INDIAN AUTOMOBILE INDUSTRY: Overview

In the post globalized era where India is looking at growth rates of more than 8%, one of the
main beneficiaries of India’s growth story is Automobile Industry. Termed as “Industry of
Industries” by management guru Peter Drucker, Automobile industry has been one of the
indicators of a country’s economic prosperity. Prior to the 1991 liberalization, auto industry in
India was controlled and licensed by the government. Post 1991, the industry has grown at an
average rate of 17%. Currently contributing to around 5% of the GDP, this is expected to rise to
10% of GDP.

MACRO-ENVIRONMENT

An organization’s success depends on its ability to manage its marketing system in relation to the
external environment. External Forces are mostly uncontrollable and can pose threat or may
create opportunity for the company. One of the known methods is to do SLEPT (Social, Legal,
Economical, Political and Technological) analysis. These forces can also be divided as discussed
below.

DEMOGRAPHIC FORCES:

India’s growing population creates a huge and growing market segment that can be targeted for
such products. Most of the population lives in rural area where people might not want to own a
car. This is a matter of concern. But more and more population is moving to cities and recently
there have been urbanization of many of the small towns creating new set of tier 2 and 3 cities.
This creates a new target segment for auto car industry. Most of the population is young and they
will like to buy car in near future. Increasing literacy and income further favors the auto car
industry.
ECONOMIC FORCES:

India’s average income is increasing from last few decades. More and more people are moving to
the higher levels as far as economic condition is concerned. This allows people relying on two-
wheelers to go for small and cheap cars. Increasing inflation though creates a challenge before
the manufacturer to keep their prices unchanged even when their own cost is going up.

NATURAL FORCES:

There is concern of decreasing raw materials for auto car industry. Coal prices have gone higher
and iron-ore, the main raw material is also affected by high inflation. People are also worried
about decreasing sources of bio-fuel and want to go greener, cleaner and renewable sources of
energy. This is a threat before the industry to innovate a newer way to handle this issue.

TECHNOLOGICAL FORCES:

Technological innovation is becoming more and more important for auto car industry. They need
to go for alternative source of energy; they need to make fuel efficient and environment friendly
cars, etc. They also need to improve the safety technology. Generally, auto makers invest around
8% of their revenue on the R&D. This is expected to go up as the time passes creating more
crunch for fuel and more awareness for environment.

POLITICAL AND LEGAL FORCES:

Government is still having very high import duty on cars. This creates a healthy environment for
the Indian car makers who face less competition from their foreign competitors. However, many
foreign companies have started their own manufacturing center in India to capture Indian market.
SWOT ANALYSIS :

STRENGTHS

Tata Motors is the largest truck manufacturer and the second largest passenger vehicle
manufacturer of India. The company holds the second position in the domestic passenger car
market. In addition, the company is the fifth largest truck manufacturer in the world. Tata Motors
produces a diversified range of vehicles catering to a wide range of customers and is witnessing a
constant growth in its sales. It also has the great heritage of Tata Group behind it. The two newly
acquired brands Jaguar and Landrover also has a history of excellent reputation in the respective
segments. The company also has world class quality accreditations including ISO 9001, ISO
14001 and ISO 20000, excellent supply chain management using the SAP framework as some of
its strengths. It also has a good global presence with its joint ventures and associations.
Financially also the company is in a very strong position with the company posting a net revenue
of around $20 billion in the year 2009-10 and decreasing its debt by $977 million.

WEAKNESSES

Tata Motors was slow in its expansion into overseas markets, in spite of exporting its first truck
within six years of commencing truck operations. While many of its competitors have
aggressively expanded into overseas markets, Tata Motors has ventured into foreign countries
only in the recent past. In addition, the company is dependent on the Indian market. They have
never done well in US, UK and European car markets (although done reasonably well in light
trucks and buses) they failed miserably in their City Rover launch in

Europe. Also the company is perceived as too Indianized although the perception is changing in
the recent past.

