Impact of the Recession in Indian Motor Firms

This research is to know about what impact did the recession had on the motor industry. The major findings of this research would be how motor industries are affected during the recession period, what challenges are faced by the industries during this period, and what strategies are to be adopted by the companies so as to overcome these effects in future if these circumstances arise.

The impact of the above said recession can be very well understood by using a case study. The author here is using Lakshmi motors (Hero Honda ltd) as the case study to understand what effect did this recession had to the company. The research will study about the effects of economic down turn and how this effected the sales and the prices vehicles sold by the company.

This research is not only useful for the researcher but also for many people who are either directly or indirectly affected by recession. Here is the list of the people for whom this research can be beneficial.

This research is most importantly useful for the researcher as it not only helps in answering the research question but also in finding some interesting facts about the recession after effects.

This research would be helpful to people from the motor industry in understanding the effect of recession in their day to day operations. It is really required for people from all levels in the industry to understand the importance of these effects and act accordingly.

This research is also helpful to people from different work backgrounds in other industries and not only from the motor industry. Because this recession is affecting every individual in a different way. So the strategies being highlighted in this research to overcome the recession effects can be used by everyone and make necessary changes in their work life.

This research is also useful for other researchers to make use of in the future analysis of recessionary effects and to make amendments in the strategies initiated in this research.

Apart from all these, it is also very beneficial to the Hero Honda management. They can adopt the strategies by trial and error method and can make necessary changes to their company.

This research can also be beneficial to the students studying at UWIC and can be used as the secondary data by the students if they want to carry forward this research.

1.2 Conceptual underpinnings

The term “Recession” in economics is defined as the slowdown in the economic activities for two successive quarters of economic period (Brainard & Perry, 2001, p. 176). Recession is also defined by the Business Cycle Dating Committee as the time in the business activity when it reaches the peak and then starts to fall till the time when all the business activities bottoms out (Moffatt, 2009). The current recession is the biggest recession experienced in the history of the world economy and it is in effect since early 2007 and the current recession is termed as sub-prime crisis started in US and now it is spread across the world countries (Business wire, 2009).

This recession had its effect on almost all the sectors of the world economy. Starting from banks this recession is spread to the industries like oil, textile, food and automobile industry also. Each and every sector mentioned above is worst hit by this recession so called subprime crisis. All of them have recorded huge losses in their respective sectors. This recession has lead to the redundancies in the jobs and also cut down in the salary levels of the people thus leaving no chance for the common public except to curtail their spending on luxuries (King, 2008).

Cut down in the salary levels of the people and the job redundancies had a negative impact on all the many sectors or related industries. People stopped spending on parties and other luxuries like shopping and buying new automobiles. This attitude of the people is to save for the future and even the statistics support this fact (Scott, 2009).

Impact of recession on motor industry

The recession had its own effect on the motor industry. Vehicle sales have recorded a decrease all across the world. The situation is same even in developing and the developed countries. The main reason for this attributed to the increasing inflation rates across the countries which lead to the rise in the raw material costs and hence the making cost of the automobiles. The other reason which leads to the decrease in the sales is the increased fuel prices. At one stage the petrol price was $140/gallon which discouraged most of the moped lovers and hence turned them down from buying new vehicles (BBC news, 2008).

Inflation which is the major concern for decreased sales is defined as the persistent increase in the summative or common price level in a financial system. The other definition of inflation is given as the rate the prices of the goods and services rises and consequently purchasing power of the people also falls down.

Lakshmi motors (Hero Hondo ltd.)

Lakshmi motors are one of the major dealers for Hero Honda limited in Andhra Pradesh. It has many branches all over Andhra Pradesh with head quarters situated in Hyderabad. The dealership with Hero Honda ltd started in 1987 and is still continuing. Major sales for Hero Honda vehicles in Andhrapradesh are from Lakshmi motors (Lakshmi group, 2005).

The researcher in this research is majorly focusing on this company’s 2 wheeler motor segment for getting the results for his research.

The literature review for this research also includes the scholarly articles from FAME, Keynote, Scribd, EBSCO etc., various resources available in the library will also be extensively used by the researcher in getting the results. Internet usage also proves to be a powerful resource for the research.

1.3 Research Purpose

The purpose of this study is to find out the impact of recession on the motor industries in the developing countries like India. Though there are factors like inflation and fuel price hike which retarded the sales growth in the automobile segment, this research helps in finding out the reasons for the downward trend. These reasons will pave the way for the future strategies to be adopted by the companies so as to combat the tough economic situations that may arise in future. This research also reveals about the understanding of the attitudes of the consumers towards buying new vehicle. Does the income elasticity have any role to play in deciding the sales? This research is also carried out to find out the solution for all the companies which are badly hit by the recession and to formulate the strategies that will help them to overcome these tough scenarios in future. The purpose was to find out how are motor companies affected in this recession with the focus on Lakshmi motors ltd.

1.4 Research Question

The research questions are:

What factors decide the sales of the automobiles?

How companies can handle these circumstances.

What are the challenges being faced by the all the automobile industries?

What are the effects of the recession on the motor industry?

What are the strategies which will be useful to implement in the Lakshmi motors (Hero Honda ltd) company to overcome the recession effects?

