Indian Auto Industry Analysis

Industry Analysis : Indian Automobile Industry
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.
Bharat Sagathiya (41)

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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.
1. General Aspects/ General Features / Basic Conditions of the Industry:

(A) Demand Details:
The demand for cars is dependent on a number of factors. the key variables are per
capita income, introduction of new models, availability & cost of car financing schemes,
price of cars, incidence of duties and taxes, depreciation norms, fuel cost and its
subsidization, public transportation facilities etc. the first four factors have a positive
relationship with the demand whereas others have an inverse relationship with demand of
cars.
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

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Rising middle class:

Expansion of population between the age group of 25 to 50 years, increasing
affluence of the Indian middle class and heightened competition amongst automobile
manufacturers, resulting in improved quality offerings is a major factor for demand of cars
and it will continue to be the key drivers for the industry in terms of both market size and
production capacities.
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
Utility Vehicles 3077 1177 3049 4505 4486

MPVs 815 565 922 1227 1093
Total Passenger Vehicles 53165 72005 129291 166402 175772
Scooters 28332 32566 53687 60699 83873

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Motorcycles 56880 123725 187287 277123 386202

Mopeds 18971 23391 24078 28585 43181
Total Two Wheelers 104183 179682 265052 366407 513256
Three Wheelers 15462 43366 68144 66795 76885
Grand Total 184680 307308 479919 629544 806494
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.
Low interest rate regime:

Close to 80% of the new vehicles being purchased in the country are financed, thus
underlying the importance of a low interest rate regime to the fortunes of the industry.
Though we believe that interest rates have bottomed out and are going to rise going
forward, given that the quantum of the rise would not be significant, we expect the
buoyancy in auto sales to continue over the medium term.
Environment led benefits:

Implementation of pollution norms like restriction on the age of the vehicle plying on
the road and overloading of commercial vehicles would seemingly aid higher volume growth
of this segment. However, we do not expect any significant increase in the demand in the
medium term from this source, as in our opinion much of the replacement demand has
already taken place.
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.
India's competitiveness has enabled it to make a steady foray in International

markets with passenger car exports crossing the 100,000 mark in 2004. Multinationals use
India as a manufacturing hub for small cars in addition to growing exports from indigenous
makers such as Tata Motors and furthermore, India's two-wheeler manufacturers have also
stepped up their export plans and apart from export, have also announced CKD operations
in many new markets outside India.
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.

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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.
(a) Growth rate:

India registered the fastest growth among the top 15 passenger car producing
countries in the world in 2004. As per latest rankings by the International Organization of
Motor Vehicle Manufacturers, OICA, India's car production grew 30 per cent in 2004 while
Brazil was the second with 17 per cent growth.
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.
Global consultancy firm AT Kearney's automobile consultant, Nagi Palle, struck a

cautious note about India's performance. "India is still a very lean market with 75 per cent of
the cars sold being below $10,000. If India achieves a per capita GDP of $1,000, it will trigger
off mass motorization. For China it is around $1,200," Nagi Palle said. Though China's growth
is slowing down, its small car market is bigger than all of India's car market, he said.
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

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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))
(b) Nature of demand:

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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.
Low Penetration Levels:

Although India’s four wheelers sales have increased in recent years, penetration
levels are low at around 0.9%. Till the last decode, the industry was considered low priority
as cars were thought of as 'unaffordable luxury', and treated as such through Government
policies. Although reduction in excise duties, favorable Government policies, and lower
prices have resulted in significant increase in penetration, India's passenger car penetration
is low by global standards-1.3% in China, 59% in EU, and 81% in the US. Estimates from
Notional Sample Survey 58th Round (2002) indicates that ownership of four-wheelers (car
or jeep) is restricted to about 4.4% of urban households, and 0.6% of rural households.
During 2002-03, ownership of cars/jeeps was restricted to around 0.9 million households in
rural areas, and 2.57 million households in urban areas. Car penetration is high in
Chandigarh, Delhi, Goa, and Kerala. However, penetration is extremely low in the eastern
states of Bihar, West Bengal, Orissa; and central states such as Madhya Pradesh and
Chhattisgarh.
The table below shows the share of domestic passenger car sales in India (Source: FADA)
(%)
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

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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
(c) Demand trends:

The demand characteristic in different segment of Indian car industry is as below:
(i) Passenger Cars:

In developed markets, engine capacity and wheel-base are the bases of
segmentation of passenger cars: price does playa role but only up to a point. Since
affordability is the most important demand driver in India, the domestic car market has until
now been segmented on the basis of vehicle price. Price-based competition takes place in a
continuum rather than in segments since nearly all the models are launched in multiple
versions at different price points. As a result, a higher-end variant may compete with a
lower-end variant of a car in a segment above it.
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

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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

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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.
An automobile powered by an Otto gasoline engine was built in Germany by Karl

Benz in 1885 and granted a patent in the following year. Although several other engineers
(including Gottlieb Daimler, Wilhelm Maybach and Siegfried Marcus) were working on the
problem at about the same time, Benz is generally credited with the invention of the
modern automobile.
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

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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.
The large-scale, production-line manufacturing of affordable automobiles was

debuted by Ransom Eli Olds at his Oldsmobile factory in 1902. This assembly line concept
was then greatly expanded by Henry Ford in the 1910s. Development of automotive
technology was rapid, due in part to the hundreds of small manufacturers competing to gain
the world's attention. Key developments included electric ignition and the electric self-
starter (both by Charles Kettering, for the Cadillac Motor Company in 1910-1911),
independent suspension, and four-wheel brakes.
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.
Automobile History Eras:
1960s
1970s
1890s 1900s 1910s 1920s 1930s 1940s 1950s 1980s
1990s
2000s
Veteran Brass or Vintage/Classic Pre-War Post-War Modern

Antique Edwardian

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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.

12
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.
Rotary (Wankel) engines

Rotary Wankel engines were introduced into road cars by NSU with the Ro 80 and
later were seen in several Mazda models. In spite of their impressive smoothness, poor
reliability and fuel economy led to them largely disappearing. Mazda, however, has
continued research on these engines and overcame most of the earlier problems.
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.
In 1924 the American national automobile market began reaching saturation. To

maintain unit sales, General Motors instituted annual model-year design changes in order to
convince car owners that they needed to buy a new replacement each year. Since 1935
automotive form has been driven more by consumer expectations than by engineering
improvement.
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.

13
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

14
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.
Automated control has been seriously proposed and successfully prototyped.

