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    The Current chapter of the study draws a detailed discussion on the

    growth and development of Indian Automobile Industry, car marker and

    market preferences towards MUVs / SUVs segment cars in India. It also draws

    an introspective analysis on the buyer behaviour towards cars. The chapter is

    divided into three segment. The first one portraits on the overview of Indian

    Automobile Industry, Second segment brings out India and World Car market

    scenario, Third segment it focus on discussion on consumers buying



    This cross section of the study draws a elaborate discussion on the

    growth of Indian Automobile Industry in the recent past and portraits the

    growth phenomenon of the car market especially MUV/SUV segment cars.

    3.1.1 Introduction

    Since the first car rolled out on the streets of Mumbai (then Bombay) in

    1898, the Automobile Industry of India has come a long way. During its early

    stages the auto industry was overlooked by the Government and the policies

    were also not favorable. The liberalization policy and various tax reliefs by the

    Government of India in recent years have made remarkable impacts on Indian

    Automobile Industry. Indian Auto Industry, which is currently growing at the

    pace of around 18 per cent per annum, has become a hot destination for global

    auto players like Volvo, General Motors and Ford.

    The Automotive Industry in India is one of the largest in the world and

    one of the fastest growing industry. India manufactures over 17.5 million

    vehicles (including 2 wheeler and 4 wheeler) and exports about 2.33 million

    every year. It is the world's second largest manufacturer of motorcycle, with

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    annual sales exceeding 8.5 million in 2009. India's passenger car and

    commercial vehicle manufacturing industry is the seventh largest in the world,

    with an annual production of more than 3.7 million units in 2010. According to

    recent reports, India is set to overtake Brazil to become the sixth largest

    passenger vehicle producer in the world, growing 16-18 per cent to sell around

    three million units in the course of 2011-12. In 2009, India emerged as Asias

    fourth largest exporter of passenger car, behind Japan, South Korea, and


    As of 2010, India is home to 40 million passenger vehicles and more

    than 3.7 million automotive vehicles were produced in 2010 (an increase of

    33.9per cent), making the country the second fastest growing automobile

    market in the world. According to the Society of Indian Automobile

    Manufacturers, annual car sales are projected to increase up to 5 million

    vehicles by 2015 and more than 9 million by 2020. By 2050, the country is

    expected to top the world in car volumes with approximately 611 million

    vehicles on the nations roads.

    3.1.2 Segment of the Indian Automobile Industry and its Growth

    A well developed transportation system plays a key role in the

    development of an economy and India is no exception to it. With the growth of

    transportation system the Automotive Industry of India is also growing at rapid

    speed, occupying an important place on the 'canvas' of Indian economy. Today

    Indian Automotive Industry is fully capable of producing various kinds of

    vehicles and can be divided into 3 broad categories like Cars, two-wheelers and

    heavy vehicles. Major manufacturers in automobile industry are Maruti Udyog

    Ltd, General Motors India, Ford India Ltd, Eicher Motors, Bajaj Auto, Daewoo

    Motors India, Hero Motors, Hindustan Motors, Hyundai Motor India Ltd,

    Royal Enfield Motors, Telco, TVS Motors and Swaraj Mazda Ltd.

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    Among the two-wheeler segment, motorcycles have major share in the

    market. Hero Honda contributes 50per cent motorcycles to the Indian market.

    Honda holds 46per cent share in scooter segment. In India TVS produces 82

    per cent of the mopeds and 40per cent of the three-wheelers which are used to

    transport goods. Piaggio holds 40per cent of the market share. Among the

    passenger transport, Bajaj is the leader by making 68per cent of the three-

    wheelers. Cars dominate the passenger vehicle market by 79per cent. Maruti

    Suzuki has 52per cent share in passenger cars and is a complete monopoly in

    multipurpose vehicles. In utility vehicles Mahindra holds 42per cent share. In

    commercial vehicle, Tata Motors dominates the market with more than 60per

    cent share. Tata Motors is also the world's fifth largest medium & heavy

    commercial vehicle manufacturer.

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    (Value in percentage)

    Segment 2003-2004 2004-2005




    Passenger Car 10.22 10.39 9.91 10.65 12.42

    Utility Vehicles (UVs) 2.15 2.23 2.18 2.18 2.39

    Multi Purpose Vehicles (MPVs) 0.87 0.82 0.75 0.82 0.98

    Total Passenger Vehicles 13.25 13.44 12.83 13.65 15.79

    Passenger Carriers 0.36 0.32 0.32 0.28 0.43

    Goods Carriers 2.01 2.19 2.01 2.44 2.10 Total Medium & Heavy Commercial Vehicles 2.37 2.51 2.33 2.73 2.53

    Passenger Carriers 0.28 0.25 0.25 0.24 0.32

    Goods Carriers 1.17 1.27 1.36 1.67 1.77 Total Light Commercial Vehicles 1.45 1.52 1.61 1.90 2.10

    Total Commercial Vehicles 3.82 4.03 3.94 4.63 4.63

    Passenger Carriers 2.56 2.17 2.39 2.34 2.51

    Goods Carriers 1.61 1.73 1.65 1.65 1.51

    Total Three Wheelers 4.17 3.90 4.04 4.00 4.01

    Scoters/Scooterettee 13.01 11.68 10.21 9.31 11.57

    Motorcycles/Step-Through 61.24 62.86 65.24 64.83 59.35

    Mopeds 4.52 4.08 3.74 3.52 4.47

    Electric Two Wheelers - - - 0.07 0.19

    Total Two Wheelers 78.76 78.63 79.18 77.73 75.57

    Grand Total 100.00 100.00 100.00 100.00 100.00


    The automotive industry of India is categorized into passenger cars, two

    wheelers, commercial vehicles and three wheelers, with two wheelers

    dominating the market. More than 75per cent of the vehicles sold are two

    wheelers. Nearly 59per cent of these two wheelers sold were motorcycle and

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    about 12per cent were scooters. Mopeds occupy a small portion in the two

    wheeler market however; electric two wheelers are yet to penetrate.

