Demand:
The demand for cars in the past was supply driven, as demand did not match supply. This led to high premium and long waiting periods for the cars. But change in government policies coupled with aggressive capacity additions and up gradation of models by MUL in the early nineties led to increase in supply and subsequently reduced the waiting periods for economy cars.
The demand for cars ‘was suppressed by venous supply constraints. The demand for cars increased from 15.714 in FY60 to 30,989 in FY80 at a CAGR of only 3.5%. The entry of Maruti Udyog Ltd (Gol-Suzuki J\/) in 1983 with a “peoples” car and a more favorable policy framework resulted in a CAGR of 18.60/c in car sales from FY8I-FY9O.
After witnessing a downturn from FY90 to FY93, car sales bounced back to register 17% growth rate till FY97 Since then, the economy slumped into recession and this affected the growth of the automobile industry as a whole. As a result car sales remained almost stagnant in the period between FY97 and FY99. Sales have increased at a CAGR of 14 4% for the period FY94-FY99 to reach sales of 409,624 cars in FY99.
The demand for cars is dependent on a number of factors:
• Per capita income
• Introduction of new models.
• Availability & cost of car financing schemes.
• Price of cars
• Incidence of duties and taxes.
• Depreciation norms
• Fuel cost and its subsidization.
• Public transport facilities etc.
The first four factors viz. increase in per capita income, introduction of new models, availability & cost of car financing have positive relationship with the demand whereas others have an inverse relationship with demand for cars.
The demand for cars in the future can be estimated with the help of making use of macro economic variables like growth in GDP, per capita income etc. or house hold penetration technique.
The demand for cars in the future is expected to come predominantly from the existing two wheeler owners who will be upgrading to a four-wheeler, due to rising income and necessity of car for personal transportation etc Therefore, excluding the owners of mopeds, the potential demand for cars in the next fifteen to twenty years can be taken as 50% of the existing two wheeler population of around 28mn units.
But with the release of new models in the higher end of the economy segment, the supply of second hand economy cars is expected to increase substantially, which will be costing just two times the price of premium range two-wheelers. This will affect the demand for first purchases of cars. Also, with cross demand from utility vehicles, availability of finance and other factors the above mentioned potential for cars will be difficult to realize.
The dominance of economy segment will continue in the future, as it will provide large Indian car industry. This is possible due to increased per capita income, up gradation two-wheeler users to cars etc. The demand for mid-size and premium car segment is expected from customers who are upgrading from economy to higher end cars and from corporate demand.
Supply:
The supply of cars in Indian industry till 1991 was dependent upon the production capacity of individual players. The production of cars has increased from 42,475 units to 181,420 units from 1981 to 1991 respectively. The growth in production of cars has varied in the last three decades from just 1% in 1970-80 to 21% in 1980-90 and above 15% in 1991- 96.
The major increase in production of cars in the 80’s was due to entry of MUL in 1983, which helped car production by 20,000 to 30,000 cars per annum till the early nineties.
With the entry of MUL, the face of the passenger car industry changed forever. Existing producer who had operated in a protected, high margin environment faced the prospect of not just diminishing market share, but a shift in focus from producing vehicles to selling them. But MUL made use of the opportunity open to its technologically superior product and increased its capacity from 100,000 cars in FY90 to 240,000 cars in FY96 and 350,000 cars FY98.
The opening of economy in 1993, attracted world majors who joined hands with existing auto majors, to start their operations at the earliest. The first ones to enter the field were Mercedes Benz in joint venture with Telco to manufacture E220, E250D models, Peugeot in JV with PAL to manufacture Peugeot 309L Fiat in JV with PAL to manufacture Fiat Uno. This has helped in increasing the number of models available to the customer from 8 to 27 ad hence provided a wide choice to him. This has also helped in reducing the average ailing period and premium on cars, which were a part and parcel of car cost in the eighties. II has lost market share in the last one year. From a high of around 80%,it has now come down to 66%. New players like Hyundai and Daewoo and Telco with its Indica offering have captured market share from MUL. PAL Puegeot and Fiat India, which have commanded a rod part of the market in FY97, have now fallen back on hard times.
This year (FY99) has been the year for economy cars. The car market was flooded by new models from Hyundai (santro), Daewoo motors (Matiz) and Telco (Indica).
