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Introduction:
The modern day passenger car is a modern economy's draught animal, driving the
growth of upstream industries like steel, iron, aluminum, rubber, plastics, glass, and
electronics and down stream industries like advertising and marketing, transport and
insurance. The car industry generates large amount of employment opportunities in the
economy.
The world car production has increased from 44.66mn in 1996 to an estimated
48.3mn cars in 1999. Japan, Canada and USA brought about the major increase, which
contribute to 53% of the world's car production.
The USA and Japan are the leaders with around 42% of the total world market.
However, since the last two to three years, the international passenger car industry has
been witnessing an over capacity of more than 30%. The trend suggests that industry
volumes may grow by just 2% or around 10mn vehicles per year. If this situation continues
for the next few years the world car market may witness shakeout in the near future.
Already signs towards this are being observed as the phenomenon of mergers catches on.
As per industry experts the number of major players in the world car market may come
down from present level of 30 to 5 in next ten to fifteen years. The recent mergers in the
international car market are Ford-Volvo, Renault-Nissan, and Daimler-Chrysler. A few more
players are expected to join the fray in the next few years so as to strengthen their hold in
the world market.
Among the top car manufacturing companies General Motors and Ford Motors
group of USA lead with a contribution of 15.8% and 11.6%, of world car production,
respectively. Volkswagen and Toyota stand third and fourth with more than 9% contribution
each to the world car production.
Until a decade ago, the auto sector in India had been a relatively protected industry
limiting the entry of foreign companies with high tariffs against imports. Today, as part of a
broader move to liberalize its economy, India has opened up the sector to Foreign Direct
Investments, and since then has also progressively relaxed trade barriers. Today, almost all
of the major global companies are present in India producing two-wheelers and passenger
cars in almost all segments.
India produced over 7.6 million two-wheelers, 1.3 million passenger cars and utility
vehicles in 2005-06. India is a global major in the two-wheeler industry and primarily
produces motorcycles, scooters and mopeds of engine capacities below 200cc. It ranks
second in the world in the production of two-wheelers and 13th in the production of
passenger cars. Among the commercial vehicle makers, Tata figures at number six among
the ten largest global manufacturers.
The two-wheeler industry in India has grown at a compounded annual growth rate of
more than 10 per cent during the last five years and has also witnessed a shift in the
demand mix, with sales of motorcycles showing an increasing trend. Indian two-wheelers
comply with some of the most stringent emission standards worldwide.
For the passenger car market, this segment has been growing at a rapid pace - from
over 650,000 vehicles sold during 2001 to over a million vehicles sold during 2004-05.
To analyze an industry, various factors are to be taken into account. These factors
can be divided into two major types: industry wide and competition wise. These two types
have many other factors. Let’s take a look at each of them:
A. Industry Wide:
This type of factors consists of general aspects or features or basic conditions of the
industry. Now the question that arises here is: what are the general aspects? The answer is:
these factors are: demand details, growth rate, nature of demand, demand trends, and a
few other aspects. Let’s probe them one after another.
In India, a few major factors have affected the demand of cars. These factors are as
below:
Rising PFCE:
India's Private Final Consumption Expenditure (PFCE) on transport was estimated at
around Rs. 3,124 billion in FY2005, accounting for around 16.5% of total PFCE. This
comprises three categories: personal transport equipment, operation of personal transport
equipment, and purchase of transport services.
In terms of PFCE, the share of transport in total PFCE has witnessed rapid growth
since the mid-1980s. By comparison, the share remained at around 3-5% till the mid-1980s.
The Table below shows comparison between various segments of PCFE in Transportation in India (Source:
FADA)
Rs. Billion
Calendar Year 2000 2001 2002 2003 2004 2005
Value at Constant Prices—Rs. Billion 1,499.86 1686.83 1769.11 1976.47 2211.59 2473.08
Personal Transport Equipment 91.78 91.09 94.11 107.83 122.46 127.35
Operation of Personal Transport Equipment 470.81 547.81 592.39 674.58 770.55 882.06
Purchase of Transport Service 937.29 1047.93 1082.61 1194.06 1318.58 1463.67
Value at Current Price—Rs. Billion 1499.86 1768.61 1923.41 2236.01 2631.68 3124.19
Personal Transport Equipment 91.78 96.72 102.05 102.05 133.40 145.68
Operation of Personal Transport Equipment 470.81 568.77 630.84 630.84 917.47 1173.39
Purchase of Transport Service 937.27 1103.12 1190.52 1190.52 1580.81 1805.12
Young Indians:
The proportion of young people, who are economically active, is rising in the overall
population. This has led to increasing urbanization and the need for mobility which
translates into a higher demand for two and four wheelers in India.
Increasing exports:
The Indian auto industry has emerged as an export hub, on account of its low cost
technical manpower and increasing focus on quality. To give a perspective, in the last five
years, volume exports of Indian automobiles has increased by 39% CAGR, led by passenger
cars (CAGR of 62%). This development has led to domestic players increasing their share of
exports in the overall pie.
The following chart shows the export of Automobiles from India in the year 2005-06
The table on the next page shows the export trends of Indian Vehicles during the period of FY 2001-02 to
2005-06 (Source: Society of Indian Automobile Manufacturers (SIAM))
Category 2001-02 2002-03 2003-04 2004-05 2005-06
M&HCVs 4824 5638 8188 13474 14096
LCVs 7046 6617 9244 16466 26485
Total CVs 11870 12255 17432 29940 40581
Passenger Cars 49273 70263 125320 160670 170193
Infrastructure thrust:
Improvement in road infrastructure has led to increased movement of goods
through roadways. Around 65% of all the goods movement in the country takes place by
roads as opposed to 55% a decade ago. Also, owing to the fact that an estimated 45% of CVs
plying on the roads are 10 years old, demand for HCVs is expected to grow by a steady rate
in the long term.
The passenger car penetration in India is at 8.5 vehicles per thousand people
absolute terms. It is among the lowest in the world. As per capita GDP of a society grows,
mobility needs for its population rapidly increase.
As India forges free trade agreements (FTA) with Thailand, MERCOSUR and other
trading blocs, the industry has the potential to emerge even stronger. However, against this
optimism, the industry has felt the effects of cost pressure.
The global movement of oil prices has dealt a setback to the country's economic
policy. While the threat of inflation seems to have been temporarily brought under control,
sustained fuel price hikes and the consequent hike in operating costs for vehicle owners can
cause a depression in demand.
The past two years have also seen considerable pressure for the industry from input
costs. Prices of steel, which is a primary input for the industry, have doubled over the last
three years. The situation has forced players to resort to innovative ways to control costs
whilst meeting rising customer expectations.
India is also just a tad away from being among the top 10 automobile producing
countries in the world. It jumped two places to the 11th position in 2004.The 86-year-old
Paris-based OICA is also the governing body of international auto shows. India grabbed
Italy's position, whose ranking slipped to 14th from 11th in 2003. The country produced a
total of 11.78 Lakh cars in 2004 while Italy produced 8.33 Lakh units, with its growth rate
declining by 19 per cent over 2003.
Though China's growth rate was lower at 15 per cent, it still managed to hold on to
its seventh position with production of 23.16 Lakh cars in 2004. In 2003, it grew by 83 per
cent. The top three passenger car producing nations maintained their rankings. Japan,
ranked first, produced 87.2 Lakh cars posting a growth of 3 per cent. In 2003, its growth
declined by 2 per cent. The number two on the list, Germany, produced 51.92 Lakh units,
growing by a mere 1 per cent. The US, ranked third, produced 42.29 Lakh cars. Its growth
declined by 6 per cent compared with a 10 per cent decline in growth in 2003.
Toyota Kirloskar Motor's Director for Marketing, T. Ino, however, said the growth of
the industry is a reflection of the strong fundamental growth of the Indian economy.
"Toyota believes that India will be one of the biggest markets in the world in this century,"
Ino said.
The Ford India Managing Director and President, David Friedman, said a higher
global ranking reaffirms that India represents one of the fastest growing auto markets in the
world. "Factors driving this growth are more affordable vehicles due to increased
localization, reduction in excise and import duties and lower interest rates," Friedman said.
Sales of passenger vehicles in India are likely to grow at 14.9 per cent each year to touch the
2.1 million mark by 2010.
The automobile industry missed the Budget (2007) bogey as its demand for across-
the-board excise duty structure of 16 per cent was not met. Small cars already enjoy 16 per
cent excise while the same for big cars is 24 per cent. But, it may not be an impediment
enough to pull back the Indian automobile industry, which posted the highest ever annual
growth of 20 per cent in passenger vehicle sales.
The Indian car market is dominated by small cars. Three companies — Maruti Udyog,
Tata Motors and Hyundai — have the biggest share of the small car market, leaving global
majors such as General Motors, Ford, Toyota and Honda with only a marginal market pie. To
grab a bigger pie of the Indian car market, all companies are eyeing the small car segment.
Toyota, Ford, Honda, Mitsubishi and General Motors will launch their small cars in the next
three years.
This is expected to take Indian passenger vehicle sales to 2.1 million units by the end
of March 31, 2010. According to Frost & Sullivan, sales of passenger vehicles in India are
likely to grow at 14.9 per cent each year to reach the 2.1 million mark. The US-based
consultancy Keystone, a subsidiary of LaSalle Consulting Associates, has forecast that India
will become the world’s third largest automobile market by 2030, behind only to China and
the US. The size of the Indian vehicle market is forecast to cross the 2.1 million by 2010
(assuming a consistent GDP growth rate of 6 per cent) from the 1.1 million vehicles
expected to sell in 2006-07.
Even though the Indian economy grew 9.1 per cent in the six months ended
September 30 2006, the fastest semi-annual growth in 15 years, vehicle penetration was
only 8.5 in 1,000, the lowest among developing countries. According to industry experts,
currently the passenger vehicle demand outstrips supply. In the next fiscal, about 50 new
cars are likely to be introduced in the Indian market. While the majority of these would be
variants, some new models will also hit the road.
The following chart shows the pattern of growth of Indian Automotive Industry from 1995-96 to 2005-
06 and projected pattern for 2009-10 (Source: Federation of Automobile Dealers Association (FADA))
When the industry was deregulated in 1993, the global carmakers chose to operate
in the high price-high value segment. However, the strategy did not work as the market for
premium and luxury vehicles in India was not large enough. MUL was entrenched in the low
price-low value segment, and given its scale economies, it could not be dislodged. In the
latter half of the 1990s, foreign car manufacturers changed their strategy. It was still difficult
to remove MUL from its market leadership in the dominant low price-low value segment as
scale economies formed the basis of competition in this segment.
Thus, the global players changed the price-value equation by offering superior value
at a price that was still higher than that of the Maruti 800 and Omni, but significantly lower
than of the cars in the high price-high value segment. The process gained momentum in
FY2000 when the growth in the car market was led by the Compact segment.
Although the compact segment now accounts for 65% of domestic sales of
passenger cars, in recent years, the mid-size segment has captured a rising share of the
market, and since 2004, sales in the mid-size segment have exceeded sales in the mini-
segment.
The growth in this segment has been led by new launches, lower prices, and the
significant success of four models - MUL's Esteem, Honda's City, HMIL's Accent, and TML's
Indigo. Introduction of stripped down versions of the vehicles in the Mid-size segment,
attractive pricing by manufacturers (who also offer sales incentives) coupled with lower rate
of interests and easy availability of finance have facilitated the growth of this segment.
(%)
Fiscal Year 2002 2003 2004 2005 2006 Jan-March
2007
Mini (<3400 MM) 28.4 26.5 24.1 14.2 10.1 8.3
Compact (3400– 54.1 55.3 53.1 60.5 64.9 68.1
4000MM)
Mid-size (4001- 16.5 17.1 20.0 21.5 21.6 20.3
4500MM)
Executive (4501- 0.2 0.4 2.1 3.1 2.6 2.7
4700MM)
Premium (4701- 0.9 0.8 6.8 0.7 0.7 0.6
5000MM)
Luxury (>7500MM) 0.0 0.0 0.0 0.0 0.0 0.0
Total 100 100 100 100 100 100
The table below shows the sales of MUVs in India (Source: FADA)
(%)
Fiscal Year 2002 2003 2004 2005 2006 Jan-March
2007
UVs 62.8 68.6 71.1 73.1 74.6 74
<3 tonnes/passengers <7 11.2 14.2 14.8 19.7 25.7 27.2
<3.5 tonnes/passengers <7-9 15.7 24.0 24.0 23.3 27.2 27.8
<5 tonnes/passengers <13 35.8 30.5 32.3 30.1 21.7 19.0
MPVs 37.2 31.4 28.9 26.9 25.4 26.0
<3.5 tonnes, van type 37.2 31.4 28.9 26.9 25.4 26.0
Total 100 100 100 100 100 100
The table below shows the sales pattern of passenger cars in India (Source: FADA)
Thousand Units
Sales
Fiscal Year 2002 2003 2004 2005 2006 Jan- 3-
March year
2007 CAG
R
Mini (<3400 MM) 144,389 143,342 167,561 116,262 89,223 20,300 -14.6
Compact (3400– 275,335 299,359 369,493 496,274 572,872 165,903 24.2
4000MM)
Mid-size (4001- 83,907 92,389 139,309 176,022 190,359 49,495 27.2
4500MM)
Executive (4501- 942 2,195 14,338 25,646 23,326 6,556 119.
4700MM) 9
Premium (4701- 4453 4,135 5,356 5,820 6,223 1,371 14.6
5000MM)
Luxury (>7500MM) 62 71 96 155 91 8 8.6
Total 509,088 541,491 696,153 820,179 882,094 243,633 17.7
(ii) MUVs:
The MUV segment consists of vehicles that are suited to both rural and urban areas.
In rural areas where the roads are usually bad, these vehicles are used as goods carriers and
also for public transportation. Northern and Western India account for nearly two-thirds of
the demand for MUV. Specifically, in States like Rajasthan, Madhya Pradesh, Uttar Pradesh
and Maharashtra, the demand for MUVs is the largest. There are three segments of buyers
for MUVs: the private market, Government, and the Defence. Until the 1990s, the
Government and Defence segments accounted for the largest share of the market. The
reduction in Government and defence spending since the 1990s has substantially reduced
sales to these two segments. This has pushed private sector purchases into greater
prominence.
The table below shows the sales of MUVs in India (Source: FADA)
Sales (‘000)
Fiscal Year 2002 2003 2004 2005 2006 Jan- 3-
March year
2007 CAGR
(%)
UVs 104,253 113,620 146,388 176,360 194,577 47,729 19.6
<3 18,678 23,453 30,504 47,491 66,964 17,545 41.9
tonnes/passengers
<7
<3.5 26,094 39,690 49,333 56,266 71,041 17,931 21.4
tonnes/passengers
<7-9
<5 59,481 50,477 66,551 72,603 56,572 12,243 3.9
tonnes/passengers
<13
MPVs 61,775 52,087 59,555 65,033 66,366 16,809 8.4
<3.5 tonnes, van 61,775 52,087 59,555 65,033 66,366 16,809 8.4
type
Total 106,028 165,707 205,943 241,393 260,943 64,536 16.3
There are three sub-segments of the UV / MUV segment: the hard-top, soft-top and
pick-up. The hard-top version consists of the higher-end Sports Utility Vehicles (SUVs) that have
been present in the Indian markets since FY1999. Following the success of the higher-end SUVs,
the share of the hard top segment in total MUV sales has registered an increase. Soft-top
MUVs, which are largely dependent on sales in the rural and semi-urban markets where the
vehicles serve as modes of mass transportation (maxi taxi), have witnessed a contraction in
volumes in recent years. The declining share of the soft-top sub-segment is attributable largely
to the increasing acceptance of SUVs as an alternative to soft-tops (and even higher end-cars).
Those apart, soft-top sales have also been affected by a decline in rural income, increase in
sales tax in some states, increase in diesel prices, enforcement of strict emission control norms,
and restraints on the issue of licenses to use soft-top vehicles as rural taxis.
The table below shows the domestic sales pattern of vehicles in India during FY 2001-02 to 2005-006 (Source:
SIAM)
(In No.)
