Automobile Sector in India

02.08.2016
Automobile Sector in India

With over 23.37 million production and the growth rate of 8.68% Automobile sector in india is at its best growth period

A Summary of History & Potential

Almost three decades back, the automobile industry in India comprised of only two models for consumers to choose from, which were the local reproduction European models. Whereas today, the scenario is completely changed, and India has become the second fastest growing automobile market in the world (23.37 million vehicles in 2014-15). The Indian automobile industry is growing by a minimum of 7-8% annually with an almost equal contribution to nation’s GDP; this has made India foreign manufacturers to explore the market. The rise in demand is a result of already big and growing middle class in the nation. India’s young population also provides room for an unprecedented growth in the two-wheeler segment.

Indian automobile scenario

As per the SIAM (Society of Indian Automobile Manufacturers), a total of 23,960,940 vehicles were produced during April-March 2016 against 23,358,047 units in April-March 2015, registering a growth of 2.58 percent over the smae period of time last year. During the period, the sale of passenger vehicles were grown by 7.25 percent while the commercial vehicle segment registered a overall growth 11.51 percent. India is the largest three-wheeler market in the world and ranks second when it comes to two-wheelers. But the situation wasn't the same earlier. With the introduction of new economic policies in the year 1991, the entry of foreign players were made easy and now one can find almost every manufacturer competing for a piece of the potential the market has. When compared to elsewhere in the world, some of the traits of automobiles sector in India are:

•    It is the largest three-wheeler market.

•    Second largest two-wheeler market.

•    Fourth largest for agricultural vehicles, like tractors.

•    Fifth largest for both commercial and passenger vehicles.

•    It is also the world’s tenth largest passenger car market.

How dynamics of Passenger Vehicles are changing

Just like any other country, Indian automobile industry packs most exciting competition in the passenger vehicles sub-segment. The impact and growth of the sector can be established by the fact that 31% of all globally sold small cars in 2014-15 were manufactured in India. PVs are 13% of the Indian automobile market. With better connectivity in the last two decades as well as more efficient practices in production, Indian car manufacturers have a good shot at dominating the global markets in future. External link has already made a mark by acquiring European subsidiaries Jaguar & Land Rover and by introducing the world’s cheapest car – Nano.

The catalyst to bring the growth and foreign investment by car companies in India was the introduction of a small hatchback by the collaboration of Japanese company Suzuki with India-based Maruti, in 1983 – The Maruti 800. This venture was widely promoted by the Indian government. Now, the export of Indian cars is also catching up with big names like ‘TATA motors’ as well as ‘Mahindra & Mahindra’ selling their vehicles in Europe as well as many parts of Asia-Pacific. More Japanese and European companies have made their much-awaited entry, however, most of the market share is held by automobile companies such as Maruti Suzuki, TATA motors, Hyundai, External link, Toyota, External link, Skoda Auto, Volkswagen, Nissan, Bajaj Motors, Hero motors, and External link with luxury & performance car manufacturers like External link, Mercedes-Benz, and BMW rapidly gaining ground. The latest entry is the electric sports car manufacturer Tesla with their affordable version of model-3. Even though the competition has increased by many folds, Maruti Suzuki consistently retains its position as the market leader with over 40% share.

Commercial market stays strong

Demand for Commercial & Passenger vehicles has been growing steadily along with the expectations of economic growth. 'TATA motors' is undoubtedly the leader in this segment with wide dealer network and range of offerings. After their merger with the Brazilian company Marcopolo, they have gained many government contracts for manufacturing of passenger vehicles for metropolitans like Delhi & Bangalore. Following them are Ashok Leyland and Volvo in a tight race for the second place. Now, Mahindra & Mahindra is also stepping up with the production of large trucks and has made its presence felt with significant growth in pick-up trucks.

The biggest contributor

Two wheelers are a staggering 80% because of a very big rural population. Most of the India is still under rapid development and income rise is yet to see glory days. This makes motorcycles not only a choice but also a convenience. Many two-wheeler companies are undergoing rapid strategic change to meet the rising demand. One of the most highlighted of these was the demerger of Hero motors and Honda Motorcycle and Scooter India. They were leading the market with their entry-level range; however, it was not strategically feasible for a longer run. The urban areas are now moving towards the sale of sports motorcycles in the 250cc segment, whereas rural areas are growing very rapidly in numbers of traditional motorcycles sales.

Scope

Because of the huge population and constantly increasing demands, all sub-sectors are expected to grow in future. The Indian government understands the potential of the sector and continues to take steps to further ease the pressures involved in investment, for example, the Transport Ministry is going to set up an independent department for transport. This will boost the investments by making the process simpler and more accessible. Manufacturers have also realized the importance of a strong presence in India and almost every company is planning to either increase the capacity of existing or to set up new plants here. India has seen a significant rise of incomes which is yet to improve and that is why high-end cars are also making an entry. Like the US-based company Chrysler is going to soon start building a plant in Maharashtra to manufacture Grand Cherokees. Ford is also set to add the iconic Ford Mustang to its range of offerings in India later this year.

The Indian automobiles industry is certainly one of the most competitive in the world, but with a potential to generate US$ 300 billion in revenue by 2026 every car manufacturer wants to establish its presence.

Data from Society of Indian Automobile Manufacturers (SIAM)