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AUTOM OTI VE IN DU ST RYOctober 2007


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PROFILE OF INDIAN

AUTOMOTIVE INDUSTRY


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Evolution o the Indian automobile industry

PROFILE OF INDIAN AUTOMOTIVE INDUSTRYAUTOMOTIVE INDUSTRY October 2007

Pre 1983 1983-1993 1993-2007

Closed market Growth of market limited by supply Outdated models

- Players Hindustan Motors Premier

Telco Ashok Leyland Mahindra & Mahindra

Japanisation - GoI-Suzuki joint ventureto form MarutiUdyog

Joint ventureswith companies incommercial vehicles

and components

- Players Maruti Udyog

HindustanMotors

Premier

Telco Ashok Leyland Mahindra &

Mahindra

Delicensing of sector in1993

Global major OEMs start

assembly in India (GM,Ford, Honda, Hyundai)

Imports allowed fromApril 2001 alignment ofduty on components andparts to ASEAN levels

Implementation of VAT


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Indiaspositioninworldproduction

2nd in two wheelers

11th in passenger cars

13th in commercial vehicles

Indian auto industry sales grew to 11.12 billion

units in 2006-07, exhibiting an impressive CAGR

o 15.5% during the past 5 years

Two wheelers have the maximum share in the

industry by volume, ollowed by passenger

vehicles, three wheelers and commercial vehicles

Maximum growth has been witnessed in thecommercial vehicles segment, ollowed by

three-wheelers

Indian automobile industry crossed a historic landmark o

10 million vehicles in 2006-07

Source: SIAM, IMaCS analysis

Automotive sales (domestic and exports )

CAGR15.5%

5.412002

11.122007

2006

8.532005

7.292004

6.252003

Segment Share in total CAGR

Two wheelers 76.2% 14.5%

Passenger vehicles 14.2% 16.7%

Three wheelers 4.9% 20.5%

Commercial vehicles 4.7% 26.7%


million units


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Tata Motors

Mahindra & Mahindra

Bajaj Auto

TVS Motors

Hero Honda

Bajaj Tempo

Ashok Leyland

Bharat Gorge

Sundram Fasteners

Rane Group

Shriram Pistons

RICO Auto

Sona Koyo Steering

Global OEM Indian OEM

GlobalSuppliers

IndianSuppliers

GM

Toyota

Ford

Hyundai

Maruti Suzuki

Honda

Skoda Volvo

Mercedes

Delphi

Visteon

Bosch

Denso

Valeo

Thyssen Krupp

The OEM as well as the component industry is highly competitive



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The Indian auto industry is highly competitive

with a number o global and Indian auto companies

present

The supplier industry is equally competitive with

a mix o global and Indian players

The OEM as well as the component industry is highly competitive



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Most automotive players are present in more than one segment

Manufacturer Segments

Ashok Leyland LCVs, M&HCVs, buses

Asian Motor Works M&HCVs

Atul Auto Three wheelers

Bajaj Auto Two and three wheelers

BMW India Cars and MUVs

Daimler Chrysler India Cars

Eicher Motors LCVs, M&HCVs, busesElectrotherm India Electric two wheelers

Fiat India Cars

Force Motors Three wheelers, MUVs and LCVs

Ford India Cars and MUVs

General Motors India Cars & MUVs

Hero Honda Motors Two Wheelers

Hindustan Motors Cars, MUVs and LCVs

Honda Two wheelers, cars and MUVS

Hyundai Motors Cars and MUVs

Kinetic Motor Two wheelers

Manufacturer Segments

Mahindra & Mahindra Three wheelers, cars, MUVs, LCVs

Majestic Auto Three wheelers

Maruti Suzuki Cars, MUVs, MPVs

Piaggio Three wheelers, LCVS

Reva Electric Car Co. Electric cars

Royal Enfield Motors Two wheelers

Scooters India Three wheelersSkodaAuto India Cars

Suzuki Motorcycles Two wheelers

Swaraj Mazda Ltd LCVs, M&HCVSs, buses

Tata Motors Cars , MUVs, LCVs,M&HCVs, buses

Tatra Vectra Motors M&HCVs

Toyota Kirloskar Cars , MUVs

TVS Motor Co Two wheelers

Volvo India M&HCVs, buses

Yamaha Motor India Two wheelers

MUVs: Multi utility vehicles; MPVs: Multi purpose vehicles; LCV:Light commercial vehic les; M&HCVs: Medium and heavy commercial vehicles



