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Indian Automotive Industry: At the Crossroads

Occasional Paper No. 129

EXIM BANK

EXPORT-IMPORT BANK OF INDIA

OCCASIONAL PAPER NO. 129

INDIAN AUTOMOTIVE INDUSTRY : AT THE CROSSROADS

EXIM Banks Occasional Paper Series is an attempt to disseminate the findings of research studies carried out in the Bank. The results of research studies can interest exporters, policy makers, industrialists, export promotion agencies as well as researchers. However, views expressed do not necessarily reflect those of the Bank. While reasonable care has been taken to ensure authenticity of information and data, EXIM Bank accepts no responsibility for authenticity, accuracy or completeness of such items. Export-Import Bank of India Published by Quest Publications December 2008

CONTENTS

Page No. List of Tables List of Exhibits List of Boxes Executive Summary 1. 2. 3. 4. 5. 6. 7. Introduction Global Scenario Select Trends In Global Automotive Industry The Indian Scenario Indias Exports of Automobiles & Auto-Components Export Competitiveness of Indian Automotive Industry Challenges and Strategies 5 7 11 13 39 42 74 84 99 114 126

Project Team: Mr. S. Prahalathan, General Manager Mr. Rahul Mazumdar, Manager

List of Tables
Table No. 1. 2. 3. 4. 5. 6. 7. 8. 9. Title Pg. No. 48 51 52 53 55 56 58 60 60 66 75 88 89 95 100 101 107 118 118 120 121 122 123 124 125 126 130

Leading Countries Investing in Automobile Industry (2007) Export of Select Automobiles From USA Export of Select Automobiles from Japan Export of Select Automobiles from Canada Export of Select Automobiles from South Korea Export of Select Automobiles from China Export of Select Automobiles from Germany Export of Select Automobiles from Mexico Category-wise Exports of Automobiles in the World

10. Category-wise World Export of Auto-Components 11. Top Ten Low-Cost Eco-Friendly Cars 12. Category-wise Production of Automobiles in India 13. Category-wise Sales of Automobiles in India 14. Classification of Major Auto-Components Produced in India 15. Category-wise Exports of Indian Automobiles 16. Export of Select Automobiles in Value-terms from India 17. Export of Select Auto-Components in Value-terms from India 18. Indicators of Competitiveness of Automobile Exports to Africa 19. The African Market for Select Automobiles 20. Indicators of Competitiveness of Automobile Exports to Latin America 21. The Latin American Market for Select Automobiles 22. Indicators of Competitiveness of Automobile Exports to Asia 23. The Asian Market for Select Automobiles 24. Indicators of Competitiveness of Auto-Components Exports to USA 25. Indicators of Competitiveness of Auto-Components Exports to Europe 26. Changes in Prices of Select Inputs 27. Indias Import and Export of Auto Components

List of Exhibits
Exhibit No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. Title Pg. No. 41 44 45 45 46 47 48 49 51 52 54 55 56 58 59 61 62 63 63 64 64 67 68 68

Trends Between Indias PFCE and Automobile Sales Product-wise Share in World Production of Automobiles (2007) Trends in Global Production of Automobiles Percentage Change in Global Automobile Production (2000-2007) Country-wise Share in Global Vehicle Production for the Year 2007 Top Ten Countries Production of Motor Vehicles in 2007 Share of Countries in Investments made in the Automobile Industry (2007) Regionwise Share in World Export of Automotive Products (2007) Productwise Production of Automobiles in USA (2007) Productwise Production of Automobiles in Japan (2007) Productwise Production of Automobiles in Canada (2007) Productwise Production of Automobiles in South Korea (2007) Productwise Production of Automobiles in China (2007) Productwise Production of Automobiles in Germany (2007) Productwise Production of Automobiles in Mexico (2007) Export of Tractors in the World HS Code 8701 Export of Public Transport Type Passenger Vehicles in the World HS Code 8702 Export of Motor Cars and Motor Vehicles in the World HS Code 8703 Export of Motor Vehicles for Transport of Goods in the World HS Code 8704 Export of Special Purpose Motor Vehicles in the World HS Code 8705 Export of Motorcycles (Including Mopeds) and Cycles in the World HS Code 8711 Exports of Gear Boxes in the World HS Code 870840 Exports of Brake Systems and Parts for Motor Vehicles in the World HS Code 870839 Exports of Road Wheels & Parts & Accessories thereof in the World HS Code 870870

Exhibit No. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47.

Title

Pg. No. 69 70 70 71 72 72 86 87 89 90 91 92 92 93 93 95 96 96 97 99 100 102 102

Exports of Clutches & Parts Thereof in the World HD Code 870893 Exports of Non-Driving Axles & Parts Thereof in the World HS Code 870860 Exports of Drive Axles in the World HS Code 870850 Exports of Bumpers and Parts Thereof in the World HS Code 870810 Exports of Suspension Shock Absorbers in the World HS Code 870880 Exports of Radiators in the World HS Code 870891 Category-wise Share in Automobile Production in India (2007-08) Production Trend in Indian Automobile Industry Trends in Domestic Sales of Vehicles in India Trends in Production, Domestic Sales, and Exports of Automobiles in India Automobiles Exports as a Percentage of Production in India (Volume Terms) Trends in Production, Domestic Sales and Exports of Commercial Vehicles in India Trends in Production, Domestic Sales, and Exports of Passenger Vehicles in India Trends in Production, Domestic Sales and Exports of Two Wheelers in India Trends in Production, Domestic Sales, and Exports of Three Wheelers in India Segment-wise Share in Production of Auto-Components in India Turnover of Auto-Components in India Investments in the Auto-Components Sector in India Trends in Export Orientation of Indian Auto Components Industry Export Orientation of the Indian Automobile Sector Category-wise Share in Vehicle Exports in India (2007-08) Exports of Tractors from India (2007-08) (HS Code 8701) Exports of Public-Transport Type passenger Motor Vehicles from India (Hs Code 8702) (2007 08)

Exhibit No. 48. 49. 50. 51.

Title

Pg. No. 103 104 104 105

Exports of Motor Cars & Other Motor Vehicles from India (2007-08) (HS Code 8703) Exports of Motor Vehicles for Transport of Goods from India (HS Code 8704) (2007-08) Exports of Special Purpose Motor Vehicles from India (HS Code 8705) (2007-08) Motorcycles (Including Mopeds) and Cycles Fitted with an Auxiliary Motor, with or without Side-cars from India (HS Code 8711) (2007-08) Trends in Exports of Indian Auto-Components Region-wise Break-up of Exports to OEMs and Tier I Suppliers by India (2007-08) Export of Bumpers and Parts Thereof by India HS Code 870810 (2007-08) Export of Other Parts & Accessories of Bodies by India HS Code 870829 (2007-08) Export of Other Brakes and Servo-Brakes and Parts Thereof by India - HS Code 870839 (2007-08) Export of Gear Boxes by India HS Code 870840 (2007-08) Export of Drive Axles by India HS Code 870850 Export of Non drive Axles by India HS Code 870860 Export of Road Wheels & Parts & Accessories Thereof by India HS Code 870870 (2007-08) Export of Radiators by India HS Code 870891 (2007-08) Export of Suspension Shock Absorbers by India HS Code 870880 (2007-08) Growth Comparison of the Indian Automobile Industry vis--vis the World Trends in Deployment of Gross Bank Credit to Automotive Sector in India Changing Workforce Population Between 2005 and 2025

52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65.

106 106 108 108 109 110 110 111 111 112 112 114 129 134

List of Boxes
Box No. 1 2. 3. 4. 5. 6. 7. Hybrid Vehicles Around Us Future Steel Vehicle Programme European Regulatory Framework on Recycling Indicators of International Competitiveness Hybrid Vehicles Kaizen Philosophy EU Directive 2000/53/EC on End-of-Life Vehicles Title Pg. No. 77 78 81 116 136 138 140

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EXECUTIVE SUMMARY

INTRODUCTION The automotive industry is increasingly becoming the cynosure of the manufacturing sector across the globe. The attention and importance to the automotive industry in the economic development and planning policies of Government and its agencies has also witnessed significant uprise. The industry has been evolving over the years, meeting up with challenges as diverse as transitions, consolidations and restructuring, and thereby adapting to the new market conditions.
In the last few years, the world automotive industry has changed its locational preferences due to various reasons. Earlier, the automotive industry was largely confined to the triad - North America, Europe and Japan; however, with the emergence of some vibrant developing economies, like Brazil, India and China, the global automotive industry has been considering a different growth perspective, and has been relocating the operations. These growing developing economies has been evolving as the manufacturing hub, as also the newfound markets, for the global majors like Ford,

General Motors, Chrysler, Toyota, Honda, Nissan and BMW, who are competing to enhance their market share in these markets. Increasing growth in GDP and the growing disposable income has catapulted these emerging economies as market for automotives, while the low cost of operations and skills in design and R&D made them as destinations for investment and manufacturing operations. The entry of global auto-majors into India has significantly altered the automobile-manufacturing scenario in the country. The changes in design and adaptation of international technologies have enabled the Indian automotive industry to compete globally, and thus are also exposed to global challenges. Alongside the challenges, the trend also presents a plethora of opportunities to Indian automotive industry, which needs to be capitalized, so as to emerge as a successful global player.

GLOBAL SCENARIO Global Automobile Industry In the initial years, most of the manufacturing activities were concentrated in the USA and in some

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of the European countries. Though, these countries still account for a significant share in the production, more and more volume of production comes from other parts of the world, like China, Japan and Korea. Around three-fourths of the global production is being carried out in top 10 producing countries, in 2007. Of these, Japan, USA and China, cumulatively constitute over 40% of global production. The last decade has experienced a growing level of motorization, as reflected by the production of automobiles. According to International Organization of Motor Vehicle Manufacturers (OICA), in the year 2007, the turnover of the world automotive industry is estimated to be Euro 2 trillion, with the production of 73 million vehicles. The Compounded Annual Growth Rate (CAGR) of world production of automobiles during the period 20002007 was a modest 3.82%, while the annual production growth in the year 2007 was 5.4%, over the previous year. According to OICA, Japan is the largest producer of cars in the world followed by China, Germany, USA, South Korea and France. India ranks 9th in the production of cars in the world ahead of UK, Canada, Russia and Mexico. USA is the largest producer of commercial vehicles; close competitors in production of commercial vehicles are China,

Japan, Canada, Thailand and Mexico. India ranks 8 th in the production of commercial vehicles and is ahead of countries like Brazil, Germany, France and Turkey. As per the statistics collated by World Trade Organisation, global automotive exports were in the order of nearly US $ 1.2 trillion in 2007, a growth of around 17% over the previous year. The CAGR of world automotive exports during the periods 2000-2007 was around 11%. Region-wise data on export of automotive products indicate that Europe is the worlds largest exporter in the world, with a share of over 55%. In 2000, Europes share in world exports was about 50%. The share of automotive products in EUs total merchandise exports remained at over 11% in 2007, without much change from the share witnessed in the year 2000. A large chunk of exports is intra Europe constituting 78% of total in 2007. Asia exported automotive products valued at around US $ 265 billion in 2007. Asias share in world automotive exports has increased from 19.9% in 2000 to 22% in 2007. The Asian market has largely been dominated by Japan with exports worth US $ 159 billion in 2007. Though the share of Japan in world exports have been around 13% in 2007, the share has decreased from 15.3% witnessed in 2000. North Americas export of automotive products was worth at around US $ 220 billion in 2007, with a share of around 19%.

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In terms of imports, EU, as a bloc, was one of the largest importers of automotive products in the world with a share of almost 46% in the year 2007, with import in value terms being US $ 543 billion. In terms of individual countries, USA was the largest importer with a share of around 19%, valued at US$ 221 billion, in 2007, followed by Canada, at a distant second position, with imports worth US $ 67 billion, and a share of 5.6%. Other top importers of automotive products were Mexico (2.5%), China (2.0%), Australia (1.6%) and Japan (1.3%).

Global Auto-Components Industry The trends in auto-components industry are dependent on the trends in the automobile industry, as the original equipment manufacturers are the principal customers for the auto components industry. Though there is a replacement market as well, the trends in automobiles industry still influences the growth of autocomponents industry. Since automobile industry is more concentrated in developed parts of the world, like US, Europe and Japan, the market for auto components is also concentrated in these countries. It is estimated that there are around 2500-3000 tier-I suppliers in the world, who account for more than 80% of the total value of production.

The global auto components industry is in the process of undergoing a structural change. Industry is being influenced by strategies of OEMs, globalization, business and technology trends. In addition, the auto components industry is faced with rising input costs. Hence, there is a shift occurring in the industry with more and more companies moving to low cost destinations, so as to be cost efficient. Due to this trend, countries like China, India and Thailand stand to gain significantly. Several global players have already established their bases in these countries while the local companies are also upgrading themselves to face the competition. Auto-component industry is also witnessing mergers and acquisition trends. The large sized companies are acquiring small sized companies to grow even bigger as global presence is of extreme importance in this industry. There is a consolidation wave sweeping across the countries; most of the companies are hiving-off their peripheral businesses and concentrating on their core business. There is also a change in trend with more and more companies becoming as system integrators rather than being mere suppliers. The size of world auto components industry has grown in the last few years principally due to growth in automobile market and

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replacement market. However, the major portion of components production is meant to cater to the demand of OEMs and only a small portion goes towards replacement market.

SELECT TRENDS IN GLOBAL AUTOMOTIVE INDUSTRY Addressing the Challenge of Volatility in Fuel Prices One of the major challenges of the world automotive industry is the volatile oil prices. The year 2008 witnessed crude oil prices breaching the US $ 140 mark per barrel, and thereafter slipped below US $ 40, in the later part of the year. The volatility in oil prices does not directly affect the growth in automotive industry; however, volatility in oil prices is one of the influential factors in automobile demand. In order to address the challenge of volatility in oil prices, the automotive industry is innovating new technologies and inventing usage of alternative energy. Hydrogen cars, driven either by a combination of fuel cells and an electric motor; hybrid electric technology; electric vehicles with rechargeable batteries; or alternatively, compressed air technology to drive the pistons in a specially designed engine, are thought to be replacing fossil fuelpowered motors in the decades to come.

Emergence of New Generation Automobiles Innovation is expected to drive the automotive industry in future as the producers are involved in differentiating their products and services. There are already growing interface of electronics and IT in the automotive functionalities, such as entertainment, navigation and safety. According to a survey, conducted by IBM across the automajors, majority of them felt that by 2020 the level of innovation would be greater in software and electrical systems of automobiles. It is also expected that by 2020 the vehicles may become another node on internet, connecting with other vehicles, the transportation infrastructure, homes and businesses. However, there are challenges associated with this trend, with regard to consumer acceptance, technological development and adoption of standards. Supply Chain Management in the World of Global Sourcing Global auto-component firms are giving greater level of thrust in supply chain management to address the challenge of cost pressures. This is particularly important in the context of global sourcing. Though there is a perceived belief that global sourcing helps in reduction of cost of components, there are logistical

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challenges. Thus, it is being recognised that collaboration between the OEMs and component producers are crucial to develop capabilities and solve the challenges associated with global delivery, especially in the areas of inventory management, scheduling, and timely delivery. In addition, both OEMs and suppliers view that the collaborative efforts in supply chain management enhances the capacity and performance visibility.

Customer Management Systems Earlier, automotive manufacturers had to get feedback from the customers through intermediaries, such as vendors or service workshops. This trend has been changing with the introduction of customer management systems through ICT interface. Even vehicle buyers are also browsing the net to know the features of a new model, evaluate them with the existing models, and compare the prices. IT firms are developing customer relationship management (CRM) tools that help the manufacturers to realise and optimize individual customer value, increase the post-warranty service retention, predict model demand and provide supply chain solutions. Growing Small Car Segment The volatility in crude oil prises witnessed during the year 2008
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re-emphasized the need for small and fuel-efficient vehicles. Some of the automobile majors have plans to hike their R & D budget for designing of small and fuel efficient vehicles. Added to this is the need for reduction in prices to target the middle income groups of population / new buyers, especially in developing countries like India, where the vehicle penetration is low as compared to the population. An auto research firm CSM Worldwide Inc. has estimated that global demand for small cars would grow by 30% per annum to 27 million vehicles a year by 2013. The fastgrowing small cars market has encouraged several global automajors (such as Renault, Toyota, and Nissan) to plan for launch of small cars.

Green Motoring Automobile manufacturers are increasing the thrust on fuel efficiency than before; the initiatives are mainly through improvements in technology and introduction of new fuel variants, thereby reducing toxic emissions. It may be mentioned that China, the EU, Japan and the USA have already established fuel economy rules or agreements of varying stringency. The FIAs 1 declaration for green motoring has set a fuel economy target of 140 gCO2/km for passenger cars. Such a global fuel economy target could be used as an international

Fdration Internationale de lAutomobile (FIA)

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benchmark to assess progress in the fuel efficiency of the global fleet of new motor vehicles. Some countries are also undertaking Green Rating of automobiles.

Cross Border M&A Deals The global automotive industry is increasingly getting more active in cross border mergers and acquisition (M&A) deals. On a global basis, the number of crossborder deals has grown in the past few years, and this trend is expected to continue after the recovery of economic activity in the world. The expansion outside the home markets of some of the major automotive companies from traditional low-cost countries, such as China and India, is bringing in new capital and a fresh look at certain sectors of the automotive market. With the recession in the US market and its consequent impact in other markets, automotive assets in developed countries are becoming attractive to buyers from emerging economies, as well. Entry of Private Equity Players The traditional funding model in the automotive industry is slowly being replaced with aggressive funding structures. There has been a structural change in the automotive industry with the entry of private equity players in the past. Traditional and family-owned

businesses were taken over by the private equity players and hedge funds, which are expecting more profit or investment realization from the industry. Though the business activities of private equity players have come down, following the financial market meltdown, this is expected to be revived soon, either when the market sentiments improve or once consolidation happens among the private equity players.

Growing Collaboration for Technology Enhancement Technology-enhancing collaboration in the automotive sector helps in preserving design integrity, despite minor engineering adjustments. There are also softwares / programmes that make the global data sharing possible among designers, engineers, suppliers, partners and even customers. Such better and faster integration of design / engineering ideas help in necessary adjustments and adaptations in designs to suit the requirements. Trendy Cars, Shorter Life-spans An automobile is a highlyengineered collection of complex components, each of which has its own lifespan and longevity charecteristics. While some components require frequent replacement, others that are relatively expensive are expected to

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have longer lifespan to justify the economics of a vehicle buyer. However, change in fashion and design trends may outweigh the pure economics, which may lead to planned obsolescence. In the world of changing fashion trends, auto manufacturers are developing new designs meeting the changing consumer preferences. More frequently the new models are introduced, the shorter will be the life span of the old models.

recycling. The automobile industry is one of the pioneers in usage of recyclable materials. Also, the rising input prices are making the automobile manufacturers to design the vehicles that can be easily recycled.

Preserving Brand Identity With growing mergers and takeovers in automobile industry, players are carefully devising strategies to strengthen the backroom operational synergies, in terms of common logistics and supply chain management, but avoid losing the brand identities. A group owning different brands prefers not to use the same platform that has same kind of technology, management, and designers to preserve the brand identity. In this sense, the automobile sector is different from monolythic branding strategies of consumer goods. Design for Recycling It is being increasingly realized that natural resources of the earth are depleting fast. Hence, there is a growing concern amongst manufacturers as also the consumers to conserve the resources; one such way is through

Emergence of Design Studios As efficiency in design and manufacturing improves, vehicle manufacturers across the world are focussing on making models for niche market, though the sale would be in lower volume. This is in contrast to the earlier strategy of designing models for mass consumption. With the increase in number of models to be designed and developed, auto majors are outsourcing the designing jobs to independent design studios who take care of the design and execution of the process management in the value chain. Outsourcing Stiff competition to enhance the market share forces the OEMs in developed countries to outsource their engineering requirements to low cost countries like India. Global auto-majors such as General Motors, Ford, Toyota, BMW are increasingly outsourcing the vehicle design and engineering services to developing countries such as India, either through their captive centers or through third-party vendors. Long term trends indicate that global auto-component outsourcing from

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the US is expected to reach US $ 25 billion by 2015, and India, China and Mexico are likely to benefit the most from such trend. An online survey conducted by A T Kearney, revealed that around one-fourth of global auto-majors have considered India as a favourable destination for automobile-engineering outsourcing.

Advanced RFID Practices in Auto Manufacturing RFID has been in use in the automotive industry for several years, though to a limited extent. The trend is changing now with adoption of technology in wide variety of applications, the dominant being vehicle entry and security. According to a study by ABI Research, 40% of new cars manufactured in North America are equipped with RFID immobilizers and the worldwide revenue generated by this application alone was estimated to be US $ 3.7 billion. In addition, RFID solutions are increasingly being used in automobile manufacturing processes and supply chain applications. THE INDIAN SCENARIO
Indian automobile and autocomponents industry, barring downtrends in few years, was on a growth trajectory, aided by robust economic activity and infrastructure development; growing middle-class population with disposable income;

and growing consumer demand. The Indian automobile and auto components industry produces a wide range of models and products. The industry has witnessed high sales turnover, in the last few years, and the exports too have surged over the years. The industry has also started establishing manufacturing and marketing bases abroad. However, the recessionary trends in world market and financial sector meltdown has affected the growth trend of the industry during 2008-09. The norms for foreign investment and import of technology have also been progressively liberalized over the years for manufacturing of vehicles, including passenger cars, in order to make this sector globally competitive. With the gradual liberalization of the automobile sector, since 1991, the number of manufacturing facilities in India has grown progressively. At present there are about 15 manufacturers of passenger cars & multi utility vehicles, around 10 manufacturers of commercial vehicles, around 15 manufacturers of 2/3 wheelers, besides 5 manufacturers of engines. It is estimated that the Indian automotive industry contributes more than 5% of the national GDP, and tax contribution of the sector to the exchequer is estimated to be Rs. 25,000 crores. The industry provides direct and indirect employment to

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over 1.3 crore people. The turnover of the automobile industry was estimated to be around US $ 35 billion and that for components industry was at US $ 18 billion in 2007-08. The investment in automotive industry, comprising of the automobile and the auto component sectors, which was estimated to be at Rs. 50,000 crore in 2002-03, has gone upto Rs. 80,000 crore by the year 2007-08. With the saturation of traditional automobile markets, such as EU, USA and Japan, the growth opportunities for emerging markets such as India have been increasing. India is aggressively looking forward to take advantage of its inherent strengths in automotive design and manufacturing capabilities and position itself as an export base for vehicles as well as components.

during the period 2000-01 to 200708. The production activity is poised to be on the lines of the economic growth in the world and it is likely that the momentum in production may slowdown, though India is being considered favourably as an outsourcing destination. In the past, keeping in pace with the growing demand for automobiles, the production has increased over the years. However, sub-segments such as scooters and mopeds have witnessed decline in production. It may be mentioned that the technological advances and change in consumer preferences might be the possible reasons for the decline in demand for scooters and mopeds, and increase in demand for motorcycles. Commercial vehicle and passenger vehicle production have seen a significant rise in the last couple of years, thus implying growth in these segments. The two-wheelers segment constitutes the lump of the total production of automobiles in the country with a production share of almost 75% in the year 2007-08, followed by the passenger vehicles segment, with a share of around 16%. The commercial vehicles constitute 5%, followed by the threewheelers at 4%. The growth in two wheelers production has been more or less consistent amongst all categories of vehicles. The production of passenger vehicles segment on the other hand has

Automobile Industry Over the last few years there has been an increasing trend in the production of vehicles, both in value and quantity terms. The only lean patch in production was during the year 2001-02 and recently in 200708, during which the growth in absolute numbers declined marginally. It is estimated that the decline in production would continue in the year 2008-09 also.
The volume of production of Indian automobile industry has increased at a CAGR of over 12%

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grown slowly, though consistently, perhaps due to the growth in middle class population in the country, indicating the demand for cars. There was an increasing trend in the sales of all the category of automobiles, in the past, except in the year 2007-08, wherein a dip in sales was witnessed in all categories, except passenger vehicles. The sales in commercial vehicles have witnessed a marginal growth, though in the later few years the growth rate was accelerated. The sales of two wheelers have been increasing almost linearly in the last five years. Though, there has been a robust demand for two wheelers, especially for motorcycles, both in urban as well as rural areas, the year 2007-08 remained sluggish due to model fatigue and uninviting rates. The demand is further sluggish in the year 2008-09 due to overall slowdown in economic activity and non-availability of automobile finance. India exports almost all types of vehicles; among the major categories of export items, in 200708, two wheelers accounted for around two-third share in total vehicles exports, in terms of number of units. Infact, two wheelers have, over the years, been the top most export item among the various automobile segments, in terms of number of units. Passenger vehicles, three wheelers and commercial

vehicles account for 17.6%, 11.3% and 4.7% share, respectively in Indias total vehicle exports in volume terms. The export orientation of the industry has been continuously growing; from a level of 3.5% in 2001-02 to over 11% in 2007-08. During the period 2001-02 to 200708, the automobile exports from India witnessed a CAGR of over 31%. Nearly half of the two-wheeler exports in 2007-08 were to Asia region. While a sizeable volume of passenger vehicles were exported to Europe, other regions such as Africa and Latin America were also the target regions for export of passenger vehicles by India. Following the global financial meltdown and recessionary trends in world economy, there has been a slowdown in demand and supply of vehicles. This has also reflected in the production, domestic sales and exports of vehicles from India. During the period April-November 2008, though there has been over 6.5% growth in vehicles production (from 7.21 million units during AprilNovember 2007 to 7.68 million units during April-November 2008), domestic sales have grown by only 2% (from 6.46 million units during April-November 2007 to 6.60 million units during April-November 2008).

