INTRODUCTIONSince the first car rolled out on the streets of Mumbai (then Bombay) in 1898, the Automobile Industry of India has come a long way. During its early stages the auto industry was overlooked by the then Government and the policies were also not favorable. The liberalization policy and various tax relief by the Govt. of India in recent years has made remarkable impacts on Indian Automobile Industry. Indian auto industry, which is currently growing at the pace of around 18 % per annum, has become a hot destination for global auto players like Volvo, General Motors and Ford.

A well developed transportation system plays a key role in the development of an economy, and India is no exception to it. With the growth of transportation system the Automotive Industry of India is also growing at rapid speed, occupying an important place on the 'canvas' of Indian economy.

Today Indian automotive industry is fully capable in producing various kinds of vehicles and can be divided into 03 broad categories: Cars, two-wheelers and heavy vehicles.

The first automobile in India rolled in 1897 in Bombay.

India is being recognized as potential emerging auto market.

Foreign players are adding to their investments in Indian auto industry.

Within two-wheelers, motorcycles contribute 80% of the segment size.

Unlike the USA, the Indian passenger vehicle market is dominated by cars (79%).

Tata Motors dominates over 60% of the Indian commercial vehicle market.

2/3rd of auto component production is consumed directly by OEMs.

India is the largest three-wheeler market in the world.

India is the largest two-wheeler manufacturer in the world.

India is the second largest tractor manufacturer in the world.

India is the fifth largest commercial vehicle manufacturer in the world.

The number one global motorcycle manufacturer is in India.

India is the fourth largest car market in Asia - recently crossed the 1 million mark.

Global Automobile IndustryGrowth of Automobile industry:The production of automobiles in volume began in the early 1890s, in Western Europe. The USA started the production of both electric and gas automobiles by 1896. In 1903, Ford stepped in. The price of cars reduced from USD 850 in 1908 to USD 360 in 1916. The great depression and the World Wars saw a drop in sale; but the 1950s and 1960s were the glorious era for automobiles (driven by Ford, GM and Chrysler). Production reached 11 million units in 1970. Industry specialists indicate that international business in the automobile industry dates back to the technology transfer of Ford Motor Company's mass-production model from the U.S. to Western Europe and Japan following both World Wars I and II. This gives rise to two important trends. The first one is that, the advancements in industrialization led to significant increase in the growth and production of the Japanese and German automotive markets. The second important trend was that due to the oil embargo from 1973 to 1974, the export of fuel efficient cars from Japan to the U.S.

Earlier due to low fuel prices, US was producing muscle cars but after the oil price shocks US had to compete with Europe and Japan who succeeded in producing fuel efficient cars. For the first time, design, marketing, prices, customer satisfaction etc become important in the automobile market. By 1982, Japan became the world leader in US market. The potential growth opportunities led to global overcapacity in automobile industry. 1990s observed the merger and acquisition (M&A) and formation of strategic alliances to tackle this overcapacity problem.

Increasing global trade also act as a major factor for rising growth in world commercial distribution systems, which has also increased the global competition amongst the automobile manufacturers. Japanese automakers have instituted innovative production methods by modifying the U.S. manufacturing model. They are also capable of adapting and utilizing technology to enhance production and increase product competition. There are three major trends of world automotive industry, which are discussed briefly bellow:

Global Market Dynamics - The world's leading automobile manufacturers continue to invest into production facilities in emerging markets in order to reduce production costs and therefore rise in profits. These emerging markets include Latin America, China, Malaysia and other markets in Southeast Asia.

Establishment of Global Alliances Now-a-days, there is trend of joint venture in global automotive industry. Most of the giant automobile manufacturers are merging with each others. The big three U.S. automakers (GM, Ford and Chrysler) have merged with, and in some cases established commercial strategic partnerships with other European and Japanese automobile manufacturers. The Chrysler Daimler-Benz merger, were initiated by the European automaker in order to strengthen its position in the U.S. market. Overall, there has been a trend by the world automakers to expand by merging with other giant automotive companies in overseas markets*.

Industry Consolidation - Increasing global competition amongst the global manufacturers and positioning within foreign markets has divided the world's automakers into three groups, the first group being GM, Ford, Toyota, Honda and Volkswagen, and the two remaining group manufacturers attempting to consolidate or merge with other lower group automakers to compete with the first group companies. Diagram1 provides a snapshot view of this.

World automotive industry, in its early stages of development, was concentrated mainly in hands of developed countries like U.S., Japan etc. But as automobile industry become more and more standardized, the production base of most of auto-giant companies was shifted from the developed countries to developing countries. Standardization makes production more profitable in developing countries due to low cost of labor. Thats why countries like Thailand, China today are the main production base for many multinational automobile companies, and that explain why this study is concentrated only on selected countries in Asia.

Production:Today, the large car manufacturers has a production facility in the different markets and from each platform a car is produced for that market as well as for exports to other markets. Big players in automobile industry do not have just one big factory which exports its products to all other countries. In addition, the products are not identical in each different market. It may have the same technical platform, but the design and the options and features differ between countries. They are different because the demands of customers differ between countries. For example, in South America, incomes are lower than in Western Europe and customers need more affordable cars. In the USA the customers want more space in the car, and that's an important factor for a car to be successful there. On the contrary, small cars are quite popular in India. It is not possible to be in the high volume market and to send the same cars to every market all over the world. So car makers are researching what their customers want and changing the car for each market otherwise they will loose customers. More and more CKD (completely knocked down) cars are being produced for some countries in smaller volumes. That is often the case if there are barriers to exporting cars to particular countries, and they are only being sold in smaller volumes. With larger markets, where sales of particular models are high, companies really need their own plant which has its own suppliers of parts.

Due to sharp competition and changing customer demand, product development process advances have been more significant than changes in product architecture. Product cycles continue to grow shorter as more companies adopt the simultaneous engineering approach pioneered by Japanese automakers. At the same time, advances in Computer-Aided Design (CAD) and Computer-Aided Engineering (CAE) tools are being used to replace physical prototypes and testing processes. Now, major players (in post M&A situation) take greater responsibility for product design and allow production base to get shifted to advantageous location for low cost. However, still due to lack of standardization, number of tiers at the supply chain is not reduced. Moreover, when design is replicated with modification for physical product development, several domestic issues need to be taken into consideration. These are mainly legal liability, and regulatory procedures. Furthermore, there is a technological move towards modules, i.e. self-contained functional units with standardized interfaces that can serve as building blocks for a variety of different products. Modularization is expected to reshape the entire supply chain in automobile industry as component designs will gradually get shifted to supplier companies. This is expected to reduce cost significantly and increase efficiency.

Supply Chain:Automobile companies have adopted a strategy of global perspective in their operation. Growth of transplants in 1990s led to a presence of all competitors in virtually every corner of the globe. By focusing on common platforms and interchangeable modules, companies are able to make faster and lower cost deployment of new solutions across the whole product range, while tailoring vehicles to a multitude of tastes and preferences of consumers in the world. Moreover, they can assure enough differentiation between products to cope with proliferation while maintaining scale efficiency and a proper management of brand equity (Lung et al. 1999). As a result, major automakers are now operating on a global scale. With new investments, firms are also trying to replicate supply chain structures, demanding suppliers to be present in the new regions where they are located, often near their plants.

The supply chain of auto industry has completely changed over the years. Major OEM (original equipment manufacturer) players world-wide are increasingly focusing on basic design and assembly operations as well as servicing the after-sales market and prefer to deal with a smaller number of large suppliers. Consequently, the supply chain is morphing into sub-system integrators, component makers, and commodity players. The segregation is increasingly defined by risk sharing which was earlier defined by only cost pressure. Tier 1 suppliers (concentrating on system supply, module assembly and sub supplier management) are taking increasing risk from major players shifting the cost pressure to Tier 2 supplier who concentrate only on production of sub components.

