Automobile industry – Wheels of Change
India had its date with this wonderful vehicle first time in 1898. Then for the next fifty years, cars were imported to satisfy domestic demand. Between 1910 and 20's the automobile industry made a humble beginning by setting up assembly plants in Mumbai, Calcutta and Chennai.
The import/assembly of vehicles grew consistently after the 1920's, crossing the 30,000 mark in 1930. In 1946, Premier Automobile Ltd (PAL) earned the distinction of manufacturing the first car in the country by assembling 'Dodge DeSoto' and 'Plymouth' cars at its Kurla plant. Hindustan Motors (HM), which started as a manufacturer of auto components graduated to manufacture cars in 1949. Thanks to the Licence Raj which restricted foreign competitors to enter the Indian car market, Indian roads were ruled by Ambassador Car from Hindustan Motors and the Fiat from Premier Auto Ltd. for many of the initial years.
In 1952, the GOI set up a tariff commission to devise regulations to develop an indigenous automobile industry in the country. After the commission submitted its recommendations, the GOI asked assembly plants, which did not have plans to set up manufacturing facilities, to shut operations.
As a result General Motors, Ford and other assemblers closed operations in the country. The year was 1954 and this decision of the government marked a turning point in the history of the Indian car industry. The GOI also had a say in what type of vehicle each manufacturer should make. Therefore, each product was safely cocooned in its own segment with no fears of any impending competition. Also, no new entrant was allowed even though they had plans of a full-fledged manufacturing program.
The restrictive set of policies was chiefly aimed at building an indigenous auto industry. However, the restrictions on foreign collaborations led to limitations on import of technology through technical agreements. In the absence of adequate technology and purchasing power, the car industry grew at a snail's pace in the 60’s. The demand for cars in 1960 was to the tune of 15,714. In the next two decades the number increased to 30,989 i.e. a CAGR of only 3.5 per cent.
The other control imposed on carmakers related to production capacity and distribution. The GOI control even extended to fixation of prices for cars and dealer commissions.
This triggered the start of a protracted legal battle in 1969 between some carmakers and GOI. Simply put, the three decades following the establishment of the passenger car industry in India and leading upto the early 1980s, proved to be the 'dark ages' for the consumer, as his choice throughout this period was limited to two models viz. Ambassador and Padmini. It was only in 1985, after the entry of Maruti Udyog, that the car makers were given a free hand to fix the prices of cars, thus, effectively abolishing all controls relating to the pricing of the end product.
In the early 80's, a series of liberal policy changes were announced marking another turning point for the automobile industry. The GOI entered the car business, with a 74% stake in Maruti Udyog Ltd (MUL), the joint venture with Suzuki Motors Ltd of Japan. The very face of the industry was changed for ever in 1983 with the entry of public sector Maruti Udyog in a joint venture with the Suzuki Corporation of Japan. Car sales grew by 42 per cent yoy in 1985 after Maruti 800 was launched. Thanks to MUL car sales registered a CAGR of 18.6 per cent i.e. from 1981 to 1990.
In 1985, the GOI announced its famous broadbanding policy which gave new licenses to broad groups of automotive products like two and four-wheeled vehicles. Though a liberal move, the licensing system was still very much intact. MUL introduced 'Maruti 800' in 1983 providing a complete facelift to the Indian car industry. The car was launched as a "people’s car" with a price tag of Rs 40,000.
This changed the industry's profile dramatically. Maruti 800 was well accepted by middle income families in the country and its sales increased from 1,200 units in FY84 to more than 200,000 units in FY99. However in FY2000, this figure came down due to rising competition from Hyundai's 'Santro', Telco's Indica and Daewoo's 'Matiz'.
MUL extended its product range to include vans, multi-utility vehicles (MUVs) and mid-sized cars. The company has single handedly driven the sales of cars in the country cornering around 79.6% market share. With increasing competition from new entrants, this market share has plummeted to almost 62% in FY2000.
A brief 3-year downturn till 1993 and car sales bounced back to register a 17 per cent growth rate in 1997.Since then, the economy slumped into recession and sales of cars remained quite stagnant FY97 and FY99. The Financial year 2000 has, however, been the turnaround year for the Auto industry with the economy looking up. The automobile industry, crossed the half million mark for the first time in FY2000.
