187

CHAPTER: 9 CHANGING STRUCTURE OF CAR MARKETS

Introduction

9. The greatest impact of reforms, apart from its effect on structural components of the industry has been on the way cars are being marketed today. Its is interesting to note how there has been a change in the way the whole gamut of marketing of cars has changed in a short span of ten years. The metamorphosis has been from a supply- constrained industry characterized by long booking periods, waiting lists, product stagnation, abysmal technology etc into a more dynamic and vibrant industry reactive to minor changes in the markets. The changes are glaring on almost all fronts. May it be the way consumer's attitude and preferences have changed or the way products are being differentiated and positioned or the way after sales support systems have come into place, the change has been considerable. To imderstand the way marketing has changed for the industry over the period of our study the study is hacked into various sections to analyse the change better. The study is composed of the following sections a) Environment b) Product c) Positioning d) Pricing e) Distribution f) Supply Chains Tliese sections represent the main areas of change, which the industry has undergone. There has been a change in the number of competitors, products, pricing policies, positioning policies, distribution networks, supply chains and their components and all these changes have had a great impact on the way industry handles its marketing today. Chapter begins with a study of the industry's competitive environment, different from the industry environment that has been defined earlier.

SECTION: 1 DvnDUSTRIAL ENVIRONMENT Changes in the Industry Environment

9.1. To analyse the change of an emerging and growing industry is a difficult task as there are so many things that can be missed. The Indian Market has undergone an immense change following economic reforms and liberalization of the economy, which began in 1991. Growth has been rapid since then which will become very clear when we consider that gross turnover in the automotive sector has grown up from about RS 128 billion in 1991-92 to an estimated RS 450 billion in 1996-97. Production of all vehicles has almost doubled from two million a year to 3.98 million 188 a year and more than doubled in certain key sectors such as passenger cars and commercial vehicles. The basic boosters for this wildfire growth have undoubtedly been the heav>' influx of foreign companies, capital, technology and people who have jump-started the automobile growth in this country. More drastic is the change in attitude as it trudges towards a more dynamic view of the industry and trade. The move-in of the big players in the field of passenger cars has hiked up competition to drastic levels. These firms, though individual entities in themselves and as per their registration are mostly no different than an extension of their parent company and a part of the company's global strategy. Thus to understand the changes in the marketing environment in Indie and how it has effected the way business is conducted it is essential to understand and study the pattern of growth of the automobile industry.

Changes in the Competitive Environment 9.1.1 The milestone year in the Indian car industry was 1983 when the Government of India got into an agreement to germinate Maruti Udyog. Though at that time there was still the shackle of regulation, which gripped the industry then, however the need to change and emulate the growth pattems of the West was most definitely felt. Maruti Suzuki was a runaway success prompting the government to reconsider its activities on similar lines. The great economic contraction was the shove needed to p'ize open the economy. Thus in 1991 the government opened the doors to reforms to have a more controlled and organized change. It had important implications for the car industry as there was a great rush of manufacturers lining up to sign Memorandums of Understanding despite the existence of certain controls like domestic content requirements and export commitments that emerging countries so desperately need. Demand projections for the industry shot up as can be seen fi-om Chart9.1.1.

Chart9 .1.1- Vehicle Demand Projections to 2000 - Various Reports Source of Report Nos. of Vehicles in Millions DRI - Mc Graw Hill' 5.1 McKinsey-EU^ 4.7 AIAM Data^ 5.1 INFAC" 4.0 Morgan Stanley^ 5.5 CII (Cars only)" 0.6 ENCONS' 8.0

The major reason for the influx of these global manufacturers were a) Globalisation - manufacturers wanted an increasing integration of their global activities and building a presence in most markets as a part of their overall global strategies b) Outsourcing- was soon becoming an important tool for achieving vital global cost advantages all over the industry 189 c) Labour Costs - to take advantage of the labour costs in India which are very low as compared to other countries (about I/IO**" of Japanese costs) d) Emerging Market - India was at that time and still is one of the most potent emerging countries like China with an almost unlimited market for goods. The market characteristics were very promising. A growing income rich middle class, dismal quality local goods, awareness and latent demand for foreign-made goods and a crumbling economic system. e) Impetus on development and growth supported by the government. Eiecause of these major reasons, there were a lot of tie-ups and investment proposals for setting up plants and manufacturing facilities in India. The government's insistence on production facilities and not an assembling base led to a large number of serious entrepreneurs setting up shop in the country. The Indian car industry today has about 14 market players competing over a whole array of products. Maruti thou^ not being the pioneer, enjoys almost pioneering competitive advantages over vast multitudes of variables. The Indian car industry, especially post reforms, can hardly be called Indian. Ownership is the key to Indianisation. Profit destination and not employment generation, technology transfer, resource development or vendor network should determine it. When investment influx started from foreign car companies, protectionism, bureaucratic fiinctioning and business sense led to the formation of a large number of Joint ventures for manufacture of passenger cars with each having large share participation by the Indian partner. However industry immaturity, weak infrastructure, a distinctly different consumer attitude, long gestation periods and a host of other factors have changed the scope of the industry. Joint ventures crumbled as business kept absorbing investments with no immediate profitable returns, which the foreign partner could afford but not the Indian partners. Indian holdings declined to negligible levels as equity patterns crumbled when more money was required to be pumped in to facilitate product launch, increase working capital or a host of other factors associated with a cost intensive business and though the proposals for shareholding pattern change incorporates a buy back period, it seems difficult to happen. The Indian market has become an emerging arena for the multinational companies and to understand the forces at play it is vital to study the corporate missions, companies other business in the market, the shareholding patterns, companies performance otherwise in the world etc. Here the major market players are analysed.

The Market Players 9.1.2 An analysis of the market players as they have existed in the market and even those that have given concrete plans for establishing base in India is carried out as given under. a) Daewoo Motors -Daewoo was founded in 1967 by the 31 year old, Kim Woo Chung and three of his associates. The Company was founded on the 12 October 1994 in India*. Daewoo Motors is a part of the US$ 72 billion Daewoo Group of Korea and in 1998 was ranked as 18*^ on the Fortune 500 list of companies. Currently the Daewoo group is present in 123 markets and has investments in China, Poland, Czechoslovakia, Romania, Uzbekistan and India to name a few countries. Out of its global production plans for 2.5 million cars 190 this year (2000), Daewoo proposes to produce 1.5 million cars at its overseas production bases. Daewoo recognizes the economic potential of India and wants to develop India as a base for outsourcing its world-class products. Daewoo manufactures products, which conform to international safety and environment norms. Its present range of cars has been environment friendly and conforming to Euro-1 and Euro-11 emission norms, well ahead of the deadline of the Supreme Court of India. This is because Daewoo has been maintaining the same international quality standards across the world including India. Daewoo motors started producing its world-class cars in its state-of-the-art plant at Surajpur (UP) near Delhi. Daewoo commenced its operations in July 1995, with the production of its Cielo and expanded its range to the Matiz in the small segment, Cielo Executive and Nexia in the mid-size segment' and Royale&Caravan buses in the light commercial vehicle segment. Daewoo motors endeavour is to introduce a product in every segment of the Indian passenger car market. Daewoo Motors India Limited has technical collaboration with only Daewoo Corporation of Korea for producing passenger cars in India. Daewoo Corporation is also the financial partner holding about 92% equity in this venture. Daewoo started with a 51% stake in the company by pumping US$ 38 million, which has been upped, to 90% through a rights issue. Daewoo is looking for investment of RS 5000 crores to meet its vision. The company has RS 2951 crores at its disposal despite an equity of RS 511 crores and the RS 2000 crores already pumped in bv Daewoo in the form of equity. The corporate mission of Daewoo Motors is " We must change to attain productivity and efficiency of internationally competitive levels to become the market leaders in India and to earn world wide fame and recognition through our vehicles". b) FIAT India Auto Limited - Is a major Italian group now internationally renowned and established. Fiat's association with the country-started way back in 1905, when it appointed the Bombay Motor Car agency as its sales agent for India. In 1951, it signed a contract with Premier Automobiles Limited, enabling an Indian company to manufacture and sell the 1100 and HOOD Fiats in India (as the popular Padmini). In April 1998 FL\T AUTO SPA of Italy stepped in, taking over the operations and entering into a joint venture in Kurla on the 28 April 1998, completely modernizing the plant and increasing capacity, manufacturing both its Uno range of cars and the Sienna. It wants to introduce its third car in the record making '178 World Car Project', under the name of the Palio station wagon. FIAT AUTO SPA of Italy started operations in India through two arms- a holding company. Fiat India Automobiles Ltd. and a 76: 24 joint venture company, FIAT Auto Limited (India) - controlling two plants in Maharashtra. FIAT India Automobiles Limited is a 100% Fiat Auto subsidiary. Fiat is strongly product focused, with tailor-made models for a demanding market. The company has a technology tie-up with Fiat Auto S.P.A of Italy to produce modem state-of-the-art, fuel-efficient cars and a financial tie-up with Premier Automobiles as the Indian partner and Fiat India Automobiles Ltd. as the collaborator for 51% equity in the production of passenger cars, llie FIPB (Foreign Investment Promotion Board) cleared the 191 revised joint venture proposal between Premier Automobiles Limited and Fiat India Automobiles Private Limited for the manufacture of passenger cars on the 31 May 98. The revised proposal cleared envisages a foreign equity investment of up to 100 % in the joint venture Ind. Auto Ltd by FIAL. Premier Automobile Limited is owned by the Doshis of Bombay. The Company was earlier offering its Premier range of cars. Fiat Indian Auto Limited is a wholly owned subsidiary of Fiat Auto, the Italian Automobile major. The two companies have set up a new company called Ind. Auto Limited. The shareholding pattern of Ind. Auto v/as 51: 49. Fiat has applied to FIPB for enabling it to raise its equity to 100 % as purely an enabling permission. Ind. Auto had applied to FIPB to permit FIAL to subscribe top preference shares amounting to 400 crores in Ind. Auto Limited to inflise fresh funds in Ind. Auto without disturbing the equity shareholding pattern. Ind. Auto will continue to manufacture and sell FIAT Uno and manufacture the Padmini under contract for PAL. The equity pattern is as under - i. The joint venture company has proposed a foreign equity participation of up to 100 % in the initial paid up capital amounting to RS 34 Crores. ii. FIAL will contribute to this 51: 49 equity pattern amounting to RS 34 Crores, while PAL will retain 49 % amounting to RS 32 Crores. iii. In case of conversion of the cumulative participating preference shares into equity and after acquiring the shares worth RS 32 Crores of PAL the foreign equity participation of FIAL will go up to 100 %, amounting to RS 466 Crores. iv. Fiat as of now has no plans to pick up PAL's 49 % stake but has applied for it as an enabling permission. V. According to agreement terms between FIAT Auto and PAL, no royalty will be paid to tlie Italian Company in case FIAL 's equity reaches 100 %. vi. PAL has sought a larger investment by its foreign partner, FIAL because according to PAL the car market scenario would demand large infusion of capital in order to ensure the survival of a manufacturing firm vii. In September 1999, it had hiked its share from 51% to 76% by pumping RS 250 crore as capital and raise the RS 65 crore equity of the company toRS 133 crore. viii. In April 2000 Fiat increased its stake in Ind-Auto to 95% from its share of 76%. This followed the local partners inability to pump in the additional capital in the joint venture required for further investment of 160 crores. Though Fiat has total control of the company at present, the partners (Doshis) are allowed to increase their equity to 49%at a later date Fiat India Limited proposes to set up a paint shop either through its US - based associate or any of its group companies with a 100 % foreign equity. The company will bring in FDI to the tune of RS 43 Crores in the project. The company also proposes to launch its world car 'Palio' and the ' Sienna ' and the company hopes to achieve the stipulated 70 % indigenisation level ahead of its stipulated 5 years and for this the company would invest $ I billion. FIAL 192 has pumped in RS 200 Crores in its Kurla plant to manufacture its above given range of cars. The holding company has set up a greenfield project at Ranjangaon in Maharashtra to manufacture Palio and its various variants. The Sienna is being currently manufactured at the Kurla plant of Ind. Auto, its joint venture with the Doshis of Mumbai, where the Uno is also being manufactured. PAL has three plants in Kurla, Kalyan and Wadala. i. Fiat plans to manufacture the 178 family in India centred on the construction of its acclaimed "integrated factory" which is a part of the acclaimed industrialization package that comes with project 178. ii. The concept of the integrated factory is to provide super- efficient organization and management that uses Mess' of everything and thus minimizes waste. Manufacturing process is also not complex and involves low automation levels to suit labour in the emerging markets where the 178 family will be made. Emphasis is more on efficiency than hard automation. iii. To achieve high efficiency levels, the programming and logistics of the integrated factory, including the synchronization of just- in - time component deliveries js controlled with clockwork precision. FIAL has finally selected Ranjangaon as site of its Greenfield facility. Fiat's plans were to invest $ 500 million in Ranjangaon to build up a capacity of 100000 units by year 2000 end. This plant would than perform its role in the well knit global component sourcing network to provide tremendous economies of scale. iv. Fiats Ranjangaon plant would be modelled on Fiats state of the art integrated plant in Cordoba, Argentina, which manufactures the Palio and the Sienna. Fiat's worldwide suppliers will also set up base around Ranjangaon as part of the integrated factory philosophy, which calls for closer relation with suppliers. However given the negative sales trend it is doubtful whether Fiat would be able to use even half of its capacity at Ranjangaon. V. Though the Fiat world cars have been able to grab large market shares in other countries, but to be a big volume player in India, in addition to making a world class product matching local conditions, a car has to be affordable and the affordability threshold as defined by Maruti earlier and the Koreans now is the RS 350000 mark. For Fiat even the least expensive will be outside this mark. vi. Looking at current market trends and forecasts Fiat can at best hope to achieve a total of 40000 units with the three-model range, which mops up only half of its capacity at Ranjangaon. It will be more sensible for Fiat to freeze or slow down the construction of its plant and instead fully utilize Ind- Auto's Kurla plant, which has a capacity of 60000 units per year. Kurla is an up- and - running operation with a recently installed state-of- the art paint shop. Assembling the 178 family here would involve negligible investment and hence save FIAL a lot of money. 193 vii. Fiat went on ahead with its Ranjangaon plant, which was on schedule and was completed in 2000. Fiat wanted to be ready when the market picked up, which it expects to happen in about 2002. It can use this capacity to introduce new models. $70 million has already been spent on the civil work at site. viii. Both the Palio and the Sienna cars have achieved an indigenisation level of 70%. This pattern of localization would be followed for the entire world car project that includes a van, station wagon and a pick up van as well. Fiat considers India as the most important Asian market and would explore the possibility of exporting its product to the neighbouring markets. Fiat considers India as the most important Asian market and would explore the possibility of exporting its products in the neighbouring markets. The product pricing in each segment would be such so as to be competitive with the market leader in each class. The company plans to tap the premium segment first. The company plans to capture about 7 to 8% of the passenger vehicle segment. It is targeting about a 15 % share in the premium class segment. FIAL has pulled forward the launch of its Sienna car by starting production from Feb 99, from Ind Auto's Kurla plant. Original plan was to produce the Uno in Kurla and produce the World Car or the 178 Family in a new state of the art manufacturing facility at Rajnangaon, near Pune after it is completed in early 2000. The reason for this was that firstly FIAL's major stake in Ind Auto gave it control of PAL's Kurla plant. Secondly Kurla plant has a substantial capacity of 60000 units of which only a third is used for Uno production. FIAL wanted to take advantage of its ready plant capacity. They have a chance to act immediately and put the 178 in the market as fast as possible, thus showing the customers that Fiat is committed to the market and here to stay. Bringing the model early would give it a jump over future competition making it easier for Fiat to establish itself in the Indian market. Early entry would help it to take on the competition from other firm's world-class cars better. At present Fiat has to contend against the Esteem and Cielo, which is not difficult. The car has advanced technology and comes with a very modem petrol and diesel engine. The company also wants to project itself as one, which does not make small cars alone but is into making large cars as well. FIAL has no immediate plans to invest in the Ranjangaon manufacturing to make operational as FIAL is meeting its current demand through its Kurla plant, which has a 60000-car capacity. FIAL has invested 180 crores and completed the construction of the plant building. The corporate mission of the Fiat Group is defined as " The Fiat Group, as a whole and as a combination of individual sectors and companies, has three ftindamental duties to its shareholders, its customers and the people who work for the Group and with the Group. These duties correspond to three key values with which all employees are expected to identify in the performance of their duties - the creation of value (our duty towards our shareholders); customer satisfaction with the products and services we offer (our duty towards those people who buy a product, of whatever nature, produced by a Group company); and the enhancement of, and respect for 194 human resources (our duty towards those who work for the Group and with the Group)". c) Ford India Limited - Founded on the T' of Feburaryl999 as Mahindra Ford India Limited due to its initial participation with Mahindras. However after buying out Mahindras, the concern has been re-christened as Ford India Limited. Ford began its operations in India in the year 1907 when the country received its first Model A. In 1926, Ford India was set up but operations were discontinued in 1954. Ford re-entered the market, producing tractors in a joint venture with Escorts India Ltd. until 1991. In 1995 Ford received approval to set up Mahindra Ford India Ltd., a 50: 50 joint venture with Mahindra and Mahindra (M&M). It launched the best -selling European car Ford Escort. In 1997, Ford Escort was chosen as the best quality car in the JD Power's India Initial Quality Survey'" and in 1998 it won the CSI award again. In November, Ford got permission to increase its stake in the joint venture to 92.18%. Ford brought in fi-esh equity into the company to bring the equity to 78% and became a subsidiary of Ford Motor Company. The company name was then changed to Ford India Limited (FIL). Ford India has set up a modem, integrated manufacturing facility in Maraimalai Nagar near Chennai. It is a brand new plant equipped witli modem facility comparable with automobile plants around the world. The RS 1700 crore plant has been built on a 250-acre complex. The company plans to indigenise about 10% of the power train in the country by 2000 enabling the company to achieve an 80% indigenisation level by November2000. Ford has also set up an export plant next, over 70000square feet, to their supplier's park at Maraimalai to handle Fords export requirements exclusively and will source auto components locally and assemble kits for the car Ikon for exports. Ford has recently launched its latest car, the Ikon, in the mid-size segment with a 70% indigenisation level. Fords corporate mission is "Our aim is to satisfy our customers by offering cars with the highest quality, at affordable prices in India and the rest of the world on time, every time. d) General Motors India Limited. - The Company was founded on the 15 April 1994. General Motors India Limited was founded as a joint venture company between General Motors Corporation USA, and Birla group of companies to manufacture passenger cars in India with an initial investment envisaged at over RS 300 crores. General Motors India Limited set up a state-of-the-art manufacturing facilities at Halol, Gujarat, in early 1996 and launched the Opel Astra T2700 car under technical assistance from Adam Opel of Germany. It combined "German engineering, American technology and Indian ingenuity" to create a product that has established itself firmly in the Indian Automobile market. The Opel Astra was voted the "Car of the Year" by Business Standard for years 1997 and 1998, received the "Best of the Best" General Motors Presidents Council Award and was elected the "Best choice on the Indian Road" by the Times of India establishing Opel Astra's acceptance as a premier brand in the premium car segment. Recently, GMTL became a wholly owned subsidiary of General Motors Corporation, USA, thereby, reinforcing General Motors Corporation's long term commitment to India and enabling General Motors to integrate its Indian and Global operations. GMIL is under 195 technological collaboration with Adam Opel AG, Germany for the production of its Opel Astra car. The company is currently examining a number of new launches for the market. It is the largest US carmaker, however of late labour troubles have forced it to shut down a number of its plants. With the closure of its Michigan plant the number of plants closed down have come to 24 .It also plans to halt production of some of its slower selling cars. Two strikes by the United AutoWorkers have brought to halt its North American production. It however has participated in the international bid for Kia Motors and its sister Asia Motors. It is also discussing with Daewoo of Korea for a possible purchase of 50 % equity stake, however this will not have any bearing on the strategy of the two companies in the Indian market. The corporate mission of the company is to "establish the company as the leading Indian Automobile manufacturer by satisfying the customer with high quality products of superior value, providing employees and business with growth opportunities, providing India with positive economic and social benefits, providing shareholders with a sustained, superior return on their investment, and exploring all areas of opportunity". e) Hindustan Motors Limited - has its origins on the 11'*' February 1942. Hindustan Motors belong to the C K Birla Group of Companies. The company is a manufacturer of automobile and earth-moving equipment in India with extensive manufacturing facilities at a number of locations across the country. HML is a pioneer in the Indian Automobile Industry. It launched the first indigenously manufactured car in India - the Ambassador - in the late 1940's. Besides the Ambassador, the company also markets reputed brands such as the Mitsubishi Lancer, Contessa and Trekker. They have also launched the rural transport vehicle - the Ranger - the first of its kind in India specifically designed for the rural terrain. Hindustan Motors has collaboration with Mitsubishi Motor Corporation of Japan for the manufacture of the Lancer and Oka Motors of Australia for the manufacture of the Ranger. The company also has collaboration with lsu2u for the manufacture of engines and gearboxes. In the earth-moving industry, the company is the market leader in Dumpers and Loaders. Hindustan Motors also manufacturers Backhoes, dozers, excavators and trench borers. The company is in collaboration with Caterpillar Inc., USA for manufacturers of Dumpers and Allisons, a division of General Motors for the manufacture of Power transmissions. In May 2000, Mitsubishi and Daimler Chrysler (Mercedes Benz) formed an alliance, which makes them the third largest car manufacturer behind General Motors and Ford. Together they manufacture 6.5 million cars annually pushing Toyota and Volkswagen down the line. As per the deal Chrysler owns 34% of Mitsubishi Motors at a cost of $2.1 billion and is also a stepping-stone to having a strong base in the Asian markets. The Euro-American Company can source small car technology from its Asian partner. The two companies will manufacture passenger cars and light commercial vehicles. To manufacture the Lancer, HMI has set up a RS 300 crore plant at its existing earth moving equipment division at Thimivalluver, with focus on quick pioduct turnaround and lean production. It has a body shop with latest welding technology from Obara of Japan and Lincoln Electric from 196 USA. An ultra-sophisticated paint shop from Taikisha of Japan at US $ 8 million spread over 75000 sq. feet. Anzen of Japan provides assembly line equipment plastic paint technology is from Saoima of Italy, conveyor and hoists are from Daifku of Japan and pneumatic tools from Uryu of Japan. 50% indigenisation was achieved in the first month and upped to 70% by 1999. The power train is built in-house. The corporate mission of the company is to " offer appropriate automobiles that assure total Travel Comfort to every Indian". f) Honda Siel Cars India Limited - Honda Siel Cars India Limited was incorporated on the 5''' December 1995 and is a joint venture of the Honda Motor Company, Japan and the Siddhartha Shriram Group of Companies or Siel Limited, India. The original joint venture between the two companies was proposed to be a 60: 40 joint venture between Honda and Siel with the Japanese partner holding tlie majority stake. However on 12 Sep 98 the FIPB cleared the project increasing the equity of Honda Motors in the joint venture from 90 % to 95 %. Honda Motors has increased its stake in the company by infusing RS 180 Crores to double the company's equity base. With this, the buy back option of the Indian partner has shrunk to 15 % from the 30 % it had offloaded earlier in favour of Honda. As of now Siel has only a 5 % stake in the joint venture. The authorized share capital of HSCI is RS 360 crores. The construction of the HSCI factory at Greater Noida in Uttar Pradesh commenced in September 1996 and by November 1997(in 14 months) the construction was completed. Commercial production started in 1997 December with an indigenisation level of 50%. Indigenisation level is over 70% now. For the Indian market, Honda has offered its City range of cars, based on a close and detailed study of the local conditions and the needs and aspiration of the customers. The City was launched in India in January 1998. Honda City was ranked as the Best-mid­ size- car in Initial Quality based on the JD Power Asia Pacific 1998 India Initial quality Study. Honda City was also chosen as the "Most Appealing Mid-size car based on the JD Power Asia Pacific 1998 India Appeal Study. The company has a very simple but focused corporate mission " Innovation and Satisfaction". g) Hyundai Motor India Limited - South Korean industrial giant. A 100% subsidiary of the Korean Chaebol is entering the Indian markets alone for manufacturing its Santro range of cars. The firm has already invested about RS 2300 crores in India. Incorporated on the 06 May 1996, Hyundai Motor India Limited (HMI) is a wholly ovmed subsidiary of the $ 8.25 billion turnover Hyundai Motor Company, Korea. HMI set up a state-of-art fully integrated automobile plant on an area of 538 acres at Irungattukottai near Chennai. The firm has already invested about RS 2300 Crores in the Indian market. In addition it has brought component manufacturers into this country and they have already invested about RS 700 Crores. Company has set up a record for Indian Automobile industry by commencing 'pilot production" of its small car ": Santro" exactly two years after establishing its presence in India. Hyundai has set up the engine and transmission manufacturing facilities at its Indian Factory. It is just not an automobile assembling plant, but a fully integrated automotive manufacturing unit (Hindustan. Times DT 30 May 98). The company has set up a highly automated and computerized factory at 197 Irungattukottai near Chennai .It is the biggest international project in India so far. Except the final assembly area where manual labour is high, the manufacturing process is highly automated with robots during the welding and even the wheel nuts are tightened automatically. They have already set up the production line, press shop, assembly shop, and the paint shop. The ground breaking ceremony at HMI's 540 acres plot at Sriperambudur was done on 10 Dec 96.Countdown to full production is vital for about 700 employees at the plant. The plant outside Chennai is on schedule for production. It is a fiilly integrated production facility with manufactured Santro's and not assembled ones. HMI plan to stamp body panels in-house. The sheets are pressed into body panels by tvvo giant 2500 ton Hitachi presses which are welded together in the weld shop which has an automation rate of 80 % to form the body in white. The paint- shop is state-of- the - art with high-speed rotation belts and three levels of automation for the topcoat. Final assembly line is mostly manual with automation for the vital processes like the marriage of the engine to the body and the application of the windscreen sealant. Hyundai has also localized the power train and has set up an aluminium foundry on site to produce the cast components like the cylinder heads and gearbox casings. Engine and manual gearboxes are made in-house. The components not yet localized are electronic parts, engine management control systems and certain parts of a special size or quality that cannot be soured in India. Essence of Hyundai's strategy is to localize heavily to gain that important cost advantage. Two factors greatly helping it were firstly as a wholly owned subsidiary HMI could speed up the decision making process as it did not have to consult a local partner who could have slowed down things and secondly HMI cleverly shipped major tooling, like the giant presses fi"om its shut down Bremont plant in Canada to India thus saving time and investment. HMI plans to ramp up production to 60000 cars per year in a plant, which has a capacity for 120000 cars. Part of this capacity will be used for Hyundai's successor to the Accent, proposed to be launched in Sep 98. From Greenfield to pilot production the project was completed in record time of 16 months and boasts of an investment of $ 614 million. It launched a model in the small car segment called the Santro in the Indian car market in October 1998, Built to international standards, the car has become an instant success. Within 9 months of commencing India operations, Hyundai Motors has become the Nos. 2 player in the small car segment. Future plans include increasing current investment to $ 1 billion by 2001 and setting up a hi- tech Research and Development centre. It is also tying up with a financial services company for selling its cars. The company plans to go public by 2000 after the launch of its small car Santro in Sep 98 and Accent model next year (P.T.I release DT 5Jul 98). This however is the company's plan in the second phase- Hyundai plans to produce the Santro with an initial indigenisation level of about 70 % and will speed up the indigenisation level following the rise in import duty after the Budget. The MOU has uniform norms for all auto- ventures seeking to import CKD/SKD kits stipulating indigenisation levels of 50% in 3 years and 70% in 5 years; Hyundai has claimed indigenisation levels of 70% from the beginning only. It is working towards indigenisation levels of 198 90 % in the next 2 years. The going for Hyundai has not been going fine and it was hit hard by the South Asian Economic debacle. A paralysing 5-week strike at Hyundai's main Ulsan plant ended in a victory for the labour union. The plant shut down on 20 Jul 98 when workers protested a proposed 1500 sacking. The final negotiation allowed for only 277 sacking. The company has a simple corporate mission " our future is yours". h) Maruti Udvog Limited - Maruti Udyog was bounded on the 24 February 1981 and is now the largest automobile manufacturer in India, and the third largest company in the private sector in the country with a turnover of RS 82 billion (US $ 1.93 billion) in 1998-99. MUL is a joint venture between the Government of India and the Suzuki Motor Corporation (SMC) of Japan who are equal partners. Maruti Udyog has been in existence since 1983 and has been producing the Maruti brand of automobile products. The product offering is wide catering to most of the needs of the Indian consumer. The MUL is an 8500 Crore company today. The company is a 50: 50 joint venture between the Suzuki Motor Corporation and the Government of India. The MUL board is to consist of 5 members with the Chairman and the Managing Director being appointed in turn between the two partners alternatively. . According to the agreement SMC had a 26 % holding in the joint venture. With a provision to raise the stake of SMC to 40 %. All major decision would be taken in concurrence of each other. Till this time the Government pursued a policy of the public sector to lead the growth train in the country. At the beginning of industrial liberalization and economic reforms in mid-1991, a fresh agreement was concluded with SMC allowing it to raise its equity to 50%, converting MUL into an equal partner venture. This was done to reflect the general industry trend with several new automobile manufacturers coming in as majority parmers. According to government estimates SMC invested RS 103.4 Crores in the joint venture and repatriated over RS 341 Crores in the form of dividends and royalty payments till 1995-96. The company is investing about RS 1600 Crores in its third plant in its existing facility at Gurgaon, near Delhi .It has a new state - of - the - art press and paint shop and is expected to become operational by Feb 99. Maruti crossed the production of 1 million cars in March 1994 and is the first Indian Company to cross this milestone. MUL has significant presence in almost all the passenger car segments. It is the first car manufacturer in Asia, outside Japan, to receive ISO 9000 certification of quality and is the second company in India to receive the prestigious CU-EXIM Business Excellence Award in 1998. The corporate mission is " to provide a wide range of modem, high quality fuel-efficient vehicles in order to meet the need of different customers, both in the domestic and export markets". i) Mercedes Benz India Limited. - The biggest undertaking of Daimler Chrysler AG in India is Mercedes Benz India Limited (MBIL), MBIL is a joint venture between Daimler Chrj'sler AG (86%) and Tata Engineering and Locomotive Company (14%) for production of Mercedes Benz passenger cars both for the Indian and export market. The company was incorporated on the 22November 1994. It launched the new E-class (W210) in January 1998. Positioned on Innovation, Individualization, Safety and Environmental Compafibility. In 199 January 1999, MBIL moved to its new premises in Chikhali Village, Pimpri, Pune and since then the Registered Office, Corporate OfTice & Works are all under one roof. A large number of measures have been taken to ensure that Mercedes Benz from the Pune plant is compatible in quality to the ones produced in Germany. Exports from MBIL have been to more than 20 countries such as Singapore, Malaysia, South Africa and Cyprus. The products fulfil India's 2000 emission standards and Euro-11 emission norms since 1996. Engineered for nature the E-class fulfils the expectation of a greener and healthier environment. Parent Daimler-Chrysler have got into an alliance with Mitsubishi to become the third largest automobile manufacturing company in the world in May 2000. The company has a simple corporate mission " The future of automobiles - preservation of environment and the protection of life are our basic responsibilities towards the individual, family and the society. Our social commitment is just as important to our future as our financial planning or our basic business strategy. j) Premier Automobiles Limited - Peugeot Limited - After the company stopped producing its Padmini model; PAL is planning to make a comeback with the re­ launch of the Padmini with the famed Peugeot TUD5 diesel engine. The company also plans to revive its Premier 118NE model and the beleaguered company PAL-Peugeot Limited. k) Tata Engineering & Locomotive Company Limited - The Tata Engineering and Locomotive Company Limited was founded on the 1^ September 1945 with a factory at Jamshedpur to manufacture locomotives and is currently among the largest private sector companies in India. Initially established to manufacture locomotives, TELCO began manufacturing trucks in collaboration with Daimler Benz in 1954 (Daimler Chrysler, now after its merger) that also owns a 10% stake in the company and started manufacturing MCV's with a 5T pay load. It set up its Research and Development facility at Jamshedpur in 1959. In 1969 it got into collaboration with Pawling & Hamischfieger (P&H), USA, for manufacturing cable type excavators and cranes. It introduced 7.5Tpayload CV's in 1964 and acquired Investa Machine Tool Company and set up a Machine Tool Division at Pune. In 1967 it set up the Engineering Research Centre at Pune. Since 1969 TELCO has been manufacturing vehicles on its own. In 1976 it manufactured the first commercial vehicle at its second plant at Pune and in 1983 introduced HCV's. In 1986 it developed the first indigenously developed 4Tonne light commercial vehicle meeting fviel efficiency norms specified by the government and in 1987 produced the indigenously developed high-end 6Tonnes (608) light commercial vehicle. In 1989 it produced the sophisticated LCV commercial vehicle Tatamobile pick­ up and in 1991 introduced the first indigenously designed cars- the Tata Sierra and the Tata Estate. The millionth Tata vehicle was produced in 1991". In 1992 production commenced at the third plant at Lucknow. In 1994, it produced the most popular multi-utility vehicle, the Tata Sumo and got into collaboration with Mercedes Benz. AG, Germany, for manufacturing E-class cars in India by setting up a joint venture company MBIL. In 1996, the Tata Sumo deluxe was launched and in 1997 Tata launched the Tata Sierra Turbo. In 1997, the 200 100000*^ Sumo rolled out. In 1998 the two millionth vehicle was produced and the same year the Tata Safari was launched. In 1998 Tata launched the Tata Indica. It is today the countries largest manufacturer of commercial and utility vehicle. Over the last 45 years, TELCO has put more than 2 million vehicles on the road and is the dominant player in the commercial vehicle industry, having achieved global levels of production in the 6Tonnes and above category. Success in the medium and heavy commercial vehicle segment coupled with its design and research capabilities and the broad-banding of the motor vehicle industry in 1985 encouraged TELCO to launch its first light commercial vehicle in that year and since then has been producing vehicles ranging from 2 tonnes to 7 tonnes in this segment. Thereafter, TELCO also entered the utility and high-end passenger car segment with the introduction of the Tata Sumo, Tata Safari, Tata Sierra and Tata Estate. With the acceptance of this product, TELCO also introduced in early 1999, it's indigenously developed low-end passenger car, Tata Indica. A widespread distributive and customer service network supports this product. TELCO's manufacturing facilities are spread over the geographical expanse of the country with plants located at Jamshedpur (Bihar), Pune (Maharashtra), Lucknow (Uttar Pradesh). TELCO presently has three plants: first set up in 1945 at Jamshedpur which makes trucks and LCV's, Pune facility which makes the articulated vehicles and heavy trucks in addition to the LCV's, entire 207 family of commercial vehicles and now the Indica, the third plant at Lucknov/ makes only trucks. A fourth manufacturing facility is being set up at Dharwad (Kamataka). TELCO's Research & Development facilities in Jamshedpur and Pune set up in 1^59 and 1966 respectively have been instrumental in making TELCO a self-reliant auto-manufacturer. TELCO, on an average, spends about 2% of its turnover every year in Research and Development activities. In 1993 TELCO entered into a joint venture with Cummins Engines Company. Inc, USA to equip its commercial vehicles with environment friendly Cummins engines. TELCO commenced exporting its products in 196land over the years, the number of destinations has increased to 70 covering Europe, Australia, Latin and South America, South Asia and Southeast Asia and Africa. 1) Tovota Kirloskar Motors Limited - Toyota Kirloskar Motors was established on 6*** October 1997. The joint venture blends one of Worlds leading auto- manufacturers and the Kirloskar Group, one of India's leading manufacturers of industrial engineering equipment. The manufacturing plant has been established at Bidadi, near Banglore, India in a sprawling site with ample scope for future expansion. Production commenced in December 1999 on a multi-comfort passenger vehicle, designed especially for Indian conditions. The plant will be further expanded and a new plant will be added in accordance with the development and policies of the central government. TKM is also exploring the feasibility of exporting the new vehicle and automotive parts. Keeping the concept of localization, the plant will be developed in line with the objective of contributing to the social and economic development of India. One of the most advanced manufacturing facilities; the Motomachi plant of Toyota in Japan has been designated as the parent plant of TQM to ensure global quality standards. 201 This will bring the renowned reputation for quality enhancement to its global products. Toyota Kirloskar also aims to provide a wide selection of innovative. reasonably priced and high quality products through an exclusive dealer network with the best sales and after sales service. Toyota has increased its stake in the joint venture from 74% to 87% by infusing 78crores, which takes its investment up to RS 522 crores. Kirloskars have the options of repurchasing the shares allotted by December 2004. The corporate mission is to " design, manufacture and market Automobile in India and in overseas markets and maintain a high quality to meet the expectations of the customer and always delight the customer by exceeding the quality level and providing good and effective after sales service. Pursue KAIZEN, maintaining flexible organization, working schedule and staffing plan, which enables the company to respond to fluctuation of production volume and increase the productivity". m) Volkswagen- Skoda - The Volkswagen group has four international subsidiaries: Volkswagen, Audi AG, Seat and Skoda Auto AS of Czechoslovakia. One of the group companies, Skoda Auto AS is in the final stages of setting up a manufacturing facility in India. Audi has decided against production facilities but has decided to set an importer and dealer network in the country. Volkswagen AG plans to set up a fblly owned subsidiary in the country to manufacture and market the Volkswagen range of cars. Initial feasibility studies have been conducted. Skoda has set up a fully owned subsidiary in the country called Skoda Auto India. The company had got FIPB clearance in November 1999 to set up a US$ 59 million venture and had signed the Memorandum of Understanding with the Directorate General of Foreign Trade. The company plans to divest up to 10% stake in the subsidiary over 2-4 year period. Initially the car would be assembled from completely knocked down kits and semi knocked down kits but would simultaneously be building on localization content as mentioned in the MoU. The company plans to have manufacturing facilities at the MIDC (Maharashtra Industrial Development Corporation) complex at Shendre near Aurangabad at an estimated cost of 1000 crores. It has an installed capacity of 10000 units per annum starting with production of 1000 units. Its Initial product offering, the Octavia, will have a local content of 25%in the first year to be hiked to 70% over 5 years depending on the quality of components available to match its quality standards.

Environment Analysis 9.1.3 We will analyse the various facets of the automobile industry that will help us better understand the marketing dynamics at play. We will study the industry for various parameters, which will try to help us in getting a better understanding of the industry' a) Equitv Patterns - Equity patterns in the Indian Automobile industry has undergone quite a change. Due to financial pressures on the Indian partners, there has been a gradual dilution of the equity pattern in favour of the foreign partner as can be seen from the Chart 9.1.3.1 given overleaf Thus we can see that there has been a significant shift in the equity patterns of the dominant foreign partner over the years after liberalization 202 Chart 9.1.3.1 - Equity Patterns and Pattern Shifts for the Car Industry EQUITY PATTERNS AND PATTERN SHIFTS 100 TELCO-MBIL (95%) J UGH

<60 1.MARUTIUDYOG (SUZUKI-GOI50%: MEDIUM 50%) 2.F0RD-MAHINDRA

3.IND AUTO LTD (FIAT50%-PAL49% IN MAY98) 4.DAEWOO-DCM (51%: 49% IN OCT 94) 5.HONDA-SIEL (60:40 IN DEC9S) <30 I.VOLKSWAGEN (100%) 2.TOYOTA- LOW KIRLOSKAR (74%TO 87% IN NOV98) 3.MBIL-(DAIMLER ' CHRYSLER-TELCO 86%) 4.HYUNDAI (100%) 5.FORD- MAHINDRA (78% IN 1998) 6.IND AUTO LITD (FL\T76% IN SEP99 AND 95% IN APR2000) 7.DAEWOO (92%) 8.HONDA-SIEL (85%IN SEP98AND95%IN 2000)

<30 <60 100 LOW MEDIUM inGH FOREIGN PARTNER Source: Compiled from Financial Statements of various Companies MBIL = Mercedes Bcnz India Limited; TELCO = Tata Engineering and Locomotive Company PAL = I»remicr Automobiles Limited; SIEL = Sriram India Engineering Limited

b) Corporate Missions - A more comprehensive idea of how firms plan to compete in the market emerges from the corporate missions of the various carmakers. A valuable insight is got from these corporate missions as they bring out the Key Reaction Areas for the various companies. The various corporate missions for firms manufacturing in India are given as under. As can be seen, most companies are 'customer' oriented with a major stress on product quality and quality of product support. Only Daewoo and General Motors have expressed their desire to be the market leaders. Maruti, Ford and Daewoo have shown a global orientation in their operations. Four companies, 203 Mercedes Benz; Hyundai; General Motors and FIAT have mentioned social benefits, safety, environment, future etc in their statements. Only two, Daewoo and Toyota have expressed productivity enhancement to international standards as a part of their mission statements. These are given as Chart 9.1.3.2.

Chart 9.1.3.2 - Corporate Missions - Statements COMI'ANY liEMARKS I>aewoo Motors • Thrust on attaining productivity and efficiency of internationally competitive levels • Strive to be market leaders in India • Gain wwld wide recognition through their vehicles l-IAT • Create value for shareholders • Customer Orientation (through products and services offered) • Development of Human Resources (of people working for the group) I-ord • Customer Satisfaction • Durability and affordable prices in India and the whole world on time and every time Cicneral Motors • Strive to become leading Indian carmaker • Customer Satisfaction by high quality produa of superior value • Iknefiting India, its employees, shareholders etc 1 lindustan Motors • Assure total Travel Comfort to every Indian by producing the appropriate Automobiles I londa Sicl • Innovation and Satisfaaion I lyundai Motors • Our future is yours Maruti Udyog • Meet varying customer need by producing a wide range of modem, high quality cars for both the domestic and international market Mercedes Benz • The future of automobiles • Fulfill obligations to the family, individual and society by its siress on protection of environment and protection of life • Social commitment is as vital as financial planning or business strat^y I'AL-Pcugeot lYcmicr Automobiles Limited n-LCO Toyota - Kirloskar • Focus on customer satisfaction through high quality products and an Motors excellent after sales-support network • Promote KAIZEN to achieve higher productivity through efficient and flexible producticxi Volkswagen Source: Compiled fi-om Literature Published by Companies TELCO = Tata Engineering and Locomotive Company, PAL = Premier Automobiles Limited c) Cost of Investments - We also tabulate the original cost of investments and the total assets the company has for the various manufacturers. The base year selected for this is 1998-99. A study of the costs of the tangible assets is important in that tangible assets are a component of costs and are reflected in the pricing of the vehicle, which is a major marketing variable and also reflect the firms commitment and strategy in the market. Thus Hyundai plans to be a large volume player as it has invested in a large capacity whereas others like Ford and Mercedes are still taking their operations to be small depending on their

(I^hart 9.1.3.3 - Asset and Cost of Investment Analysis - Base Year 1998-99 (JOMPANY ORIGINAL COST OF TOTAL ASSETS (In Millions) INVESTMENTS Daewoo Motors 39888 4137 FIAT 2004 2000 Cjcneral Motors 3336 2991 I lindustan Motors 8067 8602 Honda Siel 3400 3032 Ifyundai 15615 15776 Maruti Udyog 24740 42490 Mercedes Benz 1670 6000 TELCO 56987 95008 Toyota Kirloskar MotOTS 221 476

d) Research and Development - Research and Development is one of the key levers of long-term competitiveness. It is essential for the industry to be able to design and develop technology, Indian firms have depended upon joint ventures for new product technology or bought it outright fi-om foreign design firms. The average expenditure on Research and Development by the Indian Auto Companies is less than 0.2% of sales turnover compared to 3-5% in the developed markets'^. Post WTO it is expected that markets will open automatically and companies will be less than willing to sell technology to India. As competition increases amongst globally competitive firms over the length of the value chain, it becomes essential for industry to develop product development capability. This is essential for India to become a global player. Indian firms lag behind in design and development in two major areas. i. Product Technology sophistication compared to more developed countries in the market in terms of vehicle design, engine technology, emission norms, fuel composition, safety features and use of electronics. Due to restrictive policies, pre-reform, the current models on offer in India lag behind global level of product sophistication. ii. Regular model improvements and facelifts the vehicle has to undergo through in the developed market. Thus a passenger car model with an average life of 5-7 years goes through 2-3 model major facelifts in its lifetime. Pre-reforms the models remained practically unchanged To drive the point home we will consider the evolution of the Maruti Zen, the high end small size product on sale for our period of the study and which is the third largest selling car in India. Zen was launched in 1993.the changes it underwent were i. 1996 - new rear lamps, day night tyj^e inside rear view mirror ii. 1997 - painted grille and bumper 205 iii. 1998 - VX variant launched with new grille, moulded roof lining, internally adjustable rear-view mirror, rear parcel tray, stereo system IV. 1999 - In January, the LX was launched. In March 1999, VX and AX got front power windows, central locking, collapsible steering, and rear wash wiper. In September 1999, VXi introduced with electric power steering, rear window demister and body side mouldings. V. 2000 - March saw the MPFI engine with new grille, parcel trey etc. August saw the change in interior colour. September saw high mount stop lamps, rear fog lamps, cigarette lighter in VXi, speedometer change, door trim with fabric patch for VX, VXi and AX. Thus for the period of 7 years, the changes were mostly cosmetic except the new engine with MPFI system. The auto industry should aim to overcome the product technology challenge at four levels. 1. Catch up with global standards in product technology ii. Keep up with the global standards to provide product improvements within tlie life span of the model. iii. Attempt to build up global leadership in a chosen product segment or technology area. iv. Build up a vendor base sophisticated enough to incorporate minor product changes within the shortest time span The technical tie-ups signed for the automobile industry are given as under as Chart 9.1.3.4. As can be seen, most of these tie-ups are for the period 1990- 1998 and only one major tie up for the Maruti Udyog with Suzuki exists for the pre reform period. An analysis of the Research and Development expenditures for various firms in the industry gives us some very interesting results. As can be seen from Table 9.1.3.1, the research and development expenditure of most of these companies is abysmally low. TTius this is one area, which requires immediate attention. Chart 9.1.3.4 - Technical Tie-ups for the Car Industry COMPANY COLI.ABORATOR PRODUCI/rECMNOI. YEAR OGY l>ae%voci Motors I>aewoo Corporation, Korea Passenger cars 1994 I-IAT FIAT Auto s.p.a, Italy Passenger cars 1997 I-ord Ford Motor Company Passenger cars 1996 General Motors Adam C^l AG, Germany Opel Astra car 1994 I lindustan MotOTS Mitsubishi Motor Corporation, Japan Lancer cars 1996 I londa Siel Honda Motor Company, Japan Passenger cars 1996 Hyundai Hyundai Motor Company, Korea Passenger cars 1996 Maruti Udyog Suzuki Meter Corporation, Japan Passenger cars, MUVs 1982 Mercedes Benz Daimler-Chrysler AG Passenger cars 1994 TELCO a) I.D.E.A Institute, Italy a) Design and body a) 1995- b) Nachi Fujikoshi Corporation, styling small cars 96 Japan b) Robots b) 1996- c) Le Moteur Modeme, France c) Development of 97 diesel and petrol c) 1996- en^nes for small 97 cars Toyota Kirloskar Toyota Motcr Corporation, Japan Full technology 1998 Jkiurce: Compiled fiwn biformation Brochures of Various Companies 206 e) Capacity and Capacity Utilization - the installed capacity of the various firms manufacturing cars and their capacity utilization over the last three years are as given in Table 9.1.3.2. As can be seen from the Table, there is a lot of capacity lying unutilised as firms are trying to build up demand for their product. There is excess productivity in the market. The only company that is running at full capacity utilization is Maruti and in 2000, it even went over capacity being the market leader. Two of the companies Premier Automobiles Limited and PAL-Peugeot have closed down in 2001. They together have a capacity of 120000. The top gainers in capacity utilization has been Hyundai as it has slowly ramped up production led by growing sales that have propelled the company to a high level of capacity utilization increasing about 4 times the 1999 level. Other top achievers were Daewoo Motors, Honda Sriram India Limited, TELCO, Ford India Limited and Hindustan Motors. All others have seen declining capacity utilization's over the period of time in the face of declining sales. f) Quality - Is fast becoming the mantra in the Indian passenger car industry. There is an all out stress on quality as firms compete with other global products. The single most significant differentiation factor is quality. Quality is the "totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs." Quality is fast emerging as one of the most vital marketing parameters in today's market environment. Quality certifications, which are internationally accepted, are today being applied for and implemented by companies as a part of their brand enhancement techniques. Chart 9.1.3.5 lists the quality certification measures adopted by the various companies. Thus post reforms companies are resorting to achieving global quality certifications in an attempt to be perceived by the customer as more quality committed.

