| Introduction: | | | | Foreign Companies in the Indian auto-sector |
| During early 60s & 70s, automobiles came largely | | | | Until the mid-1990s, automobile industry in India |
| in twos. | | | | consisted of just a handful of local companies with |
| In scooters, you had a Lambretta or a Vespa. | | | | small capacities and obsolete technologies. |
| In motorcycles, you had a Bullet or a Java. | | | | Nevertheless, after the sector was thrown open to |
| In cars, you had to choose between an Ambassador | | | | foreign direct investment in 1996, some of the global |
| and a Fiat. | | | | majors moved in and, by 2002, Hyundai, Honda, |
| In trucks, it was either an Ashok Leyland or a Tata. | | | | Toyota, General Motors, Ford and Mitsubishi set up |
| In tractors, it was between a Swaraj and a Mahindra. | | | | their manufacturing bases. |
| This situation reflected the India of yester years. | | | | Over the past four to five years, the country has |
| Economic reforms and deregulation have transformed | | | | seen the launch of several domestic and foreign |
| that scene. Automobile industry has written a new | | | | models of passenger cars, multi-utility vehicles |
| inspirational tale. It is a tale of exciting multiplicity, | | | | (MUVs), commercial vehicles and two-wheelers and a |
| unparalleled growth and amusing consumer | | | | robust growth in the production of all kinds of |
| experience - all within a few years. India has already | | | | vehicles. Moreover, owing to its low-cost, high-quality |
| become one of the fastest growing automobile | | | | manufacturing, India has also emerged as a significant |
| markets in the world. This is a tribute to leaders and | | | | outsourcing hub for auto components and auto |
| managers in the industry and, equally to policy | | | | engineering design, rivaling Thailand. German |
| planners. The automobile industry has the opportunity | | | | auto-maker Volkswagen AG, too, is looking to enter |
| to go beyond this remarkable achievement. It is | | | | India. |
| standing on the doorsteps of a quantum leap. | | | | India is expected to be the small car hub for |
| The Indian automobile industry is going through a | | | | Japanese major Toyota. The car, a hot hatch like the |
| technological change where each firm is engaged in | | | | Swift or Getz is likely to be exported to markets like |
| changing its processes and technologies to maintain | | | | Brazil and other Asian countries. This global car is |
| the competitive advantage and provide customers | | | | crucial for Toyota, which is looking to improve its |
| with the optimized products and services. Starting | | | | sales in the BRIC (Brazil, Russia, India, China) markets. |
| from the two wheelers, trucks, and tractors to the | | | | Two multi-national car majors -- Suzuki Motor |
| multi utility vehicles, commercial vehicles and the | | | | Corporation of Japan and Hyundai Motor Company of |
| luxury vehicles, the Indian automobile industry has | | | | Korea -- have indicated that their manufacturing |
| achieved splendid achievement in the recent years. | | | | facilities will be used as a global source for small cars. |
| "The opportunity is staring in your face. It comes | | | | The spurt in in-house product development skills and |
| only once. If you miss it, you will not get it again" | | | | the uniquely high concentration of small cars will |
| On the canvas of the Indian economy, auto industry | | | | influence the country's ability to become a sourcing |
| maintains a high-flying place. Due to its deep | | | | hub for sub-compact cars. |
| frontward and rearward linkages with several key | | | | A heartening feature of the changing automobile |
| segments of the economy, automobile industry has a | | | | scene in India over the past five years is the |
| strong multiplier effect and is capable of being the | | | | newfound success and confidence of domestic |
| driver of economic growth. A sound transportation | | | | manufacturers. They are no longer afraid of |
| system plays an essential role in the country's rapid | | | | competition from the international auto majors. |
| economic and industrial development. The | | | | For instance, today, Tata Motor's Indigo leads the |
| well-developed Indian automotive industry skillfully | | | | popular customer category, while its Indica is |
| fulfils this catalytic role by producing a wide variety of | | | | neck-to-neck with Hyundai's Santro in the race for |
| vehicles: passenger cars, light, medium and heavy | | | | the top-slot in the B category. Meanwhile M&M's |
| commercial vehicles, multi-utility vehicles such as | | | | Scorpio has beaten back the challenge from Toyota's |
| jeeps, scooters, motorcycles, mopeds, three | | | | Qualis to lead the SUV segment. |
| wheelers, tractors etc. | | | | Similarly, a few Indian winners have emerged in the |
| The automotive sector is one of the core industries | | | | motorbike market -- the 150 and 180 cc Pulsar from |
| of the Indian economy, whose prospect is reflective | | | | Bajaj and 110 cc Victor from the TVS stable. The 93 |
| of the economic resilience of the country. Continuous | | | | cc Bike from Bajaj and 110 cc Freedom bike from |
| economic liberalization over the years by the | | | | LML have also emerged as winners. |
| government of India has resulted in making India as | | | | Evidently, Indian players have learnt from past |
| one of the prime business destination for many global | | | | mistakes and developed the skills to build cheaper |
