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Introduction:

Automobile industry in India is an emerging sector and has a potential to improve it. The key players have framed the strategies to tap the sector as per their features of the automotives.The increasing GDP and economical resources have boost up during the last decade whichhas increased purchasing power of the Indian peoples. The car segment in India has emergedas one of the promising sector and has shown growth trends in tremendous sales. Tata Motorshas emerged as key player in Indian automobile industry and its share in CommercialVehicles has 63.94%, Passenger Vehicles 16.45%. Tata Motors Limited is Indias largest automobile company, with consolidated revenues of USD 14 billion in 2008-09. It is theleader in commercial vehicles and among the top three in passenger vehicles. Maruti SuzukiIndia Limited, a subsidiary of Suzuki Motor Corporation of Japan, one of the India's largest

passenger car companies has grabbed a share for over 45% of the domestic car market. Other key players in automobile segment of India have contributed significantly and their existencein market has made others players to act actively in India.

Despite economic slowdown, the Indian automobile sector has shown high growth. The passenger vehicle market, which constitutes around 80% of automobile sales, has immensegrowth potential as passenger car stock stood at around 11 per 1,000 people in 2008.

Anticipating the future market potential, the production of passenger vehicle is forecasted togrow at a CAGR of around 10% from 2009-10 to 2012-13.

De-licensing in 1991 has put the Indian automobile industry on a new growth track, attractingforeign auto giants to set up their production facilities in the country to take advantage of various benefits it offers. This took the Indian automobile production from 5.3 Million Unitsin 2001-02 to 10.8 Million Units in 2007-08. The other reasons attracting global automanufacturers to India are the countrys large middle class population, growing earning

power, strong technological capability and availability of trained manpower at competitive prices. These are the major findings of our new report, 'Indian Automobile Sector - ABooming Market In 2006 -07, the Indian automotive industry provided direct employmentto more than 300,000 people, exported auto component worth around US$ 2.87 Billion, andcontributed 5% to the GDP. Due to this large contribution of the industry in the nationaleconomy, the Indian government lifted the requirement of forging joint ventures for foreigncompanies, which attracted global to the India market to establish their plants, resulting inheightened automobile production.

The Indian automobile market is currently dominated by two-wheeler segment but in future,the demand for passenger cars and commercial vehicles will increase with industrialdevelopment. Also, as India has low vehicle presence it possesses substantial potential for growth.

Indian Automobile Market Scenario:

De-licensing in 1991 put the Indian automobile industry on a new growth trajectory, whichattracted foreign auto giants to set up their production facilities in the country to takeadvantage of the various benefits it offers. Large middle class population, growing earning

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power and strong technological capability have been boosting automobile demand for the past few years. Despite economic slowdown, the Indian automobile sector has recorded phenomenal growth, especially in passenger cars segment. The passenger vehicle market,which constitutes around 80% of automobile sales, has immense growth potential.

Anticipating the future market potential, the production of passenger vehicle is forecasted togrow around 10% till 2012-13.

Tata Nano has brought about a new revolution in the countrys small car segment. Seeing thegood initial response from consumers, many other players in the industry are chalking outtheir plans to launch cars in this segment in the next few years. A CAGR analysis showsgrowth of around 14.5% in domestic volume sales of passenger vehicles during the comingyears. Other segments, such as two-wheelers, multi-purpose vehicle and light commercialvehicle, are also expected to witness fast growth in coming years.

The research covers various aspects of the Indian automobile market and gives a detailedanalysis of its various segments such as passenger vehicle, commercial vehicle, utilityvehicles, multi-purpose, two wheelers and three wheelers. Each section concisely explains thecurrent and future market trends, and developments in the Indian automobile market. Thereare immense opportunities for various industry players including automobile manufacturersand players of automobile components.

According to new research report Indian Passenger Car Market Analysis, the passenger car market, which constitutes around 78.5% of passenger vehicle sales (in FY 2010), hasimmense growth potential as passenger car stock stood at around 11.6 per 1,000 people in

2009. Realizing booming passenger car demand in the country, many domestic and foreignautomobile giants are formulating capacity expansion strategies, and billions of dollar worthof investments is already in pipeline. Considering huge market potential, production of

passenger cars is projected to grow at a CAGR of around 11% between 2010-11 and 2013-14.