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Two wheelers industry is dominated by motorcycles

2003

2002

Domestic two wheeler industry

Source: SIAM, IMaCS Analysis

4.81

4.25%

Break up o the industry by segment

n Motorcycles n Scooters

n Mopeds

83%

12%

Scooter/Scooterette :

Wheel size less than or

equal to 12 inches

Motorcycle: Wheel size

more than 12 inches

Mopeds: Engine capacity

less than 75 cc with xed

transmission, wheel size

more than 12 inches Electric Two Wheelers:

Electrically Driven


Million units

2004

2007

2006

2005

CAGR13%

5.36

7.86

7.05

6.21

0 1 2 3 4 5 6 7 8


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Domestic two wheeler industry has steadily

grown at a CAGR o 13% to reach 7.85 million

units in 2006-07

Motorcycle segment has attained highest growth

and dominates the market

Entry level bikes (engine power below 125 cc

and price US$ 850-1,100) account or around 80%

sales

Cost o ownership and economics o operation

are key purchase criteria

Premium bike segment (engine power above

125 cc and price US$ 1,200-2,000) growing

at a aster pace as compared to the entry levelvehicles, an indication o increasing afuence

o users

Two wheelers industry is dominated by motorcycles



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Scooter segment as a whole has been shrinking,

except or the A2 segment

Bikes having engine capacity 75-125 cc corner

the major share o the two wheeler market

Cost o ownership and economics o operation

are most important criteria determining purchase

While the motorcycles segment is growing, the scooter segment is shrinking

Segment Description Share in2001-02

Share in2006-07

CAGR

A1 Scooter with engine capacity lessthan 75 cc

5% 0% -33.9%

A2 Scooter with engine capacity between 75-125 cc

5% 10% 32.9%

A3 Scooter with engine capacity

between 125-250 cc

12% 1% -27.7%

B2 Motorcyclewithengine

capacitybetween75-125cc

62% 66% 14.9%

B3 Motorcyclewithengine

capacitybetween125-250cc

5% 17% 44.8%

B4 Motorcycle with engine capacity

above 250 cc

1% 1% 5.7%

C1 Mopeds 10% 5% -2.7%

Segment-wise analysis o two wheeler market



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Hero Honda: Largest Two-wheeler manuacturer

in the world

Bajaj Auto: Second largest Two-wheeler

manuacturer in India and the largest 3 wheeler

manuacturer TVS Motor Co: Third largest Two-wheeler

manuacturer in India. Established a manuacturing

acility in Indonesia

Honda Motors: Has recently entered the Indian

market through its direct subsidiary (in addition

to its joint venture Hero Honda)

Suzuki: Has recently entered the Indian marketthrough its direct subsidiary

The domestic two wheeler market is dominated

by Indian as well as oreign players

Market share o key players in 2006-07

Source: SIAM, IMaCS analysis

n Hero Honda Motors n Bajaj Auto Ltd

n TVS Motor Co, n HMSIL

n Others

42%

27%

19%

9%

3%



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In the Two-wheeler market in India, competition is

intense with around 10 players competing or the

share o the industry

The players include global giants like Honda, Suzuki,

Yamaha as well as Indian players like Bajaj and TVS

The market leader is Hero Honda Motors, closely

ollowed by Bajaj Auto

Industry is characterised by requent new product

launches, with over 20 models launched in 2006-07

The domestic two wheeler market is dominated

by Indian as well as oreign players



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Two wheelers exports have grown at an impressive CAGR o 42%

Source :SIAM, IMaCS Analysis

Two wheeler exports rom India

Thousand units

16%

10%

Market share o key players in exports 2006-07


n Bajaj Auto n Hero Honda Motors Ltd

n TVS Motor Company n Yamaha India

n Others

46%

15%

13%


CAGR42.8%

104.22002

179.72003

265.12004

366.42005

513.22006

619.22007

0 700100 200 300 400 500 600

(in 000 units)


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Exports o two wheelers have grown at over