Category 2001-02 2002-03 2003-04 2004-05 2005-06
M&HCVs 89,999 115,711 161,395 198,506 207,446
LCVs 56,672 74,971 98,719 119,924 143,237
Total CVs 146,671 190,682 260,114 318,430 350,683
Passenger Cars 509,088 541,491 696,153 820,179 882,094
Utility Vehicles 104,253 113,620 146,388 176,360 194,577
MPVs 61,775 52,087 59,555 65,033 66,366
Total Passenger Vehicles 675,116 707,198 902,096 1,061,572 1143047
Scooters 908,268 825,648 886,295 922,428 908,159
Motorcycles 2,887,194 3,647,493 4,170,445 4,964,753 5,845,417
Mopeds 408,263 338,985 307,509 322,584 332,741
Total Two Wheelers 4,203,725 4,812,126 5,364,249 6,209,765 7,056,317
Three Wheelers 200,276 231,529 284,078 307,862 360,187
Grand Total 5,225,788 5,941,535 6,810,537 7,897,629 8,910,224
Product Specifications:
Some sources suggest that Ferdinand Verbiest, whilst a member of a Jesuit
mission in China, may have built the first steam powered car around 1672. François Isaac de
Rivaz, a Swiss inventor, designed the first internal combustion engine which was fuelled by a
mixture of hydrogen and oxygen and used it to develop the world's first vehicle to run on
such an engine. The design was not very successful, as was the case with Samuel Brown,
Samuel Morey, and Etienne Lenoir who each produced vehicles powered by clumsy internal
combustion engines.
Approximately 25 of Benz's vehicles were built before 1893, when his first four-
wheeler was introduced. They were powered with four-stroke engines of his own design.
Emile Roger of France, already producing Benz engines under license, now added the Benz
automobile to his line of products. Because France was more open to the early automobiles,
more were built and sold in France through Roger than Benz sold in Germany. From 1890 to
1895 about 30 vehicles were built by Daimler and his assistant, Wilhelm Maybach, either at
the Daimler works or in the Hotel Hermann, where they set up shop after falling out with
their backers. Benz and Daimler seem to have been unaware of each other's early work and
worked independently.
In 1890, Emile Levassor and Armand Peugeot of France began producing vehicles
with Daimler engines, and so laid the foundation of the motor industry in France. The first
American car with a gasoline internal combustion engine supposedly was designed in 1877
by George Baldwin Selden of Rochester, New York, who applied for a patent on an
automobile in 1879. In Britain there had been several attempts to build steam cars with
varying degrees of success with Thomas Rickett even attempting a production run in 1860.
Santler from Malvern is recognized by the Veteran Car Club of Great Britain as having made
the first petrol-powered car in the country in 1894 followed by Frederick William Lanchester
in 1895 but these were both one-offs. The first production vehicles came from the Daimler
Motor Company, founded by Harry J. Lawson in 1896, and making their first cars in 1897.
In 1892 Rudolf Diesel got a patent for a "New Rational Combustion Engine" by
modifying the Carnot Cycle. In 1897 he built the first Diesel Engine. In 1895, George B.
Selden was granted a United States patent for a two-stroke automobile engine (U.S. Patent
549160). This patent did more to hinder than encourage development of autos in the United
States. Steam, electric, and gasoline powered autos competed for decades, with gasoline
internal combustion engines achieving dominance in the 1910s.
Although various pistonless rotary engine designs have attempted to compete with
the conventional piston and crankshaft design, only Mazda's version of the Wankel engine
has had more than very limited success.
Since the 1920s, nearly all cars have been mass-produced to meet market needs, so
marketing plans have often heavily influenced automobile design. It was Alfred P. Sloan who
established the idea of different makes of cars produced by one company, so that buyers
could "move up" as their fortunes improved. The makes shared parts with one another so
that the larger production volume resulted in lower costs for each price range. For example,
in the 1950s, Chevrolet shared hood, doors, roof, and windows with Pontiac; the LaSalle of
the 1930s, sold by Cadillac, used the cheaper mechanical parts made by the Oldsmobile
division.
1960s
1970s
1890s 1900s 1910s 1920s 1930s 1940s 1950s 1980s
1990s
2000s
Most automobiles in use today are propelled by Petrol (also known as petrol) or
diesel internal combustion engines but these are known to cause air pollution and are also
blamed for contributing to climate change and global warming. Increasing costs of oil-based
fuels and tightening environmental laws and restrictions on greenhouse gas emissions are
propelling work on alternative power systems for automobiles. Efforts to improve or replace
these technologies include hybrid vehicles, electric vehicles and hydrogen vehicles.
Diesel
Diesel engined cars have long been popular in Europe with the first models being
introduced in the 1930s by Mercedes Benz and Citroen. The main benefit of Diesel
combustion engines is its 50% fuel burn efficiency compared with 27% in the best Petrol
engines. A down side of the diesel is the presence in the exhaust gases of fine soot
particulates and manufacturers are now starting to fit filters to remove these. Many diesel
powered cars can also run with little or no modifications on 100% pure biodiesel.
Petrol
Petrol engines however have the advantage over diesel in being lighter and able to
work at higher rotational speeds and they are the usual choice for fitting in high
performance sports cars. Continuous development of Petrol engines for over a hundred
years has produced improvements in efficiency and reduced pollution. The carburetor was
used on nearly all road car engines until the 1980s but it was long realized that better
control of the fuel/air mixture could be achieved with fuel injection. Indirect fuel injection
was first used in aircraft engines from 1909, in racing car engines from the 1930s and road
cars from the late 1950s. Petrol Direct Injection (GDI) is now starting to appear in production
vehicles such as the 2007 BMW MINI. Exhaust gases are also cleaned up by fitting a catalytic
converter into the exhaust system. Clean air legislation in many of the car industries most
important a market has made both catalysts and fuel injection virtually universal fittings.
Most modern Petrol engines are also capable of running with up to 15% ethanol mixed into
the Petrol fuel - older vehicles may have seals and hoses that can be harmed by ethanol.
With a small amount of redesign, Petrol-powered vehicles can run on ethanol
concentrations as high as 85%. 100% ethanol is used in some parts of the world but vehicles
must be started on pure Petrol and switched over to ethanol once the engine is running.
Most Petrol engined cars can also run on LPG with the addition of an LPG tank for fuel
storage and carburetion modifications to add an LPG mixer. LPG produces fewer toxic
emissions and is a popular fuel for fork lift trucks that have to operate inside buildings.
Electric
The first electric cars were built in the late 1800s, but the building of battery
powered vehicles that could rival internal combustion models had to wait for the
introduction of modern semiconductor controls. Because they can deliver a high torque at
low revolutions electric cars do not require such a complex drive train and transmission as
internal combustion powered cars. Some are able to accelerate from 0-60 mph (96
km/hour) in 4.0 seconds with a top speed around 130 mph (210 km/h). They have a range of
250 miles (400 km) on the EPA highway cycle requiring 3-1/2 hours to completely charge.
Equivalent fuel efficiency to internal combustion is not well defined but some press reports
give it at around 135 mpg.
Steam
Steam power, usually using oil or gas heated boiler, was also in use until the 1930s
but had the major disadvantage of being unable to power the car until boiler pressure was
available. It has the advantage of being able to produce very low emissions as the
combustion process can be carefully controlled.
Gas Turbine
In the 1950s there was a brief interest in using gas turbine (jet) engines and several
makers including Rover produced prototypes. In spite of the power units being very
compact, high fuel consumption, severe delay in throttle response and lack of engine
braking meant no cars reached production.
Future developments
Much current research and development is centered on hybrid vehicles that use
both electric power and internal combustion. Research into alternative forms of power also
focus on developing fuel cells, Homogeneous Charge Compression Ignition (HCCI), stirling
engines and even using the stored energy of compressed air or liquid nitrogen.
Design
The design of modern cars is typically handled by a large team of designers and
engineers from many different disciplines. As part of the product development effort the
team of designers will work closely with teams of design engineers responsible for all
aspects of the vehicle. These engineering teams include: chassis, body and trim, power train,
electrical and production. The design team under the leadership of the design director will
typically comprise of an exterior designer, an interior designer (usually referred to as
stylists) and a color and materials designer. A few other designers will be involved in detail
design of both exterior and interior. For example, a designer might be tasked with designing
the rear light clusters or the steering wheel. The color and materials designer will work
closely with the exterior and interior designers in developing exterior color paints, interior
colors, fabrics, leathers, carpet, and wood trim and so on.
There have been many efforts to innovate automobile design funded by the NHTSA,
including the work of the NavLab group at Carnegie Mellon University. Recent efforts
include the highly publicized DARPA Grand Challenge race.
Acceleration, braking, and measures of turning or agility vary widely between different
makes and models of automobile. The automotive publication industry has developed
around these performance measures as a way to quantify and qualify the characteristics of a
particular vehicle. See quarter mile and 0 to 60mph.
Safety
Road traffic injuries represent about 25% of worldwide injury-related deaths (the
leading cause) with an estimated 1.2 million deaths (2004) each year.
Automobile accidents are almost as old as automobiles themselves. Early examples include,
Joseph Cugnot, who crashed his steam-powered "Fardier" against a wall in 1771, Mary
Ward, who became one of the first document automobile fatalities in 1869 in Parsons town,
Ireland, and Henry Bliss, one of the United State's first pedestrian automobile casualties in
1899 in New York.
Cars have many basic safety problems - for example, they have human drivers who
make mistakes, wheels that lose traction when the braking or turning forces are too high.
Some vehicles have a high center of gravity and therefore an increased tendency to roll
over. When driven at high speeds, collisions can have serious or even fatal consequence.
Early safety research focused on increasing the reliability of brakes and reducing the
flammability of fuel systems. For example, modern engine compartments are open at the
bottom so that fuel vapors, which are heavier than air, vent to the open air. Brakes are
hydraulic and dual circuit so that failures are slow leaks, rather than abrupt cable breaks.
Systematic research on crash safety started in 1958 at Ford Motor Company. Since then,
most research has focused on absorbing external crash energy with crushable panels and
reducing the motion of human bodies in the passenger compartment. This is reflected in
most cars produced today.
Significant reductions in death and injury have come from the addition of Safety
belts and laws in many countries to require vehicle occupants to wear them. Airbags and
specialized child restraint systems have improved on that. Structural changes such as side-
impact protection bars in the doors and side panels of the car mitigate the effect of impacts
to the side of the vehicle. Many cars now include radar or sonar detectors mounted to the
rear of the car to warn the driver if he or she is about to reverse into an obstacle or a
pedestrian. Some vehicle manufacturers are producing cars with devices that also measure
the proximity to obstacles and other vehicles in front of the car and are using these to apply
the brakes when a collision is inevitable. There have also been limited efforts to use heads
up displays and thermal imaging technologies similar to those used in military aircraft to
provide the driver with a better view of the road at night.
There are standard tests for safety in new automobiles, like the EuroNCAP and the
US NCAP tests. There are also tests run by organizations such as IIHS and backed by the
insurance industry.
Despite technological advances, there is still significant loss of life from car accidents:
About 40,000 people die every year in the United States, with similar figures in Europe. This
figure increases annually in step with rising population and increasing travel if no measures
are taken, but the rate per capita and per mile travelled decreases steadily. The death toll is
expected to nearly double worldwide by 2020. A much higher number of accidents result in
injury or permanent disability. The highest accident figures are reported in China and India.
The European Union has a rigid program to cut the death toll in the EU in half by 2010 and
member states have started implementing measures.
The markets will soon plateau. And spending will continue to rise. Tomorrow, we will
not be selling more of the same car. We will be selling more of the upgrade of the same car.
Marketing today requires, rather demands, a change in orientation. When was the
last time you felt 'obliged' to buy a company's product? Or do you remember the last time
you felt 'overtly loyal' to a brand? But then, it is very likely, you don't even remember a
company showed compassion and understanding towards you.
The change in orientation is from 'let's add more customers to the base' to 'let's
derive Customer Lifetime Value'.
Table showing Indian Automobile Customers Behavior Pattern (Source: “Lifetime Value Customer” by Rajeev
Chaba, President & Managing Director, General Motors India Pvt. Ltd)
Customer Behavior Pattern Spending
st
25 year old Buy 1 car 250,000
28 year old Buy 2nd car 450,000
32 year old Buy 3rd car 750,000
37 year old Buy 4th car 1,200,000
45 year old Buy 5th car 2,000,000
If we top that up with money that a customer will spend on servicing and
maintaining his or her vehicle, and car purchase decisions he or she is likely to influence
over a lifetime, we are looking at a figure that is close to Rs. 75lakh.
The choice is ours - is it one sale we are interested in today, or is it multiple sales
over the customers' lifetimes.
Buying power is going up. And it will continue to keep going up. As they say, the only
thing that is permanent is change. The challenge is in farming the customer, retaining him
and growing him. I'm sure you will agree that is easier said than done.
Doing that is all about Expectations and Surprises. Marketing today is all about
matching expectations and delivering surprises. The result is incremental sales.
We don't need to push consumers, we don't need to redesign our service offerings, and all
we do is change our (marketing) orientation.
Application of this formula forms the basis for the next step - segmentation of
customers by Value and Needs. Potential Value helps determine who our most valuable
customers are, which services to offer them and how much to invest in such services. A
'good' understanding of customer needs on the other hand will help prevent degeneration
of retention strategies into a mass of low-value, undifferentiated service offerings. The
knowledge gained by this sort of a double-edged segmentation will help forge meaningful
relationships with customers as these will be based on offerings that customers will
genuinely value.
It's the same story at rival Hyundai Motors. Today less than 10 per cent of all Santros
hit the highway without air-conditioning or power steering. The moral of the story: Indian
customers are trading up and they are digging deeper into their pockets to do so. What's
driving it: fatter pay cheques backed by cheap credit. Guessing the size of the Indian middle
class has been a favorite pastime for economists ever since the '80s. In those days, fancy
numbers ranging between 50 million and 200 million were bandied about.
But the calculations went wrong because over 90 per cent of that giant figure had
half the buying power of a supermarket check-out girl in Western Europe or North America.
Now the numbers game is changing dramatically. The Indian consumer has arrived -- and he
and she have cash to burn. The National Council of Applied Economic Research reckons that
in 1999-2000, 6.2 million households were car or jeep owning and therefore qualified as
'affluent'. That means that about 31 million consumers belong to four-wheeler owning
households according to the NCAER's income demographic study, released in May 2003.
That's a steep rise -- in fact, about six times -- from 1994-95 when only around 1
million households fell into the NCAER's 'affluent' category. Step a few rungs down the
ladder and the numbers become even more impressive. By 1999-00 more than 56.8 million
households (284 million individuals) fell into NCAER's 'well-off' category.
NCAER's broad definition of 'well-off' includes households that own a range of consumer
durables from two-wheelers to air-conditioners. The number of households categorized as
'well-off' has doubled since 1994-95.
Travel up the ladder briefly and it's the same story. The NCAER reckoned, in a
separate study on the very rich, that in 2001 there were around 24,000 households where
annual incomes exceeded Rs 50 Lakh (Rs 5 million). According to its calculations that figure
will climb to around 54,000 in 2006. And about 320,000 people earned more than Rs 10
Lakh (Rs 1 million) in 2001. That will zoom to 700,000 in 2006. For statistical purposes these
are based on 1995-96 price levels. Once you factor in the inflation that's taken place, the
actual numbers could be two to three times higher.
Couple this sharp hike in the consumer base, with the increase in very low-cost
consumer finance, and the result is almost explosive. Between 1999 and 2003, according to
Mercer Human Resource Consulting, which tracks salaries across the world, cash in hand
(that's your salary minus the perks like club memberships and medical reimbursement) rose
by a whopping 50 per cent for junior management across all industry segments in the
country.
For middle management the rise was an equally impressive 45 per cent, and around
40 per cent for senior management. Similar increases in income levels can be seen from the
NCAER numbers. In 1989-90, just before economic reforms began, around 60 per cent of
Indians earned below Rs 35,000 a year. By 1998-99, only 40 per cent of Indians fell in this
category. The top-most income class that NCAER's survey polled, accounted for a mere 1.4
per cent -- by 1998-99, this rose almost four times, to touch 5.7 per cent.
Since this rise in income, naturally, wasn't evenly distributed, there has been a huge
hike in the consumer base in different cities. According to the NCAER survey, in 1998-99,
just under 40 per cent of Delhiites fell in the highest income category. In Mumbai the
number was around 30 per cent. But what's really surprising is that even Nagpur has 23 per
cent of its population in this category. A qualification must immediately be entered. It
doesn't require a bulging wallet filled with credit cards to qualify as a high-income
household under the NCAER categorization.
The NCAER treats any household with an annual income of Rs 140,000 as belonging
to the high income bracket. That's only about Rs 11,000 per month. If you were to put that
in dollar terms that's barely $220 monthly. Dollar comparisons are, of course, unfair and
must be treated with caution, because Indians get more bangs for their rupee.
NCAER statistician Shashi Brahmankar points out that the impact of consumer
finance first began to be felt in 1999-00. In that year cheaper finance added around a fourth
to the growth in the demand for white goods. In 1999-00, demand for financed white goods
rose 23.9 per cent while the overall market grew just 18.9 per cent. In the rural markets the
availability of cheap finance was an even bigger factor in growth.
