chapter iii overview on automobile industry...
TRANSCRIPT
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CHAPTER III
OVERVIEW ON AUTOMOBILE INDUSTRY IN INDIA AND CONSUMERS’ BUYING BEHAVIOUR
The Current chapter of the study draws a detailed discussion on the
growth and development of Indian Automobile Industry, car marker and
market preferences towards MUVs / SUVs segment cars in India. It also draws
an introspective analysis on the buyer behaviour towards cars. The chapter is
divided into three segment. The first one portraits on the overview of Indian
Automobile Industry, Second segment brings out India and World Car market
scenario, Third segment it focus on discussion on consumers’ buying
behaviour.
3.1 OVERVIEW OF INDIAN AUTOMOBILE INDUSTRY
This cross section of the study draws a elaborate discussion on the
growth of Indian Automobile Industry in the recent past and portraits the
growth phenomenon of the car market especially MUV/SUV segment cars.
3.1.1 Introduction
Since the first car rolled out on the streets of Mumbai (then Bombay) in
1898, the Automobile Industry of India has come a long way. During its early
stages the auto industry was overlooked by the Government and the policies
were also not favorable. The liberalization policy and various tax reliefs by the
Government of India in recent years have made remarkable impacts on Indian
Automobile Industry. Indian Auto Industry, which is currently growing at the
pace of around 18 per cent per annum, has become a hot destination for global
auto players like Volvo, General Motors and Ford.
The Automotive Industry in India is one of the largest in the world and
one of the fastest growing industry. India manufactures over 17.5 million
vehicles (including 2 wheeler and 4 wheeler) and exports about 2.33 million
every year. It is the world's second largest manufacturer of motorcycle, with
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46
annual sales exceeding 8.5 million in 2009. India's passenger car and
commercial vehicle manufacturing industry is the seventh largest in the world,
with an annual production of more than 3.7 million units in 2010. According to
recent reports, India is set to overtake Brazil to become the sixth largest
passenger vehicle producer in the world, growing 16-18 per cent to sell around
three million units in the course of 2011-12. In 2009, India emerged as Asia’s
fourth largest exporter of passenger car, behind Japan, South Korea, and
Thailand.
As of 2010, India is home to 40 million passenger vehicles and more
than 3.7 million automotive vehicles were produced in 2010 (an increase of
33.9per cent), making the country the second fastest growing automobile
market in the world. According to the Society of Indian Automobile
Manufacturers, annual car sales are projected to increase up to 5 million
vehicles by 2015 and more than 9 million by 2020. By 2050, the country is
expected to top the world in car volumes with approximately 611 million
vehicles on the nation’s roads.
3.1.2 Segment of the Indian Automobile Industry and its Growth
A well developed transportation system plays a key role in the
development of an economy and India is no exception to it. With the growth of
transportation system the Automotive Industry of India is also growing at rapid
speed, occupying an important place on the 'canvas' of Indian economy. Today
Indian Automotive Industry is fully capable of producing various kinds of
vehicles and can be divided into 3 broad categories like Cars, two-wheelers and
heavy vehicles. Major manufacturers in automobile industry are Maruti Udyog
Ltd, General Motors India, Ford India Ltd, Eicher Motors, Bajaj Auto, Daewoo
Motors India, Hero Motors, Hindustan Motors, Hyundai Motor India Ltd,
Royal Enfield Motors, Telco, TVS Motors and Swaraj Mazda Ltd.
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Among the two-wheeler segment, motorcycles have major share in the
market. Hero Honda contributes 50per cent motorcycles to the Indian market.
Honda holds 46per cent share in scooter segment. In India TVS produces 82
per cent of the mopeds and 40per cent of the three-wheelers which are used to
transport goods. Piaggio holds 40per cent of the market share. Among the
passenger transport, Bajaj is the leader by making 68per cent of the three-
wheelers. Cars dominate the passenger vehicle market by 79per cent. Maruti
Suzuki has 52per cent share in passenger cars and is a complete monopoly in
multipurpose vehicles. In utility vehicles Mahindra holds 42per cent share. In
commercial vehicle, Tata Motors dominates the market with more than 60per
cent share. Tata Motors is also the world's fifth largest medium & heavy
commercial vehicle manufacturer.
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TABLE: 3.1 SEGMENTATION OF THE INDUSTRY
(Value in percentage)
Segment 2003-2004
2004-2005
2005-2006
2006-2007
2007-2008
Passenger Car 10.22 10.39 9.91 10.65 12.42
Utility Vehicles (UVs) 2.15 2.23 2.18 2.18 2.39
Multi Purpose Vehicles (MPVs) 0.87 0.82 0.75 0.82 0.98
Total Passenger Vehicles 13.25 13.44 12.83 13.65 15.79
Passenger Carriers 0.36 0.32 0.32 0.28 0.43
Goods Carriers 2.01 2.19 2.01 2.44 2.10 Total Medium & Heavy Commercial Vehicles 2.37 2.51 2.33 2.73 2.53
Passenger Carriers 0.28 0.25 0.25 0.24 0.32
Goods Carriers 1.17 1.27 1.36 1.67 1.77 Total Light Commercial Vehicles 1.45 1.52 1.61 1.90 2.10
Total Commercial Vehicles 3.82 4.03 3.94 4.63 4.63
Passenger Carriers 2.56 2.17 2.39 2.34 2.51
Goods Carriers 1.61 1.73 1.65 1.65 1.51
Total Three Wheelers 4.17 3.90 4.04 4.00 4.01
Scoters/Scooterettee 13.01 11.68 10.21 9.31 11.57
Motorcycles/Step-Through 61.24 62.86 65.24 64.83 59.35
Mopeds 4.52 4.08 3.74 3.52 4.47
Electric Two Wheelers - - - 0.07 0.19
Total Two Wheelers 78.76 78.63 79.18 77.73 75.57
Grand Total 100.00 100.00 100.00 100.00 100.00
Source: http://en.wikipedia.org/wiki/Automobile_industry_in_India
The automotive industry of India is categorized into passenger cars, two
wheelers, commercial vehicles and three wheelers, with two wheelers
dominating the market. More than 75per cent of the vehicles sold are two
wheelers. Nearly 59per cent of these two wheelers sold were motorcycle and
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about 12per cent were scooters. Mopeds occupy a small portion in the two
wheeler market however; electric two wheelers are yet to penetrate.