Chart 9.L3.5-Quality Certification in I le Car Industry COMPANY CERTinCATE PLANT YEAR I-ord India • ISO 9001 MaraimalaiNagar • ISO 140001 Cicncral Motors • ISO 9002 Halol, Gujarat 1999 I Undustan Motors • ISO 9001 • Marketing Division • 1997 • ISO 9002 • Foundry Division, Calcutta • 1997 • ISO 9002 • Forge Envision, Calcutta • 1995 . ISO 9001 • PavKT Unit Plant, Pithampura • 1994 Hyundai • ISO 9002 • Irungattukottai, Chennai Manili IJdyog • ISO 9002 • Gurgaon plant • 1995 . ISO • Gurgaon plant • 1998 9002(Rccerti fication) Mercedes Benz • ISO 9001 • Pune • 1998 ITiLCO . ISO 9001 • Jamshedpur • 1994 . ISO 9001 • Pune • 1995 Source: Compiled Srom Information Brochures of Various Gxnpanies TABLE 9.1.3.1- AUTOMOBILE INDUSTRY RESEARCH AND DEVELOPMENT EXPENDITURE 1999 RESEARCH AND DEVELOPMENfT EXPENDITURt AS COMPAhT TOT TURN TOTEXPC GROSPRO NET PRO R&DEXPC %OFTURN % TOT EXP %GROPRO %NETPRO DMIL 3874 4284 401 401 73 1.88 1.7 18.2 18.2 FIAT 178 4 2.25 FIL 1870 GMIL 2463 3527 6 0.24 0.17 HML 14861 15142 -282 -282 75 0.5 0.5 -26.6 -26.6 HSIL 6182 6605 ^W7 6 0.1 0.09 -1.47 HMIL 5334 5843 -510 MUL 77814 73963 7841 5230 294 0.38 0.4 3.75 5.62 MBIL 2130 2070 60 30 PALPEU N/A N/A N/A N/A N/A N/A N/A N/A N/A PAL N/A N/A N/A N/A N/A N/A N/A N/A N/A TELCO 66371 66323 1072 975 929 1.4 1.4 86.66 95.28 TKML Source: Conpiled frcm Rnandal Statements of Various Companies DMIL = Daewoo Motors India Ud; RL = Ford India Ltd; GMIL = General Motors India Ltd; HML = Hindustan Motors Ltd HSIL = Honda Siei India Ud: HMIL = Hyundai India Motors Ltd; MUL = Maruti Udyog Ud; MBIL = Mercedes Benz India Ud PAL-PEU = Premier Automobiles Lid-Peugeot; TELCO = Tata Engineering and Locomotive Company TKML = Toyota Wrloskar Motors Ltd; TOT TURN = Total Turnover TOT EXPO = Total Expenditure; GROS PRO = Gross Production; NET PRO = Net Production; R&D EXPD = Research and Development E>perx*fure

T/^B_E 9.1.3.2 - CAPACITY AND CAPACITY UTIUSATION CAPACITY PRODUCTION CAPACITY UTIUSATION COMPANY INST CAP PROD 98 PROD 99 PROD 2000 CAPUT198 CAPUT! 99 CAP UTI 2000 DMIL 87000 10097 9987 38417 11.60574713 11.48 44.157 FIAT N/A NA NA NA NA NA NA RL 100000 6451 3233 8023 6.45 3.23 8.023 GMIL 25000 7705 3240 2947 30.82 12.96 11.78 HML 64000 22790 20248 26673 35.609 31.637 41676 HSIL 30000 1340 9631 9698 4.-^566 32.103 32.326 HMIL 120000 NA 18056 75306 0 15.0466 62.755 MUL. 350000 346634 330395 398669 99.038 94.398 113.9054 MBIL 9000 2341 1188 436 26.011 13.2 4.844 PALPEU 600C0 3764 389 32 62733 0.6483 0.0533 PAL 60000 11450 2826 54 19.08333 4.71 0.09 TELCO 345000 154804 129401 195329 44.8707 37.507 56.617 TKML N/A NA NA NA NA NA NA Souce: SIAM Database DM1L= Daewoo Motors India Limited; RL = Ford India Limited; GMIL = General Motors Incfia Limited; HML = Hindustan Motors Limited HSIL = Horxia Sriram India Limited; HMIL = Hyundai Motors India Limited; MUL = Maruti Udyog Limited MBIL = Mercedes Benz India Limited; PAL- PEU = Premier Automobiles Umited-Peugeot TELCO = Tata Engineering and Locomotive Company; TWM = Toyota Wrioskar Motors INST CAP = Installed Capacity; CAP UTI = Capacity Lftilisalion; PROD = Production 208 Conclusions 9.1.4 Thus over the years there has been a tremendous change in the way global car manufacturers have started doing business in India. The clearest conclusions that arise are a) Manufacturers are more committed to doing business in India. Their relative degree of seriousness and a lot of their strategic movement is reflected a lot in their investment and asset profile in India. b) Firms have enunciated clear cut strategies which are reflective of their corporate statements c) There has been substantial investment in the car industry during the later part of the I990's. Most of the investments till 1999, has been directed in asset creation d) There has been an increased expenditure on Research and Development due to more firms entering the industry. For individual firms, however the level of Research and Development expenditures has been very small e) There has been a spate of technological and financial tie-ups in the sector, which have improved technology levels in the industry. However overall the industr> level leaves much to be desired. f) There is an increase in capacity in the industry. Capacity utilization levels have increased for many firms, but overall capacity utilization levels are low for all except for Maruti, the market leader. g) There is an ever-increasing stress on improving quality levels in the industry. Firms are moving towards higher quality levels by getting quality certification for their plants and production facilities.

SECTION: 2 PRODUCT ANALYSIS [ntroduction

9.2 Product Analysis deals with all changes that have taken place in the product portfolio of the industry. Over the years, the evolution of the car has been the most dramatic. It overshadows the changes in the marketing, distributive and other spectrums. There has been a major influx of technology that has gone into product design. The harsh Indian operating conditions even forced manufacturers to test products on Indian roads, in a host of tough environs and then take the product back to their design centres to affect the necessary changes.

Product Analysis 9.2.1. A product is defined as anything that can be offered to a market to satisfy a want or need. In the manufacturing of cars, the scope of creating meaningful differentiation is immense. Each advancement results in more driving comfort or better power or more fuel efficiency etc. A company has one basic choice to make. It can either, change the whole model and offer an entirely new product totally different 209 in shape, configuration, design, capabilities and performance, or it can offer one model in a number of different versions and variants for the market. The decision, on how a firm handles its differentiation strategy, depends on the cost dynamics. Development of a new model is a costly process as it involves a whole plethora of activities. It is also very time consuming as it takes years for a car to emerge fi-om the drawing board to actual production, whereas piecemeal differentiation efforts are easy and takes less time. Thus two important factors that determine the choice of a differentiation method are costs and time. However differentiation parameters are not limited to these two alone as manufacturers find new methods to boost sales. Evssentially, post reforms, differentiation is seen to be carried out on four basic levels. We demonstrate this taking the case of General Motor's product in India to highlight it. The elementary level differentiation leads to a particular model or a platform of the vehicle. The second level is the variants, which differentiates on the basis of whether it is a diesel version or the peL'ol version. This is the differentiation caused by changes in the power train to get a family of cars. The third degree of differentiation on the same models is done by the introduction of minor changes in the vehicle's support system like power steering, automatic transmission. The fourth level of differentiation is caused by the differences in the amount of features that are added to the car. Thus in the case of, say General Motors. The first degree of differentiation is through their two models tlie Opel Astra and the Opel Corsa. The second level of differentiation is caused by the difference in the versions, one with a diesel and the other the petrol version. Thus we have differentiation on two levels. The third level of differentiation is caused by the difference in the engine types used or installed. Thus we have the Opel Astra 1.6 range churning out about 76/5400 (bhp/rpm) power and torque of 12.3/2800 (kgm/rpm); Opel Astra 100 range giving out 68/4500 (bhp/rpm) power and torque of 13.5/2400 (kgm/rpm) and the Opel Astra 1.6 MPFI churning out power at the rate of 95/5600 (bhp/rpm) and a torque of 12.5 (kgm/rpm). The fourth level of differentiation is caused by the further separation within these bands. Thus we have the 1.6 MPFI Advantage, the 1.6 MPFI GLI and the 1.6 MPFI Club. Thus General Motors has differentiated two basic models over 15 versions (petrol/diesel) and variants. Features refer to differentiation created over the host of features provided on a particular model/variant/version. The differentiation levels are graphically depicted as Chart 9.2.1.1.A given below. Features refer to the fourth level of differentiation. This is essentially on the basis of the differences in the kind of accessories fitted to a car. Thus generally companies decide on a particular price band within which the product has to be positioned and then decide on the further micro positioning that they have to adopt. The fitments are generally fitted as per the division of the price band. A fiilly loaded car is the version which has all the necessary fitments covered in. Positioning is generally done to match the rival's product offering. Version allows firms to differentiate on the basis of additional features and not on the basis of any differences in the model, variant or version. As we descend down a product differentiation level ladder, the price differential generally narrows down. Each of these differences at each level leads to creating a specific value for the consumer. Chart 9.2.1.1.B shows the various differentiation levels used in the Indian passenger car industry and how differentiation has changed the product set for the industry. 210 Chart 9.2.1.1 .A - Differentiation Levels for the Product DifTcrcntiation Method Value target level First level Model Appeal to different sections, widen macroscopic customer base, get more people interested in the car Second level Version Enhance consumer value by helping him exploit fiiel derivative price differentials Iliird level Variant Differentiate on the basis of power train and other layout patterns which effect the performance of the vehicle I-ourth level Features Differentiate on the basis of additional external equipment or accessories that provide more comfort, luxury and case

Chart 9.2.1.1 .B - Product Differentiation Levels The various Product Differentiation Levels as demonstrated for General Motors Product level in India.

I'* Degree 2*^ Degree 3'" Degree 4 Degree Platform - Version - Variant - Fgaturc^ - Corsa Astra - Diesel Corsa-1.4/1.6 Corsa- 1.4/1.6 Astra Petrol Astra - Petrol 1.4 GL • 1.6 1.4GLS • 100 Astra- • 1.6MPFI Petrol Diesel 1.6 Al CLUB CLUB AT 100 1.6MPF1 GL GLI CLUB Diesel 1.7TD 1.7TDGL 100 D Source: Compiled from Product Literature of General Motors

Sequence of Product Differentiation 9.2.2. Companies try to create a totally different driving experience in each level of oroduct differentiation and convey it to the customer. In addition the product is also differentiated on the basis of differentiation of the product support system, which in itself includes a whole array of parameters, especially for a high priced product like the car. These product support systems include pre-sale support, to include finance, product display, product promotion, identity creation etc and post sales support including warranties, service, spares, indirect costs etc. Further chaos is created by the sequential introduction of models by a whole lot of manufacturers, which help in making customer withhold their purchase decision in the hope of a better product offering. In India, manufacturers have not been able to achieve optimal scale in the 211 initial years as anticipated. Hence they have adopted differentiation strategies adapted to this, which are achieved at lower costs. To better understand the mechanics of product differentiation in India, it becomes imperative to understand the cost mechanics of it. The first level of differentiation or differentiation on the basis of models is the most expensive in terms of costs because it causes the firm to undertake the whole host of functions like market research, R&D, product testing etc and even after all this exercise has been done to perfection, there is no guarantee for the products success in the market. Thus product differentiation on the basis of model is done to a much lower degree. The second level of product differentiation, on the basis of versions, is very relevant to the Indian market where vast price differential exists between the fuel derivative prices. Thus petrol is the most expensive and the artificially inflated price of petrol subsidizes the price of the low cost diesel. However the aim of this policy measure is defeated because of the move of urban consumers towards using diesel drive as the motive power of their vehicles. The only disadvantage of diesel in its use as motive power is the noise and vibration caused by diesel engines. Technology has overcome this difficulty. The use of CNG or conserved natural gas, another petroleum derivative, though widely in use in the west is being resisted due to the inherent lack of safety in the technology being used in India. However the very low cost of transportation that the use of CNG delivers will essentially make it one of the most attractive propositions in the time to come. The third differentiation level that manufacturers promote, differentiation on the basis of variants is a very important strategic tool being used by firms in India especially post reforms to widen their competition base. The strategy essentially involves firms differentiating the product on the basis of layout of certain parts, which enhance the performance of the vehicle. This differentiation strategy varies from the second strategy for the manufacturer in terms of cost. The differentiation costs vary and are reflected in the price generally. However, the performance enhancement is distinctly measurable and perceived by the customer. This kind of differentiation is more complex but has the advantage in localizing the costs to certain assembly changes. This kind is also done to keep pace with existing technology, which might have not been available at the time of model development or was not provided for some reason. This is also pursued to reduce product differentiation barriers from the competitor's product. The fourth differentiation measure through the provision of differences in features is the easiest and involves the least requirement of time and flrnds. Firms can lower differentiation barriers by the provision of additional features that the competitor is providing to prevent the customer fi-om being prejudiced on the basis of features provided. Firms try to pack in as many relevant features as possible within a particular price band to make their product more competitive as compared to their rivals offering. The additional differentiation parameters like product support systems will be discussed later as they require a more detailed analysis. The main aim of these differentiation measures is to provide a broader spectrum for a company's product to compete within a permissible cost frame and to create a maximum amount of buyer value from the product. Firms try to provide their product wider buyer coverage. The market can be thought of as divided into very small segments each with a host of competing products. The most vital feature is the financial constraints faced by a buyer, which makes him especially value conscious. The typical Indian buyer faced 212 with the decision to select a particular car has to find a choice, which confirms to the diverse objectives or different buying role-played by the family members. This makes the marketer's job even more complex, as they have to find a product configuration that best matches the customer's compromise formula. This buyer behaviour in India is found to be essentially different from the markets in other advanced countries where certain characteristic trends exist helping firm's device their marketing strategy. The manufacturer thus goes in for a cross platform differentiation strategy enabling his product to form a part of the choice set of the maximum possible buyer range without enhancing costs too much. This strategy brings in important gains for the manufacturer without actually increasing his costs. Majorit>' of the dealers interviewed were of the opinion that in India, buyers first define their purchase budget, then narrow down their choice set and make their choice on the basis of the number of minimum acceptable features packed in (like the presence or absence of an air conditioning unit. An insight into the automobile marketplace today reveals the clutter competition has created. As each company tries to narrow down product feature differentials in an attempt to reduce emerging competitive advantages fi-om product differentiation, the confusion in the market place is considerable. This necessitates a high degree of search activity on the part of the customer to find the optimum product feature, attribute mix that falls within the customer's budget. As shall be seen over this chapter, the product offers a whole plethora of factors on which it can be differentiated. The array is so vast that we will have to resort to multi- attribute clustering of products to enable a more meaningful comparative analysis. The market as on June 2000 had more than 100 offerings (to include base models, versions, variants etc). Due to the open market economy several producers, both local and global have launched their first platform and are launching their second and third platforms also. A full range of derivatives on each platform is yet to arrive, however within the constraints of the single derivative body, packages are being offered by packaging different combination of accessories and features to target different customers with different lifestyles needs or budget. The variants created within the constraints cannot be as attractive as the derivative. A multi-attribute/feature small car is a poor substitute for a luxury car. The small Indian market with low manufacturer production volumes makes introduction of more platforms and derivatives undesirable as they further divide the available volumes over more products. Need to introduce new models regularly, effectively shortens product life cycle leading to less volumes per model year per product. It is easy for transnational manufacturers to achieve these twin targets as they can integrate India into their worldwide product exchange strategy, building a few platforms in large volumes in different countries and exchange them globally. Indian manufacturers also need to offer a broad product range, introducing new models regularly, finding innovative solution to produce the needed product mix, recover investments in development and production of these vehicles and there derivatives and generate enough reserves. Af^er considerable research an optimised product development and manufacturing program (OPDM) suitable for low volume situations has been developed by Steyr India. The OPDM program ensures that the conceiving and designing of vehicle should be such that production of several platforms as well as their derivatives is possible with minimum 213 number of parts, and that new model changes can be incorporated quickly and cost effectively. Advantages of this strategy are a) Feasible to produce a broad range of product mix, in spite of low volumes b) Faster and low cost model changes c) Products more focused on the customer's needs, than feasible with mass production d) Lower cost, as compared to similar, mass produced products e) Better return on investment The two primary inputs needed to commence OPDM program are the life cycle plan of aggregates and a detailed product mix matrix based on which the aggregate strategy and the platform/derivative strategy are worked out. Aggregate and platform strategy differ from each other due to the fact that life cycle of systems such as engines, transmission etc is always longer than the body or interior. Production volumes of these systems during their life cycle can be increased substantially, if they are designed to suit application on more platforms, configuration and derivatives. Two basic strategies demarcated are a) Engine Strategy Two strategic approaches to engine design exist, the family approach and the modular approach. Family approach is more common globally on cars and the modular approach on trucks, tractors etc. Family approach is preferred on cars because of high production volumes and the need to offer several engine displacement options on each platform. Steyr India found that for Indian manufacturers with production from 50000 to 500000 vehicles annually with a wide product mix, to cover the targeted applications and the targeted volumes by a family of engines, three different manufacturing lines would be needed while modular engines could be produced on one line. Also design and development effort to create an engine family is also more hence the modular approach is better suited for Indian conditions. b) Transmission strategy Global trend of transmission strategy is to consolidate its manufacturing activity. Vehicle manufacturers make only a couple of transmission types in- house, small volume transmissions are sourced from specialist transmission producers. Most transmission suppliers concentrate on few types and do not produce all types enabling them to produce at large volumes by applying highly automated process needing high investment. Steyr's study for the 4X4 system for the Mercedes E- class of the Indian conditions revealed that investments required to produce such volumes are too high to make project financially viable especially if several types of transmissions are needed to cover applications on vehicles with different dynamic need. Also transmissions designed for the modem environment do not meet the optimum solution for the Indian conditions. Thus it was suggested to produce and develop transmission from a single manufacturing set-up c) Platform strategy It defines the configurations, derivatives and configurations that will be built on each platform as well as the strategy for the introduction of new models. It defines cross platform relationships and the aggregate-sharing plan. It involves 214 designing and developing one or more platform, which will render itself suitable for building multiple configurations and derivatives of each configuration. It should be suitable for model changes to enable regular introduction of new models. The design and development costs are brought down mainly through i. Optimising development process for platform and derivatives ii. Cross platform development optimisation iii. Systems development cost sharing between platforms iv. Defining degree of optimisation V. R&D partnership vi. Carryover fi-om the post Design to be undertaken as a homogenous project to achieve targets to make common platform, aggregates and some of the body panels. OPDM reduces design cost, time and effort, as several parts are common. It leads to further investment reduction in the manufacturing process. Provision can be made for introducing new model changes regularly. Production volumes of different body parts can be optimised. Thus we see how costs, technology and time are the major determinants of a differentiation strategy. Before we get into an analysis of the sequence of product changes let us see what is the product level that exists.

Product Dimension Analysis 9.2.3 Dimension Analysis - essentially involves a comparison of a products dimensions within a given or assumed price range. First we will carry out an internal consistency test of variants within a model to see if any basic differences exist. Then we will compare models on a price range. The major variables associated in this category include the follov/ing a) Length b) Width c) Height d) Ground clearance e) Kerb weight f) Boot space g) Wheelbase h) Fuel Tank Capacity It is seen from Chart 9.2.3.1 data that there exists a great deal of consistency in internal comparison of models. Variants are basically derivatives of the same base model and the difference that is created by way of additional features and the 'loading' of a car are essentially cosmetic when comparing the basic essentials. Very minor differences exist in the dimensions of variants and are localized mainly to the kerb weight, which varies as additional features are incorporated in the model variant. Dimension analysis is important to make a size comparison. Thus length, width and height differentiate models on their basic shapes. Ground clearance is a major factor as it determines the models and hence the companies attitude towards producing an Indian road friendly product. Road conditions in India are much different than elsewhere due to their poor conditions making adaptability of models designed for a 215 Chart 9.2.3.1 Dimension for Various Models

PR1C1-: IlANGi: BI-J-OW D LAKILS MODH. NOS LENGm winni HeGHT GRND KERB TRUNK WHE FUEL COMPAN OI" (MM) (MM) (MM) CLS wr VOL EL IX Y VARl (MM) (KG) (LTR) BASE CAP ANTS (MM) (LTR) IMI-WCX) MATIZ 4 3495 1495 1485 170 800 104 2340 35 HAT UNO 10 3689 1558 1430 120 850 265 2362 42 IIM AMBY 11 4325 1662 1600 120 1200 2464 42 ItYUSDM SANTRO 12 3495 1495 1590 172 776 280 2380 35 MlJl. 800 6 3335 1440 1405 170 640 2175 1000 2 4075 1575 1395 180 825 2365 ZEN 8 3495 1495 1405 165 765 210 2335 35 WAG-R 2 3495 1495 1660 165 840 2360 35 ESTEEM I 4090 1575 1395 160 860 376 2365 45 naxo INDICA 9 3660 1625 1485 170 980 220 2400 1 37 PRICE RANGE 5 LAKH TO 8 lAKH MODEL VARI LENGTH WIDTH HEIGHT GRND KERB TRUNK WHE FUEL. ANTS (MM) (MM) CLS WT VOL EL TK (MM) (KGS) (LTR) BASE CAP (MM) (LTR) DAirVVCX) aiax) 1 4482 1662 1393 183 997 530 2520 50 NEXIA 1 4482 1662 1393 183 1088 530 2520 50 llAF SIENNA 7 4100 1614 1445 140 1063 500 2360 48 IORI5 IKON 5 4140 1634 1379 976 410 2486 45 OM CORSA 3 4056 1608 1420 190 1064 390 2443 46 HM OONTY 2 4571 1699 1432 148 1138 600 2667 65 IIONDA cn-Y 2 4225 1690 1395 170 965 385 2500 45 HYUNDAI ACxnrNr 3 4235 1670 1395 172 1045 380 2440 70 MIIL ESTFJOvl 5 4090 1575 1395 160 872 376 2365 45 ZEN 1 3495 1495 1405 165 790 210 2335 35 WAG-R I 3495 1495 1660 165 840 2360 35 BALENO 1 4225 1690 1390 170 975 2480 51 PRICE RANGE BEYOND 8 lAKPLS COMPAN MODEX VARI LENGTH WIDTH HEIGHT GRND KERB TOUNK WHTi FTJEI. Y ANTS (MM) (MMO (MSf) CLS WT VOL EL TK (MM) (KGS) (LTR) BASE CAP (MM) (LTR) GM ASTRA g 4239 1696 1410 136 1115 500 2517 52 HONDA OTY 2 4225 1690 1395 170 1015 385 2500 45 HM LANCER 5 4290 1690 1430 185 1010 420 2506 50 MERCFX)E E220 2 4818 1799 1440 130 1590 520 2833 65 E240 2 4818 1799 1440 130 1580 520 2833 65 E250 2 4818 1799 1440 130 1510 520 2833 65 Source: Compiled from Technical Brochures of Various Companies CLS = Clearance; mm = millimeter; wt = weight; vol - Volume; tk = tank; Kg = Kilogram; ltr= Litre MBIL = Mercedes Benz India Ltd; TELCO = Tata Engineering and Locomotive Company GM= General Motors; HM = Hindustan Motors; MUL = Maruti Udyog Ltd

world market difficult. Hence companies carry out modifications by increasing ground clearance to meet local conditions. Kerb weight differs among the various models due to differences in the models and the different power trains (engines) used. Thus diesel-engine cars are heavier because the diesel engine is heavier than the petrol ones. Kerb weight imposes restrictions on fuel efficiency, acceleration, top speed etc. Trunk Volume or hoot space is the volume or space provided in vehicles for easy carriage of luggage. Wheelbase is the distance between the centre to centre of the front and the rear wheel. Fuel tank capacity determines the range of the car. Generally a larger fuel tank volume is preferred. Number of variants offers the variety the company has created for its consumer. 216 Chart 9.2.4.1 - Data for Power train Analysis PRICr. I^NGF WrO 5 lAKIIS COMP MODEI. VER VARIAN DIS CY MAX MAX BOREX CO.M VALVE IXCL ANY SIO P L POWER TORQUE STROK P GEAR DH. N r (CC) E RAH DML MA1TZ 4 796 3 52/6000 7.3/3500 62JX72 9.3:1 2SOHC MPll MAT UNO 3 EL 1292 4 72/6000 100/3000 70.8X79 9.8:1 2SOHC EMPn 3 DLX 999 4 45/5000 80/3000 70X64.9 9:1 2SOHC C/iRB 4 DSL 1697 4 58/4600 100/2200 82.6X79 20:1 2SOHC DM HM AMBY 1 1.5E 1489 4 36/4000 83/2250 6 BumE 1817 4 75/5000 135/3000 84X82 8.5:1 2 SOHC EMPH 4 2000 1995 4 55/4000 108/2500 IIMC SANTRO 12 999 4 55/5500 82/2500 66X73 8.9:1 3SOHC EMPn MIJI, 800 3 El 7% 3 39.5/5500 56/2500 68.5X72 9.2:1 2 SOHC CASS 3 E2 796 3 45/6000 62/3000 68.5X72 9.2:1 4 SOHC EMPn 1000 2 974 4 46/5500 72/3500 ZEN 5 LX/VX 993 4 50/6500 71/4500 72X61 8.8:1 2 SOHC CARB 1 D 1597 4 57/5000 95/2250 2 CLASSIC 993 4 60/6500 78/4500 72X61 8.8:1 2 SOHC EMPFI WAG-R 2 V»LX 1061 4 61/6000 82/3500 68JX72 9.0:1 4 SOHC EMPn ESTEEM 1 LX 1298 4 65/6000 99/4000 74X75.5 9.0:1 2 SOHC CARB TELCO INDICA 6 DSL 1405 4 54/5000 82/2500 75X79J 22.0:1 2 SOHC mn 1 STD 1405 4 6(V5O00 105/2250 75X79J 9.0:1 2 SOHC CARB 2 DSLMPl 1405 4 74/5500 110/3000 75X79.5 22.0:1 2 SOHC EMPFI

PRICE RANGE 5 LAKHS TO 8 LAKHS COMPA MODEL VERSIO VA DIS C MAX MAX BORE COM VALVE FUia. NY NS RI P Y POWER TORQUE X P GEAR DEUV AN L SFRCWE RAIT ERY DML CIELO EXEC 1 1498 4 80/5400 132A5200 76JX81 8.6:1 2 SOHC MPFl NEXIA 1 1498 4 92/5600 132/3400 76JX81-5 S3:t 4DOHC MFFT ITAT SIENNA PS 4 1242 4 72/6000 100/3000 70.8X78.8 9.8:1 2 SOHC EMPn DSL 3 1697 4 62/4000 120/2500 82.6X79.2 20.3:1 2 SOHC m FORD IKON IJCLX I 1242 4 58/5000 1000500 1.6CLX 3 1597 4 91/5500 130/2500 82X75J 8.4:1 2 SOHC SEQ-E 1.8DSL 1 1753 4 58/4800 108/2200 82^X82 2 SOHC R-Dn CJM CORSA 1.4 2 1389 4 88/6000 110/3200 77.6X73.4 9.5:1 2 SOHC EMPn 1.6 1 1598 4 92/5600 122/3200 79X8IJ 9.5:1 2 SOHC EMPIl IIM CX)NTE 1.8 GLX 1 1817 4 75/5000 138/3000 2.0 DSL 1 1995 4 52/4500 110/2500 HONDA CITY 1-3 2 1343 4 90/6400 113/4700 75X76 9.0:1 4 SOHC pcavffi HMC ACCENT GLS 3 1495 4 94/5500 124/3500 75JX83J 9.0:1 3 SOHC EMPFl MIJI, ESTEEM VX/AX 2 1298 4 65/6000 99/4000 74X75.5 9.0:1 2 SOHC CARB VXI/AXI 3 1298 4 85/6000 106/3000 74X75.5 9.0:1 4 SOHC MPH ZEN 1 993 4 60/6000 78/4500 74X75.5 9.0:1 WAG-R AX 1 1061 4 62/6000 63/3000 74X75^ 9.0:1 4 SOHC EMPn BALENO STD 1 1590 4 94/6000 134/3000 75X90 9.0:1 4SC«C MPn

PRICE RANGE 8 LAKHS AND MORE CT)MPA MODEL VARI VER DIS C MAX MAX BOREX COM V/LLVE/ FUEL NY ANTS SIO P Y POWER TORQUE STROK P GEAR DEL L E RAT MICRC ESER E220 2 2148 4 143/4200 320J/2S00 88X81. 18:1 4SC»K: on E240 2 2398 6 156/5900 2133/5000 83.2X83 9.0:1 3IX»K: EMPFI

E250 2 2497 5 111 J/5000 173 J/2800 87X84 22:1 4S«K: MPn (;M ASTRA PET 4 1598 4 76/5400 123/2800 79XB1J 9.2:1 2SOHC TBI 1.6PET 1 1598 4 95/5600 125/3200 79X81J 9.4:1 2SOHC MPH DSL 3 1700 4 68/4500 135/2400 82JX79 22:1 2SC«C BOSC HM L\NCER GLXI 3 1468 4 87/5500 129/3300 75JX82 9.0:1 3SCMC EMPFI Gl-XD 2 1998 4 65/4500 138/3000 82.7X93 22.0:1 2SOHC INJEC HONDA crrY 1.5 2 1493 4 100/6400 130/4700 75X84J 9.0:1 4 SOHC DH Source: Compiled fromTechnica l Brochures of Various Companies MBIL = Mercedes Benz India Ltd; TELCO = Tata Engineering and Locomotive Company CJM= General Motors; HM = Hindustan Motors; MUL = Maruti Udyog Ltd; CYI. = Cylinder PET = Petrol; DSL = Diesel; SOHC and DOHC = Single and Double Overhead Cam; DISP = Displacement; COMP = Compression; MAX = Maximium; CARB = Carburetor; MPFI = Multi Point Fuel Injection; VER = Version; V/\R = Variants; COMP RAT = Compression Ratio 217 Power-train Analysis 9.2.4 Power train Analysis - The engine is the powerhouse of the car converting heat produced by burning fuel into mechanical energy to turn the wheels. Fuel is burnt in closed cylinders inside the engine (called internal combustion engine). When analysing the power train of an engine several variables have to be considered with different impacts on fuel efficiency, power, economy etc. Major variables associated in this category include the under-mentioned factors. a) Engine displacement b) Cylinders in nos. c) Maximum power d) Maximum torque e) Bore X Stroke f) Compression ratio g) Valve gear layout h) Fuel delivery We will now analyse the various power trains that the companies are offering with their product to analyse the companies/products positions on the power train comparison of the various models. The data for power train analysis is given as Chart 9.2.4.1. The major performance measure of the power train is the maximum power and the maximum torque developed. All other parameters contribute to these two. Thus the same engine configuration with the same component dimensions gives a higher power layout for a multi-point fuel injection as compared to direct fuel injection and a carburettor.

Suspensions, Steering. Wheels, Brakes and Other Systems 9.2.5 Suspension, Steering, Wheels, Brakes and other Systems - generally these systems are more or less compatible in all the vehicles and major differences do not exist, except major features like power steering, disc or hydraulic brakes etc. Suspension systems for absorbing shock while on the drive are more or less the same and standard in most vehicles. The major elements of this analysis are a) Suspension system b) Steering system c) Wheels and tyres d) Braking system e) Gearbox Primary function of suspension is to isolate the vehicle and its occupants from shocks and vibrations generated by the road surfaces while maintaining steering control and stability at all times. It concerns both ride quality and vehicle handling. Classification of suspension systems can be myriad. They could be a) Front or rear b) Coil spring, leaf spring or torsion bars c) Active or passive d) Independent, semi-independent or non-independent e) Magnetic, pneumatic, electronic or other kinds We analyse only the most basic types. Front suspensions, in modem cars, mostly use coil springs with either double wishbones (called A arms, due to its shape) or 218

Chart 9.2.5.2 - Data for Analysis of Suspension, Steering, Braking and other Systems

1) FOR PRICE RANGE BELOW 5 LAKFS A) SUSPENSION AND STEERING COMPANY NfODH, VER SUSPENSION STEERING FRONT REAR TYPE TURN(L-L) TURNDIA DAEWOO MATE 3 MS'CS/HD/ARB TL«A/CCS R/P,MA 3.2 9.1 1 MS'CS/HD/ARB TiySA/CCS R/P,PA 3.2 9.1 MAI IJNO 8 MS/LTCA/DASA TB/CS^/VTS R/PJVIA 3.2 9.4 2 MS/1,TCA/DASA TB/CS/SAn'S R/PJPA 3.2 9.4 IIM AMBY 11 mVARB/DASA SE1.S/HDASA R/P,MA I lYIJNDAI SANTRO 4 M«VSB TBA/CS/HD R/P>1A 3.87 8 Ms/sn TOA/CS'HD R/P4>A 2.97 MUI. 800 6 1000 2 MS/CS MS/CS ZEN 7 MS/CS/ARB TLRA/ISi«A R/P>1A 3.9 9.8 1 MS/CS/ARB TLRA/IS/SA R/PJ'A 3.9 9.8 WAGONR 2 MS/C&T)/ARB CS/GFDmjtVTA R/PJvlA 3.7 9.2 F,STEEM 1 MS/CS/ARB MS/CS R/PM^ 4.29 9.8 nico INDICA 6 MS/CS/ARB/WTl. STA/CS/IIAS R/P>1A 3.32 9.8 3 MS/CS/ARBWrL STA/CSniAS R/PJ'A 3.32 9.8

B) BRAKING, WHEELS AND GEARBOX COMPANY MODH. VERSIO BRAWN WHEELS GEARBOX N G FRONT REAR ASSIST WHEELS TYRES DAE"WOO MATTZ 4 236 DI 190 DR H/DC/B PSD4JJX13 145/70 R 13 5M,AS HAT UNO 10 Dl DR Hn/AADS PSD4JJX13 145/80 R 14 5M,AS liM AMBY 11 230 DI 230 DR H/DC/SA PSD4JX15 165R IS 5M,AS HYUNDAI SANTRO 12 229 Dl 178DR H/PA/DS PSD4JX13 155/70 R 13 5M,AS MUL 800 6 5M,AS 1000 2 5M,AS ZF>t 8 182D1 180 DR H/DS/SA PSD4JIX13 145/70 R 13 5M,AS WAGONR 2 PSD4JX13 145/70 R 13 5M,AS ESTEEM 1 PSD4JJX13 155/80 R 13 5M,AS ITiCO INDICA 9 231 DI 180 DR HDC/DS PSD4JJX13 155/70 R 13 5M,AS

2) FOR PRICE RANGE BETWEEN 5 LAKHS AND 8 LAKHS A) SUSPENSION AND STEERING COMPANY MODEL VER SUSPENSION SlhhRlNG FRONT REAR TYPE TURN(L-L) •rURNDL\ DAEWOO CIELO 1 1MS«:S/IVARB ATA/CS/SA/ARB R/PJ>A 3.4 9.8 NIOOA 1 IMS TACS'SA/ARB R/P^A 2.6 10.4 ITAT SIENNA 7 IMS/I-W/CS/ARIVIT) rrAA:s/ARB/n5 R/P4>A 2.6 10.4 lORli IKON 5 IM&CS/D srrB/sTcs/D R/PO'A 4.27 9.8 C;M CORSA 3 IMS CCS/rSIVGCSA R/PJ'A 2.8 9.95 HM CONT 2 IKDNDA CTTYIJ 2 IMS IS/TL R/PJ>A 3.67 9.6 HYUNDAI ACCENT 2 MS/CS/D/ARB DLCSrt3SA/ARB R/P4»A 4.06 1 MS/CS/D/ARB DLCS/OSA/ARB R/PJvlA Z93 MUL ESTEEM 5 MS/CS/D/ASB IM&CS R/P^'A 3.23 9J6 ZEN 1 KC/CS/ARB TLRA/IS/SB R/PJ-A 3.9 9X WAGONR 2 MSKSnWASB CS/GDmJlA/TA R/PJ>A 3.7 9.2 BALENO 1 MA/CS/IVARB FUS R/PJ»A 3.25 9.8

TABLE FOR ABBREVLMTONS USED - 1. BRAKING A) DI- DISC E)H-HYDRAUUC H) DS - DIAGCWALLY SPLTT K)VA-VACCUM B) VDI - VF>rniATED DISC F)B-BOOSTER I) PA - PRESSURE ASSISTED ASSIST Q DR-DRUMS G)DC - DUAL CTRCUrr J) SA - SERVO ASSISTED D) ABS 2. GEARBOX A) M. AS-MANUAL, ALL SYNOmOMESH B) A TC - AUTOMATIC. TORQUE CONVERTER 219

B) BREAKING, WHEELS AND GEARBOX COMPANY MODEL VER BRAKING WHEEL GEARBOX FRONT REAR ASSIST WHEELS TYRES DAEWOO OELO 1 DI DR H/DA/SA PSD 5JX13 175/70R13 3A,TC NEXL\ 1 DI DR H/AV/C PSD4JJX14 185/60 R13 5M,AS MAT SIENNA 7 240 VUI 185 DR H^A/©S PSD5JX13 175,70 R 13 5M,AS lORD IKON 5 240 DI 180 DR H/VA/DS PSD4^JX13 175/70 R 13 5M^ GM CORSA 3 236 VDI 200 DR H/VA/DS PSD5JJX13 175/70 R13 5M^ HM CONT 2 HONDA CITY 13 2 190 VDl 180 DR H/DS/SA PSD5JX13 175/70 R13 5M,AS HYUI^AI ACCENT 2 240 DI 180 DR PSD4^JX13 175/70 R 13 5M,AS 1 240 DI 180 DR PSD4JJX13 175/70 R 13 5HAS MlJl. ESTEEM 1 DI DR HA3«A PSD4JJX13 155/80 R 13 3A,TC 4 DI DR liTVSA PSD4JJX13 155/80 R 13 5M^ ZEN 1 182 DI 180DR H/DSWA PSD4JJX13 145/70 R 13 3A,TC WAGR 2 DI DR U/DSrVA PSD4JX13 145/70 R 14 5HAS BALENO 1 198 VDI 200 DR H/DS/SA PSD5JX13 165/80 R 13 5M^AS

3) FOR PRICE RANGE BEYOND 8 LAKHS A) SUSPENSION AND STEERING COMPANY MODH- VER SUSPENSION STEERING FRONT REAR TYPE TURN(L-L) TURNDIA GM ASTRA 8 MS/CiyW/GFTT MS/ARB R/P^A 3.43 9.8 HONDA cnYi^ 2 IMS/SB ISAl. R/P4>A 3.67 9.6 IIM LANCER 5 MS/CS/SB MLS«B/HDASA R/PJ?A 2.74 10.2 MBIL E220 2 DWAfll^A/CS/rBS ML/GSAA:S/rBS R/PJA 3.4 113 E240 2 DWA/GSA/CS/TBS ML/GSA/CS/TBS R/P^A 3.4 113 E250 2 DTCA/GSA/CS/TBS FURS R/PJ>A 3.4 113

B) BRAKING. WHEELS AND OEARBOX COMPANY MODEL VE BRAKING WHEEL GE BOX FRONT REAR ASSIST WHEELS TYRES 5HAS GM ASTRA 8 256 VDI 230 DR VA/DS PSD5JJX14 165/80 R 14 5HAS HONI5A CnYl.5 2 191 VDI 180 DR HA'A/DS PSD5JX13 165/80 R 13 5HAS HM LANCER 5 184 VDI 180 DR VAflDS PSD5JX13 175/80 R13 5My^S MBII. E220 2 284 VDI 180 DR IWA/ABS/BSP A7JX16H2ET37 215/55R1693V 6MAS F.240 2 284 VDI 258 DI \WA/ABS/ESP A7JX16H2Er37 215/55 Rl 693V 6MAS 1^250 2 284 VDI 258 DI H/DS/SA/ABS A7JX16H2Er37 205/65 R 15 SMAS

TABLE OF ABBREVIATION USED - 3. STEERING - A) R/PJ>A - RACK AND PINION, POWER ASSIST B) R/P>t\ - RACK AND PINION MANUAL ASSIST 4. SUSPENSION - A) MS-McPHERSON STRUTS G)W-WISHBONE B) CS-COIL SPRING H) MLSSB - MULTl UNK SUSPENSION C) D-DAMPERS STABIUSERBAR D) ARB-ANTI ROLL BAR I) HDASA-iryDRAULIC DOUBLE ACITNG E) IMS-INDEPENDENT McPHERSON STRUTS SHOCK ABSORBERS F) MA- J) TL - TRAPEZOIDAL LINK G) S/IX - SEMI/TRAILING LINKS K) FURS - 5 LINK INDEPENDENT REAR SUSPENSION H) WTL-WISHBONE TYPE LINK L) TBS/A - TORSION BAR STABQJSIiR/AXLE I) SB-STABIUSERBAR M)IS -INDEPENDENTT STFRUTS J) GPTT-GAS PRESSURE TWIN TUBE N)SELS - SEMI ELLIPTICAL LEAF SPRINGS K) DWA- DOUBLE WISHBONE AXLE 0)TLRA -THREE LINK RICHD AXLE L) GSA-GAS SHOCK ABSORBERS P)FL-FOUR LINKS M) STRUTS Q) DTCA- DOUBLE TRANSVERSE CONTROL ARMS N) TB-TORSION BAR 5. WHEELS- A) PSD-PRESSED STEEL DISC B) A- AIXOY Source: Compiled from Technical Brochures of Various Companies 220 McPherson struts to locate the wheels and control movement geometry over bumps and in comers. Unequal length wishbones or slightly inclined struts are preferred as they more effectively separate effects of springs and dampers and control wheel movements better. Upper wishbone is shorter than the lower one for better camber control. Struts are preferred to wishbone as they spread load inputs to the body better and eliminate heavy sub frame requirement to insulate noise, vibration and harshness (NVH). Dampers are directly attached to the body to ensure damping forces on body are not depleted by insulation of sub-frame mounts. McPherson struts are the most commonly used design for front suspension on modem cars. Rear suspensions can be broken into three main types a) Live axle - with final drive and differential incorporated b) Dead axles c) Independent rear suspensions - swing axle type, trailing arm type or strut link/wishbone type Dead axle or independent suspensions are preferred over live axle due to the reduction in the un-spmng masses, which improves ride and handling and agitation of driven rear axle. No real objective measures or indices exist to quantify the ride and handling characteristics of suspension systems. Compromise on conflicting objectives coupled with cost considerations has resulted in the adoption of the modem coil spring - damper configuration. Active and electronically assisted suspension systems are trickling in the market but their penetration is bound to take time. Tyres are cmcial in evaluating automobile performance. It is the only contact of the automobile with the road. Good tyres help reduce rolling resistance of cars, shorten braking distances, increase lateral grip or cornering forces, improve vehicle handling by offering a more comfortable ride. Braking system involves both the front and hand brakes. Brakes generally used for modem cars are discs for the front and drums for the rear. A dmm brake consists of a cast iron dmm containing a pair of semicircular brake shoes. The dmm is attached to the wheel and revolves with it, so that when the dmm is slowed and halted the wheels stop too. Since the early days of motoring, there have been efforts to reduce amount of stress on the driver as well as amount of energy used by him especially through a lighter steering. Delphi first introduced power assisted steering in 1950. The need arose due to demand for heavier, larger vehicles that were difficult to drive at low speeds. In India power steering were first introduced on the Standard 2000 in 1986. Power steering is operated by oil under pressure. Oil is supplied by a pump driven off the engine or off the rear end of the gearbox. Chart for analysis of Suspension, Steering and Braking System are given as Chart 9.2.5.2.

