G. L. Bajaj Institute of Technology and Management Gr. Noida A DESSERTATION PROJECT REPORT ON SCOPE OF LUXURY CARS IN Submitted to UP TECHNICAL UNIVERSITY, LUCKNOW FOR THE PARTIAL FULFILLMENT OF THE AWARD OF MASTERS IN BUSINESS ADMINISTRATION DEGREE

Under the guidance of Submitted by Mr. ABHISHEK SAXENA DEEPAK SINGH Ass. Pro. MBA DEPARTMENT MBA-IV Sem. ROLL NO. 0919270016

1 ACKNOWLEDGEMENT

Some works are so typical that are impossible for a person to complete it alone. Dissertation Project is one of them. I would not be able to complete my work without the help of my respected, Faculty Guide, my college and workplace colleagues. So it is my obligation to thank all of them.

I have had the honour of having been associated & working under the able & stimulating guidance of “Mr. ABHISHEK SAXENA (Ass. Pro.) MBA DEPARTMENT”, G. L. BAJAJ INSTITUTE OF TECHNOLOGY AND MANAGEMENT, Gr. NOIDA. The Project work was undertaken under his keen supervision and the Project has been prepared by me. I express sincere feeling of gratitude and respect for him inspiring help throughout the work. Without his esteemed and valuable help and guidance it would not have been possible for me to accomplish my project. I am gratefully indebted to him.

2 Executive Summary

The market in India has registered a fair amount of growth in the last few years and is growing at the rate of 25% per year. A luxury car is a luxuriously styled automobile which is designed to give satisfaction and comfort to its owner.

A luxury car typically has carrying capacity of 6 passengers. The luxury cars in the Indian market are very expensive, with price tags that start from Rs. 20 lakh. Hence, luxury cars can only be afforded by the people who belong to the high income group and there are a lot of such takers in the Indian automobile market.

The various reasons for the growth of the luxury car market in India are:

• The economy is rising in the country which has given the people more disposable income which they are spending in buying luxury cars. • Various loan schemes have been launched by the automobile manufacturers and the financial institutions. This has made it very easy for the people to buy luxury cars and this has boosted the luxury car market in India. • With the IT boom in the country many youngsters are earning high pay packages which enable them to buy luxury cars. And this have further given boost to the market of luxury car in India. • The government have formulated many polices such as the relaxation of equity regulations and the reduction of import tariffs pertaining to the automobile industry. These have helped to reduce the prices of the luxury cars, which in turn have led to the growth of the luxury car market in India

The various automobile companies manufacturing luxury cars for India are:

• BMW manufacturers the BMW 530i and BMW 760li models • Rolls Royce manufactures the Rolls Royce Phantom V 12 model • manufactures the 911 Carrera, 911 Carrera S, and Cayman S models • Daimler Chrysler manufactures the Mercedes Benz C and E class models • manufactures the Bentley Range and Bentley Continental models

Luxury car market in India have grown over the last few years. That it continues to grow more efforts must be made by the Indian automobile industry and the government of India. And only then the luxury car market in India will be able to reach its heights

