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Market Analysis of Automobile Industry in India 2013 Essay

Paper type: Analysis

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1. Introduction
Automobile industry is the key driver of any growing economy. Due to its deep forward and backward relation with almost every segment of the economy, the industry has a string and positive multiplier effect and thus propels progress of a nation. With the falling demands for vehicles in most of the mature markets due to the global recession, high fuel costs and urban driving restrictions, the industry is focusing its attention on expanding middle classes in the new powerhouses of China, India, Brazil, and other growing nations.

India’s per capita real GDP growth at 8.6% (CAGR) over the six year period 2005-2011 had contributed substantially towards raising the standard of living of households, which in turn had been one of the key drivers of growth for the country’s automobile industry. But over 2011-12 and 2012-13, inflationary conditions, firm interest rates, rising petrol prices as well as weak monsoons adversely impacted disposable incomes causing a consumption squeeze. [1]

According to the global automotive executive survey 2013 done by KPMG, 86% of the respondents feel market growth in emerging nations is an important trend- a view shared by auto executives from both the TRIAD market(Japan, Western Europe and North America) and the BRICs.

The developing markets along with e-mobility and the changing urban environment had brought about a change in the automobile industry. 56% of the respondents in the BRICs feel innovative urban vehicle design concepts are an important trend compared to 55% from the TRIADs. The Indian automobile market is one of the competitive markets with low costs, which make it an attractive assemble base for foreign automobile manufacturers. India is also the second fastest growing automobile market in the world after China.[2] 2. Market Segmentation

The automobile industry has been broadly divided into the two wheelers, passenger vehicles, commercial vehicles and three wheelers. The various sub divisions of each segment is shown in the following figure 2.1. Figure 2.1. Market Segmentation of Automobile Industry

Source http://www.ibef.org/download/Automotives-March-220313.pdf

Figure 2.1. Market Segmentation of Automobile Industry
Source http://www.ibef.org/download/Automotives-March-220313.pdf


The two wheelers dominate the production volumes in FY 2012, which contributed for more than three quarters of the total automobiles production in the country. India is the world’s 2nd largest two wheeler producer and the 4th largest commercial vehicle producer.

Figure 2.2. Market share by volume (FY12) Source http://www.siamindia.com/scripts/market-share.aspx 2. Passenger Vehicle Segments

The segments in the passenger vehicle industry are done based on the price, utility and the length of each vehicle. There are different parameters based on which the cars available in the Indian market are categorized. The technically defining parameters are based on the length of the car, engine capacity, features offered, seating capacity and structure of the car etc. SIAM or Society of Indian Automobile Manufacturers divides the Indian passenger vehicles in the segments A1, A2, A3, A4, A5, A6, B1, B2 and SUV. The classification is done solely based on the length of the automobiles. The details of the segments are mentioned as in table 2.1. Car Segment| Length of the car/Model type| Car model belonging to the segment| A1| Up to 3400mm| Nano|

A2| 3401 to 4000mm| Alto, i10, Zen, Wagon R|
A3| 4001 to 4500mm| Manza, Logan, Dzire, City|
A4| 4501 to 4700mm| Corolla, Octavia, Optra|
A5| 4701 to 5000mm| Accord, Camry, Sonata|
A6| More than 5000 mm| Mercedes S class|
B1| Vans| Versa, Omni|
B2| MUV/MPV| Sumo, Innova|
SUV| SUV| Vitara, CRV|
Table 2.1. Passenger car segmentation based on length
However, though it is simple and easy to divide the passenger cars based on their length, it is not at all practical. The price of a car isn’t determined by length only. A shorter car might be priced higher than a lengthier model. Also the features and configuration of the car models doesn’t depend on the car length. Hence, to avoid all the confusions the Indian passenger cars are popularly divided into the below mentioned segments according to the following properties, as in table 2.2.

Car Segment| Distinguishing feature of the cars in this segment| Car model belonging to the segment| A| Cars priced below Rs. 3.5 Lakh| Alto, Spark, Nano, Eon| A1| Hatchback priced lower than Rs. 6 Lakh| Santro, Indica, Beat| A2| Hatchback priced between Rs. 6 to 7.5 Lakh| Ritz, i10, i20, Swift, Figo| B1| Vans| Versa, Omni|

B2| MUV/MPV| Sumo, Innova|
C1| Sedan models priced below Rs. 8 Lakh| Indigo, Fiesta, Sunny| C2| Sedan models priced between Rs. 8 to 9.5 Lakh| Verna, Manza, Linea| D1| Premium Sedan models priced below Rs. 15 Lakh| Fluence, Corolla| D2| Luxury Sedan models priced below Rs. 25 Lakh| Sonata, Camry, Kizashi| SUV| SUV| Vitara, CRV|

