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Old 18th August 2015, 14:20   #31
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Default re: A segment shift in the Indian car scene - So many cars now priced a level above!

It is just demand and supply.
Take Dzire as an example.
In Aug 2011, Dzire sold 7856 units
In Jul 2015, Dzire sold 23086 units.

In spite of the one lac price difference and reduced value (debatable in this case bacause the new Dzire is based on an all new platform), it is selling thrice as much.


On the other hand, consider Alto.
In August 2011, Alto sold 23710.
In July 2015, Alto sold 22212.

In spite of Alto being refreshed with better quality interiors and tweaked engine, how much price difference do you see? I'm guessing around 15-20k or so, variant to variant.


Ecosport was launched at a very VFM price. People poured into the showrooms. Ford hiked up the prices even when people were waiting to get their Ecosport. After hikes, it was no longer VFM. Do we still see prices going up? I guess not, apart from small hikes.
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Old 18th August 2015, 14:36   #32
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Default re: A segment shift in the Indian car scene - So many cars now priced a level above!

Quote:
Originally Posted by rockporiom View Post
The trend is in such a manner that the customer has got no option but to pay more for something that essentially hasn't changed much. This is what I call price fixing where the segment sets a price in such a manner that there isn't much difference between them and the customer has no other option other than paying up.
Think over this slowly again.
A jetta was worthwhile to you at 18 lacs.
To me jetta is worthwhile even at 24 lacs.
Even though perhaps nothing has changed at all in the car.
Why? I don't know. Why do people buy 50 lac priced diamond sets? To you it may be "overpriced" or "worthless", but to the person buying it it is not!

A person in a village may say that Jetta is not even worth it at 18 lacs, since he can buy 3-5 tractors at same rate, but to you it is worthwhile and therefore you chose to buy at 18 lacs!

We are buyers, we are competing against each other.
I find jetta worth 24 lacs that's why I am buying it.
You are finding jetta unworthy at 24 lacs, that's why you are not buying it.
Unfortunately we have more buyers like me in the market than you.
And that's why the prices are moving up.

If there were more buyers like you, who would not buy at 24 lacs, you think VW would keep a huge unsold inventory for long without becoming bankrupt?
Quote:
I am not suggesting a communist government here. A price increase should not be to such a tune that it appears foolish and stupid.

I am suggesting definition 1.
Definition 1 = communist definition of market price.
Definition 2 = capitalist definition of market price

Last edited by alpha1 : 18th August 2015 at 14:42.
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Old 18th August 2015, 16:24   #33
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Default Re: A segment shift in the Indian car scene - So many cars now priced a level above!

Quote:
Originally Posted by alpha1 View Post

Definition 1 = communist definition of market price.
Definition 2 = capitalist definition of market price
I would like to edit my statement. I would suggest definition 1 with an addition of the manufacturers profit as well.

In definition 2 a buyer and seller have to mutually agree at a price. But what is currently in the market the buyer is forced to pay more to get more, how would you call that capitalist?

Let's leave the Jetta aside. If I wanted a D segment sedan I could get a good one with an auto tranny at about 20 Lakhs OTR even in 2013. Now if I want a D segment sedan i am forced to increase my budget by 5 Lakhs. How is this a mutual agreement. It is more like all D segment sedans are 25 or above so I have to increase my budget rather than the seller decreasing the price (which would never happen).

The customer has been left without an option. So what does he do now? Simple either dig deeper in the pocket or downgrade. That is how the C2 is replacing the D Segment and that is the point i want to explain.

Let's take 2 group of people

Group X and Group Y

Group X may be the group of people that have incomw that can cope with the increasing costs.

Group Y may be the group of people that also have a good income but not increasing at a fast enough rate to cope with back to back price hikes.

Group X in this scenario remains unaffected.

But what does group Y do? Simple they compromise and go for a lower segment or a lower variant.

Prices may go up and the manufacturer has the full right to increase the cost but to what extent? At this rate a Honda city would soon cost 20 Lakhs. Now where is the D segement?

What you are saying means that there is no end to this increasing trend which is very worrying.
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Old 18th August 2015, 17:01   #34
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Default Re: A segment shift in the Indian car scene - So many cars now priced a level above!

