OVER VIEW OF INDIAN AUTOMOBILE SECTOR

Transcription

1 Chapter-2 OVER VIEW OF INDIAN AUTOMOBILE SECTOR 2.1 INTRODUCTION It is a well accepted fact that the automotive industry is a volume driven industry and a certain critical mass is a pre-requisite for attracting the much needed investment in Research and Development, New Product Design & Development, and in R&D investment is also 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. No nation on its own can make its industries competitive but it is the companies which make the industry competitive. The most important indices of competitiveness are the productivity both of labor and capital. The concept of attaining competitiveness on the basis of cheap and abundant labor, favorable exchange rates, low interest rates and concessional duty structure is becoming outdated and not sustainable. In the light of 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. The automotive sector with its deep backward (metals- steel, aluminum, copper etc. plastics, paint, glass, electronics, capital equipments, trucking warehousing and logistics) and forward (dealership retails, credit and financing, logistics, advertising, repair and maintenance, petroleum products, gas stations, insurance, service parts) linkages has been recognized and identified at different forums ( Development Council of Automobile and Allied Industries, Planning Commission, National Manufacturing Competitiveness Council and Investment Commission) as a sector with a very high potential to increase the share of manufacturing in GDP, exports and employment. The sector is also seen as a multiplier of industrial growth. It helps in attaining two critical goals of the Government, that of increasing manufacturing output and of providing employment. Although indirectly but it also facilitates the 53

2 third objective of increasing agricultural productivity through farm mechanization and the needs of agricultural produce transportation. The country with its rapidly growing middle class (450 million in 2007, 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 one of the favorite destination for investment to the auto makers. These advantages need 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. It is also important that a general improvement in availability of trained manpower and good infrastructure is required for the sustainable growth of the industry. But these generalized efforts in development of the factors of production rarely produce competitive advantage. Only an advanced, specialized and industry specific initiatives can lead to competitive advantage. Keeping in view the above factors, the Government of India has launched a unique initiative of NATRIP to provide a specialized facility for Testing, Certification and Homologation to the industry. A similar initiative is required for creating a specialized institution in automotive sector for education, training and development, market analysis and formulation and dissemination of courses in automotive sector through ITIs and ATIs. 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 Indian Government is envisaged 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 eliminate all the barriers to local competition and organize the 54

3 relevant Government Department and Educational and Research Institution in and around the clusters. 2.2 The Present Status of Automotive Industry- The Indian Automotive Industry comprising of the automobile and the auto component sectors has recorded considerable growth following the de-licensing and opening up of the sector to FDI in The unbundling of this industry from restrictive environment has, on the one hand, helped in restructuring, absorbing new technologies align it to the global developments and realize its potential with significant increase in industry s contribution to overall industrial growth in the country. The investment in the industry of nearly Rs. 50,000 Crore in is slated to go up to Rs. 85,000 Crore by Automotive Industry, globally, as well in India, is one of the key sectors of the economy. Due to its deep forward and backward linkages with several key segments of the economy, automotive industry has a strong multiplier effect and acts as one of the drivers of economic growth. The well-developed Indian automotive industry produces a wide variety of vehicles: passenger cars, light, medium and heavy commercial vehicles, multi-utility vehicles such as jeeps, scooters, motor-cycles, mopeds, three wheelers, tractors and other agricultural equipments etc. The sector has tremendous potential of providing employment which will increase the present figure of employment in manufacturing sector which is quite low at 12% as compared to the countries like Malaysia (50%); Korea (62%) and China (31%) Installed capacity - The automobile industry especially over a period of time and particularly after liberalization, has installed a robust capacity. The installed capacity in different segments of automobile industry is as under: 55

4 Table 2.1 Installed Capacities in Different Segments (in nos.) S. No. Segment Installed Capacity 1. Four Wheelers 1,590,000 2 Two & Three Wheelers 7,950,000 Grand Total 9,540,000 Source- SIAM Production Trend - The production of all categories of vehicles has grown at a rate of 16% per annum over the last five years. The last 5 years achievements are given below: Table 2.2 Productions of all categories of vehicles Category Passenger Car Multi Utility Vehicles Commercial Vehicles Two Wheelers Three Wheelers Total Percentage (%) 11.70% 18.60% 15.12% 16.80% 15.06% Source: SIAM Export of Vehicles- Automotive industry of India is now finding increasing recognition worldwide. While a beginning has been made in exports of vehicles, the potential in this area still remains to be fully tapped. Significantly, during the last two years the export in this sector has grown specifically in export of cars and two / three wheelers. The table below indicates the export performance during last six years. 56