Table 2.2. Passenger car segmentation based on price
Body type is the other most popular factor for classification of passenger vehicles. This segmentation process is not only limited to the Indian sub-continent, this is a common method that enjoys popularity throughout the world. The segments we suggest according to the car body types and the pricing are mentioned as in table 2.4. Range| Pricing|

Entry| Below 5 lakhs|
Economy| 5-15 lakhs|
Premium| 15-30 lakhs|
Luxury| 30-60 lakhs|
Super Luxury| 60 lakhs and above|
Table 2.3. Segment pricing
Car segment| Range| Cars in Indian market|
Hatchback| A1| Entry| Maruti Alto 800, Nano, Hyundai Eon, Maruti WagonR| | A2| Economy| Hyundai i20, Maruti Swift, Fiat Punto, Volkswagen Polo| | A3| Premium| BMW MiniCooper, Fiat 500, Volkswagen Beetle| | A4| Luxury| N.A.|

| A5| Super Luxury| |
MUV/MPV| B1| Entry| Maruti Eeco|
| B2| Economy| Maruti Ertiga, Toyota Innova, |
| B3| Premium| Mercedes Benz A-class, B-class|
| B4| Luxury| N.A.|
| B5| Super Luxury| |
SUV/Crossover| C1| Entry| Mahindra Thar|
| C2| Economy| Ford Ecosport, Renault Duster, Force One| | C3| Premium| Skoda Yeti, Mitsubishi Pajero, Toyota Fortuner, Maruti Grand Vitara| | C4| Luxury| BMW X1, Audi Q3, Landrover Freelander 2|

| C5| Super Luxury| Audi Q7, BMW X6, Volkswagen Tourareg| Sedan| D1| Entry| HM Ambassador|
| D2| Economy| Maruti Dezire, Nissan Sunny, Toyota Ethios| | D3| Premium| Maruti Kizashi, Skoda Superb, Hyundai Sonata| | D4| Luxury| Volvo S60, Audi A4, BMW 3 series, Audi S4| | D5| Super Luxury| Mercedes Benz S class, Audi S6, Audi A7, Jaguar XJ| Van| E1| Entry| Maruti Omni, Tata Venture|

| E2| Economy| Tata Winger, Tata Winger Platinum|
| E3| Premium| N.A.|
| E4| Luxury| |
| E5| Super Luxury| |
Table 2.4. Passenger car segments
3. Market Analysis
The various aspects involved in the automobile industry, namely the market size, market trends, penetration rate, growth rate, etc. are analyzed in this chapter. The distribution channel involved for the passenger vehicle segment is also discussed here. 3.1. Market Size

In the passenger vehicle segment, there has been an increase in sales by 1.20% in the FY 2012-13 compared to that of FY 2011-12 with figures of 20,626,227 units of production of passenger vehicles, as shown in figure 3.1. The cumulative average growth rate (CAGR) for the period from 2008-12 was 14% compared to the estimated CAGR for the period from 20013-21 which is 13%.

3.2. Market Trends
One of the major player in the world automotive industry is Indian car market. It is the second in automobile industry after China. Indian car industry is facing a serious problem is present year. Car sales are down by more than 6% in FY 2012-13 compare to last year of FY 2011-12. The main reasons are high interest rates, fuel price, high inflation, low movement in other sectors etc. But irrespective of the sales slump, Utility vehicle segment is having the maximum growth in this segment at 52%. Ertiga has put successful foot print this segment.

This vehicle is giving good competition to Innova. SUV segment also grown due to its fuel economy and price combination became top choice for larger families. Kerala now accounts for 10 per cent of India’s luxury car sales. Kochi in particular has emerged as India’s strongest growing market for luxury car brands like BMW, Audi, Mercedes and Jaguar Land Rover. Another major trend in the automobile industry is the age of the potential customers are decreasing with the role of IT and other industries. 3.3.Market Growth rate

The growth in passenger vehicle segment is at 2.15% for the FY 2012-13 compared to that of FY 2011-12. Cars have a negative growth of -6.69% when compared to that of utility vehicles which has an increase by 52.20% and vans with a minor growth of 1.08%.