Probably the best solution to this is to not buy a car and use Ola/Uber for your daily commute. If enough people start doing this, demand will fall and auto manufacturers will be forced to lower their prices again
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Old 18th August 2015, 17:17   #35
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Default Re: A segment shift in the Indian car scene - So many cars now priced a level above!

Quote:
Originally Posted by rockporiom View Post
In definition 2 a buyer and seller have to mutually agree at a price. But what is currently in the market the buyer is forced to pay more to get more, how would you call that capitalist?

What you are saying means that there is no end to this increasing trend which is very worrying.
You think from the perspective of a single buyer. Think from the market perspective.

For ex: A seller has 1000 cars and price it at 10L.
Two scenarios can happen
a) There are less than 1000 guys (say 500) who will buy the car at that rate. So to get 1000 buyers, the seller is forced to decrease the rate to say 8L or something
b) There are more than 1000 guys (say 2000) who are willing to buy that car at that rate. The manufacturer has their limits on production. So they can increase the price and still have 1000 buyers.

So, though not all the guys are agreeing to purchase the car at the new price, there is a subset who is agreeing on that price. That is what alpha1 says in the post above. As they say, the price is more or less market determined (At least that is the ideal capitalist scenario).

Last edited by vjjustin : 18th August 2015 at 17:19.
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Old 18th August 2015, 17:38   #36
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Default Re: A segment shift in the Indian car scene - So many cars now priced a level above!

My view on cars getting costlier:

1 Inflation - In India inflation rate is very high. Government figures shows 5-6 % but in actual its more than that.
2 Labour costs - In last 5-7 years, wages has increased like anything in Mechanical Industry in India. It includes packages for lower worker class to top level. Companies have to spend lot of money to get the work done and to get the talent.
3 Cost of electricity, real estate, other services - In last 5-7 years, all costs like electricity, property prices, water charges, security charges, house keeping charges has gone up drastically. It has also impact here in some percentage.
4 Cost of raw material - Companies has to spend more on the raw material, parts they buy from the suppliers. If you see carefully, most of the parts in any car are generally taken from some suppliers like Battery, tyres, seats, fuel pump, spark plugs, wheels & what not. So if prices are increased, auto companies has to increase the price of their car. Above points are applicable to suppliers as well, so they have to increase the costs of the parts they are supplying. Very few parts gets cheaper than previous cost.

If Auto-mobile manufacturers are making such huge profits as most of people are saying here, profits of Maruti should have been 10 times more than what they are actually doing now as they are selling thousands of Swifts, Dzire, Wagon R and Alto year on year. Costs of cars are going to get increased only over the years, we cant stop that. May be rate of increase will get reduced, hopefully

Last edited by aniketi : 18th August 2015 at 17:40.
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Old 18th August 2015, 17:39   #37
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Default Re: A segment shift in the Indian car scene - So many cars now priced a level above!

Blaming general inflation would be inappropriate here because it is heavily skewed by food and vegetable prices. The prices of industrial goods have actually reduced in the last decade. Keeping the incremental quality change in mind, the prices of refrigerator, washing machine, and other white goods has been mostly constant. Mobile phones are true outliers here; I paid less for my last smartphone than what I paid for my first Nokia phone 15 years back!

I could only think of three explanations for such steep price increase in last few years:
  1. Indian market has proved to be too shallow, too competitive with very little growth for international manufacturers. They are playing the waiting game by selling small volume at high prices. I am looking at Germans right now. Nobody is interested in playing price game to gain market share.
  2. Rupee devaluation is hurting the manufacturers with low local content. Looking at Germans again.
  3. Because almost all German/European and American brands are in trouble because of the two reasons given above, established Koreans and Japanese are having good time.

Just my naive hypothesis, feel free to rip it apart!

Last edited by shobhit.shri : 18th August 2015 at 18:01. Reason: Sentence structure
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Old 18th August 2015, 18:20   #38
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Default Re: A segment shift in the Indian car scene - So many cars now priced a level above!

The purchasing power of people have increased over time. What we could not afford a decade back we probably can now - at least that is the general outlook!

