Automotive Sectoral Report

www.ibef.org

AU TOMOT I V E

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companies to identify and deal with a broad range of business

issues and to capture growth, improve financial performance and

manage risk. Around the world, beginning at the local office level

and extending to each countrys national offices, our professionals

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Automotive is one such industry group.

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Transaction Advisory Services, Ernst & Young Private Limited

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Email: [email protected]

ADVANTAGE INDIA 3

GOVERNMENT INITIATIVES 5

MARKET

Size and Growth 9

OPPORTUNITIES 18

CONTACT FOR INFORMATION 28

AU TOMOT I V E

The Indian automotive industry has been witnessing dynamic

growth over the years.

The domestic Indian passenger car market (including utility

vehicles) totalled 900,000 units (with a CAGR of 10 per

cent over the past 4 years) while the exports were

130,000 million units (with a registered CAGR of 68 per

cent over the past 4 years) during financial year 2004

The Indian two-wheeler Industry is one of the largest

in the world, and is expected to maintain robust growth

in the future

At the back of this phenomenal automotive growth

is the success of the Indian auto component industry.

Presently a US$ 6.7 billion industry, it is expected to

almost treble in less than eight years time to US$ 17

billion by 2012

India offers a distinct technological and cost-competitive

advantage, which global Original Equipment Manufacturers

(OEMs) and automotive suppliers are leveraging for both

manufacturing and research facilities.

A U T O M O T I V E PAGE 3

ADVANTAGE INDIA

The Indian automotive industry has a significant labour cost

advantage. Indias automotive sector has the worlds second

largest pool of skilled labour. The country with its high

education levels also provides the worlds largest pool

of qualified engineers.

Competitive cost advantage

English, a widely spoken

language in the country

English is a widely spoken language in India that provides an

edge to the local workforce, enabling work on long-term

design and engineering projects with overseas customers.

Global comparisons: avai labi l i ty of ski l led manpower, 2003

Global growth in working-age populat ion (15-64)

Source: UN, Morgan Stanley

Scale of 1 to 10 with 1 = Low and 10 = High; Souce: IMD Competitiveness Yearbook 2003

Global comparisons: avai labi l i ty of qual i f ied engineers , 2003

India is already the IT

outsourcing destination

of the world

Product quality already at

par with global standards

A mature Indian auto

industry

Indias global reputation in IT instils confidence in global OEMs

and Tier 1 companies. India can supply auto parts for their

global requirements as well as play a role in design and

development of auto components, systems and aggregates.

Indias emission norms based on Euro II norms are stringent,

placing it ahead on the vehicle quality curve.

The Indian auto component manufacturers are well-positioned

to integrate with the global automotive supply chain, either

as Tier 2 or 3 suppliers or as value providers through

engineering and software services backed by high quality

and state-of-the-art technological products. Global Tier 1

auto component makers like Dana Corporation, Delphi, Visteon

and Denso plan to leverage Indias technological advantage

over other competing Asian countries by setting up

manufacturing units in the country to produce the most

complex auto components. Dana Corporation is relocating

four of its plants, located in US and Europe to India via its

local partner, the Anand Group.

India has a well-developed and reliable financial and legal

system.

Scale of 1 to 10 with 1 = Low and 10 = High; Souce: IMD Competitiveness Yearbook 2003

Source: World Bank Development Indicators

India: The cost and ski l l s advantage

I n d i a Ch i n a I nd i a s

A d v a n t a g e

(%Di f f e r ence )

MIDDLE MANAGEMENT (> 5 YRS) 1,400 2,500 -44%

SUPERVISOR (5 YRS) 300 800 -63%

SKILLED WORKER (I YR) 61 125 -51%

UNSKILLED WORKER 42 65 -35%

US$ per Month


GOVERNMENT INITIATIVES

The Indian automobile regulatory policy has undergone

progressive change over the last decade.

In June 1993, the First Automobile Policy was announced.