1. SIZE OF THE MARKET: The automotive industry in India is one of the larger markets in the world and had

previously been one of the fastest growing globally, but is now seeing flat or negative growth

rates. India's passenger car and commercial vehicle manufacturing industry is the sixth largestin the world , with an annual production of more than 3.9 million units in 2011. According torecent reports, India overtook Brazil and became the sixth largest passenger vehicle producer in the world (beating such old and new auto makers as Belgium, United Kingdom, Italy,Canada, Mexico, Russia, Spain, France, Brazil), grew 16 to 18 per cent to sell around threemillion units in the course of 2011-12. In 2009, India emerged as Asia's fourth largestexporter of passenger cars , behind Japan, South Korea, and Thailand. In 2010, India beatThailand to become Asia's third largest exporter of passenger cars.

As of 2010, India is home to 40 million passenger vehicles. More than 3.7 million automotivevehicles were produced in India in 2010 (an increase of 33.9%), making the country thesecond (after China) fastest growing automobile market in the world in that year. According

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to the Society of Indian Automobile Manufacturers, annual vehicle sales are projected toincrease to 4 million by 2015, no longer 5 million as previously projected.

2. Growth Rate Of The Market :

With expected sales of ~2.5 million passenger vehicles in FY11e, Indias passenger vehicle market ranks as worlds seventh largest; larger than markets like United Kingdom,France and Spain by volume - India has been one of the few markets globally to buck therecessionary trend and record a strong 25.6% volume growth in FY10. The growthmomentum continues to be on track with first eleven months of FY11 registering a growth of 29.8% over the corresponding period in the previous year - Strong economic growth, risingdisposable income levels, favourable demographics, easy financing environment andrelatively low car penetration have been the prominent growth drivers for the industry -While at the one end, the growing domestic market is attracting foreign OEMs, on the other,

established players are positioning themselves as strong contenders to offer low-cost car manufacturing capabilities to the world - So far, most foreign car makers, barring Hyundaihave focused on the sedan and premium segment cars, shying away from the highlycompetitive small-car segment; with these players now launching small-cars that toodesigned keeping in mind specifically the Indian consumer, the small-car segment, which hasso far been dominated by three players commanding over 80% of the volumes is likely to seeincrease in competitive intensity - Some of the newly launched models have had good initialresponse and have been aggressively priced, indicating new entrants strategy to grab marketshare while sacrificing profitability - Large established incumbents in the Indian passenger

vehicle market derive strength from their low-cost manufacturing capabilities (especially inthe small-car segment), strong brand recognition and wide distribution & servicing reach,something which can be difficult to replicate - We believe, while the incumbents will havethese competitive advantage over newer entrants, these are likely to diminish in the long-runas new players with global experience gain brand recognition and expand their network and

product offerings - Superior small-car portfolio, a wide distribution and service network andcompetitive pricing on the back of locally sourced auto components are going to be the keyfactors in determining the success of a foreign OEM in the Indian market.

3. PLAYERS IN THE MARKET: GM, Toyota, Ford, Hyundai, Maruti Suzuki, Honda, Ford, Skoda, Volvo, Mercedes,

Tata Motors, Bajaj Auto, Mahindra & Mahindra, TVS Motors, Hero Moto Corp.,Bajaj Tempo, Ashok Leyland.

The auto industry is highly competitive with a number of global and domestic autoindustries present in the country.

MUL is the largest passenger car manufacturer in India. TATA is the largest player in the Indian industry. Always plans to launch new and

exciting products in the Indian markets.

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Hyundai is the third largest manufacturer in India and one of the largest exporters of the vehicles. This has established India as one of its manufacturing bases in the world.This is planning to invest heavily to boost exports from India.

Toyota has vision of capturing 10% share of the Indian passenger car market by 2010.

Honda is one of the leading players of the Indian premium cars segment. Ford is one of the leading players in the Indian premium cars segment. GM is one of the leading players in the Indian premium cars segment. plans to enter

the small car segment by relaunching the Matiz. Mahindra is one of the largest domestic players in the UV / MUV segment. Fiat, Tata motors manages the marketing and distribution of the fiat branded cars

through selected Tata outlets throughout India. Hindustan Motors is one of the original three car manufacturers in India, founded in

1942, it was the leader in car sales until the 1980's, when the industry was opened up

from protection HM has joint venture with Mitsubishi, producing versions of thelancer and Pajero.

