Braked Acceleration: A Case Study of the Indian Automobile Industry

From Maruti to Mercedes: The Evolution of the Indian Automobile Industry

The Indian Automobile Industry has come a long way since the Independence times wherein its growth has broadly mirrored the changing lifestyle aspirations and the economic boom amongst the Indian consumers.

Indeed, while the Ambassador car was the symbol of the Indian Automotive Industry until the 1970s along with the Premier Padmini, both of which were a bit shoddy and difficult to maintain, nonetheless, the Indian consumer did not have much of a choice as these along with some imported cars and two wheelers were the only vehicles that were allowed in India.

The situation started changing in the 1970s with the decision by the then ruling party to allow the manufacture of the Maruti cars in collaboration with the Japanese auto major, Suzuki.

Indeed, perhaps nothing else symbolizes the way in which the Indian consumer landscape began to change than the ubiquitous Maruti 800 car and the Hamara Bajaj ads that showed entire families perched precariously on a Two Wheeler and yet, at the same time, having mobility and convenience.

What really accelerated the development of the Indian automotive sector was the liberalization of the Indian Economy in the 1990s which soon led to a rapid influx of both domestic and foreign made cars and two wheelers.

Explosive Growth Meets Physical and Environmental Constraints

Thus, nowadays, any Indian who steps out of his or home can be treated to a spectacle where all types of vehicles, starting with compact sedans to SUVs (Sports Utility Vehicles) to luxury cars to the ultra high end models that cost more than what the average Indian earns in his or he lifetime.

Indeed, the craze for the cars and the two wheelers has reached such heights that apart from the congestion and the pollution as well as the soaring Oil import bill, road rage and constant scraping and jostling for space on the Indian roads has become common.

This has also lead to a nightmarish scenario for the traffic personnel as they confront the near impossible task of regulating so many vehicles so much so that the government has started to look into whether t the Odd Even formula for automobiles would work towards reducing congestion and pollution.

Leaving aside these concerns, from a purely business angle, the Domestic and Foreign Auto Majors have never had it so good as far as the Indian market is concerned and this has triggered massive FDI (Foreign Direct Investment) flows into the Indian Automotive sector.

PESTLE

Political

While the initial impetus for development of the Indian Automobile Industry was provided by the politicians in the 1970s and the 1980s as well as the 1990s, in recent years, the political class has largely refrained from interfering too much with the workings of the Industry. Indeed, it can be said that the reverse is also happening as can be seen from the totally hands off approach by the politicians with some adverse consequences such as not mediating in labor disputes to the extent that such problems are returning to haunt the governments.

In other words, while Laissez Faire approaches to the market economy are welcome, it must not be at the cost of the workers and the others who run the industry since sooner or later, resentment and unaddressed disputes tend to boil over as was seen in the case of the Manesar incident where the workers took the law into their own hands due to frustrations over their concerns not being addressed.

Economic

The Post Liberalization Yuppie (Young Upwardly Mobile Consumers) brigade has been driving the growth in the Indian Automobile sector the past few decades. Moreover, the rise of the DINKs or the Double Income No Kids category of consumers has similarly led to increasing consumerism as can be seen from the numerous ads and brands in the Indian market.

Further, with banks and consumer finance firms flocking to the doorsteps of the Indian consumers to offer cheap financing and easy credit in the form of auto loans, it is no wonder that many Indians are buying cars and two wheelers on EMIs or Equated Monthly Installments that cover their purchases and consumption with flexible and convenient methods of availing finance for buying cars. Thus, the economic factors do play a major role in the growth of the Indian Automobile Industry.

Social

Owning a car has become a status symbol for the Indian Middle Class in the same manner in which owning a Two Wheeler was a few decades ago. Indeed, the sociocultural milieu in India at the moment is such that the Indian consumer aspires to Western symbols of consumerism wherein a car is seen in the same way in which Americans view automobile ownership both for aspirational as well as mobility and convenience reasons.

Indeed, given the fact that culturally too, Indian society is stratified; owning vehicles have become both a symbol of class mobility as well as ascent for the budding and burgeoning Indian Middle classes.

Moreover, it is no longer the case that owning a vehicle is for convenience and ease of commute and rather, the emphasis is on social and cultural mobility which means that this force exerts a potent influence on Indian consumers as far as vehicle ownership is concerned.

Technological

As has been mentioned elsewhere in this case study, the Indian auto sector has kept pace with the latest changes in technologies happening the world over. Not only that, it has also pioneered some innovations to adapt and adopt to the Indian market. Hence, such a Glocal approach where the Domestic and Foreign auto majors transplant global practices to the local market has resulted in the Indian consumer getting the best of both worlds as far as driving the latest models and at the same time, feeling at home are concerned.

