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Submitted in partial fulfillment Of the requirement For Post Graduate Program in Business Management.
2008 - 2010
Guide- Prof. Karabi Bandyopadhyay
By- Arijit Bose Roll no. p/mn/r/08/195 Batch- 2008-2010
This is to certify that the present study “Factors Affecting the Market Potential and Buying Behavior of Customer in Automobile Industry in India “ has been carried out by Arijit Bose, under my direct supervision. I am glad to forward this for the partial fulfillment for PGPBM.
Guide Karabi Bandyopadhyay
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"Journey of a thousand miles begins with but a single step" To undertake this project and to accomplish it one needs quite a lot of guidance and support. I would like to thank all those who have directly or indirectly helped me to accomplish this project successfully. I would like to express my deep sense of gratitude to my project guide, Prof. KARABI BANDOPADHAY, ISB&M (KOLKATA), whose support and guidance helped me in converting my conception into visualization and also for the continuance guidance throughout the project.
I would like to thank the marketing people of different companies across Kolkata & my friends, for all the help rendered.
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Contents................................................................................................................................4 EXECUTIVE SUMMARY............................................................................................................6 OBJECTIVE OF THE PROJECT...................................................................................................7 ANALYSIS OF AUTOMOBILE INDUSTRY...................................................................................8 FUNDAMENTAL ANALYSIS .....................................................................................................8 ECONOMY .........................................................................................................................8 GDP and Automobile Industry..........................................................................................8 Foreign Exchange..........................................................................................................10 Export............................................................................................................................11 Current Scenario of Automobile Industry in Economy..........................................................12 INDUSTRY ANALYSIS (AUTOMOBILE).................................................................................12 Segmentation of Automobile Industry...........................................................................13 Five Forces Model..........................................................................................................13 BCG Matrix ...................................................................................................................15 Industrial Life Cycle.......................................................................................................17 SWOT Analysis...............................................................................................................17 COMPANY ANALYSIS (Maruti Suzuki & TATA Motors).........................................................18 Profile of Maruti Suzuki .................................................................................................18 AN OVERVIEW OF CONSUMER BUYING BEHAVIOUR.............................................................22 Factors Affecting Consumer Buying Behavior:..................................................................25 Why Buy a Green Vehicle?................................................................................................28 CONCLUSION and RECOMMENDATIONS...............................................................................29 BIBLIOGRAPHY.....................................................................................................................30
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Indian automobile industry has grown leaps and bounds since 1898, a time when a car had touched the Indian streets for the first time. At present it holds a promising tenth position in the entire world with being number one in Two Wheelers and number fourth in commercial vehicles. Withstanding a growth rate of 18% per annum and an annual production of more than 2 million units, it may not be an exaggeration to say that this industry in the coming years will soon touch a figure of 10 million units per year. The automobile industry in India — the ninth largest in the world with an annual production of over 2.3 million units in 2008 — is expected to become one of the major global automotive industries in the coming years. In this project I have undergone a detailed analysis of India automobile industry by using Fundamental and Technical tools. In order to better understand the performance of the industry I have made comparative analysis of Two players Tata motors as (leading player) and Maruti Suzuki. The project report is divided into 5 chapters. The first two chapters include Executive Summery & objective of the research. The third chapter deals with analysis of automobile Industry which entails fundamental and technical analysis of Indian Automobile Industry. The fourth chapter deals with Conclusion & Recommendations and the last chapter includes Bibliography.
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The automobile industry, one of the core sectors, has undergone metamorphosis with the advent of new business and manufacturing practices in the light of liberalization and globalization. The sector seems to be optimistic of posting strong sales in the couple of years in the view of a reasonable surge in demand. The Indian automobile market is gearing towards international standards to meet the needs of the global automobile giants and become a global hub. A detailed analysis of Automobile industry has been covered in respect of past growth and performance. Under this project to better understand the Industry I have used Fundamental and Technical tools to make it more authentic and meaningful. An E.I.C approach has been followed under Fundamental Analysis which covered effect of Recession, the impact of inflation, FDI’s, Export, GDP etc. on Automobile Industry. The Industry Analysis has been done with the help of five forces model, BCG Matrix, SWOT analysis, industry life cycle and the industry specific index. For Company Analysis as a part of Fundamental tool we have undergone with the comparative analysis of TATA Motors as our leading company with Maruti Suzuki India’s largest Car manufacturer. The fundamental aspect consists of Non-Financial analysis of both the company. The project also includes the study of taste and preference of the Indian customer in purchasing car. At the end conclusion and recommendations have been specified so as to make the research work more meaningful and purposeful.
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OBJECTIVE OF THE PROJECT
The objective of this project is deeply analyzing the Indian Automobile Industry for investment purpose by monitoring the growth rate and performance on the basis of historical data. The main objective of this project is: To find out the present status of the automobile industries in India. To find out the effect of recession on the automobile industries in India. To study the taste and preference of the Indian customer in purchasing car. To find out the step taken by the government to enhance the growth of automobile industries.
To study the car buying behavior and the factors affecting the purchase decision.
To enhance our analytical skills in the field of practical application of Marketing.
