Document Sample







        The Indian automobile industry is currently experiencing an unprecedented boom
in demand for all types of vehicles. This boom has been triggered primarily by two
factors: (1) increase in disposable incomes and standards of living of middle class Indian
families estimated to be as many as four million in number; and (2) the Indian
government's liberalization measures such as relaxation of the foreign exchange and
equity regulations, reduction of tariffs on imports, and banking liberalization that has
fueled financing-driven purchases. Industry observers predict that passenger vehicle sales
will triple in five years to about one million, and as the market grows and customer's
purchasing abilities rise, there will be greater demand for higher-end models which
currently constitute only a tiny fraction of the market. These trends have encouraged
many multinational automakers from Japan, U. S. A., and Europe to enter the Indian
market mainly through joint ventures with Indian firms. This paper presents an
introduction to the key players in the Indian automotive industry, a summary of the recent
developments, and an analysis of the opportunities and challenges facing the various
players (Indian and multi-national assemblers and component makers) in the areas of
product development, production, and distribution.


The Indian automobile industry has come a long way since the first car ran on the streets
of Mumbai in 1898. The initial years of the industry were characterized by unfavorable
government policies. The real big change in the industry, as we see it today, started to
take place with the liberalization policies that the government initiated in the 1991. The
liberalization policies had a salutary impact on the Indian economy and the automobile
industry in particular.

The automobile industry in the country is one of the key sectors of the economy in terms
of the employment opportunities that it offers. The industry directly employs close to
around 0.2 million people and indirectly employs around 10 million people. The
prospects of the industry also has a bearing on the auto-component industry which is also
a major sector in the Indian economy directly employing 0.25 million people.

The Indian automobile industry is a stark contrast to the global industry due to many of
the characteristics, which are peculiar to India. The Indian automobile industry is very
small in comparison to the global industry. Except for two wheelers and tractors
segments, the Indian industry cannot boast of big volumes is global numbers.

The report covers the various segments including passenger cars, two/three wheelers
tractors, commercial vehicles and multi-utility vehicle segment. It contains an in-depth
analysis of the performance of the automotive industry in terms of production, sales,
exports and imports for the past few years. The major events and their impact on the
industry and across the segments are discussed in detail. The report also looks into the
factors that boost the revenue growth across segments and concludes with a look at the
financial performance of the major players in the industry.

The Indian automotive industry has flourished like never before in the recent years. This
extra-ordinary growth that the Indian automotive industry has witnessed, is a result of a
two major factors namely, the improvement in the living standards of the middle class,
and increase in there disposable income.

Moreover, the liberalization steps, such as, relaxation of the foreign exchange and equity
regulations, reduction of tariffs on imports, and refining the banking policies, initiated by
the Government of India, have played an equally important role in bringing the Indian
Automotive industry to great heights. It is estimated that the sale of passenger cars have
tripled compared to their sale in the last five years. Thus, the sale of cars has reached a
figure of 1 million users and is expected to increase further. It's also to be noted that the
demand for luxurious models, SUVs, and mini-cars for family owners, have shot up,
largely due to increase in the consumer s buying capacity.

The increased demand for Indian automobiles has resulted in a large number of multi-
national auto companies, especially from Japan, U. S. A., and Europe, entering the Indian
market and working in collaboration with the Indian firms. Also, the institutionalization
of automobile finance has further paved the way to sustain a long-term high growth for
the industry.

The increasing role of auto finance is also scrutinized by proving a series of surveys
conducted across the country covering all categories of private and commercial vehicles'
finance. The report also examines the region-wise demand and growth trends for the
selected vehicles, and how they influence India s GDP growth.

For forty years since India's independence from the British in 1947, the Indian car market
was dominated by two localized versions of ancient European designs -- the Morris
Oxford, known as the Ambassador, and a old Fiat. This lack of product activity in the
Indian market was mainly due to the Indian government's complex regulatory system that
effectively banned foreign-owned operations. Within this system (referred to informally
as the "license raj"), any Indian firm that wanted to import technology or products needed
a license/permit from the government. The difficulty of getting these licenses stifled
automobile and component imports, creating a low volume high cost car industry that
was inefficient, unprofitable, and technologically obsolete. The two dominant products
Ambassador and Fiat, although customized to the poor road conditions in India, were
based on a stale design concept (with outdated features), and were also fuel inefficient.

In the early 1980's, the Indian government made limited attempts at reforming the
automotive industry, and entered into a joint venture with Suzuki of Japan. The joint-
venture, called Maruti Udyog Limited, launched a small but fuel efficient model (called
"Maruti 100"). Priced at about $5,500, the product became an instant hit. The joint
venture now produces three small-car models, a van, and a utility vehicle at a rate of
more than 250,000 a year. Despite being a late entrant, Maruti's vehicles are estimated to
account for as much as 70 per cent of India's car population.

In 1991, a newly elected Indian government took over and faced with a balance-of-
payments crisis initiated a series of economic liberalization measures designed to open
the Indian economy to foreign investment and trade. These new measures effectively
dismantled the license raj which had made it difficult for Indian firms to import
machinery and know-how, and had disallowed equity ownerships by foreign firms. In
1993, the government followed up its liberalization measures with significant reductions
in the import duty on automobile components. These measures have spurredthe growth of
the Indian economy in general, and the automotive industry in particular.

 Since 1993, the automotive industry has been experiencing growth rates of above 25%.
Data for the 1995-96 financial year is yet to be released by all the firms, but estimates
indicate that passenger vehicle sales may reach or exceed 350,000 for the first time.
(Passenger vehicles include cars and vans but not jeeps.) Table 1 presents the production
data of passenger vehicles for the top four Indian assemblers. Foreign vehicle sales have
been insignificant until the 1994-95 years.

Top Five Indian Automotive Assemblers

Maruti Udyog Limited (MUL) relatively large production volumes offer scale economies
in production and distribution that pose formidable barriers to entry. It has also
established a solid supplier-base located around India (most of its assembly is
concentrated in Northern India near New Delhi). Its products enjoy good reputation in
fact, Indian automotive industry observers credit Maruti for the rapid improvement in
quality and supplier capability in this industry. (Until last year, new Maruti's have to be
booked several months in advance!) MUL's product line is concentrated in the economy
car segment, although it has been moving up recently to cater to the premium market
segments by introducing the higher-end Esteem and Baleno.

Hyundai Motor India Limited (HMIL) is a wholly owned subsidiary of Hyundai Motor
Company, South Korea and is the second largest and the fastest growing car
manufacturer in India . HMIL presently markets over 25 variants of passenger cars in six
segments. The Santro in the B segment, Getz in the B+ segment, the Accent in the C
segment, the Elantra in the D segment, the Sonata in the E segment and the Terracan the
SUV segment.

