PRICING A BOON OR BANE- AIR DECCAN ?

The article discusses the use of Price in the marketing Mix in the Airlines Industry. We discuss Deccan Aviations single point obsession with price and the present turmoil in the Airline Industry. Is the First Mover advantage sustainable for the Airline in the Low cost no frill airline space . Who would trump in the end ‘a Customer focus approach by full service airlines’ or ‘Price penetration by low frill airlines’. The article explores the competitive forces in the Airline Industry and steps taken by Deccan Airlines to remain on top.

The Current Scenario….

Deccan Airways has blazed away to become India’s second largest airlines with a 21.2% market share in June. Over the past one year, the number of passengers flown by the airline has swelled 230% from 2 million in September, 2005, to the current 6.6 million. With better services, new colours and an attitudinal shift, the pioneer plans to unseat Jet.

The picture on the ground in the aviation sector looks very different from that in the books. After Jet reported a disappointing performance, and warned of yet another tough year ahead, Deccan Aviation’s results seem to indicate that India’s aviation sector will take some time before it turns profitable.

Deccan’s turnover is a respectable Rs 1,352 crore during the 15 months ended June ’06, but comes with a sizeable loss of Rs 340 crore. During the June quarter, its income was Rs 430 crore and loss Rs 110 crore, indicating that more than a third of the loss was incurred in the last quarter. At an EBITDA level, Deccan’s loss was Rs 95 crore.

Deccan’s load factor for the past fiscal has been 75% with lowest operational cost. That is a good occupancy level for an airline, and compares well with the market leader Jet. But if Deccan cannot make money at these occupancy levels, then the key to profitability does not really seem to lie in filling more seats. Given the current capacity of airline companies and planned additions in the Indian market, it seems unlikely that domestic airlines will have pricing power in the near future.

Air Travel has grown by 230% since 2002 .It is unlikely that the demand growth rate is going to be better than the one shown in the previous years. That is, unless demand grows exponentially or some of the weaker players fold up the airlines would not turn profitable.

Pricing ‘The troublesome Marketing Mix”

In every Industry Prices are usually Sacrosanct and should not be dropped unless in Dire circumstances. The Marketers shall try all weapons in there arsenal such as Advertising, Trade and consumer promotions. However in the obscenely growth sectors the price takes a beating in view of the Top line growth .This is true for the Indian Telecom sector but the problem does not seem to be so acute with major players showing signs of profitability.

In case of the Airlines sector the future does not seem to be so promising. The sector is expected to grow at around 15-20 % in the next year. With competitors matching prices and bracing dog fight it is unlikely that there would be a substantial increase in topline or margins as compared to others. Air Deccan does expect its market share to move up by 25-28% in the next few years.

The Components of Pricing Includes

1. Basic fare
2. Fuel Surcharge (Rs 750/- per passenger)
3. PSF (Passenger Service Fee) Rs.225/- per passenger
4. Transaction fee of Rs 50/- if booked online through the website
5. Transaction fee (5% of basic fare) if booked through any other point of sale apart from the website

First Mover Advantage..Is it sustainable?

A first mover advantage can be simply defined as a firm’s ability to be better off than its competitors as a result of being first to market a new product category. We often find it difficult to distinguish durable first mover advantage and those that are short lived.

In the Airlines scenario where the market is leading (ie the pace of demand growth outstrip the total capacity of existing players) it is very important to dominate a category and hold onto your customer base.

To build a sustainable competitive advantage it is necessary to address all the market segments as they emerge. This would not be done by Air Deccan single point focus on price. New emerging segments such as ‘small businessmen’ travel would value on time flights and less flight cancellations. Here I believe that Kingfisher a late entrant (2004) which has 9% of the Indian market has taken a large chunk of this segment .

Low Cost Issue….A strategic Advantage

Air Deccan has built up a sustainable competitive advantage in the Airlines Industry. The case in point is that there is no way to squeeze more margins from existing operations to generate the savings that would justify the price charged.

Air Deccan utilizes an aircraft for close to 13 hours per day with an average load factor in excess of 70%.This is 10% higher than market leader Jet. This as also considered high when compared with International low cost Airlines such as Ryan Airways. The growth in this is limited.

Cost of fuel which is a constant for all airlines accounted for 33.7% of Jet’s expenses against 42% for Deccan’s. The obvious conclusion is that other expenses for Jet are higher.

Another area where Air Deccan scores is selling and distribution. For Jet, this cost worked out to 11.85% expenditure against 5.2% for Deccan. The latter sells most of its tickets online or via its call centre — which cuts out the commission paid to travel agents. The commission paid by the airline to travel agents is also lower.

