For At Least One In Four Indians To Own A Car?
By Jagdish Khattar
One in four Indians owning a car is a grand vision that requires a 35-fold growth in our car-to-population ratio. But it is far less daunting than it might seem at first. Between the most affluent 1 per cent who own a car and the bottom 25 per cent who will not consider buying one for many years, there is a large middle India that has to be tapped.
It might appear that the best way to tap this segment is by making cars cheaper to own and run. There is no disputing that. Affordability, whether through higher incomes, lower taxes or cheaper cars, will certainly take us closer to our vision. But that is only one part of the picture.
My concern today is not people who cannot afford a car. My concern is those Indians-and there are millions of them-who can afford a car, but do not own one. Nearly 27 million Indians paid income tax a year ago. Most of them can afford a car. If we also include evaders, the number of Indians who can afford a car would be even more. By another thumb rule cited internationally, a family is a potential car buyer as soon as its annual income exceeds the price of a car. This, too, suggests a huge demand for cars in India. Yet there are no more than 7.5 million cars on Indian roads today.
It may seem intriguing that 45 million-plus of these middle Indians have not bought a car yet. In recent years, we have tried to reach out to these people across the country through more sales and service outlets, more salesmen, more collaboration with finance and insurance companies, and even by setting up schools to teach driving. We have not got all 45 million of them to buy cars yet, but the effort has provided fascinating insights.
I find there are many Indians who can afford to own and run a car, but carry a mindset that they cannot. Besides, given that they have lived through years of shortages and that many car companies still do not have outlets in the hinterland, many Indians carry the mindset that availability, too, is a problem.
They are perhaps now waiting for a cheaper car. Or more likely, they are waiting for someone who can convince them that they can afford a car, assure them that their maintenance bills will be far lower than they fear and hand-hold them through the purchase process. We have to do the hard work of reaching out to them, kindling in them the joy and comfort of travelling in a car, teaching them to drive and standing by for them as they take a few tentative steps towards four wheels.
Middle India is waiting for a cheaper car, but also for a more responsive and sensitive car industry that can effectively market and package a car to them. They are waiting for a car salesman who effectively communicates to them the need and purpose of a car, a car mechanic they can rely on and a car insurer they believe is on their side. They are waiting for the car industry to move beyond the cliché of customer delight, and develop empathy for their needs and apprehensions.
Where we have been able to reach out to these people, work on them, win their trust and nudge them into a new mindset, we have discovered a railway gardener here, clerks and mechanics there, and thousands of school teachers everywhere, who can be persuaded to buy a car.
My field team in Punjab was out to generate customer leads at a rural mela recently when a group of farmers turned up at the stall. Cash in hand, they wanted to buy Maruti cars. They were offered contact details of the nearest dealership, but would have none of it. They wanted their cars there and then. It turned out that they were apprehensive of finding their way through a swank urban dealership, and preferred delivery of their car in the comfort of a rural mela.
There is plenty of such anecdotal evidence to suggest that there is, indeed, a huge potential waiting to be tapped in India. But those customers have to be approached on their terms, on their turf, and in their manner and language.
The car industry is one of the biggest ad spenders today. Most of our advertising appeals, if at all, to the more affluent, inducing them to either upgrade faster or acquire an additional car for the family. We are fighting for the attention of that top 1 per cent, and as in any competitive market, persuading those prospects to choose our individual brand over our competitor's. We have mostly been selling to the converted.
That is fine as far as it goes. But if we have to get one in four Indians to own a car, we have to focus our efforts on prying open new markets and customer segments. We may have to first sell them a car, before we begin to sell them a Maruti car or a Tata car or a Ford car.
One million new passenger vehicles were sold in India last year. In four years, these one million passenger vehicles will be in the pre-owned market, with sharply lower price tags. If, in the meantime, organised players clean up the pre-owned car market by bringing in global practices in pricing, quality and warranty, that could be the quickest way to put a million Indian families on four wheels.
Alongside this, efforts to improve affordability will obviously accelerate motorisation in India. Tata Motors' proposed Rs 1-lakh vehicle will reach out to segments low down in the pyramid. Car companies in India, which have so far succeeded in bringing down costs of operations, will now try work with suppliers to compress time-to-market for new models. The worldwide trend towards commonisation of platforms and collaborative research among manufacturers will help bring down costs in India as well.
Just as customers are altering their mindsets and companies are revamping operations to reduce costs and improve quality, the government, too, has evolved a more positive approach to the car industry. The tax burden on passenger cars, like on most "luxury goods", was as high as 60-70 per cent some years ago. It has come down since, and will continue to do so for some time.
All this will serve to unleash a demand explosion. India has 40 million households with an annual income between Rs 90,000 and Rs 2 lakh. ncaer estimates that only 4 per cent of them own a car. While a broad-based GDP growth will help, a few thousand rupees more in these 40 million wallets, or a reduction in car costs by way of lower taxes and more efficient processes, could take us closer to our vision of one in every four Indians owing a car.
Developments in real estate will be another external factor that could impact car growth. Cars compete less with durables and more with housing for a share of the middle-class wallet in India. If India's efforts at urban renewal succeed, and housing becomes more affordable and transparent, it would free some disposable income for purchase of cars.
The history of the car industry suggests that multiple factors act in tandem to fuel a boom. Among the well-known factors are income growth, lower taxes, deepening of finance and investment in road infrastructure. All these, when they coincide, lead to an astonishing growth in motorisation.
But there are other factors, too, like customer care and assurance, clever marketing and a wow product. Although less known and intangible, these factors are equally important today to enable one in four Indians to own a car. Long before Henry Ford unleashed the Model T, his company had the foresight to put in place a sound dealership network, with proper systems for sale and service of cars. At a time when most automobile companies relied on one-off salesmen and fly-by-night operators to peddle their cars, this was a key differentiator that contributed to the Model T revolution.
Likewise, while we know that the Model T was cheaper than all others, it was also lighter, easier to drive and roomier, with seating for five as against the Model N, the popular two-seater that preceded it. In his book, Wheels for the World, Douglas Brinkley describes how the Model T was as good on country roads, uphill and through mud, as it was on the paved city streets.
Henry Ford priced the Model T so low that "no man making a good salary will be unable to own one". But the clincher was that while the Model T enabled city dwellers to enjoy the Lord's pastoral delights, rural folk could "use it to pull hay rakes, mowers, grain binders, and even to butcher hogs". Clearly, the Model T was as much about affordability as it was about clever marketing and customer assurance.
There is another hallmark of a car boom: it has to be inclusive. Without cleaner cars, more and better roads, and vastly improved traffic management, we may be faced with community resistance long before we even double our car-to-population ratio. In the early years of the automobile revolution, irate farmers covered roads with broken glass and logs, or simply dug ditches, to prevent movement of the horseless carriage. Others got laws enacted to prevent movement of cars on roads, while a few fired their guns to frighten upstart car owners, or just shoot them down.
Present-day hostility may not be as fatal, but is no less intense. People yet to buy their first car expect car makers to deliver on affordability, while civil society wants safety and emission technology at par with Europe. The car maker will have to, increasingly, strike a balance between growing individual aspirations for a car alongside the community's reluctance to pay the social price for it.
If one in four Indians has to own a car, the Indian car industry has to stop taking a limited view of its role and contribution. While government policies and macro-economic factors will act as enablers for growth, we cannot forget that it is always the car industry that transforms economies and macro landscapes, and rarely the other way round.
The author is Managing Director of Maruti Udyog Ltd