Shoulder-belted passengers could tolerate a 32 g emergency stop (reducing the safe
intervehicle gap 64-fold) if high-speed roads incorporated a steel rail for emergency braking.
Both safety modifications of the roadway are thought to be too expensive by most funding
authorities, although these modifications could dramatically increase the number of vehicles
that could safely use a high-speed highway.
Who are the real consumers?

The reality of our lives is that today customers are becoming more and more difficult
to please and retain. It wasn't so 10 years ago. Back then, we didn't have a deluge of media,
market place options and choices of the kinds available today.
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.

15
But it is truly quite simple - like parenting a child really.
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.
It can also be viewed as a fundamental shift in emphasis from 'winning consumers'

to 'winning the best consumers and keeping and developing them long term'. Or the shift in
focus from 'share of market' to 'share of consumer'. Or from 'acquisition & trial' to
'relationship management'. It all means the same thing any which way you look at it.
The formula is really quite simple: (a) build a strong promise around your brand (b)
make the promise come alive with occasions and offers (c) keep the dialogue alive and (d)
speak the same language around all touch points.
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.
Purchase methods of consumers:

When auto industry leader Maruti Udyog introduced a new air-conditioned version
of its bestselling 800cc in January 2003, analysts scoffed. They said the new model, which
cost an extra Rs 25,000, was too expensive for price-sensitive Indian customers. Now they're
eating their words. Less than six months later, the model already accounts for 30 per cent of
M800 sales, and has a 3,500-customer waiting list -- way more than any other car on Indian
roads.
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

16
'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.

17
Nevertheless, there's a new-found affluence that is showing in scores of different

ways and it's percolating much further than ever before. That's what Maruti Udyog
discovered recently when it held loan melas in cities like Varanasi and Jaipur. In Varanasi,
the Maruti-State Bank of India loan carnival generated 124 queries and 42 loans were
sanctioned immediately. Similarly, in Jaipur 114 loans were sanctioned. This is about equal
to the business that Maruti did in a month in these cities earlier. Incomes may still be low by
international standards but the availability of cheaper consumer finance has turned large
swathes of India into consumers.
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.

18
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

19
demand. The paper focuses on the urban passenger car market and involves the critical
analysis of car user households based on the following:
Studying the socio-economic and demographic characteristics of urban car owning

households;
Understanding the relationship between various household characteristics and car
purchasing intentions of households; and
Designing the likelihood model for car ownership by Indian households.
In the current study, a number of literatures and papers on the subject have been
reviewed, which revealed that there are only few models suitable for such kind of
analysis, which involves dummy regress ands specially binary or dichotomous.
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.
Data Source and Methodology
Data Source Used:

For the current study, the data collected by National Council of Applied Economic
Research (NCAER), in its annual survey "National Survey on Household Income and
Expenditure 2004-05" is used. NCAER is conducting this survey every year since 1985. The
survey aims to collect information on socio-economic aspects of the household viz.
demography, employment, income, consumption expenditure, ownership pattern, etc. It
covers 206 million households at all India level. Along with the main survey, another survey
is undertaken with the objective of understanding the consumer behavior of Indian car
market by studying the purchases and demand patterns of Indian households. This survey,
inter alia, also collects the primary data on car and two wheeler owners at national level.
General Characteristics of Indian Households/Families

It has been estimated that in 2005, there were about 206 million households in
India, of which 61 million (30 per cent) resides in urban. Of the total households, nearly 9.4
million (5 per cent) households own at least one car, while 32 per cent household own two
wheelers (and not cars). Although, just 30 per cent households are in urban areas but about
10 per cent of them own a car, while this ratio is just 2 per cent in case of rural. That is why
the paper focuses on urban car market because this is the place where maximum growth in
car demand is expected in near future.
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

20
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:
Nearly 65 per cent of car owners are in urban areas.

Around 90 per cent of them belong to higher income classes (fourth and fifth
quintiles).

21
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.
The socio-economic structure of households is one of the important factors affecting

the car market. With increasing purchasing power, the number of households crossing the
threshold plays an important role in passenger car sales. Therefore, from our analysis point
of view, we have used some of these socio-economic variables like total consumption,
primary source of income, number of earners, land ownership, household size, education of
chief earner, ownership of dwelling unit, and ownership of durable goods in our paper.
The automotive industry in India is now finding increased recognition worldwide.

With an impressive growth rate in sales, it is spreading its arms in the global markets as well.
Advent of major global players in Indian market and their interest in making India as a
manufacturing hub has made Indian auto industry very competitive due to availability of
ready market.
Due to intense competition and immense opportunities available in Indian market, it

is imperative for auto marketers to understand the customers in all aspects in order to
survive in the market. Seeing present scenario, there is a need to segment the market in the
right direction, which requires a complete strategic planning.
We feel that identifying the demographic profiles, lifestyles and socio-economic

characteristics of households helps a lot in understanding the present market so as to devise
strategies for the future. This paper is an attempt in this direction. Though, directly, the
study is not analyzing the demand of cars in urban market in future, indirectly it is telling us
about what factors need to be considered to tap the right kind of potential customers for
cars.

22
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

23
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.
Rotary (Wankel) engines

Rotary Wankel engines were introduced into road cars by NSU with the Ro 80 and
later were seen in several Mazda models. In spite of their impressive smoothness, poor
reliability and fuel economy led to them largely disappearing. Mazda, however, has
continued research on these engines and overcame most of the earlier problems.
Future developments

24
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.
Value-added post-sales activities, have transformed the business models - of

dealerships, of manufacturers and of service providers such as financing companies and so
on. Above all, a huge 'Talent Pool', of energetic, alert, quality conscious, modern
Entrepreneurs, Executives and Operatives has got trained in India. This wave of
transformation which occurred over the last decade, has not spent itself. It will undoubtedly
result in the further enlargement of the Automobile Retailing Industry, as the penetration of
vehicles per thousand of population in India grows. The slowly but significantly improving
infrastructure, coupled with today's excellent information technology availability and
awareness about it in India, has helped this process to occur with relative ease. Excepting
for the most uncompetitive (among Manufacturers, Suppliers, Dealers, etc.), everyone has
gained in prosperity. The wealth created has been widely spread. If you take an objective
view, the joy of business is all pervasive.
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

25
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.
The choice of commercial vehicles to purchase, is not a matter of choosing between

products alone. The load availability (in both directions of a route), the road quality, the
average traffic speed attainable, the customer expectations of service, and possibly above
all, the Regulatory / Licensing / Permit environment in which he operates, are some of the
major issues, which affect the business model of the transporter or of the commercial
vehicle operator very significantly.
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.
Higher Power to Weight Ratio