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ANALYSIS OF AUTOMOBILE INDUSTRY Over a period of more than two decades the Indian Automobile industry has been driving its own growth through phases. With comparatively higher rate of economic growth rate index against that of great global powers, India has become a hub of domestic and exports business. The automobile sector has been contributing its share to the shining economic performance of India in the recent years. To understand this industry for the purpose of investment we need to analyze it by following approach: Fundamental Analysis (E.I.C Approach) a. Economy b. Industry c. Company
ECONOMY Economic analysis is the analysis of forces operating the overall economy a country. Economic analysis is a process whereby strengths and weaknesses of an economy are analyzed. Economic analysis is important in order to understand exact condition of an economy.
GDP AND AUTOMOBILE INDUSTRY In absolute terms, India is 16th in the world in terms of nominal factory output. The service sector is growing rapidly in the past few years. This is the pie- chart showing contributions of different sectors in Indian economy. The per capita Income is near about Rs38,000 reflecting improvement in the living standards of an average Indian. Today, automobile sector in India is one of the key sectors of the economy in terms of the employment. Directly and indirectly it employs more than 10 million people and if we add the number of people employed in the auto-component and auto ancillary industry then the number goes even higher. As the world economy slips into recession hitting the demand hard and the banking sector takes conservative approach towards lending to corporate sector, the GDP growth has downgraded it to 7.1 per cent for 2008-09 and predicted it to be 6.5 per cent for FY 2009-10 Mr. Montek Singh
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(Planning Commission of India). Following is the graph showing a trend of Indian GDP trend in past 3 years.
The market value of Automobile Industry is more than US$8 bl. and Contribution in Indian GDP is near about 5% and will be double by 2016. The automotive industry in India grew at a computed annual growth rate (CAGR) of 11.5 percent over the past five years, but growth rate in last FY2008-09 was only 0.7% with passenger car sales shows 1.31% growth while Commercial Vehicles segment slumped 21.7%.
All the major auto companies enjoyed the high growth ride till the mid 2008. But at the end of the year, industry had to face the hard truth and witnessed the fall in sales compared to last year. In December 2008, overall production fell by 22 % over the same month last year. Global recession has hit the Indian auto industry, India is strong and growing industry but the impact of recession is evident now on industry as sales & growth of automobile companies have declined. Passenger Vehicles segment registered negative growth. One of its supporting facts is that the sales in December 2008 for passenger vehicles fell by 13.86% over December 2007 Two Wheelers registered minor growth of 1.85 % during April – December 2008. However, Two Wheelers sales recorded 15.43 percent fall in December 2008 over the same month last year. Although the sector was hit by economic slowdown, overall production (passenger vehicles, commercial vehicles, two wheelers and three wheelers) increased from 10.85 million vehicles in 2007-08 to 11.17 million vehicles in 2008-09. Passenger vehicles increased marginally from 1.77 million to 1.83 million while two-wheelers increased from 8.02 million to 8.41 million. Total number of vehicles sold including passenger vehicles, commercial vehicles, two-wheelers and three-wheelers in 2008-09 was 9.72 million as compared to 9.65 million in 2007-08.
Despite of negative inflation these days (-.21% on 22-Aug-09) we saw an increasing trend of sales in auto sector. A moderate amount of inflation is important for the proper growth of an economy like India because it attracts more private investment. The fall in wholesale prices from a year earlier is mainly due to a statistical base effect and doesn’t suggest contraction in
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demand, the Reserve Bank of India said few week back, while revising its inflation forecast for the FY through March to around 5% from 4%. In last FY despite of skyrocketing oil prices (crude oil price has already up to $130 compared to $20 per barrel five years back), Indian automobile Industry was not as much affected and experts think that Indian automobile industry will continue to grow this year despite all obstacles- oil price hike, higher interest rates. However, the effect of inflation has affected every sector which is related to car manufacturing and production. The increase in the price of fuel and the steel due to inflation has led to a slower growth rate of the car industry in India. The effect of inflation has taken the rise in the price rate of the cars by 3-4% which in turn suffices the need to meet the rise in price of the raw materials to build a car. The car market and the car industry witnessed a fall of 8-9%. FDI’s In India FDI up to 100 percent, has been permitted under automatic route to this sector, which has led to a turnover of USD 12 billion in the Indian auto industry and USD 3 billion in the auto parts industry. India enjoys a cost advantage with respect to casting and forging as manufacturing costs in India are 25 to 30 per cent lower than their western counterparts the Investment Commission has set a target of attracting foreign investment worth US$ 5 billion for the next seven years to increase India's share in the global auto components market from the existing 0.9 per cent to 2.5 per cent by 2015. FDI inflows in Automobile Industry 2008-09 was Rs.5,212 Cr an increase of 47.25% compare to 2007-08, while in April-May 2009 it was around Rs.497 Cr.(Source- FDI Statistics Govt. of India) FOREIGN EXCHANGE India holds the third largest stock of reserves among the emerging market economies after China and Russia. The overall approach to the management of India's foreign exchange reserves in recent years reflects the changing composition of the balance of payments and the 'liquidity risks' associated with different types of flows and other requirements. rbi.org.in
Taking these factors into account, India's foreign exchange reserves continued to be at a comfortable level and consistent with the rate of growth, the share of external sector in the economy and the size of risk-adjusted capital flows. Following is the table shows the trend of foreign reserves held by central bank in last FY. Reserves came down cause of recession all over the world however India still able to maintain its reserves hence a minor fall was seen compare to all other country which shows great strength in long-term for Indian Economy. Increase in Exports specially from auto industry shows an expectations of huge income from western countries and new $200 bl. target for exports by 2011 helps in increasing. Note:
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FCA (Foreign Currency Assets): FCAs are maintained as a multicurrency portfolio comprising major currencies, such as, US dollar, Euro, Pound sterling, Japanese yen, etc. and is valued in terms of US dollars 2. SDR (Special Drawing Rights): Values in SDR have been indicated in parentheses. 3. Gold: Physical stock has remained unchanged at approximately 357 tonnes 4. RTP refers to the Reserve Tranche Position in the IMF.
