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1. A Study on Automobile Industry in India
AIAIMS, OPERATION DEPARTMENT Page 1
A
Report on
“A Study on Automobile Industry in India”
By
Mr. Younus Mohammed Ershad
Guided by
Prof. Poonam Chaudhari
Department of Operation
Anjuman-I-Islam
Allana Institute of Management Studies
[2019-20]
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Abstract
The automobile industry is a prominent part of the manufacturing sector and considered
to be an indicator of economic development of any country. It is also a technology and
knowledge intensive industry because it demands high performance and quality parts. In
India also the automobile industry occupies a prominent place due to its deep forward and
backward linkages with many key segments of the economy. This industry has a strong
multiplier effect and is capable of being the driver of economic growth. The performance
of the automobile industry can be correlated to the health of the economy. A sound
transportation system, to which the automobile industry is linked, plays a pivotal role in
the country’s rapid economic and industrial development. The prime objective of this
paper is to analyse the growth pattern and economic impact of automobile industry on
Indian economy.
The automobile industry is one of the most important drivers of economic growth of
India and one with high participation in global value chains. The growth of this sector has
been on the back of strong government support which has helped it carve a unique path
among the manufacturing sectors of India. The automobiles produced in the country
uniquely cater to the demands of low- and middleincome groups of population which
makes this sector stand out among the other automobile-producing countries. This
chapter analyzes the roles of government policy, infrastructure, and other enabling factors
in the expansion of the automobile and automotive component sectors of India. In 2017,
India became the world’s fourth largest automobile market, and the demand for Indian
vehicles continues to grow in the domestic and international markets. To meet the future
needs of customers (including the electrical vehicles) and stay ahead of competition,
manufacturers are now catching up on upgradation, digitization, and automation
Keywords: automobile, India, export, production.
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CHAPTER 1:
INTRODUCTION
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1. Introduction
India is fast becoming powerful force in the global automobile industry, and has the
strength to sustain leadership and growth in the face of the global trading order. The
growth in Indian economy encounters the growth in industrial production. Growth has
been driven by rapid economic growth and increasing wealth in double digit over the past
decade and more than a three-fold surge in equity markets. The development in
automobile sector overhauls the perception of potential car buyers, with their increased
disposable income, enormous information search, and availability of lucrative financial
options. People today are more pragmatic before acquiring the automobile. For most
people, purchasing a car is one of the most important and expensive investment, next to
purchase of a house. For the automotive manufacturers, first-time car buyers give them
the opportunity to create positive brand image which definitely could be reflected in
coming years because consumers could repeat car purchasing.
The small car market has changed rapidly due to the fierce competition and advanced
technologies. Therefore, it requires the automotive manufacturers and car dealers to
understand the consumers’ preference on time and take fast actions to respond to market
changes quickly. Now-a-days new cars are launched very frequently with unique and
novel features. So, it would be very interesting to know consumers’ preference in today’s
fast-changing car market. This research paper attempts at studying the recent trends of
Indian Automobile Industry with special reference to car manufacturers. While
manufacturing a car, several features are incorporated into it. Features like luxury, looks,
uniqueness, car accessories, technical superiority, etc. could play an important role in
purchasing decision of car.
Today Indian automobile manufacturers are serving a wide variety of transportation
solutions across different levels. There is a drastic growth in sales and distribution setup,
which enables the automobile company to play a vital role. Moreover the company’s
5. A Study on Automobile Industry in India
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proximity to their raw material and component suppliers help them in reducing
procurement costs. Automobile manufacturers have clearly committed themselves to
supply the market with ever safer and more environment friendly products. Indian
automobile manufacturers are continuously investing huge in R&D for further product
improvements and in developing new propulsion systems. Talking about excise duty,
excise duty hike could affect demand recovery and profitability of four-wheelers, says
Budget review by Emkay Global Financial Services. In passenger cars, the risk arises due
to consumer preference for diesel, imminent fuel price hike, subdued freight rates and a
modest interest rate cut which may fail to spur demand as per expectations. In the near
term, used vehicles will enjoy higher demand (Source: SIAM, Emkay Research, DNA
March 23, 2012) In the same league, Insurance Regulatory and Development Authority
has revised the premium rates on third party motor insurance cover which will make it
costlier by up to 30%. As per revised rates, the private car owners have to shell out 4% to
6% depending on engine capacity.