Daimler Chrysler, E, C, and S class passenger cars are assembled in India; other models are imported as completely built units and retailed in India.

4. Market Share Of These Players:

Domestic Market Share for 2011-12

Passenger Vehicles 15.07

Commercial Vehicles 4.66

Three Wheelers 2.95

Two Wheelers 77.32

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The majority of India's car manufacturing industry is based around three clusters in the south,west and north. The southern cluster consisting of Chennai is the biggest with 35% of therevenue share. The western hub near Mumbai and Pune contributes to 33% of the market andthe northern cluster around the National Capital Region contributes 32%. Chennai, with theIndia operations of Ford, Hyundai, Renault, Mitsubishi, Nissan, BMW, Hindustan Motors,

Daimler, Caparo, and PSA Peugeot Citron is about to begin their operations by 2014.Chennai accounts for 60% of the country's automotive exports. Gurgaon and Manesar inHaryana form the northern cluster where the country's largest car manufacturer, MarutiSuzuki, is based. The Chakan corridor near Pune, Maharashtra is the western cluster withcompanies like General Motors, Volkswagen, Skoda, Mahindra and Mahindra, Tata Motors,Mercedes Benz, Land Rover, Jaguar Cars, Fiat and Force Motors having assembly plants inthe area. Nashik has a major base of Mahindra & Mahindra with a UV assembly unit and anEngine assembly unit. Aurangabad with Audi, Skoda and Volkswagen also forms part of thewestern cluster. Another emerging cluster is in the state of Gujarat with manufacturingfacility of General Motors in Halol and further planned for Tata Nano at their plant inSanand. Ford, Maruti Suzuki and Peugeot-Citroen plants are also set to come up in Gujarat.Kolkata with Hindustan Motors, Noida with Honda and Bangalore with Toyota are some of the other automotive manufacturing regions around the country.

As Maruti Suzuki's production took a hit because of recent labour woes at its Manesar factoryin Haryana, the Indian operations of two Japanese carmakers, Toyota and Honda, haveemerged as the biggest gainers. In the first five months of fiscal 2013, even as passenger vehicle sales slowed down into single digits, Toyota Kirloskar has gained more than a

percentage point in market share by moving from 6.97% to 5.57% a year ago. Honda CarsIndia has moved up to 2.85% from 1.9% in the April-August period of fiscal 2012. Hondanow moves above Volkswagen (VW) whose market share has dipped from 3.19% to 2.41%in the first five months of the ongoing fiscal year.

5. Product and its Features/utility:

One of the Tatas products is Tata Venture.

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Pleasant Interiors:

Fabric seats in dual tone of Barley Beige and Shadow Grey make for soothinginteriors and provide total comfort for your family on long travel distances.

Dual HVAC:

The dual AC vents with individual roof mounted louvers provide uniform cooling toall 3 rows and offer superior passenger comfort.

Power Steering:

Be it driving long distance or through crowded city spaces, power steering makes it a breeze.

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Low Turning Radius:

The Venture's low turning radius of 4.5 meters aids sharp turning in tight corners andmake for comfortable city driving.

Front Power Windows:

No more manual rolling up of the windows. One touch Power windows aid effortlessrolling with just the touch of a button.

In-built Music System :

Experience crystal clear music on the go with built-in high fidelity music system and say

goodbye boring journeys with the new Tata Venture.

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6. DEMAND FACTORS OF THE TATA PRODUCT

FACTORS AFFECTING VEHICLE DEMAND:

Economic Growth: Overall freight movement in the country is a function of

industrial and agricultural growth. High growth in GDP reflects higher economicactivity, which typically results in transportation of more freight and hence higher demand for commercial vehicles.

Interest Rates and Availability of Finance: Automobile sales are heavily dependenton the availability of retail finance. Higher interest rate can adversely affect thedemand. On the other hand, lower interest rates stimulate demand as it result in lower cost of acquisition.

Cost of Fuel: Demand for commercial vehicles is driven to a considerable extent bythe profitability of the truck operator. The profitability of truck operators remains very

sensitive to diesel prices, as any increase in fuel price results in higher operating cost,although fuel prices in India continue to be artificially supported at lower levels by thegovernment.

