The Impact of Fuel Prices and Consumer Income on

Automobile Industry
SUBMITTED BY: RAGHAV MITTAL

BALLB (Hons.)

SAP ID: 81012300449

Table of contents

S no TITLE PAGE NO.

1. Abstract 2

2. Introduction 3

3. Literature review 5

4. Methodology and Data collection 7

5. Regression table 13

6. Regression analysis- Interpretation 14

7. Conclusion 16

8. References 17

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 Abstract
The dissertation titled "The impact of fuel prices and consumer income on automobile industry"
examines the lucrative Indian automobile industry, driven by rising disposable incomes and
accessible financing, which has transformed car ownership into a necessity rather than a luxury. It
highlights the increasing competition from both new entrants and established global brands like
Porsche and Ferrari, emphasizing the need for manufacturers to understand consumer expectations
and preferences. The study reveals that different car segments exhibit varying buyer behaviors, with
disposable income being the primary purchase driver, while value for money, safety, and driving
comfort are top customer requirements. The research methodology involved analyzing existing
literature on passenger cars and the purchase decision process across various segments, aiming to
identify factors influencing customer preferences and to provide insights that can help overcome
stagnation in sales and stimulate future demand in the automobile market.

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 Introduction

The Indian automobile industry is one of the most significant sectors of the country's economy,
contributing around 7.1% to the nation's Gross Domestic Product (GDP) and offers employment to
millions of people across various segments, including manufacturing, distribution, sales, and services.
Over the past few years, this sector has seen significant growth, driven by evolving consumer demands,
which have been influenced by socio-economic, technological, and environmental factors. This period,
particularly between 2010 and 2024, has seen substantial shifts in the patterns of consumer behavior in
automobile industry, and the industry had to adapt to changing needs and preferences in response.

One of the most significant changes has been the increasing consumer demand for vehicles that are not
only technologically advanced but also environment friendly. This shift in consumer preferences has
been largely driven by rapid technological advancements, growing awareness of environmental issues,
and the government's push toward more sustainable modes of transport, such as electric vehicles (EVs).
These developments, supported with changing socio-economic conditions, have dramatically reshaped
the Indian automobile landscape. This dissertation aims to explore the various drivers behind these
changes in consumer behavior and analyze their impacts on vehicle demand in India.

The period from 2010 to 2024 is particularly critical, as it marks a time when the Indian automobile
industry has increasingly embraced digitalization, innovation, and sustainability. Consumers are now
more inclined to the technological aspects of vehicles, with increasing interest in features like
connectivity, artificial intelligence, and autonomous driving capabilities.

One of the most significant factors which led to change in the Indian automobile industry is the rapid
pace of technological advancements. These innovations have had a direct impact on consumer behavior
and vehicle demand, reshaping the way consumer view and purchase vehicles. Over the past few years,
technology has played a crucial role in enhancing the driving experience and improving vehicle safety.

In India, technological advancements have not been limited to traditional internal combustion engine
(ICE) vehicles. The growing interest in electric vehicles (EVs) is the most significant development. The
rise of EVs is due to several technological improvements, particularly in battery technology, which has
led to higher driving ranges and reduced charging times. As these vehicles have become affordable and

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consumers have started to consider them as better alternatives to traditional internal combustion
vehicles..

In addition to EVs, there has been a growing interest in shared mobility solutions such as ride-hailing
services and car-sharing platforms. These alternatives reduce the number of personal vehicles on the
road, helping to alleviate traffic congestion and reduce pollution. Companies like Uber, Ola, and others
have expanded rapidly in India, providing consumers with greater access to shared mobility options.
This shift toward shared mobility is closely tied to the growing emphasis on environmental
sustainability, as it allows consumers to use vehicles without the burden of ownership and without
contributing to rising levels of pollution.