Auto Components Industry According to Auto Component Manufacturers Association of India (ACMA), the size of the Indian auto

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components industry is estimated to be around US $ 18 billion in 200708. India is estimated to have the potential to become one of the top auto component economies by 2020, according to a study by IBM. According to another study, the auto component industry in India has potential to grow at a CAGR of 13% to reach US $ 40 billion by 2015. Indias share in world auto components would thus grow from around 1%, at present, to over 2.5% by 2015. Domestic market is projected to grow at around 8-10% per annum in the next 10 years. Exports are projected to grow at over 30% per annum in the long term. The automotive market in India has grown significantly owing to the growth in income and in the living standards of the middle class population, and a significant increase in their disposable incomes. However, there has been a slowdown in demand for vehicles, in 2008-09, which is impacting the auto-component industry adversely. Responding to emerging scenario, Indian auto component sector has shown great advances in recent years in terms of quality, spread, absorption of newer technologies and flexibility. Availability of skilled manpower, reasonably priced workforce, together with the strengths gained by the country in IT and electronics, have built-up an environment for significant leap in the auto component industry.

The turnover of the auto component industry, over a period of time, has grown impressively. During the year 1996-97, the turnover of the industry was US $ 3.3 billion, which breached the US $ 10 billion mark, to reach US $ 12 billion, in 2005-06. In the year 2007-08, the turnover of the auto component industry has reached US $ 18 billion. Indian auto component industry has a comprehensive range of products catering to the market. During the year 2007-08, engine parts accounted for the bulk of production in the Indian auto components industry, followed by transmission and steering parts. The combined production in these two categories was around 50% of the total value of the production. Export growth in Indian autocomponents industry was around 25% during the year 2007-08, with value of exports being US $ 3.6 billion. India is also an importer of auto-components; according to the Ministry of Heavy Industries, Government of India, the total imports of auto components by India in the year 2006-07 were US $ 3.3 billion (Rs. 14,644 crore). India has been emerging as a significant exporter of auto components since the last decade. From a level of US $ 330 million in 1997-98, exports of autocomponents have reached to over US $ 3.6 billion in 2007-08. Export

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orientation of Indian auto-component industry has also increased from a level of 11% in 1997-98 to over 20% in 2007-08. Export of auto components have grown at a CAGR of 24% during this period. India exports its auto components to almost every part of the world, the major markets being developed countries such as USA, Germany and UK. Some of the important Asian markets for auto-components include Bangladesh, Sri Lanka and Nepal. According to ACMA, the export potential of auto components industry is expected to post a CAGR of around 24% to reach US $ 20-22 billion by 2015.

EXPORT COMPETITIVENESS OF THE INDUSTRY


The year-on-year growth rates in vehicles production achieved by the Indian automobile industry has been outstanding as compared to the growth rate achieved by the global automobile industry. In the year 2007, the automobile production growth rate in India stood at around 14% as compared to the world production growth rate of 5.4%. Except in the year 2000, when there was a slump, the Indian automobile industry has performed better than the global average, at the back of both domestic as well as global demand. In the auto-components segment, steered by the countrys high engineering skills, established

production lines, and competitive manufacturing costs, global auto majors are increasingly ramping up the value of components they source from India. Over 20 OEMs have set up their International Purchase Offices (IPOs) in India to source their global component requirements. These include firms like General Motors, Ford Motors, Cummins International, Bosch, Volkswagen, BMW, MAN (trucks) and JCB (earthmoving equipment), among others. This number is expected to double by the year 2010. The autocomponent industry was estimated to achieve an export level of around US $ 5 billion in 2008-09. However, the slowdown in demand for automobiles, both in India and in its export markets, may downsize the projections marginally. In such a scenario, it may be pertinent to analyse the export competitiveness of India in the international market. In this chapter, an attempt has been made to analyse the export competitiveness of India in order to identify potential markets for Indian automotive industry in select markets / regions. The markets / regions identified for this purpose were USA and Europe for auto-components, and developing countries of Africa, Asia and Latin America for automobiles. The competitiveness of Indian automotive industry in the identified markets have been analysed using some of the competitiveness indicators, such as

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penetration index, contribution index, and specialization index.

Auto-components In the USA market, the penetration index for components such as bumpers, drive axles, and radiators have grown significantly indicating rise in share of India in USAs total imports. The contribution index has also increased for bumpers indicating growing share of its exports in Indias total exports to USA. As a result of such trends, the specialization index has increased significantly for bumpers, drive axles, and steering wheels. While the specialization index has decreased significantly for road wheels and parts, marginal decline has been witnessed for components such as brakes and parts, non-driving axles and parts, and suspension shock absorbers.
In the European market, the penetration index has grown significantly for auto-components such as bumpers, drive axles, suspension shock absorbers and radiators. The contribution index has also increased for bumpers and drive axles and radiators indicating growing share of its exports in Indias total exports to Europe. As a result of such trends, the specialization index has increased significantly for bumpers, drive axles, suspension shock absorbers and radiators. While the specialization index has decreased significantly for road

wheels and parts, and parts and accessories of bodies, marginal increase has been witnessed for components such as brakes and parts, non-driving axles and parts, suspension shock absorbers, and steering wheels and parts.

Automobiles The analysis of international competitiveness of Indian automobile sector in Africa market reveal that the penetration index has grown over the years, between 2001 and 2006, for sub-segments such as tractors, motor cars, transport vehicles for goods, special purpose vehicles, and chassis fitted with engines. The growth in penetration index, however, has not been much for public transport type passenger vehicles, while it has come down for motorcycles. The contribution index has also increased in these sub-categories (except the public transport type passenger vehicles, and motorcycles), indicating growing share of these categories in Indias exports to Africa. The share of import of identified categories of vehicles in total import of Africa has also increased over the years indicating growing African market. As a result of these trends, the specialization index has grown for all types of vehicles, except public transport type passenger vehicles and motorcycles.

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Indias automobile penetration into the Latin American region is slowly gaining momentum. The analysis of international competitiveness of Indian automobile sector in Latin America region reveals that the penetration index has grown, between 2001 and 2006, for sub-segments such as tractors, motor cars, and motor cycles. The growth in penetration index, however, has not been much for public transport type passenger vehicles, and special purpose motor vehicles, while it has come down for motor vehicles for goods transport and chassis fitted with engines. The contribution index has also increased in the sub-categories where penetration index has grown (and vice versa), indicating growing share of these categories in Indias exports to Latin America. The share of import of identified categories of vehicles in total import of Latin America has also increased over the years in most of the sub-categories, indicating growing Latin American vehicles market. As a result of these trends, the specialization index has grown for all types of vehicles, except motor vehicles for transport of goods, chassis fitted with engines, and motorcycles. Indias automobile penetration in the developing Asian market has been quite modest across all the segments. This could be seen from

the growing penetration index during the analysed period (years 2001 and 2006), in almost all segments. The contribution index has also grown in all vehicle segments (except motor vehicles for transport of goods, which has remained constant), indicating growing share of these vehicle segments in Indias exports to developing Asia. However, the share of import of identified categories of vehicles in total import of developing Asia has declined over the analysed period, in most of the sub-categories, indicating growing manufacturing and self-sufficiency in the region. In spite of such a trend, the specialization index has grown for all types of vehicles, with some categories, such as tractors, and chassis fitted with engines, well pronounced than the others.

CHALLENGES Rising Input Costs Prices of core inputs in the manufacture of vehicles, like steel, non-ferrous metals and rubber, have grown over the last few years, which in turn has increased the production cost of vehicles. Though the raw material prices have cooled in the last few months, they still prevail more than the prices that have prevailed few years ago. Such cost escalation in input prices has impacted the growth of the Indian auto industry.

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Fuel Price Volatility Volatility in fuel prices affects the growth of the automotive industry all over the world. The effects of volatility in fuel prices are multipronged. Firstly, the cost of inputs in car manufacturing increases with the increase in oil prices. Polymers, one of the inputs used in manufacture of vehicles, is a derivative of crude oil. Bulk commodities, such as steel and aluminium, are also used in manufacture of vehicles; the transportation cost of which is influenced by oil prices. Secondly, the oil price has an impact on inflation, affecting the saving and disposable income of the consumers, thereby affecting the demand for automobiles. Thirdly, the fuel price influences the overall running cost of the vehicle owners; there could be switch in demand among the vehicle variants, as also research in use of alternative fuels. Thus, the volatility in oil prices affects the prospects of the industry. Slowdown in Demand As per the RBIs data on sectoral deployment of gross bank credit, the automotive industry received gross bank credit of Rs. 29,152 crores in 2007-08, a growth of 39% over the corresponding period of the previous year. In addition, credit has been extended to transport operators and retail consumers

(as vehicle buyers) to support the growth of sales by the automotive industry. However, the penetration rate of vehicle ownership in India (per thousand population) is estimated to be less than 10 for car owners and around 40 for two wheelers. This is low as compared to the world standards, and indicates the potential demand for automobiles in the country. Following the recent financial sector crisis, the euphoria of easier / better availability of auto finances in India has declined. The recent trends in vehicle sales also corroborate with this contention. During the period April-November 2008, the sales growth in passenger vehicles segment was marginally negative at (-) 0.59% over the corresponding period of 2007-08; the growth in sales of commercial vehicles was negative at around (-) 9.23%. Similarly, three wheelers sales have also registered a negative growth ( 3.37%). The two-wheelers segment registered a positive growth of 3.76% during this period; however, the two wheelers sales in the month of November 2008 witnessed a negative growth (-14.73%), over the corresponding month of 2007.

Slowdown in USA North America has been a traditional market for the Indian auto component manufacturers with exports to the region accounting for

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around 27% of Indian auto component exports. The region is affected by the global financial crisis, which led to the slowdown in demand for vehicles, especially in USA. As the global financial crisis makes consumers increasingly reluctant to part with cash and lenders unwilling to offer credit, carmakers across the world face challenges in finding buyers to keep their production lines running. It may be mentioned that industry wide auto sales in USA in the month of November 2008 were down nearly by 37%. In annualized terms, according to analysts, the US auto industry recorded sales of 10.2 million vehicles in November 2008, down from 16.07 million vehicles sold in the same month of last year. With the Detroit majors like, General Motors, Ford and Chrysler seeking a bailout from the Federal Government, the auto component industry in India is feeling the brunt with slack in demand. An emergency bail-out offering of US $ 17.4 billion loans to the three auto majors has been announced with the condition that within three months restructuring plans are prepared by them, including cutting down on costs. The restructuring plan and cost cutting measures may affect the export prospects of Indian autocomponent firms. The Indian auto components sector, which is one of the major vendors for the global auto majors, and to the US in

particular, face the challenges of slowdown in the US automobile market. Production Cuts The production activity in the automotive industry is poised to be on the lines of the economic growth in the world and it is likely that the momentum in production may slowdown in the year 2008-09. The slowdown in demand for vehicles, both in domestic and export market has led to the announcement of production cuts by many vehicle manufacturers. In the month of November 2008 (over the month of October 2008), there has been decline in production across all segments. Production of passenger vehicles have witnessed a negative growth (-8.50%), commercial vehicles production declined by 44.27%, three-wheelers production declined by 5.65%, and two wheelers by 8.79%. Overall, the production in November 2008 (over October 2008) has come down by 9.94% (from 0.95 million units to 0.86 million units). Commercial vehicles producer, Ashok Leyland, has reduced its proudction of vehicles to around 1500 units in November 2008 (as compared to an average of 6400 units produced during April-October 2008). Another major vehicle manufacturer, Tata Motors has decided to cut production of medium and heavy commercial vehicles by around 50%, while its passenger cars

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segment is contemplating a production cut; as of now, Tata Motors is undertaking partial shutdown to match the production and demand for passenger cars. In the two-wheelers segment also, major producers are mulling over production cuts to reduce their inventory levels and match with the market demand trends. Bajaj auto has already announced a prolonged shut down as part of the exercise to reduce the inventory levels. Such trends also affect the market prospects of Indian auto-component manufacturers. Several autocomponent units that are catering to the demand of OEMs in India are also in line with the production cuts intended by these OEMs. Several auto-component manufacturers are scheduling maintenance holidays to tackle the situation.

Though, there has been depletion of market share for Maruti Suzuki, it still dominates the passenger car segment. In the two-wheelers segment too, foreign majors have their presence through joint ventures as also through their wholly owned subsidiaries. Hero Honda is the largest player in the two-wheeler segment, followed by Bajaj Auto and TVS Motors. In the commercial vehicles segment, though the market is dominated by home-grown companies such as Ashok Leyland and Tata Motors, competition is augmented through the entry of foreign players such as Nissan and Volvo. Indian players are entering into joint ventures with these companies to gain access to the technological advancement and design engineering. In the auto-parts segment, though there are vibrant units producing high-quality products and supplying to global OEMs, the market is attracting global players such as Delphi Systems, Visteon, Denso and Bosch, to mention a few. These global majors have been expanding their product portfolio and enhancing their production capacities, thereby increasing the competition among domestic players.

Growing Competition Competition in Indias automobile and auto-parts industry has been growing in the recent years. Earlier, the regulatory framework and market conditions positioned the Indian OEMs in monopolistic or oligopolistic market structure. As the automotive market in India is evolving through the dynamics of open market and deregulation, many new players have entered the market. Since liberalisation, over 20 new players entered the market in the passenger car segment alone.

Changing Consumer Preferences There has been continuous change in consumer demand in the motor

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vehicle industry, making the companies to focus on innovation continuously. With growing purchasing power among Indian consumers, the demand for better and comfort vehicles with greater efficiency is growing. Intense industry competition has led to design of hybrid vehicles and development of new vehicle concepts. Apart from customers, new technology also allows the designers to change every aspect of car design. According to a study2 by KPMG, product quality, cost reduction, new technologies and environmental issues, influences the consumer demand for vehicles and thereby innovation in the automotive industry.

have set new benchmark prices and the component manufacturers from India face challenges in the scenario of rising input prices.

Chinese Competition Of late, low-cost imports from China threaten the business prospects of domestic auto-component manufacturers. According to ACMA, auto-component imports from China have grown rapidly in the last few years. From around 3.3% of share in all component imports in 200304, China now accounts for close to 10%. Significant growth in component imports has been contributed by China in the last three years, while Indias exports to China have stagnated at around Rs 120-170 crore in the last 5 years. Such imports from China
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Environmental Issues The automobile sector affects the environment in multiple ways, starting from the use of materials that causes environmental degradation, and ending with the management of scrap. However, it is estimated that much of the environmental damage during the lifespan of a car happens during driving, and thus is associated with fuel emissions. That is why many countries are discouraging sale of fuel-inefficient cars, as also polluting cars, through suitable taxation policy. It is reported that Chinese Government has increased sales tax on cars with engine capacities more than 1 litre, and reduced on cars with engine capacity of less than 1 litre. EU is proposing to penalize cars that are emitting more than 130 gms of CO2 per kilometer.
There are estimates that the automobile industry accounts for approximately one-fourth of global anthropogenic GHG emissions. Therefore, in order to combat the environmental challenge, firms (as well as environmentalists and national Governments) are focussing on avoidance of polluting

Momentum, KPMGs 2008 Global Auto Executive Survey

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substances in production, in addition to concentrating on fuel efficiency and emission standards. The industry is also contributing to combat this challenge by undertaking research in improving fuel efficiency and reducing CO2 emissions. In the EU, an end-oflife of vehicles Directive (2000/53/ EC) is in force to prevent polluting substances in manufacture of vehicles. Also, a dialogue between regulators and the automotive industry in EU inspired a voluntary commitment for the industry to reduce emissions.

the vehicles for domestic market or for other developing country markets, but not completly focusing on designing a vehicle for a truly global market, or to create a niche for them and compete with international brands. Also, the efforts of Indian automobile manufacturers are mainly oriented towards value engineering or modification in the existing models to improve performance, and are not focused on developing new models.

Low R&D Orientation It is being realized all over the world that the competitiveness is not dependent on factors like availability of skilled labour, low-cost operations and infrastructure. The sustained competitiveness in the automotive industry comes through improvement in productivity, which calls for continuous innovation by the players. However, Indian automobile companies spend a relatively low amount on R&D; thus, their R&D orientation (R&D spending as a percentage of total sales) is low relative to the global standards. Developing new designs is an expensive proposition, unless the market for the new design is on a global scale. Indian firms are mainly focussing on, and designing
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Infrastructure Constraints Insufficient road infrastructure and traffic congestion could be a bottleneck in the growth of the automotive industry. In India, capacity addition in roads has been lagging behind the traffic growth. It is reported that China witnessed a phenomenal growth in automotive industry due to rapid development in road infrastructure. Poor port connectivity is another bottleneck faced by the industry, especially when it comes towards exports. The Chennai and Mumbai Ports handle bulk of the vehicle export. In addition to the insufficient porthandling infrastructure, there are also challenges associated with space especially for parking and setting up of repair shops in the port yard. According to a comparative analysis 3 on cost structure of Indian automotive sector and that of Malaysia,

Working Group on Automotive Industry, Eleventh Five Year Plan, Planning Commission, Government of India.

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Thailand and China, the deficiencies in logistics and infrastructure adds about 1.1% to 2% in the total cost structure.

Incidence of Levies / Duties On vehicle sales, currently taxes are levied at multiple levels at city level (octroi), state level (sales tax) and at the central level (excise). It is estimated that the incidence of levies and taxes on a vehicle averages to be around 30% of the cost of vehicle. The incidence of taxes increases in cases where the octroi is also levied. The high incidence of taxes increases the cost of ownership of vehicles, thereby affecting the vehicle penetration level in India. Low ICT Interface The adoption of ICT in the Indian automotive sector is at low level as compared to international standards. According to a study4 by NASSCOM, many SME firms in the auto-component sector is facing the challenges of IT adoption, which is important for enhancing their productivity and competitiveness, and the growth of the industry. Human Resources Challenges One of the critical enablers for the growth in the Indian automobile industry would be adequate availability of trained manpower. It is estimated that the industry would require large numbers of trained
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personnel, if our country has to become an auto-manufacturing hub for the world. Countries in North America and Europe, which has been the hub for automotive industries over the years, are increasingly feeling the pinch of the aging workforce impacting employment levels from factory workers to middle and top-level management, thereby creating a talent vacuum in the industry. This crunch in manpower in these economies is slowly luring the much-required human capital from India. This challenge needs to be addressed on priority basis so that the country does not loose out on critical talent that may be important for positioning India as an automotive manufacturing hub of the world.

STRATEGIES Tackling the Rising Input Costs The increase in the cost of crucial raw materials (such as steel, aluminium, rubber) that are used in manufacture of vehicles has affected the margins of the Indian automotive industry. Though the raw material prices are cooling down, they are still higher than the prices that prevailed few years ago. In order to tackle this problem of rising input costs, and to improve margins and price realisations, players in the automotive industry

IT Adoption in the Indian Auto Component Industry

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need to adopt multi-pronged strategies. These include reallocation of product mix, cost reduction through better adoption of lean manufacturing solutions, and renegotiation with suppliers and vendors. Some automobile manufacturers have already strengthened their strategy in tweaking the product-mix, giving greater emphasize on product segments that is expected to provide better margins. Strengthening lean manufacturing solutions would help the Indian automotive industry to tackle the challenge of input cost escalations. Some automobile manufacturers in India have already established programmes to avoid wastages in production and thereby cut down the cost of production. Firms also need to renegotiate the prices (for purchases with the suppliers) and margins (for sales with the dealers), so that the hike in the end price at the hands of consumers is minimized due to hike in input prices.

except in utilization of alternate energy sources. The industry, together with the Government, may provide greater thrust on development of products that uses alternate energy sources, and R&D on hybrid vehicles.

R&D on Alternate Energy Sources and Hybrid Vehicles The share of automobiles on road, using petroleum products as fuel, has almost remained the same (at over 95%) in the past several decades. This is despite the fact that the vehicles on road have been evolving in every other aspect. In other words, product development has happened in all other aspects,

Market Presence in All Segments Globalization is making every player in the industry to look beyond its borders. Ironically, in spite of the increasing number of models being manufactured, the PLC of the vehicles are decreasing everyday, thus putting pressure on the players to find ways to diversify their product offerings. Recently, Tata Motors had acquired the JaguarLand Rover brands from Ford thereby making an imprint into the niche segment, eyeing the European and the developed country market. This has made the Tata Motors a truly global player in the automobile market with a diversified product offerings, ranging from the entry level segment Nano to the much-touted ownership of premier brands, like Land Rover and Jaguar, thus catering to all segments of the market. Market presence and product offerings need not be in one category of vehicles (say passenger cars) alone; it could also be across multiple vehicle categories. Such strategies build brands and visibility across

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segments, as also reduce the risks associated with market concentration and economic slowdown to some extent.

Enhancing Competitiveness Cost efficiency is necessary for Indian automobile industry to enhance its global competitiveness. Many global auto-majors, especially from Japan, have initiated cost reduction exercises. Some firms have also shifted from standard costing to Kaizen costing and target costing. Some of them have even established target-costing offices across the world and established office structure for implementing Kaizen. Cost containment strategies may also include working with suppliers to reduce the costs in their processes, implementing lowcost designs / segments of the product, or through reduction of wastages. Strengthening the lean manufacturing practices, being adopted in India as also across the world, would also help improve competitiveness of Indian industry. Such practices show greater efficiencies in machine utilization, fewer labour hours per machine, shorter machine setup times and identification of bottlenecks and cost reduction opportunities swiftly.
Both the automobile and the auto component industry are interlinked and are dependent on each other for survival, and hence the hub

and spoke model may be another approach for both of them to contain the cost. In the hub and spoke model, the automobile industry help in establishment of auto-component units around its assembly plants, and help them in technological improvement, R&D, and identification of machineries and equipments. The auto-component units concentrate on on-time supply and servicing of orders and cost containment in production, and thereby promote competitive pricing among the industry players.

Addressing Consumer Preferences The dynamics of Indian automobile market is changing with the changing consumer preferences. For example, earlier, the twowheeler segment was dominated by scooter (with a market share of 7080%), which has been taken over by motorcycles. The change in consumer preference was mainly due to fuel efficiency, as also design and technological improvement. Though, the newer versions of scooters (scooty concept with ignition start) are slowly reviving the market for scooters, the market share may not reach to the previous level. Similarly, consumer preferences have changed the demand pattern in other vehicle segments too, driven mainly by design and technology. Indian auto-majors

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need to address the changing consumer preferences and suitably modify the design or technological improvement to augment their market share. Collaborative Product Development (CPD) is being adopted as a business strategy by global automobile majors to address the challenge of changing consumer preferences. Dealers are also need to be roped in the design or product development process as they are ideal gateway agencies between the customer and the firm. Hence, a stronger relationship is required to be established by the vehicle makers with the dealers. Synergies are to be created between the vehicle manufacturers and dealers though better communication and understanding in order to offer not only enhanced customer services but also to understand the trends in consumer preferences.

manufacturing. Significant amount of resources are required as investment to undertake R&D programmes to address these environmental challenges.

Enhancing R&D Orientation Indian automotive industry needs to develop a proactive culture with regard to investments in R&D rather than responsive culture. This would help the industry to understand the complexities of vehicle users and bring in product innovation through changes in design and vehicle engineering. The R&D orientation in the Indian auto-component industry is not comparable with world standards. However, few firms that are having large operations are increasing their stake in innovation to compete in the global map.
There is also a need to initiate a programme for research and development in the Indian automotive industry, concentrating on development of intelligent vehicles adhering to safety standards, energy efficiency and emission norms, and alternate fuels. The programme may also stretch down to component manufacturers with active involvement of OEMs.

Environmental Compliance Environmental challenges in automobile manufacturing does not relate to emission standards alone. There are also challenges associated with end-of-life in vehicles, especially waste management. Though sufficient steps are being taken in India towards achieving international emission standards, adequate steps are still required to be taken in environmental compliance in vehicle

Infrastructure Development Infrastructure constraints are common to all industry; however there are few specific infrastructure

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constraints affecting the growth of Indian automotive industry. Poor road infrastructure and traffic congestion can be a bottleneck in the growth of vehicle industry. Therefore, in general, improvement in road infrastructure would help enhance the demand for automobiles in India. Secondly, road infrastructure associated with last-mile port connectivity would help enhance supply chain management strategies of the vehicle manufacturers. More importantly, there is a need for building vehicle terminals in India for smoother handling of vehicle exports.

Enhancing ICT Interface IT sector has a major role to play in development of Indian automotive industry to achieve its global aspirations through enhanced productivity and product efficiency. In addition, ICT interface help the manufacturers to interact frequently with vendors and consumers also, and leverage their ideas / preferences into vehicle design. Increased IT adoption in the automotive industry not only enhances the competitiveness of the industry in the existing markets, but also creates new markets for the Indian automotive industry. Human Resources Development The cost pressure on global auto majors, who are mainly present in developed countries, viz., USA, Europe and Japan, is making the industry shift to developing nations. In addition, these countries are facing shortages of skilled manpower, which is expected to grow multi-fold in the years to come. India has large human resource base; however, India needs to enhance the skill-sets that are required for the industry in order to become a global automotive hub.
The Government and industry need to come together and address the challenges related to skill development and workforce shortages, both in terms of quantity

Supply Chain Management Supply chain management in the automotive industry helps in integration of the partners to improve operational performance, materials flow and manufacturing flexibility. Implementing supply chain solutions as one more module after Enterprise Resource Planning (ERP) is not enough. Theres a need for enterprise-wide process improvement. This calls for inculcating mutual respect with the vendors, dealers and consumers. Just-In-Time (JIT) production processes, identification of shorter transportation routes, e-sourcing are some of the supply chain strategies that may be adopted in large scale by the Indian automotive industry.

