VIVEKANAND EDUCATION SOCIETY INSTITUTE OF

MANAGEMENT STUDIES & RESEARCH

FINAL REPORT

ON

A STUDY ON

AUTOMOBILE SECTOR IN INDIA

BY

GAURISH NAGWEKAR

ROLL NO 154

FACULTY MENTOR

PROF. DINESH KAPADIA

1
 A

FINAL REPORT
ON

A STUDY ON

AUTOMOBILE SECTOR IN INDIA

BY

GAURISH NAGWEKAR

ROLL NO 154

A report submitted in partial fulfilment of the requirements of 2years

of MMS Program of Vivekananda Education Society Institute of
Management Studies and Research, Mumbai.

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 DECLARATION

I, Mr. Gaurish Nagwekar, Student MMS-Semester IV of Vivekananda Education Society’s

Institute of Management Studies & Research, Chembur, Mumbai; hereby declare that, I have
completed Project on “A STUDY ON AUTOMOBILE SECTOR IN INDIA” the
academic year 2016-18. The information submitted is true and original to the best of my
knowledge.

Date:

Gaurish Nagwekar

154

MMS Marketing

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 CERTIFICATE

This is to certify that Mr. Gaurish Nagwekar of Vivekananda Education Society’s Institute of
Management Studies & Research, Mumbai Specializing in Marketing has completed his
Project on “A STUDY ON AUTOMOBILE SECTOR IN INDIA” during the
academic year 2016-18.

Date:

Prof Dinesh Kapadia

(Faculty Mentor)

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 TABLE OF CONTENTS

Sr. No. Particulars Page No.

1 Overview of the Industry 6

2 Segments in the Automobile Sector 8

3 SWOT Analysis 10

4 Porter’s Five Force Model 12

5 PESTEL Analysis 14

6 Reference 17

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 Overview of the Industry

The automobile industry

Designs, develops, manufactures, markets, and sells the world's motor vehicles. The
automotive industry is one of the most important economic sectors by revenue. In 2009, the
automobile industry is expected to see a growth rate of around 9%, with the disclaimer that
the auto industry in India has been hit badly by the ongoing global financial crisis. The
automobile industry in India happens to be the ninth largest in the world. Following Japan,
South Korea and Thailand, in 2009, India emerged as the fourth largest exporter of
automobiles. Several Indian automobile manufacturers have spread their operations globally
as well, asking for more investments in the Indian automobile sector by the MNCs.

The Indian auto industry is one of the largest in the world. The industry accounts for 7.1 per
cent of the country's Gross Domestic Product (GDP). The Two Wheelers segment with 80 per
cent market share is the leader of the Indian Automobile market owing to a growing middle
class and a young population. Moreover, the growing interest of the companies in exploring
the rural markets further aided the growth of the sector. The overall Passenger Vehicle
segment has 14 per cent market share.
India is also a prominent auto exporter and has strong export growth expectations for the near
future. Overall automobile exports grew 15.81 per cent year-on-year between April-February
2017-18. In addition, several initiatives by the Government of India and the major automobile
players in the Indian market are expected to make India a leader in the 2W and Four Wheeler
market in the world by 2020.

Market Size
Production of passenger vehicles, commercial vehicles, three wheelers and two wheelers
grew at 14.41 per cent year-on-year between April-February 2017-18 to 26,402,671 vehicles.
The auto industry is set to witness major changes in the form of electric vehicles (EVs),
shared mobility, Bharat Stage-VI emission and safety norms. Electric cars in India are
expected to get new green number plates and may also get free parking for three years along
with toll waivers@. India's electric vehicle (EV) sales increased to 25,000 units during FY
2016-17 and are poised to rise further on the back of cheaper energy storage costs and the
Government of India’s vision to see six million electric and hybrid vehicles in India by 2020.

Investments

In order to keep up with the growing demand, several auto makers have started investing
heavily in various segments of the industry during the last few months. The industry has
attracted Foreign Direct Investment (FDI) worth US$ 18.413 billion during the period April
2000 to December 2017, according to data released by Department of Industrial Policy and
Promotion (DIPP).
Some of the recent/planned investments and developments in the automobile sector in India
are as follows:

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  The only electric automaker in India, Mahindra and Mahindra Ltd, has partnered with
Uber for deploying its electric sedan e-Verito and hatchback e2o Plus on Uber
platforms in New Delhi and Hyderabad.
 Mahindra & Mahindra (M & M) is planning to make an additional investment of Rs
500 crore (US$ 77.23 million) for expanding the capacity for electric vehicles in its
plant in Chakan.