The competition in the economy segment has boiled down to prices of cars In FY99, the higher end of the mid-size car segment witnessed the entry of Honda City and Mitsubishi lancer priced around Rs700, 000. A series of diesel variants and upgraded models were introduced from GM India and Indian Auto Ltd.
A major increase in the capacity of cars was witnessed in FY99 with the commissioning of. MUL’s new plant and entry of new players into economy car segment viz Telco, Hyundai and Daewoo. With this the total installed capacity has increased from 600,000 cars in FY98 to about 750,000 in FY99.
The surplus in supply of cars is expected to increase exponentially in the next three years with the setting of production facility by new players. The major increase in supply will be in midsize and luxury segment. The supply in the future, taking into account the plans announced y the car majors is expected to grow to 1,210,000 cars in FY01.
The segment which has seen a number of new entrants in the recent past will see two new models from the stable of Maruti namely the Alto, which will be available in the 800cc and 1000cc configuration. However, industry sources have indicated that after the hectic action of past one year, this segment will slowly witness some stability in terms of sales volumes and prices. The entry of new players is expected to create a marketing warfare in the car Industry. A start has already been made by sharp reduction in prices of Daewoo ‘Ceilo’ and Maruti 800. However, with manufacturers having to comply with Euro emission norms, their ability to reduce prices would certainly be affected.
The competition will lead to increased support through finance from auto manufacturers so to push-up demand. This will induce existing owners of cars to go for technologically superior products in the same segment leading to sharp drop in prices of second-hand cars. This will also create a platform for up gradation of existing two-wheeler owners to four wheelers.
The luxury segment, which will see new entrants namely Toyota of Japan, Skoda of Czech Republic and Proton of Malaysia. Recently, companies like Ford, Daewoo, Hyundai, Opel and Hindustan Motors have come out with new models to cover the present gap in the segment Therefore, the customer will be having a wider choice to choose depending on his specific needs.
By comparing the demand supply figures it can been seen that supply will outstrip demand and may go up to 125 to 150% in year 2001 This trend is expected to continue in the future years also leading to fierce competition in the market. This fact is already confirmed by many new comers who hoped to capture the large potential for cars. The first victim of this has been Pal-Peugeot in which Peugeot decided to withdraw from the joint venture by taking into account that the actual demand for cars is very less compared to what was estimated in the early nineties.
The demand for cars in the past was supply driven, as demand did not match supply. This led to high premium and long waiting periods for the cars. But change in government policies coupled with aggressive capacity additions and up gradation of models by MUL in the early nineties led to increase in supply and subsequently reduced the waiting periods for economy cars.
The demand for cars ‘was suppressed by venous supply constraints. The demand for cars increased from 15.714 in FY60 to 30,989 in FY80 at a CAGR of only 3.5%. The entry of Maruti Udyog Ltd (Gol-Suzuki J\/) in 1983 with a “peoples” car and a more favorable policy framework resulted in a CAGR of 18.60/c in car sales from FY8I-FY9O.
After witnessing a downturn from FY90 to FY93, car sales bounced back to register 17% growth rate till FY97 Since then, the economy slumped into recession and this affected the growth of the automobile industry as a whole. As a result car sales remained almost stagnant in the period between FY97 and FY99. Sales have increased at a CAGR of 14 4% for the period FY94-FY99 to reach sales of 409,624 cars in FY99.
The demand for cars is dependent on a number of factors:
• Per capita income
• Introduction of new models.
• Availability & cost of car financing schemes.
• Price of cars
• Incidence of duties and taxes.
• Depreciation norms
• Fuel cost and its subsidization.
• Public transport facilities etc.
The first four factors viz. increase in per capita income, introduction of new models, availability & cost of car financing have positive relationship with the demand whereas others have an inverse relationship with demand for cars.
The demand for cars in the future can be estimated with the help of making use of macro economic variables like growth in GDP, per capita income etc. or house hold penetration technique.
The demand for cars in the future is expected to come predominantly from the existing two wheeler owners who will be upgrading to a four-wheeler, due to rising income and necessity of car for personal transportation etc Therefore, excluding the owners of mopeds, the potential demand for cars in the next fifteen to twenty years can be taken as 50% of the existing two wheeler population of around 28mn units.
But with the release of new models in the higher end of the economy segment, the supply of second hand economy cars is expected to increase substantially, which will be costing just two times the price of premium range two-wheelers. This will affect the demand for first purchases of cars. Also, with cross demand from utility vehicles, availability of finance and other factors the above mentioned potential for cars will be difficult to realize.