The passenger vehicles are further categorized into passenger cars,
utility vehicles and multi-purpose vehicles. All sedan, hatchback, station wagon
and sports cars fall under passenger cars. Tata Nano, is the world’s cheapest
passenger car, manufactured by Tata Motor - a leading automaker of India.
Multi-purpose vehicles or people-carriers are similar in shape to a van and are
taller than a sedan (Multi Utility Vehicle), hatchback or a station wagon, and
are designed for maximum interior room. Utility vehicles are designed for
specific tasks. The passenger vehicles manufacturing account for about 15per
cent of the market in India. Commercial vehicles are categorized into heavy,
medium and light. They account for about 5per cent of the market. Three
wheelers are categorized into passenger carriers and goods carriers. Three
wheelers account for about 4per cent of the market in India. The production of
automobiles has greatly increased in the last decade. It passed the 1 million
mark during 2003-2004 and has more than doubled since then.
TABLE: 3.2 AUTOMOBILE PRODUCTION IN INDIA
(Value in Number Units)
Type of Vehicle
2005-2006
2006-2007
2007- 2008
2008- 2009
2009- 2010
Passenger Vehicles 1,209,876 1,309,300 1,545,223 1,777,583 1,838,697
Commercial Vehicles 353,703 391,083 519,982 549,006 417,126
Three Wheelers 374,445 434,423 556,126 500,660 501,030
Two Wheelers 6,529,829 7,608,697 8,466,666 8,026,681 8,418,626
Total 8,467,853 9,743,503 11,087,997 10,853,930 11,175,479
Source: http://en.wikipedia.org/wiki/Automobile_industry_in_India
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The Indian Automobile Industry is manufacturing over 11 million
vehicles and exporting about 1.5 million every year. The dominant products of
the industry are two wheelers with a market share of over 75per cent and
passenger cars with a market share of about 16per cent. Commercial vehicles
and three wheelers share about 9per cent of the market between them. About
91per cent of the vehicles sold are used by households and only about 9per cent
for commercial purposes. The industry has attained a turnover of more than
USD 35 billion and provides direct and indirect employment to over 13 million
people.
The supply chain of this industry in India is very similar to the supply
chain of the automotive industry in Europe and America. This may present its
own set of opportunities and threats. The orders of the industry arise from the
bottom of the supply chain i.e., from the consumers and go through the
automakers and climbs up until the third tier suppliers. However the products,
as channelled in every traditional automotive industry, flow from the top of the
supply chain to reach the consumers.
TABLE: 3.3 AUTOMOBILE SALE IN INDIA
(Value in Indian Rupee)
Type of Vehicle
2005-2006
2006-2007
2007- 2008
2008- 2009
2009-2010
Passenger Vehicles 1,061,572 1,143,076 1,379,979 1,549,882 1,551,880
Commercial Vehicles 318,430 351,041 467,765 490,494 384,122
Three Wheelers 307,862 359,920 403,910 364,781 349,719
Two Wheelers 6,209,765 7,052,391 7,872,334 7,249,278 7,437,670
Total 7,897,629 8,906,428 10,123,988 9,654,435 9,723,391
Source: http://en.wikipedia.org/wiki/Automobile_industry_in_India
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The Indian Automotive Industry after de-licensing in July 1991 has
grown at a spectacular rate on an average of 17per cent for last few years. The
industry has attained a turnover of USD 35.8 billion, (INR 165,000 crores) and
an investment of USD 10.9 billion in 2010. The industry has provided direct
and indirect employment to 13.1 million people. Automobile industry is
currently contributing about 5per cent of the total GDP of India. India’s current
GDP is about $1.4 trillion and is expected to grow to $3.75 trillion by 2020.
The projected size in 2016 of the Indian automotive industry varies between
$122 billion and $159 billion including USD 35 billion in exports. This
translates into a contribution of 10per cent to 11per cent towards India’s GDP
by 2016, which is more than double the current contribution.
TABLE: 3.4 AUTOMOBILE EXPORT IN INDIA
(Value in Indian Rupee)
Type of Vehicle 2005-2006
2006-2007
2007- 2008
2008- 2009
2009-2010
Passenger Vehicles 166,402 175,572 198,452 218,401 335,739
Commercial Vehicles 29,940 40,600 49,537 58,994 42,673
Three Wheelers 66,795 76,881 143,896 141,225 148,074
Two Wheelers 366,407 513,169 619,644 819,713 1,004,174
Total 629,544 806,222 1,011,529 1,238,333 1,530,660
Source: http://en.wikipedia.org/wiki/Automobile_industry_in_India
The level of trade exports in this sector in India has been medium and
imports have been low. However, this is rapidly changing and both exports and
imports are increasing. The demand determinants of the industry are factors
like affordability, product innovation, infrastructure and price of fuel. Also, the
basis of competition in the sector is high and increasing and the life cycle stage
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is growth. With a rapidly growing middle class, all the advantages of this sector
in India are yet to be leveraged.
Note that, with a high cost of developing production facilities, limited
accessibility to new technology and soaring competition, the barriers to enter
the Indian automotive sector are high. On the other hand, India has a well-
developed tax structure. The power to levy taxes and duties is distributed
among the three tiers of Government. The cost structure of the industry is fairly
traditional, but the profitability of motor vehicle manufacturers has been rising
over the past five years. Major players, like Tata Motors and Maruti Suzuki
have material cost of about 80per cent but are recording profits after tax of
about 6 per cent to 11 per cent.
