Auto Industry : Future Outlook 2

Short Run
1. Demand to increase on back of good monsoons and onset of festival season.
2. Capacity constraints at Auto ancilliary units could impact the sales and production besides Maruti Suzuki also faces the production constraints which are improbable to be removed till 2012 when the new plant comes up.
3. Introduction of new models by Toyota and Honda in A2 segment and by Volkwagen in A3 could boost the sales
4. Withdrawl of Cash- for Clunkers scheme operating in Euro region could further impact the exports of Maruti and Hyundai which have led them to look for African and Latin nations
5. Shortage of skilled manpower could prove a detriment to the companies trying to increase their production.


Long Run1. Development of new factories would ease the capacity crunch currently faced by OEMs.
2. Forecasts of a double Dip recession could impact the sales
3. Stress on R&D by major automobiles giants will lead to products specifically designed for Indian Consumers.
4. Development of Delhi – Mumbai corridor and other infrastructural programmes would boost the exports and help in easy transport of vehicles.
5. With companies like TATA and M&M increasing looking for export markets as production bases through acquisitions of others companies the sales of these companies is bound to increase
6. Increased entry by car majors could erode the profitability and margins in the industry where the margins are already very low.
7. Global OEMs could leverage their tie- ship with local suppliers to source components for their global operation from India and with global scenario improving this trend would be visible across.
8. Govt. decision to spend $ 1 trillion on infrastructure sector would benefit the majors operating in the HCV/LCV segment.
9. Still a high level of inflation could indirectly affect the sales due to tightening of monetory policies.
10. Prices of raw materials and petrol would play a significant role on how the sector shapes up as their demand would increase with the economies moving out of recession.
11. With increasing stress on exports by CV majors the outlook seems to be positive.

Auto Industry : Future Outlook 1

The future of Indian Automobile market is bright as it looks forward to manufacturing and implementing new innovations such as electric cars as provided by Reva, alternate fuels like CNG and LPG, and probably customized Internet automobile orders.

Indian automobile makers are exporting to various destinations, in Africa, Asia, South America and even few European countries like, Italy, Spain, Netherlands, etc.

The auto component industry in India now equipped with significant advancement in its

technological capabilities, due to its alignment with major vehicle manufacturers in the country and abroad. These advancements have also increased their export potential.

Exports of Indian automobile sector have been continuously increasing, and are poised to reach greater heights as it has advantage over its competitors in few areas like:

-          Bringing down of trade barriers.

-          India’s competitiveness and quality-consciousness, which is crucial in auto sector.

Emerging trends:

Globalization is pushing auto majors to consolidate, to upgrade technology, and enlarge

product range, access new markets and cut costs. They have resorted to common platforms, modular assemblies and systems integration of component suppliers and e-commerce.

The component industry is undergoing vertical integration resulting into emergence of

‘systems and assembly suppliers’ rather than individual component suppliers. Thus, while most component suppliers are integrating into tier 2 and tier 3 suppliers, larger manufacturers and multinational corporations (MNCs) are being transformed into tier 1 companies.

Environmental Concerns:

• Environmental and safety concerns are leading to higher safety and emission norms in the country.
• India has already charted out a road-map for reaching EURO-II norms across the country as seven metropolitan cities of India simultaneously went to EURO-III norms by 2005.
• To meet the concomitant testing and certification activities relating to higher safety and emission norms, testing infrastructure in the country is being overhauled.
• Environmental pollution and the need to conserve existing supply of fossil fuels have led to search for alternative fuels.
• In addition to supporting greenfield research in this area, an ambitious phased programme to upgrade carbon fuel quality commensurate with higher emission norms is also being undertaken.

Government Regulations:

• Foreign direct investment norms have already been considerably relaxed.
• Unhindered import of automobiles, including new and second hand vehicles, has also been permitted.
• Most non-tariff barriers have also been relaxed or removed.
• The Government has moderated and lowered taxes and duties on automobiles, including customs duty.
• Value Added Tax (VAT) is also proposed to be introduced across the country from 1 April 2001.
• An ambitious programme to upgrade the quadrilateral of highways in the country, the Government is laying an eight-lane expressway linking all metropolitan and several vital capital towns across the country paving the way for movement of heavier haulage vehicles.