While rural demand for white goods grew 22.4 per cent in 1999-00, the growth of
financed white goods rose a phenomenal 39.6 per cent. The arrival of cheaper finance has
completely changed buying patterns. At one level, Indians can now pay in installments for
everything for automobiles to microwaves. What's more, it has enabled them to upgrade
and buy costlier products. As a result of this, purchase patterns have changed significantly,
and consumers are now buying higher quality goods.
While just 4.6 per cent of consumers bought what NCAER calls Category III goods like
cars and color TVs in 1985-86, by 1998-99, this rose to 10.1 per cent.
Similarly, in the automobile sector, for instance, sales in the entry-level Category A class (the
Maruti 800) were overtaken in 1999-00 by those in the more expensive Category B which
includes slightly bigger cars like the Zen and the Santro. And last year, the fastest growth
segment, albeit on a lower base, was the D segment which includes cars like the Skoda
Octavia and the Toyota Corolla -- sales in this category rose from 990 in 2001 to 5,600 in
2002.
There's a change of buying patterns even for two-wheelers, which are aimed mainly
at a less prosperous segment of the population. Some have moved to bigger bikes like the
250cc Kinetic Aquila which costs Rs 125,000. Even Kinetic was slightly taken aback when 200
vehicles were driven out of the showroom in record time. In fact, the arrival of the Indian
consumer in larger numbers is dramatically visible in industries like two-wheelers.
Back in 1996-97 about 930,000 motorbikes were sold in India. That's zoomed to 3.7
million in 2002-03. Of course, the sudden rise in numbers can also be attributed to the fact
that motorcycles have outdistanced scooters on the road. Why are tightly-budgeted Indian
customers suddenly trading upwards? One reason is because consumer financing means
there may not be a big difference in the monthly installments.
There are, of course, other factors that are bringing more expensive products within reach
of the Indian consumer. There's been a dramatic reduction in the prices of most consumer
durables, thanks largely to technological innovations.
The Indian automotive industry has flourished like never before in the recent years.
On the canvas of the Indian Economy, Auto Industry occupies a prominent place. Due to its
deep forward and backward linkages with several key segments of the economy,
automotive industry has a strong multiplier effect and is capable of being the driver of
economic growth. A reasonably developed Indian automotive industry ably fulfils this
catalytic role.
Although the automotive industry in India is nearly six decades old, it remained
dormant until 1982, largely due to stifling licensing regime. Today, India is the world's
second largest manufacturer of two wheelers, fifth largest manufacturer of commercial
vehicles and manufactures largest number of tractors in the world. The country offers
fourth largest passenger car market in Asia.
During the year 2005-06, the turnover of the automotive sector was around $ 30
billion. According to auto industry experts, Indian Automobile sales will grow at a CAGR of
9.5% to 13,008 million units by 2010 from the current 10.0 million units.
This extraordinary growth that the Indian automotive industry has witnessed is a
result of a two major factors namely, the improvement in the living standards of the middle
class and an increase in their disposable incomes. Moreover, the liberalization steps, such
as, relaxation of the foreign exchange and equity regulations, reduction of tariffs on
imports, and the banking reforms, initiated by the Government of India, have played an
equally important role in enabling the Indian Automotive industry achieve great heights.
Also, the institutionalization of automobile finance has further paved the way for a
sustainable long-term high growth of the industry.
The once highly protected Indian automobile has been gradually opened up to the
global market with liberalization of overall economy. Global auto giants are shifting their
manufacturing bases to India. Currently, almost all auto giants from Korea, Japan, US and
Europe are present in Indian market in various segments. Foreign Direct Investment (FDI)
has created a strong visible impact on the Indian car market not only by contributing to
capital, technology and best managerial practices, but also introducing intense competition
among the manufacturers.
The overall automobile industry performance has showed encouraging results for all
the segments of the industry. Today, India has become the second fastest growing car
market in the world. Passenger car sales have tripled in six years. It's also to be noted that
the demand for luxurious models, SUVs, and mini-cars for family owners have shot up,
largely due to increase in the consumer's buying capacity.
Clearly, the Indian automobile sector is on a growth track. To tap this huge
opportunity, Indian automobile companies and global automotive giants are on an
expansion mode. What is making the Indian automobile market grow? This paper is an
attempt to answer such questions, which may help the marketers to segment their market
effectively. We believe that our analysis and outlook of Indian automobile industry would
serve as a key input for the business decisions and segmentation of Indian market for future
demand. The paper focuses on the urban passenger car market and involves the critical
analysis of car user households based on the following:
These models are also known as probability models. Keeping in mind the objective of
the study and availability of the kind of data or variables for conducting this analysis, the
probit regression analysis is applied.
Table on the next page gives a clear comparative picture of demographic profiles of
Indian households. It divides households at all India level into three categories: car owners,
two wheeler owners (not having a car) and households with no automobile. It shows that
the average annual income of a household in case of car owners is Rs. 1.99 Lakh, which is
much higher than the household owning two wheelers (Rs. 83,184).
About three-fourths of the car owning households are salary earners and self
employed (non agriculture), while this is just little above 50 per cent in case of two wheeler
owning households. Though both of these sources of income have equal shares in case of
car owning households, there exists a huge difference within two wheeler owning
households.
Car Owner 2 Wheeler, HHD Without Total HHD
But Not a Car Automobile
Share of 5 32 63 100
households (%)
Average 198,966 83,184 40,457 62,518
household
income
Distribution of households by major source of household’s income (%)
Regular 38 33 10 18
Salary/Wages
Self Employed 37 24 12 17
(Non-
Agriculture)
Self Employed 17 29 30 29
(Agriculture)
Labor 1 3 17 12
Other (Rent, 8 11 32 24
Pension, Bonds
etc.,)
Total 100 100 100 100
Distribution of households by highest literacy
Illiterate 0 1 7 4
Up to higher 31 60 62 72
secondary
Graduation + 66 37 10 22
Others 63 2 2 2
Total 100 100 100 100
Among those who have neither of the vehicles, just 10 per cent are salary earners.
The most interesting point to note here is that among car owning households, no
household is found illiterate (i.e. at least one member in the household is educated). In fact,
66 per cent of the cars owning households have at least one member with graduation or
post-graduate education. In case of two wheeler owners, majority of the households (60 per
cent) are educated upto higher secondary. It shows that in India, car owning households are
comparatively well educated than others and have better occupational profiles.
Due to the fact that, of the total 9.5 million car owning households at all India level,
6 million are in urban areas, our discussion is hereafter restricted to urban India only. The
survey result shows the following characteristics of urban car owners:
The average annual household income of car owning households is Rs. 206,556 and
average expenditure is Rs. 108,664.
Though their average household size is 5 but average number of earners is just 1.4,
which shows that the earlier saying in Indian families "More members in family adds
to more household income" is no more valid.
Zonal distribution of car owning households shows that majority of them are in
south (35 per cent) followed by west (30 per cent). 23 per cent of them reside in
north.
About 66 per cent of car owning households also own a two-wheeler.
The car purchase decision in Indian urban families is influenced by the head of the
household followed by the chief earner. Female members contribute just 14 per cent
in making such decisions.
Only 29 per cent of car urban car owning households have unmarried daughter
(above 16 yrs of age), and around 80 per cent of these households are free from
students liability for higher education.
4 per cent of such households possess land ownership above 4 acres.
The durable ownership patterns are also very impressive in car owning households.
93 per cent of them own color TV, refrigerator (90 per cent), cellular phone (82 per
cent), washing machine (66 per cent), motorcycle (51 per cent), scooter (21 per
cent), and credit cards just 19 per cent.
We have found very interesting results showing that there are certain household
demographic characteristics, which, if studied properly, by marketers could help them a lot
in targeting the potential car customers in future. Major factors are broadly discussed
below:
Results show that while income has great influence on demand, it is the expenditure
pattern that really determines the likelihood of purchase of major consumer
durables, including car, by a household. The level of annual average expenditure by a
household has a strong relationship with car purchase. The increase in annual
expenditure by Rs. One Lakh reflects the increase in status of a household in terms of
both financial and social aspects and hence increases the chances of a household to
go for a car as it is still considered as a status symbol in Indian society. Therefore,
marketers who are totally focusing on income for targeting and segmentation of
their markets should include expenditure part as well in their strategies.
Secondly, the major source of household income also plays an important role in
creating possibility of car purchase by a household. This is what our result shows. It
clearly shows that those households with business as major source of income have
greater chance of purchasing a car in comparison to households with salary as major
source of income.
Lastly, the product ownership (white goods) of a household also, to a great extent,
determines the car purchase likelihood. Those households with presently owning at
least color television, refrigerator, motorcycle; cellular phone and credit card have
greater chances of purchasing a car in near future. The reason is that these
households already own all the major white goods; so, their next priority could be a
status item like car.
Basic technologies:
Most automobiles in use today are propelled by Petrol (also known as petrol) or
diesel internal combustion engines but these are known to cause air pollution and are also
blamed for contributing to climate change and global warming. Increasing costs of oil-based
fuels and tightening environmental laws and restrictions on greenhouse gas emissions are
propelling work on alternative power systems for automobiles. Efforts to improve or replace
these technologies include hybrid vehicles, electric vehicles and hydrogen vehicles.
Diesel
Diesel engined cars have long been popular in Europe with the first models being
introduced in the 1930s by Mercedes Benz and Citroen. The main benefit of Diesel
combustion engines is its 50% fuel burn efficiency compared with 27% in the best Petrol
engines. A down side of the diesel is the presence in the exhaust gases of fine soot
particulates and manufacturers are now starting to fit filters to remove these. Many diesel
powered cars can also run with little or no modifications on 100% pure biodiesel.
Petrol
Petrol engines however have the advantage over diesel in being lighter and able to
work at higher rotational speeds and they are the usual choice for fitting in high
performance sports cars. Continuous development of Petrol engines for over a hundred
years has produced improvements in efficiency and reduced pollution. The carburetor was
used on nearly all road car engines until the 1980s but it was long realized that better
control of the fuel/air mixture could be achieved with fuel injection. Indirect fuel injection
was first used in aircraft engines from 1909, in racing car engines from the 1930s and road
cars from the late 1950s. Petrol Direct Injection (GDI) is now starting to appear in production
vehicles such as the 2007 BMW MINI. Exhaust gases are also cleaned up by fitting a catalytic
converter into the exhaust system. Clean air legislation in many of the car industries most
important markets have made both catalysts and fuel injection virtually universal fittings.
Most modern Petrol engines are also capable of running with up to 15% ethanol mixed into
the Petrol fuel - older vehicles may have seals and hoses that can be harmed by ethanol.
With a small amount of redesign, Petrol-powered vehicles can run on ethanol
concentrations as high as 85%. 100% ethanol is used in some parts of the world but vehicles
must be started on pure Petrol and switched over to ethanol once the engine is running.
Most Petrol engined cars can also run on LPG with the addition of an LPG tank for fuel
storage and carburetion modifications to add an LPG mixer. LPG produces fewer toxic
emissions and is a popular fuel for fork lift trucks that have to operate inside buildings.
Electric
The first electric cars were built in the late 1800s, but the building of battery
powered vehicles that could rival internal combustion models had to wait for the
introduction of modern semiconductor controls. Because they can deliver a high torque at
low revolutions electric cars do not require such a complex drive train and transmission as
internal combustion powered cars. Some are able to accelerate from 0-60 mph (96
km/hour) in 4.0 seconds with a top speed around 130 mph (210 km/h). They have a range of
250 miles (400 km) on the EPA highway cycle requiring 3-1/2 hours to completely charge.
Equivalent fuel efficiency to internal combustion is not well defined but some press reports
give it at around 135 mpg.
Steam
Steam power, usually using oil or gas heated boiler, was also in use until the 1930s
but had the major disadvantage of being unable to power the car until boiler pressure was
available. It has the advantage of being able to produce very low emissions as the
combustion process can be carefully controlled.
Gas Turbine
In the 1950s there was a brief interest in using gas turbine (jet) engines and several
makers including Rover produced prototypes. In spite of the power units being very
compact, high fuel consumption, severe delay in throttle response and lack of engine
braking meant no cars reached production.
Future developments
Much current research and development is centered on hybrid vehicles that use
both electric power and internal combustion. Research into alternative forms of power also
focus on developing fuel cells, Homogeneous Charge Compression Ignition (HCCI), stirling
engines and even using the stored energy of compressed air or liquid nitrogen.
History of innovations:
The first wave of development in India's Automobile Industry and business was the
localization of various cars, scooters, LCVs and trucks which activity started in the 60s. After
rapid localization, due to the Permit-Licence Raj, the industry became static. The first wave
of development thus petered out by the end of 70s.
The second wave of development starting in the mid-80s, with the advent of new
manufacturers with contemporary products in cars, two-wheelers, and light commercial
vehicles, ushered in far greater enthusiasm, investment and industry volumes. Thus, the
second wave was greatly strengthened with the liberalization of the economy.
The last decade saw total change occurring in the character of the Two-Wheeler
Industry and of the Passenger Car Industry. That change has been comprehensive. The
'Technology' harnessed by the Industry today is contemporary. The 'Products', produced
and sold in India have evolved to international standards. The 'Plants', operated by the
manufacturers of vehicles and by manufacturers of components are world-class. The
'Distribution Channels', offer unprecedented customer friendliness.
The next wave, in the transformation of the Indian Automobile Industry, is now
imminent.
The 'Next Wave' of transformation, will affect the entire spectrum of the Commercial
Vehicle Industry.
The working vehicle in India, like everywhere in the world, has to earn its keep. The
'Business Model' for the commercial vehicle operator - whether he is an autorickshaw
driver, or a small tempo stand operator, or a long haul trucker - will undergo a significant
change over the next decade. A decade later, say in the year 2015, the country will present a
picture with a far greater difference on the commercial vehicle - Products, Plants, Channels
and Customer Business Models - than the great change that has already affected the two-
wheeler and the passenger car industry over the last decade, from 1995 to 2005. The next
change will be faster, more fundamental and therefore stronger. More so, because it is
actually late in coming, and also because it is driven by hard economic facts - much more
than by softer and more humane issues like Branding, Comfort, Convenience, Style, etc.
The transport operators do not buy vehicles. They buy transport solutions. The
possibility for the transporter to compare options, and to evaluate the most attractive
economic solutions available to him to choose from, is as much dependent on the different
available product propositions - as it is dependent on parameters affecting his business
environment.
These aspects are not directly addressable with purely technological solutions. A
combination of modern product technology, improved road/load culture, fleet aggregation/
standardization, greater containerization and standard palletisation, superior information
management, etc. are crucially important factors, which can enable or even prevent a
technological solution, to actually deliver the potential benefits to the transporter, and thus
to the using public.
A significant change in some of these aspects is inevitable. The force of history is too
strong and will make the country move in new direction. The pointers are clear.
These changes are win-win changes. The superior engines not only enable higher
power and speed, but also offer superior fuel economy and least down time. Similarly,
gearboxes with modern technology, including planetary gearing, quality 7-ground gears,
servo shifting, etc. offer significantly reduced friction; they enable improved fuel economy,
while ensuring least down time. Very high change intervals for oils and excellent drivability,
including gradability, etc. are possible. The driver friendliness of these gearboxes
encourages use of proper gears - which is a very little understood, but most crucial aspect
for achieving good fuel economy.
Fuel Economy
Above all, driving in the proper gear at the proper speed under any load condition, Is
the key to fuel economy. Besides a torqy engine and a modern gearbox, a superior cabin
offering excellent ergonomics facilitating proper driving speeds, is one of the most effective
ways to enable the driver to deliver fuel economy. All this is achievable, while ensuring road
safety for the general public.
Electronics in Vehicles
Euro III and above engines will be managed/governed electronically, particularly the
diesels. The era of the master mechanics is about to end. In future, engine diagnostics
cannot but be computerized, given the complexity of the electronics on the vehicles. The
Dealership network in India, selling two-wheelers and passenger cars have adapted
beautifully - to the consumer preference in fit, finish, styling, convenience, value-added
service, etc. It is a matter of great pride for our country that the vast majority of dealers
have learnt and institutionalized the most modern customer friendly systems and culture, in
their own activities. They have coped with the more difficult problem of learning to respect
the customer. They will have also to tackle the smaller problem of learning to respect
technology. Automobile dealers, just as much as automobile manufacturers, will be
compelled by events to create the discipline in their organizations, to cope with electronics
in vehicles.