5 Table 2.3 Export of Different types of automobiles from India Category Passenger Car Multi Utility Vehicles Commercial Vehicles Two Wheelers Three Wheelers Total Growth Percentage (%) Source: SIAM The automobile exports crossed US $ 1 billion mark in and reached US $ 2.28 billion in Manufacturers of automobiles in India- Automobile manufacturing industry is highly capital intensive and need very expensive technology, however the growth in Indian automobile market has not only encouraged the Indian organizations but also attracted many automobile manufacturers to set up their manufacturing facilities here. To maximize the efficient use of the resources most of these manufacturers are using these facilities to manufacture multiple type of the automobiles. A glimpse of different types of vehicles being manufactured by different manufacturers in India can be had in the following table--- 57

6 Table 2.4 Manufacturers of automobiles in India Passengers Vehicles (PVS) Utility Vehicles Multi-Purpose Vehicles Medium and Heavy Maruti Udyog Hyundai Motors India Ltd. Tata Motors Honda Siel cars India Ltd. Ford India Pvt. Ltd Mahindra and Mahindra Ltd. Mercedes Skoda Volkswagen Fiat BMW Nisan General Motors Hindustan Motors Maruti Udyog Ltd. Mahindra and Mahindra Ltd. Toyota Kirloskar MotorPvt Ltd. Tata Motors Ltd General Motors India Pvt Ltd. Hyundai Motor India Ltd. Mahindra & Mahindra Ltd Maruti Udyog Ltd. Mahindra & Mahindra Ltd Tata Motors Commercial Vehicles Ashok Leyland Eicher Motors Swaraj Mazda 58

7 Passenger Carriers Tata Motors Mahindra and Mahindra Swaraj Mazda Eicher Motors Volvo Mercedes Goods Carriers Tata Motors Mahindra and Mahindra Swaraj Mazda Eicher Motors Volvo Mercedes Source- computed through various journals, magazines etc. 2.3 Car manufacturing Industry- Since this study is for the small car, the detail of the car industry in India is of significance importance for the study. Some of the relevant information available on various publications are given below Current Status- The Indian automobile industry is the tenth largest in the world with an annual production of approximately 2 million units. Indian auto industry, promises to become the major automotive industry in the upcoming years and the industry experts are hopeful that it will touch 10 million units mark.indian automobile industry is involved in design, development, manufacture, marketing, and sale of motor vehicles. There are a number of global automotive giants that are upbeat about the expansion plans and collaboration with domestic companies to produce automobiles in India. The major car manufacturers in India are Maruti Udyog, Hyundai Motors India Ltd., General Motors India Pvt. Ltd., Honda Cars India Ltd., Toyota Kirloskar Motor Ltd., Hindustan Motors etc. 59

8 The two-wheeler manufacturers in India are Honda Motorcycle & Scooter India (Pvt.) Ltd., TVS, Hero Honda, Yamaha, Bajaj, Mahindra and Mahindra, Force motor India etc. The heavy motors including buses, trucks, auto rickshaws and multi-utility vehicles are manufactured by Tata-motors, Eicher Motors, Bajaj, Mahindra and Mahindra, Volvo, Mercedes etc. The Indian automotive industry is the 2nd fastest growing in the world. About 8 million vehicles are produced annually in this country toady. During , India has emerged as the 3 rd largest market in the Asia Pacific Region. With various car manufacturing companies setting up their units in different parts of the country, the production of the cars will increase at a very fast rate. The car statistics indicate that India will soon become one of the top 10 car manufacturing countries, leaving behind the U.K. Car statistics also show that by the end of the fiscal year , the car production capacity in India will exceed the mark of 2 million. Thus, the production of cars will increase by 70% from the present capacity of 1.2 million Total Sale of cars - A graphical representation of the total sale trend of passenger cars (including the domestic sale and exports) is made below: Fig: 2.1 Trend of Passenger Car Sale, Source- SIAM 60

9 Domestic Sale of Cars - The domestic sales of passenger cars have increased significantly over the years. A graphical representation of the domestic sale of cars will give you an insight about the present market situation prevailing in the country:. Domestic Sale of Cars Unit Sold Fig. 2.2 Domestic sale of car in India, Source- SIAM In the recent years, India has emerged as one of the major bases for manufacturing small passenger cars. At In the recent years, India has emerged as one of the major bases for manufacturing small passenger cars. At present the Indiann automotive industry boasts of being the 3 rd largest manufacturer of small cars. According to the car statistics almost 70 % of the cars sold in this country come under the segment of small cars. A number of car manufacturers like: Maruti Udyog, Tata Motors, Hyundai, Honda, Ford, Hindustan Motors, Fiat, General Motors etc offer various new model of cars.. It is expected that the various automobile manufacturers will be investing about $ 5 billion in India, during the period