With improved road surfaces and enlarged road infrastructure, the average traffic
speeds are enabled to improve. Higher power enables carry greater loads, and if the road
infrastructure and traffic culture permits, this can be done at higher speeds. The key
question is to ensure that the fuel economy aspect is assured while offering higher load
carrying capacity and higher speed capability. It is to be a win-win proposition. This is
possible with proper engineering.
New Generation Aggregates

A completely new generation of aggregates like Engines- with significant levels of
electronics, Gearboxes with much higher torque capabilities, Axles with far greater reliability
and load carrying capacity, as also Cabs with greater safety and superior ergonomics, etc. is
bound to become the norm over the next decade.
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,

26
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.
Safety and Ergonomics

Ergonomics (fatigue control, due to proper engineering of seating posture and
placement of control levers, pedals, etc.), NVH - Control of noise and vibration, Improved
Visibility for the driver can be assured in the modern cabins thus leading to Diver Comfort.
Actually, road safety is severely affected by the commercial vehicle driver's level of comfort.
His willingness to drive in the proper lane, at appropriate speeds is greatly dependent on the
responsiveness of his vehicle, as provided by the combination of engine power, steering
effort, gear shifting quality, visibility, etc.
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.
The commercial vehicle manufacturers - whether selling buses, trucks, taxies,

tempos, and autorickshaws - will all move in the above direction. The success of their Sales
Channels will depend - on the acceptance of the inevitability, not only of new products with
superior technology, but of the directly consequent discipline in effecting sales and in
providing service, that it imposes.
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.
Selling of Business Solutions

The buyer of a two-wheeler or a passenger car, demands and gets greater value
from today's automobile, than he could ever get from the previous generation of vehicles.
This benefit is available to the car or two wheeler customers, without his having to go
through a learning curve on how to use the next generation vehicle. His driving skills were
always adequate. Personal ownership ensures loving care for the product.

27
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-
a. To actually utilize the potential economic benefit

b. To manage the expensive and sensitive componentary, with discipline and
knowledge.
Training and installation of drivers - and the installation of vehicles - will be

increasingly important and will need to be formally and correctly addressed. Without this
effort jointly - by the trucking fraternity, by dealerships and by vehicle manufacturers - the
full benefit of modern technology in Commercial Vehicles cannot be realized.
The role of dealers in commercial vehicle installation in future, cannot be under-

stated. You can't simply sell a truck or bus in future. It is not going to be a simple device, but
will likely be a specific business solution, to be used in a careful manner. When carefully
calculated in detail - the revenue possibility for a particular type of transport operation on a
specific route and for a known load/overload, etc. will need to be compared to the cost
outgo for the same activity for a given model/make of a vehicle. This calculation will give
significantly different results based on the fuel economy, the trip speed, the maintenance
cost that different vehicles offer. These calculations will need to be mapped and compared,
to arrive at a business solution which is more profitable. The difference can be most
significant.
Creating and Mapping of Solutions

Selling of products is a thing of the past. In future, the Commercial Vehicle Dealers,
Automobile Manufacturers and Business Associates such as specialty application builders
like tippers, etc. must sell specific solutions. 'One size fits all' will not work in future. Selling
of applications instead of products, involves creation of mapped solutions specific to
requirement. This is much more so for heavier vehicles. However, this will also be
predominantly so, for the medium commercial vehicles. Surely also, vans, taxies etc. will
also become much more demanding in terms of seating layouts, customer comfort, long
distance versus short distance utility, etc.
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

28
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.
Public policies relating to the industry:

Wright Brothers' invention of the airplane in 1903, the 20th century was an age of
extraordinary technological development. The world rushed forward, and at the forefront of
that race was the automobile, leading the era's progress and supporting it. Indeed, the 20th
century is often referred to as "the century of the Automobile".
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.
CRM should be seen as an enterprise wide approach to understand and influence

customer behavior through consistent, relevant communications and actions. One must
always remember to take the customers along by being sensitive to his needs and
aspirations. Mahatma Gandhi said - who was neither a businessman nor a big consumer -
and he said this years before the architects of modern market driven Indian economy were
born. It is a classic and needs to be internalized by all who have to deal with people.
“A customer is the most important visitors on our premises .He is not

dependent on us. We are dependent on him. He is not and interruptions in
our work; he is the purpose of it. He is not an outsider in our business, he is
part of it. We are not doing him a favor by serving; He is doing us a favor by
giving us an opportunity to do so.”
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

29
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.
The Mahindra & Mahindra Case:

As we scan the scenario from 50s to date, as a customer, we see a sea change; in
those days, we were just happy to get the goods we wanted. To expect any kind of customer
service or customer relationship building was unthinkable. Just reflect for a moment where
we are today. As a customer, we have become very demanding, no matter what it is that we
are buying. What has changed? Clearly, we have moved from supplier's market to a buyer's
market and therefore the customer has really become very demanding. What we need to
reflect is that all of us - providers of product and services also change the same way as the
receiver of product and services. The classic example of this change is the banking system
where we have gone from ETM or 'Every Time Misery' to ATM, i.e. 'Any Time Money'.
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

30
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
Sales Customer R&D
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

31
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.
Transformation of Mahindra & Mahindra into a truly Customer Centric Organization:
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

32
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.
Sub-groups Products % to total Leading companies

products
Engine Parts Pistons, piston rings, fuel injection 24.0% Ucal Fuel, MICO,
pumps Lucas
Transmission & Transmission gears, axles and 16.0% Sona Kaya, ZF
Steering parts wheels Steering
Suspension & Braking Leaf springs, shock absorbers 12.0% Gabriel, Munjal
parts Showa
Electrical Spark plugs, batteries, starter 8.0% Exide, MICO,

33
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
As a consequence, the profitability of the company at the operating level assumes

great significance. Therefore, we consider operating profits as a good starting point in
separating a good auto ancillary company from the rest.
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.