The level of technology change in the Motor vehicle Industry has been
high but, the rate of change in technology has been medium. Investment in
technology by the producers has been high. System-suppliers of integrated
components and sub-systems have become the order of the day. However
further investment in new technologies will help the industry be more
competitive. Over the past few years, the industry has been volatile. Currently,
India’s increasing per capita disposable income which is expected to rise by
106per cent by 2015 and growth in exports is playing a major role in the rise
and competitiveness of the industry.
Tata Motors is leading in the commercial vehicle segment with a market
share of about 64per cent. Maruti Suzuki is leading in the passenger vehicle
segment with a market share of 46per cent. Hyundai Motor India and Mahindra
and Mahindra are focusing on expanding their footprint in the overseas market.
Hero Honda Motors is occupying over 41per cent and sharing 26per cent of the
two wheeler market in India with Bajaj Auto. Bajaj Auto in itself is occupying
about 58per cent of the three wheeler market.
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Consumers are very important for the survival of the motor vehicle
manufacturing industry. In 2008-09, customer sentiment dropped, which
burned on the augmentation in demand of cars. Steel is the major input used by
manufacturers and the rise in price of steel is putting a cost pressure on
manufacturers and cost is getting transferred to the end consumer. The price of
oil and petrol affect the driving habits of consumers and the type of car they
buy.
The key to success in the industry is to improve labour productivity,
labour flexibility, and capital efficiency. Having quality manpower, better
infrastructure and raw material availability play a major role. Access to latest
and most efficient technology and techniques will bring competitive advantage
to the major players. Utilising manufacturing plants to the optimum level and
understanding implications from the government policies are the essentials in
the automotive industry of India.
Both, industry and Indian government are obliged to intervene in the
Indian Automotive Industry. The Indian government should facilitate
infrastructure creation, create favourable and predictable business environment,
attract investment and promote research and development. The role of industry
will primarily be in designing and manufacturing products of world-class
quality establishing cost competitiveness and improving productivity in labour
and in capital. With a combined effort, the Indian Automotive Industry will
emerge as the destination of choice in the world for design and manufacturing
of automobiles.
3.1.3 Market Characteristics
The automotive business in India is one of the world most prominent
economic zones. The Government of India (GOI) has allowed 100 per cent
foreign equity investments.
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The automotive sector is one of the core industries of the Indian
economy. Indian Government’s impetus to the industry by allowing continuous
economic liberalization since 1991 has made India one of the sought after
destination for many global automotive players. The automotive sector in India
is growing at around 18 per cent per annum. The Indian auto industry has seen
a phenomenal growth in the last 20 years. This is due to the convergence of a
lot of positive factors. The sales trajectory of automobiles has witnessed a
sharp increase since 1990s till 2000. Automobile industry has greatly benefitted
from a sharp increase in demand and has added extra capacity, better research
and development facilities and technological advancement and distribution
setup across the country.
Factors contributing to the increased demand of automotives and the
growth of Indian auto sector
The convergence of government policies, economy’s growth, people’s
purchasing power have all contributed to the phenomenal growth of Indian
Auto Industry. Some of the important growth drivers are explained below.
a. Rise in the industrial and agricultural output indirectly helps Indian
auto industry
Industrial and agricultural output increase has reflected in higher GDP
and overall growth of the economy which is about 9per cent in the last three
years. Higher GDP means more purchasing power. Sale of vehicles for
domestic and commercial consumption have seen high growth.
b. Growth in the road infrastructure increases demand for vehicles
Indian highways and roads have improved a lot in quality and
connectivity in the last 20 years. Projects like the Golden Quadrilateral aim to
make even remote areas accessible by road. Some of the National Highways
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are of International Standards. This has made road transport a viable, cost
effective and speedy option both for goods and passenger traffic.
c. Rise in the Per Capita income increases two/four wheeler sales
Industrial growth in the 1970s, IT boom in the 1980s and BPO boom in
the 1990s have transformed the Indian middle class. The present generation is
able to earn the same levels of salary that their parents were earning after years
of work. This has pushed up the demand for two and four wheelers. A rise in
per capita income is also indirectly responsible for the retail boom and
industrial boom for consumer durables. This has pushed up the demand for
commercial vehicles to enable efficient distribution.
d. Urbanization changes the face of Indian Auto Industry
Joint families in towns and villages have given way to migration of the
younger generation to cities in search of better opportunities. The young
educated migrants and nuclear families (many with double income) have a
higher purchasing power. At present, the rate of spread of urbanization is 30per
cent which is likely to increase by 40per cent in 2030 (UN). Urbanization has
promoted infrastructural development and it is estimated to spread at a rate of
$500 billion in the next 5-6 years.
e. Rising working class and middle class contribute to increased demand of
Automotives.
Since 1980s, a surging economy has created millions of new jobs in the
private sector. This has lead to a lot of prosperity in the working class and the
middle income households. They are able to provide for food, clothing and
education and also are able to think of owning luxuries like vehicles.
According to the Planning Commission report, between the year 2003 and
2009, 130 million people would have been added to the working population.
According to a finding from McKinsey, the middle income group will grow
from 50 million to 550 million by 2025.