    The passenger vehicles are further categorized into passenger cars,

    utility vehicles and multi-purpose vehicles. All sedan, hatchback, station wagon

    and sports cars fall under passenger cars. Tata Nano, is the worlds cheapest

    passenger car, manufactured by Tata Motor - a leading automaker of India.

    Multi-purpose vehicles or people-carriers are similar in shape to a van and are

    taller than a sedan (Multi Utility Vehicle), hatchback or a station wagon, and

    are designed for maximum interior room. Utility vehicles are designed for

    specific tasks. The passenger vehicles manufacturing account for about 15per

    cent of the market in India. Commercial vehicles are categorized into heavy,

    medium and light. They account for about 5per cent of the market. Three

    wheelers are categorized into passenger carriers and goods carriers. Three

    wheelers account for about 4per cent of the market in India. The production of

    automobiles has greatly increased in the last decade. It passed the 1 million

    mark during 2003-2004 and has more than doubled since then.


    (Value in Number Units)

    Type of Vehicle



    2007- 2008

    2008- 2009

    2009- 2010

    Passenger Vehicles 1,209,876 1,309,300 1,545,223 1,777,583 1,838,697

    Commercial Vehicles 353,703 391,083 519,982 549,006 417,126

    Three Wheelers 374,445 434,423 556,126 500,660 501,030

    Two Wheelers 6,529,829 7,608,697 8,466,666 8,026,681 8,418,626

    Total 8,467,853 9,743,503 11,087,997 10,853,930 11,175,479


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    The Indian Automobile Industry is manufacturing over 11 million

    vehicles and exporting about 1.5 million every year. The dominant products of

    the industry are two wheelers with a market share of over 75per cent and

    passenger cars with a market share of about 16per cent. Commercial vehicles

    and three wheelers share about 9per cent of the market between them. About

    91per cent of the vehicles sold are used by households and only about 9per cent

    for commercial purposes. The industry has attained a turnover of more than

    USD 35 billion and provides direct and indirect employment to over 13 million


    The supply chain of this industry in India is very similar to the supply

    chain of the automotive industry in Europe and America. This may present its

    own set of opportunities and threats. The orders of the industry arise from the

    bottom of the supply chain i.e., from the consumers and go through the

    automakers and climbs up until the third tier suppliers. However the products,

    as channelled in every traditional automotive industry, flow from the top of the

    supply chain to reach the consumers.


    (Value in Indian Rupee)

    Type of Vehicle



    2007- 2008

    2008- 2009


    Passenger Vehicles 1,061,572 1,143,076 1,379,979 1,549,882 1,551,880

    Commercial Vehicles 318,430 351,041 467,765 490,494 384,122

    Three Wheelers 307,862 359,920 403,910 364,781 349,719

    Two Wheelers 6,209,765 7,052,391 7,872,334 7,249,278 7,437,670

    Total 7,897,629 8,906,428 10,123,988 9,654,435 9,723,391


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    The Indian Automotive Industry after de-licensing in July 1991 has

    grown at a spectacular rate on an average of 17per cent for last few years. The

    industry has attained a turnover of USD 35.8 billion, (INR 165,000 crores) and

    an investment of USD 10.9 billion in 2010. The industry has provided direct

    and indirect employment to 13.1 million people. Automobile industry is

    currently contributing about 5per cent of the total GDP of India. Indias current

    GDP is about $1.4 trillion and is expected to grow to $3.75 trillion by 2020.

    The projected size in 2016 of the Indian automotive industry varies between

    $122 billion and $159 billion including USD 35 billion in exports. This

    translates into a contribution of 10per cent to 11per cent towards Indias GDP

    by 2016, which is more than double the current contribution.


    (Value in Indian Rupee)

    Type of Vehicle 2005-2006 2006-2007

    2007- 2008

    2008- 2009


    Passenger Vehicles 166,402 175,572 198,452 218,401 335,739

    Commercial Vehicles 29,940 40,600 49,537 58,994 42,673

    Three Wheelers 66,795 76,881 143,896 141,225 148,074

    Two Wheelers 366,407 513,169 619,644 819,713 1,004,174

    Total 629,544 806,222 1,011,529 1,238,333 1,530,660


    The level of trade exports in this sector in India has been medium and

    imports have been low. However, this is rapidly changing and both exports and

    imports are increasing. The demand determinants of the industry are factors

    like affordability, product innovation, infrastructure and price of fuel. Also, the

    basis of competition in the sector is high and increasing and the life cycle stage

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    is growth. With a rapidly growing middle class, all the advantages of this sector

    in India are yet to be leveraged.

    Note that, with a high cost of developing production facilities, limited

    accessibility to new technology and soaring competition, the barriers to enter

    the Indian automotive sector are high. On the other hand, India has a well-

    developed tax structure. The power to levy taxes and duties is distributed

    among the three tiers of Government. The cost structure of the industry is fairly

    traditional, but the profitability of motor vehicle manufacturers has been rising

    over the past five years. Major players, like Tata Motors and Maruti Suzuki

    have material cost of about 80per cent but are recording profits after tax of

    about 6 per cent to 11 per cent.

    The level of technology change in the Motor vehicle Industry has been

    high but, the rate of change in technology has been medium. Investment in

    technology by the producers has been high. System-suppliers of integrated

    components and sub-systems have become the order of the day. However

    further investment in new technologies will help the industry be more

    competitive. Over the past few years, the industry has been volatile. Currently,

    Indias increasing per capita disposable income which is expected to rise by

    106per cent by 2015 and growth in exports is playing a major role in the rise

    and competitiveness of the industry.

