The Indian Automotive Scenario
Past - Stable, Present - Bright, Future – Promising!

Hans-Michael Huber, MD & CEO, DaimlerChrysler India

Background

Until the early 1990s, the automotive sector in India was highly protected. This was in the form of steep import tariffs and measures that restricted the participation of foreign companies. Hindustan Motors (HM) and Premier Automobile (PAL) that were set up in 1940's dominated the vehicle market and industry. In the 1950s, the arrival of Tata Motors, Bajaj Auto, and Mahindra & Mahindra led to steadily increasing vehicle production in India, while the 1960s witnessed the establishment of the two- and three-wheeler industry in India. However, the automotive industry witnessed tremendous growth after the entry of Maruti Udyog in the 1980s. In 1983, the government permitted Suzuki - for some time, the only FDI player - to enter the market in a joint venture with Maruti - a state operated enterprise at the time. Ten years later, as part of a broader move to liberalise its economy, India de-licensed passenger car manufacturing and opened it up further to foreign participation. That brought a wave of FDI to India's vehicle industry. Import barriers have been progressively relaxed. Today, almost all of the major global players are present in India. The automotive industry is today a key sector of the Indian economy and a major foreign exchange earner for the country.

Stable underlying economy supporting growth

India is amongst the fastest growing economies, with stable macroeconomic indicators. India clocked a GDP growth rate of 8.5% during the FY 2003-04. The government is targeting a GDP growth rate of 8% over the next 5 years. The most significant aspect about the GDP is the decreasing contribution of the agricultural sector to the GDP facilitated by a simultaneous increase in the contribution of services & industrial sectors. This provides stability to the GDP growth, as agricultural sector is largely dependant on the monsoons, which are unpredictable.

Hans-Michael Huber Hans-Michael Huber took over as the speaker of the Executive Board of Management for DaimlerChrysler India and as the new Managing Director and Chief Executive Officer of Daimler Chrysler India on 1st Apr'02. Hans-Michael Huber has worked with DaimlerChrysler headquarters in Stuttgart, Germany since 1986 and held various positions in Finance, Public Affairs, Marketing, Sales and Research. Huber has also worked as the Director of Strategy and Planning of Passenger Cars - Mercedes-Benz and Smart. Since April 2000, he was the Deputy Head of the Fuel Cell project at DaimlerChrysler. Huber, 45, has studied Economics in Munchen and Paris, and completed a Diploma in Economics at Tubingen University.

 
The country's foreign exchange reserves are at an all-time high of around USD 130 bn. Exports from India have been rising. The Balance of Trade (Exports - Imports), although, still negative, has remained stable over the last few years. All these factors coupled with pro-reform measures of the government have helped India absorb external shocks such as the recent oil price hike, without any major impact on the economic growth.

The interest rates have been falling consistently over the years while the government has managed to keep the inflation rates at 4-5% levels. Thus, the real rate of interest has come down. Lower rate of interest along with easy availability of finance has spurred consumption demand among households. Other demographic factors such as growing working population, favourable urbanisation trends, increase in two-income households, etc. have also contributed to the increase in consumption demand.

Government Policies & Automotive Sector

The auto sector is one of the main drivers of the economy. Every commercial vehicle manufactured, creates 13.31 jobs, while every passenger car creates 5.31 jobs and every two-wheeler creates 0.49 jobs in the country. Besides, the automobile industry has an output multiplier of 2.24, i.e. for every additional rupee of output in the auto industry, the overall output of the Indian economy increases by Rs. 2.24. Realising this, successive governments have taken various measures to provide the much-required push to the auto sector.

The road infrastructure, in particular, had been given special importance by the previous government of NDA with the 'Golden Quadrilateral' project and the 'North-South" and "East-West" corridor projects. This momentum has been maintained by the present Congress-led United Progressive Alliance (UPA) government with its continued support to road infrastructure development. The excise and customs duties on cars and auto-components have been continuously declining over the past five years. All these factors have contributed in providing the impetus to the auto sector.

The government has chalked out a plan regarding Bharat Stage IV (equivalent to Euro IV) norms by 2010. The government is also planning to form auto clusters to improve international competitiveness of domestic industries. First such cluster will be set up in the Pimpri-Chinchwad area of Maharashtra at a cost of Rs. 67 crores.

In the 2004 Budget the government announced new incentives to facilitate Research & Development activity in India, which has been continued in the 2005 budget.

All these efforts are directed towards increasing the competitiveness of Indian auto industries and providing better, technologically advanced and environmental friendly products to the end user.

