INDUSTRY ANALYSIS ON AUTOMOBILE INDUSTRY

Made by: MUKUL KEWALRAMANI KIM VERMA KANCHAN ANAND DAKSHESH RAWAT KRITIKA GUPTA SHILPA KINGER

INTRODUCTION OF AUTOMOBILE INDUSTRY

SOME FACTS

INDUSTRY DEFINITION

This class consists of units mainly engaged in manufacturing motor vehicles or motor vehicle engines. Products and Services The primary activities of this industry are: Motor cars manufacturing Motor vehicle engine manufacturing The major products and services in this industry are: Passenger motor vehicle manufacturing segment (Passenger Cars, Utility Vehicles & Multi Purpose Vehicles) Commercial Vehicles (Medium & Heavy and Light Commercial Vehicles) Two Wheelers Three Wheelers

MARKET CHARACTERISTICS
Market Size The Indian Automotive Industry after de-licensing in July 1991 has grown at a spectacular rate on an average of 17% for last few years. The industry has attained a turnover of USD 35.8 billion, (INR 165,000 crores) and an investment of USD 10.9 billion. The industry has provided direct and indirect employment to 13.1 million people. Automobile industry is currently contributing about 5% of the total GDP of India. Indias current GDP is about USD 650 billion and is expected to grow to USD 1,390 billion by 2016. The projected size in 2016 of the Indian automotive industry varies between USD 122 billion and UDS 159 billion including USD 35 billion in exports. This translates into a contribution of 10% to 11% towards Indias GDP by 2016

DEMAND DETERMINANTS
Determinants of demand for this industry include vehicle prices (which are determined largely by wage, material and equipment costs) and exchange rates, preferences, the running cost of a vehicle (mainly determined by the price of petrol), income, interest rates, scrapping rates, and product innovation. Exchange Rate: Movement in the value of Rupee determines the attractiveness of Indian products overseas and the price of import for domestic consumption. Affordability: Movement in income and interest rates determine the affordability of new motor vehicles. Allowing unrestricted Foreign Direct Investment (FDI) led to increase in competition in the domestic market hence, making better vehicles available at affordable prices. Product Innovation is an important determinant as it allows better models to be available each year and also encourages manufacturing of environmental friendly cars. Demographics: It Factors that may be augment demand include rising population and an increasing proportion of young persons in the population that will be more inclined to use and replace cars. Also, increase in people with lesser dependency on traditional single family income structure is likely to add value to vehicle demand.

CONTD..

Infrastructure: Longer-term determinants of demand include development in Indians infrastructure. Indias banking giant State Bank of India and Australias Macquarie Group has launched an infrastructure fund to rise up to USD 3 billion for infrastructure improvements. India needs about $500 billion to repair its infrastructure such as ports, roads, and power units. Price of Petrol:Movement in oil prices also have an impact on demand for large cars in India. Demand for large cars declined in favour of smaller, more fuel efficient vehicles. The changing patterns in customer preferences for smaller more fuel efficient vehicles led to the launch of Tata Motors Nano one of worlds smallest and cheapest cars.

BASIS OF COMPETITION

Competition in this industry is high Competition in this industry is increasing Automotive industry is a volume driven industry and certain critical mass is a pre-requisite for attracting the much needed investment in research and development and new product design and development. Research and development investment is needed for innovations which is the lifeline for achieving and retaining competitiveness in the industry. The most important indices of competitiveness are productivity of both labour and capital. The concept of attaining competitiveness on the basis of low cost and abundant labour, favourable exchange rates, low interest rates and concessional duty structure is becoming inadequate and therefore, not sustainable.

LIFE CYCLE
The life cycle stage is growth

Life Cycle Reasons The market for manufacturing motor vehicles is consistently increasing. The products manufactured by this industry are profitable. Companies have been consistently opening new plats and employing over the past five years. Japanese and European manufacturers of motor vehicles have entered the market. Industry value added has been rising, along with the rise in GDP.