In general, suppliers can be divided into few groups such as Systems Integrator (capable of designing and integrating components, subassemblies), Global Standardized-Systems Manufacturer (specialist in design, development and manufacturing of complex systems), Component Specialist (produces specific component or subsystem for a given car or platform) and Raw Material Supplier.In Asia-Pacific region, the growth of component manufacturers has taken a different route. Most of the Japanese producers followed a tight relationship with their suppliers (independent or quasi-independent). The existence of the keiretsu system (business affiliation) in Japan greatly facilitated such an arrangement. But other manufacturers especially Korean, Chinese and Indian gave lot of importance on price and quality while buying from number of trusted suppliers. As a result of this indigenous auto-component sectors are thriving in many Asian countries though some MNCs are also present.

Diagram 1

Pricing:Pricing of automobiles is a complex issue as it is dependant on fixed cost, economies of scale, technology and other aspects. Competition and consumer demand also play important role in this. Currently, most of the automobiles companies consider price reduction as major strategic move for survival. For price reduction, companies need to take series of decisions at every stage of production and selling; starting from managing factors of production and supply chain to negotiation with dealers. Price is one of the factors that influences sales variability of products and services significantly.

Many companies take strategy of different pricing policies for different product segments of the considering the expected value to the customers through the offered products. Companies develop innovative strategies to maximize profits without hurting customers. Pricing is adjusted to the qualities, purchase volume, development potential, loyalty and profitability factors.

In the USA, earlier GM used to announce price in late summer and Chrysler and Ford would follow suit. However, foreign competition and erosion of domestic concentration has changed price uniformity. Prices are now continually altered throughout year. In general, price variation is subject to mark-ups, costs and also imports duties and other trade barriers (Goldberg and Verboven, 1998).

International Trade:The dynamics of international trade in automobile sector attracted attention of economists and policy makers to formulate trade strategy. International trade of automobiles has been influenced both by liberalization as well as protectionism. In the 1970s and 1980s, the U.S. auto industry faced its first major challenge from foreign competition as Japanese automakers aggressively entered the American market. The decline of automobile sector in USA and rising Japanese imports led to protectionism in USA through imposition of quota. This led to voluntary export restraints (VER) from Japan anticipating further restriction. In contrast to Japanese producers, companies from the USA were catering mainly to domestic market. In the post quota period, when Japanese players reduced prices in US market, domestic players were unable to compete. Due to very high level of output and efficiency, Japanese players achieved significant economies of scale which was unattainable for US automobile giants. Chart 1

INDIAN AUTOMOBILE INDUSTRY

IndustryIndian automobile industry in India is as well developed as any top industrial nations. Long years of License Raj and protectionism led to the development of various segments of automobile industry. There are a large number of well-entered players in all segments of the automobile industry as depicted in the following table.

Diagram 2

There are also exists a huge market and production base fro specialty vehicles like Tractors, Earthmoving vehicles, Cranes etc. But despite having a well-developed industry and a large market, the industry still has not been able to realize its full potential owing to the following reasons.

Low purchasing power

Price sensitive market

Pent up/suppressed demand

Existence of a large middle class

Insufficient transportation infrastructure

India as a country has a per capita income of around US$318 per annum. That is very miniscule compared with that of developing nations like Japan or the USA, which is in the range of $20000. Hence the emphasis on large market size of a billion people quietly diminishes. Thereafter the existence of a large middle class and that too with a majority of them in the lower end ensures that the disposable income left with the masses is comparatively less. Hence the possession of an automobile is considered a luxury and often avoided by people.

But the scenario is after all not that bad and the industry as a whole is growing in terms of volume albeit the profitability and profit margin is of question. To have a better grasp of the situation let us review each segment individually.

Heavy commercial vehicles:

In India the commercial vehicles are graded according to their Gross Vehicle Weight (GVW). It is as under:

LCV: Intermediate commercial vehicle with GVW of 8 to 10 ton

MCV: Medium commercial vehicles with GVW of 10 to 15 ton.

HCV: GVW of 16 ton and above.

But the gradation apart, the segment is more recognizes by its utility such as the vehicles which carry passenger are called buses and those specializing in carrying loads as trucks. Since 80% of commercial vehicles are purchased on credit, the availability of credit is a major factor influencing demand. The credit squeeze affects the demand negatively. The other important factors influencing demand of CV are depreciation norms, diesel prices and changes in the Motor Vehicle Act.

Light commercial vehicles:

Like the Heavy vehicles segment, the LCV, which are also essentially freight carriers are equally important. Small freight loads over small distance are transported through these vehicles. In India in rural areas, these vehicles also ferry passengers over short distances. This segment is much more populated and competitive than the HCV. The liberalization of government policy with respect to foreign, technical and financial collaboration lead to a sudden spurt in technical collaboration in LCV segment.

The LCV segment is populated with six players with Telco being the traditional market leader by a wide margin.

Passenger car segment:

The first motorcar on the streets of India was seen in 1898. Mumbai had its first taxicabs in the early 1900. Then for the next fifty years, cars were imported to satisfy domestic demand. The Indian car industry can be classified, based on the price of the car into four segments. The demand for passenger cars can be segmented on the basis of the user segment as those bought by taxi operators, government/non government institutions, individual buyers etc. A major portion of the de4mand in India accrues mainly from personal vehicle owner.

The demand for cars is dependent on a number of factors. The key variables are per capita income, introduction of new models, availability & cost of car financing schemes, price of cars, incidence of duties and taxes depreciation norms, fuel cost and its subsidization, public transport facilities etc. The first four factors have positive relationship with the demand whereas others have an inverse relationship with demand for cars.

Two Wheelers Segment:

The two-wheeler segment like the passenger is very heterogeneous and could be split on basis of usage, load capacity, stroke engine, utility and appeal. In India it is generally sub-segmented into Motorbikes, Scooters, Scooterettes and Mopeds. The promotional and marketing outgo would rise steadily for the two-wheelers producers; the emphasis would now be on aesthetics, design, and product positioning and market segmentation. As a result, the consumer would be the ultimate beneficiary with the choice of more models with superior features.

Special Utility Vehicles:

This segment is also a very important segment but finds very less mention among the analysts in spite of its direct bearing on the economy. The probable reason for this trend is that the vehicle seems mundane and lacks the glamour of the luxury cars. The segment comprises of Tractors, Earth Moving Equipments and Material Handling.

HISTORYThe origin of automobile is not certain. In this section of automobile history, we will only discuss about the phases of automobile in the development and modernization process since the first car was shipped to India. We will start automotive history from this point of time.

The automobile industry has changed the way people live and work. The earliest of modern cars was manufactured in the year 1895. Shortly the first appearance of the car followed in India. As the century turned, three cars were imported in Mumbai (India). Within decade there were total of 1025 cars in the city.

The dawn of automobile actually goes back to 4000 years when the first wheel was used for transportation in India. In the beginning of 15th century Portuguese arrived in China and the interaction of the two cultures led to a variety of new technologies, including the creation of a wheel that turned under its own power. By 1600s small steam-powered engine models was developed, but it took another century before a full-sized engine-powered vehicle was created.

The actual horseless carriage was introduced in the year 1893 by brothers Charles and Frank Duryea. It was the first internal-combustion motor car of America, and it was followed by Henry Ford's first experimental car that same year.

One of the highest-rated early luxury automobiles was the 1909 Rolls-Royce Silver Ghost that featured a quiet 6-cylinder engine, leather interior, folding windscreens and hood, and an aluminum body. It was usually driven by chauffeurs and emphasis was on comfort and style rather than speed.

During the 1920s, the cars exhibited design refinements such as balloon tires, pressed-steel wheels, and four-wheel brakes. Graham Paige DC Phaeton of 1929 featured an 8-cylinder engine and an aluminum body.

The 1937 Pontiac De Luxe sedan had roomy interior and rear-hinged back door that suited more to the needs of families. In 1930s, vehicles were less boxy and more streamlined than their predecessors. The 1940s saw features like automatic transmission, sealed-beam headlights, and tubeless tires.

The year 1957 brought powerful high-performance cars such as Mercedes-Benz 300SL. It was built on compact and stylized lines, and was capable of 230 kmh (144 mph).