Role of Auto-Component Industry

The Indian automotive component industry manufactures a wide range of parts including castings, forging, finished and semi-finished components, assemblies and subassemblies. Its development has been aided by the arrival of OEMs to India in the 1990s and the increasing exposure of Indian companies to international competition and best practices.

India's automotive components industry is being urged by the government to partner with overseas firms with the aim of making India a platform for outsourcing as well as a global R&D hub. As the Indian vehicle production industry has grown, so has the domestic supplier industry. But the global auto industry's search for lower cost and more international outsourcing has led to a sharp growth in component output and exports in recent years.

Companies such as GM, Ford, DaimlerChrysler and Toyota, see India as a cost competitive base for parts sourcing. Among Tier 1, Delphi, Visteon, Bosch, Cummins and Denso have operations in India. Bharat Forge with its acquisition of Carl Dan Peddinghouse (CDP) in Germany has now become world's second largest forging company.

Factors such as superior engineering skills, modest domestic market growth, the sophistication of its IT industry and increasing free trade agreements in addition to low cost, are expected to boost India's auto-component sector growth over other countries in the environment of off-shoring to low-cost countries.

A recent study conducted by McKinsey suggests that India's auto-components exports has the potential to grow from $1 bn in 2003 to $20-25 bn in 2015.

Outlook

The positive demographic factors, stable macro-economic environment and pro-reform policies of the government saw almost all major global auto players making their way into India. The intense competition has compelled the manufacturers to launch the latest global offering in India as early as possible. It has also enabled to keep the prices of the vehicles under check. The consumers, in turn, have benefited from wide choice of models, technologically advanced cars and better service from the car manufacturers. All this has led to vehicle sales crossing 1 million units in the calender year 2004, growing at a pace of around 25%.

"We are Optimistic and Positive about Indian Market" Reveals Hans-Michael Huber in an interview with FADA Journal Question: DiamlerChrysler India has so far focused on the niche segment. Do you intend to diversify into the volume segment in India in future? Answer: No, DaimlerChrysler India has no plans to venture into volume car segment. We would like to concentrate our efforts on premium segment of cars in India and work towards growing and getting better in terms of volume, quality and technology in C, E and S class instead of spreading our resources thin, although DaimlerChrysler worldwide has a wide-range of products to cater to various segments of automobile market. We may also bring in more models to cater to specific needs of Indian market from to time to time. Question: DiamlerChrysler has been in the forefront of promoting environment friendly technologies and fuels. DiamlerChrysler's initiative for promoting Bio-diesel is one such example. What are the other options DiamlerChrysler is working on? Answer: DaimlerChrysler, as an international player, has been working on various short-term, medium-term and long-term options to develop and promote environment friendly technologies, including alternate energy driven vehicles. The immediate priority for DaimlerChrysler is to work towards meeting the Euro IV Emission Standards. Medium and long-term goals, which Daimler Chrysler is working towards, include hybrid electric-fuel cell vehicles and fuel cell vehicles. Question: There have been reports that DiamlerChrysler India have plans to bring premium segment trucks into its product range in India. Would you elaborate on the product/s you have identified or decided on for the Indian Market? Answer: We are optimistic and positive about the Indian market. Market for heavy-duty trucks in India is growing. We have also identified a heavy-duty truck, viz., Actros, from DaimlerChrysler product portfolio for the Indian market. We are sure, Actros will have a good market in India. Right now, we are in the process of getting market feedback on the changes required to be made in Actros to suit the Indian conditions. Hopefully, we shall be able to introduce Actros in the Indian market shortly. Question: DiamlerChrysler India has also been spearheading the movement for checking the sale and use of spurious parts in India. The raids conducted in coordination with Delhi police and in consonance with local judiciary in Feb 2004 helped in creating a lot of awareness about the menace of counterfeit and spurious parts. What, according to you, is the enduring solution to curb this menace? Answer: Let me make it very clear that DaimlerChrysler India has never conducted any raid on sale of spurious parts. The raids are conducted by the police and other concerned authorities in accordance with the law. The role of DaimlerChrysler India has been that of a facilitator in getting and finding out the information on spurious parts market and sharing it with the concerned authorities. Sale and use of spurious parts is a menace, which has to be tackled by all stakeholders in a concerted manner. Vehicle manufacturers and auto component manufacturers have to join hands with the authorities to curb this menace. We have to create awareness on the environmental and safety hazards of use of spurious parts. We also need to make efforts to educate the vehicle users that buying genuine parts from authorised automobile dealers, even though at a slightly higher cost, is in their interest and will ultimately help promote trouble-free running and longer life of their vehicles.

