[GTO]

We have over 100 different cars on sale in India. There is hardly a market segment that isn't bursting at the seams with options, while new launches come & go every other fortnight. Then, the market's performance has been quite lethargic lately.

Still, some cars have caught the fancy of the masses...and how! The demand for these models far exceeds supply, leading to frustratingly long waiting periods. Those who have booked the Maruti Swift & Dzire, Chevrolet Beat TDCi (some cities), Maruti Ertiga, Hyundai Verna CRDi, Mahindra XUV500, Renault Duster, Toyota Innova, Honda Brio and Jazz (some variants) are currently experiencing a delivery wait period. Enfield motorcycles have delivery times that can shame a Swift diesel. Audis are almost never available off the shelf in the engine & trim you want, and Ducati owners await the bikes they paid for in January. Mahindra had to resort to such tactics as launching the XUV500 only in certain cities, closing down bookings and - shockingly - holding a lottery system earlier this year!

Taking advantage of this situation are after-market brokers & finance company DSAs who offer you quicker delivery, but at a price. Would you pay this premium? Toyota dealers were notorious for selling Fortuners dressed in excessive chrome accessories at a bomb of a price.

Good thing is, there are plentiful alternatives in every category of the market. Can't wait for a VW Jetta? Buy the nearly identical Skoda Laura. Don't want to count the days to your Swift? Buy the i20 or Sail U-VA. Of course, few petrol cars have a wait period as the market is currently obsessed with oil burners. Example : You can have a Dzire ZXi tomorrow, but a ZDi only in 2013.

What's the maximum waiting period that YOU can handle? Personally, I'm a fan of pre-worshipped cars and am thus used to searching & selecting over a window of 2 - 3 months. Although if there is a car I really, really desire, I'd be fine with waiting for longer (still looking for that elusive RHD 8-cylinder W126 ). The way I see it is, I'm very particular about what I drive & usually use cars for 7 - 10 years. The wait period doesn't bother me as long as I get what I want at the end of it.

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So, why do auto companies simply not build more cars?

Well, it's not that simple. To start with, no manufacturer enjoys a wait period for their product as it could lead to lost sales (to a competitor). Also, think about this for a moment : If you were a businessman, would you want your 100 rupees today or after 6 months?

Sales projections for that yet-to-be-launched car are made years in advance. No manufacturer wants to sit on excess capacity in what is a highly capital intensive sector. Most brands will plan production on the slightly optimistic side, while others still will remain conservative. The factory & equipment are set up accordingly, as are labour & supplier arrangements.

Companies would rather sell 1,000 units a month with a 1,000 piece capacity, than 1,200 units a month with a capacity of 2,000. Where a manufacturer can still absorb the overheads of excess capacity, smaller suppliers simply cannot. You can't commit to buy 10,000 headlamps from your component manufacturer, only to tell him later "Sorry, I'm buying 3,000 units from you now". It will wipe him out and ruin your supplier relationships too.

If that freshly launched car becomes a blockbuster and exceeds sales projections, you can bet that managers kick themselves for not having sufficient production on hand. The company will then try making the most copies off their existing production lines via double shifts, or taking away the production capacity of a lesser profitable model (e.g. Chevrolet prioritising the Beat over the Spark). Brands like Hyundai which enjoy strong exports always play the balancing act between quotas for domestic & foreign demand.

Here are some simple charts to illustrate the different scenarios:

Ideal Situation (e.g. Mahindra Bolero & Maruti Alto)


Bad for Manufacturer & its Component makers (e.g. Ford Fiesta & Fiat Linea)


Bad for Customer (e.g. Maruti Swift & Renault Duster)

[GTO]

Thread moved from the Assembly Line to the Indian Car Scene

[onesomeone]

GTO, this is a damn good topic to be discussed. Personally, I have never waited for any vehicle more than a day. I remember back in late 90s when Spendour used to be a rage and had long waiting periods. I went to the showroom for purchasing one. They sales guy told me a mandatory term that I need to either buy a helmet or side box as an accessory otherwise they won't sell the vehicle. To make the matters worse the showroom guy mentioned that there is a waiting of 15 days for the vehicle. Well arm twisting and waiting..nope not my way and especially when I was a "hot shot" engineering student then . I then test drove KB125 the very same day and bought that immediately..I am still very happy with the decision I made then..

[kadanaJ]

I get the supply and demand scenario, but what I don't understand is why manufacturers don't increase the price (thus earning greater margins) until supply and demand match?