Government Initiatives

The Government of India encourages foreign investment in the automobile sector and allows
100 per cent FDI under the automatic route.
Some of the recent initiatives taken by the Government of India are -

 The Government of Karnataka is going to obtain electric vehicles under FAME

Scheme and set up charging infrastructure across Bengaluru, according to Mr R V
Deshpande, Minister for Large and Medium Industries of Karnataka.
 The Ministry of Heavy Industries, Government of India has shortlisted 11 cities in the
country for introduction of electric vehicles (EVs) in their public transport systems
under the FAME (Faster Adoption and Manufacturing of (Hybrid) and Electric
Vehicles in India) scheme.
 Energy Efficiency Services Limited (EESL), under Ministry for Power and New and
Renewable Energy, Government of India, is planning to procure 10,000 e-vehicles via
demand aggregation, and has already awarded contracts to Tata Motors Ltd for 250 e-
cars and to Mahindra and Mahindra for 150 e-cars.
 The government is planning to set up a committee to develop an institutional
framework on large-scale adoption of electric vehicles in India as a viable clean
energy mode, especially for shared mass transport, to help bring down pollution level
in major cities.

Road Ahead

The automobile industry is supported by various factors such as availability of skilled labour
at low cost, robust R&D centers and low cost steel production. The industry also provides
great opportunities for investment and direct and indirect employment to skilled and unskilled
labors.

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 Segments in the Automobile Industry

Our market is considered to be the market for hatchbacks. Compact cars are the need of the
day, and even the government has implemented rules to allow the development of cars under
4 metres, as they attract lesser duty and other taxes. Petrol engines smaller than 1.2-litre and
diesel engines that are under 1500cc, have a lesser excise duty. This helps to increase fuel
efficiency and also reduce the pollution. As hatchbacks have an advantage over the sedans,
more hatchbacks are sold in India. Hatchback market in India is about 50%, with
approximately 26% going to entry-level hatchbacks like Hyundai Eon, Maruti Suzuki Alto,
Maruti Suzuki Wagon R and 24% of the contribution coming from premium hatchbacks like
Maruti Suzuki Swift, Hyundai i20, Nissan Micra and Fiat Punto Evo.

CAR SEGMENT LENGTH OF THE CAR EXAMPLES

A1 Up to 3400mm Nano

A2 3401 to 4000mm Alto K10, Wagon R

A3 4001 to 4500mm Dzire, Amaze
A4 4501 to 4700mm Corolla, Cruze

A5 4701 to 5000mm Accord, Camry

A6 More Than 5000mm Audi A8L, Jaguar XJL
B1 Vans Omni
B2 MUV/MPV Innova, Safari Storme

Above is the classification of various Indian car segments done by SIAM (Society of Indian
Automobile Manufacturers). According to SIAM, classifications are done based on their
length rather than pricing but this puts everything in a dilemma, as pricing does not rely on
mere size of the car but rather on specifications and features. To make things easy, we have
segmented the cars according to their prices.

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 CAR SEGMENT PRICE OF CAR EXAMPLES
A Hatchbacks Less than 3.5 Lakh Alto, Nano
A1 Hatchbacks Less than 6 Lakh Ritz, Grand i10
A2 Between 6-7.5 Lakh Elite i20
B1 Vans Eeco
B2 MUV/MPV Innova, Bolero
C1 Sedans less than 8 Lakh Amaze, Xcent
C2 Sedans less than 9.5 Lakh City, Ciaz
D1 Sedans less than 15 Lakh Cruze, Elantra
D2 Sedans less than 25 Lakh Superb
SUV SUV Fortuner, XUV 500

In the last couple of years, there has been a shift in buying trends as there are sedans and
SUVs that are under 4 meters in length, availing the excise duty cut. This has boosted the
sales of these new emerging segments. The compact sedan market began with the Tata Indigo
eCS, however a couple of years ago, Maruti Suzuki had introduced a sub 4-metre Swift
DZire. This product changed the game for the company and since then even Honda, Hyundai
and Tata Motors have joined the bandwagon. In the SUV segment there is the Ford Ecosport,
which is the first mover in this segment and will be soon joined by Fiat Avventura. There are
several hatchback crossovers like the Toyota Etios Cross and Volkswagen Cross Polo, which
are more of cosmetic upgrade.