It abolished the requirement of licences to set up

an auto manufacturing plant in India, which was the

first step to allow private and foreign investment

in the automobile industry.

In 1995, the Government introduced a company-specific

Memorandum of Understanding (MoU) route for

manufacturers of cars and multi-utility vehicles. The

policy allowed investments in the automobile industry

with a capitalisation restriction of at least US$ 50 million

over a three-year period.

With effect from April 1, 2001 Quantitative Restrictions

(QRs) on import of automobiles have been removed,

thereby phasing out the MoU policy. With the removal

of QRs, automobile manufacturers do not need import

licences, either to import cars in the kit form or as

completely built units (CBU). The MoU policy has

been replaced by a new three-tiered tariff structure.

Import Tari f fs

Product Basic Customs

Du t y

CBU 60%

CKD/SKD* 20%

Components 20%

*Completely Knocked Down Units / Semi Knocked Down Units

Auto Policy, Government of India, 2002

The Government of India approved a comprehensive

automotive policy in the year 2002, to promote an integrated

automotive sector that can achieve sustainable growth.

The policy, inter alia, seeks to:

make India an international hub for manufacturing

small, affordable passenger cars and a key centre

for manufacturing tractors and two-wheelers for

sales worldwide

ensure a balanced transition to open trade at minimal

risk to the Indian economy and the local industry

provide a conducive environment for modernisation

and facilitate indigenous design, research and development

assist development of vehicles propelled by alternative

energy sources

develop safety and environmental standards at par with

international standards

Identifying the lack of volumes (both in the automotive and

components sectors) as a major impediment constraining

efficient production, the policy proposes a set of measures:

Foreign direct investment. Automatic approval has been

granted to foreign equity investment up to 100 per cent

for the manufacture of automobiles and components.

Import tariff. Import tariffs have been fixed in a manner to

facilitate development of manufacturing capabilities as opposed

to mere assembly. For motor cars and multi-utility vehicles

(MUVs), the import tariff has been designed to give maximum

fillip to manufacturing without extending undue protection.

Incentives for Research and Development (R&D).

The Finance Bill 2005 provides a weighted deduction of

150 per cent for in-house R&D expenditure in the auto

component industry. Further, the policy proposes to include

vehicle manufacturers for a rebate on the applicable excise

duty for every 1 per cent of the gross turnover of the

company expended during the year on R&D.

Environmental aspects. Adequate fiscal incentives have been

given to promote use of low emission auto fuel technology

(in line with the Auto Fuel Policy). The auto policy states

the Governments intent to align domestic policy with the

international practice of imposing higher road tax on used

old vehicles to discourage their use. Recognising the need

to support the development and introduction of vehicles

propelled by alternate fuels (hybrid vehicles, vehicles operating

with batteries and fuel cells), the policy proposes a long-term

fiscal structure to be put in place to facilitate their acceptance.

Other measures. Recognising the importance of small cars

(cars not exceeding 3.80 meters in length) in the domestic

market and the potential India holds to become an

international hub for the manufacture of small cars, the policy

emphasises the need to spur growth in this segment through

fiscal incentives. Considering the importance of the MUV

segment in the rural and semi-urban areas, the policy states

the need to provide fiscal incentives to this segment.

A U T O M O T I V E

Environmental standards:

The National Auto Fuel Policy

The principal environmental standards in India are the Euro I

and Euro II norms, which regulate vehicular emission in terms

of pollutants such as carbon monoxide (CO), hydrocarbons,

nitrous oxides (NOx) and suspended particulate matter.

The Government of India announced the National Auto Fuel

Policy, which recommended Euro II (Bharat II) norms. These

norms are in place in Delhi, Mumbai, Chennai, Kolkata,

Bangalore, Hyderabad, Ahmedabad, Pune, Surat, Kanpur and

Agra. The Policy also suggested that the norms be further

extended to the entire country from April 1, 2005. The

Mashelkar Committee has recommended that Euro III

equivalent emission norms for all categories of vehicles

should be introduced in seven megacities April 1, 2005

onwards, and subsequently extended to other parts of the

country from 2010. Estimates suggest that the automobile

industry would require investments in the range of

US$ 5-7 billion for manufacturing vehicles compatible

with the proposed emission norms.

