Japan
Tokya R&D Co Ltd, Japan

Product
Motorcycles
Two-wheelers

Technological tie-up

Kubota Corp, Japan

Diesel Engines

HHML

Joint Venture

Honda Motor Co, Japan

Motorcycles

KEL

Technological tie-up

Hyosung Motors & Machinery Inc

Motorcycles

KEL

Tie up for Manufacturing


and distribution

Italjet, Italy

Scooters

LML
Hero
Motors

Technological tie-up
Technological
tie-up

Daelim Motor Co Ltd

Motorcycles

Aprilia of Italy

Scooters

Bajaj
Auto

Source : SIAM

Besides the below mentioned technology alliances, Suzuki Motor Corporation has
also followed the strategy of joint ventures (SMC reportedly acquired equity stake in
Integra Overseas Limited for manufacturing and marketing Suzuki motorcycles in
India).
With the two-wheeler market, especially the motorcycle market, becoming extremely
competitive and the life cycle of products getting shorter, the ability to offer new
models to meet fast changing customer preferences has become imperative. In this
context, the ability to deliver newer products calls for sound technological backing
and this has become one of the critical differentiating factors among companies in the
domestic market. Thus, the players have increased their focus on research and
79

development with some having indigenously developed new models as well as


improved technologies to cater to the domestic market. Further, with exports being
one of the thrust areas for some Indian two-wheeler companies, the Indian original
equipment manufacturers (OEMs) have realized the need to upgrade their technical
capabilities. These relate to three main areas: fuel economy, environmental
compliance, and performance. In India, because of the cost-sensitive nature of the
market, fuel efficiency had been an interest area for manufacturers.
It is not only that the OEMs are increasing their focus on in-house R&D, they also
provide support to the vendors to upgrade the technology and also assist them
striking technological alliances.
Two-wheeler is one of the rare industries, which is capital as well as labor intensive.
The setting up of a green field venture and ancillary network require enormous
capital investment. The assembly operation is highly labor intensive.
The capital requirement for a venture varies from segment to segment and based on
amount of outsourcing. For eg setting up of 0.1mn capacity plant for manufacturing
scooter requires approximately Rs1bn and motorcycles Rs1.7bn.
Two-wheeler production entails an assembly of over 700 components, including
those sourced from vendors / independent manufacturers (about 60-70%). In the
press shop, sheet metal components like body frame, fuel tank, front fender and rear
fender, muffler etc are pressed, welded, painted / plated in respective shops. In the
engine plant, engine components (cast/ forged parts) are machined and assembled
along-with other components. The engine is then transferred to the main plant and
assembled with the body and bought out components.
Emission levels, noise levels, color, shape etc regulate all the two-wheeler
manufacturers, which vary from country to country. Imports of vehicles therefore have
to pass through homologation (approval process) of a sample vehicle.

80

Other Factors Influencing Emission From Vehicles


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, a vehicle
used for hire or reward is required to undergo periodic fitness certification. The large
population of personalized vehicles is 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.
Incentive for Research and Development
The Government shall promote Research & Development in automotive industry by
strengthening the efforts of industry in this direction by providing suitable fiscal and
financial incentives.
The current policy allows Weighted Tax Deduction under I.T. Act, 1961 for sponsored
research and in-house R&D expenditure. This will be improved further for research
and development activities of vehicle and component manufacturers from the current
level of 125%.
In addition, Vehicle manufacturers will also be considered for a rebate on the
applicable excise duty for every 1% of the gross turnover of the company expended
during the year on Research and Development carried either in-house under a
distinct dedicated entity, faculty or division within the company assessed as
competent and qualified for the purpose or in any other R&D institution in the country.
This would include R & D leading to adoption of low emission technologies and
energy saving devices.
Government will encourage setting up of independent auto design firms by providing
them tax breaks, concessional duty on plant/equipment imports and granting
automatic approval.
81

Allocations to automotive cess fund created for R&D of automotive industry shall be
increased and the scope of activities covered under it enlarged.