India became the fourth largest auto market in 2018 with sales increasing 8.3 per cent
year-on-year to 3.99 million units. It was the seventh largest manufacturer of commercial
vehicles in 2018. The Two Wheelers segment dominates the market in terms of volume
owing to a growing middle class and a young population. Moreover, the growing interest
of the companies in exploring the rural markets further aided the growth of the sector.
India is also a prominent auto exporter and has strong export growth expectations for the
near future. Automobile exports grew 14.50 per cent during FY19. It is expected to grow
at a CAGR of 3.05 per cent during 2016-2026. In addition, several initiatives by the
Government of India and the major automobile players in the Indian market are expected
to make India a leader in the two-wheeler and four-wheeler market in the world by 2020.
One of the fastest growing industries in the world is automobile industry. This
automobile industries even has its influence on the Indian market. Probably automobile
industries occupy a large market share in the worlds market as well as in the Indian
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market. Nearly 18% of the total national income is being incurred from the automobile
industry. From this we can estimate how important is the automobile industry in the
improvement of GDP of a country. In India automobile industry has a growth rate is at
the average of 10-12%.
India is one of the fastest growing automobiles market in India. The automotive industry
is one of the highest revenue-earning industries in India and contributes 4.4% to India’s
GDP and 17.0% to the indirect tax collection. It is one of the largest sources of
employment due to its deep backward linkages (in metals — such as steel, aluminium,
copper — plastics, paint, glass, electronics, capital equipment, warehousing and logistics)
and forward linkages (including dealership retails, credit and financing, logistics,
advertising, repair and maintenance, petroleum products, gas stations, insurance, service
parts, etc). It provides direct and indirect employment to more than 13 million people. In
recent years, the automobile industry has seen an upsurge in its exports to other countries.
To understand the automobile industry better, lets divide the industry into various
segments.
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1.1 Scope of Study
Primary Study:
To know the influence of various Activities towards the customers of four
wheelers(cars).
SecondaryStudy:
To know the effective factors for preferring 4 wheelers(CARS)
To know the factor of awareness of the cars.
To Study and analyze the Promotional Strategies of Ford
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1.2 Statement of the Problem
The most important question is how a company can remain competitive in the face of the
turbulent transformations taking place in the automotive industry. The key to success lies
in being focused, responsive, variable and resilient, which can be accomplished by
converting to anon demand company. Adaptively to an ever-changing environment has
become the core business demand, requiring problem-solving tools and methods to be
identified, selected and implemented quickly. Focused, responsive, variable and resilient
are different behaviors required to become more adaptable behaviors whose features
correspond with the exigencies of the business objective.
If you are hungry at lunch time, you will responsively take a break so that you can
afterwards again focus on your work. The vitamins in the salad you had for lunch make
you resilient against influenza. Thus you can variably adjust to different weather
conditions on the way back home without catching a chill. Transforming this analogy to
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business, a car manufacturer has seven major strategic levers to enable such adaptive
behavior
1.3 Objectives of the Study
1. To analyze the factors influencing the Indian automobile industry management.
2. To study the automobile industry requirement for the textile industry.
3. To have sufficiently high level to perform production and sales activities smoothly.
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CHAPTER 2:
HISTORY OF AUTOMOBILE INDUSTRY
2. History of Automobile Industry
Indian Automobile Industry Since 1947:
Its fascinating drive through history, which begins as a story of isolation and missed
opportunities to one of huge potential and phenomenal growth. India’s fixation with
socialism and planned economies had a crippling impact on the automotive industry in
its formative years. The goal at that time for independent India was self-sufficiency.
Issues like quality and efficiency were simply not considered. Dependence of foreign
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technology was banned and manufacturers were forced to localize their products; import
substitution became the order of the day. Though we learnt to localize, the cars we made
were all outdated designs with little or not improvements for decades. The automotive
industry stagnated under the government’s stifling restrictions and the Indian car buyer
was saddled with cars of appalling quality and even then there was a waiting list that at
one point stretched to eight years. This attempt at self-reliance failed miserably because
of the industry’s isolation from the best technology. The Japanese and later Korean auto
industries were also highly protected in their formative years but they never shut the
door on technology. Instead, they relentlessly tapped the best talent pools in the world
to absorb the know-how to produce good cars. One of the most important chapters in
the Indian automotive industry’s history was written by Maruti. It marked the Indian
government getting into the far business in the early 1980’s, a radical shift in thinking
after decades of treating cars with disdain. The Maruti 800 went on to become the staple
car of India and put a nation on wheels. This little car set a benchmark for price, size
and quality and structured India as small car market.