The dominance of economy segment will continue in the future, as it will provide large Indian car industry. This is possible due to increased per capita income, up gradation two-wheeler users to cars etc. The demand for mid-size and premium car segment is expected from customers who are upgrading from economy to higher end cars and from corporate demand.
Supply:
The supply of cars in Indian industry till 1991 was dependent upon the production capacity of individual players. The production of cars has increased from 42,475 units to 181,420 units from 1981 to 1991 respectively. The growth in production of cars has varied in the last three decades from just 1% in 1970-80 to 21% in 1980-90 and above 15% in 1991- 96.
The major increase in production of cars in the 80’s was due to entry of MUL in 1983, which helped car production by 20,000 to 30,000 cars per annum till the early nineties.
With the entry of MUL, the face of the passenger car industry changed forever. Existing producer who had operated in a protected, high margin environment faced the prospect of not just diminishing market share, but a shift in focus from producing vehicles to selling them. But MUL made use of the opportunity open to its technologically superior product and increased its capacity from 100,000 cars in FY90 to 240,000 cars in FY96 and 350,000 cars FY98.
The opening of economy in 1993, attracted world majors who joined hands with existing auto majors, to start their operations at the earliest. The first ones to enter the field were Mercedes Benz in joint venture with Telco to manufacture E220, E250D models, Peugeot in JV with PAL to manufacture Peugeot 309L Fiat in JV with PAL to manufacture Fiat Uno. This has helped in increasing the number of models available to the customer from 8 to 27 ad hence provided a wide choice to him. This has also helped in reducing the average ailing period and premium on cars, which were a part and parcel of car cost in the eighties. II has lost market share in the last one year. From a high of around 80%,it has now come down to 66%. New players like Hyundai and Daewoo and Telco with its Indica offering have captured market share from MUL. PAL Puegeot and Fiat India, which have commanded a rod part of the market in FY97, have now fallen back on hard times.
This year (FY99) has been the year for economy cars. The car market was flooded by new models from Hyundai (santro), Daewoo motors (Matiz) and Telco (Indica).
The competition in the economy segment has boiled down to prices of cars In FY99, the higher end of the mid-size car segment witnessed the entry of Honda City and Mitsubishi lancer priced around Rs700, 000. A series of diesel variants and upgraded models were introduced from GM India and Indian Auto Ltd.
A major increase in the capacity of cars was witnessed in FY99 with the commissioning of. MUL’s new plant and entry of new players into economy car segment viz Telco, Hyundai and Daewoo. With this the total installed capacity has increased from 600,000 cars in FY98 to about 750,000 in FY99.
The surplus in supply of cars is expected to increase exponentially in the next three years with the setting of production facility by new players. The major increase in supply will be in midsize and luxury segment. The supply in the future, taking into account the plans announced y the car majors is expected to grow to 1,210,000 cars in FY01.
The segment which has seen a number of new entrants in the recent past will see two new models from the stable of Maruti namely the Alto, which will be available in the 800cc and 1000cc configuration. However, industry sources have indicated that after the hectic action of past one year, this segment will slowly witness some stability in terms of sales volumes and prices. The entry of new players is expected to create a marketing warfare in the car Industry. A start has already been made by sharp reduction in prices of Daewoo ‘Ceilo’ and Maruti 800. However, with manufacturers having to comply with Euro emission norms, their ability to reduce prices would certainly be affected.
The competition will lead to increased support through finance from auto manufacturers so to push-up demand. This will induce existing owners of cars to go for technologically superior products in the same segment leading to sharp drop in prices of second-hand cars. This will also create a platform for up gradation of existing two-wheeler owners to four wheelers.
The luxury segment, which will see new entrants namely Toyota of Japan, Skoda of Czech Republic and Proton of Malaysia. Recently, companies like Ford, Daewoo, Hyundai, Opel and Hindustan Motors have come out with new models to cover the present gap in the segment Therefore, the customer will be having a wider choice to choose depending on his specific needs.
By comparing the demand supply figures it can been seen that supply will outstrip demand and may go up to 125 to 150% in year 2001 This trend is expected to continue in the future years also leading to fierce competition in the market. This fact is already confirmed by many new comers who hoped to capture the large potential for cars. The first victim of this has been Pal-Peugeot in which Peugeot decided to withdraw from the joint venture by taking into account that the actual demand for cars is very less compared to what was estimated in the early nineties.