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and quality. In this regard, it may be mentioned that USA established, over three decades ago, a National Institute for Automotive Service Excellence, to provide training, testing, and certification of autoservice and repair-professionals to ensure continuous availability of trained technicians for the industry. Government of India, through the Automotive Mission Plan, has proposed the setting up of an Automotive Training Institute to train people for the automotive industry. The Society for Indian Automobile Manufacturers (SIAM) has plans to set up an online university, first of its kind in Asia, to cater to the education needs of the industry. SIAM is associating with US-based institute, Adayana, who will provide course content and certify these courses.

IN SUM The global financial meltdown of the year 2008 has created a precarious condition across various sectors, which has forced countries and industries to take a fresh look at their future strategies; automotive sector did not remain unscathed from this turmoil. In the early part of the year 2008, the rise in crude oil prices sent shockwaves amongst various sectors; the automotive sector was one of them to receive adverse impact. The financial crunch, in the later part of the year 2008, slowed-down the supply of credit and simultaneously increased

the cost of credit, both to corporates and consumers, and thereby impacted both the supply and demand for automobiles. It may be mentioned that the global as also the Indian automotive industry, benefited from the credit flow provided by the banks and financial institutions, both at corporate level and at consumer level. The operations of several global auto-majors are affected and they are seeking bailout plan from their national governments for their survival. With the government institutions across the world infusing large amount of liquidity into the respective markets, the core issue of credit crunch may slowly be resolved. However, cost associated pressures may prevail on the margins of the global auto-majors, making them vigorously to focus on emerging markets, for sourcing components, vehicle design and manufacturing. It is expected that the recessionary trends in the economy and the resultant increase in margin pressures would further enhance the need for locational shift in manufacturing of automobiles. It is also expected that the volume of outsourced jobs coming to India may further rise in the long term. Such market opportunities also provide the Indian automotive industry to acquire assets of beleaguered companies abroad with a potential for turnaround and value creation in the years to come.

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It may be mentioned that the Indian automotive industry holds significant scope for expansion, both in the domestic market, where the vehicle penetration level is on the lower side as compared to world average, and in the international market, where India could position itself as a manufacturing hub. The current level of share, viz., less than 5% of global production and less than 1% of global trade, also corroborates the potential for expansion in this industry. At the same time, it should be recognized that Indias exports of automobiles have largely been confined to few countries in Asia and Africa, and to a very limited extent in Latin America. Indian automobile companies are required to accelerate their momentum and increase their penetration among other countries in these regions. Similarly, the auto components industry in India, which is now known across the globe for its quality deliverables, should try and capitalize on the European and the US market either trough the process of acquisitions of firms in these countries or simultaneously enhancing their quality and augmenting the number of outsourcing businesses

from these regions. Indian auto component industry distinguishes itself with winning more number of Deming prize and adopting global quality management procedures, and thereby have an edge over other emerging economies, like China and Thailand. Indian economy, which benefits from strong fundamentals and sound regulatory framework, is expected to grow at around 7% in the year 200809; the economy may rebound once the global economy recovers, and the domestic automotive industry would simultaneously regain its growth momentum. In the interim period, the Indian automobile and component industry needs to look out for opportunities to cut cost, undertake value engineering and enhance disciplines into the system. The industry may also use the interim period to upgrade the skills of the employees and enhance the focus on market research, product development and customer interactions. An institutional mechanism, under public-private partnership model, may be needed to address such requirements of the industry in the years of downturn, with the industry having a lead role to play.

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1. INTRODUCTION

The automotive industry is increasingly becoming the cynosure of the manufacturing sector across the globe. Due to its intense forward and backward linkages with several key segments of the economy, the automotive industry has a strong multiplier effect and acts as one of the key drivers of growth across the globe. The attention and importance to the automotive industry in the economic development and planning policies of Government and its agencies has also witnessed significant uprise. The industry has been evolving over the years, meeting up with challenges as diverse as transitions, consolidations and restructuring, and thereby adapting to the new market conditions. In the last few years, the global automotive industry has changed its locational preferences due to various reasons. Earlier, the automotive industry was largely confined to the triad - North America, Europe and Japan. However, with the emergence of some vibrant developing economies, like Brazil, India and China, the global automotive industry

has been considering a different growth perspective, and has been relocating the operations. These growing developing economies have been evolving as a manufacturing hub, as also the newfound markets, for the global majors like Ford, General Motors, Chrysler, Toyota, Honda, Nissan and BMW, who are competing to enhance their market share in these markets. Increasing growth in GDP and the growing disposable income has catapulted these emerging economies as market for automotives, while the low cost of operations and skills in design and R&D made them as destinations for investment and manufacturing operations. The automotive industry is a major employment generator in many economies, with millions of people earning their livelihood, both directly and indirectly. According to the International Organisation of Motor Vehicle Manufacturers (OICA), the current turnover of the automobile industry is around Euro 2 trillion and is equivalent to the size of 6th largest economy in the world.

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While there has been growth momentum for the global automotive industry in the past, it is also facing challenges, of late, especially in view of the increasing cost of production and slowing down of demand. The world automotive industry is also faced with the challenge of undertaking R&D and designing fuelefficient vehicles in view of volatile oil prices. The environmental challenges have also assumed critical importance to the automotive industry at the backdrop of climate change. Companies across the globe have been committing to contribute to an integrated approach to a cleaner environment and reduced carbon emissions with more environmentally friendly vehicles. All such challenges have taken the world automotive industry to a new paradigm. With cost playing an important role in the success of the operations of the automotive industry, countries like India, rich in scientific and engineering skills, and low cost operations, are increasingly gaining importance for automotive production in the world. The global automotive industry is in the verge of locational shift, not only to cut down the cost of production, but also in exploring new markets in developing countries, including India. With the growing shift in manufacturing of automobile industry to developing countries like India, the manufacturing of auto-components

is also increasingly relocated to these countries. In India, economic liberalization and foreign investment policies attracted foreign auto-majors such as Hyundai, Ford, Toyota and General Motors to set up their bases in India. Smooth policies for technology transfer strengthened the indigenous auto-component makers to source the technology and efficiently meet the buying requirements of multinational sourcing companies. The multinational auto-majors started looking at India, not only as a manufacturing hub for the vehicles, but also a growth market for vehicles demand, and addressed the requirements of price sensitive market, through design and product development. According to the World Bank data, India is the fourth largest economy in the world, in purchasing power parity terms. With the increase in Private Final Consumption Expenditure (PFCE) in India, the demand for automobiles too have increased, thus ascertaining the fact that the growth in income levels increases the consumption pattern in the case of automobiles, among others. Indias growing affluent class, which emphasizes more on quality and standards, has been facilitating the entry of multinational auto-majors

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Exhibit 1: TRENDS BETWEEN INDIAS PFCE AND AUTOMOBILE SALES

SOURCE: CSO, SIAM, EXIM Research

like BMW, Volkswagen and Mercedes to venture into the Indian market. The Tata owned Jaguar and Land Rover is also exploring the possibility of entering into the Indian market to cater to the niche segment in the country. The entry of global auto-majors into India has significantly altered the automobile-manufacturing scenario in the country. The changes in design and adaptation of international technologies have enabled the Indian automotive industry to compete globally, and thus are also exposed to global challenges. The global recessionary trends have impacted the global automotive sales, which is also percolating into developing countries like India. Developed countries such as USA,

EU, and Japan are contemplating the announcement of a bailout package for the automotive industry, as many auto-majors are in the verge of collapse. Australia has already announced AU $ 6.5 billion bailout package for the car industry, including setting up of AU $ 500 million green car innovation fund. Since many of the auto-majors have their operations in India, as also they source significant volume of autocomponents from India, the growth in the Indian automotive industry is also likely to be affected, albeit for a brief period. However, in the long term, alongside the challenges, there are also plethora of opportunities, which need to be capitalized so as to emerge as a successful global automotive player.

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2. GLOBAL SCENARIO

GLOBAL AUTOMOBILE INDUSTRY Origin and Trend Automotive industry is one of the most important and widespread industries in the world. The global automotive industry has been evolving through different phases characterized by its own developments. Over a period of time, the industry has witnessed several ups and downs, only to emerge stronger and betterequipped to take on the challenges.
The history of automobiles began with the technological breakthrough that occurred in Europe in early 1800s. It was in the year 1860 when the first practical internal combustion engine was invented. Later on, gas powered vehicles were invented, which dominated the industry. General Motors, established in 1908 in Michigan, USA is almost completing a century of operation. Later, it was Henry Ford, who in the year 1914, endeavored in the mass production of cars, reducing the costs of manufacturing. Infact, these two companies are considered to be

the pioneers in the automobile industry for bringing in innovation and setting high standards in the industry. During the early 20th century the industry made strides forward by emphasizing on car design. During the same time, automobile industry was seen evolving in other parts of the globe as well. The automobile industry in Japan and in select European countries, mainly Germany, France and Italy, also witnessed significant growth. The great depression of 1930s had a negative bearing on the automobile industry. Following the great depression, the industry was faced with inadequate capital and low economic activity. This period also saw a reduction in the number of manufacturers. Later, the World War II (1939-1945) also caused a negative impact on the industry. Post war period, the automobile production plummeted in almost all parts of the world. Many companies reduced production of passenger cars during the period, and were involved in production of war tanks, military trucks and navigation equipments.

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Automobile production witnessed resurgence after the end of World War II. There was a high demand but the production was not high enough to meet this demand. Again, the energy crisis had a bearing upon the automobile industry. There was a need to build fuel-efficient automobiles. Japanese producers concentrated on such evolving needs, and were soon to become the leading exporters of automobiles to the world market. Industry developments since 1980s focused on global expansions and setting up of joint ventures in new and emerging markets. At the start of 21 st century, the growth trends in global manufacturing continued to be upwards. The sector, since the beginning of 21st century, has witnessed two major trends. The first trend is the rapidly growing role and importance of emerging markets. The year 2007 was the auto industrys sixth consecutive year of growth with the sales reaching 73 million units. Faced with the challenge of reducing cost of production, the global automobile industry is slowly shifting to low cost destinations, like China and India. Another emerging trend is the need for addressing the key societal issues of energy saving and controlling carbon-di-oxide emission. Several initiatives have been taken by the industry to address the challenges associated with carbon emission and fuel efficiency.

Industry Growth Over the years, the industry has grown significantly to become as one of the well-established industries all over the world. Along with the growth in size, the industry has made technological advancements also. The industry utilizes various modern technologies integrated into a system, to improve the quality of the vehicles. These include wide use of modern chips and electronics to make the vehicles more efficient and competent.
In the initial years, most of the manufacturing activities were concentrated in USA and some of the European countries. Though, these countries represent a significant share in the production even now, more and more volume of production comes from other parts of the world, like China, Japan and Korea. Around three-fourths of the global production is being carried out in top 10 producing countries, in 2007. Of these, Japan, USA and China, cumulatively constitute over 40% of global production. The automobile industry has also contributed immensely in providing employment. Building over 70 million vehicles, the world automobile industry provides employment to about 10 million people directly, in making the vehicles and the parts that go into them. This is over 5% of the worlds

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total manufacturing employment. It is estimated that each direct employment in this industry supports at least another 5 indirect jobs in the community, resulting in more than 50 million jobs created by the automotive industry. These indirect employment are created in related manufacturing and services sectors. Automobiles are built using the materials of many sectors, including

steel, iron, aluminum, glass, plastics, electricals, textiles, electronics, rubber and chemicals, thus providing employment as well as growth to such diverse range of sectors.

Production The growth in global economy, in general has kept up the pace of auto industry growth, barring cyclical moderations in growth

Exhibit 2: PRODUCT-WISE SHARE IN WORLD PRODUCTION OF AUTOMOBILES5 (2007)

Total = 73 million vehicles SOURCE: OICA, EXIM Research

According to OICA classifications, Passenger cars are motor vehicles with at least four wheels, used for the transport of passengers, and comprising no more than eight seats in addition to the drivers seat. Light commercial vehicles are motor vehicles with at least four wheels, used for the carriage of goods. Mass given in tons (metric tons) is used as a limit between light commercial vehicles and heavy trucks. This limit depends on national and professional definitions and varies between 3.5 and 7 tons. Minibuses, derived from light commercial vehicles, are used for the transport of passengers, comprising more than eight seats in addition to the drivers seat and having a maximum mass between 3.5 and 7 tons. Heavy trucks are vehicles intended for the carriage of goods - maximum authorised mass is over the limit (ranging from 3.5 to 7 tons) of light commercial vehicles. They include tractors, vehicles designed for towing semi-trailers. Buses and coaches are used for the transport of passengers, comprising more than eight seats in addition to the drivers seat, and having a maximum mass over the limit (ranging from 3.5 to 7 tons) of light commercial vehicles.

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momentum and a negative growth in 2001. The world production and exports of automobiles have increased continuously, since 2001, barring fluctuations with surging demand pattern. According to International Organization of Motor

Vehicle Manufacturers (OICA), in the year 2007, the turnover of the industry is estimated to be Euro 2 trillion, with the production of 73 million vehicles (two / three wheelers are excluded, which adds up to another 50 million units).

Exhibit 3: TRENDS IN GLOBAL PRODUCTION OF AUTOMOBILES

SOURCE: OICA, EXIM Research

Exhibit 4: PERCENTAGE CHANGE IN GLOBAL AUTOMOBILE PRODUCTION (2000-2007)

SOURCE: OICA, EXIM Research

45

Analysis of production in the last eight years shows that there is a decent growth in the global automobile production, except hiccups in few years. The Compounded Annual Growth Rate (CAGR) registered a modest 3.82% during the period 2000-2007. The global automobile production has increased by 5.4% in the year 2007, over the year 2006, thus showing a significant increase in production. The production of automobiles is concentrated in few parts of the world. Japan, USA, China and Germany have been the largest automobile manufacturers in the world, in the year 2007, followed by South Korea, France, Brazil, Spain, Canada and India. India6 holds a share of 3% in global automobile production.

The European Union, as a bloc, is one of the largest automotive producing regions in the world providing direct employment to an estimated 2 million people, while the total employment effect (direct and indirect) is estimated to be about 10 million. According to OICA, Japan is the largest producer of cars in the world followed by China, Germany, USA, South Korea and France. India ranks 9th in the production of cars in the world ahead of UK, Canada, Russia and Mexico. USA is the largest producer of commercial vehicles. Close competitors are China, Japan, Canada, Thailand and Mexico. India ranks 8 th in the production of commercial vehicles and is ahead of countries like Brazil, Germany, France and Turkey.

Exhibit 5: COUNTRY-WISE SHARE IN GLOBAL VECHICLE PRODUCTION FOR THE YEAR 2007

SOURCE: OICA, EXIM Research


6

It may be mentioned that OICA production data does not include two/three wheelers, in which India accounts for significant volume of production.

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Exhibit 6: TOP TEN COUNTRIES PRODUCTION OF MOTOR VEHICLES IN 2007

SOURCE: OICA, EXIM Research

In terms of two wheelers, China is the leading producer in the world with a production level of over 22 million units in 2007, followed by India (over 8 million units), and Indonesia (around 5 million units). Other major two wheeler producers are Japan, Brazil, Thailand, Vietnam, Italy, Malaysia and Colombia.

need to find ways to improve fuel efficiency. The industry is responding through innovation including introduction of electric cars, bio-fuels, and energy efficient technologies. Major investing countries in the automobile industry in the year 2007 are USA, Germany and Japan. USA invested approximately Euro 30 billion in 2007, followed by Germany (Euro 12 billion), Japan and China.

Investment In Automobile Industry The automobile industry is one of the major innovators, investing significantly in research and development and production, with the objectives of increasing the safety level, energy efficiency, and enhancing the overall performance. Due to volatility in energy prices, the industry is facing a pressing

Trade There was a steady increase in global trade of automotive products through out the world during the analysed period. According to the data collated by the WTO, world exports of automotive products in

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Table 1: LEADING COUNTRIES INVESTING IN AUTOMOBILE INDUSTRY (2007)


Million Euros

Country USA Germany Japan China France Italy Spain Korea Egypt UK Total (including others)
SOURCE: OICA

Turnover 425,106 227,666 435,610 86,984 111,901 54,135 75,104 62,993 2,901 58,238 1,889,840

Investments 30,416 11,900 6,450 5,330 4,196 3,450 2,740 2,239 1,661 1,590 84,801

Exhibit 7: SHARE OF COUNTRIES IN INVESTMENTS MADE IN THE AUTOMOBILE INDUSTRY (2007)

SOURCE: OICA, EXIM Research

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the year 2007 were valued at nearly US $ 1.2 trillion. Global exports grew by around 17% in the year 2007, over the previous year; with the CAGR during the period 20002007 being around 11%. Region-wise data on export of automotive products indicate that Europes share in worlds exports have increased from around 50% in 2000 to over 55% in 2007. The share of automotive products in EUs total merchandise exports remained at over 11% in 2007, without much change from the share witnessed in the year 2000. A large chunk of exports is intra-Europe constituting 78% of total in 2007. Exports from Europe to other regions (and their corresponding share) include North America (9.6%), Asia (4.6%), CIS (2.6%) and Africa (2.4%). The annual

percentage change in export of automotive products from Europe stood at 9% over the previous year. Asia exported automotive products valued at around US $ 265 billion in 2007. Asias share in world automotive exports has increased from 19.9% in 2000 to 22% in 2007. North America has been a major importer of automotive products from Asia. The Asian market has largely been dominated by Japan with exports worth US $ 158.6 billion in 2007. Though the share of Japan in world exports have been around 13.4% in 2007, it has decreased from the year 2000, when its share had been around 15.3%. North Americas export of automotive products was worth at around US $ 219.9 billion in 2007,

Exhibit 8: REGIONWISE SHARE IN WORLD EXPORT OF AUTOMOTIVE PRODUCTS (2007)

SOURCE: WTO; EXIM Research

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with a share of 19%. Exports were mainly confined as intra-regional, with a share of nearly 77%. EU, as a bloc, was one of the largest importers of automotive products in the world with a share of almost 46% in the year 2007, with import in value terms being US$ 543 billion. In terms of individual countries, USA was the largest importer with a share of 19%, valued at US$ 221 billion, in 2007, followed by Canada, at a distant second position, with imports worth US $ 67 billion, with a share of 5.6%. Other top importers of automotive products were Russian Federation (2.8%), Mexico (2.5%), China (2%), Australia (1.6%) and Japan (1.3%).

USA produced nearly 10.8 million vehicles in the year 2007, as compared to 11.3 million vehicles produced in the year 2006, thereby indicating a negative growth (of 4.5%). Light Commercial Vehicles (LCVs) constituted 60% of the total production followed by cars at 36% and Heavy Commercial Vehicles (HCVs) at 3%. Production of LCVs increased by around 1.8% in 2007 over the previous year from 6.4 million units in 2006 to 6.5 million units in 2007. Production of cars and Heavy Commercial Vehicles (HCVs), however, declined by around 10% and 40%, respectively, during the year 2007, as compared to 2006. United States contribution to world automotive exports was 9.2%, and was ranked at second position, after Japan. Automotive exports, in the year 2007, constituted around 9.4% share in USAs total merchandise exports, which in 2000 stood at a modest 8.6%. Motorcars and other motor vehicles (HS code8703) formed a significant portion of exports of automobiles in terms of value in the year 2006, followed by motor vehicles for transport of goods (HS code-8704). At present, following the financial sector meltdown, the automobile industry in USA is struggling with downtrend in sales. Auto-majors such as GM is cutting down the

Profiles of Select Automobile Producing Countries


United States of America The motor vehicle industry is one of the largest manufacturing industries in the United States. It is one of the industries linked much with the US manufacturing sector and directly generating retail business and employment. According to industry estimates, the contribution of US auto industry to employment generation is about 1.8 million jobs. This represents about 1.7 % of the total private (non-farm) sector jobs in the US economy.7
7

http://www.cargroup.org/pdfs/AIAMFinal.PDF

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Exhibit 9: PRODUCTWISE PRODUCTION OF AUTOMOBILES IN USA (2007)

Total = 10.8 million vehicles SOURCE: OICA, EXIM Research

Table 2: EXPORT OF SELECT AUTOMOBILES FROM USA


US $ Million Commodity Code 8703 8704 8701 8711 8705 8702 Commodity Name Motor cars and other motor vehicles Motor vehicles for the transport of goods Tractors Motorcycles (including mopeds) Special purpose motor vehicles Public transport type passenger motor vehicles 2003 2004 2005 2006

22776.73 25163.13 7282.28 2711.34 759.1 586.87 355.32 8713.05 3378.87 808.88 610.76 526.63

31277.22 35401.13 10049.01 11587.50 4037.11 857.48 823.22 585.47 4653.69 1083.86 986.62 646.44

SOURCE: UN COMTRADE, EXIM Research

production across the world to overcome the crisis. US Government is also contemplating to provide a bailout package for the automotive sector.

Japan Japans automotive industry, which began in the early twentieth century, is the worlds largest manufacturer and exporter of

51

automobiles. Japan has several worlds largest manufacturers like Honda, Toyota, Nissan, Suzuki and Mitsubishi. Japan produced automobiles to the tune 11.6 million vehicles in 2007, which is an increase of around 1% over the previous year. Share of cars in the total vehicles production stood at a staggering 85%. Japanese production of cars has increased by

around 2% in the year 2007, over the previous year, thereby implying a growing demand for cars. Production of HCVs showed an increase of 2.8% in the year 2007. However, production of LCVs declined by almost 10% during the same period. Japans economy is highly dominated by the automotive sector though in recent times its contribution

Exhibit 10: PRODUCTWISE PRODUCTION OF AUTOMOBILES IN JAPAN (2007)

Total = 11.6 million vehicles SOURCE: OICA, EXIM Research

Table 3: EXPORT OF SELECT AUTOMOBILES FROM JAPAN


US $ Million ITC HS Code Commodity Name 8703 8704 8701 8702 8705 Motor cars and other motor vehicles Motor vehicles for the transport of goods Tractors Public transport type passenger motor vehicles Special purpose motor vehicles 2003 2004 2005 2006

68390.66 74822.89 6679.83 1288.93 1100.21 341.1 8071.5 1776.41 1334.04 330.58

79769.27 94485.24 7578.31 1915.84 1606.83 294.74 8293.84 2068.41 1941.46 286.30

SOURCE: UN COMTRADE, EXIM Research

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to world exports has declined. The share of Japanese automotive sector in world export of automotive products has declined from 20.8% in 1990 to 13.4% in 2007. Nonetheless, the Japanese automotive sector contributes a whopping 22% share in the countrys total merchandise exports in 2007. In the year 2006, motorcars and motor vehicles (HS code-8703) contributed nearly 87% of exports from Japan in terms of value. Canada The automotive industry in Canada is one of the largest manufacturing sectors, accounting for 12% of manufacturing GDP and 24% of manufacturing trade. The industry employs more than 100,000 people

in automotive assembly and component manufacturing, and another 400,000 persons in distribution and aftermarket sales and service.8 About 52% of vehicle production in Canada was cars, followed by LCVs (47%), in the year 2007. Canadas overall automobile production has increased by a meagre 0.3% in 2007 to reach around 2.6 million units, which has largely been contributed by a significant rise in production of LCVs. Interestingly, HCVs production declined by nearly 51% in 2007 as compared to 2006. Even car production reduced by 6% from 1.4 million units in 2006 to 1.3 million units in 2007.

Table 4: EXPORT OF SELECT AUTOMOBILES FROM CANADA


US $ Million ITC HS Code 8703 8704 8701 8702 8705 8711 Commodity Name Motor cars and other motor vehicles Motor vehicles for the transport of goods Tractors Public transport type passenger motor vehicles Special purpose motor vehicles Motorcycles (including mopeds) 2003 2004 2005 2006

31377.98 36662.89 9135.19 883.39 569.19 102.56 24.01 9002.18 1262.62 688.95 123.99 25.15

37200.79 37809.90 9961.63 1939.22 599.88 185.94 18.75 8941.62 2636.90 581.41 199.50 11.95

SOURCE: UN COMTRADE, EXIM Research


8

http://www.ic.gc.ca/epic/site/auto-auto.nsf/en/am02177e.html

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Exhibit 11: PRODUCTWISE PRODUCTION OF AUTOMOBILES IN CANADA (2007)

Total = 2.6 million vehicles SOURCE: OICA, EXIM Research

Canada is one of the few countries in the developed world whose share in world automotive exports has been declining. During 1980, Canadas share in world automotive trade stood at 6.9%, which increased during the next two decades to touch 8.9% in 1990 and 10.5% in 2000 before declining to a significant low of 5.6% in 2007. Although, in terms of value, Canadas export of automotive products have increased from US $ 60.6 billion in 2000 to US $ 65.8 billion in 2006, the share of automotive products in Canadas total merchandise exports has decreased from 21.9% in 2000 to 15.7% in 2007. Production and export of cars forms a significant share in the Canadas automotive sector.

South Korea South Koreas production of automobiles has increased modestly by around 6% in 2007, over the previous year. Apart from HCVs, which declined by around 7.8%, from 28,621 units in 2006 to 26,397 units in 2007, production has increased in all other categories in the year 2007. Production of buses has witnessed high growth, 22.4% in 2007. Production of cars increased by 6.7%, and production of LCVs by about 3.6% in 2007. South Korea has also been one of the major automobile manufacturers in Asia apart from Japan. Its share in world export of automotive products, which stood at a meager 0.1% in 1980, improved

54

over the years to touch 0.7% in 1990, to 2.6% in 2000, and almost to 4.1% in 2007. Over the years, South Korea has been giving significant emphasize to the automotive sector; this is evident from the growing share of automotive sector in the

economys total merchandise exports, which increased to 13.3% in 2007, as compared to 8.8%, in 2000. Motorcars and other motor vehicles (HS code 8703) was the largest export item in terms of value in 2006.

