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The Indian automotive industry has flourished like never before in the recent years. On the canvas of the Indian Economy, Auto Industry occupies a prominent place. Due to its deep forward and backward linkages with several key segments of the economy, automotive industry has a strong multiplier effect and is capable of being the driver of economic growth. A reasonably developed Indian automotive industry ably fulfils this catalytic role.
Although the automotive industry in India is nearly six decades old, it remained dormant until 1982, largely due to stifling licensing regime. Today, India is the world's second largest manufacturer of two wheelers, fifth largest manufacturer of commercial vehicles and manufactures largest number of tractors in the world. The country offers fourth largest passenger car market in Asia.
During the year 2005-06, the turnover of the automotive sector was around $ 30 billion. According to auto industry experts, Indian Automobile sales will grow at a CAGR of 9.5% to 13,008 million units by 2010 from the current 10.0 million units.
This extraordinary growth that the Indian automotive industry has witnessed is a result of a two major factors namely, the improvement in the living standards of the middle class and an increase in their disposable incomes. Moreover, the liberalization steps, such as, relaxation of the foreign exchange and equity regulations, reduction of tariffs on imports, and the banking reforms, initiated by the Government of India, have played an equally important role in enabling the Indian Automotive industry achieve great heights. Also, the institutionalisation of automobile finance has further paved the way for a sustainable long-term high growth of the industry.
The once highly protected Indian automobile has been gradually opened up to the global market with liberalisation of overall economy. Global auto giants are shifting their manufacturing bases to India. Currently, almost all auto giants from Korea, Japan, US and Europe are present in Indian market in various segments. Foreign Direct Investment (FDI) has created a strong visible impact on the Indian car market not only by contributing to capital, technology and best managerial practices, but also introducing intense competition among the manufacturers.
The overall automobile industry performance has showed encouraging results for all the segments of the industry. Today, India has become the second fastest growing car market in the world. Passenger car sales have tripled in six years. It's also to be noted that the demand for luxurious models, SUVs, and mini-cars for family owners have shot up, largely due to increase in the consumer's buying capacity.
Clearly, the Indian automobile sector is on a growth track. To tap this huge opportunity, Indian automobile companies and global automotive giants are on an expansion mode. What is making the Indian automobile market grow? This paper is an attempt to answer such questions, which may help the marketers to segment their market effectively. We believe that our analysis and outlook of Indian automobile industry would serve as a key input for the business decisions and segmentation of Indian market for future demand. The paper focuses on the urban passenger car market and involves the critical analysis of car user households based on the following:
Studying the socio-economic and demographic characteristics of urban car owning households;
Understanding the relationship between various household characteristics and car purchasing intentions of households; and
Designing the likelihood model for car ownership by Indian households.
In the current study, a number of literatures and papers on the subject have been reviewed, which revealed that there are only few models suitable for such kind of analysis, which involves dummy regressands specially binary or dichotomous. These models are also known as probability models. Keeping in mind the objective of the study and availability of the kind of data or variables for conducting this analysis, the probit regression analysis is applied.