Auto Industry : Four Wheelers poised to be highly competitive

Tata Motors

Market Share: Commercial Vehicles 63.94%, Passenger Vehicles 16.45%

Tata Motors Limited is India’s largest automobile company, with consolidated revenues of USD 14 billion in 2008-09. It is the leader in commercial vehicles and among the top three in passenger vehicles. Tata Motors has winning products in the compact, midsize car and utility vehicle segments. The company is the world's fourth largest truck manufacturer, and the world's second largest bus manufacturer with over 24,000 employees. Since first rolled out in 1954, Tata Motors as has produced and sold over 4 million vehicles in India.

Tata Motors is the first company from India's engineering sector to be listed in the New York Stock Exchange (September 2004), has also emerged as an international automobile company. Through subsidiaries and associate companies, Tata Motors has operations in the United Kingdom, South Korea, Thailand and Spain. Among them is Jaguar Land Rover, a business comprising the two British brands which was acquired in 2008. In 2004, it acquired the Daewoo Commercial Vehicles Company, South Korea's second largest truck maker. The rechristened Tata Daewoo Commercial Vehicles Company has launched several new products in the Korean market, while also exporting these products to several international markets. Today two-thirds of heavy commercial vehicle exports out of South Korea are from Tata Daewoo. In 2005, Tata Motors acquired a 21% stake in Hispano Carrocera, a reputed Spanish bus and coach manufacturer, and subsequently the remaining stake in 2009. Hispano's presence is being expanded in other markets.

In 2006, Tata Motors formed a joint venture with the Brazil-based Marcopolo, a global leader in body-building for buses and coaches to manufacture fully-built buses and coaches for India and select international markets. In 2006, Tata Motors entered into joint venture with Thonburi Automotive Assembly Plant Company of Thailand to manufacture and market the company's pickup vehicles in Thailand. The new plant of Tata Motors (Thailand) has begun production of the Xenon pickup truck, with the Xenon having been launched in Thailand in 2008. Tata Motors is also expanding its international footprint by franchises and joint ventures assembly operations in Kenya, Bangladesh, Ukraine, Russia, Senegal and South Africa.

With over 3,000 engineers and scientists, the company's Engineering Research Centre, established in 1966, has enabled pioneering technologies and products. The company today has R&D centres in Pune, Jamshedpur, Lucknow, Dharwad in India, and in South Korea, Spain, and the UK. It was Tata Motors, which developed the first indigenously developed Light Commercial Vehicle, India's first Sports Utility Vehicle and, in 1998, the Tata Indica, India's first fully indigenous passenger car. Within two years of launch, Tata Indica became India's largest selling car in its segment. In 2005, Tata Motors created a new segment by launching the Tata Ace, India's first indigenously developed mini-truck.

In January 2008, Tata Motors unveiled its People's Car, the Tata Nano, a development which signifies a first for the global automobile industry. Nano brings the comfort and safety of a car within the reach of thousands of families. The standard version has been priced at USD 2,200 or Rs.100,000 (excluding VAT and transportation cost). The Tata Nano has been subsequently launched as planned, in India in March 2009.

Maruti Suzuki India

Market Share: Passenger Vehicles 46.07%

Maruti Suzuki India Limited, a subsidiary of Suzuki Motor Corporation of Japan, is India's largest passenger car company, accounting for over 45% of the domestic car market. The company offers a complete range of cars from entry level Maruti-800 and Alto, to stylish hatchback Ritz, A star, Swift, Wagon-R, Estillo and sedans DZire, SX4 and Sports Utility vehicle Grand Vitara.

Since inception in 1983, Maruti Suzuki India has produced and sold over 7.5 million vehicles in India and exported over 500,000 units to Europe and other countries. The company’s revenue for the fiscal 2008-2009 stood over USD 4 billion and Profits After Tax at over USD 243 million.

Hyundai Motor India

Market Share: Passenger Vehicles 14.15%

Hyundai Motor India Limited is a wholly owned subsidiary of world’s fifth largest automobile company, Hyundai Motor Company, South Korea, and is the largest passenger car exporter. Hyundai Motor presently markets 49 variants of passenger cars across segments. These includes the Santro in the B segment, the i10, the premium hatchback i20 in the B+ segment, the Accent and the Verna in the C segment, the Sonata Transform in the E segment.

Hyundai Motor, continuing its tradition of being the fastest growing passenger car manufacturer, registered total sales of 559,880 vehicles in the year 2009, an increase of 14.4% over 2008. In the domestic market it clocked a growth of 18.1% as compared to 2008 with 289,863 units, while overseas sales grew by 10.7%, with export of 270,017 units. Hyundai Motor currently exports cars to more than 110 countries across European Union, Africa, Middle East, Latin America and Asia. It has been the number one exporter of passenger car of the country for the sixth year in a row.