Overwhelmed by newer models from new and existing players had led to an impressive shift from a constrained supply situation to a surplus one. Within the past decade, about 30 models have entered the Indian market with a number of models still awaiting launch.
The de-licensing of auto industry in 1993 opened the gates to a virtual flood of international auto makers into the country with an idea to tap the large population. Also the lifting of quantitative restrictions on imports by the recent policy is expected to add up to the flurry of foreign cars in to the country.
The Indian Automobile industry registered one of the strongest growth rates in FY’04. Aided by sustained economic recovery, the industry registered high growth rates in all major segments.
The growth story was led by Medium and Heavy Commercial Vehicles (M&HCVs) registering a 40% growth while Light Commercial Vehicles (LCVs) recorded a 32% jump in total sales.
Passenger cars also registered an impressive 34% growth in FY’04 and total sales volume crossed the 1 million mark for the first time. Interestingly, two wheelers registered the lowest but healthy growth rate of 13% in FY’04. While motorcycle volumes tripped on a high base, scooters registered a 10%growth after 4 years of continuous decline. Three wheelers grew by 23% in FY’04.
Apart from strong economic growth in all sectors, low interest rate regime, normal monsoon, continued infrastructure investment, fiscal measures like cut in excise duty (in case of cars), etc provided impetus for the growth. The year also saw a sharp 56% rise in export volumes with all the sectors registering more than 40% growth, signalling the rising international competitiveness of the industry.
Profitability improvements were recorded in companies across segments driven by rise in volumes and lower interest costs to some extent, notwithstanding the rise in prices of certain inputs like steel.
Though the peak customs duty had been reduced to 20% in January 2004 and Special Additional Duty was abolished, the domestic industry still enjoys adequate protection, with no import threats.
The potential borne by the industry is well exhibited by the growing number of international players setting up base in India and increasing
competitiveness in the industry.
Many companies have entered the car manufacturing sector, to tap the middle and premium end of car industry.
India had its date with this wonderful vehicle first time in 1898. Then for the next fifty years, cars were imported to satisfy domestic demand. Between 1910 and 20's the automobile industry made a humble beginning by setting up assembly plants in Mumbai, Calcutta and Chennai.
The import/assembly of vehicles grew consistently after the 1920's, crossing the 30,000 mark in 1930. In 1946, Premier Automobile Ltd (PAL) earned the distinction of manufacturing the first car in the country by assembling 'Dodge DeSoto' and 'Plymouth' cars at its Kurla plant. Hindustan Motors (HM), which started as a manufacturer of auto components graduated to manufacture cars in 1949. Thanks to the Licence Raj which restricted foreign competitors to enter the Indian car market, Indian roads were ruled by Ambassador Car from Hindustan Motors and the Fiat from Premier Auto Ltd. for many of the initial years.
In 1952, the GOI set up a tariff commission to devise regulations to develop an indigenous automobile industry in the country. After the commission submitted its recommendations, the GOI asked assembly plants, which did not have plans to set up manufacturing facilities, to shut operations.
As a result General Motors, Ford and other assemblers closed operations in the country. The year was 1954 and this decision of the government marked a turning point in the history of the Indian car industry. The GOI also had a say in what type of vehicle each manufacturer should make. Therefore, each product was safely cocooned in its own segment with no fears of any impending competition. Also, no new entrant was allowed even though they had plans of a full-fledged manufacturing program.
The restrictive set of policies was chiefly aimed at building an indigenous auto industry. However, the restrictions on foreign collaborations led to limitations on import of technology through technical agreements. In the absence of adequate technology and purchasing power, the car industry grew at a snail's pace in the 60’s. The demand for cars in 1960 was to the tune of 15,714. In the next two decades the number increased to 30,989 i.e. a CAGR of only 3.5 per cent.
The other control imposed on carmakers related to production capacity and distribution. The GOI control even extended to fixation of prices for cars and dealer commissions.
