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Automobile Industries

Rani Gupta
Amar Mishra

Automobile industry, the business of producing and selling self-powered
vehicles, including passenger cars, trucks, farm equipment, and other
commercial vehicles. By allowing consumers to commute long distances for
work, shopping, and entertainment, the auto industry has encouraged the
development of an extensive road system, made possible the growth of
suburbs and shopping centers around major cities, and played a key role in
the growth of ancillary industries, such as the oil and travel businesses. The
auto industry has become one of the largest purchasers of many key
industrial products, such as steel. The large number of people the industry
employs has made it a key determinant of economic growth.

Industry History
Although ancient Chinese writers described steam-powered vehicles, and
both steam- and electric-powered cars competed with gas-powered vehicles
in the late 19th cent. Frenchman Jean Joseph tienne developed the first
practical internal-combustion engine (1860), and later in the decade several
inventors, most notably Karl Benz and Gottlieb Daimler, produced gaspowered vehicles that ultimately dominated the industry because they were
lighter and less expensive to build. French companies set the design of the
modern auto by placing the engine over the front axle in the 1890s and U.S.
manufacturers made important advances in the mass production of the auto
by introducing cars with interchangeable machine-produced parts (one such
car was created by Ransom E. Olds in 1901).
In 1914 Henry Ford began to mass produce cars using assembly lines. In
addition, his practice of providing loans to consumers to buy cars (1915)
made the Model T affordable to the middle class. In the 1920s, General
Motors further changed the industry by emphasizing car design. The
company introduced new models each year, marketed different lines of cars
to different income brackets (the Cadillac for the rich; the Chevrolet for the
masses), and created a modern decentralized system of management. U.S.
auto sales grew from 4,100 in 1900 to 895,900 in 1915, to 3.7 million in
1925. Sales dropped to only 1.1 million in 1932 and during World War II, the
auto factories were converted to wartime production.

The modern industry

After 1945, sales once again took off, reaching 6.7 million in 1950 and 9.3
million in 1965. The U.S. auto industry dominated the global market with
83% of all sales, but as Europe and Japan rebuilt their economies, their auto
industries grew and the U.S. share dropped to about 25%. Following the
OPEC oil embargo in 1973, smaller, fuel-efficient imports increased their
share of the U.S. market to 26% by 1980. In the early 1980s, U.S. auto
makers cut costs with massive layoffs. Throughout the 1990s, imports
particularly from Japantook an increasing share of the U.S. market.
Beginning in the early 1980s, Japanese and, later, German companies set up
factories in the United States; by 1999, these were capable of producing
about 3 million vehicles per year. That year, 8.7 million vehicles were sold in
the United States. Since then, domestic production by U.S. companies has
continued to decline, so that they now produce somewhat more than half of
all light motor vehicles sold in America (and many of their vehicles contain a
significant percentage of foreign parts as determined by dollar value). In
2007, over $440 billion worth of motor vehicles and parts were produced in
the United States by U.S. and foreign companies employing more than
902,000 workers. The credit crisis that began in 2008 and the associated
recession resulted in significant losses for most automobile manufacturers.
The U.S. industry was especially hard hit, losing sales as well from late 2007
to mid-2008 as customers sought more energy-efficient cars as gasoline
prices skyrocketed, and in late 2008 U.S. automotive companies sought
government financial aid. Subsequently, the government forced Chrysler and
General Motors to declare bankruptcy (2009) and reorganize in an attempt to
create viable companies. The U.S. and Canadian governments, Italy's Fiat
(which purchased a majority stake in Chrysler), and the United Auto Workers
owned much of the new companies. In 2014, Fiat announced plans to
purchase all of Chrysler's shares.
Complaints about auto pollution, traffic congestion, and auto safety led to
the passage of government regulations beginning in the 1970s, forcing auto
manufacturers to improve fuel efficiency and safety. Auto companies are now
experimenting with cars powered by such alternative energy sources as
natural gas, electricity, hydrogen fuel cells, and solar power.