It wasn’t till 1993 that things really started to change for the Indian car buyer.
With the liberalization of the economy, a host of international carmakers rushed in. But
most of them were in for a shock as Indian customers rejected their product. Indian
customers refused to allow the glitter of prestigious brands blind them to the outdated
and overpriced products they were offered. The Indian consumer wanted super value,
and rewarded the brands that delivered it, handsomely. Hyundai and Maruthi delivered,
and profited.The period also saw the emergence of the Indian players like Tata Motors
and Mahindra & Mahindra. They rose to the challenge of the MNC’s and responded
brilliantly with the Indica and the Scorpio. This was ironically due to the license raj that
forced Indian carmakers to be innovative and develop products frugally. India’s frugal
engineering skill has now caught the world’s imagination, and an increasing number of
carmakers are preparing to setup major capacities here.
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India is changing. And changing fast. It’s moving forward. India’s largest-selling car is
not its cheapest car, the 800. It is the Alto. People’s aspirations are rising and so are their
mistakes, have got their finger on the pulse of the market. Get the right product and the
rewards are handsome. The Indian auto industry is today bubbling with promise and
confidence.
CHAPTER 3:
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LITERATURE REVIEW
Pawan Kumar Goenka, President – Automotive & Farm Equipment Sectors (2013)
“The industrial scenario in general and the auto industry in particular have been going
through tough and troubled times. Today, the Indian auto industry is facing an extremely
challenging situation in the form of a prolonged slowdown. Sales for medium and heavy
commercial vehicles have declined for 16 consecutive months, while passenger car sales
have declined for eight consecutive months, including the first quarter of FY14.
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According to Mr. Jawahar Lal Wadhwa, Independent Automotive Professional
(2013)
“Within next 5 years, the automotive scene would begin to change to alternative sources
of energy, especially to electric systems, hydrogen cells and hybrid usage. USA is
currently leading the research and lots of prototype vehicles are already under trials. This
may bring in revival of American car industry, which is under distress. China is faster
than any economy to absorb or copy this technology.”
Abhijeet Singh and Brijesh Kumar (2011)
Hero Honda Motors Ltd, is running a program called Good life Passport to Relationship
Reward, with an objective to create an innovative environment for interaction between
Hero Honda and its customers. Members of this program are given a magnetic card in
which all information is stored and this card is swiped when using any service at a
showroom or workshop and it works like a loyalty benefit card.
Abhijeet Singh (2011)
Tata Motors uses a customer relationship management and dealer management system
(CRM-DMS) which integrates one of the largest applications in the automobile industry,
linking more than 1200 dealers across India. CRM DOS has helped Tata Motors to
improve its inventory management, tax calculation and pricing. This system has also
proved to be beneficial to dealers because it has reduced their working capital cost.
Arvind Saxena (2010)
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India (HMIL) “No company in automobile sector can fight competition on price.
Companies need to have the right product, distribution, CRM and after sales service
network to grow.
Biswajit Mahanty and Virupaxi Bagodi (2006)
The success of two wheeler manufacturers in India depends on the competitive advantage
gained by them through after sales service and providing and maintaining customer
satisfaction in the face of rapid changes in technology is a difficult task, which can be
overcome by timely addition of capacity and upgrading of technical manpower and
focusing on the CRM programs.
Biswajit Mahanty and Virupaxi Bagodi (2007)
More than 55 million two-wheelers are moving on Indian roads. Accordingly, two-
wheeler service sector should have generated revenue amounting to INR 100,000 million
per year, but in reality, this has not been realised in the organised service sector, the
Indian two-wheeler service industry has not considered servicing as a line of business
and providing conveniently reliable services is most important in two-wheeler services in
India to capture the market.