42% CAGR in last 5 years

Majority o exports are to Bangladesh, Sri Lanka,

Bhutan and Nepal

Highest growth (CAGR o 57.2%) witnessed

in motorcycles segment, which constituted

88% o Two-wheeler market

Most o the bikes exported were those with

engine capacity below 125 cc, indicating

preerence or Indian made economy bikes

Bajaj Auto is the market leader in exports with

46% share

Two wheelers exports have grown at an impressive CAGR o 42%



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200 1400800600 1200400 1000

Passenger vehicles segment in India is dominated by cars

Domestic passenger vehicles industry

78%


n Passenger cars n SUVs/MVs

22%

Domestic passenger vehicles industry

thousand units



2002

2003

2004

2005

2006

2007

CAGR15.4%

675.1

707.2

902.1

1061.6

1143.1

1379.7


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The domestic Indian passenger vehicles market

has grown at a CAGR o 15.4% over the last

5 years to reach 1.38 million units in 2006-07

Passenger cars, contributing to 78% o volumes, grew

at a CAGR o 16%

The remaining share is with utility vehicles and

sports vehicles

Passenger vehicles segment in India is dominated by cars



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Maruti Udyog: Largest passenger car manuacturer

in the country, India considered as strategic market

by Suzuki

Tata Motors: Largest automotive player in the

Indian industry; launching the Rs. 1 lakh (US$ 2,500) car Hyundai Motors: Third largest passenger car

manuacturer in India, has established India as one

o its manuacturing bases in the world

All major global players in passenger vehicles segment

have a presence in India

Market shares o key players in 2006-07


n Maruti Udyog Ltd. n Tata Motors Ltd . n Hyundai Motor India Ltd.

n Mahindra & Mahindra n Toyota n Others

14%

16%

46%

7%

4%

13%



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Mahindra & Mahindra: Amongst the largest players

in the multi utility vehicles segment, has tied up

with Renault or manuacturing and marketing o

Logan brand o cars in India

Toyota: Has vision o capturing 10% share o theIndian passenger car market by 2010

Honda Motors: One o the leading players in the

Indian premium cars segment

Ford: Leading player in the premium cars segment

General Motors: Leading player in the premium

segment; entered the compact car segment recently





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There are more than a dozen manuacturers

in the industry

Most o the leading global players have a presence in

India in the orm o joint ventures or subsidiaries

The industry leader is Maruti Udyog with46% market share, closely ollowed by Tata Motors

and Hyundai Motors at 16% and 14% respectively





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India is increasingly becoming a manuacturing hub or passenger cars

Cars Exports rom India

Thousand unitsMarket share o key players in Exports 2006-07


n Hyundai Motor India Ltd. n Maruti Udyog

n Ford India Pvt Ltd. n Tata Motors

n Others

20%

58%

12%

9%

1%



CAGR30%

53.172002

72.012003

129.292004

166.402005

175.572006

198.482007

0 25 50 75 100 125 150 175 200


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Exports o cars rom India have grown

at a CAGR o 30% CAGR in the last 5 years

to reach 198 thousand units in 2006-07

Hyundai Motors is the market leader in exports

o cars with 68% share; the company uses India

as a manuacturing base or compact cars across

the globe

Exports are made to South America, Arica,

Europe, Latin America and the Middle East

India is increasingly becoming a manuacturing hub or passenger cars



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Commercial vehicles segment has witnessed

the highest growth rate in the automotive industry

Breakup o the Industry by segment

n M & HCV Goods n LCV Goods

n M & HCV Passenger n LCV Passenger

53%36%

6%5%


Domestic CV Industry

CAGR26%

146.672002

190.682003

260.112004

318.432005

351.042006

467.882007

0 100 200 300 400 500


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Commercial vehicles segment has witnessed

the highest growth rate in the automotive industry

Domestic CV industry sales reached 467.88 thousand

vehicles in 2006-07, registering a CAGR o

26% over last 5 yrs

Share o LCVs is gradually increasing, indicating the

emergence o hub and spoke model o transportation

While the passenger bus industry has seen only a

moderate growth, goods industry grew 37% in

FY 2006-07

Goods industry is dominated by multi axle vehicles,

which account or nearly 50% o the market



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CV industry is dominated by Indian players

