Source

Financial Express
The car industry in India has been on steroids. The domestic sales
have reached a level of 2 million units per annum, growing in
double digits. We expect it to rise further to 3.66 million units by
2014-15 and 5.2 million units by 2019-20.

The past six years have seen explosive growth and sales during
this period account for over 8.5 million cars, which is as much as
60% of the total car stock in the country. Indians today buy nearly
10 times the cars they used to buy 15 years ago.

The current stock of

cars running on the
streets are of the
order of 13 million, of
which as many as 8.5
million were added
during the past six
years. India is set to
add another 35-38
million cars to its
stock during the next
10 years.
Over the past decade, India has increased its share of world cars from 1.3% to 3.3%. India is likely to go
through an exponential growth phase similar to the one experienced by China and by 2020, its share of
world car sales is likely to be to touching 9%. The total world car sales, meanwhile, are not likely to increase
by much. The current market is of the order of 50 million cars and through the next decade it is not likely to
exhibit a decadal growth of more than 10%. In fact, most of the large consuming countries are in decline and
are unlikely to reach their peak consumption levels for a long time to come.
From a marginal player in 2000, India is likely to emerge as one of the top five car buying nations, second
only to China among BRIC nations. It already is a significant player with a domestic market growing at a fast
clip. This will attract major players into specific segments of the Indian market and competition will only
intensify further. The key competitive action will be in the upper end of A2 segment and the A3 segment,
which will comprise the bulk of the market in a price range of Rs 4,00,000 to Rs 10,00,000. This is not to say
that other segments will not see action; it is just the fact that consumers of these segments will drive the
industry.
Mid-size is the trend
The clear trend established is that the entry-level segment has shrunk to under 10% of the market. With a
renewed focus on low-cost cars, this segment will continue to grow in volumes, but its share of market is
unlikely to increase.
The bulk of the market has been driven by the A2 compact segment, which will continue to drive the growth
and is forecast to have over two-third market share right through to 2020.
The mid-size segment (A3) has been growing steadily and is now one-sixth of the market. It will continue to
expand faster than the market and is expected to be over one-fifth of the market by 2020, which implies that
its volumes will grow to over a million units per annum from the current level of about 3,00,000. The coming
decade will belong to this segment, just as the preceding decade belonged to the A2 segment. The luxury
segment will continue to be under 1% of the market.
Consumers

•As many as 29% of SEC A households own a passenger car, However,

in the segments SEC C, D and E, the penetration rates are still in single
digits. SEC B has reached double digit penetration.
•The total penetration of cars in urban households is only 9.4%, which
means less than 10% of the households in urban India own a car (rural
penetration is about 2-3%). Even with growth forecast, the total
penetration of cars is likely to remain below 25% for urban India and in
single digits for rural India by 2020, which implies that the Indian car
market is not going to saturate for at least another 25-30 years.
•The key markets where cars are selling in large volumes are depicted
in the figure on the bottom. There are no centre-wise sales. The data
pertains to financed cars by individual buyers only. Many cars are
procured without financing and many are purchased by institutional
buyers (companies, government, etc). However, the figures are fairly
representative of the spread.

What is driving the demand?

•Income: Rising income has enhanced the purchasing power and more
and more people are able to afford a car.
•Steady prices: Competition in the car industry has ensured that price
points have not changed during the past 10-15 years. In other words, in
inflation adjusted terms, cars have become considerably cheaper.
•Easy availability of financing: With the rise of easy credit and low rates,
accessing of finance has become easier prompting purchase decisions.
The future

* The competition is likely to intensify, benefiting consumers

* Improved public transport is likely to impact the two-wheeler segment rather than the four-wheeler
segment
* The economy is set to enter a higher growth path, leading to people graduating to higher income
groups at a faster rate
* All the factors that drove demand are set to strengthen further

Clearly, the first three segments (A1-A3) are today affordable to a vast number of people and these
numbers are set to increase. The large explosion is also having a big impact on the used car market.
Organised players in this space are making reconditioned cars available at extremely attractive price
points. The pioneers in this arena have been Maruti True Value and First Choice India promoted by
Mahindras. Carnation, promoted by Jagdish Khattar, is another venture, which, among other things,
offers a platform for used cars sales (Carnation-certified pre-owned cars come with warranty and free
services).