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f. Exhaustive range of options in price and models of automotives
Indian consumer in 70s and 80s had to choose between and Premier
Padmini or an Ambassador. Now there are at least 123 different models of cars
from 30 odd manufacturers available. The prices of the compact cars like
Tata’s Nano have made the world sit up and take note of the truly unbeatable
price points.
g. Attractive Finance Schemes for purchase of automotives
Most nationalized and foreign banks have very tempting finance options
and low interest rates for purchase of cars and two wheelers. There are
specialized companies that finance the commercial vehicles. All this has made
the dream of owning a vehicle an easy reality.
h. Favorable Government Policies for the auto sector
Apart from a healthy growing economy, Indian Auto Industry has a lot
to thank the government for the amazing growth rates. The Indian government
has introduced several industry specific programs. The Indian Auto Policy of
2002, introduced measures like low entry barriers and investment incentives by
the local state governments. To encourage in-house research and development
activities, government has introduced policies that allow weighted tax
deduction up to 150per cent. National Automotive Testing and R&D
Infrastructure Project (NATRIP) has been set up in Rae-Bareilly, Ahmednagar,
Pune, Manesar, Silchar, Indore and Chennai for strengthening the R&D
infrastructure.
i. Cost efficiencies contributing to lower production costs
According to a study by KPMG in 2007, India Automotive Study, the
labour cost per hour hovers around $20 in UK, USA and Germany. In India, it
works out to just $1.60. Due to the huge savings in the labour cost sourcing
auto components and finished cars makes a lot of business sense to the auto
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manufacturers who have global presence. The improved design capabilities and
continuous improvement in quality has been possible only because of the
availability of skilled manpower like engineers and IT professionals.
3.1.4 Demand Determinants
Determinants of demand for this industry include vehicle prices (which
are determined largely by wage, material and equipment costs) and exchange
rates, preferences, the running cost of a vehicle (mainly determined by the price
of petrol), income, interest rates, scrapping rates, and product innovation.
Demand Determinants are summarised as:
a. Exchange Rate
Movement in the value of rupee determines the attractiveness of Indian
products overseas and the price of import for domestic consumption.
b. Affordability
Movement in income and interest rates determine the affordability of
new motor vehicles. Allowing unrestricted Foreign Direct Investment (FDI) led
to increase in competition in the domestic market hence, making better vehicles
available at affordable prices.
c. Product Innovation
Product innovation is an important determinant as it allows better
models to be available each year and also encourages manufacturing of
environmental friendly cars.
d. Demographics
It is evident that high population of India has been one of the major
reasons for large size of Automobile Industry in India. Factors that may
augment demand include rising population and an increasing proportion of
young persons in the population that will be more inclined to use and replace
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cars. An increase in people with lesser dependency on traditional single family
income structure is likely to add value to vehicle demand.
e. Infrastructure
Longer-term determinants of demand include development in Indian’s
infrastructure. India’s banking giant State Bank of India and Australia’s
Macquarie Group has launched an infrastructure fund to rise up to USD 3
billion for infrastructure improvements. India needs about $500 billion to repair
its infrastructure such as ports, roads, and power units. These investments are
made with an aim to generate long-term cash flow from automobile, power,
and telecom industries. (Source: Silicon India)
f. Price of Petrol
Movement in oil prices also has an impact on demand for large cars in
India. During periods of high fuel cost as experienced in 2007 and first half of
2008, demand for large cars declined in favour of smaller and more fuel
efficient vehicles. The changing patterns in customer preferences for smaller
and more fuel efficient vehicles led to the launch of Tata Motor’s ‘Nano’ one
of the world’s smallest and cheapest cars.
3.1.5 Future of Indian Auto Industry
According to a report from United Nations Industrial Development
Organization’s (UNIDO) in ‘International Yearbook of Industrial Statistics
2008’, India enjoys the 12th position amongst top 15 automakers in the world.
India is at the 4th position amongst the auto makers of developing countries.
By 2016 the size of the Indian Automobile Industry is expected to grow by
13per cent, to reach a mark of US$ 120-159 billion. Presently, India is the 2nd
largest two wheeler market in the world and fourth largest commercial vehicle
market worldwide. With allies in a strong economy, rising demand and
financial backing, Indian auto industry is standing at the threshold of success.
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EXHIBIT: 3.1 PEST ANALYSIS OF INDIAN AUTOMOBILE INDUSTRY
Political Environment Economical Environment
• Indian government's auto policy aimed at promoting an integrated, phased and conducive growth of the Indian automotive industry.
• The Indian economy has grown at 8.5 per cent per annum
• Allowing automatic approval for foreign equity investment up to 100 per cent, with no minimum investment criteria.
• The manufacturing sector has grown at 8–10 per cent per annum in the last few years
• Establish an international hub for manufacturing small, affordable passenger cars as well as tractors and two wheelers.
• More than 90 per cent of the CV purchase is on credit.
• Ensure a balanced transition to open trade at minimal risk to the Indian economy and local industry.
• Finance availability to CV buyers has grown in scope during the last few years
• Assist development of vehicles propelled by alternate energy sources.
• The increased enforcement of overloading restrictions has also contributed to an increase in the number of CVs plying on Indian roads
• Laying emphasis on R&D activities carried out by companies in India by giving a weighted tax deduction of up_to 150 per cent for in-house research and R&D activities.
• Several Indian firms have partnered with global players. While some have formed joint ventures with equity participation, others have entered into technology tie-up
• Plan to have a terminal life policy for CV along with incentives for replacement for such vehicles.
• Establishment of Indian manufacturing hub, for mini, compact cars, OEMS and for auto component.
• Promoting multi-model transportation and implementation of mass rapid transport system. -
Social Environment Technological Environment • Growth in urbanization, 4th largest economy
by PPP index. • With the entry of global companies into the
indian market, advanced technologies ,both in product and production processes have developed.
• Upward migration of household income levels
• With the development or evolution of alternate fuels, hybrid cars have made entry into the market.
• Increase in PPP , led to the increase in market share of compact cars
• Few global companies have setup their R&D centres in India.
• 85% of Cars are financed in India (15% in China).
• Major global players like audi, BMW, Hyundai etc have setup their manufacturing units in India.
• Cars priced below USD 12000 account for nearly 80% of the market
• Government initiatives regarding tax rebates has led to global players setting up their R&D centres in India.
• Vehicles priced between USD 7000 –12000 form the largest segment in the passenger car market.