Society of Indian Automobile Manufacturers (SIAM), automobile sales (including passenger vehicles, commercial vehicles, two-wheelers and three-wheelers) in the overseas markets increased to 1.53 million units in 2008-09 from 1.23 million units in 2007-08. Export of passenger vehicles increased from 218,401 in 2007-08 to 335,739 units in 2008-09.
There is a continuous increase in the export of automobiles since the financial year 2002-03, except for the decline in the export of commercial vehichles in the financial year 2008-09, which may be attributed to the global economic recession. Despite recession, the Indian automobile market continues to perform better than most of the other industries in the economy in coming future; more and more MNC’s coming in India to setup their ventures which clearly shows the scope of expansion.
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CURRENT SCENARIO OF AUTOMOBILE INDUSTRY IN ECONOMY With the latest available data Indian Automobile Industry is expected to grow at 9%-10% in near future, Two wheeler segment sales grew up by 12.8% with the modest 2.6% growth rate, under this segment the market leader Hero Honda registered growth of 12% in its domestic sales where as Bajaj Auto disappointed as sales plunging by 23%, on the other hand car sales has been grew up by a healthy 22.7% in last February and Commercial Vehicles reported slower sales. It is assumed that in coming festive season to meet demand, carmakers going to produce 70000units/month more over the average 1.3lac/month with help of 5000 new hands. Source: Economic Times Indian Automobile Industry at Global level:
• • • • •
India ranks 1st in the global two-wheeler market India is the 4th biggest commercial vehicle market in the world India ranks 11th in the international passenger car market India ranks 5th pertaining to the number of bus and truck sold in the world India is the second largest tractor manufacturer in the world.
Volkswagen, Toyota, Nissan & Ford plan new cars to cash in on fastest-growing compact car section of car market in India. Source: Economic Times Sales of different Auto Companies speed up even before festive season Maruti by 29%, TATA by 11%, Skoda Auto 33%, Hero Honda 33%, Mahindra 42%, Yamaha 63% etc. Source: Economic Times (3/09/09) It is expected that the Automobile Industry in India would be the 7th largest automobile market within the year 2016. Projected Growth rate in Automobile Industry •
Passenger vehicle sales in the country will grow at a CAGR of 12 per cent to touch 3.75 million units by 2014. The domestic two-wheeler sales will grow at a CAGR of 8.8% by 2014 at 11.3 million units. To emerge as the destination of choice in the world for design and manufacture of automobiles and auto components with output reaching a level of US$ 145 billion accounting for more than 10% of the GDP and providing additional employment to 25 million people by 2016.
INDUSTRY ANALYSIS (AUTOMOBILE)
The current trends of the global automobile industry reveal that in the developed countries the automobile industries are stagnating as a result of drooping markets, whereas the automobile industry in the developing nations, have been consistently registering higher growth rates every passing year for their domestic flourishing domestic automobile markets.
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Being one of the fastest growing sectors in the world its dynamic growth phases are explained by the nature of competition, Product Life Cycle and consumer demand. The industry is at the crossroads with global mergers and relocation of production centers to emerging developing countries. In 2009, estimated rate of growth of India Auto industry is going to be 9% .The Indian automobile sector is far from being saturated, leaving ample opportunity for volume growth.
SEGMENTATION OF AUTOMOBILE INDUSTRY
The automobile industry comprises of Heavy vehicles (trucks, buses, tempos, tractors); passenger cars; Two-wheelers; Commercial Vehicles; and Three-wheelers. Following is the segmentation that how much each sector comprises of whole Indian Automobile Industry. Industrial Analysis of any industry can be done based on the following headings: 1. Five Forces Model 2. BCG Matrix 3. Industrial Life Cycle 4. SWOT Analysis
FIVE FORCES MODEL Michael Porter identifies five forces that influence an industry. These forces are • Degree of Rivalry Despite the high concentration ratio seen in the automotive sector, rivalry in the Indian auto sector is intense due to the entry of foreign companies in the market. The industry rivalry is extremely high with any being product being matched in a few months by the competitors. This instinct of the industry is primarily driven by technical capabilities acquired over years of gestation under the technical collaboration with international players. • Threat of Substitutes The threat of substitutes to the automotive industry is fairly mild. Numerous other forms of transportation are available, but none offer the utility, convenience, independence and value offered by automobiles. The switching cost associated with
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using a different mode of transportation, may be high in terms of personal time, convenience and utility.
Barriers to entry The barriers to enter automotive industry are substantial. For a new company, the startup capital required to establish manufacturing capacity to achieve minimum efficient scale is prohibitive. Although the barriers to new companies are substantial, establishing companies are entering the new markets through strategic partnerships or through buying out or merging with other companies. However, a domestic company, with local knowledge and expertise, has the potential to compete its home market against the global firms who are not well established there.