The COVID-19 pandemic has had a profound effect on the global economy, and the Indian automobile
industry was no exception. The crisis led to widespread economic uncertainty, resulting in decreased
consumer spending and a sharp decline in automobile sales. Lockdowns and travel restrictions curtailed
production, disrupted supply chains, and limited the availability of vehicles. For many consumers, the
crisis led to a reevaluation of their financial priorities, with many delaying or canceling planned vehicle
purchases.The pandemic also triggered long-term changes in consumer behavior. Concerns over hygiene
and social distancing led to an increased preference for private vehicles, as individuals felt that owning a
personal car would offer more control over their safety and well-being. This shift is likely to have lasting
effects on vehicle demand in India, as consumers who were previously inclined to use public transport
or shared mobility services may now opt for personal vehicle ownership instead.

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 Literature Review.

Shende V(2015) “The Indian Automobile Market and Its Growth”, India’s automobile industry has been
growing steadily, with increasing demand for both two-wheelers and four-wheelers. According to
reports from the Society of Indian Automobile Manufacturers (SIAM), India’s automobile market
became one of the largest in the world by volume, and the country is expected to lead the global market
in terms of vehicle numbers by 2050. The rising middle class, growing urbanization, and increased
disposable income are key contributors to this growth.

Maneka,(2014).Increased purchasing power among Indian consumers, facilitated by rising incomes and
easy access to car financing, has contributed to the expansion of vehicle sales. The automotive industry
also benefits from improvements in road infrastructure, particularly highways, and the growing
availability of service centers and spare parts across urban and rural India

Bhatia, V.(2021).”Technological advancements in the Indian automobile industry: Trends and future
directions. Indian Journal of Automobile Engineering.”Technological developments, particularly the
integration of smart technology into vehicles, have revolutionized consumer demand in the automobile
industry. Advanced features such as smart infotainment systems, autonomous driving, and enhanced
safety measures have become key selling points for many consumers. Additionally, the transition to
electric vehicles (EVs) has been a defining trend in the automobile industry over the last decade.

Melwani&Sitlani,(2020)The government has played a significant role in promoting electric mobility

through various initiatives like the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles
(FAME) program, which provides subsidies for electric vehicle purchases. These policies have made
EVs more affordable and have contributed to the increasing popularity of these vehicles.Technological
advancements have also impacted traditional internal combustion engine (ICE) vehicles,with many
manufacturers incorporating innovations such as hybrid engines and advanced fuel efficiency systems to
cater to the growing demand for greener alternatives.One of the most significant factors driving
consumer demand in the automobile sector is the increasing awareness of environmental issues. Climate
change, air pollution, and the depletion of fossil fuels have prompted many consumers to rethink their
transportation choices. As a result, electric vehicles (EVs), which produce fewer emissions and have
lower operational costs compared to traditional petrol and diesel vehicles, have gained traction (Jain et
al., 2019).

Saini, A. (2019). Policy measures and their influence on the Indian automobile industry.Journal of
Public Policy & Management, 7(1), 45-59.The Indian government has also set ambitious targets to
reduce carbon emissions and shift toward cleaner sources of energy. The transition to electric vehicles is
seen as a critical component of achieving these goals. Various policies, such as the introduction of
Bharat Stage VI (BS-VI) emission standards and financial incentives for electric vehicles, have played a
role in making EVs an attractive alternative (Saini,2019).

Seth, K. (2018). Income growth and consumer demand in the Indian automobile sector. Journal of
Economic Studies, 36(2), 97-105.Fluctuating fuel prices have had a profound impact on the consumer
demand for vehicles. Rising petrol and diesel prices have made the operational costs of traditional
vehicles increasingly expensive, thus making electric vehicles a more appealing option due to their

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lower running costs. In addition to this, the Indian government's focus on promoting electric vehicles
through incentives and subsidies has made them more affordable for a wider segment of the
population.Consumer income plays a crucial role in shaping demand in the automobile market. As
disposable income rises, particularly among urban middle-class households, more consumers are
inclined to purchase personal vehicles. Additionally, the availability of financing options has made it
easier for consumers to access loans, which further boosts vehicle sales (Seth,2018).

MelwaniR., &Sitlani M.(2020). “The impact of government policies on electric vehicle adoption in
IndiaJournal of Sustainable Transport, 18(4), 211-224”. The rise of shared mobility services, such as
ride-hailing platforms like Uber and Ola, has also influenced consumer demand. In urban areas, where
parking and congestion are significant concerns, many individuals are opting for shared mobility instead
of personal car ownership. This shift toward shared mobility has, however, not reduced overall demand
for vehicles. Instead, it has led to greater consumer interest in flexible transportation solutions, which
could eventually impact the types of vehicles being purchased.