34
Industry Structure:
Number of players:
(1) Maruti Suzuki:

Maruti Suzuki, was initially JV between the Govt. of India and Suzuki motor
corporation of Japan, MUL changed the face of the Indian passenger car industry. With a
gamut of cars for nearly all the segments, MUL has been the market leader for the better
part of more than a decade.
Compact Compact Plus Sedan Premium Sedan SUV

>> Maruti 800 >> Swift >> Esteem >> Baleno >>Grand
Vitara
Maruti 800:
The Maruti 800 is the best value for money car on Indian roads. This entry level
sports model. Unmatched fuel efficiency, unbeatable purchase price & low cost of
ownership. Is still considered as the ideal step up. - Rational

35
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.
Compact Compact Plus Sedan Premium Super SUV

Sedan Premium
Sedan
> Santro > Getz > Accent > Elantra > Sonata >Terracan
> Tuscon
Santro:

36
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 Premium SUV

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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.
Compact Sedan SUV

>> Indica V2 >> Indigo >> Safari
>> Indica XETA (petrol) >> Indigo Marina Dicor
>> Indica Turbo (Diesel)
Indigo Marina:
A car that has the luxury of a sedan and the utility and convenience of multiutility .
Ventilated disc break.

38
Rear seat comfort, independent waterfall type Headrests for all.

Hassle-free maintenance.
Power steering.
-Self Expressive
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.
Soft pedal controls for smoother driving.

Fold/split rear seats for more luggage space.
Instant pick up and fewer gear changes.
The technologically superior MPFI engine comes with a 32-bit microprocessor,
Knock control sensor to reduce damage from adulterated fuel. The result? Frugal
fuel consumption at 14 kmpl.
-Rational
Ford India:
Compact Plus Sedan Premium SUV

Sedan
>> Fusion >> Ikon >> Fiesta >> Endeavour
>> Fusion
Ford Ikon:
For young Icons
Power steering
4.9 meter turning circle radius

39
5 speed manual transmission

ROCAM engines (efficient, reliable and extremely robust )
-Rational
Ford Fiesta:
Make you GO FIDA
From zero to wow in a blink of an eye

Air conditioning with cabin air re-circulation facility
Heater
Power steering
5 speed manual transmission
Driver Seat Height Adjustable
-Emotional
Ford Endeavour:
The next BIG thing
Tilt adjustable steering.

Environment friendly AC ( Dual 2nd and 3rd Row AC Ducts with Independent Control)
Heater .
Tachometer Instrument.
Turbocharged intercooled engine.
-Self Expressive
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

40
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
Installed production capacity:

The table on the next page shows the installed production capacity in various
segments of Indian automobile industry:
Segment Installed Capacity (in Nos)
Carrier Vehicles 410,000
Cars & MUVs 1,146,000

41
2 Wheelers & 3 Wheelers 5,696,000

Grand Total 7,252,000
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.
The early 1990s –

Earlier due to a huge gap in supply and demand, customers had to wait for months
to get the delivery of their cars. Dealers were complacent and did not have sustained focus
on customer service and sales satisfaction. They functioned as retail windows for the
manufacturer and, with high margins on every car sold, they hardly focused on service and
maintenance. Retail sales were the revenue earner and After-sales was considered more of
a liability. Numbers of car dealerships were few and far between. Customers quite often had
to travel long distances to purchase a car. Service centers were few and inadequately
equipped. Service levels were given low priority and most customers preferred to get their
car serviced by their local mechanics. Customers bought a car and did not consider a
replacement for years. The same car was repaired and used over the years. Dual car
households were a rarity. Car usage and ownership was itself more of an urban
phenomenon. Product offerings itself were few and option was only in the economy sedan
and hatchback segment. Petrol was the only fuel option in the car segment and it was
common for customers to fit in their own diesel engines. Finance companies played a
marginal role in the car industry and interest rates were high.

42
Mid 1990s onwards –

The past few years have witnessed a rapid change in all facets of the Indian
Automotive Industry. The scenario has changed from 'Duopoly' to 'Oligopoly'. With more
and more international as well as domestic car manufacturers entering into the fray, the
choices for customers have multiplied substantially across each segment - economy,
premium, luxury as well as MUV/SUV. There is a proliferation of brands in the market place.
The number of car dealerships across the country has increased. Customers now have easy
access to car showrooms as well as service centers. Dual car household have increased on
account of nuclear families with dual incomes. Car ownership cycle has itself shrunk with
most owners looking for a change or an upgrade every 4 to 5 years. There is a trend towards
SUV/MPV type of vehicles on account of increasingly mobile lifestyles. There is also a range
of high technology diesel engine options across all segments and we are witnessing rapid
penetration of diesel-powered cars across economy segment to luxury segment.
International competition, increase in the number of participants, and the need for
increased market share have made it a buyer's rather than a seller's market. Customers
have wide model choices. Rising income levels - especially among young adults - coupled
with the low Equated Monthly Installments (EMIs) have made vehicle purchase affordable.
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.

43
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".
Product ownership experience will not be restricted to purchase experience alone

but will span the entire ownership period of the car. It will commence from vehicle selection
and enquiry management. Activities like vehicle documentation and delivery, processing of
loan documents, insurance and registration formalities will be critical to customer
satisfaction. The ownership experience will extend to the after sales service and parts
support experience which will continue to be critical parameters on which buying decision
will be based. The ownership experience will culminate with resale experience. Residual
value of cars will remain a key consideration during the buying process. Residual values will
be dependent on exchange schemes offered by dealers. Used car business will become
essential and will provide a high margin business opportunity for the dealer besides
generating higher workshop revenue on account of used car refurbishment. Margins on
vehicle sales will erode and dealerships will rely on revenue from sale of accessories,
insurance, extended warranties, and service contracts and used car business. Opportunities
for dealership revenue will exist at each level of the value chain. Dealerships that are able to
best manage these opportunities will be the most profitable. The liabilities of yesterday are
emerging as the revenue earners for the future.
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.
Concurrent Model of Dealer Revenues (Source: FADA)

44
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.
Syndicated studies conducted by global research agencies in India, give each

manufacturer as well as consumers a good idea of how dealerships and processes are
performing vis-a-vis competition. These results are widely published and widely, read. For
example, the SSI (Sales Satisfaction Index) study conducted by JD Power rates each
manufacturer on satisfaction of the buyer during his buying process - How was the
dealership experience, delivery experience, sales consultants attitude and performance, etc.
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.
Barriers in the industry:

In recent times, customer satisfaction has gained greater attention within the
context of the paradigm shift from transactional marketing to relationship marketing.
Several J.D. Power studies have highlighted the correlation between customer satisfaction
and product quality. Satisfaction with quality relates to several aspects: ability of the
product to meet personal and family expectations, reliability of the product, satisfaction
with price charged perceived value, quality consistency and effective communication.
With product feature differentiation fast disappearing and the market forces
defining the price of each new car sold, customer satisfaction becomes an increasingly

