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Automobile sector - Impact of Indian automobile industry on the global

economy

By

Shiney Benjamin

Deepak Dsouza

(ANVESHI_REG_1002)

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Introduction

The automobile industry has been consistently surpassing expectations of economists andmarket watch-dogs and has become one of the largest automobile industries in the world. .

India manufactures over 11 million vehicles (including 2 wheeled and 4 wheeled) and exports

about 1.5 million every year. It is the world's second largest manufacturer of motorcycles,

with annual sales exceeding 8.5 million in 2009. India's passenger car and commercial

vehicle manufacturing industry is the seventh largest in the world, with an annual production

of more than 2.6 million units in 2009. In 2009, India emerged as Asia's fourth largest

exporter of passenger cars, behind Japan, South Korea and Thailand.

As of 2009, India is home to 40 million passenger vehicles and more than 2.6 million cars

were sold in India in 2009 (an increase of 26%), making the country the second fastest

growing automobile market in the world. According to the Society of Indian Automobile

Manufacturers, annual car sales are projected to increase up to 5 million vehicles by 2015 and

more than 9 million by 2020.By 2050, the country is expected to top the world in car volumes

with approximately 611 million vehicles on the nation's roads. This gives us considerable

reasons to believe that Indias successful growth story will be backed in a significant way by

the automobile industry.

Need of the study

In order to study Indias role in the emerging world order, we found it imperative to target

those sectors which have been showing promising results in the form of year on year growth.

From 2003-2010, car sales in India have progressed at a CAGR of 13.7%. It is not only the

domestic sales that have had an impact on the GDP in the recent decade but it is also the

exports that have proven to be a significant contributor to Indias growth. Indias automobile

exports have grown consistently and reached $ 4.5 billion in 2009 and is expected to cross

$12 billion by 2014. Since the demand for automobiles in recent years is directly linked to

overall economic expansion and rising personal incomes, industry growth will slow if the

economy weakens. Based on the statistics of the automobile industry in the past decade, we

can attempt to form a hypothesis on how and in what ways the automobile industry can

propel Indias growth.

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Objectives of the study

To study the relation between the progress of the Indian automobile industry and itsimpact on Indias growth in terms of GDP.

To study how the Indian automobile industry attracts foreign players and contribute to

the GDP.

Research methodology

The research methodology adopted in this study is exploratory and descriptive in nature and

the data collected is through secondary sources namely online studies that were conducted on

the relevant topic. In this research paper, we would be studying the information collected

through secondary data and forming hypothesis on the same.

Findings

Role of Automobile Industry in India GDP-Facts

India has become one of the international players in the automobile market

In the year 2006-07, the Indian Automobile Industry produced 2.06 million fourwheelers and 9 million two and three wheelers

The four wheelers include passenger cars, multi-utility vehicles, sports utilityvehicles, light, medium and heavy commercial vehicles, etc

The three wheelers include mopeds, motor-cycles, scooters, and three wheelers

India ranks 2nd in the global two-wheeler market

India is the 4th biggest commercial vehicle market in the world

India ranks 11th in the international passenger car market

India ranks 5th pertaining to the number of bus and truck sold in the world

It is expected that the Automobile Industry in India would be the 7th largestautomobile market within the year 2016

Automobile Industry in India-New Models

Maruti sedan SX4 and Zen Estilo

Mahindra Renault Logan, General Motors Chevrolet Spark, Aveo, and Aveo UV-A

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Hyundai Verna

Fiat Palio 1.1 litre version,

Volvo Car S80 sedan and XC90 SUV,

Tata Motors Magic and Winger,

Volkswagen Passat

Mitsubishi Cedia

Role of Automobile Industry in India GDP-Foreign Investments

The Indian Automobile industry is at present engaged in mergers and acquisitions onthe international scale

The Indian automobile industry's foreign sector worth US$ 515 million

The Mahindra and Mahindra company will be establishing a utility assembly plant incollaboration with Bramont, a local company at Manuas, in North Brazil

In Egypt, the Mahindra and Mahindra company has set up assembly plants incollaboration with the Bavarian Motors

The Tata Motors have entered the passenger car market in Saudi Arabia with thelaunch of Tata Indigo, Tata Indica, and Tata Indigo Marina

The TVS Motor Company has established a two-wheeler manufacturing unit atKarawang, in Indonesia

The Maruti Udyog Ltd has captured nearly 60% of the small car market in Indonesia

The Nissan Motor facility in South Africa was acquired by the Tata Motors tomanufacture Tata vehicle for European and South African market

The Jaguar and Land Rover companies owned by the Ford Motor Company wasacquired by the Tata Motors Ltd for estimated price of US$ 1.5 billion.