 
Vehicle exports from India are in an upswing and this trend looks set to continue. Europe, Middle East and African and Asian markets are among the main markets for both, parts as well as CBU vehicles. Companies like Hyundai, Tata Motors, Maruti and Mahindra & Mahindra have been leading the way in this regard.

The car penetration level still continues to remain low in India, which stands at 7 cars per 1000 persons. Thus, there lies a huge opportunity for auto companies not just in the domestic market which is set to grow at a pace of 10-15% year-on-year due to the booming economy but also in exports because of the competitiveness and consolidation of the auto components sector.

DaimlerChyrsler India DaimlerChrysler entered the Indian market in 1994. DaimlerChrysler India is a 100% subsidiary of DaimlerChrysler group and one of the first auto joint ventures set up in India. In the years ahead, DaimlerChrysler plans to achieve 25% of its total turnover from Asia and DaimlerChrysler India will play a strategic role in this development. Wide choice of Mercedes-Benz products: DaimlerChrysler India offers a comprehensive product portfolio of Mercedes-Benz cars to Indian automobile aficionados. Starting with Mercedes-Benz E-Class in India in 1995, the company launched the 'top of the line' E 240 Petrol and E 220 CDI Diesel with a number of unique additional features, in 1999. The company expanded the product range in September 2000 with the Mercedes-Benz S-Class, the S-320 L Petrol Automatic. The product offensive continued with the launch of the Mercedes-Benz C-Class in April 2001, with both C-180 Petrol and C-200 CDI Diesel versions. DaimlerChrysler India launched the Mercedes E-Class E-240 Petrol version in October 2002. In March 2003, the company introduced both the Mercedes-Benz S-Class S-350 L and the new Mercedes E-Class E-200 Diesel version in India. In May 2004, another addition to the E Class stable in the form of the E 270 CDI was launched. DaimlerChrysler India has further expanded the product range, to make variety of imported vehicles like Mercedes-Benz SL-Class, M-Class, SLK, etc available to discerning Mercedes customers. The latest introduction is the Maybach62, which is among the most luxurious automobiles in the world. World-class production facility: DaimlerChrysler India has a world-class production facility in Pune, Maharashtra. Within the group, DaimlerChrysler India has bagged the Quality Award for the 'Best Mercedes-Benz Production Plant' outside Germany four times in the last ten years. The company has implemented 'Mercedes-Benz Production System', which combines production processes with teamwork. This leads to closer integration of employees into individual operations and raises the productivity and competitiveness of the system. Quality management: DaimlerChrysler India has been awarded the prestigious Quality Audit Certification VDA6.1 that is stricter than ISO 9000. A large number of measures are taken to guarantee that the vehicles manufactured at the Pune plant are world-class Mercedes-Benz vehicles without any compromise. The company has exported over 3,000 Mercedes-Benz vehicles manufactured in India to more than 25 countries including Germany. Environmental protection: For DaimlerChrysler India, environmental protection is a corporate goal that is to be practiced with devotion. The company has been awarded the prestigious ISO 14001 Certificate for implementing the 'Environmental Management System'. Enduring customer relationship management: DaimlerChrysler India intends to make that moment of first contact with the customers the beginning of a total relationship to get them excited and build a lasting relationship, not only by offering Mercedes-Benz vehicles with the latest technology, but extending a rapport beyond. The company has launched the 'Mercedes-Benz Club', which brings together like-minded Mercedes-Benz owners and caters to their special interests and needs. Another medium for initiating interaction with customers is through their website www.mercedes-benz.co.in where the customers can e-connect with the fascinating world of Mercedes- Benz. lndividualisation: For Mercedes-Benz customers, who wish to give their automobile that extra personal touch, their dealerships offer high-quality enhancements for individualisation of Mercedes-Benz vehicles. This makes it possible for their exclusive customers to mould their vehicle to their own personal tastes with the aid of select options and a variety of accessories. Mercedes-Benz Pre-Owned Vehicle: Promotion of Pre-Owned vehicles as an entry level option for first-time buyers of a Mercedes-Benz provides a win-win situation for their valuable customers, who get a luxury vehicle at an affordable price; for its dealers, by generating more business; and for the company, by adding more volume to sales. Mercedes-Benz Pre-Owned vehicles not only undergo a stringent technical check-up, but also a thorough, standardised reconditioning procedure which ensures that the customers get high-quality vehicles in top condition. To make the customer's buying decision even more worry-free, all Pre-Owned vehicles come with a six-month, unlimited mileage warranty.