3 India set its foot in the global in 1898, with the first car rolled out in the streets of . Since then, India has come a long way. Taking into Scrutiny the current statistics, automotive industry is now, the most dynamic sectors in India. The car market of India boasts of attractive finance schemes, increasing purchasing power and a vast variety of Luxury car range. India being one of the lucrative hubs for the car market is attracting auto majors from all over the world. The count of people ready to buy these high sticker cars is gaining momentum. In effect to this, almost all the overseas manufacturers including Mercedes, BMW, , Suzuki, and most recently have entered the fray. ’s announcement to roar into the India market from 2010 and Aston Martin’s aspirations to enter the Indian market soon next year also signals that the market has just picked up pace and there are great possibilities for these indulgent vehicles to thrill the Indians. With Tata’s recent acquisition of Ford’s Land Rover and Jaguar brands, The Indian companies are in the right gear to compete with other global luxury brands making a rush in the country. Recent analysis show that India is now among the principal driving markets for the Asian automotive industry. The reasons for these unprecedented changes being in favour of India are quite a few. The growing population of well heeled citizens in India emerges to be the primary cause. With the overall population being 1 billion, the 1% people who constitute the affluent society or the new ’Global Indians’ are estimated to be over 10 million, mainly because of the growing disposable income of India. Secondly, Change in attitude of the customer accounts for the sudden acceleration in the Luxury car Market in India, as the emphasis has been shifted from price consideration and affordability to design, quality and pleasure. The Indians who believed in traditional savings now follow an extravagant approach. Stepping down to the third possible reason, exposure and passion for speed, power and elegance run on to take their . With more and more Car rallies, exhibition, televising of Formula 1 and international motor shows happening in the country, these luxurious coupés have created an urge in drivers to experience comfort and control at the very same time. Also, lower interest rates and good conditioned roads are some of the steps taken by the Indian government which fuelled the demand for ultra-luxury cars in Indian market. Now, penetrating into the future, we can adamantly say that, with the real GDP growth of India (8.8% in 2006) being outstanding, there are definite prospects of increasing count of Luxury car buyers. Growth in the luxury segment has been helped by an economy expanding at nearly 9 percent on average in the last four years, and the entry of new players and launches from the likes of BMW, Mercedes-Benz, Porsche and Audi. Audi, a German manufacturer of first-rate luxury cars and one of the world’s leading premium brands established Audi India under Sales India Pvt. Ltd. in Mumbai in March 2007 and is all set to stay put in the country for an enduring tenure through their valuable investments in brand management, marketing and customer services.

4 Mercedes-Benz India has had a long standing tie up in India in the luxury car segment with its inception way back in 1995. Being the only luxury car maker in India to have such a wide range of cars, (S-class, E-class, M-class, CL-class and many more), it also provides an authentic choice for the customers with each model in petrol and diesel variants. BMW, another world’s leading brand in the premium car segment, set its foot in India, just few years back. As its global record says, BMW in India, strives to achieve the same goal by presenting customers with Quality in conjunction with luxurious driving comfort. Rolls-Royce, favored by Indian royalty during the imperial British rule returned in 2005 after a gap of 50 years with the Phantom super luxury sedan. Ford’s Volvo launched of two of its most successful models, the S80 sedan and the XC90 SUV in both petrol and diesel variants, each promising to offer luxury with comfort. Consequently, the picture seems to be apparently flaunting that the ’Global Indians’ are all ready to take the Luxury Car market to an all-new high and it has been well said – “For a luxury car to remain one, its features have to stay ahead of the innovative curve”.

5 TABLE OF CONTENTS

Page no.

1. INTRODUCTION 7-22 a) Big three automobile manufacturing countries 7-11 b) Automobile industry in India 12 c) Supply chain of automobile industry 13-14 d) Production statistics 15 e) Exports 16-17 f) History of brands 18-19 g) Car brands in India 20

2. REVIEW OF LITERATUE 23-77 a) Brand personality 23 b) The creation of brand personality 26-27 c) Why use brand personality 29 d) Brand personality of cars 30-32 e) Luxury vehicles 33 f) Luxury market segment 34--37 g) Luxury cars in India- Audi, BMW, Chevrolet, Fiat, Ford,

Honda, Hyundai, Mercedes, Mitsubishi, Volkswagen, Volvo 39-77

3. OBJECTIVE OF THE RESEARCH 78

6 4. SCOPE OF THE RESEARCH 78

5. RESEARCH METHODOLOGY 79

6. RESEARCH FINDINGS 80-102

7. CONCLUSION 103

8. QUESTIONNARE 104-106

9. BIBLIOGRAPHY 107

INTRODUCTION

BIG THREE AUTOMOBILE MANUFACTURING COUNTRIES

1. United States of America and Canada

General Motors, Ford and Chrysler are often referred to as the "Big Three" or, more recently the "Detroit Three", being the largest automakers in the United States and Canada. They were for a while the largest in the world and two of them are still a mainstay in the top five. Ford has held the position of second-ranked automaker for the past 56 years, being relegated to third in North American sales, after being overtaken by Toyota in 2007. That year, Toyota produced more vehicles than GM, though GM still outsold Toyota that year, giving GM 77 consecutive calendar years of top sales. For the first quarter of 2008, however, Toyota overtook GM in sales as well. In the North American market, the Detroit automakers retained the top three spots, though their market share is dwindling. Honda passed Chrysler for the fourth spot in 2008 US sales. Since then, because of Toyota's woes with their recent unintended acceleration recall, Toyota has fallen back to fourth place in sales, with Honda trailing in fifth place, allowing the Detroit Three reclaim their Big Three title.