• Government initiatives in establishing NATRIP network across the country will further lead to enhancing R&Dand technological advancement.
• Indian customers are highly discerning, educated and well informed. They are price sensitive and put a lot of emphasis on value for money.
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3.2 CAR MARKET
The word "car" refers to passenger cars. Car is also called an
Automobile (or) Vehicle which is used to Transport Passengers. Cars usually
have four wheels and an Internal Combustion Engine. Car industry is one of
the largest in the world and one of the fastest growing in India. In this sub
section the author draw a detailed. Profile of world car market, Indian car
market and market for MUV’s/SUV’s segment cars in India.
3.2.1 Profile of World Car Market
At present the large car manufacturer has the latest production
technology in different countries to cater for different market on different
platforms. Big players in automobile industry do not emphasize identical
features for all markets. It may have the same technical platform, but the
design options and features differ between countries. They are different
because the demands of customers behaviour differ between each countries.
For example, in South America, incomes are lower than in Western Europe and
customers need more affordable cars. In the USA the customers want more
space in the car, and that's an important factor for a car to be successful there.
On the contrary, small cars are quite popular in India. It is not possible to be in
a high volume market and to send the same cars to every market all over the
world. So car makers are researching what their customers want and changing
the car for each market or else they lose customers. More and more CKD
(Completely Knocked Down) cars are being produced for some countries in
smaller volumes. That is often the case if there are barriers to exporting cars to
particular countries, and they are only being sold in smaller volumes. With
larger markets, where sales of particular models are high, companies really
need their own suppliers of parts.
Due to sharp competition and changing customer demand, product
development process advances have been significant than changes in product
architecture. Product cycles continue to grow shorter as more companies adopt
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the simultaneous engineering approach pioneered by Japanese automakers. At
the same time, advances in Computer-Aided Design (CAD) and Computer-
Aided Engineering (CAE) tools are being used to replace physical prototypes
and testing processes. Now, major players (in post M&A situation) take
greater responsibility for product design and allow production base to get
shifted to advantageous location for low cost. However, still due to lack of
standardization, number of tiers at the supply chain is not reduced. Moreover,
when design is replicated with modification for physical product development,
several domestic issues need to be taken into consideration. These are mainly
legal liability and regulatory procedures. Furthermore there is a technological
move towards modules, i.e., self-contained functional units with standardized
interfaces that can serve as building blocks for a variety of different products.
Modularization is expected to reshape the entire supply chain in
automobile industry as component designs will gradually get shifted to supplier
companies. This is expected to reduce cost significantly and increase
efficiency. However, IMVP (International Motor Vehicle Programme at MIT)
found that cost saving is still elusive. The absence of a clear cost advantage for
modules, combined with the inherent technical difficulties of changing the
highly integral product architecture of an automobile, has reduced the
probability of successful modularization. Nevertheless, a number of factors
could still accelerate the move towards modularity, including automaker efforts
to shift investment risk to suppliers, the increasing use of information
technology within vehicle and the possibility that consumers will show a strong
interest in built-to-order vehicles.
3.2.2 Passenger Car Market in India
India is believed to be the fourth-largest passenger car market in Asia
comprising a range of cars belonging to different price segments and car
segments. The Indian car industry has range of portfolio cars starting from the
Reva the 2 seater car segment to the Volvo XC90 (SUV’s) Sports Utility
Vehicle the 7 seater segment. In terms of price segment, India has a car price
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range starting from Rs 1.5 lakh to several crores, From Nano, Audi, Mercedes,
and Bentley.
With the moving pace of time, Indian Auto Industry has gradually come
up with various innovations and advancements. Some of the leading car
manufacturers like the Tata Motors, Hyundai Motors, Honda Seil India and
Maruti Suzuki have proved their worth in terms of production, designing, and
marketing across the globe. These manufacturers have good number of cars
crossing boundaries and winning appreciations. Many other global auto
manufacturers have made their debut in India with their slew of car launches.
In 2010, with surging economy and new innovative models of
passenger vehicle sales has increased and made India boom, making the
country the world's second-fastest growing market, ahead of developed ones
like Japan, Brazil, US and UK, lagging only to China. If this was not enough,
the country grew at the fastest pace in sales of commercial vehicles, even ahead
of China, mainly backed by growth in infrastructure. This fast pace is likely to
moderate as rising interest rates and firmer commodity prices, coupled with
high inflation, are set to dampen sentiments and pull down the demand.
The global car manufacturers are investing on Indian market eyeing the
growing earning potential, strong technological capability, availability of cheap
and trained human resources. This further gave a boost to Indian car exports.
Low cost of production along with low cost of designing and research has also
contributed to increasing car exports. According to the industry reports, the
fiscal 2001-2002 recorded an increase of 5.3 million units which increased to
10.8 million units in the fiscal 2007-2008. The financial year 2007-2008
recorded a growth of 19per cent. In 2010, 2.7 million light vehicles were sold
in India, up from just 700,000 light vehicles in 2000. The production of
passenger cars in India is expected to grow to over 14 million units in 2014-
2015 and the sales are expected to increase at a rate of 10per cent per annum.
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The manufacturing of passenger cars in Indian car industry has recorded
an overall growth of over 8 per cent. Every year the rate of production is
increased because of the advancing technology and increasing number of
establishments in terms of production houses and design centers. Recently
many car manufactures like Hyundai, Maruti Suzuki and Fiat have established
their design centers in the country. Furthermore, most of the car manufacturers
are eyeing India as a hub for MUV and SUV car production.
The rising cost competition in the developed car markets coupled with
high input cost pressure contributed to the increasing sales figure of passenger
cars in the country. During financial year 2005-06 passenger vehicle sales
witnessed a growth of 7.55per cent over the previous year. The major players
are still in the process of expanding their production capacity and roll out more
car models in response to the needs and aspirations of Indian car consumers.
