The Indian Automobile Industry has shown healthy growth from FY’08 to FY’13. High inflation, fuel prices and unfavourable interest rates, resulting in high cost of ownership, have affected car sales in FY’14. Domestic sales of Passenger Vehicle segment declined by 6.0 percent, Commercial Vehicle segment sales declined by 25.3 percent Three Wheeler sales declined by 10.9 percent when compared to FY’13. The Two wheeler segment on the other hand, has shown positive growth of 7.3 percent in FY’14.
Despite the fall in FY’14, over the next few years, solid but cautious growth is expected due to policies announced by Government in the interim budget and with improving affordability, rising incomes and untapped markets.
Passenger Vehicles (PV)
The PV market is primarily aspiration driven and the launch of new models will spur the growth of this segment. This combined with the advent of technology-inclined Gen Y, the future will see many high-end passenger vehicles. The launch of technology loaded models with attractive optional features will be the key to growth in this segment.
The developing public transport systems that are being put in place in the urban environment by the Government are proving an efficient mode of commuting into cities especially for the working population. This coupled with reduced parking spaces available has deterred the use of personalized transport by the working class.
Passenger Vehicles: Segment wise analysis
The Micro segment is expected to grow at a CAGR of 13.8 percent; the Mini segment will keep its pace due to the penetration in tier III cities and the rural segment and is likely to grow at a CAGR of 6.7 percent over the next five years (FY’14 - FY’19).
The Compact segment is likely to grow at a CAGR of 4.0 percent over the next five years. This segment is likely to be affected in the near future due to increasing preferences for compact Sports Utility Vehicles and Super Compact segment vehicles.
The Super Compact segment which is expected to see few more new launches is likely to grow at a CAGR of 10.3 percent over next five years. This segment is perceived to be value for money.
With a maximum number of new launches by almost all the OEMs in Utility Vehicles (UVs), this segment is likely to grow at a CAGR of 20.2 percent over the next five years. The SUV is seen as a status symbol and feeds the aspirations of the growing middle class and the affluent. Another factor is the availability of financing options which has brought the expensive SUV into the affordable range for the consumer. UVs also provide the required capacity to accommodate the large Indian joint family and with the multi-utility nature of the vehicle, it proves to be the perfect vehicle for the small entrepreneur.
Commercial Vehicles (CVs)
Due to surplus capacity in the trucking system, weak transporter viability, slow infrastructure projects, ban on mines and other pessimistic sentiments in the market, the Commercial Vehicle segment saw a decline of 20.2 percent in domestic sales in the year FY’14 when compared to last year.
The dual pricing of diesel will affect the Commercial Vehicle segment in a major way and many commercial vehicle operators will be hit hard at least until their prices are restructured.
But with growing infrastructure, like better roads and Mega Corridors, the path is open for high powered vehicles with better mileage and higher payload capacity. With fleet operators switching to Fleet Management Services to reduce the vehicle down time and increased efficiency by managing their routes real-time, these new vehicles will prove a boon to them as they come with these devices built in them by the OEMs.
Another factor in favour of growth is the evolution of urban areas that adopt the Hub and Spoke model which will pave the way for the use of Small Commercial Vehicles (SCVs) and Light Commercial Vehicles (LCVs) for end connectivity; leading to growing sales figures in these segments.
On the whole, the Commercial Vehicle segment is likely to grow at a CAGR of 6.4 percent backed by the growth of Small Commercial Vehicles and Intermediate Commercial Vehicles (ICVs).
Two Wheelers (2W)
The two-wheeler market has emerged as the most vibrant and transforming segment of the overall Indian automobile industry, witnessing an unprecedented growth. In rural areas, consumers look for versatility and ruggedness at affordable rates. Also, the roads are not well developed and are quite small paving the way for the growth of two wheeler sales.
In urban areas, increasing congestion within cities and the lack of parking space plays into the consumer’s mentality to choose a two wheeler. Even though many families have cars, they use two wheelers for their daily office commute. Overall, the two wheeler domestic market is likely to grow at a CAGR of 5.3 percent over the next five years.
Three Wheelers (3W)
India is the world’s foremost producer, consumer, and exporter of three-wheelers. Apart from the domestic demand, India has also emerged as an important export hub for three-wheelers with presence in some South Asian, African, and Latin American markets that are replicating the Indian three-wheelers story with rising disposable incomes but inadequate public transport systems.
The domestic three-wheelers passenger segment is set to benefit from product up-gradations (two-stroke to four-stroke, petrol/diesel to CNG, front engine to rear engine vehicles) as well as opening of fresh permits by various state governments which will drive the future of the three wheeler industry.
Despite the near-term headwinds, Frost and Sullivan expect the three-wheeler industry to report a moderate volume CAGR of 3.6 percent over the next five years. Long-term sales growth will be the highest in the passenger carrier segment, and lowest in the goods carrier segment due to intense competition from the SCVs.
The Indian Automotive Forecast is a Market Insight and is part of the Automotive & Transportation Growth Partnership Service program. Frost & Sullivan’s related research services include: Features in the Indian Passenger Vehicles, Feature-Price Analysis of Passenger Vehicles (PV) in India, Small and Light Commercial Vehicles Market in India, North American Class 1 to 8 Starters and Alternators Aftermarket, North American Class 4-8 Commercial Vehicle Brake Pads and Shoes Aftermarket, and Electric Motor Technologies for Electric and Hybrid Vehicles in China. All research services included in subscriptions provide detailed market opportunities and industry trends evaluated following extensive interviews with market participants.
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