11
September 2018
The Global Low
Cost Car Market
size was estimated to be over 80 million units in 2015. Increasing purchasing
power parity along with mobility needs are expected to drive market at a
healthy CAGR. High demand from first-time vehicle buyers is supposed to further
boost the growth over the forecast period.
After
global recession of 2008, major companies in automotive industry found it
difficult to balance between future market demand and financial crisis.
However, inexpensive vehicles proved to be an answer to tackle this crisis.
Rising automotive demand from middle class customer segment also played a
crucial role in recovery from the economic crisis.
Cheap
car prices range up to USD 9000. Inexpensive cars are designed by keeping
low-income group in mind. Lower per unit profit margin can be compensated by
bulk sale volumes. Easily available financial assistance is expected to be a key
market driver. Increasing income level of middle class in emerging regions is
another major driver for low cost car market. Government subsidies providing
the required leverage is anticipated to bode well for the budget vehicle
segment.
Increasing
popularity of online vehicle stores is expected to emerge as an attractive
option for car manufacturers and customers as it cuts down cost of appointing
new distributors. E-commerce also provides customers with a choice of buying
vehicle directly from the distribution center. Cost constraints restrict
automotive manufacturers from employing advanced technologies and cars only
have simple mechanical assemblies. Budget vehicles are designed in such a way
that they can be repaired by local mechanics. This makes them an affordable
option for consumers.
Passenger
safety is one of the greatest challenges as manufacturers find it hard to use
higher security components under specified budget. Emission regulations like
EURO III and EURO IV and other such stringent safety and environmental
regulations make it difficult to keep production cost to a minimal. Diverging
market conditions, digital demands, and shifting competitive landscape are
other challenges faced by budget vehicle manufacturers.
Stringent
environment regulations require automotive pollution control, which mainly
depends upon overall vehicular weight. Use of low weight high strength
materials such as composites can be a solution but expensive solution. Hence,
cost constraints associated with inexpensive cars makes it challenging for the
manufacturers.
Strategic
alliances with suppliers are expected to be a key to maintaining profitability
in the low cost car market. Budget cars are based on the design to cost
concept. This concept provides an array of opportunities for suppliers to
participate with significant responsibility. Examples of such opportunities
include engine controls and anti-lock braking systems developed by tier-1
suppliers like Bosch. The company has partnered with TATA Motors for developing
common rail diesel injection system for a new model of TATA Nano.
Growth
of this market largely depends on the quality of end product. Sometimes the
entire business model has to be reviewed to achieve the same. Manufacturers are
setting up facilities in high demand markets. This gives strategic advantage to
the companies familiar with local markets as they have detailed knowledge about
pricing trends and key purchasers.
Based
on fuel type, inexpensive cars can be either petrol or diesel. Petrol fueled
vehicles were expected to enjoy a greater share owing to price sensitivity of
first-time buyers. Petrol engines being cheaper than diesel engines are
supposed to be the preferred choice amongst consumers in this segment.
India
and Southeast Asia are expected to be the emerging markets for low cost cars.
Meanwhile, Chinese and Russian markets are projected to move beyond the cheap
vehicle segment due to increase in income levels. Asia Pacific is anticipated
to dominate the global market in terms of sales, with China being a key market.
India is also anticipated to emerge as a prominent region by the end of the
forecast period.
Lower
entry level prices are supposed to generate a larger customer base. Pricing
policies will be of strategic importance for such price sensitive segments.
Major companies operating in low cost vehicle market include TATA Motors,
Maruti Suzuki, Hyundai, Renault, Chery, Geely, and Fiat. Most players are
primarily focusing on launching new brands specifically for budget cars to
create product differentiation.
For
instance, Renault acquired Dacia, a Romanian auto maker to introduce a cheap
car Logan in Europe and India. General Motors which introduced a mini car
Spark, is expected to introduce another budget vehicle in the coming years.
Skoda is planning to invest in product development with an aim to expand its
presence in India.
Other
modern low cost vehicle includes TATA Nano, Geely HQ SRV, Chery A-1, and Maruti
Suzuki 800. Large companies are focusing on cooperative agreements to
strengthen their position in emerging markets. Efforts put in by various
automotive manufacturers to increase market penetration is expected to foster
market growth over the forecast period.
Related
Category Market Reports @ https://www.hexaresearch.com/research-category/automotive-and-transportation-industry
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