A STUDY OF INDIAN AUTOMOTIVE SERVICE INDUSTRY (Interim Report)

Submitted to : Prof. Nalin Jain

Submitted By : Arpansen Gupta (043013) Chetan Sharma (043017) Irshad Ali (043027) Puneet Jain (043039) Sudhir Mishra (043055)

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Acknowledgement

Surpassing milestones while en-route to a mission gives us so much pleasure, that at times, we tend to forget the invaluable guidance, help and support extended by the people to whom the accomplishments solely accrue. We would like to thus, use this opportunity to express our deep sense of appreciation and gratitude to Prof. Nalin Jain, our esteemed faculty and mentor for his invaluable words of advice and encouragement as well as enlightening inputs at various stages of the finalisation of this interim report which served as the biggest motivation and guiding light in its completion.

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Table of Contents
1. Background..04 2. Need for Automotive Services07 3. Supply Chain for Automotive Services08 4. Conclusion..09

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Background
The Automotive industry in India is one of the largest in the world and one of the fastest growing globally. India manufactures over 17.5 million vehicles (including 2 wheeled and 4 wheeled) and exports about 2.33 million every year. It is the world's second largest manufacturer of motorcycles, with annual sales exceeding 8.5 million in 2009. India's passenger car and commercial vehicle manufacturing industry is the seventh largest in the world, with an annual production of more than 3.7 million units in 2010. According to recent reports, India is set to overtake Brazil to become the sixth largest passenger vehicle producer in the world, growing 16-18 per cent to sell around three million units in the course of 2011-12. In 2009, India emerged as Asias fourth largest exporter of passenger cars, behind Japan, South Korea, and Thailand. As of 2010, India is home to 40 million passenger vehicles and more than 3.7 million automotive vehicles were produced in India in 2010 (an increase of 33.9%), making the country the second fastest growing automobile market in the world. According to the Society of Indian Automobile Manufacturers, annual car sales are projected to increase up to 5 million vehicles by 2015 and more than 9 million by 2020. By 2050, the country is expected to top the world in car volumes with approximately 611 million vehicles on the nation's roads.

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The product and service segmentation of automotive industry is as below :

Source: Society of Indian Automotive Manufacturing (SIAM)

The automotive industry of India is categorised into passenger cars, two wheelers, commercial vehicles and three wheelers, with two wheelers dominating the market. More than 75% of the vehicles sold are two wheelers. Nearly 59% of these two wheelers sold were motorcycles and about 12% were scoters. The major market segments are :

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Source: Society of Indian Automotive Manufacturing (SIAM) Key players in the passenger and commercial vehicles category and their market share is depicted below :

Source: Society of Indian Automotive Manufacturing (SIAM)

Source: Society of Indian Automotive Manufacturing (SIAM)

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Indias automotive industry is one of the key drivers of the countrys economy. At an estimated size of USD 38 billion, it accounts for close to 5 percent of Indias GDP. Over the past 5 years (2002-03 to 2007-08), the industry has seen strong overall growth of 11.5 percent CAGR, with both domestic and export markets growing during the period. The Auto Components industry has grown in tandem, and had a turnover of USD 18 billion in 2007-08, at a CAGR of 27.2 percent over the past 5 years.

The Government of India recognizes the significance of the automotive industry, and is actively involved in promoting its growth. The governments Automotive Mission Plan 2016 envisages the industry to grow to a size of USD 145 billion by 2016, so as to contribute 10 percent of GDP.

Need for Automotive Services

As population of vehicles increases, the need for an efficient service network becomes important. Every year, the new vehicles sold add to the overall vehicle population that needs to be serviced and maintained, as scrapping of vehicles is low in India. In addition, rapid improvement in vehicle technology and the number of new models being introduced each year, add to the challenges of providing efficient service. An effective service network is built on three key pillars : 1. Service infrastructure adequate workshops at the right locations, with proper machinery, tools and other facilities. 2. Availability of spare parts. 3. Availability of skilled manpower. Of the above, the third pillar the availability of skilled manpower to service the ever growing vehicle population is seen as a critical area where there is a gap between the industrys requirements and supply in the market. The orders of the industry arise from the bottom of the supply chain i. e., from the consumers and goes through the automakers and climbs up until the third tier suppliers. However the products, as channelled in every traditional automotive industry, flow from the top of the supply chain to reach the consumers. The demand determinants of the automotive services industry are factors like affordability, service innovation, infrastructure and delivery location. Also, the basis of competition in the sector is high and increasing, and the life cycle stage is growth. With a rapidly growing middle class, all the advantages of this sector in India are yet to be leveraged. With a high cost involved in setting up of service center facilities, limited accessibility to new technology and soaring competition, the barriers to enter the Indian Automotive Services sector are high. The level of technology change in the Industry has been high but, the rate of change in technology has been medium. Consumers are very important of the survival of the whole of Motor Vehicle manufacturing and Services Industry. In 2008-09, customer sentiment dropped, which burned on the augmentation in Page | 7

demand of cars. The price of oil and petrol affect the driving habits of consumers and the type of car they buy and the duration of service as well.