10 Exports of Cars - As per the reports, export of passenger cars from India has also grown considerably over the last decade. A graphical representation of car export trend will help you to make an in-depth analysis of the present status of the Indian automotive industry: Car Export Trend Unit Sold 0 Fig 2.3 Export of cars from India, Source- SIAM With new strategies being implemented and more investments being made in Indian automotive industry the production as well as the domestic sale and exports will increase substantially. 2.4 Multi Utility Vehicles in India Automobile companies like Maruti, Mahindra & Mahindra and Tata Motors have come up with some of the highest performance delivering multi utility vehicles or MUVs. These MUVs are designed specially keeping in view the Indian conditions and are laden with a number of advanced technical specifications. Multi utility vehicle statistics suggest that the production of these vehicles will increase at a fast pace in the forthcoming years. Production trend of multi utility vehicles in India from 62

11 2001 to 2007: Due to their fuel efficiency and multi usage potentialities, the MUVs have become much popular in India. Over the years, the demand of multi utility vehicles has also increased. The MUVs produced nowadays are even having excellent features. The MUVs come with a cluster of numerous comfort features that ensure smooth driving experience to the users. Although the other segments of car have recorded production growth at a higher rate but the manufacture of MUVs have grown slowly. In the last decade, the domestic sale of these vehicles has seen many ups and downs. Multi utility vehicle statistics indicate that the domestic sale of these vehicles will however grow in the following years Domestic sales trend of multi utility vehicles Domestic sales trend of multi utility vehicles in India from 2001 to 2007 has been depicted with the help of following bar diagram, Domestic Sales Trend of MUVs Unit Exported Fig 2.4 Domestic sale trend of MUV s in India, Source- SIAM From the perusal of above data it quite evident that domestic sale of multi utilility vehicle was in , which incresed to vehicles in , thus it has registered a growth of about 40 percent during this period. 63

12 2.4.2 Export Trend of MUVs from India Export of multi-utility vehicles has also increased during the corresponding period. India exported 815 MUVs in the year , which increased to 1290 vehicles in the year , thus registered an impressive growth of about 60 percent during this period. Figures relating to export trend of MUVs have been presented through the help of following bar diagram as drawn in Fig Export Trend of MUVs Unit Exported Fig 2.5 Export Trend of MUV s from India Source- SIAM 2.5 Growth in automobile Production Details of production of different types of automobiles manufactured by the Indian manufacturing units, is tabulated below are indicative of the growth registered by each sagment of automobiles (the data do not inclueds two wheelers) 64

13 Table. 2.5 The production of vehicles by various manufactures in the year & Passengers Vehicles (PVS) From From Total The Net Total April- April- Market Change number November November Share between of (in %) the exports period in April (in %) Maruti Udyog 2, ,91, ,043 Hyundai Motors India Ltd. 89,075 1,07, ,374 Tata Motors 95,402 24, ,105 Honda Cars India Ltd. 23,186 24, Ford India Pvt. Ltd 15,026 10, % 9,928 Utility Vehicles Mahindra and Mahindra Ltd. 49,897 51, ,878 Toyota Kirloskar MotorPvt Ltd. 24,404 24, Tata Motors Ltd 19,967 21, General Motors India Pvt Ltd. 7,008 12, Maruti Udyog Ltd Hyundai Motor India Ltd , Multi-Purpose Vehicles Maruti Udyog Ltd. 42,388 43, Mahindra & Mahindra Ltd

14 Medium and Heavy Commercial Vehicles Tata Motors 79,614 73, ,807 Ashok Leyland 27,577 33, Eicher Motors 8,043 8, Swaraj Mazda 3,573 4, Light Commercial Vehicles and passenger careers Tata Motors 5,835 6, ,096 Mahindra and Mahindra 2,305 1, Swaraj Mazda 1,178 1, Force motors Ltd. 2,059 2, Goods Carriers Tata Motors 30,955 44, ,461 Mahindra and Mahindra 23,563 23, ,600 Swaraj Mazda 2,671 2, Eicher Motors 3,019 2, Source- SIAM 2.6 Hatchback in India - Small cars falls in the category of Hatchbacks and therefore information about the different Hatchbacks available on Indian roads, the price, seating capacity,fuel and capacity of engine, the running fuel efficiency are of interest. Currently to meet the increased demand and preferences all manufacturers have developed different models of Hatchback having multiple variants. The table below gives the details of various Hatchbacks available in Indian market. Many of these models are having many variants with different facilities to meet the preferences of customers. 66