This was the Indian automobile history, and today modern cars are generally light, aerodynamically shaped, and compact. Overview of Automotive Mission PlanThe 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 now attained a turnover of Rs. 1,65,000 crores (34 billion USD, assuming 1$ = Rs. 55) and an investment of Rs. 50,000 crores. Over Rs. 50,000 crores of investment is in pipeline in the vehicle industry alone. The industry is providing direct and indirect employment to 1.31 crore people. It is also making a contribution of 17% to the kitty of indirect taxes. The export of automotive sector has grown on an average 30% per year during the last five years. The export earnings from this sector is estimated at over 5 billion USD out of which the share of vehicle sector is 2.8 billion USD during the year 2006-07.

Even with this rapid growth, the Indian Automotive Industrys contribution in global terms is very low. This is evident from the fact that even though passenger and commercial vehicles have crossed the production figure of 2.0 million in the year 2006-07, yet Indias share is about 2.9 percent of world production of 66.46 million passenger and commercial vehicles. Indian automotive export constitutes only about 0.3% of global trade.

It is a well accepted fact that the 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. R&D investment is needed for innovations which is the life-line for achieving and retaining the competitiveness in this industry. This competitiveness in turn depends on the capacity and the speed of the industry to innovate and upgrade. The most important indices of competitiveness are productivity of both labor and capital. The concept of attaining competitiveness on the basis of cheap and abundant labour, favourable exchange rates, low interest rates and concessional duty structure is becoming inadequate and therefore, not sustainable. In light of the above, it is felt that a greater emphasis is required on the development of the factors which can ensure competitiveness on a long-term basis.

India with its rapidly growing middle class (450 million in 2007 as per NCAER Report), market oriented stable economy, availability of trained manpower at competitive cost, fairly well-developed credit and financing facilities and local availability of almost all the raw materials at a competitive cost has offered itself as one of the favorite destination for investment for the automotive manufacturers. These advantages need automotive manufacture to be exploited in a manner to attain the twin objective of ensuring availability of best quality product at lowest cost to the consumers on the one hand and developing and assimilating the latest technology in the industry on the other hand. The Government recognizes its role as a catalyst and facilitator to encourage the companies to move to higher level of competitive performance. The Government wants to create a policy environment to help companies gain competitive advantage. The government policies target to encourage growth, promote domestic competition and stimulate innovation.

It is also felt that a general improvement in availability of trained manpower and good infrastructure is required for the sustainable growth of the industry. Besides, specialized and industry-specific initiatives can lead to competitive advantage. Keeping in view the above factors, the Government has launched a unique initiative of National Automotive Testing and R&D Infrastructure Project (NATRIP) to provide specialized facilities for Testing, Certification and Homologation to the industry. A similar initiative is required for creating specialized institutions in automotive sector for education, training and development, market analysis and formulation and dissemination of courses in automotive sector.

It has been noticed that the Auto Industry has grown in clusters of inter-connected companies which are linked by commonalities and complementarities. The major clusters are in and around Manesar in North, Pune in West, Chennai in South, Jamshedpur-Kolkata in East and Indore in Central India. The Ministry of Heavy Industries and Public enterprises is envisaging in the Eleventh Five-Year Plan period to create a National Level Specialized Education and Training Institute for Automotive Sector and to enhance the transportation, communication and export infrastructure facilities through concerned Ministries in and around these clusters. The Government will make attempts to streamline the relevant Government Institutions and Educational and Research Institutions in and around the clusters to meet the growing needs of the automotive sector.Automobile Dealers Network in India

In terms of Car dealer networks and authorized service stations, Maruti leads the pack with Dealer networks and workshops across the country. The other leading automobile manufactures are also trying to cope up and are opening their service stations and dealer workshops in all the metros and major cities of the country. Dealers offer varying kind of discount of finances who in tern pass it on to the customers in the form of reduced interest rates.

Major Manufacturers of Automobiles in India Daimler Chrysler India Private Ltd Fiat India Private Ltd Honda Siel Cars India Ltd Toyota Kirloskar Motor Ltd Skoda Auto India Private Ltd

Audi Ag

Bmw

Chevrolet

Force Motors

Nissan Motor Co. Ltd

Porsche

Reva Electric Car Co Daimler Chrysler India Private Ltd Fiat India Private Ltd Hero Honda Ltd.

Rolls-Royce Motor

Car Companies In India

Tata Motors

Maruti Udyog Ltd.

General Motors India

Ford India Ltd.

Eicher Motors

Bajaj Auto

Daewoo Motors India

Hero Motors

Hindustan Motors

Hyundai Motor India Ltd.

Royal Enfield Motors

Tvs Motors

Swaraj Mazda Ltd

Domestic SalesThe cumulative growth of the Passenger Vehicles segment during April 2007 March 2008 was 12.17 percent. Passenger Cars grew by 11.79 percent, Utility Vehicles by 10.57 percent and Multi Purpose Vehicles by 21.39 percent in this period.

The Commercial Vehicles segment grew marginally at 4.07 percent. While Medium & Heavy Commercial Vehicles declined by 1.66 percent, Light Commercial Vehicles recorded a growth of 12.29 percent.

Three Wheelers sales fell by 9.71 percent with sales of Goods Carriers declining drastically by 20.49 percent and Passenger Carriers declined by 2.13 percent during April- March 2008 compared to the last year.

Two Wheelers registered a negative growth rate of 7.92 percent during this period, with motorcycles and electric two wheelers segments declining by 11.90 percent and 44.93 percent respectively. However, Scooters and Mopeds segment grew by 11.64 percent and 16.63 percent respectively.

Table 1

Automobile Domestic Sales Trends

Category2005-062006-072007-082008-092009-102010-11CAGR

Passenger Vehicles707,198 902,096 1,061,572 1,143,076 1,379,979 1,547,985 17.19

Commercial Vehicles190,682 260,114 318,430 351,041 467,765 486,817 28.11

Three Wheelers231,529 284,078 307,862 359,920 403,910 364,703 9.39

Two Wheelers4,812,126 5,364,249 6,209,765 7,052,391 7,872,334 7,248,589 8.62

Grand Total5,941,535 6,810,537 7,897,629 8,906,428 10,123,988 9,648,094

Source : SIAMChart 2

Source: SIAMTable 2CategoryPassenger Vehicles GrowthCommercial Vehicles GrowthThree Wheelers GrowthTwo Wheelers GrowthCAGR

2003-042836.41231117.19

2004-051822.4281628.11

2005-06810.2417149.39

2006-072133.2512128.62

2007-08124.07-10-8

Source : SIAMChart 3

Source : SIAM ExportsAutomobile Exports registered a growth of 22.30 percent during the current financial year.

The growth was led by two wheelers segment which grew at 32.31 percent. Commercial vehicles and Passenger Vehicles exports grew by 19.10 percent and 9.37 percent respectively. Exports of Three Wheelers segment declined by 1.85 percent.

Table 3Automobile Exports Trends

Category2002-032003-042004-052005-062006-072007-08CAGR

Passenger Vehicles72,005 129,291 166,402 175,572 198,452 218,41824.49

Commercial Vehicles12,255 17,432 29,940 40,600 49,537 58,99936.61

Three Wheelers43,366 68,144 66,795 76,881 143,896 141,23526.52

Two Wheelers179,682 265,052 366,407 513,169 619,644 819,84735.08

Grand Total307,308 479,919 629,544 806,222 1,011,529 1,238,499

Source : SIAMChart 4

Source : SIAMTable 4CategoryPassenger Vehicles GrowthCommercial Vehicles GrowthThree Wheelers GrowthTwo Wheelers GrowthCAGR

2003-0479.55836442.24398257.13692847.51171524.49

2004-0528.70346771.753098-1.97963138.23966636.61

2005-065.510751135.60454215.09993340.05436626.52

2006-0713.03169122.01231587.1671820.74852535.08

2007-0810.06087119.100874-1.84925232.309358

Source : SIAMChart 5

Source : SIAMAnalysis of Indian Automobile two wheeler Exports:

Strengths:-

Cost competitiveness in terms of labor and raw material.

Established manufacturing base. Economics of scale due to domestic market.

Potential to harness global brand image of the parent company.

Global hub policy for small car like Hyundai, Suzuki, etc.

Weakness

Perception about quality.

Infrastructure bottlenecks.

Opportunities

Huge export markets such as Europe, America, Africa, and others for Indian cars.

Threats

China, Malaysia, Thailand, etc.

