The Indian automobile industry is the fifth largest in the world and contributes six per cent to the national GDP. It is also one of the fastest emerging automotive markets growing at a rate of above 14 per cent in the last ten years.
The Indian automobile industry has witnessed radical changes in the last 10 years. The industry has grown from strength to strength since 2005. The global recession that lasted from 2007 to 2009 left its impact on the automotive industry, but the industry bounced back strongly, posting a brilliant recovery in 2010. The years that followed were not without challenges, especially as there was a slump in the Indian economy, which impacted the Passenger Vehicle (PV) segment negatively owing to low demand and customer sentiment. Even excise duty cuts from the government were not enough to bolster the sales figures. This year though, the PV segment along with others is showing signs of growth even after rollback of the excise duty cuts. The automotive market has become much more competitive and technologically advanced than ever before. In broad terms, this market consists of Passenger Vehicles (PVs), Commercial Vehicles (CVs) and Two-Wheelers. The major share of the market - according to SIAM - goes to two-wheelers, which accounts for a mammoth 81 per cent, followed by PVs at 13 per cent, and finally, the CV and three-wheelers segment taking three per cent each, to make up the remaining six per cent.
The past decade started off with good growth in 2005 across all segments, which further improved in 2006. Then came the global economic recession triggered by the sub-prime mortgage crisis in the US. The impact was not as severe in India as it was elsewhere in the world, but was enough to reduce the growth rate. The automobile industry did not face any losses but came out stronger in 2010 and posted stellar growth figures. But the last two years have been particularly sluggish, witnessing dwindling car sales with CVs being affected the most.
The Indian government realised the importance of the auto industry rather late, but once it did, it provided the much needed impetus by allowing economic liberalisation, which has led to India becoming one of the most sought after destinations for many global automotive players. Supportive policy measures like relaxation of foreign exchange and equity regulations, reduction in tariffs on imports, and banking liberalisation has lead to a boom in finance-driven purchases contributing to the present success of the automobile industry in the country. Some other factors like affordability, demographics, and infrastructure have also played their part in the growth story.
Over the years customer preference has evolved. Earlier the market saw increased demand for affordable hatchbacks with a focus only on fuel consumption. But now, rising incomes, easy finance options and affordable pricing - owing to fierce competition - has led to the consumer opting for better and more premium cars. Thus, the preference has shifted from hatchbacks to sedans and big, comfortable SUVs. Shedding more light on the subject Shripad Ranade, Senior Principal - Automotive & Engineering, Tata Strategic Management Group says, "While half the cars sold are still hatchbacks, this is lower than earlier, and more premium hatchbacks are being sold. Sedan sales have grown most, and new segments have emerged such as urban and compact SUVs and MPVs."
Speaking of premium cars, luxury brands like Audi, Mercedes-Benz and BMW have seen record demand for their cars. The luxury car market has been growing 15 per cent year on year (YoY) and is expected to keep growing. To drive home the point, the marque with the three pointed star has seen sales grow by a huge 32 per cent YoY in 2013. The demand has reached to such an extent - driven primarily by the introduction of new models - the German firm is now looking to expand its Pune manufacturing facility that will increase its annual capacity to around 20,000 units.
The same holds true for two-wheelers as well. Superbikes, which are classified as having an engine capacity of more than 500 cc, are selling like hot cakes. This segment which was niche earlier has grown at a phenomenal rate of 40 to 50 per cent YoY. Limited to 450 units in 2008-09 it has jumped to 3500 units in 2013-14. This segment is dominated by manufacturers like Royal Enfield and Harley Davidson but the race is hotting up with manufacturers such as Yamaha, Kawasaki, Honda, Suzuki, Triumph and Benelli entering the fray. Sharing his thoughts Ranade states, "Motorcycle sales make up two thirds of two wheeler volumes, and have recently slowed down particularly in rural markets. While a decade back almost half the sales were in the economy segment, there is a clear trend of premiumisation with the executive segment now accounting for more than 60 %. The premium and super-premium segments have shown outsize growth. Scooters have made a comeback on the back of change to a gender neutral positioning and sharper segmentation."
Another glaring change is that of better fuel efficiency and lower emissions. Fuel efficiency has always been at the top of the checklist for Indian customers, but with increasing global focus towards sustainable motoring, it has gained further importance. This has called for radical changes under the hood, best explained in the words of R.K Shenoy, Sr VP, Robert Bosch Engineering and Business Solutions, he says, "Till 2004, emission legislation did not mandate the use of electronic engine management system to manage fuel injection in IC engine. Over the years mechanical fuel injection pumps or carburettors have been replaced with advanced MPFI and Common Rail electronic systems. This has helped not only to reduce the emissions from vehicles, but also improve fuel efficiency." The need for better fuel efficiency and reduced emissions has also led to the introduction of hybrids and Electric Vehicles (EVs). Though they have not yet garnered the desired sales, but the fact that they are being introduced to the masses heralds a paradigm shift in the world of automobiles. Automated Manual Transmission (AMT) is an important development that has captured the imagination of buyers as it offers the benefit of automatic transmission at a low price relative to conventional automatics. It also has the added advantage of better fuel efficiency. This technology has come as a blessing for motorists especially in our streets clogged with bumper-to-bumper traffic. Maruti Suzuki Celerio was the first car that came with this innovation and has almost immediately accrued enviable sales numbers.