This is not just a trend. Market dynamics have changed over time and the higher prices that car manufacturers are commanding are here to stay and shall probably keep going higher until the demand exists. Currently there's a solid demand for vehicles at high prices and there is no reason to charge any less than what people are willing to readily pay for it. Manufacturers are simply catering to what the people want.
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Old 18th August 2015, 19:06   #39
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Default Re: A segment shift in the Indian car scene - So many cars now priced a level above!

Quote:
Originally Posted by rockporiom View Post
I would like to edit my statement. I would suggest definition 1 with an addition of the manufacturers profit as well.

So who decides the manufacturer's profits?
How much should be the profits?

Quote:
In definition 2 a buyer and seller have to mutually agree at a price. But what is currently in the market the buyer is forced to pay more to get more, how would you call that capitalist?
But who is forcing you to buy the Jetta at 24 lacs?
If your budget is 18 lacs, please buy a car which is available today for 18 lacs!

Quote:
Let's leave the Jetta aside. If I wanted a D segment sedan I could get a good one with an auto tranny at about 20 Lakhs OTR even in 2013. Now if I want a D segment sedan i am forced to increase my budget by 5 Lakhs. How is this a mutual agreement. It is more like all D segment sedans are 25 or above so I have to increase my budget rather than the seller decreasing the price (which would never happen).

The customer has been left without an option. So what does he do now? Simple either dig deeper in the pocket or downgrade. That is how the C2 is replacing the D Segment and that is the point i want to explain.
It gives me an impression that you believe that people around you are not getting rich yet mysteriously everything in this world is getting more expensive ...

Quote:
Let's take 2 group of people
Group X and Group Y

Group X may be the group of people that have incomw that can cope with the increasing costs.
Group Y may be the group of people that also have a good income but not increasing at a fast enough rate to cope with back to back price hikes.

Group X in this scenario remains unaffected.
But what does group Y do? Simple they compromise and go for a lower segment or a lower variant.
Yes, the group Y has to compromise. That is what competition is all about.
Let's say:
Group X are the IT folks
Group Y are the agricultural laborers

Group Y just keeps wondering when they can't afford even basic facilities, how is it that the prices of the same houses, land, vehicles etc just keeps rising every year. Increased purchasing power of Group X is the reason. Group Y competes with Group X and gets trounced. And that's why cannot afford most of the things.

Competition among sellers decreases the prices. (cheered by public and hence phrases like "govt has done something right")
Competition among buyers increase the prices. (booed by public and hence phrases like "govt must do something right")

Last edited by alpha1 : 18th August 2015 at 19:16.
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Old 18th August 2015, 19:23   #40
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Default Re: A segment shift in the Indian car scene - So many cars now priced a level above!

We also need to take into account our LTT system, I believe, with time even the LTT has increased quite a bit though I do not have statistics to prove, but I remember reading news of increase in LTT every year or so across multiple states. I do not like the idea of differential tax % for < 10 lacs & > 10 lacs, Instead they need to calculate based on slabs just like income tax is calculated, upto 10 lacs of the car amount should be at calculated at lower % and the amount over 10 lacs should be calculated at higher %, Just because a car is a rupee more than 10 lacs, we have seen the LTT increases by a whopping 40k+
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Old 18th August 2015, 19:42   #41
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Quote:
Originally Posted by rockporiom View Post
The perfect car for someone of that stature would have been something like the old Dzire/Manza/ETIOS which would have been perfect but what does the person now get by spending 80k more than a hatch? simple extra 100L boot space. That's it! what is the product differentiation now? except for the boot the dzire and swift look too similar. Agreed, that even in the past the swift and Dzire looked similar but I would get about 200L excess boot space for a similar premium compared to what I am getting now. Plus, the car looked like a sedan. Currently it looks like a car that was designed when the designer was breathing his last. Call me stupid but I felt the previous one felt better when it comes to the overall space provided. In short, it felt like something worth 7 Lakhs, the current one simply doesn't.