Traffic on off beat routes has been growing at 50%, albeit on a smaller base. Air Deccan flies to 55 airports out of which 35 are small airports. At present, besides Jagson Airlines Ltd it is the only other carrier tapping this market. Coimbatore-based Paramount Airways operates all-business class flights to small-town destinations with its 50-seater Embraer regional jet ERJ 145. Kingfisher Airlines, which will soon be taking deliveries of ATRs, is also eyeing this sector. SpiceJet wants to keep out of this market because of the hassles involved in maintaining two types of aircraft. So, for the moment literally has the entire market to itself as Jagson is an insignificant player.

Air Deccan is partnering with government to increase air travel. States like Andhra Pradesh and Karnataka have announced a reduction in sales tax for no frills regional airlines to improve air connectivity in those states. While Andhra has completely abolished sales tax, Karnataka has reduced it from 25 per cent to just 4 per cent.

With all avenues cost already low, an easy way to improve profitability would be to hike prices, but that would affect what Air Deccan epitomizes

Customer Focus…The new paradigm

The Airline has planned for a rapid expansion. It plans to overtake Jet with the kind of operation expansion his airline has planned over the next few years. For this it needs to set its flight path to it is higher service standards and a complete makeover of image.

It goes way beyond just switching the colour of tee-shirts worn by employees from blue to yellow. The airline is now looking at improving its on-time performance and passenger service; reduce number of cancellations and customer complaints even as it maintains the lowest fares in the market. Being the best, however, may take tremendous effort on the part of Deccan; not just in terms of financial investment but also in terms of attitudinal shift.

Nonetheless, the airline has already kicked off the exercise.

Over the last nine months, the airline has brought down its flight cancellations to less than half from 597 in January to 234 in August. It has also improved on-time performance during the same period from 58.61% within 15 minutes and 87.11% in an hour to 76.40% and 98.33% respectively.

Last three months have seen its on-time within 15 minutes range between 76% and 79% and within an hour, it is hovering at around 98%. The no-frills airline has also pruned the percentage of complaints per 1000 passenger from 13.6% (on 3.19 lakh passengers) in January to 6.82% (on 4.21 lakh passengers) in August.

Such performances are giving it the confidence to commit to passengers on service standards. It is kicking off a month-long WOW campaign beginning September 19 under which, if an Air Deccan flight is delayed over three hours flyers would unconditionally be getting a free ticket (except in cases of delay due to fog), and in case of cancellation, he would be put on another flight, subject to availability.

And as it embarks on the campaign, the airline has entered into Rs 460 crore ($10 million) agreement with Lufthansa for component and maintenance repair and overhaul (MRO) support and another Rs 230 crore ($5 million) agreement with aerospace companies — Airbus ($3 million) and ATRs ($2million) — for engineering support. It has also bought a hanger at Chennai airport.

Customer Lock-in are being used effectively .The airline has introduced two new schemes, Super Flier and Super Flier Plus, which offer 30 and 36 tickets, respectively, at reduced rates to passengers. Under the Super Flier scheme, a passenger gets 30 tickets for Rs 50,000, which can be used in any of the short haul sectors that the company operates with the ATR aircraft. The Super Flier Plus scheme comes with 36 tickets for Rs 1,00,000 which can be used in any of the sectors that the airline operates. The tickets are valid for 12 months from the date of purchase of the package. The packages can be used for business or personal use and includes family members as well.

Continuing with its strategy of strengthening its distribution through
new channels, India's low-cost carrier is gearing up to launch an option
of booking, payment and re-scheduling of flights through SMS. The airline had tied up with Reliance WebWorld to offer an option of booking air tickets through a nationwide retail chain of 241 real broadband centres across 104 cities in India. The initiative
is being termed as the "first ever and a major e-ticketing initiative of
its kind in the country, leveraging the retail presence and broadband
capabilities of Reliance WebWorlds."

Outlook

Deccan Airways continues on rampant capacity addition by adding five aircrafts. This would affect load factors and also the yield and the expenses will be up for these five aircraft operations. If one looks at the past twelve months, Air Deccan introduced seven airbuses and around eight ATRs, last year based on growth rate of 280% in the last year. This year industry expects to grow around 15-25% , the repeat looks unlikely by Air Deccan.

The load factor would improve as the flights start achieving maturity. Hence load factor always depends on how the mix is skewed, whether it is skewed towards the newly introduced routes or the mature routes, which determines the average load factor and the average yield. With Air Deccan initiative to start new sectors the load factor might not improve.

