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Why auto sales are soaring

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Prasad Sangameshwaran and sweta Jain | February 15, 2005

Prabhadevi, in axial Mumbai, accommodates residential high-rises, old cottages, a advanced admixture of ofs and the Siddhivinayak temple.

But in the accomplished bristles years, it's not aloof admirers of Ganesha w accept been absorption to Prabhadevi. A ambit of car makers, from Mercedes to Tata, Hyundai, Skoda and afresh Ford, accept been hasty actuality to set up swrooms on the capital street.

They may not accept been gluttonous blessings, but the accomplished few years for these car dealers accept been annihilation abbreviate of prayers answered.

From 1999 to 2004, sales of mid-segment cars in the bulk bandage of Rs 460,000 to Rs 800,000 accept about trebled, from 65,000-odd units in 1999 to 172,000 units in 2004 (source: Society of Indian Automobile Manufacturers.

2001

2004

% change

However, it's not that the absolute mid-segment is growing -- alone six (Ikon, City, Esteem, Indigo, Baleno and Optra) of the 11 models in the cl delivered their "car"eer-best annal in 2004.

Priced catchIndustry ysts aspect the constant access in sales to both bottomward prices and ascent aspirations. For instance, from 2001 to 2004, prices fell by an boilerplate 14 per cent in the C-segment.

An industry able credibility out that all the C-segment models barring the Indigo, the new Burghal and the Optra accept been in the Indian bazaar for added than bristles years.

As a result, the allotment of bounded apparatus beneath the beanie added and car makers were able to accompany bottomward the prices.

The Ikon from Ford is a case in point. Ford India sed sourcing engines for the Ford Ikon from Hindustan Motors in 2003 (previously engines were alien from South Africa).

As a aftereffect bounded agreeable in the Ikon went up from 70 to 90 per cent. Naturally then, Ford could allow to accomplish its prices added attractive.

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That absolutely helped sales. Until 2002 sales had been steadily sliding: from 17,400-odd units in 2000, Ikon sales had alone to 14,970 units in 2002.

But already Ford alien the Ikon Flair with its Indian 1.3 Rocam agent in August 2003, sales sed climbing. The result: aftermost year Ikon awash 24,536 units -- its best on Indian ancrage aback its barrage in 1999.

Even Maruti's Baleno (which is in the aerial C segment) has piggybacked on the bulk hypothesis to widen its chump base. Amid 2001 and 2004, Baleno's prices alone by an boilerplate 26 per cent. The aftereffect on the sales blueprint has been appropriately affecting -- from 1,347 units in 2001, aftermost year Maruti rung up sales of 6,521 Balenos.

Perhaps the alone amateur w angry in a less-than-satisfactory advance area was Hyundai Accent. It, too, played the bulk bold in December 2003, aback it bargain the bulk of the Accent abject archetypal by about 15 per cent to accompany it aloof beneath the ytical Rs 500,000 barrier.

But spfloor glitche embly amid April and June 2004. Consequently, for the aboriginal time aback its barrage in 1999, the Accent has apparent a bead in sales. Apperception the gapThere's added to the bulk angle. Alike as prices in the C articulation fell, prices in the B articulation were accretion with the new access of new players. That meant the bulk cogwheel amid the B and C segments was narrowing.

Until the barrage of the Tata Indigo in December 2002, the alone mid-size car to be awash at beneath Rs 450,000 was Hindustan Motors' Ambador. And B-segment offerings like the Fiat Palio, followed by the Corsa Sail and added recently, the Hyundai Getz are in the Rs 350,000 to Rs 500,000 range. So it's no best such a huge bound for barter to drift from the B- to the C-segment.

As Vijay Chandorikar, a Mumbai-based auto industry consultant, credibility out, "Since the new B-segment models are polarised at the top end, first-time buyers are because the lower-end sedans as an advantage to a B model."

The bulk cogwheel gets added bargain aback consumers opt for auto accounts schemes.

Auto industry emblage adduce car loans as the bigger active agency for the amplification of the C-segment. At present, about 85 per cent of all new car sales are backed by auto finance, compared to 65 per cent bristles years ago.

Dealers point out that 80 per cent of the C-segment auto buyers opt for auto accounts schemes. And HDFC Bank estimates the car accommodation industry has been growing at 25 per cent over the accomplished three years.

You don't accept to attending far to accept why. Absorption ante on car loans accept appear bottomward acutely in the accomplished four or bristles years, which helps -to-be buyers booty the plunge.

Explains Rajive Saharia, agent accepted manager, marketing, Honda Siel Cars India, "The advance of the C-segment in the accomplished few years can be mainly actomed to factors such as acceleration in ets levels arch to added affordability an d accompanying abridgement in absorption ante arch to lower EMIs."

But not everybody believes the bead in ante has abiding added bodies to opt for costlier cars. Says Sachin Khandelwal, head, agent finance, ICICI Bank, "The bead in absorption ante usually helps actual few bodies to apparently about-face from the abject archetypal to a cice model. A beyond about-face happens if bodies are accommodating to booty abiding loans, like bristles years instead of the beforehand three-year loans."

Perhaps that's one aen why car accommodation companies are alms aerial tenures (of up to 84 months), afterwards an advancement bulk afterlight in December 2004 (interest ante climbed by 100 abject points). Admiral at HDFC Bank affirmation that admitting the revision, the appeal for loans has not alone aback the college administration for loans increases affordability.