15 Table 2.6 Models of Hatchback on Road in India 2011 Models Ex. Showroom Price Description Tata Motors Nano Rs.1.51 to 2.10 lakh Hatchback, 4 Seater Mileage: 18.3(Tested) Engine: 624 CC Maruti Suzuki Alto Rs to 3.49 lakh Hatchback, 5 Seater Mileage: Engine: 796 CC Hyundai New EON Rs.2.80 to 3.84 lakh Hatchback, 5 Seater Mileage: 21.1 (Claimed) Engine: 814 CC Chevrolet Spark Rs to 4.18 lakh Hatchback, 5 Seater _Lpg Mileage: 16.5 Engine: 995 CC Maruti Suzuki Estilo Rs to 4.36 lakh Hatchback, 5 Seater Mileage: Engine: 998 CC Tata Motors Indica ev2 Rs to 5.04 lakh Hatchback, Seater Mileage: 25 Engine: 1396 CC Maruti Suzuki Wagon R Rs to 4.43 lakh Hatchback, 5 Seater Mileage: 15.3(Tested) Engine: 998 CC 67

16 Hyundai i10 Rs to 6.24 lakh Hatchback, 5 Seater Mileage: NA Engine: 1086 CC Maruti Suzuki A Star Rs to 4.63 lakh Hatchback, 5 Seater Mileage: 13.79(Tested) Engine: 998 CC Ford Figo Rs to 6.08 lakh Hatchback, 5 Seater Mileage: 11.25(Tested) Engine: 1196 CC Chevrolet Beat Rs to 6.00 lakh Hatchback, 5 Seater Mileage: 13.5(Tested) Engine: 1199 CC Honda Brio Rs to 5.40 lakh Hatchback, 5 Seater Mileage: 18.4 ( Claimed) Engine: 1198 CC Maruti Suzuki Ritz Rs to 6.36 lakh Hatchback, 5 Seater Mileage: 17.7 Engine: 1197 CC Nissan Micra Rs to 6.58 lakh Hatchback, 5 Seater Mileage: 9.1(Tested) Engine: 1198 CC Maruti Suzuki New Swift Rs to 6.85 lakh Hatchback, 5 Seater Fuel Type: Diesel Mileage: 22.9 (Claimed) 68

17 Engine: 1248 CC Toyota Liva Rs to 6.44 lakh Hatchback, 5 Seater Mileage: 14.55(Tested) Engine: 1197 CC Volkswagen Polo Rs to 7.38 lakh Hatchback, 5 Seater Mileage: 8.9(Tested) Engine: 1198 CC Fiat Grande Punto Rs to 7.50 lakh Hatchback, 5 Seater Mileage: 15.2(Claimed) Engine: 1172 CC Skoda Fabia Rs to 7.45 lakh Hatchback, 5 Seater Mileage: 16.4(Claimed) Engine: 1198 CC Honda Jazz Rs to 6.53 lakh Hatchback, 5 Seater Mileage: 12.25(Tested) Engine: 1198 CC Skoda Fabia Scout Rs to 8.15 lakh Hatchback, 5 Seater Mileage: 16.5 Engine: 1198 CC Source- Computed from information available in Autocar and other auto related magazines. 69

18 2.7 Small Car Models in India Market Since the current study is related to the small cars in particular, information about the small cars in India was gathered. The following table gives the details of the ever growing list of the popular Small car modules available in Indian market as on Sept Table 2.7 Details of the Popular Small Car Models in India- (Sept.2011) Sr. No Manufacturer Model On Road Showroom Price ( Rs.In Laces) Fuel Engine Size in CC Length ( In mm) Mumbai Delhi 1. Chevrolet Beat (1.2 PS) Petrol Beat (1.0 LT Diesel Option) Spark (1.0) Petrol U-VA (1.2) Petrol FIAT Grande Punto Petrol (1.2 Fire Active) Grande Punto Petrol (1.4 Fire Emotion) Grande Punto Diesel (1.3 Multi Jet Emotion) 3. FORD Figo (1.2 LXI Petrol Duratec) Figo (1.4 LXI ) Diesel HONDA Jazz Petrol HYUNDAI i10 (1.1 D-Lite) Petrol i Asta (O) Petrol

