How to choose a car brand with an auto industry ‘basket of deplorables’

More than 80 per cent of the brands on the India’s car market are owned by private companies, which account for nearly 80 per for every 10,000 vehicles.

“The auto industry is very fragmented, and the fact that the industry has not managed to consolidate or merge, that has led to a lot of problems,” says Shilpa Sengupta, managing director, Consumer Automotive Research, a research firm.

She says while the market is now in its third decade, its fragmented and the “basket” of deplorable cars is growing.

India’s auto sector is one of the fastest growing segments in the world, with a projected growth rate of more than 10 per cent over the next five years.

But the industry is also witnessing its biggest decline in the past two decades, with almost a third of all new vehicles in the country coming from China.

With its huge auto sector, India is the fastest-growing car market in the region.

However, with only 20 per cent ownership of cars in India, and a massive gap between the middle and upper class, there is a huge disconnect between what is bought and what is actually built, experts say.

“The middle class is now much more important for the car market.

If you go to the middle class, you are more likely to buy a car than if you went to the top,” says Rahul Sharma, partner, Tata Consultancy Services.

According to industry analysts, the problem is that the market’s “bundle of deplorisables” is growing fast.

For instance, India’s middle class comprises of about 60 per cent car buyers, says Kunal Singh, chief market analyst, Edmunds India.

So, if the middle-class consumer is willing to spend money on a car, and it is a well-built car, then it is less likely to spend more money on an SUV or a light-coloured car.

This, in turn, is why the market has become more diverse.

Even a well built SUV can fetch as much as Rs 3,000-4,000 in India.

A car costing Rs 1 lakh can fetch Rs 2,000, says Sharma.

The middle-classes own less than 10% of all cars.

“The average middle-income person spends less than Rs 3 lakh per vehicle, but the average middle class person spends as much, as they spend on other goods like education, food and entertainment,” says Sharma, adding that the middle classes also tend to be more conservative about spending on things like cars, TV, gym equipment and mobile phones.

A big chunk of the middle income earners, the researchers say, spend more on mobile phones and other things than on cars.

In the past five years, India has seen a steep rise in the number of car buyers and a decrease in the middle middle income.

“This has happened with both the growth in the price of cars and the fall in the cost of new vehicles,” says Sengupta.

Despite the growth, India still has a very poor car market, she says.

“We need to do a lot more to increase the middle group, especially in terms of the number and quality of new cars that we can sell to them.” 

But there are a number of solutions that are being considered.

The first is to introduce tax incentives for consumers to buy more premium cars, said Sharma.

“If we can increase the number from 10, 20 or even 30 per cent, then the market will grow.”

Another option is to start a program of “indirect subsidies” which would provide the middle groups with a small portion of their income.

If you buy a premium car from a dealer, you can receive a subsidy of Rs 3 or Rs 5.

These subsidies are likely to be in the range of Rs 10-15 per car, Sharma says.

Another option is introducing “bundling” or the provision of a range of incentives and discounts to middle income groups to encourage them to buy less expensive cars, which will help them buy more. 

“If we take a look at the subsidy packages available to middle- and lower-income groups, they have been pretty good,” said Sharma, explaining that it was the middle who was most likely to qualify for these incentives.

Sengupta believes this is likely to become more popular in the coming years.

“Bundling is a very important way of doing things,” she says, adding, “We should start thinking about bundling, not just with the middle, but also with lower- and middle-castes, so that they are also able to buy the vehicles we need to meet our goals.” 

The second option is the “sales tax” option.

This will make it easier for the middle to buy luxury cars, but it will also increase the risk of buying a car that may not