Tata Motors Ltd: Largest commercial vehicle

manuacturer in the country, has acquired the Korean

manuacturer Daewoo Gap Motors

Ashok Leyland Ltd: Second largest player with

considerable market share in M&HCV segment; has

ormed a JV to manuacture LCVs with Nissan

Mahindra & Mahindra Ltd: Relatively new player in the

segment; has ormed JV with International Trucks to

manuacture M&HCV trucks in India

Eicher Motors Ltd: Leading player in the LCV trucks

segment; has entered the M&HCV trucks segment

recently

Swaraj Mazda Ltd: One o the leading players in theLCV segment

Volvo India: One o the leading players in luxury

passenger buses and heavy duty tippers

Market Shares o Key Players in 2006-07


n Tata Motors Ltd n Ashok Leyland Ltd

n M&M Ltd n Eicher Motors Ltd

n Others

64%

10%

16%

6%4%



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CV industry is dominated by Indian players

Tata Motors is the market leader in both goods and

passenger segments, closely ollowed by Ashok Leyland

LCV market is dominated by Tata Motors, ollowed

by Mahindra & Mahindra

Introduction o Tata Ace has contributed signicant

growth in the sub 1 tonne segment

All the players in the segment are in the process o

enhancing the capacities and launching new products



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Indian CV exports have witnessed a more impressive growth

CV Exports rom India

Thousand units


Market Share o Key Players in Exports

n Tata Motors n Ashok Leyland

n M&M Ltd n Others

6%

11%

71%

12%



CAGR33.2%

11.872002

12.262003

17.432004

29.942005

40.60

2006

49.772007

0 10 20 30 40 50


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Indian CV exports have witnessed a more impressive growth

Exports have grown at a ast pace o over

33% over the last 5 years

Tata Motors accounts or more than 70% o the

CV exports, with Ashok Leyland and Mahindra

& Mahindra making up or a large portion

o the balance

LCV goods carriers accounted or 52% o the

overall exports

Major portion o the exports are to Sri Lanka,

Gul countries and Arica



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Growth in three wheelers has been driven by the need

or low cost last mile transportation system

Break-up o Industry by segment


n Passenger n Goods

41% 59%

Domestic three wheeler Industry (units)



CAGR15%

200.282002

231.532003

284.082004

307.862005

359.922006

403.912007

0 500100 200 300 400


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Growth in three wheelers has been driven by the need

or low cost last mile transportation system

Three Wheeler sales in India touched a new record

o 0.4 Million registering a growth o 15% CAGR over

the last 5 years

The proportion o Goods carriers in the

proportion o overall sales has doubled

indicating towards the increased need or

low cost last mile transportation systems

Sub 1 tonne segment in Goods accounted

or 73% o the sales and Sub Four seater segment

in passenger versions accounted or 97%

o the sales



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The three wheeler market is dominated by Bajaj Auto

BajajAutoLtd. : Market leader in the

Three wheeler segment, in the process o revamping

its product portolio

PiaggioVehicles : The Italian manuacturer is one

o the leading players with ast growing market

share, in the process o making India as their

global hub M&MLtd: One o the leading players in the segment

AtulAutoLtd: Have introduced new products

in the rear engine segment, and also is a manuacturer

o Chakda a Three wheeler reengineered rom Two

wheeler, popular in the western parts o the country

ForceMotorsLtd: A JV between Bajaj Tempo

and MAN AG o Germany; leading player in the

goods segment

Market Share o Key players 2006-07


n Bajaj Auto n Piaggio Vehicles

n M&M n Others

11%

8%

45%

36%



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The Three wheeler market is dominated by Bajaj Auto

Bajaj Auto emerged the leader in Three Wheeler

industry with 45% share, closely ollowed

by Piaggio with 36% share

Bajaj Auto lead the passenger carrier segment

with 58% share, while Piaggio lead the goods

segment with 40% market share



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Exports o Three wheelers have been growing rapidly,

with Bajaj Auto the clear market leader

Exports o three wheelers touched a new high

o 143.9 thousand units, registering a robust

growth o 56% CAGR over the last 5 years

This has been contributed almost entirely

by Bajaj Auto, which accounted or around

98% o exports in 2006-07

Bajaj Auto exports to Sri Lanka, Egypt, Nepal,

Bangladesh among other countries


Three wheeler exports and growth

Thousand Units

175


CAGR56.2%

15.462001-02

43.372002-03

68.142003-04

66.802004-05

76.882005-06

143.902006-07

0 150125100755025


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Indian OEM Foreign Partner Type of Partnership