In a little over a decade since Hyundai has been present in India, it has become the leading exporter of passenger cars with a market share of 66% of the total exports of passenger cars from India, making it a significant contributor to the Indian automobile industry. In 2009, in spite of a global slowdown, Hyundai Motor India’s exports grew by 10.7%. In 2010 Hyundai plans to add 10 new markets with Australia being the latest entrant to the list. The first shipment to Australia is of 500 units of the i20 and the total i20 exports to Australia are expected to be in the region of 15,000 per annum.  

Mahindra & Mahindra

Market Share: Commercial Vehicles 10.01%, Passenger Vehicles 6.50%

Mahindra & Mahindra is mainly engaged in the Multi Utility Vehicle and Three Wheeler segments directly. The company competes in the Light Commercial Vehicle segment through its joint venture subsidiary Mahindra Navistar Automotives Limited and in the passenger car segment through another joint venture subsidiary Mahindra Renault. In the year 2009, on the domestic sales front, the Company along with its subsidiaries sold a total of 220,213 vehicles (including 44,533 three wheelers, 8,603 Light Commercial Vehicles through Mahindra Navistar Automotives and 13,423 cars through Mahindra Renault), recording a growth of 0.6% over the previous year.

The company’s domestic Multi Utility Vehicle sales volumes increased by 3.3%, as against a decline of 7.4% for industry Multi Utility Vehicle sales. A record number of 153,653 Multi Utility Vehicles were sold in the domestic market in 2009 compared to 148,761 MUVs in the previous year.Hence, Mahindra & Mahindra further strengthened its domination of the domestic Multi Utility Vehicle sub-segment during the year, increasing its market share to 57.2% over the previous year’s market share of 51.3%.

Mahindra & Mahindra is expanding its footprint in the overseas market. In 2009 the Xylo was launched in South Africa. The company formed a new joint venture Mahindra Automotive Australia Pty. Limited, to focus on the Australian Mark

Ashok Leyland

Market Share: Commercial Vehicles 16.47%

Against the backdrop of the sharp slump in demand for commercial vehicles, during 2008-09, Ashok Leyland registered sales of 47,118 medium and heavy commercial vehicles (M&HCV), 37.5% less than in the previous year. This includes 16,049 M&HCV buses and 31,069 M&HCV trucks respectively, 8.7% and 46.3% less than in the previous year.

The company lost 1.8% market share in the Indian medium and heavy commercial vehicle market during the financial year 2008-09, mainly due to loss of sales in the truck segment. This was because the Eastern Region, where the Company’s presence had been historically weak, was relatively stable, whilst the market declined sharply in other regions.

While total industry volume of the medium and heavy duty buses declined by about 8.7%, the Company’s market share grew marginally and Ashok Leyland retained its number one position in this segment.

The Company sold 6,812 vehicles in the overseas markets during 2008-09. This represents a decrease of approximately 6.5% over the previous year. Total industry volume related to overseas markets to which the Company exports (such as Sri Lanka, the Middle East) witnessed a reduction of about 25% over the previous year.

To combat the impact of decline in CV sales, the Company focused on non-cyclical businesses in the portfolio.

The Company produced in all 54,049 vehicles during the year. To contain costs and conserve cash, the Company worked only about 50% of the working days in all its manufacturing units during the second half of the year.

Auto Industry : Two Wheeler Giants

Hero Honda Motors

Market Share: Two Wheelers 41.35%

Hero Honda has been the largest two wheeler company in the world for eight consecutive years. The company crossed the 15 million unit milestone over a 25 year span. Hero Honda sold more two wheelers than the second, third and fourth placed two-wheeler companies put together.

As one of the world's technology leaders in the automotive sector, Honda has been able to consistently provide technical know-how, design specifications and R&D innovations. This has led to the development of world class, value - for- money motorcycles and scooters for the Indian market. On its part, the Hero Group has took the responsibility of creating world-class manufacturing facilities with robust processes, building the supply chain, setting up an extensive distribution networks and providing insights into the mind of the Indian customer. Since both partners continue to focus on their respective strengths, they have been able to complement each other. In the process, Hero Honda is recognized today as one of the most successful joint ventures in the world. It is therefore no surprise that there are more Hero Honda bikes on this country's roads than the total population of some European countries.