Supplier’s power In the relationship between the industry and its suppliers, the power axis is tipped in industry’s favor. The industry is comprised of powerful buyers who are generally able to dictate their terms to the suppliers.
Buyers’ Power In the relationship between the automotive industry and its ultimate consumers, the power axis is tipped in the consumers’ favor. This is due to the fairly standardized nature and the low switching costs associated with selecting from among competing brands.
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BCG MATRIX In an economy, different industries are present and different industries have different growth rate as compared to the growth of the economy. In an economy, there are a number of major industries and they all occupy different positions in the BCG matrix according to their growth and contribution towards the economy. In the Indian economy, some of the major sectors are FMCG, automobiles, banking and insurance, steel, telecom, software, pharmacology and retail sectors and these can be placed in the different positions in the matrix as shown below:
INDUSTRY BCG MATRIX
Hig h M a r k e t G r o w t h R a Low
QUESTION MARKS Telecom Retai l
AUTOMOBILE S Softwar e CASH COWS
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BCG matrix is used to determine the relative position of the companies of an industry or different SBU’s of any institution, in terms of the market growth rate and the market share of the company in the industry. In the Indian automobile sector, the major players are Maruti Suzuki Limited, General motors, Mahindra and Mahindra, Tata Motors, Hero Honda and Bajaj auto. In the BCG matrix, the companies are placed in one of the following four categories: Star, Cash Cows, Dogs and Question marks. In the Stars we place the companies with high market growth and high market share, cash cows are the companies who have low market growth rate and high relative market share, the category of the question marks include the companies with low relative market share and high market growth rate and dogs include the companies who have low relative market share and low market growth rate.
COMPANY BCG MATRIX
M a r k e t G r o w t h R a
Question Marks TVS General Mototrs
Cash Cows Maruti Suzuki
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INDUSTRIAL LIFE CYCLE The industrial life cycle is a term used for classifying industry vitality over time. Industry life cycle classification generally groups industries into one of four stages: pioneer, growth, maturity and decline. In the pioneer phase, the product has not been widely accepted or adopted. Business strategies are developing, and there is high risk of failure. However, successful companies can grow at extraordinary rates. The Indian automobile sector has passed this stage quite successfully. In the growth phase, the product market has been established and there is at least some historical guide to ground demand estimates. The industry is growing rapidly, often at an accelerating rate of sales and earnings growth. Indian Automotive Industry is booming with a growth rate of around 15 % annually. The cumulative growth of the Passenger Vehicles segment during April 2007 – March 2008 was 12.17 percent. Passenger Cars grew by 11.79 percent, Utility Vehicles by 10.57 percent and Multi Purpose Vehicles by 21.39 percent in this period. The Commercial Vehicles segment grew marginally at 4.07 percent. While Medium & Heavy Commercial Vehicles declined by 1.66 percent, Light Commercial Vehicles recorded a growth of 12.29 percent. Three Wheelers sales fell by 9.71 percent with sales of Goods Carriers declining drastically by 20.49 percent and Passenger Carriers declined by 2.13 percent during April- March 2008 compared to the last year. Two Wheelers registered a negative growth rate of 7.92 % during this period, with motorcycles and Electric two wheelers segments declining by 11.90 Percent and 44.93% respect. However, Scooters and Mopeds segment grew by 11.64% and 16.63% respect. The growth rate of the automobile industry in India is Greater than the GDP growth rate of the economy, so the automobile sector can be very well be said to be in the growth phase. As the product matures, growth slows as penetration reaches practical limits. Companies began to focus on market share rather than growth. Industry demand tends to follow the overall economy, but the scope of growth of the automobile sector is very much possible in India due to the increasing income of the middle class and their income as well as standard of living. SWOT ANALYSIS A scan of the internal and external environment is an important part of the strategic planning process. Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W), and those external to the firm can be classified as opportunities (O) or threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis. SWOT analysis of the Indian automobile sector gives the following points:
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Strengths • Large domestic market • Sustainable labor cost advantage • Competitive auto component vendor base • Government incentives for manufacturing plants • Strong engineering skills in design etc Weaknesses • Low labor productivity • High interest costs and high overheads make the production uncompetitive • Various forms of taxes push up the cost of production • Low investment in Research and Development • Infrastructure bottleneck Opportunities • Commercial vehicles: SC ban on overloading • Heavy thrust on mining and construction activity • Increase in the income level • Cut in excise duties • Rising rural demand Threats • Rising input costs • Rising interest rates • Cut throat competition
COMPANY ANALYSIS (MARUTI SUZUKI & TATA MOTORS) The company analysis shows the longterm strenght of the company that what is the financial Position of the company in the market where it stand among its competitors and who are the key drivers of the company, what is the future plans of the company, what are the policies of government towards the company and how the stake of the company divested among different groups of people. PROFILE OF MARUTI SUZUKI Maruti Suzuki is one of India's leading automobile manufacturers and the market leader in the car segment, both in terms of volume of vehicles sold and revenue earned. Until recently, 18.28% of the company was owned by the Indian government, and 54.2% by Suzuki of Japan. As of May 10, 2007, Govt. of India sold its complete share to Indian financial institutions. With this, Govt. of India no longer has stake in Maruti Udyog. The turnover for the fiscal 2008-09 stood at Rs. 203,583 Million & Profit after Tax at Rs. 12,187ml.Maruti Suzuki India Ltd. has sold a total of 84,808 vehicles in August 2009, an