Having said that, there is stratification as far as technology is concerned since the cutting edge technologies are implemented only in the high end models and the Aam Admi has to still settle for basic versions. On the other hand, some experts believe that the Bottom of the Pyramid consumers in India often enjoy more technological comfort than their foreign counterparts.

Legal

As would be discussed subsequently, India is a country where laws are passed and which everyone knows is difficult and even impossible to enforce. Thus, the automotive sector is no exception to this and as the experiences of the various sectors and industries have shown, legal concerns affect the Indian automotive industry as well.

Right from laws related to emissions to the registration of vehicles and the parking and the maintenance, the Indian market does have very strict rules and regulations.

Having said that, the bad conditions of the Indian roads is such that accidents are common, though not fatal many times as is the case in the West.

On the other hand, the authorities in recent years have begun to worry about the mindless growth of the Indian vehicle population (though such growth is music to the auto majors) and along with concerned societal stakeholders have started to think about ways and means to enforce the laws better.

Environmental

Perhaps no other sector is impacted by the changing winds of environmental rules and regulation as the automotive industry since it is one of the largest emitters of CO2 (Carbon Dioxide) and other harmful gases.

Indeed, there is a paradox at the heart of the Indian Automotive sector as it has to comply with world class environmental norms and at the same time, the enforcement of such norms is so poor that car owners can simply forget about such concerns a year or two after their purchase.

In other words, the compliance stops at the car and the two wheeler makers’ finishing line and subsequently, the incredibly complex landscape that is India offers protection for the owners against strict compliance.

In recent years, thanks to an activist community and a concerned judiciary, there has been much pressure on both the manufacturers as well as the consumers to follow emission norms some of which are modeled on the very strict European standards. Thus, it can be said that this force or factor does tend to have a major impact on the workings of the Indian Automotive makers and consumers.

Porter’s Five Forces Analysis

Bargaining Power of Suppliers

Given the fact that there are any number of suppliers of auto parts and components, their bargaining power is limited as the auto majors can simply switch to others.

Having said that, the suppliers who make parts and components that cannot be replaced quickly hold the upper hand due to the dependence of the auto majors on such critical components some of which are also patented and hence, interdependency is a major factor.

Bargaining Power of Buyers

The Indian consumer is spoilt for choice as far as the availability and the price of cars and two wheelers are concerned and hence, they do wield considerable power over the Indian auto majors.

Indeed, the power of the buyer is so strong that brand loyalty is often fickle and in a manner similar to the Smartphone industry, the auto majors have to sustain the attention of the Indian consumers through periodic product launches and model upgrades.

Threat of Substitutes

While the Indian market is indeed huge, the sheer numbers of Indians who still use public transport and other substitutes to commutes means that there are any number of substitutes for the cars and the two wheelers.

Moreover, there are many Indians who, despite owning vehicles prefer to take public transport due to traffic problems and congestion means that the Indian Auto Majors have to contend with this as well.

Competitive Rivalry

The Indian automobile market is intensely competitive and this means that both domestic and foreign players jostle for market share in the same manner in which cars and two wheelers jostle for space on the Indian roads.

Entry and Exit Barriers

The High Entry and Exit barriers means that the Indian automobile market is dominated by relatively few players and though the competition is intense, it also ensures consolidation instead of fragmentation as far as the firms that make cars and two wheelers are concerned.

Braked Acceleration and Future of the Indian Automobile Industry

As can be seen from the discussion so far, the story of the Indian Automobile Industry has been one of rapid and accelerated growth kept in check by the physical constraints such as congestion on the roads, environmental concerns related to emissions and other polluting activities, and the very real aspect of finding adequate parking space for the Millions of cars and Two Wheelers on the roads.

Indeed, while consumer aspirations are increasing and anyone with a decent disposable income or even for that matter, anyone with access to credit and loans are buying cars at a frenetic pace, the fact remains that there are definite and severe constraints to how much capacity can the Indian roads take as far as automobiles are concerned.

Further, with increasing activism and concerns by activist groups as well as the judiciary to rein in the explosive growth of vehicles on the Indian roads. On the other hand, there has been no letup in consumer demands on vehicles and the increasing purchasing power of the Indian Middle class has seen an unabated increase in Western style consumerism.

To conclude, as the title of the case study indicates, the Indian Automobile sector is thus a story of Braked Acceleration and it remains to be seen as to how the future unfolds with all these forces and factors at work.

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