    Tata Motors is leading in the commercial vehicle segment with a market

    share of about 64per cent. Maruti Suzuki is leading in the passenger vehicle

    segment with a market share of 46per cent. Hyundai Motor India and Mahindra

    and Mahindra are focusing on expanding their footprint in the overseas market.

    Hero Honda Motors is occupying over 41per cent and sharing 26per cent of the

    two wheeler market in India with Bajaj Auto. Bajaj Auto in itself is occupying

    about 58per cent of the three wheeler market.

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    Consumers are very important for the survival of the motor vehicle

    manufacturing industry. In 2008-09, customer sentiment dropped, which

    burned on the augmentation in demand of cars. Steel is the major input used by

    manufacturers and the rise in price of steel is putting a cost pressure on

    manufacturers and cost is getting transferred to the end consumer. The price of

    oil and petrol affect the driving habits of consumers and the type of car they


    The key to success in the industry is to improve labour productivity,

    labour flexibility, and capital efficiency. Having quality manpower, better

    infrastructure and raw material availability play a major role. Access to latest

    and most efficient technology and techniques will bring competitive advantage

    to the major players. Utilising manufacturing plants to the optimum level and

    understanding implications from the government policies are the essentials in

    the automotive industry of India.

    Both, industry and Indian government are obliged to intervene in the

    Indian Automotive Industry. The Indian government should facilitate

    infrastructure creation, create favourable and predictable business environment,

    attract investment and promote research and development. The role of industry

    will primarily be in designing and manufacturing products of world-class

    quality establishing cost competitiveness and improving productivity in labour

    and in capital. With a combined effort, the Indian Automotive Industry will

    emerge as the destination of choice in the world for design and manufacturing

    of automobiles.

    3.1.3 Market Characteristics

    The automotive business in India is one of the world most prominent

    economic zones. The Government of India (GOI) has allowed 100 per cent

    foreign equity investments.

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    The automotive sector is one of the core industries of the Indian

    economy. Indian Governments impetus to the industry by allowing continuous

    economic liberalization since 1991 has made India one of the sought after

    destination for many global automotive players. The automotive sector in India

    is growing at around 18 per cent per annum. The Indian auto industry has seen

    a phenomenal growth in the last 20 years. This is due to the convergence of a

    lot of positive factors. The sales trajectory of automobiles has witnessed a

    sharp increase since 1990s till 2000. Automobile industry has greatly benefitted

    from a sharp increase in demand and has added extra capacity, better research

    and development facilities and technological advancement and distribution

    setup across the country.

    Factors contributing to the increased demand of automotives and the

    growth of Indian auto sector

    The convergence of government policies, economys growth, peoples

    purchasing power have all contributed to the phenomenal growth of Indian

    Auto Industry. Some of the important growth drivers are explained below.

    a. Rise in the industrial and agricultural output indirectly helps Indian

    auto industry

    Industrial and agricultural output increase has reflected in higher GDP

    and overall growth of the economy which is about 9per cent in the last three

    years. Higher GDP means more purchasing power. Sale of vehicles for

    domestic and commercial consumption have seen high growth.

    b. Growth in the road infrastructure increases demand for vehicles

    Indian highways and roads have improved a lot in quality and

    connectivity in the last 20 years. Projects like the Golden Quadrilateral aim to

    make even remote areas accessible by road. Some of the National Highways

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    are of International Standards. This has made road transport a viable, cost

    effective and speedy option both for goods and passenger traffic.

    c. Rise in the Per Capita income increases two/four wheeler sales

    Industrial growth in the 1970s, IT boom in the 1980s and BPO boom in

    the 1990s have transformed the Indian middle class. The present generation is

    able to earn the same levels of salary that their parents were earning after years

    of work. This has pushed up the demand for two and four wheelers. A rise in

    per capita income is also indirectly responsible for the retail boom and

    industrial boom for consumer durables. This has pushed up the demand for

    commercial vehicles to enable efficient distribution.

    d. Urbanization changes the face of Indian Auto Industry

    Joint families in towns and villages have given way to migration of the

    younger generation to cities in search of better opportunities. The young

    educated migrants and nuclear families (many with double income) have a

    higher purchasing power. At present, the rate of spread of urbanization is 30per

    cent which is likely to increase by 40per cent in 2030 (UN). Urbanization has

    promoted infrastructural development and it is estimated to spread at a rate of

    $500 billion in the next 5-6 years.

    e. Rising working class and middle class contribute to increased demand of


    Since 1980s, a surging economy has created millions of new jobs in the

    private sector. This has lead to a lot of prosperity in the working class and the

    middle income households. They are able to provide for food, clothing and

    education and also are able to think of owning luxuries like vehicles.

    According to the Planning Commission report, between the year 2003 and

    2009, 130 million people would have been added to the working population.

    According to a finding from McKinsey, the middle income group will grow

    from 50 million to 550 million by 2025.

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    f. Exhaustive range of options in price and models of automotives

    Indian consumer in 70s and 80s had to choose between and Premier

    Padmini or an Ambassador. Now there are at least 123 different models of cars

    from 30 odd manufacturers available. The prices of the compact cars like

    Tatas Nano have made the world sit up and take note of the truly unbeatable

    price points.

    g. Attractive Finance Schemes for purchase of automotives

    Most nationalized and foreign banks have very tempting finance options

    and low interest rates for purchase of cars and two wheelers. There are

    specialized companies that finance the commercial vehicles. All this has made

    the dream of owning a vehicle an easy reality.

    h. Favorable Government Policies for the auto sector

    Apart from a healthy growing economy, Indian Auto Industry has a lot

    to thank the government for the amazing growth rates. The Indian government

    has introduced several industry specific programs. The Indian Auto Policy of

    2002, introduced measures like low entry barriers and investment incentives by

    the local state governments. To encourage in-house research and development

    activities, government has introduced policies that allow weighted tax

    deduction up to 150per cent. National Automotive Testing and R&D

    Infrastructure Project (NATRIP) has been set up in Rae-Bareilly, Ahmednagar,

    Pune, Manesar, Silchar, Indore and Chennai for strengthening the R&D


    i. Cost efficiencies contributing to lower production costs

    According to a study by KPMG in 2007, India Automotive Study, the

    labour cost per hour hovers around $20 in UK, USA and Germany. In India, it

    works out to just $1.60. Due to the huge savings in the labour cost sourcing

    auto components and finished cars makes a lot of business sense to the auto

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    manufacturers who have global presence. The improved design capabilities and

    continuous improvement in quality has been possible only because of the

    availability of skilled manpower like engineers and IT professionals.

