CHAPTER 1

EXECUTIVE SUMMARY

1
Indian Automobile Sector

The Indian economy has grown at an annual rate of more than 8% over the last five years and the
industrial production has made an outstanding contribution to this growth. Auto industry was
licensed, controlled and restricted in the early years of independent India and had a limited
contribution to the economy. But post delicensing in 1991 the industry has grown at an average
rate of 17%. The industry currently contributes about 5% of the GDP and it is targeted to grow
five fold by 2016 and account for over 10% of India’s GDP. Automotive mission plan (AMP)
expects the industry to reach a turnover of $150-200 billion in the next ten years from the current
$45 billion levels. Over the last five years the production of four wheelers in India has increased
from 9.3 lakh units in
2002-03 to 23 lakh units in 2007-08 reporting a CAGR of 20%. Vehicle manufacturers are
increasingly adopting an outward looking approach and exploring new markets & territories,
ranging from Middle East, Europe, South Africa, Algeria, Latin America, Russia, etc. Exports
have increased immensely from 84,000 units in 2002-03 to 280,000 units in 2007-08. Crisil
estimates the passenger vehicle exports to cross 7 lakh units by 2011-12.

2
Commercial Vehicle Industry
The commercial vehicle (CV) Industry in India, as is the trend internationally, is cyclical, with
periods of volume growth leading to investments in fleet capacity and subsequently to periods of
correction. In spite of the inherent cyclical nature, the long-term growth prospects for the
industry remain closely linked to the development of road infrastructure, growth in gross
domestic product (GDP) and industrial production. The Indian CV industry is currently going
through demand correction following one of the longest up-cycles in its history. The Industry
which grew at a rate of above 25% over 2001-07 has grown by just 5% in FY08. The long up-
cycle was driven by strong economic growth and investments in road infrastructure, besides
favorable regulatory changes and a benign financing environment. The industry, on its part, has
used its period of growth and the resulting financial surplus to invest in product development and
improvement in operating efficiencies.
These efforts have resulted in industry extending its presence into newer geographies and exports

3
have increased at a CAGR of almost 40% over the last five years. Going forward this could help
in mitigating the effect of down cycle to an extent.

Passenger vehicle Industry

The past few years have witnessed a rapid change in all the segments of the Indian passenger
vehicle industry. International competition, increase in the number of participants, and the need
to counter pressure on margins have made it a buyer's market rather than a seller's one. Today
customers have wide model choices and the rising income levels, especially among young adults,
coupled with the low equal monthly installments (EMIs), have made vehicle purchase affordable.
With increased foreign competition in passenger vehicles, domestic participants are scrambling
to catch up and compete by investing in R&D and improving overall efficiency. Automobile
manufacturers are now intending to provide cars in every segment with widened price range and
reaching more potential customers.

Industry growth

Over the last five years light commercial vehicles (LCV) and medium/ heavy commercial
vehicle (M/HCV) segment have grown at a CAGR of 27% and 17% respectively. Although
growth of these segments has shown similar trend, volume growth in the M/HCV segment has
been more volatile. The demand for M/HCV goods carrier segment mainly depends on higher
capacity addition at the fleet operator level and also prone to severe demand shocks. The LCV
segment, though cyclical, usually exhibits steadier demand patterns on account of wide usage
range.

4
CHAPTER 2
Objective
&
RESEARCH METHODOLOGY

5
 Objective Of the study

• To study the marketing strategies of Automobile

sector.

• To analyze the changes in the marketing strategies of

Automobile industries due to recession.

6
Research Methodology:

• Studying different automobile companies and try to find

out there earlier marketing strategies and list out changes
that took place due to recession in there marketing plan
through direct interaction or other means.

• To visit various websites of different automobile

companies and different research websites.

• To collect information from various sources like

Direct - Questionnaires etc.

Indirect – newspapers , magazines etc.

7
CHAPTER 3

8
 CRITICAL REVIEW OF LITERATURE

Automotive sector probably out on leave for 2009

The automotive industry in Turkey, like so many other countries throughout the world, entered a
period of stagnation in the second half of 2008 as the global financial crisis, coupled with a
resulting drop in demand, slowed the industry's production lines.

Tens of thousands of workers relying on work in the sector to feed their families have lost their
jobs and the gloomy situation is expected to get even worse in 2009. It is estimated that just in

9
Bursa, a major center of auto manufacturing in Turkey, nearly 55,000 people will be laid off this
year. Experts say the crisis will get even deeper in 2009 and the first positive signs will only be
seen by early 2010. Many companies have already started to grant their workers temporary leave
as they halt production for two-to-four-week periods.

The automotive sector rose as the best performing and highest earning industry in the country
over the last decade, dethroning textiles and home appliances, in both domestic consumption and
exports; however, it has also suffered the most contraction in the midst of the current crisis
environment. Some auto manufacturers in Turkey have slashed working hours in their plant by 24
percent, while others have cut 30 percent of their labor force. Nearly 2,500 automotive workers
lost their jobs each month in 2008. The sector had set a target of producing 1.3 million vehicles in
total for the year, but the most recent data indicate that the actual figure will total only 1.15
million.

Automobile Manufacturers' Association (OSD) head Ercan Tezer said the industry will likely
have grown by just 6 percent in 2008 and that in 2009 it will see a recession of between 15 and
20 percent. In other words, only 450,000 cars will see the end of production lines this year.

Automobile Distributors' Association (ODD) President İbrahim Aybar, on the other hand, states
that although they can do nothing to bolster external demand, they still hold the necessary
instruments to empower domestic markets.

The automotive supply industry also doesn't have bright projections for the year ahead. It had
seen $13.5 billion in production, earned $8.5 billion from sales abroad and employed 200,000
people in the first 11 months of 2008. As a result of worsening global economic conditions, this
critical business has been passing through hard times and will probably continue to face peril in
2009. Even now reports are arriving on a daily basis about hundreds of people losing their jobs in
the sector. Automotive Parts and Components Manufacturers' Association (TAYSAD) President
Ömer Burhanoğlu stresses that the contraction in the auto business has done major damage to
parts suppliers, as well.

10
 02 January 2009, Friday

SERKAN ŞAHİN

Automobile Sector - The Indian Scenario!

Introduction:

During early 60s & 70s, automobiles came largely in twos.

In scooters, you had a Lambretta or a Vespa.
In motorcycles, you had a Bullet or a Java.
In cars, you had to choose between an Ambassador and a Fiat.
In trucks, it was either an Ashok Leyland or a Tata.
In tractors, it was between a Swaraj and a Mahindra.

This situation reflected the India of yester years. Economic reforms and deregulation have
transformed that scene. Automobile industry has written a new inspirational tale. It is a tale of
exciting multiplicity, unparalleled growth and amusing consumer experience – all within a few
years. India has already become one of the fastest growing automobile markets in the world. This
is a tribute to leaders and managers in the industry and, equally to policy planners. The
automobile industry has the opportunity to go beyond this remarkable achievement. It is standing
on the doorsteps of a quantum leap.

The Indian automobile industry is going through a technological change where each firm is
engaged in changing its processes and technologies to maintain the competitive advantage and
provide customers with the optimized products and services. Starting from the two wheelers,
trucks, and tractors to the multi utility vehicles, commercial vehicles and the luxury vehicles, the
Indian automobile industry has achieved splendid achievement in the recent years.

“The opportunity is staring in your face. It comes only once. If you miss it, you will not get it
again”

11
On the canvas of the Indian economy, auto industry maintains a high-flying place. Due to its
deep frontward and rearward linkages with several key segments of the economy, automobile
industry has a strong multiplier effect and is capable of being the driver of economic growth.

A sound transportation system plays an essential role in the country’s rapid economic and
industrial development.

The automotive sector is one of the core industries of the Indian economy, whose prospect is
reflective of the economic resilience of the country. Continuous economic liberalization over the
years by the government of India has resulted in making India as one of the prime business
destination for many global automotive players. The automotive sector in India is growing at
around 18 per cent per annum.

“The auto industry is just a multiplier, a driver for employment, for investment, for technology”
The Indian automotive industry started its new journey from 1991 with delicensing of the sector
and subsequent opening up for 100 per cent FDI through automatic route. Since then almost all
the global majors have set up their facilities in India taking the production of vehicle from 2
million in 1991 to 9.7 million in 2006 (nearly 7 per cent of global automobiles production and
2.4 per cent of four wheeler production).

The cumulative annual growth rate of production of the automotive industry from the year 2000-
2001 to 2005-2006 was 17 per cent. The cumulative annual growth rate of exports during the
period 2000-01 to 2005-06 was 32.92 per cent. The production of the automotive industry is
expected to achieve a growth rate of over 20 per cent in 2006-07 and about 15 per cent in 2007-
08. The export during the same period is expected to grow over 20 per cent.

The automobile sector has been contributing its share to the shining economic performance of
India in the recent years. With the Indian middle class earning higher per capita income, more
people are ready to own private vehicles including cars and two-wheelers. Product movements
and manned services have boosted in the sales of medium and sized commercial vehicles for
passenger and goods transport.

12
Side by side with fresh vehicle sales growth, the automotive components sector has witnessed
big growth. The domestic auto components consumption has crossed rupees 9000 crore and an
export of one half size of this figure.

Auto industry in crisis

Sources in the industrial estate said the slowdown has hit vehicle manufacturers such as Volvo,
which supplies high-capacity trucks for use in the mining industry, which has slowed down
significantly because of slackening demand from China.

Ashok Leyland recently announced a three-day week at its facilities till December. Tata Motors
has also announced a limited shutdown of its facility in Jamshedpur. The ripples can be felt in
Peenya.

S. Biswas, who runs a small unit which manufactures metal components for several auto
companies, said his output volumes have shrunk by half in the last few weeks. He expects the
“situation to worsen significantly by December.”

Mr. Shetty said as many as 400 small units in Peenya cater to European companies, which had
been badly hit in recent months. Of this half are engineering units. “Demand has collapsed, this
is carnage,” he remarked.Asked how units are coping, Mr. Shetty replied, “The standard mantra
is being repeated — cut costs, inventories and wastage — but I do not know how that will help.”
He said companies have “already started cutting labour costs.”

An SME supplying dentists’ chairs to clients in Europe, and located in Kamakshipalaya, has shed
a third of its workforce of 450, he said.

Mr. Shetty’s “gut feeling” is that things are particularly bad now because industries had
squandered resources in “speculative activity during better times by investing in such things as
real estate.” “In hindsight, it was a mistake to assume that the Indian economy could grow
forever at 9-10 per cent.”

13
V. SRIDHAR

Source: http://www.hindu.com/2008/11/15/stories/2008111554050400.htm

Automotive sector probably out on leave for 2009

The automotive industry in Turkey, like so many other countries throughout the world, entered a
period of stagnation in the second half of 2008 as the global financial crisis, coupled with a
resulting drop in demand, slowed the industry's production lines.

Tens of thousands of workers relying on work in the sector to feed their families have lost their
jobs and the gloomy situation is expected to get even worse in 2009. It is estimated that just in
Bursa, a major center of auto manufacturing in Turkey, nearly 55,000 people will be laid off this
year. Experts say the crisis will get even deeper in 2009 and the first positive signs will only be
seen by early 2010. Many companies have already started to grant their workers temporary leave
as they halt production for two-to-four-week periods.

The automotive sector rose as the best performing and highest earning industry in the country
over the last decade, dethroning textiles and home appliances, in both domestic consumption and
exports; however, it has also suffered the most contraction in the midst of the current crisis
environment. Some auto manufacturers in Turkey have slashed working hours in their plant by
24 percent, while others have cut 30 percent of their labor force. Nearly 2,500 automotive
workers lost their jobs each month in 2008. The sector had set a target of producing 1.3 million
vehicles in total for the year, but the most recent data indicate that the actual figure will total
only 1.15 million. Figures to be disclosed in the coming weeks are expected to show that nearly
500,000 cars were manufactured in Turkey in 2008.

