Automobile industry – at a glance
Key Positives
Increasing affluence of the Indian middle class and introduction of better quality cars has led to strong growth in the industry in terms of both market size and production capacities.
Exports buoyancy:
On account of its low cost technical manpower and ever increasing focus on quality, the auto industry has emerged as an export hub, especially for the compact car segment.
Exports of passenger cars from the country have increased at a healthy CAGR of nearly 38% during the past five years and increasingly more and more auto majors are lining up to set up their production bases in the country.
Infrastructure thrust:
Improvement in road infrastructure has led to increased movement of goods through roadways.
Close to 65% of all the goods movement in the country takes place by roads as opposed to 55% a decade ago.
Also, owing to the fact that an estimated 39% of CVs plying on the roads are 10 years old, demand for HCVs is expected to grow by a robust rate in the long term.
Low interest rate regime:
Close to 80% of the new cars being purchased in the country are financed, thus underlying the importance of a low interest rate regime to the fortunes of the industry.
Given that interest rates are unlikely to rise at a rapid rate in the future, we expect the buoyancy in auto sales to continue over the medium to long term.
Environment led benefits:
Any implementation of pollution norms in metros, whereby vehicles beyond certain age need to be phased out could further translate into higher volume growth for all vehicles, courtesy the replacement demand
Key Negatives
Concerning income growth:
The per capita income in the country has been growing at a slow rate. Since the auto industry growth has a strong correlation with the same, the momentum has to continue to ensure robust automobiles demand. Reforms need to be accelerated.
Competition from imports: With India coming under the WTO purview, competition is expected to rise multifold. Indian companies also have to contend with imports in the future.
Already a number of companies are introducing vehicles in the CKD route.
Taxation anomalies:
Duties on some select and key raw materials including steel and components are still pretty high and are thus hurting profit margins of the companies.
Also, multiple tax rules that exist in different states are eroding the comparative advantage of a large domestic market thus making it important to implement VAT (Value Added Tax) as soon as possible.
Future Prospects look positive
FY04 turned out to be one of the best years for the Indian auto industry.
Attractive finance schemes and buoyant economic growth helped both the passenger and commercial vehicle industry notch up growth in excess of 30%.
With government committed to continue with infrastructure spending and economic growth likely to remain robust the industry seems to be headed in the right direction.
However, rising fuel prices and hike in interest rates might throw a spanner in the wheels.
India is one of the few countries to post double digit growth in passenger vehicles, while others like USA and Japan remained lackluster in 2003-04.
India is poised to become the manufacturing hub for the world with cheap and skilled labor. Maruti Udyog is aiming to become the R&D hub for its parent Suzuki’s Asia operations.
The passenger vehicles sector is a cyclical one, which posses a question - Will the high growth rates witnessed earlier continue going forward?
Our discussions with the industry gave us an insight on the demand projections for passenger vehicle volumes in the future.
Emission norms, infrastructure development, economic growth and low interest rates are causing change in dynamics.
Key Positives
Increasing affluence of the Indian middle class and introduction of better quality cars has led to strong growth in the industry in terms of both market size and production capacities.
Exports buoyancy:
On account of its low cost technical manpower and ever increasing focus on quality, the auto industry has emerged as an export hub, especially for the compact car segment.
Exports of passenger cars from the country have increased at a healthy CAGR of nearly 38% during the past five years and increasingly more and more auto majors are lining up to set up their production bases in the country.
Infrastructure thrust:
Improvement in road infrastructure has led to increased movement of goods through roadways.
Close to 65% of all the goods movement in the country takes place by roads as opposed to 55% a decade ago.
Also, owing to the fact that an estimated 39% of CVs plying on the roads are 10 years old, demand for HCVs is expected to grow by a robust rate in the long term.
Low interest rate regime:
Close to 80% of the new cars being purchased in the country are financed, thus underlying the importance of a low interest rate regime to the fortunes of the industry.
Given that interest rates are unlikely to rise at a rapid rate in the future, we expect the buoyancy in auto sales to continue over the medium to long term.
Environment led benefits:
Any implementation of pollution norms in metros, whereby vehicles beyond certain age need to be phased out could further translate into higher volume growth for all vehicles, courtesy the replacement demand
Key Negatives
Concerning income growth:
The per capita income in the country has been growing at a slow rate. Since the auto industry growth has a strong correlation with the same, the momentum has to continue to ensure robust automobiles demand. Reforms need to be accelerated.
Competition from imports: With India coming under the WTO purview, competition is expected to rise multifold. Indian companies also have to contend with imports in the future.
Already a number of companies are introducing vehicles in the CKD route.
Taxation anomalies:
Duties on some select and key raw materials including steel and components are still pretty high and are thus hurting profit margins of the companies.
Also, multiple tax rules that exist in different states are eroding the comparative advantage of a large domestic market thus making it important to implement VAT (Value Added Tax) as soon as possible.
Future Prospects look positive
FY04 turned out to be one of the best years for the Indian auto industry.
Attractive finance schemes and buoyant economic growth helped both the passenger and commercial vehicle industry notch up growth in excess of 30%.
With government committed to continue with infrastructure spending and economic growth likely to remain robust the industry seems to be headed in the right direction.
However, rising fuel prices and hike in interest rates might throw a spanner in the wheels.
India is one of the few countries to post double digit growth in passenger vehicles, while others like USA and Japan remained lackluster in 2003-04.
India is poised to become the manufacturing hub for the world with cheap and skilled labor. Maruti Udyog is aiming to become the R&D hub for its parent Suzuki’s Asia operations.
The passenger vehicles sector is a cyclical one, which posses a question - Will the high growth rates witnessed earlier continue going forward?
Our discussions with the industry gave us an insight on the demand projections for passenger vehicle volumes in the future.
Emission norms, infrastructure development, economic growth and low interest rates are causing change in dynamics.