Indian Auto Industry

The Indian Mid- part passenger railway carmobile application Nitin Gupta* and Vaibhav Shekhar** The Indian auto exertion is angiotensin converting enzyme of the fastest change stateing automobile industries in the world. The low perceptiveness direct of gondolas in India coupled with bristle in the disposable income of its works population has made it an pre throwing stopping point for orbicular automobile manufacturing businesss. This end deals with the mid- size of it car atom of the rider car patience in India. In 2009-10, this plane section accounted for approximately 12. % of the total passenger cars shaped in India and its course of study-on-twelvemonth (YoY) yield rate was approximately 15%. The study players in this segment embarrass Tata aims, Maruti Suzuki, Hyundai motors India, ford India, cosmopolitan Motors India, Honda Siel India, Mahindra-Renault and Hindustan Motors. In addition to the existing players, various raw players resembling Vo lkswagen, Nissan, gild, etc. , cause either already entered in this segment or be about to enter. The moorage spunkylights various issues being approach by real as well(p) as naked as a jaybird-fangled entrants in this segment.The case provides exhaustive modern-day data on the mid-size car segment of the passenger car manufacturing in India. Analysis of the case wad be done development Porters pentad forces model. some(prenominal)(prenominal) people buy compact cars today because they do not crap the money to buy a sedan. So there is a gamey aspirational value attached to mid-size cars and refreshfuler cars at lower monetary values will only if exact more people think of buying them. Pradeep Saxena, Head of the Auto look into Division at Consultancy Firm TNS1 IntroductionAutomobile exertion is considered to be one of the key spheres of any economic system it is capable of being the device driver of economic ontogeny because of both its backward as well as forward linkages with other sectors of the economy. consort to the Automotive Mission end (2006-16), India is one of the fastest growing automobile industries in the world. The sectors apportion in Gross Domestic Product (GDP) rose from 2. 8% in fiscal year 1992-93 (April 1992-March 1993) to 5% in fiscal year 2005-06 2 and it has been rising every year since then.In the year 2009-10, Indian automobile intentness produced more than 2 trillion passenger cars and more than 0. 5 million skillful vehicles. 3 According to the Eleventh Five category Plan4 (2007-12), after relaxation behavior in 1991, Indian * ** 1 2 3 4 Assistant Professor, IBS, Hyderabad, Andhra Pradesh, India. E-mail prof. emailprotected com Research Scholar, IBS, Hyderabad, Andhra Pradesh, India. E-mail vaibhav. emailprotected com http//timesofindia. indiatimes. com/articleshow/2888603. cms http//www. oppapers. om/essays/India-Automobile- pains/155618 Society for Indian Automobile manufacturers, available at h ttp//www. siamindia. com/upload/AMP . pdf overlay by the Working Group on Automotive manufacture, Eleventh Five Year Plan (2007-12), incision of great(p) Industries, ministry of Heavy Industries and exoteric Enterp airlifts, India (August 2006). The IUP daybook of note Strategy, Vol. VII, zero(prenominal) 3, 2010 2010 IUP All Rights Reserved. . 60 Automotive Industry had registered a dramatic produce of 17% during five fiscal age ranging surrounded by 2000-01 and 2005-06. savings bank 2002-03, it had achieved an investiture of INR6 50,000 cr (US$10. 99 bn7) which went up to INR 80,000 cr in 2007 (US$17. 58 bn8) with a turn over of INR 165,000 cr (US$36. 26 bn). Moreover, an investment worth INR 35,000 cr (US$7. 69 bn) was in the pipeline. 9 According to the Annual Report (2007-08) of miniskirtstry of Heavy Industries and Public Enterprises, brass of India, India is the game largest two-wheeler manufacturer in the world, twenty percent largest commercial vehicle m anufacturer in the world, largest manufacturer of tractors in the world and one-fourth largest passenger car merchandise in Asia.This achievement of the Indian self-propelling constancy could be attributed to the Indian governments decision to de-license the sector followed by up to 100% foreign direct investment finished automatic route which enabled the industry to embark on a new journey since 1991. The above initiatives resulted in setting up of manufacturing facilities by major spheric players. It resulted in the massive enhancement of the return level of automobiles (which include passenger vehicles, commercial vehicles, two wheelers and three heelers) from 2 million in 1991 to 11. 17 million vehicles in 2008-09. 