Eg. Maruti can supply 10,000 Swifts a month at INR 8,50,000, when their exists demand for 15,000 units. Couldn't they increase the price till demand lowers and matches the supply (lets say at INR 9,00,000) and thus enjoy greater margins on the 10,000 units they can sell?
Are they worried about some sort of whiplash effect of pricing the car higher, or the car getting the image of being overpriced? If that happens they could lower the price again to INR 8,50,000

[onesomeone]

Originally Posted by kadanaJ

I get the supply and demand scenario, but what I don't understand is why manufacturers don't increase the price (thus earning greater margins) until supply and demand match?

Eg. Maruti can supply 10,000 Swifts a month at INR 8,50,000, when their exists demand for 15,000 units. Couldn't they increase the price till demand lowers and matches the supply (lets say at INR 9,00,000) and thus enjoy greater margins on the 10,000 units they can sell?
Are they worried about some sort of whiplash effect of pricing the car higher, or the car getting the image of being overpriced? If that happens they could lower the price again to INR 8,50,000

That move will be opportunist and would equate to fleecing the customers..have to disagree with your views

[kadanaJ]

Originally Posted by onesomeone

That move will be opportunist and would equate to fleecing the customers..have to disagree with your views

To be fair, I am speaking more from an economics, than an ethical point of view

Also, it can't clearly be called fleecing of customers. It's basic economics, that when demand exceeds supply, prices go up.
Similarly, if supply exceeds demand (for example, the Honda Jazz), prices go down (in the form of discounts)

Its the principle of a free market. If A isn't willing to pay X amount of rupees for my product, I'll sell to the 10 other people who are.


(I'm speaking purely from the manufacturers point of view. It could be pretty bad for us consumers if this were to actually happen)

[onesomeone]

Originally Posted by kadanaJ

To be fair, I am speaking more from an economics, than an ethical point of view

Also, it can't clearly be called fleecing of customers. It's basic economics, that when demand exceeds supply, prices go up.
Similarly, if supply exceeds demand (for example, the Honda Jazz), prices go down (in the form of discounts)

Its the principle of a free market. If A isn't willing to pay X amount of rupees for my product, I'll sell to the 10 other people who are.


(I'm speaking purely from the manufacturers point of view. It could be pretty bad for us consumers if this were to actually happen)

The Honda Jazz is a classical example of over-priced product having to go for a price correction. However I respect your views though I disagree even from economics point of view that we are talking about products and not commodity trading

[kadanaJ]

Originally Posted by onesomeone

The Honda Jazz is a classical example of over-priced product having to go for a price correction. However I respect your views though I disagree even from economics point of view that we are talking about products and not commodity trading

Thank you, but to be honest, I wouldn't call them views, as much as I would admit that I'm curious to understand what stops a manufacturer from raising prices, as I said in my previous posts.

I'm trying to put myself in the manufacturers shoes and understand the rationale behind that decision, and of losing sales and profits due to these long waiting periods (apart from, as you said, fleecing customers)

P.S. Even for fleecing customers, would a manufacturer really feel that bad about it if it got him extra profit? As we've seen from the strikes at various plants, these guys clearly aren't the most ethical bunch

[mayankjha1806]

I am very impatient man, once i pay, i expect the goods or services to be delivered immediately (or as soon as possible). Worse case scenario a few weeks at the most but definitely not a month. If there is a car for which i have to wait for a month or more, i drop the idea of buying such a car, or wait until the mad rush is over.

These days few months waiting is normal, back in 1970's my grandfather booked a Bajaj which eventually came to us in 1980's when he was no longer alive. So my maternal uncle bought the scooter. Gone are those days.

Originally Posted by kadanaJ

It's basic economics, that when demand exceeds supply, prices go up.

You are right, but this is no FMCG, this is automobile, it would be difficult for Maruti to keep changing the price of the car in tube with demands. Imagine going to the showroom and asking OTR and you are told, sir now it is 9L but few weeks don the line it might be 8.5L. What would you do?

[Jeroen]

In Europe, for most cars you will find a delivery time of anywhere from 8 - 20 weeks. Depends a bit per manufacturer. There have been cases with much longer delivery times. Year ago the then very popular Mercedes 200 series had a waiting period of up to two years. Morgans too have had notoriously long waiting times.

Now look at the USA. If you're in the market for a new car, you will just visit the dealer of your choice and an hour later you drive away with your new car. Registered and insured.

American dealers keep a tremendous amount of stock. They will literally stock hundreds and hundreds of cars. Usually, with more or less all options installed.

In the US for a car to be popular it needs to be readily available.

For years one of the world's best selling cars in the world has been the Ford F150. Actually, its not a car, its a truck or pick up, still has four wheels.

You can buy your Ford F150 on just about every street corner in every town in the USA. The dealers forecourts are full of them!