Taxes and Duties: Reduction in excise duties and the introduction of VAT regimecan act as catalyst for higher demand of automobiles. A cut in excise duty reduces

prices, which, if passed on, enhances the affordability for buyers.

7. TYPES OF ELASTICITY OF DEMAND

Price Elasticity Of Demand : Motors to determine if the company should increase or decrease the price of its Sport Utility Vehicle (SUV).. Cross-Over Utility Vehicles : housing market, favorable interest rates, higher

corporate profits, and lower motor vehicle sales. Section IV Fiscal Policy FederalFunds Rate The monetary...

Motor Insurance : Time brought in new types of protection. Thus, motor insurance isnot limited to the insurance of the vehicle, but offer also other types of protectionrelated to

8. SUPPLY FACTORS

P r e s e n c e a c r o s s S e g m e n t : Manufacturers with presence across various product segments can ensure higher volume and

better capacity utilization by using the common manufacturing capacity. Typically acustomer upgrades from one segment to higher segment and the presence across varioussegments ensures that the company retains its existing customers.

E f f i c i e n t O p e r a t i o n s : Competition in PV segment is very intense and this requires the existing players to initiatesteps to reduce their cost of production. Effective and successful operation methods like

platform commonality, reduction in vendor base and workforce rationalization can help acompany immensely.

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Wide Dealer Network and Availability Of Finance: A wide dealer network helps the company serve customers over wide geographical area. For e.g. Maruti has used its available wide service network as point of difference over competitors. The companies are tying up with the financial institutions having rural presenceto provide additional financing options to customers in such areas

A c c e s s t o L a t e s t Te c h n o l o g i e s : Indian PV segment is highly competitive with as many as 14 players operating in it and morethan 80 models on the offering. But still any new model launch meets with increase in salesvolume for the company. Moreover in a time when a substantial portion of Indian customer islooking to upgrade in higher segment, companies with latest technologies and latest modelswill catch more attentions.

P r i c e o f t h e C a r : Price of the car is one of the major factors that affect the supply as well as the demand of acar. If the price of the car is high in the market, the manufacturer or the supplier will want tosupply more units in the market so he can earn more profits. In the automotive industry wherethe market type is oligopoly, if one company drops its price for the car, there is a huge impacton the sales of the other cars as well as the same car. In the market the price of one car isinter-related to the price of the other cars in the same segment. The best solution is thatmarket equilibrium should be achieved so that the amount of the quantity demanded should

be equal to the amount of the quantity supplied to achieve maximum profits. A MarketEquilibrium is achieved at the point of intersection of the demand line and the supply line.The point is the equilibrium point where the quantity demanded is equal to the quantitysupplied.

F a c t o r s o f P r o d u c t i o n : There are some factors of production which influence the supply of a car like Cost of RawMaterial Labour Cost Machinery Input Cost These factors influence the supply of a car largely. If the cost of the raw material (Steel, Spare Parts, Rubber) increases there will be anincrease in the cost of production leading to decrease in profit margins. Costs like labour costs, machinery and input costs also influence the supply with the increase or decrease inthese costs.

Government Policies and Taxes: If there is a change in the government policies regarding the increase in the road tax chargedor the tax which is to be paid per unit sold, the supply of a car will fluctuate with the nature of

the change. Recently the government has reduced the custom duty on inputs and raw materialfrom 20% to 15% which has increased the supply.

9. SWOT ANALYSIS OF INDIAN AUTOMOBILE INDUSTRY

STRENGTHS: Automobile industry is established and ever green industry. India isthe strongest player in small car segment Indian Companies are best cost innovatorsAssembly line manufacturing, and JIT inventory management, the automotiveindustry has been able to achieve significant gains in productivity. Exceptional humanresource base.

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WEAKNESS: India lack proper infrastructural facilities Poor after sales service theautomotive industry lags behind other sectors such as IT and financial services inmanagement training, reward and retention.

OPPURTUNITIES : Small cars are a future Green cars Auto financing Royaltythrough Patents.

THREATS : Global Crisis Companies not focusing on R & D are under great risk High competition from foreign players Lack of technology for Indian companies.

10. Competition in the market:The Indian passenger car market is booming like never before. With almost every car major already present in the Indian car market with various models, India is one of the hottestautomobile markets in the world.