Automobile Indutries in India

The automobiles sector is compartmentalized in four different sectors which are as

Two-wheelers which comprise of mopeds, scooters, motorcycles and electric


Passenger Vehicles which include passenger cars, utility vehicles and multipurpose vehicles

Commercial Vehicles that are light and medium-heavy vehicles

Three Wheelers that are passenger carriers and goods carriers. Forklifts or
earth moving equipments may also come over here!
The automobile industry is one of the key drivers that boosts the economic growth of
the country. Since the de-licensing of the sector in 1991 and the subsequent opening up
of 100 percent FDI through automatic route, Indian automobile sector has come a long
way. Today, almost every global auto major has set up facilities in the country.
Austria based motorcycle manufacturer KTM, the established makers of Harley Davidson
from the US and Mahindra & Mahindra have set up manufacturing bases in India.
Furthermore, according to internal projections by Mercedes Benz Cars, India is set to
become Mercedes Benzs fastest-growing market worldwide ahead of China, the US and
As per the data published by Department of Industrial Policy and Promotion (DIPP),
Ministry of Commerce, Government of India, the cumulative FDI inflows into the Indian
automobile industry during April 2000 to October 2013 was noted to be US$ 9,079
million, which amounted to 4% of the total FDI inflows in terms of US $. The production
of compact superbikes is also expected to take place in India. The country has a mass
production base of 16 million two-wheelers and the several global as well as Indian bike
makers are looking forward to use it as an advantage in order to roll out sports bikes in
the 250 cc capacity.
The world standing for the Indian automobile sector, as per the Confederation of the
Indian industry is as follows:

Largest three-wheeler market

Second largest two-wheeler market

Tenth largest passenger car market

Fourth largest tractor market

Fifth largest commercial vehicle market

Fifth largest bus and truck segment

However, the year 2013-2014 has seen a decline in the industrys otherwise smoothrunning growth. High inflation, soaring interest rates, low consumer sentiment and
rising fuel prices along with economic slowdown are the major reason for the downturn
of the industry.
Except for the two-wheelers, all other segments in the industry have been weakening.
There is a negative impact on the automakers and dealers who offered high discounts in
order to push sales. To match the decline in demand, automakers have resorted to
production cuts and lay-offs, due to which capacity utilization for most automakers
remains at a dismal level.
Despite the comprehensive market being under extreme burden, the luxury car market
has observed a robust double-digit hike during the year 2013-2014, as a result of
rewarding new launches at compelling lower price points. Further, with the measured
increases in the price of diesel, the overall market continues to shift towards petrolfuelled cars. This has lead to the growth in sales of the 'Mini' segment of the PV market
by of 5.5%.

Players in the industries

1. Toyota
2. General Motors
3. Volkswagen
4. Hyundai
5. Honda
6. Maruti Suzuki
7. Ford
8. Nissan
9. Fiat Chrysler Automobiles
10. Renault
11. BMW
12. Daimler
13. Tata
14. Mahindra & Mahindra

15. Mitsubishi

Nature of competition in automobile industries

There is an intense competition in automobile industries worldwide. Globalization
has resulted in a challenging automotive manufacturing environment that is
changing at rapid pace, resulting in growing competition between international and
domestic car manufactures.

Market share of top 3 players in personal car category!!!

This statistic gives a ranking of the world's leading car manufacturers based
on revenue.

General Motors





Market Share
11.6; 12%
11.1; 11%

General Motors

8.2; 8%


69.1; 69%

Possible classification of players into leaders, challengers,

followers and niche

Positioning , differentiation & branding strategies of key


Toyotas uses both differentiation and low cost as generic strategies to try
and gain a competitive advantage over their competitors in the automotive
The market scope that Toyota uses is a broad one that
encompasses nearly every type of customer that is in the market to
purchase an automobile. Toyota is able to target such a large market
because they have something for everyone. Toyota has four wheel drive
trucks and SUVs for the outdoor types or those who live in areas that face
severe weather conditions, hybrid models like the Prius for the eco-friendly
customers that are interested in saving the environment, along with the