45
important competitive advantage. Added to that, as several automotive manufacturers in

India look to export, they must have levels of quality and product satisfaction that meet
market and customer requirements globally. If automakers cannot perform to international
market standards, brand image, sales and future opportunities will be severely impacted.
Today, Indian customers demand an ever-widening variety of features and possible

combinations on their cars; they expect a zero-defect product, want their vehicle yesterday
and want to pay a price lower than the next customer. With such seemingly conflicting
demands, OEMs are pressured through the painful task of managing a high degree of
production complexity with a rapidly changing market scenario, and all that with thinner
margins at their disposal.
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.
The global automobile industry is currently undergoing a structural change. Faced

with the severe competition that is forcing cost reductions, the vehicle industry is going in
for consolidation at the vehicle manufacturing level and tierisation in the component supply
chains. International vehicle manufacturers are consolidating their positions through

46
acquisitions and mergers so as to produce many models economically. International vehicle

manufacturers are also trying to reduce their costs through a rationalization of their supply
chains. Instead of buying individual components from the numerous component
manufacturers and assembling them in their own premises, vehicle manufactures have
started purchasing the systems like the entire engine. In this way, these producers are
reducing several of their costs namely, overhead costs, transaction costs and research and
development costs. Vehicle manufacturers are also asking component suppliers to share
warranty costs. Now, the system suppliers form tier one in the supply chain and are
expected to play a significant role in the development and production of the vehicle. System
suppliers further procure sub-systems or components from the other suppliers. These other
suppliers form either tier two or three in the supply chain. To become a tier one company,
component suppliers have to be really large and technological leaders. Consequently, the
components industry is also expected to witness a spate of mergers, acquisitions and
alliances. So, in future the economic viability of the component suppliers depends on their
ability to integrate systems, operate globally, raise quality and manage warranty costs.
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

47
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:
B segment taking over A segment in terms of volumes in CY 1999

Power steering becoming hygiene due to Santro zip drive initiative

48
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.
Customers currently are led by differentiation on product, performance & comfort;

however, this is likely to change when the market dynamics lead to parity on these
attributes across models in a particular segment. Once parity on these attributes is
achieved, the playground is likely to be higher order Emotional benefits. For e.g. in
developed and mature markets, there is not much to differentiate between vehicles in
terms of product performance or comfort, the game play happens at image and emotional
level.
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:

49
Better quality servicing at shortest possible time

Better quality service workmen – as customers start understanding the post sales
service issues better
Value Add services such as vehicle pick and drop, stand by vehicle for long duration
services etc.
There is increasing trend in understanding customer issues as quickly as possible

with regards to Post sale service experience. In future, the customer feedback is likely to be
a 24X7 exercise, where, feedback from every customer is taken and actioned as soon as the
customer experiences the touch point – feedback and subsequent action within 24 hours of
experiencing the touch point.
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.
This is a prevalent concept in developed countries and as consumers start becoming

more knowledgeable and integrated with what’s happening in automotive sector globally –
their expectations would also be to desire new model year launches.
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:
Emergence of Large National dealership groups which is likely to change the

dynamics between manufacturers and dealerships – overall leading to better quality
experience for customers
Customer’s decision making becoming faster – one stop shop for customers leading
to overall decision making & purchase process becoming shorter
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.

50
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,

51
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.

52
Accordingly, the Ministry of Shipping, Road Transport & Highways, Government of

India, issued a notification - SO 451 (E) dated 31st Mar'05, deferring the date of
implementation of standards for automobile lamps and lighting and light signaling devices
for vehicles with more than 3 wheels, notified for implementation with effect from 1st
Apr'05 to 1st Oct'05.
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.
Automotive Industry Standards (AIS) prepared by the Automotive Industry Standards

Committee (AISC) relate to safety of critical parts and are approved by the CMVR-Technical
Standing Committee (CMVR-TSC) under the Ministry of Shipping, Road Transport &
Highways.
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.
There is also a need to arrive at a suitable lead-time between finalization of a

standard, issue of notification and the implementation. At least six months are needed after
finalization of standard for testing of relevant components and certification of vehicle for
compliance with the new regulations.
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

53
AIS 1st October 2005

Performance requirement of 012/2004
the lighting, light signaling
direction indicators Safety 13th December 2004
system Standard
No. 15.1
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

54
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)

55
*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
Engine Steady State cycle test Engine Load response test
CO(g/kWh) HC (g/kWh) NOx (g/kWh) PM (g/kWh) Smoke(m-1)

2.1 0.66 5.0 0.10/013 0.8
Fitted with after treatment devices like De-NOx catalyst and particulate trap
(Engine Transient Cycle)
5.45 0.78 5.0 0.16/0.21
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

56
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.
A major initiative to ensure this would be to create a database of vehicle owners.

While SIAM member companies have data relating to where a vehicle was dispatched, given
the nature of sales and distribution, complete registration records do not exist for the
country.
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

57
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

58
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.
There is need to demonstrate leadership to take proactive measures to dispel this

perception. The frequency of such programmes needs to be increased and they have to
become more meaningful and visible to the stakeholders. This is a win-win partnership for
the manufacturers and dealers. What is more is that we would have over 1.2 billion
stakeholders who would value this initiative and would be involved and alive to our
concerns. The time to do it is now. The new regulations on 1st Oct'04 and 1st Apr'05 provide
a window of opportunity.
Job Reservation in Private Sector

Job reservation in the private sector has once again been brought to fore both at the
Central and State levels. In fact, in Maharashtra, a Bill has already been passed and a circular
sent to many industries advising them to implement the provisions of the Bill.
Skill Formation and Human Capital Upgradation

The pathetic conditions in the area of human capital and skill development are
reflected in the high school drop-out rates and low seat utilization ratio in vocational
training. Table-1 shows that the problem of drop-out is not only more serious among
SCs and STs, but it gets worse at higher levels of schooling.
Drop out rates among SCs, STs & Total Population (Source: 10th five year plan 2002-07)

59
Moreover, if we look at the SC/ST-participation rate in various streams of vocational

training, the picture is equally dismal.
Obviously, this requires radical improvement. The Government and private sector
together need to draw up a definite plan on human capital upgradation for SCs and
STs. Clearly, the medium-to-long term priority should be on raising the educational
level – both at school and university levels, as well as skill development though
effective vocational training among disadvantaged sections of the society. Through
this, they would be able to equip themselves with right kind of education/sill, and
thus keep pace with the changing need of employment market.
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
Develop 'Entrepreneurship' Among the Vulnerables:

There is a need to have a well-defined affirmative action policy for financial
institutions to supply adequate capital to such target groups for setting up businesses. Let us
look at the global experience. US Government has several such schemes targeted towards
minority businesses, for instance:

60
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.
To encourage entrepreneurship among disadvantaged groups, one option is

awarding to Government licenses and contracts to them. In fact, instead of “price-
preference” to public sector undertakings, preferential terms can be extended to SCs and
STs, which would go a long way to promote entrepreneurship among them.
Complement Affirmative Actions with Incentivisation

As a complementary measure, FICCI suggests the following:
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.

