FACTORS AFFECTING DEMAND OF AUOTOMOBILES

Even though the focus in economics is on the relationship between the price of a product and how much consumers are willing and able to buy, it is important to examine all of the factors that affect the demand for a good or service. These factors leads to shift in he demand curve and following are the two ways in which demand curve can shift. A) Increase in Demand B) Decrease in Demand

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1. Financing Options
Auto industry observers cite car loans as the biggest driving factor for the expansion of the Compact Car segment. At present, almost 85 per cent of all new car sales are backed by auto finance, compared to 65 per cent five years ago. Interest rates on car loans have come down drastically in the past four or five years, which helps prospective buyers take the plunge. The growth of the CC-segment in the past few years can be mainly credited to factors such as rise in income levels leading to increased affordability and simultaneous reduction in interest rates leading to lower EMIs. The drop in interest rates usually helps very few people to probably shift from the base model to a deluxe model. A larger shift happens if people are willing to take longterm loans, like five years instead of the earlier three-year loans.

2. Advertising and Marketing

Due to the advertising techniques adopted by all the manufacturers in the CC-Segment the sales have risen drastically. It is all due to because the companies now days are using even aggressive selling techniques for which they are even coping with the Film celebrities and Cricket stars, Hyundai has contracted for Shah Rukh Khan. And the companies are even trying to approach to the customer as to there demand for a vehicle at special interest loans, etc. They are using data according to the customers return and earning capacity for attracting the customers for there vehicles.

Price

3. Price of the Car

One of the major factors that affect the demand of any commodity in the market is the price of the commodity. As the law of demand also states that with an increase in price the demand of the commodity decreases and vice versa. Since, in the compact car segment market even there are very less competitors there is stiff price competition. Like the price of Zen in 2001 was Rs. 3.93 lacs which increased to Rs. 4.01 lacs in 2005, but still the sale of the Maruti brand keeps on increasing it was due to the companys reputation with the customers.

4.Income Of Consumer / Buyer

The income of the consumer or buyer of the car is a very important factor of demand. In recent time we have seen that due to increase in the Income of the general public, there has been a shift from the Lower CC-segment cars to the Upper CC-segmentcars.2 Due to the recent increase in the number of multinationals in India, the income level of the employees have risen drastically and has made CC-segment cars an entry level car for a lot of people. The average age of a CC-segment car owner has also dropped from 35 years to 31 years in India.

5. Increase in Affordability
The demand for passenger cars is driven mainly by greater affordability, which in turn increases the aspiration level of the customers. Today with high amount of disposable income in the hand of Indian youth, who forms major portion of the population, PV market has larger addressable market.

6. Demographic Drivers
Cars being aspirational products, purchase decisions are influenced by the overall economic environment. Increase in per capita income increases the consumption tendency of the customer. Growth in per capita income and rising aspirations and changing lifestyle is leading to increased preference for cars over two-wheelers, which is also having a positive rub off on car demand.

7. Availability Of Easy Financing Options

A majority of PV purchases are financed through financial institutions. Over the past4-5 years car industry has been benefited through significant increase in affordability due to the decrease in EMIs. Car finance rates dropped from 17% in 2000-01 to 11%in 2005-06. However it has increased and averaged at 13.75% in 2006-07. The current hardening of interest rates is expected to affect demand by reducing affordability.

8. New Offerings
Car sales increase when a new model hits the market. Due to escalation in competition in Indian car market, frequency of new model launches has increased. In the past one year only the Indian car market has seen many launches namely SX4,Swift Diesel, Zen Estilo, Spark, Logan, etc.

9. Exports
The share of exports from domestic production is currently at 12-13%, which is much lower than current export hubs. Currently, Indias share of global passenger cars export volume stands at less than 1%. But India is fast emerging as a manufacturing hub for leading global car makers, and several manufacturers have already firmed up plans for setting up manufacturing bases in India, which will also be used for exports.

10. Strength of business demand for new vehicles.

These are cars bought as fleet vehicles for example by taxi firms, fleet cars required by car hire businesses and new vehicles used by utility companies and the police force. Demand for fleet cars picked up in the second half of 2010 but 2011 may see a decline in demand in part because of public sector spending cuts.

11. The cost of running a vehicle

The costs of running a vehicle continue to rise well above the average rate of consumer price inflation. Petrol prices are at a record high and car insurance premiums are increasing at a rapid rate. High petrol prices do not always bring about a fall in demand for vehicles since a new car is often more fuel efficient than an older offering the buyer the chance to save money.