19 6. Mahindra Reva Electric 7. Maruti Udyog Ltd A/T i20 (1.2 Era) Petrol i20 (1.4 CRDi Diesel Magna) Santro Xing GL (Non AC) Petrol Reva (standard) Electric AC Elc al Alto (LX) Petrol Alto K10 (LXi) Petrol A-Star (ZXI) Petrol Omni (MPI Petrol Seater) Estilo (LX) Petrol WagonR (VXi) Petrol Ritz (LDi) Petrol Ritz (VXi) Petrol Swift (LXi) Petrol Swift (LDi) Diesel EECO Petrol (Std 5 Seater) EECO (AC CNG Seater CNG) 8. Nissan MICRA (XE) Petrol MICRA (XV) Diesel Diesel 9. Skoda Fabia (1.2 MPi Petrol

20 Active Plus) Fabia (1.6 MPi Petrol Eligance) Fabia (1.2 TDi Diesel Active Plus) 10. Tata Motors Nano (Std) Petrol Indica Petrol (ev2 Xeta GL) Indica Diesel (ev2 L) Vista Petrol (Safire 65 GLS) Vista (Safire Petrol GLX) Vista (Quadrajet Diesel ZX) Indigo ecs (LS Diesel DICOR) Indigo ecs Petrol (GLS) 11. TOYOTA Etios Liva (J) Petrol Etios Liva (GD) Diesel Volkswagen Polo ( Petrol Trendline Petrol) Polo ( Petrol Highline Petrol) Polo (1.2 Trendline Diesel) Diesel Source AUTOCAR India (October 2011) 72

21 2.8 New Car Models for Consumers in Indian, in It is interesting to note that though Small Car market is growing it is having competition from the other segments of personal vehicles as well, both on price as well as technical competency, as the automobile companies in India are in the process of introducing the following new models in the near future- Table 2.8 New cars for India consumers in 2012 Updated Sr. Manufacturer & Engine Power/Torque Kerb Dimensions Price Expe No Model Size Weight (L/W/H) (In cted Rs.) time 1 Audi S6/S7/S8 4-litre 414bhp/ 1895kg 4931/1874/NA mm 85 Mid twin kgm lakh 2012 turbo V8. 2 Ashok Leyland 1.5-litre 105bhp/24.4kg 1269kg 4400/1695/ Early Stile diesel m mm lakh Chevrolet Enjoy (MPV) 1.4-litre petrol 4 Chevrolet Sail 1.4-litre Saloon petrol 5 Chevrolet Sail 1.2-litre Hatchback petrol 6 Force MPV 2.2-litre diesel 7 Fiat Punto Evo 1.2-litre petrol, 1.4-litre petrol, 1.3-litre 102bhp/13.35k gm 102bhp/13.35k gm 79bhp/10.91kg m 139bhp/32.7kg m 67bhp/9.76kgm,89bhp/ 11.67kgm, 75bhp/20kgm, 90bhp/21.3kgm 1205kg 4305/1680/1750 mm 6 lakh July kg 4249/1690/ Sept mm lakh kg 3947/1690/ July mm lakh 2012 NA 4763/1338/ Late mm lakh NA/1687/1495mm NA NA 1145kg 73

22 diesel, 1.3-litre diesel 8 Ford Eco Sport 1.2-litre petrol, 1.5-litre diesel 9 Ford Fiesta 1.5-litre Hatchback petrol, 1.5-litre diesel 10 HM 1.5-litre Ambassador diesel 11 New Honda 2.4-litre CR-V petrol 12 Mahindra- 2-litre Ssangyong diesel Korando 13 Mahindra Reva Electric NXR motor NA, 88.7bhp/20.8kg m NA NA lakh 107bhp/14.2kg 1153kg 3950/1722/ m, mm lakh 88.7bhp/20.8kg m NA NA NA 4.8 lakh NA NA NA 20 lakh 173bhp/36.7kg /1830/ m 1692kg mm lakh NA 900kg/85 NA kg lakh (NXR) Early 2012 Mid 2012 Early 2012 Late 2012 Late 2012 Mid Mahindraverito (sub-4 metres) 1.5-litre diesel 15 Mahindra Mini- 1.5-litre Xylo (sub-4 diesel metres) 16 Maruti Alto litre petrol 17 Mercedes-Benz 1.8-litre B-Class diesel, 1 65bhp/16.3kgm NA NA 4.8 lakh NA NA NA 4-5 lakh NA NA NA lakh 135bhp/30.5kg /1786/ m, 156bhp/ kg mm lakh End 2011 Early 2012 Early 2012 Late

