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Research-based Consultancy for B2B and technology Markets BIRD 1 Study to Size the Counterfeit Market for Auto Components in India July 2006 Prepared For:

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Presentation on theme: "Research-based Consultancy for B2B and technology Markets BIRD 1 Study to Size the Counterfeit Market for Auto Components in India July 2006 Prepared For:"— Presentation transcript:

1 Research-based Consultancy for B2B and technology Markets BIRD 1 Study to Size the Counterfeit Market for Auto Components in India July 2006 Prepared For: Prepared By: Business & Industrial Division, IMRB International

2 Research-based Consultancy for B2B and technology Markets BIRD 2 Report flow Background of the Study –Need for Research –Definition of Counterfeits –Study Objectives –Research Methodology & Sampling Approach to determine counterfeit market size in India –Estimation of vehicle population –Total expenditure on servicing –Size of counterfeit component market in India State transport authorities Profile of respondents met –Private vehicle owners –Commercial vehicle owners

3 Research-based Consultancy for B2B and technology Markets BIRD 3 Report flow (contd….) Detailed information on vehicle servicing –Amount spent on last service –Choice of service destination –Break-up of amount spent in the last service Information on channel members met –General profile –Key counterfeit hubs in India –Stocking of counterfeits Attitude towards auto component replacement Attitude towards counterfeit components Annexure

4 Research-based Consultancy for B2B and technology Markets BIRD 4 Background India has been known for its large unorganized market which exists across industry segments A large part of this market caters to not just unbranded but also counterfeit products Auto components is one such segment where it is estimated that a large proportion of the market is invaded by counterfeit products Such low quality products have a negative impact on the brand equity of automobile & automotive component manufacturers

5 Research-based Consultancy for B2B and technology Markets BIRD 5 Need for Research Therefore, Indian automobile manufacturers wanted to understand and size the counterfeit market to: –Develop intervention to curb this market –Provide quality products to their consumers –Curb the negative impact on their brands –Curb the revenue losses suffered due to this market Under the aegis of Society of Indian Automobile Manufacturers (SIAM), automobile majors formed a task force to address this need

6 Research-based Consultancy for B2B and technology Markets BIRD 6 Before outlining the methodology used it is imperative to understand how we defined counterfeits for the purpose of this study…

7 Research-based Consultancy for B2B and technology Markets BIRD 7 Several products from unorganized sector exist in the market today… Type of PartExamples Genuine ImportsBosch spark plugs not meant for Indian models Genuine DiscardsParts discarded from industrial products, ocean vessels, railway wagons etc Used PartsParts refurbished and reused in vehicles by mechanics Unbranded PartsParts with no markings or brand names Branded Duplicates1.Brands in original or copied packaging of OEM 2.Brands with similar sounding names like Assahi vs. Asahi 3.Parts with fake markings for ISI/BIS/EN etc Cross Category Duplicates Fenner clutch levers when Fenner does not make clutch levers These are the ones we have focused on for purpose of this research

8 Research-based Consultancy for B2B and technology Markets BIRD 8 Research Objectives Primary Objective of the study was to size the counterfeit market for auto components in India

9 Research-based Consultancy for B2B and technology Markets BIRD 9 Objectives of the research Estimate the total repair and servicing aftermarket in India: Authorized Vs other service stations –By vehicle category –Br geographies –By age of the vehicle Estimate the total market of counterfeit auto components –By vehicle category Understand the buying behavior of vehicle owners –Reasons for choice of a service station –Number of trips to a service station per annum –Level of influence of the channel member –Brand of auto component purchased most often

10 Research-based Consultancy for B2B and technology Markets BIRD 10 Objectives of the research (contd…) Gain an understanding of the market from the channel members –Motivators for selling counterfeits –Key counterfeit hubs in India –Most counterfeited components Map the attitude of owners towards vehicle servicing and counterfeit components –Awareness about counterfeit components –Knowledge about the damages caused by such components –Actions to curb this menace Suggestions and Recommendations –To reduce the menace caused by counterfeit auto components

11 Research-based Consultancy for B2B and technology Markets BIRD 11 Research Methodology & Sampling

12 Research-based Consultancy for B2B and technology Markets BIRD 12 Key stakeholders covered Supply side : Automobile and auto-component manufacturers and associations Demand side : Private and commercial vehicle owners –Private vehicle owners Two and four-wheeler owners –Commercial vehicle owners HCV, LCV, Three-wheeler, buses and taxies Auto component channel members –Distributors –Retailers/Wholesalers –Roadside mechanic –Authorized service stations –Other service stations

13 Research-based Consultancy for B2B and technology Markets BIRD 13 Information gathered from each stakeholder Supply Side: 1.Automobile Component Mfrs 2.MORTH/RTO/Associations Supply Side: 1.Automobile Component Mfrs 2.MORTH/RTO/Associations 1.Registered vehicle population 2.Volumes & value of auto components in the after market Demand Side: 1.Private Vehicle Owners 2.Commercial Vehicle Owners Demand Side: 1.Private Vehicle Owners 2.Commercial Vehicle Owners 1.Components Bought & their details 2.Purchase Cycle for Parts 3.Motivators & Barriers to Purchase Counterfeits Channel: 1.Distributors, Dealers & Retailers 2.Mechanics 3.Service Stations Channel: 1.Distributors, Dealers & Retailers 2.Mechanics 3.Service Stations 1.Type of brands stocked 2.Key components being counterfeited 3.Motivators & Barriers to sell counterfeits

14 Research-based Consultancy for B2B and technology Markets BIRD 14 Therefore, the research methodology involved meeting each of these stakeholders to gauge extent of counterfeiting…

15 Research-based Consultancy for B2B and technology Markets BIRD 15 Module I – Supply Side Desk Research –Collation of information on industry available in public domain like publications, websites etc –Product portfolio of large organized auto component manufacturers –Collation of information on initiatives taken by automobile and auto component manufacturers to curb counterfeit menace Expert Interviews: Depth Interviews with the following –Associations & Experts like SIAM, ACMA, Ministry of Road Transport & Highways (MORTH) etc –Manufacturers of Automobiles & Auto components –State Transport Authorities

16 Research-based Consultancy for B2B and technology Markets BIRD 16 Module I – Sample size covered These interviews helped us understand: Fast moving & frequently replaced parts Universe of automobiles (2-wheeler, 4-wheeler etc) Size of organized auto component market Expert opinion on size of counterfeit market & its drivers SegmentSample Automobile Manufacturers10 Associations & Experts (SIAM, ACMA, MORTH etc)2 State Transport Authorities Workshops2 OEM Auto Component Manufacturers10 Total24

17 Research-based Consultancy for B2B and technology Markets BIRD 17 Module II – Demand Side In this module, both private and commercial vehicle owners were met across various identified locations mentioned below:- PopulationClassificationCities More than 40 lakhsMetrosDelhi, Mumbai, Chennai and Kolkata 10 – 40 lakhsNon-metrosPune, Lucknow, Ludhiana and Kochi 5 – 10 lakhsOther NMChandigarh, Trichy, Guwahati and Jamnagar 1 – 5 lakhsSmall TownsChapra and Gulbarga

18 Research-based Consultancy for B2B and technology Markets BIRD 18 Module II – Demand Side Private and commercial vehicle owners were grouped by type of vehicle owned Face to face structured interviews were conducted with:- –Private Vehicle Drivers & Owners Cars (Across various segments) Motorcycles Scooters –Commercial Vehicle Drivers & Owners Trucks Buses Three Wheelers Light Commercial Vehicles Taxis – Four Wheeler

19 Research-based Consultancy for B2B and technology Markets BIRD 19 Module II – Demand Side: Segment of Private cars covered during the survey Vehicle CategoryType of Vehicles Segment A Maruti 800, Premier Padmini Segment B Santro, Zen, Wagon R, Alto, Indica, Uno Segment C Esteem, Indigo, Palio, Ikon, Getz Segment D Opel Astra, Honda City, Lancer, Optra etc Segment E Mercedes, BMW etc MUVs/SUVs Tata Safari, Tata Sumo, Honda CRV, Chevrolet Tavera, Maruti Omni

20 Research-based Consultancy for B2B and technology Markets BIRD 20 Sampling for Vehicle Owners – Module II As service related information was to be gathered only those vehicle owners were met whose vehicles were no longer under original warranty Thus, interviews were conducted with the following vehicle owners: –Private vehicles >3 years age Vehicle owner Vehicle Driver –Commercial Vehicles > 1 years age Fleet Owners Vehicle Drivers

21 Research-based Consultancy for B2B and technology Markets BIRD 21 Module III – Auto component channel members The channel members covered during the study are: –Distributor –Wholesaler/Retailer –Authorized service station –Other service station –Roadside mechanics

22 Research-based Consultancy for B2B and technology Markets BIRD private vehicle owners were met across 14 cities spread across 11 Indian states Distribution of sample by town class Base: 2321 private vehicle owners Distribution of sample by vehicle ownership Equal percentage of respondents representing metro and non metro (including Small towns) locations across the country were covered Over 51% of all private vehicle owners met owned a four-wheeler only as compared to 33% owning only a two- wheeler –Around 16% of the respondents met owned both vehicle types

23 Research-based Consultancy for B2B and technology Markets BIRD commercial vehicle owners were met covering over 2390 commercial vehicles of all types Distribution of sample by town class Distribution of commercial vehicle owners by vehicle type Over 58% of the commercial vehicle owners were covered in metropolitan cities –About 28% belonged to non-metros –Another 9% belonged to other NM and rest 5% to small towns Equal representation of owners owning different types of commercial vehicles in the sample covered –HCVs and taxis were further divided into categories based on the axle load and care segment respectively Base: 1089 commercial vehicle owners

24 Research-based Consultancy for B2B and technology Markets BIRD 24 Broad approach used for determination of counterfeit components market size

25 Research-based Consultancy for B2B and technology Markets BIRD 25 Total expenditure on vehicle servicing in India - Private vehicles - Commercial vehicles

26 Research-based Consultancy for B2B and technology Markets BIRD 26 Assumptions for calculation of vehicle population Total number of registered vehicles in India till 2003 were collected from MORTH Calculation of number of running vehicles –Private 2 wheelers & 4 wheelers 80% of the vehicles purchased in last 20 years are still running 10% of the vehicles registered before that are still running Based on recent data estimates 10% of the 4 wheelers running are taxies (IMRB in-house data) Almost 34 lakh 4 wheeler purchased in last two years not considered in the calculation –Commercial vehicles 80% of the vehicles purchased in last 10 years are still running 10% of the vehicles registered before that are still running The number of running vehicles thus are…

27 Research-based Consultancy for B2B and technology Markets BIRD 27 All Nos in Thousands Estimated number of running vehicles in India - By Geography

28 Research-based Consultancy for B2B and technology Markets BIRD 28 Combined after-sales market for repair in India for both private and commercial vehicles is in excess of Rs crores Private vehicles* = Rs.8542 crores *Note: Universe estimates for Segment E cars is not available ** Universe estimates of three-wheelers is not available Commercial** vehicles = Rs crores Total service aftermarket – By vehicle type

29 Research-based Consultancy for B2B and technology Markets BIRD 29 North, South and Western regions have almost equal share in the total service aftermarket of private vehicles however Eastern region is lagging far behind Private vehicles = Rs.8542 crores Total service aftermarket – By geographies Only 13% of the total service aftermarket is contributed by the Eastern region –This can be as a result of low automobile sales in the east Close to 30% of the service aftermarket is contributed by other 3 regions of the country

30 Research-based Consultancy for B2B and technology Markets BIRD 30 Around 60% of the total aftermarket service expenditure for private vehicles is on components as compared to 48% in case of commercial vehicles Private vehicles = Rs.8542 croresCommercial vehicles = Rs crores Break-up of aftermarket service – By vehicle ownership

