Auto Market Characteristics

Market Size

The Indian Automotive Industry after de-licensing in July 1991 has grown at a spectacular rate on an average of 17% 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.The industry has provided direct and indirect employment to 13.1 million people. Automobile industry is currently contributing about 5% of the total GDP of India. India’s 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 10% to 11% towards India’s GDP by 2016, which is more than double the current contribution.

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.

Exchange Rate

Movement in the value of Rupee determines the attractiveness of Indian products overseas and the price of import for domestic consumption.

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.

Product Innovation is an important determinant as it allows better models to be available each year and also encourages manufacturing of environmental friendly cars.

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 be augment demand include rising population and an increasing proportion of young persons in the population that will be more inclined to use and replace cars. Also, increase in people with lesser dependency on traditional single family income structure is likely to add value to vehicle demand.

Infrastructure

 Longer-term determinants of demand include development in Indian’s infrastructure. India’s banking giant State Bank of India 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 been made with an aim to generate long-term cash flow from automobile, power, and telecom industries. 

Price of Petrol

Movement in oil prices also have 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, more fuel efficient vehicles. The changing patterns in customer preferences for smaller more fuel efficient vehicles led to the launch of Tata Motor’s Nano – one of world’s smallest and cheapest cars.