23 22 Tata Safari 2.2-litre 140bhp/32.6kg Storme diesel m 23 New 1.4-litre 158bhp/24.5kg Volkswagen turbopetrol, m, Beetle 138bhp/32.6kg 2-litre m diesel Source AUTOCAR India (October 2011).6-litre kgm turbopetrol 18 Nissan Evalia 1.5-litre 105bhp/24.4kg (NV200) diesel m 19 Renault Scala 1.5-litre 97bhp/13.6kgm petrol,, 1.5-litre 85bhp/20.4kgm diesel 20 New Porsche 3.4-litre 345bhp/39.8kg 911 petrol, m,394bhp/ litre kgm petrol 21 Tata Manza CS 1.2-litre 65bhp/9.8kgm, petrol, 74bhp/19.3kgm 1.3-litre diesel 1269kg 4400/1695/1860 mm lakh Early 2012 NA NA 7-9 Septe lakh mber /1808/1295 From Septe 1470kg mm Rs 90 mber lakh 2012 NA NA 5 lakh Late NA NA 11 lakh Early kg 4278/2021/ Late lakh Top Ten Models of Personal Vehicles, in Indian market- The fast changing Socio- economic pattern of Indian consumer having multiple interest and complexion/variety in their choice of product also reflects in the domestic Personal Vehicle purchased by them. Data relating to the sale of top 10 models of 75

24 personal vehicles for August 2011 have been presented through the following figures to make them understandable at a glance, Units Sold Maruti Wagon R Maruti Swift Dzire Tata Indica Maruti Ritz Mahindra Bolero Source- Autocar India Fig: 2.6 Top Ten Models of PV sold in Aug The above information established the following facts- In the PV segment it is the Maruti make which is the most preferred by Indian consumer. 68 percent of total sale of such vehicles has been registered by the models and makes manufactured by Maruti-Suzuki India Ltd. Small cars accounts for 85% preferred choice of the Indian PV consumers Auto component Industry: current status - Indian Automobile industry is flourishing and expanding worldwide.the spine of the automobile manufacturing industry is its suppliers of auto components and accessories which is also an exclusive industrial segment. The later globalization period enhanced the trade in all sectors which includes automobile and auto components in top trading commodities. The new auto policy helped to promote the auto sector worldwide. The cheap labor and resources in India has captivated the attention of developed countries from long years back. Only on the globalization the trade benefits came into clear picture and also India realized the potential of the world market. 76

25 Classification and Structure of Auto Component Industry Auto component industry can be segmented on the basis of the production of component types as below Engine Parts Gear Drive Transmission and Steering Parts Suspension and Brake Parts Electrical Parts Equipments Other Parts In India the auto component industry is structured in three basic categories. Indian companies without any collaboration or having very minimal collaboration with any foreign companies for e.g. Sundram Brake Lining, Sundram Fasteners. Indian companies with foreign collaboration, such as Indian Nippon Electricals, Hinoday etc. MNCs completely owned subsidiaries or the units in which they have major control. For e.g. Delphi, Visteon, Denso, MICO etc Evolution of Auto Components industry The Auto component Industry is directly dependent on Auto manufacturing industry. This industry was of very small size in the period of 1970s. The growth initiated after the entry of Maruti Udyog Ltd. Which helped many new auto component manufacturers emerged in 1980s. The Indian auto industry has evolved around three major clusters geographically West, North & South of India, Major automotive clusters West of India-Mumbai, Pune, Nasik, and Aurangabad. South - Chennai Bangalore, Hosur and North of India- Delhi, Gurgaon, Faridabad. 77