And despite tough competition, the four car manufacturers who rule the roost in Indiacontinue to be Maruti Suzuki, Tata Motors and Mahindra & Mahindra, and Hyundai. In themonth of December 2010, the Indian car industry posted sales of over 150,000 units and theindustry grew by an astounding 25 per cent. The Indian car industry is now the seventhlargest car manufacturer in the world.

In the list of top 10 selling cars across segments in December 2010, there are five Marutimodels, three Hyundai models, and one each from Mahindras and Tata Motors.

India's domestic passenger car sales jumped by 28.91 per cent to 1,48,681 units in December 2010, compared to 1,15,337 units in the same month in 2009.

According to the figures, released by the Society of Indian Automobile Manufacturers onTuesday, motorcycle sales in the country during December 2010 grew by 27.13 per cent to7,53,358 units from 5,92,589 units in the same month previous year.

Total sale of vehicles across categories registered a growth of 30.51 per cent to 13,05,872units in December 2010, as against 10,00,562 units in the same month of 2009, it added.

Total sales of commercial vehicles jumped by 27.3 per cent to 61,880 units from 48,611 unitsin the year-ago period, SIAM said.

Total two-wheeler sales in December 2010 increased by 31.1 per cent to 10, 06,545 unitsfrom 7,67,789 units in the same period of previous year.

Percentage-wise, the top five carmakers in the country include Maruti with 45 per cent of thetotal market followed by Tata at 14.84 per cent, Hyundai at 14 per cent, Mahindra at 6.68 per cent and Ford at 3.88 per cent. Three out of the five are mostly India-based carmakers thathave been around for several years.

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11. Consumer Behaviour:The growth of consumerism and recent consumer legislations have created special interest inthe study of buyer behaviour and the formulation of marketing mix so as to gain positive

buyer response in the market place. Marketing success or failure depends on targetconsumers, the individual and group reactions expressed in the form of buying pattern. Buyer

behaviour is a complex and not easily predictable phenomenon as changes in buying patternare taking place at a dismaying speed. In the highly competitive marketing environment, themarketers have to basically understand the factors governing buyer behaviour as it isnecessary for the long-run existence of the organization.

12. Future of Car Industry :

Revolution on the roadsExpect to see many rapid improvements in vehicle fuel efficiency using petrol and diesel, and

many new ultra-efficient hybrid vehicles. Even if we only saw 30% energy saving in 30% of vehicle miles driven in developed nations over the next decade, we would save at least 9% inmotoring energy use (at todays rate of miles driven a year). That would be the same ascutting todays global emissions by more than 1%. Greening of the world car fleet ishappening rapidly. JD Power Consultancy estimates that a third of emission cuts by 2020will come from improving petrol and diesel engines, and 14% from miles driven in electricvehicles.

If all vehicles in America were hybrids, and half were plug-in hybrids (larger batteries), USimports of oil would fall by 8 million barrels a day or by 80% of daily consumption.

Electric Cars

Electric vehicles are one of the most important ways to reduce motoring costs, reduce carbonuse in transport, improve air quality and reduce global warming. Expect battery-poweredvehicles to be 10% of the market by 2020. Models like Nis sans Leaf and Chevrolets Volthave led the way.

Much of government economic stimulus packages for the auto industry have been linked togreen tech, of which a huge proportion is things like battery technology.

16 million new cars a year are sold in EU alone (2.4m in UK). If we assume that up to 25%of the smallest car market could be electric cars within 10 years, that would mean over 1million sold each year, at an average cost of EU11,000. Electric car sales would then beworth at least EU11bn a year in the EU.

Electric Cars More Efficient

Electric cars can produce much lower emissions than burning fuel in mobile engines, but it alldepends on how the electricity is generated. Burning petrol or diesel in a small, mobileengine can be inefficient compared to the most efficient coal-fired power generators. When

petrol is used to power a vehicle, only 15-20% of the energy is usually captured to drive thecar forward, compared to 40% in making electricity in an efficient coal power station.

It is true that a small amount of power is lost between power station and battery, and 20% of electricity put into the car is lost in heat (batteries and other components). But even when we

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include these things, we can see that coal - powered elect ric cars are likely to be better usersof fossil fuels than diesel or petrol vehicles.

