Hot market for wheels

Over the years, the concept of ‘retail’ has undergone a complete makeover owing to a number of factors like increased incomes, affordable prices of merchandises, lucrative financing packages, growing openness and organised retail. Automobile industry is one of the largest and most rapidly growing industries in India. The Indian automobile industry has grown at an impressive rate of 16.82 per cent over the last year with total sales of vehicles reaching around one crore (till November 2006 against 85 lakh in 2005). The Indian automobile industry is in top gear and key drivers giving a turbo growth to the sector are floating economy, higher replacement demand, better market penetration, tough competition leading to better services and products, rising exports, rise in rural income and easy loans. As per the Society of Indian Automobile Manufacturers (SIAM) report, the automobile industry, in the first quarter of FY2007-08, witnessed negative growth in almost all the categories. However, passenger vehicles, scooters and the light commercial vehicles have shown growth.

Industry evolution and changing consumer behaviour

India started implementing its developmental plans after gaining independence in 1947. At that time, a few firms were allowed to borrow technology to manufacture automobiles. Only after 1983, technology started flowing freely into the Indian automobile industry from various parts of the world. High growth rate of Indian economy has made many foreign car manufacturers enter the Indian market. In 1980s, only a handful of cars were seen in the Indian market. Most of these were outdated models like Hindustan Motors' Ambassador (which is still produced and sold). The only car with modern technology was Maruti 800, which became very popular because of low price, high fuel efficiency and good reliability. Since then, the market has grown with over 20 manufacturers producing hundreds of models and variants. Mr Arvind Saxena, VP (Marketing & Sales), Hyundai Motor India Ltd, says, “Initially, the Indian automobile market was dominated by mini and compact cars with sales growing at 17 percent a year but, at present, the growth rate of the compact and mid-size cars is also on the rise. This is precisely because of the growth in the disposable income as well as the growing aspiration of an average Indian. Easy availability of finance has also prompted people to directly enter the C segment.” The Indian auto industry has matured much. Tata Motors developed indigenously the Tata Indica model. Indian manufacturer, Mahindra & Mahindra, also came up with its own SUVs, the Scorpio and the Bolero. Agreeing to the fact that consumer behaviour has changed over the years, Ms Soni Shrivastav, GM, corporate communication, CK Birla group, says, “This can be attributed to better incomes, willingness to experiment, trying to have luxurious vehicles and better finance facilities.”

 

Indian automobile industry

The Indian auto industry consists of five segments: commercial vehicles; multi-utility vehicles and passenger cars; two-wheelers; three-wheelers and tractors. Here, in this article, we are taking up two wheelers and passenger cars.

Two-wheeler market

One of the biggest two-wheeler markets in the world, India can be called indeed the two-wheeler capital of Asia. According to SIAM, two wheeler market registered a negative growth of 8.02 per cent during April-May 2007 (as compared to April-May 2006). Though scooters, mopeds and electric two wheelers grew by 17.78 per cent, 25.53 per cent and 101.54 per cent respectively, motorcycle, which is the main segment in this category, registered a decline of 13.20 per cent. 

Prominent players

Hero Honda has been a technology pioneer. The first company to introduce four-stroke technology in India, Hero Honda also is the first company to launch the fuel injection (FI) technology in Indian motorcycles, with the launch of the Glamour FI in June 2006. The company’s tremendous success and commitment can be attributed to its endeavour to have the best practices in the Indian auto industry.

Currently, the company has two state-of-the-art manufacturing plants - one at Dharuhera and the other at Gurgaon. The Gurgaon plant is rated as one of the most modern two-wheeler plants in the world.

According to the spokesperson, Hero Honda Motors Limited, “The company is the largest two-wheeler manufacturer in the world. In 2001, the company achieved the coveted position of being the largest two-wheeler manufacturing company in India and the ‘World No.1’ two-wheeler company in terms of unit volume sales in a calendar year by a single company. Hero Honda has retained that coveted position for the sixth consecutive year.”