Hero Honda's bikes are sold and serviced through a network of over 3500 customer touch points, comprising a mix of dealers, service centres and stockists located across rural and urban India. Hero Honda has built two world-class manufacturing facilities at Dharuhera and Gurgaon in Haryana, and

Hero Honda was the torchbearer for the two-wheeler industry during 2008-2009. It sold more two-wheelers during the year than the combined volumes of the second, third and fourth placed competitor. Overall, the company sold 3.72 million two-wheelers, growth of 12% over previous year. Motorcycle sales in the domestic market, which account for more than 95 per cent of Hero Honda's sales, were up by 11%. The company posted sales of USD 2.4 billion and profits after tax of USD 256.40 million during the year 2008-2009. During the year under review, your Company exported 81,194 two-wheelers, a decline of 10%. Its third and most sophisticated manufacturing plant at Haridwar has just completed a full year of operations.

During the year, the company also turned in a rollicking performance with its scooter portfolio, with a 49% growth in domestic sales to 156,210 units.This performance allowed Hero Honda to increase its share in the domestic scooter market by more than three percentage points. Hero Honda's performance in the two-wheeler industry was the only standout performance during the year amongst the large players. Without Hero Honda's numbers, the two wheeler industry growth would have been marginal.

Bajaj Auto

Market Share: Two Wheelers 26.70%, 

Bajaj Auto is ranked as the world's fourth largest two and three wheeler manufacturer and the Bajaj brand is well-known across several countries in Latin America, Africa, Middle East, South and South East Asia. Despite falling demand in the motorcycle segment, the company has succeeded in maintaining an operating EBITDA (earnings before interest, taxes, depreciation and amortisation) margin of 13.6% of net sales and other operating income. From 1.66 million motorcycles in 2007-2008, the company’s domestic sales fell by 23% to 1.28 million units in 2008-2009.

Bajaj Auto is the country’s largest exporter of two- and three-wheelers.During 2008-2009, Bajaj Auto’s international sales achieved an all-time high of 772,519 units of two and three wheelers, representing a growth of 25% over the previous year.The growth was driven by the export of two-wheelers, which increased by 31% over 2007-2008 to achieve sales of 633,463 units in 2008-2009. The company expanded its footprint in Africa and Middle East, where the region’s share rose from 30% of the export business in 2007-2008 to 43% in 2008-2009. The total value of exports was USD 528 million, representing a growth of 29%.

The company’s domestic sales of three wheelers in 2008-209 were 12% lower compared to the previous year, and stood at 135,473 units. Exports of three wheelers grew at 2% to 139,056 units.

TVS Motors

TVS Motor Company is the third largest two-wheeler manufacturer in India and is among the world's top ten. It is the flagship company of the parent TVS Group employing over 40,000 people with an estimated 15 million customers.It manufactures motorcycles, scooters, mopeds and auto rickshaws. It is India's only two-wheeler company to have won the Deming Prize awarded for commitment to quality control, received in 2002.

China and India : Drivers of World Auto Industry

Executives from the world's top carmakers said at the Detroit auto show that  China and India could pose a significant competitive threat in coming years. "They are a very credible threat and we discount anyone at our peril," John Mendel, vice president in charge of sales at American Honda Motor, said on Jan. 12.

While the globally competitive nature of the automotive industry requires mass economies of scale, the relatively young Chinese and Indian manufacturers are ramping up quickly, Mendel noted. And the Chinese automakers buying brands like Hummer and Volvo are gaining access to a valuable distribution network, critical technology and "instant credibility," he said.

India's Tata Motors will take its opening shot at the U.S. market  on Jan. 14, when it brings the Nano minicar to the Detroit science center to show Motor City what the world's cheapest car looks like.

Build Your Dreams Motor (BYD) brought its four-door electric e6 straight to the floor of the auto show where it vowed on Jan. 12 to become the first Chinese automaker to enter the United States at the end of this year.

Meanwhile, both countries are becoming increasingly important markets in the global sales strategy of top automakers with China surpassing the United States in total sales volume last year and Indian sales expected to double by 2016.

Toyota's chief of U.S. automotive operations expressed skepticism that either BYD or Tata would make a significant mark here in the short term. "It's not so easy to come walking into a market and develop a product and distribution network," Don Esmond said in an interview on the sidelines of the auto show. "A lot of it's going to depend on who does the best job of listening to the customer and has the ability technically to deliver the product," he said.

"Whether it be Toyota, GM, Ford or Chrysler, we have more resources, more manufacturing capacities and more technical development available here so we should be able to deliver a better product," Esmond said.