Very different markets, with a very different audience that expects different things and get catered for accordingly.

I never buy new cars, but on all my company cars in Europe it's been the same story. Over the last ten years anywhere from 10 weeks to up to nearly 6 months for an Audi with a DSG auto box. For some reason there were problems with the supply of the first DSG boxes i seem to recall.

Jeroen

[F150]

Back in 2009, I booked my SWIFT in the month of OCTOBER. I got the car delivered in JAN 2010.

I think 3 months is acceptable and waiting period is sometimes useful to analyse your decision.

The only grouse I had and still have is that auto manufactures stop few colors in the name of waiting period . I had very limited color options when I booked my swift.

[audioholic]

It depends upon the need. So I was not sure on what to vote. Suppose I need a car urgently, due to unforeseen reasons, I would obviously want a car immediately, and I will be crying at waiting periods. So if thats the case, then I would either look at a car which is immediately available, or if I have unknowingly booked a car with a huge waiting period, I would be forced to pressurise the dealer and at last cancel the booking.

Suppose I find a car to be exceptional(not the swift), and 'for the sake of this case' I want a swift badly, that too a ZDi, or even an Ertiga, I will be patient enough to wait for longer periods, as long as things are following their protocols. For example, my dad talked about booking an ertiga now, and it would arrive after six or eight months, which is not a problem for us as we already have two cars to manage. So if it were that case, I would not have had an issue.

Sometimes, dealings take place under the table and people get such demanded cars off the shelf, by resorting to corruption. If that were to happen, I would surely be angry and would take appropriate action. However, if I get a written allotment details of the car, estimated arrival etc, and I could track the status, I wont be bothered by waiting period unless I need a car immediately.

[Warwithwheels]

Interesting!

Always find it extremely hard to wait for a four wheeler. At best I can wait for a week or two.

Personally never had to wait for a longer period because we always wait for the product to prove itself in the market. By the time, the product reaches that Growth/Maturity phase, the demand - supply mismatch becomes very thin.

However, when it comes to two wheelers, I don't find it that hard to wait even a decade long! Thanks to RE for making me inert

[zenren]

Originally Posted by kadanaJ

I'm trying to put myself in the manufacturers shoes and understand the rationale behind that decision, and of losing sales and profits due to these long waiting periods (apart from, as you said, fleecing customers)

P.S. Even for fleecing customers, would a manufacturer really feel that bad about it if it got him extra profit? As we've seen from the strikes at various plants, these guys clearly aren't the most ethical bunch

Its easier to lose the trust of customers than to gain it. That eventually decides where the supply and demand lines would lie. The extra profit the company would get is just very short term, which would actually end up as a huge loss in the long term.

If a company decides to increase the price of a car model based on the demand, the customers would definitely understand what is happening.

Look at it from a customer perspective: If I know the model I'm going to buy is currently overpriced and might get a price cut in future once the demand settles in, I might stay away from that model as I know I'm likely to end up in a loss when I plan for the next upgrade. Once enough customers abstain from a hot selling model due to this reason, the supply-demand equation stabilizes and slowly, supply might overtake the demand. Once this happens, the much awaited price cut/discounts would come in to sell more cars and meet the supply or operate the factories at sub-optimal production numbers. Both scenarios would lead to losses or at least lesser profits. Now the 'smart' people who decided not to buy this model feels they made the right decision and those who bought the model feel they made the wrong choice. This is where a company loses its trust factor among the customers and this leads to the brand image getting tarnished.

Even without seeing the Alto800, most people knew that it would be a sure shot success just because it is a Maruti and people trust Maruti to offer it at the VFM price for the customers; and look at the pre-bookings that the model got even though its not really something I would call as pleasing to the eye. This is the value proposition that the 'trust factor' offers.

[noopster]

My Vento AT was booked on 10/10/10 and delivered only on 22/01/2011. Three and a half months is way too long to wait for any car, that too one that is newly launched. Towards the end I was actually seriously considering cancelling my booking and moving to another choice.

I wonder if this has to do with manufacturers overhyping their vehicles way before the actual launch. We were salivating at the mouth waiting for the Vento as early as 6-9 months before it actually hit the showrooms. Ditto for the XUV 5oo, new Swift and many other vehicles launched in the last couple of years. The official launch happened 2 months before the test drive vehicle landed in the showroom in my case. Am not one to buy a car without TDing it, which meant that the only people who got off-the-shelf delivery, so to speak, were those who gambled on a car they hadn't even laid eyes on, let alone test driven.

The only solution I can see is for car companies to conduct more in-depth research into how much demand actually exists for the vehicle rather than, as they do now, launch it and then struggle with demand. Which is easier said than done!