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increase of 41.6%, compared to 59,908 vehicles in the same period of 2008. The company's domestic sales in August 2009 increased 29.3% to 69,961 vehicles, compared to 54,113 vehicles in August 2008. Total passenger car sales in August 2009 increased 30.5% to 69,629 units; compared to 53,351 units in August 2008 The Company’s exports increased 156.2% to 14,847 units, compared to 5,795 units in August 2008. Profile of TATA MOTORS Tata Motors Limited is India’s largest automobile company, reported gross revenue (standalone) of Rs.28599.27 crore (2007-08: Rs.33093.93 crore) in 2008-09, a year marked by severe demand contraction in the automobile industry. Revenues (net of excise) for the year were Rs. 25660.79 crore compared to Rs.28739.41 crore in 2007-08, a decline of 10.7%. The Profit before Tax was Rs.1013.76 crore compared to Rs.2576.47 crore in 2007-08, a decline of 60.7%. The Profit after Tax for the year was Rs.1001.26 crore compared to Rs.2028.92 crore, a decline of 50.7%. It is the leader in commercial vehicles in each segment, and among the top three in passenger vehicles with winning products in the compact, midsize car and utility vehicle segments. The company is the world’s fourth largest truck manufacturer, and the world’s second largest bus manufacturer
Non-Financial Analysis Share Holding Pattern for Quarter Ended 30-June-09
Above is the updated share holding pattern of TATA motors which shows that Indian promoter share in the company is 41% that means if they are not in the position to raise further money from general public, Company already raised huge money by selling their large stake to institutional investors about 27%. General Public also have quite large stake in the company compare to its competitors.
Being a venture of Japanese company Suzuki big stake of the company is held by foreign promoters which shows that they can divest their part(small part) to raise money in future. However institutional investors also held 39% major stake in the company but general public have very small part which shows that less presence of share in the
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Board of Director TATA Motors Maruti Suzuki Chairman Director Director Director Director Director Vice Chairman Director Director Director Director Director Mr. R. C. Bhargava Mr. Shinzo Hakanishi Mr. Manvinder Singh Banga Mr. Amal Ganguli Mr. D. S. Brar Mr. Keiichi Asai Mr. Osamu Suzuki Mr. Shuji Oishi Ms. Pallavi Shroff Mr. Kenichi Ayukawa Mr. Tsuneo Shashi Chairman MD and CEO Director Director Director Director Director Director Director Director Director & Managing Executive Office (Production)
Mr. Ratan Tata Mr. N.A. Soonawala Mr. R. Gopalakrishnan Mr. S.M. Palia Mr. S. Bhargava Mr. V. K. Jairath Mr. Ravi Kant Mr. J. J. Irani Mr. N. N. Wadia Mr. R.A. Mashelkar Mr. n Munjee Mr. Prakash M Telang
2. Upcoming Ventures & Products TATA Motors Tata Motors is try to be in a position to dominate the Indian Auto industry, at least in fourwheeler segment. Tata Motors have announced that they are interested in the idea of designing electric cars. To take it a step further Tata has also initialized plans for the manufacture of a hybrid car which it will market with Chrysler in the U.S. After the launch of Nano, Tata also apparently has its eye on the European and U.S. markets. The company hopes to have a version for Europe by 2011 and one for the U.S perhaps by 2012. Tata Motors is now aiming to launch its cars in Indonesia and is also planning to sell Nano in South America with the help of Fiat. After launching the world’s cheapest car, Nano, Tata Motors is looking east, towards neighboring Myanmar to boost its sales by setting up a truck manufacturing plant. As part of its expansion plans in Southeast Asia, Tata Motors had inked a joint venture with Thailand’s Thonburi Auto Assembly’s to manufacture up to 35,000 one tone pickup trucks a year over the next 3-5 years. Tata Motors is searching options to pump approximately Rs. 8,000 cr. During the next 3-4 years on capital expenditure and product development. Maruti Suzuki Maruti Suzuki has expanded the capacity at its Manesar plant to 1.7 lakh unit per annum from January 2009. By the year 2010, Suzuki Motors plan to increase their dealership in India. This is a step to increase their sales to one million units as well as for a better position in the Indian auto market. The expansion is estimated to cost $ 3.5 billion, out of which a quarter will be assigned for amplifying leadership network to 1000 in number.
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As Maruti Suzuki eyes one million sales by 2010, they have firmed up a massive expansion plan of its service network and plans to expand it to 1700 towns and cities from the current of about 1200. The company plans to increase the number of service stations and workshops to over 3800 from about 2800 currently. They have also been coming with specific sales promotion programs targeted at interior regions, among them is the “Mera Sapna Meri Maruti: New Panchayati Scheme”. The Haryana government has allotted 700 acres of land to Maruti Suzuki for hi – tech Research & Development complex at Rohtak. The upcoming facility, will see an investment in the range of Rs. 1,000 cr. to 1,500 cr. And will introduce world class R&D facilities into India. While the development of the allotted land and construction of the test tracks will be completed in the first phase by 2012, the overall R&D facilities will be progressively completed by 2015. In a move ahead, Maruti Suzuki India limited launched the Estilo with all new overall looks and advanced technological features. The upcoming cars in near future by both companies are: TATA Motors Maruti Suzuki Products (CAR) Expected Launch Maruti Grand Vitara Diesel December2009 Maruti 02 December 2009 Maruti SX4 Diesel December 2009 Maruti Cervo December 2009 Maruti Kizashi December 2009 Maruti xl7 March 2010 Maruti APV June 2010 Maruti Jimny July 2010
3. Government Policies Towards Indian Automobile Industry Automobile industry in India also received an unintended boost from stringent government auto emission regulations over the past few years. This ensured that vehicles produced in India conformed to the standards of the developed world.