61
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.
Another point which is that the manufacturers, dealers, financiers, insurance

companies & other like interests should adopt a joint work approach, because if they work
jointly they will come to a better solution, cheaper arrangement and more user friendly
approach. And, therefore if they could synergize their efforts, there will be tremendous
benefits to all of them, which individually they may not be able to reap.
Need for harmonization of national and business interests.

There are tremendous all-round benefits of infrastructure development.
India has a burgeoning middleclass who could be used for increasing the volumes.
Reliability and confidence in our maintenance & quality will also encourage the
common user to go in for the product.
Manufacturers, dealers, financiers, insurers and other like interests should adopt a
joint work approach, because if you work jointly, you will come to a better solution,
cheaper arrangement and more user-friendly approach.
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

62
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.
Basic determinants of demand:

Domestic Demand
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

63
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:
Rise in disposable income

High penetration of finance schemes
Improved highways
New launches increasing options for the customer
Key restraints of the market currently are:
Increasing fuel costs
Growth of mass transport
Choking infrastructure in the metros
Growth in sale of used vehicles
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

64
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.
Likely future pattern:

Buoyed by recent performance, many manufacturers have rolled out plans for
increasing capacity. Prominent among them, Maruti, Hyundai and Tata - the passenger car
makers - have announced plans for substantial scaling up of vehicle and engine production.
Among two-wheelers, companies such as Honda and Suzuki have embarked on their own
production facilities for scooters and motorcycles, separate from the activities from their
current or erstwhile partners. Daimler-Chrysler and MAN have announced plans for small
volume assembly of Heavy Commercial Vehicles in the country.
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)

65
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.

66
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.
With environmental concerns gaining momentum in Indian society, a long-term

roadmap has been charted by the Mashelkar committee, to drive the country faster down
the road to low emission vehicles. With this, from 1st April 2005, all eleven major cities
require to comply with the more restrictive Bharat Stage III (BS III) emission standards. At
the same time, the rest of the country advanced from BS I to BS II levels of norms.
Best Practices Index (BPI):

Over the past few years, the Indian Auto industry has become fiercely competitive.
With the entry of global players, consumer choice has increased and they are being wooed
aggressively by OEMs and dealers. With intense competition and declining margins on sales,
the business has moved from vehicle sales to ownership of the customer through the
vehicle life cycle. Hence, the need for the OEM and dealer to work together as a
partnership, in today's environment, is imperative.
A well-managed dealer network is now a critical differentiator and extremely

important for the OEMs' success. Each OEM is acutely aware of this and several studies have
already been done to measure customer and dealer satisfaction. These satisfaction
measures reflect the results of underlying systems and processes that are required on the
part of OEMs to manage and build a sense of partnership with the channel. For the first
time, an attempt has been made to study these systems, processes and practices across
OEMs and vehicle categories (cars, two-wheelers and trucks) and develop benchmarks and
best practices on this account. Avalon Consulting has evolved a Best Practices Index (BPI) for
OEMs in managing automotive dealerships.
Approach and Methodology:
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.

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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.
Insights are available on important issues like:
• 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
Cars and UVs

Honda and Toyota have the highest BPI followed closely by Hyundai and Maruti. The
scores of most of the players lie in a narrow band. However, the absolute scores are far
lower than those encountered in satisfaction studies.
The following chart shows the overall BPI in Indian Car OEM (Source: FADA)

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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)

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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)

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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)

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Even in the case of two-wheelers, none of the OEMs have a parts return policy and
stocks are thrust down the channel.
Honda Scooters is the clear leader in relationship management processes, followed

by Hero Honda. All others score less than 60 on this account.
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.
Commercial Vehicle OEMs in India (Source: FADA)
Emerging Trends in the Industry:

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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.
Challenge 1: Demographic Challenge

India is an ancient country with a very young population, which is becoming younger,
unlike the developed countries, which are growing older. The buyers of our vehicles are
young people who have different needs, desires and buying behavior than the older buyers
in Europe and the US. The western auto retail models have served their market well. Will
the same models serve this very young set of Indian buyers as well, needs to be considered.

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Challenge 2: Low Income Levels
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.

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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.
Challenge 4: Customer Loyalty
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.

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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.
Challenge 5: New Competitors
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.
Vision 2015: The Future of Auto Industry
We have seen some good times

In the last few years, we have seen good times marked by growth explosion, growing
consumerism and consumer expectations. While finance has been a major factor driving the
sale of vehicles in the last five years, today, it is more of desire and emotion that rules in the
purchase of new cars and motorcycles.
But one thing's is for sure

The one thing that we know as we go forward is that change is the constant and that
the rate of change is accelerating. Competition is intense and is going to be more intense
not only for manufacturers but also for dealers with shrinking margins & territories and
addition of more dealers in the same territory. Customers today are savvier and becoming
more demanding. Manufacturers, dealers and, for that matter, other players in the
automotive business, most importantly finance companies, are becoming even more

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aggressive. Similarly, new technologies are creating new challenges. However, there are
many more exciting opportunities that are opening up at the same time.
The Future Won’t be Like The Past:
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.
Learn, unlearn and relearn

It is really a very different world that we would not have even visualized ten years
ago. Telecommunication has radically changed the landscape, broadband has arrived and
the internet is quite commonly used. To cap it all, India and China have emerged as great
manufacturing powers in the world. There is a small quotation by Alvin Toffler that the
future belongs to those who are willing to learn, and also willing to unlearn and relearn. It is
not for those who want to be fixed in their ways and thoughts.
“The illiterate of the 21st century will not be those who cannot read
and write, but those who cannot learn, unlearn and relearn”
The leap of scale