The company recorded combined sales of 215,630 during calendar year 2004 with a
growth of 43% over year 2003. HMIL is India 's fastest growing car company having
rolled-out over 700,000 cars in just over 70 months since its inception and is the largest
exporter of passenger cars with exports of over Rs. 1,700 crores . HMIL has recorded a
staggering growth of 149% in exports over the year 2003.
Bombay-based Premier Automobiles Ltd. (PAL), which edged out Calcutta-based
Hindustan Motors Ltd. (HM) from the second place. In fact, PAL produced the Fiat, and
HM produces the Ambassador both products that dominated the Indian automotive
industry for decades. The advent of Maruti has resulted in the decline of both these firms.
PAL's main products are the Premier Padmini (in the compact car segment) and the
NE118 (in the mid-size car segment). Recently, PAL has rejuvenated itself by entering
into joint ventures with Peugeot (for the Peugeot 309), and with Fiat (for the Fiat Uno).

Its close competitor HM continues to produce Ambassadors in small volumes targeted at
the economy/compact car segment. HM also offers a higher end product called Contessa
Classic, and has entered into joint venture agreements with General Motors (GM) to
produce the Opel Astra, and with Mitsubishi to make the Lancer targeted at the higher-
end market.

Despite occupying the fifth position and producing passenger vehicles only in small
volumes, Tata Engg. & Locomotive Company Ltd. (TELCO) is noteworthy, not only
because it is a part of the powerful Tata industrial family, but also because it is one of the
few firms with indigenous product development capabilities, and has been a dominant
player in the commercial vehicles segment. (The author, in fact, worked with TELCO for
a brief period in the late 80's in their light commercial vehicles product development
group.) TELCO holds about 70% of the heavy commercial vehicles market, and (after
entering the market late) has also managed to fend off Japanese competition by gaining
about 50% of the light commercial vehicles segment with its inhouse product
development. It entered the passenger vehicles market only in 1991-92, and has quickly
established itself in the higher end of this segment with its Estate and Sierra models. The
firm has entered into a joint venture with Mercedes Benz to assemble the E220's, and is
also said to be planning an entry into the small/economy car segment challenging
Maruti's stronghold.


The Indian automotive industry, although growing rapidly, is in a state of flux. The
production capacities planned by the new joint ventures currently exceed most
projections, and unless import tariffs come down quickly and the economy grows
remarkably, a shake-out may be expected from the current 20 firms to about half a dozen
major firms turning out finished products by the end of the decade. However, if multi-
national firms decide to use India as a production base from which vehicles are exported
to the rest of the world, more than half a dozen firms may be able to remain profitable in
India. Suzuki has already begun to use its Maruti joint-venture production to export a few
thousand cars to the Middle East and Europe. However, the production capacities of other
emerging economies such as Korea and China are also predicted to grow significantly in
the coming years, so exports may also face a highly competitive market situation.

Indian assemblers have a tight hold over the small-car market due to their low cost
supplier base and the tariffs levied on import components. Maruti with its production
volumes of over 250,000 enjoys scale economies in production, distribution, and service
that are hard to challenge. However, new entrants can set themselves apart by offering
new safety and comfort features that are not currently offered in the Indian market.

They can also leverage their low production run (lean) capabilities to stay profitable
despite the low production volumes. Further, they can combine their reputation with the
Indian industry's lower production costs to produce cars and export them to the global
markets. Many multinationals are already said to be planning such an approach.

For Indian component makers and assemblers, product development capability is key, in
order to rejuvenate their product lines, enhance their reputation, and export their products
to the markets in developed countries. The author is currently pursuing a study of product
development and production systems in the Indian component industry. Since the plants
located in India are very far from the developed markets of the USA, Europe, and Japan,
component suppliers incur significant transportation and inventory carrying costs in
exporting products to global markets.

Their situation is worsened by the poor Indian infrastructure, which leads to frequent
power interruptions and long delays in supply. These companies are adopting innovative
techniques to cope with these uncertainties, which will be a topic of another paper.

The Indian automotive industry, as a whole, is also severely bottlenecked by the woefully
inadequate road infrastructure. Privatization of the road infrastructure, even if started
immediately, can take years to solve this problem. India also experiences an
extraordinarily high number of traffic fatalities, and faces severe pollution problems. As
of now, the ministry of surface transport has set emission norms (that are modest by
international standards), which local automakers say are hard to meet. Multi-national
firms can bring their experience and know-how to bear in these areas, and enhance their
reputation as well as attract customers who are safety conscious and environmentally
aware. This will also result in the gradual reduction of the auto related facilities and
pollution (due to the diffusion of these practices), thereby contributing to the further
growth of the Indian automotive industry.

On the canvas of the Indian Economy, Auto Industry occupies a prominent place. Due to
its deep forward and backward linkages with several key segments of the economy,
automotive industry has a strong multiplier effect and is capable of being the driver of
economic growth. A sound transportation system plays a pivotal role in the country's
rapid economic and industrial development. The well-developed Indian automotive
industry ably fulfils this catalytic role by producing a wide variety of vehicles: passenger
cars, light, medium and heavy commercial vehicles, multi-utility vehicles such as jeeps,
scooters, motorcycles, mopeds, three wheelers, tractors etc.

Although the automotive industry in India is nearly six decades old, until 1982, only three
manufacturers - M/s. Hindustan Motors, M/s. Premier Automobiles & M/s. Standard
Motors tenanted the motorcar sector. Owing to low volumes, it perpetuated obsolete
technologies and was out of sync with the world industry. In 1982, Maruti Udyog
Limited (MUL) came up as a Government initiative in collaboration with Suzuki of Japan
to establish volume production of contemporary models.

After the lifting of licensing in 1993, 17 new ventures have come up, of which 16 are for
manufacture of cars. There are at present 12 manufacturer of passenger cars, 5
manufacturers of MUVs, 9 manufacturers of Commercial Vehicles, 12 of two wheelers, 4
of three wheelers and 14 of tractors besides 5 manufacturers of engine.

The industry comprising of the automobile and the auto component sectors has shown
great advances since delicensing and opening up of the sector to FDI in 1993. The
industry has an investment of a sum exceeding Rs. 50,000 crore. During the year 2003-04
the turnover of the automotive sector was around Rs. 1,00,000 crore.

The industry provides direct employment to 4.5 lakhs and generates indirect employment
of 1 crore. The contribution of the automotive industry to GDP has risen from 2.77% in
1992-93 to 4% in 2003-04.

The Indian government's approach to solving this problem is to privatize the road
infrastructure, by having private firms build and operate tollways. However, it is unclear
if this alone will be able to solve this infrastructure problem of enormous proportions,
which can severely bottleneck future growth.