    3.1.4 Demand Determinants

    Determinants of demand for this industry include vehicle prices (which

    are determined largely by wage, material and equipment costs) and exchange

    rates, preferences, the running cost of a vehicle (mainly determined by the price

    of petrol), income, interest rates, scrapping rates, and product innovation.

    Demand Determinants are summarised as:

    a. Exchange Rate

    Movement in the value of rupee determines the attractiveness of Indian

    products overseas and the price of import for domestic consumption.

    b. Affordability

    Movement in income and interest rates determine the affordability of

    new motor vehicles. Allowing unrestricted Foreign Direct Investment (FDI) led

    to increase in competition in the domestic market hence, making better vehicles

    available at affordable prices.

    c. Product Innovation

    Product innovation is an important determinant as it allows better

    models to be available each year and also encourages manufacturing of

    environmental friendly cars.

    d. Demographics

    It is evident that high population of India has been one of the major

    reasons for large size of Automobile Industry in India. Factors that may

    augment demand include rising population and an increasing proportion of

    young persons in the population that will be more inclined to use and replace

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    cars. An increase in people with lesser dependency on traditional single family

    income structure is likely to add value to vehicle demand.

    e. Infrastructure

    Longer-term determinants of demand include development in Indians

    infrastructure. Indias banking giant State Bank of India and Australias

    Macquarie Group has launched an infrastructure fund to rise up to USD 3

    billion for infrastructure improvements. India needs about $500 billion to repair

    its infrastructure such as ports, roads, and power units. These investments are

    made with an aim to generate long-term cash flow from automobile, power,

    and telecom industries. (Source: Silicon India)

    f. Price of Petrol

    Movement in oil prices also has an impact on demand for large cars in

    India. During periods of high fuel cost as experienced in 2007 and first half of

    2008, demand for large cars declined in favour of smaller and more fuel

    efficient vehicles. The changing patterns in customer preferences for smaller

    and more fuel efficient vehicles led to the launch of Tata Motors Nano one

    of the worlds smallest and cheapest cars.

    3.1.5 Future of Indian Auto Industry

    According to a report from United Nations Industrial Development

    Organizations (UNIDO) in International Yearbook of Industrial Statistics

    2008, India enjoys the 12th position amongst top 15 automakers in the world.

    India is at the 4th position amongst the auto makers of developing countries.

    By 2016 the size of the Indian Automobile Industry is expected to grow by

    13per cent, to reach a mark of US$ 120-159 billion. Presently, India is the 2nd

    largest two wheeler market in the world and fourth largest commercial vehicle

    market worldwide. With allies in a strong economy, rising demand and

    financial backing, Indian auto industry is standing at the threshold of success.

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    Political Environment Economical Environment

    Indian government's auto policy aimed at promoting an integrated, phased and conducive growth of the Indian automotive industry.

    The Indian economy has grown at 8.5 per cent per annum

    Allowing automatic approval for foreign equity investment up to 100 per cent, with no minimum investment criteria.

    The manufacturing sector has grown at 810 per cent per annum in the last few years

    Establish an international hub for manufacturing small, affordable passenger cars as well as tractors and two wheelers.

    More than 90 per cent of the CV purchase is on credit.

    Ensure a balanced transition to open trade at minimal risk to the Indian economy and local industry.

    Finance availability to CV buyers has grown in scope during the last few years

    Assist development of vehicles propelled by alternate energy sources.

    The increased enforcement of overloading restrictions has also contributed to an increase in the number of CVs plying on Indian roads

    Laying emphasis on R&D activities carried out by companies in India by giving a weighted tax deduction of up_to 150 per cent for in-house research and R&D activities.

    Several Indian firms have partnered with global players. While some have formed joint ventures with equity participation, others have entered into technology tie-up

    Plan to have a terminal life policy for CV along with incentives for replacement for such vehicles.

    Establishment of Indian manufacturing hub, for mini, compact cars, OEMS and for auto component.

    Promoting multi-model transportation and implementation of mass rapid transport system. -

    Social Environment Technological Environment Growth in urbanization, 4th largest economy

    by PPP index. With the entry of global companies into the

    indian market, advanced technologies ,both in product and production processes have developed.

    Upward migration of household income levels

    With the development or evolution of alternate fuels, hybrid cars have made entry into the market.

    Increase in PPP , led to the increase in market share of compact cars

    Few global companies have setup their R&D centres in India.

    85% of Cars are financed in India (15% in China).

    Major global players like audi, BMW, Hyundai etc have setup their manufacturing units in India.

    Cars priced below USD 12000 account for nearly 80% of the market

    Government initiatives regarding tax rebates has led to global players setting up their R&D centres in India.

    Vehicles priced between USD 7000 12000 form the largest segment in the passenger car market.

    Government initiatives in establishing NATRIP network across the country will further lead to enhancing R&Dand technological advancement.

    Indian customers are highly discerning, educated and well informed. They are price sensitive and put a lot of emphasis on value for money.

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    3.2 CAR MARKET

    The word "car" refers to passenger cars. Car is also called an

    Automobile (or) Vehicle which is used to Transport Passengers. Cars usually

    have four wheels and an Internal Combustion Engine. Car industry is one of

    the largest in the world and one of the fastest growing in India. In this sub

    section the author draw a detailed. Profile of world car market, Indian car

    market and market for MUVs/SUVs segment cars in India.