Two-wheelers on a robust

growth path

The Indian two-wheeler market is one of the largest

two-wheeler markets in the world, with the present estimated

size of 5.4 million units a year.

Over the last five years, the two-wheeler market in India

has grown at a CAGR of 10 per cent and is projected to

maintain this robust growth rate in the future. Motorcycles

comprise approximately 78 per cent of the two-wheeler

market, with the remaining 22 per cent being shared

between scooters and mopeds.

MARKET

Size and Growth

The passenger car market is projected to grow at a CAGR of

12.3 per cent over the next few years. Growth in the mid-size

and premium car segments is expected to outpace the overall

market growth.

2003-04 (A): Total units - 696,207

Source: CRIS INFAC, Annual Passenger Car, October 2003

Passenger car market

growing at a sustained pace

A U T O M O T I V E

Auto ancillary industry

to strengthen

Nearly two-thirds of the auto component production is

consumed directly by OEMs, around one-fifth goes to

after-market sales and the remaining is exported. The market

is dominated by the organised sector that comprises nearly

400 players, covering 78 per cent of the demand. The

remaining demand is met by the fragmented unorganised

sector. Presently a US$ 6.7 billion industry, the Indian auto

component industry is projected to grow at a CAGR of

15 per cent. It is expected to almost treble in eight years to

US$ 17 billion by 2012 (Source: Automotive Component

Manufacturers Association of India (ACMA) quoted in a

Study of the Indian Automobile Industry, AT Kearney).

Indian auto anci l lary industry: revenue shares of various component

categories, f iscal year 2003

Source: CRIS INFAC


Indian auto anci l lary industry: revenue shares of various component

ca tegor i e s

F Y1999 FY2000 FY2001 FY2002 FY2003 CAGR

ENGINE PARTS 696 870 804 848 1000 8.9%

ELECTRICAL PARTS 152 217 261 283 304 20.1%

TRANS & STEERING 435 478 457 565 609 9%

SUSPEN. & BRAKING 370 435 413 435 457 6.3%

EQUIPMENT 152 174 217 239 348 23.7%

OTHER 370 543 848 1152 1521 43.2%

TOTAL ORGANISED

SECTOR 2174 2739 2978 3522 4239 18.2%

SSI SECTOR

ESTIMATED 652 826 891 1043 1283 18.4%

TOTAL COMPONENTS 2826 3565 3869 4565 5522 18.3%

Source: CRIS INFAC

All values in US$ million; FY: Financial Year

Sales break-up: Indian auto component industry, f iscal year 2003

Source: CRIS INFAC

Market Structure

For nearly three decades after independence, the Indian

automobile industry comprised only two automobile

companies, Hindustan Motors and Fiat. The industry was

licensed, highly regulated and government-controlled during

this period. The early 1980s saw the entry of a new player,

Maruti Suzuki, a joint venture of Suzuki Motor Corporation,

Japan and the Government of India.

The early 1990s witnessed several reforms initiated by the

Indian Government aimed at encouraging private and foreign

investment through delicensing, government-decontrol and

deregulation of various sectors of the economy. In June 1993,

a new automobile policy was formulated allowing foreign

investment in the automobile sector, abolition of licences

and a reduction in duties across the board to enable the

sector to become globally competitive. This resulted in several

new players entering the Indian automobile industry, including

General Motors, Ford, Hyundai, Honda, and several others.