Exhibit 12: PRODUCTWISE PRODUCTION OF AUTOMOBILES IN SOUTH KOREA (2007)

Total = 4.1 million vehicles SOURCE: OICA, EXIM Research

Table 5: EXPORT OF SELECT AUTOMOBILES FROM SOUTH KOREA


US $ Million ITC HS Code 8703 8704 8702 8701 8711 8705 Commodity Name Motor cars and other motor vehicles Motor vehicles for the transport of goods Public transport type passenger motor vehicles Tractors Motorcycles (including mopeds) Special purpose motor vehicles 2003 17535.71 810.92 577.62 139.1 67.11 29.85 2004 24632 1224.1 479.26 175.39 85.86 48.79 2005 2006

27256.1 30597.19 1454.93 474.44 224.21 114.1 80.23 1447.62 523.09 237.97 116.25 90.46

SOURCE: UN COMTRADE, EXIM Research

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China China witnessed a robust growth in production of vehicles in the year 2007, across all the categories. China produced nearly 8.9 million vehicles in the year 2007, as compared to 7.3 million vehicles produced in the year 2006, an

increase of 22%. Sub-segments, such as HCV, LCV and cars witnessed even-growth in production (around 22%) in 2007, while the growth in passenger car segment was almost 24% in the same year.

Exhibit 13: PRODUCTWISE PRODUCTION OF AUTOMOBILES IN CHINA (2007)

Total = 8.9 million vehicles SOURCE: OICA, EXIM Research

Table 6: EXPORT OF SELECT AUTOMOBILES FROM CHINA


US $ Million ITC HS Code 8711 8703 8704 8701 8702 8705 Commodity Name Motorcycles (including mopeds) Motor cars and other motor vehicles Motor vehicles for the transport of goods Tractors Public transport type passenger motor vehicles Special purpose motor vehicles 2003 1448.29 114.13 159.19 92.02 42.89 79.61 2004 1987.88 317.1 276.69 141.66 81.03 84.63 2005 2417.77 850.19 686.6 289.55 196.62 118.27 2006 3195.53 1536.43 1183.74 419.83 416.39 332.33

SOURCE: UN COMTRADE, EXIM Research

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Chinas share in world export of automotive products, which was negligible in 1980, has increased to 0.1% in 1990, and to 1.9% in 2007. Export share of automotive products in total merchandise exports of China has increased modestly to 1.5% in 2006 as compared to 0.6% in 2000. This indicates growing share of China in world export of automotive products. Unlike the developed countries, motorcycles (including mopeds) (HS code-8711) formed a significant portion of exports of automobiles by China, in terms of value, in the year 2006, followed by Motorcars and other motor vehicles (HS code -8713), at a distant second The worlds fastest-growing automotive market, at present, is China. The Chinese automotive market tantalizes world auto-majors with its potential for growth and profits. American auto-majors see China as a growth market that could help make up for falling profits at home. Even the Japanese and European carmakers also have similar views about China. In fact, some of the car companies are selling more cars in China than at home in Germany. China is building capacity in car manufacturing with the help of foreign investments. As per the provisions, foreign investment is permitted only with a local partner. Such provisions, along with financial backing of the Government, are expected to landscape the

automotive industry in China. The low labour cost and momentum in economic growth would also help the industry to grow. At present, there are more than a dozen state-run automakers in China. Germany Germany is the birthplace of the automobiles; in 1887, Karl Benz designed a coach fitted with an internal combustion engine, and the modern car was born. In 1901, Germany was producing around 900 cars a year; and presently, the total vehicles production in Germany is as high as 6 million units; nearly half of the cars produced in Germany are exported. Daimler-Chrysler, the result of the merger between Daimler-Benz, Germanys largest manufacturers of cars, and the American Chrysler Corporation, is the third largest car manufacturer in the world. Germany has a very robust automobile sector, which is renowned for its innovation and technology infusion in the world. Germany produced automobiles to the tune 6.2 million units in 2007, an increase of around 7% over the previous year. The production share of cars was at a staggering 92% of the total production of vehicles. Production of cars in Germany has increased by almost 5.75% in 2007, over the year 2006. Production of HCVs witnessed a growth of over 16% in the year 2007. LCVs,

57

comprising 8% share in total production, witnessed the highest growth of 24.3% in the year 2007. Vorsprung durch Technik Progress Through Technology is a famous advertising slogan, which sums up the values of the German car

industry as a whole. At present, the car industry is the cornerstone of Germanys economy with recognizable brands such as Audi, Daimler, Mercedes, BMW, Volkswagen and Porsche as its leading players.

Exhibit 14: PRODUCTWISE PRODUCTION OF AUTOMOBILES IN GERMANY (2007)

Total = 6.2 million vehicles SOURCE: OICA, EXIM Research

Table 7: EXPORT OF SELECT AUTOMOBILES FROM GERMANY


US $ Million Commodity Code 8703 8704 8701 8705 8702 8711 Commodity Name Motor cars and other motor vehicles Motor vehicles for the transport of goods Tractors Special purpose motor vehicles Public transport type passenger motor vehicles Motorcycles (including mopeds) and cycles 2003 2004 2005 2006

91510.30 99698.49 108685.50 115981.60 7229.69 5426.80 1728.01 1255.20 619.11 8633.16 7147.80 2246.20 1512.19 703.40 9764.72 10208.45 7508.49 2849.26 1433.72 942.08 8077.41 3704.94 1571.48 1073.33

SOURCE: UN COMTRADE, EXIM Research

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Mexico Mexico is ranked at twentieth position in the world automotive production, in 2007, and is expected to move up further, competing with countries such as India, USA, China and Slovakia. Production of automobiles in Mexico increased by around 2.4% in 2007, as compared to the previous year, to reach a level of 2.1 million units. There has been an increase of almost 10% in the production of cars and 2.2% in the production of LCVs in the year 2007. However, there has been a marginal decrease in the production of HCVs, by 0.2% in 2007. Export of automotive products by Mexico was valued at around US $ 45.2 billion in 2007. Mexicos share in world export of automotive

products has increased from 0.3% in 1980 to 3.8% in 2007. The automotive sector contributed around 17% of the countrys total merchandise exports in 2007. Motorcars and other motor vehicles (HS code 8703) was the major exported item with a value of over US $ 17 billion in 2006. Signing of NAFTA has changed the dynamics of the Mexican automotive industry. The automotive sector, which has a crucial berth under this agreement, became the largest traded item between Mexico and the other two signatories, Canada and the USA. Mexico has the presence of worlds best automobile manufacturers like Daimler Chrysler, General Motors, Ford, Renault-Nissan and Volkswagen.

Exhibit 15: PRODUCTWISE PRODUCTION OF AUTOMOBILES IN MEXICO (2007)

Total = 2.1 million vehicles SOURCE: OICA, EXIM Research

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Table 8: EXPORT OF SELECT AUTOMOBILES FROM MEXICO


US $ Million Commodity Code 8703 8704 8701 8705 8711 8702 Commodity Name Motor cars and other motor vehicles Motor vehicles for the transport of goods Tractors Special purpose motor vehicles Motorcycles (including mopeds) and cycles 2003 2004 2005 2006

12545.14 11840.72 13404.39 17407.49 6638.89 731.71 3.90 6.60 6668.89 1315.43 8.09 10.85 0.78 7135.33 1203.39 11.28 5.87 4.84 8510.65 1405.69 34.43 3.80 2.93

Public transport type passenger 15.80 motor vehicles

SOURCE: UN COMTRADE, EXIM Research

Category-wise Export of Automobiles in the World The growth in automobiles trade across the globe in the year 2007 has been significant in spite of the volatility in crude oil prices. As the production activity is centered in the

Asia Pacific region and in Europe, the markets for the automobiles has also been largely centered in these regions. In fact, the growth in production in these two regions has been 8.8% and 6.3%, respectively, in 2007. However, the

Table 9: CATEGORYWISE EXPORTS OF AUTOMOBILES IN THE WORLD


US $ Billion Commodity Code 8703 8701 8704 8711 8702 8705 Commodity Name Motor cars and other motor vehicles Tractors Motor vehicles for the transport of goods Motorcycles (including mopeds) Public transport type passenger motor vehicles 2003 393.34 23.56 63.48 12.04 7.27 2004 453.88 31.49 73.89 14.71 8.57 6.07 2005 485.22 34.16 81.10 16.26 9.26 7.02 2006 528.30 38.92 89.81 18.37 10.08 9.39

Special purpose motor vehicles 4.91

SOURCE: UN COMTRADE, EXIM Research

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share of Europe in world export of automotive products has been far greater at 55% as compared to Asia, which stood at 22%. The world tractor market has undergone changes in the last couple of decades. The growth of the 1970s in the worldwide farm equipment industry was stimulated by unusual demands on world agriculture. The farm equipment industry, including tractors, responded to the increase in global demand for food, by increasing the tractor production and catering to the diverse demand of horsepower capacity. In the process, the export of tractors in the world also increased significantly with a CAGR of over 18% during the period 2003-2006. Tractors HS Code 8701 World trade in tractors in the year 2006 was valued at US $ 38.92 billion. Germany, Netherlands and

USA are the largest exporters of tractors, cumulatively accounting for more than 40% of total exports in 2006, in terms of value. Export value of these three countries amounted to around US $ 16 billion in 2006. Other major exporters are France (8%), Canada (7%), Belgium (6%) and Japan and Italy (5% each). Major importers of tractors are USA (a share of 15% in world imports), Canada and France (7% each), Germany (6%), UK and Spain (5% each). Public Transport Type Passenger Vehicles HS Code - 8702 World trade in public transport type passenger vehicles (HS code 8702) was estimated at US $ 10 billion in 2006. Japan is the leading exporter in the world, with a share of 19%, and export value of US $ 1.9 billion. In the year 2006, Germany

Exhibit 16: EXPORT OF TRACTORS IN THE WORLD HS CODE - 8701 Major Exporters Major Importers

Total Value = US $ 38.92 billion


SOURCE: UN COMTRADE, EXIM Research

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Exhibit 17: EXPORT OF PUBLIC TRANSPORT TYPE PASSENGER VEHICLES IN THE WORLD HS CODE - 8702 Major Exporters Major Importers

Total Value = US $ 10.08 billion


SOURCE: UN COMTRADE, EXIM Research

exported over US $ 1.5 billion worth of public transport type passenger vehicles with a global export share of 16% in terms of value. Other major exporters are USA, Canada and Poland (6% each). Major importers include USA (8%), Germany, Canada and France (6% each), Russia (4%), Italy and Sweden (3% each). Motor Cars and Motor Vehicles HS Code - 8703 World trade in motorcars and motor vehicles HS code 8703 was valued at US $ 528 billion in 2006. Germany (with a share of 22% in world exports) and Japan (18%) are the leading exporters in 2006. Both the countries have cumulatively exported motorcars and motor vehicles worth nearly US $ 210 billion. Other major exporters are Canada and USA (7% each), France, South Korea and Belgium

(6% each), followed by Spain (5%) and UK (4%). Major importers of motorcars and motor vehicles were USA (share of 27%), Germany (9%), UK (7%), Italy (6%), France and Spain (5% each), and Canada (4%). Motor Vehicles for Transport of Goods HS Code - 8704 World trade in motor vehicles for transport of goods is valued at US $ 89.8 billion in 2006. USA, Canada and Germany together exported 35% of world export of motor vehicles for transport of goods, in terms of value. Other major exporters are Mexico (share of 10%), Japan (9%) Spain (7%), followed by France and Italy (5% each). Major importers of motor vehicles for transport of goods include USA (20%), Canada (9%), France (6%), UK (5%), Germany (5%), followed by Italy and Australia (at 3% each).

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Exhibit 18: EXPORT OF MOTOR CARS AND MOTOR VEHICLES IN THE WORLD HS CODE - 8703 Major Exporters Major Importers

Total Value = US $ 528.30 billion


SOURCE: UN COMTRADE, EXIM Research

Exhibit 19: EXPORT OF MOTOR VEHICLES FOR TRANSPORT OF GOODS IN THE WORLD HS CODE - 8704 Major Exporters Major Importers

Total Value = US $ 89.81 billion


SOURCE: UN COMTRADE, EXIM Research

Special Purpose Motor Vehicles HS Code 8705 World trade in special purpose motor vehicles (HS code 8705) was valued at US $ 9.39 billion in 2006. Germany is the largest exporter,

under this category in the world, with a share of 38%, in 2006. USA and Italy are the other major exporters cumulatively contributing nearly 23% of export share in the world. Major importers of special

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Exhibit 20: EXPORT OF SPECIAL PURPOSE MOTOR VEHICLES IN THE WORLD HS CODE - 8705 Major Exporters Major Importers

Total Value = US $ 9.39 billion


SOURCE: UN COMTRADE, EXIM Research

purpose motor vehicles are Spain and USA (8% share each in world imports), followed by Canada (7%), Russia, Netherlands and Germany (6% each).

Motorcycles (including mopeds) HS Code 8711 In the year 2006, world trade in motorcycles (including mopeds) under HS code 8711 was valued

Exhibit 21: EXPORT OF MOTORCYCLES (INCLUDING MOPEDS) AND CYCLES IN THE WORLD HS CODE - 8711 Major Exporters Major Importers

Total Value = US $ 18.37 billion


SOURCE: UN COMTRADE, EXIM Research

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at US $ 18.37 billion. Japan exported motorcycles (including mopeds) valued US $ 6.4 billion, and stood as the largest exporter in the world accounting for 35% of world exports. Other major exporters of motorcycles (including mopeds) are: China (17%), Italy (9%), USA and Germany (6% each). USA, France and Italy are among the largest importers of motorcycles (including mopeds) in the world. In the year 2006 alone, USA imported US $ 3.7 billion worth of motorcycles (including mopeds), and accounted for 22% of world imports.

for more than 80% of the total value of the production. The global auto components industry is in the process of undergoing a structural change. Industry is being influenced by strategies of OEMs, globalization, business and technology trends. In addition, the auto components industry is faced with rising input costs. Hence, there is a shift occurring in the industry with more and more companies moving to low cost destinations, to be cost efficient. Due to this trend, countries like China, India and Thailand stand to gain enormously. Several global players have already established their bases in these countries while the local companies are also upgrading themselves to face the competition. Auto-component industry is also witnessing mergers and acquisition trends. The large sized companies are acquiring small sized companies to grow even bigger as global presence is of extreme importance in this industry. There is a consolidation wave sweeping across the countries; most of the companies are hiving-off their peripheral businesses and concentrating on their core business. There is also a change in trend with more and more companies becoming as system integrators rather than being mere suppliers.

GLOBAL AUTO-COMPONENTS INDUSTRY


The trends in auto-components industry are dependent on the trends in the automobile industry, as the original equipment manufacturers are the principal customers for the auto components industry. Though there is a replacement market as well, the trends in automobiles sector still influences the growth of autocomponents industry. Since automobile industry is more concentrated in developed parts of the world, like US, Europe and Japan, the market for auto components is also concentrated in these countries. It is estimated that there are around 2500-3000 tier-I suppliers in the world, who account

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Production The production of auto components industry has surged in the recent years due to growth in automobile production. The size of world auto components industry has grown in the past principally due to two reasons.
the world automobile industry has grown over the years; as the time is passing, the replacement market is also growing.

However, the major portion of components production is meant to cater to the demand of OEMs and only a small portion goes towards replacement market. The size of replacement market can be gauged from the estimate that in the year 2001 there were over 500 million cars in the world, while on an average around 40 million new cars were added annually to the market. Thus, it may be surmised that there is a growing replacement market for auto-components in the world.

Table 10: CATEGORY-WISE WORLD EXPORT OF AUTO-COMPONENTS


(US $ Billion) Commodity Code 870840 870839 870870 870894 870893 870860 870831 870850 Commodity Name Gear boxes Other brakes & servo-brakes & parts thereof Road wheels & parts & accessories thereof Steering wheels, steering columns & steering boxes Clutches & parts thereof Non-driving axles & parts thereof Mounted brake linings Drive axles with differential whether or not provided with other transmission components Bumpers and parts thereof Suspension shock absorbers Radiators Other parts & accessories of bodies 2003 19.77 11.57 8.19 5.26 3.59 3.11 3.33 2.93 2004 23.41 13.47 9.94 6.43 4.39 3.82 4.20 3.65 2005 24.73 14.02 10.94 6.41 4.80 4.01 4.02 4.07 2006 27.59 16.12 12.45 7.40 5.52 5.01 4.93 4.74

870810 870880 870891 870829

3.18 3.31 2.87 34.40

3.88 3.95 3.39 39.48

4.06 4.03 3.37 39.54

4.70 4.55 4.28 44.63

SOURCE: UN COMTRADE, EXIM Research

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Trade Exports by the world auto components industry has grown in the past continuously in all subcategories. However, the trend may not continue in the short-term due to downtrend in automobile sales following financial sector meltdown. Nevertheless, the trend of outsourcing may further increase as the companies may be forced to outsource even critical components from other countries where the cost of production is low. Earlier critical components were produced in or around the same place of the automobile manufacturing.
Gear Boxes for Motor Vehicles HS Code 870840 In the year 2006, world import of gearboxes for motor vehicles (HS code 870840) was valued at US $ 27.6 billion, largest among the

auto-components traded in the world. Japan and Germany are the largest exporters under this product category, cumulatively accounting for more than 50% share in world exports in 2006. Export value of these two countries amounted to around US $ 14 billion in 2006. Other major exporters are USA (14%), France (9%), Canada (4%), and Mexico and Australia (2% each). Major importers of gearboxes for motor vehicles are USA (a share of 24% in world imports), followed by Canada (11%), China (8%), Mexico and Germany (6% each) and UK (5%). Brake Systems and Parts for Motor VehiclesHS Code 870839 World export of brake systems and parts for motor vehicles- (HS Code 870839) was valued at

Exhibit 22: EXPORTS OF GEAR BOXES IN THE WORLD HS CODE 870840 Major Exporters Major Importers

Total Value = US $ 27.59 billion


SOURCE: UN COMTRADE, EXIM Research

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Exhibit 23: EXPORTS OF BRAKE SYSTEMS AND PARTS FOR MOTOR VEHICLES IN THE WORLD HS CODE 870839 Major Exporters Major Importers

Total Value = US $ 16.12 billion


SOURCE: UN COMTRADE, EXIM Research

US $ 16.1 billion in 2006. Germany is the largest exporter of this product group in the world with the exports being around US $ 2.4 billion in 2006, a share of 15% in world exports. USA (12%), Japan

(11%), Italy and China (7% each) are other major exporters of brake system parts for motor vehicles in the world. As regards imports, Germany is the largest importer (with a share of 15% in world

Exhibit 24: EXPORTS OF ROAD WHEELS & PARTS & ACCESSORIES THEREOF IN THE WORLD HS CODE 870870 Major Exporters Major Importers

Total Value = US $ 12.45 billion


SOURCE: UN COMTRADE, EXIM Research

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imports), followed by USA (12%), Japan (11%), China and Italy (7% each). Road Wheels & Parts & Accessories Thereof HS Code 870870 World export of road wheels and their parts (HS code 870870) was valued at US $ 12.45 billion in 2006. China (share of 19% in world exports) and Germany (13%) are the leading exporters of autocomponents under this group in 2006. Both the countries have cumulatively exported products worth nearly US $ 3.7 billion. Other major exporters are USA (US $ 1129 million), Italy (US $ 975 million) and Belgium (US $ 559 million). Major importers of road wheels & parts & accessories include USA (22%), Germany (14%), Japan (8%) and Canada (7%).

Clutches & Parts Thereof HS Code 870893 World export of clutches and parts (HS code 870893) was valued at US $ 5.5 billion in 2006. Germany is the leading exporter of clutches and parts thereof in the world, with a share of 14%. In the year 2006, Germany exported over US $ 1.5 billion worth of clutches and their parts. Other major exporters are USA (6%), followed by France and Hungary (5% each), and UK (4%). Major importers of clutches & parts thereof include USA (14%), Germany (9%) and France (8%). Non-driving Axles & Parts Thereof - HS Code 870860 World export of non-driving axles and parts thereof was valued at US $ 5.0 billion in 2006. Germany, Belgium, Sweden, Japan and France are the largest exporters of non-driving axles and its parts in

Exhibit 25: EXPORTS OF CLUTCHES & PARTS THEREOF IN THE WORLD HS CODE 870893 Major Exporters Major Importers

Total Value = US $ 5.52 billion


SOURCE: UN COMTRADE, EXIM Research

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Exhibit 26: EXPORTS OF NON-DRIVING AXLES & PARTS THEREOF IN THE WORLD HS CODE 870860 Major Exporters Major Importers

Total Value = US $ 5.01 billion


SOURCE: UN COMTRADE, EXIM Research

the world with a cumulative share of over 55%. In 2006, Germany exported non-driving axles valued US $ 1237 million, while the exports by Belgium was valued at US $ 495 million. Other major exporters are Sweden and France (8% each).

USA and Belgium are the largest importers of non-driving axles in the world with a share of 14% and 12%, respectively, in world imports. Other major importers are Spain (10%), Netherlands, Germany and UK (8% each).

Exhibit 27: EXPORTS OF DRIVE AXLES IN THE WORLD HS CODE 870850 Major Exporters Major Importers

Total Value = US $ 4.74 billion


SOURCE: UN COMTRADE, EXIM Research

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Drive Axles - HS Code 870850 World export of drive axles (HS code 870850) was valued at US $ 4.7 billion in 2006. USA is the leading exporter of drive axles in the world, with a share of 26%. Germany, the second largest exporter of drive axles had a share of 14% in world exports valued over US $ 637 million. Other major exporters are Italy (11%), Mexico, France and Sweden (7% each). Major importers of drive axles include Canada (21%), USA (17%), Mexico (7%), UK and Belgium (6% each). Bumpers and Parts Thereof HS Code 870810 World export of bumpers and parts thereof (HS Code 870810) amounted to US $ 4.7 billion in 2006. UK is the largest exporter in the world, accounting for 15% (US

$ 685.42 million) of world exports in 2006. Other major exporters of bumpers and parts thereof are Germany (US $ 631.42 million), USA (US $ 477.59 million), and Canada (US $ 467.37 million). USA is the largest importer of bumpers and parts thereof in 2006; its import value being US $ 991 million, a share of around one-fifth of world imports. Other major importers are Germany (US $ 435 million), and Turkey (US $ 366 million). Suspension Shock Absorbers HS Code 870880 World export of suspension shock absorbers in 2006 was valued at US $ 4.6 billion. Germany is the leading exporter of suspension shock absorbers in the world, with a share of 20%. In the year 2006, Germany exported over US $ 887 million worth of suspension shock

Exhibit 28: EXPORTS OF BUMPERS AND PARTS THEREOF IN THE WORLD HS CODE - 870810 Major Exporters Major Importers

Total Value = US $ 4.70 billion


SOURCE: UN COMTRADE, EXIM Research

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Exhibit 29: EXPORTS OF SUSPENSION SHOCK ABSORBERS IN THE WORLD HS CODE 870880 Major Exporters Major Importers

Total Value = US $ 4.55 billion


SOURCE: UN COMTRADE, EXIM Research

absorbers. Other major exporters are Spain (11%), USA (10%), Belgium (9%), and Japan (8%). Major importers of suspension shock absorbers include USA (16%), Germany (11%), Canada (7%), France (6%), UK and Belgium (at 5% each).

Radiators - HS Code 870891 World export of radiators in the year 2006 was valued at US $ 4.2 billion. Germany was the largest exporter of radiators in the world. In 2006, Germany exported over US $ 575 million worth of radiators and accounted for 14% of world

Exhibit 30: EXPORTS OF RADIATORS IN THE WORLD HS CODE 870891 Major Exporters Major Importers

Total Value = US $ 4.28 billion


SOURCE: UN COMTRADE, EXIM Research

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exports. Other major exporters of radiators are USA (9%) and Mexico (7%). Major importers of radiators are USA (16%), Germany (15%), Canada (8%), France and Mexico (6% each).

IN SUM The automobile industry depends on the economic growth trends, while the auto-component industry depends on the growth trends in automobile industry. Developed regions are major producers of automobiles; however, there has

been a shift in production base to developing countries due to lowcost production and growth in market. With increasing cost pressures, automobile manufacturers are increasing their outsourcing of core components from developing countries. Though, the current trends indicate trade flow of intra-developed countries, for both automobiles and components, the trend is likely to change in view of shift in production base from developed to developing countries.

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3. SELECT TRENDS IN GLOBAL AUTOMOTIVE INDUSTRY

Addressing the Challenges of Volatility in Fuel Prices One of the major challenges of the world automotive industry is the volatile oil prices. The year 2008 witnessed crude oil prices breaching the US $ 140 mark per barrel, and thereafter slipped below US $ 40, later in the year. The volatility in oil prices does not directly affect the growth in automotive industry; however, volatility in oil prices is one of the influential factors in automobile demand. In order to address the challenge of volatility in oil prices, the automotive industry is innovating new technologies and inventing usage of alternative energy. Hydrogen cars, driven either by a combination of fuel cells and an electric motor; hybrid electric technology; electric vehicles with rechargeable batteries; or alternatively, compressed air technology to drive the pistons in a specially designed engine, are thought to be replacing fossil fuelpowered motors in the decades to come.

In hydrogen cars, fuel cell vehicles are equipped with electric motors that are powered with the electricity generated by reacting oxygen with hydrogen. As the only waste produced by a hydrogen fuel cell is water, it is environmentally friendly too. However, there are also obstacles in mass-marketing of hydrogen cars, mainly due to the cost of hydrogen production by electrolysis, which requires a comparatively expensive source of electrical energy. However, hydrogen produces five times more energy than gasoline and thereby cheaper in terms of overall operating costs. The electric car in general appears to be a way forward in principle; electric motors are far more efficient than the internal combustion engines and have a much greater power to weight ratio. They also operate efficiently across the full speed range of the vehicle, and thus are ideal for cars. However, the ecofriendly feature of electric vehicles is debated as production of electricity causes green house gas emissions.