Many other countries also have strategies for export promotion.

Export Imperatives:

Internal Factors:

Attaining high quality for global standards.

Continuous cost reduction for global competitiveness.

Supply chain management (logistics).

Attaining economies of scale & scope.

External Factors:

Improve infrastructure (ports, roads, etc).

Improve EXIM regulations.

ImportsEurope is the biggest importer of cars from India, while African nations largely account for the import of buses and trucks. China is most recently making inroads into this market. The South-East Asian region is the prime destination for Indian two wheelers. Indian Automobile Industry ProductionAccording to the Society of Indian Automobile Manufacturers, the Indian automobile industry has reached double-digit growth for the past three years in a row. In 2006, the industry produced 10.9 million vehicles, an increase of 16.22% over 2005. In 2005, production grew 14.5% over the previous year. The production of the automotive industry is expected to achieve a growth rate of over 20 per cent in 2006-07 and about 15 per cent in 2007-08.

Table 5Automobile Production Trends

Category2002-032003-042004-052005-062006-072007-08CAGR

Passenger Vehicles723,330 989,560 1,209,876 1,309,300 1,545,223 1,762,131 19.23

Commercial Vehicles203,697 275,040 353,703 391,083 519,982 545,176 21.14

Three Wheelers276,719 356,223 374,445 434,423 556,126 500,592 12.42

Two Wheelers5,076,221 5,622,741 6,529,829 7,608,697 8,466,666 8,026,049 9.31

Grand Total6,279,967 7,243,564 8,467,853 9,743,503 11,087,997 10,833,948

Chart 6

Source : SIAM

Source : SIAMAutomobile Industry is the largest industry in India with an impressive growth in the last two decades. The reason behind the growth was abolition of licensing in 1991 and permitting automatic approval and successive liberalization of the sector.

According to estimation the compound annual growth rate (CAGR) of Indian Automobile sales will grow at 9.5% and will touch a mark of 13,008 million by 2010. The figure for FY05 was 8.45 million units. To tap this large opportunity, the Indian Auto Companies along with the global giants have announced huge expansion plans.

Maruti Udyog Ltd. was the largest 4-Wheelers producer in 2005-06 followed by Tata Motors. Hyundai did well but the difference was nearly half of Tata Motors. In 2-Wheelres segment, Hero Honda is leading putting behind Bajaj Auto Ltd. Table 6CategoryPassenger Vehicles GrowthCommercial Vehicles GrowthThree Wheelers GrowthTwo Wheelers GrowthCAGR

2003-0436.8061635.0240828.73095110.76627719.23

2004-0522.26403728.6005675.115335116.13248821.14

2005-068.217701610.56818916.0178416.52214812.42

2006-0718.01901832.959528.01486111.2761629.31

2007-0814.0373274.8451677-9.985867-5.204138

Source : SIAMChart 7

Source : SIAM Capacity

The Automobile Manufacturers have put up a robust manufacturing capacity of 95 lakh plus vehicles per annum since 1993. Today India is the worlds second largest manufacturer of two wheelers, fifth largest manufacturer of commercial vehicles and manufactures largest number of tractors in the world.

The country offers fourth largest passenger car market in Asia today. A supplier driven market, having no more than a handful of vehicular models two decades ago, now offers more than 150 models and variants by way of customer options

The table below gives the production numbers of passenger cars in the past few years.

Now in financial year 2007-8 2.24million capacity of Four Wheeler. 12.69million of Two & three Wheeler, 0.79 million of Engine.

Table 7Installed Capacities in the Indian Automobile Industry 2007-08

2006-072007-08

Installed Capacity (In Million)Installed Capacity (In Million)

a) Four Wheelers1.79a) Four Wheelers2.24

b) Two &Three Wheelers10.59b) Two &Three Wheelers12.69

c) Engines0.29c) Engines0.39

Source : SIAM CURRENT MARKET SHARES IN INDIAN AUTOMOBILE INDUSTRY:Table 8

Domestic Market Share for 2007-08

CVs5.05%

Total Passenger Vehicles16.4%

Total Two Wheelers75.13%

Three Wheelers3.78%

Source : SIAMChart 8

Source : SIAMIndian Automobile two-wheeler industry

Historical Development: Evolution Of Two-Wheeler Industry In India.India is the second largest manufacturer and producer of two-wheelers in the world. India manufactures about 38, 00,000 2-wheelers. It stands next only to Japan and China in terms of the number of two-wheelers produced and domestic sales respectively. This distinction was achieved due to variety of reasons like restrictive policy followed by the Government of India towards the passenger car industry, rising demand for personal transport, inefficiency in the public transportation system etc.

The Indian two-wheeler industry made a small beginning in the early 50s when Automobile Products of India (API) started manufacturing scooters in the country. The two-wheeler industry (henceforth TWI) in India has been in existence since 1955. It consists of three segments viz., scooters, motorcycles, and mopeds. Until 1958, API and Enfield were the sole producers. In 1948, Bajaj Auto began trading in imported Vespa scooters and three-wheelers. Finally, in 1960, it set up a shop to manufacture them in technical collaboration with Piaggio of Italy. The agreement expired in 1971.

In the initial stages, API dominated the scooter segment; Bajaj Auto later overtook it. Although various government and private enterprises entered the fray for scooters, the only new player that has lasted till today is LML. Under the regulated regime, foreign companies were not allowed to operate in India. It was a complete seller market with the waiting period for getting a scooter from Bajaj Auto being as high as 12 years.

The motorcycles segment was no different, with only three manufacturers viz Enfield, Ideal Jawa and Escorts. While Enfield bullet was a four-stroke bike, Jawa and the Rajdoot were two-stroke bikes. Enfield 350cc bikes and Escorts 175cc bike initially dominated the motorcycle segment.

The two-wheeler market was opened to foreign competition in the mid-80s. And the then market leaders - Escorts and Enfield - were caught unaware by the onslaught of the 100cc bikes of the four Indo-Japanese joint ventures. With the availability of fuel-efficient low power bikes, demand swelled, resulting in Hero Honda - then the only producer of four stroke bikes (100cc category), gaining a top slot. The first Japanese motorcycles were introduced in the early eighties. TVS Suzuki and Hero Honda brought in the first two-stroke and four-stroke engine motorcycles respectively. The industry had a smooth ride in the 50s, 60s and 70s when the Government prohibited new entries and strictly controlled capacity expansion. The industry saw a sudden growth in the 80s. The industry witnessed a steady growth of 14% leading to a peak volume of 1.9mn vehicles in 1990.

The entry of Kinetic Honda in mid-eighties with a variometric scooter helped in providing ease of use to the scooter owners. This helped in inducing youngsters and working women, towards buying scooters, who were earlier inclined towards moped purchases. In the 90s, this trend was reversed with the introduction of scooters. In line with this, the scooter segment has consistently lost its part of the market share in the two-wheeler market.

In 1990, the entire automobile industry saw a drastic fall in demand. This resulted in a decline of 15% in 1991 and 8% in 1992, resulting in a production loss of 0.4mn vehicles. Barring Hero Honda, all the major producers suffered from recession in FY93 and FY94. Hero Honda showed a marginal decline in 1992. The reasons for recession in the sector were the incessant rise in fuel prices, high input costs and reduced purchasing power due to significant rise in general price level and credit crunch in consumer financing. Factors like increased production in 1992, due to new entrants coupled with the recession in the industry resulted in company either reporting losses or a fall in profits.

The share of two-wheelers in automobile sector in terms of units sold was about 80 per cent during 2003-04. This high figure itself is suggestive of the importance of the sector. In the initial years, entry of firms, capacity expansion, choice of products including capacity mix and technology, the State machinery, effectively controlled all critical areas of functioning of an industry. The lapses in the system had invited fresh policy options that came into being in late sixties. Amongst these policies, Monopolies and Restrictive Trade Practices (MRTP) and Foreign Exchange Regulation Act (FERA) were aimed at regulating monopoly and foreign investment respectively. This controlling mechanism over the industry resulted in: (a) several firms operating below minimum scale of efficiency; (b) under-utilization of capacity; and (c) usage of outdated technology. Recognition of the damaging effects of licensing and fettering policies led to initiation of reforms, which ultimately took a more prominent shape with the introduction of the New Economic Policy (NEP) in 1985.