31 Research-based Consultancy for B2B and technology Markets BIRD 31 Break-up of aftermarket service expenditure by vehicle type Private vehiclesCommercial vehicles

32 Research-based Consultancy for B2B and technology Markets BIRD 32 Thus, combined expenditure on aftermarket component purchase for both private and commercial owners is more than Rs crores Private vehicles = Rs.5074 croresCommercial vehicles = Rs.8513 crores Total expenditure on components – By vehicle type

33 Research-based Consultancy for B2B and technology Markets BIRD 33 At the same time share of authorized stations among private vehicle owners is around 22% as compared to 15% of commercial vehicles Private vehicles = Rs.5074 croresCommercial vehicles = Rs.8513 crores Total expenditure on components – By vehicle ownership & service destination

34 Research-based Consultancy for B2B and technology Markets BIRD 34 No major variation across regions for private vehicle owners in choice of service station for component purchase Private vehicles The share of authorized service stations across regions is in the range of 17% to 27% –Highest share of 27% is in the eastern region –Lowest share of 17% is in the southern region –In the case of northern region it is close to 21% and about 25% in the case of western region Total expenditure on components – By geography

35 Research-based Consultancy for B2B and technology Markets BIRD 35 Break-up of component expenditure in authorized vis-à-vis other service stations – By vehicle type Private vehiclesCommercial vehicles

36 Research-based Consultancy for B2B and technology Markets BIRD 36 Counterfeit auto components market in India - Private vehicles - Commercial vehicles

37 Research-based Consultancy for B2B and technology Markets BIRD 37 Definition of counterfeits? Counterfeit components are the illicit duplicates of genuine components being manufactured by unorganized sector players illegally Counterfeit manufacturers do not pay any: –Excise duties –Sales tax/VAT Cater to the after market replacement demand across the country They infringe the IPR of organized sector component manufacturers Have limited capital and technological knowledge

38 Research-based Consultancy for B2B and technology Markets BIRD 38 Assumptions used for estimation of counterfeit component market Vehicles going to Authorized service stations buy only genuine components It is assumed that private vehicles in first three years and commercial vehicles in the first year are under warranty and/or free service contract and hence, usually do not visit unauthorized service station (this was also used as the pre condition for interviewing) A user with similar running habits and having vehicle of same age would be spending similar amount on maintenance A user will be purchasing similar brand of auto components each time he visits a service station of his choice

39 Research-based Consultancy for B2B and technology Markets BIRD 39 Counterfeit auto components market in India - Private vehicles - Commercial vehicles

40 Research-based Consultancy for B2B and technology Markets BIRD 40 Case Study: Counterfeit auto component market size estimation for scooters in India Total expenditure on vehicle repair by private vehicle owners in the last service (normal or accidental) Percentage break-up on Components vs. Servicing % break-up at Unauthorized Service Stations (non OEM approved) vs. Authorized Total number of trips to any service station (Unauthorized or authorized) by vehicle owner per annum Market Size for Counterfeit = % Vehicles serviced at unauthorized service stations x Average spend on components x Estimated spent on counterfeits x Total number of trips/annum x Vehicle Population Likelihood of buying a genuine component Vs a counterfeit

41 Research-based Consultancy for B2B and technology Markets BIRD 41 Case Study: Counterfeit auto component market size estimation for scooters in India Total expenditure on vehicle repair by private vehicle owners in the last service (normal or accidental) Percentage break-up on Components vs. Servicing % break-up at Unauthorized Service Stations (non OEM approved) vs. Authorized Total number of trips to any service station (Unauthorized or authorized) by vehicle owner per annum Market Size for Counterfeit = % Vehicles serviced at unauthorized service stations x Average spend on components x Estimated spent on counterfeits x Total number of trips/annum x Vehicle Population Likelihood of buying a genuine component Vs a counterfeit

42 Research-based Consultancy for B2B and technology Markets BIRD 42 Expenditure per trip on service by scooter owners – Authorized Vs Other service stations Components Labour Consumables Authorized service stationsOther service stations Rs. 369 Rs. 154 Rs. 112 Rs. 338 Rs. 97 Rs. 125 Rs. 635Rs. 542 Source: IMRB research

43 Research-based Consultancy for B2B and technology Markets BIRD 43 Case Study: Counterfeit auto component market size estimation for scooters in India Total expenditure on vehicle repair by private vehicle owners in the last service (normal or accidental) Percentage break-up on Components vs. Servicing % break-up at Unauthorized Service Stations (non OEM approved) vs. Authorized Total number of trips to any service station (Unauthorized or authorized) by vehicle owner per annum Market Size for Counterfeit = % Vehicles serviced at unauthorized service stations x Average spend on components x Estimated spent on counterfeits x Total number of trips/annum x Vehicle Population Likelihood of buying a genuine component Vs a counterfeit

44 Research-based Consultancy for B2B and technology Markets BIRD 44 Percentage of scooter owners visiting Authorized Vs Other service stations In case of scooters, only 10% of the vehicles were taken to company authorized service station in the last service –Highest percentage of 14% being in West followed by 11% in North –Only 4% of the scooter owners in the East took their vehicle to company authorized service station for last repair Scooter owners preference to other service stations is clearly highlighted by the above figures Source: IMRB research

45 Research-based Consultancy for B2B and technology Markets BIRD 45 Case Study: Counterfeit auto component market size estimation for scooters in India Total expenditure on vehicle repair by private vehicle owners in the last service (normal or accidental) Percentage break-up on Components vs. Servicing % break-up at Unauthorized Service Stations (non OEM approved) vs. Authorized Total number of trips to any service station (Unauthorized or authorized) by vehicle owner per annum Market Size for Counterfeit = % Vehicles serviced at unauthorized service stations x Average spend on components x Estimated spent on counterfeits x Total number of trips/annum x Vehicle Population Likelihood of buying a genuine component Vs a counterfeit

46 Research-based Consultancy for B2B and technology Markets BIRD 46 Total number of trips to service station in a year - Authorized Vs Other service stations Observation: Not only the owner buying components from un-authorized service stations makes additional trips but also spend 3% higher on components in a typical years! Source: IMRB research

47 Research-based Consultancy for B2B and technology Markets BIRD 47 Case Study: Counterfeit auto component market size estimation for scooters in India Total expenditure on vehicle repair by private vehicle owners in the last service (normal or accidental) Percentage break-up on Components vs. Servicing % break-up at Unauthorized Service Stations (non OEM approved) vs. Authorized Total number of trips to any service station (Unauthorized or authorized) by vehicle owner per annum Market Size for Counterfeit = % Vehicles serviced at unauthorized service stations x Average spend on components x Estimated spent on counterfeits x Total number of trips/annum x Vehicle Population Likelihood of buying a genuine component Vs a counterfeit

48 Research-based Consultancy for B2B and technology Markets BIRD 48 Likelihood of buying a genuine component Statement describing the type of component purchasedCode A genuine (original/certified by the manufacturer) component was refitted such as Maruti Genuine Parts (MGP) in case of Maruti 1 A duplicate/refurbished/local component was fitted2 A few were genuine components and rest were local/other brands3 I am not too sure if the original/genuine component was fitted4 Respondent was asked to describe the component fitted in the last service The following statements were exposed to the respondent:

49 Research-based Consultancy for B2B and technology Markets BIRD 49 Weight-age given to each statement in order to determine the market of counterfeit components Statement describing the type of component purchased Scenario Analysis LowerRealisticHigher A genuine (original/certified by the manufacturer) component was refitted0%25%50% A duplicate/refurbished/local component was fitted100%35%100% A few were genuine components and rest were local/other brands50% I am not too sure if the original/genuine component was fitted100% Scenario analysis : The following 3 scenarios have been developed based on variation in weight-ages: –Higher estimate –Realistic estimate –Lower estimate

50 Research-based Consultancy for B2B and technology Markets BIRD 50 Case Study: Counterfeit auto component market size estimation for scooters in India Total expenditure on vehicle repair by private vehicle owners in the last service (normal or accidental) Percentage break-up on Components vs. Servicing % break-up at Unauthorized Service Stations (non OEM approved) vs. Authorized Total number of trips to any service station (Unauthorized or authorized) by vehicle owner per annum Market Size for Counterfeit = % Vehicles serviced at unauthorized service stations x Average spend on components x Estimated spent on counterfeits x Total number of trips/annum x Vehicle Population Likelihood of buying a genuine component Vs a counterfeit

51 Research-based Consultancy for B2B and technology Markets BIRD 51 …and the counterfeit market is about … The counterfeit market for scooters could be anything between 40-60% of the total aftermarket i.e. Rs Crores

52 Research-based Consultancy for B2B and technology Markets BIRD 52 Counterfeit components constitute about 35% - 51% of private vehicle components after market The counterfeit market can be anywhere between Rs 1750 – 2572 crores which constitutes around 35% - 51% of the total component aftermarket

53 Research-based Consultancy for B2B and technology Markets BIRD 53 Counterfeit auto components market in India - Private vehicles - Commercial vehicles

54 Research-based Consultancy for B2B and technology Markets BIRD 54 Almost similar methodology was used for computation of counterfeit market for commercial vehicles Average annual expenditure on vehicle repair by commercial vehicle owners (normal or accidental) Percentage break-up on Components vs. Servicing % break-up at Unauthorized Service Stations (non OEM approved) vs. Authorized Market Size for Counterfeit = % Vehicles serviced at unauthorized service stations x Average spend on components x Estimated spent on counterfeits x Vehicle Population Likelihood of buying a genuine component Vs a counterfeit

55 Research-based Consultancy for B2B and technology Markets BIRD 55 Only difference was capture of monthly service expenditure against amount spent on the last service All the assumptions specified earlier for computation of counterfeit components market of private vehicles are applicable in the case of commercial vehicles also Average monthly expenditure on service was captured and annual maintenance expenditure was calculated for: –Authorized service station users –Non-authorized service stations Respondents were then asked to recall last few component purchases and give an approximate break-up of amount spent on the following brand of components –OEM approved genuine parts –Other brands –Local brands –Duplicate brands

56 Research-based Consultancy for B2B and technology Markets BIRD 56 Weight-age given to each component brand for determination of counterfeit market Brand of auto component purchased Scenario Analysis LowerRealisticHigher OEM approved genuine parts0%25% Other brands50% 100% Local brands50% 100% Duplicate brands100% Scenario analysis : The following 3 scenarios have been developed again: –Higher estimate –Realistic estimate –Lower estimate

57 Research-based Consultancy for B2B and technology Markets BIRD 57 In case of commercial vehicles, counterfeit components account for almost 1/3 rd of the total component aftermarket! The counterfeit market can be anywhere between Rs 2644 – 3750 crores which constitutes around 31% - 44% of the total component aftermarket of commercial vehicles

58 Research-based Consultancy for B2B and technology Markets BIRD 58 The counterfeit component market in India could be contributing more than 1/3 rd but less that half of the total aftermarket component sales The counterfeit market can be anywhere between Rs 4395 – 6322 crores which constitutes around 32% - 47% of the total component aftermarket !