Supply Chain of Automotive Industry

Supply Chain Supply Chain of Automobile Industry consists of the following :

Source: ImaginMor, Inderscience Enterprises Ltd and United Nations Industrial Development Organisation The description and the role of each of the contributors to the supply chain are discussed below. Third Tier Suppliers : These companies provide basic products like rubber, glass, steel, plastic and aluminium to the second tier suppliers. Second Tier Suppliers : These companies design vehicle systems or bodies for First Tier Suppliers and OEMs. They work on designs provided by the first tier suppliers or OEMs. They also provide engineering resources for detailed designs. Some of their services may include welding, fabrication, shearing, bending etc. First Tier Suppliers : These companies provide major systems directly to assemblers. These companies have global coverage, in order to follow their customers to various locations around the world. They design and innovate in order to provide black-box solutions for the requirements of their customers. Black-box solutions are solutions created by suppliers using their own technology to meet the performance and interface requirements set by assemblers.

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First tier suppliers are responsible not only for the assembly of parts into complete units like dashboard, breaks-axel-suspension, seats, or cockpit but also for the management of second-tier suppliers.

Automakers/Vehicle Manufacturers/Original Equipment Manufacturers (OEMs): After researching consumers wants and needs, automakers begin designing models which are tailored to consumers demands. The design process normally takes five years. These companies have manufacturing units where engines are manufactured and parts supplied by first tier suppliers and second tier suppliers are assembled. Automakers are the key to the supply chain of the automotive industry. Examples of these companies are Tata Motors, Maruti Suzuki, Toyota, and Honda. Innovation, design capability and branding are the main focus of these companies. Dealers : Once the vehicles are ready they are shipped to the regional branch and from there, to the authorised dealers of the companies. The dealers then sell the vehicles to the end customers. Parts and Accessory : These companies provide products like tires, windshields, and air bags etc. to automakers and dealers or directly to customers. Service Providers : Some of the services to the customers include servicing of vehicles, repairing parts, or financing of vehicles. Many dealers provide these services but, customers can also choose to go to independent service providers. Conclusion In view of the evolution in customer preferences and increased competitive pressures in the market, quality and delivery of after sales service has assumed critical importance for manufacturers. In a study carried out by KPMG, quality of service was ranked as one of the key factors to retain customers, by respondents across the industry. Industry players agree that servicing today is a critical imperative to remain competitive; in fact, many of them feel it is the most critical factor for competitiveness. In terms of turnover, the size of the automotive service market in India is estimated at between USD 8 billion to USD 10 billion. OEMs are focused on improving the reach and quality of their service networks. In addition to the service outlets of authorized dealers, many manufacturers are also actively developing independent workshops into authorized service centers, through providing training, tools and parts. At the same time, feedback from industry players indicates that most customers do not depend on the authorized service network for vehicles beyond about 7 years of age, but switch to local garages. Given the sizeable vehicle population in this category, it is evident that automotive servicing in India is still largely unorganized. Estimates put the share of authorized service outlets at around 50 percent. Now that we are convinced about the rapidly increasing need for Car Service, let us analyse the options available today?

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DEALERSHIPS

UNORGANISED GARAGES

OUR AUTOMOTIVE SERVICE 300 service locations planned country wide including Tier I/II/III cities. Rapidly growing network...

GEOGRAPHIC DISTRIBUTION

Weak for most Manufacturers

No organized network

CUSTOMER PERCEPTION OF SERVICE

Expensive, Poor Transparency

Cost Effective but raises questions of Service & Parts Quality (Spurious parts usage), Transparency, Reliability, Warranty & Timeliness

Great Service. Budget Price.

POST-WARRANTY, CUSTOMER Less than 30% RETENTION

The personal touch helps in retention.

Customers for life...we catch them early and young...right from new car accessories to repairs much beyond warranty.

More cars SERVICE CAPACITY reporting than can be serviced

The growing network ensures distribution of customers If the Garage is reputable, across service locations...they more cars reporting than can will swarm the location be serviced. nearest to the residence or place of work. Hammer & Chisel approach Top Gear!

TECHNOLOGY, TOOLS STANDARD OPERATING PROCEDURES TRAINING & KNOWLEDGE OF NEW VEHICLE TECHNOLOGY QUICK SERVICE STRATEGY MULTI-BRAND

Available

Available

"My way" is the best

Best-in-Class. Best-in-Class. Our expertise with various vehicles, automotive technologies is as diverse as the people and experience we bring Rapid Service Bays...for 30-60 minute deliveries

Available

"I am expert technician for the Ambassador...and I can repair the rest based on my best guess."

Provided by a few manufacturers No way...the manufacturer will sue me.

What is that?

May be...bring it in...we'll see Your Neighbourhood, MultiBrand, Total Car Care Experts!

Thus, setting up a Multi-brand Automotive Service Center to cater to the ever growing passenger vehicles seems to be quite a profitable opportunity for us. Page | 10

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