Automobile Sector: Industry Vs Indian Middle Class


By

Dr. Amit Kumar Dwivedi
Lecturer (Finance)
Amity Business School
Amity University Rajasthan
Jaipur

Mr. Punit Kumar Dwivedi
Lecturer (Finance)
Vidya Dayini P.G. College
Osmania University
Hyderabad
 


INTRODUCTION:

Automobile sector is ever green and much profitable sector in world.  Now it is booming like prices in India especially.  Before 5-6 years the salary range in multinational companies was very low as compared to today's salary.  This is because of high productivity and fulfillment of demand by the multinationals and that is why they are earning more profit by selling their products, projects and services to U.S. and other countries in international market at high prices.

The automobile sector is also playing very vital role in growth of Indian economy.  The increasing demands of bikes, cars and various heavy vehicles for transport and carriage purpose respectively are very essential requirement for today's business era and especially then, when we are facing big challenges by mode of competition in the era of globalization.

If we go through the concept of National Income and considering the per-capita-income of Indians, we are getting that it is increasing in a speedy and in proper growth oriented way.

AUTOMOTIVE SECTOR Vs UNION BUDGET 2008

If we are considering the new union budget 2008 and correlating it with the automobile in India, we can find that union budget is very favorable for the automobile sector in India.  The union budget shows the decrease in excise duty in the sector.

i. The CEN-VAT is also reducing and now it is 14% previously it was 16%.  The Finance minister has declared that the excise duty for small cars, two-wheelers and three-wheelers are decreased by 4%.  Now it is only 12% instead of 16%.

ii. Another declaration given by FM is, there should be levy of extra (additional) tax 14.35% per liter on petrol (without brand) and Rs.4.60 per liter on diesel.

iii. Another amendment is announced by the FM that excise duty on hybrid cars to be deducted and fix @ 14% presently it is 24% (Till today the hybrid cars are not in the market).

Due to changes in excise duty the producer has to pay less duty as compare to previous duty what he paid.  So the cost of cars to be decreased by Rs.7,000/-  to Rs.16,000/- which results benefit to the customers of 2008 year.

EFFECT OF REDUCTION IN EXCISE DUTY:

i. Hyundai Car Company has declared that they are ready to provide benefits to their customers.  They have announced that they are reducing the price of SANTRO car by Rs.12,000/- to Rs.16,000/-

ii. The General Motor Company is also reducing its prices.  They announced that they are reducing the prices of their small cars like SPARKE and OVIO UVIO by Rs.7,500 to Rs.14,000/-.

iii. In the two wheeler segment TVS Motor has declared that they are going to decrease the price of their models by Rs.1000/- to Rs.2,000/-.

CUSTOMER CATCHING CONCEPTS (3-Cs) OF AUTOMOBILE SECTOR

1. CASH DISCOUNT & FREE INSURANCE:
  Now one has to forget the hike in prices of the small cars.  If we want to buy a car we are always gainer and not looser.  Now one can rush into the showroom for new purchase because car companies are offering good and very attractive discount facility to the customer's point of view.

The car company Maruti Suzuki, while prices hike on the model Wagon R petrol version was only Rs.2,000/- and dealers are offering on attractive discount of Rs.20,000/- which is cash discount plus one year Insurance.  It means:

(Hike in prices + cash discount + free insurance = Customer's benefit)

i. In case of Zen Estilo the price is increasing only Rs.1,000/- and cash discount facility is available fro the customer is of Rs.25,000/- + one year insurance cover.

ii. When we are considering the Maruti Alto car which is one of the largest volume model in the Indian domestic market, it too is offering the discount of about Rs.11,000/- (includes free insurance plus Rs.3,000/- cash discount).

iii. Hyundai is also offering free insurance on SANTRO that is now position entry level vehicle translating into saving of roughly Rs.10,000/- for the customer.

2. LOYALTY PAYOUT:  Some companies are offering to customers exchange bonus or loyalty payout where customers can get the additional discount for trading old car for the new one.

3. FINANCE PAYOUT: Another customer catching concept being employed by the automobile sector is finance payout to their customers i.e. around 4% of the loan taken for the purchase of vehicle.

HAPPENINGS IN TWO-WHEELER SEGMENT 

Obviously automobile sector has attained a steady growth in spite of high and fluctuating fuel prices. The report on two-wheeler segment of the automobile sector is showing a growth during the month of May, 2008.

i. The monthly sales of Hero Honda increased by 9.54% compared to the same period of last year to 3.12 lakh units.

ii. The sales of Bajaj Auto also increased by 7.57% to 1.79 lakh units.

iii. While the TVS Motor has attained 4% rise with  a side of 1.12 lakh units

MIDDLE CLASS VS AUTOMOBILE SECTOR & GROWTH

India is a nation with more than 6 lakhs villages which obviously includes a big middle class.  We can segment the middle class into three more categories.  They are:

1. Lower middle class
2. Middle middle class
3. Upper middle class.

Usually the demand of cars and other heavy carriage vehicles is on the rise in upper middle class and bikes and small cars will come in the segment of lower middle class and middle middle class.

In a survey it was found by researchers that the middle class is expanding 30-40 million every year on purchase vehicles.

i. At present the two wheeler segment's market grew by 13.6% with 7056317 units against 6209765 units in the year 2004-05.

ii. Motorcycles had a growth of 17.1% in the domestic market by touching the 5815417 units against 4964353 units in the year 2004-05.

iii. The scooter segment of automobile sector grew by 1.5% and fell down at 908159 units against 922428 units in the year 2004-05,

iv. In the three-wheeler segment the sales of three-wheelers rose by 17% and increased 52325 units as compared to units of year 2004-05.

v. The small commercial vehicle segment of the automobile sector achieved the growth of 19.4% and increased the production which is 23313 units more than 2004-05.

vi. While medium and heavy commercial vehicles attained a growth of 4.5% only.

CONCLUSION

In conclusion we can say that there are great opportunities and possibilities in the automobile sector.  But hike in the fuel price is influencing the market of this industry.

There is a need of a very liberal policy for the fuel prices and requires a great good deal with fuel supplying countries.  Though the performance of the industry is better instead of high and unfavorable fuel policy.

The new launching of Tata's Nano 'One Lakh Car' which is also known as People's Car is also a very good strategy to capture the middle class customers.  Introduction of Nano and Bajaj Lite will definitely affect the growth and sales volumes of cars which will also affect the industry by reaching, catching the Indian middle class and fulfillment of their own car need.

Reference:

1. Economic Survey of India- 2007,
2. Survey of India Automobiles Industry-2007,
3. Andhra Pradesh News, Govt of A.P.
4. Yojana (magazine), published by Publication Division Govt. Of India.
5. Business Today (magazine),
6. Automobiles Today (magazine),
7. Business Economy (magazine),
8. Business Standard (News Paper),
9. Economic Times (News Paper),
10. Financial Express (News Paper)
 


Dr. Amit Kumar Dwivedi
Lecturer (Finance)
Amity Business School
Amity University Rajasthan
Jaipur

Mr. Punit Kumar Dwivedi
Lecturer (Finance)
Vidya Dayini P.G. College
Osmania University
Hyderabad
 

Source: E-mail June 04, 2008

           

Articles No. 1-99 / Articles No. 100-199 / Articles No. 200-299 / Articles No. 300-399
Articles No. 400-499 / Articles No. 500-599 / Articles No. 600-699 / Articles No. 700-799
Back to Articles 800 Onward / Faculty Column Main Page