Maruti Suzuki Suzuki Motor Corporation- Japan Equity partner

Mahindra Logan Renault Joint Venture

Tata motors Fiat Tie-up for manufacturing and marketing in India

KINETIC Group Sanyang Industr y Co Ltd (SYM-Taiwan

Technology

Italjet -Italy Tie-up for manufacturing and distribution

Hero Honda- Japan Technology

Hero Cycles Ultra Motor Company, U.K Technology

Bajaj Auto Kawasaki Heavy Industries Ltd,Japan

Engine Technology

Engine Technology Technology

Kubota Corp, Japan Technology

L&T Ltd Scania-Spain Tie-up for marketing in India

Ashok Leyland Hino-Japan Engine Technology

Irizar-Spain Bus body Technology

ZF-Germany Gearbox Technology

Tata Motors Marco Polo-Brazil Bus/Coach Technology

Cummins-USA Engine Technology

Indian rms are increasingly partnering with oreign rms



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Three major automotive clusters exist in India

Major automotive clusters - Mumbai-Pune-Nasik-

Aurangabad (West), Chennai-Bangalore-Hosur

(South) and Delhi-Gurgaon-Faridabad (North)

Export oriented companies have ormed base

in the West/South regions, due to proximity

to ports



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North/Central

Ashok Leyland Eicher

Force Motors Hero Honda

Hindustan Motors Honda

Honda SIEL ICML

Kinetic LML

Majestic Maruti Suzuki

Piaggio Yamaha

Swaraj Mazda Tata Motors

East

Hindustan Motors Tata Motors


Delhi-Gurgaon-Noida-Ghaziabad

Kolkata

Jamshedpur

Chennai Bangalore Hosur

Ludhiana

Haridwar

Pitampur


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West

Ashok Leyland Atul Auto

Bajaj Auto Daimler Chrysler

FIAT Force Motors

GM Greaves

Kinetic M & M

Piaggio Premier

Skoda Tata Motors


Kolkata

Jamshedpur


Ludhiana

Haridwar

Pitampur



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South

Ashok Leyland Eneld

Ford Greaves

Hindustan Motors Hyundai

Mahindra & Mahindra

Tatra Volvo

Toyota Kirloskar TVS Motors


Kolkata

Jamshedpur


Ludhiana

Haridwar

Pitampur



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Indian Auto Policy is designed or supporting the growth o the industry

Governments intention onharmonizing the regulatorystandards with the rest of world

Investment Incentives by the LocalState Governments: Most States

Customise incentives for LargeInvestments

Automatic Approval for Foreign

equity investment up to 100% No Minimum Investment Criteria

Weighted Tax Deduction up to

150% for in-house research andR&D activities

Indian Auto Policy 2002 CONCERN FOREMISSIONS

INVESTMENTINCENTIVES

LOWENTRY

BARRIER

EMPHASISON R&D

Source: ARAI, IMaCS Analysis

In 2002, the Indian Government

ormulated an Auto Policy aimed

at promoting an integrated, phased

enduring and sel-sustained growth

o the industry



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Indian automotive regulations are in the process

o being aligned with European regulations

Indian automotive regulations are closely aligned

to the ECE regulations. The diagram below depicts

the level o alignment o the Indian regulations with

the ECE regulations

The key regulations that are likely to impact the

auto industry and create the need or world class

products in the uture are crash related regulations

and introduction o Bharat Stage IV normsSource: ARAI, IMaCS Analysis

0

2007

50 100 122

81 21 20

n Fully/ Partially Allign nIn Process o Being Alignedn

Items/ Regulations to be covered



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Saety and emission related regulations in India - Achievements and Plans

NCR and 10Major Cities


Entire Country

NCR and 3Major Metros


Entire Country

Entire Country

Achievements Till Date Plan

Emission Regulations

2000 2001 2003 2005 2010

EURO - IV

EURO - III

EURO - II

EURO - I

Safety Regulations

BrakesSteering eortGradeabilityInstallation

o mirror, Horn & Lighting devicesRear Under

run Protective Devices (RUPD) Lateral Protective

Devices (LPD)Saety beltElectro Magnetic

Intererence (EMI)Wiping systemRear ViewMirror etc

Anti Brake Skid 2007

Truck cab occupant

protection -Crash

Super structure o bus.

