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Automobiles

Introduction:

Post liberalisation in 1991, Indian automobile sector has been aptly described as the sunrise

sector. Owing to its vertical and horizontal integration with other key segments of the economy,the industry is said to be a major growth driver. A steady growth in the sector has attracted heavyinvestments from various foreign majors through direct investments or private equity.

India continues to consolidate its position on the global front being one of the worlds top 10auto-producing countries. India, the seventh largest vehicle producing nation in the world, nowaccounts for 5 per cent of global auto production, up from 1.4 per cent at the beginning of 2000,according to industry lobby Society of Indian Automobile Manufacturers (SIAM).

According to a study by global consultancy firm Ernst & Young, the Indian market will clock thefastest compound annual growth rate between 2009 and 2020, more than double that of China

and the triad of North America, Europe and Japan. India's CAGR between 2009 and 2020 isexpected to be 14 per cent compared with China's 6 per cent, other emerging markets' 6 per cent(which includes BRIC nations) and the triads 4 per cent.

Investments:

India has emerged as one of the favourite investment destinations for automotive manufacturersin recent times.

y Maruti Suzuki India Ltd (MSIL) has announced an investment of US$ 411.45 million for setting up its third plant at Manesar in order to capitalise on the rapid growth of the

Indian auto industry. This new production lineMaruti's sixth overall would have 250,000units annual capacity.y The auto-maker has also launched its luxury sedan Kizashi in India. The cars would be

imposrted from parent companys Japan facility.y V olvo-Eicher Commercial V ehicles ( V ECV ) has announced an investment of US$ 61.51

million for a new engine plant at its existing facility at Pithampur, Madhya Pradesh. Withthis, India will now become a global manufacturing hub for V olvo's new medium-dutyengine platform, with the only other factory for the engine type being present in Japan.

y Tata Motors is in talks with a Canada-based company for its second generation gearless Nano.

y Toyoto plans to invest US$ 107 million to make engines and gearboxes for Toyota's new

small car, Etios that is expected to be launched by year-end.y India Yamaha Motor Limited is also planning to tap the rural market, which currently

accounts for around 15 per cent of its overall sale. The company has launched a new bikeYBR 110 that will target the rural markets.

y Mercedes Benz has met its single largest orderof 150 cars worth US$ 14.7 million from the small industrial town of Aurangabad, Maharashtra.

y The Renault-Nissan alliance and Bajaj Auto have signed a memorandum of understanding for developing a low-cost car. According to the MoU, the design,

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engineering, manufacturing and supply base expertise to create the product will beexecuted by Bajaj with the support of the Renault-Nissan alliance.

y Indo-Russian commercial vehicle joint venture (J V ) Kamaz V ectra Motors plans to morethan double its annual capacity to 12,000 units at its Hosur plant by 2012 to capture thefast-growing market in India.

y Ashok Leyland and Japanese car maker Nissan Motor Co Ltd have announced the launchof three light commercial vehicles (LC V s) from 2011 through 2013. The auto makersalso confirmed to be in talks to create a small car for the Indian market within the US$2,000 - US$ 6,000 price range.

y British luxury brand Jaguar Land Rover (JLR) plans to increase presence in India andwill tap parent Tata Motors for assistance in areas like logistics and service support.

y BMW, the luxury car maker, is planning to infuse US$ 15.76 million in its Indianoperations. Andreas Schaaf, President, BMW India, said that the company had investedUS$ 24.77 million till September 2010 and this would be increased to US$ 40.53 million

by the end of 2012.y Luxury carmaker Mercedes-Benz India will set up a new facility for building of city bus

bodies at its Chakan plant in Pune. The new unit will become operational by mid-2011and will have a capacity of 700 units a year.y Mercedes Benz has also re-introduced its super premium sedan Maybach in India in

2011.y Mahindra & Mahindra has revealed its plans to launch 8-10 new products, including a

premium sports utility vehicle, across various segments by March 2012.

D omestic Market/ Sales:

y Indias auto market grew at 32.69 per cent in 2010, marginally better than Chinas 32.44 per cent, according to SIAM.

y According to the data released by SIAM, in December 2010, total sale of vehicles acrosscategories registered a growth of 30.51 per cent to 13,05,872 units, as against 10,00,562units in the same month of 2009. The industry has been growing at around 30 per cent inthe ongoing fiscal.

y According to data released by SIAM, the passenger vehicles segment during April-December 2010 grew at 31.83 per cent over same period last year. Passenger cars grew

by 32 per cent, utility vehicles grew by 20.82 per cent and multi-purpose vehicles grew by 50.58 per cent during this period.

y The overall commercial vehicles segment registered a growth of 34.08 per cent duringApril-December 2010, as compared to the same period last year. While medium andheavy commercial vehicles registered growth of 42.85 per cent, light commercialvehicles grew at 27.12 per cent.

y Two wheelers registered a growth of 28.21 per cent during April-September 2010.Mopeds, scooters and motorcycles grew by 24.47 per cent, 48.90 per cent and 24.62 per cent, respectively.

R oad Ahead:

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Global auto companies are investing to tap the growing demand in India as investment spendingand the government's social programmes raise incomes in smaller cities and rural areas too. "TheIndian automobile industry is geared up to invest up to US$ 17.12 billion in fresh capacity in thenext four years," V ishnu Mathur, Director-General, SIAM said. He further stated, "Thecomponents industry will also invest US$ 12 billion up to the end of the Automotive Mission

Plan."Car and motorcycle sales in India are setting records with rising incomes, cheap lending by

banks and launch of new models such as V olkswagen's Polo and Fiat's Linea. Car manufacturingcapacity is set to rise to 5.7 million units by 2015, according to consultants Ernst & Young.

Further, India aims to become the small car hub of the world by dethroning Japan, the biggestmaker of compact cars, a majority of which is consumed domestically. Last year, it had pippedBrazil to become the second-largest producer of such cars.

Passenger vehicle production is expected to grow to 9 million a year in 2020, while two-wheeler

production will touch 30 million, said B.S. Meena, secretary, department of heavy industries.According to the annual forecast of the SIAM, passenger vehicle sales in the country will be21,96,791 units in 2010-11 as compared to 19,49,248 units in 2009-10.

While two-wheeler sales are expected to be up 9-10 per cent at 10,287,837 units from 9,368,230units in 2009-10, commercial vehicle sales in India will grow 17-18 per cent at 6,21,681 unitsvis--vis 5,31,395 units last financial year. Sales of three-wheelers are expected to go up 7-8 per cent at 4,73,693 units in the current financial year as against 4,40,368 units in 2009-10.

However, with demand outgrowing the supply in the market, the overall market growth for 2010-

11 is most likely to exceed SIAM's initial prediction of 10-14 per cent.