26 The set up of Tata motors, Bajaj, Mahindra & Mahindra, Skoda, General Motors etc. and auto component manufacturers like Bharat Forge, DGP Hinoday, Kirloskar Brothers, SKF Bearings, Kalyani Brakes etc.are all located in the west region. Maruti Suzuki during 1990s created a base in the North accordingly the other auto industry like Honda, Eicher etc., and auto component companies like Delphi, Denso India, Lumax, Minda, Sona Koyo, Shriram Pistons etc., setup a hub in the central North. In the South region the auto & auto component industries are Ashok Leyland, Ford, Toyota Kirloskar, Hyundai, TVS Motors, Brakes India, MICO, Lucas-TVS, Rane Brakes, Sundram Fasteners etc. constituting a major hub. The quality consciousness, value chain inherited through the automobile companies towards the suppliers. Further the entry of more MNC s & giant domestic auto manufacturers prompted supply chain developments to enhance the productivity and responsiveness towards both the ends suppliers as well as automobile companies. The auto component industry can also be segmented through the supply chain systems like first tier, second tier, third tier and fourth tier as the levels of supply category and involvement in the supply chain of automobile company. The fourth tier suppliers supplies raw material as small jobs while a second tier suppliers produces a full auto components further the first tier suppliers identified as an OEMS/ Assemblers (Original equipment manufacturers). There are new direct suppliers, who design systems and coordinate almost the entire chain encompassing the manufacturing and assembly process and these are the Tier 1 and 0.5 who have major involvement as a supplier in manufacturing of automobiles, they provide semi assembled modules of automobiles like steering system, rear axle system etc. which can be directly fixed on the final assembly of the cars. The risks and challenges are being transferred to the tier 1 &0.5 suppliers. The total turnover of the Indian auto component industry was estimated at US$9 billion in The industry has the resources to manufacture the entire range of auto products required for vehicle manufacturing, approximately 20,000 components. The 78

27 entry of global manufacturers into India during the 1990s enabled initiation of new technologies, new products, improved quality and better efficiencies in operations. This obviously acted as a catalyst to the local development of the auto component industry. The Indian auto component industry is widespread and highly fragmented. Estimates by the Department of Heavy Industries, Government of India, indicate that there are over 400 large firms who are part of the organized sector and cater largely to the Original Equipment Manufacturers (OEMs). Approximately 10,000 firms exist in the unorganized sector that operates in a tier-format. The firms in this segment operate in low technology products and cater to Tier I and Tier II suppliers and also serve the replacement market. Around 4% of the companies operating in the auto component segment cater to 80% of the demand emanating from OEMs. Within the unorganized segment, apart from supplying in the aftermarket, a number of players are also involved in job work and contract manufacturing. The Auto Component Manufacturers Association (ACMA) asserted the sector is working towards the open market, a large number of joint ventures with leading global manufacturers have already set up. The sector will grow at 15 percent CAGR till the year 2012 and will achieve the position among the top five auto component economies by The Industry is perceived tremendous potential for foreign direct investments. The exports of auto components in soared to the US$ 3 billion, which is remarkable. The ACMA estimates the global sourcing of components from the country to double from US$ 2.95 to U.S$ 5.9 billion in , and touch US$ 20 billion within next seven years with the expansion of operations domestically and overseas. The ACMA-Mckinsey tie-up vision anticipates the potential for the Indian auto component industry to grow at US$ billion by The global auto manufacturers look India as a salient manufacturing hub for auto components and which rapidly gaining up the values of component they source from India. The auto component sector has been one of the fastest growing segments of auto industry, growing by over 28%, in nominal terms in the period The Industry also sustained a high growth rate and could achieve growth of 24% in 2003, 16% in 79

28 and 15% in The industry, over the years, developed the capability of manufacturing all components required to manufacture vehicles, which is evident from the high levels of indigenization achieved in the vehicle industry as well as the components developed for the completely Indian made vehicles like the Tata Indica, Tata Indigo, Mahindra Scorpio, Bajaj Pulsar and TVS Centra. The component industry has now holistic capability to manufacture the entire range of autocomponents e.g. Engine parts, Drive, Transmission Parts, Suspension & Braking Parts, Electricals, Body and Chassis Parts, Equipment etc. The component-wise share of production, as indicated by the ACMA, is Engine parts-31%, Drive and Transmission Parts-19%, Suspension & Braking Parts-12%, Electricals-9%, Body and Chassis Parts-12%, Equipment-10%. Over the last few years the Indian Auto Component Industry has created a robust capacity base and world s all major manufacturers have set up their manufacturing unit in the country Growth Trends - Low labor costs, availability of skilled labor and high quality consciousness among Indian vendors have spurred the growth of auto component exports from India. During , the exports of auto-components crossed the magic figure of US $ 1 billion after having posted a healthy growth of 25%. During the year , the exports grew by 40% thereby taking the direct exports of components to a level of US $ 1.4 billion. As per ACMA, in the year exports grew by 28% and reached the level of US $ 1.8 billion. It is important to mention here that still it is very low against the volume of world trade of 185 billion US $ in auto components. More than 60% of the exports of auto-components are to USA and Europe, which constitute high AQL (Accepted Quality Level) countries. Moreover, over the last 5 years, the structure of the customer base in the global markets has also undergone a major change. In the 1990s more than 80% of the exports was to the international aftermarket. In 2005, more than 70% of the exports are to the global OEMs and Tier 1 companies and only 30% is to the aftermarket. This signifies that the Indian 80

