A PRESENTATION ON MANAGEMENT RESEARCH PROJECT - I

SUBJECT: Automobile two-wheeler Industry

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INTRODUCTION

The first automobile in India rolled in 1897 in Bombay. India is being recognized as potential emerging auto market. Within two-wheelers, motorcycles contribute 80% of the segment size. Unlike the USA, the Indian passenger vehicle market is dominated by cars (79%). Tata Motor dominates over 60% of the Indian commercial vehicle market. 2/3rd of auto component production is consumed directly by OEMs. India is the largest three-wheeler market in the world. India is the second largest two-wheeler manufacturer in the world. India is the fifth largest commercial vehicle manufacturer in the world. The number one global motorcycle manufacturer is in India. India is the fourth largest car market in Asia - recently crossed the 1 million mark.*

*Market Share of Automobile IndustrySource : SIAM

Market Share Of The Two WheelerApril-Oct. 20082007- 08Source : SIAM

Major Manufacturers of Automobiles in India*

Hero Honda Ltd.Bajaj Auto Hero Motors Royal Enfield Motors TVS Motors Kinetic motors Ltd.Suzuki motors

Growth of Two Wheeler Industry

Indian auto industry reported one of its worst performances in November 2008 as economic headwinds continue to plague demand. All companies, except for Hero Honda registered a decline in volumes. In the two-wheeler pack, Bajaj Auto reported domestic sales of less than 100,000 for the first time since April 2003. TVS also reported a decline of 12.7%.

Domestic two-wheeler sales were down 14.6% in October, posting negative growth for the first time in FY09.

Within segments, domestic motorcycle segment was the worst hit, and was down 18.2%, as financing went totally dry in the market. A few major players pulled out of two-wheeler financing completely.

Motorcycle exports, which continue to be on a high growth, were up 37.8% Y-o-Y in October.*

PESTEL Analysis

POLITICAL ENVIRONMENT

Budget Impact on Major Players

The reduction in the import duty on used two-wheelers will positive affect the industry. The reduce in the excise duty on two-wheelers will positive affect the industryThe extension up to March 2007 of 150 per cent deduction on R&D expenditure will marginally benefit domestic two-wheeler players, such as TVS Motors, Bajaj Auto and Kinetic.The reduction in personal tax rates will increase household disposable income, which is a positive for two-wheeler demand.

Negatives Impact Competition from imports*

Excise Duty 1991-92 budget to only two-categories viz 15% up to 75cc and 25% above 75cc. 1999-2000 budget, as a result of rationalization of duty structure the excise duty up to 75cc vehicles was increased to 16% while for those above 75cc decreased to 24%. 2007-08 budget, as a result of rationalization of duty structure the excise duty up to 75cc vehicles was Decreased to 12% while for those above 75cc decreased to 12%. Vehicle Emission NormsImportsExportsForeign direct investment

ECOLOGICAL ENVIRONMENT

EnvironmentEuro stageLife limitPUC*

Engine TypeTechnology

2 Stroke Mechanical Fuel InjectionElectronic Fuel Injection4 StrokeConventional 4 stoke engine

SOCIO-CULTURE ENVIRONMENT

Geographical Distribution*Geographical Distribution (motor cycle) Urban- 49.9% Rural- 50.1%

Source : SIAM

Demographic profile Age group Life style Monthly Holding Income

Source : NRS Household Data

Monthly Holding IncomeTwo wheeler householdUp to Rs.500-200012.42001-500038.55001-100032.910001-1500010.215001-200003.720001-300001.430001-400000.4Above 40000 0.4

TECHNOLOGY ENVIRONMENT*

Nature of AllianceCompanyBajaj AutoTechnological tie-upTokya R&D Co Ltd, JapanTechnological tie-upKawasaki Heavy Industries Ltd, JapanHHMLJoint VentureHonda Motor Co, JapanLMLTechnological tie-upDaelim Motor Co LtdHero MotorsTechnological tie-upAprilia of Italy

ECONOMICAL ANALYSIS

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GDP growth rate in 2007-08 7.7%Inflation (15th December 2008)8%Foreign Exchange Reserves ( As on November 14, 2008)US$ 246349 mnExchange rate (15th December 2008)US$ 1 = Rs.49.13Exports (April - March 2007 08)US$ 155.5 billion FDI (Apr - Feb 2007 - 2008 ) US$ 20.13 billion FII (Apr March 2007-2008 )US$ 16.1 billion

LEGAL ENVIRONMENT

CMVR- Technical Standing Committee (CMVR-TSC) Driving licenseRegistration of motor vehicleControl of traffic Construction & maintenance of motor vehicle Standing Committee on Implementation of Emission Legislation (SCOE) To discuss the future emission norms To recommend norms for in-use vehicles to MoSRT&H

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Five Force Model*

Threats Of New EntrantsLarge InvestmentEconomics of ScaleProduct DifferentiationDistribution Channel

Threats Of Substitute ProductRelative Price Substitute

Bargaining Power Of Buyer

Product Differentiation Products Information Large No. of Buyers

Bargaining Power Of Supplier Suppliers are Weak Own Engine Production

Porters Diamond Model*

OT Analysis

Opportunities

Participate in domestic growth opportunities. Exports of vehicles. Exports of components. Engineering and Design Services.

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Threats

New Entrance M&M. enter into two wheeler. Buyers Brand Modification SubstituteElectric Two wheeler Substitute For high segment Bike Launching of NANO car Petroleum price change*

Strategic Grouping*

GROUPPLAYERSATTRIBUTESCOMPETITIVE FORCESABajaj, Hero HondaHighly diversifiedAggressive promotion- High buyer power- High competitive rivalry- High entry barriersBTVSSelectively diversifiedAggressive Promotion- Low entry barriers- Narrow product lines imply that aggressive promotions can eat into market shareCHonda, Yamaha, Kinetic,SuzukiSelectively diversifiedModerate Promotion- High threat of substitution (Rs 1 lakh car)- Low entry barriersDRoyal EnfieldHighly specializedLow Promotion- Low buyer power high brand loyalty- Product diversification will imply risk of brand dilution

Value Chain Analysis*

CONCLUSION

Two Wheeler segment as a whole during the year 2007-08 decline by 8 % YOY. Backed by Governments cut excise duty but global crisis the automobile two wheeler sales are decline.

The two-wheelers market has had a perceptible shift from a sellers market to a buyers market with a variety of choices. Players will have to compete on various fronts viz pricing, technology, product design, productivity, after sale service, marketing and distribution. In the short term, market shares of individual manufacturers are going to be sensitive to capacity, product acceptance, and pricing and competitive pressures from other manufacturers.

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The motorcycle segment will continue to lead the demand for two-wheelers in the coming years. Motorcycle sales are expected to increase by 18%yoy as compared to 1% growth in the scooter market and 2% by moped sales respectively for the next coming years. The fast changing business environment makes urgent necessity of product innovation and strategic management awareness. Firms can no longer produce and market huge amounts of standard products with a relatively stable market and technological climate. Instead, they have to grapple with unstable, rapidly changing markets and technologies in order to run their organizations and be able to sell their brands*

*Thank YouMOBI LE HANDSET INDUSTRY

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