standard cars for general, everyday use. Additionally, Toyota provides

vehicles for all price ranges. From the low price Toyota Corolla line of cars to
the high priced luxury line of cars and SUVs with Lexus, Toyota has
something for everyone.
Toyota differentiates on several levels form their competitors. First of all,
Toyota has been very successful in differentiating on the basis of superior
design and quality. This has led to Toyota being able to create a brand image
that is very strong and one that brings to mind quality, long lasting cars
when a potential customer sees it. The strength of Toyotas brand image has
been seen in recent years with the recalls and problems Toyota faced in
dealing with these recalls. Toyota was able to survive these problems
because they had such a long and proven track record of quality and
superior. Another, area that Toyota differentiates is in technology. Toyota
was the first successful mass produce the hybrid car on the market when it
released the Prius in 2003. Being the first to get their hybrid on the market
allowed Toyota to gain a large portion of the market share in the area of
hybrid cars.
Along with differentiation Toyota also uses low cost to try and gain a
competitive advantage in the automotive industry. Toyota is (or was at the
time) the low cost producer in the industry. Toyota achieves its cost
leadership strategy by adopting lean production, careful choice and control
of suppliers, efficient distribution, and low servicing costs from a quality
product.(Michael E. Porter) This quote from Michael Porter sums up how
Toyota achieves this low cost strategy. Through research, it is evident that
Toyota is still the low cost leader in the automotive industry.
Toyotas current grand strategies are product development and
offensive/strategies for industry leaders.
Product development is very
important for Toyota due to the fact that they must come out with new fresh
ideas every year in the automotive industry. If you dont develop a new
design on your products, you will be left behind very quickly. Also, Toyota is
an industry leader and has a lot of power because of this. Toyota stays on
the offensive to keep its market share and defends against others in the
industry from taking their market share. Toyota always stays on the
offensive looking for ways to be better than their competitors. Toyota wants
to stay in front of its competitors and take advantage of any weaknesses
they may show and capitalize on them to gain any advantage they can.

This section gives different definitions what branding means, its elements,
functions, and why it contributes to a business success. Furthermore, the VW
brand is discussed; what VW stands for, its brand values, brand groups, and
finally, why a luxury car has been launched under the VW logo.
Doyle (2002) states that the purpose of marketing is to create a preference
for the companys brand. A customer who perceives a brand as superior will
be willing to pay more for the product or service. But what is a brand? The
literature provides various definitions from different perspectives. For
example, Duncan (2002) defines a brand as a perception of an integrated
bundle of information and experiences that distinguishes a company and/or
its product offerings from the competition. A similar definition is given by
Kotler (in Esch, 2000), a brand is a name, term, sign, symbol, or design or
combination of them which is intended to identify the goods and services of
one seller or a group of sellers and to differentiate them from those of
competitors. This means that the function of the brand is mainly
differentiation and identification. To reflect the importance of the brand
influence on the buying decision, and to position the customer into the
centre of branding; Bruhn (1999) defines a brand as a promise to the
customer. This promise stands for a continuous supply of standardised
quality to the customer. A further element of a brand is its added emotional
value. The emotional notion leads to a psychological product differentiation.
For example Coca-Cola has a strong emotional brand. Another essential
aspect of a brand is its image, which is in the mind of the customer in the
form of pictures, feelings, attributes, values, content of the brand etc.
(Knoblich, 1992). The buying decision depends on the difference between the
communicated brand image and the consumers personality. In summary,
the various definitions include the three components: promise, emotional
values, and rational values (see also De Chernatony, 2003).
A brand has various functions for a consumer as well as for the seller, which
contribute to the success of a business. As mentioned above, a brand allows
the producer to differentiate the product - through generic product
advantages, emotional attributes and brand personality from its competitors
(Esch, 2000). According to Porter, differentiation does not only protect the
company from its competitors, it also increases customer loyalty and reduces
price sensitivity (in Esch, 2000). This means a brand leaves the marketer

more price flexibility. On the other hand, customer loyalty leads to long term
profits, and positively supports brand transfers (Bruhn, 1992; Doyle, 2002).
For the consumer, a brand provides orientation in the product jungle, and
facilitates the identification of a specific product among competitive ones.
Furthermore, it lowers the purchasing risk, as the customer can trust the
functional and emotional quality of the brand (Biel, 2000). Last but not least,
a brand allows the customer to transfer the brand image to him. Bugdahl
(1998) describes this as a personalisation function or snob syndrome, for
example, a BMW owner has the physical respectively emotional experience
of being sporty and having friends (Herrmann, 2000).
McKinsey (in Limbach, 2003) investigated the importance of brands, and
therefore, the importance of branding. On a scale from 1 to 100, luxury
goods including cars count 95 percent. This is followed by food/ drinks with
90 percent, telecommunications with 82 percent, ending with 2.5 percent for
energy suppliers. This demonstrates the importance of branding and
positioning in the automotive industry as the customers of cars are highly
brand sensitive.
Volkswagen established an image of reliability and good, honest German
engineering at an affordable price (Britt, 2002). The slogan of Volkswagen is
AusLiebezumAutomobil (in English: from love to the car), which implicates
the brand value of Volkswagen (Limbach, 2003).
VW groups his brands into two groups known as the classic brands (VW,
Skoda and Bentley) and the sporty brands (Audi, Seat, and Lamborghini).
The company is concerned with the proliferation of its brands. Consumer
could notice that the Skoda made by VW is little different from the more
expensive Golf (The Economist, 2002). This could lead to cannibalisation of
cheaper VW cars, and therefore, reduce the overall profits.
On the one hand, Volkswagen gives his brand a little bit of a hello by
polishing the brand with the launch of the Phaeton. Rod McLeon the head of
luxury cars at Volkswagen describes this launch as moving the centre of the
VW brand more upmarket (Sweney, 2003). MrPischetsrieder admits that the
Phaeton would not contribute to VWs profits but would set a benchmark for
excellence within the company to add emotion to the VW brand. His current
vision is to break even with the Phaeton (The Economist, 2002). On the other
hand, Volkswagen launched a luxury car under a brand, which is associated
with a peoples car and not a prestige product. Volkswagen employed a

