Demand Estimation: A Regression

Analysis for Honda CR-V

Group 3 Section B

ANKIT MAHESHWARI [14P069]

DIKSHA MAHAJAN [14P077]

HEMANT AGARWAL [14P081]

RAHUL VEMURI [14P096]

SHELDON DSOUZA [14P106]

UPASNA RAUL [14P115]

EXECUTIVE SUMMARY
Honda CR-V is a compact SUV (now called crossover in North America),
manufactured since 1995 by Honda. It was loosely derived from the Honda
Civic. There are discrepancies as to what "CR-V" stands for. Honda sales
literature in UK reportedly made references to "Compact Recreational
Vehicle. It was introduced in India in 2006 at a base price of Rs. 21, 92,000
and has been quite successful in the utility vehicle space, competing with
rival companies such Toyota Fortuner, HM Pajero and Ford Endeavor
among others.
In the project, we determine what influences the quantity demanded for
the product, using Demand Estimation and making a regression model.
For the demand analysis of the product, that is Honda CR-V, the software
Gretl was used. Gretl is an open source statistical package mainly for
econometrics. The demand analysis was done by analysing demand of the
product with respect to variations in parameters like price of good, price of
related goods, consumer income and market conditions.
Data for the product and the related products like Toyota Fortuner was
fetched from Crisil Research and was further put into excel sheets. These
excel sheets were accessed from Gretl Software and the demand analysis
was done providing the regression equation for the product. The
coefficients of the variables and the t-statistics obtained were analysed
and compared and a suitable conclusion was reached at.

1. INTRODUCTION
About the company
Honda

Motor

Co.,

corporation primarily

Ltd.

known

is
as

a
a

Japanese public
manufacturer

of

multinational
automobiles,

motorcycles and power equipment.

Honda has been the world's largest motorcycle manufacturer since
1959, as well as the world's largest manufacturer of internal combustion
engines measured by volume, producing more than 14 million internal
combustion

engines

each

year. Honda

became

the

second-largest

Japanese automobile manufacturer in 2001. Honda was the eighth largest

automobile manufacturer in the world behind General Motors, Volkswagen
Group, Toyota, Hyundai Motor Group, Ford, Nissan, and PSA in 2011.
Honda was the first Japanese automobile manufacturer to release a
dedicated luxury brand, Acura, in 1986. Aside from their core automobile
and motorcycle businesses, Honda also manufactures garden equipment,
marine engines, personal watercraft and power generators, amongst
others.

Since

1986,

Honda

has

been

involved

with

artificial

intelligence/robotics research and released their ASIMO robot in 2000.

They have also ventured into aerospace with the establishment of GE
Honda Aero Engines in 2004 and the Honda HA-420 HondaJet, which
began production in 2012. Honda has three joint-ventures in China (Honda
China, Dongfeng Honda, and Guangqi Honda).
In 2013, Honda invested about 5.7% (US$ 6.8 billion) of its revenues in
research and development. Also in 2013, Honda became the first Japanese
automaker to be a net exporter from the United States, exporting 108,705
Honda and Acura models while importing only 88,357.

About the product

Introduced in Japan in 1995, the CR-V was Honda's first in-house
designed SUV by Hiroyuki Kawase. The CR-V was introduced in Japan
at Honda Verno dealerships only and was regarded as a luxury vehicle in
Japan

due

to

the

exterior

width

dimensions

exceeding

Japanese

Government dimension regulations. For North American market, it was

displayed at the 1996 Chicago Auto Show and went on sale in February
1997. The bigger and heavier second generation CR-V (Chassis Code RD4RD7) was a full redesign, based on the seventh generation Civic, and
powered

by

the K24A1

engine.