Test Results 9.2.6 Test Results - the performance of the automobile in terms of its abilities like the power train, the suspension systems, steering etc are difficult to integrate and quantify over all the vehicles, operating under diverse load, terrain, uses and other factors. Thus it becomes very difficult to give one measure of a vehicles performance. However average figures are required by the customer to help his information collation and decision-making. For this we use test data results for cars under test. New model releases are accompanied by their thorough testing by the company before their launch. Vehicle Research and Development Establishment, Ahmednagar has a 221 test track where various models are tested and their data tabulated. Several parameters form the crux of these tests and these tests form the basis of performance measures. Tests include the following a) Acceleration - distance and time b) Braking - distance and time c) Fuel efficiency d) Air-conditioning e) Noise f) Acceleration through gears g) Maximum speed Acceleration is a direct outcome of engine performance and hence depends on it. It is measured in terms of lime or distance taken to achieve a particular speed. Acceleration is used as a test parameter because it determines the response of the vehicle and hence is one of the direct measures with which customer judge a vehicle's performance. The lesser the response time or distance, the better is the car performance. A high performance engine is worthless if it shows poor acceleration patterns. It is determined by a host of factors, the most important being the vehicle load. The distance and time results vary when the AC is switched on and hence the engine is under extra load. Hence it becomes imperative to include a comparison of data under both conditions. Braking results is an outcome of the kind of apparatus or braking system used. It involves the time and distance required bringing a vehicle moving with a particular velocity to rest on application of braking forces. Fuel efficiency is one of the major drivers for buyer's performance and in fact it is the most important. Fuel efficiency measures the distance, which a particular car covers while burning one litre of fuel and is measured in terms of kilometres per litre. Fuel efficiency variations are tremendous because of the whole lot of factors, which affect it, hence making it imperative to use test results because of uncontrollable data variations. Fuel efficiency is one of the most important factors in judging a cars performance especially in India with disparate oil prices and due to wide price differentials created due to an administered price discrimination between the prices of two major derivatives, diesel and petrol. A recent change in government policy to bring out equality in the price of the two derivatives has forced many manufacturers to alter their production strategy. By increasing fiiel efficiency, manufacturers tend to reduce the direct cost of using the product. It is one of the major value drivers created by the manufacturer and hence is an important parameter to be analysed. Noise analysis is carried out because it has a direct bearing on the impression customer forms about the product. Noise and vibration leads to driver fatigue and hence figure out as one of the measure of customer satisfaction. Reduced noise and vibration levels are a pleasing experience for both the driver and the passengers. Manufacturers strive hard to effect reduced noise levels as this leads to consumer delight. Air-conditioning is another one of the measures, which leads to a meaningful appreciation of a vehicle's value. Air-conditioning is a feature provided on vehicles to provide comfort to the drivers. Air-conditioning is basically judged on two parameters- grille temperatures and the spread of the air-conditioning in the car. The grille temperature is the temperature at the grille and the spread of air-conditioning is how the cooling power is spread along the internal volume of the car. A more even spread of air-conditioning 222 reflects in a lower temperature in the whole volume. Acceleration through gears measures the time taken for the vehicle to move from one particular velocity to another in a particular gear. The lesser the time taken the better is the power and hence the performance of the car. Speed is a major factor for the development of motoring in the world. Over the years speed has been a major thrill and has been a major factor in the development of motoring. Analysis of the maximum speed of a vehicle at a particular gear is another performance measure and is a measure of the engine's performance as well. All these factors have to be analysed in totality for a meaningful analysis. This analysis is being done to rate the various cars in a particular price band on a basis of these performance measures and to rank them in a particular price band on the basis of the comparison of their results using statistical analysis. The data evolving out will be used in conjunction with the data derived on the basis of other parameters to determine how companies have positioned their product and have created value for the customer on the basis of product differentiation alone. The superimposition of these positioning and product battlefield maps drawn over the whole range of parameters used will help us reach our result.

Features 9.2.7. Features - involves the various equipment and attachments that manufacturers attach to their products to make the offer more attractive. These are those items, which a consumer wants in his vehicle to enhance its satisfaction. Companies have used features as a major tool for product differentiation. We attempt to rank the various products in a particular price band depending on the level or the various kinds of features provided on the particular car. Companies have a whole array of equipment to create a high level of product differentiation and to charge a price premium on it. The choice is wide and ranges from major features like ABS, Air- conditioning, tilt steering, power steering, alloy wheels etc to minor things like fog lamps, body colour bumpers, tachometer etc. For our analysis we choose a set of 23 features, which will effectively cover the whole range of factors. These include AC, power steering, tilt steering, central locking, power windows, alloy wheels, tinted glass, rear seat belts, split/folding back seats, tachometer, door mirrors: internal or power adjustable, rear seat armrest, stereo, CD changer, fog lamps, body colour bumpers, remote fuel cap release, remote boot rehase, outside temperature gauge, rear defogger, rear wash pipe, ABS, airbags. Features are a very important variable for a positioning strategy. Companies use features to convert a product with a low level of differentiation into a more differentiated offering. When analysing the effect of differentiation by using features it becomes imperative to keep in mind the price premium it commands. Value creation, the basis of all this product strategy is not determined by one factor and hence has to be seen in comparison with other features and competitors offerings also. All these features don't affect the performance of the car directly, but only indirectly by creating a more ambient and exclusive ride experience for the driver. AC, power steering, tilt steering improve the driver environment by making driving more comfortable for the driver. Stereo and CD changer provide entertainment to the driver while he is driving the vehicle-making journey pleasurable. Alloy wheels, tinted glasses, door mirrors, fog lamps, body coloured bumpers enhance the aesthetics of the car. Central locking, power windows, 223 tachometer, remote fliel cap release, remote boot release, rear defogger, rear wash pipe makes normal operations in a car simpler and easier. Split/folding backseats, rear seat armrest makes driving more comfortable for other passengers. Rear seat belts, ABS (anti-breaking system), airbags are provided for additional safety. All these features tend to enhance drive appeal of the car in the mind of the customer without actually affecting performance. These add to buyer value, but they cannot be treated in isolation and have to be considered as a part of a complete package. The value added has to be compared with the price premium this form of differentiation commands. The product package is generally differentiated from the standard offering by giving it fancy and exclusive suffix like 'Deluxe', 'Club', or 'Executive' or specifications like PS, SP etc by some companies.

Analysis 9.2.8 Analysis -The data analysis of products on the basis of the degree of difference between product clusters created posed a major problem. The data analysis had its major problem in determining the relevant factors for our analysis. Data was both numerical and non- numerical in nature but sufficient to rank the data. The original data set had the following size

RANGE ROWS CX)LUMNS CAIEGORIES UITOSLAKILS 65 102 12 5 8Ij\KHS 32 102 12 8 lAKI IS AND BEYOND 26 102 12 The categories have been condensed from a host of other variables, which affect the product. In crystallizing these product categories, a major problem was the existence of a host of subjective variables, which are very difficult to quantify, and consumer's preference set as regards them is very diverse. These are factors like styling, design, aesthetics and several others. These factors are characteristic to each vehicle and is an important buyers choice set variable. However these factors have to be neglected because of the difficulties involved in dealing with them. The 12 categories are general broad categories over which these 102 variables have been distributed. This categorical distribution is explained below. An attempt was made to ensure that duplication of categories does not take place and the categories are basic broad bases to encompass the general parameters on which a car can be differentiated from other substitutes. A broader analysis of how categories have been collapsed will be had after the table

CATEGORY NOS OF VARIABLES DATATVTE PRICE PRICE RANGE OVER 15 METROS NUMERICAL DIMENSION DATA OVER 7 VARIABLES NUMiaUCAL l-OWERTRAIN 8-VARIABLES NUMERICAL AND NON NUMERICAL SITERING 3-VARIABLES NON NUMERICAL HRAKING 3-VARIABLES NUMERICAI- WHEEI.SAYRES 2-VARlABLES NON NUMERICAL ACCF±FRATKyf4 10 SUB-VARIABLES NUMERICAL Ea)NOMY 5 SUB-VARIABLES NUMERICAL NOISE 4 SUB-VARIABLES NUMERICAL nL\TURF.S DATA OVER 23 VARIABLES NON NUMERICAL ACC TTIROIJGII GEARS 4 SUB AND 16 SUB SUB VARIABLE NUMERICAL MAX SPEED THROlKiH GEARS 5 SUB VARIABLE NUMERICAL 224

This data was to be condensed into a more manageable data set. For this the following wf.s carried out a) Price - mean price was calculated over the 15 metros. Certain cities did not have dealership for certain manufacturers or models were not available. Mean values were assigned to them b) Dimensions- data was collected on 7 sub-variables namely, length, width, height, ground clearance, kerb weight, trunk volume, and wheelbase. This was further reduced to two basic parameters space and kerb weight. Kerb weight was taken as was observed. Space, was calculated by first subtracting ground clearance from height and then calculating the volume using the length and the breadth dimensions. c) Power train - power train had eight variables: maximum power generated, maximum torque generated by the engine, displacement, bore X stroke, valve gear, compression ratio, distribution system and number of cylinders. This was reduced to basically two variables displacement and maximum power developed. Rest were ignored since their direct effect on the study was very minimal and whatever effect they had was indirect. Thus variation of an engines compression ratio from the stoichiometric ratio of the fuel has its bearing on fuel consumption and power developed which will be subsequently considered. Similarly bore X stroke dimension are significant in that similar values lead to better efficiency which will be reflected in other measurements. Also valve gear arrangements allow an engine to breathe better and hence affect efficiency, which will be analysed by other parameters and hence can be ignored. d) Steering system - data was calculated on three basic parameters, namely assist type (whether power or manual assist), turning diameter and turns lock -to-lock. Power assist is a better and more responsive steering system than manual assist. A lower turning diameter is an indication for a better steering system in the same size class. Number of turns a steering can take is more for a normal manual assist and less for a power assist. Assigning the value of 0 to manual assist and 1 to power assisted steering creates an index. Turning diameter is ranked in the ascending order with a value of 1 to the lowest and increasing values for higher turning diameters. Similarly number of turns a steering can take is ranked in an ascending order. e) Braking system- has three basic parameters. Disc size, drum size and the assist type. Ventilated discs are being used in most cars, as they are better. Assist type has various configurations. It can be diagonally split or dual split. It can be power assisted, vacuum assisted or servo assisted. Undertaking these factors would have been a study in itself and though an important parameter, it had to be neglected. f) Wheels and tyres- data was collected on two parameters, namely tyre and wheel classification. It was observed that variations arising out of this were very minimal. Generally wheel and tyre size depends on the vehicle weight. For a particular price range almost similar kind of tyres were used. For example in the 5-8 lakh price range, heavier vehicles were provided with tyres classified in the range 5.5J X 13 to 5J XI3 and lighter vehicles were provided with 4.5J X 13. 225 Similarly all heavy vehicles were provided witli 175X70 R 13 wheels and lighter vehicles were provided with 155X80 R 13 wheels. These parameters do not cause any real differentiation and are hence ignored. g) Acceleration - these were test data that was observed when the vehicles were tested at the test track at VRDE, Ahmednagar. The data on acceleration was in two broad parameter- time and distance. These were time and distance taken by a particular vehicle to accelerate to a particular speed (in our case from 0 to 100 in intervals of 1 Okmph). It was decided to test the vehicle's performance on the basis of time, as data available was more consistent. It was seen that the coefficient of variation of the data for the range 0-60 Icm/h was the least and hence it was selected to represent the data set. h) Economy - was a measure of the fuel consumption pattern displayed by each car. This is a measure of engine efficiency. It also has the effects of the type of distribution system in use (MPFI or carburettor or direct fuel injection). Data was collected under five major heads; best, worst, highway, city and overall. The coefficient of variation of data under the head "overall" showed the lowest value and was selected as representative of this data sample. i) Noise - refers to the noise and vibrations created by the engine. Measured in decibel levels, data was collected under four heads: idle (i.e. with zero throttle), full throttle, at 50 km/h at 4''' gear and at 70 km/h at 4th gear. Coefficient of variation of noise at 50 km/h in the 4''' gear showed the least coefficient of variation from the mean and hence was taken as the representative from this population j) Features - 23 features were taken and it was noted whether each model was equipped with these features or not. Each feature was assigned a value of 1 and if it was present it gave a score of 1 to the model, else it gave a value of 0. The final values out of 23 were taken for this study. k) Acceleration through gears - measured the time taken by a vehicle model to accelerate from a particular speed to another in a specified gear. Values were taken for gears from 2 to 5 and for speed ranges from 20-40 to 80-100. However the data set was found to be very inconsistent with a whole lot of missing values and hence this was ignored. 1) Maximum speed tlirough the gears - the value of the speed in km/h per 1000 rpm was taken for the 5 gears from zero to five. This measures the efficiency of the transmission system. Models with automatic transmission were neglected. The coefficient of variation for the 3"* gear from the mean was found to be the lowest and was hence chosen as representative of the population

In addition to the inconsistencies in the parameters, there was also inconsistency observed in the models and their initial price classification. Thus one model of Zen and one model of Wagon R due to their positioning existed in the 5-8 lakh bracket. However they created a lot of distortions in the data comparison as regard the means and standard deviations. Similarly one model of Esteem existed in the below 5 lakh bracket and distorted the data patterns and had to be neglected. Similarly Mercedes Benz range of cars form a different cluster of their own on the basis of differences on most parameters. They have been treated as a separate cluster and 226 removed from the general data analysis. Two models have not been considered, namely Hindustan Motors offering: Contessa and Ambassador. These are niche product with very different parametric values and hence distort our data set effectively. Thus our final data set consists of the following contingency tables

PRICE RANGE MODELS PARAMETERS UFIO 5 LAKHS 50 11 5-8 LAKHS 28 11 81_AKHSANDMORE 15 11 Numerical parameters and their coefficient of variation values are given as under PARAMiriER SELECIED PARAMETER COEFHCIENT OF VARIATION 5LAKH 5-8LAKH 8IJ\KH^^ ACCEl-ERA'nON TIME 0-60 1.31315 0.925062 0.11752 IIJEL CXJNSlJMP'nON OVFJIALL 0.707432 0.961597 0.0386 NOISE 50KMPHAT4'"GEAR 1.135124 1.124297 1.332541 MAX SPEED n TROUGH GI-:ARS 3"^ GEAR 0.499401 0.730555 0.529491

Rate of Introduction of Models 9 2.9. The Indian automobile industry has seen a lot of changes over the period of years. However the most significant changes have been after 1995. In 1987 there were only a few companies catering to a restricted market. However the changes have been substantial over the period of few years. The actual jump in production started in 1998 for the car sector. The growth was more even for the multi utility sector where the sector jumped up in 1993 and again in 1999. The pattern of change is tabulated in the Table 9.2.9.1 and Table 9.2.9.2. and also depicted as Chart 9.2.9.1. As can be seen fiom the Tables 9.2.9.1 and Table 9.2.9.2, till 1991 there were very few and marginal differences till 1991 for the car sector. The industry was similarly inertial about the multi utility sector for the period 1987- 1991, The first change came in 1992 in the multi utility sector where the number of models in the market grew from 4 in 1987 to 5 in 1990 and then increased to 6 in 1993 and 7 in 1994 as a result of product launches. Number of multi utility models grew to 9 in 1996 and then increased by 1 each year to finish at 13 models in 2000, There is not much variation in the number of versions as generally the multi utility vehicles were launched in diesel and petrol in equal number of versions. Number of versions increased from 4 in 1987 to 15 in 2000, which is not much given the fact that there were only 13 models in the market in 2000. Thus the multi utility vehicle sector has not shown much variation in terms of the number of versions. However the number of variants has increased slightly indicating that there has been a slight increase of the differentiation on the basis of variants. The number of vehicles offered for sale but differing on the number of features has increased more indicating that manufacturers have differentiated the product more so on the basis of the features incorporated. For the car sector the story is different. Number of models has generally remained static for the period till 1993. It has increased exponentially till 2000 wherein it increased till 29. Till 1991 we notice that there is not much difference between the values under models, version, variants and features. Thus differentiation was not very aggressive for this period. However after 1991 there have been differences in these differentiation variables. As can be seen, there has not been much change in the number of version or variants but tliere have been major changes in the differentiation variable under features. Thus we can see that manufacturers or the industry has aggressively pursued differentiation on 227

TABLE 9.2.9.1 - RATE OF CHANGE FOR CARS YEAR MODELS VERSION VARIAhfTS FEATURES 1987 6 8 10 15 1988 6 8 10 15 1989 6 8 10 15 1990 5 7 9 12 1991 7 9 10 15 1992 8 10 11 20 1993 10 11 12 23 1994 15 17 20 26 1995 16 21 22 29 1996 20 29 33 43 1997 21 31 34 43 1998 23 37 50 73 1999 25 41 53 97 2000 29 40 82 107 Source: Compiled from Brochures and ReJd Interviews

TABLE 9.2.9.2 - RATE OF CHANGE FOR MULTl LJTIUTY VEHICLES YEAR MODELS VERSION VARIANTS FEATURES 1987 4 4 7 9 1988 4 4 7 10 1989 4 5 7 10 1990 5 5 9 10 1991 5 5 9 10 1992 5 7 9 12 1993 6 10 10 17 1994 7 10 11 17 1995 7 10 11 17 1996 9 11 14 18 1997 10 11 17 19 1998 11 13 18 19 1999 12 14 19 20 2000 13 15 21 25 Source: Compiled from Brochures and Field Interviews 228

Chart 9.2.9.1 - Order of Introduction of the Models and their VersionsA^ariants a)MPANY MOUIiL 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Daewoo • Cielo 1 5 5 4 1 1 • Nexia - - - - 1 1 • Matiz 1 4 4 ITAT • Uno 1 1 4 7 10 • Sienna - - - - - 2 6 7

1-ord • llsccxt 4 4 "> 3 • Ikon . _ . _ _ 4 5 General • Opel 1 1 4 9 8 Motors Astra • Opel - - - - - 3 Corsa ITindustan • An* 3 3 3 3 3 2 2 2 6 11 Motors • Cont 1 1 1 1 2 2 2 2 2 2 • I>anccr 2 2 5 IkmdaSiel • City ------5 5 4 liyundai • Accent - - 3 3 • Santro „ . _ _ _ 3 6 10 Maruti • 800 2 2 2 2 2 2 2 2 3 6 IWyog • 1000 1 1 1 1 1 1 1 2 2 2 • Zen 1 1 2 2 3 5 9 • WagonR 3 • Esteem • Baleno 1 3 3 3 3 6 1 Mercedes . 1240 2 I3cn7. • 1-220 1 1 1 1 2 • E250 - - 1 1 1 2 2 • E230 - - 1 2 2 • E200 PAL Peugeot • 309 1 2 2 2 • Viceroy - - - - 2 - -

Premier • Padmini 3 3 3 3 3 3 4 Automobile • 137 • 118NE 1 1 1 2 2 3 1 3 - - 1 1 1 1 1 1 1 Rover • Montego - - - - 3 - - - - - Sipani • Montana 2 • Dl • Rover - 2 - - - saloon - - 2 - - -

ITICO • Indica ------4 9 Source: Compiled from Company Brochures; Journals and Field Interviews the basis of features. The order of introduction of models has been given as Chart 9.2.9.1 as given. The data has been restricted till 1993. Thus we see that there has been an increase in the introduction of models in the Indian market after 1994, as manufacturers have become more competitive. More so is the choice the Indian consumer faces. It is baffling, making consumer choice very difficult. To create brands in India and to make their products sell firms have to undertake a very heavy communication exercise in communicating their product characteristics to the consumers. 229 Differentiation Pattern for various Firms 9.2.10. It is not easy to trace the differentiation strategy for firms since over the years S'iveral models have been removed from service and production stopped. In addition, the introduction of a time base for analysis makes the examination not of much utility when considered for the entire time period. Thus to get conclusive results, without using much time and effort, we will chart the differentiation bases for all the companies for two points in time and compare them. We will do so for the year 1995 and for the year 2000 as the year 1995 is the starting point of competitive dynamics in the car sector of the automobile industry. Year 2000 is chosen as it forms the end of our period of the study. This analysis will tell us how firms have taken to competition in the market and what strategies have the formulated. As becomes amply clear from Chart 9.2.10.1, differentiating the market offering was not required hence it was not feasible. Each product differed radically fi-om each other and consumers were not so very conscious. Market share was distributed in favour of Maruti which was a government subsidiary, and the rest was divided between the various market players. The market was not competitive and manufacturers were contented with their position knowing it was difficult to compete with a state patronized market leader in a restrictive economy. Some manufacturers like Daewoo Motors had just entered the market and were starting with launching their product in the market. Thus Daewoo had just one model in 1995, the Cielo. It came in only the petrol version and there was no product difference created on the basis of the features offered. Hindustan Motors had two models in their product mix, the Ambassador and the Contessa. The Ambassador was available in 2 versions, the Nova petrol and diesel and the 1800 petrol. The Contessa came in one diesel and a petrol version. There was no further differentiation of the product. Maruti offered 5 models, all in petrol and with only the 800 model differentiated on the basis of features (the Standard and the AC/TG). Mercedes Benz offered only one product, the E220, only in the petrol version. Peugeot offered the 309 in the petrol version as the only product. Premier Automobiles offered a slight variety in their product profile. They offered 4 models, in 4 versions with no variants. However their Padmini car was offered in 3 feature ranges: Padmini Standard, BE Deluxe, BU Deluxe. The British carmaker introduced the Montego model in only the petrol version with no variants. It offered three feature ranges: the Clubman, The Saloon and the Estate. The picture is very different when we consider the picture in 2000 as is shown in Chart 9.2.10.2. As can be seen, in 2000 the number of manufacturers had increased to 9 pure car manufacturers. Thus Daewoo Motors increased the length and width of its product mix by adding two new models, the Matiz as the small car and the Nexia as the luxury car, and by offering Matiz at four levels of features. Fiat India Auto Limited offered 2 models, the Uno and the Sienna each in petrol and a diesel version. No variants were offered, however offering each version at three levels of features for better filling of the product portfolio stretched the line. In 2000, Ford India had one model in the Ikon. It was offered in both the diesel and the petrol versions. The diesel version was one product offering, but the petrol version was offered in 2 variants, the 1.3 and the 1.6. The 1.6 variant was further offered in three-feature level stretching the product mix to 5. Hindustan Motors product assortment consisted of 3 models with the Ambassador offered in 5 versions, the Contessa in 2 versions and he Mitsubishi Lancer in two. 230 CHART 9.2.-10.1 - DIFFERENTIATION BASES OF COMPANIES FOR CARS IN 1995

DAEWOO MODEL VERSION VARIANT FEATURES CIELO 1 CIELO - P 1 0 0 HINDUSTAN MOTORS MODEL VERSION VARIANT FEATURES AMBY 1 NOVA-D 1 NOVA-D 0 NOVA-D 0 NOVA-P 1 NOVA-P NOVA-P 0 CONTY 1 CONTY1.8GL 1 COMTY1.8GL 0 CONTY1.8GL 0 CONTY-D 1 COKTTY-D 0 CONTr-D 0 MARLTTI MODEL VERSION VARIANT FEATURES 800 1 300-P 1 800 0 800 STD ACn^G OMNI 1 OMNI-P 1 OMNI 0 OMNI 0 ESTEEM 1 ESTEEM-P 1 ESTEEM 0 ESTEEM 0 1000 1 1000-P 1 1000 0 1000 0 ZEN 1 ZEN-P 1 ZEN 0 ZEN 0 MERCEDES -BENZ MODEL VERSION VARIANT FEATURES E220 1 E220-P 1 E220 0 E220 0 PAL PEUGEOT MODEL VERSION VARIA^^• FEATURES 309 1 309-P 1 309 0 309 0 PREMIER MODEL VERSION VARIANT FEATURES BE DELUXE 1 BU DELUXE 1 137D 1 137D-D 1 137D 0 137D 0 118NE 1 118NE-P 1 118NE 0 118NE 0 1.38D 1 1.38D-D 1 1.380 0 1.38D 0 ROVER MODEL VERSION VARIANT FEATURES MONTEGO 1 MONTEGO-P 1 MONTEGO 0 CLUBMAN 1 SALOON 1 ESTATE 1 Source; Corrpiled from Product Brochures; Company Releases and Auto Magazines various Issues 231 CHART 9.2.10.2 - DIFFERENTTIATION BASES OF COMPANIES FOR CARS IN 2000

DAEWOO MOTORS INDIA UMITED (DMIL) MODEL VERSION VARIANT FEATURES CIELO 1 CIELO-P 1 CIELO 0 EXECUTIVE 1 MATIZ 1 MATIZ-P 1 MATIZ 0 SS;SD;SE;SP 1 FIAT INDIA AUTOMOBILES UMITED (FIAL) MODEL VERSION VARIANT FEATURES UNO-P DLX AC JUBILEE 1 UNO-D 1 UNO-D 0 DLX; AC JUBILEE; AC PS 1 SIENNA 1 SIENNA-P 1 SIENNA-P 0 ED; EL PS 1 ELX PS SP; PS; SP 1 FORD INDIA UMITED MODEL VERSION VARIANT FEATURES IKON 1 IKON-P 1 1.3 1 1.3CLXi 1 1.6 1 leCLXi; I.eZXi 1 IKON-D 1 1.8 1 i.azxj 1 HINDUSTAN MOTORS UMrrED(HML) MODEL VERSION VARIANTT FEATURES AMFiASSADOR 1 NOVA-D 1 NOVA-D 0 NOVA-D 0 1800-P 1 1800ISZ 1 1800 ISZ; MPFI 0 1800 CNG 1 1800 CNG 0 1800 CNG 0 2000 DSL 1 2000 DSL 0 2000 DSL 0 COtlTESSA 1 1.8GLX-P 1 1.8GtX-P 0 1.8GLX-P 0 20DL-D 1 ZODL-D 0 ZODL-D 0 LANCER 1 GLXi-P 1 GLXi-P 0 GLXi-P 0 GIX-D 1 GLX-D 0 GLX-D 0 MAf?Un UDYOG UVTTED (MUL) MOIDEL VERSION VARIANT FEATURES 800 1 800-P 1 800-P 0 EUROZ. EX;ACn-G XLMPFIEUR02 1000 1 1000-P 1 1000-P 0 1000; AC ZEN-P VX;AT; CLASSIC ZEN-D 1 ZEN-D 0 ZEN-D WAGONR 1 WAGON R - P 1 WAGON R-P 0 LX;VX;AX ESTEEM 1 ESTEEM-P 1 ESTEEM-P 0 LX E1;VX/X GENERAL MOTORS INDIA UMITED (GMIL) MODEL VERSION VARIANT FEATURES ASTRA 1 ASTRA-P 1 1.6 1 1.6; AT; CLUB; 100 1.6I^»F1 1 1.6MPF1;1.6GL;1.6GU ASTRA-0 1 1.6MPF1-D 1 1.7TD;1.7TDGL CORSA 1 CORSA-P 1 1.4 1 GL;GLS 1.6 1 6LS HYUNDAI MOTORS INDIA UtWBTED (HMIL) MODEL VERSION VARIANT FEATURES SA^fTRO 1 SAhTTRO-P 1 EURO-1 1 L2;GLS1 EURO-2 1 L2; GLS1;GLS2;GLE2;GLS MERCEDES BENZ INDIA UMTTED MODEL VERSION VARIANT FEATURES E240 1 E240-P 1 VB 0 VB E220 1 E240-P 1 CDI 0 COI;AT E250O(W210) 1 E250O(W210)-D 1 DIESEL 0 DIESEL; AT TELCO MODEL VERSION VARIANT FEATURES INDICA 1 INDICA-P 1 INDICA-P 0 PL INDICA-D 1 INDICA-D G DL;DLE;DLX 232 The 1800 petrol version of the Ambassador is offered in 2 variants and there is no difference in the product at the features level. General Motor's product mix consists of 2 models (Opel Astra and Opel Corsa), with the Astra offered in 2 versions (diesel and petrol) and the Corsa in only the petrol version. The petrol Astra comes in 3 variants (1.6, 100 and the 1.6MPFI) and the diesel Astra in one version. With this firm's entire product depth is increased to 15. Hyundai Motors has offered 2 models, the Santro and the Accent, both only in the petrol version. The Santro has 2 variants (Euro 1 and Euro2) whereas the Accent has no variants. The product portfolio of Hyundai has a depth of 9. Mercedes Benz offers the trimmest portfolio. It offers 3 models (E220, E240 and tlie E250D (W210)), with the E220 and the E240 in the petrol version and the E250D in the diesel version. There are no variants, however each model is offered at two-feature level, one with automatic transmission (AT) and one without it. Maruti has the most product lines with cars, multi utility vehicles and vans in its product assortment. Maruti offers 7 models in the market, with all models in the petrol version except the Zen, which is offered in both the diesel and the petrol version. Only the Zen offers 2 variants, the Eurol and Euro2. All models offer different feature level except the high end Baleno, which is a new product launch and is expected to be offered at different feature levels. Thus in 2000, Maruti's product mix had 29 components. The aim of offering more product differentiation is to come closer to the concept of micro marketing. Thus more versions offer to rope in value conscious customers, whereas more variants are to make the product available and agreeable to the prestige conscious consumers. Features offer firms to make an attempt to attract a wide range of consumer in the variant class. In addition to all this, products are further differentiated on the basis of minor variations like the colour or the kind of colour (metallic or non-metallic). This constitutes the fifth level of product differentiation. It is seen that variants as a tool for differentiation is being pursued by a lesser number of firms. However as compared to 1995, the changes are tremendous.

Evolution of the Product and the Product Level 9.2.11. A product is anything that is offered to a market to satisfy a want or need. Each product is deemed to have a life cycle, >yhich has basic characteristics at each stage, which determines the firm's competitive dynamics. If we plot firm's sales or profits versus time for a particular firm we derive a product life cycle curve. Each curve is typically divided into 4 stages: introduction, growth, maturity and decline. Each stage has certain typical characteristics. Thus the introductory stage is characterized by a period of slow sales growth as product is introduced in the market. Growth is a period of heavy acceptance of the product in the market. We then have a period of maturity in which most potential buyers accept a product and the market stabilizes. In the end we have a period of decline when sales show a downward drift and profits erode. To analyse at what stage of the product lifecycle is our product we have to trace the sales of industry's product with time. There is a very gradual increase in sales till it declined for the period 1990 to 1992. It then decreased continuously till 1998, declined in 1999 and then continued to grow till 2000. In addition as seen before costs are decreasing with increase in output implying that the industry is yet to enjoy and reap the ftill economies of scale. To analyse the way a product has evolved tlirough the years we study how the product has undergone a 233 change in the market. We consider the case of Maruti's premium offering, the 800, which was first offered to customers in 1983. The product was a technological march ahead of competition when it was launched. Its unique selling preposition was better handling, more power, more fuel efficient, less noise and better design. It was an immediate hit and soon captured a major chunk of the market share. The 800 was a basic level of the product. It offered better transportation and was immediately absorbed by consumers and even became a social symbol. Over the years, the need to add comfort caused Maruti to offer the 800 with an air conditioning unit to make travel more comfortable. It was priced differently than the Standard model and was offered as a deluxe product offering. For the consumers it was the expected level from the manufacturer. However over time competition narrowed down the product differentials and the influx of more competitors brought in better technology and the company in 1998 offered the 800 with Multi Point Fuel Injection Systems and with a 4 cylinder engine as compared to the previous 3 cylinder ones. However technological influx and competition has made all this, the expected attributes in a product in 2000. The desired level has been revised upwards to include in a car features like power steering, automatic transmissions, power windows etc. However there is a limit to which a product can be stretched to cover a product line. This is essentially because the introduction of more features makes a product more expensive and value conscious buyers would rather buy a higher technology standard version of a new model than to buy a more heavily loaded version of a technologically old model. It is seen that in a technologically dynamic industry segment like the car sector, product levels are continuously revised. Thus over a period of time augmented product levels are downward revised to become as attributes expected by the consumers. Thus features like air conditioners which were a luxury before are expected features. Firms are offering a wide variety of customized accessories and other product enhancers now then before. Comparing the product accessories offered in 1995 and in 2000 easily sees this. As can be seen from Chart 9.2.11.1 and Chart 9.2.11.2, firm and dealers are striving harder to appeal to all aspect of a customer's comfort by providing a host of accessories with a broad price range to suit all pockets. Thus we see that over the years there have been definite changes in the product, but more than that tliere have been changes in the ancillaries or accessories that are offered for sale to the customer. Manufacturers and dealers are looking at car marketing with a totally different perspective. There is a clear shift in the way marketing is being taken up by companies. There has been an evolution of the product to a stage where firms are tiying to give total delight to the customers. This trend has taken place mainly after 1995-1996, which can be identified as a turnaround period for the car sector of the industry. We have not involved analysis of any product differences in the industry with a time base, as it will tantamount to infiingement of our next section in which we will study product differentials and how they have changed over time.

Product Analysis 9.2.12 It is generally said that the car as a product has undergone a lot of change over the period of its evolution. We will analyse how the car as a product has undergone a change over our period of the study. We will analyse the product in three basic steps. Firstly we will compare the product that existed at the beginning of the study and 234

CHART - 9.2.11.1 - ACCESSORIES OFFERED BY DEALERS WITH MARUTI 800 MODEL IN 1995 MAf^UTl UDYOG LIMITED (MUL) SNOS NOMENCLATURE 1 MUSIC SYSTEM 2 SEAT COVERS 3 WHEEL COVERS 4 TRANSLUSCENT WINDOW FILMS / TINTED GLASS 5 FOG LAMPS 6 CASb1 1 b RACK 7 FLOOR MATS 8 STEERING COVER 9 TYRE FLAPS / MUD FLAPS 10 AIR FRSHNER 11 REVERSE HORN 12 LEFT HAND SIDE MIRROR ASSEMBLY 13 CIGbKKbl IbLIGHIbk Source: Dealers Brochures

CHART - 9.2.11.2 - ACCESSORIES OFFERED BY DEALERS WITH MARUTI 800 MODEL IN 2000 SNOS NOMENCLATURE 1 FLOOR MAT SET 2 MUD FLAPS / MGP 3 STEERING COVER 4 REVERSE HORN AND EXTRA HORN 5 SEAT COVER (TOWEL / REXINE / VELVET / BUTTON TYPE) 6 QUARTER GLASS GRILL 7 TAIL LAMP GRILL 8 WHEEL CAPS 9 CENTRAL LOCKING SYSTEM (WHEELS / SILICON) 10 CAR STEREO ( ASSEMBLED / ORIGINAL) 11 FRONT CRASH GUARD ( BLACK U TYPE) 12 SUN CONTROL FILM 13 CAR BODY COVER 14 ENGINE LIGHT 15 FOG LAMP ( RB / 777 / 888) 16 CONSOLE BOX 17 LUGGAGE CARRIER 18 AIR FRESHNER 19 CIGERATTE LIGHTER 20 CIRCULAR BRAKE UGhfT 21 BREAK LIGHT SUPERBEAM 22 POWER WINDOWS (ALL DOORS) 23 RAIL GUARD 24 DANCING DOLL / HANGING DOLL / IDOL ( SMALL / MEDIUM / LARGE) 25 FENDER TRIM 26 SUN SHADE FOR FRONT WINDSCREEN 27 BEAD CUSHION 28 TISSUE PAPER BOX 29 CASSETTE BANK BOX 30 MOBILE HOLDER 31 FIRST AID KIT LARGE 32 MIRROR ASSEMBLY LEFT HAND SIDE Source: [Dealers Brochures 235

TABLE 9.2.12.1.1 - CHANGE IN AVERAGE PRODUCT CHARECTERISTICS YEAR L W H GO KW WB ED C MP MT M FUEL INJ 1987 4045.2 1573.2 1451.8 144.2 967.6 2413.2 1311.4 3.8 46.3 85.6 5 cart/pump 1988 4045.2 1573.2 1451.8 144.2 967.6 2413.2 1311.4 3.8 46.3 85.6 5 cartVpunp 1989 4050.667 1573.5 1442.33 150.166 943.83 2400.167 1254.5 3.83 46,25 83.33 6 carts/pump 1990 4035.25 1563.25 1441.75 148 941 2395.125 1258.5 3.875 46.8125 84.125 8 cartVpurrp 1991 4035.25 1563.25 1441.75 148 941 2395.125 1258.5 3.875 46.8125 84.125 8 carb/pump 1992 4035.25 1563.25 1441.75 148 941 2395.125 1258.5 3.875 46.8125 84.125 8 cartVpump 1993 4035.25 1563.25 1441.75 148 941 2395.125 1258.5 3.875 46.8125 84 125 8 cartVpump 1994 3975.222 1555.667 1437.667 143.46 810.846 2313.846 1196.5 3.8 45.15 79.6 13 cart/pump 1995 4155.73 1608.667 1423.133 152142 981.0714 2448.643 13721429 3.928 58.4857 98.4643 15 cartVpLtTp 1996 4151.696 1639.957 1433.087 145.13043 1028.043 2466.478 1500.5652 4 63.8304 107.383 23 cartVpump 1997 4151.696 1639.957 1433.087 145.13043 1028.043 2466.478 1500.5652 4 63.8304 107.383 23 cartVpump 1998 4145.786 1661.607 1427.107 151.9643 1034.68 2486.214 1540.5714 3.964 71.6107 116.25 28 caWpunp 1999 4136.944 1654.944 1439.5 151.388 1045.75 2474.722 1543.833 3.9722 71.8222 115.794 36 npfl/jxjmp 2000 4090.119 1632.143 1444.524 1529523 1027.857 2463.571 1494.9048 4.02381 73.1976 117.362 42 mpTVpump VAR 4589Z6 20638.73 862.8818 118.8173 25471.66 17317.84 196286.89 0.072168 1613.003 2637.92 137 SO 214.2256 143.3134 29.374 10.9033 159.566 131.597 445.296 0.2686 40.1622 51.36 11.7 MEAN 4077.804 1597.56 1439.36 148.5115 870.2005 242B.687 1363.777 3.9075 55.431 95.452 16.3 GOV 5.2534 8.97 204 7.3397 16.296 5.418 3265167 6.874 72454 53.807 72 Source: Compiled from Product and Technical Brochures d various models L = Lengtii; W = Width; H = Height; GC = Ground Clearance; KW » Kerb Wdght ED - Engine Displacement C = Cylinders; MP = Maoimjm PoMtr. MX = Majdmum Torque; M •• Modete; INJ «Infectio n Cat) = Cirtjurettor MPFl = MutU Point Fuel Injectkx) 236 compare it with the product that exists now and analyse how the product has changed over the years. Secondly we will study how product differentials have changed over the period of the study especially so after the reforms. We will study how the product has varied each year and identify the main periods of change for the various variables. In step three we will consider whether inter group product differentials have increased over the period of time after the reforms or not. We will start with our analysis of the product.

Product Characteristic Change 9.2.12.1 The product has changed quite categorically over the years as the number of models has changed. It can be seen that the numbers of basic models have increased from 5 in 1987 to 42 in 2000. By basic model we imply a product, which differs from each other in terms of either the platform or the power train. Platform differences refer to changes in the basic dimensions of the product. Power train changes incorporate two dimensions. The engine can be of either different generic type using different fuel for combustion resulting in either different or same displacement, or it can imply an engine using the same fuel but of different displacement and hence showing different characteristics. As an example of different platforms we give the example of the product offering of General Motors, which include the Opel Astra car and the Opel Corsa, which have different dimensions and use different power trains. As an example of the same model using the same platform but differing in power train, we can quote the example of the Uno model produced by Fiat Auto India Limited. The product has the same platform but is available in three power trains. It has a standard petrol model of 999 cc displacement, a model with 1242 cc displacement and a diesel model of displacement 1697 cc. The change in the number of models over the years is given as Table 9.2.12.1.1 along with the change in the other average product dimensions. We will analyse the product change under the given heads a) Length - as can be seen from Table 9.2.12.1.1, the average product declined in length very marginally over the years from 1987 to 1993. The average length fell drastically in 1994 to about 3975millimet{ rs (mm) due to the introduction of the four models from Sipani, which were discontinued from the next year. The product length increased substantially in 1995 and has decreased over the years despite an increase in the number of models, because of a more than proportionate increase in the number of small cars. There has even been a decrease in the length of the large cars as firms are manufacturing more proportionate models. The average length of the product stood at a meagre 45 mm more than the product length in 1987, despite the growth in the number of models from 5 in 1987 to 42 in 2000. For the period of the study the Mean length was 4078 mm, quite close to the product dimension in 2000. The population variation for length was substantial and it showed a standard deviation of 214.23, which is adequate. Length showed a coefficient of variation of 5.253, which is on the lower side. b) Width - there was a decline in product width over the years from an average width of 1573 millimetres in 1987 to 1556 millimetres in 1994. The product grew in width to 1609 mm in 1995 due to the introduction of several large sized 237 models and grew continuously till 1998 when the average product width was 1662 mm. It then declined to 1632 mm in 2000. Over the period 1987 to 2000 and after the introduction of about 37 more models, the average product width has increased by 59 mm. The mean width was 1598 mm, which was less than the average product width in 2000 by about ^5 mm. The population variance was low resulting in a lower standard deviation of 143.31 mm. Thus average width has not deviated much from the mean width. The coefficient of variation of width was more than that of length at 8.97 c) Height - average product height has actually declined over the period of the study by about 7 mm over the period. It dropped from 1452 mm in 1987 to 1423 mm in 1995. It increased very marginally by about 10 mm in 1996 and 1997 and declined in 1998 before increasing in 1999 and 2000. Mean height for the period of the study vv'as 1440 mm. The population variation was low resulting in a standard deviation of 29.374. Height showed a lowest coefficient of variation of 2.04 implying that product width has generally remained the same. d) Ground Clearance - ground clearance imply the distance between the ground and the bottom of the vehicle or the lowermost part of the vehicle. It assumes significance because cars in India have been having a low ground clearance, whereas roads with their compliment of speed breakers require cars to have a higher ground clearance for safe and comfortable ride. It has been seen that the new genre of cars are coming with a higher ground clearance as carmakers are adapting their product to meet the special road conditions in India. It can be seen that average ground clearance increased in 1989 due to the launch of the Maruti 1000, which had been given a higher ground clearance in being a large car. Average ground clearance then declined till 1994, grew up in 1995 before declining till 1997. It has grown continuously since 1998 till 2000, as firms launched their products with enhanced ground clearance levels. Over the period 1987 to 2000, ground clearance increased by about 9 mm on an average. Mean ground clearance was about 148.1 mm, resulting in a low population variance, which gives a standard deviation of 10.9. The coefficient of variation was a low 7.34 e) Kerb Weight - kerb weight has shown an increase of about 60 kilograms. It decreased from about 960 kilograms in 1987 to about 810 kilograms in 1994, It has increased over the years from 1995 to 1999 reflecting the introduction of larger cars over the years. However it declined in 2000 to about 1040 kilograms, despite an increase in the number of models. This is essentially because firms are cutting down on the product weight in an attempt to boost the efficiency and other parameters of the product and weight of the car is an important variable. Kerb weight had a mean value of 971.4, lower than the value of 1028 kilograms in 2000. Population variation had a medium value leading to a standard deviation of 159.6. It showed a coefficient of variation of 16.298. f) Wheelbase - declined continuously till 1994, implying an increase in the number of models of small cars in the market. In 1995 it increased to about 2448 mm and then increased till it was about 2486 mm in 1998. It then declined till 2000 when the average wheelbase was 2464 mm. Thus there has been a decrease in the average product size over the years from 1998 to 2000. This is 238 also reflected in the reduction in the product's length over these years. The period 1994 to 1998 saw an increase in wheelbase as well as length indicating an influx of larger sized models. Thus firms generally did not launch small cars during these years to avoid attacking the market leader, which was very strong in this segment during these years. Mean value of the wheelbase was 2423.4 mm, 40 mm less than the wheelbase in 2000. It had a low population variation giving a standard deviation of 131.6. The coefficient of variation was low at 5.418. g) Engine Displacement - engine displacement decreased from 1312 cc in 1987 to about 1196 cc in 1994, indicating that firms concentrated on the small cars as their premium product offering during the period. Engine displacement jumped up by about 176 cc to 1372 cc in 1995. This was primarily due to a laimch of a host of products with larger engine displacements. The average engine displacement grew to about 1543 cc in 1999, before decreasing marginally to 1495 cc in 2000. Thus firms are today producing products, which have a higher performance value in it. The mean value of the engine displacement was 1361.5 cc, which was lower than the year 2000 value of 1495 cc. It had a large population variation causing a standard deviation of 445.3 and a coefficient if variance of 32.652. h) Maximum Power - has shown a very gradual increase from an average value of 46.3 bhp in 1987 to 46.81 bhp in 1993. It then dropped to about 45.5 bhp in 1994, primarily due to the introduction of the Montana model from Sipani Industries, which had a bhp of 27 only. It jumped to 58.5 bhp in 1996 and has grown continuously till 73.2 bhp in 2000. Over the period 1987 to 2000, maximum power has grown from 46.3 bhp to 73.2 bhp, a growth of 27 bhp, which is substantial. An important deduction from this is the change in the consumer demand pattern, which has resulted in manufacturers producing more powerftil cars. Mean maximum power for the period of the study was 55.29 bhp, much lower than the 2000 value of 73.2 bhp. Data showed a low population variation leading to a standard deviation of 40.16 and a coefficient of variance of72.45. i) Maximum Torque - is another engine parameter, and has decreased from 85.6 N-m in 1987 to 79.6 N-m in 1994. It then increased continuously till 1999 when it declined due to the introduction of more small cars. It increased to 117 N-m in 2000. Over the period of the study it has grown by about 32 N-m. The Maximum Torque change is in tune with the change in the maximum power generated by the engine, showing similar characteristics. What is to be seen is that in 2000, both average maximum power and average maximum torque have risen despite an average decline in the engine displacement in the same year. Thus the industry has moved towards more efficient power trains. The mean maximum torque was 95.23 N-m. Data showed a low value of population variation and hence a standard deviation of 51.36. The coefficient of variation was 53.81. j) Fuel Delivery - has shown a shift from carburettor-based delivery till about 1997 for petrol engines to multi point fuel injection system using microprocessor control. This has resulted in more efficient power trains 239 producing more power and torque as described above. For diesel engines, distributor type fuel injection system is in use. Thus we can see that the product transformation has been substantial over the years. The product has become shorter in length, width and height. It has become heavier in wei^t and has an engine of higher displacement delivering more power and torque. There has been minor change in the dimension of the average product. However there has been rapid change in the power characteristics of the product including the engine displacement, power and torque.