SOCIO-CULTURE ENVIRONMENT
Geographical Distribution
The Western region continues to be the largest market for two-wheelers in the
country, it accounted for 35% of all two-wheeler sales in 2008. The Southern is the
second largest market with a 32% share in 2008. However, the regional share varies
across different product segments.
Chart 20

Demographic profile

Source: ICRA

Till a decade ago, the average age at which an Indian purchased a two-wheeler was
30-40 years, with the buyer having typically put in about a decades employment. The
purchase of the scooter also marked the familys debut into personal motorized
transport. However, over the last decade the demographic profile of the typical twowheeler customer has changed. More often than not, the customer is likely to be
salaried and in first job. With a younger audience, the attributes that are sought of a
two-wheeler have also changed.
The marketing pitch of scooters has typically emphasized reliability, price, comfort
and utility across various Applications. Motorcycles on the other hand have been
traditionally positioned as vehicles of power and style, which are rugged and more
durable. These features have now been complemented by the availability of new
82

designs and technologically innovations. With better ground clearance, larger wheels
and better suspension offered by motorcycles, they are well positioned to capture the
rising demand in rural areas where these characteristics matter most. Scooters are
perceived to be family vehicles

ECONOMICAL ANALYSIS
An economic trend indicated by Rainfall, Agricultural production, Money supply,
Corporate profits, Savings to Investment ratio, Credit position, Stock market Index,
Unemployment rate and Inflation.
India continued to be one of the fastest growing economies of the world. During
2007-08, the Indian economy grew at a robust pace for the fifth consecutive year.
Real GDP growth, estimated at 8.7% in 2007-08, is in tune with the average annual
GDP growth of 8.7% in the five year period 2003-04 to 2007-08. Agriculture and allied
activities are estimated to grow by 2.6% in 2007-08, which is in line with the average
growth of 2.6% per annum during 2000- 01 to 2007-08. Food grains production
touched a record high in FY08, with total food grains production placed at 227.3
million tones, surpassing the target of 221.5 million tones and recording an increase
of 4.6% over the previous year. Industrial growth at 8.6% during 2007-08 has
moderated somewhat against 10.6% in the previous year. The services sector
maintained its double-digit growth at 10.6% during 2007-08, higher than the long
term average of 8.9% (2000-01 to 2007-08). Within services, transport and
communications and financial services recorded double-digit growth for the last two
years and are expected to maintain the growth momentum. Trade and hotels showed
higher growth of 12.1% in 2007-08 against 11.8% growth in 2006-07. Another positive
feature underpinning growth is the sharp rise in the rate of savings and investment in
recent years, which rose to 34.8% and 35.9% respectively in 2006-07
The industrial and services sectors have logged in a 10.9 per cent and 11 per cent
growth rate in 2006-07 respectively, against 9.6 per cent and 9.8 per cent in 2005-06.
Similarly, manufacturing grew to 12.3 per cent in 2006-07 as compared to 9.1 per
cent in 2005-06. Mining and quarrying grew to 5.1 per cent in 2006-07 as against 3.6
per cent in 2005-06 while electricity, gas and water supply grew to 7.4 per cent in
2006-07 from 5.3 per cent in 2005-06.
Another significant feature of the growth process has been the consistently
increasing savings and investment rate. According to the PM's Economic Advisory
Council report, while the gross saving rate as a proportion of gross domestic product
83

(GDP) has increased from 29.7 per cent in 2003-04 to 34.7 per cent in 2006-07, the
aggregate gross investment rate has increased from 28 per cent in 2003-04 to 35.1
per cent in 2006-07.
India's foreign exchange reserves increased from US$ 247.76 billion in 2006-07 to
US$ 309.72 billon 2007-08. Indian forex reserves stand at US$ 300.01 billion as on
August 08, 2008.
The foreign institutional investors (FIIs) brought in US$ 16.1 billion in 2007-08.
Foreign direct investment (FDI) inflows during 2007-08 stood at US$ 24.57
billion, up 56.50 per cent compared with US$ 15.7 billion in 2006-07. In fact,
FDI inflows into India for June 2008 amounted to US$ 3.93 billion.
Overall industrial production grew by 8.5 per cent during 2007-08.
Significantly, manufacturing sector grew at the rate of 8.8 per cent and
construction at 9.8 per cent.
While exports grew by 23.02 per cent during 2007-08 amounting to US$ 155.5 billion,
imports increased by 27.01 per cent to US$ 235.9 billion in the same period. Further,
exports in June 2008 amounted to US$ 14.6 billion while imports in June 2008
amounted to US$ 24.4 billion.