This triggered the start of a protracted legal battle in 1969 between some carmakers and GOI. Simply put, the three decades following the establishment of the passenger car industry in India and leading upto the early 1980s, proved to be the 'dark ages' for the consumer, as his choice throughout this period was limited to two models viz. Ambassador and Padmini. It was only in 1985, after the entry of Maruti Udyog, that the car makers were given a free hand to fix the prices of cars, thus, effectively abolishing all controls relating to the pricing of the end product.
In the early 80's, a series of liberal policy changes were announced marking another turning point for the automobile industry. The GOI entered the car business, with a 74% stake in Maruti Udyog Ltd (MUL), the joint venture with Suzuki Motors Ltd of Japan. The very face of the industry was changed for ever in 1983 with the entry of public sector Maruti Udyog in a joint venture with the Suzuki Corporation of Japan. Car sales grew by 42 per cent yoy in 1985 after Maruti 800 was launched. Thanks to MUL car sales registered a CAGR of 18.6 per cent i.e. from 1981 to 1990.
In 1985, the GOI announced its famous broadbanding policy which gave new licenses to broad groups of automotive products like two and four-wheeled vehicles. Though a liberal move, the licensing system was still very much intact. MUL introduced 'Maruti 800' in 1983 providing a complete facelift to the Indian car industry. The car was launched as a "people’s car" with a price tag of Rs 40,000.
This changed the industry's profile dramatically. Maruti 800 was well accepted by middle income families in the country and its sales increased from 1,200 units in FY84 to more than 200,000 units in FY99. However in FY2000, this figure came down due to rising competition from Hyundai's 'Santro', Telco's Indica and Daewoo's 'Matiz'.
MUL extended its product range to include vans, multi-utility vehicles (MUVs) and mid-sized cars. The company has single handedly driven the sales of cars in the country cornering around 79.6% market share. With increasing competition from new entrants, this market share has plummeted to almost 62% in FY2000.
A brief 3-year downturn till 1993 and car sales bounced back to register a 17 per cent growth rate in 1997.Since then, the economy slumped into recession and sales of cars remained quite stagnant FY97 and FY99. The Financial year 2000 has, however, been the turnaround year for the Auto industry with the economy looking up. The automobile industry, crossed the half million mark for the first time in FY2000.
Overwhelmed by newer models from new and existing players had led to an impressive shift from a constrained supply situation to a surplus one. Within the past decade, about 30 models have entered the Indian market with a number of models still awaiting launch.
The de-licensing of auto industry in 1993 opened the gates to a virtual flood of international auto makers into the country with an idea to tap the large population. Also the lifting of quantitative restrictions on imports by the recent policy is expected to add up to the flurry of foreign cars in to the country.
The Indian Automobile industry registered one of the strongest growth rates in FY’04. Aided by sustained economic recovery, the industry registered high growth rates in all major segments.
The growth story was led by Medium and Heavy Commercial Vehicles (M&HCVs) registering a 40% growth while Light Commercial Vehicles (LCVs) recorded a 32% jump in total sales.
Passenger cars also registered an impressive 34% growth in FY’04 and total sales volume crossed the 1 million mark for the first time. Interestingly, two wheelers registered the lowest but healthy growth rate of 13% in FY’04. While motorcycle volumes tripped on a high base, scooters registered a 10%growth after 4 years of continuous decline. Three wheelers grew by 23% in FY’04.
Apart from strong economic growth in all sectors, low interest rate regime, normal monsoon, continued infrastructure investment, fiscal measures like cut in excise duty (in case of cars), etc provided impetus for the growth. The year also saw a sharp 56% rise in export volumes with all the sectors registering more than 40% growth, signalling the rising international competitiveness of the industry.
Profitability improvements were recorded in companies across segments driven by rise in volumes and lower interest costs to some extent, notwithstanding the rise in prices of certain inputs like steel.
Though the peak customs duty had been reduced to 20% in January 2004 and Special Additional Duty was abolished, the domestic industry still enjoys adequate protection, with no import threats.
The potential borne by the industry is well exhibited by the growing number of international players setting up base in India and increasing
competitiveness in the industry.
Many companies have entered the car manufacturing sector, to tap the middle and premium end of car industry.