Inter and Intra temporal Variations 9.2.12.2 Intra temporal comparison of product analyses how the product varies within a particular time period here considered as a year. Inter temporal comparison deals with how the product has changed over the years. In this subsection we will first analyse what the mean product characteristics are for each year and then analyse how these have varied over the years. This we will consider using three statistical tools, the mean, the standard deviation and the coefficient of variance. The mean product characteristic analyses what the mean product characteristics are for each year. The standard deviation measures the deviation in data. To measure two distributions we use the coefficient of variation. We will analyse the year based product characteristic data using these tools. The analysis has to be carried out on a yearly basis to get interpretable results. a) 1987 and 1988 - with 5 models we can see that amongst the three basic dimensions, length showed the maximum deviation. More dispersion was seen in the engine displacement, kerb weight and wheelbase. It can be seen that the engine output measures like maximum power and torque showed low levels of dispersion. Even ground clearance showed low levels of dispersion. When comparing the relative dispersions, we can see that engine parameters, both maximum torque and power have shown the maximum values in the coefficient of variance. Engine displacement, kerb weight, ground clearance and length followed these. Width, height and wheelbase showed low and about equal levels of relative variance. Thus in 1987,. though product dimensions showed maximum deviation, however engine parameters showed the highest variance coefficient. b) 1989 - with 6 models, standard deviation values for the various product dimensions declined. Length, engine displacement, kerb weight and wheelbase showed more deviation. Width and hei^t showed medium dispersion whereas rest of the variables showed low levels of dispersion. Engine parameters (displacement, maximum power and torque), showed high coefficient of variance values followed by kerb weight, ground clearance and length. Other parameters showed lower levels of relative variance. It is seen that the deviation and relative variance of ground clearance actually increased. c) 1990 to 1993 - there was a drastic decrease in product deviation with 8 models now being offered. The relative rankings for the various parameters remained the same for both deviation and relative variance. Length, engine displacement, kerb weight and wheelbase showed steep declines, whereas the others had marginal changes. 240 d) 1994 - though there were 13 models in the market, leading to a decrease in the dispersion of product characteristics. Product was becoming more and more homogenous. Relative rankings for the various parameters remained the same for both deviation and relative variance. Length, engine displacement, kerb weight and wheelbase showed steep declines, whereas the others had marginal changes. 1994 showed the maximum decline in terms of product differentials in the immediate after the reforms. e) 1995 - the year saw an increase in the number of models irom 13 in 1994 to 15. Two medium segment models were launched, which increased the mean value of most parameters. There was an average decrease in the product height. There was a quantum jump in the average maximum power produced by about 15 bhp. Wheelbase, engine displacement, kerb weight, length showed a high dispersion. Width showed medium value of deviations whereas the other parameters showed low deviation levels. High relative variance was observed in all parameters except for the vehicle dimensions f) 1996-1997 - the number of models increased to 23. Most of the products launched were basically catering to the medium and higher luxury segments. As a result there was a furtlier increase in the mean value of most product attributes. Mean product length however declined, but there was an increase in both the mean product height and width. There was a decrease in the mean ground clearance, however there was an increase in both the kerb weight and the wheelbase as the product grew in size. Engine displacements mean value crossed 1500cc, at least 200 cc more than the mean engine displacement in 1987. As a result there was an increase in the mean value of both the maximum power and torque. However there was a decrease in the product attribute dispersion. Thus though length, width, wheelbase, kerb weight and engine displacement had high substantial values but they have declined over their values in 1995. The coefficient of variation showed lower values for most of the product attributes, showing a relative decline in the product mix variance. Thus there was an increase in product homogeneity. g) 1998 - the number of models increased by 5 to 28. There was a very marginal increase in the mean values of most product attributes as a result of this. There was a decrease in the product length. As a result the deviation for most attributes grew very marginally. Relative variance also showed a very marginal increase over 1997. h) 1999 - the number of models increased to 36. There was a decline in some mean attribute values like length, width, ground clearance and wheelbase. All other attributes showed very marginal increase in their mean product attributes. There was a decrease in the product standard deviation for all attributes as product differentials were lowered. Correspondingly, the relative variance also showed a modest decline for all attributes. i) 2000 - the number of models increased by 6 to 42. There was a further decrease in the mean attribute values for most product attributes except ground clearance, width, maximum power and torque. It was interesting to see an increase in the mean maximum power and torque despite a falling mean engine displacement. Most of this was due to the use of more efficient fuel injection system, which 241 has boosted engine power and torque without increasing the engine displacement. The changes in the standard deviation values were very meagre with decreases in the product width and wheelbase and meagre increases in the rest of the variables. These reflect in the relative variance values, which show corresponding results. Thus we see that there has been a gradual fluctuation in the product differentials each year. In the early period of the study, the variations were more primarily due to the small number of models and typical product characteristics. In the later years there has been an increase in the product homogeneity despite increasing number of models. Comparing the total standard deviation of various years considering all the attributes for a particular year we come to the following conclusions. That product differential as reflected by the standard deviation scores for the various years considering all attributes has actually declined from 1987 to 1993. It increased from 1994 to 1997 and has declined continuously over the period 1997 to 2000. However this is not a measure of variability in product mix since it measures the deviation between the variables, which is not relevant for the purpose of our analysis. If we consider the coefficient of variation as the measure of variability we can see that variability increased till 1989 and then declined continuously till 1999. It increased very marginally in 2000. Thus we see that product homogeneity has actually increased over the period 1989 to 1999 and then increased in 2000.

Conclusions 9.2.13 The study on the product gives some clear cut conclusions on the way firms have handled their product strategies. We will enumerate them as under a) Product has increased in its spread in the market. Thus the number of models have shown a drastic increase b) Differential levels have increased manifold c) Firms are having a very cautious approach to the market. They have offered one model or maximum two at a time and have attempted to fill the line by second or third or fourth level of differentiation to enable them to position the product against the various competitors in the market d) There is major product improvement v/hen we compare pre 1997 product levels with those after it. If comparison is made between pre 1992 levels the differences are tremendous. e) Average product has increased in length and width but has decreased in height. There has been an impressive increase in power delivered and in fuel efficiency. The kerb weight has increased. Features offered in cars have increased. Overall the move is towards bigger, more efficient, powerftil, luxurious cars f) The change in product parameters has been more after the year 1994 then before it, We now carry out a study of the markets to study the changes that the reforms have ushered in the markets. 242 SECTION: 3 CAR MARKETS

Car Market and the Market Segmentation

9.3.We begin our analysis with the study of the market. A market is traditionally described as consisting of all the actual and potential buyers and sellers of a particular product. We will analyse the car market on the basis of these variables. The attempt to draw a segmentation matrix is at a very elementary plane and thus does not include all the complexities of factor and cluster analysis that are used to carry out a full scale market segmentation exercise. The attempt is to highlight how the segmentation has changed after 1995, especially with the introduction of the reforms.

Market Analysis 9.3.1. Market, as a Composition of Sellers -There has been a number of structural changes in the car sector of the automobile industry. We study this topic at two levels. We study it from the buyer's viewpoint and then from the seller's viewpoint. As we have seen earlier market structure depends on the five characteristics that have been described above. An analysis of the data has shown that over the years there has been ({uite a change in the number of sellers in the market. Thus as can be seen from Table 9.3.1.1 that the total number of manufacturers in the car sector of the automobile industry declined from 7 in 1987 to 6 in 1992 and stayed on till 1995. The number of manufacmrers doubled in 1996, as there was an influx of car manufacturers v/ho invested large amount of money and set up production capacity in India. It increased to 14 in 1997, 15 in 1998, 17 in 1999 and 18 in the year 2000. The number of car manufacturers declined from 5 in 1987 to 4 in 1995. It increased to 7 in 1996, 9 in 1997, 10 in 1998 and 12 in 1999-2000. As compared in the multi utility vehicle class ^ve have 2 manufacturers for the period till 1995. In 1996 the number increased to 5 till 1999 and to 6 till 2000. Thus we can see that there has been a great change in the market especially from the seller's side. There has been a marked increase after 1996 and it coincided with the liberalization of the industry in 1996. We need to analyse the market share of the various manufacturers to better understand the market structure. l^or the whole car sector we see that for the period 1987 to 1995, there were on an average 4 major manufacturers in the market. Thus we had Hindustan Motors, Maruti Udyog, Mahindra and Mahindra and Premier Automobiles Limited. There were fiinge manufacturers in the form of Sipani Automobiles, Standard Motors and TELCO of which only TELCO has sunived and is in the big league today. Over the period 1987 to 1995 the market was dominated by Maruti, which grew from a 51% market share to 65% in 1995. The rest of the market was shared by the remaining with Premier Automobiles being the second placeholder followed by Mahindra and Mahindra and then by Hindustan Motors. The market shares of Maruti grew at the expense of these other market players with the maximum fall in market share of about 9.37% from about 18% to about 8.6% in 1995 for Premier Automobiles. Hindustan Motors saw the next big fall in margin with a decline of about 5.5%. It declined from 13.72% in 243 TABLE 9.3.1.1 - NUMBER OF MANUFACTURERS YEAR NCM NMUVM TNM 1987 5 2 7 19«! 5 2 7 198S) 4 2 6 1990 4 2 6 1991 5 2 7 i99:> 4 2 6 I99;j 4 2 6 199

TABLE 9 3.1.2 - MARKET SHARE OF AU. MANUFACTURERS YEAR BTL DMIL FIAL RL GMIL HML HSIL HMIL MUL MBIL M&M PAL-PEI PAL SAL SMP1L TELCO TKM ROM 1987 0 0 0 0 0 0.14 0 0 0.515 0 0.162 0 0.179 0.002 0002 0 0 0.183 1988 0 0 0 0 0 0.14 0 0 0.511 0 0.157 0 0.189 0.001 0.001 0 0 0.191 1989 0 0 0 0 0 0.13 0 0 0.527 0 0.149 0 0.193 0 0 0 0 0.193 1990 0 0 0 0 0 0.12 0 0 0.534 0 0.15 0 0.192 0.004 0 0 0 0.196 1991 0 0 0 0 0 0.32 0 0 0.453 0 0.093 0 0.131 9E-04 0 0.0003 0 0132 1992 0 0 0 0 0 0.1 0 0 0.61 0 0.163 0 0.103 0 0 0.019 0 0.103 1993 0 0 0 0 0 0.11 0 0 0.624 0 0.162 0 0.086 0 0 0.022 0 0.0858 1994 0 0 0 0 0 0.1 0 0 0.607 0 0.167 0 0.096 0 0 0.027 0 0.096 1995 0 0 0 0 0 0.08 0 0 0.654 0 0.136 0 0.086 0 0 0.039 0 0.086 1996 0.03 0 0 0 0 0.07 0 0 0.613 8E-04 0.127 0.023 0.045 0 0 0.074 0 00998 1997 0.02 0.03 0 0.01 0.013 0.05 0 0 0.62 0.003 0.127 0.014 0.018 0 0 0.009 0 0107 1998 0.03 0.02 0 0.01 0.013 0.05 0 0 0.64 0.005 0.126 0.009 0.02 0 0 0.0681 0 0.104 1999 0.01 0.02 0.02 0.01 0.006 0.04 0.02 0.033 0.64 0.002 0.124 0.0008 0.005 0 0 0.0601 0 0086 2000 0,01 0.05 0.03 0.01 0.004 0.04 0.01 0.01 0.533 0.001 0.092 0 0 0 0 0.115 0.0O4 0118 Source: Compiled from SIAM Statistical Profile of ttie Automobile Industry DMIL = Daewoo Motors India Umtted; RAL « RAT Ind Auto Lid; RL s Ford Incfia Limited; TKM = Toyc^ GMIL = General Motors Inda Limited; HML = Hindustan Motcrs Limited; HSIL > Honda Sriram India Ltd; MUL :=Maruti Udyog Ltd MBIL ^ Meroedes B«ru India Ltd; PAL-P = Premier Automcbiles Limited- Peugeot; M8IL> Mercedes Benz; SAL-SipaniAutnxbilesUmited;SMPtL = StandanJMofa»; TELCO = Tata Engineering and LocoTTOtive Company TKM = Toyota Kirkskar Motors; BTL - Bajaj Tempo Ltd; M&M >= MaNndra and Mahindra; ROM = Re£.l Of ttie Market 244 TABLE 9.3.1.3 - MARKET SHARE OF MULTI UTIUTY VEHICLE SALES MUL TELCX) TOYOTA YEAR BTL HML M&M 0 0 1987 0 0 0.8916 0.1083 0.1426 0 0 1988 0 0 0.8573 0 0 1989 0 0 0.7822 0.2177 0 0 1990 0 0 0.7842 0.2157 0 0 1991 0 0 0.7803 0.2196 0 1992 0 0 0.8477 0.1522 0 0 0 1993 0 0 0.8904 0.1095 0 0 1994 0 0 0.8737 0.1262 0 0 1995 0 0 0.8483 0.1516 0.2183 0 1996 0,1248 0.0258 0.5486 0.0823 0.3062 0 1997 0.0967 0.0193 0.5157 0.0618 0.3273 0 1998 0.0661 0.026 0.5222 0.0582 0.2805 0 1999 0.0481 0.0263 0.5801 0.0648 0.2591 0.0285 2000 0.04969 0.0214 0.5706 0.0705 Source; Conpiled from SIAM Statistical Prcfile of the Automobile Industry BTL = B^^ Tenpo Ltd; HML = Hindustan Motors Ltd; M&M = Mahlndra and Mahindra MUL = Marjti Udyog Ltd; TELCO = Tate Engineering and Loccmotive Corpany

TABLE 9.3.1.4. - MARKET SHARE OF CAR SALES YEAR DMIL FIAL RL GMIL HML HSIL HMIL MUL MBIL PAL-PE PAL SAL SMP1L TELCO ROM 1987 0 0 0 0 0.167 0 0 0.6066 0 0 0.22 0.002 0.0032 0 0.2255 19l?8 0 0 0 0 0.172 0 0 0.5937 0 0 0.231 0.001 0.0013 0 0.2333 1989 0 0 0 0 0.161 0 0 0.6006 0 0 0.238 0 0 0 0.238 1990 0 0 0 0 0.146 0 0 0.61 0 0 0.237 0.005 0 0 0 2423 1991 0 0 0 0 0.364 0 0 0.485 0 0 0.149 0.001 0 0 0.15 1992 0 0 0 0 0.129 0 0 0.719 0 0 0.128 0 0 0.023 0.128 1993 0 0 0 0 0.128 0 0 • 0.739 0 0 0.105 0 0 0.027 0.105 1994 0 0 0 0 0.125 0 0 0.721 0 0 0.119 0 0 0.034 0.119 19i)5 0 0 0 0 0.0986 0 0 0.751 0 0 0.1027 0 0 0047 O1027 1996 0.026 0 0 0 0.0802 0 0 0.773 0.0011 0.0298 0.0588 0 0 0.03 011572 1997 0.041 0 0.009 0.018 0.0627 0 0 0.803 0.0046 0.0186 0.025 0 0 0.0177 0.116 1998 0.024 0 0.015 0.018 0.054 0.003 0 0.826 0.0073 0.0126 0.027 0 0 0.011 0107 1999 0.0246 0.025 0.008 0.009 0.049 0.024 0.043 0.7965 0.0027 0.001 0.0067 0 0 0.011 0.099 2000 0.063 0.032 0.013 0.005 0.042 0.015 0.119 0.622 0.0014 0 0 0 0 0.087 0129 Source: Compiled from SIAM Statistical Profile of the Automobile Industry l>AIL s DaewDO Motors India Limited; FIAL s RAT Ind Auto Ud; RL » Ford India UrriKed; TKM > Toyota Kirloste GMIL > General Motors IncSa Limited; HML " Hindustan Motors Limited; HSIL - Honda Sriram India Ltd; MUL =Maruti Udyog Ltd MBIL = Mercedes Benz Incfia Ltd; PAL-P = Premier Automobiles LinitBd- Peugeot; MBIL= Mercedes Benz; SAL - Sipani Autmobiles Limited; SMPIL = Standard Motors; TELCO = Tata Engineering and LocomotivB Company TKV, = Toyota Wrtoslwr Motors; ROM = Rest of Maitet 245

1987 to 8.27% in 1995. The period after 1995 sees quite a change in the market share. Maruti's market share fell in 1996 to 61.3% before recovering to 64% in 1998. h then declined rapidly falling by about 11.2% in 2 years to 53.3% in 2000. Premier Automobile went out of production in 2000. Mahindra and Mahindra's market share slid ft-om 13.7% to 9.2% in 2000. Hindustan Motors market share declined by about 4.5% from 8.2% in 1995 to 3.8% in 2000. The remaining market share is divided between the remaining numbers of manufacturers in differing proportions as can be seen from Table 9.3.1.2. The largest gainer in this scenario has been TELCO, which grew from scratch in 1987 to 11.51% in 2000. It was followed by Hyundai, who have gained an enviable market share of 9.9% in just 2 years of operations over 1999 - 2000. The rest of the manufacturers have less than 1.5 % of the market share and in 2000 constituted 12.11% of the market. The rest of the manufacturers have seen fluctuation in market share from 18.43% in 1987 to 19.6 % in 1990, then declining to below 10% in 1993 before increasing to 11.8% in 1996 before dropping below 10% in 1998-99 and then to 12.11% in 2000. This can be tallied with the increasing number of manufacturers in the industry especially after 1996. Thus the market share is declining for each firm as new competitors have hammered the market shares down. For the multi utility vehicle segment of the car sector we see the following trends. Mahindra and Mahindra has been the market leader since 1987, however its market share has eroded by about 32% over the period of the study as it dropped from 89.17% in 1987 to 57% in 2000. The fall was to the gain of Maruti Udyog as it grew cyclically by about 4.5% as it grew from 10.83% in 1987 to 15.16% in 1995. Maruti's market share dropped further to 5.8% in 1998 before recovering to 7% in 2000. TELCO is the next largest market shareholder with a market share, which grew from 21.8% in 1996 to 32.73% in 1998 and then declined to 25.9% in 2000. Bajaj Auto started with a market share of 12.48%) in 1996 but declined to about 5% in 2000. Hindustan Motors Limited has fluctuated between 2-3% of the market share for the period 1996 to 2000. In the car segment of the car sector we have the following results. Maruti is the market leader with its share of the market growing up from 60.66% in 1987 to 75.11% in 1995. For the period 1995 to 1998, the number of manufacturers grew from 4 to 10, however Maruti's market share grew ftirther up to 82.62% in 1998. It then declined continuously at a fast rate till it was down by 20.4%) in 2000. PAL or Premier Automobiles was the closest competitor, however its market share declined from about 22% in 1987 till the company went out of production in 2000. Share of Hindustan Motors Limited has declined from about 16.78%) in 1987 to 4.20%) in 2000. TELCO has been a major gainer in this as its market share grew to about 8.7% in 2000. Hyundai Motors has shown a tremendous performance measure by increasing to 11.9% in the two years 1998-2000. Rest of the market has stayed below 6%) for the period of their existence. Rest of the market share has increased from 22.5% in 1987 to 24.29% in 1990 and then decreased continuously till it fell below 10% in 1999 and then increased to 12.94% in 2000. The number of firms has increased from 4 in 1995 to 12 in 2000. These and other results are given as Table 9.3.1.2, Table 9.2.1.3 and Table 9.3.1.4 246 Market as a Composition of Buyers. 9.3.2. The segmentation of the market as a composition of buyers essentially involves segmenting the market on the basis of the various bases as explained above. The major base used has been income or the paying capacity of the buyer. In India, the cost of a car forms a major amount of a person's income; hence income is one of the major segmentation bases. We will not delve into the activities that lead to market segmentation but will take the segmentation as carried out by the various manufacturers. There has been a lot of change in the market. In 1987 the maricet consisted of a very few number of models in each category. The product categories are basically three: Cars, Multi Utility Vehicle and Vans. The participation in product categories has increased from around 8 types in 1987 to 20 in 2000. The number of product types increased from 8 in 1987 to 7 in 1995. It jumped up to 9 in 1996 and to 13 in 1997; it further increased to 16 in 1998, 19 in 1999 and 20 in 2000. The number of models has risen several times. We will see it later when we consider product changes. The market for car sector has been segmented into the following segmentation matrix given as Chart 9.3.2.1, The car market in India can be split into the following mauix as given above. There are three very categorical demarcations as shown. Thus we have a set of consumers who belong to a low-income group with annual incomes of about 1.5 lakhs per annum or in the same range. They are price conscious, want value for money, generally have a young profile, are achievers and theirs is the first purchase of a car. These have been segmented into the lower end of the market, which constitutes a purchase range of up to 5 lakhs only. The second group is the middle-income group, which is in the range of about 51akhs per annum. This group is very value conscious wants prestige in his social circle with his purchase of the car. They are generally middle-aged and they buy a car primarily for the purpose of switching cars and to establish themselves as of some standing in the society. The third category is the high end group which has a high level of income, who are quality conscious, measure luxury for money, are generally middle aged and old and have preferences for buying certain products. In addition to the very concise and restricted matrix drawn above, several products are niche products, thus Mercedes Benz is one such niche product that is produced to cater for a very restricted number of consumers, as it is too high. In addition, the concept of micro marketing has led to a fiirther segmentation of the market. Thus these companies have spread their product profile to cover the entire spectrum of the market. There is considerable overlap amongst the various products that have defined segmentation. These concepts will grab our addition when we consider the way market targeting and product positioning has been carried out. The segment matrix is very different then the one that existed even as late as 1996. The market being a sellers market, not much attention was paid to it. An analysis of the product data for the period shows that there has been a lot of change in the market over the period of the study. As can be deciphered, there were a lot of segmentation variables missing even till as late as 1996. Products were very low on features. The car conveyed only the basic level of comfort. Maruti was the only company that was offering fuel efficiency as its USP. Rest of the manufacturers was struggling with putting a product in the market. The car market in 1995 was pretty constrained. There were about 7 manufacturers in the market with 28 product types for the entire range. The market operated within the price range of 1.5 Lakhs on the 247 Chart 9.3.2.1 - Buyer Segmentation Matrix in 2000

Car>8Lakhs GMIL HSIL HML MBIL TOYOTA

5 < Car < 8 I.akhs DMIL TEljCO FIL M&M GMIL K'UL HML HMIL HSIL TOYOTA

Car < 5 Lakhs MlJl. M&M IIMIL TEirO DMH. FIAL IIML

LowIrKxme/ Middle Income/ High Income/ Price Conscious/ Value Conscious/ Quality Conscious/ Value for Money/ Prestige for Money Luxury for Money/ Young/ Middle Aged/ Middle Aged and Old/ First Purchase/ Switch Purdiase/ Preference Purchase/ Source: Compiled from Field Interviews of Dealers and their Employees of various Companies MBIL = Mercedes Benz India Ltd; TELCO = Tata Engineering and Locomotive Company PAL = Premier Automobiles Ltd; HSIL = Honda Sriram India Ltd .vlUL = Maniti Udyog Ltd; HMIL = Hyundai Motors India Ltd; HML = Hindustan Motors iJd GMIL = General Motors India Ltd; FIL = Ford India Ltd; F1AL= Fiat India Auto Ltd; M&M = Mahindra and Mahindra

Chart 9.3.2.2 - Buyer Segmentation Matrix in 1995

I'ricO 2.5 lakhs TEIXX) M&M MUL PAL-PEUGEOT SAL-ROVER BTL DMIL HMI.

l>rice< 2.5 Lakhs BTL MUL P.AL M&M SML HML

Lew Income/ Hi^ Income/ Vay Price Conscious/ Price Conscious/ First Purchase/ Replacement Purchase/

Jiource: Compiled from Field Interviews of Dealers and their Employees of various Companies f»ffiIL = Mercedes Benz India Ltd; TELCO = Tata Engineering and Locomotive Company PAL = Premier Automobiles Ltd; HSIL = Honda Sriram India Ltd MUL = Maruti Udyog Ltd; HMIL = Hyundai Motors India Ltd; HML = Hindustan Motors Ltd GMIL = General Motors India Ltd; FIL = Ford India Ltd; FIAL= Fiat India Auto Ltd; M&M = Mahindra and Mahindra

lower end of the spectrum and of about 5 Lakhs on the higher end. Technology level, as compared to the modem day product was low and as a result there was an absence 248 of a large number of segmentation bases. Of the 25 product types 12 were of multi utility vehicles and the remaining were of cars. Income level was the main determinant of the segmentation of the market and there was a clear demarcation of society's buying levels. Income levels were low and the consumer's propensity to consume was low. Consumers were extremely price conscious. In cars there was a distinct difference within the products of the market leader Maruti and the remaining manufacturers. Maruti and its entire product range offered higher fuel efficiency. It was powered with a powerful engine and coupled with a lower body weight due to the use of lighter materials; it offered great engine response and a higher performance level. It offered a higher service levels, with easy availability of accessories and spares. It was also in tune with the fad that had enveloped the Indian society in which a Maruti was perceived as a status symbol. The segmentation matrix in 1995 could be given as under. It should be seen that lack of segmentation parameter's have led to a restricted matrix given as Chart 9.3.2.2. These matrix represented above only indicate the broad division in which the companies have been represented.

Conclusion and Deductions 9.3.3 There are several conclusions to be drawn from the study of markets as has been done earlier. These are a) There is a distinct change in consumer characteristics before and after 1995. Much of this was due to the emergence of the economy from the recession, which led to a boom in 1996. In addition the year 1996 was a good year for the economy. It also coincided with tlie pay commission report, which caused a major hike in salary levels of the salaried class. This can be seen distinctly from the segmentation matrix as has been drawn. b) There has been a distinct change in the market structure as can be seen from the change in the number of market players. The monopolies have been broken down in the passenger car segment where Maruti's share has declined by over 30% in three years. Similarly in the Multi - utility Vehicle segment there has been a change in the market share of Mahindra and Mahindra by almost 32% over the period of the study as number of competitors have increased from 2 in 1987 to 6 in 2000. c) Consumers have been segregated effectively into three distinct groups on account of certain characteristics and behaviour. Income level has been the major base for segmentation. However certain other characteristics were noticed. These were found to be different from the behavioural characteristic of consumers before 1995. d) To cater to these market segments, there has been a change in the product profile. These will be explained in the chapter product profile. 249 SECnON: 4 POSITIONING

Introduction

9.4. Having decided on the consumer bases, after segmenting them into markets and after deciding on the product, the firm decides to design an image and value so that customers within the target segment understand what the company or brands stand for in relation to its competitors.

Positioning in the Indian Context

9.4.1 The Indian car industry is different fi-om other markets under analysis, primarily because of the different conditions that prevail in it. Before our analysis of the industry it is imperative to understand the mechanics that govern the Indian market as was observed. Some characteristics are a) Transition stage - the industry is in a transition stage as it grows fi-om a nascent, controlled and regulated stage to a more mature industry. There is a more competitive arena now and competitors have :o compete against substantial first mover advantages of the market leader, Maruti Udyog, which was a semi- government firm and hence in the earlier duration of the study enjoyed considerable patronage b) Parent concerns - most of the firms operations in the country are extension of competitive strategies of large corporate parents and any effort in India is a part of overall strategy. Thus Fiat introduced the World car concept and as a part of this got two of its models to the country c) Resources - the operations being a part of the operations of large corporate parents are sufficient in funds and resources. Thus a large part of the competitive is already shrunk. However this factor is true for most of the manufacturers d) Typical market - the wide duality in the market gives the market extensive widtli in terms of product coverage but low volumes at this stage does not give the firms enough scope and incentive for expanding coverage. Buyer characteristics are varied but the depth is low e) Competition intensity is very high and is global in nature. In other countries, the local industry was well entrenched before threat of competition fi-om firms of other countries came in as against India where the local industry is only nominal f) Economy and other environmental forces are very fluctuating in nature causing a heavy toll on a firms strategic planning These and other characteristics make the Indian car industry a very competitive arena. The influx of firms in the country has been in stages. Thus there are periods of inertia during tlie period of tlie study. Most of the activity has taken place in the last half decade. The current market size for passenger cars is above 0.7 million which accounts for about 1.5% of the global passenger car market. The passing car 250 penetration level is about 4 cars per thousand people against a penetration of over 500 per thousand in developed countries. One of the key demand determinants is acquisition cost, which is based primarily on sale price and current income levels. The acquisition costs in India for passenger cars, in terms of months of median salary that is required to purchase the most popular passenger car is one of tlie highest in the world. Even by factoring the disproportionate income in India, the months of income needed is around 42 months as compared to only 9 months in the US for the entry- level car. For the medium sized cars the months of income needed is 76 months . Over 50% of the acquisition costs of passenger cars are due to taxes. This consists of excise duties (40%), import duty (10-15%), sales tax (4-10%), insurance (3-4%) and road and registration tax (1-2%). Taxation levels may be comparable to developed nations but when viewed in the backdrop of the fact that they represent over 20 months of median disposable income, they represent a major demand deterrent. With a large potential market, India's open door policy attracted a large number of global players to set up operations in India. There are more than 13 major players in India now with over 1.3 million in capacity. Capacity utilization is low. Most manufacturers are facing and will face severe pressure given their current volumes. Low volumes lave led to lack of cost competitiveness. Market fragmentation and lack of scale has diminished the manufacturer ability to reinvest in developing new models or deepen the industry by building product development skills. Lack of optimal scale makes the firms lack cost competitiveness. These and a host of other factors on both the supply ;and demand side make the Indian passenger car industry a major jumble. We will now ijnalyse the positioning process in the car industry over the years. We have a divergence in options at this stage. The segmentation bases have changed over the years and the market segmentation now is very diverse from the one that existed in rhe beginning of the study. We can either study the movements on a yearly basis or >ve can study the movements in the positioning map taking one year as a base year. We will draw from both these methods and draw a positioning map till 1996 using the old bases and thereafter as the market clutter increases, we will carry out our analysis on a yearly basis to bring out a more affective and complete picture of positioning in the passenger car industry.

Positioning, Market Movements and their Analysis 9.4.2 We will now carry out an analysis of the positioning exercises that have been carried out in the Indian passenger car industry for the period 1987 to 2000. The industry in 1987 was a very constrained industry with 3 market players: Maruti Udyog, Premier Automobiles Limited and Hindustan Motors. The positioning map that is drawn will be used to explain the various movements in the industry. We start our analysis with the year 1987 and will slowly grow it till our present state in 2000. a) 1987 - the industry in 1987, as mentioned earlier had 3 major market players. There were about 5 models in the market and together put, they commanded a sales figure of 150080. There were two other models and manufacturers in Sipani Automobiles Limited vehicle called Montana and Standard Motors Products of India Limited whose vehicle was the Gazel. However both these cars had sales of less than 0.35% in these years and hence they have been neglected. In 1987 the market had two distinct product clusters. The small car 251

CHART 9.4.2.1. Positioning of C^rs in 1987 and 1988 Size Features (Standard/Executive) Pow3r Price Performance HML (Contessa) ^ Price > 2 Lakhs

MUL (800) HML (Ambassador)

Price < 2 Lakhs PAL ( Padmini; 187)

Low High Source: Compiled from Statistical Analysis of Car Data

CHART 9.4.2.2. F'ositioning of Carsi n 1989

Features (Standard/Executive) Power Price Performance HML (Contessa) Price > 2 Lakhs MUL (1000)

MUL (800) HML (Ambassador) Price < 2 Lakhs PAL ( Padmini; 187)

Low High Source: Compiled from Statistical Analysis of Car Data

CHART 9.4.2.3. Positioning of Cars in 1990-93 Size Features (Standard/Executive) Povy«r Price Performance HML (Contessa) Pri(» > 2 Lakhs MUL (1000) PAL (118 NE)

MUL (800) HML (Ambassador) Price < 2 Lakhs PAL (Padmini; 187)

Low High Source: Compiled from Statistical Analysis of Car Data 252 cluster had the Maruti 800, Padmini and 187 from PAL. The high attribute, low cost segment had the Ambassador car from Hindustan Motors. The medium car cluster had one entry in the Contessa from Hindustan Motors. There was not much or any in terms of product differentiation. The map is drawn as Chart 9.4.2.1. There are four discemable market segments that emerge. The position of the models is as indicated. Thus we can see that the industry had the maximum clutter in the small car segment. However the differences between the products were substantial in terms of size and power. There was very little in the name of product features. The second product cluster was of the premium, large sized, costly car. This was dominated by the Contessa from Hindustan Motors. b) 1988 - there was not much change over 1987-88. The only difference was the introduction of the Maruti 1000 car. The premium offering from Maruti, it was positioned against the Contessa from Hindustan Motors. There was considerable difference between the two products. The 1000 was a smaller, lighter and a less powerful product as compared to the bigger and powerful Contessa. However the Maruti 1000 v/as more expensive than the Contessa and due to its higher power to weight ratio was a more successful product against its bulkier rival. These results are depicted as Chart 9.4.2.2. c) 1990 - 1993 - there was an expansion in the market with 8 models. Premier Automobiles enhanced its product mix by offering two more products, the Premier Diesel and the Premier 118 NE. As can be seen from Chart 9.4.2.3, the essential market structure remained the same. The diesel product offering from Premier were positioned against the Maruti 800 to make the product more appealing to value conscious customers wanting to take advantage of fiiel price differentials. The 118NE was positioned against the more up-market Maruti 1000 and the Contessa from Hindustan Motors. The Ambassador continued to occupy its niche in the market. However in terms of product characteristics, the 118NE was considerably different from its competing products. d) 1994 - saw an extension in the car market. There were now 3 distinct sets of product clusters on the basis of attributes and two on the basis of price. The matrix was a 2X3 matrix. There were two product clusters in the small segment having small size, low power and fewer features. The p/oduct clusters differed in terms of their price range. Thus the economy cluster with prices below 2 Lakhs included one version of the Maruti 800 two versions of the Padmini from Premier Automobiles. The premium segment in this product class included one version of Maruti 800, two versions of the Ambassador from Hindustan Motors and four versions of the Padmini from Premier Automobiles. Two versions of the Ambassador from Hindustan Motors occupied the economy-high attribute niche. There was no product in the economy segment of the medium sized cars. In the premium segment with low sized products we had one version of the Maruti Zen. In the Premium-medium segment we have two versions of the 118NE from Premier Automobiles. In the higher sized cars in the premium segment we had the Maruti 1000 in two versions (AC and non-AC) competing against the Contessa from Hindustan Motors Limited (AC and non-AC). To cater for peculiar tastes, the premium-high segment also had two versions of the Ambassador. Thus we can see that competition grew onwards from 1994 as companies started differentiating 253

CHART 9.4.2.4. Positioning of Cars in 1994 Size Features (Std/Ex) Power Price Performance MUL (800; AC) PAL (Padmini; 118NE HML (Contessa; Std

PAL (Padmini; DIx; 118NE-AC) Std-AC) Price > 2 Lakhs Dlx-BE-AC;BE-AC MUL (1000; Std; AC) 137-D) HML(Amt)assador; Dsl; MUL (Zen) Dsl-CHx)

MUL (800; Std ) HML (Ambassador P; PAL (Padmini; Std/Ex) P-DIx) Price < 2 Lakhs

Low Medium High

Source: Compiled from Statistical Analysis of Car Data

CHART 9.4.2.5. Positioning of Cars in 1995

Size Features (Std/Ex) Power Price Performance HML (Contessa Qassic PG; TG; TG-AC) Price > 3 Lakhs MUL (1000; Std; AC/ Esteem; LX)

MUL (800; AC) PAL (Padmini; 118NE HML (Ambassador D; PAL (Padmini; DIx; 118NE-AC1.38-D) D- DIx/ Isuzu; BE;BU 2 lakhs

Low Medium High Source: Compiled from Statistical Analysis of Car Data 254 their product on the basis of accessories and features and charging a higher premium for them. The Matrix is drawn as Chart 9.4.2.4. e) 1995 - the expanding product portfolio created the need to carry out our segmentation on a 3X3 matrix. Thus the market segmentation has 9 cells as shown. We have three levels on the vertical axis (Economy, Premium and Luxury). Similarly we have three levels on the horizontal axis (Low, Medium and High). This is drawn as Chart 9.4.2.5. We can see that the in the economy-low attribute segment there is one version of the Maniti 800 and three versions of the Padmini from Premier Automobiles. There is equal competition in the premium- low segment wherein there exist one version of the Maruti 800 and 3 versions of the Premier Padmini and one model of the Maruti Zen. In the premium - middle segment the premium offering from Premier Automobiles, the 118NE is in three versions including a diesel variant. Hindustan Motor fills the economy-high and premium-high niches by its Ambassador model offered in the Nova petrol model in the economy-high segment and by a diesel version of the Nova model and three ambassador variants with the high performance Isuzu engine in the premium-high segment. The luxury segment sees intensifying competition in two variants of the Maruti 1000, one new model in the Maruti Esteem LX and Hindustan Motors enhanced its range by putting three versions of the Contessa in this premium range. To meet the onslaught of Maruti and to match its expanding product range, which the local manufacturers could not meet due to the high costs and technological unavailability, most local manufacturers resorted to increasing their existing product spread by trying to change the power train or by giving additional variants. f) 1996 - again saw a change in the segmentation matrix as the introduction of new products due to the influx of new firms created a fiarther change in the firm's strategies. On the basis of analysis of the product mix in the market we can segment it into a 3X3 matrix with three levels in the Horizontal axis (Small, Medium and High) and three levels in the Vertical axis (Economy, Premium and Luxury). The economy-small segment has two competing products, the Maruti 800 (Std) and the Premier Padmini (Std). The premium-small segment is much more competitive with two models from Maruti, the lower end Maruti 800(AC), and five versions of the Premier Padmini from Premier Automobiles. The medium-premium segment has two versions of the Premier 118 NE from PAL- Peugeot and competing against them is the Uno (A/C) and the more up-market Maruti Zen. In the premium-high segment, there is Hindustan Motors offering two versions of the Ambassador Nova and three versions of the Ambassador Isuzu. ITiere is high competitive intensity in the luxury-high segment. Mercedes Benz occupies a niche in this segment with its range of high priced, high quality luxury cars. The rest of the segment is keenly fought by Maruti offering two versions of Esteem (LX and VX) and one version of the Maruti 1000 (AC). Contessa has one version in the segment. Peugeot has a version of its 309 (GL). Daewoo has three versions of its Cielo (GL, GLE-MT, GLE-AT) including one with automatic transmission. Ford has two versions of its Escortl.3 in the market (Std, LX), Thus we can see that there is an increasing level of competition in the industry as increasing number of the products are being positioned in the market against each 255

CHART 9.4.2.6. Positioning of Cars in 1996 Size Features (Std/Ex Power IVicc Performance Contessa Classic (DSL) Mercedes llenz - (E-220, E- 250) Manai 1000(AC) Maruli Esteem (IX, VX) louoiry Peugeot 309 (GL) Price > 4 I^aldis Cielo (GL, GLE-MT, CLE­ AT) Ford Escort L3P (Std, LX)

PAL (11«NE, 118NE -AC, Ambassador hfcrva (DSl^DLX, L38D) DSL-DLX-BU) Maruti 800 (AQ PALLino»(AC) AnJbassador Isuzu ( BE, BE- Premier Padmini (IXJC-BE, Maruti Zen Premium Price < 4 Lakhs

Maruti 800 (Std) Premier Padmini (Std)

Fxonomy Price < 2 I^alchs

Small Medium High

Source: Compiled from Statistical Analysis of Car Data 256 Other. To better understand the competitive dynamics at play in positioning, we will scale the attributes to get a better understanding of the positioning strategies being followed by the companies. Matrix is drawn as Chart 9.4.2.6. g) 1997 - the positioning map in 1997 gets more competitive with more competitors offering their products. The Price range for segments has been revised as can be seen from Chart 9.4.2.7. Thus economy segment is extended up to 3 Lakhs, premium up to 5 Lakhs and luxury segment beyond 5 Lakhs. In the small - economy segment, we have 6 versions. Two are of the Maruti 800 and four from Premier Automobiles. Tims the Maruti 800 Standard competes with the Padmini Executive in the below 2.5 Lakhs slot. In the 2.5 Lakhs to 3 Lakhs range, we have the Maruti 800 AC competing against two diesels and a petrol version of the Premier Padmini. There is no other product offering in the economy class. In the premium class, we see that products have been so positioned to slot themselves uniquely in the position map. Thus in the premium -small segment we have four price levels. In the 3- 3.5 lakh range we have one product, the Padmini Deluxe diesel from Premier Automobiles. The next price level of 3.5 to 4 Lakhs has no product in it. In the middle-premium segment there is the 3.5 lakh to 4-lakh price levels, which has products to compete. Thus here the FIAT Uno AC competes with a larger sized 1.38D from Primer Automobiles. In the 4-4.5 Lakh level we have the manual transmission Zen from Maruti. Its automatic transmission version occupies the 4.5 lakh to 5-lakh slots. In the large sized level we have no product in the economy range. In the premium range, we have the Hindustan Motors carving a niche through its Ambassador range of products. They occupy the price band from 3.5 Lakhs to 5 Lakhs. There is one model of the large sized Contessa in this segment and one model of the Maruti 1000 positioned against each other in this segment. However they are more of a carryover from the previous years. In the luxury-large sized segments we have a sizeable amount of competition. The segments have been divided by the product portfolio into 5 price bands of width one lakh each. In the 5-6 lakh band we have the Esteem LX from Maruti and the Peugeot 309 as the slightly smaller sized product. The band also has competition from the larger Contessa -D and the Cielo GLE (Manual and Automatic) from Daewoo. In the 6 - 7 lakh price band we have two versions of the smaller Maruti Esteem (VX, AX) pitted against the Cielo GLX (Automatic and Manual) from Daewoo. In the 7-8 lakh price band we have the 309GLD from Peugeot. In the 8-9 lakh price bracket we have the Opel Astra competing against two models from Ford (Escort 1.6 and l.BDiesel). In addition the luxury segment has a niche carved by the top of the line Mercedes Benz. These cars are priced in addition of 20 Lakhs and have a limited exclusive clientele. There seem a lot of anomalies in the positioning in the market in 1997. Most of the offerings were from companies who had just established operations in the country and had brought in a product to compete against a particular product of its perceived competitor. Product strategy and its positioning had a lower priority than the need to put a product in the market. The market alignment was shifting. Consumer base was expanding. All models were selling, some more and some less. There were fiirther more new products waiting to roll off the production facility and into the market. Other factors like auto-finance and leasing were making a product more accessible to the 257 CHART 9.4.2.7. Positioning of Cars in 1997

Size Features (Std/Ex) Power Price Performance MB (E-200; E-230; 9 E250-D) 6 Lakhs < Price OPEL FORD (ASTRA) (ESCORT; 1.6 8 1.8-D) 7 PAL(309GLD) MUL(ESTEEM; DMIL(CIELO 6 VX;AX) GLX-A;GLX-M) MUL(ESTEEM; DMIMCIELO LX) GLE-A;GLE-M) PAL(309) HMMContessa: 5 2.D) MUMZervA) HMMAmby- HML(Contessa, 4 Lakhs < Price < 6 Lakhs ISZ;BE-AC;BU 1,8P) 4.5 HMUArrby- MUL(2en) Ncva;D;D-Dtx) MUMIOOO; 4 RAT (UnoAC) PAL(1.38-D) HMMAmby^ ISZ;BE) 3.5 PAL(Padmini 2.5 L2khs < Price < 4 Lakhs DLX-D) 3 MUL<80aAC-TG PAL(Padmini ;D;P;EX-D) Z5 MUL<800;Sttl) PAMPadrrini ;Boe) L H L H L H LOW MEDIUM HIGH