Automobile Manufacturers' Association (OSD) head Ercan Tezer said the industry will likely
have grown by just 6 percent in 2008 and that in 2009 it will see a recession of between 15 and
20 percent. In other words, only 450,000 cars will see the end of production lines this year.

14
Automobile Distributors' Association (ODD) President İbrahim Aybar, on the other hand, states
that although they can do nothing to bolster external demand, they still hold the necessary
instruments to empower domestic markets.

The automotive supply industry also doesn't have bright projections for the year ahead. It had
seen $13.5 billion in production, earned $8.5 billion from sales abroad and employed 200,000
people in the first 11 months of 2008. As a result of worsening global economic conditions, this
critical business has been passing through hard times and will probably continue to face peril in
2009. Even now reports are arriving on a daily basis about hundreds of people losing their jobs in
the sector. Automotive Parts and Components Manufacturers' Association (TAYSAD) President
Ömer Burhanoğlu stresses that the contraction in the auto business has done major damage to
parts suppliers, as well.

02 January 2009, Friday

SERKAN ŞAHİN İSTANBUL
Source: http://www.autoblogs.in/2008/04/automobile-sector-indian-scenario.html

15
The American Automobile Industry

The big wheels of the US auto makers are whining and seeking a government bailout. A handout
is more like it. It will probably happen, knowing the wimps we elected to serve the country.

I've heard and read so much rhetoric about all this that I'm sick to my stomach. Thousands of
people will be out of a job. The economy will collapse. Blah blah blah.

I'm willing to bet the foreign auto makers, with factories in the US, would be able to absorb most
of the employees canned as the result of reorganization or failure of the US auto industry. If not,
oh well. I'm sure they'll find employment elsewhere.

Economic Greed

Greed is the real reason the recession started in the first place. Greed fuels economies and
destroys them as well.

Stupidity is another factor. The US automotive industry has had more than 30 years, since the
OPEC wake up call in the 1970s, to make better vehicles. It took the invasion of foreign cars,
mostly Japanese, to make them start working on more fuel-efficient vehicles.

What happened? In 1998, before I retired from the military, I read an article in Popular
Mechanics that spoke of how some California law would require zero-emission cars by 2004.
Hydrogen fuel was supposed to be the solution. Well, it's 10 years later and where are these zero-
emission cars that run on hydrogen?

They got greedier than usual and lazier than usual. They've been milking the system for as long
as they can get away with it.

16
Economic Stimulus Packages

President Bush pushed two packages through in an 8-year period. President-Elect Obama is
planning on pushing another one through.

These stimulus packages don't do a heck of lot for the average American, but they kiss the royal
asses of the businesses and keep them afloat. They don't need to stay afloat!

We Needed a Recession

Recessions are a good thing. They're not good for employment obviously, but why are people
whining? The US has had one of the lowest unemployment rates in the world.

Recessions weed out the companies that shouldn't be in business in the first place. If companies
can't maintain the process of continuous improvement, instead of continuous profit, they deserve
to die a quick and merciless death.

There you have it. The only solution to the problems faced by companies during the recession is
to let them figure out for themselves how to survive the recession or die.

Sure, things are tough all over. It isn't the first time and it won't be the last. The government
needs to stop giving away the taxpayers' money. After all, it's our money.

Source: http://www.untwistedvortex.com/2008/12/12/the-economic-recession-things-are-
tough-all-over/

Marketing Strategies in Recession

17
The global economy has gone into a recession. Already news of layoffs, production cuts and
downscaling has flooded the Indian media.
The global credit crunch and subsequent meltdown will have its effects on the Indian market. The
next three quarters are going to give marketers sleepless nights. For the past decade, Indian
marketers were facing a vibrant consumer market which was heavily supported by an aggressive
credit market. Banks were luring consumers with loans and prompting them to buy as if the world
were about to end.

The euphoria is now dying down and the credit crunch is also going to take a toll on the consumer
market. Housing markets are already facing the heat. The banks have tightened their lending
which is going to have a big impact on the growth of the economy since the yesteryear growth of
the consumer industry was largely attributable to the availability of easy credit.

On 18 November 2008, Finance Minister P. Chidambaram asked the industry to cut prices to
boost consumer demand. Surprisingly the industry did not welcome the suggestion. Instead
automobile manufacturers and real estate companies asked the government to make credit
available to customers at cheaper rates. It was a clear signal that India INC was in a state of
denial about the slowdown. It is time for marketers to accept the fact that India is moving into
slower growth than previously expected. And consumers are not going to splash out as they did in
the last five years.

Marketers have to take the initiative to boost demand. The relevance of marketing is greater in a
recession than in any other stage. It’s time to get back to the good old definition of marketing:
meeting customer needs profitably.

Time to introspect

18
A recession is a good period for marketers to take an objective look at their brand portfolio.
When there is euphoria, value takes a backseat and consumers indulge. When the going gets
tough, consumers tighten their purse-strings and value takes the driving seat.
This is the time to see which brand in your portfolio offers the greatest value to the consumer. If
your sales are going down sharply, it’s time to re-engineer the brand's value proposition. Such
introspection will also lead to a lot of ideas for new products. The changing needs of customers
will create new opportunities for designing better offerings.

Invest in brands

Marketers’ initial response to a recession is to cut marketing cost. On the contrary, this is the time
to invest in brands. You will be heard when everyone else is shutting their marketing mouth.
Bargain with the media over rates and invest in building your brand. Investing in brands does not
mean that one should spend heavily on expensive advertising and promotions. During the cash
crunch, marketers have to be innovative in identifying the most cost-effective media.
Cost-effective options like public relations and social media should be exploited to maintain the
brand’s share of voice.

Only the paranoid survive

India is not yet in a recession but this is the time when marketers should be paranoid about a
recession. Only those brands will survive which are prepared for a recession even during the
sunny days. So meet your brand managers and ask them what to do when India moves into a
recession. Have plans B, C, D and E ready.

If India does not move into a recession, that is great news. If it does, then your brand will be
ready.

Cut costs

19
Even if you are selling a premium brand, cut costs as if the world is going to end. When cutting
costs, you should have a clear understanding of which costs should be eliminated. Usually
marketers’ knee jerk reaction is to cut investments rather than costs. Instead cut costs and not
investments. Invest in your brand, put out a lot of promotional campaigns but cut cost in media,
raw materials etc. Strive to lower your brand's break-even points to new lows.

Stick to the core

In a slow economy, it’s imperative that marketers stick to the core proposition of their offerings.
It is vital to go back to the consumers and check whether they consider the brand relevant in the
current environment. If customers do not feel that the brand’s value proposition is meeting their
new requirements then it’s time for the brand to re-invent itself to become relevant. Change the
marketing mixes if necessary to survive the downturn.

Cash is king

We have moved from an economic situation where credit was the buzzword into one where cash
is king. This is applicable both to consumers and organisations. The much-celebrated consumer
boom until last year was founded largely on cheap credit. Now both consumers and companies
are facing the credit crunch. It’s still not too late to hoard cash. Restructure the finances to get the
cash flowing in and be miserly in letting go of cash. A wise strategy is to convert receivables into
cash quickly. Renegotiate large contracts to save money.

Sales promotion holds the key

20
Sales promotion is often considered the enemy of a brand. Too many free gifts and offers are
bound to hamper the long-term equity of a brand. But extraordinary times call for extraordinary
measures. It is important that firms should survive the slowdown to reap the benefit of long-term
brand equity. For firms facing the problem of piling inventory, sales promotion is the only option
to survive.

However, sales promotions can be done creatively to lessen the impact on the brand’s equity. The
golden rule is to roll over the stock quickly to get the cash flowing in.

Even during a recession, consumers have the urge to buy. Give them an offer that they cannot
resist.

Partner your stakeholders

A company may not be able to survive a recession on its own. So partner the stakeholders, be
they lenders, customers, employees or channel partners. Create a system of trust and kinship and
face the downturn together. Talk to the suppliers and creditors and have the action plan ready to
face the tough times together. It will be worth it.

Focus on value

A slowdown in the economy often creates a bloody price-war. Fearing the flight of customers,
brands often go on a price-cutting spree which leads to the worst form of competition – price. In a
price-war, only big firms with lots of cash will win but that too at a heavy cost.

It is better for firms to concentrate on value creation rather than price. In a price-oriented strategy,
firms concentrate on reducing price to win customers whereas in a value creation strategy, firms
concentrate on creating value for customers. The idea is to bypass the price focus by
concentrating on value.

Put yourself in the customer’s shoes

21
Marketers get their best answers when they listen to the customers. Customers will tell you how
to beat a recession. The only thing is: you have to ask them in the first place. At least understand
them. So when customers start tightening their purse-strings, so can you. They will also tell you
how much they can pay you. Listen to that and do it.

It is true that it is riskier to invest in new products during a recession. If you cannot innovate then
cut cost. If your company is the lowest cost producer then you have a better chance of survival

Source: http://www.adclubbombay.com/index.php/section-blog/81-columns/778-marketing-
strategies-in-recession

22
 Chapter 4
INTRODUCTION

23
24
 Automobile Industry in India

Automobile Industry in India has witnessed a tremendous growth in recent years and is all set to
carry on the momentum in the foreseeable future. Indian automobile industry has come a long
way since the first car ran on the streets of Bombay in 1898. Today, automobile sector in India is
one of the key sectors of the economy in terms of the employment. Directly and indirectly it
employs more than 10 million people and if we add the number of people employed in the auto-
component and auto ancillary industry then the number goes even higher.

The automobile industry comprises of heavy vehicles (trucks, buses, tempos, tractors); passenger
cars; and two-wheelers. Heavy vehicles section is dominated by Tata-Telco, Ashok Leyland,
Eicher Motors, Mahindra and Mahindra, and Bajaj. The major car manufacturers in India are
Hindustan Motors, Maruti Udyog, Fiat India Private Ltd., Ford India Ltd., General Motors India
Pvt. Ltd., Honda Siel Cars India Ltd., Hyundai Motors India Ltd., and Skoda India Private Ltd.,
Toyota Motors, Tata Motors etc. The dominant players in the two-wheeler sector are Hero
Honda, Bajaj, TVS, Honda Motorcycle & Scooter India (Pvt.) Ltd., Yamaha etc.

In the initial years after independence Indian automobile industry was plagued by unfavourable
government policies. All it had to offer in the passenger car segment was a 1940s Morris model
called the Ambassador and a 1960s Suzuki-derived model called the Maruti 800. The automobile
sector in India underwent a metamorphosis as a result of the liberalization policies initiated in the
1991. Measures such as relaxation of the foreign exchange and equity regulations, reduction of

25
tariffs on imports, and refining the banking policies played a vital role in turning around the
Indian automobile industry. Until the mid 1990s, the Indian auto sector consisted of just a
handful of local companies. However, after the sector opened to foreign direct investment in
1996, global majors moved in. Automobile industry in India also received an unintended boost
from stringent government auto emission regulations over the past few years. This ensured that
vehicles produced in India conformed to the standards of the developed world.

Indian automobile industry has matured in last few years and offers differentiated products for
different segments of the society. It is currently making inroads into the rural middle class
market after its inroads into the urban markets and rural rich. In the recent years Indian
automobile sector has witnessed a slew of investments. India is on every major global
automobile player's radar. Indian automobile industry is also fast becoming an outsourcing hub
for automobile companies worldwide, as indicated by the zooming automobile exports from the
country. Today, Hyundai, Honda, Toyota, GM, Ford and Mitsubishi have set up their
manufacturing bases in India. Due to rapid economic growth and higher disposable income it is
believed that the success story of the Indian automobile industry is not going to end soon.

Some of the major characteristics of Indian automobile sector are:

• Second largest two-wheeler market in the world.

