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Old 2nd November 2011, 07:45   #91
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Default Re: Big Money + Big Talent = The overpriced market dud. How?

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Originally Posted by Sutripta View Post
Thanks for sharing this. Good to hear straight from the horses mouth. Liked the term "Fast Moving Consumer Technology" industry with a balance of Physics and Pschycology being used by Mr.Rajiv Bajaj.
I think he has made some very good points in the article.
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Old 2nd November 2011, 09:02   #92
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Default Re: Big Money + Big Talent = The overpriced market dud. How?

About the pricing comparison with US, the ground reality is that about 99% of the population owns cars there and the car is a necessity. In india probably 5% of the population owns one and a person who owns a car will have substantial assets/income and a decent job. Hence it's common sense and good economics on part of the govt to have this 5% pay more taxes per car and that's why in india cars are much more costly than US.

Coming to overpriced market duds there are cars which are overpriced but still do decently in the market. Look at the polo which finds buyers even though the sales seems to be dropping a bit now. Even the swift is substantially overprices but it's a runaway success. So the bottomline is india is a hit or miss market which is governed by a lot of factors one of which is price.
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Old 2nd November 2011, 10:53   #93
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Default Re: Big Money + Big Talent = The overpriced market dud. How?

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Originally Posted by raul View Post
Where ppp comes in is in things like labour costs, A honda manager or worker in the US would make multiples of the same Honda worker here, so the costs for Honda is less as is the purchasing power of the Honda manager or worker in India and hence the reference to ppp. So why shouldn't it reflect in the prices?
One reason is due to the volumes.
Monthly sales of Honda CRV in USA is around 17,000 units.
Compare it to the SUV market of India- which would come to around 5000 units a month?
The higher volumes= more competitive pricing because the capital expenditure (which contributes to a good chunk of the cost) is spread over larger number of units.

Ofcourse, the fixed cost-variable cost-volume-margin is not the only reason for such price differences- competition, product positioning etc all plays a big part.
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Old 2nd November 2011, 11:16   #94
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Default Re: Big Money + Big Talent = The overpriced market dud. How?

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Originally Posted by phamilyman View Post
In any company, there are those who love the business and do their job with passion. Maybe the automotive sector has far more of such individuals - and which itself is understandable.
And you are wrong. Most people come to work in auto-industry by chance & not choice. How much? Approximately 90% I will say.
Yes, some people join the industry since they are initially interested. Everything looks good from the outside. But once in, you realise the ugly truth. Designing cars is limited to 10% of the people. Rest go to production, supply chain, service, Hr , finance & what not. Now out of the 10% most people work on a single component. Like say wipers. How cool is that?
Now there is still some scope in engines, transmissions etc. But there also you are limited to a handful components. Like say the differential, or the valve. There is no person who single handedly designs the car. If you think you are joining the auto industry for this you are wrong.

Now the interesting pact of the auto industry is marketing. (not the whole part but a tiny one). And that is deciding the product that needs to be launched. But there as well there are political issues that can keep even the top management's lips sealed.

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BUT - the general pay scales of the automotive sector are quite behind the rest of the market, so what you've said in bold really does not apply.
I personally know 10+ friends from the auto sector who left that sector simply because of the money - whether at the starting level, mid level, or at the director level. Of course, the examples are limited to GM, Ford, Fiat's vendors and Maruti.
+1 to that.

Last edited by oxyzen : 2nd November 2011 at 11:17.
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Old 2nd November 2011, 11:32   #95
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Default Re: Big Money + Big Talent = The overpriced market dud. How?

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Originally Posted by oxyzen View Post
And you are wrong. Most people come to work in auto-industry by chance & not choice. How much? Approximately 90% I will say.
Yes, some people join the industry since they are initially interested. Everything looks good from the outside. But once in, you realise the ugly truth. Designing cars is limited to 10% of the people. Rest go to production, supply chain, service, Hr , finance & what not. Now out of the 10% most people work on a single component. Like say wipers. How cool is that?
Now there is still some scope in engines, transmissions etc. But there also you are limited to a handful components. Like say the differential, or the valve. There is no person who single handedly designs the car. If you think you are joining the auto industry for this you are wrong.

Now the interesting pact of the auto industry is marketing. (not the whole part but a tiny one). And that is deciding the product that needs to be launched. But there as well there are political issues that can keep even the top management's lips sealed.


+1 to that.
Completely agree to your comments and have experienced this first hand! I was among the few people who actually joined Automobile industry by choice after doing mechanical engineering. I was initially in Engine research and then in sales and service. The inside reality of most of the large organizations is completely different from what outsiders perceive. They are driven less by passion and more by bureaucracy! Some of the automobile manufacturers (large ones) have left very little scope for creativity in their teams and car designs are driven more by paper economics than by real consumer needs / desires.
Post my masters in Marketing, I consciously chose to move out of the Auto industry, though it is still very close to my heart and I do hope to go back someday to an organization which is built on freedom and creativity!

