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INDIA WATCH AUTOMOTIVE INDUSTRY IN INDIA—REPORT HIGHLIGHTS AUGUST 21, 2008

Copyright © 2008 Boston Analytics

Automotive Industry in India—A Report by Boston Analytics Syndicated Research Reports—By Boston Analytics The Syndicated Research Reports provide deeper analysis and insights for specific industry sectors. These reports are based on a survey of consumers and potential consumers. Rich data sets from these consumer surveys provide an important analytical tool guiding the decisions of policymakers, companies, and investors. Overview of the Report The Boston Analytics report on the “Automotive Industry in India” captures the consumer responses to questions in the following areas: • • • • • • •

Vehicle ownership pattern Price of vehicles and vehicular traffic Customer preferences and buying behavior Cost of owning a vehicle Infrastructure for vehicles Consumer confidence in public transport Sources of automotive-related information

Reports based on Robust Boston Analytics Consumer Sentiment Index (BACSI) Survey Methodology Each Boston Analytics Syndicated Research Report captures the consumers’ observations, expectations, satisfaction, confidence, and attitude pertaining to different aspects and sub-segments of a specific sector. The wider scope of our specialized sector-specific questionnaire creates a rich data set to extensive analysis. Syndicated Research Reports are based upon monthly Boston Analytics surveys of 3,000 respondents across four major Indian metropolitan cities—Delhi, Mumbai, Kolkata, and Chennai. A stratified sampling process was adopted for this with the strata based on the socio-economic conditions of the respondents in order to ensure a proper representation of the population. All data is collected via face-to-face interviews.

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The Indian automotive industry has grown at an impressive rate over the past few years spurred by a large and growing domestic demand, proven product development capabilities, stable economic policies, improving quality standards, and competitive manufacturing cost. Increasing consumer demand has been driven by a buoyant economy, favorable demographics, and improving income curve.

Vehicle ownership is high across the metros with a very high proportion of two-wheelers Exhibit 1 below depicts the nationwide vehicle ownership pattern derived from the consumer responses to the Boston Analytics “Automotive Industry in India” survey of middle class consumers. Exhibit 1: Boston Analytics Survey Findings: Vehicle Ownership Pattern

Only Car 21.8% No 23.4%

Car and Twowheeler both 41.3%

Yes 76.6%

Only Two-wheeler 36.9% Source: Boston Analytics Survey—May 2008

Unsurprisingly, ownership of a motorized vehicle is high across the metros. As depicted in Exhibit 1 above, 77% of respondents own a vehicle. Of these, 41% own both, a car and a two-wheeler, 22% own only a car, and the remaining 37% own only a two-wheeler. Ownership of a motorized vehicle within our sample is nearly universal in Delhi and Chennai. Both of the cities have relatively underdeveloped public transportation systems. Over nine in 10 respondents in both Delhi and Chennai, and about three in five in Mumbai and Kolkata report owning a vehicle. In our sample, about three out of four respondents of Delhi and about one-half in Chennai residents own a car; only one in three residents in Mumbai and Kolkata own a car. Perhaps driven by a lack of parking slot, almost 90% of Chennai respondents own a two-wheeler.

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Based on the survey conducted in the four metros, the following observations regarding customer preferences and buyer behavior have been made:

Price and fuel efficiency are the primary drivers of preference today There will be a slight shift towards fuel efficiency in about 3–5 years from now. After sales service, brand image/prestige and resale value are secondary drivers of choice today and remain so in the next 3–5 years. Environmental issues have yet to take root in India and do not show signs of becoming a major factor in about 3–5 years.

Affluence and aspiration are growing in parallel—The Indian consumer prefers a mid-size car In a market where price is an important determinant of choice, affluence and aspiration also seem to be growing alongside. As income of Indian consumers continue to grow and double-income nuclear families become more common, Indians can aspire to buy a mid-size car. Our survey reveals that about one in two Indian consumers prefer a roomy mid-size family car.

The survey reveals a “buy-Indian” mindset across the metros The increasing foreign direct investment inflow signifies a growing interest of foreign players in the Indian automotive market. However, findings of the survey bring out a strong preference for Indian automotive brands. Nationwide, about three in four respondents prefer an Indian brand over a foreign one.