• Fourth largest commercial vehicle market in the world.
• 11th largest passenger car market in the world
• Expected to become the world's third largest automobile market by 2030, behind only
China and the US.

The business of selling cars is changing. New competitive rules will apply. With these changes
comes a shift in power.

Who will be the winners and losers in the revolution that is radically reshaping the marketing,
distribution and selling of automobiles? Will the vehicle manufacturers and their franchised-

26
dealer networks be able to overcome years of inertia and complacency to pioneer and execute
new concepts that will strengthen and extend the value of their brands? Or will nimbler, more
imaginative retailers or software companies get there first?

The transformation of the business of selling cars and trucks is happening before our eyes at an
incredible pace -- promising to change forever an industry that has long been noted for its high
costs, poor service and extremely unpleasant selling process.

Auto manufacturers have competed fiercely among themselves to drive out cost and meet
consumer needs for cheaper and better cars and trucks. Now the survivors face new threats from
outside the industry that might thwart their renewed interest in building strong, lasting
relationships with their customers.

Entrepreneurs have dissected the cost-value equation and come up with new retail concepts.
Their stories have been persuasive enough to attract hundreds of millions of dollars in public
equity investment and persuade dozens of fiercely independent car dealers to sell out. Internet
technology has lowered entry barriers for other entrepreneurs with new ideas about helping
customers find, evaluate and buy new vehicles. These patterns are consistent with revolutions in
other consumer durables markets that effectively transferred market power from manufacturers
to retailers.

In response, vehicle manufacturers finally are getting serious about marketing, and about
confronting the weaknesses embedded in their traditional franchised-dealer distribution channels.
The manufacturers want to expand their participation in the customer life-cycle value chain to
improve profitability and grow in markets that have been largely stagnant. This changes the basis
of competition from designing and making good products to providing services and managing
consumer purchase and ownership experiences for which the products themselves are only partly
responsible.

Consumers are the only clear winners in this battle. While we are not sure which vehicle
manufacturers will survive, we are confident that winning will require a better understanding of
the life-cycle value equations of both cars and buyers, and the development of innovative
strategies to capture that value.

27
FORCES OF CHANGE

From the days of Henry Ford's production line, the automobile industry has been based on a
"supply-push" philosophy -- a strong bias toward "filling the factories" to cover high fixed costs.

Dealer networks were created as logical extensions of the "supply-push" model. The networks
were designed to hold inventory, leverage private capital (without threatening the manufacturers'
control) and service and support what was then a less reliable and more maintenance-intensive
product. Those networks generally were built around entrepreneurs focused on a defined
geographic area, selling one or at most two brands.

This distribution model has been remarkably resistant to change. Historically, dealer networks
have become ingrained and protected over time by a web of habits, contracts, regulations and
laws. In the United States, state franchise laws limit the manufacturers' ability to act unilaterally
to revoke or consolidate franchises. In Europe, strong national distribution laws and other rules
help protect the established channel. Even the new dealer networks created by the Saturn
division of the General Motors Corporation and the Lexus division of the Toyota Motor
Corporation with such fanfare during the past decade or so have accepted the fundamental
model. They have achieved their superiority in channel-driven customer service by avoiding
mistakes (such as locating too many dealers too close together) and institutionalizing best
practices in customer care.

Despite its longevity, the traditional dealer channel leaves many people unhappy. High customer
acquisition costs motivate dealers to convert store traffic to sales using aggressive tactics that
extract differential margins based on customers' willingness to pay. Frequent well-publicized
rebates have taught buyers to mistrust sticker prices and negotiate from cost up, rather than
sticker down. As a result, dealers often find themselves competing not against another brand, but
against a same-make dealer across town. This acute competition has almost bid away dealer
profit on the sale of new passenger cars in the United States (with some profits still available on
sales of trucks, sport utility vehicles and luxury cars).

28
Shrinking dealer margins do not translate into happy customers: Most customers (approximately
four out of five) dislike the purchase process, and many still come away feeling cheated and
mistreated. This strong antipathy is largely responsible for the rapid growth of Internet-based
services that offer alternative means of gathering information on cars, soliciting price quotes and,
in some cases, conducting transactions.

29
VISION FOR THE FUTURE

Now that we see serious cracks in the walls protecting the traditional automotive distribution
model, what will the future bring? Both the underlying drivers of change in automotive retailing
and the trends already under way help answer that question. In addition, it is helpful to compare
the automobile industry with other industries that have experienced distribution-channel
evolution and look at the lessons they learned.

Most consumer-durable industries have undergone substantial distribution-channel evolution

resulting from changes in economics, regulations or technologies. Each one has unique
circumstances, but we can see three relatively common, distinct stages in these channel
restructurings:

Stage One: This is marked by major improvements in value delivered, mostly reductions in cost.
Usually the cost reductions stem from consolidation and rationalization in the channel as better
concepts or bigger players drive out marginal or small players. The bigger players use their cost
advantage to reduce prices and often to improve service, variety and convenience.

Stage Two: Here channel evolution is focused on meeting the needs of specific customer
segments. Channel functions are unbundled and restructured into more efficient or more
appealing formats for defined groups of customers. Customer value is further enhanced through
lower prices, better service or greater variety.

Stage Three: This brings dramatic new paradigms not just for distribution but for the entire
value chain. Full-service leasing ("power by the hour") in the heavy-duty-truck market is an
example of this type of game-changing concept.

30
We anticipate five major changes in future automobile distribution patterns
and practices:

1. Multiple channels and formats will coexist to satisfy different market segments. Channels
are distinct paths between a manufacturer and a customer through similar economic entities (in
new car sales, for example, traditional dealers vs. factory-direct Internet sales or a multi-brand
discount outlet). Formats are distinct combinations of points of sale, service offerings and
business processes within a general channel definition (for example, the Lexus format versus the
Chevrolet format). We expect much more variation in channels and formats in a physical sense
and more distinct positionings in terms of the purchase and ownership experience they provide,
further shifting the basis of competition from product to services and brand attributes.

Undoubtedly, the traditional dealer channel will continue to play a major role, although most of
the innovation and volume growth will occur elsewhere. In many other consumer-durables
markets, multiple channels with different value propositions coexist quite happily. (See Exhibit
III.)

2. The six separate businesses under the roof of the traditional dealership will be
unbundled. The integrated model -- new-car sales, used-vehicle sales, finance and insurance,
service, parts, fieets -- was established early on when automobile retailing was still a new
industry. In today's world it makes little sense. Different operational structures will be required
to serve a variety of customer needs and economics.

3. The cost of distributing and marketing automobiles will be cut significantly. New formats
and channels will discipline the current system to drive out non-value-adding cost. Dealer
consolidations may unlock substantial economies of scale in back-office functions and
purchasing leverage. Much larger savings are possible, however, by driving out inventory;
reducing investment in brick-and-mortar and real estate investments, and optimizing the delivery
of services.

4. Marketing and distribution will concentrate on establishing durable customer

relationships. Customer acquisition costs are high and going higher; it is logical for

31
manufacturers and their channels to work harder to hold on to the customers they have. We see
these relationships developing on two axes: "follow the car" and "follow the customer."

The "follow the car" axis will take manufacturers more actively into the second and third
transactions in a vehicle's lifetime. Used-car certification programs are a "follow the car" concept
increasing in popularity today as a means of supporting initial sale prices.

The "follow the customer" axis means building more direct relationships with a targeted set of
customers to define their needs, develop tailored marketing programs and stake out unique brand
positions. Identifying these customers and keeping them happy will require substantial
investments in market-understanding capabilities that go far beyond the functional, demographic
and pyschographic information that most manufacturers study today.

5. Manufacturers will seek and attain much closer contacts with consumers. We have no
doubt that someone will figure out the riddle of consumers' needs, aspirations and experiences as
they relate to cars; the tenuous part of this prediction is that manufacturers, and not other channel
players, will get there first. Manufacturers are surprisingly -- if not shockingly -- cut off from
their consumers today.

Their dealer partners spend much of their energy figuring out ways to disguise the product-push
allocation system in a way that conceals true market demand from the manufacturer.
Manufacturers spend small fortunes on advertising, sponsorships, customer clinics and surveys
but continue to introduce market duds.

Internet technology enables more effective and efficient direct contact between manufacturers
and their ultimate customers. If, however, manufacturers fail to exploit this and other
technologies to establish meaningful relationships with consumers, more powerful channel
intermediaries will gain the upper hand and end up dictating customer needs to their suppliers --
the manufacturers.

These transformations will not be easy, and many of today's players will fight them aggressively.
But the revolution in automotive retailing has begun, and now that it is under way it will be
impossible to stop and nearly as difficult to contain.

32
FORMING A STRATEGIC RESPONSE

Given this view of the future, what should a manufacturer or major channel player do?
Appropriate responses are to some extent situation-dependent, of course, but we believe the three
stages of channel evolution observed in other industries provide valuable insight into what is and
will be required to prevail in the automotive industry.

In fact, first-stage channel evolution activities are rampant in automobile retailing in the United
States and Europe, and second-stage changes have begun to emerge for used cars. We expect that
participants who fall behind in this evolutionary process will suffer severely, particularly as more
and more of the value creation and differentiation in the industry occurs downstream. The future
winners in the automobile industry likely will be the ones that drive third-stage evolution.

Accordingly, we recommend the following strategic responses consistent with the three stages of
channel evolution and the future automotive distribution vision described above:

1. Aggressively and systematically pursue functional improvement beyond the factory gate.
The most prominent opportunity is cost.
2. Develop a vision of a desired end-game distribution channel strategy and begin making
progress toward that vision, taking care to achieve consistency between the long-term
vision and short-term functional improvement agendas.
3. Build the means to create and capture much more of the "downstream" value associated
with the automobile -- and, in so doing, strive to innovate "game-changing" approaches
to the business.

FUNCTIONAL IMPROVEMENTS

33
In the conventional dealer networks, tremendous improvement opportunities exist along two
basic functional paths: reducing costs and raising customer satisfaction. Most manufacturers and
many large channel players are jumping at these opportunities, given their magnitude. However,
these players tend to select a limited number of programs, and they typically concentrate on
single functional improvements independently or on a single functional path.

A better approach is to address systematically the whole realm of possibilities with an integrated
view of benefits within and across specific functions. This is not easy. Even programs with
moderate scope and ambition typically require reforming entrenched business philosophies;
coordinating several organizational groups with disparate incentives; managing complex and
imposing legalities, and facing up to dealers resistant to change. But manufacturers must
recognize that new players unencumbered by these constraints are raising the bar and traditional
players must reach higher or fall behind.

Based on our experiences and analyses, we estimate that about 7 percent of the total cost to serve
consumers, or nearly one-quarter of automotive marketing and distribution costs, can be reduced
based on a typical traditional dealer operation. (See Exhibit IV.) The cost reductions derive from
three sources:

1. The consolidation and rationalization of channel activities to achieve economies of scale

and eliminate inefficient operations. Large numbers of small competing dealerships
impose significant cost penalties.
2. The unbundling of dealer businesses, for instance used-car selling, to optimize the
operating model for a specific business.
3. The application of best practices across outlets. Given the wide variation and the resulting
large differences in efficiency and effectiveness in operations among dealers, the
application of best practices is a powerful cost-reduction lever.

Here are some examples of potential functional improvements:

34
Reduce inventory costs. Dealers can cooperate among themselves and with the manufacturers
to pool inventory in regional centers. Also, analytical methodologies, information- systems tools
and best practices can be used to evaluate the dealer-level sales history to determine the best
amount and mix of vehicles, including option packages, to hold in inventory. Finally, to improve
future demand visibility and forecasting accuracy, dealers can use improved information systems
and marketing techniques to track customer and sales-promotion information, lease-renewal
marketing campaigns and historical data on sales-promotion effectiveness.