    3.2.1 Profile of World Car Market

    At present the large car manufacturer has the latest production

    technology in different countries to cater for different market on different

    platforms. Big players in automobile industry do not emphasize identical

    features for all markets. It may have the same technical platform, but the

    design options and features differ between countries. They are different

    because the demands of customers behaviour differ between each countries.

    For example, in South America, incomes are lower than in Western Europe and

    customers need more affordable cars. In the USA the customers want more

    space in the car, and that's an important factor for a car to be successful there.

    On the contrary, small cars are quite popular in India. It is not possible to be in

    a high volume market and to send the same cars to every market all over the

    world. So car makers are researching what their customers want and changing

    the car for each market or else they lose customers. More and more CKD

    (Completely Knocked Down) cars are being produced for some countries in

    smaller volumes. That is often the case if there are barriers to exporting cars to

    particular countries, and they are only being sold in smaller volumes. With

    larger markets, where sales of particular models are high, companies really

    need their own suppliers of parts.

    Due to sharp competition and changing customer demand, product

    development process advances have been significant than changes in product

    architecture. Product cycles continue to grow shorter as more companies adopt

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    the simultaneous engineering approach pioneered by Japanese automakers. At

    the same time, advances in Computer-Aided Design (CAD) and Computer-

    Aided Engineering (CAE) tools are being used to replace physical prototypes

    and testing processes. Now, major players (in post M&A situation) take

    greater responsibility for product design and allow production base to get

    shifted to advantageous location for low cost. However, still due to lack of

    standardization, number of tiers at the supply chain is not reduced. Moreover,

    when design is replicated with modification for physical product development,

    several domestic issues need to be taken into consideration. These are mainly

    legal liability and regulatory procedures. Furthermore there is a technological

    move towards modules, i.e., self-contained functional units with standardized

    interfaces that can serve as building blocks for a variety of different products.

    Modularization is expected to reshape the entire supply chain in

    automobile industry as component designs will gradually get shifted to supplier

    companies. This is expected to reduce cost significantly and increase

    efficiency. However, IMVP (International Motor Vehicle Programme at MIT)

    found that cost saving is still elusive. The absence of a clear cost advantage for

    modules, combined with the inherent technical difficulties of changing the

    highly integral product architecture of an automobile, has reduced the

    probability of successful modularization. Nevertheless, a number of factors

    could still accelerate the move towards modularity, including automaker efforts

    to shift investment risk to suppliers, the increasing use of information

    technology within vehicle and the possibility that consumers will show a strong

    interest in built-to-order vehicles.

    3.2.2 Passenger Car Market in India

    India is believed to be the fourth-largest passenger car market in Asia

    comprising a range of cars belonging to different price segments and car

    segments. The Indian car industry has range of portfolio cars starting from the

    Reva the 2 seater car segment to the Volvo XC90 (SUVs) Sports Utility

    Vehicle the 7 seater segment. In terms of price segment, India has a car price

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    range starting from Rs 1.5 lakh to several crores, From Nano, Audi, Mercedes,

    and Bentley.

    With the moving pace of time, Indian Auto Industry has gradually come

    up with various innovations and advancements. Some of the leading car

    manufacturers like the Tata Motors, Hyundai Motors, Honda Seil India and

    Maruti Suzuki have proved their worth in terms of production, designing, and

    marketing across the globe. These manufacturers have good number of cars

    crossing boundaries and winning appreciations. Many other global auto

    manufacturers have made their debut in India with their slew of car launches.

    In 2010, with surging economy and new innovative models of

    passenger vehicle sales has increased and made India boom, making the

    country the world's second-fastest growing market, ahead of developed ones

    like Japan, Brazil, US and UK, lagging only to China. If this was not enough,

    the country grew at the fastest pace in sales of commercial vehicles, even ahead

    of China, mainly backed by growth in infrastructure. This fast pace is likely to

    moderate as rising interest rates and firmer commodity prices, coupled with

    high inflation, are set to dampen sentiments and pull down the demand.

    The global car manufacturers are investing on Indian market eyeing the

    growing earning potential, strong technological capability, availability of cheap

    and trained human resources. This further gave a boost to Indian car exports.

    Low cost of production along with low cost of designing and research has also

    contributed to increasing car exports. According to the industry reports, the

    fiscal 2001-2002 recorded an increase of 5.3 million units which increased to

    10.8 million units in the fiscal 2007-2008. The financial year 2007-2008

    recorded a growth of 19per cent. In 2010, 2.7 million light vehicles were sold

    in India, up from just 700,000 light vehicles in 2000. The production of

    passenger cars in India is expected to grow to over 14 million units in 2014-

    2015 and the sales are expected to increase at a rate of 10per cent per annum.

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    The manufacturing of passenger cars in Indian car industry has recorded

    an overall growth of over 8 per cent. Every year the rate of production is

    increased because of the advancing technology and increasing number of

    establishments in terms of production houses and design centers. Recently

    many car manufactures like Hyundai, Maruti Suzuki and Fiat have established

    their design centers in the country. Furthermore, most of the car manufacturers

    are eyeing India as a hub for MUV and SUV car production.

    The rising cost competition in the developed car markets coupled with

    high input cost pressure contributed to the increasing sales figure of passenger

    cars in the country. During financial year 2005-06 passenger vehicle sales

    witnessed a growth of 7.55per cent over the previous year. The major players

    are still in the process of expanding their production capacity and roll out more

    car models in response to the needs and aspirations of Indian car consumers.

