Small cars have big potential: Survey

Even as Tata Motors' Nano went on display at the Auto Expo, a survey by Invest India Market Solutions (IIMS Dataworks) shows that as many as 12.8 million Indian households can be potential buyers for entry-level cars in the years to come, 1.6 million of them in 2008 alone.

This is more than double the entire annual car market of 1.2 million and indicates the potential market for competitively-priced entry-level cars, since this is the level at which Indian non-car owners typically enter the market in India.

Last week, Crisil Research said the Nano price point would see a 65 per cent increase in the number of families that can afford a car.

However, it forecast that at the significantly redefined threshold for car ownership in India, annual car sales have the potential to increase by 20 per cent over 2007-08. 
 

SMALL CAR, BIG MARKET
	Total  household  earnings of  Rs 2 lakh plus	Households  that own  a car	Households  that own only a  2-wheeler	Households  with  neither	Households that could  opt for Nano as first car	Immediate demand: Households actively  aspiring  for first car
Rural	6.72	1.4	3.29	2.04	5.33	0.61
Small towns	2.64	0.7	1.33	0.6	1.95	0.27
Class I towns	5.14	1.94	2.45	0.76	3.2	0.47
Super metro	4.51	2.11	1.68	0.72	2.4	0.25
Total	19.03	6.14	8.75	4.14	12.88	1.6
Source: IIMS Dataworks                                           (Figures in million)

India's entry-level car market is estimated at 400,000 units a year, primarily consisting of Maruti-Suzuki's 800 and Alto and some base models of the Hyundai Santro and Maruti's Wagon-R, cars that are priced below Rs 3 lakh to Rs 3.5 lakh on the road.

The Nano, which is expected to hit the market in September/October 2008, will be priced at roughly Rs 1.3 lakh (Rs 1 lakh excluding VAT and transport costs), promising to be the world's cheapest car.

Several other manufacturers "" Bajaj Auto, Ford and Honda among them "" are also planning entry-level car launches, but they are unlikely to be at price points as low as the Nano.

IIMS Dataworks, a research firm specialising in retail finance markets, conducted the survey between December 2006 and July 2007 before the Nano was displayed.

The Invest India Incomes and Savings Survey 2007 focused on a wide range of product categories with a car being one of them. Participants were asked to select items out of a detailed list that they wanted to own over the next 12 months.

The immediate potential demand for a car at 1.6 million units is based on non-car owner respondents who were asked whether they were aspiring to buy a car "" any car "" in the next 12 months.

The survey had a sample size of 1 million households, extrapolated to 215.9 million households in India with at least one earner.

The survey analysis suggests that the potential buyers of cars are households with an annual income of Rs 2 lakh and above that do not own a car.

The analysis considers all households that can afford a small car and do not currently own a single car. According to the survey, which had a sample size of nearly a million households, over 12.88 million households out of the 19 million households with annual income above Rs 2 lakh currently do not own a car (either new or second hand).

"In the case of households with annual income between Rs 1.5 lakh and Rs 2 lakh, there are 10 million households that own a two-wheeler, but do not currently have a car," said Sandeep Ghosh, executive director, IIMS Dataworks, adding that it is unlikely that there will be many households with high incomes who do not own a car.

The survey shows nearly 55 per cent of the 1.6 million demand is expected from rural India and smaller towns, with the near-term demand from the six super metros estimated at 0.25 million. Within this, as many as 0.8 million non-car households, who were planning to buy only a two-wheeler may now aspire for a car due to the lower price point for a car like the Nano.

If one were to assume that no household, with annual income above Rs 5 lakh would buy a small car, the near-term demand estimate is still very high at over 1.26 million units.