Saturday, April 14, 2012

Changing face of Indian car industry

For a long time India was predominantly a small car market. Low disposable incomes as compared to other countries meant that consumers restricted their car purchases to smaller models. So you had Maruti 800s dotting Indian roads enabling the company to emerge as a market leader in this space. But the past few years have seen a considerable change in the Indian auto landscape. For one, competition in the passenger car segment has intensified. This is because more and more foreign players have entered with newer models. This has led to a drop in the average price of cars. Further, disposable income of the average Indian has also risen. As a result, consumers are now opting for bigger vehicles. This was very much evident last fiscal when sales of big cars also known as sedans jumped 24%. On the other hand, smaller cars or hatchbacks saw a 7% decline in sales.

The surge in demand has not only been attributed to a younger population having higher incomes but also to existing small car owners looking for an upgrade. Auto companies in the meanwhile have been grappling to meet this demand. This can be evinced from the longer waiting periods for various models. Furthermore, petrol prices have been rising. Thus, the differential between petrol and diesel has widened and so consumers have begun to prefer the latter. Since diesel engines options are available in almost 80% of the sedans as compared to over just 52% in small cars it is hardly a wonder that sedans sales are increasing. Thus, preference for larger cars as compared to smaller models certainly seems a scenario that will sustain for years to come.

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