    3.2.3 Car Sales Review

    Automobile sales in India continued its robust momentum and touched

    record highs in March 2010. Most industry players recorded healthy growth for

    the month and their volumes showed no signs of fizzling out whatsoever. This

    boom in auto sales is accredited to the positive consumer sentiment, which

    stayed upright even in the wake of recent hike in car price. Preponement of

    buying plans from the dealers in anticipation of the much talked about Excise

    duty roll back in the Union Budget is also thought be partially responsible for

    this record growth in car sales volume.

    In car segment Maruti Suzuki recorded an 11per cent rise in total car

    sales, as compared to the corresponding period last year, at 95,123 vehicles in

    March 2010. Exports skyrocketed 32per cent to a record 15,593, while sales in

    the domestic auto market rose by an impressive 8per cent to 79,530 vehicles.

    Tata Motors, at its 75,151 units (inclusive of the export figures), registered a

    sales growth of 38per cent in March 2010 as compared to 54,452 vehicles in

    the corresponding period last year. The company's domestic sales are up by

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    35per cent at 71,046 units as compared to the same month last year. Coming to

    Hyundai Motor India, the company reported its highest-ever auto sales since

    1998 (when it sold 24,754 units of Santro, Hyundai Motor's flagship small car)

    in the domestic automobile market at 31,501 units. This records a jump by

    27.26per cent over the same period last year. From total sales' point of view,

    the company recorded a growth of 19.23 per cent to 55,035 units as against

    46,159 units in the corresponding period last month.

    Total car sales volumes are equally emphatic for General Motors India.

    The company posted sales growth of 127per cent in March 2010, as against the

    same month a year ago. 11,330 vehicles were sold in March 2010 against 5,001

    vehicles in March 2009. Fiat India Automobiles reported a sales growth of

    33per cent for the month of March 2010 over the same month last year. During

    this period, the company sold 2,361 vehicles in domestic and international

    market as compared to 1,780 vehicles in March 2009. Mahindra & Mahindra

    reported healthy sales figures at 41,814 units led by growth in the tractor

    segment at 52.6per cent year-over-year (YOY). This was further supplemented

    by the 40.2per cent yearly growth that the automotive division registered

    during the period. Growth of the automotive segment was led by the Utility

    Vehicles (UV), Light Commercial Vehicles (LCV) and three-wheeler segments

    at 24.2per cent, 89.8 per cent and 102.3 per cent YOY, respectively. For Ford

    India, the last financial year came to an end in an equally good way. The

    company recorded a threefold increase in sales compared to the corresponding

    period last year, and the figures rose at 9,478 units, a growth by 203per cent,

    thanks to increased sales of Ford Figo.

    3.2.4 Multi-Utility Vehicles

    Multi Utility Vehicle or in short MUV is a type of vehicle designed in

    the shape of van but is meant for personal use. In India some of the MUVs

    like Toyota Innova, Toyota Qualis, Tata Sumo, Chevrolet Tavera are used as

    commercial vehicles for ferrying passengers. Unlike the other cars, Multi

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    Utility Vehicle or cars include bigger chassis dimensions, more seating

    capacity and most of the models are designed with rear seats which can be

    folded for extra luggage space. A multi utility car can accommodate many

    passengers and carry more luggage at a time. It is a fast growing automobile

    segment in India and has become the most popular mode of transportation in

    rural areas. Multi Utility Vehicles gained momentum in India due to its higher

    utility however with lower cost of operation. Thus people started considering

    the significance of MUV and so does the manufacturers. Mahindra and Toyota

    were the main players in India however seeing the potential of MUV segment,

    other companies are also eying to launch more MUV models. Skoda Auto as

    well is planning to enter this segment with new MUV model Skoda Roomster.

    MUVs are considered to be the best over other vehicles for long trips

    with family members and friends. Gone are the days with classical MUVs

    which are mostly meant for pick up and transportation, the car manufacturers

    are now coming up with crossover multi utility cars which not only

    accommodate more people but gives a pleasant drive same like luxury cars.

    Driving with ones family with ease and comfort are the ultimate pleasure one

    can have. The economy boom in India has given rise to changing lifestyles of

    the youngsters and the old. People seem to be going with bigger and better

    facilities when it comes to family cars. Traveling and outings during weekends

    is also becoming a growing trend. So what better than a utility vehicle

    especially when it comes to Indian Roads Sport Utility Vehicles or SUV's come

    to the rescue with their spacious interiors and rugged exteriors, making them

    the perfect choice for road trips and family excursions.

    3.2.5 Reason for the Growth of MUV/SUV Car Segments in India

    With estimates putting the size of Indian automotive industry between

    US$ 120.09 billion and US$ 155.12 billion by 2016, the industry is expected to

    touch the 10 million mark, to which the MUV segment will be a major

    contributor. If one sees a typical Indian family wherein parents, grandparents,

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    children all live together, they off course would also like to travel together and

    for this a Multi-Purpose Vehicle is an ideal option. At the same time the Indian

    consumer needs cars at a low purchase cost, high fuel efficiency, low

    maintenance costs and comfortable ride in city conditions. All these needs

    along with space can easily met by MUV.

    In recent times there is also changing attitude of consumers towards

    MUV by increasing the awareness of the utility of such a vehicle can help in

    gaining a market for these vehicles.

    Some of the other positive points of MUV sold in India.

    MUV are specially designed for India.

    It is a perfect family vehicle as far as its interiors, internal space

    management, engine, suspension.

    High power to weight ratio, results in superior pick up and acceleration.

    High seating position and easy controls make it a driver-friendly car. It

    is easy to park and has ability to pick up high speeds with full ease.

    From the angle of safety, occupant's safety is ensured during front

    collision because of pout of the bonnet.

    The capabilities matching the likes of Toyota Quails and best in class

    technical capabilities in the given price range are added plus points.


    Consumer Buying Behaviour is the process by which individuals search,

    and select for purchase, use and dispose of goods and services of their needs

    and wants. In this section of the study the author has drawn references to

    consumers buying behaviour and factors influences their decision making with

    references to car purchase at study area at particular and India in general.