Sou'ce: Compiled from Statistical Analysis of Car Data 258 CHART 9.4.2.8. Positioning c3 f Cars in 1998 Size Features (Std/Ex) Power Price Performance MB (E-200; E-230; E250-D) 10

9 OPEL(Astra) FORD Price > 6 Lakhs HSIMCity (ESCORT; 1.6 1.5 EM) 1.8-D) 8 PAL(309GLD) Dt^MCiek) GLX-A) 7 MUMESTEEM DMIMCieto WKM) GLX-M;GUE-M HSIL(City GLE-A) I.SLxi) 6

5.5 MUL(Esteem MUL

Source: Compiled from Statisficaf Analysis of Car Data DMIL = Dae«» Motors IncSa Limited; FIAL = RAT Ind Auto Ltd; RL = Ford India Umited; TKM = Toyota Kirtoskar Motors GMIL = Generd Motors IncSa Limited; HML = Ktndustan Motors Limited; HSIL » Honda Srtram Inda Ltd; MUL ==Marutl Udyog Ltd MBIL = Mercedes Benz Indte Ltd; PAL-P = Premier AutomcWIes Limited- Peugeot; MBIL= Mercedes Benz; SAL - Sipani Autmobiles Limited; SMRL = Standard Motors; TELCO = Tala Engineering and Locomotive Company TKM = Toyota Kirtoskar Motors; ETTL = Ba|ai Tempo Ltd; M&M - Mahindra and Mahindra; 259 consumers. Thus there was a further change in the price base for segmentation in 1998. h) 1998 - the positioning strategy as adopted by firms in 1998 were a little more aggressive over 1997. There was wider market coverage by the product. Thus the economy segment included a price range up to 4 Lakhs, the premium range up to 6 Lakhs and the luxury segment beyond 6 Lakhs. There was a deeper product proliferation in the market leading to a more aggressive positioning of products by firms. Thus for the small-economy segment had 4 price bands. In the below 2.5 lakh price band we had Standard Maruti 800 competing against the Executive Premier Padmini. In the 2.5 lakh to 3 lakh band we had the Maruti 800 AC pitted against two diesel versions of the Premier Padmini. In the 3-3.5 lakh price band we had only the diesel Deluxe from Premier Automobiles and in the 3.5 lakh to 4 lakh price band we had the Zen VX from Maruti. In the economy -medium size segment we have the Premier 118NE in the 2.5-3 lakh price band. In the 3-3.5 lakh price band we have the FIAT Uno EX competing against the Santro from Hyundai. In the price band 3.5 lakh to 4 lakh we have the FIAT Uno AC pitted against the Santro DLX and the I.38D from Premier Automobiles Limited and the Zen VX. In the economy-large sized segment, there is only one product in the 3.5- 4 lakh price band the Ambassador Nova-D. In the premium-medium segment, there are two versions of the Maruti Zen, an automatic version in the 4.5 lakh to 5 lakh price band and a diesel version in the 5-5.5 lakh price band. At the lower end of the premium-medium segment, we have the F lAT Uno D-AC in the price band 4 - 4.51akhs. In the premium -large segment we have one diesel version of the Ambassador Nova and two versions of the Ambassador Isuzu. We also have the Maruti 1000, positioned against the Contessa 1.8, which is in the higher price band of 4.5 -5 Lakhs. In the price band 5-5.5 Lakhs we have the Maruti Esteem LX in a very competitive positioning against the Peugeot 309GL. In the luxury-large segment we have some very aggressive positioning of products. Thus in the price band 6-7 Lakhs, we have two versions of the Maruti Esteem pitted against the 1.3 Lxi Honda city and three versions of the Daewoo Cielo which includes both the manual and automatic version of the GLE and the manual version of the GLX. In the 7-8 lakh price band we have the 309 GLD from Peugeot positioned against the automatic GLX Cielo from Daewoo Motors. In the 8-9 lakh price band we have the 1.5 EXi City from Honda against the Astra from Opel and two versions of the Escort from Ford (1.6 and 1.8 D). There is then the high-end niche catered to by Mercedes Benz in tlie addition of 20 Lakhs plus price band. Thus we see that there is increasing competition amongst the products in 1998 with positioning becoming the major competitive tool to gain competitive advantage. Positioning matrix is drawn as Chart 9.4.2.8. i) 1999 - the market segments have moved up on the price range. The economy segment have been defined up to 5 Lakhs, the premium segment between 5 to 8 Lakhs and the luxury segment in excess of 8 Lakhs. Positioning has become more complicated and aggressive. Thus the economy-small segment has been divided into 6 price bands, starting from up to 2.5 lakh, 2.5 -3 Lakhs, 3 -3.5 Lakhs, 3.5 -4 Lakhs, 4 -4.5 Lakhs and 4.5 -5 Lakhs. Thus in tlie less than 2.5 lakh price band we have two models from Maruti, the 800 and the 800EX. In the 2.5 lakh -3 lakh 260 CHART 9.4.2.9. Positionin g of Cars in 1999 Size Features (Std/Ex) PcAver Price Performance MB (E-200;E-230;E250-D) 11 OPEL(Astra; Clut>AT; 100-D;aub-D) 10 OPEL Astra(AT;aubP; 1.7TD 8 Lakh < Price 100P) HSIL(Crty 1.5 E»-AT) g FORD(EscortSE;1.8D) OPEL( Astral .7) HSILCity(1.5exi;Exi-S) FIAT Sienna(D-€ix-PS-SP) HML Lancer(Glx)-D) 8 OMILNexIa FORD (Ikon 1.8ZXi) OPEL Astra 1.6 FIAT Sienna(ELxPS-SP;D-EL-PS HML Lancer(P-Glxi) D-ELX-PS) HSILC(ty(1.3Exi) 5 Lakh < Price <8 Lakh FORD( Escort 1.6P) 7 MUMEsteemAX) HMIL Accent GLE-PS; GLS) FORD(lkon1.6ZXi) HSILCIty(1.3Lxl) DMILOetoExBC 6 FIAT Sienna (ELX; ELX PS;) HML Conty(Classk: 1.8GL;20) FORD Ikon (1.i9CLXi; CLXiPS) HMIL Accent GLE 5 Uno D JU&AC,DLX-AC-PS m^^^coo-AC) HMLArrby2000DSL MUL(ZenAT) 4.5 IndcaDLX MUMEsteem LX) HML Amby NovaO:1800 ISZ MUL(Zen D;Classic) MUL(1000) 1800MPFI/CNG) FlATUnoDDLXAC DMlLMatizSA 4 IndicaDLE MULZenVX 2.5 Lakh

Analysing Positioning of Manufacturers over the Yezirs 9.4.3. We have seen in sub-section 9.4.2, that manufacturers have adopted a very flexible positioning strategy against competitors especially in a low volume market like India where low scales make re-investments in product development a costly preposition. Thus manufacturers have launched basic models and have dissected it over the years and added features, power trains etc to create a different version or variant to be pitted against a competitor. In this section we will analyse the positioning strategy of the various competitors over the years in the Indian passenger car market. As a benchmark, to better understand the positioning dynamics at play we will establish the product movement of the market leader Maruti and use other manufacturers to fill in the gaps a) Maruti Udyog Limited - the company started production in 1983. It offered 100 MarutiSOO cars in 1983 to the Indian market. The demand grew to 10719 cars in the next year, it tripled to 36139 cars in 1985 and the company offered its Maruti van to the market and the Gypsy multi-utility vehicle the same year. The demand went up to 42045 cars, 18122 vans and 4901 gypsy vehicles in 1986. In 1987- 1988 - Maruti had three products in the markets. We will in this section focus only on cars. In 1987-1988, the Maruti 800 was a small car filling up the lower end of the market. Its i. USP was its small size, exceptional relative handling, higher fuel efficiency, higher power to weight ratio etc. ii. 1989 - in addition to the Maruti 800 passenger car, Maruti came out with a premium car for the higher end of the market. It was the Maruti 1000. Priced at around 3.5 Lakhs it was the premium offering from Maruti iii. 1990-1993 - there was no change in Maruti's product portfolio. iv. 1994 - the need to expand its product base in the face of growing competition from competitors forced Maruti to offer the Maruti 800 in two versions (Std and AC) one below and one above the 2 lakh price range. In the large sized segment we have the Maruti 1000 in two versions (Std and AC) to compete with similar differentially priced competitors product. There was a new model, the Zen in the small-premium segment for the high-end customers wanting a small high performance car. V. 1995 - though the segments changed however product offering from Maruti did not change. Thus there was the Maruti 800 Std catering to the low end of the market at below 2 Lakhs. Then there was the premium -small segment in which Maruti had the Maruti 800 AC and the Maruti Zen. There were two versions of the Maruti 1000 (Std, AC) and one new model of the high end Maruti Esteem at the high end of the market. 265 vi. 1996 - there was no change in Maruti's product mix except one additional version of the Esteem (VX) in the higher end of the market vii. 1997 - change in market characteristic lead to a change in market segmentation. Thus the Maruti 800 is restricted to the economy-small segment with the AC version catering to the higher end of the segment. The Maruti Zen was positioned as the exclusive small car in the Premium-small segment. It was offered in the automatic transmission version positioned in the higher end of the segment. The Maruti 1000 was downgraded to the premium-large segment. And in the higher end luxury-large segment we had the Esteem LX in the 5-6 Price band and the Esteem VX and AX in the 6-7 lakh price band. viii. 1998 - expanding market force a re-segmenting of the market. There is no new product offering from Maruti despite rapid product infiltration in the market. The positioning is as under. In the economy-small segment we have the lowest end Maruti 800 Std. In the middle order we have the Maruti 800 AC and as its high end offering in this segment we have the Maruti Zen VX. There is no other product in the economy segment. In the premium -small segment we have the Zen Automatic and the Zen Diesel for more value conscious customers. In the premium-large segment we have the Maruti 1000 as the low end product offering and the Esteem LX as the high-end offering. In the Luxury-large segment, Maruti operated on the low end of the segment with two models, the VX and the AX. ix. 1999 - market expansion leads to further change in the segmentation base. There is a re-positioning of the product profile with several new models in the offing. The 800 is positioned at the lowest end of the economy segment. Different versions of the Zen compete at various price bands against competing products. Thus in the 3-3.5 lakh price band we have the Zen LX, in the 3.5 -4 lakh price band the ZenVX, in the 4 - 4.5 lakh price band we have the Zen D and the Zen Classic and in the 4.5 lakh-5 lakh price band we have the Zen AT. In the economy medium segment we have at the higher end the Maruti 1000 Std and the Esteem LX in the 4-4.5 lakh price band and the Maruti 1000 in the 4.5 lakh to 5 lakh high-end price band. TTie Esteem VX and Esteem AX are in the lower end of the premium-middle sized segment. There is no other product offering from Maruti. X. 2000 - understanding the changing market conditions, Maruti decided to reposition itself and to launch a range of new products to take on the competition. The segmentation bases did not change keeping the segmentation matrix the same as in 1999. Thus in the economy-small segment, Maruti let the Maruti 800 E2 in the lowest end of the segment. In the 2.5 lakh-3 lakh segment it put 2 versions of the Maruti 800, the reengineered 800 EXE2 and the 800 AC. In the 3-3.5 lakh price band it launched the Alto LXE2 to compete against the competitors. In the 3.5-4 lakh price band it put in three models. It had the Alto VXE2, Wagon R LX and the Zen LXE2. In the 4-4.5 lakh price band it has three models of the Wagon R (Lxi, VX and VXi) and three versions of the Zen (VXE2, D, Classic). In the 4.5 - 5 lakh price band we have Zen VXi-PS- E2. In the Premium -small segment we have one model of the Wagon R (AX) and the Zen Automatic. In the premium-middle segment, there were two 266 versions of the Esteem (LX, VX) at the lower end of the market. The Esteem AX is in the middle price band of the segment. The new model Baleno in the higher end of the premium-large segment. Maruti has positioned the Baleno- Altura at the lower end of the luxury-large segment. b) Hindustan Motors Limited i. 1987 - there were two models. The Ambassador in the economy-large segment and the Contessa in the Premium- Large segment of the market ii. 1988-1989 - there was no change in the positioning. The Contessa was positioned against the Maruti 1000 in the Premium-large segment iii. 1990-1993 - the product positioning remained the same as in previous years iv. 1994 - there was an expansion in the product profile. Two versions of the Ambassador were offered in the Economy-large segment. Two versions of the Diesel Ambassador were offered in the Premium-large segment and the Contessa was offered in a Std and an AC version, positioned against the Std and AC version of the Maruti 1000. V. 1995 - with market expansion, there was not much change in Hindustan Motors product profile. The Ambassador and Contessa both occupied the large section of the market. In the economy-large segment we have the Ambassador Nova petrol in the premium -large segment we have the Ambassador Diesel DLX and four models of the new Ambassador Isiizu (BE, BU, BE-AC and BU-AC). In the luxury-large segment we have three versions of the Contessa Classic (PG, TG, TG-AC) positioned against the base Esteem and two versions of the Maruti 1000 (Std, AC) vi. 1996 - further market expansion saw a reorientation in the product profile. Thus in the premium - large segment we have two versions of the Ambassador Nova (DSL-DLX, DSL-DLX-BU) and three versions of the Ambassador Isuzu (BE, BE-AC, BU). In the luxury -large segment we have the Contessa Classic positioned against the Esteem (LX, VX), Cielo, Ford Escort, Peugeot 309 and the Maruti 1000. vii. 1997 - further expansion have not varied Hindustan Motors strategies much. Thus we have 5 versions of the Ambassador in the premium-large segment. The segment also holds a Contessa Classic 1.8 positioned against the more competitively priced Maruti 1000. viii. 1998 - market changes change the positioning map. Thus now we have one Ambassador model in the economy-large segment. There are three versions of the Ambassador (Nova and Isuzu) operating in the lower end of the market. There are both the versions of the Contessa Classic positioned between the higher priced Esteem LX and the Peugeot 309 and above the lower priced Maruti 1000. ix. 1999 - there is a drastic change in the product positioning strategy by the manufacturers. In the economy-large segment we have 5 versions of the Ambassador (Nova-D, Isuzu, MPFI, CNG and the 2000). At the lower end of the premium -large segment we have the Contessa Classic. There is a new product offering in the form of the Lancer. It is positioned in the higher end of the premium large segment (against Astra 1.6 and Honda City 1.3Exi) and 267 in the lower end of the Luxury-large segment (against Astra 1.7TD and Honda City l.SExi and EXi-S) X. 2000 - The expansion in the market and a wider product profile made the company to launch additional versions. In the Economy-large segment, the Ambassador still holds its niche with 4 versions. In the Premium -large segment we have the Contessa Classic operating at the lower end of the segment against the Cielo and tlie Accent GLEl. The Lancer is positioned as the more up-market product. It is positioned in the Luxury large segment in the price band 8-9 lakh against the Honda City l.SExi, Baleno Altura and the Astra Diesel. In the 9-10 lakh price band it is available in three versions, positioned against three versions of the Honda City 1.5 and two versions of the Astra. In the 10-11 lakh price band it is positioned against the Astra Club Diesel. c) Premier Automobiles Limited i. 1987-1988 - there were tvvo models, the Padmini executive and the 187 against the Maruti 800 ii. 1989 - there is no change in the product mix or the positioning iii. 1990-1993 - the 118NE is launched in the premium -large segment positioned against the Contessa andthe Maruti 1000. iv. 1994 - market expansion changes positioning. There is the Premier Padmini Executive and the Std against the Maruti 800 Std. In the premium-small segment there are 4 versions positioned against the Maruti 800 AC and the Maruti Zen. In the Premium-middle segment there are two versions of the 118NE. THUS Premier Automobiles withdrew from the premium-large segment and opened its dominated Premium-middle segment. V. 1995 - the only change was the increase in the competing versions against the Maruti 800 (in the forni of DLX-BE, DLX, Std, Executive) and an increase in the number of versions in the Premium-middle segment with the introduction of the 1.38D vi. 1996 - it changed its positioning. In the economy-small segment, only the Executive Padmini was positioned against the Maruti 800 Std. There was a wider product offering in the premium small segment with five versions (DLX-BE, DLX, DLX-BE-AC, DLX-AC and I37D) positioned against the Maruti 800 AC and the Maruti Zen. In the Premium-middle segment there was no change vii. 1997 - there was a line pruning exercise. In the less than 2.5 lakh price band we had the Premier Executive pitted against the 800 Std. In the higher 2.5-3 lakh band we have three versions (P, D, EX-D) against the ManitiSOO AC. In the Economy-medium segment in the 3.5 - 4 lakh price band we have the Premier 1.38 D positioned against the FIAT Uno. viii. 1998 - the only change was the reintroduction of the 118 NE in the 2.5 lakh- 3 lakh band of the medium-economy segment. ix. 1999 - 2000. The company stooped production 268 d) FIAT i. 1996 - in 1996 the Uno was launched in the premium-middle segment against the various products of Premier Automobiles (118NE, 118NE-AC. 1.38D) ii. 1997 - No change in the positioning iii. 1998 - the product spread was increased. In the 3-3.5 lakh price band in the middle-economy segment we have the Uno positioned against the Santro. In the higher 3.5-4 lakh price band we have the Uno-AC against the Santro DLX and the 1.38D from Premier Automobiles. iv. 1999 - 7 versions of the Uno launched in the economy-small segment in the price band 3-5 Lakhs. A new model, the Sienna is introduced in the medium sector of the market. Launched in 6 versions we have two versions in the lower-end of the premium-middle segment (against the Ikon and Esteem) and three in the higher end of the premium-middle segment (against the Ikon and Escort versions). There is one model positioned in the lower end of the Luxury-medium segment competing against two versions of the Astra. V. 2000 - 6 versions in the economy-small segment of the market positioned against the various small cars. There is a line stretch in the Sienna model with the Sienna covering the whole of the premium-middle segment with two versions in each price band. In the luxury - medium segment, there are three versions in the 8-9 lakh price band and one version in the 9-10 lakh price band and competing against the whole variety of product range including the Esteem, Ikon 1.3 and 1.6, and both the Corsa 1.4 and 1.6. e) Daewoo i. 1996 - in 1996, Daewoo launched the Cielo in three versions. It includes the GL, GLE-MT and GLE-AT. It was positioned against the Contessa Classic, the Esteem, 1000 and two versions of the Ford Escort 1.3P(Stdand LX) and the Peugeot 309GL. ii. 1997 - The positioning remained pretty much the same, except that now it had a manual and automatic transmission of both the GLE and GLX. The GLE was positioned against the Contessa, Esteem LX and the Peugeot 309 in the 5-6 laldi price band. In the 6-7 lakh price band we had the GLX against the Esteem VX and AX. iii. 1998 - in the lower end of the luxury-large segment. The Cielo GLE (A and M) and the GLX-M were positioned against the Esteem VX and AX and the Honda City 1.3Lxi. The GLX-A was positioned against the Peugeot 309GLD in the 7-8 lakh price band. iv. 1999 - the company launched four versions of its small car, the Matiz in the economy-small segment. Thus the Matiz SS was in the 3-3.5 lakh price band positioned against the Indica DL, Uno (DLX, AC), Santro (L2E1, and L2E2) and Zen LX. The Matiz SO and SG were in the 3.5- 4 lakh price band positioned against the Indica DLE, Uno (D-DLX, JUB - AC), Santro (GLSlEl, GLS1E2, GLS2E1 and GLS2E2) and Zen VX. The Matiz SA is in the 4-4.5 lakh price band, positioned against the Indica DLX, Uno-D- DLX-AC, Zen D and the Zen Classic. The Cielo competed in the premium- 269 large segment. WitJi only its Executive version in the market, the Cielo was positioned in the 6-7 lakh price band against the 1.3Lxi from Honda City and the Accent GLE-PS and GLS. There was a new product from Daewoo, the Nexia. Priced in the 7-8 lakh price band it was positioned against the Astra 1.6, Honda City 1.3Exi and the Lancer P-GLXi in the high end of the premium-large segment. V. 2000 - the positioning has not undergone much change for Matiz. It has the SS in the 3-3.5 lakh range pitted against the Alto LXE2, Uno 1.2EL, Santro LEEl and Indica DL. In the 3.5 - 4 lakh price band we have tu'o versions of the Matiz (SD and SG) positioned against the Zen LXE2, Santro (LSEl, GSEl, LEE2 and LSE2), Uno 1.2EL-AC and D-EL, Wagon R LX, Alto VXE2 and two versions of the Indica (Lei-MPFI and DLE). In the 4 - 4.5 lakh price band we have the Matiz SA positioned against the Zen (VXE2, D, Classic), Santro (GSE2), Uno 1.2ELX and D-EL-AC), Wagon R (LXi, VX, VXi) and two versions of the Indica (LXi-MPFI and DLX). The Cielo is positioned in the 5-6 lakh price range comprising the low end of the large - premium segment against the Contessa Classic (1.8G and 2.CD) and the Accent GLEl. In the 6-7 lakh price band we have the Cielo CNG and the Nexia positioned against the Honda City 1.3Lxi and the Accent GLE2 and the GLS. f) Ford India Limited (Mahindra -Ford India Limited) - i. 1996 - they introduced two versions of the Escort 1.3 Petrol (Std and LX) in the luxury large segment. It was positioned against the Contessa versions. Esteem versions, the Cielo and the Peugeot 309 GL. ii. 1997 - Launched the 1.8-Liter Diesel Ford Escort. They targeted the higher end of the Luxury segment in the 8-9 lakh price band. They were positioned against the Opel Astra iii. 1998 - there was no change in the positioning, though competition increased with the Honda City 1.5Exi-A positioned against them. iv. 1999 - the market expansion caused a slight change in the positioning of the Escort. The 1.6 Escort petrol was positioned in the high end of the premium- luxury segment against the City 1.3Exi, Lancer P-GLXi, Astra 1.6 and the Nexia. The Escort Sports E and the 1.8D Escort were positioned in the lower end of the Luxury-large segment in the 8-9 lakh price band against the Astra 1.7TD, Lancer D-GLXi and the Honda City 1.5 EXi and the 1.5 EXi-S. Ford decided to compete in the medium sized sector especially the Premium - medium segment. It launched its Ikon car (the josh car) in this segment. It offered two versions (I.6CLXi and the 1.6 CLXi-S) in the lower end of the premium-medium segment positioned against the Sienna (ELX, ELX-PS) and the Esteem VX in the 5-6 lakh price band. The Ikon 1.6ZXi was positioned against the Esteem AX in the 6-7 lakh price band. The Ikon l.SZXi was positioned in the higher end, 7-8 lakh price band, against the Sienna versions (ELX - PS-SP, D-EL-PS and D- ELX-SP). V. 2000 - Ford withdrew from the luxury segment and concentrated on its new product offering in the medium sized sector, the Ikon. Ford continues to 270 occupy the premium- medium segment. The Ikon 1.3 (CLXi, CLXi-PAS and EX) is positioned in the lower end of the premium-medium segment in the 5- 6 lakh price band against the Sienna (ED, EL PS) and the Esteem (LX-E2 and VX-E2). In the 6-7 lakh price band we have the Ikon 1.6 ZXi against the Corsa versions (1.4 GL and 1.4 GLS), Esteem AX E2 and the Sienna versions (ELX SP and D EL PS). In the higher end, 7-8 lakh price band of the premium-medium segment we have the Ikon 1.6 SXi and the 1.8ZXi-D against the higher Corsa versions (1.6 GSI and 1.6 GLS) and the Sienna (D ELX PS and W ELX). g) Peugeot i. 1996 - the 309 was launched in the luxury segment against the Cielo. Esteem, Contessa, Escort and the Maruti 1000 versions ii. 1997 - the 309 GL was positioned in the 5-6 lakh price band in the lower end of the luxury-large segment against the Esteem LX, Contessa versions and the Cielo GLE versions. The high-end 309GLD was launched in the 7-8 lakh price band. iii. 1998 - market expansion caused the 309GL to be in the large-premium segment in the price band 5 lakh to 5.5 lakh price band positioned against the Esteem LX and the 309 GLD to be positioned in the luxury-large segment in the 7-8 lakh price band against the Cielo GLX -A. iv. 1999 - 2000 - the Peugeot was pulled out ot the market. h) General Motors i. 1997 - the Opel Astra was laimched in the luxury - large segment in the price range of 8-9 lakh positioned against the Ford Escort (1.6 and 1.8 D) ii. 1998 - there is no change in the positioning except increased competition from Honda City 1.5 Exi iii. 1999 - the company underwent line stretch to meet the competition and to make its presence felt in more segments and sub-segments. Thus in the 7-8 lakh price band, representing the higher end of the premium-large segment, we have the Astra 1.6 positioned against the Nexia, Lancer P GLXi, City 1.3 EXi and Escort 1,6 P. At the lower end of the Luxury - large segment we have the Astra 1.7TD in the 8-9 lakh price band positioned against the Lancer D- GLXi, Honda City 1.5 EXi, 1.5 EXi-S and the Escort Sports E and the 1.8D. In the 9-10 lakh price band we have the Astra AT, Club P, 1.7TD GL, lOOP positioned against the Honda City 1.5 EXi-AT. In the 10 - 11 lakh price segment we have the Astra Club AT, Club D and the 1OOD. iv. 2000 - imderstanding the need to put a product in the highly competitive medium-premium segment. General Motors launched the Opel Corsa in two variants in the premium-middle segment. The Corsa 1.4 (GL, GLS) was launched in the middle end of the segment in the price band 6-7 Lakhs positioned against the Esteem AX E2, Ikon 1.6 ZXi and the Sienna (ELX SP and D EL PS). At the higher end of the segment in the price band of 7-8 Lakhs we have the Corsa 1.6 (GSI, GLS) positioned against the Ikon 1.6 SXi and 1.8ZXi-D and the Sienna (D-ELX-PS and W-ELX). The Astra was 271 positioned as the high end product. The Astra P 2000, in the higher end of the' premium-large segment in the price band 7-8 lakh, is the cheapest positioned against the Baleno, Accent (GLX, DLS) and the Honda City 1.3 EXi. The Astra D, in the 8-9 lakh price band comprising the low end of the luxury large segment, was positioned against the Honda City 1.5Exi, Lancer GLXi-P and the Maruti Baleno Altura. The Astra 1.6GLI 2000 and the 1.7TD, in the 9-10 lakh price band of the medium level of the luxury large segment, is positioned against the Honda City versions (1.5Exi-AT, EXi-S and VTEC) and the Lancer versions (GLX-D, SLXi and SFXi). In the high end of the luxury large segment in tlie 10-11 lakh price band we have the Astra Club and the Club D positioned against the Lancer SLX-D. i) Honda Motors India Limited i. 1998 - operating in the higher end of the market in the luxury-large si2ed segment it offered two models. The Honda City 1.3 Lxi in the 6-7 lakh price band was positioned against tlie Esteem VX and AX and the Cielo GLE (A and M) and the GLX-A. The Honda City 1.5 EXi in the 8-9 lakh price band was positioned against the Ford Escort (1.6? and 1.8D) and the Opel Astra. ii. 1999 - the 1.3 version of the Honda City was offered as a premium-large segment product whereas the 1.5 litre version was offered as the luxury large segment product. The 1.3 Lxi Honda City was offered in the 6-7 lakh price band comprising the medium end of the premium large segment positioned against the Cielo Executive and the Accent versions (GLE PS and GLS). The 1.3 EXi was offered in the higher end of the premium large segment in the price band of 7-8 lakh positioned against the Nexia, Astra 1.6, Lancer P- GLXi and the Escort 1.6 P. The l.SHonda City (EXi and EXi-S) was positioned, in the 8-9 lakh price band forming the lower end of the luxury large segment, against the Lancer D GLXi, Astra 1.7TD and the Escort (Sports E and 1.8D). The 1.5Exi-AT Honda City is positioned in the 9-10 lakh price band comprising the medium level of the luxury large segment and is competing against the Astra versions (Astra AT, Club P, I.7TD GL, I OOP) iii. 2000 - the only difference is the change in the competing models. Thus in the 6-7 lakh price band in the medium sized - premium priced segment we have the Nexia, Cielo CNG and the Accent (GLE2 and GLS) against the City 1.3 Lxi. In the 7-8 lakh price band comprising the high end of the premium-large segment we have the 1.3City EXi positioned against the Baleno, Astra 2000P and the Accent versions (GLD, DLS). In the Luxury-large segment we have the 1.5 City EXi, in the 8-9 lakh price band comprising the lower end of the segment, positioned against the Baleno Altura, Astra D and the Lancer GLXi-P. In the 9-10 lakh price band we have three version of the Honda City 1.5 (EXi-AT, EXi-S and VTEC) positioned against the Astra (1.6GL12000 and 1.7TD) and the Lancer versions (GLX-D, SLXi and SFXi). j) Hyundai Motors Limited - i. 1998 - Santro was launched in the Economy segment and was launched in two versions (Std and DLX). The Std was launched in the 3-3.5 lakh price 272 band and the DLX in the 3.5 - 4 lakh price band. It was positioned primarily against the Fiat Uno and the Maruti Zen. ii. 1999 - the Santro line was stretched to 6 versions. However 2 versions (L2E1 and L2E2) were positioned in the 3-3.5 lakh price band positioned against Zen LX, Uno DLX AC, Matiz SS and the Indica DL. There were four versions in the 3.5 lakh to 4 lakh price band (GLSl El, GLS2E1, GLSl E2 and GLS2E2) that were positioned against Zen VX, Indica DLE, Matiz SD and SG and Uno (Jub AC, D-DLX). To take advantage of the growing premium sector, it launched three versions of its Accent model. The GLE was launched in the 5-6 lakh price band comprising the lower end of the premium - luxury segment and positioned against the Contessa Classic. The GLE PS and the GLS were positioned in the middle level in the same segment in the price band 6-7 lakh, positioned against the Honda City 1.3 Lxi and the Cielo Executive. iii. 2000 - the Santro line was extended to three product sub-segments. In the economy-small segment we have the Santro LEEl in the 3-3.5 lakh range positioned against the Uno 1.2EL, Matiz SS, Alto LX E2 and Indica DL. In the 3.5 lakh to 4 lakh price band we have four versions of the Santro (LSEl, GSEl, LEE2 and LSE2) positioned against the Zen LX E2, Uno (1.2EL AC and D-EL), Matiz (SD and SG), Wagon R LX, Alto VXE2 and Indica (LEiMPFI and DLE). In the 4-4.5 lakh price band we have the GSE2 positioned against the Uno (1.2ELX and D-EL-AC), Matiz SA, Zen (VXE2, D and Classic), Wagon R (Lxi, VX and VXi) and Indica (Lxi-MPFI and DLX). The Accent is positioned in the Premium-large segment. Hyundai has done line stretching to cover the entire premium -large segment. In the 5-6 lakh band, comprising the lower end of the segment we have the GLEl positioned against the Contessa Classic and the Cielo. In the middle of the segment in the price band 6-7 lakh, we have the GLE2 and the GLS positioned against the Nexia, Cielo CNG and the Honda City 1.3 Lxi. In the higher end of the segment, in the price band 7-8 lakh we have the Accent GLX and DLS positioned against the Baleno, Astra 2000 and Honda City 1.3 EXi.

k) Mercedes Benz - for the entire period since 1996, their products have been occupying the niche for the very high priced, high quality cars. There has been no other competitor in the Indian market for their product so far.

Positioning Strategy Deductions 9.4.4 A cross sectional analysis of the positioning spectrum tells us a lot about the ]DOsitioning strategy adopted by the various manufacturers. It is imperative to understand these because they form the rationale of any positioning analysis study. The important deductions drawn are a) No manufacturer is adopting a full market coverage strategy. The closest any manufacturer comes close to it is Maruti 273 b) There are two distinct niches: one catered by Mercedes Benz at the highest end of the market and the other in the large -economy segment supplied by the Ambassador from Hindustan Motors. c) A change in market dimensions (governed by other parameters) cause a change in positioning since there is a change in the segmentation basis and target market selection. Thus there has been a continual change in market segmentation over the years. d) The stability in segmencation base has been achieved as late as 1999 or even 2000 as the market forces have finally come to occupy short-term equilibrium. Money supply is more even, interest rate fluctuations have decreased, product blitzes and launches have declined and market is moving towards more maturity. e) Maruti Udyog has tried to cover the market to the fullest so it can be perceived as the company with the maximum spread. Gaps do exist, especially at the high end of the market. An analysis of Maruti's product profile indicates that they have tried cost reduction by using the same platform as a basis to launch many of their product range. Thus the Zen, Wagon R and the Alto models have the same width and length but only differ in height and the power train, Maruti allowed competitors to establish them in the market by not taking any competitive action in the form of product launches during the crucial years of 1997 till early 1999. Maruti needs to do a rehashing of its product strategy as in many micro segments its own products are pitted against each other. f) Most firms have resorted to single model, multi version strategy to cover a broad band of segments. Thus FIAT has two models, the Uno and the Sienna. The Uno in 2000 December had 6 versions covering the price band stretch from 3 Lakhs to 5 Lakhs. Similarly the Sienna has 10 versions in the price band 5 - 10 Lakhs. g) Hyundai has most successfully adopted the policy of specific sub-segment targeting. Thus its Santro does not occupy the whole spectrum of 2.5 lakh to 5 lakh price band but has in 2000, 6 versions in the 3 lakh to 4.5 lakh price band. Tlie Accent on the other hand is positioned only in the large-premium segment. The higher price band in this spectrum was filled in 2000. Thus we see that companies are adopting different strategies for differing products. h) General Motors is covering only the Large -luxury segment and the Premium - mediimi sized segment by its Astra and Corsa range of cars. Similarly Daewoo is covering the Economy-small and Premium-large segment. Honda is covering the Large - premium and Large - luxury segment by its City range of cars, which differ only, in the power train and features, offered. Hindustan Motors is covering all the segments in the large sector products. Thus it has the Ambassador as the economy-large nicher, the Contessa as the premium-large offering and the Lancer in the Luxury-large segment. i) Ford has a single segment strategy till now. It launched the Escort in the Luxury-large segment. Following this it was withdrawn and it launched the Ikon in the Medium -premium segment. 274 Chart 9.4.4.1 - Final Positioning Map in 2000 MERCEDES BENZ

Luxury l^rice > 8 I.akhs GM (ASTRA) HONDA (CITY L5) HML ( LANCER) MARUn (BALENO FIAT (SIENNA) ALTURA)

GM ( CORSA) MARUn (BALENO) I'rcmium FORD (IKON) GM (ASTRA) IMce <81.akhs FIAT ( SIENNA) HML ( CONTESSA) MARLTIl (ESTEEM) HYUNDAI ( ACCENT) HONI3A( CITY 1.3) DAEWOO (CIELO, NEXIA)

MUL(WAGONR, ZEN)

MUL (800, ZEN, HML ALTO, WAGON R,) (AMBASSADOR) liconomy FIAT (UNO) IMce <5 Lakhs HYUNDAI ( SANTRO) DAEWOO (MATIZ) TELCO (INDICA)

Small Medium Large Source: Compiled from Field Interviews of Dealers and their Employees of various Companies MBIL = Mercedes Benz India Ltd; TELCO = Tata Engineering and Locomotive Company PAL = I^cmier Automobiles Ltd; HSIL = Honda Sriram India Ltd MUL = \Iariiti Udyog Ud; HMIL = Hyundai Motore India Ud; HML = IfiiKiustan Motors Ltd : GMIL = General Motors India Ud; FEL = Ford India Ltd; FIAL= Fiat India Auto Ltd; M&M = Mahindra and Mahindra Thus we see that firms are using different positioning strategies as positioning strategies have become more focused and concentrated in 2000. The final positioning map as in 2000 is drawn as Chart 9.4.4.1.

SECTION: 5 PRICING POLICIES Introduction 9.5. For most organizations, price is potentially the most controllable and flexible element of the marketing mix. It is one of the most important elements and together with the product, a key component of an organization's marketing strategy.

Pricing in the Indian Passenger Car Industry 9.5.1 The Indian passenger car industry is distraught with a whole lot of factors, which differ from product pricing models adopted elsewhere. Apart from the 275 Structural differences in the Indian Passenger car markets vis - a - vis the other car markets, the Indian markets have certain peculiarities. Amongst the basic inadequacies are a) High acquisition costs - the acquisition cost of passenger cars is one of the highest in India. Acquisition costs is one of the key demand determinants and is primarily based on the sale price and current income levels. The acquisition cost in India for passenger cars in terms of months of median salary to purchase most popular passenger car is 42 months for an entry-level car and 76 months for a midsize car. In this we are considering only the top 10% of the Indian population while calculating the median income. b) The structure of car prices - car prices as reflected in the market essentially consists of the net costs plus the excise duty plus the import duty plus the sales and octroi tax and the road and registration tax. There are several anomalies in this and to get an even breakdovm of the car prices is difficult because it reflects on his margin. So we have a net dealer price, then a higher retail price and the excise duty to be added on. In addition the differences in the level of state taxes made vehicle pricing very complicated. Thus there was heavy cross selling, with people buying in one part of the region and selling it in the more expensive parts. This is also makes analysis very difficult. An idea of this can be had from Chart 9.5.1.1, which will give the comparative prices for a particular model range in 8 different cities in India. c) In addition, there were grave price differentials amdngst cities in the same state as can be seen from the comparison of prices of the same models of products in Mumbai and Pune in the same month during the period of the study. This is primarily because of the structure of the supply chain in which the dealer buys from the company and adds the transport charges to cover his costs. Thus there was found to be a typical price differential amongst the products which cater for these costs. This price differential also stems from the demand a particular model is facing at a particular point in time. This can be seen from Chart 9.5.1.2 d) The Indian market is a growing market and there are several anomalies, which exist due to the short period of growth of the industry. Thus there is a great lacuna in data for the period before 1997 and the period af^er it. For the early periods, vehicle prices are very badly fiidged and any attempt to treat them as continuous data will be erroneous. This will cause us to treat and analyse our subject in sections to derive meaningful conclusions. e) The early period of car selling involved the collection of booking amounts and there were several methods to calculate the interest accruing on the money. In addition there were different rules for treating this amount of money. Thus some companies reimbursed this interest while some did not. In addition the dealers were also involved in a whole host of practices and malpractice making an optimal pricing analysis difficult. The product also was at several stages incomparable. 276 Chart 9.5.1.1 - Pricing Differentials in Two Different Cars in 8 Metros in India in May 2001 cmix MODH^ DEUn MUMBAI CALCUTTA CHENNAI PUNE BARODA KANPUR B'LORE HYUNDAI SANTROIJI2 341682 363477 340186 336742 355903 352579 340934 348330

ISKl 382939 408301 381531 376030 398842 395620 382235 389384

GS F:2 406571 434024 405208 398613 423451 420297 405890 412878 HYUNDAI ACa^NT GlXl 575916 616300 574200 555612 597621 596108 575058 578942

GIJ12 602619 645333 600968 598078 625424 623976 601793 605516

CIS 630416 675450 628829 622408 654317 652933 629622 633185

G\X 689289 739417 687810 678480 729609 714353 688549 720071

DI5 679928 729662 678159 672114 720167 704945 679043 710673 lORD IKON 1.3CLXi 520283 560611 518327 522627 546064 540447 519305 531517

1.3 cue PAS 543771 586219 541821 549049 570547 564995 542796 554876

1.3 rxi 579844 625413 577852 583284 608061 602628 578848 590710

1.6 ZXi 639006 690029 632816 635346 681862 664517 635911 673695

1.6 SXi 702257 758864 700816 699738 749906 730560 701536 740949

1.8 ZXi 709870 766086 702551 701939 754579 737978 706210 743072 Source: Conpiled from Dealers Invoice of Particular Models

Chart 9.5.i2 - Price Differentials between Products at the Same Time in Two Cities

MODEL 1.3LX UEXi IJEXi 1.5EXi-A/T 1.5EXi-S VTEC

liX-SHOWROOM 669202 745416 832370 895762 883759 938735

INSURANCE 17551 19477 21611 23189 22890 24258 RIXilS^l-RAnON INDIVnXJAI. 25447 28277 32022 34493 34227 36201

CORPORATI-: 72291 80457 90288 97197 96091 101913 IIJNi: - ON-ROAD INDIVIDUAI. 712200 793140 886003 953444 940876 999214 PUNE-ON-ROAD CORPORATE 759044 845320 944269 1016148 1002740 1064926

MUMBAI 745038 829613 926090 996418 983098 10441.30 Source: Compiled fromDealer s Invoice of Particular Models in Punc and Mumbai

f) There are additional differentials due to purchases made by corporate and by individuals as quoted by dealers on their invoices. In addition there are differences due to the mode of financing. Thus there are price differentials, which actually favour if a vehicle is purchased through finance companies. These are reflected for Pune in Chart 9.5.1.2 Thus we have seen that several structural flaws make it difficult to analyse the pricing strategies of the passenger car industry in India in its whole time dimension. There are a whole host of treatments to be made to apply analytical tools before we can deduce interpretable results. Some of the changes we have to make before we start with our analysis are 277 a) Carry out hard core pricing / quality analysis only for the period after 1998 as segmentation and product profile had matured and stabilized for most companies. This is essentially because the influx of new companies in the industrial spectrum causes problems in comparative analysis b) For the earlier periods a very brief and more descriptive analysis is to be carried out. c) To protect against data variance in pricing, average price for a particular model in 8 different metros to be taken. These are reflective of the regional differences and can be assumed to be a fair average of the prevailing prices. d) Consider the Ex-showroom price to avoid getting into the maze of duty and tax differentials that have changed and differed over periods of time and across regions and which we will tackle in a latter chapter. e) Till 1997 we carry out our analysis on the basis of Net Dealer Price. We will shift to on-road price for 1998 and beyond. f) To compare products in our analysis we have used the concept of the feature count. A comprehensive list of features that can be provided will be prepared to avoid duplication and arbitrary inclusion. Each feature will be assigned a value of 1. Adding the number of features together in a particular model will get the feature count score. Care has been taken to include only essential features so that we don't end up including an irrelevant feature in one version increasing its feature count while reducing the value of a more important one. With these basic assumptions we start with our analysis of the Pricing study in the Indian passenger car industry.

