Marketing Environment of India Automotive Industry

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Forty years since India's independence from the British in 1947, the Indian car market was dominated by two localized versions of ancient European designs - the Morris Oxford, known as the Ambassador, and a old Fiat. This lack of product activity in the Indian market was mainly due to the Indian government's complex regulatory system that effectively banned foreign-owned operations. Within this system (referred to informally as the "license raj"), any Indian firm that wanted to import technology or products needed a license/permit from the government. The difficulty of getting these licenses stifled automobile and component imports, creating a low volume high cost car industry that was inefficient, unprofitable, and technologically obsolete. The two dominant products Ambassador and Fiat, although customized to the poor road conditions in India, were based on a stale design concept (with outdated features), and were also fuel inefficient. In the early 1980's, the Indian government made limited attempts at reforming the automotive industry, and entered into a joint venture with Suzuki of Japan. The joint-venture, called Maruti Udyog Limited, launched a small but fuel efficient model (called "Maruti 100"). Priced at about $5,500, the product became an instant hit. The joint venture now produces three small-car models, a van, and a utility vehicle at a rate of more than 250,000 a year. Despite being a late entrant, Maruti's vehicles are estimated to account for as much as 70 per cent of India's car population. In 1991, a newly elected Indian government took over and faced with a balance-of-payments crisis initiated a series of economic liberalization measures designed to open the Indian economy to foreign investment and trade. These new measures effectively dismantled the license raj which had made it difficult for Indian firms to import machinery and know-how, and had disallowed equity ownerships by foreign firms. In 1993, the government followed up its liberalization measures with significant reductions in the import duty on automobile components. These measures have spurred the growth of the Indian economy in general, and the automotive industry in particular. India’s automobile sector consists of the passenger cars and utility vehicles, commercial vehicle, two wheelers and tractors segment. The total market size of the auto sector in India is approximately Rs 540 billion and has been growing at around 8-9 percent per annum for the last few years. Since the last four to five years, the two wheelers segment has driven the overall volume growth on account of the spurt in the sales of motorcycles. However, lately the passenger cars and commercial vehicles segment has also seen a good growth due to high discounts, lower financing rates and a pickup in industrial activity respectively. The automobile industry is fairly concentrated, as in most of the segments two to three players have cornered a major chunk of the total sales. For instance, in passenger cars segment, MUL, Tata Motors and Hyundai Motors control around 85 percent of the total annual sales. Similarly, in the two wheelers segment, the sales volumes of Hero Honda, Bajaj Auto and TVS Motors constitute around 80 percent of the total sales and in the commercial vehicles segment, the market leader Telco controls around 56 percent of the total annual sales. The auto components industry on the other hand is highly fragmented, though there are dominant players in some of the critical segments. The Indian automobile industry has been growing at the rate of 15–27 per cent over the past five years. The automobile industry in India is the ninth largest in the world with an annual production of over 2.3 million...
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