84

GDP (Gross Domestic Product):


For four years running, excluding 2005, the Indian economy has produced
annual growth rate of 8.8%. The growth rate of 2006 was phenomenal, when the
country achieved a record 9.6%, the highest rate attained in the last 18 years.
Growth in the manufacturing sector has also complemented the countrys excellent
growth momentum. The growth rate of the manufacturing sector rose steadily from
8.98% in 2005, to 12% in 2006. The storage and communication sector also
registered a significant growth rate of 16.64% in the same year.
Additional factors that have contributed to this robust environment are sustained in
investment and high savings rates. As far as the percentage of gross capital
formation in GDP is concerned, there has been a significant rise from 22.8% in the
fiscal year 2001, to 35.9% in the fiscal year 2006. Further, the gross rate of savings
as a proportion to GDP registered solid growth from 23.5% to 34.8% for the same
period.

The Gross Domestic Product increased by 7.5 per cent, 9.4 per cent and 9.6 percent
in first three years, of the UPA Government resulting in an unprecedented average
growth rate of 8.8 per cent. The drivers of growth continue to be 'services' and
manufacturing' which are estimated to grow at10.7 per cent and 9.4 percent
respectively.
Table 21

Year

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

Growth
Rate(%)

4.4

5.8

3.8

8.5

7.5

9.4

9.6

8.7

Source :Icra & rbi

85

Chart 21

Source : Icra & rbi

Inflation:
According to the 2008 Economic Survey Report, Indias inflation rate was targeted by
the Reserve Bank of India (RBI) to be 4.1%, down from a rate of 5.77% in 2007.
Inflation rates for many investment goods have decreased dramatically in recent
years. The price of basic goods such as lentils, vegetables, fruits and poultry were
expected to slow their rise. The price of various manufactured goods also fell in 2007,
and this contributed to a reduced inflation rate
However, the beginning of 2008 has seen a dramatic rise in the price of rice and
other basic food stuffs. There has also been a no-less alarming rise in the price of oil
and gas. When coupled with rises in the price of the majority of commodities, higher
inflation was the only likely outcome.
Indeed, by July 2008, the key Indian Inflation Rate, the Wholesale Price Index, has
risen above 11%, its highest rate in 13 years. This is more than 6% higher than a
year earlier and almost three times the RBIs target of 4.1%.

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Inflation has climbed steadily during the year, reaching 8.75% at the end of May.
There was an alarming increase in June, when the figure jumped to 11%. This was
driven in part by a reduction in government fuel subsidies, which have lifted gasoline
prices by an average 10%.
The Indian method for calculating inflation, the Wholesale Price Index, is different to
the rest of world. Each week, the wholesale price of a set of 435 goods is calculated
by the Indian Government. Since these are wholesale prices, the actual prices paid
by consumers are far higher.
Table 22
Year

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

All Commodity

3.6

3.4

5.5

6.5

4.7

7.41
Source : RBI

Chart 22

Source : RBI

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Chart 23

Source: Economic survey 2007-08

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Agriculture:
Growth rate in agriculture for 2007-08 is estimated at 2.6 per cent
Table 23
Year

200001

200102

200203

200304

200405

200506

Growth (%)

-7

7.9

-16.2

23

-3.6

7.6

200607

200708

1.4

2.6

Source :India budget

Chart 24

Source : India budget

If see the pattern of the Agriculture growth than it is analysis that one year it is in
positive and in one year it is in negative, but in last two year it is in positive. So that
we can assume that Agriculture growth at this time is also in positive.

Industrial Growth:
Industrial growth in the April- May 2007-08 picked up by 11.7% compared to 10.8%
increase in the corresponding period a year ago. Production in the manufacturing
sector scaled up by 12.7% during the April-May period of 2007-08 as against the
growth of 12.2% in the same period of last year. Growth in the mining sector went up
marginally by 3.2% compared to the increase of 3.0% in the last year, however
growth in the electricity sector was at 9.0% in 2007-08 as against 9.2% in the
previous year. Growth in the output of consumer goods picked up by 12.7% in April89

May 2007-08 as compared to 9.7% in the corresponding period a year ago this can
be ascribed to strong growth performance in the consumer non-durables segment of
15.9% compared to a low 8.8% in 2006-07.

Core Infrastructure Industries:


In May 2007-08 the overall six-core infrastructure industries clocked a growth rate of
8.7% surpassing the 7.2% growth in the corresponding month of last fiscal. The four
performing sectors namely finished steel, cement, petroleum refinery and power grew
at 11.8%, 9.4%, 14.9% and 9.3% in May 2007-08 as against the increase of 10.7%,
6.8%, 12.1% and 8.3% respectively in the same month of last fiscal. Coal production
however slowed during the month while crude petroleum sector growth remained
negative.