North

American

versions

of

the

new engine produced 160 hp (120 kW) and162 lbft (220 Nm) of torque.
The second generation CR-V was Car and Driver magazine's Best Small
SUV for 2002 and 2003. In 2005, the CR-V received a mid-cycle refresh.
The 2005 CR-V was now equipped with 16 inch wheels, the earlier models
had 15 inch wheels. Visual changes included new taillights and headlights
with clear indicators. The new headlights now have two separate H1 bulbs
for low beams and high beams, the previous setup used H3 single bulb for
both low and high beams. It was introduced in India at around 2006.
Unlike preceding models it features a rear liftgate rather than a sideopening rear door and no longer has the spare tire mounted on the rear
door. The new CR-V is lower, wider, and shorter than the previous models;
the length decrease is attributed mostly to the fact that the spare wheel
no longer adds length to the back of the vehicle. For 2007, Honda CR-V
became one of the ten best selling vehicles of the year. It overtook Ford
Explorer, which had held the title for fifteen years (19912006), to be the
best selling SUV in the US. [ For the 2010 model year, the CR-V received
style, powertrain, and equipment changes. The exterior changes included
4

a redesigned front fascia with a new horizontal-slat chrome grille and

honeycomb-designed lower front grille, new front bumper, and revised
taillights. The rear bumper was redesigned, as well as new five split-spoke
17-inch alloy wheels for EX and EX-L models. The interior received minor
changes, including seat fabrics, as well as wider driver and frontpassenger armrests. In India, the 4th generation CR-V was launched in
February 2013 with 2 variants, a 2.0 litre petrol and a 2.4 litre, 185 bhp
petrol. The 2.0 litre variant will be equipped with a six-speed manual or a
five-speed automatic gearbox. The 2.4 litre variant will come with an
automatic gearbox, Honda's on demand 4 wheel drive system and an
Econ-mode to increase fuel efficiency
2. Factors impacted the quantity demanded of the product (Honda
CR-V)
a) Price of the good
This is the most important factor impacting the quantity demanded of
the good. This is best described as per the Law of Demand, which
states that with a fall in the price of a good, there is a rise in the
quantity

demanded

of

the

good,

ceteris

paribus(others

things

remaining constant). Thus, as the price of the vehicle falls, there is an

increase in the quantity demanded of the vehicle.
b) Price of related goods
The prices of the goods which rival in consumption with one good or in
simple words i.e. the prices of close substitutes will have an impact on
the quantity demanded of a good. There is an inverse relationship
between the prices of substitutes and the quantity demanded of a
good. So when the price of a Toyota Fortuner falls, there will be a
decrease in the demand of the CR-V as it is cheaper for the consumers
to purchase the former.
c) Consumer Income
The disposable income of consumers helps them to convert currency in
terms of goods and services. So, when there is a rise in the disposable
income of consumers, they will buy more of a particular good,
depending on the type of good. Assuming that cars are normal goods, a
5

rise in the per capita income in India will lead to an increase in the
quantity demanded of CR-V
d) Market conditions
Market conditions have an important role to play in terms of demand of
a particular good. Favourable market conditions will naturally cause the
quantity demanded of the good to rise. So when a cut in the excise
duty for SUVs is announced in the Union Budget the quantity
demanded of CR-V will rise.

3. DATA DESCRIPTION AND SUMMARY STATISTICS:

This paper uses the secondary data from reliable databases at both the
industry level as well as at the level of the economy.
TABLE 1: Definition of variables
Variables
Domestic sales

Definition
Number of units sold in India at a monthly basis

from April 2009 to July 2014.

Price of CR-V
Measured in terms of Rupees
Price
of
Toyota Taken as the substitute good, measured in terms of
Fortuner
Per Capita Income

Rupees
Taken in terms of Rupees. Measured at constant

Excise Duty rates

prices in 2000 over a period of five years.

Measured in terms of percentage. Taken in the log
form.