The utility segment that includes SUV and MUV has an approximate market share of 26%
and sedans have 24%. But this has been the scenario when the diesel prices were much lesser
than petrol and now both are similarly priced. Slowly again, the market is shifting to petrol
and the demand for diesel cars will soon reduce and sedans will capture some of the SUV
market. The compact sedans and the mid-size sedans will soon see a growth in their sales,
especially for petrol cars. At the same time, even premium hatchbacks will grow in numbers,
especially the petrol powered.

For cars under Rs 10 lakh bracket, the price difference for petrol and diesel cars is a higher
percentage, this will be a strong driving force to pull more buyers towards gasoline powered
cars. India is still majorly a hatchback market, even though the percentage has reduced from
70% in 2009 to 50%. With the growing number of cars and bikes, parking will be an issue
and hence a hatchback will be an ideal pick. Even upcoming towns and cities will suffer from
the space crunch and there will be a higher demand for hatchbacks in particular the petrol-
driven ones. Diesel will be the choice for those who commute long distance.

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 SWOT Analysis of Automobile Sector

Strengths

1. Evolving industry: Automobiles represent freedom and economic growth.

Automobiles allow people to live, work and travel in ways that were unimaginable a
century ago. Automobiles provides access to markets, to doctors, to jobs. Nearly every
automobile trip ends with either an economic transaction or some other benefit to the
quality of life.
2. Continuous product innovation & technological advancement: With the advent of E-
vehicles & alternative fuel such as Shell gas, CNG and others, Automobile Companies
are increasing R & D expenditure to drive the next phase of growth through use of
renewable sources of energy which may be solar, wind etc.
3. Growth shifting to Asian markets: Although American & European market is the pulse
of this Industry, but the focus is shifting to developing markets like China, India & other
Asian nations because of the rise in disposable income, changing lifestyle & stable
economic conditions.
4. Increasing demand of VFM vehicles: Intense competition in the matured/developed
markets has forced automobile manufacturers to target developing economies. But these
developing economies have high demand for VFM products (value for money). In the
automobile industry, VFM products would be fuel efficient, high mileage vehicles
because majority of customers in these nations prefer vehicles for commuting. On the
other hand, developed nations need is of vehicles for interstate travelling, and high speed
vehicles suitable for long route with high engine power.
5. Increase in demand of luxury commercial vehicles: Companies like VOLVO,
Daimler/Chrysler, Bharat Benz are betting high & are targeting the developing nations
due to increase in demand of Luxury public transportation system.
6. Manufacturing facilities in Asian nations to control cost : In order to control cost &
to manage shrinking margins automobile companies like Harley, Volvo, Bharat benz etc.
are building their manufacturing facilities in developing nations like India, China
because these nations have cheap workforce, are high in resources & are nearer to
developed economies. These are classic conditions of an emerging market

Weaknesses

1. Cars recalled: Controversies relating to recalling vehicles on account of some technical

dis-functionality or non-abidance to govt. led rules is becoming very common.
2. Bargaining power of consumers: Over the last 3-4 decades the automobile market has
shifted from demand to supply market. Availability of large number of variants, Stiff
competition between them, and long list of alternatives to choose from has given power
to customers to choose whatever they like.
3. Growth rate of Automobile industry is the in the hands of the government due to
regulations like excise duty, no entry of outside vehicles in the state, decreasing number
of validity of registration period & volatility in the fuel prices. These factors always
affect the growth of the industry.

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Opportunities

1. Introducing fuel-efficient vehicles: Optimization of fuel-driven combustion engines

and cost efficiency programs are good opportunities for the automobile market.
Emerging markets will be the main growth drivers for a long time to come, and hence
fuel efficient cars are the need of the hour.
2. Strategic Alliances: Making strategic alliances can be a smart strategy for Automobile
companies. By using specialized capabilities & partnering with other companies, they
can differentiate their offerings.
3. Changing lifestyle & customer groups: Three powerful forces are rolling the auto
industry. Shift in consumer demand, expanded regulatory requirements for safety and
fuel economy, and the increased availability of data and information. Also with the
increase in nuclear families there has been increase in demand of two-wheelers &
compact cars and this will grow further.
4. Market expansion: Entering new markets like Asian & BRIC nations will result in
upsurge in demand of vehicles. After these markets, other markets are likely to emerge
soon.
5. OEM priorities: Given the increase in electronic content, OEMs need to collaborate
with suppliers and experts outside the traditional auto industry. Accomplishing this will
require changes in the way OEMs function. OEMs will be looking to their top suppliers
to co-invest in new global platforms & this will be the driving force in the future.

