Central State Scooter Company

Group 6, Section A Issues with NCAER Projection 1) No relation with the demographics of the market has been taken into account. 2) The issue of whether the model will hold in the future or not has not been addressed. i.e. the present stage of the growth in demand curve has not been addressed. 3) The availability of loans and other benefits that employers may provide may also contribute to the demand for scooters. 4) Since the disposable income is an important factor, if the price of the vehicle goes down, then more people might be interested in buying the same. This has not been addressed. 5) In Sundar Ramamani s model, no basis for the 5 % increase in income is given 6) The market is a highly regulated one which offers little variation in product, in spite of that there is a trend of increased presence of Vespa whereas the Fantabulus has died out. This issue has also not been addressed. We assume that the model ln(St) = a + bln(It)-cln(Pt) holds. NCAER model Price elasticity is given by -2.969148 i.e c=2.969148 and b=3.120811. Therefore, for 1967-68, using It = Rs. 162.87 billion and Pt = 71.52 from Exhibit II and knowing that St is 159000 in 1967-68 we obtain the value of a as -55.91. This does not hold for 1978 and 1979. Sundar Ramamani s projections c=-0.798185 and b=5.381782, for 1978, It=Rs. 235.72 billion and Pt=71.52, which implies a=-123.32 to give a stock of 1465000 in 1978. This data closely fits in with the 1978-79 data. Thus, Sundar Ramani s data is better fit based on recent trends, which should hold more weights. Further factors need to be considered, to actually validate the above data, as many factors have been missed. 1. We also need to assess the effect of brand on the demand, i.e. the demand may exist for that specific brand of scooters as compared to SCCS. As Vespa has been able to deliver value to the consumer, it enjoys a premium position in the market. In fact, people are willing to pay higher for a Vespa indicating that Vespa as a brand garners much more favour and effect of disposable income may be rare 2. The fact that around 70 % of government employees have bought a scooter may be a trend that needs to be addressed for a more accurate forecast of the demand 3. Additionally price effect on demand needs to be contrasted with the consumer need for a durable product to attain more meaningful conclusions. 4. Capacity of the industry needs to seen before installing your own capacity so as to not be caught in a market where supply exceeds demand. 5. Entrance of government owned SIL also complicates the matter. It securing booking of over 70000 units is a positive indicator but this may entirely be due to it being government owned. 6. The demand would also be affected by the fact that new modes of transport, both public and private modes may receive a government boost since it also looking to expand the scooter market. 7. In total, it may be reasonable to assume that CSSC would be able to sell 24000 units in 1980, though further analysis and modeling is needed.