I am not complaining about the increase in prices but I am complaining about the reduction in value the customer is getting.
Take the Jetta for example. From 2011 to 2015 the car has increased in price by 6 Lakhs. What has changed?
Well.. This is somewhat related to inflation or rising car prices.
And yes, there indeed is an evident virtual segment shift taking place. But apart from direct effects of inflation there's another important factor why it's occurring. I had mentioned this point earlier in another thread, though with a different point of view. The thing is, a car sold at a higher price that it cannot command simply, is just made to appear like a different car to justify the price, to varying degrees.

The thing is, recently, the real variety of cars in our market has been reducing. There is now only more of apparent variety between products of the same brand, or different products in the same segment, or different variants of the same product. That is, we are being sold more of essentially the same products across brands, segments or generations, only repackaged or redesigned, and then repositioned and re-marketed. Consequently, The number of completely different independent vehicles is going down. Now, that can be claimed as component sharing to reduce costs, but what's actually happening is most of the vehicle is shared, and only differentiated enough not to feel the same as another. And then, such products are branded, positioned, and marketed as completely different products. And while it was initially an attempt to share components and reduce prices, the actual prices are either not reduced at all, or not significantly enough. And the higher price is covered up either because the new product is branded completely differently and the market thinks differently of it too, or by cutting these features and introducing new variants or mild facelifts later on. Looking from outside, the changes in such facelifts make the high prices seem worthy. And the money differences are happily pocketed by the companies. But because of the lesser value the consumer gets, the product naturally doesn't seem worth the price to him.

For example, let's look at your original example, the Swift Dzire. What MS wanted to make with it was an entry sedan to replace the Esteem. So they must have decided to base it on the Swift to share parts and maybe for using the Swift's reputation and brand value. And it was a lot bigger, looked different from, and had different characteristics to the OG Swift hatch. Thus it was a considerably different product, and the costs saved by sharing parts were also forwarded to the customer by keeping prices low. As a result, the owner had to make do with a car which looked like a Swift from the front, but was still different enough to have its own identity. But he got it for less money than he could have had to pay for an all new sedan. And hence the difference between the Swift and Dzire as products was well worth the price gap and separate positioning.

Now, coming to the current Swift and Dzire, the current Dzire is a lot more similar to the Swift hatch, as it is smaller, has similar boot space, same interior space, and because of the miniscule difference in dimensions, same dynamics and road behavior as well. So it's a lot more of a Swift and less of a new car, but however, as it is branded as a Dzire, a customer would naturally view it as a new sedan and not a slightly modified Swift. And the 80-90 grand price gap, though around the same as before, is a lot less justifiable, as the two are just not different enough to be sold as two different cars at different prices.
Now a Dzire owner won't typically already own a Swift, but if somebody did own both a Swift and a Dzire, they would come to know that the Dzire on it's own is just not different enough to be sold as a different car, and they would feel shortchanged. From the outside though, one would look at the beige interiors, the marginally more boot space and the uglier styling and say there's a lot of change. But despite the small changes, it's almost nothing of a new car. So as I said, apparent variety has been created, and there exist two cars in different segments, in a single car. So while the Dzire is no longer something a Swift owner could consider upgrading to because it's just too similar, its market positioning is still where an upgrade would have been. And compared to the older Dzire, this still is better enough to make it look like a good update. So one can say that it's an improvement over the older Dzire. And because it is accepted, MS, well they're selling an even less different Swift for in fact more money. Again, even if that money seems less later and better competition catches up, only create a mild facelift with a new grille or bumper to take the design a bit farther from the original car, add a couple of features, and hike the price even more!

Again, similar to the Dzire, its rivals have even more interesting cases. The Xcent is exactly like the Grand i10 except at the rear, also has the same engines, same interior, only a different grille, and costs around 2 lakh more vis--vis the i10. And while it is obviously the exact same car, it is branded totally differently to the hatch, and in fact is tried to be shown as an Accent replacement. Here too, an outsider would look at the decent design, more boot space, and sedan appeal, and simply conclude that it is worth the difference in price, but is it a different enough car to the Grand i10 to be positioned and priced as an all new model, despite the changes? I don't think so. Again, apparent variety is created, and Hyundai successfully sell two differently branded and priced cars in the same car, and happily pocket the money.