Changing laws

attracted numerous

players in the passenger car

segment

Market shares of players in the domestic passenger car market

(Apri l 2003 - March 2004)

Foreign players in India

Name India Partner Col laborator Fore ign Year of

e q u i t y I n co rpo ra t i on

DaimlerChrysler India Private Limited None DaimlerChrysler AG 100% 1995

Fiat India Automobiles Pvt. Limited None Fiat Auto SPA, Italy 100% 1997

Ford India Limited Mahindra & Mahindra Ford Motor Company, USA 84.10% 1995

General Motors India Limited None General Motors Corporation, USA 100% 1995

Hindustan Motors C K Birla Group None - 1940s

Honda Siel Cars India Limited Siel Limited Honda Motor Company Limited, Japan 99% 1995

Hyundai Motor India Limited None Hyundai Motor Company, Korea 100% 1996

Maruti Udyog Limited Government of India Suzuki Motor Company, Japan 54.20% 1982

Tata Motors Limited Tata Group None - 1945

Toyota Kirloskar Motors Limited Kirloskar Group Toyota Motor Corp., Japan 88.90% 1997

A U T O M O T I V E

Tata Motors an indigenous success story

Tata Group is among Indias largest business houses. The

group has interests in seven key industry sectors. These

include engineering, chemicals, consumer products, energy,

communications and information systems, materials and

services. It holds a leading position in many of these sectors.

One of its oldest and most prominent companies is Tata

Motors, earlier known as Tata Engineering. Tata Motors

is the foremost, the largest and the only fully integrated

automobile manufacturer in India. It ranks among the

worlds top ten producers of commercial vehicles.

Its product range covers passenger cars, multi-utility vehicles

and light, medium and heavy commercial vehicles for goods

and passenger transport. Seven out of ten medium and

heavy commercial vehicles in India bear the Tata mark.

Over the years Tata Motors has made substantial

investments in building companies that add value,

facilitate and support its diverse range of business activities.

The company enjoys a significant demand in export markets

such as Europe, Australia, South East Asia, the Middle East

and Africa. Tata Motors vehicles currently sell in over 70

countries. Tata Motors registered an annual turnover of

US$ 2.8 billion in 2003-04.

It launched Indias first indigenously designed and

manufactured passenger car - the Indica V2 - which has

been a phenomenal success, standing testimony to the

companys research and engineering expertise. Tata Motors

has followed this up with the launch of its sedan Indigo and

its variant the Indigo Marina.

Tata Motors is spreading its wings abroad. It has acquired

Daewoo Commercial Vehicle Co. (DWCV) Korea, the truck

making arm of Daewoo. With this deal the company gets

access to Daewoos 93 models in cargo, dumper, mixer

and tractor categories that it can introduce in other

markets. DWCV produces around 20,000 heavy-duty trucks

in the 200-400 horse power range. This deal will help

Tata Motors diversify into higher horse-power ranges.

A U T O M O T I V E

India represents one of the largest two-wheeler markets in

the world, with an estimated size of 5.4 million units a year.

Two-wheelers are used extensively in the country, both at

the rural and semi-urban level. India is the two-wheeler capital

of Asia with an average of 27 two-wheelers per thousand

people, compared to Chinas 8 two-wheelers per thousand

people (Source: World Bank).

The Indian two-wheeler market in India is oligopolistic in

nature, with the top three companies accounting for over

80 per cent of the total industry sales. Hero Honda Motors

Limited, a joint venture between Honda Motors, Japan and

the Indian-based Hero Group, is the largest manufacturer

of two-wheelers in the world with a 38 per cent market

share of the domestic 5.4 million units two-wheeler market.

Bajaj Auto is the second largest player in the two-wheeler

market with a 22.3 per cent share. The company uses

indigenously developed technology for its two-wheelers.

TVS Motor Company is the third largest player with a 20.9

per cent market share, with a majority of its sales coming

from the southern states of India.

PAGE 15

Two-wheelers market,

one of the largest in the

world and still growing

Market shares of players in the domestic two-wheeler market

(Apri l 2003 - March 2004)

Source: SIAM

Auto ancillary,

transforming through the

years

The Indian auto parts industry is significantly fragmented with a

large number of players having a turnover of less than US$ 10

million per year. The industry directly employs about 250,000

people and has an annual turnover of over US$ 6.7 billion.