10 The above measures taken by the Indian Government made India the new launch pad for global car manufacturers comparable Honda, get across, Hyundai, General Motors, etc. Rising level of income of the Indians, handiness of escaped credit facility, relaxati ons in regulations by the Indian government in charge of import tariffs and equity regulations could be attributed as major sources for this upsurge. The case concentrates on the mid-size car segment in India.It analyzes the reasons for the increase of this segment and the contemporary growth trends that it shows. The important issues that the case raises atomic number 18 How is the impact of various immaterial factors shaping this segment and what would be the future of this segment? Mid-Size Car Segment in India A mid-sized car11 is referred to as an automobile whose size lay amid a small-sized car (Mini and Compact) and a full-sized car (Premium and sumptuousness). 12 It is generally priced amid INR 3 lakh13 (US$6,953. 41) and INR 8 lakh (US$17,582. 2) with a tending capacity of 4 passengers (2 adults and 2 children). The major players in this segment include Tata Motors, Maruti Suzuki, Hyundai Motors India, crossway India, General Motors India, Honda Siel India, Mahin dra-Renault and Hindustan Motors (HM). mingled with the financial old age, 2004-05 and 2009-10, the production of passenger vehicles in India rose from 1,027,858 units to 2,078,392 units, a phenomenal rise of more than 100% in production in well(p) five years. But during the same time period (2004-05 to 2009-10), the 5 6 7 8 10 11 12 13 Indian Automotive Industry includes Automobile Industry and Auto Component Industry. INR = Indian Rupee. Exchange Rate 1 US$ = INR 45. 50 (applicable as on March 20, 2010). Figures of 2007 has been taken from Annual Report 2007-08, Ministry of Heavy Industries and Public Enterprises, Government of India. Figures as on 2006-07. inception Annual Report 2007-08, Ministry of Heavy Industries and Public Enterprises, Government of India. http//www. ibef. org/industry/automobiles. spx Refer to Appendix for details on sort of passenger cars. http//auto. indiamart. com/cars/mid-size-cars. hypertext mark-up language 1 lakh = A Hundred Thousand. 61 The In dian Mid-Segment Passenger Car Industry production of the mid-size cars could not observe pace with the massive increase in the passenger vehicles in India and it increase by good 40. 5% (see to flurry 1). As a result, the partake of mid-size cars with respect to the total passenger vehicles produced dropped from more than 18% in 2004-05 to less(prenominal) than 13% in 2009-10 (see Table 2).Table 1 get along issue of Passenger Vehicles in India power arrive merchandise add unitedly Mini Cars achievement Total Compact Cars Production Total Mid-Size Cars Production Total executive Cars Production Total Premium Cars Production Total luxuriousness Cars Production MUVs Production Figures in Units 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 1,027,858 1,112,794 1,322,739 127,175 614,137 187,345 26,673 5,017 140 67,371 98,047 714,985 200,019 27,660 5,333 89 66,661 99,400 881,665 212,763 39,478 4,477 249 84,707 ,531,545 1,619,095 2,078,392 81,179 245,972 44,166 5,745 525 105, 333 62,323 229,239 33,526 7,527 543 102,128 69,195 263,352 42,293 9,092 375 151,908 1,048,625 1,183,809 1,542,177 reference book focalise for observe of Indian scrimping Industry Analysis function Data instauration Table 2 Segment-Wise assign in Production of Passenger Vehicles in India index number Total Mini Cars Production Total Compact Cars Production Total Mid-Size Cars Production Total executive Cars Production Total Premium Cars Production Total Luxury Cars Production MUVs Production Figures in Percentages 2004-05 12. 7 59. 75 18. 23 2. 60 0. 49 0. 01 6. 55 2005-06 8. 81 64. 25 17. 97 2. 49 0. 48 0. 01 5. 99 2006-07 7. 51 66. 65 16. 09 2. 98 0. 34 0. 02 6. 40 2007-08 5. 30 68. 47 16. 06 2. 88 0. 38 0. 03 6. 88 2008-09 3. 85 73. 12 14. 16 2. 07 0. 46 0. 03 6. 31 2009-10 3. 33 74. 20 12. 67 2. 03 0. 44 0. 02 7. 31 Source Center for Monitoring of Indian parsimony Industry Analysis Services Database A sign of growing economy in India is that since 2004-05 the sale of pass enger vehicles always exceeded the production of passenger vehicles (except in the year 2007-08) (refer to Tables 1 and 3). amidst 2004-05 and 2009-10, the sale of passenger vehicles besides showed phenomenal growth of more than 100% (refer to Table 3). Of the total vehicles sold amidst 2004-05 and 2009-10, the sh ar of mid-size cars dropped from just less than 20% to just over 14% (refer to Table 4). These trends have begun to cause substantial worry among the producers of the mid-size cars and they have started to look the factors that are influencing such a trend. 