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Car sales set to explode on upgrade boom

Car sales set to explode on upgrade boom

Author | Source: The Economic Times | Monday, Nov 13,2006 8:48 AM

Car sales set to explode on upgrade boom

Auto majors can now train their guns at the bottom of the pyramid. Amid a buoyant passenger car industry, there's more good news coming from down under. Nearly 1.14 lakh two-wheeler owners, currently not owning a car or multi-utility vehicle, equally spread between urban (59,000) and rural (54,000) India, plan to do so in the next three months. And, if you take a longer timeframe - one to three years - the number of such households jumps to 3 lakh and 5.5 lakh, respectively.

Another 46,000 two-wheeler households intend to upgrade to a used car in the next three months. If that's an early stirring seen in the potential customer base, remember there are 60m two-wheeler households evenly spread over the rural (34m) and urban (26m) landscape. No wonder, car makers are on an overdrive to add new capacities and launch or relaunch small car models. And, a few global majors, like Renault and Nissan, who are yet to make a debut here, are busy scripting their India entry with a vengeance.

In this first part of a three-part series, ET presents an exclusive peek into the contours of the Indian car industry, through the prism of the biggest car market survey done by NCAER for Maruti Udyog. The study covers around 4,50,000 households across 342 cities/towns and 1,976 villages across the country.

“Two-wheeler owners hold lucrative potential for passenger car makers, and that's where India will see the incremental growth coming from,” says Maruti MD Jagdish Khattar. Maruti began its initiative of targeting two-wheeler owners two years ago with its rock-bottom, seven-year EMI scheme of Rs 2,599 and 'Do Ka Char' promotion campaign for converting two-wheeler owners into new car buyers. The company claims encouraging results and has extended the scheme across India as 'Do Aur Char' now.

Analysts believe Tata's much-touted small car will explode the market as it gives two-wheeler owners an easy access to upgrade. Additionally, another 46,000 two-wheeler buyers are looking to upgrade to a used car in the next three months.

Needless to say, these old car buyers will look at upgrading to a new car in another two to three years, and marketers may do well to keep them in their radar. Maruti's 'True Value' platform for turning old car owners into new Maruti buyers, already accounting for 18% of the company's sales, is a good model for all mass-market small car makers to replicate in India, for laddering consumers is critical in a high-ticket purchase such as cars.

Interestingly, household incomes of these two-wheeler owners planning to buy a car is still a third to fourth lower than an average car owner in India, who earns around Rs 2 lakh per annum. For the 59,000 urban two-wheeler owners thinking of upgrading to a new car, average monthly income is Rs 1,23,648, with the 54,000 rural aspirants with household income little higher at Rs 1,47,349.

Marketers have to address the issue of upfront financing and running economy issue afresh with this huge potential market, even while they busy themselves in garnering upgrades and replacements from the existing car-owning population - over 10-m households currently.

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