The evolution of the Indian auto ancillary industry can be

traced through three distinct phases, each marked by

substantive developments.

Phase I (1980s): Prior to the 1980s, the auto ancillary industry

had been primarily dominated by the unorganised, low

technology small-scale sector. The setting up of Maruti Suzuki

in 1983, generated a need for high quality, reliable auto

components that met the stringent emission standards set

for Maruti cars. This led to the entry of several Japanese

auto component majors like Sumitomo, Koyo and Denso.

Phase II (1990s): The auto component industry in India

witnessed a transformation in the 1990s to a high technology,

quality conscious industry catering to the requirements of

the growing domestic automobile industry. Large players like

Delphi, Robert Bosch, Visteon Corporation etc entered the

market to tap the huge potential created by the strong

domestic and export demand.

Phase III (2000 onwards): This period has seen the

emergence of three trends in the industry, namely:

Globalisation of Indian companies: Several leading Indian

companies have acquired international auto component

companies as part of their strategy to expand their markets

globally and acquire new technology. For example, Bharat

Forge, the second largest forging manufacturer in the world

has acquired German forging company, Carl Dan

Peddinghaus; Amtek Auto acquired two UK-based auto

component companies; Sundaram Fastners acquired

a precision forging unit of Dana Spicer, Europe.


Global Quality Benchmarking: Today the Indian automotive

industry has six Deming Award winners which include Rane

Brake Linings Limited; Brakes India Limited, Foundry Division;

Sona Koyo Steering Systems Limited; TVS Motor Company

Limited; Sundaram Brake Linings Limited and Sundaram-

Clayton Limited, Brakes Division. By investing in quality,

local component manufacturers are becoming the hub for

global sourcing of international automotive companies.

Outsourcing: Global auto component companies like Delphi,

Visteon, Cummins etc consider India their manufacturing as

well as research base and are sourcing components from

India for their global requirements.

OPPORTUNITIES

India is a market that offers new avenues for growth in the

automotive sector and also provides opportunities to global

companies to compete more effectively in their home markets.

Given the present downturn in developed markets, OEMs

and suppliers alike are under pressure to optimise their cost

levels and simultaneously drive growth. In this context, India

represents a substantial cost advantage, which global OEMs

and component manufacturers are leveraging to drive down

costs and build growth options.

On the cost front, OEMs are eyeing India in a big way to

source products and components at significant discounts to

home markets. On the revenue side, OEMs are active in the

booming passenger car market in India.

Exports from India

The Indian automotive exports industry has covered significant

ground to reach international standards in quality, reliability

and technology. This is borne out by the phenomenal auto

export growth witnessed by the country over the last 3-4

years.

Passenger vehicle exports have grown over five times in

the last four years, touching 129,316 cars in 2003-04.

A testimony to Indias emergence as a future auto export

base of the world, is UK-based MG Rover Groups recent

alliance with an Indian automobile major, Tata Motors, to

export an estimated 100,000 cars over the next five years

from India.

India offers twin

advantages

scaling costs and

optimising revenues

India becoming an export

hub

Korean car manufacturer, Hyundai has made India the global

sourcing base for its small cars and targets exports volumes

of 70,000 cars for 2005.

Suzuki, Japan is using India as the sourcing base for its small

cars.

Export of passenger cars

Hyundai Motor India Limited (HMIL)

HMIL was set up in late 1996 as a wholly owned subsidiary

of Hyundai Motors, Korea. The companys small and

compact model, Santro has been a runaway success

in India. The company currently is the second largest player

in the passenger car market in the country with a present

market share of 20 per cent and a turnover of

approximately US$ 1 billion. The company recently rolled

out its 500,000th vehicle from its Chennai plant, and plans

to roll out its millionth vehicle by 2006.