However, the major set of reforms was launched in the year 1991 in response to the major macroeconomic crisis faced by the economy. The industrial policies shifted from a regime of regulation and tight control to a more liberalized and competitive era. Two major results of policy changes during these years in two-wheeler industry were that the, weaker players died out giving way to the new entrants and superior products and a sizeable increase in number of brands entered the market that compelled the firms to compete on the basis of product attributes. Finally, the two-wheeler industry in the country has been able to witness a proliferation of brands with introduction of new technology as well as increase in number of players. However, with various policy measures undertaken in order to increase the competition, though the degree of concentration has been lessened over time, deregulation of the industry has not really resulted in higher level of competition.

Chart 9

Source : SIAM Evolution of the Indian two-wheeler industry

The two-wheeler industry (henceforth TWI) in India has been in existence since 1955. It consists of three segments viz., scooters, motorcycles, and mopeds. The increase in sales volume of this industry is proof of its high growth. In 1971, sales were around 0.1 million units per annum. But by 1998, this figure had risen to 3 million units per annum. Similarly, capacities of production have also increased from about 0.2 million units of annual capacity in the seventies to more than 4 million units in the late nineties.The TWI in India began operations within the framework of the national industrial policy as espoused by the Industrial Policy Resolution of 1956. (See Government of India 1980, 1985, 1992). This resolution divided the entire industrial sector into three groups, of which one contained industries whose development was the exclusive responsibility of the State, another included those industries in which both the State and the private sector could participate and the last set of industries that could be developed exclusively under private initiative within the guidelines and objectives laid out by the Five Year Plans (CMIE, 1990). Private investment was channelized and regulated through the extensive use of licensing giving the State comprehensive control over the direction and pattern of investment. Entry of firms, capacity expansion, choice of product and capacity mix and technology, were all effectively controlled by the State in a bid to prevent the concentration of economic power. However due to lapses in the system, fresh policies were brought in at the end of the sixties.

These consisted of MRTP of 1969 and FERA of 1973, which were aimed at regulating monopoly and foreign investment respectively. Firms that came under the purview of these Acts were allowed to invest only in a select set of industries.This net of controls on the economy in the seventies caused several firms to a) operate below the minimum scale of efficiency (henceforth MES), b) under-utilize capacity and, c) use outdated technology. While operation below MES resulted from the fact that several incentives were given to smaller firms, the capacity under-utilization was the result of i) the capacity mix being determined independent of the market demand, ii) the policy of distributing imports based on capacity, causing firms to expand beyond levels determined by demand so as to be eligible for more imports. Use of outdated technology resulted from the restrictions placed on import of technology through the provisions of FERA.

Recognition of the deleterious effects of these policies led to the initiation of reforms in 1975 which took on a more pronounced shape and acquired wider scope under the New Economic Policy (NEP) in 1985. As part of these reforms, several groups of industries were delicensed and broadbanding was permitted in select industries. Controls over capacity expansion were relaxed through the specification of the MES of production for several industries. Foreign investment was allowed in select industries and norms under the MRTP Act were relaxed.These reforms led to a rise in the trend rate of growth of real GDP from 3.7% in the seventies to 5.4% in the eighties. However the major set of reforms came in 1991 in response to a series of macroeconomic crises that hit the Indian economy in 1990-91 . Several industries were deregulated, the Indian rupee was devalued and made convertible on the current account and tariffs replaced quantitative restrictions in the area of trade. The initiation of reforms led to a drop in the growth of real GDP between 1990 - 1992, but this averaged at about 5.5% per annum after 1992. The decline in GDP in the years after reforms was the outcome of devaluation and the contractionary fiscal and monetary policies taken in 1991 to address the foreign exchange crisis. Thus the Industrial Policy in India moved from a position of regulation and tight control in the sixties and seventies, to a more liberalized one in the eighties and nineties.The two-wheeler industry in India has to a great extent been shaped by the evolution of the industrial policy of the country. Regulatory policies like FERA and MRTP caused the growth of some segments in the industry like motorcycles to stagnate. These were later able to grow (both in terms of overall sales volumes and number of players) once foreign investments were allowed in 1981. The reforms in the eighties like broadbanding caused the entry of several new firms and products which caused the existing technologically outdated products to lose sales volume and/or exit the market. Finally, with liberalization in the nineties, the industry witnessed a proliferation in brands.A description of the evolution of the two wheeler industry in India is usefully split up into four ten year periods. This division traces significant changes in economic policy making. The first time-period, 1960-1969, was one during which the growth of the two-wheeler industry was fostered through means like permitting foreign collaborations and phasing out of non-manufacturing firms in the industry. The period 1970-1980 saw state controls, through the use of the licensing system and certain regulatory acts over the economy, at their peak. During 1981-1990 significant reforms were initiated in the country. The final time-period covers the period 1991-1999 during which the reform process was deepened These reforms encompassed several areas like finance, trade, tax, industrial policy etc. We now discuss in somewhat greater detail the principal characteristics of each sub period.

a)1960 1969The automobile industry being classified as one of importance under the Industrial Policy Resolution of 1948 was therefore controlled and regulated by the Government. In order to encourage manufacturing, besides restricting import of complete vehicles, automobile assembler firms were phased out by 1952 (Tariff Commission, 1968), and only manufacturing firms allowed to continue. Production of automobiles was licensed, which meant that a firm required a licensing approval in order to open a plant. It also meant that a firms capacity of production was determined by the Government. During this period, collaborations with foreign firms were encouraged. Table 1 illustrates the fact that most firms existing in this period had some form of collaboration with foreign firms. b)1970 1980This was a period during which the overall growth rate of the two-wheeler industry was high (around 15% per annum). Furthermore, the levels of restriction and control over the industry were also high. The former was the result of the steep oil price hikes in 1974 following which two-wheelers became popular modes of personal transport because they offered higher fuel-efficiency over cars/jeeps. On the other hand, the introduction of regulatory polices such as MRTP and FERA resulted in a controlled industry. The impact of MRTP was limited as it affected only large firms like Bajaj Auto Ltd. whose growth rates were curbed as they came under the purview of this Act. However, FERA had a more far-reaching effect as it caused foreign investment in India to be restricted. In the motorcycle segment FERA caused technological stagnation, as a consequence of which, neither new products nor firms entered the market since this segment depended almost entirely on foreign collaborations for technology. The scooter and moped segments on the other hand were technologically more self-sufficient and thus there were two new entrants in the scooter segment and three in the moped segment.c) 1981 1990The technological backwardness of the Indian two-wheeler industry was one of the reasons for the initiation of reforms in 1981. Foreign collaborations were allowed for all two-wheelers up to an engine capacity of 100 cc. This prompted a spate of new entries into the industry the majority of which entered the motorcycle segment, bringing with them new technology that resulted in more efficient production processes and products. The variety in products available also improved after broad banding was allowed in the industry in 1985 as a part of NEP. This, coupled with the announcement of the MES of production for the two-wheeler industry, gave firms the flexibility to choose an optimal product and capacity mix which could better incorporate market demand into their production strategy and thereby improve their capacity utilization and efficiency.These reforms had two major effects on the industry: First, licensed capacities went up to 1.1 million units per annum overshooting the 0.675 million units per annum target set in the Sixth Plan. Second, several existing but weaker players died out giving way to new entrants and superior products.

d) 1991 1999The reforms that began in the late seventies underwent their most significant change in 1991 through the liberalization of the economy. The two-wheeler industry was completely deregulated. In the area of trade, several reforms were introduced with the goal of making Indian exports competitive.The two-wheeler industry in the nineties was characterized by a) an increase in the product features and b) increase in sales volumes in the motorcycle segment vis--vis the scooter segment reversing the traditional trend. Growth of Two Wheeler IndustryFor the month of August, overall two-wheeler segment grew 14.2% yoy and 10.7% YTD. Growth in the less than 125cc category was strong at 13.7% yoy on account of exceptional growth by Hero Honda mainly on account of lower base of last year and its successful model launches. On a YTD basis, the mass segment grew by 6.4%. 125cc & above category continued its upward trend with a growth of 21.4% yoy, mainly led by newer launches by HHML and TVS Motor in the recent past. At the same time, better performance by Bajaj Auto (BAL) also supported the growth of the segment. HHML now enjoys a blended market share of 59.1% in the premium segment on account of the success of its CBZ-Xtreme and Hunk models, both 150cc segment products. On the other hand, Bajaj Autos blended market share declined 491 bps to 24.3% on account of its weak performance in the B2 segment.