It needs to be seen whether it is able to maintain its competitive edge and break even keeping the prices at current level. Although the airline is moving towards a more customer centric approach rather than a single point price strategy, It needs to be seen uptill how long the investors and debtors are willing to wait for the return on their investment or would allow Air Deccan to keep losing money.

The shift in Indian Television Industry

India consists of 179 million households out of which 70 millions have a TV. The figures seem to be great in terms of penetration and also have an ample amount of scope for growth. The advent of private players, foreign investment, and growth in technology has brought this industry to a tipping point of an entirely new era.

The Key Growth Driver

Subscription revenues are projected to be the key growth driver for the Indian television industry over the next five years. Subscription revenues will increase both from the number of pay TV homes as well as increased subscription rates. The buoyancy of the Indian economy will drive the homes, both in rural and urban (second TV set homes) areas to buy televisions and subscribe for the pay services. New distribution platforms like DTH and IPTV will only increase the subscriber base and push up the subscription revenues.Industry estimates feel that industry will grow at a rate of 24% in the coming 5 years.

Evolution

The Indian TV industry seems to be evolving from three different stages and would reach a point where conversion of TV into a PC and into a telephone will not be distinct anymore. As the market matures the television wars will first compete on price in which mode of connectivity is going to play an important role and then on content and quality of picture and sound. Each of these stages has been studied in detail, keeping in view the initial investment and the feasibility in the Indian context

1. Stage One- It is more than obvious that sooner or later CAS will be rolled out considering its advantages over the present form in more customized offering, more transparency and better market pricing (Demand and supply of individual channels can be easily measured). CAS will involve an initial investment which can be broken down into monthly installments.

2. Stage two- Direct to Home; holds distinct advantage in terms of low involvement by the consumer with the cable operator (E.g. problems of power failure and poor picture quality). Direct to home model operations which uses direct satellite communication and major players like Tata, Zee & Reliance have invested in this. This model supports two way connectivity as well as a reach to any corner of India, thus increasing the connectivity in the non urban areas(successful launch of igo tv, with DD direct package). DTH also is a beneficiary of content makers as it would reduce piracy. The hindrance to acceptance of this model by the consumers is the initial investment to be incurred by him, high switching cost and less amount of flexibility(in terms of the preferred content). However we feel that there would be a gradual shift towards acceptance of DTH once CAS is rolled out.

3. Stage Three- Convergence, with a rapid change in technology and everything from camera, phone and radio becoming one, possibility of convergence of telephone, internet and TV into one in Indian context is no longer a dream. IPTV has been at the fore front of this convergence and has done very well in the developing markets of Malaysia and Taiwan. After about 20 years the Indian consumer will no longer be satisfied only with streaming content (which is being directly broadcast), but would demand interactive-ness and options like customizing his TV viewing on his choices to individual programs at his convenient time. For ex. A consumer would be able to buy a stock news from CNBC, and headlines from Aaj Tak, sop operas from Star while songs from MTV. With massive investment already being made in bandwidth & infrastructure setup; a set of new players in TV market would emerge mainly the Telecoms & ISPs. So Hutch TV might just not be an advertisement, but can also turn into reality.

Note: The current state of FDI in the Industry

Cable networks- FDI limit is up to 49% inclusive of both FDI and portfolio investment. Companies with a minimum 51% paid up share capital held by Indian citizens are eligible for providing cable TV services under the Cable Television Network Rules, 1994.

Direct-to-home- Maximum 49% foreign equity allowed including FDI/NRI/FII Within the foreign equity, FDI component should not exceed 20%

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Swaroop takes a closer look at India as a small car hub

Smaller is Better : Business Newspapers in India are nowadays seen full of car giants announcing their foray and expansion plans into the small car segment. The excise duty cut in the recent Union Budget has fuelled growth of the small car segment in particular. Though this might be the immediate cause of the flurry, the underlying causes might be far deeper and broader. The article aims to communicate the expansion plans of most domestic and global giants, and takes a look at why a sudden upsurge is being seen in the small car segment.
http://sibmforthright.blogspot.com/2006/09/smaller-is-better-small-car-story.html

Prathibha gives insights about Private Equity in India

Private Equity: The Indian Scenario : Last March, when the international private equity firm Warburg Pincus sold a $560 million stake in Bharti Tele-Ventures, it made private equity investors the world over sit up and take note of the potential the sector holds in India. In this article we take a look at the current scenario of private equity investment along with understanding the major factors, both economic and sociological, that have played a key role in the development of the sector.
http://sibmforthright.blogspot.com/2006/09/private-equity-indian-scenario.html

