Automobile Passenger Car

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COMPREHENSIVE PROJECT 1

Entitled On

AUTOMOBILE INDUSTRY (Passenger Car)

Submitted to

SANKALCHAND PATEL COLLEGE OF ENGINEERING

DEPARTMENT OF BUSSINESS MANAGEMENTAffiliated to

Hemchandracharya North Gujarat University

In Partial Fulfillment of the

Requirement of the Award for the Degree of

MASTER OF BUSINESS ADMINISTRATION

Under the Guidance of

Mr. Bhavesh PatelMr. Chirag Rathod

Presented by

Students of M.B.A Semester-III

Sadhu Jaimin 10 Gohil Divya

Parekh Sanket

37

Shah Kamil 54

INdex

Executive summary

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 vis--vis global numbers.

The report covers the two segments, passenger cars and multi-utility vehicle segment. It contains an in-depth study of both the segments and the performance of the automotive industry in terms of production, sales, capacity, exports and imports. 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 (in term of different ratios) of the major players in the industry. The Indian automotive industry is protectionist

Foreign companies have lobbied hardest for high tariff capsInterestingly, it is the companies that entered India after 1991 that have lobbied most strongly with the Government to maintain tariff caps of 25 per cent and 40 per cent. This affords them substantial protection. Similarly, they have persuaded the Government to hike the import duty on second-hand cars to 180 per cent. However, should tariff reductions be extended in the new round of WTO negotiations, the duty on second-hand car imports will drop to 25 per cent.

The Indian automobile industry is protectionist because few of its companies are commercially viable. India is the only country in the world with numerous car producers. Although consolidation seems imminent, it has not yet begun. A fundamental shake-out will do the industry considerable good.

Recent growth in the automotive sector

Car and MUV sales have doubled since 1995Segments of the Indian automotive industry have grown at varying rates since 1995. The sales of cars and multi-utility vehicles have almost doubled. Those of tractors and two-wheelers have grown at a slow, steady pace. The bus industry has shown no growth, and the truck and LCV industries have done badly.

The boom in the car market can be explained by the tremendous interest of global car companies. Within two years of liberalization, 60 per cent of all major car and vehicle companies had invested money in India, whether through joint ventures, equity participation, or technical collaborations. Companies saw huge potential in the Indian domestic market. Many companies also saw India as a potential manufacturing and exporting hub for the rest of the Asian region. Much of this enthusiasm has now faded, due to policy and infrastructural bottlenecks.

India now produces 6 lakh cars a year, up from 3 lakh cars in 1995. Currently, some 28, 000 cars are exported.

Move toward bigger carsA key trend of the last few years is the shift to bigger, more expensive cars. Until three years ago, small cars had a 57 per cent share of the market. Now, mid-size cars account for a half, and small cars for just a third of those on Indian roads. With the introduction of the Mercedes Benz, the Sonata, and the Accord in 2001 in India, it is the first time that cars over 4.5 metres long are being sold in the country.

Rise of second-hand car market...Another important development is the rise of a booming secondary market in automobiles. Today, most car purchase is occurring in this market, as scooter owners upgrade to cheap, four-wheel vehicles. Some second-hand Fiats and Maruti 800s are now even cheaper than a new two-wheel vehicle. In turn, many small car owners are looking to buy a bigger, second-hand car.

Causing drop in scooter salesAs a result, there has been a fundamental shift in the two-wheeler industry. In 1999, motorcycle sales overtook those of scooters for the first time. This is because second-hand cars have replaced scooters as the family vehicle of the middle class. Secondly, policy restrictions on motorcycles have been lifted, bringing in a range of powerful, emissions-controlled, branded, Japanese models, that are very popular with the young. Within the scooter market, there has been a shift away from heavy, metal-geared models to gearless, lighter, plastic-bodied ones.

Cars and two-wheelers have now become household essentials in India. There are currently close to 35 million two wheelers and 8 million cars in the country. In addition, there are 2 million trucks and 2 million other vehicles.

Despite the boom in some parts of the industry, there is need for considerable revitalization. Data drawn from the balance sheets of thirty-four companies shows a 2 per cent drop in turnover. Profitability has declined by 42 per cent.

Outdated policies pose key hurdles

Policy issues of key concern to Indian automotive sectorDomestic policies, rather than the global economic slowdown, are impacting the Indian automotive sector most heavily. What poses a particular drag are high and numerous taxes, customs tariffs and excise duties.

Although cars and two wheelers have become household essentials, policy makers continue to view and to tax them as luxury items. They disregard the fact that Indias automotive industry is the largest in the world and is a primary generator of employment in the country. Should the sector be relieved of its punitive tax burden, it could become a significant driver of economic growth and employment.

Taxes equal the value of each carPolicy makers also overlook the fact that car and vehicle owners present a significant vote bank. At the moment, they are forcing consumers to pay taxes equivalent to the value of every new car they purchase. This is because, for each car, there is a 35 per cent customs duty on the imported pack; a 40 per cent value-added tax; and a Modvat customs duty. There is then a 32 per cent excise duty and a 12 per cent sales tax. Many big cities impose their own taxes.

High tariffs constrain exportsIf the Government brings import tariffs down, it will boost exports. We see this from the recent experiences of Brazil, Mexico and Australia. It is not only important to bring down tariffs, but to do so in a public, scheduled manner so that industry is able to prepare and take full advantage. In India, tax and tariff reductions are announced arbitrarily in the budget, with no prior notice.

Auto policy should be abolishedMost importantly, the Government should stop controlling the automotive sector. This is a hangover from the early years of Independence. Automotives are consumer durables akin to washing machines, televisions or fridges. Since the Government does not feel compelled to draw up national policies for these sectors, it should not do so in the auto sector.

Global opportunities for the Indian automotive sector

India could become a major exporter of automotive componentsIf the Indian automotive sector positions itself correctly, it could become a major global exporter of automotive parts and components. The country has mature steel and ancillary industries. But this can only happen if the industry builds its capacity to meet global quality standards, delivery schedules, and prices.

Manufacturers will have to develop systems to efficiently manage labour, raw material, production and shipping. The Government will also have to be lobbied to rationalize and reduce tax rates across a number of sectors. Many foreign car companies have found it more convenient to operate out of Thailand, for instance, because there is a single tax rate and very little bureaucracy.

India is not yet ready to become a significant exporter of indigenous cars. Production costs are still too high. Cars are also becoming increasingly complex, with parts sourced from the best suppliers globally. Similarly, global marketing and advertising expenses constitute a considerable part of the cost of each car.

INTRODUCTIONIndustry:

Indian automobile industry in India is as well developed as any top industrial nations. Long years of License Raj and protectionism led to the development of various segments of automobile industr