Pricing Before and till 1994 as against Pricing in 2000. 9.5.2. Till 1994, there was not adequate market stabilization. There were a lot of competitive forces at play and most of them were temporary in nature as the market expanded causing an increase in product range, which in turn caused alternate pricing policies and evoked further reaction. We will carry out our analysis as given under. a) 1984 - 1993 - the pricing was not very competitive in nature. For the period 1984- 1993 the movement in Net Dealer Prices for the major products is given as Table 9.5.2.1. The data is for base models only as there was a lot of variation in the various models and tracking down prices was essentially difficult. As can be seen, when Maruti entered the market in 1984, it entered as the low cost competitor and it remained aggressively priced like this till 1993 against the Ambassador and till 1987 against Premier. Prices grew continuously till 1993 remaining static in 1987- 88 for the Ambassador and even during 1989-90 for Padmini. Thus we see that though pricing was more aggressive by Maruti, both Hindustan Motors and Premier Motors did however the first attempts at a price competition. Comparatively, the Ambassador was a larger car than both the Maruti and 800; Premier Padmini was next in all dimensions. Ambassador was also the heaviest and the 800 the lightest. Engine displacement was also the lowest for the Maruti (796 cc), then Premier (1089) and then the Ambassador (1489). However, they had comparable maximum power outputs (36 bhp for Ambassador, 39.5 bhp for Padmini and 40 bhp for the 800). Thus comparing the power to weight ratio it is seen that Maruti had a high power to weight ratio of 0,062 bhp/kg as compared to 278 0.045 bhp/kg for Premier Padmini and 0.03 bhp for the Ambassador. This gave the product an edge in terms of handling and a distinct edge over its competition. If we compare the average price elasticity of the three products over the period 1984- 1993, we see that Maruti showed a high average price elasticity of 1.432 over the period. As compared the average price elasticity of both Ambassador and Premier Padmini were negative indicative of the pricing dilemma they faced then. Comparably there is a distinct decrease in the price differential over the years between Maruti 800 and any of the other models as can be seen from Table 9.5,2.2. Ambassador and Padmini price differentials have increased over the years. If we compare sales over the period we see that there is a steady growth in Maruti sales, which have led to a growth in the overall market sales (market sales in 1993 were more than double then the total sales figure in 1984). For the competitors they stayed above the 20000 mark till 1990, when Hindustan Motors declined before crossing it again in 1993. Premier went below the 20000 car sales mark in 1992 and has not been able to stem the tide. b) 1994 - In 1994, the market was a little more matured then in 1987. There was more number of products in the market and relevant and clear market segments were emerging from the market. The positioning map has already been described in the previous subsection and we will use it to compare the pricing strategies adopted by the various manufacturers. There was a change in the product profile of companies in 1994. In the small segment, there was no change in the product differentials over the previous years as Premier Automobiles created an inflated and unsubstantial differentiation war. However to boost sales, they became more aggressive on their pricing. As compared to the Maruti 800 Std, they had two versions in the market, the Padmini Economy and Std. Both were priced below the 800 from Maruti with the economy model as the cheapest model available. For the 800 AC model, the positioning and pricing was very aggressive. Both the Deluxe BE and the Deluxe were priced below the 800 AC, However the AC versions were priced higher than the Maruti 800 AC version. The Maruti positioned as a premium high-end car and not against the 118 NE. It was more expensive than the 118NE and though they had almost identical maximum power values, however the 118NE was at least another 150 Kg heavier than the Zen giving a maximum power to weight ratio of 0.066 for the Zen and 0.0577 for the Premier II8NE. As compared the Ambassador had put in two engine variants (Nova and Isuzu). Its basic Nova models and Isuzu models were priced higher than the Maruti 800 and its AC versions were much higher priced than the Maruti 800, despite the fact that they were not as efficient in their product characteristics. Maruti positioned the Zen as the ultimate efficient and comfortable vehicle. At a higher maximum power to weight ratio, the Zen is definitely against any car positioned against it in the small car segment or even the medium car segment. In the large segment we have the Contessa pitted against the Maruti 1000 and now the Esteem. The Contessa Classic was priced much less than the contemporary Standard 1000 model. Both 279 TABLE 9.5.Z1 - MOVEMENT IN VEHICLE PRICES AND SALES (1984-1993) PRICES(ln Rupees) SALES( Nos or Vehicles) YEAR AMBASSADOR PADMINl STD800 AMBASSADOR PADMINI STD800 1984 48587 46080 39594 24337 26245 10719 1985 51787 49932 39594 21742 29283 36139 1986 59547 54300 44020 21283 24530 42045 1987 59547 54300 55570 23106 28871 Sim 1988 62372 58090 56315 22606 31842 65563 1989 72772 62090 61648 24931 34558 73292 1990 78692 62090 65875 22047 33624 73548 1991 82492 66910 71626 16108 26226 85986 1992 95992 77510 90789 18909 13041 88127 1993 101992 81520 101790 22128 12987 112702 Source: Statistical Profile of ^tt& Automobile Industry; SIAM Database

TABLE 9.5.2.2 - PRICE DIFFERENTIALS AND PRICE ELASnCTTlES (1984-1993) PRICE DIFFERENTIALS PRICE ELASncmES YEAR AMB-800 PAD.800 AMB-PAD d{SVd{P)-A d(S)/d(P)-P d(S)/d(PH^ 1984 8993 6486 2507 1985 12193 10338 1855 -0.8109375 0.788681205 0 1986 15527 10280 5247 -0.059149485 -1.08814103 1.334387709 1987 3977 -1270 5247 0 0 1.794632035 1968 6057 1775 4282 -0.17699115 0.783905013 3.744966443 1989 11124 442 10682 0.223557692 0.679 1.44927808 1990 12817 -3785 16602 -0.487162162 0 0.060563047 1991 10866 -4716 15582 -1.562894737 -1.53485477 2.162754304 1992 5203 -13279 18482 0.207481481 -1.24386792 0.111725721 1993 202 -20270 20472 0.5365 -0.01346633 2.233887828 AVERAGE -0.236621762 -0.18097154 1.43246613

TABLE 9.5.2.3 - PRICING STRUCTURE IN 1994 RRM MODEL VERSION VARIANT NDP HML AMBASSADOR NOVA PETDLX 126307 DSLDLX 152512 ISUZU BE-PG 152720 BU-TG 156570 BE-AC 175220 BU-AC 158370 CONTESSA CLASSIC PG 203235 TG 208535 TG-AC 217785 MUL 800 STD 111540 AC 130830 1000 STD 228310 AC 247309 ZEN STD 200285 ESTEEM STD 284032 PAL PADMINI ECONOMY 92331 STD 111231 DUBE 129834 DLX 129834 DLXBEAC 152784 DLX AC 152784 137 D 157176 118 NE STD 167823 AC 189972 1.38 D STD 185580 Source: Compiled from Statistical ProTile cT the ALtcmobile Industry, SIAM Database 280 TABLE 9.5.2.4 - PRICING STRUCTURE IN 2000 FIRfJl MODEL VERSION VARIANT AORP DAEWOO CIELO PETROL 588388 CNG 618399 NEXIA PETROL 692952 MATIZ SS 320366 SD 359150 SG 387271 SA 429790 FIAT UNO PETROL 1.2EL 344286 1.2EL-AC 378988 1.2ELX 409768 DIESEL EL 392328

EL-AC 424521 ELX 474469 SIENNA PETROL ED 563043 EL PS 598189 ELXSP 698955 DIESEL EL PS 690315 ELX PS 745687 ELXSP 809930 PETROL W-ELX 771684 W. ELXSP 840491 DIESEL W-ELX 831706 W-ELXSP 903552 FOF^D IKON PETROL 1.3ClXi 543979 1.3ClXiPAS 562124 1.3 Exi 578920 1.62X1 645450 i.esxi 759696 DIESEL 1.8 ZXi 747862 HML AMBASSADOR NOVA DIESEL DLX 406387 1800 PETROL MPFl 451959 CNG 469657 2000 DIESEL (BE/TG/RDL) 469379 CONTESSA CLASSIC PETROL 1.8GLX S4S288 DIESEL ZODL 562082 MITSUBISHI LANCER PETROL GUQ 855024 DIESEL GLX 967403 PETROL SIX 942767 DIESEL SU 1057060 PETROL SFX 964129 HONDA CITY PETROL 1.3LXi 684319 1.3EXI 785328 1.5EXi 877042 1.5EXMVT 943802 1.5EX1-S 929902 1.SVTEC 966068 HYUNDAI SANTRO PETROL L£E1 312877 LSE1 358132 GSE1 381375 LEE2 352124 LSE2 387308 GSE2 421904 281 RRM I^IODEU ^/ERSION VARlAhfT AORP ACCEKT PETROL GLE1 598917 OLE 2 631478 GLS 656788 GLX 738535 DLS 736028 MARUTl 800 PETROL E2 239757 EXE2 275454 AdvTbEi i652l1' ZEN PETROL LXE2 369686 VXE2 420328 LX 4dd64^ AT 533822 VXiPSE2 455749 DIESEL D 426841 PETROL CLASSIC E2 442286 WAGONR PETROL LX 380268 Lxi 407543 vx 438628 VXi 449786 AX 540678 ALTO PETROL LXE2 331234 VXE2 391046 ESTEEM PETROL LXE2 1 542884 VXE2 593984 AXE2 646786 BALENO PETROL 796135 ALTURA 831140 MBIL E240V6 PETROL V6 3309311 E240VB-AT VBAT 3427615 E220CD1 PETROL COI 3190452 E220CDI-AT CDIAT 3308756 E250O DIESEL D 2773998 E250O-AT DAT 2837408 S320L PETROL 5981671 GMIL ASTRA PETROL ADVANTAGE 799429 1.6 GH 2000 911632 CLUB 1038889 DIESEL ADVANTAGE 898124 1.7TDGLD 995590 CLUB 1095458 CORSA PCTROL 1.4 GL 630753 1.4 GLS 669038 1.6 GSI 727978 1.6 GLS 736786 TELCO INCHCA PETROL Lei 286745 LeiMPFI 357825 LxIMPFl 449774 DIESEL DL 328103 DLE 357539 DLX 448513 Source: Compiled from Dealers Invoices of various Marxrfacturers HML = Hlrxlustan Motors Ud; MUL = Maruti Udyog Ltd; PAL = Premier Automotiiles Ltd; NDP = Net Dealer Price STD = Standard; AC = Air Conditioned; DLX = Delux; PET " Petrol; DSL = Diesel GMIL = Generd Motors Ifxfia Ltd; HSIL = Honda Sflram India Ltd; FIAL = Fiat India Auto Ltd FIL = Ford India Ltd; MBIL = Mercedes Benz India Ltd; TELCO = Tata Engineering and Locomotives Company AORP = Average On Road Price 282 the 1000 and the Esteems were much better performance cars as compared to tlie Esteem and the additional pricing was the premium for a better product. Both the Esteem and 1000 were considerably smaller than the Contessa and more than 250 kgs lighter than it was. The Maximum power was more than the lOOO's but essentially lower than the Esteem, The power to weight ratio was .066 for the petrol Contessa and 0.041 for the diesel Contessa. It was an average 0.055 for the 1000 and a high 0.0755 for the Esteem. Maruti due to its excellent product profile and very competitive pricing strayed away from the market in order to carve out its own special place. The Esteem and the Zen were not competing products but were the premium products in the product profile. Thus Maruti's sale increased from 112702 cars in 1993 to 131062 cars in 1994 growing by 16.3 %. As compared, sales of Hindustan Motors declined from 25704 in 1993 to 25094 in 1994 (22298 Ambassadors in 1993 and 21729 in 1994, 3406 Contessa's in 1993 and 3365 in 1994) showing a decline of 2.37%. Because of their aggressive marketing policies and pricing, Premier managed to increase its sales from 21006 in 1993 to 26091 in 1994 (12987 Padmini's in 1993 and 16641 in 1994, 8019 number of 118NE in 1993 and 9450 in 1994) showing a growth of 24.2%. Pricing was competitive in nature with Maruti being the market leader and the price setter and the others following this price. Maruti primarily due to the large competitive advantage enjoyed this in the market. The pricing structure in 1994 is given as Table 9.5.2.3. c) 2000 - by 2000, the market stabilized to a considerable degree. There were no emerging segments, and any if they were have been incorporated in the manifold of the study. Thus the classification of the High-end niche as the Ultimate segment and carving out the 12-16 lakh segment (targeted as of now in 2001 by the Skoda and Honda with their Octavia and Civic models), which is taking place in 2001, can be easily incorporated in the segmentation matrix without carrying out major changes. A 3X3 matrix creating 9 cells or segments divides the market. However the wide variety of product range has caused the splitting of segments into price bands and there is a high level and intensity of competition within these bands. The base for segmenting into these bands has become more varied. Differentiation is sought by the provisions of features and even by the number of colours offered by a particular model. As information search is rapidly becoming easier and less expensive due to the proliferation of the media and the Internet, consumer awareness has increased several times and this has lead to a high level of competition. Naturally pricing becomes a major tool in the hand of firms. However a receding demand due to an economic recession has fixed a cap on the level to which the prices could fall. This has resulted in companies not initiating price cuts realizing that a price war under such adverse conditions will be fatal for most of them. We start our analysis with the Economy - small segment. The pricing structure for 2000 is given as Table 9.5.2.4. i. Economy - Small segment - the segment is in the price range of 2-5 Lakhs. The average product length is less than 3700 mm, width less than 1575 mm, maximum power less than 60 bhp and with a feature coimt of less than 21. There are 6 bands, each of width 50000Rupees from 2 Lakhs to 5 Lakhs. In the lowest price band from 2 lakh to 2.5 Lakhs we have only the Maruti 800 283 E2. It is priced at about 2.4 Lakhs and is the smallest of the mall cars. It weighs only 640 Kgs and with an engine displacement of 796 cc gives a maximum power of 46 bhp resulting in a maximum power to weight ratio of 0.0718 bhp/kgs. In the 2.5 lakh to 3 lakh price band we have two versions of the 800 (EX - E2 and AC) competing with the Indica Lei. The Indica is a bigger and more modem vehicle. It has a power train of displacement 1405 cc and chums a maximum power of 60 bhp. With its kerb weight at 980 kgs it gives a maximum bhp to weight ratio of 0,0612, which is lower than that of the Maruti. It is more spacious and is good value for money. The Indica is priced higher than the EX E2 but only about 9000 RS less than the Mamti 800 AC/TG and about 11000 RS more than the EX E2. Thus the 800 occupies a definite product and cost advantage over its competitor. However the 800 is at a very late stage of its life cycle and hence cannot be sustained. In the 3-3.5 lakh price band we have 5 models competing against each other. Thus we have the LE El from Santro priced at 3.13 Lakhs, the Alto LX E2 at 3.32 Lakhs, Matiz SS at 3.21 Lakhs, Uno 1.2 EL at 3.44 Lakhs and the Indica DL priced at 3.28 Lakhs. The Santro has definite price advantage in this segment as it is priced at about 19 thousand less than the new Alto, 8000 less than the Matiz SS, 31000 less than the Uno 1.2 EL and about 15000 lower than the Indica diesel. Their order in terms of merit is as under. The Indica is the second longest, highest and widest car. It is also the heaviest at 980 kgs, and has an engine with the maximimi displacement of 1405 cc. It produces an average maximum bhp of 53.5 and at 980 kgs it has the low power to weight ratio of 0.0546. It is priced at an attractive 3.28 Lakhs. As compared the Santro is a tall car. It has a 999 cc engine, which chums a bhp value of 55bhp, and at a weight of 776 kgs it gives a maximum power to weight ratio of 0.070. The Uno is the longest; it weighs 885 kgs and has an engine displacement of 1242 cc, churning out a high value of maximum power at 60 bhp. Thus it gives the highest power to weight ratio of 0.0727 bhp/kgs. The Matiz is a small compact car. It weighs 800 kgs and has an engine displacement of 796 cc, which chums out an efficient 52 bhp of maximum pov/er. This translates into a high power to weight ratio of 0.065, the third in this batch. The Alto is the new entry in this group, it is the smallest of all the cars, weighs a heavy 840 kgs. It has an engine displacement of 796 cc delivering 45 bhp (same as it is for the E2 800) and gives the lowest power to weight ratio of 0.5357. They are similar in features, however the Alto and the Santro are provided with AC, whereas the others are not. The Alto has an edge over the Santro in features. They are compatible in the range of colours offered. Thus we see that in this micro-segment the product rankings are given as in Table 9.5.2.6. If we move to the next price band of 3.5 - 4 Lakhs, we see that there are 13 product versions competing in this segment. Thus it is seen that the Alto VX E2 is the most powerful vehicle in this segment. It is one of tlie smaller cars, but with a 1061 cc power train, it delivers a whopping 62 bhp of maximum power giving a maximum power to weight ratio of 0.0815 bhp/kgs, which is the highest in this segment. Priced at 3.910 Lakhs it is placed third in the price list and also 3'** in the comparative 284 number of features ranking. The Indica Lei MPFI is the largest car along with its diesel version, the DLE. However though both have an engine displacement of 1405 cc, however the Indica MPFI chums out a smart 75 bhp of power as compared to 53.5 bhp for its DLE. However the high weight of the vehicle (1005 kgs for the MPFI and 980 Kgs for the DLE) gives the MPFI the second most powerful vehicle, whereas the DLE takes 9**" place. The Indica Lei MPFI is priced at 3.578 Lakhs and the DLE at 3.575 Lakhs giving them the 11* and 12''* ranking in prices. The MPFI has a feature score of 4 as compared to 5 of the DLE giving them the 11* and 12* position in terms of factor score respectively. The Wagon R is second only to the Indica in size and with an engine with a displacement of 1061 cc delivering a maximum of 62 bhp and a kerb weight of 840 kgs, makes it the third most powerfiil car in the segment with a maximum power to weight ratio of 0.0738 bhp/kgs. It is aggressively priced at 3.802 Lakhs giving it the 6'*' position in price. In addition it has a feature score of 5. The Matiz models are placed 5*^ in size and 7'*' in power. They are priced at the higher end, with the SD priced at 3.591 and the SG priced at a competitive 3.872. They had feature scores of 5 and 4 respectively. The Uno 1.2 EL-AC occupies the 4**^ position in terms of power and 3'^'' in terms of size. However the diesel version is placed 3'^'' in size but S,^ in terms of power. They are priced at the higher and middle end with the EL-AC at 3.79 Lakhs and the D- EL at 3.923 Lakhs. They have a feature score of 6 and 7 respectively. All the Santro models are placed 5*** in terms of power and 4'*' in terms of size. However they are priced with the LS E2 as the most expensive car in the segment at 3.97 Lakhs followed by the GS El placed S'^ at 3.813 Lakhs. The LE E2 and LS E2 were placed 13* and 10*** with their pricing at 3.521 Lakhs and 3.581 Lakhs. They had feature scores of 1 for GS El, 2^ for the LS E2, 5* for the LE E2 and 6"^ for the LS El. The Zen is placed 6'*' in terms of power and 7**" in terms of power. It is smaller than the Alto and has an engine displacement of 993 cc producing 50bhp. With a kerb weight of 993 kgs it gives a power to weight ratio of 0.066 making it sixth in the merit order of power. It is priced at 3.696 Lakhs making it the 8* most expensive car and has a feature score of 6. Thus we can easily see that Hyundai delivers a product medium in size, good in power, comparatively low on price and high on features. The Indica can be seen to be a large car with high power, medium features and high price. The Alto is a small car, with high power, good in features offered and a high price. The Matiz is a small car, low on power, good on features and high on features. The Uno is a large car with the petrol version adequate on power, low on features and medium on price. The Zen is perceived as small in size, low in power and in features and high on price. We now analyse the 4-4.5 lakh price band. There are 12 product versions in this sub-segment. The Tata Indica Lxi MPFI holds the highest position (hence the lowest score) in each of our four variables. It is the largest car, delivers a whopping 75 bhp and has a power to weight ratio of 0.0746 bhp/kgs. It is priced at the high end of the segment at 4.497 Lakhs and has a feature score of 14. The Wagon R VXi priced at 4.97 Lakhs, slightly smaller in value of size and power and lower on 285 the feature scale matches it. The Indica DLE is priced next at 4.48 Lakhs. It is a much less powerful vehicle than its petrol counterpart. Then we have the Wagon R VX, priced at 4.38 Lakhs. It is comparable, though a little less, in value then the Indica in terms of power and size and is also low on the feature score. Priced at around 4.22 Lakhs, we have the Zen Classic. It is the smallest of the small cars in the segment and is low in terms of power with a power to weight ratio of 0.0602 bhp/kgs. However it offers a good range of features along with the car. We then have the Matiz SA priced at 4.297 Lakhs. It is average sized, is low on power at 52 bhp from its 793 cc engine. However to prop up this product, it is very attractively loaded with features. Tlie Zen D, priced at 4.268 Lakhs comes next. It has a low power to weight ratio of 0.0686 and is low on features. The Uno D EL AC is priced next at 4.245 Lakhs. The car is larger than many others are, however it is low on features and on power and hence is positioned at the lower end. Between the Uno D and the Zen D, the Zen version appears to be a marginally better package. The Santro GS E2 is priced next at 4.219 Lakhs. The car offers a comfortable size, good power and an excellent bundle of features. It is very attractively priced at the lower end of the spectrum. We then have the Uno 1.2 ELX at 4.097 Lakhs, the Wagon R at 4.4.075 Lakhs and the higher priced Zen VXE2 at 4.203 Lakhs. The last sub segment of the economy-small segment is the 4.5 lakh-5 lakh price band. It has two models. The Zen VXi PS E2 and the Uno D ELX. The Zen is more aggressively priced, with more features against a larger and more powerful Uno. ii. Economy - Large Segment - the segment is essentially a niche supplied by Ambassador. There are 2 sub segments, one is from 4 lakh to 4.5 lakh and has only one version, the Ambassador Nova, in it priced at 4.06 Lakhs. There is little more competition in the 4.5 lakh to 5 lakh. There is the 1800 Petrol priced at 4.52 Lalchs, and the CNG version priced at 4.7 Lakhs. We have the 2000, also priced at about 4.7 Lakhs. iii. Premium - Small Segment - this segment basically has line spillovers competing with each other. There are two automatic transmission versions competing in this segment. We have the Wagon R AX priced at 5.41 Lakhs and the Zen AT priced at 5.34 Lakhs. iv. Premium - Medium Segment - the segment is in the price range 5-8 Lakhs. The lower price band is of 5-6 Lakhs. In this band we have 7 model-versions. There is the largest of the three, the Ikon 1.3 followed by the Sienna and then the Esteem. Esteem has the highest power to weight ratio of 0.0756 produced by an engine of displacement 1298 cc, churning out 65 bhp and carrying a kerb weight of 860 kgs. Sienna has a power to weight ratio of 0.0698 (0,058 for the Diesel version) brought out by an engine of a smaller displacement of 1244 cc, but producing an efficient 72 bhp (64 bhp for the Diesel version). However Sienna is a heavy vehicle weighing 1035 kgs (1100 kgs for the Diesel) and thus bringing down the power-weight ratio. The Ikon has a 1299 cc engine producing 58 bhp giving a power to weight ratio of 0.059. It weighs 9*78 kilograms. The Esteem is offered in two basic versions. The LX E2 is priced at 5.43 Lakhs and is high on features as compared to the other 7 286 versions in this price set. The Esteem VX E2 is priced at a high 5.94 Lakhs but has the best assortment of features offered. TTie 1.3 Exi Ikon is priced at 5.79 Lakhs and is as high as the Esteem LX E2 in terms of feature score. The CLXi PAS Ikon is priced lower at 5.62 Lakhs, but has a lower feature score than the Exi Ikon. At the lower end we have the 1.3 CLXi Ikon with low feature score. The Sienna ELPS is the most expensive version at 5.988 Lakhs and has a feature score equal to that of the CLXi PAS Dcon. The Sienna ED is priced at 5.63 Lakhs and is the lowest in terms of feature score. Thus we see that FIAT has offered a large and powerful product but low on features and high in price. As compared, Maruti has a smaller but more powerful product, which it has attractively bundled with a lot of features and has aggressively, priced it. The Ikon is a large and less powerful product and is low on features but better then FIAT. It is comparatively aggressively priced and occupies the middle of the sub segment. The 6-7 lakh price band has 6 model-versions, including a new model from General Motors and an upgraded Ikon. The Esteem AX remains very much the same product, except its automatic transmissions, which makes it heavier by 30 kgs to 890 kgs. We have the Corsa 1.4 from General Motors. The Corsa is shorter than the Esteem, but is wider and taller. It also weighs heavier at 1030 kgs. With an en^ne of displacement 1389 cc it produces a high 88 bhp of power and thus gives a power to weight ratio of 0.0854 bhp/kgs, which is quite high. Matching the Corsa on its high power, Ford launched the higher version of its Ikon, the Ikon 1.6. With the same frame it has a 1597 cc engine, the largest in this sub segment, which delivers a whopping 91 bhp. And which coupled with a 970 kgs weight gives a power to weight ratio of 0.0937 bhp/kgs. The Ikon is the largest car, but is also the most powerful. It is low on feature, but its low price (at 6.45 Lakhs) gives it a distinct edge over its rivals. The Corsa is smaller in size, but is high in power (below only the 1.6 Ikon). Its GLS version has the highest feature score and is moderately priced at 6.69 Lakhs. The GL version is slightly lower in feature score (third in this price set) and is minimally priced at 6.31 Lakhs. The Sienna is the second largest car, but has the lowest power performance. Its ELX SP also has the highest feature score (along with Corsa GLE), but it is priced at an excessive 6.98 Lakhs. The D-EL PS, has the lowest feature score of 5, but is priced at a high 6.9 Lakhs. The Esteem AX provides automatic transmissions. It is the smallest car in the bunch, is only better than the Sienna in power per kilogram, because of its low weight and has the second highest feature score. It is priced at a moderately low price of 6.46 Lakhs. Thus we see that in this price band, both the Ikon and the Corsa have created value based products, which also are low on costs. We now analyse the 7-8 lakh price band, which have 6 model versions. We have a new version of Sienna, the Sienna Weekend. At 1430 mm, it is slightly shorter then the Ikon but is taller and equally wide. making it the biggest vehicle in the segment. It weighs 1140 kgs and has an engine of displacement 1580 cc, which delivers 98 bhp, the highest in the segment and thus giving a power to weight ratio of 0.086 bhp/kgs. We have the Ikon 1.6 Sxi, with a power to weight ratio of 0.0937 and the Diesel Ikon 287 l.SZXi which has the same dimension, but whose 1753 cc engine chums out 60 bhp giving a power to weight ratio of 0.056 bhp/kgs. We have the higher version of the Corsa, the Corsa 1.6 which has the same frame but whose 1598 cc engine produces 92 bhp. Its weight of 1040 kgs pulls down its power to weight ratio down to 0.088 bhp/kg. As we can see from the pricing and quality structures, tlie Corsa versions are the smallest but most powerfijl, highest in features and they are the lowest priced cars in the segment (7.28 Lakhs for the GL and 7.36 for the GLS). The Sierma Weekend, is the largest car, is high on power, has the most features and is the highest priced car in the price band (at 7.71 Lakhs). Its Diesel ELX PS, is smaller, is low on power, higli on feature and is moderately priced at 7.456 Lakhs. As compared the Ikon diesel is larger, even lower in power and features but priced higher at 7.478 Lakhs. The Ikon 1.6 Sxi is the second largest car, has the highest power to weight ratio, is moderate on features and but is priced at a high 7.6 Lakhs. Premium - Large Segment - the segment has three price bands of width 1 lakh each. In the 5-6 lakh price band, we have 4 model versions. We have the largest car, the Contessa in a diesel (2.0D) and a petrol (1.8GLX) version. The 1.8 GLX is powered by a 1817 cc engine, delivering 75 bhp which gives its weight of 1138 kgs a moderate power to weight ratio of 0.066 bhp/Tcgs. Its diesel counterpart has en engine displacement of 1995 cc, delivering 52 bhp and this at a weight of 1270 kgs translates into a power to weight ratio of 0.0409 bhp/kgs. The Cielo is the next big car, powered by a 1498 cc engine delivering 80 bhp which along with its weight of 997 kgs, a power to weight ratio of 0.080 bhp/kgs. The smallest in this price band is the Accent from Hyundai, whose 1495 cc engine delivers a whopping 94 bhp which when coupled with a weight of 991 kgs gives a power to weight ratio of 0.0948 bhp/kgs. The Accent is the smallest car, with the highest power. It is high on features and is priced at a high of 5.98 Lakhs. As compared, both the Contessa's are the largest cars, with the lowest power with low feature score and are priced at the low end at about 5.45 Lakhs for the 1.8 GLE and 5.62 for the Diesel version. The Cielo is medium in size and power. It is most attractively bundled with a very high feature score and is priced high at 5.88 Lakhs. In the 6-7 lakh price band we have 5 model versions. We can see that there is a high performance battle here in this price band. The new models are the Nexia, which is the same in dimensions as the Cielo. It has an engine of the same displacement, but technological up-gradation gives it a maximum power of 94 bhp. This coupled with the Nexia's 1088 kgs, gives it a power to weight ratio of 0.08455 bhp/kgs. We have the City 1.3 which is the smallest car, it has an engine displacement of 1343 cc which delivers an efficient 90 bhp, which coupled with a weight of 965 kgs, gives a power to weight ratio of 0.093 bhp/kgs. The Nexia is a new model; it is the largest in size, is low on power, has the highest feature score and is the most expensive version at 6.92 Lakhs. The City 1.3 Exi is the smallest car, is the second most powerful in this price band, is low on feature score and is priced next at 6.84 Lakhs. The GLS Accent is medium in length, has the highest power has the second 288 highest feature score and is priced next at 6.56 Lakhs. Its other version, the GLE2, has a low feature score and is priced at 6.31 Lakhs. The Cielo CNG is the same size as the Nexia, is the lowest on power, has a moderate feature score and is the lowest priced at 6.18 Lakhs. The Cielo is on the decline stage of its model life cycle as we have more powerful and state of art versions coming in the market. In the 7-8 lakh price band we have three new model- versions. We have the New Baleno from Maruti. It weighs 975 kgs with an engine of displacement 1590 kgs delivers 94 bhp which translates into a power to weight ratio of 0.096 bhp/kg. We have the lower version Astra P 2000, with an engine displacement of 1598 cc delivering 76 bhp. This coupled with a weight of 1081 kgs gives a power to weight ratio of a low 0.070 bhp/kgs. We also have a new diesel version of the Accent. The DLS weighs 1081 kgs, has an engine of displacement 1527 cc delivering 57 bhp, which translates into a power to weight ratio of 0.0527 bhp/kgs. The Astra is the largest car, low on power and on features, but is the most expensive in this price band at 7.99 Lakhs. The Baleno is the smallest car; it is the most powerful, has a high feature score and is priced next at 7.96 Lakhs. The City 1.3 Exi is slightly bigger than the Baleno and is less powerful, has a slightly lower feature score than the Baleno and is aggressively priced at 7.85 Lakhs. The Accent is the second largest car in this band and its petrol version is more powerful than the City. It has the most attractive feature score and is priced at a low of 7.38 Lakhs. The diesel version is the lowest in power in this band, is very attractive in the bundle of features offered and is the cheapest at 7.36 Lakhs. Thus we see that the Maruti has offered a quality product in this range and has priced it well. The most aggressive bundle is from Hyundai. vi. Luxury - Small - there are no products in this segment vii. Luxury - Medium - there are two price bands, the 8-9 lakh and the 9-10 lakh price band. There are in all four model-versions of the Sienna from FIAT. There are three in the 8-9 lakh price band. Thus we have a Sienna D ELX and a Weekend Sienna ELX SP and a diesel Weekend Sienna D ELX. The Weekend version is 30 mm longer and taller than the normal Sienna. The Petrol version Weekend has a 1580 cc engine delivering a high 98 bhp, which coupled with a 1140 kgs weight gives a power to weight ratio of 0.086 bhp/kgs. The Sienna Diesel Weekend is 40 kgs heavier than the normal Sienna Diesel at 1170 kgs and is equipped with the same 1697 cc engine delivering 64 bhp, but the heavy weight gives the Weekend Diesel a lower power to weight ratio of 0.0547 bhp/kgs. The Weekend ELX SP is the largest, most powerful with the highest factor score and hence the most expensive at 8.40 Lakhs. The Weekend diesel is priced next. It has the same feature score as the Sienna D ELX. In the 9-10 lakh price band we have only the Sienna Weekend Diesel ELX SP priced at 9.03 Lakhs. viii. Luxury - Large - there are three price band, which are competitive, and an extreme niche catered by the Mercedes Benz. There are 15 model versions competing in this competitive segment excluding Mercedes, which we neglect. In the 8-9 lakh price band we have 4 model versions. We have the 289 1.5 Exi City with an efficient 1493 cc delivering 100 bhp and with a weight of 985 kgs gives a power to weight ratio of 0.101 bhp/kgs. The Altura Baleno is larger and heavier than the normal Baleno but with the same power train of 1590 cc giving 94 bhp but with a weight of 1020 kgs, it has a power to weight ratio of 0.0921 bhp/kgs. The Astra D has a 1700 cc engine giving 68 bhp and \\ith a weight of 1140 kgs gives a power to weight ratio of 0.06 bhp/kgs. The Lancer GLXi P is the fourth version, with a 1468 cc delivering 85 bhp and carrying 1010 kgs to give a power to weight ratio of 0.0841 bhp/kgs. The Astra D is a smaller, low power and low feature car but priced heavily at 8.98 Lakhs. The City 1.5 Exi is the smallest, most powerful with high feature score and is priced next at 8.77 Lakhs. The Lancer GLXi-P is a bigger car, low on power and a high feature score is priced at 8.55 Lakhs. The Baleno Altura is the biggest car, is powerful, has the highest feature score and is priced lowest at 8.31 Lakhs. In the 9-10 lakh price band we have 9 model - versions. We have a new upgraded version of the engine in the Astra 1.6 Gli 2000. It delivers 95 bhp fi-om a 1598 cc engine and with a coupled weight of 1125 kgs delivers a power to weight ratio of 0.08444 bhp/kgs. The City 1.5 is also offered in the same engine with automatic transmission, which increases its weight to 1005 kgs and reduces its power to weight ratio to 0.0995 bhp/kgs. It also has a new improved version with a VTEC engine, which delivers 106 bhp at the same displacement giving a power to weight ratio of 0.107 bhp/kgs as compared to the 0.101 bhp/kgs of the normal City 1.5. The Lancer is offered i i two diesel versions, the GLX - D and two petrol version SLX - P and SFX -P. The petrol version weighs 1010 kgs, has an engine displacement of 1468 cc and delivers 85 bhp giving a power to weight ratio of 0.0841 bhp/kgs. The Diesel version weighs 1095 kgs, has a displacement of 1998 cc and delivers 65 bhp giving a power to weight ratio of 0.059 bhp/kgs. The 1.7 Astra is a small car, low on power and features and is the most expensive at 9.95 Lakhs. The City VTEC is the largest car, is the most powerful, has a high feature score and is the next expensive at 9.86 Lakhs. The Lancer GLX D is smaller then the City VTEC, much lower in power but has the same feature score and is priced next at 9.67 Lakhs. The SFX Lancer is more powerfiil than its diesel but lower then other petrol cars, has the highest feature score and is priced next at 9.64 Lakhs. The City 1.5 AT is priced next at 9.43 Lakhs. The Lancer SLXi is priced next at 9.42 Lakhs followed by the high feature scoring City 1.5 Exi-S at 9.3 Lakhs. The Astra 1.6 Gli 2000 is the cheapest at 9.11 Lakhs. These and other results are seen as Table 9.4.6. In the 10-11 lakh price band we have three model versions, the Astra Club and Club D and the Lancer SLX D. These model versions are just line extensions on the basis of features provided. There is the Astra Club petrol priced at 10.38 Lakhs. It is smaller than the Lancer and is high in power and feature score. It has a power to weight ratio of 0.0703 bhp/kgs. There are two diesel versions in competition. The Astra Club is smaller, is high on power and on features and is more expensive, priced at 10.95 Lakhs. As compared the Lancer SLX D is bigger, low in power and features and aggressively priced at 10.57 Lakhs. 290 TABLE 9.5.2.5 - POSITION OF PRODUCTS ON FOUR ATTRIBUTES IN 2000 SEGMEm- SUB-SEGMENT MODELS VERSIONS POWER SIZE FEATURES PRICE ECONOMY - SMALL 2-2.5 LAKH 800 E2 1 1 1 1 2.5^ LAKH 800 EXE2 1 2 3 1 800 AC 1 2 1 3 INDICA PL 2 1 2 2 3-3.5 LAKH INDICA DL 4 1 3 3 ALTO LXE2 5 5 1 2 MATIZ SS 3 4 4 4 UNO 1.2 EL 1 2 5 1 SANTRO LEE1 2 3 2 5 3.5-4 LAKHS INDICA LeiMPFl 2 1 7 11 OLE 9 1 6 12 ALTO VXE2 1 6 3 3 WAGONR LX 3 2 5 6 MATIZ SD 7 5 5 9 SG 7 5 4 4 UNO 1.2 EL AC 4 3 6 7 D-EL 8 3 7 2 SAhTTRO LSE1 5 4 6 10 GSE1 5 4 1 5 LEE2 5 4 5 13 LSE2 5 4 2 1 ZEN LXE2 6 7 6 8 4^.5 LAKHS INDICA LxiMPH 1 1 1 1 DLX 10 1 1 2 WAGONR Lxl 2 2 6 11 VX 2 2 5 4 VXI 2 2 5 1 ZEN VXE2 6 6 3 9 D 7 6 5 6 CLASSIC 9 6 4 3 MATIZ SA 5 5 2 5 UNO 1.2 ELX 3 3 6 10 D-EL-AC 8 3 7 7 SAI^TRO GSE2 4 4 1 8 4.5 - 5 LAKHS ZEN VXiPSE2 2 2 1 2 UNOD DELX 1 2 1 ECONOMY- LARGE 4^.5 LAKHS AMBASSADOR NOVA 1 1 1 4.5-5 LAKHS AMBASSADOR 1800 W>R 1 2 3 CNG 1 3 1 2000 DSL 2 1 2 PREMIUM - SMALL 5-6 LAKH ZEN AT 2 2 1 2 WAGONR AX 1 2 1 PREMIUM - MEDIUM 5-6 LAKH ESTEEM LXE2 3 2 7 VXE2 3 1 2 IKON 1.3 CLXI 1 3 4 6 CLXiPAS 1 3 3 5 Exi 1 3 2 3 SIENNA ED 2 2 S 4 EL PS 2 2 3 1 6-7 LAKH ESTEEM AXE2 3 4 2 4 IKON 1.6 ZXi 1 1 4 5 SIENNA ELXSP 4 2 1 1 D-EL PS 4 2 S 2 CORSA 1.4 GL 2 3 3 6 GLS 2 3 1 3 1 7-a LAKHS SIENNA D-ELXPS 4 3 2 4 291 SEGiMEKfT SUB-SEGMENT MODELS VERSIONS POWER SIZE FEATURES PRICE W-ELX 3 1 1 1 KON1.6 Sxi 1 2 3 2 KON 1.8 ZXi 5 2 4 3 CX5RSA1.6 GSI 2 4 2 6 GLS 2 4 1 5 PREMIUM - LARGE 5-6 LAKHS ACCENTT GLE 1 3 2 1 COMTESSA CLASSIC 1.8 3 1 3 4 CLASSIC 2D 4 1 3 3 CIELO 2 2 1 2 6-7 LAKHS ACCEhTT GLE 2 1 2 4 4 GLS 1 2 2 3 CITY 1.3 Lxi 2 3 5 2 CIELO CNG 4 1 3 5 NEXIA 3 1 1 1 7-6 LAKHS BALENO 1 4 2 2 ASTRA P2000 4 1 4 1 ACCEhTT GLX 2 2 1 4 DLS 5 2 2 5 cmri.a EXi 3 3 3 3 LUXURY - MEDIUM 8-9 LAKH SIENNA DELX 2 2 . 2 3 WELXSP 1 1 1 1 WDELX 3 1 2 2 &-10 LAKHS SIENNA WDELXSP 1 1 1 1 LUXURY-LARGE 8-9 LAKHS BALENO ALTURA 2 1 1 4 ASTRA D 4 3 3 1 CITY 1.5 EXi 1 4 2 2 LANCER GLXi-P 3 2 2 3 9-10 LAKHS ASTRA 1.6GU2000 4 3 2 8 1.7TD 6 3 3 1 CITY 1.5 B*AT 3 4 2 5 Exi-S 2 4 1 7 VTEC 1 1 2 2 LANCER GLX-D 7 2 2 3 SLXi 5 2 2 6 SFXi 5 2 1 4 10-11 LAKHS ASTRA CLUB 1 2 1 3 CLUED 2 2 2 1 LANCER SLXD 3 1 3 2 LUXURY-MEDIUM 8-9 LAKH SIENNA DELX 2 2 2 3 WELXSP 1 1 1 1 WDELX 3 1 2 2 9-10 LAKHS SIENNA WDELXSP 1 1 1 1 LUXURY-LARGE 8-9 LAKHS BALENO ALTURA 2 1 1 4 ASTRA D 4 3 3 1 OTYI.S E>3 1 4 2 2 LANCER GLXi-P 3 2 2 3 9-10 LAKHS ASTRA 1.6GU20CO 4 3 2 8 1.7 TD 6 3 3 1 CITY 1.5 E»AT 3 4 2 5 Exi-S 2 4 1 7 VTEC 1 1 2 2 LANCER GLX-D 7 2 2 3 SLXi 5 2 2 6 SFXi 5 2 1 4 10-11 LAKHS ASTRA CLUB 1 2 1 3 CLUBD 2 2 2 1 LANCER SLXD 3 1 3 2 292 Price - Quality - Strategy Analysis - 9.5.3 It can be seen that it is very difficult to finalize the effective pricing strategy for ilnns for the whole competitive scenario. Thus Maruti follows a low price - low value strategy for its 800 but in the higher price band offers a high value-high price product in the Wagon R. It offers the Alto as a medium - value but high priced car in the 3-3.5 lakh price band but offers it as a high price- high value product in the higher price band with improvements. Thus pricing has become a very complicated strategy for most firms. The basic analysis drawn is a) There is a drastic change in the pricing strategies over the years. In 1987 till as late as 1996, differential pricing was not so aggressive as it is now. b) Pricing strategies are more guided by product strategies and competitive dynamics than the average profit basis. c) Firms are heavily using differentiation on the basis of features as an important pricing tool. d) Good value for money is what is going to be the winning formulae in the years to come. As can be seen, Hyundai has given excellent value for money in most of the sectors it has operated in for both the Santro and the Accent. They are state of the art vehicles and are moderately priced as well. As a result Hyundai has shown the most promising results in this country over 1998-2000. The Santro has become the first company to unseat the Zen from the position of the second most favourite and selling car after the 800. e) Due to the varying nature of competitive product profile, it is not advisable to fight all competitors in all the price bands as Maruti is trying to do. This results in a lot of product - pricing confusion. Thus this results in a loss in focus, which leads to a decrease in sales. In some sub segments, there are more than two Maruti model versions competing for a price band width of as small as 50000Rupees and in a way cannibalising its own sales. In the premium - small segment there are two model versions both fi-om Maruti. Thus Maruti will have to redefine its strategy and especially its product - pricing strategy if it has to maintain or grow in the future. f) FIAT has a distinctly superior product in the market in all the price bands. However it has a low feature strategy with high prices, which also can be a source of competitive disadvantage in certain price bands. Thus the feature score of FIAT products is essentially low in several price bands. g) Firms are essentially resorting to a high value - low price strategy as is clear fi-om the product offering of both General Motors and Ford. The Ikon and Corsa are botli high value products in their price range. They have both offered 2 power train versions to cover the same segment and have very competitively priced their product. h) It is still not clear, whether a high feature or a high power strategy is successful in the market. It will take some more years for this to crystallize. i) Firms are resorting to aggressively re-pricing their old high value products and offer them against newer products of a lower segment. This is especially seen of the Contessa and the Astra. 293 SECTION: 6 DISTRIBUTION

Introduction

9.6 Manufacturers don't sell the product directly to customers. Between the producers and tlie final users stands a marketing channel, a host of marketing intermediaries performing a variety of functions.

Issues and Development in Marketing Channels 9.6.1 The Indian market suffers from a host of anomalies that makes intermediaries slightly different from their counterparts. However with growing competition, these anomalies are slowly dissolving and industry is moving towards a more homogenized market distribution system. The same characteristics as with other subjects are present though with different subject matter. Vehicle manufacturers have used a network of dealers since the beginning of the automobile industry in India. Initially dealership was confined to a partnership between large powerful, public limited company manufacturers and small, local, family owned dealership firms. However intense competition in the automobile industry and narrowing product differential competitive advantages is forcing firms to be better in more than one way. Increasing competition is slowly dissolving product differentiation barriers that give competitive advantage to certain companies. During the early years of automobile industry in India to as late as 1990's, retailing was concerned more with coverage and strength of the product. Automobile manufacturer had to have a large number of sales and service points to reassure customers about servicing availability. There was no actual planning in designing a retail network except for the concept of coverage and strength. Strength was an equally important dimension as once having decided on a franchised dealer network system, sales success links closely with aggressiveness and dealer professionalism and their capability to invest in improvements. The supply side operating automobile industry till as late as 1994 believed that distribution and vehicle retaining was subordinate to the product and a good product can be sold through any system. Thus manufacturers caused fiind flow into product development and producing even better product while just maintaining existing network in terms of retailing and product support services. However in the early I990's McKinsey in a study carried out on the emergence of the Indian Auto car market gave a complex of four major forces that governed the changes in the retailing trends in the Indian Automobile industry'^. It brought back to limelight some major factors driving car retailing to the forefront in India. These factors are resolved as Chart 9.6.1.1, 294

Chart 9.6.1.1 - Forces E)riving Car Retailing in India. CA1« INTENSE ni-COMING COMPETITION COMMON

FOCUS ON RETAILING

MANUI-ACIIJRINCJ BEST RI-yiAILINC; IMPROVEMENF PRACIICES STILL IMPLEMENTED LINDISCOVIviy^D

Source: McKinscy Study of the Indian Car Industry

With cars becoming less differentiable, it is an inadequate strategy to design the best product and then wait for the customer to stop and pick one up. Best automotive retailing configurations are still unclear. It is still unclear as to what is the best practice. It was seen that there exist great potential for first mover advantages in the field of automobile retailing as can be seen from Maniti Udyogs example. Such an advantage has a great defence potential in terms of sustainability and major competitive advantages. Thus it is seen that there is a major area for improvement in the field of automobile selling for all firms. There have been substantial changes in the ways of automobile retailing in the country over the decades. The traditional retailing procedures for automobile retailing was the "push" system. The automotive retailing process in India has its historic reliance on a "push" distribution system rather than a "pull" retailing system. Under the 'push' system, dealers receive a monthly allocation of products and also order vehicles to fill the gap between actual customer order and this allocation. Manufacturers, wants dealers order within a comfortable timefi-ame to allow manufacturers to plan production capacity and optimise material flow. Thus each dealer has a pipeline of stock orders and orders for actual customers, some waiting to be scheduled for production and some closer to production. Dealers than try to satisfy customer orders from their own stock of vehicles. Manufacturer expect dealers to keep a particular amount of stock on the premise that stock pressure sells cars, however despite high inventory levels, it is difficult for a customer to find the vehicle of the right colour and specifications at a specific dealer at that time. If the product is unavailable, a dealer can search for it at nearby dealerships, if it is found it is transported to the dealer and finds it way to the waiting customer. The dealer can look for the vehicle in his order pipeline. This usually takes more time as the delivery lead-time for orders in the pipeline usually takes more time and the delivery reliability is also poor. If product is not in stock, the dealer has to place a fresh order. If customer is ready to wait, he can hammer out a bargain. Thus an efficient distribution system consists of several inter-linked factors like inventory carrying costs, discounts, likelihood of lower customer satisfaction etc. the pull system of automobile retailing is a system in which all type of waste have 295 been eliminated. The pull system comprises central vehicle compounds, where manufacturers hold unsold stocks upstream in centralized location. Distribution to point of sale is done on demand only. This central stock is pooled among all dealers resulting in lower total inventory costs, faster inventory turnover and fewer vehicles that need be transported between dealerships. Pull system also can have the 'order pipeline pooling', where several dealers combine their order pipeline. This speeds up the order to delivery process allowing any dealer to use any order in the pool to satisfy customer requirements. Each dealer should have about 20% to 40% of its pipeline orders available to other dealers. Pull system requires a manufacturer to use sophisticated demand forecasting techniques. Forecasts are based on what customers ordered rather than what dealers have managed to sell. Customer's orders are much likely to reflect true demand. This provides manufacturer with highly accurate data, allowing them to work the demand over for the whole network. Pull system becomes faster, accurate and up-to date if it incorporates Information Technology. Dedicated computer network among dealers ensure fast searches of all specifications available anywhere in the supply chain, thus trying to maintain and reduce, unnecessary production that enables all participation in the distribution cycles i.e. manufacturers, dealers, logistic suppliers and their connections. Automobile industry manufacturers will have to base their decisions on more sophisticated models, which are being used by other industry to meet their customers demand. Car dealers will have to base their purchase decisions on price, convenience, fast delivery and friendly efficient services. In addition there are certain peculiar characteristics of the automobile market, an analysis of which becomes imperative to imderstand car- retailing dynamics etc. They have to face standardized channels and maintain exclusivity in those channels. It was seen that firms are slowly incorporating automation of their product systems in the recent years.