The two-wheeler sector continues to be impacted by higher cost of financing and non-availability of finance. We believe this is a negative development as financing is the key sales driver for two-wheelers. We believe the two-wheeler volume growth for the next year will remain in a single digit and expect HHML to maintain its market share. With HHML posting strong growth in volumes, we expect to revise the CAGR of 6% upward for FY08-FY10E significantly. As far as earnings are concerned, we expect a CAGR of 16.3% for FY08-FY10E

Chart-10

Source : SIAM

Indian auto industry reported one of its worst performances in November 2008 as economic headwinds continue to plague demand. All companies, except for Hero Honda registered a decline in volumes. In the two-wheeler pack, Bajaj Auto reported domestic sales of less than 100,000 for the first time since April 2003. TVS also reported a decline of 12.7% yoy.

Volumes have plummeted for two wheeler companies except for the leader, Hero Honda, which reported flattish volumes on a yoy basis. For Bajaj Auto, it was one of the worst performances with a 51.3% yoy fall in domestic volumes. However a 45.6% yoy jump in exports brought some respite for the company. TVS was better off when compared with Bajaj Auto with only 12.7% yoy fall in total volumes. Bucking the trend with other players, Hero Honda reported a 0.5% yoy rise in total volumes, which was driven by higher penetration in rural markets.

Domestic two-wheeler sales were down 14.6% Y-o-Y in October, posting negative growth for the first time in FY09. This was despite October being a festive month, comprising three major festivals viz., Diwali, Dussera, and Eid. Last year, Diwali was in November.

Within segments, domestic motorcycle segment was the worst hit, and was down 18.2% Y-o-Y, as financing went totally dry in the market. A few major players pulled out of two-wheeler financing completely.

Going forward, we see significant challenges for Bajaj Auto (BAL) and TVS Motors (TVS), which to a greater extent depend on two-wheeler financing to push their sales. Hero Honda (HH), which generates a substantial portion of its sales on cash basis (~75-80%), is likely to be relatively better off.

Sequentially, HH gained 330bps market share in the domestic motorcycle category at the expense of BAL that lost market share by a staggering 660bps.

Motorcycle exports, which continue to be on a high growth trajectory, were up 37.8% Y-o-Y in October, and up 32.2% Y-o-Y YTD.

Product ProfileThe three main product segments in the two-wheeler category are scooters, motorcycles and mopeds. However, in response to evolving demographics and various other factors, other sub segments emerged, viz. Scooterette, gearless scooters, and 4-stroke scooters. While the first two emerged as a response to demographic changes, the introduction of 4-stroke scooters has followed the imposition of stringent pollution control norms in the early 2000. Besides, these prominent sub-segments, product groups within these sub-segments have gained importance in the recent years. Examples include 125cc motorcycles, 100-125 cc gearless scooters, etc. The characteristics of each of the three broad segments are discussed in Table 1.

Two-Wheelers: Comparative Characteristics

Table 9ScooterMotorcycleMoped

Price (Rs. as in January 2008) > 22,000> 30,000> 12,000

Stroke2-stroke, 4-strokeMainly 4-stroke 2-stroke

Engine Capacity (cc) 90-150100, 125, 125 10060-70

Fuel Efficiency (kms per litre) 50-7550-80+70-80

Load Carrying HighHighestLow

Source : SIAM Demand DriversThe demand for two-wheelers has been influenced by a number of factors over the past five years. The key demand drivers for the growth of the two-wheeler industry are as follows:

Inadequate public transportation system, especially in the semi-urban and rural areas;

Increased availability of cheap consumer financing in the past 3-4 years;

Increasing availability of fuel-efficient and low-maintenance models;

Increasing urbanization, which creates a need for personal transportation;

Changes in the demographic profile;

Difference between two-wheeler and passenger car prices, which makes two-wheelers the entry level vehicle;

Steady increase in per capita income over the past five years; and

Increasing number of models with different features to satisfy diverse consumer needs. While the demand drivers listed here operate at the broad level, segmental demand is influenced by segment-specific factors.

Price of different company

Price factor is main determinant of the demand.

Penetration of Two-WheelersOn a base of around 28mn vehicles on Indian roads and around 175mn households, there were only 160 motorized two-wheelers per thousand households in FY98. This compares poorly with countries like Thailand where it is around 600 per thousand households. Also with a household size of 5.5 persons and more than one wage earner in about 60% of the households, the potential for a second vehicle demand is also good. Post-liberalization (ie FY92 to FY96) Indian households have graduated to higher income groups, so there is good market for two-wheeler in India.

Sales pattern through out the yearThere was consent at the opinion that there is a slump in June, July and August and also during the second half of December. At the time of festivals, especially Dusshera and Diwali or at the time of the marriage season, the sales are high. The reason given for slump were

a) In summers, people generally go for summer tours and spend a lot of money so they postpone their purchases.

b) Because of religious reasons (Shraddh) in the month of August.

c) People dont prefer to purchase vehicles during the rainy season.New policies launched by different companiesA Company has launched a new policy "Passport Programme" for its customers. In this policy, customers have to pay Rs95 as registration charges. He can avail of several benefits like -

One-year free Accident Insurance cover worth Rs100, 000.

Exclusive rewards and surprise gifts from Hero Honda Motors Ltd.

Special service discounts at all authorized Hero Honda Dealerships/Service Centers.

Special discounts on the purchase of the spares.

Invitation to events such as movie shows, musical nights and carnivals.

"Crorepati Hungama" a sales promotion scheme started by a company.

Diwali special offer

Navratri special offer etc.

Highlights: Advertising

Print advertising of Two Wheelers decreased by 30% during MARCH '08 compared to MARCH '07.

Motorcycle' garnered a high share of 71% of 'Two Wheelers' advertising in Print during MARCH '08.

TVS Motor Company' was number one advertiser under 'Two Wheeler' category in Print during MARCH '08.

TVS Motor Company' was number one advertiser under 'Two Wheeler' category in Print during MARCH '08.

Two Wheelers advertising skewed towards Non Metro Newspapers during MARCH '08.

Chart 11Share of Two Wheelers advertising in Auto* Sector during MARCH 08

Two Wheelers' category had contributed for 29% share of overall Auto* sector advertising in Print during MARCH '08.

Note: Auto* sector includes Cars/Jeeps, Two Wheelers, Commercial Vehicle, Tractors and Two/Three/Four Wheeler Range.Chart 12Share of Two Wheelers advertising (Retail and Non Retail) during MARCH '08

During MARCH 08, print advertising by the Non Retail and Retail advertisers of Two Wheelers in the ratio of 92:8.

Chart 13Share of Sub Categories of Two Wheelers in Print during MARCH '08

During MARCH '08, 'Motorcycle' category had the largest share i.e. 71% of overall 'Two Wheelers' advertising in Print followed by 'Scooterette' and 'E-bike' with 9% and 8% share respectively.

Top Advertisers of Two Wheelers in Print during MARCH '08

Table 10

During MARCH '08, 'TVS Motor Company', 'Hero Honda Motors Ltd' and 'Bajaj Auto Ltd' were the top 3 advertisers and had contributed for 67% share of overall advertising of 'Two Wheelers' in Print..

Advertising of Two Wheelers in (Non Metro, Metro and Mini Metro) NewspapersChart 14

During MARCH '08 among the Sales Promotional ads, maximum usage of 'Add on Promotion', followed by 'Multiple Promotion' and 'Finance Schemes'.

Key Earning Drivers That Affect The Demand Of Two Wheeler IndustriesGovernment policy impact on petrol prices: Petrol prices determine the running cost of two wheelers expressed in Rupees per kilometer. Petrol prices are the highest in India as GOI subsidies kerosene and diesel. But with the recent change in GOI policy to reduce the subsidy, the prices of petrol will remain constant at the current prices. This will have a positive effect on purchases on two wheelers.