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Table 11: TOP TEN LOW-COST ECO-FRIENDLY CARS Model / Variety / Variant Seat Ibiza, 1.4 TDI 80PS Ecomotive, diesel Volkswagen Polo Bluemotion, 1.4 TDI 80PS Honda Civic Hybrid 1.4 IMA ES Renault Megane Sport Hatch 1.5 dCi 86 Expression 3 door Citroen C3 1.6HDi Ford Focus ECOnetic 1.6 TDCi Renault New Laguna Hatch dCi 110 Skoda Fabia Estate1.4 TDI PD 80PS Peugot 207 SW, 1.6 HDi SMART Fortwo Cabrio
SOURCE: Smart Planet, UK

CO2 Emission (g/km) 99 99 109 117 118 115 130 109 119-123 113

Price 11,000 11,995 16,300 13,000 13,000 15,800 17,100 13,100 13,900 10,500

In the compressed air technology, air is compressed to drive the pistons in a specially designed engine. The French engineer, Guy Negre, has developed this engine. According to Moteur Developpement International, the company responsible for producing Air Cars, the vehicle is available in two forms: one that uses only compressed air (meant for urban usage), and another that uses both compressed air and conventional fuels, depending on the speed of the vehicle.

Emergence of New Generation Automobiles Innovation is expected to drive the automotive industry in future as the producers are involved in differentiating their products and

services. There is already growing interface of electronics and IT in the automotive functionalities, such as entertainment, navigation and safety. According to a survey conducted by IBM across the automajors, majority of them felt that by 2020 the level of innovation would be greater in software and electrical systems of automobiles. It is also expected that by 2020 the vehicles may become another node on internet, connecting with other vehicles, the transportation infrastructure, homes and businesses. According to a survey of CEOs from the automotive industry, conducted by IBM, by 2020, the level of innovation is expected to be more in the electrical systems of the vehicles, and in increasing the interface with

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software in connectivity to help the driver with better navigation conditions and to undertake additional responsibilities. However, there are challenges associated with this trend, with regard to consumer acceptance, technological development and adoption of standards.

Supply Chain Management in the World of Global Sourcing Global auto-component firms are giving greater level of thrust in supply chain management to address the challenge of cost pressures. This is particularly important in the context of global sourcing. Though there is a perceived belief that global sourcing helps in reduction of cost of components, there are logistical challenges. Thus, it is being recognised that collaboration between the OEMs and component producers are crucial to develop capabilities and solve the challenges associated with global delivery, especially in the areas of inventory management, scheduling, and timely delivery. In addition, both OEMs and suppliers view that the collaborative efforts in supply chain management enhances the capacity and performance visibility. As the OEMs compete fiercely in securing market share, they consider cooperation with the component vendors as a strategic activity for regular supply, cost reduction and continued innovation.

Customer Management Systems Earlier, automotive manufacturers had to get feedback from the customers through intermediaries, such as vendors or service workshops. This trend has been changing with the introduction of customer management systems through ICT interface. Even vehicle buyers are also browsing the net to know the features of a new model, evaluate them with the existing models, and compare the prices. Customers are also ordering the vehicles online which helps the manufacturers to have the database of the customers for interactions. IT firms are developing customer relationship management (CRM) tools that help the manufacturers to realise and optimize individual customer value, increase the post-warranty service retention, predict model demand and provide supply chain solutions. While there are increasing use of IT based solutions for establishing direct relationship with the buyers, automobile manufacturers are also strengthening there dealer management systems with strong franchisee agreement. Growing Small Car Segment The volatility in crude oil prices witnessed during 2008 reemphasized the need for small and fuel-efficient vehicles. Some of the automobile majors have plans to

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hike their R&D budget for designing of small and fuel-efficient vehicles. Added to this, is the need for reduction in prices to target the middle-income groups of population and the novice customers who are migrating from two-wheelers to four wheelers, especially in developing countries like India, where the vehicle penetration is relatively low as compared to other emerging economies. An auto research firm, CSM Worldwide Inc., has estimated that global demand for small cars will grow by 30% to 27 million vehicles a year by 2013. The small car segment account for around two-thirds of total market demand in India; the same in the case of Japan is one-third. Infact, the passenger car sales in India too have grown by a CAGR of about 17% during 2002-2007, with the growth being highly skewed

towards the small car segment. Coupled with this are the fiscal incentives the small car owners are being provided (central excise duty on small cars in India is 12% as compared to 20% for larger models*). The fast-growing small cars market has encouraged several global auto-majors (such as Volksawagen (by 2010), Renault in collaboration with Bajaj (by 2011), Toyota (by 2010) and Honda (by 2012) to launch small cars in India.

Green Motoring Automobile manufacturers are increasing the thrust on fuel efficiency than before; the initiatives are mainly through improvements in technology and introduction of new fuel variants, thereby reducing toxic emissions. It may be mentioned that China, the EU, Japan and the

Box 1: HYBRID VEHICLES AROUND US Any vehicle that combines two or more sources of power that can directly or indirectly provides propulsion power is a hybrid. For example, a moped (a motorized pedal bike) is a type of hybrid because it combines the power of a gasoline engine with the pedal power of its rider. Most of the locomotives we see pulling trains are diesel-electric hybrids. Cities like Seattle have diesel-electric buses - these can draw electric power from overhead wires or run on diesel when they are away from the wires. Giant mining trucks are often diesel-electric hybrids. Submarines are also hybrid vehicles - some are nuclear-electric and some are diesel-electric. Most hybrid cars on the road right now are gasoline-electric hybrids, although French carmaker PSA Peugeot Citroen has two diesel-electric hybrid cars in the works.
*

Indian Cars with a length of 1400 mm with engine capacities of 1200 cc for petrol and 1500 cc for diesel qualify for the excise sop on small cars. Engine capacity between 1500 cc and 1999 cc attracts a fixed duty of Rs 15,000, while those above 2000 cc had to pay Rs 20,000 more. (as on September 2008). As a part of stimulus package, the Government announced a 4% reduction in central excise duty on various items including automobiles.

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USA have already established fuel economy rules or agreements of varying stringency. The FIAs 9 declaration for green motoring has set a fuel economy target of 140 gCO 2 / km for passenger cars. Such a global fuel economy target could be used as an international benchmark to assess progress in the fuel efficiency of the global fleet of new motor vehicles. Some countries are also undertaking Green Rating of automobiles. In India, a Green Rating project was started by Centre for Science and Environment, with support from United Nations Development Programme (UNDP) and the Ministry of Environment and Forests, Government of India. The pilot project covered 35 production facilities in nine states covering over two-thirds of the vehicles

running on road during that time. The findings of the project revealed that the MNCs and domestic companies were at par in terms of overall environmental governance. Organisations like International Iron and Steel Institute (IISI) continually explores innovation that demonstrates the value of steel in automobile industry. IISI has established WorldAutoSteel, a group of members producing innovative steel for automobiles, which lead the materials revolution through research projects like the Advanced Vehicle Concepts and Ultra-Light Steel Family of Research, that help the worlds automotive industry improve the safety, affordability and environmental impact of its products. WorldAutoSteel is involved with a new project, named Future Steel

Box 2: FUTURE STEEL VEHICLE PROGRAMME WorldAutoSteel has launched a Future Steel Vehicle (FSV) Programme, which is intended to develop steel auto body concepts that addresses alternative power trains and hybrid motor systems. Under FSV programme WorldAutoSteel has developed advanced high strength steels that generates around 15 times less GHG emissions during the material manufacturing phase, which reduces a vehicles life cycle carbon footprint. The new steel concept help reduce the total body mass of the vehicle without sacrificing safety of the vehicle. FSV programme consists of three phases : Phase I includes an engineering study; Phase II develops concept designs; and Phase III builds demonstration hardware. WorldAutoSteel commissioned EDAG Engineering and Design AG, headquartered in Fulda, Germany, to complete the Phase I. Phase II would be based at EDAGs facility in Michigan.
SOURCE: WorldAutoSteel

Fdration Internationale de lAutomobile (FIA)

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Vehicle, which is intended to develop steel auto body concepts that addresses alternative power trains and hybrid motor systems.

Cross Border M&A Deals The global automotive industry is increasingly getting more active in cross border mergers and acquisition (M&A) deals. On a global basis, the number of crossborder deals has increased in the past few years, and this trend is expected to continue after the recovery of economic activity in the world. The expansion outside the home markets of some of the major automotive companies from traditional low-cost countries, such as China and India, is bringing in new capital and a fresh look at certain sectors of the automotive market. With the recession in the US market and its consequent impact in other markets, automotive assets in developed countries are becoming attractive to buyers from emerging economies. Global M&As in automotive industry is turning into a strategic option for companies looking to accelerate growth.
In addition to corporate-level alliances, functional collaborations are also increasing all over the globe. In the past, several technology and platform sharing agreements have been forged, enabling the firms to reduce product development time

and costs. According to a survey of CEOs by KPMG, the automotive industry has more number of CEOs pursuing global business designs than any other industry surveyed. The study reveals that the CEOs from automotive industry are focused on optimizing global operations, globalizing their products and brands, and changing their mix of capabilities, knowledge and assets. Some companies that have strategic plans to outperform others have even more aggressive strategies in such areas.

Entry of Private Equity Players The traditional funding model in the automotive industry is slowly being replaced with aggressive funding structures. There has been a structural change in the automotive industry with entry of private equity players in the past. Traditional and family-owned businesses were sold to private equity players and hedge funds, which are expecting more profit or investment realization from the industry. Though the business activities of private equity players have come down, following the financial market meltdown, this is expected to be revived soon, either when the market sentiments improves or once consolidation happens among the private equity players.

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Design for Recycling It is being increasingly realized that natural resources of the earth are depleting fast. Hence, there is a growing concern amongst manufacturers as also the consumers to conserve the resources; one such way is through recycling. The automobile industry is one of the pioneers in the field of recycling. Also, the rising input prices are making the automobile manufacturers to design the vehicles that can be easily recycled. The complete recycling of a vehicle is a long process that requires the involvement of many participants: dismantlers, recyclers, industries that use recycled materials, shredders etc. The success of the entire recycling chain depends largely on the efforts of automotive manufacturers to make the recycling job easier. This is a challenging task, especially when establishing viable recycling chains, organized by major categories of materials. Despite challenges, Renault has established recycling chains to facilitate the emergence and success of these paths by incorporating the demands of recycling into the design of its vehicles. Preserving Brand Identity With growing mergers and takeovers in automobile industry, players are carefully devising strategies to strengthen the

backroom operational synergies, in terms of common logistics and supply chain management, but avoid losing the brand identities. A group owning different brands prefers not to use the same platform that has same kind of technology, management, and designers to preserve the brand identity. In this sense, the automobile sector is different from monolythic branding strategies of consumer goods. To achieve this objective, players, who are aspiring to go global, are establishing design centres that help the management in image-building exercises.

Trendy Cars, Shorter Life-spans An automobile is a highlyengineered collection of complex components, each of which has its own lifespan and longevity charecteristics. While some components require frequent replacement, others that are relatively expensive are expected to have longer lifespan to justify the economics of a vehicle buyer. However, change in fashion and design trends may outweigh the pure economics, which may lead to planned obsolescence. In the world of changing fashion trends, auto manufacturers are developing new designs meeting the changing consumer preferences. More frequently the new models are

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Box 3: EUROPEAN REGULATORY FRAMEWORK ON RECYCLING Responding to the public concerns about recycling, the European Community adopted two directives that now serve as a framework for car manufacturers: European Directive 2000/53/EC In effect, since 2000, the first directive sets-forth several principles. First, automakers must consider reuse, recycling and recovery of parts and materials during the design phase for all new vehicles. This theoretical requirement is combined with a series of quotas staggered in time, the most important of which is scheduled for 2015. By that time, all end-of-life vehicles must be 85% recycled and 95% recovered. In other words, on that date, 85% of the vehicles mass must embark on a second life, 10% can be recovered for energy production and the remaining 5% can be sent to industrial landfills. In parallel, the directive requests that manufacturers boost the percentage of recycled materials used in their vehicles in order to promote the emergence and development of the recycling industry. The regulations require the marking of all parts made of polymers weighing more than 100g and all elastomer parts weighing over 200g. Moreover, the directive mentions that certain regulated substances, or substances that could be regulated, be clearly identified on the vehicle to facilitate their recycling. Finally, the directive, without really specifying the terms, mentions that it will be the responsibility of car manufacturers to pay residual costs, if any, to meet the quotas. These are, evidently, very restrictive objectives that could generate major expenses, if they are not met by 2015. European Directive 2005/64/EC The second, more recent, major directive on recycling contains two important points: a) it asks car manufacturers to present to the European authorities a recycling strategy based on proven technologies for a specific geographic area. Such a strategy should, for example, indicate what the manufacturer intends to do with polypropylene or glass in a given country, and to which recycling path the materials shall be directed. It is true that recycling cannot be mandated - it presupposes the existence of economically viable industrial support and a favourable climate. b) the directive mandates that by the end of 2008, for all new vehicle types entering the market, the manufacturers must prove that the models are indeed 85% recyclable in their previously mentioned recycling strategy. Therefore, manufacturers must prove the recycling potential of the vehicles they manufacture and market. However, it should be noted that by 2010, this requirement shall no longer apply only to new models, but to all vehicles sold, including those designed before.
SOURCE: European Union

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introduced, the shorter will be the life span of the old models, with dealers refreshing the showrooms with fresh models. Previously, automobile manufacturers used to keep a model in production for 8 to 10 years, which has come down now to 5 to 6 years. It is expected that this may further come down in near future.

auto-majors, such as Renault SA and GM are setting up design studios in India; the reason being, the cost of developing an automobile could go up to US $ 1 billion in developed countries, which in India may cost only one-fifth10.

Emergence of Design Studios As efficiency in design and manufacturing improves, vehicle manufacturers across the world are focussing on making models for niche market, though the sale would be in lower volume. This is in contrast to the earlier strategy of designing models for mass consumption. With the increase in number of models to be designed and developed, auto majors are outsourcing the designing job to independent design studios who take care of design and execution of the process management in the value chain. It is reported that some of the popular cars such as the Volkswagen Golf, BMWs M1, the Chrysler Eagle Premier, Fiats Punto, the Saab 9000, and Toyotas Lexus GS300 were designed with the help of independent design studios. The global market for independent automobile design and engineering is worth several billions and is growing. Many international
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Outsourcing Stiff competition to enhance the market share forces the OEMs in developed countries to outsource their engineering requirements to low cost countries like India. Global auto-majors such as General Motors, Ford, Toyota, BMW are increasingly outsourcing the vehicle design and engineering services to developing countries such as India, either through their captive centers or through third-party vendors. In fact, it has been a long-standing practice for American OEMs to buy components from low cost countries like India, Mexico and China, whenever their margins are under pressure. Long term trends indicate that global auto-component outsourcing from the US is expected to reach US $ 25 billion by 2015, and India, China and Mexico are likely to benefit the most from such trend. An online survey conducted by A T Kearney, revealed that around one-fourth of global auto-majors have considered India as a favourable destination for automobile-engineering outsourcing.

India Brand Equity Foundation

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Advanced RFID Practices in Auto Manufacturing RFID has been in use in the automotive industry for several years, though to a limited extent. The trend is changing now with adoption of technology in wide variety of applications, the dominant being vehicle entry and security. According to a study by ABI Research, 40% of new cars manufactured in North America are equipped with RFID immobilizers and the worldwide revenue generated by this application alone was estimated to be US $ 3.7 billion. In addition, RFID solutions

are increasingly being used in automobile manufacturing processes and supply chain applications. According to a report by Venture Development Corporation, there are compelling opportunities for RFID usage in the manufacturing and supply chain processes for improved visibility and automation, decreased shrinkage, increased collaboration and compliance with vendors. In the years to come, automobile manufacturers are expected to rapidly integrate new solutions as they become technologically and financially feasible.

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4. THE INDIAN SCENARIO

HISTORICAL BACKGROUND
Indian automotive industry has undergone constant evolution ever since its establishment. The automobile industry in India can be said to have born in 1942 when Hindustan Motors was set up, to produce motor vehicles for the Indian population. The first car that was produced in India was The Landmaster , produced by Hindustan Motors, whose upgraded version was later branded as Ambassador . Soon, Premier Automobiles was established in 1944, in collaboration with Chrysler Corporation, USA, with licenses to build Plymouth car and Dodge truck. Indias first car was rolled out of the Premier factory in 1947. In collaboration with Fiat SpA, Italy, Premier Automobiles first started assembling the Fiat 500 in India. In 1954, came the Fiat 1100, one of the most popular models during this period. Later, in 1953, the Government of India had modified the regulatory framework and ensured that only those companies, which have a manufacturing program in India,

would be allowed to operate. Seven companies including, Hindustan Motors, Premier Automobiles Ltd and Tata Engineering and Locomotives Company received approval to operate in the Indian market. During the decade of 1960s, the threewheeler industry was established in India. The decade of 1970s did not bring any significant change to the Indian automobile industry. In the decade of 1980s, Maruti Udyog Ltd. (MUL) was established and this catalyzed the growth of automobile industry significantly. The introduction of Maruti - 800 models led to the purchase of more and more vehicles by Indians. MUL (later renamed as Maruti Suzuki Ltd.) has a technological tie-up with Suzuki Motors of Japan, which ensured substantial up-gradation of technology in the Indian car industry. With the wave of liberalization creeping-in, several multi national players like Mercedes-Benz, Ford, GM, Peugeot, Hyundai and Volvo entered the Indian market. Global auto-component firms have also established their bases in India with a view to catering to the demand of

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not only the domestic market but also to the third country export markets. The later half of 1990s and early part of 21 st century saw the Indian automobile industry making extensive leap forward. Since then, Indian companies have been emerging globally competitive; they have been making significant strides outside the boundaries, through mergers and acquisitions. The evolution of Indian auto component industry is closely associated with the trends in the automobile industry due to the strong inter-industry linkages. Over a period of time, the auto components industry has grown from a size of few million US dollars to US $ 18 billion in 2007-08. Auto components manufacturers in India have established tie-ups with multi national players for technology up-gradation. Earlier a large amount of components were imported from other countries; but at present, most of the manufacturers have started sourcing components locally. Moreover, India at present, is being looked upon as major outsourcing destination by the auto-majors of the world. Many global tier-I suppliers like Delphi and Visteon have set up their bases in India.

years was on a growth trajectory aided by robust economic activity, and infrastructure development; growing middle-class population with disposable income; and availability of consumer finance facilities. The Indian automobile and auto components industry produces a wide range of models and products. The industry has witnessed high growth in the last few years, and its turnover and exports have surged over the years. The industry has also started establishing manufacturing and marketing bases abroad. However, the recessionary trends in world market and financial sector meltdown has affected the growth trend of the industry during 2008-09. The norms for foreign investment and import of technology have also been progressively liberalized over the years for manufacturing of vehicles including passenger cars in order to make this sector globally competitive. FDI upto 100% is permissible under the automatic route in the automobile industry. The import of technology/ technological upgradation, with royalty payment is also allowed under automatic route in this sector. With the gradual liberalization of the automobile sector, since 1991, the number of manufacturing facilities in India has grown progressively. There are around 15 manufacturers of passenger cars & multi utility

STATUS OF INDIAN AUTOMOBILE AND AUTOCOMPONENTS INDUSTRY


The Indian automobile and autocomponents industry in the last few

85

vehicles, around 10 manufacturers of commercial vehicles, around 15 of 2/3 wheelers, and tractors each, besides 5 manufacturers of engines. The Indian automotive industry accounts for more than 5% of national GDP. The industry provides direct and indirect employment to over 1.3 crore people. The turnover of the automobile industry was around US $ 35 billion and that for components industry was at US $ 18 billion in 2007-08. The investment in automotive industry comprising of the automobile and the auto component sectors, which was estimated to be at Rs. 50,000 crore in 2002-03, has gone upto Rs. 80,000 crore by the year 2007-08. With the saturation of traditional automobile markets, such as EU, USA and Japan, the growth opportunities for emerging markets

such as India have been increasing. India is aggressively looking forward to take advantage of its inherent strengths in automotive design and manufacturing capabilities and position itself as an export base for vehicles as well as components.

INDIAN AUTOMOBILE INDUSTRY


Indian automobile industry manufactures almost all major transport vehicles such as cars, multi-utility vehicles, light commercial vehicles, buses, trucks, tractors, motorcycles, scooters, mopeds, and three-wheelers. At present, India is the largest manufacturer of tractors, second largest manufacturer of two wheelers, fifth largest manufacturer of commercial vehicles, in the world; and fourth largest passenger

Exhibit 31: CATEGORY-WISE SHARE IN AUTOMOBILE PRODUCTION IN INDIA (2007-08)

SOURCE: SIAM, EXIM Research

86

car market in Asia. Worlds largest manufacturer of two wheelers is located in India. About two decades ago, Indian automobile market was supplier driven with few vehicular models, which has changed now to a demand driven market catering to the cross section of the society, with more than 150 models and variants by way of customer options.

Trends in Production Over the last few years there has been an increasing trend in the production of vehicles, both in value and quantity terms. The only lean patch in production was during the year 2000-01, and recently in 200708, during which the growth in absolute numbers declined marginally. The volume of production of Indian automobile industry has increased at a CAGR

of over 12% during the period 2000-01 to 2007-08. The production activity is likely to be impacted in the year 2008-09 also due to slowdown in demand and associated challenges in domestic and international markets. However, in the long term, the production growth is expected to improve again in-line with the expected growth in the economy, and it is likely that the momentum in the production may increase further with India being considered favourably as an outsourcing destination.

Production in Individual Categories Keeping in pace with the growing demand for automobiles, the production has increased over the years. However, sub segments such as scooters and mopeds have

Exhibit 32: PRODUCTION TREND IN INDIAN AUTOMOBILE INDUSTRY

SOURCE: SIAM, EXIM Research

87

witnessed decline in production. It may be mentioned that the technological advances and change in consumer preferences might be the possible reasons for the decline in demand for scooters and mopeds, and increase in demand for motorcycles. Commercial vehicle and passenger vehicle production have seen a significant rise in the last couple of years, thus implying demand growth in these segments. The two-wheelers segment constitutes the lump of the total production of automobiles in the country with a production share of almost 75% in the year 2007-08, followed by the passenger vehicles segment, with a share of around 16%. The commercial vehicles constitute 5% followed by the threewheelers at 4%. During the analysed period (2001-02 to 2007-08), the percentage growth of two wheelers production has been almost consistent among all the categories of vehicles. The production of passenger vehicles segment on the other hand has been growing slowly

during the analysed period, though consistently, perhaps due to the growing middle class population in the country, indicating the demand for cars. Following the global financial meltdown and recessionary trends in world economy, there has been a slowdown in demand and supply of vehicles due to liquidity crunch, both at producer-level and at consumerlevel. This has also been reflected in the production, domestic sales and exports of vehicles from India. During the period April-November 2008, though there has been over 6.5% growth in vehicles production (from 7.21 million units during AprilNovember 2007 to 7.68 million units during April-November 2008), there has been slowdown in production in the October and November months indicating recessionary trends in this sector.

Domestic Sales of Automobiles Domestic sales of automobiles in India have followed an increasing trend over the past few years,

Table 12: CATEGORY-WISE PRODUCTION OF AUTOMOBILES IN INDIA


(No. of units)
Category Commercial Vehicles Passenger Vehicles Two wheelers Three Wheelers 2001-02 162,508 669,719 4,271,327 212,748 2002-03 203,697 723,330 5,076,221 276,719 2003-04 275,040 989,560 5,622,741 356,223 2004-05 353,703 1,209,876 6,529,829 374,445 2005-06 391,078 1,308,913 7,608,697 434,424 2006-07 519,982 1,545,223 8,466,666 556,126 2007-08 545,176 1,762,131 8,026,049 500,592

SOURCE: SIAM

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except a marginal dip in sales in the year 2007-08. The buoyant economy, rising income, easy availability of finance, together with several other factors had contributed to the growth in automobile sales in India during the analysed period. This sales growth trend may not be continuing in the year 2008-09 due to slowdown in overall economic activity in the world and in India. It may be noted that during the period April-

November 2008, domestic sales of vehicles have grown by over 2% (from 6.46 million units during AprilNovember 2007 to 6.60 million units during April-November 2008). During the period 2002-03 to 2007-08, there has been an increasing trend in the sales of all categories of automobiles, except in the year 2007-08, wherein a dip in sales has been witnessed by most of the categories (except passenger vehicles). The sales in commercial

Table 13: CATEGORY-WISE SALES OF AUTOMOBILES IN INDIA


(No. of units) Category Passenger Vehicles Commercial Vehicles Three Wheelers Two Wheelers Grand Total 2002-03 707,198 190,682 231,529 4,812,126 5,941,535 2003-04 902,096 260,114 284,078 5,364,249 6,810,537 2004-05 1,061,572 318,430 307,862 6,209,765 7,897,629 2005-06 1,143,076 351,041 359,920 7,052,391 2006-07 1,379,979 467,765 403,910 7,872,334 2007-08 1,547,985 486,817 364,703 7,248,589 9,648,094

8,906,428 10,123,988

SOURCE: SIAM

Exhibit 33: TRENDS IN DOMESTIC SALES OF VEHICLES IN INDIA

SOURCE: SIAM, EXIM Research

89

vehicles have witnessed a marginal growth during the analysed period, though in the later few years the growth rate has accelerated. The sales of two wheelers have increased almost linearly in the last five years. The year 2007-08 remained sluggish due to model fatigue and uninviting rates. The two-wheeler ended the year with a decline of about 8% in sales compared to the previous year; sales of three wheeled goods carriers in 2007-08 fell as much as 20% on a year-on-year basis. The passenger car segment was the only bright spot, which grew by about 12%; a moderation from 22% growth witnessed in 2006-07. During the period AprilNovember 2008, there was decline

in domestic sales in all vehicle sub-categories (viz., commercial vehicles (by -9.23%), three-wheelers (by -3.37%) and passenger vehicles (by -0.5%) except two-wheelers, which witnessed a growth of 3.76%.