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Though it has an advantage in India, thanks to low costs and government policies it soon faces stiff competition from it multinational competitors all eyeing for a share in the ever growing Indian auto sector. The policies adopted by Government will increase competition in domestic market, motivate many foreign commercial vehicle manufactures to set up shops in India, whom will make India as a production hub and export to nearest market. • • • • Bring in a minimum foreign equity of US $ 50 Million if a joint venture involved majority foreign equity ownership Automatic approval for foreign equity investment upto 100% of manufacture of automobiles and component is permitted FIIs including overseas corporate bodies (OCBs) and NRIs are permitted to invest up to 49 per cent of the paid-up equity capital of the investee company, subject to approval of the board of directors and of the members by way of a special resolution. . Investments in making auto parts by a foreign vehicle maker will also be considered a part of the minimum foreign investment made by it in an auto-making subsidiary in India. The move is aimed at helping India emerge as a hub for global manufacturing and sourcing for auto parts. Specific component of excise duty applicable to large cars and utility vehicles will be reduced to 15,000 rupees per vehicle from 20,000 rupees earlier. The Proposal by the Govt. to set up an expert group to advice on a viable and sustainable system of pricing petroleum products, as this will surely had an impact on the Automobile Industry. The announced reduction on the basic customs on bio-diesel is great news for all companies working on environmental saving technologies.
AN OVERVIEW OF CONSUMER BUYING BEHAVIOUR Definition: Consumer behavior refers to the mental and emotional process and the observable behavior of consumers during searching, purchasing and post consumption of a product or service. Consumer behavior involves study of how people buy, what they buy, when they buy and why they buy. It blends the elements from psychology, sociology, socio-psychology, anthropology and economics. It also tries to assess the influence on the consumer from groups such as family, friends, reference groups and society in general.
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Buyer behavior has two aspects: the final purchase activity visible to any observer and the detailed or short decision process that may involve the interplay of a number of complex variables not visible to anyone. Consumer decision making process generally involves five stages: Stage Brief description
The consumer perceives a need and Motivation become motivated to solve a problem
The consumer searches information required to purchase decision
for the Perception make a
The consumer compares brands and products
various Attitude formation
The consumer decides which brand to Integration purchase
The consumer evaluates their purchase Learning decision
Need Recognition Purchase decision making process begins when a buyer becomes aware of an unsatisfied need or problem. This is the vital stage in buying decision process, because without recognizing the need or want, an individual would not seek to buy goods or service. There are several situations that can cause problem recognition, these include: Depletion of stock Dissatisfaction with goods in stock Environmental Changes Change in Financial Situation
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Marketer Initiated Activities Example: When a person recognizes that he/she is having a difficulty that he/she is not able to travel with his/her family member. Then recognizes that his/her must have car and needs to buy a new car. Information Search After the consumer has recognized the need, he / she will try to find the means to solve that need. First he will recall how he used to solve such kind of a problem in the past, this is called nominal decision making. Secondly, a consumer will try to solve the problem by asking a friend or goes to the market to seek advice for which product will best serve his need, this is called limited decision making. Sources of information include: Personal sources Commercial Sources Public sources Personal experience
Example: (continuing from previous…) The person after recognizing that his/her need, he/she will eventually try to find out how he/she can purchase the car. If he/she cannot make a decision his/herself then he/she will ask a friend to help out, if the friend do not have sufficient knowledge, he/she would go to automobile showroom of a different company and try to get adequate information regarding price, feature, performance and after sale service. Alternatives evaluation Consumers’ evaluates criteria refer to various dimension; features, characteristics and benefits that a consumer desires to solve a certain problem. Product features and its benefit is what influence consumer to prefer that particular product. The consumer will decide which product to buy from a set of alternative products depending on each unique feature that the product offers and the benefit he / she can get out of that feature. Example: (continuing from previous…) When that user got enough information concerning the different brands of cars available in the market, he/she will decide which kind of car and also which company or brand he/she is going to buy depending upon his/her need. Purchase Action This stage involves selection of brand and the retail outlet to purchase such a product. Retail outlet image and its location are important. Consumer usually prefers a nearby retail outlet for minor shopping and they can willingly go to a far away store when they purchase items which are of higher values and which involve higher sensitive purchase decision. After selecting where
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to buy and what to buy, the consumer completes the final step of transaction by either cash or credit. Example: (continuing from previous…) After selecting company or brand of the car and model from different alternatives of cars, he/she will make a final decision of where to buying that car and make the final transaction procedures. Post-purchase Actions Consumer favorable post-purchase evaluation leads to satisfaction. Satisfaction with the purchase is basically a function of the initial performance level expectation and perceived performance relative to those expectations. Consumer tends to evaluate their wisdom on the purchase of that particular product. This can result to consumer experiencing post purchase dissatisfaction. If the consumer’s perceived performance level is below expectation and fail to meet satisfaction this will eventually cause dissatisfaction, and so the brand and/ or the outlet will not be considered by the consumer in the future purchases. This might cause the consumer to initiate complaint behavior and spread negative word-of-mouth concerning that particular product. Example: (continuing from previous…) If he/she decided to buy a car he/she will try to compare the performance, speed, mileage and comfort of the particular car, whether they meet his/her expectations. If he/she would find that his/ her expectations are meet she will be satisfied, if she found that there are more additional features that he/she did not expect this car to have, she will be delighted, otherwise she will be dissatisfied. FACTORS AFFECTING CONSUMER BUYING BEHAVIOR: Consumer buying behavior is influenced by the major three factors: 1. Social Factors 2. Psychological Factors 3. Personal Factors. A. Social Factors Social factors refer to forces that other people exert and which affect consumers’ purchase behavior. These social factors can include culture and subculture, roles and family, social class and reference groups. Example: By taking into consideration Reference group, these can influence/ affect the consumer buying behavior. Reference group refers to a group with whom an individual identifies herself/ himself and the extent to which that person assumes many values, attitudes or behavior of group members. Reference groups can be family, school or college, work group, club membership, citizenship etc. Reference groups serve as one of the primary agents of consumer socialization and learning and can be influential enough to induce not only socially acceptable consumer behavior but also socially unacceptable and even personal 6 destructive behaviors.