Indian consumers are divided in their preferences for recently launched versus established models of cars According to the results of the survey, 58% of respondents nationwide prefer a recently launched model by a slight plurality.

The color pie in the Indian car market shows that White is the most preferred color, closely followed by Black and Silver There is a general belief that the color of a car is a reflection of the owner’s personality, age, religion, and personal beliefs, etc. Furthermore, market observers and industry experts often cite color as a determining factor of the level of maintenance required to be undertaken by the owner, and its impact on the car’s resale value. Exhibit 2 below depicts the nationwide preference for car color stated by respondents Exhibit 2: Boston Analytics Survey Findings: Nationwide Preference for Car Color

Red

Brown Others

Blue

Silver/Grey

26.7%

Black

20.7% 28.8%

White

Source: Boston Analytics Survey—May 2008

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Approximately 29% of respondents preferred white, followed by 27% and 21% of respondents opting for Black and Silver respectively.

Close to half of all respondents would opt for a petrol engine Petrol and diesel are the most popular fuels for cars, with some rejection of diesel in Delhi compared to the other three cities. Perhaps in reaction to reduced pollution from a switch to compressed gas by public transport vehicles, residents of Delhi favor gas (LPG/CNG) and hybrid vehicles compared to residents of the other metros. Furthermore, about one in three consumers are willing to pay a price for a hybrid car over a traditional petrol/diesel powered version of the same vehicle.

Car buyers distinctly prefer new cars over old cars The nation’s major automotive players, including Maruti Suzuki, Toyota and Hyundai have established their footprint in the Indian used cars market. Despite their growing presence, the survey reveals that the Indian consumer clearly prefers a new car. An overwhelming 90% of the respondents prefer purchasing a new car. Among those who said they would opt for a second hand car, more than half stated that a second hand car is a cheaper option if the car is in a good condition. The entry of organized players in the market has not affected the unorganized segment. Industry experts and market observers opine that despite the lack of infrastructure and financial muscle to operate in a large scale, the unorganized segment continues to for a major chunk of the used car market. The survey results corroborate these claims. According to the results of survey, approximately 31% of the respondents said they would rely on their network of friends and relatives for buying a second hand car. Furthermore, 26% of the respondents said that they would go to a dealer of second hand cars, compared to only 15% who preferred to a company sponsored outlet. The familiarity between the dealer, seller and prospective buyer tilts the scale in favor of the unorganized sector. There are noticeable differences in various cities in car purchase preferences and buying behavior. For a detailed discussion on these differences please refer to the full-length “Automotive Industry in India” Report.

Cost of owning a vehicle is on the rise in the wake of rising fuel prices Car owners have been hit hard by inflation in recent months. According to the results of the survey, approximately 60% of those surveyed report that vehicle prices have risen in the past year and approximately 66% expect them to increase again next year. Over 80% report increased fuel cost and almost 65% report increased repair and maintenance bills. These are closely mirrored in expectations for the next year.

Given the increasing pace of vehicle purchase, there are challenges on multiple fronts—requisite road infrastructure, road safety, traffic congestion, pollution, etc. The Boston Analytics survey asked respondents about their observation (as compared to 12 months ago) and expectation (in the next 12 months) of change in vehicular traffic in the respondent’s area of dwelling. Increased traffic is reported (75–93%) in all the four metros versus a year ago and over 90% expect it to increase further over the next year.

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Has the improvement in road conditions, network, and connectivity been able to maintain the same pace? The survey reveals that the Indian consumer is optimistic about trends in road infrastructure in the country overall. Road conditions: Approximately 70% of respondents said that the road conditions have improved in the past 12 months, and about 72% respondents believe that road conditions will improve in the future. Road network/connectivity: Approximately 64% said that connectivity of roads had improved in the past 12 month and 72% expect connectivity of roads will improve in the next 12 months. These positive views about the infrastructure are mitigated by widely perceived increases in traffic congestion and pollution and only a tepid improvement in safety. Traffic congestion: Approximately 68% of the respondents have observed an increase in traffic congestion in the past 12 months, and 71% expect traffic congestion to increase in the next 12 months. Pollution: Approximately 70% of the respondents have observed an increase in pollution in the past 12 months in their city of dwelling, and an almost equal number expect pollution to increase in the next 12 months. Safety: While respondents are optimistic about road conditions and connectivity of roads, safety continues to remain a concern for a large majority of those surveyed. Only 40% of respondents believe that safety of roads has improved in the past 12 months.