Figure 3.3. Passenger Vehicle segment growth rate for FY 2012-13 Source http://autobei.com/blog/passenger-vehicle-analysis-fiscal-year-2012-13/

3.4. Market Penetration
India has shown a great potential in passenger vehicle segments with
penetration rate of 13 vehicles per 1000 population compared to the other BRIC countries making it the most attractive market for the industry presently. Figure 3.4. Market penetration for BRIC countries FY2010 per 1000 population Source Worldbank

Figure 3.4. Market penetration for BRIC countries FY2010 per 1000 population Source Worldbank

3.5. Market Opportunities
Car sales in India may be on a downside at the present but the total automobile market size will triple to 9.3 million units by 2020, according to global marketing information services company JD power. Driven by enhanced demand as the number of people with disposable income increases, the sector will grow at a compounded annual growth rate of 16% during the period as per the market research firm. They forecast India to have a consistent and gradual growth such that the automobile market will triple from the present size of about 9.3 million units.

3.6. Competition Intensity
3.7. Pricing Structure
3.8 Market Profitability

4. Distribution Channels
* Company has 246 local suppliers and 20 global ones – they all function in a seamless manner. The company strictly receives their supplies ordered the previous night in a two hour slot the next day. A far cry from the initial 30 day supply period. * The company had adopted Just In Time (JIT) to achieve higher operational efficiencies and reduce inventory carrying cost. Maruti Suzuki has adopted the e-Nagare system of electronic flow which has completely transformed its supplier chain. * To achieve JIT material supplies, the company has given preference to locally based suppliers. Over 76% of the company’s 246 suppliers are located within 100 kms of radius. They have strategically located the suppliers of bulky components such as instrument panels, fuel tanks, bumpers, seats, etc. adjacent to the company’s manufacturing facilities in the Suppliers’ Park.

* In order to enter new markets, Maruti Suzuki has ventured into contract manufacturing. For example vehicles manufactured in India are sold under the Nissan brand in European market. * Using a combination of Unix Shell programming, Oracle forms, .Net, and Windows FTP technology, the internal team brought transparency to the export supply chain. * Maruti Suzuki has 933 dealerships across 666 towns and cities in India. It has 2,946 service stations in 1,395 towns and cities throughout India. It has 30 Express service stations on 30 National Highways.

5. Competition
Maruti Suzuki is India’s largest OEM of passenger cars, netting about 55% of domestic sales. The biggest competitor for Maruti is Hyndai Motors. Quality Product/service| 0 50 100 Maruti / Hyundai| Reputation in eyes of customers| 0 40 50 100 Hyundai Maruti | Prices| 0 40 50 100 Maruti Hyundai | New productslaunch/development| 0 50 100 Maruti / Hyundai| Table 5.1

5.1. Success factors of Hyundai

* Refreshing the brand image is one of the key success factor of Hyundai. In the last decade, Hyundai Motor has made significant inroads in building its brand from the “Worst Car Ever Made” to a 72nd ranking in the 2007 Best Global Brand survey. * Efforts were made from Hyundai in this aspect and as a result, Hyundai Motor has been recognized as a producer of quality cars which are reliable and affordable * Stylish design of the products and tagline “ new thinking new possibilities” made the company to collaborate with its branding. * Global presence for Hyundai is high when compared to Maruti.

5.2. Competitors for Maruti
Hyundai, Toyota, Honda and Chevrolet are the main competitors for Maruti, with Hyundai and Chevrolet the main competitors in small car segment and Toyota and Honda joining in the race recently with the launch of Ethios and Brios respectively. 5.3. New competitors

* Honda is coming up with new cars which are targeting the same group of Maruti products Ex: Amaze, Dzire * Hyundai is coming up with Grand i10 as a competition for Swift. * Other car makers like Nissan, M&M are also releasing products in hatchback car segment rigorously which has to be faced by Maruti. 6. Reference

1) http://www.kpmg.com/KZ/ru/IssuesAndInsights/ArticlesAndPublications/Documents/KPMGs-Global-Automotive-Executive-Survey-2013.pdf 2) http://www.icra.in/Files/ticker/SH-2013-Q2-1-ICRA-Two-Wheeler.pdf 3) http://profit.ndtv.com/news/corporates/article-5-facts-about-indias-growing-two-wheeler-market-305607 4) http://autobei.com/blog/passenger-vehicle-analysis-fiscal-year-2012-13/ 5) http://www.strategy-business.com/article/00162?gko=8346f 6) http://www.cardekho.com/compare/hyundai-elantra-and-maruti-kizashi.htm 7) http://www.motorbeam.com/cars/maruti-suzuki/maruti-suzuki-ranks-highest-in-customer-satisfaction/ 8) http://cars.pricedekho.com

9) http://www.cardekho.com
10) http://www.prokerala.com/automobile/cars/
11) http://autoenthu.blogspot.in/2012/08/passenger-car-segments-india.html 12) http://profit.ndtv.com/news/industries/article-indian-auto-market-size-to-triple-to-9-3-million-units-by-2020-jd-power-319349 13)

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