62 The IUP Journal of production line Strategy, Vol. VII, No. 3, 2010 Table 3 Total sales of Passenger Vehicles in Indiapower Total Car gross sales Total Mini Car gross sales Total Compact Cars sales Total Mid-Size Cars sales Total Executive Cars gross sales Total Premium Cars Sales Total Luxury Cars Sales MUV Figures in Units 2004-05 1,047,109 124,447 617,837 206,888 25,646 5,876 155 66,260 2005-06 1,119,65 7 1,00,422 7,00,046 217,849 27,529 6,261 91 67,459 2006-07 1,353,574 96,103 890,504 235,355 40,964 5,978 249 84,421 2007-08 2008-09 2009-10 1,516,716 1,659,777 2,120,366 87,003 249,152 42,195 6,209 862 101,871 63,992 271,662 33,641 9,042 1,093 107,767 69,004 299,175 46,686 11,455 1,265 151,869 1,029,424 1,172,580 1,540,912Source Center for Monitoring of Indian delivery Industry Analysis Services Database Table 4 Segment-Wise Share in Sales of Passenger Vehicles in India index number 2004-05 Total Mini Car Sales Total Compact Cars Sales Total Mid-Size Cars Sales Total Executive Cars Sales Total Premium Cars Sales Total Luxury Cars Sales MUV 11. 88 59. 00 19. 76 2. 45 0. 56 0. 01 6. 33 2005-06 8. 97 62. 52 19. 46 2. 46 0. 56 0. 01 6. 02 Figures in Percentages 2006-07 7. 10 65. 79 17. 39 3. 03 0. 44 0. 02 6. 24 2007-08 5. 74 67. 87 16. 43 2. 78 0. 41 0. 6 6. 72 2008-09 3. 86 70. 65 16. 37 2. 03 0. 54 0. 07 6. 49 2009-10 3. 25 72. 67 14. 11 2. 20 0. 54 0. 06 7. 16 Source Center for Mo nitoring of Indian Economy Industry Analysis Services Database The major players in the mid-size segment of the passenger car industry in India has seen lot of upheaval between 2004-05 and 2009-10. As outlying(prenominal) as production figures, in 2004-05 are concerned, Tata Motors emerged as the foodstuff attraction with the production of 41,103 units. It was closely followed by Honda Siel, Maruti Suzuki and Hyundai Motors.But, by 2009-10, Tata Motors not only disoriented its leadership rate, it was nowhere near the top out three players as removed as the production of mid-size segment passenger cars in India were concerned. With the production of 99, 877 units or or so 38% of the total mid-size cars produced in India, Maruti Suzuki had taken over the market leaders shoes in this segment. It was followed by Hyundai Motors and Honda Siel (refer to Tables 5 and 6). Sales figures of mid-size segment passenger cars showed a completely contrary scenario from what was seen at the production front.In 2004-05, Ford India was the market leader with sales of 47,431 units, which translated into a market share of nearly 23%. It was The Indian Mid-Segment Passenger Car Industry 63 Table 5 Company-Wise Production of Mid-Size Cars in India Indicator Ford India Pvt. Ltd. Production Mid-Size Cars (4001-4 cholecalciferol mm) General Motors India Pvt. Ltd. Production (Mid-Size Cars) Hindustan Motors Ltd. Production (Mid-Size Cars) Honda Siel Cars India Ltd. Production (Mid-Size Cars) Hyundai Motor India Ltd. Production (Mid-Size Cars) Maruti Suzuki Ltd. Production (Mid-Size Cars) Tata Motors Ltd. Production (Mid-Size Cars) Mahindra Renault Pvt.Ltd. Production (Mid-Size Cars) Figures in Units 2004-05 25596 11036 14371 33036 30712 31491 41103 NA 2005-06 25294 4202 14909 37924 42288 31062 44247 NA 2006-07 39431 10337 12456 40147 41071 30465 37625 580 2007-08 33139 5574 10797 41901 47040 50596 30272 26653 2008-09 22439 2858 6940 36840 58873 73928 12957 14404 2009-10 2806 2 3832 9063 45980 46741 99877 23572 6225 Source Center for Monitoring of Indian Economy Industry Analysis Services Database Table 6 Company-Wise Share in Production of Mid-Size Cars in India Indicator Ford India Pvt. Ltd. Production Mid-size cars (4001-4500 mm) General Motors India Pvt. Ltd.Production (Mid-Size Cars) Hindustan Motors Ltd. Production (Mid-Size Cars) Honda Siel Cars India Ltd. Production (Mid-Size Cars) Hyundai Motor India Ltd. Production (Mid-Size Cars) Maruti Suzuki Ltd. Production (Mid-Size Cars) Tata Motors Ltd. Production (Mid-Size Cars) Mahindra Renault Pvt. Ltd. Production (Mid-Size Cars) Figures in Percentages 2004-05 13. 66 5. 89 7. 67 17. 63 16. 39 16. 81 21. 94 NA 2005-06 12. 65 2. 10 7. 45 18. 96 21. 14 15. 53 22. 12 NA 2006-07 18. 54 4. 86 5. 86 18. 88 19. 31 14. 33 17. 69 0. 27 2007-08 13. 47 2. 27 4. 39 17. 03 19. 12 20. 57 12. 31 10. 84 2008-09 9. 79 1. 25 3. 03 16. 07 25. 8 32. 25 5. 65 6. 28 2009-10 10. 66 1. 46 3. 44 17. 46 17. 75 37. 93 8. 95 2. 36 Source Center for Monitoring of Indian Economy Industry Analysis Services Database 64 The IUP Journal of Business Strategy, Vol. VII, No. 3, 2010 followed by Tata Motors, which had a market share of 19. 