Threats

1. Intense Competition: Presence of such a large number of players in the Automobile

industry results into extensive competition, every company eating into others share
leaving little scope for new players.
2. Volatility in the fuel Prices: At least for the passenger segment fluctuations in the fuel
prices remains the determining factor for its growth. Also government regulations
relating the use of alternative fuels like CNG. Shell gas is also affecting the inventories.
3. High fixed cost and investment in R & D: Due to the fact that mature markets are
already overcrowded, industry is shifting towards emerging markets by building
facilities, R & D centers in these markets. But the ROI out of these decisions is yet to
be capitalized.

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 Porter’s Five Force Model

Threat of new entrants: Weak

It is difficult for new brands to enter the automobile industry which is because of the large
investment required. Initially, a quite huge investment will be required to set up the
manufacturing facilities, distribution network and to hire skilled staff. Another major barrier
is the level of competition from the existing brands. Unless a new brand brings an innovative
and differentiated product to the market, chances to gain a market share are low. While law
does not mean a barrier for the new entrants, still brand image and reputation can be major
challenges before new players. Brand image is a major competitive advantage for the existing
brands. Any new brand would have to focus a lot on engineering and product quality. Getting
access to raw material can be easy but then achieving economies of scale difficult for small
players. Moreover, penetrating new markets is not easy either. Some governments have
applied high import taxes to discourage foreign brands. So, there are several factors that
minimize the threat from the new players.

Bargaining power of suppliers: Weak

The bargaining power of suppliers in the automotive industry is weak for most of them are
small players. Only few of them are significant in size. The threat of forward integration is
minimum from the suppliers for the reasons discussed in the first category. These suppliers
have to play per the rules set by the brands. The brands hold immense clout because the raw
material is always available in plenty and switching from one supplier to another is not
difficult for them. In this way, the bargaining power of suppliers is considerably low.

Bargaining power of buyers: Moderately strong

A large part of the buyers are the small individual buyers that buy single vehicles. However,
there are corporations and government agencies that buy fleets of vehicles. Such buyers are in
a position to bargain for lower prices. Whether small or large buyers can easily switch to a
new brand. There are no big costs involved in switching to another brand or to a alternative
mode of transportation. The buyers are price sensitive mostly and would switch to another
brand that offers lower prices. However, none of the buyers whether big corporations or
individual small buyers poses a threat of backward integration., Still, based on the overall
picture their bargaining power is moderately strong. Brands focus on building customer
loyalty through design, quality and by offering competitive prices.

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Threat of substitutes: Weak

There are several substitutes and alternative modes of transportation including taxis, buses,
trains and planes. However, none of them can provide the kind of accessibility and
convenience that owning an automobile does. Your own car will serve you round the clock
but if you missed a train or bus you have to wait for another. However, in case of the
alternative modes you do not need to worry for maintenance. Still, owning a car is both a
matter of convenience and prestige for most. So, the threat of substitutes is weakened. Still,
there is some threat from the substitute products where daily commuters may find it cheaper
and easier to take a train or bus.

Competitive Rivalry in the industry: Very strong

The number of recognized and influential brands is low and the exit barriers very high. Any
brand trying to exit would have to bear very large losses. The level of customer loyalty is
high and while the industry is large, it has matured. This intensifies the competition or market
share. However, different brands target different market segments but yet they overlap.
Brands compete on the basis of price, design, quality, technology, customer safety and
several other points. Overall, competition in the auto industry is a strong force rather very
strong.

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 PESTLE Analysis

Political

Political factors play an important role and have a direct impact on the profitability of
the automotive industry. Governments around the world are favoring low emission vehicles.
Moreover, taxes on the luxury vehicles and fuel guzzlers have grown higher. The markets
like EU and UK are providing government subsidy for the low emission vehicles.
Environment friendly vehicles have grown in demand globally. They are also receiving
higher government support for their low environmental impact. As such the government rules
and regulations heavily affect the revenues of the vehicle brands. Technology that is fuel
efficient and low on emission can easily pass government rules. Moreover, the import rules
and taxes vary from country to country. Overall, there are so many political factors affecting
the auto industry. Changing government regimes as well political regulation of the market
can from time to time cause favorable or unfavorable fluctuations. However, the political
factors are generally outside the control of the businesses except for lobbying. Still, their
importance can be understood from the fact that companies have shifted their manufacturing
bases to countries where the wage related regulations are lenient. Companies have to manage
their costs and the political factors can have a significant role in this area. If China has
become a favorite of several brands then the reason is the low labor cost which is because of
the lenient wage regulation. The import and export laws that vary across nations can also be a
headache for automakers in case of the nations where import laws are stiff. Thus, the
government policies to a remarkable extent affect the fortunes of the auto companies.