59 Research-based Consultancy for B2B and technology Markets BIRD 59 Size of auto components industry in India : Rs crores (approx) Share of OE sales and exports ~ Rs crores (approx) Share of replacement/after market ~ Rs crores (approx) –30% of total replacement market ~ Rs 3600 crores –40% of total replacement market ~ Rs crores So according to the experts, the market of counterfeit components in India should be somewhere between Rs to Rs crores The primary research estimates are slightly higher probably because older vehicles are not going to authorized service stations Also according to experts, counterfeit components should constitute not more than 30%-40% of the total replacement market in India Source: Depth Interviews

60 Research-based Consultancy for B2B and technology Markets BIRD 60 Factors causing high penetration of counterfeit components in the replacement market Higher margins from counterfeit components –Margins can be as high as 40% – 50% in case of some brands –No pressure on the margins in future Short supply of OE components –Irregular supply of components –Higher turnaround time Aggressive pricing policy of the organized sector –Price difference can be as high as 70% as counterfeit manufacturers evade government taxes and use inferior material –Mechanics and garages also gain as a result of selling counterfeit and earning higher margins Lack of awareness among customers –Inability of customers to differentiate –Lack of education among the customers

61 Research-based Consultancy for B2B and technology Markets BIRD 61 Factors causing high penetration of counterfeit components in the replacement market (contd) High trust placed on other service stations –Blind trust on other service stations who tend to push counterfeit components In case of commercial vehicles, lack of options available on highways supplying genuine components –Commercial vehicle owners have no option but to trust their drivers about the brand of component purchased Easy availability of cheap scrap –Partially destroyed components rejected by quality team of the OEM –In case of commercial vehicles, scrap sales from STC and other government institutions through auction Availability of second hand high quality printing presses –Easy to copy any type of packaging Inadequate government regulations and norms

62 Research-based Consultancy for B2B and technology Markets BIRD 62 State Transport authorities – Are counterfeits entering institutional sales also?

63 Research-based Consultancy for B2B and technology Markets BIRD 63 It seems that even state transport authorities are not totally shielded from counterfeit components State Transport Authorities Auto component/ Automobile manufacturers ASRTU (Association of State Road Transport Undertakings) 70 – 80% 20 – 30% Components are broadly divided into 2 categories –CFT : Critical function and safety related –NCFT: Non-critical function related The former type are sourced directly from the automobile/auto component manufacturer –Latter is sourced from vendors chosen by ASRTU on rate contracts –ASRTU has fixed norms for choosing the vendor

64 Research-based Consultancy for B2B and technology Markets BIRD 64 In case a commercial vehicle breaks down on a highway, the driver has the authority to purchase the component…the money can be taken from conductor Purchase process of components –Through tenders for 18 month period Includes 6 month buffer stock –Monthly delivery of components –Random checks on components to check the quality of material –In case of non-availability of components the regional spares in-charge has the authority to arrange for components from outside Generally it happens in 1-2% of cases and counterfeit components can enter in such cases –In case of a sudden breakdown the driver can purchase the components from outside and show the bill to reimburse expenses Although a mobile van facility is most often

65 Research-based Consultancy for B2B and technology Markets BIRD 65 Profile of the respondents 1. Private Vehicle Owners - Two-wheeler owners - Four wheeler owners

66 Research-based Consultancy for B2B and technology Markets BIRD 66 Motorcycles contribute to over 54% of the total two- wheeler vehicle ownership…with scooters having the rest 46% share Base: 1288 two-wheelers For the purpose of the study: –All types of scooters, scooterettes were clubbed under one broad head as scooters –Mopeds were not covered Share of first hand and second hand ownership is almost similar in the case of scooters as well as motorcycles Distribution of sample by two-wheeler segment Distribution of sample by ownership type

67 Research-based Consultancy for B2B and technology Markets BIRD 67 This is because in recent past, the share of motorcycles in the two-wheeler segment has increased substantially Base: 1288 two-wheelers In the last 5 year period, the ownership of motorcycles has overtaken the ownership of scooters by a huge margin –In period, the ownership of motorcycles was more than 150% of the scoter ownership –After 2002 the percentage difference has increased to more than 250% The findings are in line with the change in trends in the last 5 year period in the automotive two-wheeler industry

68 Research-based Consultancy for B2B and technology Markets BIRD 68 As anticipated average age of the primary user of scooter is much higher than a motorcycle user Motorcycles are a vehicle for the young. This statement is vindicated by the fact that: –Average age of the primary user of scooter is 37 years as compared to just 32 years in the case of motorcycle –The trend is similar across different town classes Can age of the primary user have some significant impact on the type and source of auto component purchased. We will try to find it out during the course of this presentation? Base: 1058 two-wheelers

69 Research-based Consultancy for B2B and technology Markets BIRD 69 As a result average distance travelled by motorcycle users per weekday is significantly higher as compared to scooter users…. Average distance covered by a scooter per weekday across locations is 27kms/day but in case of motorcycles it jumps to 34kms/day –The average distance covered by a scooter is highest in case of metro cities at 31kms/day and lowest in case of Small cities at 20 kms/day –In case of motorcycles the average distance covered is highest in case of other NM cities at 42kms/day and lowest in case of small cities at 22 kms/day Base: 1058 two-wheelers

70 Research-based Consultancy for B2B and technology Markets BIRD 70 …also on weekends motorcycles cover higher distance as compared to scooters Average distance covered by a scooter per day on weekends across locations is 25kms/day but in case of motorcycles it jumps to 30kms/day –The average distance covered by a scooter is highest in case of non-metro cities at 28kms/day and lowest in case of small cities at 15kms/day –In case of motorcycles the average distance covered is highest in case of other NM cities at 38kms/day and lowest in case of small cities at 16 kms/day Base: 1058 two-wheelers

71 Research-based Consultancy for B2B and technology Markets BIRD 71 Profile of the respondents 1. Private Vehicle Owners - Two-wheeler owners - Four wheeler owners

72 Research-based Consultancy for B2B and technology Markets BIRD 72 Fair representation of various four-wheeler segments in the sample achieved Base: 1659 four--wheelers Distribution of sample by four-wheeler segment Distribution of sample by city type Segment A, B and C constituted over 70% of the sample –10% of the vehicles covered belonged to Segment D –16% of the vehicles belonged to SUV/MUV segment and rest 2% of the vehicles belonged to Segment E Over 50% of all four-wheelers covered belonged to Metro cities and 34% to Non-metros

73 Research-based Consultancy for B2B and technology Markets BIRD 73 Weekend travel in case of four-wheelers is significantly higher as compared to travel on weekdays….except in small cities Base: 1659 four--wheelers In case of metros, average distance covered by a four-wheeler per weekday is 26kms as compared to 37kms in case of weekends In non-metros, average distance covered per weekday is 31 kms as compared to 35 in case of weekends In Other NM cities, weekday travel is at 21 kms/day compared to 37kms/day on weekends In small cities, weekday travel is at 22 kms/day compared to 19kms/day in case of weekends In Kms/day.

74 Research-based Consultancy for B2B and technology Markets BIRD 74 Last Service Details of Private vehicles

75 Research-based Consultancy for B2B and technology Markets BIRD 75 Maximum percentage of 4-wheeler owners preferred company authorized service station for last service …however 2-wheeler owners preferred other garages Base: 1596 private vehicle owners Over 40% of the four-wheeler owners took their vehicle to company ASS for last service as compared to just 14% owners in case of two-wheelers –Maximum percentage of 2-wheeler owners i.e. 43% preferred small/other garage for last service as compared to just 25% in the case of four-wheeler owners After company ASS, over 26% of four-wheeler owners gave preference to large garages as compared to just 12% of the two-wheeler owners Almost 1 out of every 3 two-wheeler owners took their vehicle to roadside mechanic for last service as compared to just 8% of the four-wheeler owners

76 Research-based Consultancy for B2B and technology Markets BIRD 76 Now lets look at the service destination choice of two- wheeler owners by region…a high percentage of owners in Western India prefer company ASS There is a startling difference in the choice of service stations between two-wheeler owners from different regions of the country –In North, although 15% of the owners went to company ASS for last service but more than 50% of the owners preferred road side mechanic and another 23% went to other/small garage –In East, the situation is a lot different. Over 52% of the respondents took their vehicle to small/other garage for repair and just 16% preferred road side mechanics. Only 12% went to company ASS –In South, only 9% of the owners went to company ASS and about 60% went to small/other garages. Around 24% of the owners went to road side mechanics for repair Base: wheeler owners

77 Research-based Consultancy for B2B and technology Markets BIRD 77 In case of four-wheelers, the variation between regions is not as high as two-wheeler owners An equal percentage of four-wheeler owners went to company ASS in the last service across regions except in West where the percentage drops by 12% - 14% In North, 24% owners preferred small/other garages and 18% went to large garages for servicing and the rest 14% went to mechanics –The above trend is very much similar in case of Eastern and Southern four-wheeler owners However, the four-wheeler owners in the Western region seem to be behaving differently from their counterparts in rest of the country. More than 46% of Western owners went to large garages for servicing and just 30% in company ASS Base: 954 four- wheeler owners

78 Research-based Consultancy for B2B and technology Markets BIRD 78 Preference of company ASS decreases with the increase in the vehicle age in case of two-wheeler owners About 21% of the two-wheeler owners who had purchased their vehicle between preferred company ASS for last service as compared about 8%-9% owners having purchased their vehicle before 2000 Preference given to other garages and road-side mechanics is highest in case of owners having purchased their vehicle before 2000 Above findings clearly indicate the decreasing interest of two-wheeler owners in availing the services of company ASS with the increase in vehicle age Base: wheeler owners

79 Research-based Consultancy for B2B and technology Markets BIRD 79 Although in case of four-wheelers high percentage of owners prefer company ASS but the preference decreases drastically with the increase in vehicle age About 47% of the four-wheeler owners who had purchased their vehicle between preferred company ASS for last service as compared about 33% owners having purchased their vehicle between and just 23% in case of owners owning a vehicle made before 1997 Preference given to large garages is complete opposite to the preference given to company ASS by four-wheeler owners Use of road-side mechanics for servicing is very low among the owners of any vehicle type Base: 954 four- wheeler owners

80 Research-based Consultancy for B2B and technology Markets BIRD 80 Drive transmission and engine related problems have been cited as the Top 2 reasons for last service by both 2-wheeler and 4-wheeler owners An equal percentage i.e. 30% of four-wheeler owners have cited drive transmission and engine related problems for the last service followed by 17% of the owners who faced suspension problems –About 13% of the owners had electrical problems and the rest 10% faced equipments or other problems About 31% of two-wheeler owners have cited drive transmission problems as the reason for the last service followed by 25% who faced engine related problems –Close to 16% of the owners faced suspension and electrical problems respectively –About 9% owners faced equipment problems and the rest 4% faced other issues Base: 1596 private vehicle owners

81 Research-based Consultancy for B2B and technology Markets BIRD 81 Both 2-wheeler and 4-wheeler owners spent 65% of their total expenditure on purchase of components in the last service Two wheelers The above figures include both accidental as well as normal repair The percentage expenditure on labor and consumables in case of both two-wheeler and four-wheeler owners is almost similar Further break-up of service expenditure in company ASS Vs. other service stations for both two-wheelers and four- wheelers is given later in the presentation Rs. 797/- Four wheelers Rs. 3759/- Base: 1596 private vehicle owners

82 Research-based Consultancy for B2B and technology Markets BIRD 82 In case of two-wheelers, the average expenditure on service decreases with the increase in the vehicle age Base: wheeler owners Rs. 838/-Rs. 806/-Rs. 742/- This can be as a result of decrease in owners interest towards vehicle servicing with the increase in vehicle age –Also, more preference is given to other service destinations such as road side mechanics, small garages etc as the age of the vehicle increases Expenditure on components is the highest in case of vehicles purchased between and lowest in case of vehicles purchased before 1997 –However, the expenditure on consumables is highest in case of vehicles purchased before 1997

83 Research-based Consultancy for B2B and technology Markets BIRD 83 The trend is absolutely same in case of four-wheelers also…expenditure on consumables is highest in case of vehicles purchased before 1997 Rs. 3678/-Rs. 3656/-Rs. 2996/- This again can be attributed to the decrease in owners interest towards vehicle servicing with the increase in vehicle age –Also as indicated earlier more preference is given to other service destinations such as large and small garages etc as the age of the vehicle increases Expenditure on components is almost similar in case of vehicles purchased between and –However, the expenditure is lowest for vehicles purchased before 1997 Base: 954 four- wheeler owners