TABLE 2: Regression Model

Model 1: OLS, using observations 1-64
Dependent variable: Domestic Sales
Coefficient Std. Error t-ratio
const
618.838
237.575
2.6048
Price of good 6.12788e- -3.3012
in lakhs

p-value
0.01161
0.00164

**
***

0.0002022 05
95
6

Price

of -4.48939e- 8.98919e- -0.4994

substitutes

in 05

lakhs
Per

05

Capita -7.67163e- 0.0019373 -0.0396

Income
l_Excise

0.61934

05
Duty 31.1906

5
96.5319

0.3231

0.96855
0.74775

Rates

Mean

dependent 45.12500

S.D. dependent var

37.31994

var
Sum squared resid
R-squared
F(4, 59)
Log-likelihood

64336.74
0.266776
5.366635
-

S.E. of regression
Adjusted R-squared
P-value(F)
Akaike criterion

33.02201
0.217066
0.000938
634.0563

Schwarz criterion

312.0282
644.8507

Hannan-Quinn

638.3088

The Regression Equation would be as follows

Q=618.38-0.0002P-0.00004Ps-0.00007I+31.19logE
Summary Statistics, using the observations 1 - 64
Variable

Mean

Median

Minimum

Maximum

Domestic

45.1250

36.5000

0.00000

148.000

Sales
Price

of 2.14468e+

2.19200e+

1.99500e+

2.25155e+

good

in 006

006

006

006

lakhs
Price

of 2.03154e+

2.00654e+

1.83800e+

2.21391e+

006

006

006

61564.0

46492.0

76943.0

substitutes

006

in lakhs
Per Capita 62401.0
Income

Excise Duty 0.248488

0.220000

0.200000

0.333300

Rates

4. ECONOMETRIC MODEL AND RESULTS:

This section details the results of our efforts to formalise the previous
analysis of the determinants of quantity demanded of Honda CR-V. The
analysis involves ordinary least square regression (OLS). The basic
regression model for such a framework would be:
Yi = + Xi + i
Where Y is the dependent variable, X i is the vector of explanatory
variables, is the constant, is the vector of coefficients of the variables,
i is the random error term normally distributed with mean 0 and variance
2 . This study is based on the following hypothesis that clearly defines
the research criterion:
a) Beta coefficient of price of CR-V is expected to be negative.
b) Beta coefficient of price of Fortuner is expected to be negative.
c) Beta coefficient of Consumer income is expected to be positive.
d) Beta coefficient of Excise Duty rate is expected to be negative.

FINDINGS:
Three important results can be drawn from the analysis results
a) The beta coefficient for price of CR-V states that the quantity demanded
of CR-V decreases by 0.0002 units with an increase in the price of CR-V by
Re. 1 keeping other things constant. Similarly the beta coefficient for
Fortuner suggests that the quantity demanded for CR-V decreases by
0.00004 units with an increase in the price of CR-V by Re. 1. Both the price
of CR-V and Fortuner do not have as powerful an effect on the quantity
demanded of CR-V. While the nature of SUVs is such that the demand is
expected to be elastic, the model suggests that both the price and the
cross price elasticities in the span of five years is less than unity.
b) The beta coefficient for per capita income states that the quantity
demanded for CR-V decreases by 0.00007 units with an increase in the
price of CR-V by Re. 1. The per capita income has an inverse relationship
9

with the quantity demanded of CR-V, which is a surprising fact since we

assumed that a car is a normal good but the model seems to suggest that
CR-V is an inferior good.
c) The beta coefficient for excise duty rates states that there is a 31.16%
increase in the quantity demanded of CR-V when there is an increase in
the excise duty rates by 1% which is rather unusual. We took the log form
for excise duty in the model and the excise duty seems to influence the
quantity demanded of CR-V to a great extent. The model seems to
suggest that the market for CR-V is driven by market environment rather
than price factors.

10

5.

CONCLUSION:

The project gave us a refreshing take on the quantity demanded of Honda

CR-V. We had taken the price of Honda CR-V, the price of Fortuner (its
competitor), the excise duty as the variables on which the models would
be based. The most important results that we found through the analysis
of this model was that the price of Honda CR-V and the price of Fortuner
has no impact on the quantity demanded of Honda CR-V. Also, on
evaluating the impact of income on the quantity demanded of the
product, we notice that there is an inverse relation between the same. It
seems that the product Honda CR-V is looked as an inferior product. This
could be on account of the fact that once the income increases, people
would move on to other cars that have a higher brand value. Lastly, on
analysing the relation between the market conditions, we found that they
influence each other to a great extent. According to the model, the
traditional variables do not seem to affect the quantity demanded. In the
end, we would like to conclude that through the model we found an
interesting relation between all the explanatory variables and we have
come across some interesting results.