The game however is quite different for commercial vehicles. New technology will
first of all deliver a different business model, a changed business proposition, to the
transporter. This calls for a monumental effort to train and enable the driver-
The advent of modern buses and vans has already begun in India and this revolution
will be very big. Let us not forget that by far a higher number of people moves in public
transport. The vast bulk of goods also is carried by trucking companies. The GDP growth of
the country, if it is sustained between 7 and 10 per cent per year, will call for multiplying the
present vehicle fleets - leading to competition, to specialization, to selling of applications, to
carefully mapped solutions for each usage, and above all to Customer Relationship
Management. Loyalty schemes based on economic considerations, is what will drive the
business for commercial vehicle dealers, much more than other considerations. And, much
more than in cars and two-wheelers.
There are a few issues of down side also to the future. For one, customers will be
even less tolerant. Also, the complex equipment and mechanisms are less forgiving of
misuse or bad maintenance. Advanced engineering and evolved electronics lead to very few
- but when they do occur - tricky glitches. To cope with these issues, creating a new service
infrastructure - replete with diagnostics, instrumentation, mobile service capability and
above all trained and accessible manpower - will be a big task before the industry.
Customer Relationship Management is term that we are hearing more often in the
automotive retailing today - and for good reason. CRM offers one of the best opportunities
to increase profitability and competitiveness of dealership. The correct perspective in this
regard is to look at the lifetime ownership value of a customer. As per an estimate by
Deloitte & Touch Auditing Firm - A 5% increase in the customer retention could generate a
25% improvement in operating profit.
The Indian economy is the second fastest growing economy in the world. The rapidly
increasing households incomes are prompting a dramatic shift in lifestyle and corresponding
change in the market place.
There is demand for better products and improved quality. Customers today are
more knowledgeable, discerning and demanding. They know the nuances of technology and
additional features. They are challenging the price competitiveness of his manufacturers.
After all, there is abundant choice - more than 84 models of cars and 77 models of two -
wheeler to choose from.
The organizations are alive to these challenges and are working out strategies
depending upon their products and demand patterns. In this scenario, the role of the
dealership is more important than ever before.
Customers needs are not the only that is changing over time. Company employees
also need attention and enterprise that are not competitive will ultimately lose their best
employees. Today, a company's growth and development are intrinsically linked to how the
company attracts the people and motivates them to create value. I would like all of you to
pay attention on this important aspect at your dealerships.
The dealer fraternity has enjoyed the support of Government policies for long time.
They have not been a part of the indirect tax system. However, the fact that the vehicle
population has become very substantial in India and is contributing a grate deal to the
growth of the service sector, the Government is imposed a service tax.
In Conclusion, India is a grate country with a huge potential for stable long term
growth of the automobiles industry, due to several reasons including favorable age-
demographics, increasing of road network, etc, given our geographical diversify, and experts
do not think that any one selling strategy will work in the entire country.
Reflecting on the changes in the airlines industry, we have moved away from Q-
check to e-check. In fact, today, one can do almost everything about airlines on the Internet
and even get paid for using the Internet.
The same way, shopping has moved from the 'Kirana Dukan' to 'Super Mall Makaan',
not just in big metros but even in smaller towns. In India, not long ago, one had to go from
pillar to post for anything from a telephone to a train ticket or even a passport. But today,
telephones, and mobiles and, for that matter, “Tatkal” tickets and even “Tatkal” passports
are available on the spot.
As in the case of other products and services, radical changes are sweeping the
automotive business too. The waiting list and 'take it or leave it' attitude has given way to
never before aggression for customer acquisition. Cars and finance are available in plenty,
and manufacturers as well as dealers are all striving to get what they call 'LTV' or 'Life Time
Value' of customer. In a fast changing scenario abuzz with fierce competition and rising
customer expectations, everyone seems to be obsessed with understanding and
implementing the magic mantra 'CRM'.
The fact that about 35 to 75 per cent of CRM programmes fail, does not surprise me.
Such failed programmes, in turn, damage the organization’s long-term relationship with the
customers. I did a lot of my own study to understand 'why'. I have looked at how hotels do
it, retailers do it, airlines do it, and I am not surprised that we have such a high percentage
of failures in spite of the so called sophisticated CRM software and CRM programmes. Let
me tell you my analysis of 'why'?
Industry experts think that the CRM as it is being practiced today is not about
customer - but sales force, not about relationships - but data mining, and not about
management - but promotion marketing. CRM should help bring products to customers and
not just customers to products. Sometimes, the players forget about relationships, as they
get obsessed with data. How irritating are those phone calls that we get in the middle of a
meeting from some banks, from some great car companies or from some mobile phone
companies trying to sell something! These calls do not build relationships. It is not about
management of customers, it has become more of promotional marketing. Let's go through
some home grown recipes and to the Indian ethos related to CRM. The essence of CRM is
not about software and hardware; it really is about 'heartware'. How to win over the
customers with your heart?
Marketing
Manufacturing
The Mahindra & Mahindra Model of CRMM (Customer Rishtedari with Mahindra & Mahindra)
We all know it but often forget it, when we are in front of the customer. We often
look to the West to tell us how to take care of the customer and how to build customer
relationship. But it is the notion of "Atithi Devo Bhava" that all of us are familiar with, that
makes it so natural for us to build those relationships. The Kirana dukaan that we talked
about earlier. The perception is that they are getting wiped off by the super markets. In fact,
they have converted customer relationship as their competitive weapon. Majority of Indian
housewives never goes to a super market and why should she? She gets what she wants
from a Kirana shop without leaving home. Her Kirana shop is a super market for her
because, if the Kirana merchant does not have an item in his shop, he will go out, buy for
her and bring it to her. If ever she goes to the shop personally, she gets greeted with
enthusiasm that will never happen in a super market. Therefore, super markets cannot
really compete with Kirana shops because of the customer relationship that they have built.
Or, look at our own airlines; in a fifty-five minutes flight, even in economy class, you get a
hot meal. And, that is what I call customer service and customer relationship building. What
you get in India is genuine, genuine desire to serve the customer.
These real examples should convince us that there is nothing about customer
relationship building that we Indians do not know or that we Indians cannot do. It is in our
genes. So what we need to reflect on is, are we, in the Indian auto industry, ahead of other
industries and other countries in the world in building customer relationship? Not yet. There
is lot of work to be done.
Mahindra & Mahindra started thinking about CRM not really as customer
relationship management, but as CRMM - as 'Customer Rishtedari from M&M'. Just
changing the word from Relationship to Rishtedari really makes a big difference. Relation is
nothing but Rishtedari; and relative, rishtedar. Take care of the customer, as you will do for
any guest who comes to your house. And, once you come to that realization, you need no
training in CRM.
One of the first difficulties that they faced was this age-old concept of internal
customers - R&D considered manufacturing as the customer, manufacturing considered
sales & marketing as the customer, and it was left to the Sales and Marketing to take care of
the end customer. The management did not believe in this concept of internal customers.
All these departments are part of the chain that should have only one goal- to serve the only
customer that finally matters; the customer has to be the person who is paying his or her
hard earned money to buy the products and the services. It sounds simple but changing this
mindset was a major task. A guy on the shop floor will say, "I never meet Mr. Customer, how
can I think of him as my customer." Surely, they have managed to change this mindset. In
fact, the other day a man from our plant saw a Mahindra vehicle stranded on the road. He
stopped and gave his own vehicle to the customer to proceed where he was going, and said,
"I will send your vehicle to the workshop and call you when the fault is fixed." This is not
written in any of our CRM handbooks, but it is a perfect example of how CRM is about
heartware.
Another change that they have made is to align our goal for all M&M (Auto Sector)
employees with customer as the focus. 30 per cent of M&M's performance bonus depends
on how employees do in terms of customer satisfaction; and for all M&M dealers, 60 per
cent of their 'MDEP's score, depends on how they perform in our customer focus processes.
(MDEP is Mahindra Dealer Excellence Programme). Yet another change is in the form of
well-defined process for taking care of the customer from the time he enters the showroom
or the workshop till the time he leaves the showroom/workshop. While the processes are
important, they will not deliver customer relationship unless it comes from mindset change,
unless it comes from a desire from your heart. This kind of change in the approach of M&M
and its dealerships to customer relationship building has not been easy, but has been worth
it.
Let's through a few very effective but simple things that M&M has done in this
direction in the last couple of years. For example, the way M&M dealers are now delivering
vehicles is really becoming an emotional experience for the customer. Various dealers have
come up with different ways of making it an auspicious occasion for the customer. They are
performing Puja to match the faith of the customer. There are a few dealers who actually
have full-time Pujari in their showrooms and have different kinds of Puja ingredients to
perform the Puja. The R&D Head at M&M notes "Once I was present at one of the
dealerships when the Puja was being performed and I could see it as an occasion full of
emotions for the customer."
Yet another thing M&M has done in customer relation building is the adoption of the
concept of happy horn that has been borrowed from Pizza Hut. As a result of these
customer relation measures, M&M's performance in 2005 JD Power Sales Satisfaction Index
and other customer satisfaction surveys have seen a marked improvement. Mahindra and
Mahindra was the most improved brand in 2004 JD Power Sales Satisfaction Index, showing
an improvement of over forty points compared to the industry average of six points. In the
CSI too, M&M once again was the most improved brand, mustering thirty points in the
improvement score as against the industry average of three points. Similarly, M&M did
remarkably well in Total Customer Satisfaction (TCS) survey also.
There is something in M&M's approach that may be different and helpful for others
to build a stronger customer relationship. M&M management do not see it as giving away a
competitive edge. They do not see it as 'you win, I lose' or 'I win, you lose' situation. I see it
as a situation where we all win, because M&M would like to see the Indian automobile
industry to be seen as one of the most customer friendly and one of the most customer
focused industries, not only in India but globally.
Industry Environment:
The Indian auto industry is highly fragmented in nature and has 8 players, employing
250,000 people. The output of the Indian auto component segment, as per ACMA, was
estimated at around $5.1 billion (Rs 245 billion) in FY03.
Since an auto assembly involves large number of parts, ACMA has classified sector
companies on the basis of components that they supply to auto manufacturers. The
following table lists the industry segmentation on the basis of components, their
contribution to the overall industry revenues and some of the leading players in those
segments.
motors
Equipment Dashboard instruments 7.0% Motherson Sumi,
Lumax
Others Fan belts, sheet metal parts 33.0% Rico Auto,
Sundram
Since auto ancillary companies mainly act as vendors, it is extremely important for
them to remain competitive, both in terms of cost as well as quality
Let us throw some light on the various operating parameters presented in the flow
chart below:
Operating profits: The operating profit of an auto ancillary company is the difference
between the revenues earned and the expenses incurred. We shall now focus on the
revenue side first.
Industry Structure:
Number of players:
Maruti Alto:
India’s largest selling car, the features that have made the difference are its
incredible mileage and Electronic Power Steering. Priced a little higher than the 800, the
Alto has carved a niche for itself as the ideal urban commuter– Rational.
Maruti Swift:
Radical Styling and an energetic engine has made the Swift a runaway success. The
car is the leader in the compact plus segment due to Maruti’s brand name and technological
superiority. – Self expressive
Maruti Esteem:
Introduced in 1994, the Esteem was a runaway success in a largely unchallenged
market. However with the advent of new Players like the Hyundai Accent and the Ford Ikon,
the esteem has struggled to retain its market. Is still a practical value for money Sedan. -
Emotional
Suzuki Baleno:
An engineering marvel the Baleno boasts of a variety of features like a super
responsive engine and the best Climate controlled air conditioner in its class. However its
stodgy looks have deterred the sales of the Baleno. However recent price cuts by the
company have buoyed the sales of the Baleno. – Self Expressive.
Grand Vitara:
A SUV directly imported from Suzuki as a CBU, the Grand Vitara, is a Super premium
SUV, with a variety of features. However sales are not very strong as the vehicle is very
steeply priced. - Self Expressive
(2) Hyundai:
Hyundai India, the Korean giant entered the Indian markets in 1996. It has emerged
as the closest competitor to Maruti’s dominance.
Dubbed as the Sunshine car, the Santro has undergone a number changes and
remains Hyundai’s most successful car in India to date. Ease of maintenance, good looks and
a responsive engine have made the Santro Xing, an excellent car to own. - Rational.
Accent:
Attractively packaged and available in both petrol and Diesel variants, the Accent
challenged Maruti supremacy in the sedan segment. With the release of the sporty
hatchback viva, the Accent gave its consumers multiple varieties to choose from. It
continues to be one of Hyundai’s most popular models – Emotional
Elantra:
This premium sedan boasts of a variety of features. However due to improper
positioning, and pricing the product failed.
Sonata Embera:
Since its launch as a Premium sedan in the year 2002, the Sonata has had several
makeovers without much success. The Sonata Embera is the 3rd version of the Sonata and
Hyundai is confident that this model will outsell its predecessors: Self expressive.
Terracan:
The Terracan was launched as a Super premium SUV, and is targeted as an
Offroader. Unconventional looks and a high price tag have affected its sales.- Self Expressive
Getz:
The Getz was the first entrant into the Compact plus segment, however the launch
of the Suzuki Swift, has stagnated the sales of the Getz: Emotional
(3) General Motors:
General Motors is the worldwide leader in car manufacturing, with a 17% share in
the world auto market. Its products are sold in over 170 countries, and its manufacturing
base is spread across 43 countries and its annual production is roughly 83 Lakh vehicles. Its
tryst with India began in 1928, with the assemblage of Chevrolets in 1928. General Motors
India was formed in 1994 as a result of collaboration between General Motors Corporation
and C.K. Birla Group of Companies. The Opel Astra that GM India is producing is Opel's best
selling model worldwide and the third best selling car ever produced.
Sedan
>> Aveo >> Optra >> Tavera
>> Tavera
Neo
Chevrolet Aveo:
Concentrates more on middle class market. Sturdiness is compromised. The Sedan is
pitted against Honda City and Ford Fiesta. Chevrolet expects the Aveo to fill the void left by
the Corsa. - Emotional
Chevrolet Optra:
Since the launch in 2002, the Optra has carved a niche for itself in the Premium
sedan segment. The launch of the 1.6 Liter engine has buoyed the sales of the Optra. Self
Expressive
Chevrolet Tavera:
Initially pitted against the Toyota Qualis and the Tata Sumo, the Tavera has
established itself a utility transport vehicle. Chevrolet has only recently launched the Tavera
Neo in a bid to get a foothold in the SUV segment: Rational
Tata Motors:
Tata Motors Limited is India's largest automobile company, the second largest in the
passenger vehicles market with winning products in the compact, midsize car and utility
vehicle segments. Established in 1945. Over 3.5 million Tara vehicles ply on Indian roads,
since the first rolled out in 1954. In 2004, it acquired the Daewoo Commercial Vehicles
Company.
Indigo Marina:
A car that has the luxury of a sedan and the utility and convenience of multiutility .
Indica V2 :
The power of diesel re-energized
Incredible mileage
Highest torque in its class
Electronic Power Steering
Energetic pickup
-Rational
Indica V2:
Convenient A/C controls.
Ford India:
Power steering
4.9 meter turning circle radius
Ford Fiesta:
Make you GO FIDA
Ford Endeavour:
The next BIG thing
Ford Fusion:
Ultimate urban car - as different as you .
Power steering.
Engine immobilizer.
Smart start Ignition system.
5 speed manual transmission.
Tubeless tyres. (Widest and biggest tyres in its class )
Higher ground clearance than most SUVs.
-Emotional
The next table shows the comparison between each model of each of the OEM in India
OEM segmen Features
t Power Fuel Comfort Safety Styling
efficienc
y
Maruti
Maruti 800 Compact 6 8 5 5 4
Maruti Alto Compact 7 8 6 6 5
Maruti Swift Compact 8 7 6 8 8
Plus
Baleno Premium 8 7 7 7 4
Models Sedan
Esteem Sedan 7 8 6 6 6
Grand Vitara SUV 7 5 5 7 6
Tata
Indica V2
* Xeta Compact 7 8 5 5 5
* Turbo Compact 9 7 5 5 5
Models Indigo Sedan 8 7 6 6 6
* Marina Premium 8 7 6 6 6
Sedan
Safari Dicor SUV 7 6 8 7 7
Hyundai
Santro Compact 8 7 6 6 5
Getz Compact 8 6 6 7 7
Plus
Accent Sedan 8 7 7 7 7
Models Embera Super 7 5 7 7 8
Premium
Sedan
Elantra Premium 8 5 7 7 7
Sedan
Terracan SUV 8 6 7 8 6
Ford
Ikon Sedan 6 6 5 6 7
Fiesta Premium 8 8 7 7 6
Models Sedan
Fusion Compact 7 8 8 8 5
Plus
Endeavour SUV 7 6 8 8 8
General Motors
Tavera UV/SUV 6 8 6 6 5
Models Optra Premium 6 6 7 7 7
Sedan
Aveo Sedan 7 7 6 7 7
The next graph shows the production pattern along with installed capacity patter from 2006-07 to 2011-12
(projections): (Source: FADA)
Nature of competition:
The Indian automobile industry has come a long way since the first car ran on the
streets of Bombay (now Mumbai) in 1898. The initial years of the industry were
characterized by unfavorable government policies. The real big change as we see in the
industry today, started to take place with the liberalization policies that the Government
initiated in 1991.