The present scenario is a highly transformed one. Multinational giants are vying with oneother to launch their models. Big names of the vehicle industry like the Korean giant,Hyundai, General Motors, Mitsubishi etc. have already opened their account. In other vehicle

segments too, Volvo, Mercedes Benz, Audi etc. have carved out their niche.On the other hand, manufacturing in India has also come of age. The post liberationeconomical scenario has resulted in all the big names such as General Motors, Ford, Toyota,Honda, Suzuki, Mitsubishi, Mercedes-Benz, Fiat to come up with plants in India. The Indianautomotive giants like Telco, Mahindra, Ashok Leyland, and Bajaj are revamping their

production strategies and launching new models designed and developed indigenously. Thishas opened up numerous opportunities or employment in this sector for trained and skilled

professionals who are well versed in the latest manufacturing process.Sunny Days are here for the Indian automobile Industry as is corroborated by the latest reportmade public by Society of automobile Manufacturers. The report speaks of the growth of carsales by 22.42% in the month of September. The month saw the sales climb as high as to94,734 units as opposed to 77,384 units in the same month last year. The growth spree seems

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to have spilled onto the sale of commercial vehicles as well; the segment experienced agrowth rate of 33.54% in the month of September.The only French presence in the Indian automobile market was the Peugeot 309, a boxysedan that was manufactured by a joint venture, in which the Indian partner was alreadylosing its hold on the passenger car market.

The Peugeot 309 was launched when multinational carmakers were just beginning to cornerthe Indian market. The car was too early for its times in terms of the demand in the segment itwas being positioned and it quickly became dated in terms of design. It only had a small fanfollowing, that is, among those that appreciated good engineering.Renault, France's second-largest carmaker, formed a 125 million euro ($165 million) venturewith Mahindra & Mahindra Ltd to make Logan sedans in India, tapping into Asia's fourth-largest car market.Mahindra, India's biggest maker of sport-utility vehicles and tractors, will own 51% of thecompany, with Renault holding the remainder.Renault, which announced details of the agreement last month, is entering India with the$6,000 Logan it began producing in September at its Dacia (Romania). Overseas carmakers

are assessing the Indian market to expand their presence by introducing new models as risingincomes increased demand for cars in the world's second-most populous nation.

Mahindra Renault is also collaborating with Japan's Nissan Motor Co. in which the Frenchauto maker holds 44 per cent stake building a bigger plant near the southern Indian city ofChennai.The three companies are together investing about US$900 million in that plant, which will becompleted in the second half of 2009 and will have capacity to manufacture 400,000 vehicles,including the Logan.Strategy of Mahindra Renault:India's car market is dominated by small hatchbacks, but rapidly growing middle classincomes has fueled demand for low-cost sedans.The pricing, which the manufacturer described as ``aggressive'', places Logan in competitionwith mid-size sedans from South Korean car maker Hyundai Motor Co., homegrown TataMotors Ltd. and the country's largest carmaker The Suzuki Motor Inc. controlled by MarutiUdyog Ltd.The car is now being manufactured by M&M at its Nasik facility and delivers on its promiseof good engineering, great value and low prices. But it still will have to face up to and getover a number of issues on the way before its Indian innings can be counted amongst itssuccesses worldwide. This, despite the killer pricing and feature-rich package that is beingoffered with the India-made Logan.

Logan coming to India is stripped-down version of European Logan and will have very basicfeatures only. It has very good space and comfort is good too. This car is expected to do goodin rural areas where Mahindra has better reach. Size matters for Indians and the Logan offersenough of it in every department except the choice of engines, which is again very relevantfor us given the buyer's fixation with fuel efficiency.To compare the Renault Logan with the Toyota Corolla or the Mercedes Benz C-class sedanis like comparing a hard-boiled lick-lolly with a Godiva specialty truffle. But if you are asweet tooth on a tight budget, the lick-lolly will be the automatic choice.One of the issues that may not work in its favour is the Logan's unexciting, overly simplisticdesign. The design was conceived with a purpose to keep manufacturing and maintenancecosts low especially in cost-sensitive markets such as India.

Overall, the Logan successfully conceals the fact that it is a product of frugal engineering orcost cutting, as we would call it in common parlance. But as you go up the price segment in

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the petrol sedan category, buyers are more demanding even in the design department. TheLogan's pricing is what makes it even more attractive for those looking to purchase their nextcar from the premium hatch or the entry-level sedan segments.Global automakers have been stepping up efforts to increase their presence in India, wherethe economy is growing close to nine per cent annually and demand for cars is strong, thanks

to rising middle class incomes and easier access to loans.Toyota to bring its hybrid sedan to IndiaToyota motors has an answer to growing emission concerns and rising fuel costs in the formof its hybrid sedan Prius, which it plans to bring to India shortly. The Toyota Prius is sold innearly 40 countries around the globe, and it is regarded as being the most fuel efficientmidsize car in the United States.

Limitations and scope of study

A limitation of this study is the abundance of information available on the automotive

industry. There have been many studies on different sectors of the industry, but there has not

been a study on the entire industry. Time constraints to narrow down the information to use

for the analysis are another limitation.

Conclusion

Indias growth in the automobile sector has attracted lot of foreign investors in the India and

India have also manage to expand its automobile sector by entering into the foreign market.

Due to the improvement in technology and education it is has become possible for India to

produce a huge skilled labour force which will help to produce excellent services.

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