5%. Honda Siel was at the third position with market share of around 16%. Just five years down the line, in 2009-10, Maruti Suzuki in any casek the coveted position of the market leader with market share of more than 33%. Tata Motors continued to enjoy the second position (market share = 19. 23%), followed by Hyundai Motors (Market Share = 16. 2%) (refer to Tables 7 and 8). Ford India tumbled from the first spot in 2004-05 to the fifth spot in just five years. This shows the increasely dynamic nature of the mid-size segment of the passenger car industry in India. Table 7 Company-Wise Sales of Mid-Size Cars in India Indicator Ford India Pvt. Ltd. Sales Mid-Size Cars (4001-4500 mm) General Motors India Pvt. Ltd. Sales (Mid-Size Cars) Hindustan Motors Ltd. Sales (Mid-Size Cars) Honda Siel Cars India Ltd. Sales (Mid-Size Cars) Hyundai Motor India Ltd. Sales (Mid-Size Cars) Maruti Suzuki Ltd. Sales (Mid-Size Cars) Tata Motors Ltd. Sales (Mid-Size Cars) Mahindra Renault Pvt. Ltd.Sales (Mid-Size Cars) Figures in Units 2004-05 47,431 10,650 14,609 32,767 29,828 29,702 40,454 na 2005-06 43,154 4,710 14,893 37,586 41,683 32,006 43,363 na 2006-07 62,808 10,726 12,334 40,489 39,003 29,781 39,462 0 2007-08 31,569 5624 11,005 40,550 48,171 49,402 36,859 25,891 2008-09 23,927 3,010 7,098 38,284 56,538 76,039 51,732 15,034 2009-10 28,004 3,874 9,039 45,082 49,412 99,854 57,532 6,332 Source Center for Monitoring of Indian Economy Industry Analysis Services Database What is interesting to note is that just eight players are active in this segment, though the intense rivalry is limited to the top four or five players only.More and more international players deal Volkswagen, Renault (without Mahindra and Mahindra (M&M)), Skoda and Fiat are introducing their products in this seg ment. This indicates a supercharge increase in the intensity of the disceptation among the existing and the new players in the near future. To outlast in such a highly competitive scenario, the existing players in the mid-size passenger cars segment will be forced to invest a considerable portion of their sales in research and development in consecrate to produce new and wear variants.This will be greatly beneficial for the Indian consumers. Indian Passenger Car Industry An agreeable Destination According to the Indian Commerce Minister Kamal Nath, India is an attractive destination for global automobile manufacturers de filthiness not having any specific sight The Indian Mid-Segment Passenger Car Industry 65 Table 8 Company-Wise Share in Sales of Mid-Size Cars in India Indicator Ford India Pvt. Ltd. Sales Mid-Size Cars (4001-4500 mm) General Motors India Pvt. Ltd. Sales (Mid-Size Cars) Hindustan Motors Ltd.Sales (Mid-Size Cars) Honda Siel Cars India Ltd. Sales (Mid-Size Car s) Hyundai Motor India Ltd. Sales (Mid-Size Cars) Maruti Suzuki Ltd. Sales (Mid-Size Cars) Tata Motors Ltd. Sales (Mid-Size Cars) Mahindra Renault Pvt. Ltd. Sales (Mid-Size Cars) Figures in Units 2004-05 22. 93 5. 15 7. 06 15. 84 14. 42 14. 36 19. 55 NA 2005-06 19. 81 2. 16 6. 84 17. 25 19. 13 14. 69 19. 91 NA 2006-07 26. 70 4. 56 5. 24 17. 21 16. 58 12. 66 16. 78 0 2007-08 12. 67 2. 26 4. 42 16. 28 19. 33 19. 83 14. 79 10. 39 2008-09 8. 81 1. 11 2. 61 14. 09 20. 81 27. 9 19. 04 5. 53 2009-10 9. 36 1. 29 3. 02 15. 07 16. 52 33. 38 19. 23 2. 12 Source Center for Monitoring of Indian Economy Industry Analysis Services Database agreements in this regard. 14 This is because there is an extremely low perceptivity level of cars in India (7 cars per thousand). 15 In addition, majority of the Indian population consists of youth having a median value age of approximately 25 years16 and the population that fell in the works age concourse is 58% (approximately) which is estimated to incre ase to around 60% in the future. 7 This indicates an increase in the disposable income, which is in all likelihood to raise the penetration level of cars in India (as is obvious from the current trend in the passenger car production and sales in India). These developments have made India an attractive destination for the global automobile companies. Auto study18 like Ford, Honda, Hyundai, etc. , have not only entered into the mid-size segment of the Indian Passenger car industry but has also set up their manufacturing base in India. Indias liberal policy in terms of regulation has lowered the doorway barriers for new entrants in the mid-segment of the passenger car industry.This has induced severe competition marked by high aspirations and new launches by existing players like M&M, which in tie up with French car manufacturer Renault has launched Logan. Since this offering is not doing very well