7 The Big Three are also distinguished not just by their size and geography, but also by their business model. The majority of their operations are unionized (United Auto Workers and Canadian Auto Workers), resulting in higher labor costs than other multinational automakers, including those with plants in North America. The 2005 Harbour Report estimated that Toyota's lead in labour productivity amounted to a cost advantage of $350 US to $500 US per vehicle over American manufacturers. The UAW agreed to a two-tier wage in recent 2007 negotiations, something which the CAW has so far refused. Delphi, which was spun off from GM in 1999, filed for Chapter 11 bankruptcy after the UAW refused to cut their wages and GM is expected to be liable for a $7 billion shortfall.

In order to improve profits, the Detroit automakers made deals with unions to reduce wages while making pension and health care commitments. GM, for instance, at one time picked up the entire cost of funding health insurance premiums of its employees, their survivors and GM retirees, as the US did not have a universal health care system. With most of these plans chronically underfunded in the late 1990s, the companies have tried to provide retirement packages to older workers, and made agreements with the UAW to transfer pension obligations to an independent trust. In 2009, the CBC reported that the non-unionized Japanese automakers, with their younger American workforces and fewer retirees will continue to enjoy a cost advantage over the Big Three.

Despite the history of their marques, many long running cars have been discontinued or relegated to fleet sales as the Big Three shifted away resources from midsize and compact cars to lead the "SUV Craze". Since the late 1990s, over half of their profits have come from light trucks and SUVs, while they often could not break even on compact cars unless the buyer chose options. Ron Harbour, in releasing the Oliver Wyman’s 2008 Harbour Report, stated that many small “econoboxes” of the past acted as loss leaders, but were designed to bring customers to the brand in the hopes they would stay loyal and move up to more profitable models. The report estimated that an automaker needed to sell ten small cars to make the same profit as one big vehicle, and that they had to produce small and mid-size cars profitably to succeed, something that the Detroit three had trouble doing.

SUV sales peaked in 1999 but have not returned to that level ever since, due to high gas prices. The Big Three have suffered from perceived inferior initial quality and reliability compared to their Japanese counterparts, which has been difficult to overcome. They have also been slow to bring new vehicles to the market, while the Japanese are also considered the leader at producing smaller, fuel-efficient cars.

Falling sales and market share have resulted in the Big Three's plants operating below capacity (GM's plants were at 85% in November 2005, well below the plants of its Asian competitors), leading to production cuts, plant closures and layoffs. They have been relying heavily on considerable incentives and subsidized leases to sell vehicles. which was crucial to keeping the plants running, which in turn drove a significant portion of the Michigan economy. These promotional strategies, including rebates, employee pricing and 0% financing, have boosted sales but have also cut into profits. More importantly such promotions drain the automaker's cash reserves in the near term while in the long run the company suffers the stigma of selling vehicles because of low price instead of technical merit. Automakers have since been trying to scale back on incentives and raise prices, while cutting production. The subprime mortgage crisis and high oil prices in 2008 resulting in the

8 plummeting popularity of best-selling trucks and SUVs, perhaps forcing automakers to continue offering heavy incentives to help clear excess inventory.

The Big Three sued California Governor Arnold Schwarzenegger to prevent a tailpipe emissions requirement. In response, Governor Schwarzenegger told the Big Three to "get off their butt".

In 2008, with high oil prices and a declining US economy due to the subprime mortgage crisis, the Big Three are rethinking their strategy, idling or converting light truck plants to make small cars. Due to the declining residual value of their vehicles, Chrysler has stopped offering leases on its vehicles.