Leverage purchasing power. Dealers can also capitalize on economies of scale. The economies
result from lower costs in areas such as financing, advertising, management personnel, payroll
handling, insurance, supplies, administrative functions and parts purchases. The reported cost
savings from these economies alone can be as high as 20 percent of a dealer's total costs. B.B.
Hollingsworth Jr., chairman of Group 1 Automotive Inc., one of the leading consolidators in the
country, says that his company has "discovered more economies-of-scale savings than [it]
initially expected."

Manage used-car values. Most manufacturers today have some sort of certified used-car
program, although the programs vary in effectiveness. These programs are critical to managing
the risk of large losses from infiated lease residuals that have become commonplace, and to
minimizing the huge cost of incentives.

There is a direct link between the value of the used car and new car prices for the same model. In
one case for two comparable high-end sedans, we found a difference of 8 percent in the used-car
price between the make with a certified used-car program and the one without, despite the fact
that they were priced the same when new. This used-car relative discount was then refiected
directly in the new-car pricing differential between the two models in subsequent years.

Unbundle used-car sales. A large-scale operation designed specifically for used cars can
achieve efficiencies relative to the conventional dealer's used-car format. These include
economies of scale in areas such as advertising, management, personnel, facilities and systems.
In addition, there is the obvious savings of a lower-cost location. Joint ownership and operation

35
by dealers and manufacturers can make an unbundled used-car operation plausible for existing
franchised dealers.

Use best practices to sell cars. The traditional selling approach for new cars is replete with cost
(and effectiveness) opportunities. The car-buying process entails six successive phases:
continuous, subconscious information intake; active, focused information collection; test driving;
vehicle selection; purchase/negotiation, and post-purchase support. Manufacturers and dealers
typically use expensive shotgun approaches to these phases; alternative, more cost-effective
information exchange mechanisms are available for each.

These include information technology tools and approaches such as:

• Direct marketing databases

• Kiosks for interactive customer information exchange, vehicle selection, pricing,
delivery-date promise, order checking and "soft offers" (warranties, financing, insurance,
service packages, etc.)
• Internet sites for some of these same functions

36
Benefits include reduced mass-media advertising expenditures, more effective targeted
marketing and reduced sales force resources for almost every phase of the process.

Use best practices in service and parts. Techniques for parts inventory management, service
personnel staffing practices, service bay scheduling and repair and maintenance procedures
typically vary greatly from one dealership to the next. Systematically identifying the differences
and meticulously implementing revised practices results in an average parts and service cost
reduction of 15 percent to 20 percent with only nominal investment.

37
Increase customer satisfaction. Customer satisfaction and loyalty are rich veins of potential
functional improvement. Manufacturers' efforts are usually unsuccessful when they try to bribe
the channel to improve customer service. Good performers in the channel end up getting paid for
what they are already doing and the poor performers undertake short-lived, superficial steps to
"manage the measurements." Customer service in auto retailing is mostly about executing the
basics well -- fixing cars right the first time, keeping commitments, offering conveniences like
pick-up and delivery where feasible. Service advisors and computer-driven follow-up calls will
not regain ground lost to sloppy execution.

DISTRIBUTION CHANNEL STRATEGY

Cost and customer-service improvements are necessary but not sufficient to transform auto
retailing channels. Realizing the full potential of these programs is not possible without a
reasonable view of the different customer segments that should be targeted; the appropriate mix
and level of marketing and distribution functions needed for each segment, and the best portfolio
of distribution formats and channels to reach the targets.

Just as specific groups of customers have their own product requirements, different consumer
segments have their own requirements for the purchase and ownership experience. These
requirements can be effectively targeted with channel, format and "soft offer" package variations
such as service contracts, financing or sales incentives. Ultimately, the consumer-segment
requirements will drive the service requirements and in turn help determine the best cost and
operating structure for the specific distribution format and customer-value proposition.

Creating purchase and ownership experiences to meet the needs of specific consumers has two
other significant implications. First is the need for parallel formats and channels in a given
region, each with its own pricing and bundle of service offerings. Parallel sales channels can
range from the traditional dealer to the Internet or to direct sales. Similarly, parallel service
channels could be created through specialized quick-fix workshops, independent dealers and do-
it-yourself stores/garages. (See Exhibit VI.) Parallel channels and formats raise the possibility of
channel confiict and the need for expanded skills to manage and reduce it.

38
The second implication of serving multiple, service-based customer segments is the need to
avoid cannibalization. For example, a Mercedes "A" class owner with a limited guarantee and no
branded service must be recognized as such and managed appropriately. This requires a system
for identifying and distinguishing the "soft offer" packages sold to individual consumers.
Mercedes is testing such a system in the form of a chip card. The chip card stores a description of
the "soft offers" purchased and requires an explicit payment for additional services.

Creating a more fiexible and targeted mix of channels and formats will be hard to do. But it will
also require manufacturers to collect continuous and rapid feedback for new retailing ideas and
approaches, consistent with a strategic path that is fiexible enough to change as the organization
learns over time.

DOWNSTREAM VALUE CREATION

The biggest winners in the automotive channel evolution will be those that drive substantial
value improvements by creating real innovations in the retailing of vehicles. In many other
industries, distributors and retailers have driven and benefited from channel evolution at the
expense of manufacturers.

The cost-reduction potential in the traditional network is huge. But even more exciting is that
more than 90 percent of the profits associated with a car or truck occur after the first sale.
Innovative ideas that tap this potential may well dominate the evolution of the automotive
channel. Such innovations can be achieved by recognizing the causal drivers of the value and the
linkages among them. This new life-cycle value paradigm represents one way that a leading-edge
car company might approach the problem of creating value through its marketing and
distribution activities:

39
 • Most vehicle manufacturers offer a variety of "soft offer" services to complement their
products --financing, insurance, extended service contracts and the like -- in a standard
package rather than crafting high-value bundles tailored to specific consumer
purchase/ownership segments.
• Leasing is one of the best ways to package and market "soft offer" services, but
manufacturers have also begun to rely on short-term lease programs to reduce inventory
peaks (first for new cars but also increasingly for used cars).
• Many vehicle manufacturers have adopted certified used-car programs to support retained
values as their lease portfolios and residual-value risk have grown. However, such
programs are ineffective without a concentrated effort to manage the supply of both new
and used vehicles.
• The need to manage supply leads to order-to-delivery initiatives. These offer two
potential benefits: a reduction in new-car inventory levels throughout the supply chain,
and, perhaps more importantly, sharp reductions in the cost of sales-incentive programs
over the inevitable peaks and troughs of the sales cycle. But these benefits cannot be
realized fully without managing used-car inventories as well.
• Similarly, order-to-delivery systems require more and higher-quality data about the state
of the market through enhanced dealer systems that are especially critical to supporting
selling, merchandising and promotions processes.
• The quantity and quality of information collected at the dealer interface level is key to
developing and maintaining an actionable customer database and accompanying
marketing-decision support systems, replacing the somewhat primitive socio-
demographic data that most vehicle manufacturers rely upon today.

In the heavy-truck industry, the advent of full-service leasing ("power by the hour") was a game-
changing shift in value creation and capture. Alternatively, the models developed to sell the Dell
Computer Corporation's or Gateway's personal computers directly to consumers fundamentally
altered the competitive arena in favor of the innovators. Our research indicates that a major
portion of the leading companies in shareholder-value creation have innovated new models of
distribution channels.1 In some industries it has been a manufacturer (for instance, Dell), and in
other cases it has been a retailer (for instance, Home Depot Inc. or Wal-Mart Stores Inc.).

40
Notably, it is either one or the other, but not both, that has led the way and prospered, and it is
typically a single company that captures the benefit. Most other competitors and partners suffer
as a result.

What might such a game-changing revolution be in the automotive context? Marketing and
selling extended-mobility service to consumers as opposed to pushing new cars? Life-cycle
management of automobiles through multiple transactions? Selling cars and support services
directly to consumers? We're not sure, but evidence suggests that only those companies that are
experimenting with such innovative concepts have a chance to be the future leaders of the
industry.

ANTICIPATED CHANGES

Change and innovation are the lifeblood of most retail businesses, but the automobile retail
industry has been remarkably resistant to transformation. As a result, the industry suffers from an
outdated and expensive channel, and most consumers feel short-changed and ill-treated in the
bargain.

This situation is changing. Automobile retailing is evolving at an unprecedented rate. At one

level the future implications are clear. These include multiple alternative formats and channels;
greater unbundling of dealer businesses; increased value through the channels (improved service
and selection at a lower cost); more emphasis on life-cycle relationships, and probably tighter
relationships between manufacturers and consumers. Specifically who will win and lose is much
less clear. The odds are not with the manufacturers, but the game is not lost. To win they must
shake off old habits and practices and then visualize and implement revolutionary ways to sell
cars.

Charles E. Lucier, Leslie H. Moeller and Raymond Held, "10X Value: The Engine Powering
Long-Term Shareholder Returns," Strategy & Business, 3rd Quarter 1997, pp. 21-28.

41
 Chapter 5
Major companies & there
production Areas

42
43
 Chapter 6
MARKET SHARE &TREND OF
PRODUCTION

44
Market Share of passenger vehicles

45
46
COMMERCIAL VEHICLE PRODUCTION

47
TWO WHEELER PRODUCTION

48
The automotive sector is growing strongly in both
domestic and exports markets

Indian automobile industry has been performing well both in the domestic and the international
markets. Automobiles - Domestic Performance The production and domestic sales of the
automobiles in India have been growing strongly. While production increased from 4.8 million
units in 2000-1 to 8.5 million units in 2004-05 (a CAGR of over 15 per cent), domestic sales
during the same period have gone up from 4.6 million to 7.9 million units (CAGR 14.2 per cent).

49
CHAPTER 7
GLOBAL TRENDS IN AUTOMOBILE
INDUSTRY

50
Asia
China

In China, the government reduced taxes related to automobile purchases in order to spur flagging
sales in 2008. In January 2009, Chinese auto-manufacturer Chery reported unprecedented
monthly sales.

India

In February 2009, the State Bank of India reduced interest rates on loans related to new
automobile purchases. A downturn in automobile production compared to 2008 contributed to
the bank's decision to lower interest rates.

For the first few months of 2009, Tata Motors conducted a widespread marketing campaign
leading up to the debut of the Tata Nano automobile. The low cost of the Nano, billed as "the
people's car," is part of the company's strategy to improve automobile sales impacted by the
credit crisis.

Japan

The Toyota Prius is one of Toyota's Hybrid Fuel efficient vehicles which are in short supply
With high gas prices and a weak US economy in the summer of 2008, Toyota reported a double-
digit decline in sales for the month of June, similar to figures reported by the Detroit Big Three.
For Toyota, these were attributed mainly to slow sales of its Tundra pickup, as well as shortages
of its fuel-efficient vehicles such as the Prius, Corolla and Yaris. In response, the company has
announced plans to idle its truck plants, while shifting production at other facilities to
manufacture in-demand vehicles On December 22, 2008, Toyota declared that it expected the
first time loss in 70 years in its core vehicle-making business.

51
Loss of $1.7 billion, in its group operating revenue, would be its first operating loss since 1938
(Company was founded in 1937). Toyota saw its sales drop 33.9 percent and Honda Motor by
31.6 percent.

On 5 December 2008 Honda Motor Company announced that it would be exiting Formula One
race with immediate effect due to the 2008 economic crisis and are looking to sell the team.

Honda has predicted that there may be reductions among part-time and contract staff. Upper
management bonuses would also be reassessed and directors in the company will take a 10
percent pay cut effective January 2009.Nissan, another leading Japanese car manufacturer,
announced that it also would be slashing production and will reduce its output by 80,000 vehicles
in the first few months of 2009.

In December 2008, Suzuki Motor Corporation, Japan's second biggest car manufacturer,
announced that it will cut production in Japan by about 30,000 units due to falling demand. The
company is expected to face its first profit drop in eight years for financial year ending in March
2009.