3.2.3 Car Sales Review
Automobile sales in India continued its robust momentum and touched
record highs in March 2010. Most industry players recorded healthy growth for
the month and their volumes showed no signs of fizzling out whatsoever. This
boom in auto sales is accredited to the positive consumer sentiment, which
stayed upright even in the wake of recent hike in car price. Preponement of
buying plans from the dealers in anticipation of the much talked about Excise
duty roll back in the Union Budget is also thought be partially responsible for
this record growth in car sales volume.
In car segment Maruti Suzuki recorded an 11per cent rise in total car
sales, as compared to the corresponding period last year, at 95,123 vehicles in
March 2010. Exports skyrocketed 32per cent to a record 15,593, while sales in
the domestic auto market rose by an impressive 8per cent to 79,530 vehicles.
Tata Motors, at its 75,151 units (inclusive of the export figures), registered a
sales growth of 38per cent in March 2010 as compared to 54,452 vehicles in
the corresponding period last year. The company's domestic sales are up by
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35per cent at 71,046 units as compared to the same month last year. Coming to
Hyundai Motor India, the company reported its highest-ever auto sales since
1998 (when it sold 24,754 units of Santro, Hyundai Motor's flagship small car)
in the domestic automobile market at 31,501 units. This records a jump by
27.26per cent over the same period last year. From total sales' point of view,
the company recorded a growth of 19.23 per cent to 55,035 units as against
46,159 units in the corresponding period last month.
Total car sales volumes are equally emphatic for General Motors India.
The company posted sales growth of 127per cent in March 2010, as against the
same month a year ago. 11,330 vehicles were sold in March 2010 against 5,001
vehicles in March 2009. Fiat India Automobiles reported a sales growth of
33per cent for the month of March 2010 over the same month last year. During
this period, the company sold 2,361 vehicles in domestic and international
market as compared to 1,780 vehicles in March 2009. Mahindra & Mahindra
reported healthy sales figures at 41,814 units led by growth in the tractor
segment at 52.6per cent year-over-year (YOY). This was further supplemented
by the 40.2per cent yearly growth that the automotive division registered
during the period. Growth of the automotive segment was led by the Utility
Vehicles (UV), Light Commercial Vehicles (LCV) and three-wheeler segments
at 24.2per cent, 89.8 per cent and 102.3 per cent YOY, respectively. For Ford
India, the last financial year came to an end in an equally good way. The
company recorded a threefold increase in sales compared to the corresponding
period last year, and the figures rose at 9,478 units, a growth by 203per cent,
thanks to increased sales of Ford Figo.
3.2.4 Multi-Utility Vehicles
Multi Utility Vehicle or in short MUV is a type of vehicle designed in
the shape of van but is meant for personal use. In India some of the MUVs
like Toyota Innova, Toyota Qualis, Tata Sumo, Chevrolet Tavera are used as
commercial vehicles for ferrying passengers. Unlike the other cars, Multi
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Utility Vehicle or cars include bigger chassis dimensions, more seating
capacity and most of the models are designed with rear seats which can be
folded for extra luggage space. A multi utility car can accommodate many
passengers and carry more luggage at a time. It is a fast growing automobile
segment in India and has become the most popular mode of transportation in
rural areas. Multi Utility Vehicles gained momentum in India due to its higher
utility however with lower cost of operation. Thus people started considering
the significance of MUV and so does the manufacturers. Mahindra and Toyota
were the main players in India however seeing the potential of MUV segment,
other companies are also eying to launch more MUV models. Skoda Auto as
well is planning to enter this segment with new MUV model Skoda Roomster.
MUVs are considered to be the best over other vehicles for long trips
with family members and friends. Gone are the days with classical MUVs
which are mostly meant for pick up and transportation, the car manufacturers
are now coming up with crossover multi utility cars which not only
accommodate more people but gives a pleasant drive same like luxury cars.
Driving with ones family with ease and comfort are the ultimate pleasure one
can have. The economy boom in India has given rise to changing lifestyles of
the youngsters and the old. People seem to be going with bigger and better
facilities when it comes to family cars. Traveling and outings during weekends
is also becoming a growing trend. So what better than a utility vehicle
especially when it comes to Indian Roads Sport Utility Vehicles or SUV's come
to the rescue with their spacious interiors and rugged exteriors, making them
the perfect choice for road trips and family excursions.
3.2.5 Reason for the Growth of MUV/SUV Car Segments in India
With estimates putting the size of Indian automotive industry between
US$ 120.09 billion and US$ 155.12 billion by 2016, the industry is expected to
touch the 10 million mark, to which the MUV segment will be a major
contributor. If one sees a typical Indian family wherein parents, grandparents,
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children all live together, they off course would also like to travel together and
for this a Multi-Purpose Vehicle is an ideal option. At the same time the Indian
consumer needs cars at a low purchase cost, high fuel efficiency, low
maintenance costs and comfortable ride in city conditions. All these needs
along with space can easily met by MUV.
In recent times there is also changing attitude of consumers towards
MUV by increasing the awareness of the utility of such a vehicle can help in
gaining a market for these vehicles.
Some of the other positive points of MUV sold in India.
� MUV are specially designed for India.
� It is a perfect family vehicle as far as its interiors, internal space
management, engine, suspension.
� High power to weight ratio, results in superior pick up and acceleration.
� High seating position and easy controls make it a driver-friendly car. It
is easy to park and has ability to pick up high speeds with full ease.
� From the angle of safety, occupant's safety is ensured during front
collision because of pout of the bonnet.
� The capabilities matching the likes of Toyota Quails and best in class
technical capabilities in the given price range are added plus points.
3.3 CONSUMER BUYING BEHAVIOUR
Consumer Buying Behaviour is the process by which individuals search,
and select for purchase, use and dispose of goods and services of their needs
and wants. In this section of the study the author has drawn references to
consumers’ buying behaviour and factors influences their decision making with
references to car purchase at study area at particular and India in general.