Same with the Brio and the Amaze, only that Honda has been clever not to sell the Brio with a diesel motor. So people would invariably look at the diesel Amaze in isolation, and they find a neat package - lots of space, punchy engine, good mileage and badge value. So it does seem fair even at the one million price. Honda though, are happy selling a Brio in a different segment at prices they wouldn't have dreamt of selling the hatchback avatar for! If there was a Brio diesel, the Amaze would suddenly have looked overpriced for what it offers, Amaze sales would've been cannibalized by the Brio, because the Brio would have offered better styling, similar cabin space, and even better performance. But Honda would have got hatchback money for a Brio, instead of getting entry sedan money for a slightly different Brio. Again, an Amaze owner won't get himself a Brio, so he won't know how close to the Amaze the Brio already is. So a B segment hatch has already moved to C1 sedan segment. And with popularity, Honda wouldn't mind raising the prices slowly to older City levels either.

And as these cars are still very popular, the small hikes in prices would be seen as just a few grand more than before, as opposed to a few grand even more than the original hatchback. And hence the cars keep selling in big numbers for their package value. Thus, because it becomes a market trend, a new segment is created when it really shouldn't even have existed. And this way, slowly the products from the compact sedan segment gradually jump segments to touch the mid size sedan levels. But now when we look back at the price jumps, they seem ridiculous for what is essentially a small hatch. Because they always were ridiculous. But were cleverly masked all the time.

With Toyota, this strategy is more direct, as the perspective buyers looking for reliability or longevity in a car would have little other alternative to Toyota's offerings. Plus there are the die hard Toyota fans who won't think of any other brand. So they don't even need to make significant changes or repositioning of a product to take the prices a level above. All that Toyota need to hike prices is an excuse, without worrying too much of hurting sales. The best such excuse is a facelift. And Toyota costumers, as long as the car still makes more sense than rivals, are ever ready to pay more for the same product, given it does seem worth the money.
So a few cosmetic changes qualify as a facelift that gets dearer by more than a lakh. Or a premium car can keep running on a seriously underpowered engine, and yet sell for a high price because it is all new, and because it's a Toyota (For that diesel engine, the Corolla should've been priced considerably lower than rivals, but there is the excuse that ''it's still a Corolla''). And then it gives them the chance to raise prices without making it seem too unfair. On the other hand, customers of other brands would be shocked to see the differences between prices, and value offered, as it makes no sense to them.
The Etios Cross, for instance, was one such excuse. And the move benefited Toyota in two ways - gave them presence in the compact 'crossover' segment, and gave room to overprice the Liva even further. And as it was branded as a crossover, the fact that it was really only worth the price of a Liva, got masked. And with rivals seeing the money and already getting in more Cross hatches at similar prices, it became a trend, and the crazy prices seemed more fair. Thus, another segment was born, where there was no room for it.
Now fortunately, these indigenous products flopped, if they would have become popular, and more importantly desirable, we would have seen them climbing to Duster money!

In the higher segments, the apparent variety isn't a factor, because people just won't take the indigenous modifications of cheaper cars for that kind of money. So almost all cars are genuine and unique. But on the other hand, the buyers are less price conscious. So a small increase in price still passes off without seeming unfair. Though for a larger gap between actual price and worthy price, another strategy may be adopted. For example, because a car like an Octavia offers a lot more than something like a Fluence, Skoda have room to make a big price difference seem fair. But despite the price difference, an obvious person looking for a D1-segment car would still have both in mind. And as the Octy is superior, it often becomes the preferred choice, despite the higher price. Now if a third player comes in and prices a car as good as the Octy lower than it, Skoda would be forced to reduce the Octavia prices. But instead, this third player also decides to milk the consumer, and price their own car in line with the Octy. Now in reality this third player could've been anyone - like Toyota or VW (VW especially want their own cars to be perched higher than a 'lesser' Skoda).
So the overpriced cars start looking like worth their price. And here is the problem. As the higher price still seems fair to many, people happily pay up. Because they may see facelifts, improved feature lists, brand value, etc. but don't see it as the cheaper car that it is, that's being offered as a much costlier one. And the same cars seem totally legit at the new prices. And with time, by the same process, their prices move almost a segment above, which is in turn somewhat vacant, because those cars would have moved up the ladder as well!