Carlos Tavares, Nissan's executive vice president in charge of the Americas, disagreed. "I think it's a mid-term prospective... not 10 years," he said, noting the success of Korean automakers Hyundai and Kia in breaking into the U.S. market, overcoming quality concerns and becoming major players.

Affordability will be a key driver in the industry in the coming years and China and India will offer automakers an important testing ground for pushing the boundaries, Tavares said. "What we can learn from China and from India is not so complex," he said in an interview. It's about determining the level of quality the consumer expects. It's then about reducing operating costs which will bring you to fuel efficiency."

Ford chief executive officer Alan Mulally said that while "China's going to be a force going forward" and India is not too far behind, the real competitive threat could come from unfair trade practices. "We expect the auto world industry to continue to evolve," Mulally said. "There is no reason that if we get to global trade rules that we can't compete with the best of the world."

But the lack of flexibility inherent in a massive and decades-old company could give their younger and more innovative rivals a leg up, said Warren Harris, president of automotive engineering consulting firm Tata Technologies.

"Just the willingness to innovate in and around the value chain... this is where the Chinese and the Indian OEMs (original equipment manufacturers) are going to have an advantage," said Harris, whose team helped develop Tata Motor's Nano and works with major automakers and suppliers.

"If you look at the American OEMS, they have the technical know-how and the distribution networks that would be the envy of the Chinese and Indians," Harris said. "But if they're not going to match the Chinese and the Indians for innovation then that advantage is not going to be enough."

Auto Industry : Taxation

India has a well developed tax structure. The power to levy taxes and duties is distributed among the three tiers of Government, in accordance with the provisions of the Indian Constitution. The main taxes/duties that the Union Government is empowered to levy are:- Income Tax (except tax on agricultural income, which the State Governments can levy), Customs duties, Central Excise and Sales Tax and Service Tax. The principal taxes levied by the State Governments are:- Sales Tax (tax on intra-State sale of goods), Stamp Duty (duty on transfer of property), State Excise (duty on manufacture of alcohol), Land Revenue (levy on land used for agricultural/non-agricultural purposes), Duty on Entertainment and Tax on Professions & Callings. The Local Bodies are empowered to levy tax on properties (buildings, etc.), Octroi (tax on entry of goods for use/consumption within areas of the Local Bodies), Tax on Markets and Tax/User Charges for utilities.

Excise Duty

Central Excise duty is an indirect tax levied on those automobiles which are manufactured in India and are meant for home consumption. The taxable event is 'manufacture' and the liability of central excise duty arises as soon as the automobiles are manufactured. It is a tax on manufacturing, which is paid by a manufacturer, who passes its incidence on to the customers.

Types of Excise Duties

Basic Excise Duty: This is the duty leviable under First Schedule to the Central Excise Tariff Act, 1985 at the rates mentioned in the said Schedule.

Special Excise Duty: This is the duty leviable under Second Schedule to the Central Excise Tariff Act, 1985 at the rates mentioned in the said Schedule. At present this is leviable on very few items.

National Calamity Contingent Duty (NCCD): Normally known as NCCD. This duty is levied as per section 136 of the Finance Act, 2001, as a surcharge on specified goods.

Excise Duties and Cesses Leviable under Miscellaneous Act:On certain specified goods, in addition to the aforesaid duties, prescribed rate of excise duty and cess is also leviable.

Education Cesson excisable goods is levied in addition to any other duties of excise chargeable on such goods, under the Central Excise Act, 1944 or any other law for the time being in force.

Custom Duty

Customs Duty (Import duty and Export tax) is a type of indirect tax levied on goods imported into India as well as on goods exported from India. Taxable event is import into or export from India. In India, the basic law for levy and collection of customs duty is Customs Act 1962. It provides for levy and collection of duty on imports and exports, import/export procedures, prohibitions on importation and exportation of goods, penalties, offences, etc.

Export duties are levied occasionally to mop up excess profitability in international prices of goods in respect of which domestic prices may be low at the given time. But the sweep of import duties is quite wide.

VAT

Taxation of inputs, like raw materials, components and other intermediaries has a number of limitations. In production process, raw material passes through various processes stages till a final product emerges. Thus, output of the first manufacturer becomes input for second manufacturer and so on. When the inputs are used in the manufacture of product `A', the cost of the final product increases not only on account of the cost of the inputs, but also on account of the duty paid on such inputs. As the duty on the final product is on ad valorem basis and the final cost of product `A' includes the cost of inputs, inclusive of the duty paid, duty charged on product `A' meant doubly taxing raw materials. In other words, the tax burden goes on increasing as raw material and final product passes from one stage to other because, each subsequent purchaser has to pay tax again and again on the material which has already suffered tax. This is called cascading effect or double taxation.

