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Porter's Five Forces Analysis - Indian Automobile Industry 2

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PORTER'S FIVE FORCES ANALYSIS INDIAN AUTOMOBILE INDUSTRYSUBMITTED TO: DR. SHIKHA N. KHERAPRESENTED BY: ASHISH MENDIRATTA (MBA/13) BHARTI VIVEKANAND (MBA/14) MADHUR AGARWAL (MBA/23) RAVISH SINGH (MBA/39)

INDEXS.No. 1. 2. 3. 4. 2 Wheeler Industry Passenger Vehicle Industry Commercial Vehicle Industry Topic Introduction to Indian Automobile Industry

INDIAN AUTOMOBILE INDUSTRY

Automobile Industry One of the major industrial sectors in India is the automobile sector. Subsequent to the liberalization, the automobile sector has been aptly described as the sunrise sector of the Indian economy as this sector has witnessed tremendous growth. Automobile Industry was delicensed in July 1991 with the announcement of the New Industrial Policy. The passenger car industry was, however, delicensed in 1993. No industrial licence is required for setting up of any unit for manufacture of automobiles except in some special cases. The norms for Foreign Investment and import of technology have also been progressively liberalized over the years for manufacture of vehicles including passenger cars in order to make this sector globally competitive. At present 100% Foreign Direct Investment (FDI) is permissible under automatic route in this sector including passenger car segment. With the gradual liberalization of the automobile sector since 1991, the number of manufacturing facilities in India has grown progressively. The cumulative production data for April-January 2010 shows production growth of 23.07 percent over same period last year.

On the canvas of the Indian economy, automotive industry occupies a prominent place. A sound transportation system plays a pivotal role in the country's rapid economic and industrial development. Automotive Industry comprises of automobile and auto component sectors and is one of the key drivers of the national economy as it provides large-scale employment, having a strong multiplier effect. Being one of the largest industries in India, this industry has been witnessing impressive growth during the last two decades. It has been able to restructure itself, absorb newer technology, align itself to the global developments and realize its potential. This has significantly increased automotive industry's contribution to overall industrial growth in the country.

Automotive Industry The automotive industry is one of the most important economic sectors by revenue. The term automotive industry usually does not include industries dedicated to automobiles after delivery to the customer, such as repair shops and motor fuel filling stations.

Domestic SalesGrowth during April-January 2010 period: Passenger Vehicles: 25.21% Passenger Cars: 24.75% Utility Vehicles:21.95% Multi Purpose Vehicles: 37.05% Overall Commercial Vehicles: 30.39% Medium & Heavy Commercial Vehicles (M&HCVs): 20.58% Light Commercial Vehicles: 39.66% Two Wheelers: 23.74% Mopeds: 31.73% Scooters: 20.56% Motorcycles: 24.32%

ExportsGrowth during April-January 2010 period: Overall Automobile exports: 13.24% Passenger Vehicles segment: 33.92% Two Wheelers segments: 8.84% Commercial Vehicles segment: (-)7.52 percent.

Growth Drivers of Indian Automobile Market Rising industrial and agricultural output Rising per capita income Favorable demographic distribution with rising working population and middle class urbanization Increasing disposable incomes in rural agri-sector Availability of a variety of vehicle models meeting diverse needs and preferences Greater affordability of vehicles Easy finance schemes Favorable government policies Robust production

India's Position in World's Production Well-developed, globally competitive auto ancillary industry Established automobile testing and R&D centers Among one of the lowest cost producers of steel in the world World's 2nd largest manufacturer of two wheeler 5th largest manufacturer of commercial vehicles Largest manufacturers of tractors in the world 4th largest passenger car market in Asia India is the 2nd largest two-wheeler market in the world 11th largest passenger car market in the world Expected to be the 7th largest auto industry by 2016

Worldwide Trends In 2007, worldwide production reached a peak at a total of 73.3 million. In 2009, worldwide motor vehicle production dropped 13.5% to 61 million. Sales in the U.S. dropped 21.2% to 10.4 million units. China became the world's largest motor vehicles market, both by sales as well as by production. Sales in China rose 45% in 2009 to 13.6 million units.

YEARPassenger vehicles Commercial vehicles Three-wheelers Two-wheelers

2006-07198,452 49,537 143,896 619,644

2007-08218,401 58,994 141,225 819,793

2008-09335,739 42,673 148,074 1,004,174

200000

000000 800000 600000 400000 200000 0 2006-07 2007-08 2008-09

Global Production of Motor vehicles (cars and commercial vehicles)Year 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Production 56,258,892 58,374,162 56,304,925 58,994,318 60,663,225 64,496,220 66,482,439 69,222,975 73,266,061 70,520,493 60,986,985

Vehicle production trend

SWOT ANALYSISSStrengths Large domestic market. Sustainable labor cost advantage. Competitive auto component vendor base. Government incentives for manufacturing plants. Strong engineering skills in design etc.