PS: That's just my take on it, and I'll be happy to be proved wrong, but I'm presenting a overall scenario, NOT statistical data. So please look at it straightforwardly, from an ordinary consumer's point of view, without nitpicking or crunching numbers. So I may absolutely be wrong, and hope to be corrected if I am, but not because of an odd exception, or maybe a difference of a few thousands or a few millimeters or a couple of BHP. Let's leave the details for another day

Last edited by mukul32 : 18th August 2015 at 19:44.
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Old 18th August 2015, 20:16   #42
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Default Re: A segment shift in the Indian car scene - So many cars now priced a level above!

If inflation is the main driving factor behind all this price shifting, should the IDV of car also not be rising rather than going down for insurance purposes? Why because IDV is a direct function of depreciation on the value of asset.

There has been an effort from all manufacturer to drive higher profits via increased efficiency. All this is possible within a market that is still growing and very significantly. It is the prerogative of producer to price a good, and prerogative of buyer to make a decision.

Companies are here to do business and make profit. It is for them to decide how much profit they make. The importance of good public transport infrastructure is very critical here to introduce alternatives for people without having to own a car/automobile. Competition is the only factor that can put reasonable control on ever greedy corporations.

With introduction of GST, most of the hidden magic behind taxes will become transparent and reduce at least one magical variable from equation.

Recently I was in market for a Automatic Hatch and Celerio looked so overpriced to me in comparison to Brio-VxAT and that is what I have booked. Better engine and better safety for marginal price difference.

Slightly OT: Recently I have noticed that attitude of sales people within automotive business is also changing. Now i see snob everywhere within the showrooms. Maybe high level of sales is the driving force.
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Old 18th August 2015, 20:23   #43
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Default Re: A segment shift in the Indian car scene - So many cars now priced a level above!

Just to put some facts in place

When the new Dzire was launched, it was priced 25k cheaper than the outgoing Dzire (variant to variant). The increase in prices is mainly due to the demand for it in the market and less due to the inflation.

For those comparing the Alto, the outgoing Alto was at the following price points
2.80
3.05
3.30

The newer breed it alteast 50k expensive than this, But the newer model hasn't resulted in increased sale. So what they do? Discounts to the tune of 50-65k and sell them at the outgoing Alto rate.

So net net, according to me, price rises are more due to the depleting value of the rupee in the consumers hands (read as increased purchasing power) resulting in more demand for better cars and not bare bones commuters like Alto etc. The increase is less due to inflation.

This trend would be apparent from the number of Cars sold above the Alto/Eon range. Dzire sales, as someone pointed out, have increased from 7k MOM to 23k, whereas Alto still sells the same in numbers, maybe lesser. Clearly shows the increased purchasing power.

If I have to put a ratio, I would say 70:30 Demand:Inflation (70 being in favor of the increase in demand)

Last edited by vinit.merchant : 18th August 2015 at 20:24.
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Old 18th August 2015, 22:05   #44
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Default Re: A segment shift in the Indian car scene - So many cars now priced a level above!

I have one more point to make apart from inflation.

I personally believe that 15 Lac upwards the customer won't be that much sensitive to price and manufacturer's take full advantage of that.

Can any BHPian tell me that if he/she knows of someone who has a car upwards of 15 Lac and which is the only car in the house.

So the price increase in C2 or D1 segments is kind of unabated and high priced car gives higher satisfaction to the buyer.

I have read numerous times on T-BHP that if you are buying the car as a status symbol, buy something above 20 Lac as nowadays no one gives a damn for person driving a car priced below 20 Lac.

Just a perspective.

Also in case of Honda City, does someone remember when Diesel cars were ruling Honda did a massive price-cut of around 75000 after offering the similar amount as discount for sometime, now Honda is again adopting the similar strategy of overpricing their cars. So demand-supply factor was also evident.
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Old 18th August 2015, 23:23   #45
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Default Re: A segment shift in the Indian car scene - So many cars now priced a level above!

Well, I think it is high time that the car markets in this country is liberalised. Remember what Xiaomi did to the mobile handset market? Something along those lines need to be done for the automotive sector.
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