Regards,
Behemoth

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Old 2nd November 2011, 12:55   #96
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Default Re: Big Money + Big Talent = The overpriced market dud. How?

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Raul,

Like I said - you first painted a very broad rhetorical brush and now when pointed out, you are talking only of CBUs/CKDs. If you want to talk of the "Indian" market, talk of cars assembled here. Then it is a relevant comparison.
You continue to misrepresent the points I am making here. Where do I reference CBU/CKDs? Please read my posts carefully before responding out of context.

"The India car market is overpriced compared to other markets, never mind taxes, even for equal income, get in purchasing power parity and folks income levels here and it becomes hugely so".

That is the statement you originally quoted, as you can see its not about ppp, but is one of the points among many, you choose to focus on ppp.

As I explained in my next post in response to you choosing to highlight only ppp in my entire post - if people are paid less and the cost of business is less in India then naturally the end product should also be less, and gave the specific example of Accord which is $21k in US and 20 lakhs here, and there are other examples.

The gap is so huge ppp doesn't event come into play here, we are paying 20 lakhs for the same car that US folks are paying 10 lakhs for! Why? Do you have any insights on this?

If we introduce ppp into this equation forget being double the price the Accord should be cheaper here given Honda labour costs and costs of business is lower here than in the US, but of course its double the price which seems excessive, hence the purpose of this thread on the rationale for car pricing here.
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Old 2nd November 2011, 13:06   #97
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Default Re: Big Money + Big Talent = The overpriced market dud. How?

I was being overly positive in my views lacking a 1st hand experience, and going by a lot of the hype here on TBHP (petrol head CEOs blah blah) - glad to know my cynical belief is right - so much for hiring the "smartest out there"

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Originally Posted by oxyzen View Post
And you are wrong. Most people come to work in auto-industry by chance & not choice. How much? Approximately 90% I will say.
Yes, some people join the industry since they are initially interested. Everything looks good from the outside. But once in, you realise the ugly truth. Designing cars is limited to 10% of the people. Rest go to production, supply chain, service, Hr , finance & what not. Now out of the 10% most people work on a single component. Like say wipers. How cool is that?

Now the interesting pact of the auto industry is marketing. (not the whole part but a tiny one). And that is deciding the product that needs to be launched. But there as well there are political issues that can keep even the top management's lips sealed.
I have a friend who was in BMW , but who left because marketing real estate just makes that much more money - even within a corporate strait jacket.

So then, its like any industry - people work for a paycheck (not the very best that they can do), internal politics is always there. Then occasional duds will be there, no?
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Old 2nd November 2011, 13:16   #98
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Default Re: Big Money + Big Talent = The overpriced market dud. How?

I see this quote "common sense is not so common" often used in many discussions and arguments. But the point is, what we categorize as 'common sense' is mostly 'logically correct things', which may not be common. Common senses and logically right senses mostly work in opposite directions in this world, especially true in our developing country. Most of the us BHPians think logically and we assume majority will think like us and we attribute it to be common sense. For example, take the case of Punto MJD E+ and i20 CRDI Sportz models, which are similarly priced. A logical brain will choose Punto over i20, because it has extra Airbags, Alloy Wheels, better ride and handling. Try to convince a perspective commoner to buy Punto over i20, 80% of time you will see him next day at Hyundai booking i20. His simple reasons can be 'he has seen it everywhere', 'its interiors look better' and 'its engine sounds better'. Logically, these are not factors that should be rated higher than safety, build quality, ride and suspension. So, what we feel 'common sense is not so common' is true for both manufacturers and car buying public. The difficulty for manufacturer lies in identifying what is common sense in public, not what logically they think is 'common sense'. It is true for 'n' number of other things in this country. Just look at politics, many educated people in this country know, which politician is good for this country. But many good politicians loose elections and only politicians, who touches 'common sense' of the majority people gets elected in our country. And that majority 'common sense' is not logically correct for this country and as a whole we are moving much slower than our potential. A true and great leader is one who understands this majority's common sense, but moves them in a direction which is logically better to whole.

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Old 2nd November 2011, 13:26   #99
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Default Re: Big Money + Big Talent does not matter

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you can hire an IIM topper, and put him in charge, but that will not mean he will give results. Any industry which involves product development and marketing also requires, that the people who are involved are chosen not just because of their college and education, but also for their aptitude.
Forget getting the toppers, I don't think any of the Auto Companies get the campus slot at any of the IIMs. I have come across very few IIM Grads especially so in Freshers level Roles in auto companies. It seems the Autos can't match the salary benchmark established by Consults, Finance and FMCG companies. (thanks in big parts to our consumer tendencies of demanding more for less )

Also, even if one gets hired from IIMs he still has to go through the learning of products, processes, branding, consumer understanding and product development cycle and doesn't head or is in-Charge of any of these processes for at-least 15 years.