In 2009, General Motors and Chrysler filed for and emerged from Chapter 11 restructuring in the United States. General Motors of Canada did not file for bankruptcy. The United States and Canadian government control are reported as temporary.

Japan

Japanese automakers Toyota, Honda, and Nissan, among many others, have long been considered the leaders at producing smaller, fuel-efficient cars. Their vehicles were brought to the forefront, due to the 1973 oil crisis which had a major impact on the auto industry. For instance, the Honda Civic was considered superior to American competitors such as the Chevrolet Vega and Ford Pinto. The Civic is the best-selling car in Canada for 12 straight years in a row.,

As well, the Nissan 240Z was introduced at a relatively low price compared to other foreign sports cars of the time (Jaguar, BMW, Porsche, etc.), while providing performance, reliability, and good looks. This broadened the image of Japanese car- makers beyond their econobox successes, as well as being credited as a catalyst for the import performance parts industry.

Before Honda unveiled Acura in 1986, Japanese automobiles exports were primarily economical in design and largely targeted at low-cost consumers. The Japanese big three created their luxury marques to challenge the established brands. Following Honda's lead, Toyota launched the name with the LS 400 which debuted at $38,000 in the U.S., in some markets being priced against mid-sized six cylinder Mercedes-Benz and BMW models), and was rated by Car and Driver magazine as better than both the $63,000 Mercedes-Benz 420 SEL and the $55,000 BMW 735i in terms of ride, handling and performance. It was generally regarded as a major shock to the European marques; BMW and Mercedes-Benz's U.S. sales figures dropped 29% and 19%, respectively, with the then-BMW chairman Eberhard von Kuenheim accusing Lexus of dumping in that market. Nissan's Infiniti became a player on the luxury market mostly thanks to its popular Q45. The vehicle included a class-leading (at the time) 278 hp (207 kW) V8 engine, four wheel steering, the first active

9 suspension system offered on a motor vehicle, and numerous interior luxury appointments. These made it competitive against the German imports like Audi, BMW and Mercedes-Benz, which by the time of Infiniti's release had overtaken Cadillac and Lincoln in dominating the luxury segment of the American market. In 1990, four years after the debut of the Legend and Integra, Acura introduced the NSX, a midship V6 powered, rear-wheel-drive . The NSX, an acronym for "New Sports eXperimental", was billed as the first Japanese car capable of competing with Ferrari and Porsche. This vehicle served as a halo car for the Acura brand. The NSX was the world's first all-aluminum production car, and was also marketed and viewed by some as the "Everyday Supercar" thanks in part to its ease of use, quality and reliability, traits that were unheard of in the supercar segment at the time.

The success of the Japanese automakers contributed to their American counterparts falling into a recession in the late 1970s. Unions and lobbyists in both North America and Europe put pressure on their government to restrict imports. In 1981, Japan agreed to Voluntary Export Restraints in order to preempt protectionism measures that the US may have taken, where it be tariffs or import quotas. Consequently, Japanese companies responded by investing heavily in US production facilities, as they were not subject to the VER. Unlike the plants of domestic automakers, Japanese plants are non-unioned (save for NUMMI), so they have lower wage expenses and do not face the risk of strikes. The VER was lifted in 1994 upon agreement of all members of General Agreement on Tariffs and Trade (GATT). Establishing US production facilities was also a significant step in improving public relations, along with philanthropy, lobbying efforts, and sharing technology. Europe has still largely maintained its protectionism policies against Japanese cars, though their varies considerably.

Toyota has always been by far Japan's largest automaker, and it recently overtook perennial world leader GM in both production and sales by early 2008. As the most aggressive of Japan's companies when it came to expanding into light trucks and luxury vehicles, this proved largely successful. Their high-end brand Lexus became the top-selling luxury marque worldwide in 2000, despite being only started up in 1989. Consequently, Toyota's stock price has traded at a much higher premium than other automakers. Nissan was formerly in second place, until financial difficulties in the late 1990s caused it to lose its place to Honda. Honda is Japan’s second largest automaker and ranks sixth in the world, behind Toyota, GM, Volkswagen, Ford, and Hyundai. Mitsubishi and Mazda are in a distant fourth and fifth place compared to the Japanese Big Three.

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