INTRODUCTION

The automobile industry is one of Indias most vibrant and growing industries. This industry
accounts for 22 per cent of the country's manufacturing gross domestic product (GDP). The
auto sector is one of the biggest job creators, both directly and indirectly. It is estimated that
every job created in an auto company leads to three to five indirect ancillary jobs.
India's domestic market and its growth potential have been a big attraction for many global
automakers. India is presently the world's third largest exporter of two-wheelers after China
and Japan. According to a report by Standard Chartered Bank, India is likely to overtake
Thailand in global auto-export market share by the year 2020.
The next few years are projected to show solid but cautious growth due to improved
affordability, rising incomes and untapped markets. With the governments backing, and
trends in the international scenario such as the decline in prices of natural rubber, the Indian
automobile industry is slated to witness some major growth.
Market size
The cumulative foreign direct investment (FDI) inflows into the Indian automobile industry
during the period April 2000 August 2014 was recorded at US$ 10,119.68 million, as per
data by Department of Industrial Policy and Promotion (DIPP).
Data from industry body Society of Indian Automobile Manufacturers (SIAM) showed that
137,873 passenger cars were sold in July 2014 compared to 131,257 units during the
corresponding month of 2013. Among the auto makers, Maruti Suzuki, Hyundai Motor India
and Honda Cars India emerged the top three gainers with sales growth of 15.45 per cent, 12
per cent and 11 per cent, respectively.
The three-wheeler segment posted a 24 per cent growth to 51,461 units on the back of
increased demands from the urban market. Total sales across different vehicle segments grew
12 per cent year on year (y-o-y) to 1,586,123 units.
Scooter sales have jumped by 29 per cent in the ongoing fiscal, and now form 27 per cent of
the total two-wheeler market from just 8 per cent a decade back. The ever-rising demand for
scooters, which has far outstripped supply has prompted Honda to set up its first dedicated
scooter plant in Ahmedabad.
Tractor sales in the country is expected to grow at a compound annual growth rate (CAGR)
of 89 per cent in the next five years making India a high-potential market for many
international brands.
INVESTMENTS
To match production with demand, many auto makers have started to invest heavily in
various segments in the industry in the last few months. Some of the major investments and
developments in the automobile sector in India are as follows:
Ashok Leyland plans to invest Rs 450500 crore (US$ 73.5481.71 million) in India, by way
of capital expenditure (capex) and investment during FY15. The company is required to
manage Rs 6,000 crore (US$ 980.56 million) of assets in seven locations across the world, for
which maintenance capex is needed.
Honda Motors plans to set up the world's largest scooter plant in Gujarat to roll out 1.2
million units annually and achieve leadership position in the Indian two-wheeler market. The
company plans to spend around Rs 1,100 crore (US$ 179.76 million) on the new plant in
Ahmedabad, and expand its range with a few more offerings.
Yamaha Motor Co has restructured its business in India. Now, Yamaha Motor India (YMI)
will take care of its India operations. The restructuring is part of Yamahas mid-term plan
aimed at improving organisational efficiency, as per Mr Hiroyuki Suzuki, Chief Executive
and Managing Director. YMI would be responsible for corporate planning and strategy,
business planning and business expansion, quality control, and regional control of Yamaha
India Business.
Tata Motors plans to use the 'hub-and-spoke' model in which India will be the key
manufacturing base while it will have mini-hubs in overseas markets. The company also
plans to set up mini hubs in potential markets like Africa, Middle-East and South East Asia.
Hero Cycles through its unit OPM Global has acquired a majority stake in German bicycle
company Mitteldeutsche Fahrradwerke AG (MIFA) for 15 million (US$ 19.11 million). The
company plans to invest an additional 4 million (US$ 5.09 million) as capital expenses in
restructuring the acquired company.


GOVERNMENT INITIATIVES
The Government of India encourages foreign investment in the automobile sector and allows
100 per cent FDI under the automatic route. To boost manufacturing, the government had
lowered excise duty on small cars, motorcycles, scooters and commercial vehicles to eight
per cent from 12 per cent, on sports utility vehicles to 24 per cent from 30 per cent, on mid-
segment cars to 20 per cent from 24 per cent and on large-segment cars to 24 per cent from
27 per cent.
The governments decision to resolve VAT disputes has also resulted in the top Indian auto
makers namely, Volkswagen, Bajaj Auto, Mahindra & Mahindra and Tata Motors
announcing an investment of around Rs 11,500 crore (US$ 1.87 billion) in Maharashtra.
The Automobile Mission Plan for the period 20062016, designed by the government is
aimed at accelerating and sustaining growth in this sector. Also, the well-established
Regulatory Framework under the Ministry of Shipping, Road Transport and Highways, plays
a part in providing a boost to this sector.
The Government of India-appointed SIAM and Automotive Components Manufacturers
Association (ACMA) are responsible in working for the development of the Indian
automobile industry.
Road Ahead
The future of the auto industry depends on the positive sentiments and the demand for
vehicles in the market. With the festival season coming up, the Indian auto sector will see a
rise in demand which is expected to bring in major growth. An auto dealer survey by firm
UBS suggested that the Indian auto industry, riding on trends like the upcoming festival
season and decline in fuel price, will observe a 12 per cent y-o-y growth in FY15.
Exchange Rate Used: INR 1 = US$ 0.0163 as on October 28, 2014.