1.5 Scope of the Research

The research helps Lakshmi motors in formulating the strategies that will be helpful in overcoming the downward trend in the sales. This research also throws a light at the customers attitudes while buying new automobile and the factors they consider when decide to choose a vehicle.

Hence it should be understood that the scope of the research is very limited.

The scope of the research includes about determine the economic factors which drive the market. The trend in the automobile industry that is followed. Finally the research helps in developing strategies to all industries in general to overcome this kind of situation which can occur in near future.

The researcher here will interview and conductuct survey on all prospective customers for getting the information for the research. The questionnaire will be very specific to the customers of two wheeler segments only and hence only two wheeler customers will only be contacted for research. Misguiding questions will not be asked in the research.

The research is using more of the practical knowledge and at the same time making the theoretical aspects work along with practical sense for the strategies to be made.

2. RESEARCH METHODOLOGY

2.1 RESEARCH STRATEGY

The researcher is using the case study method in his research study, to get the in-depth understanding of the factors affecting the sale and the customer attitudes towards the buying of the two wheelers. In this research, the researcher uses the case of Lakshmi motors (Hero Honda ltd) to analyze the conceptual underpinnings. In addition, the spotlight will also be kept on the research questions with the help of study of secondary data which is available on recession and general problems faced by all major industries across the world because of the recession.

The researcher will conduct a set of interviews and conduct survey on the prospective customers of the Hero Honda company who are willing to buy a vehicle but are returning back because of some reasons. 

The study is therefore being inductive in the approach, the secondary data available will be studied. This date is based on the other’s opinions and understandings and also insight will be given into the strategies to be formulated to by the companies to overcome tough economic situations.

2.2 SAMPLING

The sample used in this study will be the prospective customers coming to the showroom to buy the automobiles. Around 100 people will be surveyed who are approaching the store to buy the vehicles. As all the people residing in Andhra Pradesh cannot be surveyed only a sector of people are selected and questioned. This selected list of people forms the sample for the survey. The sample of the people selected will include all sectors of the community. Care is taken such that equal importance is given to all the age groups, sex and the economic classes of the society. Depending on the access of the researcher, employees of the Lakshmi automobile also will be interviewed about the sales and about the trends that are observed in the market. The sampling technique will therefore, be the snow-ball technique, where contacts will be gained through the references of the interviewee.  

The prospective customers will be fit for the sample of this research study, since information on the research topic can be best obtained from the people who interested in buying two wheelers and choose to opt for Hero Honda as heir make.

2.3 DATA COLLECTION

The data collection techniques used in this study will primarily surveying the people who approach the Lakshmi motors automobile for buying the new two wheeler vehicles. In addition, secondary data on the subject will be obtained through desk study. The survey conducted will give the researcher an insight into the customer’s preferences and attitudes for buying new vehicles during tough economic conditions. On the other hand, secondary data available recession, and problems and challenges faced during the recession in general will be obtained through studying books, journals and gaining access to the right articles on the internet and other sources.  

The survey method of data collection seems to be apt for this research study since it involves studying various aspects of recession and understanding the attitudes and preferences of the customers. This method helps the companies to formulate strategies to attract new customers as the data collected is based on the information given by the costumers.  

The desk study method is the best way to learn about already existing information about recession, challenges of recession, strategies used by successful players and how companies, in general, have kept themselves abreast with the current global crisis. This will help the researcher to gain knowledge on the topic and then further move ahead with the survey.

2.4 DATA ANALYSIS

All data collected through desk study and survey will be of little meaning if it is not properly analyzed. Therefore, a detailed analysis using the appropriate techniques is essential for any research study to be successful and meaningful. 

In this research study, the researcher will take aid of some of the software developed for analyzing qualitative data. An example of such software is Envivo. In addition, use of tables and graphs will be used to depict the findings of the research.

The main aim of the researcher will be to link the findings of the case study with the secondary data obtained on the subject. The researcher should be able to understand the literature behind the economic downturn and should be able to link this with the case study.

2.5 VALIDITY AND RELIABILITY

The question of reliability and validity of data in any research study is of utmost importance. Unless the data obtained is reliable, correct conclusions cannot be drawn.  

In this study, the validity and reliability issues are related to access to the right people for survey and to get the right information out of them. This will mean that the data should be unbiased and unprejudiced. Interviewees should be able to provide the right information related to the subject without personal opinions or beliefs.  

This problem can be overcome to a certain extent by asking to the point questions and framing them up in such a way that eliminates scope for bias. For this purpose, the researcher will spend quality time on designing good survey questions and will get them checked from a senior supervisor. 

The issue of access to the right people for the information is also very important since the research will be based on the answers obtained from them.  

Another issue related to validity and reliability is the use of right sources for obtaining secondary data. The researcher should gain access to the right books, journals and articles for getting quality information about the topic. For this purpose, scholarly articles will be obtained from the library and internet.  

2.6 ACCESS

As discussed earlier, gaining access to the right people for the required information is very important, as the research study will be based on the answers obtained from these same people.  

The researcher has contacted an employee of Lakshmi motors (Hero Honda ltd) who will further help in contacting the customers and the other employees of the concerned department.  

The contacted person will help the researcher in gaining access to the company staff and information related to the topic.