Airbags

Electro Magnetic Compa-tibility (EMC)

Front Under run protecti-

ve Devices (FUPD)

Source: ARAI, IMaCS Analysis



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The Government o India has taken a strong initiative

to strengthen automotive related R&D inrastructure

Rae Bareilly Centre

Complete homologation services to Agri Tractors, Off roadVehicles , Gensets as per Indian or Global standards & DriverTraining centre

Center of Excellence For Accident Data Analysis

Commissioning Schedule Phase-I : July 2010; Phase-II :Aug2010

Ahmednagar-VRDE Up-Gradation

Research, Design, Development and Testing of Vehicles

Centre of Excellence For Photometry, EMC, EMI,Test Tracks

Commissioning Schedule Phase-I : July 2010; Phase-II :Aug2010


Facilities o National Automotive Testing and R&D

Inrastructure Project (NATRIP)


43/64



Pune- ARAI Up-Gradation

Complete homologation services to all vehicle categories asper Indian or Global Standards

Centre of Excellence For Power Training Development,Materials, Fatigue

Commissioning Schedule Phase-I : 2008; Phase-II : 2009

Manesar- iCAT

Complete homologation services to all vehicle categories as

per Indian or Global Standards

Center of Excellence For Component Development, NVH






44/64



Silchar Centre

Hill area Driver Training Centre and Inspection &

Maintainence Facilities

Centre of Excellence For Driver Training


Indore -Proving Grounds

Complete Testing Facilities to all vehicle categories as per

Indian or Global Standards

Centre of Excellence For Vehicle Dynamics, Tyre Development






45/64



Chennai Centre

Complete homologation services to all vehicle categories as

per Indian or Global Standards

Center of Excellence For Infotronics,EMC,Passive Safety






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GROWTH POTENTIAL OF INDIAN

AUTOMOTIVE INDUSTRY


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Growth drivers or the Indian automotive industry

GROWTH POTENTIAL OF INDIAN AUTOMOTIVE INDUSTRYAUTOMOTIVE INDUSTRY October 2007

Increasing consumerdemand

New productslaunches

Indian AutomotiveIndustry

Government

Policies

- Contemporary products

- Shorter lie cycle

- Export competitiveness

- Reduced cost to consumer- India emerging as a manuacturing hub

- Overall economic growth

- Lower duties and taxes

- Growth in income levels

- Easier nancing

Cost

Competiveness


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Indian Automotive Mission Plan Vehicle sales

expected to grow to 32 million by 2015-16

The size o the Indian automotive industry

is expected to grow at 13% p.a over the next

decade to reach around US$ 120-159 billion

by 2016

The total investments required to support the

growth are estimated at around US$ 35-40 billion

The Two wheelers industry is expected to lead

the growth, with an estimated sales o 27.8

million units by 2016

Total export in the automotive sector would

be around US$ 30-5 billion, o which component

exports would account or US$ 20-25 billionand vehicle exports or the rest

Potential vehicle sales in India (2015-16)

million units

0.64

Total

Three

Wheelers

Two

wheelers

CVs

Cars

Source: SIAM, ACMA, AMP Vision & IMaCS Analysis

GROWTH POTENTIAL OF INDIAN AUTOMOTIVE INDUSTRYAUTOMOTIVE INDUSTRY October 2007


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INDIA AS A

MANUFACTURING HUB


50/64

Automotive exports have grown at an impressive CAGR

o 40% in the last 5 years

INDIA AS A MANUFACTURING HUBAUTOMOTIVE INDUSTRY October 2007

Indian automotive exports have grown

at a high CAGR o 40.5% over the last 5 years,

with astest growth in Three wheeler segment,

ollowed by Two wheelers

India is increasingly becoming a manuacturing

hub o small cars or global majors

Automotive Exports (thousand units)


CAGR40.5%

184.682002

307.312003

479.922004

629.542005

806.222006

1011.282007

0 200 400 600 800 1000 1200


51/64

Global auto companies are taking advantage o Indias manuacturing base

Hyundai Motors - 36% o its production

is exported to 67 countries. Hyundai has

shited its entire production o the Atos Prime,

its compact model, to its Chennai Plant. Similar

plan is on the cards or Getz. Hyundai is planning

to double the production capacity to 0.6 million

cars, primarily to meet export demand

Suzuki Motor Corp: It is investing US$ 2 billion

in India, and plans to export 200,000 cars rom

India by 2010

Ford Motor Co: It exports 58% o the total

production rom India



52/64

Global auto companies are taking advantage o Indias manuacturing base

Tata Motors: The company plans to make its

US$ 2,500 car available in other markets.