Shared mobility services, particularly in metropolitan cities, offer consumers a cost-effective and
flexible means of transportation, making it a popular alternative to traditional vehicle ownership.
However, despite this shift, vehicle sales have continued to rise, particularly in smaller towns and rural
areas where public transport options are limited.

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 Methodology
This study provides a detailed examination of the factors influencing consumer demand in the Indian
automobile industry through a quantitative research design, specifically focusing on correlation and
regression analysis. Regression analysis is a statistical technique that enables researchers to identify and
quantify the relationships between multiple variables. By applying this method, the study seeks to
understand the underlying trends and patterns in consumer behavior and the broader market dynamics
within the automobile industry in India.

Sample size: 15 observations

Year: 2010 to 2024

Variables:

- Dependent variable: consumer demand in auto-mobile industry, source: society of Indian

Automobile manufacturers
- Independent variable: fuel prices Source: ‘Petroleum Planning and Analysis Cell’ of the
Government of India. and consumer income Source: Niti Aayog

HYPOTHESIS

NULL HYPOTHESIS (H₀):

"There is no statistically significant relationship between Consumer demand, and the independent
variables, i.e., Fuel prices and Consumer income."

It means that changes in theindependent variables, i.e., Fuel prices and Consumer income do not have a
measurable impact on the Consumer demand, implying that the independent variables does not
significantly influence the dependent variable.

ALTERNATE HYPOTHESIS (H1):

“There is a significant statistical relationship between Consumer demand, and the independent variables,
i.e., Fuel prices and Consumer income."

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It means that changes in the independent variables, i.e., Fuel prices and Consumer income do not have a
measurable impact on the Consumer demand, implying that the independent variables significantly
influence the dependent variable.

Data Collection
Data is collected from several reliable sources:

 Official government reports from the Ministry of Heavy Industries and Public Enterprises
(MHIP) and the Society of Indian Automobile Manufacturers (SIAM).
 Market research reports and surveys published by reputable organizations like Nielsen, PwC,
and McKinsey.
 Sales data for vehicles, including passenger cars and two-wheelers from 2015 to 2024.

The data includes sales figures, average fuel prices, and information on government subsidies and
policies, as well as consumer income statistics.

Regression Analysis

The study utilizes regression analysis to analyze how the following independent variables affect the
dependent variable, consumer demand:

 Independent Variables:
o Fuel Prices
o Consumer Income.
 Dependent Variable:
o Consumer Demand

The regression model helps determine the strength of the relationship between these factors and
consumer demand, providing insights into how each variable impacts overall vehicle consumption in the
Indian market.

Key Variables in the Analysis:

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The dependent variable in this analysis is consumer demand for automobiles, which can be measured in
various ways, including vehicle sales, registration rates, or market share across different vehicle
categories (such as petrol powered cars and electric vehicles). The independent variables are fuel
prices,consumer income. These variables have been selected based on their potential impact on
consumer decisions in the automobile market, influenced by both economic and social factors.

1. Fuel Prices: Fuel prices are an important factor in consumer behavior in the automobile
industry, influencing purchasing choices and preferences. Fuel prices tend to make consumers
more price-sensitive, and they seek vehicles that have higher fuel efficiency in order to reduce
operating expenses over the long term. When petrol prices increase, the total price associated
with owning and operating a vehicle also increases, forcing consumers to look more at fuel
consumption for value and to consider the future upkeep of the car. Higher fuel prices also
promote the adoption of alternative energy vehicles, and particularly electric vehicles (EVs).
Consumers concerned about petrol prices are likely to shift their choice to EVs, which have less
operating expensesthan petrol because they charge from electricity. Thus, higher fuel prices
induce demand for higher fuel efficiency vehicles, as well as charge the transition towards more
sustainable and economical vehicles longer-term.
2.