11

6.

REFERENCES :
a) Honda CR-V
http://automobiles.honda.com/cr-v/
b) Society of Indian Automobile Manufacturers (SIAM)
http://www.siamindia.com/
c) CRISIL Research Limited
https://www.crisilresearch.com/
d) Honda World Report
http://world.honda.com/investors/library/annual_report/2013/honda201
3ar-all-e.pdf
e) http://pib.nic.in/newsite/erelease.aspx?relid=73929

f)http://timesofindia.indiatimes.com/business/india-business/Indiasper-capita-income-rises-to-Rs-5729-permonth/articleshow/18387279.cms

g)http://articles.economictimes.indiatimes.com/2014-0207/news/47126380_1_2004-05-prices-lakh-crore-capita-income

12

7. Appendix
Data For Honda CRV Demand Analysis
Time Dome
Perio stic
d
Sales
Apr
'09

May
'09

Jun
'09

Jul
'09

30

Aug
'09

77

Sep
'09

Oct
'09

47

Nov
'09

Dec
'09

47

Jan
'10

76

Feb
'10
Mar
'10

129
66

Price of
good(in
lakhs)

2,192,00
0.00

2,192,00
0.00

2,192,00
0.00

2,192,00
0.00

2,192,00
0.00

2,192,00
0.00

2,192,00
0.00

2,192,00
0.00

2,192,00
0.00

2,192,00
0.00

2,192,00
0.00

2,192,00

Price of
Per
Excise
substitutes(i Capita
Duty
n lakhs)
Income Rates

1,838,000.0 46,492.
0
00
20%

1,838,000.0 46,492.
0
00
20%

1,838,000.0 46,492.
0
00
20%

1,838,000.0 46,492.
0
00
20%

1,838,000.0 46,492.
0
00
20%

1,838,000.0 46,492.
0
00
20%

1,838,000.0 46,492.
0
00
20%

1,838,000.0 46,492.
0
00
20%

1,838,000.0 46,492.
0
00
20%

1,838,000.0 46,492.
0
00
20%

1,838,000.0 46,492.
0
00
20%

20%
1,838,000.0 46,492.
13

Apr
'10

71

May
'10

35

Jun
'10

48

Jul
'10

43

Aug'
10

22

Sep
'10

92

Oct
'10

29

Nov
'10

35

Dec
'10

26

Jan
'11

38

Feb
'11

21

Mar
'11

56

Apr
'11

22

May
'11

31

Jun
'11

14

Jul
'11

41

0.00

2,192,00
0.00

2,192,00
0.00

2,192,00
0.00

2,192,00
0.00

2,192,00
0.00

2,192,00
0.00

2,192,00
0.00

2,192,00
0.00

2,192,00
0.00

2,192,00
0.00

2,192,00
0.00

2,192,00
0.00

2,192,00
0.00

2,192,00
0.00

2,192,00
0.00

2,192,00
0.00

1,838,000.0
0

1,838,000.0
0

1,838,000.0
0

1,838,000.0
0

1,838,000.0
0

1,838,000.0
0

1,838,000.0
0

1,838,000.0
0

1,838,000.0
0

2,006,545.0
0

2,006,545.0
0

2,006,545.0
0

2,006,545.0
0

2,006,545.0
0

2,006,545.0
0

2,006,545.0
0

00

54,835.
00

54,835.
00

54,835.
00

54,835.
00

54,835.
00

54,835.
00

54,835.
00

54,835.
00

54,835.
00

54,835.
00

54,835.
00

54,835.
00

61,564.
00

61,564.
00

61,564.
00

61,564.
00

22%
22%
22%
22%
22%
22%