We have seen a huge boom in automotive business; sustained 7-8% growth of GDP
has made India one of the most vibrant economies of the world, which is not much
dependent on the monsoon. At the same time, India is one of the least penetrated markets
in the world and therefore, a big leap in scales of production & sales is imminent. There are
many new players, the market is becoming finer and finer in its segmentation, and
opportunities are for those who can read and understand the minds of the young and more
enlightened consumers. This is the new challenge for all of us as manufacturers, and for all
of you dealers as the people who are the front line and the last mile connectivity with those
consumers. We are going to see a phenomenal expansion of dealership network covering

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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.
The leap to address new segments

There is a need to address new segments; India has got one of the lowest usages of
two-wheelers by women, whereas in Indonesia, you will find that outside Jakarta, forty per
cent of two-wheelers are used by women. Indian women's lifestyle and needs are not very
different. So, why is it that we have such a low usage of motorcycles or two-wheelers by
women? Are dealers equipped to deal with the requirements and demands that women will
make, the sensitivity that is required to deal with them, and the environment in which they
shop? Automobiles are no longer commuting products or transportation products, but
fashion statements. Indian consumer is very rapidly changing to demand contemporary
products. Today, Indian consumer demands that he pays the price of a Maruti and gets the
excellence of a Mercedes Benz or a Rolls Royce. That is the real world of India where we
want extraordinary value by paying very ordinary prices, which is a very great challenge for
all of us.
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 to meet new expectations

In this era of service economy, people are demanding service at exceptional levels. It
is not far away when automobile dealers will have to serve people at their doorstep. Late
night service stations or after-office-hours service offered by dealerships is still a rarity. With
their exposure to international levels of excellence, customers in future are going to be
unforgiving and no longer tolerant of shoddy service, or poor manufacture, or any kind of
delay that they have been used to in the past.
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

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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.
The leap in retail experience

The face of retail will change radically in future as products & features will
increasingly converge. Retail experience will become a crucial differentiator and an
important part of the overall brand package & experience, not just the vehicle and not just
the services alone. Customers today surf the Internet and then decide where to go and
finally make their purchases. So, there is a lot of pre-determination that is taking place from
the home, and we have not yet seen the dealers having websites and competing on the
Internet.
The leap in technology

There is going to be a big leap in vehicle technology. For example, it is not far away
when you will have engines with electro magnetic valves, where a chip can change
significantly your fuel injection system and your engine timing and give you a completely
different performance just at the click of a switch or change of the chip. With the kind of
connectivity that is going to take place in not too distant future, simply by punching the
chassis number, an engineer in any part of the country will be able to know the history of a
vehicle. Similarly, 24x7 service stations, online reservations of service time or appointments
will become the order of the day.
The leap in manufacturing

We are already witnessing a slew of new models being launched at greater
frequency. 2015 will see a significantly wider product range and variety including hybrids,
alternate fuel operated and fuel cell driven vehicles, which will increase complexities of
dealership operations because the technical capacity and the knowledge capacity at
dealerships will also have to improve to cope with this challenge.
The leap in after sales service

Dealerships are going to assume the role of last mile manufacturing in view of the
increasing level of customization demanded by the customers. It is a likely scenario that the
dealers will be receiving unpainted panels and will deliver to the customer a scooter or a
motorcycle painted at the dealership in the color that the customer wants, with the graphics
that he/she demands and with a lot of customization of horns, handgrips, side panels and
host of other fixtures.
The leap in financing

There is no gainsaying that auto finance has played a major role in not only driving
the growth in vehicle sales in the last 6-7 years but also increasing the revenues of
automobile dealerships. However, when we envision 2015, there is a tantalizing possibility
that finance companies, which are paying to sell vehicles; may open one stop durable shops
with different brands and models of two-wheelers, cars, TVs and other white goods under

79
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.
The leap to Organized Seconds

Indian market is poised for a big leap in used vehicle business with ownership/
replacement cycle getting shortened and a vast population of 2-wheeler owners waiting in
the wings to graduate to owning cars. All of us are missing a huge opportunity on used
vehicles. Used vehicles provide with two opportunities: (a) It helps dealerships make extra
money; and (b) it obviates the cash flow problem even when new car sales are not doing
well. Automobile dealers must grab this opportunity and should not treat it as a hassle. By
not getting into this activity, automobile dealers are giving away a value addition stream to
the brokers in unorganized sector and doing a disservice to the nation and the customers.
This business activity offers a great opportunity and, at times, brings in more money given
the low margins on new cars, new trucks, and new two wheelers; value may be smaller but
the gross margins are much higher.
The leap in retail formats

Finally, we are going to witness a revolution and big leap in retail formats. We can
very well imagine Auto Malls and Auto Zones coming up. These exclusive Malls/Zones will
be equipped with facilities of test track, dirt track, go-cart for small children, entertainment,
etc. It could be a single brand or a multi-brand mall, having, say, a Bajaj outlet, a TVS outlet,
a Hero Honda outlet, a Yamaha outlet, or a Suzuki outlet. These things will make it easier for
customers to come to one place, compare various vehicles and models and also have a great
family experience in buying vehicles. We would, as well see specialized retail outlets, such as
sports bike showroom, SUV outlet and the like. So, there are many ways things can change.
Just like the banks went the ATMs way, automobile dealerships of the future will be hub and
spokes model in view of the expanding urbanization and city limits.
New Challenges, New Threats & New Great Opportunities

All I would like to say is that there are new challenges and new threats, but there are
new great opportunities. And, those opportunities are going to remain opportunities only
for those who can see the change happening and those who are going to unlearn and learn
and reinvent themselves. It is going to be a costly threat to the rest of us who are not willing
to change. These are some of the scenarios that could take place in our retailing
environment in the future.
Detariffication of Insurance Sector – Opportunities & Challenges for Auto

Retail:
Opening New Vistas - Detariffication

In January 2007, the first phase of detariffication has set to kick in 'detariffed motor
insurance regime' wherein the premiums will move from tariff based to risk based. Tariff
free Insurance regime is expected to open up new opportunities and to present new
challenges for both Insurer and Automobile Dealer. Quite a few interesting changes are
going to take place in the market post detariffication.

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Two major developments that de-tariffication is set to bring about are:
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.
Basis of Premium Rating:

The present method of calculation of motor insurance is based on sum insured and
other rating parameters like engine capacity, age of vehicle and geographical location. But,
in the tariff free market, the customer will be paying the premium based on his/her risk
profile. The premium rating from being based on the vehicle will now shift to being based on
the driver. Thus, insurance will move from insuring a car to insuring the customer. To put it
simple, a customer with a higher risk profile will pay a higher premium than a customer
having a lower risk profile. In other words, customers who are prone to accidents would
have to pay more and safe drivers will pay lower premiums.
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.

