Automobile Industry in India

An Overview of the Indian Automobile Industry

Starting its journey from the day when the first car rolled on the streets of Mumbai in 1898, the Indian automobile industry has demonstrated a phenomenal growth to this day. Today, the Indian automobile industry presents a galaxy of varieties and models meeting all possible expectations and globally established industry standards. Some of the leading names echoing in the Indian automobile industry include Maruti Suzuki, Tata Motors, Mahindra and Mahindra, Hyundai Motors, Hero Honda and Hindustan Motors in addition to a number of others.

During the early stages of its development, Indian automobile industry heavily depended on foreign technologies. However, over the years, the manufacturers in India have started using their own technology evolved in the native soil. The thriving market place in the country has attracted a number of automobile manufacturers including some of the reputed global leaders to set their foot in the soil looking forward to enhance their profile and prospects to new heights. Following a temporary setback on account of the global economic recession, the Indian automobile market has once again picked up a remarkable momentum witnessing a buoyant sale for the first time in its history in the month of September 2009.

The automobile sector of India is the seventh largest in the world. In a year, the country manufactures about 2.6 million cars making up an identifiable chunk in the world’s annual production of about 73 million cars in a year. The country is the largest manufacturer of motorcycles and the fifth largest producer of commercial vehicles. Industry experts have visualized an unbelievably huge increase in these figures over the immediate future. The figures published by the Asia Economic Institute indicate that the Indian automobile sector is set to emerge as the global leader by 2012. In the year 2009, India rose to be the fourth largest exporter of automobiles following Japan, South Korea and Thailand. Experts state that in the year 2050, India will top the car volumes of all the nations of the world with about 611 million cars running on its roads.

At present, about 75 percent of India’s automobile industry is made up by small cars, with the figure ranking the nation on top of any other country on the globe. Over the next two or three years, the country is expecting the arrival of more than a dozen new brands making compact car models.

Recently, the automotive giants of India including General Motors (GM), Volkswagen, Honda, and Hyundai, have declared significant expansion plans. On account of its huge market potential, a very low base of car ownership in the country estimated at about 25 per 1,000 people, and a rapidly surging economy, the nation is firmly set on its way to become an outsourcing platform for a number of global auto companies. Some of the upcoming cars in the India soil comprise Maruti A-Star (Suzuki), Maruti Splash (Suzuki), VW Up and VW Polo (Volkswagen), Bajaj small car (Bajai Auto), Jazz (Honda) and Cobalt, Aveo (GM) in addition to several others.

History of the Automobile industry in India

The economic liberalization that dawned in India in the year 1991 has succeeded in bringing about a sustained growth in the automotive production sector triggered by enhanced competitiveness and relaxed restrictions prevailing in the Indian soil. A number of Indian automobile manufacturers including Tata Motors, Maruti Suzuki and Mahindra and Mahindra, have dramatically expanded both their domestic and international operations. The country’s active economic growth has paved a solid road to the further expansion of its domestic automobile market. This segment has in fact invited a huge amount of India-specific investment by a number of multinational automobile manufacturers. As a significant milestone in its progress, the monthly sales of passenger cars in India exceeded 100,000 units in February 2009.

The beginnings of automotive industry in India can be traced during 1940s. After the nation became independent in the year 1947, the Indian Government and the private sector launched their efforts to establish an automotive component manufacturing industry to meet the needs of the automobile industry. The growth of this segment was however not so encouraging in the initial stage and through the 1950s and 1960s on account of nationalization combined with the license raj that was hampering the private sector in the country. However, the period that followed 1970s, witnessed a sizeable growth contributed by tractors, scooters and commercial vehicles. Even till those days, cars were something of a sort of a major luxury. Eventually, the country saw the entry of Japanese manufacturers establishing Maruti Udyog. During the period that followed, several foreign based companies started joint ventures with Indian companies.

During 1980s, several Japanese manufacturers started joint-ventures for manufacturing motorcycles and light commercial-vehicles. During this time, that the Indian government selected Suzuki for a joint-venture to produce small cars. Following the economic liberalization in 1991 and the weakening of the license raj, several Indian and multi-national car companies launched their operations on the soil. After this, automotive component and automobile manufacturing growth remarkably speed-up to meet the demands of domestic and export needs.

Experts have an opinion that during the early stages the policies and the treatment by the Indian government were not favorable to the development of the automobile industry. However, the liberalization policy and various tax reliefs announced by the Indian government over the recent past have pronounced a significantly encouraging impact on this industry segment. Estimates reveal that owing to several boosting factors, Indian automobile industry has been growing at a pace of about 18% per year. Therefore, global automobile giants like Volvo, General Motors and Ford have started looking at India as a prospective hot destination to establish and expand their operations.

Like many other nations India’s highly developed transportation system has played a very important role in the development of the country’s economy over the past to this day. One can say that the automobile industry in the country has occupied a solid space in the platform of Indian economy. Empowered by its present growth, today the automobile industry in the country can produce a diverse range of vehicles under three broad categories namely cars, two-wheelers and heavy vehicles.