The significant (about 50%) tariffs imposed on import products and components
combined with the vagaries of currency exchange rates make localization an important
imperative for foreign companies entering the Indian market. Firms are already making a
major effort to localize rapidly;

The Daewoo-DCM venture is expected to raise its local content to 90% by the decade's
end. GM's Astra will start with 40% labor content, and go up to 75% within three years.
One challenge to localization is a shortage of component suppliers with size and

Another major uncertainty facing the Indian market is the government's policies toward
foreign investments and joint ventures. Governments play a key role in shaping the
growth of the auto industry in emerging economies (as compared with developed
countries). Although many observers say the economic reforms initiated by the ruling
Congress party are not reversible, the difficulties experienced by Enron Corp. in its
investments in the power sector under the hands of the opposition Bharatiya Janata Party
(BJP) do not bode well for other foreign investors. With elections in mid-1996 expected
to return a coalition group to power, it will be hard for the new government to push the
reform measures with the same vigor and pace as the previous government did. It is even
unclear if the group in power will be so positively inclined to foreign investments and
trade as the current government.
The Automobile Manufacturers have put up a robust manufacturing capacity of 95 lakh
plus vehicles per annum since 1993. Today India is the world's 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 installed capacity of
the automobile sector during the year 2003-04 was as under:


One of the largest industries in India, automotive industry has been witnessing impressive
growth during the last two decades. Abolition of licensing in 1991, permitting automatic
approval and successive liberalisation of the sector over the years have led to all round
development of this industry.

The freeing of the industry from restrictive environment has, on the one hand, helped it to
restructure, absorb newer technologies, align itself to the global developments and realise
its potential and on the other hand, this has significantly increased industry's contribution
to overall industrial growth in the country. Overall automobile sector bagged a growth of
15.12% in 2003-04.

 During the year 2004- 05 (upto April-Sept. 2004) the Industry has registered a growth
rate of 15.06%. The details of actual production during 2003- 04 and 2004-05 (upto
April-Sept.2004) are given below:

In no.s
S. No. Name of the Sector             No. of units    Production
                                                                   (April-Sept. 04)
1.        Commercial Vehicles         9               275224       156815
2.        Cars                        12              842437       465983
3.        Multi-Utility Vehicles      5               146103       114739
4.        2-wheelers                  12              5624950      3023805
5.        3-wheelers                  4               340729       177554
          Total                       42              7229443      3938896

Automotive industry of India is now finding increasing recognition worldwide and a
beginning has been made in exports of vehicles as well as components. The automobile
industry along with the component industry is also contributing to the export effort of the
country. During the year 2002-03 the export of automobile industry had registered a
growth rate of 65.35% while it was 55.98% during the year 2003-04. The details of
exports during 2003-04 and 2004-05 (upto April-Sept. 2004) are given below:-

(in Nos.)
S. No EXPORT                      2003-04   2004-05(April-Sept. 04)
1.     Commercial vehicles        17227     12575
2.     Passenger cars             126249    76076
3.     Multi- Utility Vehicles    3067      2164
4.     2-wheelers                 264669    170978
5.     3-wheelers                 68138     37901
       TOTAL                      479350    299704

Auto Components Industry

Surge in automobile industry since the nineties has led to robust growth of the auto
component sector in the country. Responding to emerging scenario, Indian auto
component sector has shown great advances in recent years in terms of growth, spread,
absorption of newer technologies and flexibility, despite multiplicity of technology
platforms and low volumes. India's reasonably priced skilled workforce, large population
of technology workers coupled with strengths gained by the country in IT and electronics
all build up an environment for significant leap in component industry.

The Indian auto component sector is being written up as the next industry, after software,
that has the potential of becoming globally competitive. Indian Auto Component
Industry, with a turn over of an approx Rs. 36,300 crore (2004-05,prov.) and
manufacturing all the key components required for vehicle manufacturing, is an
important sector of the Automotive industry.

The phased Manufacturing Policy (PMP) followed in the 1980s enabled the component
industry to induct new technologies, new products and a much higher level of quality in
their operations that enabled quick and effective localization of the component base. The
Indian auto component industry over the years has played a key role in the growth and
development of the country's automotive industry.

The Indian auto component sector today has 420 key players who contribute more than
85% of the output of this sector.
The vital statistics of the auto component sector during 2002-03 and 2003-04 are as

Indicators          2002-03                   2003-04
Investment                                    Rs. 13,400 crore
                    Rs. 12,500 crore
Output              Rs. 24,500 crore
                                              Rs. 30,640 crore
Exports                                       Rs. 4,550 crore
                    Rs. 3,800 crore
Employment          5,00,000 persons
                                              5,00,000 persons

Indian auto component industry has seen major growth with the arrival of world vehicle
manufacturers from Japan, Korea, US & Europe. Due to diversities in the technological
profiles of these OEMs, the sector today produces large variety of components. Today,
India is emerging as one of the key auto components center in Asia and expected to play
a significant role in the global automotive supply chain in the near future.


Indian auto component industry is wide (over 420 firms in the organized sector producing
practically all components and more than 10,000 firms in small unorganized sector, in
tierized format) and has been one of the fastest growing segments of automotive industry,
growing by over 28%, in nominal terms, between 1995-98. During the year 2003-04, the
sector has recorded a growth of 25.06% by recording a production of the order of Rs.
30,640 crore. During the year 2004-05, the output of the Auto Component Industry is
expected to be around Rs. 36,300 crore.


Component exports in the year 2003-04 have already crossed US $ 1 billion. This,
however, represents only about 0.8% of global component trade currently estimated
at around US $1.2 trillion. This is reflective of significant opportunities that lie ahead.
Several export units have reached rejection rate below 5 parts per million (PPM) with
many of them touching a zero PPM. On export front, auto component industry has
registered a growth of 29% in the year 2003-04 which is expected to be around 30% in
the year 2004-05. During the year 2003-04, total export was of the order of Rs. 4550
crore as compared to Rs. 3497 crore during the year 2002-03. up in the current year with
the reduction in the excise duty and improvement in the credit delivery system for the

It certain issues that have already been extensively studied in the literature, such as the
relationship between growth, size, technology, and profitability of firms. When import
substitution industrialization strategy was adopted in India during the 1950s, the
automotive industry was chosen as one of the prime candidates for launching the process.
This is because it had great potential as a lead sector in stimulating the growth of other
industries such as iron, steel, glass, plastics and rubber.

With the recognition of the need to bring in a competitive atmosphere involving
technological modernisation and high rates of output growth, the automobile industry in
India has been subject to substantial policy changes over the last two decades. The policy
changes were in two phases, and took the form of partial de-regulations introduced in
1985 and liberalization measures launched since 1991. These changes dispensed with the
bulk of controls and regulations and for the first time since independence assigned a
central role to market forces.