So the Question here truly has nothing to do with aptitude or experience level of people who are making decisions. I believe it has more to do with matching the individual companies internal strengths, availability of resources and pricing positioning the products in the best possible way.

I do not have an iota of doubt that all the auto companies would be doing their best in matching their internal competencies with consumer expectations. Its just that some time it is possible and some time its not. Also it has to do with top management's focus. for Example Fiat is failing here in india and still succeeding in US market (with Chrysler) why? Simply because their top management's focus is currently the US and hence the allocation of resources (Funds, Manpower and mind-space) is for US and not India.

If not for this rationing of resources, all companies have equal information about individual markets, thanks in big part to internet, and would have launched all their products at best possible prices with more or less similar overall localization and other strategies.

Last edited by anu21v : 2nd November 2011 at 13:29.
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Old 2nd November 2011, 13:39   #100
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Default Re: Big Money + Big Talent = The overpriced market dud. How?

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I believe no matter how bad a product is, (not as bad as Nano) a value for money pricing can buy it a ticket in the number's game. Take Dzire for example... Interiors are spartan. ... But it still sells and sells like hotcakes.
A VFM product will sell. OK. But DZire interiors are spartan? IMO, it's the best among its competition like Accent, Fiesta Classic, Verito, Sunny and Indigo. Otherwise, you would be the follower of 'only white is beautiful' thought.
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Old 2nd November 2011, 16:39   #101
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Default Re: Big Money + Big Talent = The overpriced market dud. How?

Very surprised to see the Logan in the list, i had no clue it was over priced. Guess I never thought of it as an option
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Old 2nd November 2011, 18:23   #102
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Default Re: Big Money + Big Talent = The overpriced market dud. How?

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Originally Posted by trakesht View Post
One reason is due to the volumes.
Monthly sales of Honda CRV in USA is around 17,000 units.
Compare it to the SUV market of India- which would come to around 5000 units a month?
The higher volumes= more competitive pricing because the capital expenditure (which contributes to a good chunk of the cost) is spread over larger number of units.

Ofcourse, the fixed cost-variable cost-volume-margin is not the only reason for such price differences- competition, product positioning etc all plays a big part.
But volume is a function of price. If the CRV was 50k USD in the US that 17000 volume would be a distant dream. If it was 12 lakhs in India as it is in the US ($25K) it would get volumes.

And growth can only happen from here, more volume is more employment and more growth in the economy, overpricing your cars only benefits a few people in a country of wide disparities.

This of course will not apply to super expensive segment where volumes will be low untill more income parity happens.

Look at the XUV, its $28k, around the same price that folks in the US pay for a soft-roader like CRV, Tiguan or RAV4 and they have clocked 8500 bookings in days, and had to close bookings!

The curious things is we find XUV priced well, even cheap, few in the US would every talk about the softroaders being cheap, and this when they cost a fraction of their yearly income. So there is an issue for us in the Indian market

Last edited by raul : 2nd November 2011 at 18:25.
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Old 2nd November 2011, 18:46   #103
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Default Re: Big Money + Big Talent = The overpriced market dud. How?

Without having gone through all the seven pages of this thread, here are some quick observations:

Most of the cars are technically very very competent. The failures have occurred because of the marketing or the brand positioning of the product. So we must check if the marketing departments of these manufacturers have got any smart brains. I would bet all the bright boys are pulled into R&D, engineering, design and such areas, while the branding/marketing usually is handled by the same people who have been handling it for years. How many times have you heard the companies have formed separate marketing teams to position the product correctly?

To take an example, Tatas may be able to sell a Land Rover at a premium only if they don't call it Tata Land Rover. The moment they call it Tata Land Rover, the image of the product in people's mind will be something along the lines of the Sumo. They will expect the product to be priced accordingly.

In case of Renault, I don't believe they classify as a company which has deep insight into the Indian market. Except the Nissan Micra (which still isn't a success story), they haven't had a product of their own that they marketed.

And lastly, GTO, I don't know if you are calling yourself a layman on the subject of cars out of sheer modesty, but that's another statement that comes across as being incorrect ;-)
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Old 2nd November 2011, 19:08   #104
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Default Re: Big Money + Big Talent = The overpriced market dud. How?

I have another thought to ponder.

When a product becomes a dud (based on sales charts), how come no one from the media questions the top management?
Has any one seen any such interview where the company management has defended the pricing strategy?
At least that should provide some insight.

I somehow cannot believe that media would never ask such questions.
And if they ask, where are the transcripts of these sessions? I can't seem to find them either online or in print media.

Last edited by ampere : 2nd November 2011 at 19:14.
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Old 2nd November 2011, 19:45   #105
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Default Re: Big Money + Big Talent = The overpriced market dud. How?

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I somehow cannot believe that media would never ask such questions.
And if they ask, where are the transcripts of these sessions? I can't seem to find them either online or in print media.
For media, there are more important things like advertising revenue, frequent abroad trips to showcase some upcoming car, exclusive scoops etc etc.

That is the difference between being professional and being commercial.
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