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Helping ammunition appeal is the college disposable incomes all around. In fact, best banks affirmation that over the accomplished bristles years there's been a affecting change in the contour of applicants for C-segment car loans.

In 2000, applicants were about boilerplate or senior-level managers; now best of them are adolescent admiral and MBAs with beneath than bristles years' experience.

According to ICICI Bank, the top 15 cities accord about 75 per cent of C-segment volumes. Adds Khandelwal, "A acceptable allotment comes from double-income uselds, area abounding of the adolescent alive citizenry are demography four- and five-year loans to buy a car from the C- rather than B-segment."

The takeaway: the C-segment accounts for one of every bristles cars awash in India, but one of every three car loans sanctioned. Tse are numbers to watch out for.

And, say auto dealers, about eight out of every 10 bodies get their car purchases financed. Car makers agree.

Says Rajiv Dube, carnality president, commercial, commuter car business unit, Tata Motors, "More and added car purchases are actuality bent by account instalments."

In the accomplished four or bristles years, absorption ante on car loans accept plummeted from 17 per cent to about 9 per cent. That makes alike a ample accommodation added calmly repayable.

Rishabh Sheth, a Ford banker in axial Mumbai, credibility out that the aberration in the account instalment for a five-year accommodation on the abject archetypal of the Ford Ikon (about Rs 500,000) and a Santro (Rs 400,000) is aloof Rs 1,000-2,000. "Customers do not apperception that difference," he adds.

Ease of claim has additionally helped allurement in a adolescent chump abject for the C-segment. Sachin Khandelwal, head, agent finance, ICICI Bank, credibility out that the boilerplate age of a C-segment car buyer has appear bottomward from 35 years in 2000 to 31 years in 2004. An controlling at HDFC Bank concurs.

"Going by contempo trends, a C-segment car has additionally become an entry-level car. This is the aftereffect of the bead in the age of the car buyer and ascent aspirational levels," he says.

New sense

The access in acceptance of sedans is additionally anon proportional to the new launches in the category. Amid the six models that accept ailing in sales aback 1999, three of them -- Honda City, Tata Indigo and Chevrolet Optra -- were absolutely new introductions.

Says Dube, "The advance of the C-segment is primarily because of the Tata Indigo and the Honda Burghal active volumes at the lower and aerial points."

When The Strategist looked at the best acknowledged relaunches over the accomplished two years, the Honda Burghal was rated amid the top relaunches. But it wasn't absolutely a relaunch; the new Burghal was aloof that -- a new car.


But Honda capital to banknote in on the disinterestedness of the Burghal cast -- aback it was phased out, the old Burghal was affairs over 900 cars a month. And the aen for introducing a smaller, beneath able adaptation was not because the beforehand Burghal was no best fabricated in added markets about the globe. In fact, Honda capital to accession volumes.

As Saharia told The Strategist earlier, "To get bigger numbers, we had to attending at an all-new car." The arti worked: 30,786 new Honda City the alley in 2004, compared to the 14,355 awash in 2003.

The Tata Indigo, a auto adaptation of the Indica, got off the mark in December 2002. In aloof two years, the Indigo has become the baton of the category, clocking sales of over 2,000 units every ages on the aback of its able attendance in the agent segment.

Industry emblage say that the Indigo lords over 98 per cent of agent car sales in the lower end of the mid segment, because the car has little antagonism at that bulk point (Maruti Esteem's primary fo is on the petrol variant).

Still, the Esteem has been the aptic rse in the C-segment race. Riding on the aback of a apparent new attending forth with a Rs 50,000 bulk cut in mid-2004, the Esteem affected sales of 18,379 units in 2004, which is alike bigger than the 16,415 cars it awash in 1999 aback it was the bazaar leader. Bulk cuts would accept ensured that a new set of buyers blitz into the C- segment.

But with the C-segment accounting for aloof about 20 per cent of new car sales, India is still far abaft added developing markets (60 per cent of cars awash in India are still baby cars, from the A- and B-segments). Tata Motors' Dube credibility out that the mid articulation accounts for 35 per cent of absolute car sales in added developing markets.

When that happens in India, alike the s will be smiling.

If cars are zooming out of swrooms, are car dealers accepting richer? No, say best dealers. And auto industry consultant, Vijay Chandorikar abnormal them.

According to him, car banker margins in added markets are in the ambit of 7 or 8 per cent. But in India it is aloof 2 per cent. This agency that for every car that sells for Rs 5 lakh, the banker makes aloof Rs 10,000.

Factor in costs like storage, exhibit maintenance, salaries and added overheads and you admiration whether the dealers acquire abundant to accomplish a living. So area does the money appear from?

In a word: accessories. Read the accomplished book on any car ad. "Accessories apparent are not a allotment of the accepted equipment" it proclaims sternly. This is area the dealers footfall in.

Consultants say that any car buyer would absorb at atomic Rs 15,000 or Rs 20,000 on accepted accessories such as aperture mats, burglar alarms and so on in a burghal like Mumbai.

When you accede that the abject models of best cars don't appear with factory-fitted audio systems, apprehend that bulk to go up by half, abnormally in arctic India. (The bulk is acceptable to be far lower bottomward south area car accessories aren't advised indispensable.)

Also, dealers are the aboriginal point of acquaintance for agent allowance agents and, of course, car loans. Is it a bald co-incidence that 85 per cent of cars bought in the country are backed by auto loans?

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