29 component industry has now reached a high degree of maturity in terms of quality and productivity and has also developed capabilities in the area of design and engineering, which are critical requirements for being a part of the global supply chain. Indian auto component manufacturing, currently constrained by lack of large capacities, is slowly but steadily working on expanding capacities and automation levels. As the users increasingly become discerning in their buying behavior, new model introduction by the auto manufacturers has become the trend. Greater variety in vehicle is offering challenges to the manufacturing capabilities and economies of scale of component suppliers. Hence the component industry is constantly looking at maintaining lean and efficient manufacturing systems. Having established themselves in the domestic market, tapping opportunities abroad was a natural step for the auto component manufacturers in their growth path. The Indian auto component industry is targeting for a bigger share of the export market and is in the process of ramping up its manufacturing capabilities to meet the capacity and quality requirements. During 2004, the auto component industry increased its investment by 17% while the automation processes in this industry registered a growth of over 40% Challenges to auto component Industry. From the current trends it may appears that auto- component industry is poised for major growth, but this is not free from the challenges for the industry, policy planners, government and other stake holders. Some of these challenges are elaborated below Sustaining the growth rate. There is a potential for much higher growth in the domestic market due to the fact that the current car penetration level in India is just 7 cars per thousand. The increase in purchasing power at the top echelon of about 300 million people in the country, where the per capita income is over US $ 1000, implies that passenger car growth in the domestic market is on the verge of a major and sustained boom. It is expected that the passenger car market which was 1 million in can easily cross the 3 81

30 million mark by This can lead to an increase in the size of the domestic autocomponent market from the current level of US $ 9.8 billion ( ) to at least US $ 15 billion by Need for innovations. The competitiveness in the sector will largely depend on the capacity of the industries to innovate and upgrade. The industry will also benefit if they have strong domestic competition, home based suppliers and demanding local customers. There is no denying of the fact that the factors like labor cost, duties, interest rate and economies of scales are the most important determinants of competitiveness. But productivity is the prime determinant of the competitiveness and also impacts the national per capita income. The globally successful OEMs and auto makers will ultimately make their base in places which are high on productivity factor and where essential competitive advantages of the enterprise can be created and sustained. It would also involve core products and process technology creation apart from maintaining productive human resource and reward for advanced skills. The OEMs also look for the policies of the state which stimulates innovations in new technologies Enhancement of share in global trade. The global auto component industry is estimated to be US $ 1.2 trillion in value and is likely to increase to US $ 1.7 trillion by 2015 as per ACMA. Sourcing from low cost countries is likely to increase from US $ 65 billion in 2002 to US $ 375 billion by Although India s exports are still small (US $ 1.8 Billion in Prov.), it could leverage this off shoring trend and the quality of its supply base to build dominant top two position in auto component exports from low cost countries by A position In the top two would enable India to achieve export of US $ billion by This would increase India s share of world auto component trade from 0.9 percent in (Prov.) to percent by 2015, inclusive of domestic consumption. Such a high growth in the Auto component Sector is expected to lead to an additional 750,000 direct jobs in its sector along-with indirect employment of 1.8 million people over the next 10 years. In addition to creating incremental employment 82

31 of about 2.5 million people in direct and indirect jobs, it is also expected to result in incremental revenue to the exchequer by US $ 3.8 billion. Investments in this sector would also grow by US $ 15 billion from the current level of US $ 3.1 billion Initiatives of the Government of India for the growth of auto sector. In order to give a boost to the growth in this sector, the Government has taken several initiatives. Some of them are as under.- i. The Finance bill 2006 has given a further boost to the Automotive Industry by reduction of the excise duty on the small cars. The reduction in the duty for raw material to between 5 to 7.5% as compared to the earlier level of 10%, and the thrust on infrastructure development. ii. The Auto policy, 2002 recognizes the need to provide direction to the growth and development of the automotive industry. As a result of constant persuasion by the Department of Heavy Industry, some of the objectives of the Auto Policy have been achieved. Imposition of excise duty on body building activity of Commercial Vehicles, lower excise duty on the small cars, extension of 150% weighted deduction on R&D expenditure to the automotive sector; increased budgetary allocation for R&D activities in the sector and moving towards a lower duty regime are some of the significant achievements and steps are being taken to further strengthen the capability of the sector. 83