Petrol Stop

Car companies drive into rural India

Wednesday, 14 December 2011

14 Dec 2011;business-standard.com:Sharmistha Mukherjee:New Delhi: Use non-posh outlets to serve non-metro and rural customers who reflect rising income levels and unmet demand. Car makers are reaching out to consumers in rural centres as high lending rates slow urban demand. Though overall passenger vehicle sales are down over the first eight months of the current financial year, sales from rural markets are up 10 per cent, encouraging automobile companies to strengthen their distribution in non-metro areas. “Market conditions are extremely sluggish. High interest rates have dampened consumer sentiment. Entry-level buyers are deferring purchases,” said Mayank Pareek, managing executive officer (marketing & sales) of market leader Maruti Suzuki India Ltd, while noting the contrast with sales in non-urban centres. Most car companies are responding to this by opening regional sales centres or non-metro sales centres and touch points for specific products, non-posh outlets that keep one or two cars on display. Hyundai Motor India Ltd, second largest seller after Maruti, set up 750 sale touch points to retail its new small car, the Eon. Tata Motors, which has 80 sale touch points for the Nano, in non-metro centres, is working on putting in place another 120 outlets by the end of the financial year. Why in rural? Analysts say rural demand is looking up due to rising income levels and low penetration of passenger vehicles. “There has been a hike in the minimum support price (for produce). Moreover, most districts have seen above-average rainfall,” said Abdul Majeed, partner in PricewaterhouseCoopers in charge of the automobile practice. “Both central and state governments have been pushing a lot of housing schemes in these areas. The rising income levels have boosted confidence among consumers in rural areas.” Though India is the world’s second-fastest growing car market after China, passenger vehicle ownership here is among the lowest in the world, at 12 vehicles for every 1,000 people. While nearly a third of people living in metros own personal transport, the penetration in rural areas is half, at 15 per cent. This has led industry observers to believe a major proportion of growth would come from these areas. “Tier II, III and IV cities are increasingly becoming significant. As many as 60 cities in India will have a population of over a million people by 2020. Our strategy from dealer, distribution, sales and service perspective is to grow aggressively there,” said Michael Boneham, president and managing director of Ford India, subsidiary of Ford Motor Company, USA. Ford India sells four models, with the Figo proving a game-changer for it last year. As much as 60 per cent of Figo sales come from semi-urban areas.