The Indian Automotive Scenario

Jose Paul, Industry Analyst, Automotive & Transportation Practice, Frost & Sullivan, India

The last decade has truly seen India transform from being an insignificant automotive market to one which is probably more important than some of the developed stagnant markets. To say that the Indian automotive market has a long way to go would be an understatement. Picture the following facts about India: One of the most populous countries in the world, an economy growing at over 8 per cent and a density of vehicle population of just 7 per 1000 people. Every single global vehicle manufacturer who is worth his salt is either already reaping benefits of this market or working on ways to do so.

Domestic Demand

One of the strong drivers for the growth of the Indian automotive industry has been the strong domestic market. The market has graduated over the last few years, not just in terms of sales volume, but also in the offerings which are available to the customers. Even about a decade and a half back, there were only a handful of options which a person could look at, whereas today there are over seventy models of passenger cars and utility vehicles which are on offer from over twenty manufacturers. Of these, about fifteen have a manufacturing base in India. The others are imports and sold through their authorised dealerships. In the two-wheeler market, there are over forty models which are on offer from nine key two-wheeler manufacturers. Even in the commercial vehicle segment we are seeing more models being offered by companies like Tata Motors, Ashok Leyland, Eicher Motors and Volvo.

Jose Paul Jose Paul, an MBA in Marketing and Systems, is an Industry Analyst at Frost & Sullivan's Automotive consulting practice in India. He is responsible for coordinating and delivering client specific custom consulting assignments and also driving off-the-shelf strategic market reports pertaining to the automotive industry. Strong knowledge of the new vehicle market is his forte. He has worked with leading automotive component suppliers of the industry like Mico Bosch, Delphi TVS and Emitec in developing strategies to address the opportunities provided by the aftermarket segment in the country. Providing clients, unique research methodologies with a mix of B2B research and end consumer analysis is one of his key strength areas. Jose previously worked with the Automotive Practice, one of the largest consumer research firms in the world. During this assignment, he was responsible for delivering various client based assignments and syndicated reports involving customer and stakeholder satisfaction measurement and their impact on the business of vehicle manufacturers. Significant assignments worked on include, “The annual customer satisfaction study for 2 and 4 wheeler markets" and "Dealer - Principal satisfaction analysis" among others. Leading automotive companies worked with include Toyota, TVS Motor Ltd, Honda Motors and Maruti Udyog Limited. Prior to Frost & Sullivan, he worked with a leading research based business consulting firm in Bangalore. With focused experience in both business and automotive research, Jose has an extensive knowledge of the dynamics that drive the automotive industry.

 
This trend is not just about vehicle manufacturers trying to sell more products in the market. Rather, it is about vehicle manufacturers having to offer products which meet specific requirements of the customer. Rise in income levels, greater availability of finances, reduction in excise duties and frequent launch of vehicles targeted at specific consumer needs have led this market to boom over the last few years. The past few years have been among the best for vehicle manufacturers in the country. Passenger cars and multi-utility vehicles together grew by 27 per cent and 17 per cent in the years 2003-04 and 2004-05. Commercial vehicles grew by 36 per cent and 22 per cent during the same period. Two wheelers, weighed by a significantly higher base grew by 11.5 per cent and 15.7 per cent during the same period.

Some of the key drivers for the market include:

▪	Rise in disposable income
▪	High penetration of finance schemes
▪	Improved highways
▪	New launches increasing options for the customer

 
Key restraints of the market currently are:

▪	Increasing fuel costs
▪	Growth of mass transport
▪	Choking infrastructure in the metros
▪	Growth in sale of used vehicles

 
Market Trends

A very significant trend in the Indian automotive industry is the increasing propensity to purchase vehicles with better performance, safety and comfort. In the year 2004-05, compact segment (A2) accounted for 60 per cent of the passenger car market, an increase from 53 per cent during the previous year and the A3 (executive) segment witnessed a 57 per cent growth in the year 2004-05. Similar patterns can be drawn in the motorcycle segment where the executive (over 150cc) segment has seen a surge in demand. Customers see more value in buying a hatchback which has safety features like ABS and air bags than spending the same money on a sedan which is relatively less equipped. With volumes becoming substantial, companies are looking at feeding the market with India specific models rather than looking at it as a last bout of life for their ageing products.

Another key trend is the increasing popularity of diesel vehicles in the personal transport segment. This could be attributed to diesel being a cheaper fuel and also the launch of new age diesel cars, which match their gasoline counterparts on performance and maintenance. Alternate fuels like CNG, LPG & bio diesels are beginning to be used widely across vehicle segments. While CNG is mainly used in the west and the north, LPG is used in the east and the southern regions. This is mainly due to availability constraints and inadequate infrastructure to transport these fuels.

Export Focus

Buoyed by the increasing acceptance of India as a low cost-manufacturing hub for auto components and automobiles, exports have taken a giant leap in the last few years. In fact, for some large businesses it has become a mainstay business focus. Passenger car manufacturers have taken the lead in making India a global small car hub - Hyundai has made India its global hub for small cars, Tata Motors exported about 20,000 units last year and Maruti Suzuki exports small cars to Europe from India. With the revision in excise duties from 24 per cent to 16 per cent, export of small cars will definitely get a boost in the years to come. The trend though, is not limited just to small cars. Skoda is increasing its capacity in India with plans to export cars to the Asian region.

Future Outlook

Top manufacturers like Honda, Toyota, Maruti and Hyundai have already begun capacity expansion operations in India. Volkswagen, BMW, Renault and Nissan have announced definite plans to set shop on Indian shores. In the commercial vehicle segment, global majors like MAN, Vectra and Mercedes Benz have inked ventures with Indian partners to cater to the Indian market.

 
Market estimates prove that there is enough room for all of them and more. Passenger cars are expected to grow at a CAGR of 11.36 per cent between 2005-06 and 2009-2010; commercial vehicles at a CAGR of 12 per cent; and two wheelers at a CAGR of 14.2 per cent. Exports are also set to rise with specific focus by the government and the industry in capitalising on India's advantage of being a low cost, high quality manufacturing location. With world leading economic growth, rising levels of GDP and a market brimming with options, India is sure on its way to being among the top automotive markets in the world.

For feedback and enquiries contact Samantha Unnikrishnan, Corporate Communications at: sunnikrishnan@frost.com