Trends in Production, Domestic Sales and Exports During the period 2002-03 to 200708, the production and domestic sales of various categories of automobiles have grown slowly and steadily. In the year 2007-08, exports were around 1.2 million units. Exports as a percentage of production has also increased consistently during the analyzed period.
If we look at the past trends, all the three parameters, viz., production, domestic sales and

Exhibit 34: TRENDS IN PRODUCTION, DOMESTIC SALES, AND EXPORTS OF AUTOMOBILES IN INDIA

SOURCE: SIAM, EXIM Research

90

exports, have registered a continuous growth in the last few years, except the year 2007-08. Exports as a percentage of production has also increased during the analysed period; the improvement in exports as a percentage of production from 4.89% in 2001-02 to 11.43% in 200708 shows the growing capability of the Indian automobile industry to meet the international norms and standards, and increasing acceptance of automobiles manufactured from India in the global market.

last few years. The production has increased from 1.62 lakh units in 2001-02 to 5.45 lakh units in 200708. Export of commercial vehicles has increased from 11,870 units in 2001-02 to 58,999 units in 200708.

Trends in Production, Domestic Sales, and Export of Commercial Vehicles Exhibit-36 shows the trend in production, domestic sales and export of commercial vehicles in the

Trends in Production, Domestic Sales, and Exports of Passenger Vehicles Exhibit-37 displays the production, domestic sales and export trends in passenger vehicles, in last few years. It may be noted that the production of passenger vehicles increased from 6.69 lakh units in 2001-02 to 17.62 lakh units in 2007-08. Export of passenger vehicles during the same period increased from 53,165 units to 218,418 units.

Exhibit 35: AUTOMOBILES EXPORTS AS A PERCENTAGE OF PRODUCTION (VOLUME TERMS)

SOURCE: SIAM, EXIM Research

91

Exhibit 36: TRENDS IN PRODUCTION, DOMESTIC SALES AND EXPORTS OF COMMERCIAL VEHICLES IN INDIA

SOURCE: SIAM, EXIM Research

Exhibit 37: TRENDS IN PRODUCTION, DOMESTIC SALES AND EXPORTS OF PASSENGER VEHICLES IN INDIA

SOURCE: SIAM, EXIM Research

Trends in Production, Domestic Sales, and Exports of Two Wheelers The production of two wheelers increased from 42.7 lakh units in 2001-02 to 80 lakh units in 2007-08. Motorcycles contribute almost 80% of total two-wheeler production.

Focused on value for money and economy for users, motorcycles segment remains the most sensitive one to price changes as also interest rate hikes. Exports during the same period increased from less than one lakh units to 8.1 lakh units.

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Trends in Production, Domestic Sales, and Exports of Three Wheelers Exhibit - 39 displays the trend in production, sales and exports of three wheelers in the last few years. It may be noted that the

production of three wheelers increased from 2.12 lakh units in 2001-02 to over 5 lakh units in 2007-08. Exports during the same period increased from 15,462 units to 1,41,235 units.

Exhibit 38: TRENDS IN PRODUCTION, DOMESTIC SALES AND EXPORTS OF TWO WHEELERS IN INDIA

SOURCE: SIAM, EXIM Research

Exhibit 39: TRENDS IN PRODUCTION, DOMESTIC SALES, AND EXPORTS OF THREE WHEELERS IN INDIA

SOURCE: SIAM, EXIM Research

93

AUTO COMPONENTS
The growth of auto-components industry is closely linked to the growth of automotive industry, as substantial quantity produced by auto component industry is supplied to original equipment manufacturers. Keeping in line with the growth in production/sales of automobile over the past few years the Indian auto component sector has witnessed well-pronounced growth. Auto component manufacturers supply to three kinds of buyers original equipment manufacturers (OEM), Tier-I and Tier II vendors, and the replacement market. The replacement market is characterized by the presence of several small-scale suppliers who score over the organized players in terms of excise duty exemptions and lower overheads. The demand from the OEM market, on the other hand, is dependent on the demand for new vehicles. Indian auto-components industry is being considered for outsourcing by developed countries owing to its low cost of production. During the analysed period, global automobile manufacturers and Tier-I suppliers have increased their sourcing requirements from India and many global manufacturers have also established their manufacturing centres in India, either through joint ventures or through wholly owned
11

subsidiaries. This has led to an increasing turnover of Indian autocomponents industry in the last few years. According to Auto Component Manufacturers Association of India (ACMA), the size of the Indian auto components industry is estimated to be around US $ 18 billion in 200708. Though there may be a slowdown in auto-component production in 2008-09, due to recessionary trends in the world and sluggish new vehicle demand, in the long term, India is estimated to have the potential to become one of the top auto component economies by 2020, according to a study by IBM. According to another study, the auto component industry in India has potential to grow at a CAGR of 13% to reach US $ 40 billion by 2015. Indias share in world auto components would thus grow from around 1%, at present, to over 2.5% by 2015. Domestic market for autocomponents is projected to grow at around 8-10% per annum and exports are projected to grow at over 30% per annum in the long term.11 Responding to the emerging scenario, Indian auto component industry has shown great advances in recent years in terms of product spread, absorption of newer technologies and flexibility. Indias reasonably priced skilled workforce, availability of technology-oriented workers, together with strengths

http://www.investmentcommission.in/auto_components.htm

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gained by the country in IT and electronics, build-up an environment for significant leap in the autocomponent industry.

products. ACMA classifies the autocomponents into six categories, as given in Table 14. During the year 2007-08, engine parts accounted for the bulk of production in the Indian auto components industry, followed by transmission and steering parts. The

Major Products Indian auto components industry manufactures almost all kinds of

Table 14: CLASSIFICATION OF MAJOR AUTO-COMPONENTS PRODUCED IN INDIA Engine Parts Electrical parts Driving transmission and steering parts Suspension and braking parts Equipment Others
SOURCE: ACMA

Pistons, piston rings, engine valves, fuel pumps, fuel ignition system, carburetor, bimetallic bearings. Starter motor, generators, ignition system, spark plugs. Gears, steering gears and systems, clutch plates and discs, axle assembly and wheels. Leaf springs, shock absorbers, brake assembly and facing. Head lights, wiping systems, wiping motors, electric horns and dashboard instruments. Sheet metal parts, pressure discs, castings, glass, rubber and plastic parts.

Exhibit 40: SEGMENT-WISE SHARE IN PRODUCTION OF AUTO-COMPONENTS IN INDIA

SOURCE: ACMA, EXIM Research

95

combined production in these two categories was around 50% of the total value of the production.

Turnover The turnover of the auto component industry, over a period of time, has grown impressively. During the year 1996-97, the turnover of the sector was US $ 3.3 billion, which breached the

US $ 10 billion mark, to reach US $ 12 billion, in 2005-06. In the year 2007-08, the turnover of the auto component sector has reached US $ 18 billion.

Investment in Auto Components Industry In the last few years, the auto components industry has attracted significant volume of investment.

Exhibit 41: TURNOVER OF AUTO-COMPONENTS

SOURCE: ACMA, EXIM Research

Exhibit 42: INVESTMENTS IN THE AUTO-COMPONENTS SECTOR IN INDIA

SOURCE: ACMA, EXIM Research

96

Investments in the industry have reached US $ 7.2 billion in 200708, as the industry continued to invest in capacity enhancements and new green-field projects to cope with the increasing demand. The trend in investment is an indication of the growth in Indian auto-component industry, building upon the achievements, and simultaneously positioning India as a manufacturing hub for auto components. Though majority of the investment plans of the autocomponent industry is being postponed due to sluggish demand, the investment in the components industry is likely to grow in the long term, as the industry plans to expand its manufacturing base in the days to come with greater interests from both the domestic as well as foreign manufacturers.

On the quality and productivity front, auto component industry maintained its leadership with more than 95% companies being certified with ISO 9000 system standards and more than 70% of the companies are certified as per ISO/TS 16949 standards. This industry has also the distinction of having the maximum number of (11) Deming awardwinning companies.

Exports Global OEMs and Tier 1 companies have identified India as one of the major countries for sourcing their requirements of auto components for their global production. In the long term, Indian auto-component industry is poised to grow with outsourcing of not only the manufacturing of components, but

Exhibit 43: TRENDS IN EXPORT ORIENTATION OF INDIAN AUTO COMPONENTS INDUSTRY Exports as % of Turnover

SOURCE: ACMA, EXIM Research

97

also design and R&D in the new era of automobiles demand. The auto component industrys export growth has been around 25% during the year 2007-08 as compared to the previous year, with exports valued at US$ 3.6 billion.

India is also an importer of autocomponents; according to the Ministry of Heavy Industries, Government of India, the total imports of auto components by India in the year 2006-07 were US $ 3.3 billion (Rs. 14,644 crore).

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5. INDIAS EXPORTS OF AUTOMOBILES & AUTO-COMPONENTS

AUTOMOBILES
Indian automobile industry has evolved into a transnational player both in exports as also setting up of assembly and manufacturing operations abroad. India is an exporter of all kinds of vehicles. The export orientation of the industry has grown over the analysed period, from a level of 3.5% in 2001-02 to over 11% in 2007-08. During the period 200102 to 2007-08, the automobile exports from India witnessed a CAGR of over 31%. This shows Indias capacity in catering to the

demand of not only the domestic market but also the demand of other countries as well. The increase in exports from India corroborates the industrys efforts to upgrade the production process, adoption of high-end technologies, and meeting the international quality standards.

Category-Wise Exports India exports almost all types of vehicles; among the major categories of export items, in 200708, two wheelers accounted for around two-third share in total vehicles exports, in terms of

Exhibit 44: EXPORT ORIENTATION OF THE INDIAN AUTOMOBILE SECTOR

SOURCE: SIAM, EXIM Research

99

number of units. Infact, two wheelers have, over the years, been the top most exported item among the various automobile segments, in terms of number of units. Passenger vehicles, three wheelers and commercial vehicles account for 17.6%, 11.3% and 4.7% share, respectively.

Nearly half of the two-wheeler exports in 2007-08 were to Asia region. While a sizeable volume of passenger vehicles were exported to Europe, other regions such as Africa and Latin America were also the target regions for export of passenger vehicles by India.

Table 15: CATEGORY-WISE EXPORTS OF INDIAN AUTOMOBILES


Category Commercial Vehicles Passenger vehicles Two wheelers Three-wheelers Total SOURCE: SIAM 2001-02 11,870 53,165 104,183 15,462 184,680 2002-03 12,255 72,005 179,682 43,366 307,308 2003-04 2004-05 17,432 129,291 265,052 68,144 479,919 29,940 166,402 366,407 66,795 629,544 2005-06 40,600 175,572 513,169 76,881

(No. of units)
2006-07 49,537 198,452 619,644 143,896 2007-08 58,999 218,418 819,847 141,235

806,222 1,011,529 1,238,499

Exhibit 45: CATEGORY-WISE SHARE IN VEHICLE EXPORTS IN INDIA (2007-08)

1.24 million vehicles

SOURCE: SIAM, EXIM Research

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Table 16: EXPORT OF SELECT AUTOMOBILES IN VALUE-TERMS FROM INDIA


US$ Million Commodity Code 8701 8702 8703 Commodity Name Tractors Public transport type passenger motor vehicles Motor cars & other motor vehicles for transport of persons Motor vehicles for transport of goods Special Purpose Motor Vehicles Chassis fitted with engines Motorcycles (including mopeds) 2004-05 131.59 141.16 766.36 2005-06 223.85 175.84 938.85 2006-07 285.69 202.31 1133.86 2007-08 376.09 253.84 1385.46

8704 8705 8706 8711

157.12 1.95 85.99 245.28

197.36 11.87 129.49 252.9

192.32 9.63 120.33 305.47

257.29 10.79 161.57 293.34

SOURCE: DGCIS, EXIM Research

In value terms, passenger cars (Motor cars & other motor vehicles for transport of persons HS Code 8703) are the largest export item, followed by tractors (HS Code 8701), motorcycles (including mopeds) (HS Code 8711), other motor vehicles for transport of goods (motor vehicles for transport of goods HS Code 8704) and buses (Public-transport type passenger motor vehicles HS Code 8702). During the last few years, passenger cars have consistently been the largest export item among Indias vehicle exports, in value terms, followed by two wheelers and tractors.

Tractors Indias export of tractors (HS Code - 8701) was valued US $ 376 million in the year 2007-08. More than 50% of the tractors are being exported to USA. Nepal, Bangladesh and Sri Lanka are amongst the developing countries accounting for 5% each in Indias total export of tractors in 2008-09. Buses Indias export of buses (Public transport type passenger motor vehicles (HS Code -8702) were valued at US $ 253.84 million in 2007-08. Asian countries are the

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Exhibit 46: EXPORTS OF TRACTORS FROM INDIA (2007-08) (HS CODE - 8701)

SOURCE: DGCIS, EXIM Research

major destination for Indias export of buses; UAE alone account for 35% of Indias total export of buses, followed by Sri Lanka and Qatar with 14% share, Kuwait (5%),

Ghana, Saudi Arabia and Bangladesh at 4% each. Apart from Ghana, Mozambique and Nigeria are other important destinations for Indian buses.

Exhibit 47: EXPORTS OF PUBLIC-TRANSPORT TYPE PASSENGER MOTOR VEHICLES FROM INDIA (HS CODE - 8702) (2007- 08)

SOURCE: DGCIS, EXIM Research

102

Passenger Cars Export of passenger cars (Motor Cars & Other Motor Vehicles - HS Code 8703) during the year 200708 was valued at US $ 1385.46 million. Italy is the largest market for passenger cars, a share of 11% in total exports from India. A substantial percentage of passenger cars are being exported to African countries like Algeria (10%), Egypt (7%), and South Africa (5%). In the Asian region, Sri Lanka (5%) is the major destination for passenger cars, while in Latin America region Columbia and Mexico (4% each) are the major markets. Motor Vehicles For Transport of Goods Indias export of motor vehicles for transport of goods (HS Code 8704) was valued at US $ 257.29 million

in 2007-08. Sri Lanka and South Africa are the leading markets for India for export of motor vehicles under this category with a share of 12% each, followed by Singapore (9%), Italy (8%), Turkey and Ghana (6% each), and Bangladesh (5%).

Special Purpose Motor Vehicles This category consists mainly of crane lorries, fire fighting vehicles, concrete mixer lorries, etc. Indias exports of special purpose motor vehicles rose by around US$ 1 million from US$ 9.63 million in 2006-07, and to US$ 10.79 million in 2007-08. Singapore remained the primary export destination with a share of over 41%. Major export destinations in Africa were Ghana (14%), Kenya (7%), Morocco and Zambia (4% each) and Nigeria and Mozambique (2% each).

Exhibit 48: EXPORTS OF MOTOR CARS & OTHER MOTOR VEHICLES FROM INDIA (2007-08) (HS CODE 8703)

US $ 1385 Million SOURCE: DGCIS, EXIM Research

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Exhibit 49: EXPORTS OF MOTOR VEHICLES FOR TRANSPORT OF GOODS FROM INDIA (HS CODE - 8704) (2007-08)

SOURCE: DGCIS, EXIM Research

Exhibit 50: EXPORTS OF SPECIAL PURPOSE MOTOR VEHICLES FROM INDIA (HS CODE - 8705) (2007-08)

SOURCE: DGCIS, EXIM Research

Two wheelers Two wheelers (Motorcycles including mopeds - HS Code 8711) are the third largest export item, in value terms, in the

automobile export basket of India. A large part of this segment is exported to Asian countries like Sri Lanka (19%), Colombia (18%), Nigeria (11%), Nepal (9%),

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Exhibit 51: MOTORCYCLES (INCLUDING MOPEDS) AND CYCLES FITTED WITH AN AUXILIARY MOTOR, WITH OR WITHOUT SIDE-CARS; SIDE-CARS FROM INDIA (HS CODE 8711) (2007-08)

SOURCE: DGCIS, EXIM Research

Philippines and Bangladesh each with 8%. Apart from Nigeria in Africa, other significant importers of two wheelers from India are Kenya (4%), Guinea (3%), Tanzania and Angola at 2% each and Uganda, Namibia and Guatemala at around 1% each.

AUTOCOMPONENTS Exports India has been emerging as a significant exporter of auto components since the last decade. From a level of US $ 330 million in 1997-98, exports of autocomponents have reached to over US $ 3.6 billion in 2007-08. Export orientation of Indian autocomponent industry has also increased from a level of 11% in 1997-98 to over 20% in 2007-08.

Export of auto components have grown at a CAGR of 24% during this period. India exports its auto components to almost every part of the world, the major markets being developed countries such as USA, Germany and UK. Some of the important Asian markets for autocomponents include Bangladesh, Sri Lanka and Nepal. As the need for cutting down the cost is increasingly being felt among the automobile firms from the developed countries, they seek to either set up their operations or source their component requirements from developing countries. Indian auto-component manufacturers are increasingly gearing themselves to utilize this opportunity. According to ACMA, the export potential of auto components

105

Exhibit 52: TRENDS IN EXPORTS OF INDIAN AUTO-COMPONENTS

SOURCE: ACMA

industry is expected to post a long term CAGR of around 24% to reach US $ 20-22 billion by 2015.

Region-wise Distribution of Indian Auto Components Exports In 1990s, exports of India to OEMs and Tier I suppliers accounted for around 35% of total exports, and

the aftermarket sales accounted for 65%. In 2007-08, Indias exports to OEMs and Tier I suppliers accounted for 75%. Europe and North America regions are Indias two major export destinations, cumulatively accounting for around two-thirds of Indias total auto components exports to OEMs and Tier I suppliers. Asia (including

Exhibit-53: REGION-WISE BREAK-UP OF EXPORTS TO OEMS AND TIER I SUPPLIERS BY INDIA (2007-08)

SOURCE: ACMA

106

Table 17: EXPORT OF SELECT AUTO-COMPONENTS IN VALUE TERMS FROM INDIA


US $ million HS Code 870810 870829 870839 870840 870850 870860 870870 870880 870891 870894 Commodity Bumpers & parts thereof Other parts & accessories of bodies Other brakes & servo-brakes & parts thereof Gear boxes Drive axles Non-driving axles & parts thereof Road wheels Suspension shock absorbers Radiators Steering wheels, steering columns & steering boxes 2004-05 87.54 6.34 15.60 21.16 5.32 3.21 19.70 8.47 13.42 3.69 2005-06 118.65 10.99 28.20 87.67 8.02 9.28 18.29 13.68 23.36 4.77 2006-07 156.29 9.97 63.34 116.20 37.37 13.79 20.05 15.88 25.89 4.82 2007-08 131.22 40.25 89.84 135.66 76.58 6.29 28.67 15.17 30.35 5.74

SOURCE: DGCIS, EXIM Research

Middle East) and Africa account for a share of around 19% and 11%, respectively. The rest of the regions accounted for around 4% of Indias total exports of auto-components.

It may be mentioned that most of the exports of bumpers are towards developed countries of America and Europe, and the market share of Asia in Indias exports under this category is not much. Other parts & accessories of bodies Indias export of other parts & accessories of bodies was valued at US $ 40 million in 2007-08 with exports being highly skewed towards South Korea which has a share of 58%. Developed countries like USA, Germany, Australia, Spain and UK are the other major markets for Indias export of parts & accessories of bodies.

Category-wise Autocomponents Exports from India


Bumpers Exports of bumpers (HS Code 870810) from India to the world were valued at around US $ 131 million in 2007-08. USA is the largest market for export of bumpers from India with a share of 30%, followed by Mexico (13%), South Africa (7%) and Italy (6%).

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Exhibit 54: EXPORT OF BUMPERS AND PARTS THEREOF BY INDIA HS CODE 870810 (2007-08)

SOURCE: DGCIS, EXIM Research

Exhibit 55: EXPORT OF OTHER PARTS & ACCESSORIES OF BODIES BY INDIA HS CODE 870829 (2007-08)

US $ 40 Million SOURCE: DGCIS, EXIM Research

Brakes and Servo-Brakes and Parts Thereof Indias export of brakes and parts of brakes (HS Code 870839) was valued at US $ 89 million in the

year 2007-08. USA is the largest export market with a share of 26%, followed by UK (23%), Mexico (12%), Italy (6%), and the Netherlands (4%).

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Exhibit 56: EXPORT OF OTHER BRAKES AND SERVO-BRAKES AND PARTS THEREOF BY INDIA HS CODE 870839 (2007-08)

SOURCE: DGCIS, EXIM Research

Gear Boxes Exports of gear boxes (HS Code 870840) from India to the world were valued at around US$ 135.66 million in 2007-08. South Africa is the largest market for export of gear boxes from India with a share of 24%, followed by Thailand and Argentina at 22% each. Singapore and Italy account for a share of 7% each. Drive Axles Indias export of drive axles was valued at US $ 76 million in 200708. Developed countries are the major markets for Indias export of drive axles. USA is the largest market with a share of 35% in total exports, followed by Italy (17%), UK (15%), and France (14%).

Non Drive Axles Exports of Non Drive Axles (HS Code 870860) from India to the world were valued at just around US$ 6 million in 2007-08. Italy is the largest market for export of non-drive axles from India with a share of 28%, followed by Turkey (17%) and Sweden (14%). Amongst the Asian countries China and Indonesia have a share of 4% each. Road Wheels and Parts & Accessories Thereof Export of road wheels and parts and accessories thereof HS Code 870870 from India in the year 2007-08 was valued at US $ 28.67 million. UK is the largest market for India for export of road wheels and

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Exhibit 57: EXPORT OF GEAR BOXES BY INDIA HS CODE 870840 (2007-08)

SOURCE: DGCIS, EXIM Research

Exhibit 58: EXPORT OF DRIVE AXLES BY INDIA - HS CODE - 870850

SOURCE: DGCIS, EXIM Research

parts, with a share of 41%, followed by USA (14%), Australia (8%) and Egypt (6%). In fact, most of the

exports of radiators from India are towards the developed countries in the world.

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Exhibit 59: EXPORT OF NON DRIVE AXLES BY INDIA- HS CODE - 870860

SOURCE: DGCIS, EXIM Research

Exhibit 60: EXPORT OF ROAD WHEELS & PARTS & ACCESSORIES THEREOF BY INDIA - HS CODE 870870 (2007-08)

SOURCE: DGCIS, EXIM Research

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Radiators Radiators - HS Code 870891 worth US $ 30 million were exported from India during 2007-08; an increase of around US $ 5 million as compared to 2006-07. Majority of the exports were to the developed economies, like USA (15%), Netherlands (14%), Germany (9%) and UK (8%).

Suspension and Shock Absorbers Indias export of suspension and shock absorbers was valued at US$ 15.67 million 2007-08. USA is the largest market for India with a share of 27%, followed by Italy (10%), Germany and Sri Lanka (7% each) and UAE (6%).

Exhibit 61: EXPORT OF RADIATORS BY INDIA - HS CODE 870891 (2007-08)

US $ 30 Million SOURCE: DGCIS, EXIM Research

Exhibit 62: EXPORT OF SUSPENSION SHOCK ABSORBERS BY INDIA HS CODE 870880 (2007-08)

SOURCE: DGCIS, EXIM Research

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IN SUM
On the whole, exports by the Indian automotive industry have increased over the years. As per the data collated by WTO, Indias share in world automotive exports has increased from 1.4% in the year 2000 to almost 2.4% in 2007. Among automobiles, though two wheelers formed the largest export item in terms of volume (number of units), passenger-type motorcars category was the largest exported item in terms of value. In the autocomponent industry, gearboxes

have emerged as the largest export item in terms of value during the year 2007-08. During 2006-07, bumpers were the largest export item in terms of value, which have slipped to the second position in 2007-08. It is also worth noting that Indias automobile exports are mainly confined to the developing countries in Asia, Africa and Latin America, whereas Indias autocomponent exports are skewed towards the developed nations of Europe and USA.

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6. EXPORT COMPETITIVENESS OF INDIAN AUTOMOTIVE INDUSTRY

It may be mentioned that the automotive industry happens to be the cornerstone of some of the most influential economies in the world, like USA and Japan. Indian automotive industry has also been increasingly playing similar role contributing to the economic and industrial development in the country. In the last few years, Indian automotive market has emerged as one of the most vibrant markets in the world, with increasing number of

technology transfers, foreign investments and R&D. Though there is slowdown in demand for automobiles due to recessionary conditions, in the long term there are opportunities for Indian automotive industry with an increasing trend in outsourcing of engineering design, assembly and manufacturing. As the world economy recovers from the recessionary trends of 2008, the Indian automotive industry would progress at the backdrop of a

Exhibit 63: GROWTH COMPARISON OF THE INDIAN AUTOMOBILE INDUSTRY VIS--VIS THE WORLD

SOURCE: OICA, EXIM Research

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relatively healthy economy and buoyed by factors like quality manpower and lower operaitonal costs. Global majors may increasingly look towards countries like India in order to safeguard their margins and thereby making India an export hub. The growth rate12 in vehicles production achieved by the Indian automobile industry has been outstanding as compared to the growth rate achieved by the global automobile industry. Except in the year 2000, when there was a slump, the Indian automobile industry has performed better than the global average, at the back of both domestic as well as global demand. In the auto-components segment, steered by the countrys high engineering skills, established production lines, growth in domestic automobile market, and competitive manufacturing costs, global auto majors have increasingly ramped up the value of components they source from India. Over 20 OEMs have set up their International Purchase Offices (IPOs) in India to source their global component requirements. These include firms like General Motors, Ford Motor Company, Cummins International, Bosch, Volkswagen, BMW, MAN (trucks) and JCB (earthmoving equipment), among others. The number of OEMs present in India is expected to double by the year 2010.
12

In such a scenario, it may be pertinent to analyse the export competitiveness of Indian automobile and auto-component industry in the international market. In this chapter, an attempt has been made to analyse the export competitiveness of India, in select automotive sub-segments, in order to identify the potential products and their prospects in select markets / regions. The markets / regions identified for this purpose were USA and Europe for auto-components, and developing countries of Africa, Asia and Latin America for automobiles. The competitiveness of Indian automotive industry in the identified markets have been analysed using some of the competitiveness indicators, such as penetration index, contribution index, and specialization index. These indices are explained in Box - 4.