Commets and contribution welcome forthright@sibm.net

Private Equity: The Indian Scenario

By :Pratibha Singh, MBA- II, Finance, SIBM

Last March, when the international private equity firm Warburg Pincus sold a $560 million stake in Bharti Tele-Ventures, India's largest publicly traded mobile telephony company, it created ripples both within the country as well as among private-equity investors across the globe. Not only was the transaction, on the Bombay Stock Exchange, the largest block trade ever on the Indian market, but was also carried out smoothly in less than half an hour, pointing to the depth and maturity of the Indian equity markets.

Over several months Warburg reduced its 18.5% stake in Bharti to about 6%. It invested nearly $300 million in Bharti in the period 1999-2001 and by selling nearly two-thirds of its share, earned a whopping profit of $800 million. When Warburg had entered the market Bharti had around 100000 subscribers, the figure stands at over 14 million today. Bharti’s market capitalization back then was a mere $100 million as against $15 billion towards the end of the period in view. Warburg is the largest private equity investor in India having ploughed $811million into the country as of last year. What is interesting is that the figure is more than double the amount the firm has invested in China- $362 million. Moreover, the Bharti deal is just the tip of the ice berg of private equity investing in India- with the sector holding great promises especially in view of long term investment.

What really set the ball rolling? It is to be noted that a decade ago, while money from US investors did go to Asia, it was to countries like Thailand and Indonesia. The Indian market was still considered to be in its infancy stage and did not figure in any major way. The 1991 crisis that brought the country to the brink of bankruptcy spearheaded an era of reforms, both political and economic that has continued ever since. Although the process of reforms may have slowed down in some cases, it nevertheless has moved on in the right direction. These, as well as sociological changes, both within India and abroad have culminated in developments that are exciting private equity investors the world over.

Factors favoring private equity investment

India’s democratic government and a free press that is rooting out corruption provide it a favourable investment climate especially in the long term. GDP has grown at rates between 6.5-8% over the last few years, a rate not seen in any developing country. Furthermore, the volatility of the Indian rupee has been curbed and inflation has declined implying lower interest rates. Thus equity markets seem to be a preferred investment. Since October 2004 the Sensex has been on the rise. Although it did witness a fall towards the middle of this year, the Sensex has recovered and in fact crossed the 12,000 mark a few days ago.

Globalization has played a key role with most production work shifting to countries like India and China. As a result there is a shift in consumption globally from the developed to developing and underdeveloped world. It is in these nations that one is witnessing a growing middle class that will take up a major share of the world’s total consumption in the years to come.
Removal of restrictions on Foreign Direct Investment (FDI) has added further impetus, the most noteworthy being the change in the retail sector where outside firms selling a single brand such as Nike are allowed to own a majority stake in Indian stores. The limit on FDI for development of airports, mining of diamonds and precious stones and power trading has also been lifted. Foreign Institutional Investment (FII) has boomed over the last couple of years.

One of the biggest changes has been in the confidence level of the Indian people. The contribution of the Indian IT companies to averting a worldwide Y2K meltdown was a major factor in this regard. It saw Indian IT companies going global and the government- unfamiliar with IT- having nothing to do with it. The result being all companies wanting to break away from government regulations.
Moreover, India has an advantage in healthcare including biotech, pharmaceuticals and telemedicine over its Asian counterparts. These are important sectors for a developing economy.

The Current Scenario

A look at Warburg’s other notable holdings in India throws light on the market scenario today. These include- Rediff Communication, Gujarat Ambuja Cement, Sintex Industries, Kotak Mahindra, Nicholas Piramal and WNS Global Services. As can be seen the firm has stuck to big, trusted stock market listed companies. This throws light on an interesting finding that unlike the US where this is rarely a strategy for a private equity investor, India with its demands of a billion people yet to be fulfilled, leaves enough room for even the largest conglomerates to grow. Moreover bigger Indian companies are increasingly seeking capital abroad to expand and thus will never play foul, making them less risky and hence the preferred choice for private equity investors.

As news of the Indian markets has spread, competition has increased and significant names in the private equity world can now be seen operating in India. These include Intel Capital, Oak Hill Capital Management, the Carlyle Group, Citigroup, General Atlantic Partners, CSFB Private Equity and CALPers among others. However most have invested only in double digits so far. A large number of Indian financial institutions like Kotak have created venture funds to tap the sector’s potential. So much so that fund managers expect returns of 20-30% a year.