Car selling is a very exclusive process with different showrooms for different companies. However over the years there has been an increasing threat to exclusivity because of a variety of factors like cost economics, e-commerce etc. It is expected that the future dealer may just be an inventory holding point with a service station attached. The car buying process is also unique in that it is standardized and the customer has to go through the same basic buying process. Though several approaches exist. Manufacturers need to experiment with new approaches that will bring the product to tlie customer, rather than getting the customer to the product. Direct selling is one method but is adopted by only one company, the Hindustan Motors for the sale of its Lancer. Manufacturer needs to evolve a new and improved distribution model, which has a consumer, focused approach at its core. Its key components can include setting up of a) Large exclusive dealers with extended territory b) Central hub site supporting a number of satellite service stations c) Fixed prices around the entire dealer network d) Highly trained dealer staff in conducive surroundings 296 Marketing Channels till 1996 9.6.2 Till as long as 1997, the Marketing channels adopted by firms were primitive as per modem standards. The dealers were only transit points for vehicles. There was a heavy booking for certain models like Maruti and each new model launch was followed by heavy waiting lists. These were breeding grounds for a hectic black market, which traded in bookings. In addition, there were a lot of murky dealings by dealers as they juggled the customers booking amount, which was as high as about 25000 RS for certain, models. Pre- reforms (though in time frame terms this continued till as late as 1994-95 and still does in remote areas) dealerships were characterized by a) The were related family concerns or friends or acquaintance who were given a share in the business b) They were faced with long queues and waiting lists as it was a suppliers market c) Role was limited to accepting bookings, receiving payments and delivering a vehicle when received d) Warranties and after sales service were ignored and concentrated on paid repairs and maintenance. e) Margin on new vehicle sales have been 6-8%, those on spare part sales have been 30% and about 500% for repairs and maintenance As a result Maruti, which built up the first modem product support system for cars in India, gained wide spread loyalty and popularity. However the expenses of these facilities also caused the setting up of an un-authorized system of service stations with latest technology and competitive pricing which gave a lot of competition and loss to Mamti's network. More distressing was the creation of a black-market that traded in fake, non-genuine spares of Maruti and other products. These fake kits were good substitute against the more expensive genuine spares and the trade was rampant in most part of the country. Though it reduced Maruti's revenue however the loss was not too much for Mamti in those cash rich times. A quantitative analysis for all these variables is a very detailed study in itself and can be taken as an extension of this work. The first mmblings of change grew with an increase in competition. The dealership has changed quite drastically over the years as firms are trying hard to narrow down channel differences.

Changes Till 2000 9.6.3 Dealerships have undergone quite a change over the years. A dealership in the year 2000 is essentially different from one several years ago. The increasing need to support the product in the market at all levels has brought in a whole lot of changes in which dealerships are handled now. There are a lot of related activities that are being carried out in a dealership now which are essential to the product being supported. The traditional role of car dealers as of solely holding inventory and selling it to customers has changed quite drastically over the years as competition has trickled backwards to create competitive chains or channels. The essential changes are a) Dealerships have essentially become a part of a company's logistic plan. Thus in addition to vehicles, tlie move of spares and of parts are essentially being done through this chain 297 b) Dealerships are assuming additional responsibilities in terms of providing insurance cover, interacting with insurance companies to offer better service to customers and to increase the uniqueness of the product c) Dealerships are integrating auto finance with their selling arms d) Sales and Service support are fast becoming more competitive as manufacturers are cutting down the flab and making it more lean and efficient e) In addition to sales and service efficiency, there is price competition even in terms of spares and service though its impact on vehicle sales is an area that needs investigation Smdy analyses these changing trends by comparing the state in 2000 with pre 1997 times when dealerships sprung up in response to demand. It was seen that firms are b(Jcoming more and more focused on their product support strategies. There is an increase in the network of dealership for most firms in the last few years however industry costs on distribution have decreased indicating a more active role being played by dealers in the later years. Firms are trying to establish a network that gives them the most optimum coverage while minimizing costs and heavily prioritising on the basis of demand and geographical scope. All companies are relying on a two layered marketing channel comprising the company on one end and the dealers at the front end in contact with the customers. The various control and other mechanism differs from company to company. We will analyse this for some of the companies and perceive the level of difference amongst them. The definition of the logistic plan uses a set of charts, which we will analyse and use in our analysis. We start our analysis with Daewoo Motors a) Daewoo - the logistic plan is mapped as Chart 9.6.3.1. Daewoo has production facilities at Surajpur in Uttar Pradesh. They have their registered office at New Delhi and have their service department at Surajpur where their production facilities are located. Daewoo divides the country into 7 regional offices. Under each regional office we have a number of dealers and workshops that are monitored by the regional offices. The Daewoo network in a city typically consists of a showroom where the products are showcased for the display to the public. The dealership comes along with a workshop, modem in features that take care ot the service support of the vehicles sold by the dealership. In addition, if the service load is high or if a dealer's catchment area is big, there can be authorized dealer that is authorized to only take care of service and stocks. The dealer places the order straight to the company and they are transported to the dealer's straight. The regional offices are involved only in the control and other promotional and other efforts. The Company has spread a dealer network consisting of 104 dealers and 103 Authorized Service Stations in the country as on Sep 2000. The company sells its cars through its 104 authorized dealers. Dealers have sales outlets in the form of showrooms where the product is for display. The showrooms have their own workshops for product support and service. Dealers generally maintain a minimum inventory level of 15 cars for the small Matiz cars and at least one car for each of the large models depending on demand pattern. Daewoo dealers rotate their demand. At any point in time they have a certain critical number of vehicles under demand with the company. For this when the customer places an order on Daewoo, the 298 dealer after receiving ttie money from the customer or the delivery notice or check or demand draft from the finance company places an order on the company. As a result of this the delivery period for the customer comes down. Dealers generally maintain a rotation of 30 cars. The delivery time for a particular model or colour scheme is about 8-10 days depending on the transportation time from the Company.

Chart 9.6.3.1 - Daewoo Logistic Map

DAEWOO

RliGlSTCRED PRODUCnON- SERVICE DEPARTMENT - OITICE-DELHI SURAJPUR SURAJPUR J REGIONAL OFFICES - 7

SERVICE CENTRES

Source: Compiled from Daewoo's Informalion Brochures

b) Hyundai - has the same movement plan for its vehicle move between the dealer and the company. Charts 9.6.3.2 depict this move plan. The customer places his demand with the dealer, who delivers the product in case of availability. Else demand is placed directly on Chennai for early delivery. Dealers stock an inventory of 30 - 40 vehicles depending on demand patterns in the region. The aim is to cut down the delivery time to 0. The dealer buys these cars from the manufacturer. In case of discrepancies arising out of the demand for a particular colour, then demand is indented to Chennai by Fax and the vehicle is delivered within 8-10 days.

Chart 9.6.3.2 - Hyundai Movement of Vehicles from Company to Customer.

CUSTOMER w DEALER ^ COMPANY <—^ (CITIESn-OWNS) < ^ (Cin^NNAI)

Movement of Vehicles from Company to the Customer

Source: Compiled from Hyundai's Information Brochures

c) FIAT - operates in India in 2000, through its chain of 61 Dealers and 82 Authorized Service Points. Fiat divides the country into 4 regions. These regions have a balanced distribution of dealers. Dealers are empowered to undertake the selling of cars tlirough their showrooms. In addition they also set up a workshop to provide service and spares. On receiving a customers order, the dealer 299 delivers the cars to him, in case of unavailable model or colour scheme; the delivery time depends on the transportation time and generally is about 8-10 days. Given as Chart 9.6.3.3

Chart 9.6.3.3 - FIAT Movement of Vehicles from Company to Customers.

COMPANY t DEALER SERVICE CENTRE t WORKSHOP Source: Compiled from FIAT's Information Brochures

d) Maruti Udyog - Maruti's product portfolio covers the entire spectrum of the Indian automobile industry. The organization structure at Maruti right to the Authorized Service Station level is given as Chart 9.6.3.4. Maruti distribution network is relatively simpler. The customer places his demand with the dealer who puts an order on the company at their factory at Gurgaon at Haryana. The company transports these vehicles straight to the dealer and they are further delivered to the customer.

Chart 9.6.3.4 - Maruti's Logistic Plan MARUTI UDYOG

lU-GISTERED OFFICE PRODUCTION - GURGAON SERVICE DEPARTMENT Dixm GURGAON t REGIONAL OFFICES - 7

SPARE PART STOCKIST - 27 IN 7 REGIONS

DEALERS MARUIl AUTHORISED SERVICE STATION

Source: Compiled from Maruti Udyogs's Informadon Brochures

Other features of the distribution system are that dealers usually maintain an inventory level of 15 days. It implies that Maruti dealers maintain cyclical trend records of purchases during months and keep an inventory level of 15 days on 300 the basis of number of vehicles sold per day during the given period. Inventory stock is generally purely a judgmental process; there are large seasonal variations in demand. Demand goes up to 25- 30 vehicles per day during the festive season and in August when companies claim depreciation. In case of non-availability of a particular model, it takes about 8 to 10 days for delivery. Company publishes a three-month colour trend, which enables the company dealers to calculate their products in the market so as to plan their inventory levels. Usually due to level of transactions taking place, the company generally sells vehicles on bank guarantees. The agencies procure from the company and sell it further down to other customers. Thus Maruti essentially has Maruti Authorized Dealership's complete with a workshop where sales and service load is taken care of. In addition Maruti has another rung of service network the Maruti Authorized Service Station that is set up for product support for dealers with a large catchment area or a heavy service load. e) TELCO - Telco has used local dealers who have been selling other Telco products for achieving its laid down marketing strategy for selling the Indica. Telco has its Head Office in Mumbai, looking after the Marketing and customer support. Telco has four regional offices at Banglore, Calcutta, Delhi and Mumbai. Telco has the Main Dealers at the next level. These dealers are the only people selling Telco cars in the country. These areas are fixed and a dealer cannot sell in anybody else's area or else it incurs a fine. These dealers maintain an inventory of 40-50 vehicles, which they buy from Telco for frill payment. Delivery time for consumers is immediate. For models not in stock the delivery time for dealers close to Pune is about 2 days and for faraway dealers about 8-10 days. The dealer buys these cars from Telco; procurement can start for outstation customers on the receipt of an undertaking or photocopies of the Demand draft, as these vehicles have to be purchased from Telco. The demand procedure is given as Chart 9.6.3.5. The product flow chain of Telco has generally remained the same as before. Telco has been in the automobile industry in India for more than half a century. The product portfolio of Telco has been very diverse. They have been manufacturing heavy, medium and light commercial vehicles, buses and multi-utility vehicles. The distributor chains for Telco's products were very much in place. In addition they have also appointed Concorde Motors as their exclusive dealers in several cities. Concorde Motors are an international chain of car dealers. Telco has a three-layer product support network. They have the main dealers with showrooms and with their integral workshop. In the next layer they have the Telco Authorized Service Centres to impart qualit}' service for their product. In addition they have another layer of Telco Authorized Service Points to undertake repairs in tandem with the Telco Authorized Service Centres.

Chart 9.6.3.5 - TELCO Logistic Plan for Vehicles.

CUSTOMER DEAI.ERS (BUYS PRODUCT FROM reLCO TELCO) ^ Source: Compiled from ITZLCO's Information Brochures 301

Thus we can see that for most of the firms there is a single level structure for movement of vehicles. This is primarily because of the high costs involved in the process. Car dealerships are an expensive preposition and are an important competitive arena for firms as they are the first contact points between the customer and the product. They have to reflect the flavour of the product. In addition, it essentially involves maintaining a high investment in establishment costs, inventor>' levels as dealers still buy the products they display on their windows. In addition there are spares and other stocks to be maintained. Dealers have to maintain a qualified and efficient sales force for its operations. The expenses are heavy and with growing competition, the profit bases in each activity are cecreasing leading to more lean operations. In additions dealers are essentially taking the onus of product promotion in cities to boost sales. Advertising expenditures are shared between dealers and firms. There is a huge amount of promotional exercise that is being carried out including demonstration rides, road shows, event sponsorships etc that are being aggressively taken on by these dealers. The growth of dealers and the competitive position of some firms are given as Chart 9.6.3.6, Chart 9.6.3.7, Chart 9.6.3.8, Chart 9 6.3.9 and Chart 9.6.3.10. As can be seen this is a major thrust area for car companies to expand on, till then Maruti is the market leader in product support and continues to do so. Changes have forced manufacturers to make even greater demands on their dealers in terms of capital investment and better service capability. The major factors causing this are a) Pre-delivery inspection of vehicles has becoming more demanding because of greater degree of competition and customer awareness. b) Electronic component of an automobile has increased, thus making service by authorized persons an important factor c) Real estate prices have increased making display and service space expensive. d) Manufacturers have increased warranty periods and fi-ee service kilo-meterage with dealers having to bear the cost and responsibility e) Standard of show room design have increased markedly, as manufacturers try to identify heir product with the high quality decor of the showrooms, making buying a more desirable process. f) Dealer's commissions are being repeatedly eaten into; manufacturers do not allow multiple representations of competing products for the sake of exclusivity. However dealers are allowed to display non competing products like two wheelers, mopeds and commercial vehicles etc to enhance earning and for a better financial position g) Dealers are being encouraged to combine dealerships with financial services. This has become a standard norm and all the showrooms visited had a financial service outlet. As of March 2000, there were more than 8000 vehicle dealers, sub-dealers and service centres located in 3800 towns, representing 26 vehicle manufacturers, selling about 3 million vehicles per year. 302 CHART 9.6.3.6 - HYUNDAI DEALER NETWORK HYUNDAI MOTOR INDIA UMITED PRODUCTION - IRRUNGATTUKOTTAl, TAMIL NADU HEADQUARTERS - DELHI EAST REGION WEST REGION NORTH REGION SOUTH REGION CALCUrtA MUMBAl DELHI CHENNAI EAST D S WEST D S NORTH D S SOUTH D S ASSAM 1 GOA 1 CHANDIGARH 2 ANDHRA PR 4 1 BIHAR 2 GUJARAT 5 3 DEUHI 8 1 KARNATAKA 6 1 ORISSA 2 MADHYAPR 4 HARYANA 4 KERALA 4 1 WEST BENGAL 3 2 MAHARASHTRA 10 5 J&K 1 TAMIL NADU 11 1 PUNJAB 5 UTTARPR 8 1 RAJASTHAN 4 1 Source: Compiled from HyundaTs Organisation Charts D = Deate-ship; S= Service Point; J&K = Jarrrrxi and Kashmir, PR = Pradesh

CHART 9 6.3.7 - TELCO DEALERSHIP NETWORK TELCO PRODUCTION-PUNE MARKETING AND CUSTOtJER SUPPORT-ML*«AI PASSENGER CAR SERVICE DMSION-PUNE REGIONAL OFFICES NORTH REGION- DELHI WESTERN REGION-MUKCAl SOUTHERN REGION- BANGLORE EASTERN REGION-CALCUTTA CAR SERVICE OFFCt -2 CAR SERVICE OFFICES-6 CAR SERVICE OFFICES-* CAR SERVICE OFFCE&4 CHANDIGARH AHKCDABAO CHENNAI BHUBHANESHWAR LUCKNOW AURANGABAD COCHIN GUWAHATI INDORE HUBU JAMSHEDPUR JAIPUR HYDERABAD PATNA NAGPUR PUNE 1999 2000 1999 2000 1999 2000 1999 2000 S KO SC SP MD SC SP S M3 SC SP IVD SC SP S hD SC SP KO SC SP S NO SC SP hO SC SP CHD 1 2 0 1 4 GO 1 0 0 1 0 0 AP 4 3 2 4 8 5 AS 1 0 0 1 0 0 DE 3 7 4 8 15 5 GU 4 5 0 4 6 3 KA 4 4 1 5 6 6 Bl 0 3 0 0 5 0 HA 1 3 0 2 4 yx' 2 2 0 3 1 0 KE 3 4 1 2 6 1 ^c 0 1 0 0 1 0 HP 0 1 0 0 1 0 Mf>H 9 7 1 9 14 5 TN 4 7 1 4 11 1 OR 1 1 1 1 1 0 J«X 1 1 0 1 1 0 RA 1 3 0 1 5 0 WB 2 1 1 3 1 6 PU 1 2 1 2 4 2 UP 5 6 2 7 6 1 Source = Compiled from TELCaS Orgar^sabon Chart NO ' Main Dealar. SC ' Service Centre, SP ' Service Point; S • State CHO = _- _ .i : DE » Delhi; HA « Haryona: HP « Hmachal Pradesh; J&K •• Jtfnmj »)d Kashnnir PU « Pun^: UP > una'Pradesh GO = Goa; GU - Gujarat; MP « Madhya Pradesh; MAH " Maharashtra; RA « Raiasthan : AP • Andhra Pradesh; KA • Kwnatata: KE > Kerala AS»> \ssar n;BI- Bihar;W E -Mogh alay a; OR •Orissia;W B 'V\ ^estBianga l 303 CHART 9.6.3.8 - DAEWOOS DeALERSHIP NETWCJRK DAEWOO MOTORS INDIA LftfTED REGSTERED OFFICE - NEW DELHI PRODUCTION - SURAJPUR REGIONAL OFFICES

DELHI NORTH-1 NORTH-2 SOUTH-I SOUTH-2 EAST WEST DELHI SURAJPUR CHANDIGARH BANGLORE CHENNAI CALCUTTA MUheAl

S D SC S D SC S D SC S D SC S D SC S D SC S D SC DE 7 17 HA 4 7 CHD 2 1 AP 7 3 KE 5 5 AP 1 0 GO 1 0 RAJ 6 1 HP 2 2 KA 5 6 TN 8 2 AS 2 2 GUJ 5 7 UP 14 13 J&K 1 0 Bl 4 3 MP 3 2 PU 7 10 tJP 3 0 MAH 10 17 MZ 1 0 NAG 1 0 OR 1 1 WB 4 4 Sour ce = Comf )iledfr omC •aewoo'sOr j janisaUo n Chart D = ^ eoler SC«i SerwxeCe n Ire.SP • ServIoe Ptaints •Stat B CHD 'Cht indlgarti;De •Del hi: HA "Haiy ana; HP«I -ImachiilPra idesh : J&K« Jammu and Kashmir. PU • Pur^ab, UP « Uttsr Pradesh GO« Goa; GU- Gi^anIt ; MP -Mb ctryBPrades ii:MA f -l«Maheras hitra: RA - Rajasthan; AP ' Andhra Pradesh; KA • Kamataka: KE - Kertte AS« Assa T»;BI''Bihe r •Megllalaya ; OR" Onssa:WB » 'We: St Bensa l

CHART 9.6.3.9 - FIAT DEALER NETWORK FIAT INCHAAUTO UMITED PRODUCTION- RANJANGAON.KURLA HEADOFFICE- MUMBAl REGIONAL OFFICES -

NORTH - DELHI WEST-MUMBAl SOUTH-CHENNAI EAST - CHENNAI 1998 20CX) 1998 2000 1998 2000 1998 2000 S D SC D SC S D SC D SC S D SC D SC S D SC D SC CHD 1 0 1 0 MAH 7 4 14 24 AP 2 3 4 AS 1 0 1 0 DE 4 0 4 0 GUJ 4 1 7 10 KAR 2 6 8 OR 1 0 1 0 UP 6 0 4 2 GOA 1 1 1 2 TN 3 3 11 WB 1 0 1 2 RAJ 2 0 3 3 MP 1 1 2 2 KE 1 1 7 Bl 0 0 2 1 PU 1 0 4 5 HA 0 0 2 1 J8X 0 0 1 0

Sourc e = Corrpi k sdfrom FIAT sOrga nisabcn Char t O'M •JnOeallerS iC«Sar v iooCt litre; S • Stale CHD- Chandigert i DE = De= Mahareshtr a RA = Fi^asthan;A P •Andhr aPtBdbsh;K '\-Kar T lataka: KE-K erala |AS » Assam; Bl • Bihar, Nt » Meghalaya; OR « Orissa; WB = West Bengal 304 CHART 9.6.3.10- MARLrrr LOGISTIC PLAN MARUTI UDYOG L HARYANA PRODUCTION - GURGAON. HARYANA HEADQUARTERS - DELHI SERVICE DEPARTMENT - GURGAON, HARYANA NORlm 1 REGION NORTH 2 REGION CENTRAL REGIO^ SOUTH 1 REGION SOLJTH 2 REGION EAST REGION WEST REGION DELF 1 CHANDIGARH LUCKNOW CHENNAI BANGLORE CALCUTTA MUMBAI 2000 2000 2000 2000 2000 2000 2000 N1 D S N2 OS CDS S1 D S S2 D S EDS W D S DE 19 121 CHD 3 13 UP 23 120 TN 28 69 AP 11 49 NES 6 16 MAH 25 129 RAJ 9 47 PUN 12 87 MP 15 54 KER 14 54 KAR 18 66 WB 6 59 GUJ 18 57 HAR 14 54 HP 2 27 PON 1 1 A&NI 2 Bl 7 34 GOA 2 6 J&K 3 18 OR 3 12 AS 2 28 SPARE PART STOCKIST N1 4 N2 5 S 7 E 7W 4

NORTH 1 REGION NORTH 2 REGION SOUTH REGION EAST REGION WEST REGION DELHI CHANDIGARH CHENNAI CALCUTTA MUMBAI 1996 1996 1996 1996 1996 N1 D S N2 D S S D S E D S WESl D S DE 15 106 CHD 2 10 TN 19 41 NES 6 14 MAH 20 86 RAJ 1 6 26 PUN 8 54 KER 9 30 WB 5 43 GUJ 11 41 UP 1 16 85 HP 1 19 PO 1 0 Bl 4 23 GOA 2 4 HAR 3 9 J&K 3 9 AP 5 31 OR 2 10 MP 6 22 HAR 5 25 KAR 10 43 A&N 0 1 AS 1 19 305 Service and Spare Coverage 9.6.4 Service Coverage or product support services are essential for the survival of the product. This is going to be another major thrust area for the firms as they match each other on tlie various parameters. Dealers have four main income sources. These are a) Sale of new vehicles b) Second hand vehicle dealings c) Service d) Spares The proportion of returns from each of these services varies from region to region and from time to time. Thus in highly competitive metropolitan cities or other urban and semi-urban markets a dealer will have a balanced business share from each source as competition will narrow down high profit levels from all such activities. Here dealers will have to apply a higher degree of marketing skills in which each manufacturer will offer increasing number of new models and variants and all of them have plans to offer choice of many models and variations. The vehicle manufacturers seek from the dealers their feel of customer choice and preferences, rely on the dealer to project the brand image of manufacturer's product and convert such images into sales. Dealers have generally or mostly avoided dealing in the second hand market, however this is one area, which holds a lot of potential for them. It is expected that in the near future there is going to be a major role of dealers in second hand transactions. As can be seen dealers have started offering this service to their customers for a fee. Second hand car retailing is being perceived as a high growth sector in the Passenger car industry. Increasing customer awareness has resulted in customers demanding more quality and promptness in service and for ensuring greater reliability in vehicle performance. Dealers are taking additional warranties and after sale service and other responsibilities. Manufacturers are helping dealers increase their turnover and sharing capital expenses of decor and display. Spare parts sales is going to be another profit area for dealers especially because though vendor indigenisation is taking place, however the market for non-genuine spares is declining because of lack of technological know-how for new generation cars. Furthermore, customers are relying more on their dealers for repairs making the distribution of duplicate spares very difficult. Also as vehicle sales increase, the profits from sales of spares are bound to increase and become more and more profitable. However the majority of a dealers earning are still to come from paid maintenance and repairs business. A service is any act or performance that one party can offer to another that is essentially intangible and does not result in the ownership of anything. A production may or may not be tied to a physical product. The pre reform service coverage and coverage extended even as late as 1996 is essential to be considered in any marketing analysis study on the passenger car segment. The pre-reform and even pre 1996 service levels can be characterized under the following points a) Service Network - the Service network till as late as 1996 was a characteristic mix revealing the duality that have existed in our system. For companies like Hindustan Motors and Premier Automobiles, the system was a typical combination of the organized and unorganised sector at work. Each state had dealerships in certain important towns and cities. These dealerships had integral workshops, which used to take the service load of the vehicles in that region. In 306 addition to this there were authorized workshops in towns with a large service load. However unique was the existence of a plethora of local garages in towns catering to service loads. These were not exclusive garages but used to cater to the workload of all kinds of cars. There was a mushrooming of garages of this kind all across the countries and in towns and cities. With the entry of Maruti in 1984 and its spiral growth, there was a rapid growth in sales and the service network could not keep pace with the burgeoning pace of sales growth. This prompted the growth of a large number of this unauthorized network of service centres. The more resourceful ones installed modem facilities like computer aided wheel alignment jigs, etc. The more resourceful of these service workstations were later absorbed by Maruti and expanded into its large service network. With the advent of competitors, the other workshops are being reconstituted as a part of the service network of the competitors. However one major reason for the rise of this grey market in service network was the usefLil life of cars in India b) Useful Life of Cars in India - the useful life of cars in India is very high. Thus the owner essentially used a new car over the span of his life for most buyers. Even in case of a change, the cars commanded a respectable price on the second hand market. Even after changing hands several times, the vehicles more than 25-30 years old ended up operating as taxis and autos for mass transport. This was prevalent more in big cities. Thus these old and aging vehicles needed cheap and exhaustive repairs, which the dealer and workshop could not provide. Thus local garages stepped in to fill the market and cover the lower end of the service industry. To bring down costs of repairs to these low-end customers, there was a heavy proliferation of cheap fake and spurious spares. c) Spares - spares were another interesting area in pre reform car industry in India. For most of the old manufacturers, there were a host of wholesale stockists and distributors in each region. The logistic plan for spares in the pre reform period or even till early 1990's were pretty much like the marketing of any other product in India. The network consisted of large stockists in regions. These supplied to authorized dealers and workshops in the region. In addition, there were dealers and stockists in large cities that catered to the spare load of its catchment area. They however also supplied to any other spare part dealer or shops that were ready to buy from them. Thus the local garages had in each city, town and even locality, a reliable spare dealer or stockist who would cater to their service loads. As a result of this multiplicity of middlemen in the spare logistic flow the cost of genuine spares, which were already high due to the high taxes and costs, escalated further and reached high proportion. As a result the market had the problem of spurious and fake spares. d) Spurious and Fake Spares - to bring down service and spare costs, there was a mushrooming of illegal manufacturing units in the imorganised sector. Thus cheap and inexpensive fake's flooded the market and were used widely in the market in the absence of any legal framework to check it. To facilitate it was the apathetic attitude of companies, who were reaping a large profit on sales and were not bothered about this growing menace. These spares gave good value for 307 the money they charged. Though they were low on life, however their low cost made them cheap and attractive e) Trained Manpower - there was a dearth of trained manpower to handle the sophisticated repairs of the new cars like Maniti. Companies essentially trained their manpower on service jobs. There was then the problem of migration as the new trainees, after working for some time, moved out and set up their own local unauthorized garages to get a piece of this lucrative set up. f) Service Time - the heavy service loads caused a long delay in the dovm time for the vehicles. This also contributed for the growth of the unorganised sector in car servicing. There were long booking lists for the authorized workshops for the servicing and product care. g) Reliability of Service - in addition, the reliability of service was also low and the product support level was very low Maruti was the first company that changed the concept of service and product support. It steadily grew a strong network of authorized service stations and workshops in the cities and towns on the ruins of local garages. The high profits and promising business caused workshop owners to invest heavily in technology and other related aspects of a modem service network. Most of these activities took place during the early and mid 1990. The availability of good service facilities, genuine and low cost spares and low downtimes lured back customers back to these authorized service stations. Over time there were drastic changes taking place in the competitive arena for the passenger car industry. With high technology, high cost products like automobiles; the importance for an efficient service network cannot be over emphasized. Wlien considering or when drawing a service plan it became imperative to consider three major factors that are essential to any service plan. These are a) Reliability and failure frequency - what is the product failure rate, how often the product is likely to break down in a given period b) Downtime duration and service dependability - the longer the downtime, the greater is the cost. The customer relies on sellers service dependability (sellers ability to iix the machine quickly) c) Out -of- pocket costs of maintenance and repair service - how much does the customer have to spend on regular maintenance, repair costs etc. Reliability and failure frequency is a measure of service quality. Service quality is a measure of the dedication of all the employees involved towards a better quality product support plan. With automobile service support as it existed in a nascent state, it became vital to understand that for an emerging industry like automobiles or cars, the guiding parameters are different. These are a) Service network and support plan effects the quantum of sales a firm experiences b) The industry has a clear cut market leader having distinct first mover advantages in terms of service support and service network c) Service network of the desired quality takes considerable amount of time to built. It involves selecting profit or break even centres which are capable of sustaining themselves. Thus they should support an area or a region with adequate amount of sales in the first place, then they should have an efficient 308 logistic support system, lean and efficient to prevent inventory wastage, it involves training service engineers, mechanics and other required tradesman d) Building an adequate back-loading organization or laying down procedures for collection of vehicles from remote areas and their early repair e) Spare parts logistical support should be adequate There has been a tremendous change from the traditional service network, which existed in the countries till as late as a few years back and still does in certain small towns and areas. The salient features of the traditional structure that was being followed in India in the early years of the study and till as late as mid-1990's for the service network were as has been described earlier are a) Dealers having multiple dealerships of competing products. Thus there were large product centres in the town by the name of say Commercial Motors, which used to stock and display Maruti, Hindustan Motors and Premier product at the same time. These dealers had one large workshop which used to handle traffic of all kinds b) There was the second rung of service providers who provided repairs but were not authorized centres. These were large repair stations specializing in certain fixed companies product c) Then there were the unorganised repair service stations, small, with poor facilities d) Several dealers in a particular town did genuine spares stocking. There was no exclusivity for spare part stockist as they held parts for an entire range of auto products e) There was a large duplicate market of spares and accessories. Lots of small spares were fabricated in the neighbouring townships of Jullandher and Ludhiana and at a whole lot of places in the country. These parts were much cheaper in costs, had a decent life span and were quite close to the specifications but were lacking in quality. They were priced low also because they evaded the heavy duty and tax structure, which falls on genuine spares. f) Caused the springing up of a large number of poorly trained, staffed and equipped garages providing repairs at very low costs. g) Since the car market itself was very narrow, it was welcomed and supported by a majority of customers. The supplier operations and the checks on production levels resulted in low production levels. Thus there was a greater abundance of second and third hand used cars, till they were ultimately converted into taxis. Thus the market supported all levels of garages and workshops. However the major losers were the automobile manufacturers who however realized their profits through higher dealer commissions etc. h) The first attempt to provide quality service, using genuine parts with standardized equipment was by Maruti when they set up their authorized service centres. They ushered in an era of computerized wheel alignment, engine tuning and other tasks till now performed manually but so critical to the vehicle. This resulted in a small decline in the profitability of the marginal workshop owners. These and all other combined factors characterized the service network provided to vehicles. Differential costs arising out of variation in tax structures made people to 309 buy their cars in states where the costs were low. These vehicles were totally at the mercy of the local dealer if present and grievance redress was minimal. However there have been drastic changes in the type, quality and quantum of service available these days. There have been several reasons for this. Unstructured market interviews of 30 authorised and non-authorised service stations have indicated that a) The service network is a major source of a sustainable competitive advantage with a definite defence potential. In addition Quality studies carried out by J.D Automobile Analysts for India show service coverage as an important differentiator. b) Service network is becoming a major factor in brand choice in India as product care and support is a part of the product purchase plan. Maruti is using this to establish an edge over its rivals by aggressive promotion of this capability. c) Increasing electronic content of cars in the form of microprocessors and chipsets increasingly being used in cars in India after 1997-98, that makes service by untrained and under-equipped service providers a difficult and harmful thing for the car. It harms car performance and customers are refraining from it. d) Customers are refraining from use of duplicate parts. Fabrication of such high quality duplicates is very difficult and time consuming. In addition model rotation and scraping of old models has been fast, making duplicate part fabrication difficult. e) Companies are moving to total car care and other broad-based concepts. Making service available to every buyer easily is an important stress area for manufacturers. f) Average down time has been reduced to about 6-7 hours for most authorised workshops for different companies. This is in difference with a minimum down time of at least 24 hours for pre 1995 levels. This was for service and minor repair of cars not necessitating major overhauls. g) Higher degree of automation of service content h) Average costs of service have risen and various manufacturers are using different service-cost configurations. Fiat charges a lump sum amount for a given range of service care like oil filter and air filter change. All other costs like costs of lubes and minor valves and gaskets are included in this. Maruti has a more piecemeal approach and so has Daewoo and others. i) Higher end product manufacturers are promoting packaged deals. Mercedes Benz has tied up with Concorde Motors to provide total service solutions for their products exclusively. j) Additional facilities like replacement car during service period have started for only higher end cars. As a result, firmi> are expanding their service network, keeping it in phase with their market and region penetration. As firms try to narrow down product differentials in terms of service provided, the customer stands to gain. Firms are spreading their network. To analyse the effectiveness of the service plan of any firm we have to analyse two or tiiree factors. Several factors like service quality and all of its associated factors though very important have to be excluded on the premise that heavy competition among firms will attempt to narrow down this particular feature. 310 Also it is assumed that these differentials will be reflected in other quantitative parameters. We will analyse the modem service and spare plan for several new car manufacturers to highlight the changes that have taken place over the years. We start with the spare plan for Daewoo Motors. a) Daewoo - The movement of spares is direct. The dealer places its demand on the company, which replenishes the dealer immediately. Service Stations can demand straight from the company. Dealers generally maintain inventory levels of 3 months. The demand procedure is strai^t from the dealer to the company. The service stations also demand straight from the company. The demands are of two kinds - firstly we have the Vehicle off Road order - where part unavailability is causing a vehicle to be off road. This has a lead-time off 8-10 days. The second is the Monthly Stock Order - this is the normal spare chain demand and has a lead-time of 1 month. The spare plan for Daewoo is given as Chart 9.6.4.1. Daewoo also has in place an emergency repair team. This is generally a Cielo or Matiz based. Its features are a 24-hour help line with a team that generally comprises 2 members. It has a reaction time of about 2 hours. Contact method is usually a phone or through mobile numbers given at the back of the user manual. Equipment carried is about as per the customer's description of the breakdown after he has given the call to the dealer or workshop as specified.

Chart 9.6.4.1 - Daewoo Spare Movement Plan

COMPANY .< • DEALER SERVICE CENTRE

SHOWROOM WORKSHOP Source: Compiled from Daewoo's Information Brochures

b) FIAT - Fiat India Automobiles Limited is a 100% Fiat Auto subsidiary. Fiat operates in India through its chain of 61 Dealers and 82 Authorized Service Points. The movement of spares is also direct and is straight from the dealer to the company to the dealer. Authorized Service Centres demand straight from the company and the delivery is also straight. The movement of spares is the same as for cars as given in Chart 9.6.3.2. Features are that workshops place their demands througli the dealer to the company, which releases them to the dealer. Generally dealers keep an inventory level of about 30-40 days. Lead-time is about 8 days. Fiat also has an emergency repair system in place. The Help line is of 8 hours. Timings are the working hours from 0900 hrs to 1800 hrs. It is Uno based. The team comprises of 1 major mechanic, 1 helper, 1 technician and 1 driver. Reaction time is about 30 minutes. Contact method is based on landlines as given in the user manual or through a pager service run by the company which informs the nearest dealer. Carries normal repair spares used for light repairs and spares depending on the customer's directions. 311 Chart 9.6.4.2 - Hjoindai Demand and Replenishment Procedure for Spares

OEM's

PRODUCTION - CHENNAI HEADQUARTERS - DEL]K I

REGIONAL REGIONALDEPOT REGIONAL DEPOT REGIONAL DETOT NORTH • EAST- SOUTH - CHENNAI DEPOT DELHI CALCLTITA WEST - MUMBAI

DEALERS DEALERS DEALERS I CUSTOMERS Source: Compiled from Hyundai's Information Brochures

Chart 9.6.4.3 - The Repair /Back-loading Scheme for Hyundai Car Owners

MOBILE REPAIR TEAM

AUn lORISED SERVICE CENTRES

DEALER WORKSHOPS Source: Compiled from Hyundai's Information Brochures

c) Hyundai - The movement of spares is slightly more complicated. The company does procurement by placing orders on OEM's. Inventory is maintained by dealers and authorized service centres. Calculation of spares to be demanded is based on the basis of inventory rates. These inventory rates change month to month. Inventory rates are based on monthly consimiption patterns and availability of spares. Dealer's demand is to be based on the concept of 24 hours lead-time. Hyundai has four regional depots at Bombay for the Western; Calcutta for East; Delhi for North and Chennai for the Southern region. The demand and replenishment procedure is as in the Chart 9.6.4.3. Dealers place demand on Regional depots which supply the required spares, in case it is not available, the regional office flies by air the component to the dealer from Chennai so that lead time does not exceed 24 hours. Regional office demand is collected and forwarded to the company at Chennai, which collates the demand and places it on the OEM's, which maintains stock at the regional depots. Generally dealers keep an inventory of 2 to 3 months of spares, depending on 312 demand patterns. Lead-time is 24 hours as claimed by the company. Hyundai has created an emergency Mobile Repair Team System. The system provides mobile service coverage to all Hyundai vehicles on the road. Salient feature of this service are that it runs a 24 hour help line. It has given certain contact numbers to the customer to be dialled in the case of breakdown. The number rings a phone at the dealer and the regional depots simultaneously to enable full service. The regional office or the dealer directs the nearby dealer to attend the call immediately. Reaction time is 10 minutes for local and 30 minutes for outskirt breakdowTis as claimed by the company. The composition of the team consists of one or two technicians. The equipment carried is all relays, all fuses and links, motors, computer, high scan, coil assembly ignition and other spares. The repair and service organization at Hyundai is not at all complicated. The Head Office, coordinate the spare supply chain and to lay down policy guideline. The next rung is the Regional Offices at Mumbai, Delhi, Chennai and Calcutta. Afler tlie Regional Office is the dealers who actually interact with the customer. Each Dealership has its fiilly equipped garage. In addition Hyundai has authorized certain workshops meeting its quality standards to act as its Authorized Service stations. These Authorized Service stations provide coverage in tovms and cities not covered by a dealership. The Hyundai Service network is given as a Chart 9.6.4.3. d) Maruti Udvog - The movement of spares is more complicated. The Service stations place demand on the Service Centre's with the Maruti Dealers. The Service Centre's place demand on the Company. The dealers keep an inventory level of 2 - 2.5 months. The lead-time for replacement of spares is about 10 days. Maruti Authorized Dealers are responsible for Sales, Service, Warranty and Spare Parts. There are three types of Maruti Authorized Service Stations. These are 1) 'A' Category MASS - free and paid service, major repairs, accidental repairs but no warranty 2) 'B' Category MASS - free and paid service and major repairs 3) 'C Category MASS - free and paid service and minor repairs Maruti Authorized Service Stations are not authorized to take on warranty jobs. Customers are requested to approach the nearest Maruti dealer for their Warranty jobs. Tlie company also has an Emergency Repair Team. There is a 24-hour help line. The customer has been provided with a mobile and a pager number. In case of breakdown on receipt of call, the help line informs the nearest dealer and a service vehicle is dispatched immediately. The emergency help service is Maruti Omni (van) based. As per policy laid down by Maruti, the team should consist of 6 members, however practically 4 are sufficient. 4 include a driver, an electrician and two mechanics. Reaction time from the moment of call to the time the vehicle moves out is reportedly about 30 minutes. The repair team carries small items, toolbox, minor spares, fuses, electrical parts etc. Maruti has demarcated the number of cities in the country into a number of classes. Thus there are the class A cities, which are in metropolitans. Here company charged a higher rate on service because of the high competition existing in the market. Next come the class B-service stations. These generally include minor repairs 313 Chart 9.6.4.4 - Maruti's Logistic Plan

COMPANY

T SERVICE CENTRE \^ —> SERVICE STATION 1 WORKSHOP Source: Compiled from Maruli's Informaticxi Brochures

and service. The last are the class C-service stations, which charge the least whose titles, are difficult. The cost of spares has remained the same, however labour and service costs are different due to the nature of the task. It is given as Chart 9.6.4.4 e) TELCO - Telco has devised the following plan for sales and service. Each authorized dealer in a particular city runs one or more showTooms for displaying the car and for carrying out sales. These showrooms only are authorized to sell Telco products. These showrooms can be exclusive showrooms for hidica cars, or for small showrooms can also display other Telco products but exclusivity is to be maintained. Each dealer is also supposed to run a workshop for servicing vehicles. The next rung in the Telco hierarchy is the Telco Authorized Service Centre. These are authorized service centres where vehicle owner can take their vehicles for servicing. These service centre's are only authorized for carrying out servicing and not meant for sale of vehicles. The next is the Telco Authorized Service Points. These are in certain selected cities and are liable to undertake only free mipaid service as provided by the company through its service coupons. Telco has the headquarters of its Passenger Car Service Division at Pune; in addition it has four regional offices and depots at Banglore, Delhi, Mumbai and Calcutta. It then has as the next layer the Passenger Car service offices at about 16 locations all over India. Next in the rung comes the dealer in the several cities. Demand procedure for spares is as given. The service centre places the demand on the dealer who collates the demand and places it on the regional depots. The regional depots place the demand on the company at Pune who releases the spares to the depots and to the dealers who further forward it to tlie service centres. However these laid down steps can be bypassed depending on the distance between the company, regional depots, dealers and service centre's. Telco spares also proliferate through other dealers who support other Telco products to remote areas. In addition due to the commonness of several parts, sometimes to reduce lead-time dealer workshop and other service centres also do local purchase from the market of other genuine parts not in circulation, though the company (TELCO) does not permit it. Telco Authorized Service Centre's are authorized to stock genuine Telco spares and further push them to other workshops. Telco uses 100% warranty covered products in its vehicles. Telco gives a 6-month guarantee on all its spare parts and assemblies except electrical parts and rubber parts, which are not covered by, warranty. Telco's dealer and service network plan is as Chart 9.6.4.5 and Chart 9.6.4.6. Telco has an emergency repair scheme to help its 314 customers achieve a higher degree of customer satisfaction. This team consists of one electrician, one mechanic and one foreman. Help line is effective for 12 hours (from 0900 hrs to 2000 hrs). Its reaction time is about 30 minutes. Customer can contact on phone or can corre himself or herself Equipment carried includes batteries; jump lead, toolbox and equipment for normal repairs.