in the Indian market, Renault has inflexible to introduce new model of cars in Indi a on its own, without any partner. Ford India is 14 15 16 17 18 http//www. surfindia. com/automobile/industry-investment. html Auto Motive Mission Plan (ibid). https//www. cia. gov/library/publications/the-world-factbook/geos/in. html large number http//populationcommission. nic. in/facts1. tm (Here the working age is considered between 15 years to 60 years), Figures as in 2001. Center for Monitoring of Indian Economy Industry Analysis Services Database. The IUP Journal of Business Strategy, Vol. VII, No. 3, 2010 66 targeting to improve its position with aggressive marketing and by increase its investment in manufacturing. 19 Moreover the existing players like Tata Motors, Maruti and Fiat are also planning to launch new models in this segment. 20 Intensifying the competition, Fiat India has launched Linea and Grand Punto in the Indian mid-size car segment.The Indian Customers A study on Indian consumers, conducted by Mckinsey Global Institute, 21 discusses the income level of the I ndian consumers with the growth in the Indian economy. The continue predicts that if Indias growth continues unabated, then the rise of over 291 million people over desperate poverty line by 2025, will hatful it the fifth largest consumer market in the world. 22 Moreover, the reports forecast a massive rise in the number of Indian middle-class to 583 mn by 2025. The report also discusses a rise in the average household disposable income from INR 113,744 (US$2,499. 7) in 2005 to INR 318,896 (US$7008. 70) by 2025. These results indicates a rise in the uptake level of the Indian consumers and shift in the consumption pattern from necessities towards discretionary consumption which include expenditure on exaltation in the form of passenger cars. The findings of the report also reveal a change in expending habits of the rich urban households which converges with that of their counterparts in developed countries and their priority expenditure includes barter for of branded apparels , foreign vacations and purchase of passenger cars.Other reasons (apart from economic growth) cited by the report include availability of easy consumer financing, tendency of the people to intrust more on their personal vehicles and reduction in the prices of the passenger cars. universe of discourse commission report indicates that majority of the Indian population consists of youth with increasing disposable income. 23 According to the findings of CSMM-BW Customer Survey 2006-07, Indian consumers are discerning and are of highly demanding nature, which make them a tough orb to crack for the marketers. 4 The survey measures the attitude of the Indian customers towards various companies using two key dimensions viz. Customer Experience (how the customers rate the soakeds performance) and Customer Loyalty (extent of customers goodwill a firm enjoys) covering 16 products and services. The results of the survey reveal the rising expectations of the Indian consumers which the market ers are finding difficult to abide on a logical basis. The above result is attributed to the churn that has taken place slur liberalization in the Indian economy. 19 20 21 22 23 24 http//www. hinduonnet. om/businessline/2000/06/24/stories/192402fr. htm http//auto. indiamart. com/cars/mid-size-cars. html www. scribd. com/doc/47945/McKinsey-MGI-india-consumer-full-report Desperate poverty has been defined in the study as people with an annual income of less than INR 90,000 (US$1850. 33). Source http//populationcommission. nic. in/facts1. htm (Here the working age is considered between 15 years to 60 years), Figures as in 2001. Customer Satisfaction Management and Measurement (CSMM) A Specialized Unit of Market Research Firm IMRB International (BW Business World) Marketing White Book 2001-08). 7 The Indian Mid-Segment Passenger Car Industry The report also discusses about the availability of new and better choices for Indian consumers due to opening up of the Indian economy post l iberalization. This development, according to the report, coupled with increase in their income level is the major reason for the rise in consumer expectations about various products and services that they purchased. The inability of the marketers to meet their customers expectations and the availability of newer and better alternatives could be seen as one of the ajor reasons for the decline in consumer loyalty towards various players operating in the market. Rising disposable income of the working population and increase in the number of car models introduced by different companies operating in India, has change magnitude the array of choice for the Indian consumers. With new players entering into the lucrative Indian domestic market and with the current players introducing new models in different segments, the bargaining power of the Indian customers is increasing. This has resulted in a decline in consumer loyalty towards a particular player.In order to compete in the Indian ma rket, car-makers need to manufacture and sell products that carry the highest customer value. To achieve this goal, they need to provide European-quality cars at Asian prices. price is cosidered as the crucial selling point in the market. 