In the last couple of years, we have also witnessed a change in buying preferences;
share of the Maruti 800 in the total passenger car industry has been going down steadily.
Consumers have started moving up to bigger cars. With increasing disposable income and
decrease in interest rates, customers prefer bigger and safer cars in each segment. The
growth of the 3-4 Lakh segment cars corroborates this trend. Entry-level sedans which are
perceived to have a premium image as compared to hatchbacks (because of 3 box styling)
have been steadily realigning prices to attract the upper segment of the hatchback buyers.
This increased value propositions has fuelled growth of the auto industry in the last 2 years.
The Indian customer has seen influx of latest generation of vehicles and the best
technologies. This development is partly driven by the improved road infrastructure in the
country. With the completion of the Golden Quadrilateral, there will be a further shift in
usage pattern and car purchase reference. Safety and vehicle sturdiness, car attributes that
were never considered earlier, will be given greater consideration in the car selection
process. Buyers will opt for road travel over railway travel. On account of its fuel efficiency
advantage, diesel engine powered cars will continue to be popular despite the reduction in
price gap between petrol and diesel fuel prices.
Gone are the days when buyers queued up to buy a car and both manufacturers and
their dealerships operated on healthy margins. The challenge to achieve volumes and
market share has pushed manufacturers to operate on wafer thin margins. This pressure on
the bottom line is further compounded by increase in input costs on account of increase in
price of key elements such as steel as well as tighter emission and safety norms.
Manufacturers today are not in a position to pass on increasing costs to the customer and
are being forced to offset the same through greater efficiencies in operation. Focus is on
Top Line growth rather than on Bottom Line growth. Heavy discounting by almost all car
manufacturers is likely to continue and will erode margins for both the manufacturer and
the retailer.
In time to come, product differentiation is bound to reduce and cars from different
manufacturers are going to be increasingly comparable on quality and performance
parameters. The key differentiator will be Customer Service. Car dealerships will need to
shift focus from "Selling Products" to "Selling Services".
The graph shown on the next page highlights the expected revenue sources for the
dealership in the years to come. With associated services becoming high revenue earners, it
becomes extremely important for car manufacturers to closely monitor the dealerships and
ensure that customers are completely satisfied throughout the ownership of their product.
The dealer would have to focus on developing a life-long relationship with his customer, this
focus would help him move the customers up to the next higher segment car by the same
manufacturer.
Car dealership will need to operate on a larger scale with greater horizons in mind.
As with large retail chains, they will need to expand with multiplicity of outlets and grow
into respectable brands in themselves. Brands in which consumers will have trust.
Dealerships with such Brand value will become preferred choice of employment for sales
consultants. These retailer chains will be differentiated on the levels of service provided by
them and in the transparency of operations. Auto Dealerships thus have to ensure their
viability in the long run by focusing on processes, service/maintenance and customer
satisfaction during the complete ownership period. With word of mouth/referrals having a
strong influence on vehicle purchase, it is imperative for the manufacturer as well as the
dealer to be customer focused at all times. Customer loyalty programs will playa big role
since every manufacturer will have a product at different price points and everyone will
want a customer for lifetime. As the Indian car market matures, customers will expect the
latest products and technology from manufacturers. High levels of reliability and quality will
become "hygiene" factors in the years to come. High technology of products and extended
warranty packages will ensure that dealership workshop business is assured.
However, body shop repairs will continue to be the big revenue earners for
workshops. Regular revenue on account of scheduled services will be under pressure on
account of longer service intervals and higher quality of vehicles, which need reduced
maintenance and repair. This will be further compounded by improved road conditions
leading to longer life of vehicle aggregates. The opportunity for workshop revenue will lie in
annual service contracts and bundling of offers such as vehicle repainting and
refurbishment.
Car dealers are now partners in business for car manufacturers. Their feedback on
the product is used in strategic decision-making and also has a bearing on future product
plans. Dealers are being groomed for the times to come where they would have to sell
multiple products in different segments to a different set of customers and still ensure that
they satisfy all their customers who would reflect in increased sales for the dealership and
the manufacturer.
With product feature differentiation fast disappearing and the market forces
defining the price of each new car sold, customer satisfaction becomes an increasingly
Rapid economic development has been the primary objective of independent India.
It has been pursued through industrialization especially the development of basic and heavy
industries within the ideological framework of a 'Socialist Pattern of Society' stressing
equitable distribution. In order to ensure equitable distribution, the State, as the principal
agency acting on behalf of the society as a whole, assumed direct responsibility for the
development of industry. The State's direct involvement in the development of industry
resulted in the formation of a dominant public sector and heavily regulated private sector.
To enable the government to control the course of industrial development, public utilities
and industries that were essential but required heavy investments were reserved for the
public sector. The private sector was subjected to controls and regulation through the
Industries (Development and Regulation) Act 1951 and various policy instruments were
used to guide the private sector industry into socially desired patterns. Some of the
important policy instruments that have been in practice were industrial licensing, capital
issues control, price controls and distribution controls. Of these, industrial licensing has
been the basic and the most comprehensive instrument that has acted as a big barrier to
entry and thus given assured markets to the few existing industrial units.
The new economic policy of liberalization and globalization of 1990s changed the
rules of the game in the industry once again. Following its endorsement of the WTO
agreement, India has already opened its economy to transnational corporations which
resulted into the entry of many international players like General Motors, Ford, Honda,
Peugout, Volvo, Mitsubishi, Hyundai and Daewoo in the vehicle industry along with Delphi
and Visteon, both US corporations in the Components industry. Also, a new automobile
policy is under way to lay down the rules and regulations for the imports of cars and their
components following the dead line (1 April, 2001) set by WTO to dismantle the trade
barriers in the industry. 130 The time is not too distant before the Indian automobile
industry gets fully integrated with the global industry. The immediate consequence of this
will be an increasing competitive pressure in the domestic market. In the long run, it is
expected that the Indian automobile industry including the components segment will take
shape along the lines of the global automobile industry.
Until the early 1990s, the automotive sector in India was highly protected. This was
in the form of steep import tariffs and measures that restricted the participation of foreign
companies. Hindustan Motors (HM) and Premier Automobile (PAL) that were set up in
1940's dominated the vehicle market and industry. In the 1950s, the arrival of Tata Motors,
Bajaj Auto, and Mahindra & Mahindra led to steadily increasing vehicle production in India,
while the 1960s witnessed the establishment of the two- and three-wheeler industry in
India. However, the automotive industry witnessed tremendous growth after the entry of
Maruti Udyog in the 1980s. In 1983, the government permitted Suzuki - for some time, the
only FDI player - to enter the market in a joint venture with Maruti - a state operated
enterprise at the time. Ten years later, as part of a broader move to liberalize its economy,
India de-licensed passenger car manufacturing and opened it up further to foreign
participation. That brought a wave of FDI to India's vehicle industry. Import barriers have
been progressively relaxed. Today, almost all of the major global players are present in
India. The automotive industry is today a key sector of the Indian economy and a major
foreign exchange earner for the country.
Product differentiation:
Contrary to the earlier perceptions of diesel engines as noisy, vibrating, high wear &
tear, slow on pick up – the perception of diesel engines is changing leading to more and
more customer readily accepting diesel vehicles as personal mode of transportation. A
number of reasons are contributing to this important evolving trend:
1. Introduction of CRDI engines in below Rs.10L brands - for e.g. Hyundai Accent and
Toyota Innova. CRDI engines have contributed in a big way in changing customer
perceptions of diesel vehicles. This has been supported by effective communication
a la Accent CRDI communication in showcasing the lack of differentiation between
petrol and diesel.
2. Better quality and additive diesel fuels being made available and advertised by fuel
marketers have also contributed to this cause. As the awareness and knowledge of
both CRDI and improved fuels increase, we are likely to see increased acceptance of
diesel vehicles. In fact, we are likely to see a diesel variant of every model coming up
in the near future.
Premium hatches such as Getz and Swift are here to stay. At this stage, Indian
consumers have not evolved to the extent of accepting premium hatches as a better
alternative to entry level sedans. However, introduction of Getz & Swift, though not fully,
has initiated the advent of this segment. This segment would flourish with introduction of
premium hatches from global players such as General Motors, Toyota & Honda.
For this segment to reach a kindling platform from which it could possibly become a large
market would require, introduction of premium hatches from manufacturers such as
General Motors, Honda & Toyota – providing customers with an option of owning a vehicle
from these manufacturers at an affordable price.
Premium hatch segment is likely to overtake the B segment i.e. Santro, Zen, WagonR
segment once it reaches a certain level of installed base and presence of more players. As
the current B segment overtook the A segment (Maruti 800) in 1999 with introduction of
multiple models.
This would drive the prices down for B segment and the prices of the premium
hatches would also be rationalized further. This would pose a serious threat to entry level
sedans, as customer would either prefer a premium hatch or opt for a mid sedan; bypassing
the entry level sedans.
We have witnessed more and more crossovers being introduced in India – Fusion,
Innova etc. – one of the key strategic moves by key manufacturers. However, the knowledge
among customers about crossover is at a very nascent stage – not enough communication
has been done about the concept of crossover in India.
The need for manufacturers to introduce crossovers is due to the following possible
reasons:
Most customers cannot afford different vehicles for different usages – hence
crossovers help in fulfilling the need for different usages from one vehicle – not to
mention that currently one vehicle in household is used for various purposes, but
sometimes customers get constrained by the issue of space, power etc.
Crossover being what they are – likely to appeal to a wider cross-section of audience
– for e.g. MUV-Sedan crossover is likely to attract not only MUV but also sedan
customers
The crossover as a concept is new not only in India but globally as well – customers
need to get used to the looks of this segment which of course is new and different
from what customers have been exposed to.
The key display of evolving consumer needs and expectations - largely, led by
manufacturers are:
If we recall 10-15 years back, customers’ basic need was for a ‘4 wheel’ vehicle in
whatever form or shape, as the options for customers increased – their needs and
expectations also evolved, for e.g. with introduction of Maruti’s Zen, customers got an
option of a smaller vehicle but more powerful and better drive quality – this changed the
customers’ definition and expectation of power and drive quality; when Lancer was
launched - it defined status, however with the launch of Optra, Corolla and Octavia, the
definition and benchmark of status changed again.
The thing to notice is – these evolving needs have been largely due to
manufacturers’ led initiatives and introductions – Indian customers have started to evolve in
terms of their needs and expectations without manufacturer initiatives; hence it would
become increasingly important now to understand these customers and their changing
needs in order to be ready with a product which fulfills their needs and NOT led by what the
manufacturers desire to offer.
It is increasingly becoming difficult to differentiate the segments basis price both for
the manufacturers and customer alike – in some segments the price boundaries have just
vanished. This is principally due to following reasons:
Reduction of price of entry 3-box taking it closer to hatches and in some case
overlapping with hatches.
Increase in competition in financing options leading to low differentiation in EMIs for
vehicles in consecutive segments. If I can afford a high end B segment car, then I can
afford a low end entry sedan as well – leading to blurring price boundaries in
consumers’ mind. It’s no more about whether I can afford a car worth Rs. X, its all
about whether I can afford a car with a down payment of Rs. Y and EMI of Rs. Z
The evolving customer needs are not just limited to vehicle purchase and decision
making, BUT also to the post sale experience. To cite an example: one of the key reasons for
Fiat Palio not picking up post initial success, apart from mileage: Post Sales Service. The
consumer perception of Post sale service and back up support has increasingly started to
play a big role in the decision making process.
Customers are increasingly becoming more and more demanding in terms of after
sales service – a factor recognized by manufacturers which has led to communicating post
sales service packages.
Customer expectations are likely to keep on going up in terms of after sales service towards:
The concept of Model year launches have not come into this country in a big way;
however, it is not far off when manufacturers would have to get into model year launches.
Many manufacturers are actually doing it on a small scale. Basically, for same brand with
slight modifications to be launched every year as a new model year – this keeps the
excitement of the brand alive in customers’ mind.
When customers are fully integrated with this concept, then manufacturers are likely to
seriously look at doing design convergence across models. The manufacturers who are
looking at or planning design convergence now are better equipped to handle this scenario
3-4 years down the line.
With distinct crunch in time amongst customers, sooner or later they would expect
to evaluate multiple vehicles under one roof. This is one of the requirements which might
be thrust upon manufacturers due to customer demand. This is likely to lead to the
following:
Currently, there are dealers who have multiple brands (different companies); but not
under one roof. The whole concept of DMA/DSA is likely to converge into formal multi
brand outlets. We are likely to see emergence of Car Malls & Complexes in major cities in
India - in the next 2-3 years.
Indian automotive industry has just got onto the Autobahn – and it’s time to step on
the gas. The coming years will see our customers turn savvier – and this will lead to transfer
of knowledge from manufacturers to customers and vice versa.
Government policies:
Auto Policy 2002:
The government has a plan in the auto policy of 2002 which can be shown as:
Emission Norms:
March 2004 was a busy month for everyone in the automobile industry, not only on
account of the financial year closure but also because of some last-minute changes with
regard to implementation dates for BS II emission norms for diesel-driven two and three
wheelers and four wheeled vehicles and the uncertainty with regard to timely completion of
tests for new safety norms coming into force from 1st Apr'05.
On 29th Mar'05, just three days prior to BS II norms coming into force in the entire
country and BS III norms in 11 cities, the Ministry of Shipping, Road Transport & Highways
issued a draft notification proposing deferment of BS II norms for diesel driven two, three
and four wheeled vehicles in 7 states - Rajasthan, Uttar Pradesh, Madhya Pradesh,
Uttaranchal, Himachal Pradesh, Jammu & Kashmir and Punjab.
This certainly did not augur well, as the Industry had worked extensively to introduce
the new products in time for Indian conditions. Substantial resources had been spent on
developmental work and entire production planning of Bharat Stage II and Bharat Stage III
vehicles, to comply with various MoSRT&H notifications.
The Automobile Industry does appreciate that the postponement decision, would
also have been difficult one for the Government of India and must have been taken under
exceptional circumstances. However, this move has given rise to an anomalous situation. At
this stage, it would not be feasible to make any changes with regard to production plans.
Given the fact that production of Bharat Stage I vehicles was to be stopped from 1st
April 2005, no vehicle manufacturer has submitted Bharat Stage I models for testing for
compliance with the safety & noise regulations coming into force from 1st April 2005. Thus,
no Bharat Stage I vehicle model has been certified as per notification No. SO 1365 (E) dated
13th December 2004 and GSR 849 (E) dated 30th December 2002.
Therefore, SIAM suggested to the Ministry that if BS II norms for diesel vehicles were
being deferred in the 7 States, Bharat Stage I compliant Diesel vehicles currently being sold
in the seven states mentioned in the draft notification may be permitted to be
manufactured and sold even after 1st Apr'05, based upon the certification for all the CMVR
provisions as prevalent on 31st Mar'05.
The final notification from the Ministry GSR 200 (E) dated 1st Apr '05 and issued on
4th Apr'05 has notified the implementation dates for two, three and four wheeled diesel
vehicles in the 7 states as given in Table 1.
Table 1
Serial No. State Date
1 Rajasthan 01-06-2005
2 Utter Pradesh: 01-06-2005
Mathura, Kannauj,
Muzaffarnagar, Aligarh,
Farukkabad, Saharanpur,
Badaun, Barreily,
Moradabad,
Hathras, Rampur, Bijnor,
Agra, Pilibhit, JP Nagar,
Mainpuri, Lalitpur, Hardoi,
Firozabad, Jhansi,
Shahjahanpur, Etawah,
Jalon, Lakhimpur Kheri,
Etah, Mahoba and Sitapur
3 Uttaranchal 01-07-2005
4 Madhya Pradesh 01-09-2005
5 Himachal Pradesh 01-10-2005
6 Jammu & Kashmir 01-10-2005
7 Punjab 01-10-2005
New safety regulations were notified for implementation with regard to automobile
lamps, lighting and light signaling devices, interior noise, and spray suppression devices
among others, with effect from 1st Apr'05.
The relevant standards for automobile lamps and lighting and light signaling devices
were finalized and notified in December 2004. Following a review meeting held jointly by
ACMA, SIAM, TMA and ARAI, it was felt that a deferment of implementation dates for
regulation pertaining to lamps for four wheelers, installation and performance requirements
for lighting and light signaling devices may be needed considering the number of pending
cases.