German advertising agent called Grabarz& Partner in order to establish the

new Phaeton brand in the high-end segment. According to Britt (2002), the
former VW group chairman had the dream to push the VW brand upmarket.
The new chairman Ferdinand Piech wanted to make this dream reality.
Critical voices such as an international advertising executive did not believe
in this dream, thinking that it is harder to convince consumers to pay a lot
of money for a model with a mass-market badge on it than for a luxury
carmaker to tempt buyers with less expensive models (Britt, 2002). He
states that the more expensive the car, the more important the badge
becomes. The consumer desires a Mercedes S class to demonstrate their
power and prestige. This opinion is supported by others who think that the
idea of VW building a luxury is simply going against nature (Hart, 2004).
The head of Audi of America believes that VW did not understand the needs
of the customers in the luxury car segment. He would not buy a Phaeton
even it would be the best car because it has the VW logo. He thinks that
Volkswagen made the mistake to brand a high luxury car with a peoples car
logo, and to sell it in VW dealerships where salesmen are used to selling
Jettas and Golfs (Kisiel, 2004), and that VW did not consider the importance
of the brand aspect.

Installed Capacity

Installed Capacity (In Million) (2011-12)


A. Four Wheelers

B. Two & Three Wheelers

C. Engines


Installed Capacity (In Million) (2012-13)


A. Four Wheelers

B. Two & Three Wheelers

C. Engines (In Millions)


A trade body of automobile sector

1. Automotive after market liaison group (AALG) A group of independent
automotive after market trade organizations with in the automotive
distribution federation.
2. Automotive distribution federation(ADF)- a UK trade association
representing manufactures , imports and independent wholesale
distributors (motor factors) a automotive components and others
3. Body repair industry compaign (Bric)- a research based pressure group
working to eliminate abuses in vehicle body repair market.
4. British cleaning council (Bcc) the representative body for the cleaning
industry, including vehicle valeters.
5. British vehicle rental and leasing association(BVRLA)- is the
representative trade body for
companies engaged in the leasing and
rental of both cars and commercial vehicles. Working with the
government and other organizations on legal and commercial issues
that impact its 800 members , it also provides training and recruitment
services to members.
6. Financial services authority(FSA)- is an independent body that
regulates the financial services industry in the UK.
7. Garage equipment association (GEA)- A body that represent suppliers
of garage equipment to the vehicle repair and related industries.
8. Glasss Guide Service limited A private company providing a wide
range of information and services for the retail motor industry. Services
available include vehicle valuation information.
9. Institute of Automotive Engineer assessors (IAEA). The professional
institute for vehicle damage assessors.
Mobile media specialists association(MMSA)- A body that is a
division of the MESF and represents businesses that specialize in in-car
entertainment products.
Motor cycle industry Association(MCIA)- A body represents all
sectors of the motor cycle industry in the UK.

Motorcycle Retailers Association(MRA)- A body that is part of the
retail motor industry federation (RMIF) and represents motorcycle
retailers in Britain.
Motor industry research association(MIRA)- An independent
provider of testing information and certification for the automotive
Motor Insurance Repair Research Centre(Thatcham)- A body that
aims to reduce the cost of motor insurance whilst still maintaining
safety standards.
representing motor vehicle dismantlers.
Motor vehicle repair association (MVRA)- An association that
offers support to businesses involved in the repair of motor vehicles.
National Motorcycle Council(NMC)- an umbrella group for the
main motorcycle organization including manufactures and dealers
associations rider groups and training/safety organizations.
National Type Distributors association(NDTA)- A body that
represents the specialist tyre retailing industry and offers technical
and training services.
Retail Motor Industry federation(RMIF)- A motors trade
organization representing several sectors of the retail motor industry.
20. Scottish Motor Trade Association(SMTA)- An association that represents
members of the motors trade in Scotland.