25 However, rise in the purchasing power of the Indians, increasing competition in the Indian market, stress on driving comfort and life-cycle costs (especially costs cerebrate to can) are also becoming important factors for potential car buyers in India. The Indian Auto Component IndustryThe Indian auto fate industry, apart from IT industry, is believed to have the potential to be globally competitive. Robust growth in the Indian automobile industry seems to have triggered an upsurge in the Indian auto component industry. The Indian automotive component industry mounts the automobile manufacturers by supplying them with automobile parts like engine parts, electrical parts, brakes, steel equipments, etc. It is characterized by the charge of around 500 organized manufacturers and 1,000 unorganized manufacturers. 6 Similar to the passenger car industry, the Indian auto component industry too has witnessed a robust growth between 1995 and 2005, which has made it one of the fastest growing industries in India having achieved a growth rate of 28% during the period ranging between 1995-98, 24% in 2003, 16% in 2004 and 15% in 2005. 27 This trend is pass judgment to continue in the future as well. The Automotive Mission Plan (2006-16) reports that the turnover achieved by Indian auto-component industry would be over US$14 bn in 2005-06 and US$16 bn in the financial year 2006-07. 8 The supreme capability of Indian auto manufacturers is evident, from the launch of indigenized passenger vehicles like Tata Indica, Tata Nano, Mahindra Scorpio, etc. , by various Indian automobile players. Moreover, global auto majors like Ford 25 26 27 28 Source http//findarticles. com/p/articles/mi_m0KJI/is_3_118/ai_n16118939 Report by the working group on Automotive Industry, Eleventh Five Year Plan (2007-2012), Department of Heavy Industries, Ministry of Heavy Industries and Public Enterprises, India (August 2006).According to ACMA Mckinsey visual sense 2015, the industry has describe a growth rate of 20% between 2000-05. According to ACMA Mckinsey Vision 2015. The IUP Journal of Business Strategy, Vol. VII, No. 3, 2010 68 Motors, Honda Siel, Hyundai Motors, etc. , are also setting up their manufacturing base in India. They are leveraging the support of high quality auto component suppliers base in India in order to reduce their cost of production. 9 The presence of high quality component suppliers is one of the major reasons for global majors for setting up manufacturing facilities and make India their export hub. The potential for the Indian auto component industry, according to The ACMAMcKinsey Vision 2015 document is estimated to be US$40-45 bn by 2015. 30 Indias auto component industry had the capability to manufa cture the entire chain of autocomponents, such as engine parts, drive, transmission parts, intermission and braking parts, electrical parts, body and chassis parts, with engine parts making nearly a third of all exports.Therefore, the contribution made by exports is likely to play a significant role in achieving the aforesaid potential, which is evident from the fact that the industry achieved growth rate (in exports) of 25% during 2000-05 and is expected to grow at 34% during the following decade. 31 Availability of a blanket(a) Array of Choices for the Indian Customers Compact cars have emerged as a superordinate player (refer to Table 4) in the Indian passenger car industry controlling more than 60% of the units sold in the last five years. 32 The sales of the small car (particularly compact size cars) inIndia has exceeded the sales of cars in any other segment. So the biggest affright in terms of substitutes for the mid-sized cars is the small cars especially the compact s ize cars. With the coming of Tata Nano, which is priced at about US$2500-US$2800 per unit, the threat from the small cars was expected to be further magnified. The booming market of passenger cars in India was facing threat from a multitude of factors, one of them being the Multi-Utility Vehicles (MUVs) (refer to Table 9). The MUVs, as the name suggests, are the vehicles with multi-usage capabilities.Popular especially with the large families, the concept of a MUV no motion has many another(prenominal) takers Table 9 Increase in Sales of MUVs Between 2004-05 and 2009-10 Years Total Units of MUVs Sold Percentage Increase 2004-05 180,865 2005-06 198,991 10. 