Safety should be of prime importance in an automobile, but unfortunately the Indian public has never taken it seriously. This aspect is also undergoing revisions of late, thanks in part to the abysmal performance of some of the best selling Indian cars, in a crash test carried out by Global NCAP (an external agency). This assessment will no doubt decrease the rates of fatalities on our roads, considering that, vehicles are capable of higher speeds now. Highlighting the shifting trend towards vehicle safety Ranade adds, "Considering the quality of roads in India, crash prevention equipment for braking and handling will become more and more relevant in vehicle design. A larger number of OEMs are bringing in vehicles with advanced safety features such as ABS, rearview camera, proximity sensors, etc., as standard equipment."
As new foreign manufacturers started coming in, attracted by the growing market, they faced the barrier of high import duties in case of fully assembled cars (also called CBUs - completely built units). This makes the cars much more expensive and subsequently leads to low sales figures. Hence to counteract this eventuality, all major players have set up manufacturing plants in the country. Perhaps, this is the most important trend that has changed the scenario of Indian automotive industry in the last decade. Because of this, quality cars with technology on par with global standards are available for purchase at a more feasible price point. That is not all. India is among the most competitive automotive markets in the world. Just setting up a plant does not give these manufacturers an edge over the competition. Hence, they have resorted to localisation, that is using parts that are sourced locally. This ensures that costs are kept low and quality is also maintained according to international standards.
German car major BMW recently announced that localisation at its Chennai plant had reached 50 per cent. This is a very recent trend and points to the importance that India has achieved on a global scale. More than a few manufacturers are setting up facilities to cater to global demand for their cars. India's several cost advantages coupled with the government's Automotive Mission Plan 2006-2016 emphasizing on export of small cars, MUVs and two-wheelers, adds up to India becoming a global manufacturing hub for automobiles. The thrust on production shows, as the production output has increased from 1,40,57,064 during 2009-10 to 2,33,66,246 units in 2014-15, according to figures disclosed by SIAM.
Commercial Vehicles have undergone a transformation. Earlier single-axle trucks, almost always overloaded, were considered enough to haul loads throughout the country, but as global players entered and infrastructure developed, multi-axle truck demand with higher tonnage is also showing a steady increase. The last couple of years have seen CVs sales slide, so manufacturers have concentrated on exports to mitigate the effects. In 2009-10 a total of 45,009 units were exported, and this has almost doubled to 85,782 for the 2014-15 period. The Light Commercial Vehicle segment saw a revolutionary product being introduced in 2005 that created a new niche and disrupted the market share of three-wheeler goods carriers. The Tata Ace mini truck proved to be a stupendous success, offering customers excellent last mile connectivity with better features.
Among all the changes that have taken place in the last 10 years, one thing has remained constant at the top. That is Maruti Suzuki, India's largest manufacturer by volume; it has dominated the passenger vehicle market with a share of more than 45 per cent. The Indian juggernaut has understood the pulse of the Indian consumer better than the competition. This combined with its huge after-sales service network has ensured that its products, especially small cars, are always in demand. This statement can be averred by the fact that all of its plants are running at peak capacity. Currently it has two plants, one at Gurgaon and other one at Manesar. They have a combined annual capacity of 14,50,000 units. Three more state-of-the-art plants are coming up at Gujarat, which will have a total capacity of 7,50,000 units annually. Once completed, these facilities are expected to be the most automated and technologically advanced plants in India, taking over from Volkswagen, whose Pune plant presently holds the title. The company's most popular offering is the Alto range that has topped the sales chart for 10 straight years. Another bestseller from the Maruti stable is the slightly premium Swift hatchback that also completed 10 years and clocked 1.3 million sales since its introduction.
The auto industry has witnessed a revolution of sorts since 2005 and the next decade is shaping up to be even better. The emphasis on green vehicles and sustainable motoring along with the need for connected vehicles, is leading to a transformation of the automobile as we know it. The stability of the government at the centre and the attention on infrastructure and local production means greater demand for Commercial Vehicles. The two-wheeler segment will continue to grow while witnessing an increasing demand for scooters led by Honda's Activa. The resurgent automotive industry after a brief period of slowdown is looking forward to exciting times ahead.