This very often distorted the production structure and did not allow the correct assessment of the tax incidence. Therefore, the Government tried to remove these defects of the Central Excise System by progressively relieving inputs from excise and countervailing duties. An ideal system to realize this objective would have been to adopt value added taxation (VAT). However, on account of some practical difficulties it was not possible to fully adopt the value added taxation.

Hence, Government evolved a new scheme, `MODVAT' (Modified Value Added Tax). MODVAT Scheme which essentially follows VAT Scheme of taxation. i.e. if a manufacturer A purchases certain components(raw materials) from another manufacturer B for use in its product. B would have paid excise duty on components manufactured by it and would have recovered that excise duty in its sales price from A. Now, A has to pay excise duty on product manufactured by it as well as bear the excise duty paid by the supplier of raw material B. Under the MODVAT scheme, an Original Equipment Manufacturer can take credit of excise duty paid by First Tier and Second Tier suppliers. It amounts to excise duty only on additions in value by each manufacturer at each stage.

MODVAT Scheme ensures the revenue of the same order and at same time the price of the final product could be lower. Apart from reducing the costs through elimination of cascade effect, and bringing in greater rationalization in tax structure and also bringing in certainty in the amount of tax leviable on the final product, this scheme will help the consumer to understand precisely the impact of taxation on the cost of any product.

Subsequently, MODVAT scheme was restructured into CENVAT (Central Value Added Tax) scheme. A new set of rules 57AA to 57AK , under The CENVAT Credit Rules, 2004, were framed and whatever restrictions were there in MODVAT Scheme were put to an end and comparatively, a free hand was given to the assesses.

Under the CENVAT Scheme, a manufacturer of final product or provider of taxable service shall be allowed to take credit of duty of excise as well as of service tax paid on any input received in the factory or any input service received by manufacturer of final product. Inputs include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer.

Auto Market Characteristics

Market Size

The Indian Automotive Industry after de-licensing in July 1991 has grown at a spectacular rate on an average of 17% for last few years. The industry has attained a turnover of USD 35.8 billion, (INR 165,000 crores) and an investment of USD 10.9 billion.The industry has provided direct and indirect employment to 13.1 million people. Automobile industry is currently contributing about 5% of the total GDP of India. India’s current GDP is about $ 1.4 trillion and is expected to grow to $ 3.75 trillion by 2020. The projected size in 2016 of the Indian automotive industry varies between $ 122 billion and $ 159 billion including USD 35 billion in exports. This translates into a contribution of 10% to 11% towards India’s GDP by 2016, which is more than double the current contribution.

Demand Determinants

Determinants of demand for this industry include vehicle prices (which are determined largely by wage, material and equipment costs) and exchange rates, preferences, the running cost of a vehicle (mainly determined by the price of petrol), income, interest rates, scrapping rates, and product innovation.

Exchange Rate

Movement in the value of Rupee determines the attractiveness of Indian products overseas and the price of import for domestic consumption.

Affordability

Movement in income and interest rates determine the affordability of new motor vehicles. Allowing unrestricted Foreign Direct Investment (FDI) led to increase in competition in the domestic market hence, making better vehicles available at affordable prices.

Product Innovation is an important determinant as it allows better models to be available each year and also encourages manufacturing of environmental friendly cars.

Demographics

It is evident that high population of India has been one of the major reasons for large size of automobile industry in India. Factors that may be augment demand include rising population and an increasing proportion of young persons in the population that will be more inclined to use and replace cars. Also, increase in people with lesser dependency on traditional single family income structure is likely to add value to vehicle demand.

Infrastructure

 Longer-term determinants of demand include development in Indian’s infrastructure. India’s banking giant State Bank of India has launched an infrastructure fund to rise up to USD 3 billion for infrastructure improvements. India needs about $500 billion to repair its infrastructure such as ports, roads, and power units. These investments are been made with an aim to generate long-term cash flow from automobile, power, and telecom industries. 

Price of Petrol

Movement in oil prices also have an impact on demand for large cars in India. During periods of high fuel cost as experienced in 2007 and first –half of 2008, demand for large cars declined in favour of smaller, more fuel efficient vehicles. The changing patterns in customer preferences for smaller more fuel efficient vehicles led to the launch of Tata Motor’s Nano – one of world’s smallest and cheapest cars.