YEAR FUEL PRICES / LITRE (PETROL )

2009-2010 52
2010-2011 63.77
2011-2012 68.57
2012-2013 72.26
2013-2014 72.43
2014-2015 60.5
2015-2016 64.38
2016-2017 69.99
2017-2018 78.52
2018-2019 73.83
2019-2020 80.43
2020-2021 95.41
2021-2022 95.14
2022-2023 98.34
2023-2024 100.38
Source: Data analysis- MS excel

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SOURCE(DATA):‘Petroleum Planning and Analysis Cell’ of the Government of India.

FUEL PRICES / LITRE (PETROL )

2009-2010
2010-2011
2011-2012
2012-2013
2013-2014
2014-2015
2015-2016
2016-2017
2017-2018
2018-2019
2019-2020
2020-2021
2021-2022
2022-2023
2023-2024

Source: Data analysis- MS excel

3. Consumer Income: Income is a key factor of consumers' purchasing power and impacts their
choices when they purchase automobiles (cars and other vehicles). As income level rises,
consumers are generally in a better financial position and therefore are more inclined to buy new,
expensive cars, such as premium and luxury cars. Such customers are generally attracted towards
new features, high quality, and increased performance, which can warrant the premium cost.
Whereas in periods of reduced income, customers opt for less expensive, cheap cars that offers
high value without inflicting high expenses. They choose such cars for their lower out-of-pocket
cost and lower maintenance expenses.

To determine how income affects car demand, average consumer income of an individual in
India is considered. The findings give crucial analysis into the effects of income levels on
consumer demand and vehicle preferences, enabling manufacturers and marketers to develop
strategies to suit the needs of various consumer segments.

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 PER CAPITA INCOME (Rs in thousand)
120
100
80
60 PER CAPITA INCOME (Rs in
thousand)
40
20
0
0 1 2 3 4 5 6 7 8 9 0 1 2 3 4
2 01 201 201 201 201 201 201 201 201 201 202 202 202 202 202
- - - - - - - - - - - - - - -
09 10 11 12 13 14 15 16 17 18 19 20 21 22 23
20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

Source: Niti Aayog

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RESEARCH QUESTIONS AND OBJECTIVES

Research Questions

1. How do fuel prices influence consumer demand for automobiles in India between 2010 and
2024?
2. What is the relationship between consumer income levels and the demand for vehicles in the
Indian automobile industry during the period 2010 to 2024?

Research Objectives

1. To analyze the correlation between fluctuating fuel prices and consumer demand for automobiles
in India over the period from 2010 to 2024.
2. To assess the impact of changes in consumer income on automobile purchase decisions in India
using regression analysis over the same period.

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 REGRESSION ANALYSIS
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.8608
15052
R Square 0.7410
02554
Adjusted R Square 0.6978
36313
Standard Error 1.9105
87335
Observations 15

ANOVA
Df SS MS F Signific
ance F
Regression 2 125.325 62.662 17.166 0.00030
4458 72288 25159 1837
Residual 12 43.8041 3.6503
2758 43965
Total 14 169.129
5733

Coeffic Standar t Stat P- Lower Upper Lower Upper

ients d Error value 95% 95% 95.0% 95.0%
Intercept 14.863 2.69805 5.5089 0.0001 8.98487 20.742 8.9848 20.742
43746 9143 3686 34317 1595 00333 71595 00333
PER CAPITA 0.2031 0.03883 5.2328 0.0002 0.11859 0.2877 0.1185 0.2877
INCOME (Rs in 94788 0424 75896 10223 0563 99013 90563 99013
thousand)
FUEL PRICES / - 0.05595 - 0.0276 - - - -
LITRE (PETROL ) 0.1402 8294 2.5060 05136 0.26215 0.0183 0.2621 0.0183
36596 91331 9245 1395 59245 13947

Source: Data analysis- MS excel

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 REGRESSION ANALYSIS: INTERPRETATION
 Dependent Variable: Consumer demand or consumption
 Independent Variables:
1. Per Capita Income (Rs in thousand)
2. Fuel Prices / Litre (Petrol)

1. Model Summary (Regression Statistics)

Metric Value Interpretation

Multiple R 0.8608 This is the correlation coefficient between the observed and predicted values
of the dependent variable. A value close to 1 indicates a strong linear
relationship.
R Square 0.7410 This means 74.1% of the variance in the dependent variable is explained
by the two independent variables.
Adjusted R 0.6978 Adjusts R² for the number of predictors. Since it’s still quite high, the model
Square is a good fit.
Standard 1.9106 This is the average distance that the observed values fall from the regression
Error line. A lower value indicates better fit.
Observations 15 The model is based on 15 data points.

