Microeconomic Factors in Automobile Industry in India

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Automobile Industry

Hailed as ‘the industry of industries’ by Peter Drucker, the founding father of the study of management, in 1946, the automobile industry had evolved continuously with changing times from craft production in 1890s to mass production in 1910s to lean production techniques in the 1970s. The Asian countries, mainly by Japan, China and India, registered a 9% increase in production over last year, constituting 35.9% of the global production. In fact China and India posted positive growth rate over 2003. This supply mainly catered to meet the demand from households where the automobiles constituted the second largest expenditure item next only to housing. Thus the global automobile industry dominated by Europe, US, Japan, and of late by China and India, continued to have a significant influence on economic development, international trade, foreign direct investment and environment-friendly practices.

Total Sales Trend of Four-wheelers in India

Demand Factors
1. Financing Options
Auto industry observers cite car loans as the biggest driving factor for the expansion of the Compact Car segment. At present, almost 85 per cent of all new car sales are backed by auto finance, compared to 65 per cent five years ago. Interest rates on car loans have come down drastically in the past four or five years, which helps prospective buyers, take the plunge. The growth of the CC-segment in the past few years can be mainly credited to factors such as rise in income levels leading to increased affordability and simultaneous reduction in interest rates leading to lower EMIs. The drop in interest rates usually helps very few people to probably shift from the base model to a deluxe model. A larger shift happens if people are willing to take long-term loans, like five years instead of the earlier three-year loans.2.  2. Advertising And Marketing

Due to the advertising techniques adopted by all the manufacturers in the CC-Segment the sales have risen drastically. It is all due to because the companies now days are using even aggressive selling techniques for which they are even coping with the Film celebrities and Cricket stars, like Maruti has contracted Irfan Pathan as the brand ambassador of Zen and for Santro Hyundai has contracted for Shah Rukh Khan. And the companies are even trying to approach to the customer as to their demand for a vehicle at special interest loans, etc. They are using data according to the customers return and earning capacity for attracting the customers for their vehicles. 3. Price of the Car

One of the major factors that affect the demand of any commodity in the market is the price of the commodity. As the law of demand also states that with an increase in price the demand of the commodity decreases and vice versa. Since, in the compact car segment market even there are very less competitors there is stiff price competition. Like the price of Zen in 2001 was Rs. 3.93 lacs which increased to Rs. 4.01 lacs in 2005, but still the sale of the Maruti brand keeps on increasing it was due to the company’s reputation with the customers. 4. Income of Consumer / Buyer

The income of the consumer or buyer of the car is a very important factor of demand. In recent time we have seen that due to increase in the Income of the general public, there has been a shift from the Lower CC-segment cars to the Upper CC-segmentcars.2

Due to the recent increase in the number of multinationals in India, the income level of the employees have risen drastically and has made CC-segment cars an entry level car for a lot of people. The average age of a CC-segment car owner has also dropped from 35 years to 31 years in India. 5. Increase in Affordability

The demand for passenger cars is driven mainly by greater affordability, which in turn increases the aspiration level of the customers. Today with high amount of disposable income in the hand of Indian youth, who forms major portion of the population, P-marker...
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