22%
22%
22%
22%
22%
22%
22%
22%
22%
22%
14

Aug
'11

26

Sep
'11

17

Oct
'11

14

Nov
'11

30

Dec
'11

16

Jan
'12

Feb
'12

100

Mar
'12

Apr
'12

17

May
'12

21

Jun
'12

45

Jul
'12

53

Aug
'12

47

Sep
'12

Oct
'12

Nov
'12
Dec

0
0

2,192,00
0.00

2,192,00
0.00

2,192,00
0.00

2,192,00
0.00

2,192,00
0.00

2,251,55
4.00

2,251,55
4.00

2,251,55
4.00

2,251,55
4.00

2,251,55
4.00

2,251,55
4.00

2,251,55
4.00

2,251,55
4.00

2,251,55
4.00

2,251,55
4.00

2,251,55
4.00

2,006,545.0
0

2,006,545.0
0

2,006,545.0
0

2,006,545.0
0

2,006,545.0
0

2,106,494.0
0

2,106,494.0
0

2,106,494.0
0

2,106,494.0
0

2,106,494.0
0

2,106,494.0
0

2,106,494.0
0

2,106,494.0
0

2,106,494.0
0

2,106,494.0
0

2,106,494.0
0

61,564.
00

61,564.
00

61,564.
00

61,564.
00

61,564.
00

61,564.
00

61,564.
00

68,748.
00

68,748.
00

68,748.
00

68,748.
00

68,748.
00

68,748.
00

68,748.
00

68,748.
00

68,748.
00

22%
22%
22%
22%
22%
22%
22%
27%
27%
27%
27%
27%
27%
27%
27%
27%
27%
15

'12
Jan
'13

30

Feb
'13

55

Mar
'13

30

Apr
'13

58

May
'13

68

Jun
'13

100

Jul
'13

132

Aug
'13

148

Sep
'13

134

Oct
'13

87

Nov
'13

22

Dec
'13

Jan
'14

117

Feb
'14

65

Mar
'14
Apr
'14

78
63

2,251,55
4.00

1,995,00
0.00

1,995,00
0.00

1,995,00
0.00

1,995,00
0.00

1,995,00
0.00

1,995,00
0.00

1,995,00
0.00

1,995,00
0.00

1,995,00
0.00

1,995,00
0.00

1,995,00
0.00

1,995,00
0.00

1,995,00
0.00

1,995,00
0.00

1,995,00
0.00

1,995,00

2,106,494.0
0

2,213,906.0
0

2,213,906.0
0

2,213,906.0
0

2,213,906.0
0

2,213,906.0
0

2,213,906.0
0

2,213,906.0
0

2,213,906.0
0

2,213,906.0
0

2,213,906.0
0

2,213,906.0
0

2,213,906.0
0

2,213,906.0
0

2,213,906.0
0

2,213,906.0
0

2,213,906.0

68,748.
00

68,748.
00

68,748.
00

68,748.
00

74,920.
00

74,920.
00

74,920.
00

74,920.
00

74,920.
00

74,920.
00

74,920.
00

74,920.
00

74,920.
00

74,920.
00

74,920.
00

74,920.
00

76,943.

27%
27%
27%
30%
30%
30%
30%
30%
30%
30%
30%
30%
30%
30%
30%
33.33
%
16

May
'14

59

Jun
'14

80

Jul
'14

58

0.00

1,995,00
0.00

1,995,00
0.00

1,995,00
0.00

2,213,906.0
0

2,213,906.0
0

2,213,906.0
0

00

76,943.
00

76,943.
00

76,943.
00

33.33
%
33.33
%
33.33
%

Source :
a) Society of Indian Automobile Manufacturers (SIAM)
http://www.siamindia.com/
b) CRISIL Research Limited
https://www.crisilresearch.com/
c) http://pib.nic.in/newsite/erelease.aspx?relid=73929

17