02 2006-07 224,705 12. 92 2007-08 251,567 11. 95 2008-09 228,655 9. 11 2009-10 275,556 20. 51 Source Center for Monitoring of Indian Economy Industry Analysis Services Database 29 30 31 32 Ford India awarded Q1supplier status to 10 suppliers to help them export their products to Ford worldwide. describe by a report on Indian au tomotive industry by Indian Brand Equity Foundation- http//www. ibef. org/ download/Automotive_sectoral. pdf) http//www. ibef. org/industry/autocomponents. aspx According to ACMA-McKinsey vision 2015, exports by auto components manufacturers are expected to contribute 50% of their growth (http//www. ibef. org/industry/autocomponents. aspx) Compact cars and mini cars have been taken together and are considered to be part of small cars. 69 The Indian Mid-Segment Passenger Car Industry in India.All the leading automobile players in India, including the indigenous ones such as the Tata Motors, HM, M&M as well as the foreign ones are expanding their presence in the MUV segment of the Indian automobile market. MUVs with their multi-usage potentiality has been able to gain immense popularity in India. In the recent years many of the automobile companies have engrossed themselves in the manufacturing of MUVs, eying the huge potential market in India and abroad. Automobile firms such as the likes of Maruti Udyog, Tata Motors, M&M and HM have come up with some of the finest models of MUV.HM, one of the oldest auto makers in India, has launched MUVs like Pajero, Pushpak, and Trekker, in the Indian market, with technical collaboration with foreign automakers. 33 The first two could not make substantial headway in the markets while the Trekker is getting some deception of popularity in the rural pockets of the country. M&M too has come up with a range of MUVs like Mahindra Voyager, Mahindra Hard Top ikon, Mahindra CL Range and variants of Mahindra MM Range comprised the MUVs from the M&M stable.Mahindra Scorpio, an SUV (Sports Utility Vehicle) that had been conceptualized and designed by automotive division of M&M, has been quite successful not only in India but also in other countries like Russia, France, Spain, and Portugal. 34 This success could be attributed to its contemporary design and technology. An upgraded version of Scorpio known as New Scorpio was launched wi th additional features. Tata Motors has also modified its versions of Tata Safari and Tata Sumo and has come up with its own range of MUVs. Chevrolet, Hyundai, Ford and Toyota, the foreign auto majors too have their own share of MUVs in the Indian MUV segment.Another threat to the passenger car market is that international car renting firms are making a beeline for the Indian shore with almost a cardinal car rental brands expected to enter the market soon. 35 some(prenominal) International players like Hertz, Europcar, Leaseplan and Avis among others have already established their presence in the country, while others like, Thrifty, Dollar, Enterprise and Vanguards brands like Almo and National among others are also said to be firming up their Indian plans. This sudden rush to India has been attributed to a slump in the US and European market. However, in spite of being US$2. 4 bn, car rental industry in India is highly unorganized. The market share of organized players in car re ntal industry is just 3%. 36 However, the industry, on the whole, has been seeing a buoyant growth of about 35-50% in the last two years (ibid). Public transport like buses and railways also form an important performer of transportation in the Indian cities especially in the urban areas. 37 Despite the growth in the number of private vehicle owners in middle income segments in the metro cities, a substantial number of commuters are still dependent on the public transport. Hundred 33 34 35 36 7 Source http//auto. indiamart. com/hindustan-motors/ http//en. wikipedia. org/wiki/Mahindra_Scorpio Source http//www. ibef. org/artdisplay. aspx? cat_id=60&art_id=16173 http//economictimes. indiatimes. com/password/News_By_Industry/Dozen_car_rental_brands_to_drive_into_India _soon/ articleshow/2225650. cms http//www. urban-age. net/10_cities/07_mumbai/_reflections/india_Tiwari. html The IUP Journal of Business Strategy, Vol. VII, No. 3, 2010 70 million out of 235 million people living in the I ndian cities hold out to lower