OPPORTUNITIES

The company foresees a positive outlook for small cars in the Indian market. Car penetration in
India is about seven units per 1,000 persons, which is very low compared to other countries. The
company expects the demand for passenger cars to grow as a result of urbanization and
expansion of cities. The company can leverage on the heritage of Jaguar and Landrover to
strengthen its overseas market. The technological excellence in these brands can be used by Tata
motors for its own production. Also excellent opportunities are presented by Tata Nano in a
rapidly urbanizing India. The new product lines with increased fuel efficiencies and new
technologies (like DICOR) also provide immense potential for gaining market share.

THREATS

Decreasing market share in light vehicles is a concern for the company. A comparison of market
shares in the market has shown a decreasing market share for Tata motors mainly due to
increased competition from competitors in the small car segment including Hyundai, Maruti,
Chevorlet etc. With increasing environment consciousness and fuel prices, brands like Jaguar
and Landrover which are fuel inefficient may face some setbacks. In addition, the foray of top
global OEMs into India and other neighboring countries has increased competitive pressures in
its domestic market. Other factors, such as rising fuel and raw material costs, especially that of
non-ferrous metals, steel, engineering plastics and rubber; and stringent emissions norms, can
affect the company’s performance, going forward.

TATA Nano’s Target Segment

Nano aims to carve out a niche segment for itself in the Indian automobile industry. India’s
burgeoning small car market holds huge potential. The booming economy and the accelerated
growth of lower middle class is expected to generate very high demand for small cars in the near
future. The closest competitor in the 4-wheeler segment is Maruti 800. Maruti 800 is slowly
moving out of the market after ruling the small car segment for more than two decades. Its price
is higher (>2.3 Lakhs) compared to Nano. Also the Maruti 800 has flooded the Indian roads for a
long period and people are weary of its looks and functionalities. More recent cars such as
Maruti Alto and Chevrolet Spark are also wooing customers in the small car segment. But their
pricing and positioning is totally different than that of Nano, preventing any direct competition.
Real threat comes from the upcoming small cars from Bajaj and Renault-Nissan etc. They will
directly compete with Nano in the same segment. But the first mover advantage of Nano will
prove decisive in the long run.
The other major competitor for Nano is the 2-wheelers. Most of the young people, students and
lower and middle income families currently depend on 2-wheelers for their day to day activities.
Primary reason for this is the lower initial cost and lower maintenance cost. Motorcycles such as
Bajaj Pulsar has snatched the attention of the youth market, while Hero Hondo motorcycles have
been the favourites for family users.

MARKETING MIX

Product and Promotion

Tata used a dual adaptation of product and promotion.

Product Characteristics

The product modifications made to the product will only be to satisfy regulations and consumer
expectations of the norm. Any other changes will be kept to a minimum to avoid driving up the
price, as this is the key competitive advantage.

• Brand –focused on the Tata Nano which the consumers could relate to easily as it was
identifiable and differentiated them from competition

• Packaging – The package of Nano in different variants came in White, Blue, Red, yellow.

TO PROMOTE THE NANO THEY FOCUSED ON 2 KEY ATTRIBUTES:

o strong need of the Indian families and

o Price consciousness of the masses.

• The car was envisioned by, Ratan Tata, Chairman of the Tata Group and Tata Motors, who has
described it as an eco-friendly “people’s car”.

• Through familiarizing itself with the culture of the Indian market TATA Nano used effective
communications to hit the target. Key components of its marketing messages included these key
attributes strong family values and low price
• Additionally Nano used innovative and current successful promotions. ‘Tatalana’ was to be a
promotion that would put ‘lana’, cash, back into hands of purchasers.

• Nano would offer cash to purchasers as an incentive to buy or finance a Tata Nano. These kinds
of promotions have proved highly effective in India.

Product Strategy

The Tata Nano CX, including all the features described in the earlier Product Review section,
would be sold with a three-year warranty or 100,000km warranty, whichever comes first. Tata
will introduce the Tata Nano LX during the following year, after they have established the Tata
brand. The brand and logo will be displayed on the car as well as in all marketing campaigns.

Variants and their Pricing:

• Basic Std priced at 123,000 INR as no extras;

• Deluxe Cx at 151,000 Rupees has air conditioning;

• Luxury Lx at 172,000 Rupees has air conditioning and power windows

PRICE

Pricing for the Nano took two forms: price penetration and low cost in order to be highly
competitive in the market.