It is setting up showrooms across Arica and

has tied up with Italys Fiat to use its

South American sales network

Nissan Motor: Has recently announced plans

to make cars in India and export themto Europe

Honda Motor: Has begun building a new

plant or premium hatchbacks in western India

Toyota: Has set us a transmission plant

in India to meet its regional demand

Source: Industry News



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Proven product developmental capabilities

- More than 125 Fortune 500 (including

large auto companies) have R&D cen-

tres in India

- Companies can leverage Indias acknow-

ledged leadership in the IT industry

Proximity to Markets

- Proximity to other Asian economies

- Proximity to the emerging markets like

Arica

- Shipments to Europe are cheaper than

those rom Brazil and Thailand

High quality standards

- 9 Indian component manuacturers have

won the Deming Award or quality

- Most leading component manuacturers

are QS and ISO certied

Competitive manuacturing cost

- Skilled labour costs amongst the lowest

in India

Export Potential

- Total value o exports by 2015 expected

to reach US$ 810 billion or vehiclesand US$ 2025 billion or components

Availability o Manpower

- 0.4 million Engineering graduates pass

out every year- 7 million enter workorce every year

Large and growing domestic demand

- Demand growth o 14% CAGR makes

India one o the astest growing markets

Stable economic policies

- Continuity in economic reorms

and policies related to investments

India as

an Auto

Hub

Several actors make India a avourite investment destination



54/64

Competitiveness o Indian automotive manuacturing

In order to emerge as a manuacturing hub,

India would ace competition rom other low

cost countries such as

China

Thailand

Brazil

IMaCS has compared the cost competitiveness

o automotive (car and CV compared separately)

manuacturing in India with respect to these

countries in terms o actors like

Taxes and duties

Cost o manuacturing (or example, power

and uel costs, labour costs, includingproductivity interest rates)

Economies o scale



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Competitiveness o Indian automotive manuacturing

Competitiveness o manuacturing in India can

be improved by reducing the level o taxes and

the cascading impact o taxes and by improving

the business inrastructure



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Tax structure in India vis--vis other countries

The burden o direct and indirect taxes is higher

in India than in other countries

India Brazil China Thailand

Thailand 16.36% - - -

VAT 12.5% 15% 17% 10%

Other Taxes - 18%* - -

Corporate Tax 34% 28% 33% 30%

Exemptions Specificpackagesprovided by

states for largeinvestments

Tax incentivesfor companiesin export

processing zones

Preferentialcorporatetax policies

for ForeignInvestmentEnterprises

Tax incentivesfor investmentsoutside central

zone

Import duty onrubber

13% 16% 8% Free

Import duty onsteel

8% 4% 2% 10%

*Refers to local taxes



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Labour & Labour Productivity in India vis-a-vis other countries

India compares avourably with other low cost

countries in productivity adjusted labour cost

Indian labour productivity in the manuacturing

sector is on an increase with the application o

production management techniques and many

companies have doubled their productivity

in last 5 years

India Brazil China Thailand

Labour cost (US$/hour) 0.7 4.1 0.7 0.72

Labour cost (US$/day)* 5.6 32.8 5.6 5.76

Productivity index** 1.0 2.0 1.0 1.2

Productivity adjustedlabour cost (US$/day)

5.6 16.4 5.6 4.8

*Assuming 8 hour shift per day** Gross value added per person employed when compared to India



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Power Cost in India vis--vis other countries

Power cost in India is the highest amongst the

competing countries

However, power cost accounts or around

3% o the overall cost structure, hence not a

signicant disadvantage

Power costs in India varies by state and

is as low as US$ 0.1 in states like Maharashtra

With privatisation and competition in the

emerging Indian power sector, cost o power

is expected to come under control

Interest rates in India are high as compared

to competing countries, but expected to soten

in the uture

Country Cost per kwh (US$)