MIACHEL POTTERS FIVE FORCE MODEL

RIVALRY AMONG FIRMS- HIGH
The key players in two-wheeler industries are Hero Honda motor ltd. (HHML), Bajaj Auto
ltd and TVS motor Company ltd. The other players are Kinetic, LML, Yamaha, Majestic auto
ltd, Royal Enfield ltd and Honda motorcycle & scooter India.
Two-wheelers domestic market growth rate for 2008-09 is 19.4% which is very high when
compared to that of three wheelers, Passenger and commercial vehicles.
Indian Auto policy 2002 gives added advantage to two-wheeler manufacturers to enter even
other countries outside India.
Since big manufacturer plant with high technology and good R&D team needed many of
them dose not enter in two-wheeler Industries. Only the companies which are in automobile
line will expand their product line like Mahindra.

(2)Threat of New Entrants LOW TO MODERATE
Capital investment is very huge
Sports bikes entering in Indian market
Harley Davidson launching in India

(3)Threat of Substitute Products Low to Moderate
Substitute products for two-wheeler industries are bus transportation, Auto transportation and
even low-end cars, but people using two-wheelers can only use the service of buses and auto
as a substitute product.
Sometimes low-end car is a substitute product for the people using high-end motorcycles.
Normal buses to hi-tech ac buses which is threat to two-wheeler industry.
Penetration of Metro trains in Metropolitans.

(4)Bargaining Power of Suppliers Low
Some of the components in two-wheeler industry are very common for all the two-wheeler
industries like steel, aluminium, tyres and tubes, these material are available in abundant.
This makes them to drive a smooth production of their finished products.
(5)Bargaining Power of Customer High
Buyer has added advantage than seller because there are five to six big popular brands of
two-wheelers are available in India, so that they can switch brand from one another.
Buyers are very conscious in spending their money to purchase two-wheeler, because it
attracts most of the middle-income groups seller cannot price their product very high.

FAILED PRODUCT
TATA NANO
When the Tata Nano, a stripped-down minicar priced at around $2,000, was introduced in
2009, it was marketed as a car that would transform the way aspiring consumers in India and
other developing countries got around.
But the low-cost automotive revolution fizzled. Selling poorly at home and with exports
drying up, the Nano has become a cautionary tale of misplaced ambitions and a drag on sales
and profit at TATA MOTORS Ltd. Indias fourth-largest auto maker and the owner of Jaguar
and Land Rover luxury vehicles.
It turns out that those climbing into India's middle class want cheap cars, but they don't want
cars that seem cheapand are willing to pay more than Tata reckoned for a vehicle that has a
more upmarket image.
Now, Nano is trying remake the "people's car," into the "cool people's car." It has given the
car itself a face-lift, adding a stereo, hubcaps and chrome trim, raised the price and started a
new marketing campaign to give it more cachet.
The remake failed to boost sales of the Nano, a Tata mainstay, the company's outlook could
be grim. Tata Motors has been laying off workers and cutting production. Analysts say
without a revival in Nano demand, Tata Motors could cut further jobs next year.
"This was the flagship product for the passenger-car market. The disappointing sales are a
pretty big negative for the group," said Anil Sharma, an analyst at IHS Automotive, an
industry consulting company.
Tata made a big bet on the Nano. It spent close to $400 million developing the vehicle and
hundreds of millions more building a factory capable of manufacturing 15,000 to 20,000 of
the tiny cars a month.
With sales now hovering around 2,500 a month, down from a peak of about 10,000 in April
2012, that means a lot of idle capacity at the plant in the western state of Gujarat, and a lot of
frustrated Tata dealers around the country.
Tata's September sales in India were down 40% from a year earlier. Second-quarter net
income for the company as a whole was down 23% year-to-year despite a large increase in
income from sales of Jaguars and Land Rovers. It was the company's third straight quarterly
decline in profit.
A sharp deceleration in the Indian economy this year that has hit auto sales across the board
isn't helping.
"I think I would be imprudent to say we aren't worried. We are," said Ankush Arora, the head
of Tata's passenger-vehicle business.
One of the few bright spots is Tata's U.K.-based Jaguar Land Rover luxury-vehicle unit
acquired from Ford Motor Co. in 2008. For the three months ended June 30, profit at that unit
rose 33% to 675 million ($1.07 billion), while sales rose 11% from a year earlier to 4
billion.
In August, Tata sold about the same number of Jaguar XF sedans than Nanos. Roughly 19
Nanos could be purchased for the about $47,000 starting price of an XF base model in the
U.S. market.
When Tata first designed the Nano, engineers tried to pare down features to keep costs in
check. The car is the least expensive mass-produced automobile in the world.
When the first models hit the roads, the base model had no air conditioning, no stereo and
just a single windshield wiper. The Spartan interior had no glove box and thinly padded seats
that didn't adjust.
WHY TATA NANO FAILED
ALTERNATIVES: For the price of a Nano, I could easily get a 3 year old "full" car. Why
would you spend 150,000 INR for a "toy" car? Nano is not suitable as the only car at home
given its various limitations. In Indian families, car rides can involve as many as 6 people on
a few occasions.
ASPIRATIONAL: Tata made it look utilitarian. However, Indian car buyers are not
utilitarian but aspirational. They want to show-off their car. Tata's marketing made sure that
the car looked "cheap" and not "hip". Tata re-positions 'cheap' Nano car
Intra-city transportation: In India, intra-city transportation is fairly well addressed by auto
rickshaws and taxis. It is the intercity transportation that middle class often needs the car for
(such as going to your family temple or visiting in-laws). These roads range from fast
highways to unstopped mud roads. Nano is terrible on both these roads.
PRICING NETHERLAND: Nano is priced at a range where it is too expensive for the
lower middle class and too shabby for the upper middle class. The class in-between always
looks to the upper class & upper middle class, and thus avoided altogether. TATA NANO:
Failure Due to Perception
UNCLEAR TARGETING: A college kid would rather pay Rs.80, 000 for a cool looking
Pulsar motorcycle than an Rs.150, 000 cheap car. For older people, the low suspension is
really uncomfortable. For family people, there is not enough space to keep stuff.