The automobile industry in India, as a result of these policy changes, witnessed a number
of new entrants during the mid 1980s and early 1990s. Entry of firms, mostly with
foreign capital and technology, threatened the market share and the rate of progress of
most of the veterans in the Indian automobile industry. Foreign direct investment,
resulting in transfer of latest technological configurations to produce/assemble vehicles
involving technological upgradation, raised serious questions about sustainability of
growth in the already existing firms.

In order to examine the impact of entry and transfer of new technology, the analysis of
determinants of growth in this paper is carried out separately for the three different policy
regimes (Licensing 1980-81 to 1984-85, De-regulation 1985-86 to 1990-91 and
Liberalisation 1991-92 to 1995-96). Such analysis under different policy regimes and that
too at the level of firms drawn from a single industry has not been the focus of attention
in the earlier studies.

The main motivation for the analysis of growth is provided by two major developments
in the Indian automobile sector during the last decade. (a) liberalisation in Government
policy measures resulting in entry of firms with expanded capacity and capability to
produce vehicles involving technological up-gradation, and (b) massive inflow of direct
foreign investment into the automobile sector. Both these developments have important
implications for the performance of individual firms. Although there is a considerable
amount of empirical literature on the growth of firms, there has been no detailed
examination of the impact of policy changes and the role of technology in determining
the growth of firms in automobile industry or any other sector in India for this period.
The trends in growth of Indian automobile firms during the three different policy
regimes, viz., strict controls and licensing, deregulation and liberal economic policy
regime, chosen for the study.

Indian Component Suppliers

Component suppliers are the backbone of an emerging automotive industry. By all
accounts, the Indian component industry, based mostly in the southern city of Madras, is
tiny. The auto component manufacturers association of India (ACMA) estimates that $2.1
billion worth of car parts were produced in the financial year 1995, out of which exports
amounted to $228 million. To put this in perspective, the entire Indian industry's revenue
is roughly one-tenth that of GM's component unit, Delphi automotive systems2. But, the
component market has been growing rapidly at about 25% a year, and is expected to
quadruple in size by the year 2000. This growth has not only been due to the growing
demand for passenger vehicles, but also due to the increasing trend by multi-national
OEM's to resort to global sourcing to improve competitiveness.

Leading automotive assemblers and component makers are increasingly turning to India
for components. One of the now widely-cited examples of this trend is the Indian
component firm, Sundaram Fasteners Limited (SFL), which the author has been studying
for the last year. SFL became GM's largest supplier of radiator caps, and exports about
300,000 caps from its factories in Madras to GM plants around the world. In 1992, when
GM was planning to close one of its plants in UK., SFL took advantage of the liberalized
economic environment in India, bought the machinery from GM, and relocated them to
its plant in Madras. The company has continued to invest heavily in quality and
productivity improvements, and a tour around SFL's suburban Madras Factory shows a
world-class plant with minimal inventory and rework. The company's workers, trained in
statistical tools and control charts, keep processes under statistical control due to which
radiator cap rejection rate is less than 1% of annual production. The company also has a
very skilled managerial and engineering workforce, which has helped it develop in-house
product development capabilities. Using these resources and skills, the firm is now
seeking to expand its supply to other manufacturers in Europe, US, and Asia, and also
diversify into other components.

SFL exemplifies the Indian auto components industry, which although small and
fragmented has the competitive advantages of a skilled workforce and low labor costs. It
is estimated that components can be produced about 30% cheaper in India than in the
west. (The top Indian assembler, Maruti, is able to price its cars at about $5,500 because
it sources 90% of its components from Indian suppliers.) Rapid growth and tie-ups with
foreign firms will help Indian auto components suppliers further invest in capacity and
automation and acquisition of the latest know-how, thereby closing the productivity gap
with other world-class component makers.
Recent Developments and Issues Facing the Indian Automotive Industry

In the past two years, more than a dozen multi-national firms have announced plans to
enter the Indian market. Most of them have formed joint ventures with Indian firms,
while there are exceptions such as Hyundai which plan to form fully-owned units. Exhibit
2 displays most of these firms and their products planned for the Indian market3. Despite
the large growth potential of the Indian market (analysts expect the growth to triple in the
next five years), no one expects the industry to sustain the fragmentation caused by more
than a dozen suppliers. Many of these new firms will not enjoy the scale economies and
relationships with suppliers that Maruti does, so they have decided not to challenge
Maruti at its price of $5,500 in the smaller car segment. Most are planning to produce
between 20,000 and 50,000 higher-end vehicles. The stiffest competition is building up in
the mid-sized car range (1,300 cc and above), where several of these multi-national and
Indian companies are planning to go head-to-head. Although these newly announced
vehicles at $12,000 or above remain expensive by Indian standards and planned capacity
exceeds projected demand, new entrants are betting on the rising incomes of middle-class

Notably, Daewoo's new product Cielo, priced at about $15,000 in a joint venture with the
Indian firm DCM, drew 76,000 advance bookings last year reflecting the pent-up
demand in the market. Amongst the many issues facing the Indian automotive industry,
the biggest by far is the poor road infrastructure. India's road network, comprising of a
modest national highway system (that is only 2% or less of the total roadway length) is
woefully inadequate and dilapidated, and can barely keep pace with the auto industry's
rapid growth. Most roads are single-lane roads built in the 1950's and 60's, and are
crowded with two-wheelers, bullock carts, and even pedestrian humans and cows.

Traffic laws are not well enforced leading to one of the highest per-capita accident rates
in the world. It is to be expected that the introduction of bigger and more powerful
vehicles will only worsen the situation. Upgrading the existing highway system is itself
expected to cost $30 billion or more, and resource and land constraints prevent the
building of new highways.
Discussion of the Strengths and Weaknesses of the Various Players

To analyze the strengths and weaknesses of the various players in the Indian automotive
industry, it is useful to classify them into the following four categories: (1) Indian
Assemblers, (2) Multinational Assemblers (3) Indian Component Makers, and (4) Multi-
national Component Makers.

The Indian assemblers, typified by Maruti, have built a formidable distribution and after-
sales network. They also have an established supplier base, which gives them cost and
delivery time advantages, especially in light of import tariffs and currency exchange rate
fluctuations/ devaluations.

Their biggest weakness, with the exception of TELCO, is the lack of product design
capability. In the coming years, they should focus on acquiring product design and lean
production know-how (as the Korean firms did in the eighties and early nineties [Amsden
and Kang 95]).

They could acquire know-how with help from their joint-venture partners, and also with
investments in research and development which at present are at extremely low levels.
Multi-national assemblers could really benefit from their lean production capabilities in
India, where production runs are expected to be small due to the large number of players
entering the Indian market. They could also set themselves apart by incorporating safety
and comfort features not currently included in Indian-assembled products.