Reported in Bloomberg on Dec 23, 2008, that Mitsubishi Motors is to widen production cuts on
falling demand. The Japanese maker of Outlander sport-utility vehicles, will scrap the night
shifts at two domestic factories as the deepening global recession saps auto demand. The
carmaker will halt the night shift at its Mizushima plant, excluding the minicar line. Nighttime
work at the Okazaki factory will stop from Feb. 2. The cuts are part of Mitsubishi's move to
reduce planned output by 110,000 vehicles in the year ending March because of tumbling sales
in Japan, the U.S. and Europe. Japan's vehicle sales may fall to the lowest in 31 years in 2009,
according to the country's automobile manufacturers association. Mitsubishi will also halt
production of passenger cars on every Friday next month at the Mizushima factory in western
Japan. The Okazaki plant in central Japan will close every Saturday in January and for another
five days.

52
Toyota recently announced on Dec 22, 2008, it expects to barely break even this year and slashes
profit forecasts amid sales slump. The Japanese automaker, often held up with Honda as a
success story for the rest of the auto industry to follow, said it expects a slim profit margin of
US$555 million for the year ending in March 2009. Toyota had originally been projecting a
massive profit of $13.9 billion for that period. Their sales in the United States were down 34 per
cent last month and were down 34 per cent in Europe as well. They are expecting a loss which
would be the equivalent of about $2 billion (CDN)." Toyota President Katsuaki Watanabe said
the impact on the company from the struggling global economy has been "faster, wider and
deeper than expected." "The change that has hit the world economy is of a critical scale that
comes once in a hundred years," Watanabe said, speaking in Nagoya. Facing its first loss in
nearly sixty years, Toyota is seeking loans from the Japanese government.

Russia

In December 2008, protectionist tariffs of 30% were announced on cars imported into Russia,
described by prime minister Vladimir Putin as vital to save jobs in the domestic auto
industry.The tariffs provoked protests across Russia. Riot police broke up protests in the city of
Vladivostok, which is the main port of entry for Japanese cars.

South Korea

South Korean automakers have been generally much more profitable than their US and Japanese
counterparts, recording strong growth even in depressed markets such as the United
States.Despite a global economic slowdown, Hyundai-Kia successfully managed to overtake
Honda Motor in Summer 2008 as the world's 5th largest automaker, climbing eight rankings in
less than a decade.

Nonetheless, South Korean automakers were not immune to this automotive crisis and in
December 2008 Hyundai Motor Company had begun reducing production at plants in the U.S.,
China, Slovakia, India and Turkey because of sluggish demand. The company missed an earlier
projection of 4.8 million units for 2008 and announced a freeze of wages for administrative
workers and shortened factory operations as demand weakens amid a global financial crisis.

53
South Korea's fourth largest automaker, SsangYong Motor, owned by the Chinese automobile
manufacturer SAIC (Shanghai Automotive Industry Corporation), is the worst effected company
in this crisis as it manufactures mainly heavy petroleum consuming SUVs. The carmaker
recorded its fourth straight quarterly losses by the end of 2008 with red ink of $20.8 million in
the third quarter. Also during the July to September period, sales dropped 63 percent to 3,835
vehicles. Its production lines have been idle since Dec. 17 as part of efforts to reduce its
inventory. The automaker has halted production twice previously this year. In December 2008,
SAIC gave an ultimatum to the SsangYong union to accept its restructuring plan or face the
parent company's withdrawal, which, if implemented, would mean certain bankruptcy.

However, the South Korean Ministry of Knowledge Economy said that there will be no liquidity
provision at the government level for five automakers - Hyundai, Kia, GM Daewoo, Samsung
Renault and Ssangyong."We have no plans to inject liquidity into the carmakers, a ministry
official said. "It has been repeatedly made clear.

Europe

In Europe where car sales had also drastically decreased, consideration was being given to
financial support for the automotive industry, particularly in France, Germany and Italy. German
Foreign Minister Frank-Walter Steinmeier and Jean-Claude Juncker, Luxembourg's Prime
Minister and head of the Eurogroup of single currency nations, discussed the possibility of a
common rescue package to be agreed by all the EU member states.

France

On November 20, 2008, French automobile manufacturer PSA Peugeot Citroen predicted sales
volumes would fall by at least 10% in 2009, following a 17% drop in the current quarter. As a
result, it planned to cut 2,700 jobs. On the 11 February 2009, PSA announced it would cut
11,000 jobs world wide, however none of these are expected to be in France.

54
Renault announced a net profit for 2008 of 599 million euros for the 2008 financial year. This
was a 78% drop in profits from the 2007 financial year. European sales fell 4% and world wide
sales 7%, forcing Renault to abandon their 2009 growth targets. This however made Renault one
of the few car makers to return a profit. Renault consistently struggled to return profits in the
1990s.

France/Germany

On November 24, French President Nicolas Sarkozy and German Chancellor Angela Merkel
agreed to support the crisis-stricken automobile industry in France and Germany.Detailed plans
would be announced shortly.

Italy

Fiat and Chrysler hope smaller models like the Fiat Punto could be successful in the US market

On December 16, 2008 Fiat in Italy announced that it will extend its temporary plant closures in
Italy by a month; the Pomigliano d'Arco, the main plant for its Alfa Romeo cars will be shut for
four weeks. However, on February 20, 2009, reacting to actions by the Italian government to
stimulate the automotive sector, Fiat said its plant closures would be curtailed. The company also
forecast that sales in Europe will drop by 14 percent in 2009.

On January 20, 2009 the company announced that it had entered into an agreement, subject to
regulatory approvals, to acquire 35% of Chrysler. Fiat's 35% stake in Chrysler would not involve
a conventional sale of shares, but would be achieved in return for allowing Chrysler to utilise
some of Fiat's fuel efficient technologies (Chrysler's February submission to the US government
included a commitment to produce nine Fiat-derived vehicles over a four-year period starting in
2010, including four hybrid-electric and battery-electric models).

55
Chrysler would be accorded access to Fiat's sales outlets in Europe, while in reciprocation Fiat
will also gain access to Chrysler's dealership network in the US, where it is predicted smaller
models such as the Fiat Punto may be successful. In the past, Fiat has had trouble gaining a
foothold in the American markets, whilst Chrysler has never held a strong market share in
Europe since it sold its UK based Rootes Group and France based Simca to PSA Peugeot Citroen
in the 1980s.

On January 22, 2009, Fiat announced a 19% drop in revenues in the last three months of 2008.
Italian Prime Minister Silvio Berlusconi said the government would meet to discuss the issue.

Spain

Spanish automobile manufacturer SEAT (a subsidiary of the Volkswagen Group) cut production
at its Martorell plant by 5% on the 7 October 2008, due to a fall in general sales. This effected
750 employees. This is expected to continue until July 2009. SEAT is still continuing to install
solar panals in its Martorell plant near Barcelona.

Sweden

On December 11, the Swedish government provided its troubled auto makers, Volvo and Saab,
with support amounting to SEK 28 billion ($3.5 billion). The two companies had requested
assistance, faced with the financial difficulties of their U.S. owners Ford and General Motors.
The plan consists of a maximum of SEK 20 billion in credit guarantees, and up to SEK 5 billion
in rescue loans On the 18 February 2009 General Motors warned Saab may fail within ten days,
should the Swedish government not intervene. On the 20 February, an administrator was
appointed to restructure Saab and assist in it becoming independent of its troubled parent General
Motors. General Motors have confirmed their intention to sell their Sweedish subsidiary, Saab,
however have made no such pland regarding its German subsidiary, Opel or British subsidiary,
Vauxhall. Of Sweden's 9 million population, 140,000 work in the car industry and they account
for 15% of exports.

56
United Kingdom

Nissan Motors UK in Washington is to shed 1200 jobs

In the U.K., Jaguar Land Rover, now owned by Tata Motors, was seeking a $1.5 billion loan
from the government to cope with the credit crisis.

On December 22, 2008, Tata motors declared that it would inject "tens of millions" of pounds for
Jaguar Land Rover company it had acquired from Ford Motor Corporation in early 2008. British
Prime Minister Gordon Brown also stated the intention to help out car industry in U.K.

On the 8 January 2009, Nissan Motors UK announced it was to shed 1200 jobs from its
Washington factory near Sunderland in North East England due to the automotive industry crisis
of 2008. This announcement was made, despite the plant recently being hailed as the most
efficient in Europe.

General Motors UK subsidiary Vauxhall Motors, who's brand is the second most popular in the
UK has two bases in the UK, a factory in Ellesmere Port, Cheshire and their headquarters and
design and development centre in Luton, Bedfordshire. It is as yet unknown whether these plants
will be effected by the GM cutbacks.

UK bus manufacturer Optare received an order from Arriva in November 2008 for the
manufacture of 53 buses in a contract worth over £6million, securing 500 jobs at the companies
Assembly factory in Cross Gates, Leeds, West Yorkshire and the parts centre in Cumbernauld,
North Lanarkshire.

UK Van and commercial vehicle manufacturer LDV asked the UK government for a £30 million
bridging loan to facilitate a management buyout of the group. On the same day this was refused.
LDV has since said it has a viable future and intends to become the first volume producer of
electric vans should the management buyout take place. Production at LDV's factory in
Birmingham, West Midlands (where it employs 850 staff) has been suspended since December
2008 due to falling demand.

57
North America

Canada

The Canadian auto industry is closely linked to the U.S., due to the Automotive Products Trade
Agreement and later the North American Free Trade Agreement (NAFTA), and is in similar
trouble. Canada's 3,500 car dealers, which employ 140,000 people, told the federal and Ontario
governments in mid-November they are at risk from the financial crisis; they are asking the
national government to help out despite a record year of sales. Ottawa is considering providing
financial aid to the Canadian subsidiaries of the Big Three, and possibly auto parts companies as
well. The auto industry argued that loan guarantees and other help would try to save tens of
thousands of Canadian jobs threatened by the sudden drop in North American car sales. Chrysler
Canada has asked for $1 billion in aid, making it the only Canadian arm of the Big Three to
make a specific dollar request.

Industry analyst Anthony Faria has criticized the labor contracts that Canadian Auto Workers
then-president Buzz Hargrove negotiated with the Big Three US automobile manufacturers in
2007, predicting that the subprime mortgage crisis and currency would hit Canadian auto
production especially hard. Faria noted that UAW president Ron Gettelfinger agreed to have the
UAW's "all-in" wage, benefit and pension costs drop from a high of $75.86 per hour in 2007 to
an average of about $51 per hour starting in 2010. By comparison, the CAW's cost per hour was
$77 in 2007 and will rise to over $80 per hour by the end of the new contract. Faria said that
Gettelfinger went into negotiations "with the right intention...Save jobs. The CAW strategy was
to squeeze every dime out of them." Hargrove was said to have "instilled backbone and an
attitude that the union could always make the auto makers buckle at the bargaining table".

Current union president Ken Lewenza has argued that labor is not responsible for the bankruptcy
crisis facing the Big Three automakers, saying that his members would not make concessions
part of any taxpayer-funded bailout. "We don't see this as us being the problem", Lewenza said,

58
adding he would "absolutely not" accept any further cuts after losing tens of thousands of jobs in
recent years. "We've suffered our share of pain." Lawenza argued that the CAW agreed in 2007
to make concessions that will save the Big Three $900 million over three years.

A spokesman for the Canadian Taxpayers Federation has criticized the CAW's "no-concession"
stance, saying that it only serves to strengthen the opposition to a taxpayer-funded bailout for the
struggling Detroit Three automakers. The CTF further pointed out that "It is especially difficult
to understand anyone asking for government help that refuses to do anything to help itself to
begin with", since they "fail to realize they've existed at the substantial largesse of taxpayers for
decades".Kelly McParland, a columnist for the National Post, has suggested that "if he won't
give anything, he and his members are likely to lose everything." He also said that the problem
facing the North American auto industry was borne equally by management and labor alike,
criticizing labor for building up pay and benefits for themselves that was as unsustainable as it
was enviable, while attacking management for its short-term strategy of selling gas-guzzling
trucks and sales tactics (price cuts, rebates, free gas and cash-back schemes).