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    3.3.1 Consumer Buying Behaviour With Reference to Car Purchase

    The decision processes and acts of final household consumers associated

    with evaluating, buying, consuming and discarding products for personal

    consumption consider the purchase of an automobile. Consumers will not

    consider different options until some event triggers a need, such as a problem

    needing a potentially expensive repair. Once this need has put consumers on

    the market, they begin to ask their friends for recommendations regarding

    dealer and car models. After visiting several car dealer, consumers test drives

    different models and finally decides on a particular model. After picking up

    the new car, customers have doubts on the way home, wondering if

    customers can afford the monthly payments, but then begin to wonder if

    instead customers should have purchased a more expensive but potentially

    more reliable model. Over the next five years, the car may have several

    unexpected breakdowns that leads customers to purchase a different brand,

    but customers have been very happy with the services of the local dealership

    and decide to again purchase next car there.

    In this particular the following generic model of consumer decision

    making appears to hold:

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    Need Recognition Information Search Evaluation of Alternatives

    Purchase Decision Post Purchase Behaviour

    External Factor Internal Factor



    Reference Group




    Decision Making Process

    Motivation, etc

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    Consumer behavior researchers are not only interested in studying the

    validity of the above generic model, but are more interested in various factors

    that influence how such a model might work.

    The purchase of a car is much more risky in terms of value and therefore

    high presence of involvement is needed in that situation.

    The Influences of External Factors are summed as:

    a. Culture: Culture is the set of basic values, beliefs, norms, and associated

    behaviors that are learned by a member of society. Note that culture is

    something that is learned and that it has a relatively long lasting effect on the

    behaviors of an individual. As an example of cultural influences, consider how

    the salesperson in an appliance store in the U.S. must react to different couples

    who are considering the purchase of a refrigerator. In some subcultures, the

    husband will play a dominant role in the purchase decision likewise, the wife

    will also play a more dominant role.

    b. Social Class: A group of individuals with similar social rank, based on such

    factors as occupation, education and wealth. A person within a reference group

    who exerts influence on others because of special skills, knowledge,

    personality, etc.

    c. Family: A group of people related by blood, marriage and other socially

    approved relationship.

    d. Reference Groups: Groups, often temporary, that affects a person's values,

    attitude and behaviors, e.g., buyer behaviors around colleagues at work.

    e. Environment/Situation: It is related to circumstances, time, location, etc.

    For e.g, a prospect shopping for a new automobile while debating the wisdom

    of a necessary expensive repair to his car might be more interested in what cars

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    are on the lot than in shopping for the best deal that might involve a special


    The Influences of Internal Factors are summed as:

    a. Life-style: It is a pattern of living expressed through a person's activities,

    interests and opinions.

    b. Psychographics: Psychographics is a technique for measuring personality

    and lifestyles to a developing lifestyle.

    c. Personality: A person's distinguishing psychological characteristics that lead

    to relatively consistent and lasting responses to stimuli in the environment. We

    are each unique as individuals, and we each respond differently as consumers.

    For example, some people are optimizers who will keep shopping until they are

    certain that they have found the best price for a particular item, while other

    people are satisficers who will stop shopping when they believe that they have

    found something that is "good enough."

    d. Motivation: Consumers usually have multiple motives for particular

    behaviors. These can be a combination of manifest known to the person and

    freely admitted and latent unknown to the person or the person is very reluctant

    to admit.

    3.3.3 Buying Behavior of Passenger Car

    The purchase of a car is much more risky than the purchase of a quart of

    orange juice, and therefore presents a higher involvement situation. This

    modifies the way that the generic model works. As involvement increases,

    consumers have greater motivation to comprehend and elaborate on

    information salient to the purchase. A life insurance agent for example, would

    typically be more interested in contacting a young couple who just had a baby

    than an eighteen year old college student - even though the new parents might

    be struggling to make ends meet while the student is living more comfortably.

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    Although the annual investment into a policy is much lower if started at a

    younger age, most young college students are not open to think about long term

    planning. A young couple with a new child is much more open to think about

    issues associated with planning for the child's future education, saving to buy a

    house or even saving to take an extended vacation upon retirement.

    Buying behavior of passenger car customers are highly influenced by

    unique set of cultural, social, economic and psychological factors. The study of

    buying behavior has proved that many factors like price, income, distribution

    of income, competition with substitutes, utility, consumer preference

    (economic factors) & factors like culture, attitude, social values, life styles,

    personality, size of family, education, health standards etc. (social factors) play

    a major role in buying behavior of customer. Economists among the social

    scientists assume that persons exhibit rational behavior, they have perfect

    information about the market, and attempts to obtain maximum value for every

    unit of money and effort spent. An economist thinks that consumers consider

    price as the most effective vehicle of motivating purchases. The important

    economic factors and theories which are basic and relevant for understanding

    consumer behavior includes personal income, disposable income, discretionary

    income, family income, future income, consumers liquid assets like bank

    balances, short term bank deposits, shares, units, government bonds etc. , as

    well as living standards enjoyed in the past.

    3.3.4 Psychological Factors That Influence Consumer Buying Behavior

    Successful businesses understand how to leverage the different factors

    that influence consumer buying behavior to effectively market their products

    and maximize sales. Studies show that there are generally four main factors

    that play a role in the consumer's buying behavior. These factors include

    cultural factors, social factors, personal factors and psychological factors. The

    psychological factors that influence an individual's decision to make a purchase

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    are further categorized into the individual's motivations, perceptions, learning

    and his beliefs and attitudes.

    a. Motivations

    The motivation is the drive that leads the consumer towards buying a

    product or service. If the motivation is high, meaning the need or perception of

    need is high, the individual will actively seek to satisfy that need. This results

    in the consumer deciding to buy the product or service. This factor is directly

    related to "Maslow's Hierarchy of Needs" which states that every individual

    will actively seek to satisfy physiological needs first, followed by safety, social,

    esteem and finally self-actualization needs. Businesses that successfully

    leverage these needs will motivate consumers to buy their products.

    b. Perceptions

    World defines perception as, "The process by which people select,

    organize and interpret information to form a meaningful picture of the world."