Lighting and Light signaling devices include main-beam headlamp, dipped beam
headlamp, direction indicator, hazard warning signal, reversing lamp, etc. The deferred
dates are given in Table 2.
There is no denying that these last minute changes would lead to considerable
hardship for all concerned - the Ministry, RTOs, automobile manufacturers, component
manufacturers, dealers and customers.
SIAM is of the view that in the future at the time of introduction of Bharat Stage IV
emission norms, the implementation date should be decided after due consideration of the
availability of the fuel well in advance of the introduction of emission norms.
Table 2
Serial Standard Revised Date of
No. Implementation
1 Automobile lamps used AIS 1st Oct'05
in motor vehicles 034/2004 (for 4 wheelers)
including construction 1st Apr'05 (for
equipment vehicles 2&3 Wheelers)
- no change
th
2 Installation requirement for AIS 13 December 2004
lighting and lighting signaling 0008/2001
devices for non-transport and Clause 1st October 2005
transport vehicles having more 6.2.6.1 of
than 3 wheels and their trailers AIS
and semi- trailers subject to the 008/2001
following:
Safety 13th Dec'04
Installation requirement for Standard and valid upto
vertical orientation of dipped No. 15.1 30th Sep'05
beam headlamp
Performance requirement of
the lighting, light signaling
and direction indicator
system of construction
equipment vehicles except
the requirement of self-
cancellation of turn signal
indication
PUC Certificates:
On 1st Oct' 04, new norms for in-use vehicles were introduced. On 1st Apr'05, new
emission and safety regulations for new vehicles came in force in the country. Is there a
business opportunity for automobile dealers to move from meeting the needs of the 6.79
million customers served last year to meet the needs of over 1.2 billion stakeholders? I
believe there is, and more importantly it can be done profitably.
In 2004, 6.79 million new vehicles were sold in India. In 2005, sales crossed 7.5
million. While SIAM members produce these vehicles, it is the FADA members, who actually
interface with customers, sell vehicles and service their needs. One view would be to look at
the current - 7.5 million customers as the base or potential market for dealerships across
the country. Another view would be to look at the registration data of over 60 million
vehicles on the roads in India and see this as an opportunity. An opportunity for FADA
members to provide value added services to customers not only at the time of sale but also
beyond the period of warranty. Is there a way to focus on these 60 million and reach out to
the over 1.2 billion people in India?
From 1st Oct’04, new emission laws for in-use vehicles have come into force. The
new norms that in-use vehicles have to meet are in Table 1. Not only have the norms
changed, but the test equipment, test method and procedure for testing have changed.
New Pollution Under Control (PUC) Check Centers that meet the following norms among
others would now only be recognized as being able to give PUC certificates. They need to
have approved four gas analyzers. At the time of going to press, four makes have been
certified by ARAI. Not only do these centers require the new equipment but also have to
ensure that these machines are properly calibrated and maintained; it is mandatory to enter
into an annual maintenance contract with equipment suppliers. In some cities these have to
be computerized.
While the norms have come in force from 1st Oct’ 04, many PUC centers are not
ready to serve the needs of customers. There is a clear role for dealerships, installation of
equipment on a priority basis and to take the opportunity to serve the increasing number of
vehicle owners. It is not only a significant business proposition, but an opportunity to
demonstrate a positive attitude towards environment protection.
Simultaneously, the norms for in-use public service vehicles and transport vehicles
are changing. To enable the testing of these vehicles on an annual basis, new inspection and
maintenance centers are being set up. In Delhi, for example, a special centre for testing
heavy vehicles has come up while another for three-wheelers has also been announced.
What is different is that these new inspection and maintenance centers would carry out
loaded tests for emission measurement, requiring equipment like dynamometers. While in
Delhi, these are being set up by the Government, in other states such as Himachal Pradesh,
the Road Transport Authority has indicated that they would like to set up these in a public-
private partnership mode. Many of you have existing land that could be used to set up the
centers. There is a need to show initiative and drive to take advantage of this opportunity.
TABLE - 1
In-Use Vehicle Emission Norms
(w.e.f. 1st October 2004)
S.
Vehicle Type CO% HC*ppm
No.
1. Two-wheelers - (2/4S)
4.5# 9,000
Manufactured on or before 31st March 2000
2. Two-wheelers - (2S)
3.5 6,000
Manufactured after 31st March 2000
3. Two-wheelers - (4S)
3.5 4,500
Manufactured after 31st March 2000
4. Bharat Stage II compliant 4 wheelers 0.5 750
5. 4 wheelers other than Bharat Stage II compliant 3.0 1,500
* For CNG Vehicles NMHC=0.3 X HC; LPG Vehicles RHC=0.5 X HC
# Existing In-Use Norms
Once in six months
On 1st Apr’05, New Bharat Stage (BS) III norms in the 11 cities, and the extension of BS II
norms for the rest of India would be mandated. The new vehicles sold in the 11 cities would
need to meet emission norms as given in Table 2, Tables 3A, 3B and 3C.
TABLE - 2
Emission Standards for Two-Wheelers Manufactured from 1st April'05
Vehicle Pollutants Norms (g/km) DF*
2-Wheelers (Petrol) CO 1.50 1.2
HC+NOx 1.50 1.2
2-Wheelers (Diesel) CO 1.00 1.1
HC+NOx 0.85 1.0
PM 0.10 1.2
Type Approval (TA) = Conformity of Production (COP)
*Deterioration Factor. Vehicle Manufacturer may opt for ageing test of 30,000 kms
TABLE - 3A
Bharat Stage III-Motor cars with seating capacity of and up to six persons
(including driver) and GVW not exceeding 2500 kg
DRAFT
Vehicle with Limited values for Type Approval (TA) as well as COP (g/km)
CO HC NOx HC+NOx PM
Gasoline 2.30 0.20 0.15 - -
Diesel Engine 0.64 - 0.50 0.56 0.05
TABLE - 3B
Four Wheeler Passenger Vehicles with GVW equal to or less than 3500 kg and designed to carry more than 6
persons (including driver) or maximum mass of which exceeds 2500 kg and 4-Wheeled Vehicles (other than
passenger vehicles) with GVW equal to or less than 3500 kg
DRAFT
Vehicle with Limited values for Type Approval (TA) as well as COP (g/km)
CO HC NOx HC+NOx PM
Class Ref. Mass (rw) kg G D G D G D G D D
I rw <1305 2.30 0.64 0.20 - 0.15 0.50 - 0.56 0.05
II 1305<rw<1760 4.17 0.80 0.25 - 0.18 0.65 - 0.72 0.07
III 1760<rw 5.22 0.95 0.29 - 0.21 0.78 - 0.86 0.10
G = Gasoline; D = Diesel
DF = 1.2 (CO, HC, NOx) for Gasoline and Gas; 1.1 (CO), 1.0 (NOx, HC+NOx), 1.2 (PM) for Diesel
TABLE - 3C
Diesel Vehicles with GVW exceeding 3500 kgs
Limit values for TA & COP
SIAM members have been extending a voluntary emission warranty for new vehicles
for up to 80,000 km for cars and 30,000 km for 2 wheelers fitted with catalytic converters.
This warranty is subject to the provision that the vehicle owners follow a prescribed service
schedule and procedure. A preliminary survey carried out by SIAM showed that a significant
percentage of new vehicle owners do not come back to the dealership or authorized service
centre for such "free" service. In some cases, the percentage that came back was only 15-
20% and was further reduced as we moved from the first free service to the second and
third. This low percentage was based on the perception that authorized service stations
charge higher rates than neighborhood service outfits with no added value! Thus, the
warranty does not serve its purpose!
Extended Warranty:
Another service being provided by some manufacturers and dealers is the concept of
extended warranty. There is a need for a Quick Service Facility (QSF). Under this, a vehicle
owner can avail of a quick service or maintenance check where minor repairs would be
taken care of within 5 to 15 minutes. QSF would encourage a shift of customers from
unauthorized centers and direct a significant percentage of the 60 million vehicles on the
road to your networks.
There is a need to set up procedures and systems by which customers are tracked
and educated' to bring back their vehicles for service and also for after-sales care. Not only
is there a need for telephone calls, provision of driver services and tracking but equally
important is the need for prompt and efficient service and also dispelling the notion that
there is a higher cost of service. Start by targeting to double the percentage that comes back
to you at each stage of service.
Initiatives in this area could bring a significant percentage of the 60 million vehicle
owners into the dealer network. Perhaps a loyalty programme with service points may not
be out of place.
Tracing vehicles or determining the owner of a vehicle often becomes difficult and
expensive. While the government initiates action to computerize the RTOs and link them to
a central server, or address the issue through smart cards, as being done in Delhi, there
could be an initiative taken by FADA. SIAM could explore partnering in such an initiative.
Another use of this network would be to help and trace stolen vehicles or vehicles
involved in accidents. Imagine customer delight when they learn that the dealer network
has helped in the recovery of a stolen vehicle.
Anti-Theft Devices:
A related value added service would be to provide and install anti-theft devices in
vehicles. The Police Departments of many states are making a request to proactively install
such devices to deter theft. While a statutory standards on anti- theft devices AIS - 074 (2&3
wheelers) and AIS - 075 (4 wheelers) are enacted w.e.f. 1st October 2005, dealers are best
placed to advise customers on the need and necessity to spend a little more to safeguard
their vehicle against theft. In fact, many customers do not know that installation of such
devices may result in the lowering of the insurance premium that they would have to pay
and thus the device would pay for itself over a period of few years. Not to talk of peace of
mind.
There is a national regulation that mandates the wearing of helmets by two wheeler
riders. Many State Governments have not mandated this. One view that could be taken is
that since there is no mandate, why do anything. Another would be, that even in the
absence of legislation, there could be a move by all of us to educate the customer on the
need for riders to use helmets. A practice by some Asian countries is a voluntary movement
to provide 2 helmets with every vehicle sold or rented out. In addition, there is a poster and
education campaign, communicating the need to wear helmets - of the right kind - even
though there is no regulation in place.
Seat Belts:
India is a young country. Many of first time cars owners have young children but are
unaware of the possible safety measures for children travelling in the car. In many
countries, children can only travel in the back and not in the front seat, in others; it is
mandated to use special child seats. Again, using that immense persuasive power that most
of you possess and the innovating marketing skills that you have, it would be a huge
contribution to society if you promote this campaign “Children in the Back” - “Use Child
Seats”.
Some would ask the question whether this responsibility lies with the manufacturers
or with the dealerships, or should it be made mandatory? It is a personal view that
mandating never helps, and since possibly not all cars owners would require this, it would
be better to encourage a pull and push from the dealers than a push by the manufacturers.
Driving Schools:
It is said that 60-70 % of accidents are caused by driver's error. Yet, there are very
few driver training schools or programmes for existing drivers. Many State Government
surveys have brought out deficiencies in driving schools. In many of the SIAM conducted
training programmes, drivers have indicated that they have never been through a proper
driving school before they acquired a driving license. Most have never been through a
refresher course. Some states like Delhi have mandated the need to go through such
courses before licenses are issued or renewed while others are in the process of doing so
but find facilities inadequate. Many SIAM members have opened driving schools.
An initiative from dealers to set up driving schools and strengthening the training
infrastructure in the country would not be charity. It would be a sustainable business
proposition and a significant service that you could provide to both existing and new
customers. Not to talk of the employment opportunity it would provide for many young
people in the country. Dealers are an important link in the chain to promote safety and safe
driving habits. It demonstrates that we care.
While manufacturers and service centers have to follow and strive to exceed the
requirements of existing environment, safety and pollution norms, there is more that could
be done to reach out and touch the lives of the 1.2 billion stakeholders in the country. SIAM
has been conducting driver training, safety awareness and pollution awareness programmes
and camps across the country. Yet, there is a strong feeling among some sections of society
that not enough is being done. A few vehicles that leave a trail of thick smoke bring to
naught the extensive work that is being done by the manufacturers. There is a strong but
often untrue perception that vehicles are the principal contributors to environment
pollution. Sometimes, this is translated into “we do not care”.
Getting closer to 60 million vehicle owners through such programmes would not only
insulate against any future downturn in the industry, but would also be a key for survival in
the event that sales and distribution networks change in the future.
Drop out rates among SCs, STs & Total Population (Source: 10th five year plan 2002-07)
Seat utilization ratio for SCs & STs in vocational training (%) (As of 30th June 2002)
SCs STs
Type % of total seats % of reserved % of total seats % of reserved
available category seats available category seats
Total 8.9 59.7 3.5 46.4
Apprentices
Graduate,
technician,
technician 3.0 19.7 0.4 5.4
(vocational)
apprentices
7(a) and 504 Loan Programmes that provide loan guarantees to small businesses;
Community Express Programme which combined small business loan guarantees
with targeted leading by select banks; and
Capital Access Programme (CAP) which allows a leading bank to make slightly higher
risk loans than conventional underwriting.
These schemes have proved very effective in improving the capital availability and
accessibility for minority businesses in USA.
Instead of forcing private sector units to compulsorily reserve jobs for the above
target groups, Government can offer substantive incentives (for instance, tax-breaks,
preference in Government procurement) to business enterprises that have certain
prescribed degree of representation of the disadvantaged communities in their
workforce.
Here also, the US experience is quite useful. There are certain direct tax incentives
available to US – employers for hiring the disabled and jobless people. Section 51 of
the internal revenue code, 26 USC 51, provides for a Work Opportunity Tax Credit for
employers who hire members of targeted groups having particularly high
unemployment rate or other special employment need.
It would be left to the companies to voluntarily decide if employing the designation
percentage of SCs/STs is worth the incentives or not. Fiscal incentives have the
advantage that they avoid the legislated interference and undue regulation any
mandatory reservation would involve. From the efficiency point of view, incentives
which are any day far better option than a quota reservation system, would not only
be instrumental in achieving the socio-economic mobility of the target groups, but at
the same time still leave the industry with enough room for flexibility and autonomy
of business operations.
Industry growth:
In the major economies of the world, auto industry is both a driver as well as a
reflector of the general economic growth of country. In the Indian scenario, the auto
industry is on the upswing, the like of which has not been witnessed for a long time. It has
been a major factor not only for the overall growth but also for instilling a sense of
confidence that has been generated in the country - a change in the mental make-up or
mindset and, that one may use the word "inferiority complex" into a feeling that we can do
anything and everything better than anyone else in the world. In line with the general
upswing in the economy, Indian auto industry is benefiting from the surging economic
growth and in turn boosting that growth. All segments of the industry are benefiting from
this, starting from 2- wheelers to the commercial vehicles. Exports are also surging.
This is really a time for optimism because what we are seeing could only be tip of the
iceberg as far as the general growth is concerned. The macro economic environment could
not be rosier.
The fact that automotive sector is benefited a great deal is quite obvious. How an
industry can contribute to nation building in this environment is a question to be addressed.
It is quite understandable that nobody invests for incurring loss; profit has to be there. How
one makes himself profitable certainly needs to be discussed and thought of. There is
tremendous scope of profit and, side-by-side; there is tremendous scope for national service
and a firm's contribution to the nation's development. If the two can he harmonized, it will
be an ideal situation.
The government has received requests about excise duty and other issues affecting
the automotive industry. The Government is committed to simplify all procedures and to
remove the inspector raj. The government has been working on various things. But a nation
cannot move from bullock age to a jet age overnight. There are stages. Everybody is doing
his best and, if, all do their best, there can be nothing better than their best. Therefore, they
have to do their best keeping in mind what is good for the nation and that when the nation
benefits, along with the nation the firm also get benefited. It is as simple as that if there are
better facilities of electricity, travel, water, health, then as a common citizen, all get
benefited. All this means harmonization of various interests and sacrifices for the common
good.
There are few issues, such as, uniformity in all State taxes, life of vehicles, etc. In
government's set up, there are many areas, which are left to the States for implementation.
Regarding vehicles, the Central Government governs and administers the Motor Vehicles
Act and the rules made thereunder, but the implementation is totally with the States, and
there are difficulties in some of these matters. These are some of the areas, including life of
vehicles and uniformity in registration fees, which the government has tried discussing with
the transport ministers, but States have their own view, and probably their own interest,
and sometimes the government cannot bring them round to the common structure. Every
time during the meet of Transport Ministers, they have this point as an item of discussion.
They arrive to some conclusions, they agree there in the meetings. However, when they go
back they find difficulties in implementation. This is one area, which certainly needs
attention.
As far as life of vehicle is concerned, it is again a State subject and there are a lot of
problems. Courts are now fixing life of vehicles in some States. At the moment, the users'
views have been accepted. However, as far as the Central Government is concerned, the
view is that the pollution level has to be within the permissible limits. If the vehicle life is
one year and it is not fit as per pollution norms, it cannot be on road. If the vehicle is fifteen
year old and is still fit within the emission norms, the government has no objection. But this
is an issue, which is now with the courts.