The CTF has opposed the proposed $3.5 CAD billion bailout for Canadian subsidiaries of the
Big Three, saying that it was an unfair financial burden on the average Canadian, as well as
another excuse for the Detroit automakers to postpone much needed change. The CTF noted that
federal and provincial governments spent $782-million in the past five years on the Big Three,
saying "These have been a bottomless pit of requests for cash". Lewenza disagreed, saying that
the bailout should be seen by Canadians as a loan that will be paid back when the country's
economy is prosperous again.

On December 20, the government of Canada and Ontario province offered $3.3 billion dollars in
loans to the auto industry. Under the plan GM will receive $3 billion dollars and Chrysler will
receive the rest. Ford only asked for a line of credit but will not be participating in the bailout.

The CAW negotiated a cost-cutting deal with General Motors Canada on March 8, 2009. The
deal would extend the current contract for an additional year to September 2012, and preserves
the current average assembly-worker base pay of about $34 an hour. It would eliminate a $1,700
annual "special bonus," and reduce special paid absences or "SPA days" from two weeks to one

59
week a year, while maintaining vacation entitlements which range up to six weeks a year for
high-seniority workers. The deal also introduce payments by members toward their health
benefits - $30 monthly per family for workers and $15 a month for pensioners. Lewenza said it
also would trim by 35 per cent company contributions to union-provided programs such as child
care and wellness programs. Lewenza called the package a "major sacrifice." However,
observers noted that the deal did not go far enough; DBRS analyst Kam Hon described it as "not
material." Automotive industry consultant Dennis DesRosiers said that General Motors had
missed the chance to slash labour costs, pointing out that bankruptcy was a looming threat,
Ottawa and Queen's Park demanded cuts to the labour bill as a condition of the bailout, and that
the deficit to the pension fund would prevent the CAW from striking. He stimated the total
hourly cost of a GM Canada worker, including benefits, is $75 to $78, and saying that "they
[GM] got six or seven." when it should have been cut by $20. DesRosiers also said giving up
cost-of-living increases is not significant when inflation is nearly non-existent and added that the
40-hour reduction in paid time off merely means "five fewer spa days." University of Toronto
professor Joe D'Cruz calculated that it would save $148 million a year, though GM is seeking $6
billion in Canadian government support. CAW autoworkers with seniority were able to maintain
10 weeks of vacation with full pay, while not contributing to their pension fund, relying instead
on taxpayers (including these without pensions) to help make up their unfunded liabilities.

The agreement is contingent on Canada being allocated 20% of GM's North American, and
getting billions of dollars in federal and provincial taxpayer support, which Lewenza stressed
will be loans. However, some suggested that this would not be the final time that automakers
would request a bailout. Dennis DesRosiers estimated that GM will go through its government
loans in a couple of quarters, long before any recovery in the market. Furthermore, GM Canada
president Arturo Elias had admitted to MP Frank Valeriote that GM had pledged all its assets
worldwide to the U.S. government in order to secure the first tranche of a US$30-billion loan,
leaving no assets to collateralize the $6-billion loan from the Canadian government. The
Canadian Taxpayers' Federation noted that between 1982 and 2005, Ottawa handed out over
$18.2-billion to corporations, of which only $7.1-billon was repayable, and only $1.3-billion was
ever repaid.

60
Chrysler vice-chairman and president Thomas W. LaSorda and Ford's chief of manufacturing Joe
Hinrichs said that the GM-CAW deal was insufficient, suggesting that they would break the
CAW's negotiating pattern set by GM. LaSorda told the Canadian House of Commons finance
committee that he would demand an hourly wage cut of $20, suggested that Chrysler may
withdraw from Canada if it fails to achieve more substantial cost savings from the CAW

United States
Effects of the 2008-2009 automotive industry crisis on the United States

The crisis in the United States is mainly defined by the government bailouts of both General
Motors and Chrysler, while Ford secured a line of credit in case they require a bridging loan in
the near future. Car sales declined in the United States, affecting both US based and foreign car
manufacturers. The bridging loans lead to greater scrutiny of the US automotive industry in
addition to criticism of their product range, jobs, bank programs and product quality.

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CHAPTER 8
CHANGES IN MARKETING
STRATEGIES DUE TO RECESSION

62
Automotive industry crisis of 2008–2009
The automotive industry crisis of 2008–2009 is a global financial crisis in the auto industry that
began during the latter half of 2008. The crisis is primarily felt in the United States' automobile
manufacturing industry and, by extension, Canada, due to the Automotive Products Trade
Agreement, but other automobile manufacturers, particularly those in Europe and Japan, are also
suffering from the crisis.

The automotive sector was first weakened by the substantially more expensive automobile fuels
linked to the 2003-2008 oil crisis which, in particular, caused customers to turn away from large
sport utility vehicles (SUVs) and pickup trucks, the main market of the "Big Three" (General
Motors, Ford, and Chrysler). The US automakers known as the "Detroit Three" also suffered
from considerably higher wages than their non-unionized counterparts, including salaries,
benefits, healthcare, and pensions.

In 2008, the situation became critical because the global financial crisis and the related credit
crunch placed pressure on the prices of raw materials. In certain countries, particularly the
United States, the Big Three have been under heavy criticism since they continuously based their
respective market attacks on fuel inefficient SUVs, despite the increase in the price of oil.
Accordingly, they suffered both from consumer perception of relatively higher quality models
available from abroad — particularly from Japan and to some extent from Europe —and from
transplants, foreign cars manufactured or assembled in the United States. The Big Three had
neglected development of passenger cars and instead focused on light trucks due to better profit
margins, in order to offset the considerably higher labour costs, falling considerably behind in
these market segments to Japanese and European automakers.

As of the beginning of 2009, the vehicle companies of the world are being hit hard by the
economic slowdown across national boundaries. Car companies from Asia, Europe, North

63
America, and elsewhere have been forced to implement creative marketing strategies to entice
reluctant consumers to purchase vehicles, when many firms are experiencing double digit
percentage sales declines. Major manufacturers, including the Big Three and Toyota, are offering
substantial discounts. Hyundai is even offering to allow customers to return their new cars if they
lose their jobs.

Effect of 2008 oil price shock and economic crisis

Medium term crude oil prices 2003-2008, (not adjusted for inflation)

In 2008, a series of damaging blows drove the Big Three to the verge of bankruptcy. Part of the
cause was very high labor costs (much higher than the foreign plants in the U.S.). The Big Three
had in recent years manufactured SUVs and large pickups, which were much more profitable
than smaller, fuel-efficient cars. Manufacturers made 15% to 20% profit margin on an SUV,
compared to 3% or less on a car When gasoline prices rose above $4 per gallon in 2008,
Americans stopped buying the big vehicles and Big Three sales and profitability plummeted.
Robert Samuelson has advocated a more consistent energy policy, arguing "wild swings between
low and high fuel prices have crippled the U.S. industry by erratically shifting buyer preferences
-- to and from SUVs."

The financial crisis played a role, as GM was unable to obtain credit to buy Chrysler. Sales fell
further as consumer credit tightened and it became much harder for people with average or poor
credit to obtain a bank loan to buy a car. During 2007, nearly 2 million new U.S. cars were
purchased with funds from home equity loans. Such funding was considerably less available in
2008. In addition, stock prices fell as shareholders worried about bankruptcy; GM's shares fell
below 1946 levels.

The annual capacity of the industry is 17 million cars; sales in 2008 dropped to an annual rate of
only 10 million vehicles made in the U.S. and Canada. All the automakers and their vast supplier
network account for 2.3% of the U.S. economic output, down from 3.1% in 2006 and as much as
5% in the 1990s. Some 20% of the entire national manufacturing sector is still tied to the
automobile industry. The transplants can make a profit when sales are at least 12 million; the Big
Three when sales are at least 15 million.

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The crisis has affected auto companies around the world, with large sales decreases experienced
by all.

As of December 19, 2008, oil prices had fallen to $33.87 per barrel, but the automobile crisis
was still going on

7 Strategies for B2B Marketing during a Recession:

Seven strategies for B2B marketing during a slowdown

A downturn can also create opportunity for the companies that are more efficient at turning
marketing investments into revenue, since there will be less competition overall. In a study of
U.S. recessions, McGraw-Hill Research found that business-to-business firms that maintained or
increased advertising expenditures during the 1981-1982 recession averaged significantly higher
sales growth than those that eliminated or decreased advertising. In fact, by 1985 companies that
were aggressive recession advertisers grew their revenue over 2.5X faster than those that reduced
their advertising.

1. Use lead management to maximize the value of each lead. In a recession, risk-adverse
buyers take even longer than normal to research potential purchases. When you first identify a
new prospect (regardless of whether they downloaded a whitepaper, stopped by your booth at a
tradeshow, or signed up for a free trial) they are more likely than not still in the awareness or
research stage and are not yet ready to engage with one of your sales reps. What this means is
you need lead scoring to identify which leads are highly engaged, and lead nurturing to develop
relationships with qualified prospects who are not yet ready to engage with sales. Without these
capabilities, as many as 95% of qualified prospects who are not yet sales-ready never end
up turning into a sales opportunity. These prospects are valuable corporate assets that you
worked hard to acquire — so in a down economy you need to do everything possible to
maximize value from them. Implementing even a simple automated lead nurturing program can
yield a 4-fold improvement in the conversion of qualified prospects into sales opportunities over
time. That's a dramatic improvement marketing return on investment! Net-net: Companies that

65
can do a better job of managing leads and developing early-stage prospects into sales ready leads
will be in the best position to thrive in a downturn.

2. Focus on your house list. In a recession, you may have less money to spend on acquiring new
customers. The solution is simple: spend more time marketing to (and building relationships
with) the people you already know. Some activities that can help you get the most out of your
existing relationships include lead nurturing campaigns, creating new content to offer to existing
prospects, and cleaning and augmenting your marketing lead database with progressive profiling.

3. Build and optimize landing pages. When times are tough, it's more important than ever to
maximize the return on your advertising. Whether you are using Google AdWords, banners,
sponsorships, or email campaigns, a dedicated landing page is the single most effective way to
turn a click into a prospect. MarketingSherpa's Landing Page Handbook shows that relevant
landing page can easily double conversions versus sending clicks to the home page, and testing
your pages can increase conversions by another 48% or more. Together, these tactics
alone can result in 2.5X more leads for every dollar you spend, something that's sure to look
good in tough times. However, MarketingSherpa also reports that most companies are under-
using this important technique: just 44% of clicks for B2B companies are directed to the
home page, not a special landing page, and of B2B companies that use landing pages,
62% have six or fewer total pages. A recession is perhaps the best time to focus on some
of these basics.

4. Content for later in the buying cycle. When buying slows down, you need to focus more
than ever on making sure you are finding the prospects who are actually ready to buy — or even
better, make sure they are finding you. One great way to do this is to focus your offers on content
that will appeal to someone who's actually looking for a solution (as opposed to thought
leadership and best practices content, which can appeal to prospects who may one day have a
need but are not currently looking). Examples of this kind of content can include "Top 5
Questions to Ask a Potential Vendor" whitepapers; buyers guides and checklists; analyst
evaluations; and so on.

66
5. Appeal to the nervous buyer. A recession can mean more risk-adverse buyers, which may
lead to a tendency to go with "safe" solutions. This is fine for large established companies, but it
means younger companies need to do more than ever to reassure and build trust. Tactically, this
means including customer references, reviews, expert opinions, awards, and other validation as
part of your marketing.