Improvement in disposable income: With the increase in salary levels, due to entry of multinationals following liberalization process and fifth pay commission, the disposable income has improved exponentially over the years. This will have multiplier effect on demand for consumer durables including two-wheelers. This is already witnessed in improved demand for 2-wheelers in FY99 compared to a meager growth in FY98.

Changes in prices of second hand cars: The second hand car prices of small cars have come down sharply in the recent past. This will shift the demand from higher end two-wheelers to cars and affect the demand for two-wheelers negatively. A further drop in second hand car prices will lead to pressure on the two-wheeler majors who plan to release higher end scooters and motorcycles.

Implementation of mass transport system: Many states have planned to implement mass transport systems in state capitals in the future. This will have negative impact on demand for two-wheelers in the long run. But taking into account the delays involved in implementation of such large infrastructure projects, we expect the demand to be affected only five to seven years down the line.

Availability of credit for vehicle purchase: The availability and cost of finance affects the demand for two-wheeler as the trend for increased credit purchases for consumer durables has increased over the years. Therefore any change with respect to any of these two parameters as a result of change in RBI policy has to be closely watched to assess the demand for two and three wheelers.Changing Income Demographics will Drive Changes in Demand

The rapid rise in the country's middle and upper income classes, more than overall GDP growth per se, is likely to lead to a dramatic hike in the demand for big-ticket items like motorcycles, cars/jeeps etc.

As a result, the number of households owning cars will more than double from around 4 per cent right now to over 9 per cent by the end of the decade, that for scooters will remain stagnant at around 8 per cent, will double for motorcycles to over 28 per cent. In terms of demand motorcycles will nearly touch the 8.5 million mark.

Much of the increased demand is not so much demand from existing households in various income groups as it is the one emanating from the migration of households into upper income groups.

Excise And Customs Duty StructureExisting Duty Structure

Table: 11ItemsExcise Duty (%)2007-08Customs Duty (%) 2007-08

2-wheelers Upto 75cc12%60%

2-wheelers Above 75cc12%60%

Secondhand Motorcycles (including mopeds) and cycles fitted with auxiliary motor

Upto 75cc

Above 75cc12%

12%100%

100%

Source: FICCI & SIAM

The table shown above describes the excise and customs duty structure for the two-wheeler industry. For any new or old two-wheeler the excise duty is 12% and the customs duty for new two-wheeler is 60%and for secondhand 100%. Thus this will make effect on the price of the vehicle.

Segmentation of the IndustrySegment wise Production Growth

Table 12Growth Of ScootersGrowth Of Motor CyclesGrowth Mopeds

2002-03 -9.50095252733.37041341-17.7512

2003-0410.23591712.35736261-5.49412

2004-055.58325376719.258177874.858047

2005-06 3.29266489719.394311868.936192

2006-07-7.4576500514.691752290.108806

2007-0813.87677659-8.55912470313.37941

CAGR2.6117.21-2.31

Source : SIAMChart 15

Source : SIAMSegment wise Sales Growth

Table 13Growth Of Motor Cycles Growth Of Scooters Growth Mopeds

2002-0326.33(9.10)(16.97)

2003-0414.347.35(9.29)

2004-0519.054.084.90

2005-0617.13(1.55)3.15

2006-0712.693.586.95

CAGR17.500.64-2.79

Source : SIAMChart 16

Source : SIAMSegment wise Export GrowthTable 14Growth of scootersGrowth of MOTOR CYCLESGrowth MOPEDS

2002-0314.9442327117.51933923.2987191

2003-0464.855984851.373610832.937027062

2004-0513.0608947.9670238718.71833209

2005-0638.279049139.3078163851.06174567

2006-07-57.484452141.401721-13.00340428

CAGR4.6256.6714.22

Source : SIAMChart 17

Source : SIAM Major PlayersBajaj Auto Ltd.

Established in 1945, Bajaj Auto Ltd. was incorporated as a trading company. Till 1959, they imported scooters and three-wheelers from Italy and sold them in India. The company got a production license in the year 1959 and fastened a technical collaboration with Italian PIAGGIO in 1960. Bajaj Auto Ltd. is one among India's top ten companies in terms of market capitalization and among the top five in terms of annual turnover.The company started producing scooters in the year 1961 and followed three-wheelers production in 1962. Its collaboration with Piaggio expired in 1971 and since then, their scooters and three-wheelers are being sold with the brand name BAJAJ. Maharashtra Scooters Ltd., a Company with 24% equity participation by the Company and 27% participation from Maharashtra State Government's Western Maharashtra Development Corp. was formed in the year 1975 under the "Horizontal transfer of technology" policy. The first production unit is located at Satara, Maharashtra. The unit continues to collect scooters from CKDs supplied by the Company. These scooters are marketed through the Company's distribution network and under the Company's brand name.In 1984, the second production plant was set up at Aurangabad, Maharashtra. This plant started scooter production in 1986, three-wheeler production in 1987 and scooterettes and motorcycle facilities were commissioned in 1990 & 1991 respectively. Today, the company has become a market leader with annual production in excess of 1.35 million units which was about 4000 units in 1961. These days, Bajaj Auto Ltd. has started offering products in all segments (mopeds & scooterettes, scooters, motorcycles, three wheelers). Hero Honda Motors Ltd.

Hero Honda Motors Ltd. is a result of the joint venture between India's Hero Group and Japanese Honda Motors Company in the year 1983. This joint venture has not only created the world's single largest two wheeler company but also one of the most successful joint ventures worldwide. Hero Honda is globally known of being the most fuel-efficient and the largest CBZ selling Indian motorcycle company. This is a relationship so harmonious that Hero Honda has managed to achieve indigenisation of over 95 percent, a Honda record worldwide.

The company is committed to provide the customer with excellence. A rich background of producing high value products at reasonable prices led the world's largest manufacturer of motorcycles to collaborate with the world's largest bicycle manufacturer. During 80s, Hero Honda became the first company in India to prove that it was possible to drive a vehicle without polluting the roads. They company possess three manufacturing units based at Dharuhera, Gurgaon and Haridwar are capable to produce 4.4 million units per year. They introduced new generation motorcycles that set industry benchmarks for fuel thrift and low emission.The unique features like fuel conservation, safety riding courses and mobile workshops helped the group reach in the interiors of the country. Well-entrenched in the domestic market, Hero Honda Motors Ltd. turned its attention overseas, and exports have been steadily on the rise. Over the years, the Company has received its share of accolades, including the National Productivity Council's Award ( 1990-91), and the Economic Times - Harvard Business School Association of India Award, against 200 contenders. The gross sales of Hero Honda by March end'2008 was 33,371,43 Crores The below chart shows the golden years in the history of HERO HONDA :-1985CD-100

1989SLEEK

1991CD-100 SS

1994Splendor

1997Street

1999CBZ

2001PASSION

2002DAWN, AMBITION

2003CD-DAWN, SPLENDOR +, PASSION +KARIZMA

2005SUPER-SPLENDOR, CD-DELUX, GLAMOUR, ACHIEVER

Kinetic Motor

Established in year 1970, Kinetic Engineering Ltd. is the reliable and trusted manufacturer and exporter of 2-wheelers. Born of the vision of the late Shri H. K. Firodia, Kinetic Engineering Ltd. has produced useful, heart - winning products for over two decades.

Kinetic Engineering Ltd. ( KEL ), manufactures a vast variety of scooters, motorcycles and mopeds which are well recognized and popular for their fuel economy, quality and reliability in whole country. The company advanced manufacturing set up has enabled them to reach high quality standards.

Its three manufacturing plants are located at Ahmednagar (for scooterettes and mopeds), Pitampur (Indore, for scooters) and Goregaon (Pune, for motorcycles and step-thrus)) with the capacity to manufacture 4 lakh vehicles per year. Along with this, KEL export these vehicles to various countries like USA, Canada, Sweden, Latin America, Denmark and the Middle EastKinetic Honda Motor Ltd. is the joint venture of Kinetic Engineering and internationally known Honda Motor Company of Japan. Most famous bike among two wheeler motorists in the country is Kinetic Honda 100cc bike. Strong service network set up in India is the backbone of KEL.