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Example if fresher student joins a college / university, he/she will meet different people and form a group, in that group there can be behavior patterns of values, for example style of clothing, handsets which most of group member prefer or even destructive behavior such as excessive consumption of alcohol, use of harmful and addictive drugs etc. So, according to how an individual references him / her to that particular reference group, this will influence and change his/her buying behavior. B. Psychological Factors These are internal to an individual and generate forces within that influence her/his purchase behavior. The major forces include motives, perception, learning, attitude and personality. Example: Attitude is an enduring organization of motivational, emotional, perceptual and cognitive processes with respect to some aspect of our environment. Consumer form attitude towards a brand on the basis of their beliefs about the brand. For example, consumers of Sony products might have the belief that the products offered by Sony are durable; this will influence those customers to buy Sony products due to this attitude towards the brand.
C. Personal Factors These include those aspects that are unique to a person and influence purchase behavior. These factors include demographic factors, lifestyle, and situational factors. Example: Lifestyle is an indicator of how people live and express themselves on the basis of their activities, interests, and opinions. Lifestyle dimension provide a broader view of people about how they spend their time the importance of things in their surroundings and their beliefs on broad issues associated with life and living and themselves. This is influenced by demographic factors and personality Consumer Behavior: Turning to the Web and New C2C Tools Consumers today have a multitude of sources from which to gather information during the vehicle buying process, but the Internet tops the list. The web has become a standard resource in the shopping process for eight out of 10 consumers when researching car purchases. However, the way they use it is changing. As the web matures, vehicle buyers are visiting fewer sites and focusing more on manufacturer and C2C websites and less on third-party information sites and independent e-tailor sties.
Manufacturer Sites a Key Information Source
Just two years ago, information websites were identified as the number one information source by web users responding to the Cars Online survey (tied with family and friends and manufacturer specific dealer). This year, they dropped to the number four source. In
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comparison, manufacturer sites are now the top source for consumers who use the web when researching vehicles. Two years ago manufacturer sites held the number three position. The use of dealer websites has remained steady, with about half of web users turning to these sites. At the same time, the use of new online consumer-to-consumer tools such as blogs, RSS (Really Simple Syndication) feeds, user-generated content, social networking sites and web forums is growing. In this year’s study, 29% of web users indicated that they use these kinds of tools when researching during the vehicle shopping process, up from 21% a year ago. (For a more detailed analysis of the use of these new online tools see separate section on “Web Usage.”) Interestingly, it is not just the young generation who use the web to research vehicles. Almost half of consumers 50 and older visit manufacturer sites, nearly the same number as those in the 18 to 34 age group. The numbers do fall off, however, when it comes to blogs and web forums. About 30% of the youngest consumers rely on these new tools, compared with just 12% of those 50 and older. As web usage rises, consumer reliance on other more traditional information sources is on the decline. Take print advertising, for example, which has shown a steady downward trend particularly among consumers who rely on the web during the vehicle shopping process. The message for automotive companies is clear: Consumers trust the information they receive from manufacturer and C2C sites. Vehicle manufacturers and dealers need to be aware of how fast online changes are occurring and continually adjust their marketing mix and resources accordingly to anticipate tomorrow’s mix. Marketing funds directed toward more traditional media such as print advertising should be regularly reexamined for ROI.