Biswajit Mahanty and Virupaxi Bagodi (2008)
It is an era of customer delight for the two wheeler industry and the conventional
measures implemented by the service organizations tend to be inadequate to attract
customers persistently.
Gordon Fullerton (2006)
“Chrysler Automobile Company, has served a classic example of CRM program that
provides a considerable value to both the customers and the firm by developing a
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program exclusively for jeep owners and fostered a community that is highly effectively
committed to the product, the brand and the customers.
Kevin Keller (2012)
Caterpillar has become a leading firm by maximizing the total customer value with the
help of effective CRM , best after sales service in the industry and better trained dealer.
This allows the firm to command a premium price of 10% to 20% higher than
competitors such as Volvo, Komatsu etc.
Michael Cusumano, Steve Kahl and Fernaando Suarez (2008)
The theory of services in product industries”, has concluded that in many product
oriented industries, services have become increasingly important. In case of automobiles,
many automakers generate the vast majority of their profits from a service activity
closely tied to their product activity. The automobile industry overall generates a large
portion of its profits from other product-related service activities such as insurance and
repairs
Milind Bade (2011)
Bajaj Auto, has mentioned that Bajaj Auto Limited is currently trying to move the
industry from a commuter to a biker mindset and at present the focus of the company is
on keeping the sub brands and the mother brand different and the main motive behind
establishing individual brand is to create differentiation which would help Bajaj auto, as
an organization to develop relationship easily with its customers.
Mona J Fitzsimmons (2010)
They have concluded that the profitability of automobile manufacturers depends on
exploiting value added services for instance automobile manufacturers have discovered
that financing and after sales service can achieve significant profits.
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Oyama (2012)
Honda Motor wants to be number one in the Indian market and the company wanted
30% of Honda’s global sales to come from Indian operations by 2020. HMSI have had
issues related to production in the past with most of its models having the longest waiting
period in the country, this reduced in Honda’s penetration in the rural market, which is
less than a third of Hero Moto Corp.
Pawan Chabra (2011)
Nowadays every second bike sold in the premium segment is a pulsar and this shows the
dominance of Bajaj in the Indian market place, this was possible because the company
has been regularly making the alterations to make the motorbike look fresh at all times
and Bajaj today holds over 50% market in the premium segment (for FY 2010-2011)
followed by a distant second largest player Honda Motorcycle & scooter India with a
19% market share.
Philip Kotler (2012)
Harley – Davidson dealers ranging from the CEO to the sales staff,maintain personalized
relationships with customers through face to face and social media contact. Knowing
customers as individuals and conducting ongoing research to keep up with their
changing expectations and experiences which helps Harley – Davidson to define their
customers needs better.
R K Garg (2011)
CRM requires a seamless, single view of the customer with consistent cross-channel
interaction models and it is recommend that companies bundle all internal CRM
strategies into one comprehensive multi-channel strategy. More over if the two wheeler
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manufacturer integrate CRM with SCM, then product design and production planning can
be aligned with the customer information available, to increase customer loyalty.
S.Saravan, N Panchanathan and S Pragadeeswaran (2009)
Consumer Behavior Towards Showroom Services of Two- Wheeler with reference to
Cuddalore District” that students and employees are more satisfied about showroom
service and age of consumer is an important factor while choosing the brand of bike and
all the consumers give importance all factors relating to buying a vehicle.
CHAPTER 4:
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OVERVIEW OF AUTOMOBILE INDUSTRY
4. Overview of Automobile Industry
The Automotive Industry is comprised primarily of the world’s largest passenger
automobile and light truck manufacturers. Through broad dealership networks, most
members of the industry sell vehicles in the global market, covering developed and
emerging countries. Automotive manufacturers offer a variety of makes and models,
though there tends to be limited brand integration at the marketing, advertising, and
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dealership levels. The bulk of these companies operate production facilities in multiple
geographic regions.
Automobile manufacturers are subject to the demands of a vast international pool of
customers. Economic conditions affect overall industry sales. Car lot traffic perks up
during a boom period, and empty showrooms are commonplace during a downturn.