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3.3.1 Consumer Buying Behaviour –With Reference to Car Purchase
The decision processes and acts of final household consumers associated
with evaluating, buying, consuming and discarding products for personal
consumption consider the purchase of an automobile. Consumers will not
consider different options until some event triggers a need, such as a problem
needing a potentially expensive repair. Once this need has put consumers on
the market, they begin to ask their friends for recommendations regarding
dealer and car models. After visiting several car dealer, consumers test drives
different models and finally decides on a particular model. After picking up
the new car, customers’ have doubts on the way home, wondering if
customers’ can afford the monthly payments, but then begin to wonder if
instead customers’ should have purchased a more expensive but potentially
more reliable model. Over the next five years, the car may have several
unexpected breakdowns that leads customers’ to purchase a different brand,
but customers’ have been very happy with the services of the local dealership
and decide to again purchase next car there.
In this particular the following generic model of consumer decision
making appears to hold:
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EXHIBIT: 3.2 GENERIC MODEL OF CONSUMER DECISION MAKING APPEARS
INFLUENCES ON THE GENERIC MODEL
S
Need Recognition Information Search Evaluation of Alternatives
Purchase Decision Post Purchase Behaviour
External Factor Internal Factor
Cultural
Family
Reference Group
Environmental/Situationa
Lifestyle
Personality
Decision Making Process
Motivation, etc
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Consumer behavior researchers are not only interested in studying the
validity of the above generic model, but are more interested in various factors
that influence how such a model might work.
The purchase of a car is much more risky in terms of value and therefore
high presence of involvement is needed in that situation.
The Influences of External Factors are summed as:
a. Culture: Culture is the set of basic values, beliefs, norms, and associated
behaviors that are learned by a member of society. Note that culture is
something that is learned and that it has a relatively long lasting effect on the
behaviors of an individual. As an example of cultural influences, consider how
the salesperson in an appliance store in the U.S. must react to different couples
who are considering the purchase of a refrigerator. In some subcultures, the
husband will play a dominant role in the purchase decision likewise, the wife
will also play a more dominant role.
b. Social Class: A group of individuals with similar social rank, based on such
factors as occupation, education and wealth. A person within a reference group
who exerts influence on others because of special skills, knowledge,
personality, etc.
c. Family: A group of people related by blood, marriage and other socially
approved relationship.
d. Reference Groups: Groups, often temporary, that affects a person's values,
attitude and behaviors, e.g., buyer behaviors around colleagues at work.
e. Environment/Situation: It is related to circumstances, time, location, etc.
For e.g, a prospect shopping for a new automobile while debating the wisdom
of a necessary expensive repair to his car might be more interested in what cars
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are on the lot than in shopping for the best deal that might involve a special
order.
The Influences of Internal Factors are summed as:
a. Life-style: It is a pattern of living expressed through a person's activities,
interests and opinions.
b. Psychographics: Psychographics is a technique for measuring personality
and lifestyles to a developing lifestyle.
c. Personality: A person's distinguishing psychological characteristics that lead
to relatively consistent and lasting responses to stimuli in the environment. We
are each unique as individuals, and we each respond differently as consumers.
For example, some people are optimizers who will keep shopping until they are
certain that they have found the best price for a particular item, while other
people are satisficers who will stop shopping when they believe that they have
found something that is "good enough."
d. Motivation: Consumers usually have multiple motives for particular
behaviors. These can be a combination of manifest known to the person and
freely admitted and latent unknown to the person or the person is very reluctant
to admit.
3.3.3 Buying Behavior of Passenger Car
The purchase of a car is much more risky than the purchase of a quart of
orange juice, and therefore presents a higher involvement situation. This
modifies the way that the generic model works. As involvement increases,
consumers have greater motivation to comprehend and elaborate on
information salient to the purchase. A life insurance agent for example, would
typically be more interested in contacting a young couple who just had a baby
than an eighteen year old college student - even though the new parents might
be struggling to make ends meet while the student is living more comfortably.
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Although the annual investment into a policy is much lower if started at a
younger age, most young college students are not open to think about long term
planning. A young couple with a new child is much more open to think about
issues associated with planning for the child's future education, saving to buy a
house or even saving to take an extended vacation upon retirement.
Buying behavior of passenger car customers are highly influenced by
unique set of cultural, social, economic and psychological factors. The study of
buying behavior has proved that many factors like price, income, distribution
of income, competition with substitutes, utility, consumer preference
(economic factors) & factors like culture, attitude, social values, life styles,
personality, size of family, education, health standards etc. (social factors) play
a major role in buying behavior of customer. Economists among the social
scientists assume that persons exhibit rational behavior, they have perfect
information about the market, and attempts to obtain maximum value for every
unit of money and effort spent. An economist thinks that consumers consider
price as the most effective vehicle of motivating purchases. The important
economic factors and theories which are basic and relevant for understanding
consumer behavior includes personal income, disposable income, discretionary
income, family income, future income, consumer’s liquid assets like bank
balances, short term bank deposits, shares, units, government bonds etc. , as
well as living standards enjoyed in the past.
3.3.4 Psychological Factors That Influence Consumer Buying Behavior
Successful businesses understand how to leverage the different factors
that influence consumer buying behavior to effectively market their products
and maximize sales. Studies show that there are generally four main factors
that play a role in the consumer's buying behavior. These factors include
cultural factors, social factors, personal factors and psychological factors. The
psychological factors that influence an individual's decision to make a purchase
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are further categorized into the individual's motivations, perceptions, learning
and his beliefs and attitudes.
a. Motivations
The motivation is the drive that leads the consumer towards buying a
product or service. If the motivation is high, meaning the need or perception of
need is high, the individual will actively seek to satisfy that need. This results
in the consumer deciding to buy the product or service. This factor is directly
related to "Maslow's Hierarchy of Needs" which states that every individual
will actively seek to satisfy physiological needs first, followed by safety, social,
esteem and finally self-actualization needs. Businesses that successfully
leverage these needs will motivate consumers to buy their products.
b. Perceptions
World defines perception as, "The process by which people select,
organize and interpret information to form a meaningful picture of the world."