W

Weaknesses Low labor productivity. High interest costs and high overheads make the production uncompetitive. Various forms of taxes push up the cost of production. Low investment in Research and Development. Infrastructure bottleneck.

O

Opportunities

T

Threats Rising input costs. Rising interest rates. Cut throat competition

Commercial vehicles: SC ban on overloading. Heavy thrust on mining and construction activity. Increase in the income level. Cut in excise duties. Rising rural demand.

Two wheeler industry

Manufacturer Hero Honda Bajaj Auto Ltd. TVS Motors Others

Sales 41 % 27 % 18 % 14 %

Market Share Of Major Players In Two-wheeler IndustrySales14% 18% 41% r B j j Aut Lt . TVS m t rs Oth rs

27%

Types of Two-wheelers in IndiaThere are mainly three types of two-wheelers available in India: Motorcycles Scooters Scooterettes/Mopeds

Motorcycles in IndiaBajaj Auto Ltd * Bajaj Avenger * Bajaj CT 100 * Bajaj Platina * Bajaj Discover DTSi * Bajaj Pulsar DTSi * Bajaj Wave * Bajaj Wind 125 * Sonic DTSi HERO HONDA * Hero Honda Achiever * Hero Honda CD Dawn * Hero Honda CD Deluxe * Hero Honda Glamour * Hero Honda Glamour-Fi * Hero Honda Karizma * Hero Honda Passion Plus * Hero Honda Pleasure * Hero Honda Super Splendor * Hero Honda Splendor NXG * Hero Honda CBZ X-Treme TVS MOTOR * TVS Apache * TVS Centra * TVS Fiero * TVS Star * TVS Victor Yamaha Motor India

Kinetic Motor Company * Kinetic Aquila * Kinetic Boss * Kinetic Challenger * Kinetic Comet * Kinetic GF * Kinetic Stryker * Kinetic Velocity

* Yamaha Crux S * Yamaha G5 * Yamaha Gladiator

Scooters in India The scooter and the scooterette share in the Indian two wheeler market is 13.4%. The main models available in India are: Bajaj Chetak Honda Eterno Kinetic Blaze LML NV SPL LML Select II

Scooterettes/Mopeds TVS Motors launched India's first 50cc, 2 seater moped: TVS Moped 50. TVS also launched India's first indigenous scooterette: Scooty in 1994. This segment has about one-fourth share in the Indian two wheeler industry. The major models available in India are: Bajaj Wave Bajaj Kristal DTSi Bajaj Blade DTSi Hero Honda Pleasure Kinetic Kine Kinetic 4S Kinetic Nova Kinetic Zoom Kinetic V2 Range Kinetic King 100 Kinetic Luna Super Kinetic Luna TFR Yo Smart Honda Dio Honda Activa TVS Scooty TVS XL

Factor which influence the growth of two-wheeler industries are as follows: Lower interest rates Easing liquidity situation Modernization of young generation A well-equipped middle- class transport Fuel-Efficient

P O R T E R S 5 F O R C E S A N A L Y S I S

Threat of New Entrants LOW

Bargaining Power of CustomersHIGH

Rivalry Among FirmsHigh

Bargaining Power of Suppliers Low

Threat of Substitute ProductsLow to Moderate

Rivalry Among Firms HIGH The key players in two-wheeler industries are Hero Honda motor ltd. (HHML), Bajaj Auto ltd and TVS motor Company ltd. The other players are Kinetic, LML, Yamaha, Majestic auto ltd, Royal Enfield ltd and Honda motorcycle & scooter India. Two-wheelers domestic market growth rate for 2008-09 is 19.4% which is very high when compared to that of three wheelers, Passenger and commercial vehicles. Indian Auto policy 2002 gives added advantage to two-wheeler manufacturers to enter even other countries outside India. Since big manufacturer plant with high technology and good R&D team needed many of them dose not enter in two-wheeler Industries. Only the companies which are in automobile line will expand their product line like Mahindra.

Threat of New Entrants Low to Moderate Capital investment is very huge Sportsbikes entering in Indian market Harley Davidson launching in India

Threat of Substitute Products Low to Moderate Substitute products for two-wheeler industries are bus transportation, Auto transportation and even low-end cars, but people using two-wheelers can only use the service of buses and auto as a substitute product. Sometimes low-end car is a substitute product for the people using high-end motorcycles. Normal buses to hi-tech ac buses which is threat to two-wheeler industry. Penetration of Metro trains in Metropolitans.

Bargaining Power of Suppliers Low Some of the components in two-wheeler industry are very common for all the two-wheeler industries like steel, aluminum, tyres and tubes, these material are