    Consumers make all manner of associations from their prior knowledge and

    experiences. It is difficult for a company that positions itself as a low cost retail

    store, the consumer perception is thus, everything that comes from that store is

    cheap and subconsciously, lower in quality.

    c. Learning

    Consumers are products of their experiences. They catalog each

    experience as good or bad for later use when a similar situation arises. These

    experiences influence the consumer buying behavior by changing the way they

    react to products similar to those they already have experience with. For

    example, many consumers choose to buy Toyota cars because they have had

    good experiences with their previous Toyota models. Companies that focus on

    the consumer experience often gain repeat business because the consumer does

    not feel the need to look anywhere else to fulfill that particular need. This often

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    outweighs the fact that the competition may be cheaper or even better in some


    d. Beliefs and Attitudes

    Beliefs and attitudes greatly influence consumer buying behavior.

    Beliefs are the way people think about a particular subject or product. An

    attitude is the individual's consistently favorable or unfavorable evaluation,

    tendency or feeling about a particular subject. These beliefs and attitudes shape

    the consumer's perception of the product. These factors may be difficult to

    change because they stem from the individual's personality and lifestyle.

    Consumers often block information that conflicts with their beliefs and

    attitudes. They tend to selectively retain information or even distort the

    information to make it consistent with their previous perception of the product.

    Buying behavior of passenger car customers are highly influenced by a

    unique set of cultural, social, economic and psychological factors. The study of

    buying behavior has proved that many factors like price, income, distribution

    of income, competition with substitutes, utility, consumer preference

    (economic factors) and factors like culture, attitude, social values, life styles,

    personality, size of family, education, health standards etc. (social factors) play

    a major role in the buying behavior of customer. Economists among the social

    scientists assume that persons exhibit rational behavior, they have perfect

    information about the market and attempts to obtain maximum value for every

    unit of money and effort spent. An economist thinks that consumers consider

    price as the most effective vehicle of motivating purchases. The important

    economic factors and theories which are basic and relevant for understanding

    consumer behavior includes personal income, disposable income, discretionary

    income, family income, future income, consumers liquid assets like bank

    balances, short term bank deposits, shares, units, government bonds etc. , as

    well as living standards enjoyed in the past.

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    3.3.5 Key Factor in Vehicle Choice

    When it comes to making their final decision about which vehicle to

    buy, consumers focus on factors such as reliability, safety, price and fuel

    economy. At the bottom of the list are cash-back incentives, named by fewer

    than half of the consumers. The importance of incentives as a deciding factor

    has declined for the past several years, indicating that consumers today seem

    less interested in gimmicks when it comes to their car purchases. Where

    consumers are in the buying cycle they can make a difference in how they rank

    the factors that influence their vehicle choice. For example, additional warranty

    coverage is important to consumers who are furthest away from the point of

    purchase; it was named by 69 per cent of respondents who were 13 to 18

    months from purchase. However, the number declines as consumers get closer

    to actually buying the car were 55 per cent of respondents who were within

    three months of purchase said extra warranty coverage was important. This

    reflects the fact that consumers will narrow down the factors that really matter

    to them as they get closer to the point of purchase. Demographic factors such

    as age and gender accounted for some variances. For example, older consumers

    tend to put more emphasis on reliability and safety than younger respondents.

    Those in the 50-plus age group were also more concerned with environmental

    issues and fuel economy. The youngest respondents were most likely to rate the

    ability to research information on the internet as an important factor in their

    vehicle decision. Women tend to rate most of the factors as more important

    than men do. The difference was most pronounced for cash-back incentives,

    low financing, safety, environmental issues, fuel economy and additional

    warranty coverage.

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    Reliability of Brand Safety

    Price of vehicle

    Fuel economy

    Quality of interior style

    Extraoptions at no extra cost

    Brand Name of the Vehicle

    After sales service

    Vehicle availability

    Product feature/option

    Environmental factor


    Additional warranty coverage or service credit

    Ability to research information on net

    Zero per cent or low financing

    Cash-back Incentive

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    3.3.6 Post-Purchase Consumer Behavior

    After the sale, the buyer is likely to feel either satisfied or dissatisfied. If

    the buyer believes that she/he received more in the exchange than what was

    paid, she/he might feel satisfied. If She/he believes that they received less in

    the exchange than what was paid, then she/he might feel dissatisfied. The

    dissatisfied buyers are not likely to return as customers and are not likely to

    send their friends, relatives and acquaintences. They are also more likely to be

    unhappy or even abusive when the product requires post-sale servicing, as

    when an automobile needs warranty maintenance.


    The global automotive industry, increasingly characterized by global

    mergers and relocation of production centers to emerging developing

    economies, is in the grip of a global price war. The industry is subject to

    imperfect competition which has resulted in too many competitors and too

    much redundancy and overlap. The car industry is concerned with consumer

    demands for styling, safety and comfort and with labour relations and

    manufacturing efficiency. Specialization in car sector is increasingly becoming

    segment specific as each of these countries is finding its niche. Due to sharp

    competition and changing customer demand, product development process

    advances have been more significant than changes in product architecture.

    Moreover, it has been observed that India it has very huge demand in different

    industrial sectors. Automobile industry is not an exception in this regard.

    Indian automobile sector has huge demands from its own country. This

    demand also attracts the giant automobile suppliers throughout the world to

    come and invest in the Indian Automotive Industry. Due to the contribution of

    many different factors like sales incentives, introduction of new models as well

    as variants coupled with easy availability of low cost finance with comfortable

    repayment options, demand and sales of automobiles are rising continuously.

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    chapter 3