Key Factors in Vehicle Choice
When it comes to making their final decision about which vehicle to buy, consumers focus on factors such as reliability, safety, price and fuel economy. At the bottom of the list are cashback incentives, named by fewer than half of consumers. The importance of incentives as a deciding factor has declined for the past several years, indicating that consumers today seem less interested in gimmicks when it comes to their car purchases. Where consumers are in the buying cycle can make a difference in how they rank the factors that influence their vehicle choice. For example, additional warranty coverage is important to consumers who are furthest away from the point of purchase. This reflects the fact that consumers will narrow down the factors that really matter to them as they get closer to the point of purchase. Demographic factors such as age and gender accounted for some variances. For example, older consumers tend to put more emphasis on reliability and safety than do younger respondents. Those in the 50-plus age group were also more concerned with environmental issues and fuel economy. The youth are most likely to rate the ability to research information on the Internet as an important factor in their vehicle decision. Women tend to rate most of the factors as more important than do men. The difference was most pronounced for cash-back incentives, low financing, safety, environmental issues, fuel economy and additional warranty coverage. Going ‘Green’: Fuel Efficiency Takes Centre Stage
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Fuel efficiency and environmental issues have moved to the forefront in consumers’ minds and in automotive industry forums thanks to factors including global warming, fluctuating gasoline prices, and proposed legislation to increase fuel efficiency and reduce CO2 emissions. This growing interest in so-called green vehicles was evident in this year’s Cars Online research. They currently own or lease a fuel-efficient vehicle or they are planning to buy or thinking seriously about buying a fuel-efficient vehicle. Not surprisingly, the numbers for alternativefuel vehicles are lower. Biodiesel vehicles were the second most common. The alternative-fuel market remains in transition and it’s still too early to tell how it will ultimately shake out, although sales are expected to continue to grow. Current ownership of fuel-efficient and alternative-fuel vehicles tended to be quite consistent across gender and age groups, although the oldest consumers are somewhat more likely to be seriously thinking about buying an alternative-fuel car. WHY BUY A GREEN VEHICLE? Fuel economy is the number one factor driving consumer decisions about green vehicles, followed by the impact on the environment. Tax credits and cost factors are less important. Some consumers pointed to less tangible reasons such as “it makes me feel better.” This is in line with research conducted by CNW Marketing Research. When asked why they bought a Toyota Prius, 57% of Prius owners said because it “makes a statement about me.” However, the Cars Online research uncovered some differences in the reasons behind consumer decisions about green vehicles. For example, European consumers were more likely to cite environmental impact as a primary factor, while more respondents in China and the U.S. pointed to fuel economy. Men put more emphasis than did women on fuel economy, while a higher proportion of women identified environmental impact as the primary reason driving their decisions about green vehicles.
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CONCLUSION AND RECOMMENDATIONS
Indian Automobile Industry is in the growth phase and the expected growth rate is 9-10% for FY2009-10 compares to last year growth rate which was just 0.7% and the above facts and figures in our study also support this truth. Indian Automobile has a lot of scope for both two wheelers and four wheelers due to development in infrastructure of the country and especially the rural sector in which demand of two wheeler has increased even in recession. According to Indian Statistical Organization the per capita income (Rs.38000) is increasing and national income at the rate of 14.4% which shows potential to buy vehicle in auto industry. The growth rate of Indian Automobile is so fast that by 2016 Indian Industry will be world 7 largest manufacturers in all sections. Since Indian Automobile market is continuously in the prowl of surging as a major car manufacturer, people are purchasing car as there is increase of income of common people as well as change in tastes and preferences of consumers. It is important for the car manufacturers and car dealers to be able to understand the different factors affecting the extent in car purchasing behaviour. People are more conscious about on spot information provided about various cars who serves according to the needs and wants of the customer. The type of technology used and the wider reach of the service stations also affect the most on car purchasing decision. While government obligations and various policies like import duties, custom exemptions is seen as second most affecting driver of purchase of cars. Family needs; brand image; income level; special family programs/events like Anniversary, Birthday; insurance facility; credit card acceptance; car accessories affects customer’s car purchase decision which shows the importance of family decisions, special occasions in family and the various services provided by car dealers. Instalments payment facility; location of the car dealer shop; looks; availability of service station showing customers accessibility to the service provided. This shows the impact of various promotional activities and extra care taken by car dealers. The impact of suggestion provided by family members and peers as well as price and after sales service provided. Also it includes the infrastructural benefits of the shop and the variety of cars it stores .The last but not the least ones shows the impact of factors of technical specifications of the car and the festive season offers. Overall, various internal and external factors like extra care facilities, location of the shops, various information provided by car dealers, advertisement and print media promotions, features of the car in all are contributing in making car purchasing behaviour of customers.
By analyzing the industry on various parameters with the help of implementing Fundamental tools we came to know that this industry has a lot of potential to grow in future. So recommending to invest in Automobile Industry have no doubt is going to be a good and smart option because this industry is booming like never before not only in India but all around the
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world. The returns which came out of this industry were very impressive recently, as if we take an example of TATA motors it gives approx 90% return in a period of just 3 months while Maruti Suzuki shows always a buy and hold position because there is possibility of growth in future, same situation is in two wheeler segment with market leader Hero-Honda a debt free company also have bright future ahead. The numbers which came out in the end of financial year 2009 prove that even in the period of recession the overall sales went up is sufficient to support to this fact. Investing in Maruti Suzuki for long time could be a good option whereas in TATA motors there is a chance of getting correction, as it already went on high side in a very short period of time so holding the shares for long time could be a wrong step, so at this point of time those who invested earlier can book their profit or new investors can buy now and sell with in short period of time by earning profit in short period of time. By analyzing the current trend of Indian Economy and Automobile Industry we can say that being a developing economy there is lot of scope for growth and this industry still have to cross many levels so there is huge opportunities to invest in and this is proving as more and more foreign Companies setting up there ventures in India.
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www.bseindia.com www.googlefinance.com www.yahoofinance.com www.google.co.in www.moneycontrol.com
FDI statistic government of India India Central Statistical Organization
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