#1: Penetration Pricing. Tata recognized that they were entering a competitive market with
established brands. To gain market share they would enter with prices far below competitors.

#2: Low Cost. Tata would offer a product similar to its competitors at a lower price. The cost of
production was to be kept significantly low. TNM is also confident that production and
distribution costs will fall as sales volume increases and the low price of Nano cars will help to
keep out competition and maintain its low-price position.

PLACE AND DISTRIBUTION

• Tata planned to reinvent the conventional auto industry distribution model – build Trial &
Order centres. Purpose of these centres was to be for consumers to test drive and place an order
for a Nano. These store fronts would be simple, small and numerous.

• Inventory units would be for customers who cannot wait for the manufacturing delay.

• Customers would have the choice of model and color. An order will be placed and
manufacturing will begin.

• Manufacturing delay would be minimal as car is very simple. The cars would be shipped to the
centres, and staff delivers the car to the customer.

• Cost of labour in India is low, so staffing these centres is inexpensive. Trial & Order centres are
located in close proximity to banks so that financing is available within walking distance. One in
five of these centres are designed for aftersales service.

• Minimize Channel length, preventing price escalation and preserving its competitive advantage
= high level of control over how the brand is managed and product is marketed.

POSITIONING

Tata Nano will position itself as the world cheapest car and yet does not compromise the quality,
safety and environment. This positioning will be achieved by leveraging Tata Nano’s
competitive edge: industries experience from the parent company Tata Motor who has been in
vehicles industries (commercial, passengers & utilities) since 1945. Tata motor has good supplier
manufacturer relationship with more than 100 components.
RESTRUCTURING EFFORDS FOR RE-LAUNCH OF TATA NANO

•On the day of the launch, Tata Group announced that the so called “People’s Car’s” advance
sale price would be 10, 000 rupees, which is approx US$2000. This is very encouraging for
India’s lower classes.

•The Initial designs feature a 3.1 metre long body, a rear mounted engine with a capacity of 0.62
Lt.

•From today, the Nano is officially launched. As we had promised, the cars now in production
are designed for three different levels of consumer requirements, from the higher end more
expensive models to the cheaper, basic models”, said Tata’s director Ratan at yesterdays launch
ceremony yesterday in Bombay.

•Being an economical car, the standard “Nano Car” is without safety features such as airbags and
anti-braking systems.

Features

Stylish, safety & comfort

The design concept and interiors of the people's car was laid out considering a typical indian
family in mind, which has a roomy passenger compartment with generous leg space and head
room. It can comfortably seat four persons. Four doors with high seating position make ingress
and egress easy.

Yet with a length of 3.1 meters, width of 1.5 meters and height of 1.6 meters, with adequate
ground clearance, it can effortlessly man-oeuvre on busy roads in cities as well as in rural areas.
Its mono-volume design, with wheels at the corners and the power-train at the rear, enables it to
uniquely combine both space and manoeuvrability, which will set a new benchmark among small
cars.

When launched, the car will be available in both standard and deluxe versions. Both versions
will offer a wide range of body colours, and other accessories so that the car can be customized
to an individual's preferences.

Fuel-efficiency & engine

The people's car has a rear-wheel drive, all-aluminium, two-cylinder, 623 cc, 33 ps, multi point
fuel injection petrol engine. This is the first time that a two-cylinder gasoline engine is being
used in a car with single balancer shaft. The lean design strategy has helped minimize weight,
which helps maximize performance per unit of energy consumed and delivers high fuel
efficiency. Performance is controlled by a specially designed electronic engine management
system.

Safety norms

The people's car's safety performance exceeds all current regulatory requirements meeting euro
iv standards. With an all sheet-metal body, it has a strong passenger compartment, with safety
features such as crumple zones, intrusion-resistant doors, seat belts, strong seats and anchorages,
with rear tailgate glass bonded to the body. Tubeless tyres will further enhance safety.

Environment-friendly

The people's car's tailpipe emission performance exceeds regulatory requirements. In terms of
overall pollutants, it has a lower pollution level than two-wheelers being manufactured in india
today. The high fuel efficiency also ensures that the car has low carbon dioxide emissions,
thereby providing the twin benefits of an affordable transportation solution with a low carbon
footprint.