Swot of Small Car Industry

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Federation of Automobile Dealers Associations – www.fadaweb.com India's Small Car Dream
The term "small car" is both relative and subjective. A small car in the US or the Middle East is regarded as big in countries such as India and Indonesia. Within a particular country, too, the small car market has fairly heterogeneous products. While a car equipped with the latest technology such as the Suzuki Swift is a small car, the basic Nano, which is available at one-third the price of the Swift, also belongs to the same segment. A car that has limited or no luxury features and is more functional, offering customers basic mobility and value for money, can be considered a small car. Excise duty rules in India define a small car as one that is shorter than 4,000 mm with an engine size smaller than 1,200 cc, if gasoline, and 1,500 cc, if diesel. From a price perspective, it is difficult to objectively define a small car. According to the standard Indian income classification, any car costing up to INR 500,000 can be considered a small car. For the purpose of discussion and research, we have considered the Society of Indian Automobile Manufacturers' (SIAM's) segmentation, according to which the mini segment and the compact segment constitute the Indian small car market.

The Small Car Market in India
India is primarily a small car market, mainly due to the country's demand fora cost- effective mode of transportation. Of every four cars sold in India, three are small. Domestic sales in the small car segment more than doubled from 0.54 million units in FY04 to 1.2 million units in FY10. The small car segment is also driving India's car exports, contributing 95% to the country's total exports. |  

In 2009, India surpassed Japan and became the largest small car market in the world, accounting for the sale of around 900,000 small cars, as compared to 700,000 sold in Japan. India is now the second-largest exporter of small cars, behind only Japan. Led by small car exports, the country surpassed China in 2009 by exporting 412,256 passenger vehicles as compared to China's exports of 369,600 units (including commercial vehicles [CVs]) during the same period. It is interesting to note that while the car market in India is largely petrol-fueled, customers are increasingly showing preference for diesel and CNG/LPG due to their lower running costs.

A. Demand: A Large Consumer Pool
1. Domestic Demand
India is an emerging nation, shifting steadily from an agri-based economy toward a service and manufacturing oriented country. Low-cost modes of transportation across vehicle segments in India hold significant growth potential, since the country's national per capita income is fairly low, at approximately US$1,000. The two-wheeler segment, for instance, is relatively popular and constitutes more than three-quarters of vehicles sold in India. Moreover, two-wheelers account for only half of the number of bicycles sold in the country.  Rising middle-class aspirations and sustained increases in disposable income characterise the long-term India growth story. The need for low-cost regular mobility, along with growing aspirations, has opened up significant opportunities in the small car space. Based on the NCAER's classification of income strata, the "Deprived" category has significantly decreased in the past decade from 72% to 52%. The 20% of households that have exited the "Deprived" category have become "Aspirers," while several "Aspirers" have ascended to the middle class category. According to the current population size, 28.4 million households belong to the middle class category, cumulatively owning as many as five million cars. Assume that no household owns more than one car. The remaining 23.4 million households that do not own a car currently, but have rising disposable incomes and aspirations, reflect a significant opportunity for the small car segment in the country.

2. Export Potential
Globally, the industry is witnessing a...
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