These include seat restraints, airbags, and anti-lock brakes, and comfort features such as
power windows, and central locks. U. S. assemblers have a reputation of safety, which
they could leverage to their advantage. Close cooperation the joint-venture partners can
overcome the lack of experience with the Indian market, but the small size of the
component supplier base will pose a challenge to their need to localize rapidly.

As mentioned earlier, the Indian component industry is small and fragmented, but is
growing and learning fast due to exports. It is also estimated to hold a 20-40% cost
advantage over multinational component suppliers who are much larger and are
themselves opening up units in India to take advantage of the lower-cost, skilled
workforce. The Indian component industry needs to invest in capacity and research and
development to stay abreast of competition, when the wage gap closes over time. It is
likely that some of the multi-national assemblers or component makers might buy some
of the small but niche component makers with a reputation for quality.
Table 2 Strengths and Weaknesses of the Different Groups in the Indian Auto

Trends in Growth of Firms

Growth of firms, in this analysis, is defined in terms of rate of change in the annual sales
turnover at current prices. The sales turnover could not be converted into constant prices
because most of the firms produce and market different models of cars and commercial
vehicles. These models are priced differently, but data on model-wise sale of the number
of vehicles is not available. Therefore, part of the changes in the rate of growth could also
be attributed to changes in the models, differences in quality, product mix and
fluctuations in prices. In analysing the determinants of growth, year dummies were
introduced in order to adjust for year-to-year fluctuations. Impact of changes in price
could partly be neutralised by the year dummies.

The average annual growth rate and the coefficient of variation [CV] of sales turnover in
current prices of Indian automobile firms during the three periods, namely, strict controls
and licensing, de-regulation and liberal economic policy regimes, are presented in table 1.
The table clearly indicates large differences across firms and wide year-to-year
fluctuations in growth during all the three periods of study. Although the average annual
growth rate of all firms as a group increased from 13.08 per cent in the first period to
28.20 percent during the second, the variability during the second is much higher than
that during the first period. However, both growth rate as well as the CV were lower in
the third period compared to the second, while the growth during the second period has
been higher than that during the first period.

From the table it emerges that the rate of growth of four leading firms, Telco, Mahindra
& Mahindra, Hindustan Motors and Ashok Leyland in the de-regulated and liberal
economic policy regimes is much higher than their growth rate during the licensing
regime. The variability in the growth rate of Telco, Hindustan Motors and Ashok Leyland
is lower during the second and third periods, when compared to the first period.

Telco and Ashok Leyland, which were growing at a lower rate than the industry as a
whole during first and second periods, improved their position during the liberal
economic policy period. Both these firms operate in the heavy commercial vehicles
segment of the automobile industry and both have long experience of being in this
business. They have also brought about

technological paradigm shift with a change in the policy; while Ashok Leyland has gone
in for intra-firm mode of technology acquisition through enhanced foreign equity
participation [it is a majority foreign equity holding company at present with 69% share
held by the British based Hinduja Group], Telco relied on its own in-house R & D efforts
to facilitate a change in their basic artefact [technology]. Telco has also diversified into
both LCV and the Car sector during the second and third periods respectively. De-
regulation and broad-banding appear to have enabled Telco to diversify into the LCV
sector and de-licensing of the Car sector enabled them to enter into that segment as well.
This could be the most important reason why Telco, which had lower than the industry
average growth rate during the first and second period, experienced very high growth rate
during the third. Hindustan Motors, however, has only gained marginally by achieving a
growth rate which is just one percent less than the industry average, inspite of a drastic
decline in the C.V. of its growth rate from about 185% and 178% in the first and second
periods respectively to 85% in the third.

Mahindra, which operates in both LCV as well as the utility vehicle segment [a part of
the car sector], appeared to have maintained its growth rate at about 17% per annum
throughout the period. The C.V. of its growth rate, however, has fluctuated with 8% in
the first, 230% in the second and 28% in the third. This large fluctuation in the second is
mostly because the firm were a bit slow to react to increased competition in the second
period. Most of the technological advancements in Mahindra took place during the late
1980s and the 1990s only.

Bajaj Tempo, which was a close competitor of Mahindra during the first period in the
LCV sector, had very high growth rate during the first period [9% higher than the
industry average], maintained the same position in the third period as well. De-regulation
period turned out to be the most turbulent for this firm as well. Bajaj brought about a
great deal of improvement in the technological configuration of its LCV during this
period. However, entry of new firms with foreign collaboration [equity participation] in
the LCV segment could have brought down its performance.

Premier automobiles, which had the second largest market share in the car sector, during
the first period, also maintained a growth rate higher than the industry average to begin
with. Its growth rate in the second period was quite close to that of the all-firm average.
However, it made a drastic change and started shrinking the moment, the car sector was
de-licensed. Entry of new multinationals and introduction of technologically superior cars
was the most important reason for the decline of Hmotor.

Smotor, which grew at the rate of 9% per annum in the first period, completely went out
of the market and closed down its production during the late 1980s. Nine per cent growth
of Standard Motors could largely be due to increase in price, rather than actual sale of
vehicles. This company started facing problems by the 1984-85 it self. The table also
reveals that all firms that entered the Indian market during the second half of 1980s
experienced above average growth rate during the second period, but barring Maruti and
Eicher Motors, the others were growing at a lower rate during the liberalisation period.
The variability of sales growth of these firms [Smazda and Daewoo] also increased
between the second and third period. The CV of Eicher motor has marginally increased,
while that of Maruti has actually declined. Maruti's growth rate during the second period
was almost twice that of the industry average. In the liberal economic policy period,
however, Maruti's growth rate is lower than that of Telco's, although it continues to be
above the industry average. Maruti has also diversified into various assembly lines
[variety of cars for different market segments, vans and other utility vehicles], but Telco
has the distinction of operating in all the three markets [light, medium and heavy
commercial vehicles and cars] and is a market leader in both LCV as well as MHCV

To summarise, although the growth rate of the Indian automobile sector fluctuated
drastically [increasing from 13% in the first sub-period to 28% in the second and
declining to 15% in the third], there are large variations in the growth rates of individual
firms. Most of these variations in the growth rates could possibly be due to changes in the
policy framework in which the firms have been operating and its impact on the conduct
of firms.