Nationwide, reliance on public transport is low The only way cities can prevent clogging of their roads is to scale up to an efficient, affordable and safe public transport. However, increasing urbanization, rapid increase in the pace of economic activity, and growing city limits is increasing the number and distance of trips from home to work. The increasing need of an average Indian to be mobile is placing greater pressure on the public transportation system within cities. Nationwide, a little over one-fourth of respondents said that they use public transport for their commute to work and places of leisure. The usage of public transport in Mumbai and Kolkata is significantly higher than the national average. There are noticeable differences in cities in the level of reliance in public transport. For a detailed discussion on these differences please refer to the fulllength “Automotive Industry in India” Report.

While cost of public transport is expected to rise, overall confidence in comfort, convenience, and safety is high There are myriad aspects related to the use of public transport in India that have been dissected by many expert committees, NGOs, and researchers. Approximately 75% of respondents report increased cost of public transportation in the past year. About one-half of respondents felt that comfort and convenience has improved and about 40% reported improved safety. While costs are expected to rise in the coming year, expectations of comfort, convenience, and safety are all high.

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Methodology Syndicated Research Reports are based on monthly BACSI surveys of 3,000 respondents across four metros in India. A stratified sampling process is adopted with the strata based on the socio-economic conditions of the respondents to ensure a proper representation of the population. All data is collected via face-toface interviews.

Sample Distribution Gender: The survey comprised 65% males and 35% females. Age: In the survey, 16% of the respondents were in the 18 years to less than 25 years age group; 29% in the 25 years to less than 35 years age group; and 22% of the sample were in the 35 years to less than 45 years age group. The age group of 45 years to less than 55 years was represented by 18% of the respondents; and 15% represented the 55 years and above age group. Annual Household Income: Of the total respondents, 9% had an annual household income of less than Rs. 2.5 Lacs; 22% recorded between Rs. 2.5 to 5 Lacs; and 32% comprised the Rs. 5 Lacs to 10 Lacs category. The higher brackets of Rs. 10 to 20 Lacs and more than Rs. 20 Lacs were represented by 28% and 9% of the respondents, respectively.

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Core Team: Dr. Sam Thomas, Ted Thorbjornsen, Murlidhar Rao, Dr Nitin Singh, Shirin Bagga, Debopam Chaudhuri, Shyam Sundar Kundu, Rahul Razdan, Amit Gill, Shalaka Pradhan, Anand Kalyanraman, Ena Sahni, Abhishek Tupe Student Intern: John Thomas, University of Pennsylvania (Wharton School) The executive summary of the “Automotive Industry in India” is available for . The full report is available for purchase, and customized disaggregated reports can be produced by Boston Analytics to meet clients' specialized requirements. To learn more, or to purchase a complete report or subscription, visit www.bostonanalytics.com, e-mail [email protected], or In India:

In the US:

Shirin Bagga Boston Analytics 3rd Floor, PI# 19A, Godrej & Boyce Complex LBS Marg, Vikhroli (W) Mumbai 400 079, India +91 22 25182092

Ted Thorbjornsen Boston Analytics 175 Federal Street 14th Floor Boston, MA 02110 +1 617 457 7888 ext. 302

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Ted Thorbjornsen [email protected] 175 Federal Street, 14th Floor Boston, Massachusetts 02110 Tel: +1–617-457-7888 (Ext: 302) Fax: +1–617-457-7889 www.bostonanalytics.com

  Copyright © 2008 Boston Analytics

Shirin Bagga [email protected] 19-A, 3rd Floor, Godrej & Boyce Complex Gate No. 4, LBS Marg Vikhroli (W), Mumbai – 400079 Tel: +91-22-25182902 Fax: +91-22-6714-0101