6. Align sales and marketing. Today's prospects start their buying process by interacting with
marketing and online channels long before they ever speak with a sales representative. This
means companies must integrate marketing and sales efforts to create a single revenue pipeline.
The old days of functional silos and poor communication between the two departments must end.
A tougher selling environment, driven by a recession, means this is more true than ever.

7. Don't be a cost center. Most executives today think that Sales delivers revenue and
Marketing is a cost center. Marketers are partly to blame for part of this mindset, since when we
use metrics such as "cost per lead" we frame the discussion in terms of costs, not in terms of
impact on revenue. More subtly, using language like "marketing spending" and "marketing
budget" instead of "marketing investment" perpetuates these beliefs. In a recession, marketing
needs more than ever to change these perceptions. This means that marketing investments must
be justified with a rigorous business case and should be amortized over the entire "useful life" of
the investment..

Conclusion

Increasing Sales Drive Car Financing Market

Car financing has been on the rise lately, with banks falling over each other to grab market share.
The car financing market is primarily driven by an increase in underlying car sales, which have
really spurted in the first quarter of this financial year. Other factors like drop in interest rates,
affordable installments and increase in tenors of loans have also zoomed its growth.

67
There are a few major players in this area that represent a major chunk of the market share.
ICICI Bank, which started this business in January 1999, is the biggest player in this business.
Over the last three years, the book size has grown from Rs 2,000 crore to over Rs 4,000 crore. In
the fiscal 2001-02, the bank registered Rs 2,400 crore worth of disbursements. In 2002-03, they
rose to Rs 4,200 crore.

Says ICICI Bank senior general manager and head-retail products, V Vaidyanathan: "Today, we
have approximately 35 per cent of the market share in the country."

HDFC Bank’s car loan portfolio has been growing at over 50 per cent on a year-on-year basis.
The bank disburses around Rs 200 crore per month in this product line. Currently, the bank’s
disbursements are over Rs 2,000 crore.

Says HDFC Bank head-retail assets S Ramakrishnan: "HDFC Bank’s car loans business is
operational in 172 locations. Therefore, a wide reach is our key strength.

Standard Chartered Bank (StanChart), disburses around Rs 100 crore on a monthly basis towards
car loans. Currently, the bank’s car loan portfolio stands at a little less than Rs 2,000 crore. Says
StanChart general manager and head-car loans: "Currently, we have around 12-13 per cent of the
market share in this area. The bank’s car loan portfolio arises out of 24 cities."

The State Bank of India’s (SBI) car loans have grown from Rs 753 crore in March 2002 to Rs
908 crore in March 2003, representing a rise of 20.5 per cent (Rs 155 crore).

A study reveals that out of a 100 cars, at least 70 cars are financed and even more so (around 80
per cent) in premium cars. Also, the bank’s relationships with manufacturers and dealers enable
them to offer attractive deals, which is also responsible for the fast growth in the last year.

ICICI Bank’s car loans have grown a staggering 80 per cent in 2002-03, even though the market
has grown only by 20 per cent. This, according to Mr Vaidyanathan, has been due to the bank
venturing into a large number of new locations during that period. "We have grown from 150
cities in 2002 to around 240 cities currently, which has obviously provided us with more

68
business. Moreover, our share of the original 150 locations has also increased substantially," he
remarks.

Adds Mr Ramakrishnan: "Auto finance is likely to grow in absolute terms. However, this is a
tough business where rates, costs and profitability will have to be managed tightly. Size and
scale in addition to strong understanding of the business vectors will be the key to success. Here,
large banks will have an edge over smaller players."

Mr Murali, however, does not expect the penetration of banks into this area to grow much more.
"Around 70 per cent of car sales are aided by car finance. I don’t feel that this number would
grow higher than about 7-8 per cent, going ahead.

Nano to ride on innovative marketing

The Tata Nano will ride on a clutch of innovative marketing ideas when it rolls into showrooms
across the country. The Rs 1 lakh car, which broke new ground in design, engineering and
production processes, will opt for “cost-effective and innovative use of media,” say people with
knowledge of the Nano marketing strategy.

69
To make the car more easily accessible to people, the Tata Motors team will sell the Nano not
just through Tata car dealerships across the country, but also through conventional retail outlets
like Westside and Croma.

Westside is a lifestyle retail brand and Croma is an electronic megastore. Both are owned by the
Tata group. Westside and Croma outlets will display the Nano and also take bookings. Also
available will be a whole range of Nano merchandise like baseball caps, T-shirts and key chains,
among others.

Carrying forward its vendor partnership production strategy, Tata Motors will share promotion
of the Nano brand with its multiple PSU bank partners. These PSU financiers will promote the
Nano brand during booking jointly with Tata Motors and on their own.

The Nano’s overall marketing strategy will use conventional media in an unconventional
manner. Unlike most small cars, Nano won’t be big on advertising. There will be no TV
campaign, only innovative use of print, radio and other media, particularly the web. The Tata
team is working on Nano news in papers, Nano breaks on radio, Nano appearing in the form of
messages or ticker news on TV, online Nano games, Nano chatrooms on the Net, Nano pop-ups
on major websites and Nano conversation on Facebook, Orkut and blogspaces.

According to people in the ad industry with direct knowledge of the Nano’s marketing strategy,
the campaign will be cost-effective and innovative so that Nano becomes synonymous with
anything “small, cute and brief.”
“The idea is to make the Nano part of our everyday lingo like ‘see you after a nano,’ it’s a totally
word-of-mouth campaign,” said a person familiar with the Nano marketing strategy.

Tata Motors has appointed Rediffusion for creative content in the Nano campaign. Lodestar will
handle media buying for the Rs 1 lakh car. “The Nano is a huge brand and one of the most
interesting accounts in the automobile business,” said the COO of a top ad agency based in
Delhi. “However, it is still not clear just how big the account will be.”

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Hyundai and Bank of India enter into MOU for car loans

Hyundai Motor India Ltd ( HMIL), the second largest car manufacturer and the largest passenger
car exporter, in a bid to enhance financing options for its customers, signed a Memorandum of
Understanding (MOU) with Bank of India, a major public sector bank.

Under the MOU, Bank of India, a premier nationalized bank, will be financing prospective
constituents to acquire Hyundai cars at an attractive rate of interest of 10.25% for 3 years and
concessional processing charges (Rs.1,000/- flat ). The MOU, signed by Arvind Saxena, Sr VP,
Marketing & Sales, Hyundai Motor India Ltd, and Nagesh Pydah, General Manager, Bank of

71
India, Local Head Office, Chennai, will assist in giving a boost to auto sales at a time when the
auto industry is facing a slowdown.

Bank of India, with a business mix in excess of Rs. 310,000 crore is a front runner in terms of
profitability, growth and sustainability having won four awards recently in the banking space (K
P M G, Business World, NDTV Profit, Dun & Bradstreet), with over 2,978 branches including
26 overseas centers (of which 2,575 are under the C B S Platform). This strategic alliance with
HMIL will help both the partners to reach out to a wider market and make available auto loans
for prospective car owners on user-friendly terms.

Speaking on the occasion, Arvind Saxena, Sr. Vice President, Marketing & Sales, HMIL, said,
"We are glad to partner with Bank of India as with its competitive products and wide reach we
see it as value addition for our customers. Considering the slowdown in the auto industry, this
association with Bank of India at this juncture is an effort to ensure that we are able to reach out
with more finance options with rationalized interest rates for the benefit of our customers.”

This tie-up is extended to cover financing by all the branches of Bank of India in India. The two
partners will utilize and leverage each other's strengths to cross sell Hyundai vehicles and the
bank's car loans and other schemes. After signing of the MOU, Nagesh Pydah, General Manager,
Local Head Office, Southern Zones, Bank of India said, “This tie-up with HMIL offers a
tremendous opportunity for both our respective organizations to proliferate our businesses and
contribute widely to demand creation in a scenario which otherwise is witnessing a demand
contraction. For Bank of India in particular it would result in addition to the customer base...

Government Regulations and Support

The Government of India (GoI) has identified the automotive sector as a key focus area for
improving India’s global competitiveness and achieving high economic growth. The
Government formulated the Auto Policy for India with a vision to establish a globally
competitive industry in India and to double its contribution to the economy by 2010. It intends to
promote Research & Development in automotive industry by strengthening the efforts of
industry in this direction by providing suitable fiscal and financial incentives. Some of the policy
initiatives include:

72
• Automatic approval for foreign equity investment upto 100 per cent of manufacture of
automobiles and component is permitted.

• The customs duty on inputs and raw materials has been reduced from 20 per cent to 15 per
cent. The peak rate of customs duty on parts and components of battery-operated vehicles have
been reduced from 20 per cent to 10 per cent. These new regulations would strengthen India’s
commitment to globalisation. Apart from this, custom duty has been reduced from 105 per cent
to 100 per cent on second hand
cars and motorcycles.

• National Automotive Fuel Policy has been announced, which envisages a phased programme
for introducing Euro emission and fuel regulations by 2010.
• Tractors of engine capacity more than 1800 cc for semi-trailers will now attract excise duty at
the rate of 16 per cent.
• Excise duty is being reduced on tyres, tubes and flaps from 24 per cent to 16 per cent. Customs
duty on lead is 5 per cent.

CHAPTER 9
73
ISSUES AND CHALLENGES FACED
BY THE INDUSTRY

74
ISSUES AND CHALLENGES FACED BY THE INDUSTRY

1. The automotive industry is expected to suffer with lower sales for the year 2009 due to the
recession. Without sufficient support from the government to sustain the automotive sales and
growth, automotive manufacturer, vendors and dealers will be badly affected.

2. The impact of the recession can be reduced if the automotive sales volume can be sustained.
With encouraging sales, dealers, vendors and other stakeholder will not suffer much loss.

3. Automotive industry is unique as it is neither the seller’s market nor the buyer’s market but
instead it is the BANK that controls the car sales via the vehicle financing. A car with the best
technology, design or pricing is still not sellable unless the dealers were able to secure the bank
financing for the customer hire-purchase loan.

4. More than 90% of car dealers and vendors operate with banking facilities and more than 90%
of car buyer, purchases vehicle via bank hire-purchase loan.

5. Any negative changes in the banking facilities (to dealers or vendors) and hire-purchase loan
to the customer will gravely affect the automotive sector.

THE PERCENTAGE MARGIN OF FINANCE & LOAN PERIOD

6. Currently, the maximum loan amount allowed for car financing is 90% of the On-the-Road car
price for a maximum of 7 years (and perhaps 9 years for some model). A drastic change
increasing the margin of finance from 90% to full 100% will enable the public to afford the
purchase of a new car. When the loan repayment is spread over 12 years instead of the current 7
-9 years, the public can afford to service their HP-loan repayment given a lower disposable
income due to recession. This will also avoid the possibility of high NPL.

75
INSURANCE

7. General insurance or specifically Motor Insurance accounted to approximately 20% of the

dealer’s income. Our income is affected when the Bank embarked in the sales of motor insurance
by-passing the car dealers (who are all an authorised agent) via indirectly-forcing the customer to
renew the motor insurance (and road tax) with them by prohibiting the collection of the vehicle
registration card kept by the bank.

BANK

8. Banks discriminate dealers by categorising and prioritising dealers who subscribed to their
Bank facilities with unfavourable terms. The unfavourable terms includes restricting non-
insurance related banking-facilities only to dealers who are agent to the Bank’s insurance. The
Bank’s insurance are inferior in services and packages offered (compare to other provider) to
dealers and any insurance commission for insurance renewal are forfeited by the bank.

9. Various other unnecessary charges were also imposed to dealers that further reduced the
dealer’s already deteriorating income due to higher cost of operation.

10. Banks have also embarked in selling car to the Bank’s existing customer. The sales are
channelled to a ‘special’ dealer’s network created by the Bank. The Bank customers enjoy
special privileges such as special interest rates but with a lower income to dealers.

