Industry Analysis(Auto Industry)

8/9/2019 Industry Analysis(Auto Industry)

1/33

Industry Analysis

Automobile Industry


2/33

. The business environment and the

trends in the automobile industry

have beendiscussedin the context ofthree distinct phases, namely------------------------

1.The early regime of licensing until

1983.


3/33

. 2. Partial liberalization of rules in Mid1980s

3. The phase dealing with Economicreforms of1990s


4/33

. 1.The early regime of licensing

until 1983:

Early regime was governed byregulations where imports,collaborations,and equity ventureswere severely restricted by the

government.


5/33

. Capacity expansion wasalso

restrictedand the government issued

the required licenses.

Technology transfer from foreigncompanies was subject togovernment approvals.


6/33

. All these factors hadan impact

on the supply as well as the

prices of the vehicles.


7/33

. 2.Partial Liberalization of rules in

Mid 1980s:

The partial liberalizationled to theentry of Maruti .

And the proliferation of Two Wheelersand Light Commercial Vehicles (LCVs)into India.


8/33

. The entry of MNCs into the

automobile sector led to its

substantial growth. Suzuki MotorCompany ofJapan in

collaboration with MarutiUdyogLimited led the sector to its

tremendous growth.


9/33

. In1982 Maruti Udyog Ltd(MUL)came

up asaGovernment initiative in

collaboration with Suzuki of Japan toestablish volume production ofContemporary (Current fashionable)models.


10/33

. The Government also

encouraged the company

through------------------------------------- fiscalconcessions by lowering

import and excise duty.


11/33

. Thus, the actual boom in

the car market started whenMaruti entered the industryin1984 with itssmall and

fuel-efficient family carmodels.


12/33

. 3.The phase Dealing with

Economic Reforms of 1990s:

Until the liberalization policiesof the 1990s, Maruti hada freerun in the Indianautomobile

market with very littlecompetition.


13/33

. BUT the scenario changed

with the introduction of theStructural AdjustmentProgramme.


14/33

. The policy changes were with

respect to ---

industrial licensing,

foreign investment andtechnology,

fiscal, monetary and

foreign policy environments.


15/33

. AS a result,government

regulations or direct controlsin

the sector hasreducedcompared to other developingcountries in Asia.

Frequent release ofnewmodels over the recent years.


16/33

. The primary beneficiary of the

outcome has beenthe consumers

who are now reaping --------------------------------the advantage ofenhanced choice, bettertechnology and decreased

relative prices.


17/33


18/33

. 1.Industrial policy: Production

licensing abolished for all types of

automotive vehicles, except for carsin July 1991.

P.L. For cars wasabolished in April1993.

Delicensing and opening up of thesector to FDI took place due to which17 new venturescame up.


19/33

. 2.Automatic Approval for projects

involving import ofcapital goods:

In case were foreign exchangeavailability is ensured through foreignequity or


20/33

. If the CIF value of importedcapital

goods is less than 25% of the total

value of the plant and equipmentsubject to a maximum of RS.20million,

automaticapproval is given for the

import ofcapital goods.


21/33

. 3.Foreign Investment:

Automaticapproval for upto 51% foreign equity stakehasnow beenallowed in

segments like ---------------------------


22/33

. Commercial vehicles,

industrial locomotives,auto-motive

two-wheelersand three-wheelers,automotive components/sparesandancillaries.


23/33

. FOR Approvalof projects in the car

segment,a further condition of

dividend balancing has beenimposed.

i.e., outflow onaccount ofdividendpayments has to be balanced by the

foreign exchange earning throughexport over a period of time.


24/33

. Dividend balancing isspread over

seven years from the commencement

of production. Balancing isnot required beyond the

seven-year period.


25/33

. 4.Foreign Technology

Agreements:

There isautomatic permission fortechnology purchases ofup to a lumpsum payment of Rs.10 million.

Further, royalty is given on,5% on

domesticsalesand8% on exports.


26/33

. Subject to total payments of8% ofsales over a ten-year

period from the date ofagreement or seven years fromthe commencement of

production.


27/33

. 5. Engaging Foreign Technicians

6.EXIMPolicy:

Capital goods,components, partsandconsumables for the manufactureofvehiclescan be freely imported.

The Govt of India removed the QRson imports of hundreds of items.


28/33


29/33

. 7.Fiscal and Monetary

Policies:

Indian rupees has been madeconvertible oncurrent account.

Thissimplified procedures forimportsand exports .


30/33

. Since the import ofautomobilesandcapital goods

like radiators requires largeamount of foreign exchange,companiescan greatly benefit

from the relaxed regime.


31/33

SWOT

Analysis Economic reforms have hada positive

effect on both demandandsupply of

automobiles. Strength:

Decline in pricesand more number ofmodels for consumers.


32/33

. Weakness:

Dominance of MNCs over domestic

firms. Dependent on imports for capital

goods like radiators.


33/33

. Opportunity:

Consumerssovereignty and big firms

reap the benefits. Threat:

Small players producing automotivecomponents face challenges.

Documents

Industry Analysis(Auto Industry)