India’s requirement for capital will continue for quite some time. Infrastructure improvement alone in the form of better roadways, more power generation, etc will require approximately $20-25 million in the form of investments every year. The biggest challenge is to lift nearly 200 million people out of abject poverty. Infrastructure, more than any other medium, has the potential to generate the jobs needed to attain this social goal.

The Stumbling Blocks

A major drawback is that concerning property rights. While the Indian legal system does offer protection of property rights, it does not do so with great speed.
Banking and finance is a critical concern for private equity investors in India , although the future of banking does appear optimistic. With a large number of foreign players, there would inadvertently be pressure on local players to be proactive.
Exit options are another stumbling block. Indian companies are more strongly linked to US firms than their Asian counterparts. Investors in these firms can exit through a US sale or initial public offering. While it’s easy to invest in India, it can be difficult to exit. The public markets lack liquidity and many companies are thinly traded in markets controlled by powerful local brokerages. The Warburg- Bharti case proved to be an exception though.

It is clear that private equity presents a huge potential for investment, more so in an emerging market like India. With reforms in place and the economy zooming ahead, the timing is appropriate. However what needs to be realized is that the key to successful private equity investment depends less on what happens in the financial capitals of the world than in developing villages. It depends on how quickly the internal market will develop. With a rapidly emerging middle class, hundreds of millions of people who will seek to have the same standard of living as everyone else in the world shall enter the picture. The sooner this is understood, the more beneficial will it be- for both the investor as well as the nation.

Smaller is Better: The Small Car Story

By: Swaroop Joshi, MBA I, SIBM

It’s not just the monsoons rampant in the country. The country suddenly seems to be flooded with auto giants flurrying in with huge funds. Small cars, all of a sudden have become the pets of the auto Goliaths. Small cars; which are currently defined as the cars less than 1200 cc engine capacity for petrol vehicles and less than 1500 cc engine capacity for diesel vehicles, along with a 4 meter length constraint; make up about 65% of total passenger cars market in India.

Maruti Udyog Ltd, the current market leader in passenger cars and gaining more than 80% of its revenues from its small and compact cars segment, will launch a new compact car by 2008-9 and invest an additional Rs 3,000 Crore till 2010. Code named A, the car would be priced at around Rs 4 lakh with an engine capacity of 1,000-1,200 cc. It has already committed to investing Rs 6,000 Crore by the end of the decade in its existing facilities at Gurgaon and the new unit at Manesar.

Tata Motors, which has eaten up a sizable share of Maruti in the last 5 years, has announced plans to invest Rs 10,000-12,000 Crore over the next three to four years to expand its production capacity for passenger cars and commercial vehicles. In addition to expanding its existing unit, Tata Motors has decided to set up a JV with Fiat of Italy to build a range of small cars and sedans for the Indian market. Technological inputs from FIAT would help the Tatas in developing the highly awaited 1 lac car.
After riding high on its Santro, Hyundai Motor India, which is the third largest player, enjoying about 20% market share in passenger cars, is also looking at another small car, positioned between the Santro and the Getz.

The global giants are not awaiting any invitations to join the party either. GM shifted its gears to the small cars segment, and has announced 3000 Crore plan to roll out the all new model “Spark” in addition to its Aveo plans at its proposed facility in Talegaon near Pune.The Toyota Kirloskar JV, which had initially denied of any plans of foraying into the small cars market until August end the latest, too seem to have swirled their plans. In 18 months' time, Toyota is now planning to roll out a small car. It is putting up a plant that will make 1.5 lakh small cars a year. It aims to corner 10% of the market in the next 4 years. Japan's Honda Motors along with its Indian partner SIEL is planning to set up a second plant in India, which could involve an investment of about 8000 Crores over a period of five years. The proposed plant will primarily be used for building small cars in India. Even majors like Ford, Nissan and Volkswagen have publicly unleashed their aspirations to foray into the Indian small car segment in past 1 month, all combined together totaling more than a whooping 25000 Crores investment plans.