Chart 9.6.4.5 TELCO Logistic Plan TELCO

MARKETING AND PRODUCnON- PASSENGER CUSTOMER PUNE CAR SERVICE SUPPORT DIVISION - PUNE DIVISION-MUMBAI i i REGIONAL REGIONAL REGIONAL REGIONAI. OITICE OFHCEWEST- OFFICE SOUTH- OFFICE EAST - NORTH- DELHI MUMBAI BANGLORE CALCUTFA

>r ^ r T T PASSENGER PASSENGER CAR PASSENGIiR PASSENGER CAR SERVICE SERVICE OFFICE CAR SERVICE CAR SERVICE OFFICE-2 -6 OFFICE-4 OITICE-4

lEIXO TELCO AUmORISED AUTHORISED SERVICE SERVICE roiNTS CENTRE

WORKSHOP Source: Compiled from TELCO's Information Brochures

Chart 9.6.4.6 - Telco Spares Demand and Replacement Chain

SERVICE CENTRE DEALERS • REGIONAL DEPOT COMPANY WORKSHIP

Source: Compiled from TELCO's Information Brochures

Thus as we can see from these few examples, there has been a great change in the service and logistic plan for the passenger car industry as it gets more and more organized and professional. However there is a growing similarity between the various companies strategy as competitors try to narrow down service and spare differentials. These changes notwithstanding, there are several areas which merit a deeper look by companies as they fine tune their marketing strategies and launch full length into a product support war. These relate to basically service and spare costs, down time or the time the vehicle remains out of order. To achieve competitive advantage in product support, in addition to a wide network, firms will also have to take appropriate action on tliese issues. As can be seen from Table 9,6.4.1 and Table 315 TABLE 9 6 4.1 - PRICE COMPARISON OF 16 SPARES RANDOMLY SELECTED FOR RANDOMLY SELECTED MODELS ~ ' I 1 1 • TELCO - — I ft«fi

1 Source: Ccxrpiled fromTechnica i Manual of Some Companies DMIL = Daewoo Motors India Ltd; F1AL = Rat India Auto Ud; HMIL - Hyundai Motors India Ltd. MUL - Mamti Udyog Ltd TELCO = Tata Engineering and Locomoti>« Company

TABLE 9.6.4.2- PRICE COMPARiSON OF 5 SERVICE ACTIVITIES AMOUNT IN RUPEES WHEEL OILADIL FILTER AIR FILTER INJECTOR ELECTRICAL MODELS SERVICE AUGNMENT CHANGE CLEANING CLEANING CHECKUP DMIL MAT12 360 200 109.86/L+91 258 FOR RLTER 70 Rs IF REQUIRED CIELO 450 250 109.86/L+91 258 FOR FILTER 70 Rs IF REQUIRED NEXIA 450 250 109.86^.+91 258 FOR RLTER 70 Rs IF REQUIRED FIAT UNO-PETRC 650 300 115A.+ 114 330 FOR RLTER INCLUDED IN SERVICE INCLUDED IN SERVICE UNOP-MPFl 550 300 115/L + 114 330 FOR RLTER INCLUDED IN SERVICE INCLUDED IN SERVICE UNO DIESEL 550 300 115/L + 186 330 FOR RLTER INCLUDED IN SERVICE INCLUDED IN SERVICE SIENA 550 300 115/L + ia6 350 FOR RLTER INCLUDED IN SERVICE INCLUDED IN SERVICE HMIL SANTRO 160 3QWHEEL OIL-«5A-+56 103 FOR RLTER UFE AFTER 40000 KM ACCENT 160 3CWVHEEL OIL-65rt.+54 111 FOR RLTER WARRANTY RS100 MUL 800 485 225 OIL-9Qa.+59 108 FOR RLTER NA COST OF SPARES ONLY ZEN 525 275 OIL-9Q/L+59 108 FOR RLTER NA COST OF SPARES ONLY WAGONR 525 275 0)L-9Ql+56 106 FOR RLTER NA COST OF SPARES ONLV ALTO 525 275 OI'.-90/L+59 108 FOR RLTER NA COST OF SPARES ONLY ESTEEM 525 275 OIL-9Qa.+59 1128 FOR RLTER NA COST OF SPARES ONLY 1000 525 275 OIL-90ia.+59 108 FOR RLTER NA COST OF SPARES ONLY BALENO 525 275 OIL-90/L+56 1140 FOR RLTER NA COST OF SPARES ONLY TELCO INDICA 200 200 OIL-100rt.+79 282 FOR RLTER 300 150 RS EVERY 5000 KM Source: Conpfled from ReW Interviews of Dealers L= Litres; 316 TABLE 9.6.5.1 - S;CkMPL E OF CARF l MANCE SCHEME AT A GLANCE MINIMUM MAX DEPOSnj SERVICE EFF TENURE PREP EMI ON AGAR LOAN OF Rs 1 LAKH COMPANY LOAN SCHEME RN % FEES RETURN (MONTHS) CHG 12 24 36 48 60 CITIBANK 1 LAKH EXCLUSIVE 85% 15 3500 RS 22.75% 12 TO 60 3% 9396 5225 3858 3191 2805 GOLD 90% 10 2Z75% 9396 5225 3858 3191 2805 REGULAR 85% 15 24.25% 9468 5300 3936 3274 2891 BANK OF 50000RS EASY DRIVE 90% 10 3000RS 22% 12 TO 60 4% 9360 5188 3820 3151 2762 AMERICA 6000RS 20.50% SRF DEPOSm 100% 25 3500RS UPTO 12 TO 36 2% RNANCE 1LAKH DEPOSrr2 100% 15 6000RS 26.89% EMI ADVANCE 100% 2-4 EMI 9225 5125 3778 DCM SCHEME1 100% 25 3500RS UPTO 12 TO 48 2% FINANCE 1 LAKH SCHEME2 75% 25 5000RS 25% SERVICES SCHEME3 90% 2-5 EMI 9167 5075 3700 3042 KOTAK DEPOSIT 100% 25 3500RS UPTO 24 TO 48 3.50% MAHINORA 1 LAKH EMI ADVANCE 85% 2-3 EMI 28% 3875 3105 RRFIN DEPOSIT 100% 25 4000RS UPTO 12 TO 48 VAR CONSLTS 1IAKH EMI ADVANCE 2-3 EMI 21.50% ESCORTS IIAKH DEPOSITS 100% VARIES 3500RS UPTO 12T048 NIL 6000RS 24% RSAF 100% 100% 0% 0% 14.50% 12 TO 36 1EMI OF 100% 0% 0% 14% 12 TO 36 1EMI 8875 4746 3380 2701 2300 INVOICE 100% 0% 0% 15% 12 TO 36 1EMI 8915 4790 3424 2750 2350 AMOUNT 100% 0% 0% 16% 12 TO 36 1EMI 8955 4833 3470 2798 2400 KMPL-HYN 80% 20% 1% 14.50% 60MON 1EMI 8895 4767 3401 2725 2325 85% 15% 1% 15.50% 36MON 1EMI 8934 4810 3447 2773 2375 ICia-HYN 100% 0% 1% 16.50% 12MON 1 EMI 8973 4853 3492 2821 2425 Source: Conpiled frcm Rnance Compartes Infomaticn Brochures 317 9.6.4.2, there are vast differentials existing amongst models of different firms and even within the models of the same firm. As can be seen, Hyundai is very competitive in this activity. Trying to narrow down the difference and at certain points is even lower than the market leader Maruti. This approach has reaped good rewards for Hyundai as it occupies the number 2 spot in the Indian passenger car market. However these activities are just an exposure to the world of product support and the matter can constitute a study of its own.

Dealerships as Centres of Auto - Finance 9.6.5 Auto Financing - though financing for purchase of cars from sources other than his own is a very old phenomenon however, organized and institutional consumer auto finance as an innovative, convenient and service backed package is a new concept of the 1990's. Generally the car dealers and financiers are one and the same but there are close tie-ups with firms promoting their own finance arms to provide preferential and easy finance for their products consumers. Firms are trying to make vehicle buying an easier and simpler concept. These companies sanction and disburse loans with the minimum paperwork and guarantees and the car is delivered sometimes even faster than the normal booking channels. The certification and documentation is kept minimal. Most transactions are confined to the non-banking financial services, though even nationalized banks promote purchase of consumer goods through soft loans and other finance schemes. Gathering information is a very difficult process as institutions do not easily give or publish portfolio information and hence has to be traced out from Reserve Bank studies on finances of NBFC's (Non Banking Financial Companies). Banks auto loans are concealed in their overall consumer loan portfolios and are difficult to estimate. No coherent data exists on business conducted by unorganised moneylenders and scattered private lenders. Any profile of the auto - loan market can only be estimated. Auto financing or car financiers have three options a) Loan - a credit facility extended by a bank or a Non Banking Finance Company to a borrower which the borrower repays in small instalments over a small period of time ("the loan tenure"). Borrower owns the car, and can claim depreciation and write off on interest instalments against income. b) Hire purchase - it is an agreement under which the car is let on hire and under which the hirer has an option to purchase the car in accordance with the terms of the agreement. Mostly offered by Non Banking Financial Companies (NBFC). Similar to a loan option, financial companies charge a token amount (called "option money") on payment of which tiie car passes on to the hirer. In a hire purchase scheme the financier ovms the car, which the user hires till all payment, is made. The hirer can claim depreciation and hire charges (excess of amount paid above finance amoimt) against income. c) Lease Financing - lease is a contract between the owner of an asset (lessor) and its user (lessee) for the hire of that asset. Chvnership rests with the lessor while right to use the asset (car) is given to the lessee for an agreed payment of time in return for periodic rental payments by the lessee to the lessor. Usually given by NBFC's and availed by corporate buyers who claim a tax rebate in each financial year. The lessor or financier owns the car, which the lessee uses. Here 318 financier can claim depreciation and entire lease rental and maintenance cost against taxable income. In the past that is as late as 10-12 years ago, auto loans were not a major booster for vehicle demand. Vehicle finance was not considered as a major force influencing vehicle demand. In 1984, a study by A.F.Fergusson &Company for the Government of India only made a brief mention of auto finance'^. Reforms have had a major impact on auto financing through its impact on monetary policy, interest rates and inflationary policies. "It was observed that a stagnation and decline in car sales during the three recessionary years fi-om 1990-93 were due to the high incidence of custom and excise duties and also due to the tight and expansive credit. Reserve Bank of India and the Finance Ministry were trying to contain large fiscal deficits and strong inflationary pressures enforcing restrictive monetary policies. Refinance and credit limits to all banks and financiers were fi-ozen or ciirtailed by the Reserve Bank and the Industrial Development Bank of India. The ability of these institutions to raise resources was restrained. Thus they had no alternative but to cut down on auto loans"'^. As per estimates of Society of Indian Automobile Manufacturers " the lowest point in sales was reached in mid -1992 that coincided with the lowest level of RS 10-12 billions in the availability of auto loans during 1992-1993". Revival in 1993-94 following tax cuts and economic reforms coincided with fi-esh limits and refinance leading to liberal and easy availability of auto loans, interest rate stabilization. The role of auto-finance in supporting and sustaining the sales curve is amply clear auto loans help to bridge the gap between levels of Indian family income and car prices that are beyond their reach. Recent research have estimated that "60% of the car sales of RS 64 billion during 1994-95 were supported by auto loans of nearly RS 40 billion"'*. They have also projected that in the year 2000; demand for auto-loans would be over RS 120 billions. It's a major rise from mid-eighties when not more than 10 % of car sales were fmanced. As of date it is estimated that more than 70% of new car buyers are resorting to financing their four-wheeled dreams. Finance companies performance are ranked on various parameters including a) Loan contract and Value- relating to the clarity and speed of loans approval as well as the rating of the overall deal and the degree to which the loan met the customers needs. b) Finance Advisor - finance advisors, courtesy and knowledge c) Application process - composed of questions dealing with the ease of filling out paperwork, the variety of loan plans and options provided d) Billing relates to timeliness, accuracy and clarity of billing statements As per Survey finding revealed for 2000'' that a) 73.5% of respondents resorted to loans and leases as their means of finance, with cash accounting for the rest. b) Leases only accounted for 8.7% of 73.5% due to legislative amendments that have blunted some of the tax benefit c) Only over 55% had decided on their finance provider before they visited their showroom while the rest decided on it after speaking to a member of the dealer sales team d) Reason for choosing a particular Finance Provider were aa) Low Interest Rate - 17% respondents 319 ab) Reputation of Finance Company- 12% respondents ac) Speed of disbursements - 11% respondents The scenario is changing rapidly. IFB finance has ventured into consumer finance and tied up with LML and Hero Honda. Countrywide Financial Services, recently promoted by HDFC and GE Capital have tied up to provide financial services. They have also tied up with Maruti Udyog and LML. Otlier financiers are planning similar entry into auto loans in general and two wheeler financing in particular. A number of global joint ventures in auto fmancing are surfacing and they bring innovations in lending. Orix Auto Finance (India) Limited, a joint venture between Orix Corporations of Japan and Infi-astructure Leasing and Financial Services Limited (ILFS) has started offering use and maintenance leases. Kotak Mahindra are planning two joint ventures with Ford Motor Credit Company of USA. Auto Loan Scheme for cars in India have four basic characteristics. These are a) Financier also provide loans for booking the vehicle b) Impressive bundling of service and convenience schemes with the loans c) Preferential spot delivery even when there is a long queue and manufacturers or dealers are unable to provide deliveries d) Loans are made affordable through attractive repayment schemes Auto loans are essential as in India the manufacturers target buyers having annual family income above RS 150000. The minimum priced vehicles are around RS 200000 in terms of prices thus cost of vehicle in terms of family Income works out to about 16 months and more necessitating auto finance. This is in sharp contrast to other developed economies where vehicle costs work out to about 4 or 5 months income figures. Thus in India auto financing is a major activity which firms have to carry out and have immense potential in terms of competitive advantages however its sustainability is less. To make car finance more lucrative to customer's financiers also provides booking loans. This stems essentially fi-om the long waiting lists and periods when cars are in short supply. Booking loans allows customer to just pay the interest (with the normal complement of service charge, holding charge and transport charge etc) for a three-month period. The financier without blocking customer's* money completes all formalities. The financier pays the money and books the car in the name of the customer as per company's directives on booking amount and time period for booking. The booking allotments are generally done on a lucky draw basis by the company, which gives the allotment to the customer for him to pay the money and make purchases through tlie dealer. The customer even has a chance of selling or surrendering the allotment or entitlement document to the financier and making a profit. However spread of auto financing is limited to about 30 to 40 mega and metro cities as of now. Spread of auto financing is restricted by the economies of scale, high branch operational costs and difficulties in monitoring and controlling distant operations. Interest rates vary from 10% to 21% per annum. Gross rates inclusive of processing fees, holding and transport charges may be between 24% to 30% per annum. The auto financing market is filled with operators causing heavy competitive pressures. This is essentially because it is a clean and safe business with good returns, a low delinquency rate of less than 1%, easily enforceable with good securities. As per the Ferguson Household Survey ^° (it is the only available documented information on the profile and sources of funds for the vehicle finance markets), 320 during its life of 20-25 years a car may change hands three times eventually becoming a taxi. As per the Ferguson Survey more than half the car population in 1982 was second hand cars - mainly ovmed by individuals in the low-income brackets. Financiers do not finance second hand cars, though they have started now for reconditioning and financing them on deferred basis. In the 1980 and till early 1990's, Employer's loans have been a significant element in finance for personal vehicles. For passenger cars employer's loans financed up to 20% of sales. Employers used to finance 80-90% of the car for top executives. As car prices started moving up a ceiling of RS 120000 was placed on most executive loans. Employers are now moving fi*om car financing towards lease rentals, which save them cash-flow problems and rentals are fully tax deductible. A sample of a companies car finance schemes is tabulated as Table 9.6.5.1.

Warranty Policy 9.6.6 Buyer's form a certain level of expectation fi-om a firm or company whose product they buy. Level of expectation depends on a whole host of factors. Fulfilling of these expectation leads to repeat purchases, better image building, and more consumer amongst other things. Companies can charge a price premium for their services. All sellers are legally responsible for fulfilling a buyer's normal or reasonable expectation. Warranties are formal statements of expected product performance by the manufacturer. Product under warranty can be returned to the manufacturer or a designated repair centre for repairs, replacement or refund. Warranties, whether expressed or implied are enforceable legally. Certain companies even offer Guarantees, which are general assurances that the product, qan be returned if its performance is unsatisfactory. Guarantees work best when their terms are clearly stated and there are no loopholes in the statement. Certain companies also give internal guarantees wherein one division of a company guarantees its product or service to another division. Warranties are not a new phenomenon in the Indian Automobile industry; however there has been a considerable change in their offering, coverage etc. Warranties usually serve two major purposes, firstly they enhance the appeal of the product directly to the consumer and secondly by re-iterating the companies concern to service they install a greater sense of security to the customer. However in the Indian market context, warranties are more often than not a sore point in promoting buyer-seller relationship. There were several reasons for this a) Unprofessional attitude of dealers - generally the dealers were either friends or relatives of the manufacturer, who were given dealership as a share of the company's fortune. The tight Indian economy ensured that there were always waiting lists for cars hence the dealer's earnings from car sales margins were actually never threatened. Reforms changed all that, as there was an influx of companies and ideas taking competition to nev/ heights forcing a change in the dealer's attitude. b) Free service and warranties were always given the last priority. There was no effort at customer service c) Due to the spread of a large number of unauthorized garages giving quality service and being more customer oriented, service earnings formed a very low 321 part of dealer's total revenue. The lack of exclusivity in service and even stocking of genuine spare parts had an effect on customer perception d) There were often disagreements over coverage and extent of warranties between the owner and the dealer about which the owner had no redressal. e) Attitude and Quality of service post sale were not good These and some other factors made the dealer an autocratic link in the business chain, a trend disturbing, yet supported by a monopolistic and restricted market structure. More than often, the time involved in the realization of warranties was enough for customers to not avail it. Hence it was generally resorted to and the whole purpose of the scheme, to build up a closer customer-dealer interface was defeated. After the opening of the economy, the car industry saw a deep influx of fiinds and investments with several manufacturers setting up shop. Competition intensity suddenly grew and brought out the importance of a favourable customer perception, firms that entered the market were more customer focused and they brought in new trends in more professional distributor networks. Thus dealers are today under tremendous pressure fi-om firms as well as manufacturers. Customers are exploring each and every clause of the warranty scheme and it has become a major factor in forming the manufacturer decision set. Each company lays out a warranty policy, which is binding to both the company and the customer. A company's warranty policy generally has the following elements a) Vehicle warranty - the general fi-amework of a vehicle warranty includes the following i. Warranty - the company warrants that each new vehicle sold shall be fi^ee fi"om any defects in materiel and workmanship, under normal use and maintenance, subject to certain conditions ii. Period - the warranty shall exist for a certain period of time fi^om the date of delivery to the first purchaser irrespective or respective of the kilometre covered. The warranty may or may not be transferable to subsequent owners within the warranty period iii. Coverage - except certain conditions, the Authorized Dealers shall either repair or replace, any genuine part that is acknowledged by the firm to be defective in materiel or workmanship within the warranty period stipulated at no cost to the owner of the vehicle for parts or labour. Such defective part become the property of the company iv. Not covered - the areas not covered by the warranty, generally are aa) Normal maintenance service other than the free service scheduled by the company including without limitation cleaning, minor adjustments etc bb)Replacement of part as a result of normal wear and tear such as spark plugs, belts, brake pads etc cc) Damage or failure resulting from dd)NegIigence of proper maintenance as required ee) Misuse, abuse, negligence, accident, theft, flooding or fire ff) Use of improper fiiel, fluids and lubricants gg)Use of non- Genuine parts hh)Any device or accessory not supplied by the company 322 ii) Modifications, alterations, tampering or improper repairs jj) Airborne fallout, acid rain, hail, windstorms and other acts of God kk) Paint scratches, dents or body damage 11) Action of road elements such as sand, cement or glass, which results in stone chipping of, paints or glass. mm) Incidental or consequential damage nn)Batteries, tyres and tubes used are guaranteed by other manufacturers and not the car manufacturer This guarantee is the total guarantee given by the company and no dealer or its employee or agent is authorized to extend or enlarge this warranty and or even make any other oral warranty also. The company reserves the right to make any changes in design or make any improvements on the vehicle at any time without any obligation to make the same change on vehicles previously sold. The company reserves the right for final decision on all warranty matters. i. Owners Responsibilities- aa) Proper use, maintenance and care of vehicle in accordance with the instructions contained in the Owner manual and other manufacturer specifications bb) Retention of maintenance service records. Customer may be required to show that the required maintenance has been performed cc) Delivery of the vehicle during regular service business hours to any authorized dealer to obtain warranty service ii. Replacement part warranty aa) Warranty - The company may warrant that each new Company genuine replacement part purchased from and installed by the company dealer shall be free from any defects in materiel or workmanship under normal use and maintenance subject to certain terms and conditions. bb) Period - warranty period for a certain amount of time or until the vehicle has done a certain amount of distance from the date of installation or replacement by the authorized dealer, whichever occurs earlier cc) Coverage - the authorized dealer who had sold and installed the replacement part shall either replace or repair the said genuine part and acknowledged by the company to be defective in materiel and workmanship within the warranty period at no cost to the owner for the vehicle owner for parts or labour. dd) Not covered - warranty may not apply to ab) Normal maintenance service of parts such a s cleaning, adjustment or replacement ac) Parts that fail due to abuse, misuse, neglect, alteration or accident or which have been improperly lubricated or repaired ad) Parts used in application for which they were not designed or approved by the company ae) Failure due to normal wear of parts 323 af) Direct or indirect failures caused by misuse and improper maintenance of vehicle and installation of non-company parts on the vehicle ag) Vehicle with altered odometer readings so that mileage cannot be accurately determined ah) Incidental or consequential damages including without limitation, loss of time, inconvenience, use of vehicle or commercial loss ai) This is generally the entire scope of a vehicle part replacement guarantee given by the company and no dealer or his agent or employee is authorized to extend or enlarge this warranty or make any other oral warranty. The company reserves the final decision on all warranty matters. ee) Owners responsibility - ab) Proper use, maintenance and care of the vehicle in accordance with company's instructions ac) Retention of maintenance service records ad) Retention of the customer's copy of the original repair order and the invoice or bill under which the part was replaced ae) Vehicle delivery during regular working hours to the authorized dealer who installed or replaced the part b) Pre-delivery inspection - before the customer can actually drive away the vehicle a thorough inspection of the vehicle is carried out by the company staff for last minute changes and all observation, results are noted down on a form retained with the company dealership General format of the warranty policy of almost all the companies remains the same and may include minor coverage regarding the coverage, scope, extent etc. Thus Maruti may replace or repair at its own discretion any part with a new part or 'equivalent'. Certain other companies may include other features like air-conditioning etc. Warranties are not clubbed together and individual manufacturers of ancillary parts like batteries, tyres, steering etc may be under cover of warranty from their respective manufacturers and not by the car manufacturers. Due to the deep linkages in the automobile industry, a wider expansion of coverage of other parts under warranty can be used as a major competitive scope for expanding the warranty coverage and thus enhancing product quality. However after analysing the warranty policy docimients of various companies over the period of the study it is seen that there is no major change in the warranty policy of the companies over the period of the study.

Maintenance and Service Plan 9.6.7 Each Company draws up a maintenance plan for its vehicles. This maintenance plan is mentioned in the owner's manual given at the time of purchase to the owner. This maintenance plan specifies the general guidelines to be adopted by the owner to help them in better maintenance. Adherence to the maintenance plan entitles the owner to the company's warranty scheme. A maintenance plan has several elements. Important to us are 324 a) Free service schemes -To promote better maintenance, upkeep and to guide the owner into the nuances of automobile finance, firms generally provide free service and support for the initial few services. These are freebies that are bundled in to build a better coordination with the customer. Free service coupons generally provide maintenance cover for about one year. Free service can be resorted to at any of the company's service stations. Free service coupons usually have two dimensions i.e. time or distance whichever occurs earlier. Companies differ in the nature of activities that they carry out under this system very marginally. Generally the difference revolves around not more than one or two activities. However this is no measure of a company's service abilities or the satisfaction that it can give to the customer. b) Periodic maintenance schedule - to ensure continued reliability and safety of the vehicle, certain routine maintenance of the vehicle are carried out at specific mileage intervals. The vehicle owner is responsible for adhering to the maintenance schedule. Non-adherence may invalidate new vehicle warranty thus adversely affecting vehicle safety and durability. The company recommends that all maintenance operations except daily maintenance checks are entrusted to the company dealers to ensure that the latest repair and maintenance procedures and specialized servicing tools are employed and vehicle safety is not compromised. With the use of microprocessors and other sensory elements in cars, it has become imperative for owners to get their vehicles tested at authorized service stations as general-purpose equipments cause damage to the electronic equipment and parts. Maintenance schedule must be adhered and maintenance services performed to assure good vehicle maintenance. An analysis of these various documents have shown that there is not much change in these VEiriables over the period of time and even in between companies various ])roducts. For the period 1987-2001, the only change that have occurred is the change in certain entries regarding the checking of MPFI system and the microprocessors installed in several car systems.

Conclusion and Deductions 9.6.8 The study has helped us reach several conclusions over the period of the study. These are defined and summarized as imder a) There have been considerable changes in the marketing of cars in India. Dealerships have become more competitive and firms are trying to exploit competitive advantages in this field b) Maruti has distinct first mover advantages in this field c) Others companies are trying to narrow down channel differentials. There is considerable improvement in stocking methods, ordering system and production flexibility cutting cost: to both dealers and manufacturer. However there is much to be explored in the form of inventory pools, and locator system where customer specification mismatch can be easily rectified by transfer from another dealer. d) There is a great change in the role of dealers in today's competitive arena. Dealers are offering a wider scope of services over then compared to the earlier 325 period of the study. There are considerable changes in the form of the ways of booking of cars, the earnest money payments and the disappearing of the black market that dealt in car bookings in titie regulated years. e) The logistic network of the various competing firms is slowly becoming similar, f) Firms have drastically cftanged their logistic plans drastically over the period of the study. However inter-firm differentials are narrowing down g) There is a major shift towards auto finance as the source of finance over the years. Auto finance has become more competitive over the period of study. h) There is no or marginal change in the company's warranty policy over the years i) There is no or marginal change in the company's maintenance policy

SECTION: 7 SUPPLY CHAIN

Components

9.7 In a scenario as dynamic as the passenger car industry in India, it becomes essential to pay heed to the fast growing component industry that has supported this change. Though essentially this falls outside the purview of the study, however any study of the changes in the passenger car industry will be incomplete if we do not analyse the changes that have taken place in the component industry. The growth in the passenger car industry has given a tremendous boost to the component industry in India. It is often touted that the automobile industry has high and heavy spread effects. Thus it is said that there is a multiplier effect in which a new automobile manufacturer generates more tlian its direct contribution of revenues, employment's and overall growth.

Potential 9.7.1 The Indian Automobile component industry like the automobile industry is very small by international standards. The component industry is racing piggyback on the bandwagon of growth of the automobile industry as it races forward in time. Both these industries are aiming at global competitiveness and volumes aiming to achieve world-class performance. Auto component is an RS 90 billion industry with an investment of 45 billion and more than 1 billion turnover in terms of foreign trade^'. However over 59% of its business is in engine and transmission parts. The component industry in India has the potential of becoming the export driver of the auto industry due to two major factors a) There is increasing globalisation of the auto industry supply chains (with close to 25% of the total value of the industry traded between nations) ^^. b) Significant cost advantages in many component groups supported by relatively well-developed labour skills and engineering base. 326 TABLE 9.7.1.1 - AUTOMOTIVE COMPONENT PRODUCTION TRENDS YEAR RS % GROWTH 1986 9746011 1987 9453716 -Z999124462 1988 11803644 24.85718843 1989 15427326 30.69968901 1990 17899671 16.02575197 1991 215S9280 20.4451188 1992 26074912 20.94518926 1993 32012418 22.77095317 1994 39430172 23.17148926 1995 51749375 31.24308715 1996 69677740 34.64460199 1997 88272152 26.68630182 1998 92551939 4.84839998 1999 97856787 5.731752416 2000 104678984 6.971613527 AVG 19.00300088 Source = Corrpjled from Automa(h« Conponent Manufacturers Association Journal

Chart 9.7.1.1 - Collaborations in 1997, Component Sector

By Component Nos By Country Nos Engine and Engine Components 11 Japan 67 Engine Cooling 4 UK 40 Transmission and Steering 11 Germany 44 IJrake and Clutch 10 U.S.A 31 Suspensions 11 Italy 13 Electrical 5 Spain 5 Forge and Foundry 3 Australia 1 Axles 2 South Korea 5 Lighting 3 France 6 Interiors 4 Taiwan 3 Sheet Metal Parts 5 Canada 2 Plastic and Rubber Parts 7 Yugoslavia 2 Switzerland 2 Others 149 OthCTS 4 Total 225 Total 225 Source: Automan; SLAM Pubications 327 Thus we see that because of globalisation and global cost advantages, outsourcing has become one of the most common and profitable industry trends. To achieve auto industry vision of 10% share of industrial output by 2010 . The component industry will have to grow dramatically showing a growth of close to 22% in nominal terms over the next 12 years with 20% exports as a major contribution to total output. The Indian Component Industry has grown over the years. The Indian component industry has shown exponential growth over the period of the study. Table 9.7.1.1 tabulates the production trends in automotive components. Thus we can see that years 1995 and 1996 were years of high growth, in excess of 30% over the previous years. The growth rates have dropped down to single digit growths over the later years but these have more to do with the recessionary conditions in the economy. As can be seen from the above Table Component industry showed double-digit growth rate over preceding period for the period 1988 to 1997. The average of the growth figures gives a high growth rate of 19%, which is very high for an upcoming sector. The Indian component industry is wide (over 400 firms in the organized sector producing almost all the parts) but at the same time small (estimated at less than RS 120 billion or $3 billion for organized sector in 1997-98). This sector has been the fastest growing sector in the automobile industry showing a nominal growth rate of over 28% for the period 1992-1997^^ The sector also exports close to RS 12 billions or 10-12% of its combined sales. This is an almost 6 times jump from the RS 2 billions in 1990-91^^. During the last seven years the industry has come a long way from the technology and capacity gaps of the eighties. During these years, industry depended on vehicle manufacturers to provide them design, drawing, technologies, specification and orders for their produce. Component manufacturers had limited product development capability. The companies had long lead-time and the manufacturing facilities were outdated and not modernized. There were tremendous changes in the early 1990's. By 1997 the scenario had changed riding the crest of a sea of reforms. Industry had 225 collaborations covering all critical components and all the leading countries. Out of the Automobile Components Manufacturers Associations membership of 300 companies, 55 had ISO: 9000 certification. There was a rapid attitudinal shift towards quality, which was a regarded as the vehicle of growth. Leading component manufacturers became active in the Total Quality Movement and some of them initiated participation in US automakers QS: 9000 programs. The collaboration distribution in 1997 is given as Chart 9.7.1.1. The component industry in India is relatively small and fragmented, reflecting the practices and level of maturity of the OEM's in India and the taxation system. These are a) Large number of Original Equipment Manufacturer players b) Small scale c) Original Equipment Manufacturer buying from multiplier suppliers for each part d) Original Equipment Manufacturer's bringing their ovm global suppliers rather than buying from local suppliers as is required under Memorandum of Understanding localization norms e) The multiple taxation system that prevent tiering, which today represent the most efficient grouping of suppliers Most of the component firms in India manufacture a single product or a very narrow range of products. Considering the sales of the Indian firms only 17 firms have sales 328 of more than 40 million each. Only around 150 firms have turnover greater than $5 million each. Given their product range and small turnover, they have low research and design or system integration capabilities^^. The major features of the A.T.Keamey Analysis were a) The Indian Component industry is still fi-agmented in 1997 and consequently has low scale of operations b) 400 firms in organized sector have about 75% of sales c) 5000 firms in unorganised sector have about 25% of sales mostly to the after market d) 17 firms have sales greater than $40 millions e) 155 firms have sales greater then between $5 million - $40 million f) 178 firms have sales less than $ 5 million g) Even larger firms have low turnover / employee: $ 20000 - $60000 per annum h) Most firm make single product or narrow product range i) Few firms have system capability The automobile industry improves its competitive strength and ensures quality through its vendor development and management strategies. During the last five years the industry has made special efforts to promote the growth and diversification of auto component industry and to build up its capabilities. The component industry in India has significant cost advantages primarily due to lower labour costs in India (about 1/20'*' of Japanese costs)^'. This large labour cost advantages translates to over all cost advantage of 20-30% over their Japanese counterparts despite lower labour productivity figures. The late 1990's have seen an increasing number of manufacturers being lured to set up manufacturing bases in India. However low cost labour in itself is not a factor of long-term competitiveness and has to be drastically supplemented by scale improvements, quality, technology and investment in critical processes to sustain cost advantages. The cost break up for the component industry in India is seen to be on an average 20% to 30% cheaper than Japanese suppliers, despite lower productivity. This is given as Chart 9.7.1.2, which shows that the Indian component industry is on an average 20% to 30% cheaper than Japanese suppliers despite lower productivity of at least 50-75 % below international standards^^.

Chart 9.7.1.2 - Cost Competitiveness of the Indian Component Industry versus Japan

The Indian Component Industry is 20% to 30% clleape r than Japanese suppliers, despite lower productivity Material and Labour Depreciation Overheads Profits Capital and Others Japan 30% 32% 4% 28% 5% India 55-60% 8-10% 5-8% 15-18% 10-12% Source: Recommendation for Development of Automotive Policy; SIAM Publication

The most vital focus the component industry requires is on quality. As reported by Automobile Component Manufacturers Association, over 170 of its members have already received ISO 9001 certification and 23 have received the QS certificate till 1999. There is a drastic improvement in quality standards. There are lot of examples of Indian suppliers becoming part of supply chain for leading OEM's (General Motors 329 and Ford) and also becoming global leaders in quality (Visteon, Delphi system, Sundaram Clayton, Sundaram fasteners etc. however more pressing is the problem of quality viewed from a different perspective. A.T.Keamey survey found defect rates in India, even among the better suppliers in the range of 1000-2200 parts per million^^ against the Japanese average of 100-200 parts per million. However the late 1990's there has been a decline in the Indian defect rates as Indian suppliers have sought to improve their quality standards. This has to be reinforced if Indians wants to be competitive global exporters. The component sector in the past has been heavily reliant on the manufacturers for product design ana drawing while neglecting their own capabilities. Much of this was forced by an inertial market, which did nothing in terms of product improvement. The Indian Auto Component industry began its modernization with the entry of Maruti and then the others like Daewoo, Hyundai, and Ford etc. It is to be seen that most of the technology improvements are being made by Indian players through technology and joint ventures leading to upgradation of product technology. All across the world, the automotive industry has long supply chains that are increasingly becoming tiered all across the globe. In India, till recently the present structure of multiple and cascading taxation presents an obstacle for system procurement and discourages the tiering of the supply chain. Thus Indian firms suffered from the disadvantage as compared to global competitors who have additional economic advantages in tiering. The A.T.Keamey Analysis reveals that up to 20-30% of all parts were uneconomically sourced due to central sales distortions, which have no MOD VAT (Modified Value Added Tax) relief.

Analysis of Certain Sectors for Critical Period 9.7.2 We will analyse the Component industry for a certain critical time period for the period 1992-1998. This period is analysed, as there was maximum change in this period. Also we want to see how changes have taken place on the production growth curve in its exponential period of growth. As can be seen from Table 9.7.2.1 and Tables 9.7.2.2. there has been a major change in the coverage and depth of the component industry. These Tables give us data about major component assemblies and how their production, capacity and the total value have changed over the years. ITius in essence all parts have shovm tremendous increase in both capacity and production over the period in question. Thus in 1992, the average capacity utilization of all parts got by taking the average of the capacity utilization of all components worked out to about 60.448%. The capacity utilization for most items was well below 50%. Thus companies built up huge capacities in the expectation of massive boost to the industry during the early years of the 1990's. It grew in 1997 to 61.888% but declined in 1998 to about 52.22%. Most of this decline is associated to an expansion in 1998 of the industry with more manufacturers coming in and the grandiose demand projections, which did not materialize or took time over the years. In 1997, for engine parts manufacturing units, capacity utilization had an average value of 63.90%, which declined to 56.95% in 1998 despite growing car sales and increase in production. Thus industry has added capacity over the time period of 1 year. For Drive Transmissions and Steering Parts, capacity utilization of the parts listed in Table 9.7.2.3, the average utilization of capacity was 72,87%, which declined very marginally to 70.152% in 1998. For firms manufacturing suspension and breaking 330 TABLE 9.7.2.1 -CAPACm', PRODUCTION AND VALUE OF AUTO COMPONENTS IN 1992 COMPONENT CAPACITY NOS OF UNITS PRODUCTION VALUEfOOORS) PISTONS 11501000 7 8622694 1583092 PISTON RNS 13150000 7 9709157 307850 PISTON RII'JGS 118600000 6 59813417 887896 CYUNDER UNERS 2643000 4 1117842 139385 GASKETS 294000000 3 74124236 416456 INLET AND EXHAUST VALVES 4583000 5 CAfRBURETTORS 5773000 5 1698728 465795 FUE-.L PUMPS 950000 1 120975 3149 FUEL PUMP NOZZLE HOLDERS 4973000 2 2356975 428700 FUEL PUMP NOZZLES 14080000 3 5785509 578921 FUEEL PUMP ELEMENTS 14790000 3 5684353 489522 FUlll PUMP DELIVERY VALVES 15665000 3 4792137 203340 RLTER ELEMENTS/INSERTS 15579200 5 138699967 487939 CRANKSHAFTS 330600 4 168979 289741 RADIATORS 900400 6 340830 640950 ST/iRTOR MOTORS 1795000 5 499560 735227 GENERATORS/ ALTERNATORS 1437000 6 556911 554655 VOLTAGE REGULATORS 2339760 2 614271 95537 DISTRIBUTORS 538564 2 614271 95537 3 VSPARKPLUGI #^i XfX f ^^^^^^JS 38450000 17830500 269634 CLLTTCH ASSEMBLY 1732000 7 521745 241757 CLUTCH PIATES 3781160 7 1148913 331947 TIE ROD ENDS / DRAG UNKS 6125000 5 1292279 187953 STEERING GEARS 871500 4 306590 733190 PROPELLER SHAFTS 708500 4 237000 229665 OIL SEALS 23318000 4 23468870 154667 WHEELS 3642640 2 SHOCK ABSORBERS 11025000 5 5488974 738396 AIR BRAKE ASSEMBLY 174000 1 BRAKE ASSEMBLY 561000 3 234900 706251 HEAD UGHTS 9770000 5 2543811 296810 ELECTRIC HORNS 1104000 3 173783 17273 WIPER ARMS AND BLADES 704140 1 211713 4768 DASH BOARD INSTRUMENTS 8983000 3 211713 467735 TYRE TUBE VALVES 64800000 2 204405 Source = Conptled from Automotive Corrponent Manufacturers AssociaBon Journal 331 TABLE 9.7.2.2 -CAPACITY, PRODUCTION AND VALUE OF AUTO COMPONENTS IN 1998 CAPACITY PRODUCTION COMPONENT NOS OF UNITS QTYNOS-OOO NOS OF UNITS QTY NOS '000 VALUE(CR RS) ENGINE PARTS PISTON 8 21367 6 15767 406 PISTON PINS 9 22057 6 17331 62 RSTON RINGS 11 125982 8 95993 236 CYUNDER UNERS 14 5311 4 2425 39 GASKETS 6 200000 3 113484 89 ENGINE VALVES 7 35100 6 21458 165 VALVE GUIDES 6 11100 2 3060 3 VALVE TAPPETS 9 8700 3 3412 5 VALVE SEAT INSERTS 1 1 VALVE COUECT 1 2 CARBURETORS 9 6762 6 4103 168 FUEL PUMP PETROL 4 530 2 261 6 OIL PUMP ASSEMBLY 7 2273 4 1477 35 FUEL PUMP DIESEL 5 2084 3 576 FUEL PUMP NOZZLES/HOLDERS 12 21763 1 238 FUEL PUMP ELEMEhTTS/VALVES 12 33555 2 130 FUEL PUMP INJECTORS .. 1 5 GLOW PLUGS/INDICATORS 1 12 FILTER / ELEMENT / INSERTS 21 35438 7 140 TIMING CHAINS 2 3500 1 56 FLYWHEEL RING GEARS 4 3616 2 1481 23 CRANKSHAFT 7 380 4 293 142 RADIATORS 17 2637 8 917 165 FAN ASSEMBLY ENGINE COOUNG 2 318 19 WATER THERMOSTAT 4 13KI 1 566 5 WATER PUMP ASSEMBLY 5 1810 4 1311 63 BIMEPAL BEARINGS 7 78881 5 60427 189 WATIiR PUMP BEARINGS 2 2700 1 1234 12 EXHAUST SYSTEM AND COMPONENTS 2 29 FUEUOILUNES 1 6 ELECTRIC PARTS STARTER MOTOR 9 2351 6 1102 185 GENERATOR 8 1960 6 1025 181 VOLTAGE REGULATOR 6 2151 3 423 7 DtSTRIBLn-OR 2 471 1 357 36 IGNITION COIL 7 2623 3 971 13 SPARK PLUGS 3 40560 1 29675 74 COMMUTATOR 1 2 FLYWHEEL MAGNETOS 5 1700 4 1611 60 OTHERS 97 DRIVE TRANSMISSION AND STEERING PARTS CLUTCH ASSEMBLY 10 2043 6 1676 104 CLUTCH PLATES AND DISCS 13 8533 7 2429 93 TIE ROD ENDS / DRAG UNKS 10 8410 4 5864 78 STEERING UNKAGES 2 27 STEERING GEARS AND SYSTEM 8 901 5 956 230 GEAR INCL CROWN WHEELS 26 47 12 36 484 PROPELLER SHAFT 17 2145 5 1579 51 UJ CROSS 7 1030 4 873 14 AXLE SHAFTS 20 2486 7 1120 114 COMPLETE AXLE WHEEL ASSAWBLY 7 425 1 32 AXLE HCXISING 3 70 332 OIL SEALS 14 85150 5 47 WHEELWHEEL RIMS 7 7124 4 4632 308 OTHERS 229 SUSPENSION AND BREAKING PARTS LEAF SPRINGS 18 227 10 123 348 SHOCK ABSORBERS 10 25520 7 13085 358 AIRBRAKES 2 344 1 151 BRAKE ASSEMBLY 3 630 3 457 BRAKE SHOE ASSEMBLY 2 16 BRAKE UNING AND CLUTCH FACING 15 27 4 21 178 BRAKE HOSES 1 2 OTHERS 89 EQUIR/ENT HEAD UGHTS 14 17519 8 8999 129 OTHER UGHTS 3 3196 35 HALOGEN BULBS 5 86480 1 25139 80 AUTO BULBS 2 IS WIPER MOTOR 7 1618 4 773 43 WIPER ARM AND BLADES 3 4685 1 WIND SHIELD WATER PUMP ASSEMBLY 2 318 9 ELECTRIC HORNS 11 7060 4 1874 22 SWITCHES 7 8649 88 DASHI30ARD INSTRUMENT 5 12733 3 7787 129 OTHERS 31 OTHERS HYDRAUUC PNEUMATIC EQUIPMENT 1 31 TYRE TUBE VALVES AND CORES 4 67000 2 35 FAN BELTS 1 29 SHEET METAL PARTS 9 276 PRESSURE DIE CASTINGS 4 77 PLAS-nC MOULDED COMPOUEtfTS 4 75 OTHERS 855 GRAND TOTAL 9255 Souros = Compiled from Automc

Conclusion and Deduction 9.7.3 There are several conclusions, which can be drawn from analysis of the data available to us. The important conclusion that are drawn are as under a) Urgent need to increase operation scale to global levels. This entails consolidation of a fragmented industry facing a low demand. This will allow increased investments in technology and Research and Development. Co- branding for product areas where scale economies are not critical b) Need to move industry towards a tiered structure. This will essentially require a rationalization of the Tax structure to prevent cascading and spill over effect of taxation. A shift to MODVAT (Modified Value Added Tax) to encourage Tiering through consolidation and lean management systems. c) Improvement in technology, skills, automation and essentially quality d) Take advantage of labour cost advantage to stave off threat from highly cost competitive China with even lower labour costs e) Boost to exports by building relationships with Tierl manufacturer and incentivising investment and technology transfer from them. Encourage OEM's to bring in their Tier 1 suppliers f) Focus on Tier 2 and Tier 3 products where India has cost advantages and slowly move to Tierl products g) Benchmark quality to gJobal standards by regular quality improvements. Indian defect rates are at present more than 10 times the globally accepted norms. h) Since OEM's generally can achieve only about 70% localization, the scope of exports further increases. There is need for labour intensive production with automation in critical areas. Need for government support in boosting exports. Localization policy followed by the government is vital. However with the advent of the WTO (World Trade Organization) regime this will loose meaning, hence the urgency for the manufacturers i) Curb on sale of fake and non-genuine parts to benefit legitimate manufacturers allowing them to invest more on technology. Research and Development 335 R]£FERENCE

1. Vehicle Markets of the Indian Subcontinent; DRI / McGraw Hill; 1995; pp24 2. Emergent Component Industries and the Way Ahead: An example of India; Anil Kumar; Motor Business Asia Pacific; 4*^ Quarter; 1995; EIU;; ppl6 3. Profile of Indian Automobile Industry; Association of Indian Automobile Manufacturers; February 1995; ppl36 4. Industry Reports on Two Wheelers(August 1995), Jeeps Cars and Tractors(December 1995) and Commercial Vehicles(January 1996); Information Products ana Research Services Private Limited; pp 63 5. Indian Automobile Montnly, Indian Automobile Industry and Indian Automobile- various issues; Morgan Stanley Investment Research; Japan and Asia Pacific; pp 42 6. Indian Passenger Car Industry - Perspectives to 2000; Confederation of Indian Industry; Research Department; December 1995; pp 14 7. Estimation of Total Road Transport Freight and Passenger Movements in India for the year 2000 AD; Final Report submitted to the Ministry of Surface Transport(Roads Wing); Government of India; Engineering Consultants Private Limited (ENCONS); January 1987; pp 34 8. SIAM database 9. Auto India - various issues over 1995 10. J.D Power Study Report as reported in Autocar India; July 1997 edn; pp 23 11. Overdrive magazine - various issues 12. Profile of the Indian Automobile Industry - 1998; SIAM Publications; pp 112 13. ACMA Database Facts and Figures; Ford and Toyota spent 2.7% and 4.3% of sales turnover respectively in 1997 14. DRI McGraw Hill, SIAM Automanl997 and AT Kearney Analysis;(only population with top 10% income considered. Indian cars are the Maruti 800 and the Esteem) 15. McKinsey Paper on the Indian Car Industry; pp 22 16. Report on Long Term Demand Projections for Automotive Vehicles; prepared for Government of India; Ministry of Industries by A.F. Fergusson and Company; 1984; pp 79 17. 'Industry Report on Jeeps, Cars and Tractors'; Information Products and Research Services Private Limited; December; 1995 18. J.D Power Study Report as amended in Autocar India; July 2000 edn 19. Report on Long Term Demand Projections for Automotive Vehicles; prepared for Government of India; Ministry of Industries by A.F. Fergusson and Company; 1984; pp 127 20. Report on Long Term Demand Projections for Automotive Vehicles; prepared for Government of India; Ministry of Industries by A.F. Fergusson and Company, 1984; pp 176 21. SIAM Research; Society of Indian Automobile Manufacturers Database 22. Worid Statistics, 1997-98. Total Exports as $230 billion of a total industry of SlOOObillion 336 23. Recommendations for Developing Indian Automotive Policy; Society of Indian Automobile Manufacturers; 1999; New Delhi; pg 9 24. ACMA Facts and Figures; 1996-97 & A.T. Kearney Analysis 25. ACMA Data; Exports are estimated to be RS 1.2 Billions in 1997-98 or 10% of combined sales of RS 120 billion. 26. A.T.Keamey Survey of Component Manufacturer; 1996-97; pp 9 27. The cost of Indian Labour is assumed at RS 60000 per annum. AT Kearney Analysis. 28. JICA Mininj and Industrial Development Studies Department of Japan; A.T.Keamey Analysis of Indian Component companies cost chain, pp 71 29. ACMA Facts and Figures 1996-97 & A.T.Keamey Analysis; pp 47