| automotive players. The automotive sector in India is | | | | automobiles using `appropriate' technologies. TVS, for |
| growing at around 18 per cent per annum. | | | | instance, paid an overseas source $100,000 to |
| "The auto industry is just a multiplier, a driver for | | | | fine-tune home-grown engines rather than $1.5 million |
| employment, for investment, for technology" | | | | to import the entire engine. Similarly, M&M |
| The Indian automotive industry started its new | | | | adapted available systems and off-the-shelf |
| journey from 1991 with delicensing of the sector and | | | | components from global suppliers to keep costs |
| subsequent opening up for 100 per cent FDI through | | | | down and go for aggressive pricing. True, Indian |
| automatic route. Since then almost all the global | | | | players are still lacking in scale of operation. While |
| majors have set up their facilities in India taking the | | | | economies of scale no doubt play an important role in |
| production of vehicle from 2 million in 1991 to 9.7 | | | | the auto sector, a few Indian manufacturers relied on |
| million in 2006 (nearly 7 per cent of global automobiles | | | | innovation rather than scale of operation for |
| production and 2.4 per cent of four wheeler | | | | competitive advantage. For instance, Sundram |
| production). | | | | Fasteners was able to achieve the feat of directly |
| The cumulative annual growth rate of production of | | | | supplying radiator caps to General Motors purely on |
| the automotive industry from the year 2000-2001 to | | | | the strength of innovation in product quality. The |
| 2005-2006 was 17 per cent. The cumulative annual | | | | domestic tooling industry bagged the order for the |
| growth rate of exports during the period 2000-01 to | | | | Toyota Kirloskar transmission plant in the face of |
| 2005-06 was 32.92 per cent. The production of the | | | | stiff competition from multinational corporations. The |
| automotive industry is expected to achieve a growth | | | | cost of the entire job turned out to be only a |
| rate of over 20 per cent in 2006-07 and about 15 | | | | fraction of the original estimate. |
| per cent in 2007-08. The export during the same | | | | As the automobile industry has matured over the |
| period is expected to grow over 20 per cent. | | | | past decade, the auto components industry has also |
| The automobile sector has been contributing its share | | | | grown at a rapid pace and is fast achieving global |
| to the shining economic performance of India in the | | | | competitiveness both in terms of cost and quality. |
| recent years. With the Indian middle class earning | | | | In fact, industry observers believe that while the |
| higher per capita income, more people are ready to | | | | automobile market will grow at a measured pace, the |
| own private vehicles including cars and two-wheelers. | | | | components industry is poised for a take-off. For it is |
| Product movements and manned services have | | | | among the handful of industries where India has a |
| boosted in the sales of medium and sized commercial | | | | distinct competitive advantage. International |
| vehicles for passenger and goods transport. | | | | automobile majors, such as Hyundai, Ford, Toyota |
| Side by side with fresh vehicle sales growth, the | | | | and GM, which set up their bases in India in the |
| automotive components sector has witnessed big | | | | 1990s, persuaded some of their overseas component |
| growth. The domestic auto components consumption | | | | suppliers to set up manufacturing facilities in India. |
| has crossed rupees 9000 crore and an export of one | | | | Consequently, the value of cumulative output of the |
| half size of this figure. | | | | auto components industry rose rapidly to Rs 30,640 |
| Eye-Catching FDI Destination - INDIA! | | | | crore at end-2003-04 from just Rs 11,475 crore in |
| India is on the peak of the Foreign Direct Investment | | | | 1996-97. Foreign companies such as Delphi, which |
| wave. FDI flows into India trebled from $6 billion in | | | | followed General Motors in 1995, and Visteon, that |
| 2004-05 to $19 billion in 2006-07 and are expected to | | | | followed Ford Motors in 1998, soon realised the |
| quadruple to $25 billion in 2007-08. By AT Kearney's | | | | substantial cost advantage of manufacturing |
| FDI Confidence Index 2006, India is the second most | | | | components in India. |
| attractive FDI destination after China, pushing the US | | | | Finding the cost lower by about 30 per cent, they |
| to the third position. It is commonly believed that | | | | began exploring the possibility of exporting back |
| soon India will catch up with China. This may also | | | | these low-cost, high-quality components to their |
| happen as China attempts to cool the economy and | | | | global factories and, thus, reducing their overall costs. |
| its protectionism measures that are eclipsing the | | | | Not surprisingly, the industry's exports registered a |
| Middle Kingdom's attractiveness. With rising wages | | | | more than four-fold jump to Rs 4,800 crore in |
| and high land prices in the eastern regions, China may | | | | 2003-04 from just Rs 1,033 crore in 1996-97. |
| be losing its edge as a low-cost manufacturing hub. | | | | Automobile majors such as Maruti Udyog, Toyota, |
| India seems to be the natural choice. | | | | Hyundai have now finalised their plans to invest in |
| India is up-and-coming a significant manufacturer, | | | | some of the critical auto components. According to |