Where wind, solar, waves, tide or nuclear power is used to charge batteries, electric cars havezero emissions. Either way, air quality improves dramatically in cities as the use of electricvehicles increases. Owners can also save a huge amount of vehicle tax on petrol or dieselsince taxation is far lower on electricity. It typically costs only 1-2 cents a mile in electricity.

One thing is certain: if half a million people are driving electric cars across a nation, oilconsumption will fall dramatically, while coal or gas power consumption will rise in the shortterm.

Batteries are going to be one of the biggest green tech businesses powering notonly phones and other small devices, but also cars, trucks, buses and just about any large

piece of equipment that does not have a permanent electricity connection. Expect sales of hundreds of billions of dollars. President Obamas economic stimulus provided $2.4 billion

to fund battery innovation and electric car drive projects.

Car batteries will have another purpose: linked together when charging a t peoples homes, tocreate Virtual Storage by power companies, to assist their power management at off peak times. This will make it easier for them to plug in huge numbers of wind and solar generators. Smart grids will allow power to flow in both directions, so that each battery can

become a power source to other people in the neighbourhood for short periods of time. If 200,000 electric cars were plugged into the German national grid, it could make 8 megawattsof power available almost instantly, giving more flexibility than the nation currently needs.Expect many governments to give huge incentives to people who want to buy electriccars. Israel and Denmark are leading the way.

Evolution of Porter's Five Forces Model:

Five forces is a framework for the industry analysis and business strategy developmentdeveloped by Michael E. Porter of Harvard Business School in 1979. Michael Porter is a

professor at Harvard Business School and is a leading authority on competitive strategy andinternational competitiveness. Michael Porter was born in Ann Arbor, Michigan.

Five forces uses concepts developing, Industrial Organization (IO) economics to derive fiveforces that determine the competitive intensity and therefore attractiveness of a market.Attractiveness in this context refers to the industry profitability. An "unattractive" industry isone where the combination of forces acts to drive down overall profitability. A veryunattractive industry would be one approaching "pure competition".

Five Forces Model by Michael Porter:

Five Forces model of Michael Porter is a very elaborate concept for evaluating company's

competitive position. Michael Porter provided a framework that models an industry andtherefore implicitly also businesses as being influenced by five forces. Michael Porter's Five

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Forces model is often used in strategic planning. Porter's competitive five forces model is probably one of the most commonly used business strategy tools and have proven itsusefulness in numerous situations when exploring strategic management models. Three of Porter's five forces refer to competition from external sources. The remainder are internal

threats. It is useful to use Porter's five forces in conjunction with SWOT analysis (Strengths,Weaknesses, Opportunities, and Threats).

A change in any of the forces normally, requires a business unit to re-assess the marketplacegiven the overall change in industry information. The overall industry attractiveness does notimply that every firm in the industry will return the same profitability. Firms are able to applytheir core competencies, business model or network to achieve a profit above the industryaverage.

Porter's five forces include:

Three forces from 'horizontal' competition Threat of new entrants or barriers to entry Threat of substitute products or substitutes Threat of established rivals or competitive rivalry Two forces from 'vertical' competition The bargaining power of buyers or buyers

The bargaining power of suppliers or suppliers

Force 1: Barriers to entry

Barriers to entry measure how easy or difficult it is for new entrants to enter into the industry.This can involve for example:

Cost advantages (economies of scale, economies of scope) Access to production inputs and financing, Government policies and taxation

Production cycle and learning curve Capital requirements Access to distribution channels Patents, branding, and image also fall into this category.

Force 2: Threat of substitutes

Every top decision maker has to ask: How easy can our product or service be substituted?The following needs to be analyzed:

How much does it cost the customer to switch to competing products or services? How likely are customers to switch?

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What is the price-performance trade-off of substitutes? If a product can be easily substituted, then it is a threat to the company because it can

compete with price only.

Force 3: Competitive Rivalry

In this, we have to analyze the level of competition between existing players in the industry.

Is one player very dominant or all equal in strength/size? Are there exit barriers? How fast does the industry grow? Does the industry operate at surplus or shortage? How is the industry concentrated? How do customers identify themselves with your brand? Is the product differentiated? How well are rivals diversified?

Force 4: Bargaining power of buyers

Now the question is how strong the position of buyers is.

For example, can customers work together to order large volumes to squeeze your profitmargins? The following is a list of other examples:

Buyer volume and concentration What information buyers have Competitive price How loyal are customers to your brand.