 

According to the spokesperson of the company, “Hero Honda Splendor is the largest selling motorcycle brand in the world. The company, in 2006, ventured into the scooter market with the launch of Hero Honda Pleasure, which has been very well received in the market.” Bajaj Auto was the undisputed market leader till FY2000, accounting for 32 per cent of the two-wheeler industry volumes in the country that year. Bajaj Auto’s dominance arose from its complete hold over the scooter market. However, as the demand started shifting towards motorcycles, the company witnessed a gradual erosion of its market share. HHML, which had concentrated on the motorcycle segment, was the main beneficiary, and almost doubled its market share from 20 per cent in FY2000 to 40 per cent in 9MFY2005 to emerge as the market leader. TVS, on the other hand, witnessed an overall decline in market share from 22 per cent in FY2000 to 18 per cent in 9MFY2005. The share of TVS in industry sales fluctuated on a year- on-year basis till FY2003 as it changed its product mix but has declined since then. Besides these, there are other players like Kinetic Motors, LML, Yamaha, Royal Enfield and Majestic Auto.

 

Passenger car market

Indian auto market witnessed tremendous growth in car sales during the month of April 2007. The growth is likely to continue throughout the year. Increased buyer encouragements will continue to stimulate the demand. Gone are the days when all one could get was an Ambassador or a Fiat (Premier). Large numbers of new cars, that suit all budgets, are now available in the country. The country is now one of the fastest growing automobile markets in the world. The cutthroat competition paved the way for innovative marketing tactics and new strategies, benefiting the consumers in a big way. Mr Saxena highlights, “India’s passenger car industry recorded sales of a 1.3 million units last year. The growth has mostly taken place in the compact segment.”

Low-cost car is the latest trend

Today, global automakers are incapable of delivering a car that fulfills basic needs at a very low price. A few years before, Tata vowed to manufacture Rs 1 lakh-car. Spokesperson for Tata Motors highlights, “Tata Motors’ small car will be launched in 2008. It will be a 4-door, 4/5-seater rear engine (about 600 cc) car.” However, western auto executives ridiculed the project, terming the product as a four-wheel bicycle. The Tata model is a 33-horsepower engine, with a top speed of around 125 kmph. Spokesperson for Tata Motors informs, “The global car market is getting polarised: luxury segment continues to grow, cheap cars boom, and everything else gets squeezed. The growth in car sales in April can be attributed to new product launches and to innovative finance schemes and discounts that, to a certain extent, negated the impact of high interest rates.” These factors have stimulated the demand for vehicles and a strong growth in the automobile industry in India. Spurred by a huge demand from the market, the increase in production is set to improve further due to a buoyant economy, increasing purchasing power, new products, attractive finance schemes from automobile manufacturers and financial institutions.

 

Prominent passenger car players

There are several passenger cars and SVU manufacturers offering various models. 

Maruti Udyog Ltd: Maruti provides fuel-efficient, low-cost, reliable and high quality vehicles along with customer-friendly sale and after-sale services.

Hyundai: Hyundai Motors (India) is a wholly owned subsidiary of the Hyundai Motor Company headquartered in Korea.

Tatas: Tata Motors introduced the Indica, India’s first indigenous car in 1998. The genesis of Indica can be traced to our chairman, Mr Ratan Tata’s dream to produce a car for the common man - a car technologically suited to Indian roads; spacious enough to accommodate a typical middle class family of five and affordable at the same time.

Ford: Ford India Ltd, an Indian subsidiary of Ford Motor Company, has its plant located at Maraimalai Nagar, around 45 kms away from Chennai.

Mahindra & Mahindra: Mahindra & Mahindra Ltd is in the business of manufacturing and marketing utility vehicles, LCVs and services for the last 52 years and captures more than a five per cent market share.

Toyota: Toyota Kirloskar Motor (TKM) India is a joint venture between Kirloskar Group and Toyota Motor Corporation (TMC).