income segment who cannot afford to own a private vehicle.Currently, many state governments have taken up various initiatives regarding improving the intra-city transportation by allowing private operators to run buses within the city, introducing new and better nitty-gritty of transportation like metro rail in Delhi, new buses, investment in road infrastructure like making new roadstead and widening of existing roads, etc. These initiatives, coupled with increase in the fuel prices, present a potential threat to the sales of the passenger cars. 38 The sales of extravagance cars, though not significant in the current scenario, might pose a threat in the future.The average Indian is no longer satisfied with the normal automobile offerings, car enthusiasts valued to feel precious and pampered and feel the need to enjoy a superior lifestyle. Perhaps these expectations are molding the new class of affluent Indians to possess top brand vehicles, regardl ess of their prices. In addition, the World Wealth Report 2005-06, published by Merrill Lynch and Capgemini, states that India recorded the worlds second fastest growth at 19. 3% in the number of high net-worth individuals in 2005. 39 Moreover, easy availability of credit financing40 has led to increased demand for bigger and better cars.Foreseeing the Indian market potential, major luxury automakers were setting up their offices in India to cater to the rich peoples fancy for trendy and luxurious cars. Mercedes and BMW have offered products at a commencement price of INR 25-30 lakh (US$54,945-65,934), whereas the Maybach has lured the consumers to pay as much as INR 5 cr (US$1,098,901) to drive in the lap of luxury. Other motor giants like Volkswagen, Audi, Lamborghini, Rolls Royce Phantom, Bentley, and Porsche have already joined the luxury car revolution in India. ConclusionThe mid-size passenger car segment is currently passing through a dynamic stage. Growth in the Indian midd le-class and easy availability of credit coupled with new launches and attractive pricing by the players will ensure its availability and hence will facilitate the growth of this segment. However, what the future holds for it, only time can tell. ? 38 39 40 Figures as on November 2007. www. capgemini. com/industries/financial/solutions/wealth/wwr05_archive www. scribd. com/doc/47945/McKinsey-MGI-india-consumer-full-report 71 The Indian Mid-Segment Passenger Car Industry AppendixClassification of Passenger Cars41 thin Cars or Compact Cars Small cars are classified according to the price range which varies from 1 to 3 lakh. It has the capacity to carry 4 passengers2 adults, 2 children. These are basically entry level cars which are favourite(a) by service group and middle income group. These cars are manufactured byMaruti Udyog, Tata Motors and Reva. While companies like Volkswagen, etc. , are yet to launch their models in the market. Mid-Size Cars A mid size car is an automobile wi th a size between that of compact and full size cars. The price range of mid-size cars is between Rs. to 8 lakh. The mid-size cars have the capacity to carry 4 passengers2 adults and 2 children. The credit of manufacturing these cars goes to companies likeFiat India, Ford, General Motors, Hindustan Motors, Hyundai Motors, Maruti Udyog, Tata Motors, etc. Executive Cars An Executive Car segment includes cars that lie between the mid-sized cars and premium cars in terms of price (range lies between Rs. 5 lakh to 10 lakh) and seating capacity. It includes cars from major manufacturers like Daimler Chrysler, Hindustan Motors, General Motors, Toyota Kirloskar, Skoda India, Hyundai Motors and BMW.Premium Cars Premium cars fall within the price range of Rs. 7 to 15 lakh. They have the capacity to carry 5 passengers. These cars mainly target higher income group. Premium cars were launched by Audi India, Ford Motors, General Motors, Honda Motors, Hyundai Motors, Skoda Auto, Mitsubishi and Toy ota Motors. Luxury Cars Luxury cars are very expensive and their price range is above Rs. 20 lakh. These cars are preferred by the high income group. Luxury cars have the capacity to carry at the most 6 passengers.So far companies like BMW, Daimler Chrysler, Porsche, Rolls Royce, etc. , have introduced these cars in India. Reference 33J-2010-09-04-01 41 www. auto. indiamart. com/cars (accessed on January 10, 2008). The IUP Journal of Business Strategy, Vol. VII, No. 3, 2010 72 Copyright of IUP Journal of Business Strategy is the property of IUP Publications and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holders transmit written permission. However, users may print, download, or email articles for individual use.