The company caters to all segments (small and compact,

mid-size, premium) of the car market in India, and has a

current manufacturing capacity of 250,000 units.

Source: CRIS INFAC, SIAM

A U T O M O T I V E

Hyundai Motor India Limited

Auto ancillary exports have multiplied over the last five years,

growing at a CAGR of 26 per cent between 1999-2000 to

2003-04. As per the latest McKinsey & Co. report on auto The

HMILs strategy has been to penetrate the Indian passenger

car market with low price offering (Santro priced between

US$ 6000-8000) targeting the burgeoning middle class

market segment. The company has been able to keep

costs down by outsourcing most of its parts to its vendors.

Due to a low fixed cost structure, its breakeven level is

low. The company has replicated the Santro success story

with its Accent model, which is priced at over US$ 10,000

and targets the upper middle class and upper class market

segments. The Hyundai plant has a capacity to make

250, 000 cars and 350,000 engine transmission units per

annum. It also exports engines and transmission parts to

its operations in Korea and Turkey.

Source: CMIE

components, Indian auto ancillary exports currently pegged

at US$ 1 billion, could potentially scale up to US$ 25 billion

in the coming decade.

Explore the cost-competitive advantage

Indias auto component industry with its high product quality,

superior design and engineering capabilities, backed by a large

domestic market and government regulations has emerged as

a preferred outsourcing destination. According to Automotive

Component Manufacturers Association of India (ACMA), all

these factors are expected to contribute towards an export

growth of over 30 per cent per annum until 2010.

India offers a low-cost manufacturing base for auto

components, which may be utilised to fulfil global demands.

The average fully loaded cost of a component (for example,

oil filters) sourced from India is typically 20-30 per cent lower

than a US manufactured one, which compares favourably with

even markets like Mexico and is almost at par with China.

Examples of world-class players fulfilling such demand today

are companies like Sundaram Fastners, Sundaram Clayton,

Bharat Forge and Rico Auto, which supply to DaimlerChrysler,

Germany; RVI, France: General Motors, USA; Ford, UK;

Cummins, USA & UK; Land Rover, UK; Volvo, Sweden; Ford,

Brazil; PT DaimlerChrysler, Indonesia; Proton, Malaysia.

Experience of several e-procurement platforms indicates that,

on an average, global buyers save between 10-20 per cent by

sourcing components from India.

Global automobile companies are aggressive in the Indian

market to find sourcing partners in India to meet their

ambitious cost-cutting plans. Both OEMs and their Tier I

vendors (Delphi, Ford, Volvo, Robert Bosch, Cummins etc)

have set-up teams in India to explore such opportunities,

attracted by the countrys availability of low-cost, skilled

engineering manpower.

Tier-I vendors scouting for

sources in India

PAGE 21

Outsourcing opportunity

A U T O M O T I V E

recent trend of OEMs setting up IPOs (international purchasing

offices) in the country is an indication of the huge opportunity

for Indian auto component manufacturers.

OEMs can also reduce the cost of engineering services, design,

IT and other back-office related operations by remote sourcing

to India on account of its low cost yet highly skilled labour

market.

TRW has a strategic alliance with Satyam for outsourcing

enterprise resource management, supply chain management,

information systems, e-business applications, and engineering

services.

Ford Information Technology Services India (FITSI) is delivering

high-quality solutions in business software, computer-aided

engineering and call centre/e-mail processing. Ford expects

to have annual labour cost savings of US$ 30-60 million.

Large OEMs setting up

purchase offices

Minimising costs

of operations

Bharat Forge Ltd

Bharat Forge Ltd, the flagship company of the Kalyani Group,

was set up in 1961. It is the largest forging company in Asia

and one of the largest and most technologically advanced

commercial forge shops in the world. Catering primarily to

the commercial vehicle segment, its client list includes Tata

Motors, Ashok Leyland, Mahindra & Mahindra and Maruti in

India and DaimlerChrysler, Arvin Meritor, Dana, Renault &

Volvo, overseas. The company has recently acquired Carl

Dan Peddinghaus AT, a German aluminium forging company,

for a consideration of Euro 6.3 million.