Reasons underlying the gold rush

The biggest trigger for the sudden flurry can be seen in the excise duty cut from 24% to 16% for smaller cars in the recent Union Budget. In a recent move, the heavy industries ministry is expected to recommend that any car up to 4 meters in length should be considered “small” and charged lower excise, regardless of its engine capacity or the fuel used to run it. Till now, petrol cars with engine capacity of up to 1,200 cc and diesel vehicles with engine capacity of 1,500 cc were eligible for the lower excise bracket as long as they were up to 4 meters in length. This definition excluded several popular small cars, besides almost all the entry-level sedans, from the lower excise bracket. The latest move, if accepted, is expected to bring some cheer since popular car models such as Maruti Swift, Hyundai Getz, Tata Indica petrol and Fiat Palio (petrol) would become eligible for entry into the small car club. A few sedans could also qualify, provided their respective manufacturers tinker with the length. At present, the small car club comprises five models from the Maruti stable — M800, Omni, Zen, Alto and WagonR - besides the Hyundai Santro.

The present proposal comes close on the heels of industry bigwigs, including Ratan Tata, asking the government to relax the “small car” definition to include all cars with up to 1,500 cc engine capacity. If one takes a look at other small car markets around the world, it becomes apparent that India has come up with a novel way to define a small petrol car. In Brazil, a small car must have less than 1,000 cc engine capacity, whereas in Japan, the 660 cc cars fall under this ambit. Nowhere in the world is a small car defined as having engine capacity of up to 1,200 cc.

Although the excise duty cut might have been the immediate cause for the gold rush, the underlying reasons are far broader. The Indian Auto Industry has come a long way from the days of Ambassadors and Premiers, to the Maruti 800 revolution, now becoming the fourth largest and fastest growing passenger car producing hub on the globe. No doubt that a robust domestic market with stable consumption trends has been the key to the industry growth; due to the improved productivity, quality and reliability along with the traditional low labor cost factor, global auto giants are looking at India as a sourcing hub for their global operations. Thus, the situation in the global arena might have a larger part to play for the recent flurry. The excise cut might not give a competitive edge to any one of the auto players in the domestic market, but certainly does impact the global markets to a large extent. For example, Maruti Alto is the no. 1 brand in its segment on the Netherlands. With the duty cut, they can become more cost effective in the Netherlands market, and can increase their market share from the current 18.7% in that country.

Another important global reason for auto companies is the Free Trade Agreement India signed with Thailand two years ago. As per the agreement, the so-called 82 early harvest items, which include a range of auto components, will be subject to zero duty when imported from Thailand into India from September 1. Japanese majors like Toyota and Honda have major operations in Thailand and the FTA will help them integrate their Thai operations into their India plans. The option of importing critical components from their own operations/suppliers in Thailand confers a twin advantage for the Japanese majors. First, the time to market can be crashed as they do not have to wait for Indian component suppliers to invest in production capacities and, second, it confers a big price advantage as they can import duty-free components unlike other competitors.

Apart from these strategic reasons, the global crude oil price pressures on developing and developed markets seem enormous. With the fear of crude touching the 100 $ mark within one year, more and more manufacturers are turning to fuel efficient cars worldwide. Shifting to fuel efficient cars offers a temporary solution to the manufacturers till some other non crude technology ramps up to take over the market. The shifting of Indian autos towards manufacturing more and more diesel variants also seems to be a direct ramification of the crude prices.

Mind Games?

As mentioned earlier, robust domestic demand is the key to the recent small cars bout. The Neo spender youth, double income family and possessing of a car still being a status symbol more than a commuting medium is driving the auto growth. Along with it, the congenital frugal mentality, which still prefers fuel efficiency over looks and style, is stimulating small cars demand in particular. Though the two wheeler market is expanding, the taste of the urban youth is shifting to own a car after their first salary rather than owning a two wheeler.

It might just not be the mind games, but something more for the small cars to be rolled out in masses in the Indian markets. Ease in financing should be credited with a lion’s share. More than 80% of Indian car sales are on credit. Schemes like 5000 per month were a huge success because it brought the affordability factor into picture which was totally absent earlier.

Words of Caution

Though most auto majors are investing heavily in the small cars segment to gain a competitive advantage globally, the big flurry might lead to over capacities across all companies, including ancillary and auto comp industries in India, apart from the fierce competitive pressures. It would take at least 2-3 years till the time all capacities are built up, and in case of economic slowdown fuelled by sky rocketing crude prices, huge losses might be incurred. Also a jump shift from two wheelers to executive cars surpassing the small car segment in view of higher and higher disposable incomes of Indian families, along with easier financing schemes, too is not a remote possibility.

Imperialism of the new generation?

Long gone is the period when powerful Imperials used to be at war in far away lands for local and global supremacy. History is repeating itself; with some changes though. The difference this time is that amidst the clashes of the Emperors and Kings, the customer would be emerging as the trump Ace; the real victor.