Porter's five forces model on Automobile Industry:

1. Barriers to Entry - It's true that the average person can't come along and startmanufacturing automobiles. The emergence of foreign competitors with the capital,required technologies and management skills began to undermine the market share of many automobile companies. Globalization the tendency of world investment and

businesses to move from national and domestic markets to a worldwide environment,is a huge factor affecting the auto market. More than ever, it is becoming easier for foreign automakers to enter the Domestic market .Automobiles depend heavily onconsumer trends and tastes. While car companies do sell a large proportion of vehiclesto businesses and car rental companies (fleet sales), consumer sales is the largestsource of revenue. For this reason, taking consumer and business confidence intoaccount should be a higher priority than considering the regular factors like earningsgrowth and debt load.

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2. Threat of Substitutes - Rather than looking at the threat of someone buying adifferent car, there is also need to also look at the likelihood of people taking the bus,train or airplane to their destination. The higher the cost of operating a vehicle, themore likely people will seek alternative transportation options. The price of gasoline

has a large effect on consumers' decisions to buy vehicles. Trucks and sport utilityvehicles have higher profit margins, but they also guzzle gas compared to smaller sedans and light trucks. When determining the availability of substitutes you shouldalso consider time, money, personal preference and convenience in the auto travelindustry. Then decide if one car maker poses a big threat as a substitute.

3. Competitive Rivalry - Highly competitive industries generally earn low returns because the cost of competition is high. The auto industry is considered to be anoligopoly (A market condition in which sellers are so few that the actions of any oneof them will materially affect price) which helps to minimize the effects of price-

based competition. The automakers understand that price-based competition does notnecessarily lead to increases in the size of the marketplace, historically they have triedto avoid price-based competition, but more recently the competition has intensified -rebates, preferred financing and long-term warranties have helped to lure incustomers, but they also put pressure on the profit margins for vehicle sales. Everyyear, car companies update their cars. This is a part of normal operations, but therecan be a problem when a company decides to significantly change the design of a car.These changes can cause massive delays and glitches, which result in increased costsand slower revenue growth. While a new design may pay off significantly in the longrun, it's always a risky proposition

4. Bargaining Power of Suppliers - The automobile supply business is quitefragmented (there are many firms). Many suppliers rely on one or two automakers to

buy a majority of their products. If an automaker decided to switch suppliers, it could be devastating to the previous supplier's business. As a result, suppliers are extremelysusceptible to the demands and requirements of the automobile manufacturer and holdvery little power. For parts suppliers, the life span of an automobile is very important.The longer a car stays operational, the greater the need for replacement parts. On theother hand, new parts are lasting longer, which is great for consumers, but is not suchgood news for parts makers. When, for example, most car makers moved from usingrolled steel to stainless steel, the change extended the life of parts by several years.

5. Bargaining Power of Buyers - The bargaining power of automakers is unchallenged.Consumers may become dissatisfied with many of the products being offered by

certain automakers and began looking for alternatives, namely foreign cars. On the

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other hand, while consumers are very price sensitive, they don't have much buying power as they never purchase huge volumes of cars.

Example : Porter's 5 Forces Model of the NANO car

There is continuing interest in the study of the forces that impact on an organisation, particularly those that can be harnessed to provide competitive advantage. The ideas andmodels which emerged during the period from 1979 to the mid-1980s were based on the ideathat competitive advantage came from the ability to earn a return on investment that was

better than the average for the industry sector. As Porter's 5 Forces analysis deals with factorsoutside an industry that influence the nature of competition within it, the forces inside theindustry (microenvironment) that influence the way in which firms compete .

Price sensitivity Threat of backward integration How well differentiated your product is Availability of substitutes Having a customer that has the leverage to dictate your prices is not a good position.

Force 5: Bargaining power of suppliers

This relates to what your suppliers can do in relationship with you. How strong is the position of sellers?

Are there many or only few potential suppliers? Is there a monopoly? Do you take inputs from a single supplier or from a group? (Concentration) How much do you take from each of your suppliers? Can you easily switch from one supplier to another one? (Switching costs) If you switch to another supplier, will it affect the cost and differentiation of your

product?

Are there other suppliers with the same inputs available? (Substitute inputs)