Bharat Forge Limited

Bharat Forge has an annual forging capacity of 102,966 MT,

front-axle capacity of 500,000 units and front-axle beams

capacity of 413,000 units. With revenues of approximately

US$ 150 millon, the company has a major focus on exports,

deriving 39 per cent of its revenues from overseas clients.

Bharat Forges strength lies in its long-standing relationships

with its clients; it being a one-stop shop for all forging

requirements (including several critical products, where

it enjoys a near monopoly). Its manufacturing facilities

are rated very highly and its flexibility to scale operations

helps it in structuring its deliveries in a cost-effective manner.

The company is also looking at de-risking its revenues by

increasing its presence in new and existing overseas markets

and expanding its product lines to cater to other segments

of the automotive market, where it has a small presence

till date.

Source: CMIE

A U T O M O T I V E

Sundaram Fastners Limited

Sundaram Fastners, a member of the TVS group (the

largest automotive component group in India) since 1965,

is one of the pioneers and most respected names in

the auto component industry in India. The company

manufactures about 7000 different types of bolts and nuts.

Its product range includes high-tensile (premium quality)

fasteners, powder metal parts and radiator caps. The

company has won the coveted Best of the Best Suppliers

of the Year award for five consecutive years from General

Motors. Looking at the vast scope of the Chinese market

the company has set up a 100 per cent subsidiary,

Sundaram Fastners (Zhejiang) Ltd with an initial investment

of US$ 5 million and plans to invest US$ 12.5 million

more over the next two-three years. DaimlerChrysler,

Cummins and General Motors are its major customers.

Sundaram Fastners Limited

SFLs strength lies in its premium quality products. It has a

keen focus on R&D, which includes not only expansion of

product lines but also improving quality of existing products.

It also has a technical collaboration with Dura Automotive,

USA for gear shifter assemblies. SFL would be looking at

strategic acquisitions to fuel growth in the future.

Source: CMIE

Bosch Group

Motor Industries Company (MICO) founded in 1951 is

a 61 per cent subsidiary of the German auto components

maker, Robert Bosch GmbH. MICO pioneered the

manufacture of automotive spark plugs and diesel fuel

injection equipment in India. Currently, the company is

the largest manufacturer of diesel fuel injection equipment

in the country and one of the largest in the world.

In recent years the company has widened its product range

by introducing a large number of automotive accessories

as well as special purpose machines, electric power tools,

car audio systems and packaging machines. The company

derives 45 per cent of its revenues from domestic sales

mainly to OEMs and the replacement market. Exports

comprise the remaining 55 per cent of its revenue.

Motor Industr ies Company Limited

MICO has seen sales grow by nearly three times and profits

by over five times in the last 10 years. The companys

strategy has been to introduce, manufacture and sell high-

technology products in the country. This backed with its

strong distribution network has been key to its success in

India.

Source: CMIE

A U T O M O T I V E

Contract manufacturing

OEMs are also leveraging the capabilities of the local

manufacturers for contract manufacturing. The global OEMs

in this case allow the local player to assemble a globally

developed, and in some cases, locally modified vehicle in one

of the existing local plants.

Mitsubishi has been successful in using Hindustan Motors to

manufacture its Lancer.

Ford has recently entered into a strategic tie-up with

Hindustan Motors to manufacture 20,000 petrol engines and

transmissions for its Ford Ikon cars.

Kawasaki has announced plans to outsource parts for sub 200 cc

motorcycles from Bajaj, with which it has a technical tie-up.

Global Tier 1 suppliers like Delphi and Visteon have also set

up greenfield projects in India. Such projects tend to have

longer gestation periods but allow the manufacturer to set-up

and manage the entity in line with its global policies and

standards.