Consumers make all manner of associations from their prior knowledge and
experiences. It is difficult for a company that positions itself as a low cost retail
store, the consumer perception is thus, everything that comes from that store is
cheap and subconsciously, lower in quality.
c. Learning
Consumers are products of their experiences. They catalog each
experience as good or bad for later use when a similar situation arises. These
experiences influence the consumer buying behavior by changing the way they
react to products similar to those they already have experience with. For
example, many consumers choose to buy Toyota cars because they have had
good experiences with their previous Toyota models. Companies that focus on
the consumer experience often gain repeat business because the consumer does
not feel the need to look anywhere else to fulfill that particular need. This often
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outweighs the fact that the competition may be cheaper or even better in some
cases.
d. Beliefs and Attitudes
Beliefs and attitudes greatly influence consumer buying behavior.
Beliefs are the way people think about a particular subject or product. An
attitude is the individual's consistently favorable or unfavorable evaluation,
tendency or feeling about a particular subject. These beliefs and attitudes shape
the consumer's perception of the product. These factors may be difficult to
change because they stem from the individual's personality and lifestyle.
Consumers often block information that conflicts with their beliefs and
attitudes. They tend to selectively retain information or even distort the
information to make it consistent with their previous perception of the product.
Buying behavior of passenger car customers are highly influenced by a
unique set of cultural, social, economic and psychological factors. The study of
buying behavior has proved that many factors like price, income, distribution
of income, competition with substitutes, utility, consumer preference
(economic factors) and factors like culture, attitude, social values, life styles,
personality, size of family, education, health standards etc. (social factors) play
a major role in the buying behavior of customer. Economists among the social
scientists assume that persons exhibit rational behavior, they have perfect
information about the market and attempts to obtain maximum value for every
unit of money and effort spent. An economist thinks that consumers consider
price as the most effective vehicle of motivating purchases. The important
economic factors and theories which are basic and relevant for understanding
consumer behavior includes personal income, disposable income, discretionary
income, family income, future income, consumer’s liquid assets like bank
balances, short term bank deposits, shares, units, government bonds etc. , as
well as living standards enjoyed in the past.
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3.3.5 Key Factor in Vehicle Choice
When it comes to making their final decision about which vehicle to
buy, consumers focus on factors such as reliability, safety, price and fuel
economy. At the bottom of the list are cash-back incentives, named by fewer
than half of the consumers. The importance of incentives as a deciding factor
has declined for the past several years, indicating that consumers today seem
less interested in gimmicks when it comes to their car purchases. Where
consumers are in the buying cycle they can make a difference in how they rank
the factors that influence their vehicle choice. For example, additional warranty
coverage is important to consumers who are furthest away from the point of
purchase; it was named by 69 per cent of respondents who were 13 to 18
months from purchase. However, the number declines as consumers get closer
to actually buying the car were 55 per cent of respondents who were within
three months of purchase said extra warranty coverage was important. This
reflects the fact that consumers will narrow down the factors that really matter
to them as they get closer to the point of purchase. Demographic factors such
as age and gender accounted for some variances. For example, older consumers
tend to put more emphasis on reliability and safety than younger respondents.
Those in the 50-plus age group were also more concerned with environmental
issues and fuel economy. The youngest respondents were most likely to rate the
ability to research information on the internet as an important factor in their
vehicle decision. Women tend to rate most of the factors as more important
than men do. The difference was most pronounced for cash-back incentives,
low financing, safety, environmental issues, fuel economy and additional
warranty coverage.
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EXHIBIT: 3.3 IMPORTANT FACTOR CONSIDERED IN
CONSUMER CHOICE OF VEHICLE
VEHICLE PURCHASE DECISION
Reliability of Brand Safety
Price of vehicle
Fuel economy
Quality of interior style
Extra–options at no extra cost
Brand Name of the Vehicle
After sales service
Vehicle availability
Product feature/option
Environmental factor
Trade-in-value
Additional warranty coverage or service credit
Ability to research information on net
Zero per cent or low financing
Cash-back Incentive
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3.3.6 Post-Purchase Consumer Behavior
After the sale, the buyer is likely to feel either satisfied or dissatisfied. If
the buyer believes that she/he received more in the exchange than what was
paid, she/he might feel satisfied. If She/he believes that they received less in
the exchange than what was paid, then she/he might feel dissatisfied. The
dissatisfied buyers are not likely to return as customers and are not likely to
send their friends, relatives and acquaintences. They are also more likely to be
unhappy or even abusive when the product requires post-sale servicing, as
when an automobile needs warranty maintenance.
3.4 CONCLUSION
The global automotive industry, increasingly characterized by global
mergers and relocation of production centers to emerging developing
economies, is in the grip of a global price war. The industry is subject to
imperfect competition which has resulted in too many competitors and too
much redundancy and overlap. The car industry is concerned with consumer
demands for styling, safety and comfort and with labour relations and
manufacturing efficiency. Specialization in car sector is increasingly becoming
segment specific as each of these countries is finding its niche. Due to sharp
competition and changing customer demand, product development process
advances have been more significant than changes in product architecture.
Moreover, it has been observed that India it has very huge demand in different
industrial sectors. Automobile industry is not an exception in this regard.
Indian automobile sector has huge demands from its own country. This
demand also attracts the giant automobile suppliers throughout the world to
come and invest in the Indian Automotive Industry. Due to the contribution of
many different factors like sales incentives, introduction of new models as well
as variants coupled with easy availability of low cost finance with comfortable
repayment options, demand and sales of automobiles are rising continuously.
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