84 Research-based Consultancy for B2B and technology Markets BIRD 84 In two-wheelers, although the expenditure in company ASS is the highest but the percentage difference w.r.t other service destinations is not very high Rs. 860/-Rs. 818/- Rs. 626/- For two-wheeler owners who went to company ASS, the average expenditure on last service was Rs.860/- out of which Rs.569/- was spent on purchase of components –In case of large garages, the average expenditure was Rs.818/- out of which Rs.538/- was spent on components which is just 5% less than average expenditure on components in company ASS –In case of other garages the % difference in spent on components w.r.t. to company ASS is around 24% whereas the difference in total expenditure is just 15%. In case of mechanics, it is 32% and 27% Rs. 730/- Base: wheeler owners

85 Research-based Consultancy for B2B and technology Markets BIRD 85 Detailed information on the last service for Two-wheelers - Scooters - Motorcycles

86 Research-based Consultancy for B2B and technology Markets BIRD 86 Around 69% of two-wheeler users have cited normal breakdown as reason for the last service Metro Non- Metro Other NMSmall All In case of metro cities, over 71% of the users have cited normal breakdown as reason for the last service followed by 7% of the users who took their vehicle for service as a result of accidental break down –In non-metros, 60% cited normal breakdown and 6% as accidental breakdown –In other NM, 69% cited normal breakdown and 5% as accidental –In small cities, 86% cited normal breakdown and just 1% as accidental Over 25% of all two-wheeler owners claim to have never experienced any type of breakdown Base: 1058 two-wheelers

87 Research-based Consultancy for B2B and technology Markets BIRD 87 In scooters, drive transmission problems has been the primary nature of repair across all locations followed by engine related issues Base: 327 scooters In case of metro cities, more than 30% of the vehicles were serviced last time as a result of engine related problems as compared to just 17% in non-metros –But in metros only 29% of the vehicles were serviced due to drive transmission problems as compared to over 44% vehicles in NM In case of other NM cities, around 24% of the vehicles were serviced due to engine problems compared to 38% in small towns –In case of other NM around 30% of the vehicles were serviced due to drive tsn problems compared to 38% in small

88 Research-based Consultancy for B2B and technology Markets BIRD 88 And in case of motorcycles also drive transmission problems has been cited as the primary reason for repair In case of non-metro cities, maximum number of vehicles i.e. 37% have cited suspension/braking problems as the primary reason for repair last time –In case of metro cities this percentage is only 16% and ranks fourth in reasons cited for last service In case of other NM cities and small cities, drive transmission and engine related problems are the top 2 problems cited for last service –Electrical and suspension/braking related problems rank 3rd and 4th respectively Base: 315 motorcycles

89 Research-based Consultancy for B2B and technology Markets BIRD 89 In case of scooters, percentage of users who took their vehicle to Company ASS for the last service is just 10%...highest being in non-metros Base: 327 scooters In case of metros, only 8% of the vehicles were taken to company ASS for last service as compared to 14% in case of non- metros –In case of other NM cities it is 12% and just 5% in case of small cities In case of metro cities, maximum number of vehicles i.e. 46% went for repair to small garages compared to 21% in case of non-metro cities –Because over 56% of the non-metro users preferred road-side mechanics for repair as compared to 29% in case of metros In case of other NM cities and small cities, a very high percentage of users preferred small garages for repair

90 Research-based Consultancy for B2B and technology Markets BIRD 90 …and Year of Make of the scooter has very less bearing on the servicing destination chosen by the vehicle users Base: 327 scooters Year of make of the vehicle has very little bearing on the selection of the service destination: –Around 16% of vehicles made in 3 year period of were taken to Company ASS for repair as compared to 10% of vehicles made before 1991 –Over 9% of vehicles made in 3 year period of were taken to large garages for repair as compared to 10% of the vehicles made in –Again over 36% of vehicles made before 1993 were taken to road side mechanics for the last service

91 Research-based Consultancy for B2B and technology Markets BIRD 91 But in case of motorcycles, the percentage of vehicles serviced at Company ASS is comparatively higher… however not as high as other service options In case of metros, over 20% of the vehicles were taken to company ASS for last service as compared to 19% in case of non-metros –In case of other NM cities it is 19% and just 8% in case of small cities In case of metro cities, maximum number of vehicles i.e. 44% went for repair to small garages compared to 23% in case of non-metro cities –Because over 44% of the non-metro users preferred road-side mechanics for repair as compared to 21% in case of metros In case of other NM cities all the service options were given almost equal importance but in small cities more than 83% users preferred small garages Base: 315 motorcycles

92 Research-based Consultancy for B2B and technology Markets BIRD 92 In case of motorcycles, the age of the vehicle has some impact on the decision of taking the vehicle to company ASS for servicing Around 24% of vehicles made in 3 year period of were taken to Company ASS for repair as compared to none in the case of vehicles made before 1991 For rest of the service destinations the weight-age given is almost equal –Over 48% of vehicles made in 3 year period of were taken to small garages for repair as compared to 45% of the vehicles made in –Again over 24% of vehicles made before 1993 were taken to road side mechanics for the last service Base: 315 motorcycles

93 Research-based Consultancy for B2B and technology Markets BIRD 93 In scooters, average expenditure on components is highest in non-metros….as a result of higher percentage of vehicles being serviced in Company ASS Rs.332Rs.388Rs.227 Rs.235 Base: 327 scooters In Rs In case of metros and non-metros, over 51% of the users spent less than Rs.200 on purchase of components in last service –But in case of non-metros over 13% of the users spent more than Rs.800 on purchase of components compared to just 7% in the case of metros In case of other NM, over 72% of the users spent less than Rs.200 on auto components as compared to 64% in the case of small –Also in case of small cities more than 11% of the users spent more than Rs.800 on components compared to just 3% in the case of other NM

94 Research-based Consultancy for B2B and technology Markets BIRD 94 As scooter users spend approximately 50% higher on components in company ASS as compared to other service options Base: 327 scooters Users who took their vehicle to company ASS for last service spent on an average Rs.517 on purchasing components as compared to: –Rs.344 in case of large garages –Rs.311 in case of small garages –Rs.296 in case of road side mechanics Expenditure on labor and consumables is also highest in case of company ASS –This might be a big deterrent for scooter users to avail the services of company ASS Might be a very big deterrent to price sensitive Indian vehicle users. In Rs.

95 Research-based Consultancy for B2B and technology Markets BIRD 95 But in case of motorcycles, the average spent on components is highest in other NM….followed closely by metros and non-metros locations Rs.484Rs.486Rs.496 Rs.381 In Rs In case of metros over 43% of the users spent less than Rs.200 on purchase of components in last service as compared to 48% in case of non-metros –And in case of non-metros over 11% of the users spent more than Rs.800 on purchase of components compared to just 9% in the case of metros In case of other NM, over 57% of the users spent less than Rs.200 on auto components as compared to 50% in the case of small –Also in case of other NM more than 18% of the users spent more than Rs.800 on components compared to 17% in the case of small cities Base: 315 motorcycles

96 Research-based Consultancy for B2B and technology Markets BIRD 96 As there is very little gap between the average expenditure on components in Company ASS Vs other service stations in case of motorcycles Users who took their vehicle to company ASS for last service spent on an average Rs.448 on purchasing components as compared to: –Rs.418 in case of large garages –Rs.435 in case of small garages –Rs.300 in case of road side mechanics Expenditure on labor and consumables in case of company ASS is almost comparable with other service options –As a result the average expenditure on components is higher in Other NM and non-metros as compared to metros Base: 315 motorcycles In Rs.

97 Research-based Consultancy for B2B and technology Markets BIRD 97 A large percentage of all two-wheeler users claim to have purchased genuine components in last service…but did they? In case of metros over 72% of the users claim to purchase genuine components in last service as compared to 63% in case of non-metros –And in case of non-metros over 10% of the users purchased duplicate components compared to 7% in the case of metros In case of other NM and small cities, over 60% of the users claim to purchase genuine components –Also in case of small cities more than 16% of the users purchased duplicate components compared to 10% in the case of other NM Base: 1058 two-wheelers

98 Research-based Consultancy for B2B and technology Markets BIRD 98 Last Service Details for Four-wheelers

99 Research-based Consultancy for B2B and technology Markets BIRD 99 Owner of the vehicle is the primary decision maker about service requirements…only 6% of the vehicles are taken by driver for repair Primary decision maker about repair and service requirements Who takes the vehicle for servicing? Base: 1550 four--wheelers Over 95% of the vehicle owners take the decision about repair and servicing requirements –In case of 3% of the vehicles, primary users take the decision about servicing –And in only 2% of the vehicles, family members are responsible for service decisions Again when it comes to taking the vehicle for servicing a majority i.e. 85% of the owners do it themselves –6% of the vehicles are taken by the driver for servicing and 5% by the users –Only 4% of the vehicles are taken by family members

100 Research-based Consultancy for B2B and technology Markets BIRD 100 Around 57% of four-wheeler users have cited normal breakdown as reason for the last service…followed by 10% accidental cases Metro Non- Metro Other NMSmall All In case of metro cities, over 61% of the users have cited normal breakdown as reason for the last service followed by 10% of the users who took their vehicle for service as a result of accidental break down –In non-metros, 43% cited normal breakdown and 12% as accidental breakdown –In other NM, 76% cited normal breakdown and 6% as accidental –In small cities, 51% cited normal breakdown and just 6% as accidental Over 33% of all four-wheeler owners claim to have never experienced any type of breakdown Base: 1550 four--wheelers

101 Research-based Consultancy for B2B and technology Markets BIRD 101 Normal break-down frequency in case of four- wheelers ranges between 5.5 – 6.5 months 5.74 mths6.04 mths5.45 mths6.46 mths Base: 961 four--wheelers In case of metro cities, over 52% of the users have reported 4-6 months as frequency of normal breakdown as compared to 42% in the case of non-metros –Around 30% of the vehicle owners in both metros and non-metros have reported 1-3 months as frequency In case of Other NM cities, over44% of the users have reported 4-6 months as frequency as compared to just 21% in the case of small –Over 12% of the vehicle owners in small towns have reported more than 12 months as frequency

102 Research-based Consultancy for B2B and technology Markets BIRD 102 Like in the case of two-wheelers, engine and drive transmission related problems were the primary reason for repair in four-wheelers also In case of metro cities, more than 33% of the vehicles were serviced last time as a result of engine related problems as compared to just 22% in non-metros –Also in metros around 24% of the vehicles were serviced due to drive transmission problems as compared to over 25% vehicles in NM –Suspension/braking and equipment problems were the other key areas of concern In case of other NM cities, around 28% of the vehicles were serviced due to engine problems compared to 36% in small towns –In case of small cities, over 28% of the vehicles were serviced as a result of other problems Base: 961 four--wheelers

103 Research-based Consultancy for B2B and technology Markets BIRD 103 Maximum percentage of vehicles across locations were serviced at Company ASS…use of road side mechanics for servicing is minimal Base: 961 four--wheelers In case of metro cities, more than 37% of the vehicles were serviced at company ASS as compared to 42% in the case of non-metros –Over 32% of metro vehicles were serviced at large garages compared to 19% in non-metros In case of other NM cities, around 50% of the vehicles were serviced at company ASS compared to 25% in small towns –Also in case of other NM cities, equal percentage of vehicles were serviced at large and small garages –But in case of small towns, more than 50% of the vehicles were serviced at small/some other garages