Driving habits can change according to the economic cycle, and therefore, product
lineups are always shifting, with new models, innovations, and technologies being
developed to meet these demands. As a result, dealerships try to showcase a wide range
of offerings, from small compact cars to sedans to light trucks and sport-utility vehicles
(SUVs). Drivers’ tastes and finances are varied and often change. Thus, showrooms will
often have sports, economy, family, and luxury cars on hand to meet customers’ desires.
Luxury brands, with their high quality standards and advanced features, sell at premium
prices and carry rich margins.
The price of gasoline (and diesel fuel) is an important factor influencing customer
demand. Indeed, the rise and fall of gas prices since the 1970s has caused buyers to place
varying degrees of emphasis on vehicle fuel efficiency, durability, engine power, and
quality. Accordingly, market categories and product lineups evolve to meet customer
preferences. Examples are crossovers, which combine the features of an SUV and the
traditional car, and hybrids, utilizing the benefits of gasoline and alternative power
(electric) sources. In order to stay profitable, manufacturers and dealers must properly
gauge demand and carry the optimal mix of autos for each period in the business cycle.
To assist customers with purchases, and support sales, many companies offer low-rate
financing programs and attractive incentives, such as discounts and cash back.
Warranties, covering defects and repairs, are another means to lure drivers into
showrooms. Another way to generate revenue is to provide vehicle leasing
The auto industry is both capital and labor-intensive. These companies have to manage
numerous costs and expenses associated with facilities, materials, parts, equipment,
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product development, and employment. At times, the prices of key raw materials, such as
steel, can surge to record levels, requiring a nimble hedging strategy. Research &
development and marketing and advertising expenses will have a discernable impact on
the cost budget, as well. Too, given the seasonal nature of demand and new product
launches, effective working capital management is crucial in supporting sales and
controlling costs and expenses.
The cost of labor has a big impact on competitiveness and profitability. North American
and European manufacturers are heavily unionized. Though their power and influence
has been waning for a number of years, members of the United Auto Workers, for
instance, still make up a good portion of the U.S. and Canadian work forces and have an
effect on the industry’s health. Medical and pension benefits are substantial and can be a
competitive disadvantage, especially compared to car makers based in Asia, where wage
costs are lower. Domestic union salary and benefit concessions, and import tariffs, help to
narrow the price advantage of foreign competitors.
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CHAPTER 5:
RESEARCH METHODOLOGY
6. Data collection technique
Primary Source of Data
The information collected or generated by the researcher for the purposes of the project
immediately at hand. For example, an investigator wants to know about the level of job
satisfaction enjoyed by the workers industry. He can prepare a schedule and meet a
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sample number of workers and ask for their opinions. This is going to be the information
collected for the object of this study and therefore becomes primary in nature. When the
data are collected for the first time, the responsibility for the processing of data also rests
with the original investigators. Ordinarily, experiments and surveys constitute the main
sources of primary data. For better understanding of the nature of primary sources of data
advantages and disadvantages will have to be studied.
Secondary Sources of Data
Secondary data refer to the information that has been collected by someone other than a
researcher for purposes other than those involved in the research project at hand.There
are various factors such as the nature of the study, status of the investigator, availability
of financial resources, time and degree of accuracy of the results desired, that decided the
choice of the sources of data that enriches the utility of the study. The study of this
project is made with the help of secondary data.
1. Internal Sources: This data is collected from the organization.
1. With the help of storage data in the organization as well as information got from Store
manager who gives fair idea of how inventory management is done in the organization.
2. By observing internal Inventory related Reports and Documents like Bin Cards,
Purchase Order, Goods Receipt cum Inspection Note etc.
Recent Trends in indian Automobile Industry:
Today Indian automobile manufacturers are serving a wide variety of transportation
solutions across different levels. There is a drastic growth in sales and distribution
setup, which enables the automobile company to play a vital role. Moreover the
company’s proximity to their raw material and component suppliers help them in
reducing procurement costs. Automobile manufacturers have clearly committed
25. A Study on Automobile Industry in India
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themselves to supply the market with ever safer and more environment friendly
products. Indian automobile manufacturers are continuously investing huge in R&D
for further product improvements and in developing new propulsion systems.
