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Indian Auto Industry

Essay by   •  January 4, 2011  •  2,225 Words (9 Pages)  •  1,773 Views

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1] INDIAN AUTO INDUSTRY : OVERVIEW

The automobile industry in India is the eleventh largest in the world with an annual production of approximately 2 million units , the 2nd largest two wheeler market in the world and the 4th largest commercial vehicle market in the world. India is expected to overtake China as the world's fastest growing car market in terms of the number of units sold and the automotive industry is one of the fastest growing manufacturing sectors in India . The industry has grown at a CAGR of 14% p.a over the last 5 years, with sales of 9 million vehicles in 2005-06 .Because of its large market (India has a population of 1.1 billion; the second largest in the world), a low base of car ownership (7 per 1,000 people) and a surging economy, India has become a huge attraction for car manufacturers around the world.

The automotive industry directly and indirectly employs 13 million individuals in India. The industry is valued at about US$ 35 billion contributing about 3.1% of India's GDP (nominal). India's cost-competitive auto components industry is the second largest in the world. In addition, India's motorcycle market is also the second largest in the world with annual sales of about 5 million units.

Though several major foreign automakers have their manufacturing bases in India like honda and kawasaki, the Indian automobile market is dominated by domestic companies. Maruti Suzuki is the largest passenger vehicle company, Tata Motors is the largest commercial vehicle company while Hero Honda is the largest motorcycle company in India. Other major Indian automobile manufacturers include Mahindra & Mahindra, Ashok Leyland and Bajaj Auto.

While automobiles were introduced to India in the late 1890's, the manufacturing industry only took off after independence in 1947. The protectionist economic policies of the government gave rise in the 1950's to the Hindustan Motors Ambassador, based on a 1950's Morris Oxford, and, is still ubiquitous in the roads and highways of India. Hindustan Motors and a few smaller manufacturers such as Premier Automobiles, Tata Motors, Bajaj Auto, Ashok and Standard Motors held an oligopoly until India's initial economic opening in the 1980's. The maverick Indian politician Sanjay Gandhi championed the need for a "people's car"; the project was realized after his death with the launch of a state-owned firm Maruti Udyog Suzuki which quickly gained over 50% market share. The Maruti 800 became popular because of its low price, high fuel efficiency, reliability and modern features relative to its competition at the time. Tata Motors exported buses and trucks to niche markets in the developing world.

The liberalization of 1991 opened the flood gates of competition and growth which have continued up to today. The high growth in the Indian economy has resulted in all major international car manufacturers entering the Indian market.

[2] AUTO ANCILLARY INDUSTRY : OVERVIEW

The fortunes of the auto ancillary sector are closely linked to those of the auto sector. Demand swings in any of the segments (cars, two-wheelers, commercial vehicles) have an impact on auto ancillary demand. Demand is derived from original equipment manufacturers (OEM) as well as the replacement market. Amongst the total production range, engine parts account for 31% of the total revenues of the industry.

The Indian auto component industry has been navigating through a period of rapid changes with great Ð"©lan. Driven by global competition and the recent shift in focus of global automobile manufacturers, business rules are changing and liberalisation has had sweeping ramifications for the industry. The global auto components industry is estimated at US$1.2 trillion. The Indian auto component sector has been growing at 20% per annum since 2000 and is projected to maintain the high-growth phase of 15-20% till 2015.

The Indian auto component industry is one of the few sectors in the economy that has a distinct global competitive advantage in terms of cost and quality. The value in sourcing auto components from India includes low labour cost, raw material availability, technically skilled manpower and quality assurance. An average cost reduction of nearly 25-30% has attracted several global automobile manufacturers to set base since 1991. India’s process-engineering skills, applied to re-designing of production processes, have enabled reduction in manufacturing costs of components. Today, India has become the outsourcing hub for several global automobile manufacturers.

The India’s Top 500 Companies, published by Dun & Bradstreet in 2006, listed 22 auto component manufacturers as top companies in India with a total turnover of US$ 3 bn. These companies are in the process of making a mark on the global arena, and some have already acquired assets abroad.

Industry Structure

The total turnover of the Indian auto component industry is estimated at US$9 bn in 2006. The industry has the resources to manufacture the entire range of auto products required for vehicle manufacturing, approximately 20,000 components. The entry of global manufacturers into India during the 1990s enabled induction of new technologies, new products, improved quality and better efficiencies in operations. This in turn effectively acted as a catalyst to the local development of the component industry.

The Indian auto component industry is extensive and highly fragmented. Estimates by the Department of Heavy Industries, Government of India, indicate there are over 400 large firms who are part of the organised sector and cater largely to the Original Equipment Manufacturers (OEMs). Another 10,000 firms exist in the unorganised 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 unorganised segment, apart from supplying in the aftermarket, a number of players are also involved in job work and contract manufacturing.

Industry Growth

Production of auto ancillaries was estimated at US$10 bn in 2005-06 and has been growing at a robust 20% per annum since 2000. Exports of auto components have been strong growing at 24% per annum since 2000. This growth in exports if sustained for another five years will see India’s auto components exports will touch US$ 5 bn by 2011 from the US$ 2 bn at present.

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