Economical

Economic forces are also of particular importance in the context of the automotive industry.
This sector was hit hard by the recent economic crisis. When the economic conditions are not
good, the sales of vehicles fall. The demand for luxury or high priced vehicles is also affected
poorly during poor economic conditions. Moreover, the taxes on the high priced vehicles are
high in several markets. If the economic conditions are good, the sales of vehicles can remain
high. The sales are generally higher in the developed countries. In the developing and under-
developed markets, they are comparatively low. The developed markets see higher sales
as the purchasing power of the customers is higher. In these markets, the sales of the higher
priced variants is also higher. The lower priced variants are generally in demand in the
developing and underdeveloped markets. Thus, the size of the economy and the economic
conditions globally, have a major impact on the profitability of the auto industry in various
markets. There are various angles to analyze the importance of the economic factors for the
industry. The most used angle is the purchasing power of the customers. It dips during
economic downturns. Industries are dependent heavily on the purchasing power of the
customers. If a large number of brands have focused on bringing low cost cars to the market,
it is because they know they can tap into a larger customer segment this way.

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Socio-Cultural

The market is influenced deeply by the socio-cultural forces. The automobile industry is also
affected by the changing socio cultural trends and people’s preferences. Vehicle makers have
to adopt to these forces. Every year new models are released keeping people’s preferences in
mind. Moreover, specific styles are preferred in certain cultures. In some markets while the
SUVs might be in higher demand, in the others the sedans might be preferred. Age
distribution in the various populations is also an important factor that vehicle makers have to
keep in mind while targeting the consumers. They should release vehicles based on the
preferences of their target population. Apart from it from culture to culture, people’s style and
preferences also differ. The result is that while a particular model will sell in a market, it
might not be as popular in the other. Social trends also keep changing continuously affecting
the popularity of brands and models. Changing trends may sometimes make the older models
obsolete or go out of fashion.

Technological

Technology and innovation have become important determinants of market share in the
automotive industry. The more innovative the company, the higher is its market share. Given
this fact, all the major players make huge investments in research and development. Brands
like Toyota, Hyundai and Ford are investing in low emission and environment friendly
vehicles. Toyota is even planning to release a driverless car in the coming years. Not just this,
the major technological players are trying to enter this sector of the industry. In the recent
years technological innovation has remained a major basis of differentiation for the
automotive makers. It is because the customers’ focus shifted towards fuel efficient and high
mileage vehicles. The sales of the low emission and fuel efficient vehicles is always high. It
shows that technology is one of the most important factors affecting the sales and profitability
of the automotive industry.

Ecological/Environmental

The laws related to environment friendliness and carbon emissions are growing stiffer around
the globe. Given that all the major players in the automotive industry had to focus upon low
emission vehicles. The vehicles which are low on emissions and fuel consumption receive tax
subsidies and are favored by the government and law. The pollution tests have grown stricter
and the vehicles passing these tests only are allowed in certain markets including EU and UK.
Environment friendliness has become an important test for the vehicle makers in the 21st
century as governments have started focusing heavily on pollution control.

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Legal

Law is another important factor that gets to affect the profitability and performance of the
vehicle brands. Vehicles selling in the international market are subject to laws related to
product quality and safety. The pollution laws have grown stricter. The vehicles being
exported overseas have to pass strict emission controls. Next are the laws related to product
safety that have an important impact on the sales of the vehicles Recently, Toyota had to
recall its vehicles because of its faulty airbags. There have been similar cases in the past
putting passenger safety under question. Due to such accidents, governments have made laws
related to passenger safety stricter. Apart from it, there are environmental laws, tax laws and
several other laws that the vehicle companies have to deal with while operating in
the international market.

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 References

1. Different segments in Indian auto industry | Features |

CarDekho.comwww.cardekho.com

2. Automotive Industry PESTEL/PESTLE/PEST Analysis by

Cheshnoteswww.cheshnotes.com

3. Five Forces Analysis of the Automotive Industrywww.cheshnotes.com

4. SWOT analysis of Automobile Industry - Automobile industry SWOT

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