Apart from large differences in inter-firm growth rates, since the analysis deals with
panel data, there could also be year-to-year fluctuations in the growth rates of firms
within a given policy period. The possible fluctuation in the growth rate [inter-temporal]
within any policy regime is examined by running the following regression.
Table 2 indicates large year-to-year fluctuations in the growth of Indian automobile
firms. During the licensing regime itself, the growth of firms in 1982-83 declined by 28%
in relation to 1981-82. The growth in 1983-84 over 1981-82 again fell by 16%. However,
it appears to have picked up momentum in 1984-85 with an increase of about 72%.
During the de-regulation period also the growth rate does not appear to be stable. There
are large fluctuations in the growth rates of firms during 1987-88, 1988-89 and 1989-90
relative to 1985-86. The fluctuations in the growth rates during the liberalisation period
appear to have abated and after the initial decline during 1992-93, the growth rate
remained substantially above that in the initial year 1991-92. On the whole, Table 2
indicates considerable year-to-year fluctuations in growth rates during all the three policy


Growth of Indian automobile firms during three different policy regimes, namely
licensing [1980-81 to 84-85, de- regulation 1985-86 to 1990-91 and liberalisation 1991-
92 to 1995-96]. The analysis broadly followed the evolutionary theoretical framework. It
is argued that differences among firms in terms of technology acquisition explain much
of the firm level differences in growth. An analysis of trends in growth rates of firms
points out large variation not only between the firms, but also for the same firm across
different policy regimes.

Further, there also seem to be large year-to-year fluctuations in the growth of firms in this
industry. A part of this fluctuation could also be due to the price factor. To incorporate
these firm specific and inter-temporal changes, the study used two-way fixed effect
estimation of the growth function. The results of the estimated fixed effect model support
the view that inter-firm differences in growth in this industry in India are determined by
variables capturing technology paradigm and trajectory shifts. It is evident that even in an
era of strict controls and regulations, with policy imposing limits on growth, firms with
foreign equity tend to grow at a higher rate than the others. This is largely due to the
resource advantage they enjoy over others for growth. With a change in the policy,
however, imports of capital goods was the only technology variable which enabled firms
to achieve high growth rate. When it comes to other modes of technology acquisition,
firms appear to have been in prisoner s dilemma like situation, whereby expenditure
incurred on these activities may not give them any advantage to secure growth, but not
spending on these activities could also harm them and make them feel left-behind .

In a liberal economic policy regime, firms, which relied mostly on intra-firm transfer of
technology through foreign equity participation, grew faster than the others did. Thus the
changing role of technology acquisition variables in determining growth is borne out by
the results of this exercise.

Further, the positive relationship between firm size and growth also confirms the
existence of certain scale advantages in achieving high rates of growth. Firm size, had
remained a catch-all variable for most of the studies and if one accounts for the role of
technology, vertical integration, capital intensity and the age of the firm, size of the firm
does provide a firm with positive advantages to grow.

Apart from technology, firm size and profits, degree of vertical integration and capital
intensity also emerged as significant [with negative signs] in determining the growth of
Indian automobile firms. Vertically integrated firms face severe restrictions in
diversifying to other sectors. Inability to diversify could possibly be the most important
reason for lower growth of vertically integrated firms. The negative sign of VI confirms
the Marris model. Efficient utilisation of capital stock, with a corresponding reduction in
the marginal cost, enables a firm to grow at a faster rate. Liberalisation in economic
policy and the emergence of a competitive atmosphere appear to be the most important
reason for the firms to utilise their capital stock more efficiently. The results also confirm
that new firms grow at a faster rate than their older counterparts. Most of the new firms
set up during the second and third periods of this study have gone in for intra-firm mode
of technology transfer through foreign equity participation

Access to brand names and good will of the technology supplier could be a possible
reason for them to grow. To sum up, the analysis carried out in this paper clearly
highlights the changing nature of the role of technology variables in influencing growth
of firms. The role of technology is largely governed by the technological regime in which
the firm operates. Some of these changes in actual technological configuration, however,
need to be examined much more thoroughly. Such an exercise is possible only through a
case study approach, which is beyond the scope of this study. Moreover, one major
limitation of this exercise could be the calculation of growth at current prices. The
differences, if any, in the role of firm size, profits, vertical integration, capital intensity
and the age of the firm are also brought out by the findings of this study.


Peter Drucker refers to as the Industry of Industries . It is the backbone of Petroleum,
Steel and manufacturing sectors. It creates employments for thousands and gives birth to
many entrepreneurs. It satisfies one of the most basic needs of a human being mobility.
It is none other than the Automobile Industry! It is well known fact that Automobile
industry is the cornerstone of some of the most influential economies in the world like
USA and Japan. Indian Automobile industry is all set to play the same role in Indian
Economy. Indian Automobile today is one of the most modern, growing and vibrant
automobile markets on the global map. India is second biggest two-wheeler market in the

The four-wheeler market in India is also one of the fastest growing and most promising.
No wonder, it has become a centre of attraction for most of the global automobile
players. The present document intends to highlight the key issues governing the Indian
Automobile Market that need to be considered to make a successful entry in this market.
It also intends to glance through the historic developments in this market to gain deeper

Historical Perspective

To understand the pulse of Indian Automobile market, one has to look at its historical
developments. Till early 80s, Indian markets were controlled by the government policies
influenced by Fabian Socialism, central planning and bureaucratic red-tapism. All
production capacities were licensed. The import duties were astronomically high to
protect the domestic market from global competition. Foreign investments were not
allowed in domestic ventures.

On the other hand, due to population and inefficient public transport system, the demand
of automobile far exceeded the supply. The waiting periods touched maddening levels of
10-12 years. Buoyed by such a magnitude of impending demand, Manufacturers got into
monopolistic frame of mind. Operating on virtually negative working capital, there was
neither any incentive nor business compulsion to upgrade the technology or to build
reliability in the product.
Manufacturers focused on cost cutting and value engineering. The after sales service also
did not get its due importance in the scheme of things. Manufacturer s attitude had a rub-
off on the Dealers mentality as well. There was no compelling reason to provide world
class buying ambience and after sales service. It was a Sellers Market dominated by
handful manufacturers. The choice of models, features, styling was very limited. The
manufacturers and the dealers who stagnated in this era found it difficult to survive in the
competitive open markets at a later date. Those who survived had to pay dearly regain the
confidence from the customers.

Winds of Change

This scene started changing in the 80 s. Slowly but surely Government started pulling of
various stops in the policies. Slue of initiatives were undertaken to liberalize and
modernize the market.

In early 80s, the manufacturing capacity licenses were abolished - Soon the waiting
lists shrunk and vanished. Pressure started mounting on manufacturers and Gearing to Go
Page 2 of 6 dealers to sell the vehicles rather than merely distribute . These were the
early signs of market transformation from a sellers market to a buyers market .

Technological collaborations with equity participation were allowed in early 80s – In
a very short span of time, a number of joint ventures flourished by adapting to technology
appropriate for Indian conditions. The new breed of vehicles was much more efficient,
feature-rich and better styled than their counterparts. These products struck the right
chord in the market as they addressed unsatisfied demands of the customers. Some new
categories like small car , 100 cc Japanese motorcycle which formed the foundation
of modern automobile market emerged during this phase.