Talking about excise duty, excise duty hike could affect demand recovery and
profitability of four-wheelers, says Budget review by Emkay Global Financial
Services. In passenger cars, the risk arises due to consumer preference for diesel,
imminent fuel price hike, subdued freight rates and a modest interest rate cut which
may fail to spur demand as per expectations. In the near term, used vehicles will
enjoy higher demand (Source: SIAM, Emkay Research, DNA March 23, 2012)
In the same league, Insurance Regulatory and Development Authority has revised the
premium rates on third party motor insurance cover which will make it costlier by up
to 30%. As per revised rates, the private car owners have to shell out 4% to 6%
depending on engine capacity.
In the same league, Insurance Regulatory and Development Authority has revised the
premium rates on third party motor insurance cover which will make it costlier by up
to 30%. As per revised rates, the private car owners have to shell out 4% to 6%
depending on engine capacity.
Category Increase
Private cars* 4-6%
Two wheelers# 6-8%
Tractors 8%
Public carriers$ 10-21%
Public carriers-3 wheelers 10-28%
Private carriers-3 wheelers 32%
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Table 1- Vehicles List
*Higher the CC, lower the increase #no increase above 350 CC
$no uniform pattern @passenger liability by 5%
(Source: Bharti Axa General Insurance, DNA March 29, 2012)
Two-wheelers: The global two-wheeler market size stands at 55 million units with
China and India accounting for around 45% of the market. Given the income level
and the warmer climates, two-wheelers are popular
The auto industry which was expecting a drop in car sales for the full fiscal 2011-12
now sees the ending in the positive territory on the back of good numbers in January
and February. Diesel cars and utility vehicles continued with their strong show in
February. Vans and utility vehicles grew 25.34%and 30.04%, respectively.
Commercial vehicle sales grew 18.70% in the last month year on year. Two-wheelers
Agri tractors-up to 6 HP 20%
Taxis@ (up to 6 seats) 10-22%
Buses@ (above 6 seats) 23%
3 wheelers@ (up to 6 seats) 28%
3 wheelers@ 6-17%
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20%
Car Sales…
15%
10%
5%
0%
‐5%
10%
15%
20%
25%
sales grew 11.96% over February last year, while three-wheelers sales dropped
13.58% ( Source: DNA March 13, 2012)
Car SalesGrowth
6.1 Data Analysis and Interpretation:
The data collected was subjected to data analysis using non parametric chi-square test
as the sample is small and it fulfills the requirement of the study. It was hypothesized
that the choices for purchase of car is equally distributed on five features namely
uniqueness, luxury, looks, technical superiority and car accessories.
So, the probability of obtaining any one factor over five features is 1/5 and as such the
expected frequency of any one feature coming upward is 50/5 = 10. By using
observed frequency along with expected frequencies, the value of chi-square (X2)
was worked out.
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FACTORS OBSERVED
FREQUENCY(O)
EXPECTED
FREQUENCY(E)
X2
VALUE
Uniqueness 2 10
Luxury 4 10
Looks 14 10 21.60**
Car-accessories 10 10
Technical superiority 20 10
** significant at 0.01 level
The table reveals that that the technical superiority effect significantly the decision
making by the car buyers of Mumbai.
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CHAPTER 6:
FINDING AND CONCULSION
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FINDINGS:
Based on the analysis, following results emerged:
The null hypothesis was rejected as there has been significant difference
between the obtained and expected X2 values at 0.01 level.
There has been significant difference in two features i.e., technical superiority
and uniqueness. Therefore, the car purchasing decision is most affected by
technical superiority and least affected by uniqueness.
There is a significant positive relationship between all the considered features
and consumers’ car purchasing behaviour
Conclusion:
The Indian automobile sector is a key player in the global and Indian economy.
The automobile and auto- component industry has emerged as one of the recent
success stories. As in all other countries, the Indian automobile industry is one of
the key drivers of industrial growth and employment which will further gain in
importance in the coming years. In addition, the auto industry is linked with
several other sectors in the economy and hence its indirect contribution is much
higher than this. All over the world it has been treated as a leading economic sector
because of its extensive economic linkages. Moreover, the role of features of car
cannot be ignored in the success story of Indian automobile Industry.
Automobile manufacturers should consider the features as an integral part of
manufacturing. It is suggested to incorporate the combination of various features in
order to meet the emergent needs of the consumers. Small car market is changing at
a very fast pace so it required to develop novel features to sustain global
competition.
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