Reinventing the Wheels

There was a time when the best car models in India came with Maggi- Hot Wheels- thats what they were called and I remember myself trying to raise a great collection of Ferrari’s, and Lamborghini’s …. those were the days when there was just an Ambassador or Fiat to choose from- or if you were the trendy types- maybe the Standard was also an option. But thats it.

Reinventing the wheel

Then came the era of Maruti 800- probably the single most sold model in India (or maybe the world)…

Today the Indian auto market is abuzz with launches of new models and introduction of many foreign brands, one after the another. So what has changed apart from the higher personal disposable income which leads to increased demand at all levels… the passenger car segment has been growing at around 8% – absolutely in sync with the economy’s growth rate.

Apart from the rising demand, what has made this sector grow fast is the supply side innovation. The rate at which most of the auto-players have been introducing new variants and models has been unprecedented- and i suspect the reasons can be found more at the shop floor than the board rooms. What I mean is that its not that the Indian customer has suddenly become more demanding and looking for variety…its just that the manufacturers have realised that its easy (meaning doesnt cost too much) to launch a new variant by changing just 20-30% of the design.

I remember from my Engg days that a major fixed cost in car manufacturing is the cost of the die (the cast used to make the sheet metal body)…. it is this cost which gets spread over many more units- whenever a new variant is launched (which has similar doors, hoods etc)… Look at Dzire (the new car from the Maruti stable) …my nephew tells me its a Swift with a boot and he cant be further away from the truth… The same is true for Indigo and Indica.

Apart from the design changes, each model also comes in

– multiple engine capacity options – since most manufacturers just assemble the engine at the plant, creating multiple options is not adding to the cost

– variations in interiors – again since these are sourced from local vendors, its a question of negotiating hard to get more varities at the same per unit cost

– Multitude of colors to choose from- Gone are the days when Henry Ford had said- I can give you any color so long as it is black !- coz the bottleneck in the assembly line is no longer the paint shop (& black in Ford’s days was the fastest drying color)

All this supply side flexibility has ensured that we have products & variants at multiple price points, a never before seen phenomenon in the Indian industry. This has resulted in:

– A not-so-clear path towards upgradation. Gone are the days when one bought a Maruti 800 and gradually migrated to a Cielo. These days a high end Santro can cost you as much as an entry level Esteem .

– There is no default choice for the first car. With Tata’s Nano being pitched at Rs 1 Lac, the concept of entry-level cars will undergo a radical change. But even before that the Indian consumer is spoilt for choice

– This is my hypothesis but I feel that this has resulted in faster re-selling of cars (at least the high-end ones). I have seen numerous examples where someone bought a Honda City only to realise that Skoda launched Octavia, and this guy rushed to sell his City & bought the Octavia. Which in turn means a faster growing amp; moving second hand car market (again – I am tempted to assume, the skew is towards high-end cars)

– Higher marketing spends- with Hyundai roping in Shahrukh & Preity, Toyota getting in Amir Khan, the auto marketing business has gone to the Big Daddies- and these agencies and their campaigns dont come cheap- so am sure the customer is paying the price for some celebrity endorsing their car- given that I dont think Santro drivers are really that smart 🙂 (pun intended !)

– Move towards aggregated servicing – I read somewhere that the ex MD of Maruti- Mr Khattar has moved on to start his own label of service centers that would primarily cater to non-mass-market models. I think its a very smart business proposition, given that there are many more models now, with smaller # of owners in each location. If all of these manufacturers were to open their own service chains- it would lead to a huge post-sales cost and not doing that would lead to even bigger consumer dissonance. So am sure Mr Khattar would get enough strategic investors from Honda, Skoda, Toyota and the likes.

All in all, its good to see so much action in autoland, but all this frenzy would lead to many early deaths- I am reminded of Elantra (from Hyundai) which I remember v clearly sold exactly 3 units in the country in a quarter- before they decided to pull back the model. I will watch out for the cut-off for other players to take the same decision…… till then keep Vroommmmminggggg !