India 0.14

Brazil 0.05

China 0.03

Thailand 0.11

Power costs

Country Annual lending interest rate

India 10-11%

Brazil 14-16%

China 5-6%

Thailand 7-8%

Interest costs



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Cost competitiveness - India versus China

Indian manuacturers suer rom a cost

disadvantage vis--vis Chinese manuacturers

mainly because o higher level o taxes and their

cascading impact, higher cost o labour (arising

out o infexible labour laws) and higher interest

costs and power and uel costs

Cost breakup Cars CV

Cost of vehicle of an Indian

Company

100 100

Less

Taxes and Duties Net state level

levies and cascadingimpact of taxes

-4.8% -5.4%

Import duty on rawmaterials

-1.8% -1.6%

Corporate taxes - -

Total -6.6% -7.0%

Industry costs Power & fuel -3.4% -3.6%

Labour cost - -

Cost of funds -0.8% -0.8%

Total -4.2% -4.4%

Cost disadvantagefor India

-10.8% -11.4%

Economies of scale no diff no diff

Totalcost

disadvantagefor

India

-10.8% -11.4%

Source: Government websites, discussions with leading automotive players, IMaCS analysis



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Cost competitiveness - India versus Thailand

Indian vehicle manuacturers have a cost

disadvantage vis--vis Thai vehicle manuacturers,

primarily due to higher level o taxes in India

However, the large market potential o the

Indian market more than makes up or this

disadvantage

Cost Break-up Cars CV


Company

100 100

Less

Taxes and Duties Net state level

levies and cascadingimpact of taxes

-5.61% -5.86%


-0.60% -0.20%

Corporate taxes -0.20% -0.20%

Total -6.41% -6.26%

Industry costs Power & fuel -1.03% -1.11%

Labour cost -1.28% -1.56%

Cost of funds -0.36% -0.36%

Total -2.67% -3.03%

Cost disadvantagefor India

-9.08% -9.29%

Economies of scale no diff no diff

Totalcost

disadvantagefor

India

-9.08% -9.29%

Source: Government websites, discussions with leading automotive players, IMaCS Analysis



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Cost Competitiveness - India versus Brazil

India is competitively positioned vis--vis Brazil

in cars as well as CV

India enjoys greater scale advantage as compared to

Brazil in the case o cars as capacity utilisation

in India is better, despite Brazil having larger

installed capacities

Cost Break-up Cars CV


Company

100 100

Less

Taxes and Duties Net state level levies

and cascading impactof taxes

-3.1% -3.9%


- -

Corporate taxes - 0.1% - 0.1%

Total -3.2% -4.0%

Industry costs Power & Fuel - 2.0% - 2.8%

Labour cost 7.6% 16.2%

Cost of funds 0.9% 1.6%

Total 6.5% 15.0%

Cost advantage forIndia

3.3% 11.0%

Economies of scale 8.3% no diff

Totalcost

advantageforIndia

11.6% 11.0%

Source: Government websites, discussions with leading automotive players, IMaCS Analysis


INDIA AS A MANUFACTURING HUB


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Conclusions

India has a cost advantage when compared

to Brazil

However, India suers rom a cost disadvantage

vis--vis China and Thailand, primarily due

to high level o taxes and their cascading impact

India, in the near uture is expected to go ahead

with the abolition o interstate Central Sales Tax(CST), which will reduce the cascading impact

o taxes to some extent


AUTOMOTIVE INDUSTRY


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Conclusions

Implementation o Goods & Services tax

(along the lines o VAT) and abolition o all

other taxes by 2010 is under consideration, which

will reduce the taxation loading on the automotive

sector considerably. This step is expected to

strengthen Indias uture position as a leading

automobile manuacturing hub

Various steps being taken by the Indian

government in improving inrastructure would

reduce the disadvantage that India suers rom

because o poor inrastructure that causes

project delays, delays in deliveries and so on.

This would increase the demand or road

transportation in the country

AUTOMOTIVE INDUSTRYOctober 2007

AUTOMOTIVE INDUSTRY


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Equity Foundation (IBEF) and ICRA Management Consulting

Services Limited, IMaCS (Authors).

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to ensure that the inormation is accurate to the best o the

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AUTOMOTIVE INDUSTRYOctober 2007

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