In early 90s, Multinationals were allowed to set up their own manufacturing plants
on Indian soil - This created a huge influx of global giants from Japan, Korea, USA and
Europe. They brought with them world-class manufacturing practices, reliable products
with tried and tested systems. For the first time Indian consumers were pampered with
the simultaneous launch of World models.

In late 90s, Banking sector was liberalized – This made credit available at a cheaper
rate. The entry of private banks and Non Banking Finance Corporations improved the
efficiency and the service levels. This enhanced the buying power of customer
significantly. These developments aided the transformation from Sellers market to the
buyers market. The new customer was knowledgeable, empowered and had bargaining

Modern Automobile Market - Key Issues

The latest trends and key issues in the modern automobile market need to be considered
for successful entry in the Indian Market.
1. Government – The Enabler
In contrast over the past, Indian Government has switched over its role from controller to
enabler. The focus is on providing better infrastructure, growth oriented economic
policies and right environment to attract investments. An ambitious project of interstate
highway network, called golden quadrangle, is in its advanced stages of implementation.
Pollution control has become another priority area. There is a proposal to ban all the
vehicles older than 10~15 years, which is likely to boost the demand of modern
automobile. The import duties on the CBU and Used vehicles are designed to protect the
interests of the automobile manufacturers in India, an incentive to attract foreign
investment. Government has also cut the excise duty to boost the demand. Although, it
has met with a limited success in past, with a favorable economic environment,
Government may take these proactive steps again. The oil companies are about to be
privatized which is likely to make them flexible and customer friendly. These
developments have made India an attractive and promising destination for any global

2. Competition – Cut Throat
The entry of multinationals has put immense pressure on Indian companies. Some of
them have entered into joint ventures with multinationals; a few others have invested
heavily on R&D to be on their own, others perished. The market has now polarized into
two distinct segments:

Indian Players: Those who invested in R&D survived. They could launch new models,
retain their dealer network and improve on their service in due course of time. They have
strategically leveraged their low cost structure to create price barrier for the competition.
Most of them offered value for money products to offset their weakness in technology
and styling.

Multinationals: The multinationals have launched international products with better
technology and styling at higher price points. These products appealed to a different class
of customers who were value-conscious . This class of customers has an attitude to
appreciate evolved product offerings and buying power to purchase them. Both Value
conscious and Price conscious customer segment co-exist in Indian market today. The
later is losing its share rapidly. Any potential entrant can consider launching the products
targeted at Value conscious segments. However, the value perceptions of the target
segment should be analysed in depth. The features-price package should ensure an
attractive value preposition for the customers.

3. Customer – The King

Undoubtedly the customer has become the King. The modern customer is armed with IT
and has higher buying power. The ever-increasing expectations from products and
services are a major challenge for all the players in the market. The softer issues have
gained as much importance as product features in his brand decisions. There is higher
propensity towards choosing brand that befitting the self-image.
In the present market scenario, the transition from products to brands is complete.
The intangible offerings have gained as much importance as the tangible product
features. Any new entrant should therefore have a greater focus on brand building.
Monitoring customer satisfaction periodically is also very critical Resources and efforts
put behind these activities should be considered as investment on the brand for ultimate

4. Customer Care – not just Service

After sale service is the clichéd description of the function. The customer today is
looking beyond just fixing the problems. The service experience, ambience and the
expertise are sought after. 24-hour breakdown service is not uncommon.

The potential entrant needs to look at this function in larger perspective. It should be
  customer care rather than mere After Sale Service. Raison de entrée of this function
should be customer delight. Fixing the automobile should merely be the way to achieve
it. This approach would mean higher investments in workshops. More importantly a fresh
approach to the intangible softer issues of the customer relationship is recommended.

5. Pollution and Safety norms

Indian two wheelers have already met the most stringent international norms of pollution.
The cars are not left far behind. Government of India is dead serious about enforcing
them. Euro II vehicles have become a norm in the NCR region, Mumbai and Kolkata.
Soon these norms would be enforced in 6 other metro cities and eventually all over India.
Any new entrant planning to make it big in India, should keep in pace with the latest
international pollution control norms right from the inception. It would mean higher level
of investments in modern technology for efficient engines. Such investments are the
business compulsion, hence should not be compromised upon.

Safety in motor vehicles is relatively neglected area in Indian market. There are only a
handful models with safety features such as airbag, crumple zone etc. But the awareness
is increasing rapidly. Recently use of seatbelts has been made mandatory. It is therefore
recommended that the models be launched with latest international standards of safety.
Any efforts to create awareness about safety in automobiles would generate goodwill
among the customer fraternity and would also receive encouragement from Government

6. Used vehicle Business

Maruti and Ford have pioneered in this business in India. Chain of authorised shops is set
up to trade-in the used vehicles. The venture is very successful, as these chains have
emerged as preferred destinations for trading used cars. Customers admire the
convenience and transparency offered by them, unlike the opportunistic attitude of the
unorganised players who controlled the market earlier.

This strategic business unit is strongly recommended for the new entrants. This business
is complimentary to the main business. It can also generate handsome profits if run

Considering the growth rates and volumes of various categories, two categories emerge
as growing categories. The future of two-wheeler market lies with them.

Bikes: Keeping in line with the global trend, motorcycle market growing rapidly in India.
Bikes appeal to urban and rural customer alike. Higher engine capacity bikes have done
well in the recent past. Styling and fuel efficiency also has improved significantly.
Experiments of racer bikes, cruiser bikes have met with a limited success. Launch of a
range of bikes appealing to various class of customer is recommended. The broad
segments are economy, premium and power. Adaptation to Indian usage conditions
before launch is the key to success. An elaborate market research should be undertaken to
fine-tune the product offering.

Automatic Scooters: This segment is likely to be the best gainer from increasing buying
power of the urban customer. There is propensity towards owning unisexual vehicle in
the family. Hence, there is a strong possibility that the current motorcycle owner may
graduate to automatic scooter for overall convenience.

Although, current volumes do not look attractive, we strongly recommend launch of
product in this segment. The convenience package offered by this category should be
supplemented with lower cost of ownership to become successful.

Looking at the current volumes and trends we recommend launch of products in
following segments

Image Builders: The presence in D segment builds the image for the company. The
volumes may not look lucrative to enter the segment. But the product offering
demonstrates the ability of the company to manufacture high-end, latest technology, well-
styled and comfortable vehicle.
One of the problems faced by the market leader Maruti has been its absence in D

Profit Builders: The current sale trend indicates that lower C segment is growing.
Keeping in mind the trends in banking sector and the consumer psyche, we feel that this
segment would increase its share in the category. Improving road conditions and
infrastructure would make inter-city travel in personal cars very easy. The customer
would graduate from A and lower B to Lower C segment for better luggage space, higher
power engine and better road handling at high speeds.