104 Research-based Consultancy for B2B and technology Markets BIRD 104 Percentage of vehicles serviced at company ASS increases as we move up the four-wheeler category Base: 961 four--wheelers Only 28% of segment A vehicles were serviced at company ASS compared to 67% in case of Segment E vehicles –Gradual increase in percentage of vehicles being serviced at company ASS when we move from Segment A to Segment E In case of segment E, after company ASS the next preferred service destination is small garages and road-side mechanics –None of the Segment E car owners availed the services of a large garage –Thus, it can be said that owners either prefer spending heavy amount by taking the vehicle to company ASS or prefer saving money completely by availing the services of mechanics and small garages

105 Research-based Consultancy for B2B and technology Markets BIRD 105 As a result average expenditure on last service also increases as we move up the four-wheeler category In Rs. All the figures include both accidental and normal repair Average expenditure in last service for Segment A cars is Rs.1821 and in case of Segment B & C cars it jumps by 35% to reach a figure of Rs.2446 –Average expenditure for SUVs/MUVs is around Rs.2413 which is very similar to the figures of Segment B & C cars In case of segment D cars the average expenditure is more than 50% higher as compared to four-wheelers belonging to Segment B & C As expected the average expenditure in case of Segment E cars is the highest at Rs.5414 Base: 961 four--wheelers

106 Research-based Consultancy for B2B and technology Markets BIRD 106 Average expenditure on components is more than 50% higher in company ASS as compared to the other service options Base: 961 four--wheelers In Rs. Users who took their vehicle to company ASS for last service spent on an average Rs.2964 on purchasing components as compared to: –Rs.1889 in case of large garages –Rs.1823 in case of small garages –Rs.1594 in case of road side mechanics Expenditure on labor and consumables is also highest in case of company ASS –This acts as a deterrent to price sensitive owners who own lower segment four-wheelers

107 Research-based Consultancy for B2B and technology Markets BIRD 107 Additional Regular Service Details for Four-wheelers

108 Research-based Consultancy for B2B and technology Markets BIRD 108 Awareness about various maintenance and service contracts is lacking….especially in the case of small cities Base: 1550 four--wheelers In case of metro cities, over 39% of the users are aware about AMCs and over 32% are aware about extended warranty –Around 20% of the users are also aware about equipment contracts In case of non-metro cities, over 47% of the users are aware about AMCs and extended warranty –Around 33% of the users are also aware about equipment contracts In case of other NM cities, over 30% of the users are aware about AMCs and over 22% are aware about extended warranty –Around 13% of the users are also aware about equipment contracts

109 Research-based Consultancy for B2B and technology Markets BIRD 109 Out of those who are aware only 16% have subscribed to such contracts across locations Base: 612 four--wheelers In case of metro cities, over 18% of the users have subscribed to either of the maintenance contracts In case of non-metro cities, over 15% of the users have subscribed In case of other NM cities, over 13% of the users have subscribed In case of small cities, none of the users had subscribed to such maintenance contracts

110 Research-based Consultancy for B2B and technology Markets BIRD 110 Assurance of genuine spares and low hassle of maintenance are the top 2 motivators for subscribing to a maintenance contract Base: 174 fourwheeler users In case of metro cities, over 31% of the users have given assurance of trained man-power in company ASS as the most important for entering into a maintenance contract –In case of non-metros, the percentage of such users increases 43% –In case of other NM, it is 17% Assurance of trained man-power, trust on OEM and value for money are the other important motivators Top Box score

111 Research-based Consultancy for B2B and technology Markets BIRD 111 Expensive contracts and costly genuine spares are the key de-motivators preventing users from subscribing to such contracts Base: 600 fourwheeler users In case of metro cities, over 42% of the users perceive such contracts to be expensive and hence do not subscribe –Another 39% of the users consider genuine spare parts being used in company ASS to be expensive In case of non-metro cities, over 29% of the users perceive such contracts to be expensive and in case of other NM cities this percentage increases to 42% Use of vehicles for general purpose, existing relationship with OSS and promptness of service are other key de-motivators cited by the respondents Top Box score

112 Research-based Consultancy for B2B and technology Markets BIRD 112 Profile of the respondents 2. Commercial Vehicle owners - Buses - HCVs and LCVs - Taxis - Three-wheelers

113 Research-based Consultancy for B2B and technology Markets BIRD commercial vehicle owners were met covering over 2390 commercial vehicles of all types Base: 1089 commercial vehicle owners Distribution of sample by town class Distribution of commercial vehicle owners by vehicle type Over 58% of the commercial vehicle owners covered belonged to metropolitan cities –About 28% belonged to non-metros –Another 9% belonged to other NM and rest 5% to small towns Equal representation of owners owning different types of commercial vehicles in the sample covered –HCVs and taxis were further divided into categories based on the axle load and care segment respectively Base: 1089 commercial vehicle owners Distribution of total number of commercial vehicles covered by type Base: 2394 commercial vehicles

114 Research-based Consultancy for B2B and technology Markets BIRD 114 Further classification of HCVs and taxis owners met during the course of the study Break-up of HCVs covered by axle load Break-up of Taxis covered by segment Base: 221 HCVs owners 229 Taxis owners In case of HCVs, over 60% of the vehicle owners covered owned 7.5 – 12 tones axle load HCV –About 25% owned tones axle load category –About 11% owned tones axle load category and rest 4% in more than 25 tones category In case of taxis, more than 47% of the vehicle owners owned Segment B cars which includes Indica, Uno –25% belonged to Segment A which includes Omni, Fiat –And about 24% in Segment C which includes Indigo, Contessa, Ikon, Esteem and Baleno

115 Research-based Consultancy for B2B and technology Markets BIRD 115 Approximately 69% of all the commercial vehicle owners covered owned only 1 vehicle…16% owned 2- 3 vehicles In case of bus owners, about 43% owned only 1 vehicle: –Around 20% owned 2-3 vehicles and about 19% owned 4-5 vehicles –Over 19% owned more than 5 vehicles In case of HCVs, about 58% owned only 1 vehicles: –Around 20% owned 2-3 vehicles and rest 22% owned more than 3 vehicles Over 73% LCV owners, 79% taxi owners and 91% 3-wheeler owners owned only 1 vehicles Base: 1089 commercial vehicle owners

116 Research-based Consultancy for B2B and technology Markets BIRD 116 Over 48% of all commercial vehicles are primarily being used for intrastate travel In case of buses, about 52% of the vehicles are used for intrastate travel, followed by 35% of the vehicles being used for interstate and the rest 13% for both In case of HCVs, only 38% of the vehicles are used for intrastate travel, followed by 36% of the vehicles being used for both inter and intrastate; rest 26% for interstate travel only In case of LCVs, 41% being used for intrastate and 25% for interstate; rest 24% for both In case of taxis, 33% being used for intrastate and 39% for interstate; rest 28% for both Base: 1089 commercial vehicle owners

117 Research-based Consultancy for B2B and technology Markets BIRD 117 Service Details for Commercial Vehicles

118 Research-based Consultancy for B2B and technology Markets BIRD 118 Only 23% of all commercial vehicle owners are aware about service contracts…and out of those only 3% are subscribing to such contracts 23% 36% 22% 18% 21% 14% Maximum awareness is among the bus owners, where about 36% of the respondents are aware of such contracts and about 6% have entered into such contracts –A high percentage of bus owners covered owned more than 1 vehicle In case of HCV owners, about 22% are aware of such contracts and only 2% have entered In case of LCV owners, 18% are aware and 3% have entered In case of taxis also 21% are aware of such contracts but only 1% have entered –This can be because over 79% of the owners covered owned only 1 vehicle Base: 1089 commercial vehicle owners

119 Research-based Consultancy for B2B and technology Markets BIRD 119 Average distance travelled in a month is highest in case of busses followed by HCVs In kms/month kms 7461 kms4354 kms3956 kms2719 kms Average distance traveled by a bus (including inter and intrastate) in a month is 9504 kms In case of HCVs, the average distance traveled by a vehicle in a month is 7461 kms In case of LCVs the average distance drops down to 4354 kms/month In case of taxis (including all segments), average distance traveled in a month is 3956 kms Average distance traveled in a month is lowest in the case of three-wheelers at 2719 kms Base: 1089 commercial vehicle owners

120 Research-based Consultancy for B2B and technology Markets BIRD 120 Average distance covered by HCVs of different capacities ranges from 6500 – 9300 kms per month 6530 kms9342 kms8083 kms7555 kms In kms/month. Base: 221 HCV owners In case of HCVs with axle load between tones, average distance covered in a month is 6530 kms And in case of HCVs with axle load between tones, it increases to 8083 kms/month In case of HCVs more than 25 tones of axle load, average distance covered is 7555 kms/month The highest average distance covered in a month is 9342 kms by HCVs of axle load tones

121 Research-based Consultancy for B2B and technology Markets BIRD 121 As a result of heavy travel, the frequency of service in case of buses is highest at once a week In case of buses, around 34% of the vehicles are serviced (includes normal tuning, washing) atlleast once a week –Around 12% of vehicles are serviced once in 3 weeks and another 15% once in a month In case of HCVs, the maximum number of vehicles i.e. 43% are serviced once in more than 6 week period –In case of LCVs, taxis and three-wheelers the trend is quite similar Base: 1089 commercial vehicle owners

122 Research-based Consultancy for B2B and technology Markets BIRD 122 Large and small garages are most preferred service destinations for most of the commercial vehicle owners…use of company ASS is highest in taxis In case of buses, only 17% of the vehicles are sent to company ASS for repair –Maximum vehicles i.e. about 57% of the vehicles are sent to large and small garages for repair In case of HCVs, about 12% of the vehicles are sent to company ASS, maximum vehicles being serviced at large and small garages In case of taxis, over 23% of the vehicles are sent to company ASS for repair –About 46% are being serviced at small garages and about 16% in large garages Base: 1089 commercial vehicle owners

123 Research-based Consultancy for B2B and technology Markets BIRD 123 As expected, average maintenance expenditure per Km is highest in HCVs followed by buses Maintenance expenditure/ Km (INR) In case of buses, average maintenance expenditure per km is Rs.1.25 –This included both inter and intra state buses In case of LCVs, the average expenditure is at Rs.1.06 In case of taxis, it is at Rs.1.08 and in case of 3-wheelers is at Rs.0.40 Base: 1089 commercial vehicle owners

124 Research-based Consultancy for B2B and technology Markets BIRD 124 And it has definite impact on the average monthly expenditure on maintenance which is again highest in case of HCVs Maintenance expenditure/ month (INR) In case of buses, average monthly expenditure on maintenance is about Rs.10200/- In case of HCVs, average monthly expenditure is the highest at about Rs.12800/- In case of LCVs, average monthly expenditure is almost 1/3 rd of an HCV at Rs.4070/- For taxis, average monthly expenditure is around Rs.3200 In case of 3-wheelers, it is the lowest at Rs.940/- only Base: 1089 commercial vehicle owners

125 Research-based Consultancy for B2B and technology Markets BIRD 125 About 50% of the monthly expenditure incurred on maintenance is spent on components In case of buses, about 50% of the monthly expenditure incurred on maintenance is spent on components –About 21% on labor and rest 29% on consumables In case of HCVs, about 46% is spent on components –About 20% on labor and rest 34% on consumables In case of other commercial vehicles also, the trend is very similar Base: 1089 commercial vehicle owners

126 Research-based Consultancy for B2B and technology Markets BIRD 126 Drive transmission and suspension related components are replaced most often…engine components take the third spot In case of buses, about 43% of the vehicles face engine related problems most often –About 25% face suspension problems In case of HCV, about 33% of the vehicles face engine related problems most often –About 24% face suspension problems The trend is more or less similar for other type of components also Base: 1089 commercial vehicle owners