AUTOMOBILES
India is not a major exporter of automobiles in the world; however, Indias automobile exports have grown during the analysed period. India is ranked at seventh position in the world with regard to export of chassis fitted with engines (HS code 8706); tenth position with regard to export of work trucks (HS code 8709), eleventh position with regard to export of motor cycles and mopeds (HS code 8711),

Based on data collated by OICA and do not include two wheelers

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Box 4: INDICATORS OF INTERNATIONAL COMPETITIVENESS To evaluate the competitiveness of Indias automotive industry, the study examined its performance in select markets (such as USA and Europe for autocomponents; and developing countries of Africa, Asia and Latin America for automobiles) by assessing certain indicators of Indias trade with the respective regions and countries: - Penetration (Pi) = Share of Indian exports (X) of product i to the specific region/country, relative to the region/country imports (M) of product i: Pi = Xi / Mi* - Contribution (Ci) = Indian exports (X) of product i to the specific region/ country, as a share of total Indian exports to the specific region/country: Ci = Xi / X - Specific region/country share (Si) = Specific region/country imports (M) of product i relative to specific region/countrys total imports. An increase in Si from one period to another implies that product i was relatively dynamic in specific region/country demand for foreign products: Si = Mi* / M - Specialization (Ei). Obtained by dividing Ci by Si. Corresponds to the indicator of revealed comparative advantage of Indias automotive sector; comparative advantage in product i if the indicator Ei is higher than 1.0: Ei = (Xi / Mi*) / (X / M) Where: Xi = Indian exports of product i

Mi* = Specific region/country imports of product i X M = Total exports from India to the specific region/country = Total imports of the specific region/country

fifteenth position with regard to export of public transport passenger vehicles (HS code 8702), and seventeenth position with regard to export of tractors (HS code 8701). Vehicle exports of India (in most of the sub-categories) are directed towards developing countries of Asia, Africa and Latin America. For

example, about 90% of Indias export of public transport type vehicles (HS code 8702), special purpose vehicles (HS code 8705), motor cycles (HS code 8711), and goods transport vehicles (HS code 8704); nearly three-fourth of Indias export of chassis (HS code 8706), and bodies and parts of vehicles (HS code

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8707); and over 50% of Indias export of passenger cars are directed towards these countries. Developed country markets, such as USA and Europe, are principal markets for tractors and passenger cars, accounting for a share of over 50% and 40% respectively. Thus, in this study, analyses have been carried out on the export competitiveness of Indias automobile exports to the developing country regions of Latin America, Africa and Asia.

in 2007. Other countries involved in the production of automobiles, albeit in small numbers, are Botswana, Kenya, Libya, Morocco, Nigeria and Sudan. This, in fact, provides India the opportunity to explore such a lucrative market in the automobile industry, especially when global companies like General Motors and Chevrolet have already started operations and Chinese automobile manufacturer, Cherry, is on the verge of entering the market soon. The analysis of international competitiveness of Indian automobile industry in Africa market reveals that the penetration index has grown over the years, between 2001 and 2006, for sub-segments such as tractors, motor cars, transport vehicles for goods, special purpose vehicles, and chassis fitted with engines. The growth in penetration index, however, has not been much for public transport type passenger vehicles, while it has come down for motorcycles. The contribution index has also increased in these sub-categories (except the public transport type passenger vehicles, and motorcycles), indicating growing share of these categories in Indias exports to Africa. The share of import of identified categories of vehicles in total import of Africa has also increased over the years indicating growing African market. As a result of these trends,

Africa Region Doing business in Africa was once perceived to be difficult and complex. However, with improvement in the business environment, infrastructure growth and investment climate, the African nations are competing with other developing regions in attracting business entities for trade and investment. According to African Economic Outlook 2008, the continent experienced high economic growth, averaging about 5.7% in 2007, and projected to maintain a growth of over 5% in 2008 and 2009. Countries like Egypt (12.5%) and Morocco (25.9%) had witnessed significant increase in production of automobiles in 2007, as compared to 2006. Though, the automobile production in South Africa witnessed a negative growth rate, it remained the largest producer of automobiles in the African region,

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Table 18: INDICATORS OF COMPETITIVENESS OF AUTOMOBILE EXPORTS TO AFRICA


Penetration (Pi) Automobile Segment Tractors Public Transport Type Passenger Vehicles Motor Cars and other motor vehicles Motor Vehicles for Transport of Goods Special Purpose Motor Vehicles Chassis fitted with engines Motorcycles (including mopeds) 2001 0.19 1.05 0.52 0.57 0.23 1.65 9.83 2006 3.03 1.08 3.63 1.51 0.94 15.09 4.58 Contribution (Ci) 2001 0.04 0.22 0.79 0.39 0.02 0.03 0.78 2006 0.78 0.12 5.48 1.15 0.09 0.72 0.65 Africas Share (Si) 2001 0.31 0.35 2.31 1.04 0.13 0.03 0.12 2006 0.75 0.31 4.42 2.22 0.29 0.14 0.41

(%)

Specialisation (Ei) 2001 12.16 68.93 34.15 37.57 14.81 108.14 643.29 2006 103.66 36.83 124.00 51.55 32.21 515.68 156.62

SOURCE: UN Comtrade; EXIM Research

Table 19: THE AFRICAN MARKET FOR SELECT AUTOMOBILES


Segment Tractors Public Transport Type Passenger Vehicles Motor Cars and other motor vehicles Motor Vehicles for Transport of Goods Special Purpose Motor Vehicles Motorcycles (including mopeds) Major Markets for India in Africa South Africa, Sudan, Morocco, Algeria, Nigeria Algeria, Nigeria, Egypt, South Africa, Angola Algeria, South Africa, Egypt, Nigeria, Morocco South Africa, Egypt, Algeria, Sudan, Angola Algeria, South Africa, Angola, Nigeria, Egypt Nigeria, South Africa, Egypt, Togo, Angola Competing Countries Germany, USA, France, Italy, Netherlands Japan, UK, Brazil, Korea, China Germany, Japan, France, Korea, Spain, China Japan, Saudi Arabia, France, China France, Germany, China, USA, Italy China, Japan, Germany, USA, Austria

SOURCE: UN Comtrade; EXIM Research

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the specialization index has grown for all types of vehicles, except public transport type passenger vehicles and motorcycles. Major export markets for Indian automobiles in the African region for the select vehicle segments and the competing exporters in the region are tabulated in Table-19. Competing exporters in these markets are mainly European countries (such as Germany, France and Italy), USA and Japan. Among developing countries, China is a major competitor for India.

emerging stronger as a low cost destination for the manufacturing industry. Indias automobile penetration into the Latin American region is slowly gaining momentum. Indian automobile manufacturers are eyeing the Latin American market with greater anticipation of increasing their market share in the region. With notable ventures, such as TataMarco Polo, and Marutis entry in the remanufactured car market, business cooperation in the automobile segment between India and Latin America are stronger than before. The analysis of international competitiveness of Indian automobile industry in Latin America region reveal that the penetration index has grown over the years, between 2001 and 2006, for subsegments such as tractors, motor cars, and motor cycles. The growth in penetration index, however, has not been much for chassis fitted with engines, and special purpose motor vehicles, while it has come down for motor vehicles for goods transport, and public transport type passenger vehicles. The contribution index has also increased in the sub-categories where penetration index has grown (and vice versa), indicating growing share of these categories in Indias exports to Latin America. The share of import of identified categories of vehicles in total import of Latin

Latin America Region The Latin American market has been changing and is becoming more and more attractive to Indian business, despite the prevailing geographical distance and communication challenges. The Governments of Latin American countries have, over the years, liberalised their markets and reduced import tariffs. They are also privatizing the state enterprises, and have prioritized modernization and improvement of existing infrastructure and creation of new infrastructure. Countries like Brazil, Chile, Mexico, Colombia and Argentina have been playing important role in Indias trade with the region. Brazil is being considered as one of the emerging economies of the world. Similarly, Mexico, with its close association with North America, is also

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Table 20: INDICATORS OF COMPETITIVENESS OF AUTOMOBILE EXPORTS TO LATIN AMERICA


Penetration (Pi) Automobile Segment Tractors Public Transport Type Passenger Vehicles Motor Cars and other motor vehicles Motor Vehicles for Transport of Goods Special Purpose Motor Vehicles Chassis fitted with engines Motorcycles (including mopeds) 2001 0.02 0.10 0.05 0.09 0.00 0.00 6.96 2006 0.37 0.02 0.87 0.00 0.01 0.02 6.23 Contribution (Ci) 2001 0.01 0.04 0.37 0.26 0.00 0.00 1.59 2006 0.16 0.00 4.30 0.00 0.00 0.00 1.97 Latin Americas Share (Si) 2001 0.18 0.18 3.37 1.14 0.08 0.08 0.10 2006 0.31 0.12 3.55 1.22 0.08 0.10

(%)

Specialisation (Ei) 2001 5.57 23.96 11.09 22.44 0.00 0.00 2006 51.12 3.19 121.17 0.02 1.99 2.86 867.74

0.23 1661.75

SOURCE: UN Comtrade; EXIM Research

America has also increased over the years in most of the sub-categories, indicating growing Latin American market. As a result of these trends, the specialization index has grown for all types of vehicles, except the public transport type passenger vehicles, motor vehicles for transport of goods, and motorcycles. Major Indian markets in the Latin American region for select vehicle segments and the competing exporters in the region are tabulated in Table - 21. It may be noted that Venezuela, Brazil, Mexico, Argentina, and Chile are among the major export destinations of vehicles from India to Latin America. Competing exporters in these

markets are mainly USA, Latin American countries (such as Brazil and Mexico) and Japan. Among developing Asian countries, China and Korea are major competitors for India.

Developing Asia Region The Asian growth story has been phenomenal, especially after their bounce-back from the financial crisis in late 90s. Developing Asias economy is expected to expand by 7.6% in 2008, and declining further to 7% in 2009. Inspite of a projected slowdown in growth, the growth projections for the next two years are reflecting a reasonable performance in an unsteady global economy.

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Table 21: THE LATIN AMERICAN MARKET FOR SELECT AUTOMOBILES Segment
Tractors

Major Markets for India in Latin America Venezuela, Argentina, Colombia, Chile, Mexico Venezuela, Chile, Mexico, Cuba, Brazil Mexico, Venezuela, Argentina, Brazil, Chile Mexico, Chile, Venezuela, Brazil, Argentina Venezuela, Brazil, Mexico, Chile, Argentina Colombia, Argentina, Mexico, Brazil, Venezuela

Competing Exporters Brazil, Uruguay, Mexico, USA, UK Brazil, Japan, Netherlands, China, Argentina USA, Brazil, Korea, Japan, Mexico, Argentina USA, Brazil, Mexico, Argentina, Uruguay Argentina, Germany, USA, Spain China, Brazil, USA, Japan, Colombia

Public Transport Type Passenger Vehicles Motor Cars and other motor vehicles Motor Vehicles for Transport of Goods Special Purpose Motor Vehicles Motorcycles (including mopeds)

SOURCE: UN Comtrade; EXIM Research

The automotive industry has high potential, both with regard to production and consumption, in the developing Asian region, as there would be growing linkages between the region, especially the two large economies of the region, viz., China and India, with other parts of the world. In the long term, countries of the Asian region are also expected to increase the market share, in global vehicle production and sales, at the cost of developed regions of the world, viz., USA and EU. Countries in the developing Asia, especially China and India, may also emerge as hubs for vehicle design and R&D.

Indias automobile penetration in the developing Asian market has been quite modest across all the segments. This could be seen from the growing penetration index during the analysed period (years 2001 and 2006), in almost all segments, some with greater intensity and some with lesser intensity. The contribution index has also grown in all vehicle segments, indicating growing share of these vehicle segments in Indias exports to developing Asia. However, the share of import of identified categories of vehicles in total import of developing Asia has more or less remained constant or marginally improved over the analysed period,

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in most of the sub-categories, indicating growing manufacturing and self-sufficiency in the region. In spite of such a trend, the specialization index has grown for all types of vehicles (except special purpose vehicles), with some categories, such as tractors, public transport type passenger vehicles, chassis fitted with engines, and motorcycles well pronounced than the others. Public transport and motorcycles are popular means of transportation in developing Asian countries, and Indias penetration in these two segments has been quite high in the region. However Indias export of these categories of vehicles,

especially motorcycles, are largely confined to countries like Sri Lanka, Bangladesh, Nepal and Philippines; whereas Indonesia, Hong Kong and Vietnam (for motorcycles), and Thailand and Malaysia (for passenger transport vehicles) remained almost unexplored, though these countries import large volume of vehicles. Many Asian countries are generally agrarian economies, and thus the demand for tractors remains promising. India has been exporting tractors to countries like Sri Lanka and Bangladesh, but penetration in markets like Thailand, Korea, Taiwan, and Malaysia still remain almost abysmal or nil. It is important for India to diversify the market base focussing on these countries.

Table 22: INDICATORS OF COMPETITIVENESS OF AUTOMOBILE EXPORTS TO ASIA


Penetration Contribution Asias Share

(%)

Specialisation

(Pi)
Automobile Segment Tractors Public Transport Type Passenger Vehicles Motor Cars and other motor vehicles Motor Vehicles for Transport of Goods Special Purpose Motor Vehicles Chassis fitted with engines Motorcycles (including mopeds) 2001 0.16 1.94 0.22 0.77 0.18 0.55 1.44 2006 3.30 8.04 0.69 1.65 0.13 6.16 8.60

(Ci)
2001 0.01 0.12 0.14 0.11 0.01 0.01 0.05 2006 0.14 0.21 0.37 0.18 0.00 0.10 0.42 2001 0.05 0.07 0.68 0.16 0.05 0.02 0.04

(Si)
2006 0.06 0.04 0.78 0.16 0.05 0.02 0.07

(Ei)
2001 15.59 183.81 20.94 72.92 17.46 51.91 136.28 2006 225.30 549.87 47.02 112.84 9.09 420.87 588.32

SOURCE: UN Comtrade; EXIM Research

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Indias major export markets in the Asian region for select vehicle segments and the competing exporters in the region are tabulated in Table-23. It may be noted that China, Thailand, Malaysia, and South Korea are amongst the major export markets for India in this region. Competing exporters in these markets are mainly Japan, European countries (such as Germany and Italy), and USA. Among developing Asian countries, China and South Korea are major competitors for India.

directed towards North America and Europe. Thus the analyses of competitiveness of auto-component exports have been restricted to these two regions alone.

AUTO-COMPONENTS
More than two-thirds of autocomponent exports from India are

USA In the USA market, the penetration index for components such as bumpers, drive axles, and radiators have grown significantly indicating rise in share of India in USAs total imports. The contribution index has also increased for bumpers indicating growing share of its exports in Indias total exports to USA. The share of import of identified components in total imports of USA has either

Table 23: THE ASIAN MARKET FOR SELECT AUTOMOBILES Segment Tractors Major Markets for India Thailand, Malaysia, Taiwan, South Korea, China Thailand, Malaysia, Sri Lanka, Hong Kong, China China, South Korea, Singapore, Taiwan and Malaysia Indonesia, China, Singapore, Thailand, Vietnam China, Singapore, Thailand, South Korea, Taiwan Competing Exporters Japan, Brazil, Netherlands, Germany, Sweden Japan, South Korea, China Germany, Japan, Thailand, South Africa, Sweden Japan, Germany, USA, South Korea Germany, USA, Japan, Belgium

Public Transport Type Passenger Vehicles Motor Cars and other motor vehicles Motor Vehicles for Transport of Goods Special Purpose Motor Vehicles Motorcycles (including mopeds)

Indonesia, Hong Kong, China, Japan, Taiwan, Sri Lanka, Vietnam, Philippines Italy, Thailand

SOURCE: UN Comtrade; EXIM Research

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marginally increased or decreased or remained the same, between 2001 and 2006, indicating no significant increase in imports of these products in USA market. As a result of all these trends, the specialization index has increased tremendously for bumpers, drive axles, and steering wheels. While the specialization index has decreased significantly for road wheels and parts, marginal decline has been witnessed for components such as brakes and parts, non-driving axles and parts, and suspension shock absorbers.

Europe In the European market, the penetration index has grown significantly for auto-components such as bumpers, brakes and parts, drive axles, suspension shock absorbers, and radiators. The contribution index has also increased for bumpers, brakes and parts, drive axles, and radiators indicating growing share of its exports in Indias total exports to Europe. The share of import of identified components in total imports of Europe has either marginally increased or decreased

Table 24: INDICATORS OF COMPETITIVENESS OF AUTO-COMPONENTS EXPORTS TO USA


Penetration (Pi) Auto-components Segment Bumpers Other parts and accessories of bodies Brakes and servo brakes and parts thereof Gear boxes Drive axles Non-driving axles and parts thereof Road wheels and parts thereof Suspension shock absorbers Radiators Steering wheels, steering columns and boxes 2001 0.01 0.03 0.39 0.02 0.09 0.65 1.66 0.72 0.49 0.03 2006 4.82 0.02 0.45 0.06 1.54 0.52 0.11 0.63 0.81 0.28 Contribution (Ci) 2001 0.00 0.02 0.08 0.01 0.01 0.02 0.23 0.02 0.02 0.00 2006 0.23 0.01 0.08 0.02 0.06 0.18 0.02 0.02 0.03 0.01 USAs Share (Si) 2001 0.06 0.52 0.18 0.39 0.07 0.02 0.12 0.03 0.04 0.04 2006 0.06 0.48 0.20 0.34 0.04 0.04 0.16 0.04 0.04 0.06

(%)

Specialisation (Ei) 2001 0.68 4.09 45.72 2.63 10.48 76.68 194.47 84.07 57.06 3.56 2006 414.87 1.38 38.70 4.99 132.19 45.04 9.49 54.44 69.85 24.49

SOURCE: UN Comtrade; EXIM Research

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or remained the same, between 2001 and 2006, indicating no significant increase in imports of these products in European market. As a result of all these trends, the specialization index has increased tremendously for bumpers, brakes and parts, drive axles, suspension shock absorbers and radiators.

While the specialization index has decreased significantly for road wheels and parts, and parts and accessories of bodies, marginal increase has been witnessed for components such as gear boxes, non-driving axles and parts, suspension shock absorbers, and steering wheels and parts.

Table 25: INDICATORS OF COMPETITIVENESS OF AUTO-COMPONENTS EXPORTS TO EUROPE


Penetration (Pi) Auto-components Segment Bumpers Other parts and accessories of bodies Brakes and servo brakes and parts thereof Gear boxes Drive axles Non-driving axles and parts thereof Road wheels and parts thereof Suspension shock absorbers Radiators Steering wheels, steering columns and boxes 2001 0.04 0.06 0.17 0.01 0.12 0.15 0.31 0.10 0.20 0.01 2006 2.09 0.02 0.30 0.08 1.07 0.24 0.13 0.24 0.55 0.02 Contribution (Ci) 2001 0.00 0.05 0.05 0.00 0.01 0.02 0.08 0.01 0.02 0.00 2006 0.17 0.01 0.08 0.03 0.08 0.03 0.03 0.02 0.05 0.00 Europes Share (Si) 2001 0.03 0.36 0.14 0.19 0.05 0.06 0.12 0.04 0.04 0.08 2006 0.04 0.36 0.15 0.20 0.04 0.07 0.12 0.05 0.05 0.08

(%)

Specialisation (Ei) 2001 8.10 12.75 34.84 1.38 24.82 32.40 65.05 20.11 42.68 3.01 2006 377.44 3.80 54.70 13.87 193.26 43.13 23.26 43.85 98.85 4.37

SOURCE: UN Comtrade; EXIM Research

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7. CHALLENGES AND STRATEGIES

CHALLENGES Growth in Input Costs Prices of core inputs in the manufacture of vehicles, like steel, non-ferrous metals and rubber, have grown over the last few years, which in turn has increased the production cost of vehicles. Though the raw material costs have cooled down, in the last two months, they still prevail more than the prices that have prevailed few years ago. Such cost escalation in input prices

has impacted the growth of the Indian automotive industry.

Fuel Price Volatility Volatility in fuel prices affects the growth of the automotive industry all over the world. The effects of volatility in fuel prices are multipronged. Firstly, the cost of inputs in car manufacturing increases with the increase in oil prices. Polymers, one of the inputs used in manufacture of vehicles, is a derivative of crude oil. Bulk

Table 26: CHANGES IN PRICES OF SELECT INPUTS


(Rs. Per Tonne)

Prices of crucial inputs Steel Categories HR Coils CR Coils GP/GC Sheets Melting Scrap Aluminium Rubber PVC * relates to January 2005

September 2003 24500 27500 34500 11000 93000* 52500* 45000

September 2008 45000 48000 53000 25000 120000 141000 70000

SOURCE: Joint Plant Committee for Steel; Multi-Commodity Exchange for Aluminium and Rubber; EXIM Research

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commodities, such as steel and aluminium, are also used in manufacture of vehicles; the transportation cost of which is influenced by in oil prices. Secondly, the oil price has an impact on inflation, affecting the saving and disposable income of the consumers, thereby affecting the demand for automobiles. Thirdly, the fuel price influences the overall running cost of the vehicle owners; there could be switch in demand among the vehicle variants, as also research in use of alternative fuels. Thus, the volatility in oil prices affects the prospects of the industry.

Slowdown in Demand As per the RBIs data on sectoral deployment of gross bank credit, the automotive industry received gross bank credit of Rs. 29152 crores in 2007-08, a growth of 39% over the corresponding period of the previous year. In the last 10 years (during the period 1996-97 to 2007-08), the CAGR of deployment of bank credit to automobile sector was over 26%. In addition, credit has been extended to transport operators and retail consumers (as motor finance) to support the growth of sales by the automotive industry. However, the penetration rate of vehicle ownership in India (per thousand population) is estimated to be less than 10 for car owners and around 40 for two wheelers. This is low as compared

to the world standards, and indicates the huge potential demand for automobiles in the country. Following the recent developments in the financial sector, and the economic slowdown, the euphoria of easier / better availability of auto finances in India has come down. The recent trends in vehicle sales also corroborate with this contention. During the period April-November 2008, the sales growth in passenger vehicles segment was marginally negative at (-) 0.59% over the corresponding period of 2007-08; the growth in sales of commercial vehicles was negative at around () 9.23%. Similarly, three wheelers sales have also registered a negative growth (of 3.37%). The two-wheelers segment registered a positive growth of 3.76% during this period; however, the two wheelers sales in the month of November 2008 witnessed a negative growth (of -14.73%), over the corresponding month in 2007.

Slowdown in USA North America has been a traditional market for the Indian auto component manufacturers with exports to the region accounting for around 27% of Indian auto component exports. The region is affected by the global financial crisis, which led to the slowdown in demand for vehicles, especially in USA. As the global financial crisis makes consumers increasingly

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reluctant to part with cash and lenders unwilling to offer credit, carmakers across the world face challenges in finding buyers to keep their production lines running. It may be mentioned that industry wide auto sales in USA in the month of November 2008 were down nearly by 37%. In annualized terms, according to analysts, the US auto industry recorded sales of 10.2 million vehicles in November 2008, down from 16.07 million vehicles sold in the same month of last year. With the Detroit majors like, General Motors, Ford and Chrysler seeking a bailout from the Federal Government, the auto component industry in India is feeling the brunt with slack in demand. An emergency bail-out offering of US $ 17.4 billion loans to the three auto majors has been announced with the condition that within three months restructuring plans are prepared by them, including cutting down on costs. The restructuring plan and cost cutting measures may affect the export prospects of Indian autocomponent firms. The Indian auto components sector, which is one of the major vendors for the global auto majors, and to the US in particular, face the challenges of slowdown in the US automobile market.