INDUSTRY CONDITIONS
Barriers to Entry Barriers to entry in this industry is high These barriers are study: The cost of developing high volume production facilities. The ability to gain access to technology of major global operators. The relatively high competition between established domestic companies and foreign companies. The automobile manufacturing sector is characterised by a high cyclical growth patterns, high fixed cost and break-even point levels, and an excessive number of participants. Barriers to entry into automobile manufacturing activity are formidable.

Taxation India has a well developed tax structure. The power to levy taxes and duties is distributed among the three tiers of Government, in accordance with the provisions of the Indian Constitution. The main taxes/duties that the Union Government is empowered to levy are:Income Tax Customs duties, Central Excise and Sales Tax and Service Tax. The principal taxes levied by the State Governments are:- Sales Tax , Stamp Duty, State, Land Revenue, Duty on Entertainment and Tax on Professions & Callings. The Local Bodies are empowered to levy tax on properties (buildings, etc.), Octroi (tax on entry of goods for use/consumption within areas of the Local Bodies), Tax on Markets and Tax/User Charges for utilities.

Excise Duty Central Excise duty is an indirect tax levied on those automobiles which are manufactured in India and are meant for home consumption. The taxable event is 'manufacture' and the liability of central excise duty arises as soon as the automobiles are manufactured. It is a tax on manufacturing, which is paid by a manufacturer, who passes its incidence on to the customers. Customs Duty Customs Duty (Import duty and Export tax) is a type of indirect tax levied on goods imported into India as well as on goods exported from India. Taxable event is import into or export from India

COST STRUCTURE

Capital and Labour Intensity The level of Capital Intensity is high The level of Labour intensity in medium The motor vehicle manufacturing industry requires significant level of capital investment. Value is added through the automated manufacturing and assembly of costly components.
Technology and Systems The level of technology change is high The rate of change in technology is medium Investment in technology by producers has been on the rise. Carburettor engines have become obsolete and Multi Point Fuel Injection (MPFI) engines are the order of the days in patrol cars Industry Volatility The level of volatility is medium.

KEY COMPETITORS

KEY FACTORS
Consumer Sentiment Index Description: Customer Sentiment Index, 12 month rolling average of the Index; historical and forecast data and analysis. End customers are very important to ensure the survival of the Motor Vehicle Manufacturing industry. Economic downturns and other events can affect the expenditure decision of households. When customers are not happy or optimistic about the future of the economy, they will tend to postpone expenditure until times are better. Domestic Goods Price Metal Iron and Steel Description: The price of input such as steel. Steel is a major input used when manufacturing a motor vehicle. Rises in the price of steel puts cost pressures on manufacturers, which often leads to a fall in profitability.

CONTD..
Import and Export Taxes (Duties) Motor Vehicle Tariffs Description: Tariff rates applicable to the industry High taffies may restrict flow of trade but may attract investment if domestic market is big enough and growing. Wold Price - Energy Crude Oil Description: The world price of crude oil, $US/barrel, and price analysis. The price of oil and petrol affect the driving habits of consumers and the type of car they buy

KEY SUCCESS FACTORS

Efficiency factor - Improve labour productivity, labour flexibility, and capital efficiency Resource Availability - Quality manpower availability, infrastructure improvements, and raw material availability Effective cost controls - Close relationship with supplies and goods distribution channels. Establishment of export markets - Growth of export markets Having an extensive distribution/collection network - Goods distribution channels Successful industrial relations policy - Ethical and tactical industrial relations Access to the latest available and most efficient technology and techniques - The degree of investment in technological improvements and product development Optimum capacity utilisation - The level of plant utilisation Management of high quality assets portfolio - Understanding implications from Government policies

SWOT ANALYSIS
STRENGTHS Large domestic market Sustainable labour cost advantage Govt incentives for manufacturing plant Strong engg skills in design Able to achieve significant gains in productivity WEAKNESS Low labor productivity High int. cost High overheads Rising cost of production Low investment in R&D OPPORTUNITIES Commercial vehicles Heavy thrust on mining & construction activity Increase in income level Rising rural demand

THREATS Rising interest rate Cut throat competition Lack of technology for indian companies

PORTERS FIVE FORCES