Exports of Automobile Industry

Today, India is among the world’s largest producers of small cars. The New York Times has rated India as a very strong engineering base with an incomparable expertise in the arena of manufacturing a number of low-cost, fuel-efficient cars has encouraged the expansion plans of the manufacturing facilities of a number of automobile leaders like Hyundai Motors, Nissan, Toyota, Volkswagen and Suzuki.

On 22 February 2010, Hyundai motors exported its 10,00,000th car, the feat which was achieved by the firm in just over 10 years. Hyundai Motors is the largest passenger car exporter and the second largest car manufacturer in the country. In the similar lines, General Motors has announced its plans to export not less than 50,000 cars made in India by the year 2011. In yet another proposal, Ford Motors is to setup a manufacturing facility costing about US$500 million in India with an annual capacity of 250,000 cars. The firm has stated that the facility will play a major part in its strategic plan to make India a hub for its global production business. In yet another significant move, Fiat motors has stated that it will source a big volume of auto components from India worth about US$1 billion. In the year 2009, India overtook China by emerging as the fourth largest exporter of cars in Asia.

Various Segments of the Indian Automobile Industry

Motor cycles manufacture makes up the major share in the two-wheeler segment of the Indian automobile industry. About 50% of the motorcylcles are manufactured by Hero Honda. While Honda manufactures about 46% of the scooters, TVS produces 82% of the mopeds running on the Indian roads.

About 40% of the three-wheelers manufactured in India are used for transporting goods with Piaggio manufacturing 40% of the vehicles sold in the Indian market. On the other hand, Bajaj has emerged as the leader in manufacturing three-wheelers used for passenger transport. The firm produces about 68% percent of the three wheelers used for passenger transport in India. The Indian passenger vehicle segment is dominated by cars which make up about 80% of it. Maruti Suzuki manufactures about 52% of passenger cars while the firm enjoys a complete monopoly in the manufacture of multi-purpose vehicles. In the utility vehicles segment Mahindra makes up a 42% share.

Tata Motors is the leader in the Indian commercial vehicles market while it holds more than 60% share. Tata Motors also enjoys the credit of being the world’s fifth largest manufacturer of medium and heavy commercial vehicles.

Potential of Indian Automobile Industry

There is a very stiff competition in the automobile industry segment in India. This has helped many to realize their dreams of driving the most luxurious cars. During the recent past, a number of overseas companies have started grabbing a big chunk of the market share in both domestic and export sales. Every new day dawns in India with some new launches by active players in the Indian automobile arena. By introducing some low cost cars, the industry had made it possible for common men to buy cars for their personal use. With some innovative strategies and by adopting some alternative remedial measures, the Indian automobile industry has successfully come unaffected out of the global financial crisis.

While the automobile industry in India is the ninth largest in the world, the country emerged as the fourth largest automobiles exporter on the globe following Japan, South Korea and Thailand, in the year 2009. Over and above, a number of automobile manufacturers based in India have expanded their operations around the globe also giving way for a number of reputed MNCs to enthusiastically invest in the Indian automobile sector.

Nissan Motors has revealed its prospective plans to export 250,000 vehicles produced in its India plant by the year 2011. General Motors has also come up with similar plans.

During the current fiscal year, the Indian automobile industry rode high on the resurgence of consumer demand in the country as a result of the Government’s fiscal stimulus and attractively low interest rates. As a result the total turnover of the domestic automobile industry increased by about 27 per cent.

A reply produced in the Lok Sabha recently has quoted data from the Society of Indian Automobile Manufacturers and has revealed that the total turnover of the Indian automobile Industry in April-February 2009-10 was 1,62,708.77 crore.

This is a remarkable achievement compared with the total revenue of Rs 1,28,384.53 crore reported during the same period of last fiscal year. Specifically, the segment of commercial vehicles witnessed the biggest jump in revenues by 31 per cent by reporting Rs 38,845.09 crore. During the same period, the passenger vehicle segment in the country witnessed a growth of 27 per cent over the last fiscal year by reporting a total revenue of Rs 76,545.96 crores. These figures imply a highly prospective road lying immediately ahead of the Indian automobile industry.

Predictions made by Ernst and Young have estimated that the Indian passenger car market will have a growth rate of about 12 percent per annum over the next five years to reach the production of 3.75 million units by the year 2014. The analysts have further stated that the industry’s turnover will touch $155 billion by 2016. This achievement will succeed in consolidating India’s position as the seventh largest automobiles manufacturer on the globe, eventually surging forth to become the third largest by the year 2030 behind China and the US.

The Automotive Mission Plan launched by the Indian government has envisaged that the country will emerge as the seventh largest car maker on the globe thereby contributing more than 10 percent to the nation’s $1.2-trillion economy.

Further, industry experts believe that the nation will soon establish its stand as an automobile hub exporting about 2.75 million units and selling about a million units to be operated on the domestic roads.