| especially of electrical and electronic equipment, | | | | the Automotive Component Manufacturers |
| automobiles and auto-parts. During 2000-2005 of the | | | | Association of India (ACMA) officials, auto |
| total FDI inflow, electrical and electronic (including | | | | component manufacturers are expected to invest |
| computer software) and automobile accounted for | | | | about Rs 10,000 crore over the next five years at |
| 13.7 per cent and 8.4 per cent respectively. | | | | the rate of Rs 2,000 crore per annum. |
| In services sectors, the lead players are the US, | | | | According to analysts, the auto component industry |
| Singapore and the UK. During 2000-2005, the total | | | | could emerge as the next success story after |
| investment from these three countries accounted for | | | | software, pharmaceuticals, BPO and textiles. The size |
| about 40 per cent of the FDI in the services sector. | | | | of the global auto component industry is estimated |
| In automobiles, the key player is Japan. During | | | | at $1 trillion and is set to grow further. Against this |
| 2000-2005, Japan accounted for about 41 per cent | | | | backdrop, McKinsey's latest report has estimated |
| of the total FDI in automobile, surpassing all its | | | | that the sector has the potential of increasing its |
| competitors by a big margin. | | | | exports to $25 billion by 2015 from $1.1 billion in 2004. |
| India's vast domestic market and the large pool of | | | | Threat to the Dream! |
| technically skilled manpower were the magnetism for | | | | India's expedition to become a global auto |
| the foreign investors. Hitherto, known for | | | | manufacturing hub could be seriously challenged by its |
| knowledge-based industries, India is emerging a | | | | inability to uphold its low-cost production base. A |
| powerhouse of conventional manufacturing too. The | | | | survey conducted by the research, KMPMG firm |
| manufacturing sector in the Index for Industrial | | | | reveals that the Indian auto component |
| Production has grown at an annual rate of over 9 per | | | | manufacturers are increasingly becoming skeptical |
| cent over the last three years. | | | | about sustaining the low-cost base as overheads |
| Korean auto-makers think India is a better destination | | | | including labour costs and complex tax regime are |
| than China. Though China provides a bigger market | | | | constantly rising. |
| for automobiles, India offers a potential for higher | | | | The survey said many executives believe that India's |
| growth. Clearly, manufacturing and service-led growth | | | | cost advantage is grinding down fast as labour costs |
| and the increasing consumerisation makes India one | | | | are constantly increasing and retaining employees is |
| of the most important destinations for FDI. | | | | becoming more and more difficult. Increased |
| Automotive Mission Plan 2016 | | | | presence of global automotive companies in the |
| The bumper-to-bumper traffic of global automobile | | | | country was cited as one of the reasons for the high |
| biggies on the passage to India has finally made | | | | erosion rate. |
| government sit up and take notice. In a bid to drive | | | | Indian auto businesses will only flourish if they boost |
| greater investments into the sector, ministry of | | | | investments in automation. In the longer term, cost |
| heavy industries has decided to put together a | | | | advantage will only be retained if Indian capital can be |
| 10-year mission plan to make India a global hub for | | | | used to develop low-cost automation in |
| automotive industry. | | | | manufacturing. This is the way to preserve our low |
| "The ten year mission plan will also set the roadmap | | | | cost. |
| for budgetary fiscal incentives" | | | | Global auto majors are also cynical about India's low |
| The Government of India is drawing up an | | | | cost manufacturing base. India taxation remains a big |
| Automotive Mission Plan 2016 that aims to make | | | | disadvantage. This is not about tax rates it is just |
| India a global automotive hub. The idea is to draw an | | | | about unnecessary complexity. But some companies |
| innovative plan of action with full participation of the | | | | also believe there is scope for reducing the cost of |
| stakeholders and to implement it in mission mode to | | | | doing business. |
| meet the challenges coming in the way of growth of | | | | In spite of this there are opportunities to exploit |
| industry. Through this Automotive Mission Plan, | | | | lower costs right across the board. It's true that |
| Government also wants to provide a level playing | | | | labour costs are definitely increasing but they are still |
| field to the players in the sector and to lay a | | | | five per cent of the total operational costs. The |
| predictable future direction of growth to enable the | | | | labour costs can be further reduced if companies are |
| manufacturers in making a more informed investment | | | | successful in bringing down other costs like reducing |
| decision. | | | | power costs. Low-cost base can never last long. The |
| Major players in the automobile sector are:o Tatao | | | | company said Indian industry has till now relied on |
| Mahindrao Ashok Leylando Bajajo Hero Hondao | | | | very labour intensive model but it would have to |
| Daimler Chryslero Suzukio Fordo Fiato Hyundaio | | | | switch to a more capital intensive model now. |
| General Motorso Volvoo Yamahao Mazda | | | | |