Always been conscious of quality and customer oriented production, the company has been a trendsetter in the Indian two-wheeler industry. The company sales recorded in June'08 is around 23.66 crore. By the end of this year KEL will invest up to Rs 30 crore in Mahindra Two Wheelers Pvt Ltd to buy 2.95 crore equity shares of the latter.

MOTORCYCLES Kinetic Aquila Kinetic Velocity Kinetic Challenger Kinetic Comet Kinetic Stryker Kinetic GF

Kinetic Boss

SCOOTERS Kinetic Blaze

MOPEDS Kinetic 4S Kinetic Honda Dx/Zx 100 cc Kinetic Honda Marvel Kinetic K4 100 Kinetic Kine Kinetic Luna Super Kinetic Luna TFR Kinetic Pride FX Kinetic Style Kinetic Zing Kinetic Zoom Kinetic Flyte Kinetic V2 Range

TVS Motor

TVS Motor is a leading and trusted two wheeler company began with the vision of TVS Scooty. Scooterthe founder of the Sundaram Clayton Group, the late T.S. Srinivasan - 'to design, develop and produce an affordable moped for the Indian family.' This vision was realized in 1980 when TVS 50, India's first two-seater moped rolled out of the factory at Hosur in Tamil Nadu, Southern India.

The company has been known for its ruggedness and reliability. TVS 50 was successful and it has smoothened the way for many successes for TVS Suzuki even before its launch in the market. The TVS 50 XL is especially designed for individuals who want economy fused with sporty looks. Recently new XL Super With a 70 cc high-tech Power Pack is all set to redefine the category of mopeds in the country. The Suzuki Samurai was launched for the time conscious urban commuter. The Max 100 R was engineered for those who demanded strength and ruggedness. Along with them all, Suzuki Shogun was for those who wanted raw power.

TVS Motor has continually worked on innovating the motorcycle segment along with two wheeler range. The Suzuki Shaolin, developed by TVS Suzuki is India's first 5 speed, 140 cc motorcycle. Another example of the company success is TVS Scooty, a 60 cc Scooterette which keep one step ahead of its time in India.

TVS Motor has been coveted 2 IT awards, one of them is bagging the SAP ACE 2008 award for Customer Excellence and the other one is 2008 Symantec South Asia Visionary Award. Along with this, it is the first company in the world to be honored with The Deming Prize for Total Quality Management. In September 2008, the company has got 19% growth for registering total two wheeler sales of 137,246 units .

The company is the third largest two-wheeler manufacturer in India and ranks among the top ten globally. The company was the first in India to launch 2-seater 50cc moped and 100cc Indo-Japanese motorcycles. At present TVS Apache, TVS Victor, TVS Scooty, TVS Centra and TVS Fiero are the popular bikes in Indian market.

In all, team TVS has triumphed each and every race and rally in the country from the road to racetrack, with each of the TVS bikes being a winner. And each time the 'Team TVS' has won on the track or off it, our customers have secured a better product for their personal transportation.

MOTORCYCLES TVS Apache RTR TVS Centra TVS Fiero

TVS Fiero F2

TVS Fiero FX

Suzuki Max 100 Suzuki Max 100R Suzuki Samurai Suzuki Shogun Suzuki Shaolin TVS Flame TVS Victor

TVS Victor GLX

TVS Victor GX

TVS Victor Edge

TVS Star

TVS Star

TVS Star City

TVS Apache RTR FI

SCOOTERETTES/MOPEDS TVS Scooty

TVS Scooty ES

TVS Scooty Pep

TVS Pep Plus

TVS Spectra DX/AX TVS XL

TVS XL Super

TVS XL Super HD

TVS XL Super TVS XL Super HD Scooty Teenz Electric

Yamaha Motor

Situated at Faridabad, Haryana, Yamaha Motor India Private Limited is a 100% owned subsidiary of Yamaha Motors Company Limited of Japan. Total employee strength of the company is more than 3000 people. The company has opened "Yamaha One"- a branded dealership at Delhi and plans to open more in the future. Along with this, Japan has also set up another subsidiary-Yamaha Motors India Sales Pvt. Ltd.(YMIS) that deals with the sales and after sales services for Yamaha brand of bikes. It is located at Surajpur, outside Delhi with an employee strength of 120. Yamaha's association with India began in 1985 for the first time when it provided technical assistance to the Escorts Group in manufacturing of motorcycles. On July 1, 1955, Yamaha Motors was founded as a motorcycle manufacturer which build products that stand out for their quality wherever they are sold. In the year 1960, the company began manufacturing powerboats and outboard motors. In June 2000, the equity holdings were revised and company acquired 74% of the share.

The company has its manufacturing unit in Faridabad and Surajpur, which supports the production of motorcycles for domestic as well as overseas market. Considering environment sensitive issues, Yamaha Motors also goes into the concept of environment friendly technology that brags of effluent treatment plant, rain water - harvesting mechanism and a motivated forestation drive. The company believe in taking care of not only customers motoring needs but also the needs of future generations.

MODEL

Rajdoot Excel-T Yamaha RXZ Rajdoot Deluxe Rajdoot Standard Yamaha Enticer Yamaha Escorts Ace Yamaha RX 135

Yamaha YBX 125

Yamaha Gladiator Gladiator Std

Gladiator DX

Yamaha Libero G5 Yamaha Crux Yamaha Gladiator Type JA Yamaha Alba 106 Yamaha YZF R1 Yamaha MT 01 Yamaha YZF-R15 FZ 150

MAJOR PLAYER COMPARISONTable 15HERO HONDABAJAJ

KEY POLICIES- Environment policy: cleaner production processes and better environmental performance.

- Quality policy: provide innovative products

services and focus on TQM.

- Safety policy: provide a safe work environment for employees to enhance productivity.- Total Productivity Maintenance: provide safe work environment to enhance efficiency of processes.

- Quality policy: provide value for money through enhanced quality, safety and service.

PRODUCT LINE- Large number of products in all market segments.

- Market leader in Executive segment.- Mixed results with new product launches Pleasure and Achiever achieved contrasting responses.- Large number of products in all market segments.

- Market leader in Premium and Entry segments.

- Cashes in on the success of the previous variants for new product launches e.g. variants of Pulsar- Pulsar 200cc and 220cc DTS-Fi.

R&D- Does not have own R&D facility Dependence on HONDA means slow response to competition.

- Also faces a threat of Honda withdrawing its support with HMSI (subsidiary of Honda) entering the market.

- Fully integrated R&D facility; Pulsar was a product of this in-house department.

- Major strength in quality but not in new product development

SERVICES- More than 1000 dealerships in the country.

- Renowned for its excellent after sales services.

- Most suppliers and distributors known to the Munjal family high degree of control and efficiency possible.

- 600 dealers across the country.

- Poor after sales services as inferred from customer feedback

EXPORTAs per the agreement with HMSI, it cannot export to countries where Honda bikes are already present.Largest 2 and 3 wheeler exporter; leader in Sri Lanka and Central America

BRAND PROMOTION- Aggressive promotion strategies especially for launch of new bikes or variants.

- Extensive use of celebrity endorsements and event sponsorships- Aggressive promotion campaigns for new products

- No celebrity endorsements; prefers to emphasize on the lifestyle aspect with the Definitely male and Feel like God.

MARKET SHARE CHANGELosing market share (40% overall in 2006) in all segments due to greater competition.Steadily rising market share (34% overall in 2006) on the back of superior performance of Pulsar.

LEADERSHIPFamily owned business

Suppliers and distributors are known to the family and hence able to maintain control over the supply chain, thereby enhancing efficiency .Family owned business

Source : SIAM Domestic Sales report for Jan-2008 to sep-2008The table given below shows the Sales of different companies during Jan-2008 to sep-2008 according to different engine capacity for motorcycle, scooter and moped segments Table 16Category Segment/Subsegment Manufacturer.Jan2008Mar2008Apr2008May2008Jun2008Jul2008Aug2008Sep2008

Two Wheelers

A: Scooter/Scooterette

Wheelsize not over 12"

A1: Engine capacity