11. The Merger of Banks and Financial Institutions had led to the introduction of various
unfavourable terms and activities in adverse to the dealers and the public. Unfavourable terms
that burdens the dealers as well as the public should be supervised especially during expected
worsen economic downturn.

76
 CHAPTER
10
RECOMMENDATIONS

77
78
 RECOMMENDATIONS

1. Deeper, more frequent customer research.

Consumers tend to postpone purchase decisions, trade down, or buy less in a recession. It is
critical to understand how your most profitable customer is redefining value in a recession. It's
likely that price elasticity curves will tighten. Consumers will expect more for their dollar and
will spend more time searching for value and be less brand-loyal than they usually are. Trust is a
critical component of the purchase influencer mix. Trusted brands are more likely to have
successful new product and extension launches. But overall interest in new brands and new
categories tends to decline in a recession.

2. Maintain marketing spending.

Uncertain consumers need the reassurance of known brands--and more consumers at home
watching television can deliver higher than expected audiences at lower cost-per-thousand
impressions. Arcus has analyzed the impact of cut backs in marketing investments in a
slowdown in 22 industries. It is proven that an increase in advertising in some industries during a
recession, when competitors are cutting back, can dramatically improve market share and return
on investment at lower cost than during good economic times.

3. Adjust product portfolios.

Optimizing product mix and marketing investment strategy is critical to driving an increase in
market share. Consumers tend to trade down to models that stress good value, such as cars with
fewer options, when the economy slows down. A new demand forecast model for each item in a
product line is required to adjust to new consumer purchase patterns. For example, consumers
favour multi-purpose goods over specialized products. A multipurpose cleaner will sell better
than one targeted to only the shower stall. Industrial customers prefer to see products and
services unbundled and priced separately.

79
Consumers tend to focus more on reliability, durability, safety and performance and less on
gimmicks. New product advertising should stress superior price performance because tangible
benefits will tend to resonate most strongly with consumers faced with a recessionary economy.

4. Strategic pricing tactics.

Realize that your customers will be investigating for the best deals on both large and small
purchases. Your company should consider if there is room to reduce list prices, especially if
yours are higher than the competition, but do not try to start a price war or race to the bottom
with your competitors. See if there is room for more price promotions or other customer
incentives. Consider extending quantity discounts previously reserved for your best customers
and look into extending credit to valuable customers who might otherwise pass on your product.
Avoid leaning on mail in offers and "chances to win"; when there are only so many dollars in the
wallet at checkout, a potential refund later may not be enough.

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 CHAPTER
11
81
BIBLIOGRAPHY AND REFRENCES

82
 BIBLIOGRAPHY AND REFRENCES

1. 4Ps Business and Marketing

(7th nov to 20th nov 2008)
Page No. 60
Article on Advertising.

2. ADC Advertising club Bombay http://www.adclubbombay.com/index.php/section-

blog/81-columns/778-marketing-strategies-in-recession (5th December 2008)

3. Source: http://EzineArticles.com/?expert=Sowmya_Suman

4. http://www.hindu.com/2008/11/15/stories/2008111554050400.htm

5. Author: Marketing Buzz

Auto industry grids

http://seatbealt.blogspot.com/2007/11/automotive-industry-and-2008.html

6. Marketing Strategies in Recession Written by Harish B Friday, 05 December 2008

http://www.justindowneymarketing.com/CFR 5th April 2008

7. Advertisement Club Bombay http://www.adclubbombay.com/index.php/section-blog/81-

columns/778-marketing-strategies-in-recession

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8. Wall Street Journal Market Data Center, wsj.com (12/16/2008).

9. Founded in 1957, the International Council of Shopping Centers (ICSC) is the

global trade association of the shopping center industry

http://www.icsc.org/2008SC/home.php .

10. New Braunfels Chamber of Commerce

http://www.nbcham.org/EDF_Newsletter/2008%20EDC%20Marketing%20Plan
%20%2002-26-08.pdf

11. Automotive Digital Marketing www.automotivedigitalmarketing.com/xn/detail/1970539

12. Market my product http://www.marketmyproducts.com/online-marketing-articles/trends-

in-online-advertising.htm

13. The untwisted vortex vortex

http://www.untwistedvortex.com/2008/12/12/the-economic-recession-things-are-
tough-all-over/

14. http://www.autoworldmarketing.com/marketing.htm
15. http://www.buzzle.com/articles/us-economic-crisis-impact-on-automobile-industry.html
16. http://talkincblog.com/?cat=101
17. http://en.wikipedia.org/wiki/Automotive_industry_crisis_of_2008%E2%80%932009
18. http://www.scenario.co.nz/brand-news/marketing_recession/
19. http://www.rncos.com/Blog/2008/10/India-Marketing-Strategies-Attracting-More-
Tourists.html\

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20. http://www.mlive.com/business/west-
michigan/index.ssf/2009/02/design_companies_develop_reces.html
21. http://www.frost.com/prod/servlet/press-release.pag?docid=155701120
22. http://automobiles.mapsofindia.com/
23. http://business.mapsofindia.com/india-gdp/industries/automobile.html
24. http://www.rediff.com/money/2009/mar/25will-the-nano-change-indias-auto-
industry.htm
25. http://automobiles.indiabizclub.com/info/automobile_industry_overview_
26. http://www.business-standard.com/india/news/dofebruary-sales-indicate-an-auto-
revival/351444/
27. http://www.livemint.com/2008/01/10235135/Ad-Advice--How-to-sell-the-Ta.html
28. http://www.nationalpost.com/opinion/columnists/story.html?id=a96b76b9-f9c4-4e16-
b42a-7f7159a65856
29. http://www.tata.com/media/reports/inside.aspx?artid=7wzQgIGpR6g=

30. http://www.ibef.org/artdisplay.aspx?tdy=1&cat_id=60&art_id=22209
31. http://www.financialexpress.com/news/increasing-sales-drive-car-financing-
market/89643/0
32. http://www.financialexpress.com/news/hyundai-and-bank-of-india-enter-into-mou-for-
car-loans/439773/
33. http://d.scribd.com/docs/2658k6op90cc4ae473ns.pdf
34. http://www.icmrindia.org/casestudies/catalogue/Marketing/Hyundai%20Marketing
%20Strategies%20in%20India-Marketing%20Case.htm#The%20Challenges
%20Ahead
35. http://www.autoworldmarketing.com/marketing.htmhttp://www.pwc.com/extweb/pwcpu
blications.nsf/docid/96553B4A38816931852573690065EFE9/$File/co2_study.pdf
36. http://www.pwc.com/extweb/pwcpublications.nsf/docid/96553B4A38816931852573690
065EFE9/$File/co2_study.pdf
37. http://arminbaniaz.com/2009/01/automotive-indudstry-2009-challenges.html
38. http://www.arcusgroup.ca/marketing_in_a_recession.html

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 CHAPTER
12
ANNEXTURE

87
ANNEXTURE

QUESTIONNAIRE
Name: _______________________
Company: ______________
Designation: __________________
(Please circle “O” your selected option)

Q1 Is there any effect of recession on your marketing strategy?

a) Yes b) No

Q2. What your company feel recession is?

a) Opportunity to grow

b) Threat to loose market share

c) It doesn’t matter at all

d) Time to wait and watch

Q3. What is the status of sales due to recession?

a) Increasing sales at increasing rate

b) Increasing sales at decreasing rate

c) Decreasing sales at increasing rate

d) Decreasing sales at decreasing rate

Q4. Is there any effect of fluctuations in interest rate of loans by banks?

a) Yes b) No

Q5 What changes you have included in your strategy?(Multiple options can be selected)
a) cost-effective and innovative use of media

b) Removal of less productive employees

c) More focus on e-marketing

d) Others (please specify)

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Q6. Marketing strategies have become
a) More competitive.

b) More based on innovation.

c) More focus on cost.

d) More of creativity with low cost.

Q7. What is the effect of recession on sales and marketing?

a) No effect
b) Little effect on sales and marketing
c) Drastic fall in sales and failure of marketing strategies
d) Have changed the trend of sales and marketing
Q8. Your marketing strategies are (in recession)
a) More flexible and cost effective
b) More flexible with less cost effectiveness
c) Less flexible but cost effective
d) Less flexible and less cost effective
Q9. In what all areas of marketing your company is more focused due to recession?
a) E-Marketing
b) Direct Sales
c) Sales promotional schemes
d) Above the line Advertisement
e) Below the line Advertisement
f) Others (Please Specify)
Q10 What variety of "soft offers" your company is offering to complement the automobile
product?
a) Financing
b) insurance
c) extended service contracts
d) Automobile accessories
e) Warranties
f) Service packages
g) all of the above

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Q11. What actions if any are you taking to minimize the effect and or possibly survive the
recession? Have they worked and if not then why?

Analysis
Q1 Is there any effect of recession on your marketing strategy?
a) Yes b) No

Many companies feels that recession has effected there marketing strategy.

90
Q2. What your company feel recession is?
a) Opportunity to grow

b) Threat to loose market share

c) It doesn’t matter at all

d) Time to wait and watch

91
Most of the companies feel that recession is an opportunity to grow and utilize it. But few
companies take recession as a threat of loosing there market share. Some companies are
following wait and watch policy and few companies says that recession doesn’t matter to them.

Q3. What is the status of sales due to recession?

a) Increasing sales at increasing rate

b) Increasing sales at decreasing rate

c) Decreasing sales at increasing rate

d) Decreasing sales at decreasing rate

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Most of the companies sales have seen a greater downturn . Only few companies in luxury
segment are able to maintain there sales level.

Q4. Is there any effect of fluctuations in interest rate of loans by banks?

b) Yes b) No

Bank Intrest rate has played a vital role and is directly related to most of the companies
marketing strategies. 95% companies are effected by fluctuations in intrest rate .

93
Q5 What changes you have included in your strategy?(Multiple options can be selected)
a) cost-effective and innovative use of media

b) Removal of less productive employees

c) More focus on e-marketing

d) Others (please specify)

94
Most of the companies are now going towards the new trend of marketing that is e-marketing.
Cost effectiveness is a matter of concern but it is not a mojor issue till and then it helps in the
growth of the company.

Q6. Marketing strategies have become

a) More competitive.

b) More based on innovation.

95
 c) More focus on cost.

d) More of creativity with low cost.

Innovation is the requirement of today’s scenario. If any innovative thing is there in market and
creativity in marketing support it , then recession would help any company to be a bigger
competitors for others.

96
Q7. What is the effect of recession on sales and marketing?
a) No effect
b) Little effect on sales and marketing
c) Drastic fall in sales and failure of marketing strategies
d) Have changed the trend of sales and marketing

Recession has drastically effected the sales and marketing of most of the companies. Many
companies had to revise there strategies and be more flexible in ther approach. However ther are
few companies where ther effect of recession is lesser.

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But the major point is that recession has changed the overall trend of the sakes and marketing.

Q8. Your marketing strategies are (in recession)

a) More flexible and cost effective
b) More flexible with less cost effectiveness
c) Less flexible but cost effective
d) Less flexible and less cost effective

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Companies main focus is not only on cost effectiveness but also in greater flexibility in there
strategies as at the time of recession companies are not clear about what is going to happen in
near future?

99
Q9. In what all areas of marketing your company is more focused due to recession?
a) E-Marketing
b) Direct Sales
c) Sales promotional schemes
d) Above the line Advertisement
e) Below the line Advertisement
f) Others (Please Specify)

100
Companies are trying to focus on e-marketing as a tool to cover major target audience.. Direct
sales is always a part of automobile industry and innovative sales promotion schemes are also
offered by the companies.

Q10 What variety of "soft offers" your company is offering to complement the automobile
product?
a) Financing
b) insurance
c) extended service contracts
d) Automobile accessories
e) Warranties
f) Service packages
g) all of the above

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Mostly all the above factors are taken into considerations by the company but right now
negotiations are also going on in some companies like TATA etc. for more and more soft offers.

102