Monetary Indicators:
Money supply increased by 2.4% in June 2007 as compared to 2.0% in the same
month a year ago. Borrowings by the government sector continued while credit to the
commercial sector dropped April 2007 onwards. Net foreign exchange assets of
banks slipped for the third consecutive month and non-monetary liabilities of the
banks lessened by 15%. Growth in the aggregate deposits slowed during the current
fiscal compared to the revious. In June this year, investments in the government
securities picked up by 7.3% compared to a 5.2% growth in the same month of 2006.
Credit off take by the food and also by the nonfood category saw a sharp fall..
Table 24
Year

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

CRR

5.5

4.8

4.5

5.3

Bank Rate

6.5

6.3

Repo Rate

6.5

7.3

7.75

Reverse Repo Rate

4.5

4.8

5.5

6
Source : RBI

90

Source : RBI

Chart 25

Capital Inflows:
The year 2006-07 received total inflows of US $ 24.7 billion of which 71% arrived
from the direct sources and balance as portfolio investments composed mainly of
ADR/ GDR and FII. April 2007 received a total of US $3.5 billion of investment, of
which USD 1.55 billion were brought in as foreign direct investment and the balance
US $ 1.9 billion came from the portfolio investments. Last year, i.e. in April 2006-07
saw total of USD 4.3 billion of capital inflows in which USD 0.6 billion came from the
direct sources.

Balance of Payments (BOP)


Current Account
The provisional estimate of the current account deficit (CAD) for the first nine months
of 2007/08 is $16 billion or 1.8 per cent of GDP on annualized basis. We estimate
that for the full year, the CAD will amount to $13 billion or 1.1 per cent of GDP.
Merchandise export growth recovered in the second half of 2007/08 and provisional
estimates put merchandise exports at $155.5 billion, 23 per cent higher than that of
last year. Merchandise imports were $235.9 billion, 27 per cent above last year. The
merchandise trade deficit (DGCI&S basis) thus increased by 36 per cent to $80.4

91

billion.82 We estimate that on Bop basis the merchandise trade deficit for the year
will be higher at $87 billion or 7.4 per cent of GDP. The positive balance on net
invisibles is expected to increase by 34 per cent to $74 billion in 2007/08 primarily
due to continued expansion of service exports and (often related) remittances from
Indians working overseas.

FDI (Foreign Direct Investment):


India received $20.13 billion as Foreign Direct Investment (FDI) between AprilFebruary 2007-08, almost 70 per cent higher compared to the year-ago period. "This
is the highest FDI equity in the country during any year," an official release said here.
FDI inflows in February 2008 stood at $5.67 billion, up 712 per cent over February
2007. "The inflows in the month of February have surpassed the inflows received in
any single year since 1991, barring last year 2006-07,"
In the first nine months of 2007-08, the net capital flows rose to USD 83 billion from
USD 30 billion the country received during the corresponding period of the previous
year," the report said.
The country maintained the trend of attracting funds that also boosted its forex
reserves, it added. "Access to global capital has helped India's macro- economy to
see a rapid and steady rise in its forex reserves, post-1991 period," the NCAER
report said.

Foreign Exchange Reserves:


About USD 45 billion were added to the countrys foreign exchange reserves in 200607. In the first quarter of this fiscal, forex reserves went up by about 6.5%. An
increase in the foreign currency assets by USD 5 billion took the number to USD
206.1 billion. Gold, SDR and reserve position in the IMF remained unaltered. In June
2007, Foreign exchange reserves touched USD 213 billion mark. This accretion in
reserves is said to be due to the effect of appreciation in the non US currencies
held in reserves.

92

Chart 26

Source : Economic survey 2007-08

Exchange rate:
Indian Rupee against the USD remained stable between Rs 40.00/41.00. Indian
Rupee traded mostly below Rs 41.00 in June 2007. Throughout the month Rupee
gained against the USD but remained volatile and crossed Rs 41.00 exceptionally in
only one trading session. The rupee ranged between Rs 40.47/41.01 averaging at Rs
40.8 in June 2007, showing weakness towards the last trading sessions of the
month. The central bank continues to maintain its limited intervention in the forex
market until the inflationary pressures are minimized. In June 2007 INR against the
Euro demonstrated less volatility than it did against the USD. It peaked at Rs 55.09
and remained above Rs 55.00 level in the penultimate trading sessions before
attaining a level below Rs 55.00. However it averaged at Rs 54.7 in June 2007.

