Tata Motors bets big on rural sales growth

Tata Motors, the fifth largest car manufacturer in the domestic market, is set to add half of the planned new 1,000-plus outlets over the next four years in tier-III and tier-IV towns. According to the president of passenger vehicle business unit, Mayank Pareek, its rural markets will grow faster than urban ones in the future. "It has a potential to contribute 30-40 per cent of total passenger vehicle sales," he said.

At present, the rural market brings 15 per cent of sales for the domestic operations. Market leader Maruti Suzuki sells a third of its vehicles in the rural market.

The company aims to expand its retail network from 460 (as of April 30) to 1,500 over a four-year period. "Fifty per cent of this should come from tier-III and IV cities," Pareek said.

Improving road connectivity in rural areas is prompting manufacturers of passenger vehicles (cars, utility vehicles and vans) to augment their marketing network in these regions. Accessibility to finance is also improving in such areas, with penetration of the banking network.

Passenger vehicle ownership is still low in rural areas. According to a survey, only three or four persons of every 1,000 own a car in rural regions, against 18 in urban areas. The average car penetration in India is among the lowest among developing nations (for China, it is 69) but is growing. Between 2001 and 2011, the number of rural households owning four-wheelers more than doubled to 4.4 million, according to the Socio Economic and Caste Census (SECC) 2011. It estimates that 2.5 per cent of the 179.1 million rural households owned a four-wheeler in 2011, compared with 1.3 per cent in 2001.

"Growing wealth in the rural markets of India also provides an added opportunity to expand sales reach and volumes. Sales from areas that were earlier considered rural are growing year-on-year and the overall gap of automobile purchase between rural and urban areas is narrowing. The company is focusing on reaching rural target market to address the latent need, in cost effective ways," Tata Motors said in its latest annual report. Pareek said the outlets in rural towns will have a smaller format and will usually not have a service station but a buyer will be able to access service facilities through mobile service vans. It is running a pilot project on servicing vehicles on wheels in rural areas.