One of the strong drivers for the growth of the Indian automotive industry has been
the strong domestic market. The market has graduated over the last few years, not just in
terms of sales volume, but also in the offerings which are available to the customers. Even
about a decade and a half back, there were only a handful of options which a person could
look at, whereas today there are over seventy models of passenger cars and utility vehicles
which are on offer from over twenty manufacturers. Of these, about fifteen have a
manufacturing base in India. The others are imports and sold through their authorized
dealerships. In the two-wheeler market, there are over forty models which are on offer from
nine key two-wheeler manufacturers. Even in the commercial vehicle segment we are
seeing more models being offered by companies like Tata Motors, Ashok Leyland, Eicher
Motors and Volvo.
This trend is not just about vehicle manufacturers trying to sell more products in the
market. Rather, it is about vehicle manufacturers having to offer products which meet
specific requirements of the customer. Rise in income levels, greater availability of finances,
reduction in excise duties and frequent launch of vehicles targeted at specific consumer
needs have led this market to boom over the last few years. The past few years have been
among the best for vehicle manufacturers in the country. Passenger cars and multi-utility
vehicles together grew by 27 per cent and 17 per cent in the years 2003-04 and 2004-05.
Commercial vehicles grew by 36 per cent and 22 per cent during the same period. Two
wheelers, weighed by a significantly higher base grew by 11.5 per cent and 15.7 per cent
during the same period.
Some of the key drivers for the market include:
Market Trends:
A very significant trend in the Indian automotive industry is the increasing propensity
to purchase vehicles with better performance, safety and comfort. In the year 2004-05,
compact segment (A2) accounted for 60 per cent of the passenger car market, an increase
from 53 per cent during the previous year and the A3 (executive) segment witnessed a 57
per cent growth in the year 2004-05. Similar patterns can be drawn in the motorcycle
segment where the executive (over 150cc) segment has seen a surge in demand. Customers
see more value in buying a hatchback which has safety features like ABS and air bags than
spending the same money on a sedan which is relatively less equipped. With volumes
becoming substantial, companies are looking at feeding the market with India specific
models rather than looking at it as a last bout of life for their ageing products.
Another key trend is the increasing popularity of diesel vehicles in the personal
transport segment. This could be attributed to diesel being a cheaper fuel and also the
launch of new age diesel cars, which match their gasoline counterparts on performance and
maintenance. Alternate fuels like CNG, LPG & bio diesels are beginning to be used widely
across vehicle segments. While CNG is mainly used in the west and the north, LPG is used in
the east and the southern regions. This is mainly due to availability constraints and
inadequate infrastructure to transport these fuels.
Export Focus:
Buoyed by the increasing acceptance of India as a low cost-manufacturing hub for
auto components and automobiles, exports have taken a giant leap in the last few years. In
fact, for some large businesses it has become a mainstay business focus. Passenger car
manufacturers have taken the lead in making India a global small car hub - Hyundai has
made India its global hub for small cars, Tata Motors exported about 20,000 units last year
and Maruti Suzuki exports small cars to Europe from India. With the revision in excise duties
from 24 per cent to 16 per cent, export of small cars will definitely get a boost in the years
to come. The trend though, is not limited just too small cars. Skoda is increasing its capacity
in India with plans to export cars to the Asian region.
India is also emerging as a credible hub for R&D and vehicle development. Global
majors (among OEMs) and several global Tier One suppliers have scaled up operations of
their Indian technical centers and the quality and value of development in India is
witnessing noticeable improvement. However, at this time, the most critical vehicle
integration activities remain limited to the home centers of these overseas manufacturers.
As infrastructure improves, both the government and industry will need to pay even
greater attention to road safety. The safety record of India, as far as fatalities and serious
injury is concerned is dismal. This will need to be addressed at all points: products,
infrastructure and user behavior.
Top manufacturers like Honda, Toyota, Maruti and Hyundai have already begun
capacity expansion operations in India. Volkswagen, BMW, Renault and Nissan have
announced definite plans to set shop on Indian shores. In the commercial vehicle segment,
global majors like MAN, Vectra and Mercedes Benz have inked ventures with Indian
partners to cater to the Indian market.
The following table shows the past, current and future projections of passenger cars and MUVs growth in
million units (Source: FADA)
Market estimates prove that there is enough room for all of them and more.
Passenger cars are expected to grow at a CAGR of 11.36 per cent between 2005-06 and
2009-2010; commercial vehicles at a CAGR of 12 per cent; and two wheelers at a CAGR of
14.2 per cent. Exports are also set to rise with specific focus by the government and the
industry in capitalizing on India's advantage of being a low cost, high quality manufacturing
location. With world leading economic growth, rising levels of GDP and a market brimming
with options, India is sure on its way to being among the top automotive markets in the
world.
Industry Performance:
During the period 2005-06, sale of passenger vehicles in India registered a growth of
7.7 per cent. Continuing the tempo of explosive growth, two-wheelers registered a robust
growth of 13.6 per cent. Within the segment, scooters registered a decline of 1.6 per cent,
and motorcycles - a growth of 17 per cent, reflecting a continued movement from scooters
to motorcycles. At the same time, the moped segment continues to see a shift from urban
markets to rural markets and has grown by a modest 3%.
The health of the commercial vehicle industry has also improved with the total
industry reporting a growth of 10 per cent for this period. While the industry continues to
see some structural trends with larger growth at the lower tonnage segments and the high
tonnage segments, the Medium Commercial Vehicle (MCV) segment has been witnessing a
decline. This is attributed to a migration to 'hub and spoke' patterns for freight movement
and increasing competitiveness for road haulage even for longer distances compared to rail.
A consequence has been a large increase in sales of vehicles with payload capacities of one-
half to one tonn. At the opposite end of the product spectrum, a number of players
including Tata, Volvo, Daimler-Chrysler and MAN have announced plans for new modern
generation Heavy Commercial Vehicles, anticipating increased growth of large tonnage, and
long-haul movement with the new highways.
While the industry, particularly, the commercial vehicle segment, has been known to
be cyclical, the secular trends for the industry are positive, bolstered by the overall growth
of the Indian economy. The past couple of years of healthy demand have seen the industry
players post positive financial results and by and large this is reflected in the stock market
movement of the listed companies.
Raison d’être
The exercise was conceived to be comprehensive in its coverage of systems and
processes for managing dealerships. Hence these were classified along four dimensions -
sales, service, parts and relationship management. Within each of these dimensions,
parameters and sub-parameters were identified for understanding the manner in which
OEMs manage dealerships. For example, within sales practices - product development and
launch, stocking, sales support, etc. were covered as distinct processes. Specific emphasis
was laid on service - especially post warranty - as this is an aspect which is increasingly
becoming paramount in the 'ownership of customers'. A total of more than 75 specific
issues have been benchmarked across these various processes as part of the exercise.
The exercise was executed through interviews with 320 dealer-owners across 99
locations all across the country representing 20 major OEMs. Representations across small,
medium and large towns were ensured for each OEM, depending on the spread of their
network.
The responses have been analyzed to arrive at Best Practices possible (a score of
100) on each parameter and indices have been developed for each OEM on these
parameters vis-a-vis the Best Practices. The indices for each OEM on every parameter have
been aggregated to arrive at a score for the OEM for each practice - sales, service, parts and
relationship - and at an overall level. These indices have been compared across OEMs within
the vehicle category (e.g. Cars) to arrive at the Best Practices Index from among these OEMs
at the parameter, practice and overall management level.
Thus, the exercise provides a clear perspective for each OEM on where it stands on
every important parameter dealing with managing of dealerships, vis-a-vis its competitors,
not just within its vehicle category but across the automobile industry in the country.
• Are dealers' views sought by the principal in any new product development?
• What kind of support does the principal provide to help finance dealers stocks?
• Does the principal help the dealers realize additional revenue streams?
• How much of the parts order placed by dealer is generally supplied?
• What specific efforts is the principal taking to counter spurious parts?
• Does the principal leverage scale benefits to help reduce the cost of showroom
fixtures / workshop infrastructure?
• Does the principal formally communicate best practices among its dealers?
Results
The following chart shows the overall BPI in Indian Car OEM (Source: FADA)
Tata Motors is the leader in Sales BPI, followed by M&M making it an Indian OEMs
club at the top. Leaders in overall BPI like Toyota, Honda, Hyundai and Maruti have to catch
up in terms of their sales BPI.
The table below shows the Sales wise BPI in Indian Car OEM (Source: FADA)
Within the sales processes, most OEMs have low indices in areas like ensuring price
uniformity and combating discounting pressures, financing support to dealers and assisting
them in generating additional revenue streams.
Maruti is the leader in Service BPI followed by Honda. The industry average is lowest
in Service BPI due to the poor performance of most OEMs on Post Warranty parameters
poor focus on this aspect of the business, no marketing support, no or inadequately
designed service products, poor customer handling, etc. Besides, even on the warranty side,
there is an urgent need to focus on processes to empower dealers to take faster decisions
on warranty claims settlement.
The table below shows the Service wise BPI in Indian Car OEM (Source: FADA)
Hyundai and Toyota are the leaders in Parts BPI. However, there is a wide variation
between the lowest and the highest scorer with Maruti being a significant under-performer.
The table below shows the Parts Wise BPI for Indian Car OEMs (Source: FADA)
None of the OEMs have a formal parts return policy – a phenomenon common in
other parts of the world. Processes to control stock levels and not forcing supplies on
dealers is an issue with most OEMs,
Two Wheelers
Hero Honda has the highest BPI, followed closely by Honda, and TVS. The top 4
players – Hero Honda, Honda, TVS and Kinetic, have nearly similar scores while the rest are
lagging.
The table below shows the Overall BPI for Indian Two Wheeler OEMs (Source: FADA)
Kinetic is the leader in Sales BPI followed closely by TVS. Hero Honda and Honda
have some catching up to do in this area.
The table below shows the Sales Wise BPI for Indian Two Wheeler OEMs (Source: FADA)
Hero Honda is the leader in Service BPI (with a score of 59) but the absolute scores
of most OEMs is low, driven by their poor practices on Post-Warranty Service. The areas of
improvement are similar as in the case of cars - warranty rate and empowerment and post
warranty.
Honda Scooters is the leader in Parts practices, followed closely by Bajaj Auto. There
is a significant difference in scores of the top performers and the rest of the industry with
even leaders in other areas like TVS and Kinetic needing to improve significantly.
The table below shows the Parts Wise BPI of Two Wheeler OEMs in India (Source: FADA)
Even in the case of two-wheelers, none of the OEMs have a parts return policy and
stocks are thrust down the channel.
Commercial Vehicles
Ashok Leyland has emerged with the highest BPI, but the difference in scores across
players is low.
Ashok Leyland also has the best sales practices, but lags behind Eicher in Service BPI.
Absolute scores across all the BPI for commercial vehicles are lower than the other two
product categories. Issues impacting the score, apart from the parameters in cars and two-
wheelers, also encompass reimbursing warranty payments on time, no parts return policy,
combating spurious parts, etc.
Major developments are taking place in auto retail sector across the world. Indian
Auto Industry can learn a lot from studying what is happening in the more developed
markets. However, we must also make sure that we do not lose sight of some of the specific
characteristics of our own market.
The graph on the next page shows the momentum of Indian Automotive Industry (Source: SIAM)
All auto analysts would agree that the Indian auto market is one of the fastest
growing markets in the world. Given this growth, it seems obvious that auto retail has a very
bright future in India, particularly when the penetration of organized auto retail per capita is
still very low compared to developed markets like the US, which has 60 times more dealers
per capita than India. But below this highly attractive set of figures, there are many
challenges for auto retail.
The BRIC report projects Indian economy as the 3rd largest by 2050, which created
quite a stir when it was released.
If we look at the same set of figures somewhat differently, we see that despite
becoming one of the largest economies, we will still be a relatively poor country with low
average income levels. This is a very different trajectory than what the western countries
have seen.
What are the implications of this? It could mean that the smaller, cheaper entry-level
vehicles will continue to be the mainstay of the Indian auto market. They will be used more
for basic mobility rather than high margin lifestyle products, and we will need to tailor our
auto retail business models and formats to this reality.
Challenge 3: Urbanization
The next challenge is that of rapid urbanization of India. Over the next few years,
India will have the 2nd fastest urbanization among developing countries. By 2015, we will
have 3 among the largest 10 cities in the world.
This rapid urbanization throws up its own challenges for auto retailing in a country like India.
The availability and cost of land is likely to remain a huge challenge. Already land cost as a
%age of total dealership set up cost is about 60-70%, which is among the highest in the
world.
A 3-S model in highly dense urban centers may not be financially viable. Copying the
western model of out of town large format multi brand dealership may not be an answer
either, as our low-income economy could limit many customers accessing these outlets. We
will have to come up with our own solutions to this challenge.
The growth of the industry presents a huge opportunity for the auto retail industry.
However, this growth comes with a price. As the market matures, more and more models
would be launched and customer choice will also increase rapidly. Just as an example, the
number of small car models in India was about 15 in 1995, which is likely to increase to over
42, given the plans of the manufacturers, by 2010.
We all know that a loyal customer is a much more profitable customer. With this
increasing model proliferation, auto retail will need to rethink and rework its strategies to
ensure and maintain the loyalty of its customers.
If we look at the developed markets, we see many new types of players. OEMs have
launched their own 2nd brand for parts and service outlets. Large independent multi-brand
dealership chains compete with OEM single brand franchisees. In after sales, many players
have entered with different formats and business models.
These new formats and players are still at a nascent stage in the Indian market. But,
they are emerging and have aggressive plans. For example, ICICI Bank is looking at providing
more services than just auto loans. Reliance has very aggressive plans of entering auto
service and parts retailing. We will only see more such players emerge.
While this may be seen as good news for customers, for the current incumbents,
these new players represent a threat and strategies will have to be developed to take them
on.
aggressive. Similarly, new technologies are creating new challenges. However, there are
many more exciting opportunities that are opening up at the same time.
Thinning Margins,
New & More Intense Competition,
Savvier Customers,
Rise of the F.I.’s,
Radical New Technology,
And many more new & existing opportunities
The 'third wave' is upon us bringing along new challenges & opportunities
There have been three waves since India became independent and started its
industrial progress. The first wave was the closed markets of the fifties, sixties and
seventies, when we had three cars, namely, Ambassador, Premier and Standard Motors.
And, if you wanted a scooter, it was mostly the Bajaj for which one had to wait for at least
seven years. There was always a premium; supply decided the size of industry and the pace
of growth, and the choice was very limited. From there, we went to the second phase that
saw the advent of Maruti, Hero Honda, TVS, and Yamaha, bringing in new technologies,
greater choice and finance availability. But, we still had a fairly limited market range till
about five years ago. The 2000 dawned not only a new millennium but a new world of
consumerism in India. We are really seeing today young people with money in their pockets
to spend, driving new products, new styles and new fashions. The best international brands
are present in India today.
“The illiterate of the 21st century will not be those who cannot read
and write, but those who cannot learn, unlearn and relearn”
even small towns, villages and rural areas. Rural financing is going to be a great tool to open
up and tap the rural markets that are underserved today. And, most importantly, no longer
can we wait for the customer to come; we need to go where the customer lives and where
he/she works.
Other finer segments that are emerging are the youth, the rich 'hobby riders' and the
senior citizens. The youth today believes in individualism and individuality and, therefore,
demands customization at levels that we have not seen till now. We have not yet seen the
real burst of individual expression in terms of cruiser biking or SUV clubs. In the next five to
ten years, these would be the kind of things that would happen in this country just as it has
happened everywhere in the world. It will come about much quicker and faster than we can
ever believe.
The leap in IT
We are going to witness a big leap in the use of IT in dealership operations and
customer service relations. We still haven't seen IT and Internet usage in purchase of
vehicles and dealership management in the same degrees that we see in other countries.
We have not yet seen completely automated dealerships, the dealer management systems
and customer relation management programmes. These things are going to change the way
we do business. It is going to change our response and improve our costs. When these
linkages come and connectivity between dealers and the production planning takes place at
the levels seen in other countries, it is going to lower dealers' inventory and inventory costs,
improve logistics costs and cash flows. Companies also stand to benefit from the reduction
in cost of capital and work in progress. The real time information flow from dealers to the
manufacturers will certainly improve the way we design products, the way we respond to
changes in the market and the speed at which variants are launched as the customers'
demand and expectation change. It will also change the way our dealerships look. I think
dealerships are going to look like NASA outpost and less like ordinary dealerships today.