127 Research-based Consultancy for B2B and technology Markets BIRD 127 About 60% of the total expenditure on components is on OEM genuine type…claim commercial vehicle owners Base: 1089 commercial vehicle owners In case of buses, about 18% of the amount is spent on purchase of other brands and about 11% on local brands –Around 3% is spent on purchase on duplicate components In case of HCVs, the trend is almost similar except the spent on duplicate components which increases to 6% –The trend in LCVs is also very similar In case of taxis and 3-wheelers, the average expenditure on duplicate components increases to 8%

128 Research-based Consultancy for B2B and technology Markets BIRD 128 Additional Service Details for Commercial Vehicle commuting on highways

129 Research-based Consultancy for B2B and technology Markets BIRD 129 In case of an emergency breakdown on a highway, owner of the vehicle takes the decision about the servicing requirements in majority of the cases Base: 661 commercial vehicle owners About 73% of the bus owners are responsible for taking servicing decision in case of an emergency –In rest 27% of the cases, salaried driver of the vehicle takes the decision himself In case of HCVs, around 81% of the owners take such a decision –In 19% of the cases, the driver is given the freedom to take a decision In case of taxis also, the trend is almost similar to HCVs

130 Research-based Consultancy for B2B and technology Markets BIRD 130 Maximum percentage of vehicles were serviced at small garages and road-side mechanics when such an emergency had happened last time Base: 661 commercial vehicle owners Although in case of buses and taxis, about 16% of the owners/drivers took the vehicle to company ASS for servicing but still maximum preferred small garages and road-side mechanics –Can this be a case of poor network of company ASS on some of the national highways across the country Only 9% of the HCV owners/drivers took their vehicle to company ASS –About 30% of the owners took their vehicle to small garages and road side mechanics

131 Research-based Consultancy for B2B and technology Markets BIRD 131 In maximum percentage of emergency cases for HCV and bus owners, the driver showed a kuccha bill to the owner for reimbursement of service expenses Base: 661 commercial vehicle owners In case of taxi owners, about 38% were driving the vehicle when it happened last time and made the payment then and there –But after that about 20% of the owners reimbursed the expenses to the driver when a kuccha bill (made by mistry) was shown About 25% of bus, 19% of HCV and 12% of taxi owners reimbursed the expenses only when the driver showed a permanent bill which can be a proof of servicing at either company ASS or large garages

132 Research-based Consultancy for B2B and technology Markets BIRD 132 About 10% - 20% commercial vehicle owners admit purchasing duplicate/refurbished component in such an emergency situation Base: 661 commercial vehicle owners In case of buses, about 60% owners claim to have purchased genuine components –About 21% had purchased genuine if components were critical else local In case of HCVs, about 57% owners claim to have purchased genuine components –About 19% purchased duplicate components and about 16% purchased genuine only if it was critical In case of taxis, about 52% owners claim to have purchased genuine components –About 15% of the owners purchased duplicate and about 14% were not sure about the type of component fitted

133 Research-based Consultancy for B2B and technology Markets BIRD 133 Maximum percentage of commercial vehicle owners have full faith on their drivers and do not check to ensure whether the component fitted is original Base: 661 commercial vehicle owners In case of buses, about 23% of the owners have full faith on their drivers –However a larger number i.e. about 29% physically check the components also equal number of owners ask their drivers to collect the packaging In case of HCVs, about 38% of the owners have full faith on their drivers –Also about 22% of the owners ask their drivers to collect the packaging of the component In case of taxis, about 31% of the owners have full faith on the drivers but another 26% physically check and also call the retailer

134 Research-based Consultancy for B2B and technology Markets BIRD 134 Profile of the respondents 3. Auto component channel members - Distributor - Wholesaler/Retailer - Authorized service station - Other service station - Roadside mechanics

135 Research-based Consultancy for B2B and technology Markets BIRD 135 Over 866 auto component channel members were met across locations Base: 866 channel members Distribution of sample by line of business Distribution of sample by city type Around 40% of the total sample covered were roadside mechanics –Close to 11% were distributors and about 22% were retailers/wholesalers –Over 9% of the sample constituted of authorized service stations and around 18% owned other service stations/garages Close to 3/4 th of the sample covered were located in metro and non-metro locations

136 Research-based Consultancy for B2B and technology Markets BIRD 136 Further classification of channel members covered during the survey Close to 50% of the auto component distributors covered claimed to have an annual sales turnover of more than Rs. 10 lakhs from auto components –However, only 17% of wholesalers/dealers had sales of more than Rs. 10 lakhs A high percentage of the distributors, authorized and other service stations employ more than 5 employees per outlet –However, in case of mechanics and wholesalers/retailers majority of the respondents employ less than 3 employees All figures in INR lakhs Distribution of sample by annual sales from auto components Base: 866 channel members Distributor Wholesaler/ Retailer Authorized stations Other stations Mechanics Distribution of sample by number of employees per outlet

137 Research-based Consultancy for B2B and technology Markets BIRD 137 ….since we also need customers to come back to us we provide them with counterfeits… Large Distributor High percentage of channel members confess stocking and selling counterfeit components: –Distributors: 14% –Wholesaler/Retailer: 31% –Authorized service station: 10% –Other service stations: 55% –Roadside mechanics: 43% Key counterfeiting hubs identified in India – By City: –Chennai Mount Road G P Road (General Ports Road) Pudupet Loot Road MANNADI

138 Research-based Consultancy for B2B and technology Markets BIRD 138 …greediness of dealers, retailers and mechanics force us to supply counterfeits to them… Distributor Key counterfeiting hubs identified in India – By City: –Delhi Kashmere Gate Karol Bagh Darya Ganj Jheel Mayapuri Mori Gate market –Mumbai Ulhas nagar Bhivandi Sion Vashi –Kolkata Mallick bazar

139 Research-based Consultancy for B2B and technology Markets BIRD 139 …authorized dealers also purchase components from us for use in service stations… Retailer Key counterfeiting hubs identified in India – By City: –Kolkata Central avenue Richi road Bhawani pur –Other cities Nana peth (Pune) Pimpri Chinchwad (Pune) Nigadi (Pune) Lal Bagh (Lucknow) Cant Road (Lucknow) Alambagh (Lucknow) Miller Ganj (Ludhiana) Samrala Chowk (Ludhiana) Kaloor (Kochi) Edapally (Kochi)

140 Research-based Consultancy for B2B and technology Markets BIRD 140 …majority of the counterfeit components are supplied by authorized dealers of OEMs… Mechanic Key counterfeiting hubs identified in India – By City: –Other cities Sector 38, 43, 48 and 22 (Chandigarh) Kashi Vishwanath Market (Jamnagar) Rajkot and surrounding areas Municipal chowk (Chapra) Gunj and super market (Gulbarga) Vidhu Nagar (Guni)

141 Research-based Consultancy for B2B and technology Markets BIRD 141 Brand of components being stocked and sold by channel members covered

142 Research-based Consultancy for B2B and technology Markets BIRD 142 Fair percentage of distributors & retailers stock counterfeits for various component types Base: 283 channel members Counterfeits of drive transmission, suspension and equipments seem to be popular among distributors and wholesalers/retailers Although few channel members confess to stocking counterfeits of engine parts also but they are lesser in number Drive TrsnEngineElectricalSuspensionEquipments Distributor Drive TrsnEngineElectricalSuspensionEquipments Wholesaler/Retailer

143 Research-based Consultancy for B2B and technology Markets BIRD 143 Surprisingly, authorized stations also confess of stocking local and counterfeit components Base: 226 channel members Almost all authorized service stations stock OEM approved genuine components. But, few authorized stations covered in the study stocked local and counterfeit components also More than 1/3 rd of other service stations confess to stock counterfeit components –Local/unbranded components are also stocked by 50% of other stations covered Drive TrsnEngineElectricalSuspensionEquipments Authorized stations Drive TrsnEngineElectricalSuspensionEquipments Other service stations

144 Research-based Consultancy for B2B and technology Markets BIRD 144 As expected, almost 50% of the roadside mechanics covered stocked counterfeit components Base: 357 mechanics Counterfeits of drive transmission components are stocked by majority of the roadside mechanics covered –Suspension and equipments are the next most counterfeited components Local components are also being stocked by close to 50% of the mechanics met Majority of the respondents claim to stock OEM and Non-OEM genuine components Drive TrsnEngineElectricalSuspensionEquipments Roadside mechanics

145 Research-based Consultancy for B2B and technology Markets BIRD 145 Attitude towards auto component replacement - Private vehicle owners - Commercial vehicle owners

146 Research-based Consultancy for B2B and technology Markets BIRD 146 Attitude towards auto component replacement - Private vehicle owners - Commercial vehicle owners

147 Research-based Consultancy for B2B and technology Markets BIRD 147 For majority of two-wheeler owners, desired source of purchase for various components is not company ASS but other service options Base: 1141 two-wheeler owners In case of engine components, maximum number of two-wheeler users i.e. 47% would like to purchase from company ASS –Rest 53% of the users still prefer to purchase components from other service options In case of drive transmission, the percentage of users who would purchase from company ASS drops to just 37% –Although drive transmission problems were faced by the maximum number of users, still they would not go to company ASS for repair/purchase For all other categories of components the percentage of users going to company ASS for purchase keeps on decreasing

148 Research-based Consultancy for B2B and technology Markets BIRD 148 On the contrary, four-wheeler owners would prefer purchasing all types of components from company ASS…share of small garages also goes down Base: 1550 fourwheeler owners In case of engine components, maximum number of two-wheeler users i.e. 62% would like to purchase from company ASS –This shows the importance given to such components by the users In case of drive transmission, the percentage of users who would purchase from company ASS drops to 54% –Around 12% would prefer going to small garages and about 22% to large garages For all other categories of components the percentage of users going to company ASS is hovering around 51%

149 Research-based Consultancy for B2B and technology Markets BIRD 149 Attitude towards auto component replacement - Private vehicle owners - Commercial vehicle owners

150 Research-based Consultancy for B2B and technology Markets BIRD 150 Choice of auto components purchase source among commercial vehicle owners is highly fragmented In case of engine components, maximum number of owners i.e. 25% would like to purchase from company ASS –Around 23% prefer small garages and road side mechanics In case of other type of components, the percentage of owners who would purchase from company ASS drops to just 17% - 18% –Maximum percentage of owners would like to purchase such components from road side mechanics –The next best option for the owners are small garages Base:1089 commercial owners

151 Research-based Consultancy for B2B and technology Markets BIRD 151 Discounts offered and promptness of service offered by other service stations are key factors preventing the use of company authorized stations Over 43% of the commercial vehicle owners have given maximum weight age to discounts offered by other service stations as a key determining factor in choice of such stations over company authorized service station Another 42% of the respondents have given high importance to promptness of service (of other service stations) and high cost of services in company authorized service station as next 2 important factors –Over 36% of the respondents perceive genuine components to be costly It seems existing relationships with other service stations has an important role to play in the final choice of service destination also Top Box score Base:1089 commercial owners

152 Research-based Consultancy for B2B and technology Markets BIRD 152 Attitude towards counterfeit components

153 Research-based Consultancy for B2B and technology Markets BIRD 153 Methodology used for mapping attitude towards counterfeit components Battery of statements were exposed to the respondent and level of agreement was sought The following scale was used to capture the level of agreement by the respondent Level of agreementCode I strongly agree with this statement1 I somewhat agree with this statement2 I neither agree nor disagree with this statement3 I somewhat disagree with this statement4 I completely disagree with this statement5

154 Research-based Consultancy for B2B and technology Markets BIRD 154 Around 11% of private owners and 19% of commercial owners confess to purchase of counterfeit components intentionally Base: 2314 private owners 1089 commercial owners Many times I intentionally buy counterfeits I am aware about damages caused by counterfeits to my vehicle I feel cheated when counterfeits are pushed when I have paid for original Many times counterfeits are sold as originals Quite frequently original spare parts are not available Private owner Commercial owner Surprisingly, majority of the private and commercial vehicle owners seem to be aware about the damages caused by counterfeit components to their vehicle Also, more than 50% of the respondents feel that quite frequently original spare parts are not available which forces the channel members to push counterfeits