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Giving Benefit to the Customers:

The moot point is that most customers are likely to benefit in the tariff free market.
The premium is likely to drop for some segments, while it may increase in other segments or
covers. Customers will definitely get low rates if they follow a few preventive measures to
mitigate the risks involved. Safe driving is one of the best ways to keep the motor insurance
premium low. It will be imperative to park vehicles in a secured parking lot and to install
vehicle safety equipments like anti-theft alarms, smart chips that de-mobilize the engine,
anti-lock braking systems, seat belts, etc. to lower the insurance premium.
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.
Other avenues of Insurance:

Another opportunity for enhancing your revenues could be cross-selling other
Insurance products like Health and Home to your customer base. Health Insurance presents
a sizeable opportunity for growth followed by Home Insurance. The escalating cost of
medical treatment today can put a big dent in bank balances of consumers leading to the
demand for health insurance. Similarly, disasters such as the Chennai and Mumbai floods of
last year will lead to people seeking insurance cover for damage against their home and
assets.
Other Emerging Challenges for Automotive Players in India

Automotive industry in India has evolved over the last few decades into a thriving
industry with a host of new challenges emerging along. While managing product
development and manufacturing is critical in the supply chain, the key to market success lies
in the successful customer acquisition and more importantly retention. Automotive dealers
are the most significant part of any brand representation in the market place. A company or
brand is as good as its representation in the market. Establishing a well-planned dealership
network is a bare essential to market products successfully. Importance of sustaining quality

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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.
A three-wheeled business: How does it balance?

A Three Wheeler Manufacturer
Sales Service Spares
Automotive dealers business can be compared to a three-wheeler. The three wheels

of the business are sales, after-sales service and spares. A sale is like front wheel. A dealer
principal on the driving seat always likes to steer this wheel to give direction to his/her
business. However, many a time, the following two wheels are ignored: the rear two wheels
are the ones, which take the maximum load of passengers (customers) who ultimately pay
for the ride while sales give direction. These are the changing rules of the automotive
dealership business with the change in the distribution channel structure over period of
time. Chart 1 below indicates how automotive distribution structure has changed in the past
few decades.
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.

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Bargaining power of OEMs is making dealers increasingly invest into the

infrastructure to enhance the customer experience. On the other hand, customers are
getting savvier and the bar of minimum service expectation is rising day by day. There is
increasing threat of new entrants as OEMs are appointing more and more distribution
points to enhance reach and penetration.
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:

84
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

85
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.
Indian automotive market is a very interesting one, because it is defying global

trends.
India is a two-wheeler market rather than a car market and a mid-sized truck market
rather than a large truck market.
Global production of cars was 49 million in 2002. The US and Asia were the only
growth centers.
Global production of commercial vehicles was 8 million, 5 million of which was in
Asia.
Honda with 8 million units dominates 2-wheeler industry.
Japanese 2-wheeler producers are slowly but surely taking control of the. Chinese
market. The Chinese are exporting 3 million units of 2-wheelers per year.
The car industry is a very peculiar industry. Despite its size, it's a very unprofitable
industry.
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

86
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.

87
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

88
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 this scenario, what is the future of Indian producers?

In CV s, they are under the least pressure for the moment. In Cars, we have only Tata
Motors in the fray. It has done commendably in the face of both financial adversity and
public skepticism. But it will take very deft management because the odds are still against it.
The much tom-tommed MG Rover deal does not speak of competent strategy. MG Rover is
a loss making company, in permanent decline, with a dubious management currently under
parliamentary enquiry for poor if not fraudulent corporate governance practices.
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.

89
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.

90

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Industry Analysis : Indian Automobile Industry

Bharat Sagathiya (41)

1. General Aspects/ General Features / Basic Conditions of the Industry:

Bharat Sagathiya (41)

Rising middle class:

Utility Vehicles 3077 1177 3049 4505 4486

Scooters 28332 32566 53687 60699 83873

Bharat Sagathiya (41)

Motorcycles 56880 123725 187287 277123 386202

Low interest rate regime:

Environment led benefits:

India's competitiveness has enabled it to make a steady foray in International

Bharat Sagathiya (41)

(a) Growth rate:

Global consultancy firm AT Kearney's automobile consultant, Nagi Palle, struck a

Bharat Sagathiya (41)

(b) Nature of demand:

Bharat Sagathiya (41)

Low Penetration Levels:

Bharat Sagathiya (41)

(c) Demand trends:

(i) Passenger Cars:

Bharat Sagathiya (41)

Bharat Sagathiya (41)

An automobile powered by an Otto gasoline engine was built in Germany by Karl

Bharat Sagathiya (41)

The large-scale, production-line manufacturing of affordable automobiles was

Automobile History Eras:

Veteran Brass or Vintage/Classic Pre-War Post-War Modern

Bharat Sagathiya (41)

Bharat Sagathiya (41)

Rotary (Wankel) engines

In 1924 the American national automobile market began reaching saturation. To

Bharat Sagathiya (41)

Bharat Sagathiya (41)

Automated control has been seriously proposed and successfully prototyped.

Who are the real consumers?

Bharat Sagathiya (41)

But it is truly quite simple - like parenting a child really.

It can also be viewed as a fundamental shift in emphasis from 'winning consumers'

Purchase methods of consumers:

Bharat Sagathiya (41)

Bharat Sagathiya (41)

Nevertheless, there's a new-found affluence that is showing in scores of different

Bharat Sagathiya (41)

Bharat Sagathiya (41)

Studying the socio-economic and demographic characteristics of urban car owning

Data Source and Methodology

Data Source Used:

General Characteristics of Indian Households/Families

Bharat Sagathiya (41)

Nearly 65 per cent of car owners are in urban areas.

Bharat Sagathiya (41)

The socio-economic structure of households is one of the important factors affecting

The automotive industry in India is now finding increased recognition worldwide.

Due to intense competition and immense opportunities available in Indian market, it

We feel that identifying the demographic profiles, lifestyles and socio-economic

Bharat Sagathiya (41)

Bharat Sagathiya (41)

Rotary (Wankel) engines

Bharat Sagathiya (41)

Value-added post-sales activities, have transformed the business models - of

Bharat Sagathiya (41)

The choice of commercial vehicles to purchase, is not a matter of choosing between