Driverless Cars, Cab Aggregators, Crowded Cities, Pollution, are just some of the issues facing the Automobile Industry both Globally and India. The future of the Automobile Industry is looking highly fluid and like many other industries that have seen complete transformation, the Automobile Industry too will undergo a drastic change going forward.
The latest Frankfurt Motor Show was all about Apple and Google investing in Driverless Cars. Given that these companies cash pile of over USD 150 billion and USD 60 billion each is well over market capitalisation of most of the auto companies Table 1., the investments that auto companies will require to keep ahead of technology will be huge and most will not be able to afford it.
The likes of Uber is changing the way the commuters look at cars. The need to own a car for going from one place to another or going to work is becoming increasingly unnecessary. Uber and its competitors are fulfilling the need and takes away the hassles of paying insurance, car maintenance, parking and employing drivers. Cars are being seen as unproductive assets that depreciate in value and are not sweated enough to justify costs.
The movement of population to urban areas are making cities and towns crowded. Many cities in the world are discouraging cars by imposing tolls. Urban dwellers prefer public transport or cab aggregators to commute and will not really want to own cars.
The Volkswagen emission flouting episode that saw the company lose 30% in value over two days is a sign of how strict governments are on pollution. Volkswagen has to pay over USD 7 billion in fines, face lawsuits and regain lost credibility as it cheated on emission controls. The whole car industry is now under scrutiny on emission.
The vehicle industry especially the passenger vehicle industry is being disrupted and this disruption will have more losers than winners.
Automobile Industry in India
Automobile industry is considered as one of the key sectors of the economy due to its forward and backward linkages with other sectors along with a significant contribution it has to the overall GDP of the country. The potential of the sector for generating employment (directly and indirectly) is also significant. The Automobile industry consumes raw materials produced by manufacturing industries to create a product for end use of the customers. Thus the fortunes of many industries are dependent on the growth of the automobile industry in the economy. The competitiveness of the industry thus depends on factors like government policies, macroeconomic environment, growing disposable income, foreign direct investment, innovation, labor policies, adequate infrastructure and microeconomic firm related conditions. The Porter’s (1990) Diamond framework explains the competitive picture of the Indian automobile industry as a highly competitive one with large number of domestic and multinational players employing relatively cheap skilled workforce and taking on large capital investment to cater to highly demanding consumers that have rising per capita incomes.
The Automobile Sector contributes nearly 7.1% to the overall GDP and 22% to the manufacturing GDP of India in the current scenario. The Automobile industry of India is the seventh largest in the world with an annual production of 23.37 million vehicles and employs 19 million people directly or indirectly. The industry has attracted foreign direct investment (FDI) worth USD 13.48 billion during the period April 2000 to June 2015, according to data released by Department of Industrial Policy and Promotion (DIPP). The Indian government encourages foreign investment in the automobile sector and allows 100% FDI under the automatic route. During the last decade from 2000 to 2010 the sector has recorded a CAGR of 15%.
The Automobile industry consists of the Auto Component Manufacturers and the Original Equipment Manufacturers (OEMs) that manufacture components and automobiles respectively.
The OEMs manufacture automobiles that are classified according to following categories with respective market shares in terms of production for FY 2012-13:-
- Passenger Vehicles – Passenger Cars (80.7%), Utility Vehicles and Multi-Purpose Vehicles (19.3%).
- Commercial Vehicles – Light Commercial Vehicles (70.6%), Medium Commercial Vehicles and Heavy Commercial Vehicles (29.4%).
- Three Wheelers – Passenger Carrier (81.7%) and Goods Carrier (18.3%).
- Two Wheelers – Scooters (15.3%), Mopeds (5.9%) and Motorcycles (78.7%)
The Auto Component Manufacturers are classified into Tier 1, Tier 2 and Tier 3 suppliers that supply to the OEMs, Tier 1 and Tier 2 suppliers respectively.
The Automobile industry produced 15.9 million two wheelers, 3.2 million passenger cars, 0.8 million commercial vehicles and 0.8 million three wheelers in FY 2012-13. The two wheeler category has a 77% market share in the volume of production followed by passenger cars with 15%, Commercial Vehicles with 4% and Three Wheelers with 4%. The Two Wheeler industry of India is the second largest in the world next only to China. The Indian Commercial Vehicles industry is the fourth largest producer in the world. The Auto sector exported 2 million two wheelers, 0.5 million passenger cars, 0.1 million commercial vehicles and 0.3 million three wheelers.
The export category shows a 67% market share in terms of volumes sold for two wheelers, 19% for passenger vehicles, 11% for three wheelers and 3% for commercial vehicles.
The main players in the Automobile industry are Maruti Suzuki, Tata Motors, Ashok Leyland, Mahindra and Mahindra, Bajaj Auto, Hero Motocorp, Hyundai, Honda, Nissan, Volkswagen, Ford, General Motors, Yamaha, BMW, Toyota, Fiat, Force Motors and Daimler Chrysler. Hero Motocorp is the largest two wheeler manufacturer in the world and Maruti Suzuki is the largest manufacturer for passenger cars in India with a market share of 45% followed by Hyundai with 20%, Tata Motors with 10% and General Motors with 4%. The Light Commercial Vehicles is dominated by Tata Motors with 59% market share followed by Mahindra and Mahindra with 30% followed by Force Motors and Piaggio with 4% each. The Medium and Heavy Commercial Vehicle category is dominated by Tata Motors with 63% market share followed by Ashok Leyland with 23% and Eicher Motors with 7%. The Motorcycles category is led by Hero Motocorp with 59% market share followed by Bajaj Auto with 24%, TVS with 7% and Honda with 6%. The Scooters category is dominated by Honda with 51% market share followed by TVS with 21%, Hero with 14% and Suzuki with 10%. The Three Wheelers category is led by Piaggio with 41% market share followed by Bajaj Auto with 40% and Mahindra and Mahindra with 10%.
The main automobile hubs in India are based at Chennai, Gurgaon, Manesar, Pune, Ahmedabad, Halol, Aurangabad, Kolkata, Noida and Bangalore. Chennai is the biggest hub accounting for 60% of Indian auto exports. The allied industries to the Automobile sector are Steel, Aluminium, Rubber, Plastics, Glass, nonferrous metals, Paints, chemicals and other allied industries.