155 Research-based Consultancy for B2B and technology Markets BIRD 155 Majority of the private and commercial owners strongly agree that use of counterfeits increases frequency of repair Base: 2314 private owners 1089 commercial owners Use of counterfeits reduces the vehicle life Use of counterfeits causes frequent break-down of the vehicle Use of counterfeits worsen the overall driving experience Use of counterfeits increases frequency of repair Private owner Commercial owner Majority of the private and commercial vehicle owners seem to be aware about the fact that use of counterfeits reduces the useful life of the vehicle and causes frequent breakdowns Also, most of the vehicle owners agree that use of counterfeits has a negative impact on the overall driving experience

156 Research-based Consultancy for B2B and technology Markets BIRD 156 Close to 80% of both private and commercial vehicle owners felt the need of increase in number of company authorized service stations Base: 2314 private owners 1089 commercial owners Repair in authorized service stations should be made cheaper Number of company authorized service stations should be increased Counterfeit manufacturers should be dealt with strictly Re-furbishing of inferior auto components should not be allowed Private owner Commercial owner More than 75% of both private and commercial vehicle owners felt that the repair in company authorized service stations should be made cheaper so as to attract more and more vehicle owners Also, a high percentage of vehicle owners felt re-furbishing of auto components should be banned as they are inferior in quality

157 Research-based Consultancy for B2B and technology Markets BIRD 157 Cheap price and easy availability are the key reasons for purchase of counterfeit components Base: 2314 private owners 1089 commercial owners About 81% of private owners and around 87% of commercial vehicle owners feel that cheap price of such components motivates people to purchase them About 50% of all vehicle owners also feel the easy availability of such components in the market is also a key reason Other reasons cited are discounts, word of mouth and past experiences

158 Research-based Consultancy for B2B and technology Markets BIRD 158 Some Suggestions to curb the growing menace

159 Research-based Consultancy for B2B and technology Markets BIRD 159 Public-private partnership for education of customers against evils of using such components is imperative… Jaago Grahak Jaago –This famous tag-line being used by consumer protection cell can also be replicated in the case of counterfeit components –As large percentage of customers are buying such illicit duplicates under the impression of being genuine –And as we all know, the kind of danger the consumer and his loved ones are exposed to on using such duplicate components –Spreading education and awareness among the customers is most important and this effort has to be jointly supported by public and private stakeholders Education of channel members and law enforcement agencies –In addition to the education of the customers, the channel members and law enforcement agencies need to be educated –This would help in identification and removal of counterfeits from the supply side

160 Research-based Consultancy for B2B and technology Markets BIRD 160 OEM backed service stations/mobile vans need to provided on National Highways According to experts a high percentage of counterfeit components for commercial vehicles are being pushed on National Highways –It is estimated that truck-owners in India spend Rs.220 bn annually on maintenance of trucks (Source: The Elgi Magazine) Despite such huge expenditure, the truck owners had access only to spurious low quality spares and maintenance by untrained mechanics –The drivers purchase spurious components and claim bills for original components. Though the fleet owner are aware of such malpractices but they do not have any other option In our primary survey also, majority of truck owners have recommended expansion of network by the vehicle manufacturers –In developed countries, there are special services targeted at commercial vehicles commuting on the highways –Such services offer monthly preventive maintenance and emergency vehicle repairs which are just a phone-call away Infrastructure provided includes workshops on highways in addition to mobile vans

161 Research-based Consultancy for B2B and technology Markets BIRD 161 Sharing of market intelligence among the various vehicle manufacturers through associations will definitely help in curbing this menace As different vehicle manufacturers, are operating from different geographies the market intelligence is bound to differ –Sharing of market intelligence will help in reduction of counterfeits in the market fulfilment resulting in better future Rationalization of taxes and duty structure –Price difference between an original and counterfeit component can range between 50% - 150% for high end vehicles –Reduction in the taxes might act as a de-motivator for counterfeit manufacturers Organized retail chains –One-stop shop for various types of genuine components especially in Northern region where counterfeiting is being done at a very large scale Non-metros and small towns to be given equal importance if not more in terms of education

162 Research-based Consultancy for B2B and technology Markets BIRD 162 Summarizing…

163 Research-based Consultancy for B2B and technology Markets BIRD 163 Key take-out Improve awareness of counterfeiting and damages caused among private and commercial vehicle owners Current awareness levels are rather moderate at around 40% awareness only. The message needs to be reinforced continuously by way of an extensive PR activity Suggested game plan Promote use of original equipment and authorized service centres through advertisements in suitable media (auto magazines, general magazines, newspapers, etc.) and articles. Suggestion 1 Messaging clearly needs to highlight the financial benefits (low breakdown rate leading to lower maintenance cost) and conevnience aspect (lesser number of trips to service station, avoid embarassment on the road) Get new car owners hooked to authorized service stations by hoardings and materials in the service station, TV messages in waiting rooms, pamphlets, etc. Target not only owners but also car drivers and auto-mechanics on the benefits of genuine components and how it is more beneficial in the long-run to use genuine components Suggestion 2 Suggestion 3 Suggestion 4

164 Research-based Consultancy for B2B and technology Markets BIRD 164 Suggested action plan AwarenessInterestDesireAction Through advertisements in T.V., radio, Internet and industry magazines Through detailed articles and customer experience studies on websites, newspapers, T.V. auto shows, etc on the benefits of genuine components By offering value for money warranty offerings, reaching out to even for second hand and old vehicles by way of loyalty programs By improving the distribution infrastructure of auto components, network of authorized service stations, allow buying `only components from service stations

165 Research-based Consultancy for B2B and technology Markets BIRD 165 Thank you!

166 Research-based Consultancy for B2B and technology Markets BIRD 166 Annexure

167 Research-based Consultancy for B2B and technology Markets BIRD 167 Share of counterfeit components by vehicle category - Private vehicles - Commercial vehicles

168 Research-based Consultancy for B2B and technology Markets BIRD 168 In case of scooters, just about 10% of the total expenditure on components is in authorized service station

169 Research-based Consultancy for B2B and technology Markets BIRD 169 But it goes up to 15% in case of motorcycles…

170 Research-based Consultancy for B2B and technology Markets BIRD 170 About 1/3 rd of total expenditure on components in case of Segment A cars is in authorized service stations

171 Research-based Consultancy for B2B and technology Markets BIRD 171 As expected share of authorized service stations increases to almost 50% in case of Segment B & C cars

172 Research-based Consultancy for B2B and technology Markets BIRD 172 Expenditure on components in company authorized service station is the highest in case of Segment D cars

173 Research-based Consultancy for B2B and technology Markets BIRD 173 Summarizing the figures of component expenditure in authorised station for private vehicles Private vehicles In case of cars, the expenditure on components of Segment D cars in company authorized service station is the highest at 65% and lowest being in the case of Segment A cars at 28% –It seems that as we move up from one segment to other in case of cars, the share of company authorized service stations increases significantly In case of scooters the share is 11% and close to 15% for motorcycles

174 Research-based Consultancy for B2B and technology Markets BIRD 174 Share of counterfeit components by vehicle category - Private vehicles - Commercial vehicles

175 Research-based Consultancy for B2B and technology Markets BIRD 175 For all commercial vehicles, expenditure on components in authorized service stations is very low at 15% Commercial vehicles In case of four-wheeler taxies, the expenditure on components in company authorized service station is highest at 22% –On the hindsight in case of LCVs it is the lowest at 10% For HCVs and buses the share of authorized stations is 15% Rs crRs crRs crRs crRs cr

176 Research-based Consultancy for B2B and technology Markets BIRD 176 Entry of counterfeit components in the auto component after-market in India

177 Research-based Consultancy for B2B and technology Markets BIRD 177 Structure of auto component replacement market in India Auto Component Manufacturers Authorised Distributors Wholesalers Retailer Mechanic OE sales Company ASS In the recent past, the sales to OEMs for aftermarket has been increasing. The OEMs now prefer to interact with their customers directly rather than through their vendors Customers Institutional sales

178 Research-based Consultancy for B2B and technology Markets BIRD 178 How do counterfeit components enter the market? Different respondents have different view points. However, one thing which was common was that majority of such components enter the market through the channel: Auto Component Manufacturers Authorised Distributors Wholesalers Retailer Mechanic Majority believe that it enters at the retailer level Some also believe that wholesalers push it Customer Few say mechanics are also involved

179 Research-based Consultancy for B2B and technology Markets BIRD 179 Counterfeits Vicious cycle forcing channel members to push counterfeits Want to deal with the customers directly Contracts with auto- component manufacturers for supply of components at decreasing prices in future Forced to maximize profits from replacement market Aggressive pricing policy Do not consider economic feasibility of channel at times In recent past have squeezed margins of channel in order to become more competitive Bear the brunt of reducing margins Temptation to earn higher margins No incentives for being a faithful member

180 Research-based Consultancy for B2B and technology Markets BIRD 180 Counterfeit manufacturers are exclusively into the business of manufacturing such components Domestic counterfeit manufacturers –Have tie-ups with retailers and wholesalers –Source second hand cheap machinery –Have manufacturing at one place and printing at another Gather both at one place and pack them as original –Fast moving components are being copied –Dies are counterfeited by reverse engineering –Capacity to duplicate any component within 3-4 days after change in packaging Source of Counterfeits Imports –Mainly from China and other Asian countries –Illegally enter the country –Most of the time components come unbranded and unpacked –Quality comparatively better Key hubs in India: Punjab (Ludhiana, Jalandhar) Delhi and Tamil Nadu

181 Research-based Consultancy for B2B and technology Markets BIRD 181 Counterfeit components have a negative impact on the brand image and trust placed by the customers on OEMs and their partners Customers are under the impression that they are purchasing genuine components but in actual counterfeit components have been pushed: –Such components underperforms with respect to the expectations resulting in negative brand association and ultimately negative word of mouth –It also has a negative impact on the sales of the organized sector player –In addition to the domestic market users, the export market is also affected by counterfeit components Major auto component manufacturers have conducted raids and caught export consignments containing counterfeit components under their brand name to key hubs across the world especially Dubai –Mico Bosch caught an export consignment worth Rs.50 crores containing fast moving counterfeit components under their brand name –Though most of the stakeholders have taken some kind of initiatives in this regard

182 Research-based Consultancy for B2B and technology Markets BIRD 182 Key initiatives taken to curb the menace of counterfeit components by various stakeholders Investing resources to have a separate brand protection cell within the organization Use of inventive holograms in packaging Educating the customers, channel about the change in packaging through exhibitions/ campaigns/ mobile vans/ melas etc Hiring specialized agencies to conduct raids on counterfeit manufacturers and sellers Getting closer to the customer by supplying components to the after market directly rather than through the vendors Opening company owned showrooms in key urban areas in order to provide genuine components to the customers Regular stock audits carried out on the channel members in order to instil a sense of discipline Dealing with large institutional buyers directly and not through channel

183 Research-based Consultancy for B2B and technology Markets BIRD 183 Some quotes to be shared… ….CF manufacturers copy anything which sells….. - large auto component manufacturer ….channel members also want to eat chicken and drink alcohol, but at the current margins they are not able to do that…..thus they sell CF components…. - large auto component manufacturer …social ethics need to created against the purchase of CF….as all the customers purchase such components on the assumption that they are purchasing genuine components…. - large OEM & Association …change in packaging is a viscous cycles, it results in more confusion in the market among the channel and customers….also within 3-4 day period it is again copied… - large auto component manufacturer …there could be some counterfeit components being passed through company ASS in remote locations when supply is irregular…. - large OEM …government should place adequate checks in order to ensure supply of genuine components in case of large institutional purchases… - large auto component manufacturer

