Hitting the auto brand-buyer sweet spot

Japanese and Korean car manufacturers are the most-sought after for their car brands globally as well as in India with the most dependable cars in India being the Hyundai Santro, i20 and Verna, Maruti Swift Dzire, Honda Civic saloon and the Toyota Innova utility vehicle in their respective segments. In the US, a major factor that favours Japanese auto majors over their counterparts in long-term dependability is their overall manufacturing process that leverages Kaizen involving continuous improvement, says Geoff Broderick, vice-president and fgeneral manager, Asia Pacific, of JD Power Commercial Consulting Shanghai Company.

With consumer preferences shifting, quality and safety aspects that were deciding factors in a car purchase till some time ago are now set to take a backseat. Factors like adaptability of a car to the consumer, its operational efficiencies as well as styling will play increasingly a key role.

While the outlook for the automotive sector is gloomy in 2013, JD Power officials consider any growth as good growth and believe that India still has a lot of great fundamentals for a substantial growth in the future. In terms of the overall dynamics, important considerations will be critical environments, legal system, consumers, their growing wealth as well as the number of young people that will contribute towards a consistent growth in the sector till 2020. India’s automotive industry is seen as a market with a long-term promise. “The problem is that the potential of what it could be is significantly higher. That is really the gap in the unrealised potential that we see as a loss for India,” says Broderick.

Interestingly, OEMs which will grow notwithstanding the downturn will be the ones who hold a large market share in India as well as a large share of resources, possess greater flexibility and a larger capital base than competition. Leading this auto brigade, will be the volume players, namely Maruti Suzuki, Hyundai Motor India and Tata Motors which have been around for a long time.

While the bigger players are hit to an extent, their ability to survive is that much higher as their overall scale of operation is much larger and companies like Hyundai and Maruti play in multiple segments so they can hedge their risks. Furthermore, they have a fairly strong presence across the country, says Mohit Arora, executive director, JD Power Asia Pacific. “Companies that have the right products like Mahindra are better positioned to take care of the downtrend.” So a tip here: have a strong product and a strong product pipeline.

Adding to the industry’s woes was the recent Budget announcement that has hiked excise duties on SUVs. In terms of percentage growth, the SUV market with a low base will still experience growth, say JD Power officials. However, being a specialised segment, it will not be a core growth area. Arora maintains that the three percent additional excise duty on SUVs impacts the market sentiments more with ex-showroom price translating into an additional 5-6 percent. However, the impact on monthly instalments will be limited and since 75 percent of purchases are financed, the impact will be fairly small. Retail has already been sluggish with footfalls low at dealerships due to the slowing market.

So despite the slowdown, what are car buyers looking for? Ideally, a customer based at Delhi may nurse higher expectations of good value for quality, and more innovative features that were considered luxury in the past. In rural areas, with many first-time buyers, there are similarities between India and China where the focus is just the price. In more affluent cities in both nations, buyers may buy a second car as a status symbol, says Arora.

Additionally, in-car electronics could trigger off quality issues so consumers need to be informed. Extreme discounting by car manufacturers in a bid to beat the downturn akin to what occurred in the US and Europe during 2008-09 is not healthy. It is unhealthy for the brand and for the company, so OEMs need to be very cautious, says JD Power.