Dealerships are going to have Internet booths in their premises or at other places, where
customers can surf and see what the company has to offer. Customers don't even have to
talk to salesman, who will be simply there to assist the customer in making up his/her mind.
one roof. Such a scenario can create a completely new paradigm, although it looks like a
remote possibility. It may not happen to high-end brands but the possibility of it happening
in the case of lower end products that are more or less generic or mass products, cannot be
ruled out.
1. Transition from administered pricing to risk based pricing: meaning that the
premium rating will be based on features of the vehicle and the person driving it.
And we anticipate increased participation from customers in rating a risk. As is the
case in developed markets, the information provided by the customer will become
crucial in deciding the pricing. In the case of motor insurance, a combination of a
host of factors including the make, model, location, driver's age & experience,
security features of the car and usage will all have an impact on the final premium
that the customer will shell out.
2. 'Product Differentiation': which will probably represent the second phase of the de-
tariff process. Insurers will be able to provide products packaged to meet a
customer's unique requirements, and price them according to customer profile and
product features.
The opening up of the market will not only impact the insurance companies but also
the Auto Dealer fraternity, directly or indirectly. Since insurance will be moving from
insuring a car to insuring the customer, for providing better products and services, there will
be the need to augment knowledge about customers. Only then will one be in a position to
offer a valuable proposition to our customers.
Therefore, it is very important for the dealer to ensure that proposal forms are
properly documented and that the customer provides all relevant information. In the tariff
free regime, premiums will also be based on various other factors like driving habits, as well
as driver/owner details like the age of driver, past claims experience, occupation, usage of
the vehicle, the vehicle parking areas, safety features of the car, etc. All these details are
necessary, since any improper disclosure would compromise the claim and also impact the
premiums charged.
What's more, if the repair or replacement cost is high, the premium will also be high.
Premium for theft prone vehicles may be higher too. If the claims experience keeps moving
up, insurance premium at the time of renewal will go up. However, if the Manufacturers,
Dealers and Insurers come together, the problem can be identified and better remedial
measures taken up immediately, which can result in superior customer service. Claims
happen due to various reasons, but most are linked to driving abilities. It is important to
understand that reduced accidents mean reduced outgo for repairs and insurance.
Today, Auto Dealers provide a one-stop shop facility to their customers, offering
easy access to a variety of services like Finance, insurance, Repair & Servicing, Accessories,
Spare Parts, etc, which helps in earning additional revenues. Apart from the above, dealers
can also join hands with Insurance companies to provide additional services like Roadside
Assistance for towing, Courtesy Car Breakdown Assistance, providing an ambulance for
shifting the injured to the hospital and the like. All these "value- additions" can very easily
be bundled into the insurance policy for the customer and yield additional revenue to the
dealers. Furthermore, dealers may offer Annual Maintenance Contract (AMC) facilities to
their customers with one of the likelihood being - it may be discounted in the insurance
premium. This would help the dealer in selling more policies as well as earn additional
revenue through AMC charges.
Policy Renewals:
Handling renewals of insurance policies is yet another source of income for the
automobile dealers. Studies reveal that there are several vehicles plying on our roads
without insurance cover, offering a wonderful opportunity to chase renewals! Over here,
the database of customers needs to be looked into to track the renewal dates of these
vehicles, using smart Management Information System besides 1-2 more resources for
follow-up action to convert these opportunities into actual insurance policies.
of 'customer touch points' was never felt so relevant before. Hence, in the current scenario,
performance of dealers is an indication of performance of brand itself and vice versa.
The distribution has changed from a single channel to multiple channel of contact,
for both sales and after-sales services offered to the customer. With the multiplying of
channels, the competition has also grown multifold. Multi-brand showrooms are emerging
to offer convenience to the customer in comparing and evaluating various brands under
single roof and take faster decisions.
The earlier competition, only from small time local garages, is evolving into a larger
organized independent service provider.
In the given situation, the business model of automotive dealers is clearly under
tremendous pressure from all the business angles. The forces acting on the dealer business
are indicated in the Chart 2.
The competition amongst dealers of competing brands as well as within same brand
is crossing boundaries. Discounts and freebies are not a seasonal affair anymore. All this has
lead to drastic shrinking of margins in the new vehicle sales business. Some progressive
dealers confronted these challenges and worked their way to sustain bottom lines through
increased focus on after-sales business.
However, the sole support of after-sales service business itself is under threat of
substitutes in the form of organized (branded) franchised service network. Companies
supplying automotive related products in the aftermarket like oil, lubricants, auto
components and auto accessories are entering the lucrative automotive service business.
This will be the biggest ever challenge faced by the automotive dealers in India. The
automotive dealer's business was redefined from selling vehicles to servicing customers in
the late nineties with the entry of multinationals in India. However, this new definition of
the business itself is under threat with the newly emerging competition.
A word of caution
Well-known brands in the market like TVS, Cummins, Bosch, Castrol, Gulf Oil, and
Reliance have already forayed into the after sales business in some way and many more are
on the verge of entry. With fast pace of new vehicle sales, dealers cannot ignore the sales
function (even though it may not add much to bottom line or sometimes negatively impact
it). However, if the focus of dealership remains only on sales, the opportunity to earn from
growing after-sales service business would be exploited by the independent service
providers.
Any car owner evaluates a type of service centre on 4 Ps of service channel selection.
The 4 Ps are:
1. Price of Parts
2. Price of Labor
3. Proximity and
4. Promptness of service
Authorized dealer workshops are always likely to have higher price of parts and labor
than the independent after-market, given the higher overhead costs. However, proximity
and promptness of service are the two key criteria on which they need to work in order to
retain the customer within their fold and earn their lifetime value. There are very few
options left with the automotive dealers of this era. They either change themselves and
their systems to be more customers focused or concede the business to others.
Market share:
The chart below shows the relative market shares of various OEMs in Indian
automobile industry:
Conclusion:
The Indian market is a very interesting market, because it is defying global trends.
But for how long? And if it aligns with global trends, many an apple cart would be upset. On
the other hand, we may find a new way.
Firstly, we are a two-wheeler market rather than a car market, as befits our per
capita income. And, for the next 10 years we may remain so. But cars will gain in importance
even in this period. This is aided by the skewed development of the Indian economy,
wherein IT jobs are growing faster than manufacturing jobs.
Secondly, we are a mid-sized truck market rather than a large truck market. This too,
is changing with both development of roads and consolidation in the logistics market. But,
the change is likely to be slower than the car/2w changeover.
The global production of cars was 49 million in 2002. It grew by 4% over 2001, but
fell by 1% in Europe, 5% in Latin America and 9% in rest of the world. The US and Asia were
the only growth centers. Europe, NA and Asia now produce 14-17 million cars each. Global
production of commercial vehicles was 8 million, 5 million of which was in Asia.
There were 30 million 2-wheelers sold in the world. Of these over 70% were sold in
Asia. Large markets were China-10 million, India-5 million, Indonesia & Vietnam - 2 million,
Thailand, Japan, Taiwan- 1 million each and EU-2 million. The SE Asian market is essentially a
step-through motorcycle, like Street, market, which has failed in India. Unless Indian
producers make this animal for export, they will not be able to make any significant dent in
Asian markets.
The car industry is topped by GM that produces over 8 million units, Toyota and Ford
around 6 million units, Volkswagen 5 million, Daimler-Chrysler 4 million, Honda, Nissan &
Peugeot around 3 million and Renault & Fiat around 2 million. Hyundai brings up the rear
with 1.7 million units. BMW, which is a niche player, is another 1 million. These companies
account for 45 million, or almost the total production of cars in the world.
Honda dominates the 2-wheeler industry with 8 million units. Yamaha is a distant
second with 2.5 million, and Suzuki, Bajaj are around 1.5 million units. TVS Motors at 1
million brings up the rear of the big league. There are numerous Chinese producers but all
are smaller than Indian producers now. Piaggio is a spent force in 2-wheelers, with its
scooter bias. Having made losses continually in the recent past, it has recently been taken
over by a takeover artist, who will want to sell it eventually.
There are three important things happening in the 2-wheeler business. Japanese
producers are slowly but surely taking control of the Chinese market. The Chinese are
exporting 3 million units per year. And, of course, the very aggressive growth of Honda.
Honda has doubled its volume from 4 million in 2000 to 8 million in 2003, adding a
Bajaj Auto every year to its volume. With a change of strategy from premium pricing to
using the low costs of India & China to meet the local competition head on, the Japanese
producers, especially, Honda, are posting significant growth. This is likely to continue.
In the car & 2W market most global players are already in our market. Of the major
car manufacturers, only Renault/Nissan and Peugeot remain unrepresented. With the hash
it made of its venture with Premier, Peugeot is unlikely to be in a hurry to re-enter. Nissan,
which participated in the recent Auto Expo, should be expected to test the waters.
The car industry is a very peculiar industry. Despite its size, it's a very unprofitable
industry. Other than Toyota and Honda, almost every carmaker has been in the red for at
least a year in the last 10 years. Of these, FIAT is still fighting for its life and Ford is still to get
its act right. Even the largest, GM, during 2003, is almost making a loss in North America,
and a loss in Europe and Latin America. Only Asia Pacific and its finance company are
keeping it out of the red.
With there being significant over capacity in North America and Europe, this anemia
amongst car producers is not surprising. In 2003, Toyota has ousted Ford from the number 2
position. With its targeted 15% market share by 2010, its undeclared ambition is to be No.1.
GM currently has around 15% of the world market.
China has been the flavor of the season. In 2003, with 4 million+ vehicles sold, it has
become the 4th largest market for vehicles in the world after the US, Japan & Germany. It
has been growing at a blistering pace of 30% + per annum.
The Indian car market is actually ripe for change. Despite Suzuki taking it over,
Maruti is fumbling forward. After Maruti 800, Suzuki has not had a real winner. It lacks the
balance of product and price attractiveness. Attractive prices are not enough. Cars are
status statements; with the customer continually buying one that is higher than his current
income really permits. Hyundai's success has been precisely getting this balance right, but it
has its own limitations. Shall we continue to see this steady splintering of market shares?
Almost 10 years ago, I had predicted in an article for "Car & Bike" that the low
volume, high value car model strategy of global producers would not work in India. The
market size would be too small to sustain them. Progressive lowering of customs duties and
free trade agreements may entice them to be in the trading mode, as all barring Hyundai &
Ford amongst the new foreign entrants are today; but ultimately they will run out of dealers
interested in operating in that mode. They already suffer a higher chum. Talera Motors at
Pune is a good case. It started with being a Ford dealer, was a Mercedes Benz dealer for a
while. Now it is (or is it?) a dealer for GM.
In 2-wheelers; two major events will happen. Suzuki will re-enter the market and
Honda will come in via HMSI into the motorcycle market. As far as dealers are concerned,
these two events are going to cause a lot of ripples. Historically, most Indian dealers have
car & 2-wheeler dealerships, if not a CV dealership, thrown in for ample measure. With
Suzuki coming on its own, will it willy-nilly force Maruti dealers to choose between their car
and 2W dealerships? As Honda indirectly weakens Hero Honda and therefore Hero Honda
dealerships, how will the over capacity of Honda dealerships be resolved?
The profitability of auto dealerships has always been an issue. The issue was
obfuscated by the premia earlier and the eagerness of those in building trade to get into
auto dealerships. Now, however, given the stark realities, we are witnessing a churn first
amongst weaker company's dealerships. A number of 2W & CV companies are unable to
attract or retain good dealerships. There is a throughput required in each dealership. For
example, unless you are selling 300 2-wheelers a month, you are not viable. That means
that a company selling less than 90,000 2Ws a month is not going to be viable from purely a
dealership angle. The number also ties up with the volumes required to generate profits to
develop new products in pace with the market. No prizes for guessing which companies I
believe are headed towards decline! There will be a similar calculus in the car sector.
Will this lead to multi brand outlets? In most countries of the world, for brands other
than Honda, 2-wheelers are sold through multi brand outlets. After a protracted fight even
car manufacturers in Europe will have to agree to multi-brand outlets. In India, legally, there
is no bar, but in practice there is. For companies not able to provide economical volumes to
their dealers, there may be no other way forward. In Mumbai and elsewhere, "informal"
multi-brand outlets have started to take roots.
China has become the fourth largest market for vehicles in the world after the US,
Japan & Germany.
Low volume, high value car model strategy of global producers would not work in
India. The market size would be too small to sustain them and ultimately they will
run out of dealers interested in operating in that mode.
Two events in 2-wheelets, viz, re-entry of Suzuki and that of Honda via HMSI into the
motorcycle market are going to cause a lot of ripples in the market.
The profitability of auto dealerships has always been an issue. A number of 2W & CV
companies are unable to attract or retain good dealerships.
In most countries of the world, for brands other than Honda, 2-wheelers are sold
through multi brand outlets.
In India, legally, there is no bar on multi-branding, but in Practice there is. For
companies not able to provide economical volumes to their dealers, there may be no
other way forward.
As products get complicated, one can expect that there will be greater drive-ins at
the dealers' workshops. In cars, this has happened with fuel injection and computer engine
controls. Fuel Injection on 2-wheelers is round the corner. My educated guess about the
Honda bike is that it will be fuel injected, because, Honda has already announced that all its
scooters would be fuel injected by 2010. So, dealers who are services oriented - most
dealers in the country are not-should stand to gain. Or, dealers should work hard to improve
the service end of their operations; and that is largely a matter of attitude & culture.
Another paradox to be sorted out will be the choice between owner managed and
manager-managed dealerships. It is a truism the world over that owner managed
dealerships work best. However, as the finance and scale of dealerships increase, it
becomes increasingly difficult for owners to function as managers. On top of that is our
antipathy for dignity of labor. A lot of dealers feel it is below their dignity to run their
dealerships. A large number of manager-managed dealerships have been mismanaged
because of poor quality of managers, inadequate delegation to them or the managers
becoming corrupt.
Lower interest rates, (compared to earlier; in my view, they are unlikely to go down
further; a risk of interest rates going up is quite likely), better finance availability in smaller
towns and a more open economy will continue to generate a decent growth rate in the
industry. Attendant hazards would be that competition will intensify further and company
and dealer performances will get increasingly uneven as unviable players get squeezed.
Dealers would have to be both - lucky to be with the right producer(s) and be first-rate
operators to be profitable. We have yet to adjust to a global reality that loss is the natural
result of a business. Profit comes to the exceptional performers. As the ad for the Indian
Army said "Do you have it in you?"
In the domestic market, overall Hyundai Motors seems to be the best placed. It has
struck the best balance between product and price attractiveness, backed by sensible
marketing. Maruti, though now free to decide, is at best, making a move forward.
Toyota is the dark horse. After the unqualified success of the Qualis, it has
surprisingly chosen to stay away from the mass car market. But, it has a history of being a
quiet builder of market position.
2-wheelers market awaits the HMSI bike with bated breath. If Activa with which they
became a No.1 in scooters in almost no time, is any indication; Honda is going to create
ripples in the Indian market. Honda is playing the end game of its India strategy and, like an
efficient chess player, squeezing the opposition into a comer. But are its opponents right
now Bajaj & TVS or Hero? Bajaj & TVS have shown grit and used the absence of a Splendor
upgrade to create space for themselves, but there is not much margin for error and they
have been error prone.
Dealers who are services oriented - most dealers in the country are not - should
stand to gain.
It is a truism the world over that owner managed dealerships work best. However, as
the finance and scale of dealerships increase, it becomes increasingly difficult for
owners to function as managers.
Lower interest rates, better finance availability in smaller towns and a more open
economy will continue to generate a decent growth rate in the industry. Attendant
hazards would be that competition will intensify further and company and dealer
performances will get increasingly uneven as unviable players get squeezed.
In CVs, Indian producers are under the least pressure for the moment.
Honda is playing the end game of its India strategy and, like an efficient chess player,
squeezing the opposition into a corner.
The growing mobility needs of the people in India augur well for two and four
wheeler industry. The cost advantage that India offers with respect to product development
is fast establishing the country as an R&D hub. In addition, the credibility that India has
gained as a cost effective manufacturing base for both small cars and two-wheelers is
fuelling creation of capacities by all major manufacturers in the country. Likewise, economic
growth and the Golden Quadrilateral project will also increase demand for road freight
movement and this is bound to sustain the commercial vehicle industry's growth.
The two-wheeler segments are expected to grow to 12 million units and passenger
car segment to 2 million units by the end of this decade. However, this industry cannot be
insulated from global trends where the state of industry provides pointers for caution. In
conclusion, to survive and grow, the Indian Auto industry has to ensure product innovation
and overall cost competitiveness.
Finally, the customer will reign supreme and the success of OEMs and dealers in this
department will spell the difference between success and failure.