184 Research-based Consultancy for B2B and technology Markets BIRD 184 Detailed profile of the respondents met

185 Research-based Consultancy for B2B and technology Markets BIRD 185 Profile of the respondents 1. Private Vehicle Owners - Two-wheeler owners - Four wheeler owners

186 Research-based Consultancy for B2B and technology Markets BIRD two-wheelers and 1659 four-wheelers of all types were owned by private vehicle owners covered… their ownership by town class Base: 1288 two-wheelers 1659 four-wheelers Private vehicle owners in metros owned over 47% of the total two-wheelers encountered during the study followed by non-metros at 35% Similarly in the case of four-wheeler, ownership of the private vehicle owners in metros contributed to over 50% of the total followed by non-metros at 34%

187 Research-based Consultancy for B2B and technology Markets BIRD 187 Maximum percentage of vehicles owned were purchased in the 3 year period from Base: 1288 two-wheelers 1659 four-wheelers Over 38% of all two-wheelers owned were manufactured in that period as compared to 55% of the four-wheelers In case of two-wheelers over 18% of the vehicles were purchased after 2002 as compared to just 5% in four- wheelers

188 Research-based Consultancy for B2B and technology Markets BIRD 188 More than 2/3 rd of all the vehicles encountered were first hand purchases…with non-metro cities having the highest percentage of first hand ownership Two-wheelersFour-wheelers Base: 1288 two-wheelers 1659 four-wheelers In case of two-wheelers over 83% of the vehicles are first hand purchases –The percentage of first hand vehicles is highest in the non-metros at 88%. Purchasing power of people in most of these non-metro cities have increased significantly in the recent past –As expected the percentage of first hand vehicles in the case of Small towns is comparatively lesser In case of four-wheelers over 75% of the vehicles are first hand purchases –Again the highest number of first hand purchases are in non-metros and the lowest in Small towns

189 Research-based Consultancy for B2B and technology Markets BIRD 189 Around 68% of two-wheelers and 72% of four- wheelers were first time purchases Two-wheelersFour-wheelers Base: 1288 two-wheelers 1659 four-wheelers In case of two-wheelers over 70% of vehicles purchased in metro cities are first time purchases for a household –However, in case of non-metro cities only 64% of the two-wheelers purchased are first time purchases –As expected the percentage of first time purchases in the case of Small towns is highest at 75% In case of four-wheelers over 70% of the vehicles purchased in metro cities are first time purchases –However, in case of non-metro cities over 77% of the four-wheelers purchased are first time purchases probably proving the increase in expenditure by the people in such locations –As expected the percentage of first time purchases in the case of Small towns is highest at 93%

190 Research-based Consultancy for B2B and technology Markets BIRD 190 On an average 4-wheelers cover a distance of 39 kms/day in a weekday as compared to 31 kms/day for 2-wheelers…highest being in other NM cities Base: 1288 two-wheelers 1659 four-wheelers In case of two wheelers average distance covered per weekday (working days): –Is highest in the case of Other NM cities at 34 kms/day –Is lowest in the case of Small towns at 21kms/day In case of four-wheelers average distance covered per weekday: –Is highest in the case of other NM at 47 kms/day –Is lowest in the case of Small towns at 22 kms/day

191 Research-based Consultancy for B2B and technology Markets BIRD 191 Similarly, other NM vehicle owners cover maximum distance per day on weekends…… In case of two wheelers average distance covered per day on weekends (Holidays) is 22kms/day –This is much lower than the average distance covered per weekday which stood at 31kms/day Probably people choose to rest or travel with entire family on the weekend for which two-wheeler might not be the suitable vehicle always In case of four-wheelers average distance covered per day on weekends is 42kms/day –This figure is slightly higher than the average distance covered per weekday which is 39kms/day Probably four-wheelers are used for family travel/visits on the weekends Base: 1288 two-wheelers 1659 four-wheelers

192 Research-based Consultancy for B2B and technology Markets BIRD 192 Regular Service Details for Two-wheelers - Scooters - Motorcycles

193 Research-based Consultancy for B2B and technology Markets BIRD 193 Paid routine service was the primary nature of last regular service among all two-wheeler owners In case of metros over 65% of the users took their vehicle for paid routine service as compared to 74% in non-metros –Also in metros 32% of the users took their vehicle for regular service because of malfunction as compared to 25% in the case of non- metros In case of other NM over 69% of the users took their vehicle for paid routine service as compared to 92% in small cities –Also in case of other NM more than 30% took their vehicle for regular service as a result of malfunction compared to just 8% in case of small cities Base: 1058 two-wheelers

194 Research-based Consultancy for B2B and technology Markets BIRD 194 Frequency of regular service ranges from 4.5 – 5 months in all locations except small cities where it increases to once in every 4 months In case of metro cities, over48% of the users have reported 4-6 months as frequency of regular service as compared to 58% in the case of non-metros –More than 1/3rd of the vehicle owners in both metros and non-metros have reported 1-3 months as frequency In case of Other NM cities, over48% of the users have reported 4-6 months as frequency of regular service as compared to just 45% in the case of small –Over 35% of the vehicle owners in other NM and 51% in small have reported 1-3 months as frequency of regular service 4.96 mths 4.58 mths5.32 mths3.98 mths Base: 1058 two-wheelers

195 Research-based Consultancy for B2B and technology Markets BIRD 195 When it comes to regular service in case of scooters, higher percentage of vehicles are been taken to company ASS in comparison to normal service Base: 327 scooters In case of metros over 13% of the users took their vehicle for regular service to company ASS compared to 17% in the case of non-metros –However, small garages and road-side mechanics are still the favorite service destinations among the users In case of other NM over 13% of the users took their vehicle for regular service to company ASS as compared to just 5% in case of small cities –Small garages are preferred by 85% of the users in small cities as compared to 38% in case of other NM

196 Research-based Consultancy for B2B and technology Markets BIRD 196 In case of motorcycles almost 1/3 rd of the vehicles are being taken to company ASS for regular service in case of metros and non-metros In case of metros and non-metros over 27% of the users took their vehicle for regular service to company ASS –Percentage of vehicles being serviced at small garages and road side mechanics are slightly lesser as compared to scooters In case of other NM over 32% of the users took their vehicle for regular service to company ASS as compared to just 9% in case of small cities –Small garages are preferred by 78% of the users in small cities as compared to 30% in case of other NM Base: 315 motorcycles

197 Research-based Consultancy for B2B and technology Markets BIRD 197 Two-wheelers owners who regularly purchase components from non-company authorized service stations claim to spend 70% on genuine components Base: 650 two-wheelers In case of metros and non-metros on an average users spend 70% on purchase of genuine components –Approximately 2%- 4% of the expenditure is on duplicate components –Rest is on local or other brands of components In case of other NM and small cities the trend is almost similar –Approximately 20% of the expenditure is on other or local brands of components

198 Research-based Consultancy for B2B and technology Markets BIRD 198 Average expenditure on components has been the highest in case of metro cities…although in motorcycles the difference is not very high In Rs. In case of metros, the average expenditure on components by scooter users was Rs.334 and in case of motorcycle users it was Rs.351 In case of non-metros, the average expenditure on components by scooter users was Rs.234 and in case of motorcycle users it was Rs.341 In case of other NM, the average expenditure on components by scooter users was Rs.232 and in case of motorcycle users it was Rs.324 In small cities, average expenditure by scooter users was Rs. 120 and Rs. 151 by motorcycle users Base: 1058 two-wheelers

199 Research-based Consultancy for B2B and technology Markets BIRD 199 In case of regular service also, company ASS are almost 50% more costlier than other service options for scooter users In Rs. Users who took their vehicle to company ASS for last regular service spent on an average Rs.383 on purchasing components as compared to: –Rs.285 in case of large garages –Rs.274 in case of small garages –Rs.205 in case of road side mechanics Expenditure on labor and consumables is also highest in case of company ASS –This again might be a big deterrent for price-sensitive users who take their vehicle for regular servicing Base: 327 scooters

200 Research-based Consultancy for B2B and technology Markets BIRD 200 Regular service of motorcycles in company ASS is not as costly compared to other service stations In Rs. Users who took their vehicle to company ASS for last regular service spent on an average Rs.396 on purchasing components as compared to: –Rs.255 in case of large garages –Rs.335 in case of small garages –Rs.246 in case of road side mechanics Expenditure on labor and consumables is highest in case of company ASS –It seems that the motorcycle manufacturers are not charging a very high premium for normal or regular service Base: 315 motorcycles

201 Research-based Consultancy for B2B and technology Markets BIRD 201 A fair percentage of the users have purchased few genuine and few local components…although majority still claim to have purchased genuine components In case of metros over 65% of the users claim to purchase genuine components in last service as compared to 43% in case of non-metros –And in case of non-metros over 7% of the users purchased duplicate components compared to 8% in the case of metros In case of other NM and small cities, around 60% of the users claim to purchase genuine components –Also in case of small cities more than 11% of the users purchased duplicate components compared to 9% in the case of other NM Base: 1058 two-wheelers

202 Research-based Consultancy for B2B and technology Markets BIRD 202 Regular Service Details for Four-wheelers

203 Research-based Consultancy for B2B and technology Markets BIRD 203 Paid routine service was the primary nature of last regular service among four-wheelers owners across locations In case of metros over 69% of the users took their vehicle for paid routine service as compared to 73% in non-metros –Also in metros 20% of the users took their vehicle for regular service because of malfunction as compared to 18% in the case of non- metros In case of other NM over 54% of the users took their vehicle for paid routine service as compared to 93% in small cities –Also in case of other NM more than 29% took their vehicle for regular service as a result of malfunction compared to just 4% in case of small cities Base: 1519 four--wheelers

204 Research-based Consultancy for B2B and technology Markets BIRD 204 When it comes to regular service, percentage of vehicles being serviced at company ASS increases substantially….specially in case of small towns In case of metro cities, almost 50% of the vehicles were serviced at company ASS as compared to 52% in the case of non- metros –Around 30% of metro vehicles were serviced at large garages compared to 20% in non-metros where an equal number were serviced at small garages also In case of other NM cities, around 71% of the vehicles were serviced at company ASS compared to 56% in small towns –Also in case of other NM cities, over 16% vehicles were serviced at small garages –But in case of small towns, more than 32% of the vehicles were serviced at large garages Base: 1519 four--wheelers

205 Research-based Consultancy for B2B and technology Markets BIRD 205 Respondents who regularly purchase components from non-company authorised service stations claim to spend maximum on purchase of genuine components In case of metros on an average users spend 81% on purchase of genuine components compared to 72% in the case of non-metros –Approximately 2%- 4% of the expenditure is on duplicate components –Rest is on local or other brands of components In case of other NM and small towns almost majority of the users claim to purchase genuine components only Base: 1060 four--wheelers

206 Research-based Consultancy for B2B and technology Markets BIRD 206 Average expenditure on components in case of regular service is lower as compared to normal service In Rs. As normal service included comparatively higher percentage of accidental cases –Also the base of respondents in case of regular service is higher which might have averaged out the exceptional cases encountered The average expenditure on components in the last regular service ranges from Rs.1197 in the case of Segment A cars to Rs.3116 in the case of Segment E cars Base: 1060 four--wheelers

207 Research-based Consultancy for B2B and technology Markets BIRD 207 Gap between expenditure on components in Company ASS Vs other service stations reduces in case of regular service In Rs. Users who took their vehicle to company ASS for last regular service spent on an average Rs.1695 on purchasing components as compared to: –Rs.1256 in case of large garages –Rs.1310 in case of small garages –Rs.981 in case of road side mechanics Expenditure on labor and consumables in company ASS is also comparable with other service options Base: 1519 four--wheelers


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