93

Chart 27

Source : Economic survey 2007-08

Government Policy:
A liberalised economic policy by government helps encourage industry and improves
employment prospects. The Indian government before 1990 remains unfriendly
towards them and kept all the doors closed. But after new economic policy our
government liberalised multinational companies to increase their holding up to 50%
and the FERA act is modified as FEMA act.

94

LEGAL ENVIRONMENT
In India the Rules and Regulations related to driving license, registration of motor
vehicles, control of traffic, construction & maintenance of motor vehicles etc are
governed by the Motor Vehicles Act 1988 (MVA) and the Central Motor Vehicles rules
1989 (CMVR). The Ministry of Shipping, Road Transport & Highways (MoSRT&H)
acts as a nodal agency for formulation and implementation of various provisions of
the Motor Vehicle Act and CMVR.
Regulatory Framework
Diagram: 7

Source : SIAM

In order to involve all stake holders in regulation formulation, MoSRT&H has


constituted two Committees to deliberate and advise Ministry on issues relating to
Safety and Emission Regulations, namely
CMVR- Technical Standing Committee (CMVR-TSC)

Standing Committee on Implementation of Emission Legislation


(SCOE)

CMVR- Technical Standing Committee (CMVR-TSC)

95

This Committee advises MoSRT&H on various technical aspects related to CMVR.


This Committee has representatives from various organizations namely; Ministry of
Heavy Industries & Public Enterprises (MoHI&PE)), MoSRT&H, Bureau Indian
Standards (BIS), Testing Agencies such as Automotive Research of India (ARAI),
Vehicle Research Development & Establishment (VRDE), Central Institute of Road
Transport (CIRT), industry representatives from Society of Indian Automobile
Manufacturers (SIAM), Automotive Component Manufacturers Association (ACMA)
and Tractor Manufacturers Association (TMA) and representatives from State
Transport Departments. Major functions the Committee are:

To provide technical clarification and interpretation of the Central Motor

Vehicles Rules having technical bearing, to MoRT&H, as and when so


desired.
To recommend to the Government the International/ foreign standards

that can be used in lieu of standard notified under the CMVR permit use
of components/parts/assemblies complying with such standards.
To make recommendations on any other technical issues which have

direct relevance in implementation of the Central Motor Vehicles Rules.


To make recommendations on the new safety standards of various

components for notification and implementation under Central Motor


Vehicles Rules.
To make recommendations on lead-time for implementation of such

safety standards.
To recommend amendment of Central Motor Vehicles Rules having
technical bearing keeping in view of Changes in automobile
technologies.

CMVR-TSC is assisted by another Committee called the Automobile


Industry Standards Committee (AISC) having members from various
stakeholders in drafting the technical standards related to Safety. The
major functions of the committee are as follows:

Preparation of new standards for automotive items related to safety.

To review and recommend amendments to the existing standards.

Recommend adoption of such standards to CMVR Technical Standing

Committee
Recommend commissioning of testing facilities at appropriate stages.
96

Recommend the necessary funding of such facilities to the CMVR

Technical Standing Committee, and


Advise CMVR Technical Standing Committee on any other issues
referred to it

The National Standards for Automotive Industry are prepared by Bureau of Indian
Standards (BIS). BIS also convert the standards formulated by AISC into Indian
Standards. The standards formulated by both BIS and AISC are considered by
CMVR-TSC for implementation.

Standing Committee on Implementation of Emission Legislation (SCOE)


This Committee deliberates the issues related to implementation of emission
regulation. Major functions of this Committee are
To discuss the future emission norms
To recommend norms for in-use vehicles to MoSRT&H
To finalize the test procedures and the implementation strategy for
emission norms
Advise MoSRT&H on any issue relating to implementation of emission
regulations.

Based on the recommendations from CMVR-TSC and SCOE, MoSRT&H


issues notification for necessary amendments / modifications in the in Central Motor
Vehicle Rules.
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.
97

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.
The current traffic conditions, driving habits, traffic density and road user behavior
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 vehicle occupants and vulnerable road users.

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