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Automobiles
IBEF

Introduction:

Post liberalisation in 1991, Indian automobile sector has been aptly described as the sunrise sector.
Owing to its vertical and horizontal integration with other key segments of the economy, the industry is
said to be a major growth driver. A steady growth in the sector has attracted heavy investments from
various foreign majors through direct investments or private equity.

India continues to consolidate its position on the global front being one of the world’s top 10 auto-
producing countries. India, the seventh largest vehicle producing nation in the world, now accounts for 5
per cent of global auto production, up from 1.4 per cent at the beginning of 2000, according to industry
lobby Society of Indian Automobile Manufacturers (SIAM).

According to a study by global consultancy firm Ernst & Young, the Indian market will clock the fastest
compound annual growth rate between 2009 and 2020, more than double that of China and the triad of
North America, Europe and Japan. India's CAGR between 2009 and 2020 is expected to be 14 per cent
compared with China's 6 per cent, other emerging markets' 6 per cent (which includes BRIC nations)
and the triad’s 4 per cent.

Investments:

India has emerged as one of the favourite investment destinations for automotive manufacturers in
recent times.

Maruti Suzuki India Ltd (MSIL) has announced an investment of US$ 411.45 million for setting up
its third plant at Manesar in order to capitalise on the rapid growth of the Indian auto industry. This
new production line–Maruti's sixth overall would have 250,000 units annual capacity.
The auto-maker has also launched its luxury sedan Kizashi in India. The cars would be
imposrted from parent company’s Japan facility.
Volvo-Eicher Commercial Vehicles (VECV) has announced an investment of US$ 61.51 million
for a new engine plant at its existing facility at Pithampur, Madhya Pradesh. With this, India will
now become a global manufacturing hub for Volvo's new medium-duty engine platform, with the
only other factory for the engine type being present in Japan.
Tata Motors is in talks with a Canada-based company for its second generation gearless Nano.
Toyoto plans to invest US$ 107 million to make engines and gearboxes for Toyota's new small
car, Etios that is expected to be launched by year-end.
India Yamaha Motor Limited is also planning to tap the rural market, which currently accounts for
around 15 per cent of its overall sale. The company has launched a new bike YBR 110 that will
target the rural markets.
Mercedes Benz has met its single largest order—of 150 cars worth US$ 14.7 million—from the
small industrial town of Aurangabad, Maharashtra.
The Renault-Nissan alliance and Bajaj Auto have signed a memorandum of understanding for
developing a low-cost car. According to the MoU, the design, engineering, manufacturing and
supply base expertise to create the product will be executed by Bajaj with the support of the
Renault-Nissan alliance.
Indo-Russian commercial vehicle joint venture (JV) Kamaz Vectra Motors plans to more than
double its annual capacity to 12,000 units at its Hosur plant by 2012 to capture the fast-growing
market in India.
Ashok Leyland and Japanese car maker Nissan Motor Co Ltd have announced the launch of
three light commercial vehicles (LCVs) from 2011 through 2013. The auto makers also confirmed
to be in talks to create a small car for the Indian market within the US$ 2,000 - US$ 6,000 price
range.

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British luxury brand Jaguar Land Rover (JLR) plans to increase presence in India and will tap
parent Tata Motors for assistance in areas like logistics and service support.
BMW, the luxury car maker, is planning to infuse US$ 15.76 million in its Indian operations.
Andreas Schaaf, President, BMW India, said that the company had invested US$ 24.77 million till
September 2010 and this would be increased to US$ 40.53 million by the end of 2012.
Luxury carmaker Mercedes-Benz India will set up a new facility for building of city bus bodies at its
Chakan plant in Pune. The new unit will become operational by mid-2011 and will have a capacity
of 700 units a year.
Mercedes Benz has also re-introduced its super premium sedan Maybach in India in 2011.
Mahindra & Mahindra has revealed its plans to launch 8-10 new products, including a premium
sports utility vehicle, across various segments by March 2012.

Domestic Market/ Sales:

India’s auto market grew at 32.69 per cent in 2010, marginally better than China’s 32.44 per cent,
according to SIAM.
According to the data released by SIAM, in December 2010, total sale of vehicles across
categories registered a growth of 30.51 per cent to 13,05,872 units, as against 10,00,562 units in
the same month of 2009. The industry has been growing at around 30 per cent in the ongoing
fiscal.
According to data released by SIAM, the passenger vehicles segment during April-December
2010 grew at 31.83 per cent over same period last year. Passenger cars grew by 32 per cent,
utility vehicles grew by 20.82 per cent and multi-purpose vehicles grew by 50.58 per cent during
this period.
The overall commercial vehicles segment registered a growth of 34.08 per cent during April-
December 2010, as compared to the same period last year. While medium and heavy
commercial vehicles registered growth of 42.85 per cent, light commercial vehicles grew at 27.12
per cent.
Two wheelers registered a growth of 28.21 per cent during April-September 2010. Mopeds,
scooters and motorcycles grew by 24.47 per cent, 48.90 per cent and 24.62 per cent, respectively.

Road Ahead:

Global auto companies are investing to tap the growing demand in India as investment spending and
the government's social programmes raise incomes in smaller cities and rural areas too. "The Indian
automobile industry is geared up to invest up to US$ 17.12 billion in fresh capacity in the next four years,"
Vishnu Mathur, Director-General, SIAM said. He further stated, "The components industry will also invest
US$ 12 billion up to the end of the Automotive Mission Plan."

Car and motorcycle sales in India are setting records with rising incomes, cheap lending by banks and
launch of new models such as Volkswagen's Polo and Fiat's Linea. Car manufacturing capacity is set to
rise to 5.7 million units by 2015, according to consultants Ernst & Young.

Further, India aims to become the small car hub of the world by dethroning Japan, the biggest maker of
compact cars, a majority of which is consumed domestically. Last year, it had pipped Brazil to become
the second-largest producer of such cars.

Passenger vehicle production is expected to grow to 9 million a year in 2020, while two-wheeler
production will touch 30 million, said B.S. Meena, secretary, department of heavy industries.

According to the annual forecast of the SIAM, passenger vehicle sales in the country will be 21,96,791
units in 2010-11 as compared to 19,49,248 units in 2009-10.

While two-wheeler sales are expected to be up 9-10 per cent at 10,287,837 units from 9,368,230 units in
2009-10, commercial vehicle sales in India will grow 17-18 per cent at 6,21,681 units vis-à-vis 5,31,395
units last financial year. Sales of three-wheelers are expected to go up 7-8 per cent at 4,73,693 units in
the current financial year as against 4,40,368 units in 2009-10.

However, with demand outgrowing the supply in the market, the overall market growth for 2010-11 is
most likely to exceed SIAM's initial prediction of 10-14 per cent.

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