Volume Builders: Volume for tomorrow lies in upper B segment the fastest growing
segment in the category. Affluent first time customers are likely to find upper B segment
attractive. The offerings in this segment combine the best of both worlds maximum
space inside the car and manoeuvrability of a small car. The success of Indica and Palio
suggest that this is the segment of future.

An eye on the future

Following are some very diverse trends seen in the market, which also need to be tracked
in the future.

1. Alternate Fuel: Currently, the use of CNG and LPG is legitimate on all vehicles. The
transport vehicles are first ones to adapt to these cheaper fuels. The usage of these fuels is
not considered very safe by individuals. But as the equipment starts becoming safer and
the distribution of the fuel improves, individuals would start graduating towards them. It
is strongly recommended that any new engine should be compatible to these fuels.

2. Electric Car: Reva has met a limited success in the cities. With technological
advancements electrical car may emerge as a preferred option as a second car. This trend
needs to be studied for its implications.

3. Advent of Internet: Indian customer is known for his propensity towards touch-
nfeel factor before making a buying decision. But the new generation, which is growing
with the Internet, may defy this logic. Internet would assume much larger role than just
information dissemination. In the new market scenario, Internet would actually drive the
value chain. The customer would use the Internet to place the customised order and
expect the manufacturer to fulfil it in the minimum time.

Integrating internal systems and the value chain to Internet since inception is advisable.
The concentration should be to build a value chain that is flexible and lean to adapt to any
change in demand pattern. This strategy would attract significant investments in IT

To sum up, Indian Automobile Market is at a stage of take-off. The business and
economic environment is favourable for any company planning to set up a manufacturing
base in India and manufacture products suited for Indian market. The market is dynamic
and is becoming more and more customer-centric. The customer is open to novel
products, services and concepts.

Apart from plant and machinery, the new entrant should invest a significant effort and
resources for understanding the customer and building the brand.

Careful planning, prudent investment decisions, professional management and meticulous
Implementation of the recommended strategies is the right cocktail for making a
 zooming entry, creating a mark in the market and achieving profitability in the medium

The future trends of the industry, (with respect to nature of competition, level of
technology, demand and growth etc.) the likely changes in Government policy and
foreign investment in the industry.

The growth curve of India Auto Inc. has been on an upswing for the past few years. The
high growth observed since 2001-02 in automobile production continued in the first three
quarters of the 2004-05. Annual growth was 16.0 per cent in April-December, 2004; the
growth rate in 2003-04 was 15.1 percent. Consequent to liberalisation, the arrival of new
and contemporary models, easy availability of finance at relatively low rate of interest
and price discounts offered by the dealers and manufacturers appear to have stimulated
the demand for vehicles and a strong growth of the industry.

The automobile industry grew at a compound annual growth rate (CAGR) of 22 per cent
between 1992 and 1997. With investment exceeding Rs. 50,000 crore, the turnover of the
automobile industry exceeded Rs. 59,518 crore in 2002-03. Including turnover of the
auto-component sector, the automotive industry s turnover, which was above Rs. 84,000
crore in 2002-03, is estimated to have exceeded Rs.1,00,000 crore in 2003-04.

The progressive liberalisation of the norms for foreign investment and import of
technology appear to have benefited the automobile sector with production of total
vehicles increasing from 4.2 million in 1998-99 to 7.3 million in 2003-04. It is likely that
the production of such vehicles will exceed 10 million in the next couple of years.

The fastest growth in volumes has come from commercial vehicles. Between 1998-99
and 2003-04, output of such vehicles has grown 2.8 times compared to the 2.2 times
increase in passenger cars. Furthermore, two-wheeler output continues to dominate the
volume statistics of the sector. In 2003-04, for every passenger car turned out by the
sector, there were 7 two-wheelers produced.
Automobile production (Numbers)
Category                             2002-03          2003-04           2004-05*
Passenger Car                        608,851          842,437           699,082
Multi Utility Vehicles               114,479          146,103           178,187
Commercial Vehicles                  203,697          275,224           247,797
Two Wheelers                         5,076,221        5,624,950         4,758,639
Three Wheelers                       276,719          340,729           271,983
Total                                6,279,967        7,229,443         6,155,688
Percentage Growth                    18.1             15.1              16.0
Figures related to April December 2004
Source: Ministry of Heavy Industry & Public Enterprises

India has become a launch pad

Rising sales and strong growth prospects heightened the popularity of auto stocks in July
2004 as foreign institutional investors (FIIs) increased their stakes in key automobile
companies like Mahindra & Mahindra, Ashok Leyland, Maruti Udyog, TVS Motors and
Hero Honda.

Global names such as Daimler Chrysler and Porsche have begun introducing their new
offerings in India. DaimlerChrysler plans to launch the new Mercedes SLK roadster,
which has just hit European roads, in India by October-November 2004. Porsche is
bringing in the Cayenne and Toyota is planning a simultaneous release of its IMV.

Note, these models are the latest cars zipping on international roads and not the dated
versions that were passed on earlier.

Automobile export (Numbers)
Category                               2002-03         2003-04         2004-05*
Passenger Car                          70,828          126,249         121,478
Multi Utility Vehicles                 1,177           3,067           3,892
Commercial Vehicles                    12,255          17,227          19,931
Two Wheelers                           179,682         264,669         256,765
Three Wheelers                         43,366          68,138          51,535
Total                                  307,308         479,350         453,601
Percentage Growth                      66.4            56.0            32.8
 Source: Ministry of Heavy Industry & Public Enterprises
Foreign forays

Indian auto companies are moving aggressively into foreign markets. Some cases in

   •   Tractor and utility vehicle maker Mahindra & Mahindra (M&M) has emerged as
       the fourth-largest tractor brand in the US in the 15-90 horse power (HP) segment.
       During 2004, Mahindra US clocked sales of US$128m. Sales are expected to
       cross US$250m by December 2008. It has created a market for itself in the Latin
       American and South African markets too. It has opened an assembly line for its
       Bolero range pick-up vehicles in Uruguay. The firm also launched its sports
       utility vehicle, the Scorpio, in Kuwait in July 2004. The Scorpio model in Kuwait
       comes equipped with a Renault petrol engine.

   •   Tata Motors Ltd, the country's leading truck maker, acquired a Daewoo truck
       manufacturing unit in South Korea in 2004. The firm plans to introduce its heavy
       duty trucks in India in the next 12 months. These 200-400 horse power trucks
       with 49-tonne freight capacity will be launched in India and select countries as
       part of Tata's strategy to enter the global transportation market.

   •   The Ambassador is back in demand in Wales. Merlin Garages of
       Carmarthenshire, the UK's only importer of the Ambassador, is now planning a
       new, soft top version of the Ambassador for the British market.

With such movements, the day may not be far when Indian auto brands will become a
common sight on international roads.

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