Hindustan Motors: Hindustan Motors Limited (HML), India's pioneering automobile manufacturing company and flagship company of the CK Birla Group was established in 1942 by Mr BM Birla of the industrious Birla family.

Honda Siel Cars India: Honda Siel Cars India Ltd (HSCI) was incorporated in December 1995 as a joint venture between Honda Motor Co. Ltd, Japan and Siel Limited, a Siddharth Shriram Group company, with the commitment of providing Honda's latest passenger car models and technologies to Indian customers.

 

Retail and marketing

Car industry has always been an organised one in India. Manufacturers have followed a very efficiently planned retail and marketing strategy. Regarding their marketing and retail strategy, Mr Saxena says, “We follow a very aggressive marketing and promotional policy - right from establishing a strong and competent network of dealers to ensuring that product information reaches out through innovative advertising and promotional campaigns. A 24X7 help line and an interactive website ensure that our existing and potential customers can reach out to us any time of the day.” Similarly, Ms Srivastav says, “The marketing strategy for our products depends upon the product. Products like Montero do not require any kind of product promotion and, when you launch some variations in the product, the dealer launches a car campaign. Sometimes, we also launch TV campaigns or exchange offers.”  Tata Motors spokesperson informs, “We have 360-degree approach for our marketing and promotional strategies. It includes mass media like print and television as well as direct marketing, point of purchase displays and promotional schemes. We also have several loyalty programmes for our customers. The loyalty programmes result in a large percentage of car owners coming back for repeat purchase or upgrading of their vehicles from us.”

 

Re-sale market

Maruti pioneered the concept of organised secondhand car market with True value (secondhand market for Maruti cars). It is the most trusted and most efficient secondhand car market. Currently, it has 230 True value outlets. It assures quality stuff with over 100 checks done before the product is actually sold. Mr Saxena opines, “Car bazaars generally cater to used cars and we have our own used-car retail division called Advantage Hyundai where our cars are sold with warranty and finance schemes making the ownership easy and reliable. But, the majority of our retails are new cars through our dealer network. So, we do not have any direct competition from car bazaars or other local car dealers.” Ms Srivastav informs,  “Yes, there is a market for secondhand cars. We generally do not scrap our vehicles and people with low incomes have a very good option of buying. It is very good if car companies certify their product to be roadworthy. It is a very good option for public at large.” Tata Motors spokesperson, says, “Used cars market gives to customers who cannot afford a new car the opportunity to own a car. Our used cars are also sold in second-hand car bazaars.”

 

Future of the industry

The future of the Indian automobile industry looks floating. The growth curve of India Auto Inc. has been on an upswing for the past few years. The sector posted an impressive 8.9 per cent growth in 2005-06. On the export front, overall auto shipments grew by 31 per cent. The Government of India’s decision to cut excise duty on small cars should help in establishing India as one of the world's largest manufacturing hub for small or compact cars. Mr Saxena informs, “Keeping in mind the growing demand, we have decided to increase the production capacity to six lakh units per year by 2007-end from the existing capacity of 2.8 lakh units per year, which is currently being increased to three lakh units. The second plant, which is under construction and is expected to be completed by 2007-end, will add another three lakh units.” The commerce ministry’s policy of establishing more efficient special economic zones to facilitate the manufacturing capabilities should also benefit the auto industry with special concessions and other benefits. However, we must give some special attention to improving the infrastructure and also to devising a more friendly tax structure for consumers, exporters and manufactures is required. Regarding future plans, Ms Srivastav informs, “We plan to consolidate our market and expand it, get more and more products from Mitsubhushi stable and hope that the entire industry would like to consolidate itself.” From the above discussion, it is apparent that future of the industry is quite bright. With manufacturers becoming more and more consumer-friendly, more and more models of cars and bikes will be introduced to the consumers.

Stay on top – Get the daily news from Indian Retailer in your inbox