Product penetrations

Indias current car penetration is one of the lowest in the

world at five cars per thousand persons, compared with ninety

cars per thousand people for other developing countries like

South Africa and Brazil in 2001 (Source: Wards Automotive

Data book). This represents a huge latent demand for a large

economy like India, which is projected to grow at a

phenomenal rate over the next five years. Car penetration

ratio is projected to double by 2007-08.

Greenfield projects

are a viable option

Large latent demand for

passenger cars

Innovating for the domestic market

Indias domestic passenger car market is poised to grow at

an impressive rate in the near future. Despite a market still

smaller than several other global markets, establishing

a beachhead could prove useful for the long-term.

The market has its own unique characteristics and one-size

fits all approach may not work. Indian consumers are not only

cost-conscious but also look for good vehicle performance.

A value for money proposition is usually a good starting

point. Hyundai has capitalised on this strategy by positioning

all its cars, from the Santro to the Sonata, on this platform.

Moving into the local market by leveraging some of the

existing global platforms and styling them to suit local tastes,

as most OEMs are doing now, could also lead to success

in the domestic market. Building the appropriate relationships

and transferring best practices into this market can yield

significant benefits in the long run.

Offering value for money

and adapting to local

conditions spells success

PAGE 27A U T O M O T I V E

Explore, invest and partner

with India to profit and

advantage

CONTACT FOR INFORMATION

Two premier associations in India represent the automobile

and auto components industry respectively, creating a

symbiotic interface between industry, government, domestic

and international investors. These associations can be

contacted directly for information on market and opportunities

for investment/collaboration in the automobile and auto

components sectors.

Automotive Component Manufacturers Association

of India (ACMA)

6th Floor

The Capital Court

Olof Palme Marg, Munirka

New Delhi - 110 067

India

Tel: + 91 11 2616 0315, 2617 5873, 2618 4479

Fax: + 91 11 2616 0317

E-mail: [email protected]

Website: www.acmainfo.com

Society of Indian Automobile Manufacturers (SIAM)

Core 4B, 5th Floor

India Habitat Centre

Lodi Road

New Delhi - 110 003

India

Tel: + 91 11 2464 7810-12, 2464 8555

Fax: + 91 11 2464 8222

Email: [email protected]

Website: www.siamindia.com

DISCLAIMER

This publication has been prepared jointly by the India Brand Equity Foundation

(IBEF) and Ernst & Young (Authors).

All rights reserved. All copyright in this publication and related works is owned by

IBEF and the Authors. The same may not be reproduced, wholly or in part in any

material form (including photocopying or storing it in any medium by

electronic means and whether or not transiently or incidentally to some other

use of this publication), modified or in any manner communicated to any third

party except with the written approval of IBEF.

This publication is for information purposes only. While due care has been taken

during the compilation of this publication to ensure that the information is

accurate to the best of the Authors and IBEFs knowledge and belief, the

content is not to be construed in any manner whatsoever as a substitute for

professional advice.

The Author and IBEF neither recommend or endorse any specific products or

services that may have been mentioned in this publication and nor do they

assume any liability or responsibility for the outcome of decisions taken as a

result of any reliance placed on this publication.

Neither the Author nor IBEF shall, be liable for any direct or indirect damages

that may arise due to any act or omission on the part of the user due to any

reliance placed or guidance taken from any portion of this publication.

The India Brand Equity Foundation is a public-private partnership

between the Ministry of Commerce and Industry, Government of India and

the Confederation of Indian Industry. The Foundation's primary objective

is to build positive economic perceptions of India globally.

India Brand Equity Foundation

c/o Confederation of Indian Industry

249-F Sector 18

Udyog Vihar Phase IV

Gurgaon 122015 Haryana

INDIA

Tel +91 124 501 4087 Fax +91 124 501 3873

E-mail [email protected]

Web www.ciionline.org

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Documents

Automotive Sectoral Report