Production Cuts The production activity in the automotive industry is poised to be

on the lines of the economic growth in the world and it is likely that the momentum in production may slowdown in the year 2008-09. The slowdown in demand for vehicles, both in domestic and export market has led to the announcement of production cuts by many vehicle manufacturers. In the month of November 2008 (over the month of October 2008), there has been decline in production across all segments. Production of passenger vehicles have witnessed a negative growth (-8.50%), commercial vehicles production declined by 44.27%, three-wheelers production declined by 5.65%, and two wheelers by 8.79%. Overall, the production in november 2008 (over October 2008) has come down by 9.94% (from 0.95 million units to 0.86 million units. Commercial vehicles producer, Ashok Leyland, has reduced its proudction of vehicles to around 1500 units in November 2008 (as compared to an average of 6400 units produced during April-October 2008). Another major vehicle manufacturer, Tata Motors has decided to cut production of medium and heavy commercial vehicles by around 50%, while its passenger cars segment is contemplating a production cut; as of now, Tata Motors is undertaking partial shutdown to match the production and demand for passenger cars. In the two-wheelers segment also, major producers are mulling over

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production cuts to reduce their inventory levels and match with the market demand trends. Bajaj auto has already announced a prolonged shut down as part of the exercise to reduce the inventory levels. Such trends also affect the market prospects of Indian auto-component manufacturers. Several autocomponent units that are catering to the demand of OEMs in India are also in line with the production cuts intended by these OEMs. Several auto-component manufacturers are scheduling maintenance holidays to tackle the situation.

evolving through the dynamics of open market and deregulation, many new players have entered the market. Since liberalisation, over 20 new players entered the market in the passenger car segment alone. Though there has been depletion of market share for Maruti Suzuki, it still dominates the passenger car segment. In the two-wheelers segment too, foreign majors have their presence through joint ventures as also through their wholly owned subsidiaries. Hero Honda is the largest player in the two-wheeler segment, followed by Bajaj Auto and TVS Motors. In the commercial vehicles segment, though the market is dominated by home-grown companies such as Ashok Leyland and Tata Motors, competition is augmented through the entry of foreign players such as Nissan and Volvo. Indian players are entering into joint ventures with these companies to gain access to the

Growing Competition Competition in Indias automobile and auto-parts industry has been growing in the recent years. Earlier, the regulatory framework and market conditions positioned the Indian OEMs in monopolistic or oligopolistic market structure. As the automotive market in India is

Exhibit 64: TRENDS IN DEPLOYMENT OF GROSS BANK CREDIT TO AUTOMOTIVE SECTOR IN INDIA

SOURCE: RBI, EXIM Research

129

technological advancement and design engineering. In the auto-parts segment, though there are vibrant units producing high-quality products and supplying to global OEMs, the market is attracting global players such as Delphi Systems, Visteon, Denso and Bosch, to mention a few. These global majors have been expanding their product portfolio and enhancing their production capacities, thereby increasing the competition among the domestic players.

industry competition has led to design of hybrid vehicles and development of new vehicle concepts. Apart from customers, new technology also allows the designers to change every aspect of car design. According to a study13 by KPMG, product quality, cost reduction, new technologies and environmental issues, influences the consumer demand for vehicles and thereby innovation in the automotive industry.

Changing Consumer Preferences There has been continuous change in consumer demand in the motor vehicle industry, making the companies to focus on innovation, continuously. With growing purchasing power among Indian consumers, the demand for better and comfort vehicles with greater efficiency is growing. Intense

Chinese Competition Of late, low-cost imports from China threaten the business prospects of domestic auto-component manufacturers. According to ACMA, auto-component imports from China have grown rapidly in the last few years. From around 3.3% of all component imports in 2003-04, China now accounts for close to 10%. Significant growth in component imports has been

Table 27: INDIAS IMPORT AND EXPORT OF AUTO COMPONENTS


(Rs. Crores)

Import Period 2003-04 2004-05 2005-06 2006-07 2007-08E


SOURCE: ACMA
13

From China 214 371 766 1376 2052

Total 6562 8546 10988 16301 21338

Export To China 126 128 158 113 177

Momentum, KPMGs 2008 Global Auto Executive Survey

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contributed by China in the last three years, while Indias exports to China have stagnated at around Rs 120-170 crore in the last 5 years. Such imports from China have set new benchmark prices and the component manufacturers from India face challenges in the scenario of rising input prices.

Environmental Issues The automobile sector affects the environment in multiple ways, starting from the use of materials that causes environmental degradation, and ending with the management of scrap. However, it is estimated that much of the environmental damage during the lifespan of a car happens during driving, and thus is associated with fuel emissions. That is why many countries are discouraging sale of fuel-inefficient cars, as also polluting cars, through suitable taxation policy. It is reported that Chinese Government has increased sales tax on cars with engine capacities more than 1 litre, and reduced on cars with engine capacity of smaller than 1 litre. EU is proposing to penalize cars that are emitting more than 130 gms of CO2 per kilometer.
There are estimates that the automobile industry accounts for approximately one-fourth of global anthropogenic GHG emissions. Therefore, in order to combat the environmental challenge, firms (as

well as environmentalists and national Governments) are focussing on avoidance of polluting substances in production, in addition to concentrating on fuel efficiency and emission standards and owners. The industry is also contributing to combat this challenge by undertaking research in improving fuel efficiency and reducing CO 2 emissions. In the EU, an end-of-life of vehicles Directive (2000/53/EC) is in force to prevent polluting substances in manufacture of vehicles. Also, a dialogue between regulators and the automotive industry in EU inspired a voluntary commitment for the industry to reduce emissions.

Low R&D Orientation It is being realized all over the world that the competitiveness is not dependent on factors like availability of skilled labour, low-cost operations and infrastructure. The sustained competitiveness in the automotive industry comes through improvement in productivity, which calls for continuous innovation by the players. However, Indian automobile companies spend a relatively low amount on R&D; thus, their R&D orientation (R&D spending as a percentage of total sales) is low relative to the global standards. Developing new designs is an expensive proposition, unless the market for the new design is on a global scale. Indian firms are mainly focussing on, and designing

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the vehicles for domestic market or for other developing country markets, but not designing for a truly global market, to create a niche for them and compete with international brands. Also, the efforts of Indian automobile manufacturers are mainly oriented towards value engineering or modification in the existing models to improve performance, and not on new models.

the deficiencies in logistics infrastructure adds up the cost by 1.1% to 2% in the automotive sector.

Infrastructure Constraints Insufficient road infrastructure and traffic congestion could be a bottleneck in the growth of the automotive industry. In India, capacity addition in roads has been lagging behind the traffic growth. It is reported that China witnessed a phenomenal growth in automotive industry due to rapid development in road infrastructure. Poor port connectivity is another bottleneck faced by the industry, especially when it comes towards exports. The Chennai and Mumbai Ports handle bulk of the vehicle export. In addition to the insufficient port handling infrastructure, there are also challenges associated with space especially for parking and setting up of repair shops in the port yard. According to an analysis 14 on cost structure of Indian automotive sector and that of Malaysia, Thailand and China,
14

Incidence of Levies / Duties On vehicle sales, currently taxes are levied at multiple levels at city level (octroi), state level (sales tax) and at the central level (excise). It is estimated that the incidence of levies and taxes on a vehicle averages to be around 30% of the cost of vehicle. The incidence of taxes increases in cases where the octroi is also levied. The high incidence of taxes increases the cost of ownership of vehicles, thereby affecting the vehicle penetration level in India. Low ICT Interface The adoption of ICT in the Indian automotive sector is at low level as compared to international standards. According to a study15 by NASSCOM, many SME firms in the auto-component sector is facing the challenges of IT adoption, which is important for enhancing their productivity and competitiveness, and the growth of the industry. Human Resources Challenges One of the critical enablers for the growth in the Indian Automobile industry would be adequate

Working Group on Automotive Industry, Eleventh Five Year Plan, Planning Commission, Government of India. IT Adoption in the Indian Auto Component Industry

15

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availability of trained manpower. It is estimated that the industry would require huge numbers of trained personnel, if our country has to become an auto-manufacturing hub for the world. Countries in North America and Europe, which had been the hub for automotive industries over the years, are increasingly feeling the pinch of the aging workforce impacting the employment levels from factory workers to middle and top-level management, thereby creating a talent vacuum in the industry. This crunch in manpower in these economies is slowly luring the much-required human capital from India. This challenge needs to be addressed on priority basis so that the country does not loose out on critical talent that may be important for India to become an important automotive hub.

STRATEGIES Tackling the Rising Input Costs The increase in the cost of crucial raw materials (such as steel, aluminium, rubber) that are used in manufacture of vehicles has affected the margins of the Indian automotive industry. Though, the raw material prices are cooling down, they are still higher than the prices that prevailed few years ago. In order to tackle this problem of rising input costs, and to improve

margins and price realisations, players in the automotive industry need to adopt multi-pronged strategies. These include reallocation of product mix, cost reduction through better adoption of lean manufacturing solutions, and renegotiation with suppliers and vendors. Some automobile manufacturers have already strengthened their strategy in tweaking the product-mix, giving greater emphasize on product segments that is expected to provide better margins. Strengthening lean manufacturing solutions would help the Indian automotive industry to tackle the challenge of input cost escalations. Some automobile manufacturers in India have already established programmes to avoid wastages in production and thereby cut down the cost of production. Maruti Udyog Limited has introduced a programme of one component, one gram, thereby bringing down the overall weight of a car by 2.5 Kg., and thereby save about Rs. 10 crores per annum. Ashok Leyland Ltd has introduced the Mission Gemba, which aims to improve productivity while reducing the cost of production. Firms also need to renegotiate the prices (for purchases with the suppliers) and margins (for sales with the dealers), so that the hike in the end price at the hands of consumers is minimized due to hike in input prices.

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Exhibit 65: CHANGING WORKFORCE POPULATION (AGES 20-64) BETWEEN 2005 AND 2025

SOURCE: Department of Economics & Social Affairs of UN Sectt (2006), World Population Prospects: The 2004 Revision, New York; UN; EXIM Research

R&D on Alternate Energy Sources and Hybrid Vehicles The share of automobiles on road, using petroleum products as fuel, has almost remained the same (at over 95%) in the past several decades. This is despite the fact that the vehicles on road have been evolving in every other aspect. In other words, product development has happened in all other aspects, except in utilization of alternate energy sources. The industry, together with the Government, may provide greater thrust on development of products that uses alternate energy sources, and R&D on hybrid vehicles. Market Presence in All Segments Being competitive and growing profitably, in an environment in

which business routinely transcends borders, is an ever-growing challenge for the Indian automobile industry. Globalization is making every player in the industry to look beyond its borders. Ironically, in spite of the increasing number of models being manufactured, the PLC of the vehicles are decreasing everyday, thus putting pressure on the players to find ways to diversify their product offerings. Recently, Tata Motors has acquired the Jaguar-Land Rover brands from Ford thereby making an imprint into the niche segment, eyeing the European and other developed country markets. This has made the Tata Motors a truly global player in the automobile market with a diversified product offerings, ranging from the entry level segment Nano to the much-touted ownership of premier brands, like

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Land Rover and Jaguar, thus catering to all segments of the market. Market presence and product offerings need not be in one category of vehicles (say passenger cars) alone; it could also be across multiple vehicle categories. For example, Volvo India, which is known for selling commercial vehicles, has been into smaller way in selling luxury cars, which the company plans to expand. Bajaj Auto, which is wellknown in the two/three wheelers segment has also announced its interest in the small car segment. Ashok Leyland, leading manufacturer of commercial vehicles, has tied up with Nissan for production of light commercial vehicles. Such strategies build brands and visibility across segments, as also reduce the risks associated with market concentration and economic slowdown to some extent.

may also include working with suppliers to reduce the costs in their processes, implementing lowcost designs / segments of the product, or through reduction of wastages. Strengthening the lean manufacturing practices, being adopted in India as also across the world, would also help improve competitiveness of Indian industry. Such practices show greater efficiencies in machine utilization, fewer labour hours per machine, shorter machine setup times and identification of bottlenecks and cost reduction opportunities swiftly. Both the automobile and the auto component industry are interlinked and are dependent on each other for survival, and hence the hub and spoke model may be another approach for both of them to contain the cost. In a country like India, where customers are highly price sensitive, localization of industries are of paramount importance. In the hub and spoke model, the automobile industry help in establishment of auto-component units around its assembly plants, and help them in technological improvement, R&D, and identification of machineries and equipments. The auto-component units concentrate on on-time supply and servicing of orders and cost containment in production, and thereby promote competitive pricing among the industry players.

Enhancing Competitiveness Cost efficiency is necessary for Indian automobile industry to enhance its global competitiveness. Many global auto-majors, especially from Japan, have initiated cost reduction exercises. Some firms have also shifted from standard costing to Kaizen costing and target costing. Some of them have even established target-costing offices across the world and established office structure for implementing Kaizen. Cost containment strategies

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Box 5: HYBRID VEHICLES Hybrids are vehicles that use two sources of fuel - one of which is generally an electric battery - and have lower emissions as well as reduced operating costs. Hybrid vehicles are basically driven by a conventional petrol engine, with an assisting electric motor that is powered by a battery. Due to the presence of assisting electric motor, the petrol engine for the hybrid vehicles are designed to be smaller, but it delivers the same performance with lower emissions and higher fuel efficiency. Global auto leaders such as Honda Motors (Civic Hybrid) and Toyota Motors (Toyota Prius) have already successfully launched commercially viable hybrid vehicles; however, in India, not many companies have come forward for developing hybrid technology. Mahindra Group is developing a hybrid vehicle, which may soon be launched. Tata Motors has recently bought majority stake in Norway-based Miljo Grenland Innovasjon, which specializes solutions for electric vehicles. Tata Motors is expected to develop electric version of Indica through this arrangement. Tata Motors has also been embarking on a programme for making hybrid buses, targeting the city transportation segment. The Government, in the latest budget announcements, has cut the excise duty on hybrid vehicles from 24% to 14%, (subsequently by another 4% reduction across the board to boost the demand) to promote hybrid vehicles in the country. A National Hybrid Propulsion Programme (NHPP) has been launched by the automobile industry, bringing together the academia, Tier-I suppliers, and the representatives from the Government of India.
SOURCE: EXIM Research

Addressing Consumer Preferences The dynamics of Indian automobile market is changing with the changing consumer preferences. For example, earlier, the twowheeler segment was dominated by scooter (with a market share of 7080%), which has been taken over by motorcycles. The change in consumer preference was mainly due to fuel efficiency, as also design and technological improvement. Though, the newer versions of scooters (scooty

concept with ignition start) are slowly reviving the market for scooters, the market share may not reach to the previous level. Similarly, consumer preferences have changed the demand pattern in other vehicle segments too, driven mainly by design and technology. Indian auto-majors need to address the changing consumer preferences and suitably modify the design or technological improvement to augment their market share.

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Collaborative Product Development (CPD) is being adopted as a business strategy by global automobile majors to address the challenge of changing consumer preferences. These auto-majors work with the consumers in development of a design and improvement in features of an existing product. Such an approach is also being adopted collectively, through suitable alliances by the auto-majors, either through investment-sharing or through innovation-sharing in order to orient the consumers ideas in the design / product development process. Dealers are also need to be roped in the design or product development process, as they are ideal gateway agencies between the customer and the firm. Hence, a stronger relationship is required to be established by the vehicle makers with the dealers. Synergies are to be created between the vehicle manufacturers and dealers through better communication and understanding in order to offer not only enhanced customer services but also to understand the trends in consumer preferences. Appropriate incentive plans may also be devised for the dealers so that desired goals are achieved.

There are also challenges associated with end-of-life in vehicles, especially waste management. EU has estimated that every year, end of life in vehicles generate about 10 million tonnes of waste in the region. USA has been promoting the concept of Environmentally Benign Manufacturing in all sectors, and has also established Design for the Environment (DfE) project through the Environment Protection Agency. The DfE programme is working with the automobile industry, especially in the refinishing sub-segment to increase awareness of the health and environmental concerns, and encourage the use of best practices and technologies. Though sufficient steps are being taken in India towards achieving international emission standards, adequate steps are still required to be taken in environmental compliance in vehicle manufacturing. Significant amount of resources are required as investment to undertake R&D programmes to address these environmental challenges. The industry needs to develop a similar strategy of designing vehicles for environment, especially if India is to emerge as a global manufacturing hub for vehicles.

Environmental Compliance Environmental challenges in automobile manufacturing does not relate to emission standards alone.

Enhancing R&D Orientation Indian automotive industry needs to develop a proactive culture with regard to investments in R&D

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Box 6: KAIZEN PHILOSOPHY The Japanese word Kaizen refers to continual and gradual improvement through small betterment activities, rather than large or radical improvement made through innovation or large investments in technology. Kaizen, thus, is a daily activity whose purpose goes beyond simple productivity improvement. It is also a process that provides improvement in the workplace and teaches the people how to perform experiments on their work using the scientific method and how to learn to spot and eliminate waste in business processes. To be most effective Kaizen must operate with three principles in place: consider the process and the results together, and not the results alone; systemic thinking of the whole process in a broader manner, and not in a narrow view; a learning, non-judgmental process that will allow re-examination of the assumptions that resulted in the current process. In the Kaizen philosophy, people at all levels, starting from the lowest level of staff to the level of CEO, as also the external stakeholders participate and contribute to the process of improvement. It is believed that these continuous small improvements add up to major benefits, such as enhanced productivity, improved quality, safety standards, faster delivery, cost control, and greater level of customer satisfaction. It is also believed that employees working in Kaizen -based organizations generally find the work environment enjoyable, leading to job satisfaction and low turn-out of employees. Kaizen costing is the process of cost reduction during the manufacturing phase of an existing product. Kaizen costing is most consistent with the saying slow and steady wins the race.

rather than responsive culture. This would help the industry to understand the complexities of vehicle users and bring in product innovation through changes in design and vehicle engineering. The R&D orientation in the Indian auto-component industry is not comparable with world standards. However, few firms that are having large operations are increasing their
16

stake in innovation to compete in the global map. According to a study 16 , large auto-component suppliers with investment over Rs. 100 crores are having better understanding of the relationship between R&D orientation and business development. SME autocomponent units, especially those with low man-power strength, low management skills, and low

Assessing innovation quotient of Indian auto component manufacturers, MDI, Gurgaon.

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turnover, have not fully understood the power of innovation. Thus, there is also a need to initiate a programme for research and development in the Indian automotive industry, concentrating on development of intelligent vehicles adhering to safety standards, energy efficiency and emission norms, and alternate fuels. The programme may also stretch down to component manufacturers with active involvement of OEMs. Government of India has already announced several initiatives and support for R&D in Indian automotive industry. A National Automotive Testing and R&D Infrastructure Project (NATRiP) has been set up by the Government, joining hands with the industry, to create a state of the art testing, validation and R&D infrastructure in India. In addition, Government has also taken steps to encourage collaboration of industry with research and academic institutions for development of appropriate technology.

Infrastructure Development Infrastructure constraints are common to all industry; however there are few specific infrastructure constraints affecting the growth of Indian automotive industry. Poor road infrastructure and traffic congestion can be a bottleneck in the growth of vehicle industry. Therefore, in general, improvement in road infrastructure would help

enhance the demand for automobiles in India. Secondly, road infrastructure associated with last-mile port connectivity would help enhance supply chain management strategies of the vehicle manufacturers. More importantly, there is a need for building vehicle terminals in India for smoother handling of vehicle exports. Countries like South Africa (Durban), South Korea (Ulsan) and Mexico (Lazero Cardinas) have already established exclusive vehicle terminals for handling vehicles meant for exports. In India, several initiatives have been announced by the industry, both by vehicle manufacturers and private port developers, to construct vehicle terminals. For example, Hyundai has plans to build a vehicle terminal in Chennai; Maruti Suzuki entered into an arrangement with Mundra port for development of a car terminal; Japans Mitsubishi Motors plans to develop a car terminal in India, in association with Maruti Suzuki. Toyofuji Shipping has plans to build an exclusive car terminal in Chennai. However, the proposals are yet be concretized and come up in full term.

Supply Chain Management Supply chain management in the automotive industry helps in integration of the partners to improve operational performance, materials flow and manufacturing

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Box 7: EU DIRECTIVE 2000/53/EC ON END-OF-LIFE VEHICLES Directive 2000/53/EC lays down specific requirements for the management of end-of-life vehicles. The principal objective of this Directive is to prevent waste from vehicles and, in addition, the reuse, recycling and other forms of recovery of end-of-life vehicles and their components so as to reduce the disposal of waste. Further, through this Directive, it is envisaged to achieve environmental performance of all economic operators directly involved in the vehicle value chain, including those involved in the treatment of end-of-life of vehicles. The Directive focusses on dismantability, recoverability, and recyclability requirements of vehicles, compliance with coding standards and dismantling information, and the reporting requirements. According to the Directive, producers should meet all, or a significant part of the costs on the collection and treatment of end-of-life vehicles. Producers are thus expected to enter into contracts or undertakings while transferring the responsibility. Most EU member states have, either through legal obligations or national directive, introduced prevention measures with the objective of limiting the use of hazardous substances (like lead, mercury, cadmium and hexavalent chromium) in manufacture of vehicles, and prevention of their release in the environment. Some countries, who are manufacturers of vehicles or spare parts, are focussing on mainly substance restrictions. Some EU member states have encouraged establishment of vehicle treatment facilities as collective responsibility of all stakeholders in the vehicle value chain.
SOURCE: European Union

flexibility. The process of planning, implementing and controlling cost effective flow of materials; maintenance of in-process inventory, finished goods and related information from the pointof-production to the point-ofconsumption; and efficiency in conforming to customer requirements in the Indian automotive sector need to be improved to compete efficiently in a global market place. Implementing supply chain solutions as one more module after

Enterprise Resource Planning (ERP) is not enough. Theres a need for enterprise-wide process improvement. This calls for inculcating mutual respect with the vendors, dealers and consumers. In India, logistics account for significant amount of inventory carrying cost, which is affecting the cost competitiveness of the autocomponent industry. Supply chain management thus forms as an important strategy for Indian automotive industry. Just-In-Time (JIT) production processes,

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identification of shorter transportation routes, e-sourcing are some supply chain strategies for Indian automotive industry.

Enhancing ICT Interface IT sector has a major role to play in development of Indian automotive industry to achieve its global aspirations through enhanced productivity and product efficiency. In addition, ICT interface help the manufacturers to interact frequently with vendors and consumers also, and leverage their ideas / preferences into vehicle design. Increased IT adoption in the automotive industry not only enhances the competitiveness of the industry in the existing markets, but also creates new markets for the Indian automotive industry. Human Resources Development The cost pressure on global auto majors, who are mainly present in developed countries, viz., USA, Europe and Japan, is making the industry shift to developing nations. In addition, these countries are facing shortage of skilled manpower, which is expected to grow multi-fold in the years to come. India has large human resource base; however, India needs to enhance the skill-sets that are required for the industry in order to become a global automotive hub.

According to SIAM, there are over 200,000 people employed in vehicle manufacturing, around 250,000 in component manufacturing, and over 10 million persons indirectly, at different levels in the value chain. The Automotive Mission Plan, drawn by the Government of India, has also given thrust on human resources development and skill upgradation through development of training modules and special courses. The Automotive Mission Plan has projected a workforce requirement of an additional 25 million by 2016, both in manufacturing and down-stream and up-stream activities; of which nearly two-third would be required under skilled category. The Government and industry need to come together and address the challenges related to skill development and workforce shortages, both in terms of quantity and quality. In this regard, it may be mentioned that USA has established, over three decades ago, a National Institute for Automotive Service Excellence, to provide training testing, and certification of autoservice and repair professionals to ensure continuous availability of trained technicians for the industry. Government of India, through the Automotive Mission Plan, has proposed the setting up of an Automotive Training Institute to train people for the automotive industry. SIAM has plans to set up an online

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university, first of its kind in Asia to cater to the education needs of the industry. SIAM is associating with US-based institute, Adayana, who will provide course content and certify these courses.

IN SUM The global financial meltdown of the year 2008 has created a precarious condition across various sectors, which has forced countries and industries to take a fresh look at their future strategies; automotive sector did not remain unscathed from this turmoil. In the early part of the year 2008, the rise in crude oil prices sent shockwaves amongst various sectors; the automotive sector was one of them to receive adverse impact. The financial crunch, in the later part of the year 2008, slowed-down the supply of credit and simultaneously increased the cost of credit, both to corporates and consumers, and thereby impacted both the supply and demand for automobiles. It may be mentioned that the global as also the Indian automotive industry, benefited from the credit flow provided by the banks and financial institutions, both at corporate level and at consumer level. The operations of several global auto-majors are affected and they are seeking bailout from their national governments for their survival. With the government institutions across the world infusing

large amount of liquidity into the respective markets, the core issue of credit crunch may slowly be resolved. However, cost associated pressures may prevail on the margins of the global auto-majors, making them vigorously to focus on emerging markets, for sourcing components, vehicle design and manufacturing. It is expected that the recessionary trends in the economy and the resultant increase in margin pressures would further enhance the need for locational shift in manufacturing of automobiles. It is also expected that the volume of outsourced jobs coming to India may further rise in the long term. Such market opportunities also provide the Indian automotive industry to acquire assets of beleaguered companies abroad with a potential for turnaround and value creation in the years to come. It may be mentioned that the Indian automotive industry holds significant scope for expansion, both in the domestic market, where the vehicle penetration level is on the lower side as compared to world average, and in the international market, where India could position itself as a manufacturing hub. The current level of share, viz., less than 5% of global production and less than 1% of global trade also corroborates the potential for expansion in this industry.

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At the same time, it should be recognized that Indias exports of automobiles have largely been confined to few countries in Asia and Africa, and to a limited extent in Latin America. Indian automobile companies are required to accelerate their momentum and increase their penetration among other countries in these regions. Similarly, the auto components industry in India, which is now known across the globe for its quality deliverables, should try and capitalize on the European and the US market either through the process of acquisitions of firms in these countries or simultaneously enhancing their quality and augmenting the number of outsourcing businesses from these regions. Indian auto component industry distinguishes itself with winning more number of Deming prize and adopting global quality management procedures, and thereby have an edge over other

emerging economies, like China and Thailand. Indian economy, which benefits from strong fundamentals and sound regulatory framework, is expected to grow at around 7% in the year 200809; the economy may rebound once the global economy recovers, and the domestic automotive industry would simultaneously regain its growth momentum. In the interim period, the Indian automobile and component industry needs to look out for opportunities to cut cost, undertake value engineering and enhance disciplines into the system. The industry may also use the interim period to upgrade the skills of the employees and enhance the focus on market research, product development and customer interactions. An institutional mechanism, under public-private partnership model, may be needed to address such requirements of the industry in the years of downturn, with the industry having a lead role to play.

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