R Square (0.7410): About 74.1% of the variation in consumer demand is explained by changes in per
capita income and fuel prices. This suggests a strong model fit.

Adjusted R Square (0.6978): After adjusting for the number of predictors, the model still explains
~70% of demand variation, indicating both variables contribute meaningfully.

Standard Error (1.91): The typical prediction error of the model is approximately 1.91 units of
demand.

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 2. Coefficients Table Interpretation

Coeffici Standard t Stat P-value Lower Upper Lower Upper

ents Error 95% 95% 95.0% 95.0%
Intercept 14.8634 2.698059 5.50893 0.00013 8.98487 20.7420 8.98487 20.7420
3746 143 686 4317 1595 0333 1595 0333
PER CAPITA INCOME 0.20319 0.038830 5.23287 0.00021 0.11859 0.28779 0.11859 0.28779
(Rs in thousand) 4788 424 5896 0223 0563 9013 0563 9013
FUEL PRICES / LITRE - 0.055958 - 0.02760 - - - -
(PETROL ) 0.14023 294 2.50609 5136 0.26215 0.01831 0.26215 0.01831
6596 1331 9245 395 9245 3947

Source: Data analysis- MS excel

Interpretation of Variables:

 Intercept (14.86): When income and fuel prices are zero (hypothetical), the dependent variable
is expected to be ~14.86 units.
 Per Capita Income: For every 1 thousand rupee increase in per capita income, the dependent
variable increases by 0.203 units, holding fuel prices constant. The p-value (0.0002) confirms
this is statistically significant.
 Fuel Prices: For every 1 rupee increase in fuel prices per litre, the dependent variable decreases
by 0.140 units, holding income constant. This is also statistically significant (p = 0.0276).

Conclusion Summary of the Regression analysis:

 The model explains a substantial amount of variance (R² = 74.1%).

 Both independent variables (income and fuel prices) are statistically significant predictors.
 Income has a strong positive impact, while fuel prices have a negative effect on the
dependent variable.
 The model is statistically significant (p < 0.001) as a whole.
 This regression analysis confirms that per capita income positively influences consumer
demand, while fuel prices have a negative effect. The model is statistically sound and explains
a large portion of the variation in consumer demand.

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 Conclusion:

In conclusion, this study provides an in-depth analysis of the factors driving consumer demand in the
Indian automobile market, using regression analysis to quantify the relationships between key variables
such as fuel prices, income levels, and the rise of electric vehicles. By employing various visualization
techniques to display the findings, the study aims to provide valuable insights for manufacturers,
policymakers, and marketers, offering a clearer understanding of consumer preferences and market
trends in one of the fastest-growing automobile markets in the world.

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 References

1. Melwani, R., &Sitlani, M. (2020).The impact of government policies on electric vehicle

adoption in India. Journal of Sustainable Transport, 18(4), 211-224.
2. Saini , A. (2019). Policy measures and their influence on the Indian automobile industry.
Journal of Public Policy & Management, 7(1), 45-59.
3. Shende, V. (2015).The role of consumer behavior in the growth of the Indian automobile
market. International. Journal of Consumer Research, 28(5), 88-101.
4. Seth, K. (2018). Income growth and consumer demand in the Indian automobile sector.
Journal of Economic Studies, 36(2), 97-105
5. Bhatia, V.(2021). Technological advancements in the Indian automobile industry:
Trends and future directions. Indian Journal of Automobile Engineering, 45(3), 123-135.
6. Economic Times. (2023). India’s automobile market set to become the world’s largest by
2050. Retrieved from https://economictimes.indiatimes.com
7. Jain, R., Sharma, P., &Verma, S. (2019).Environmental impact of internal combustion
engines and the rise of electric vehicle.Environmental Sustainability Review, 32(1), 25-
34.
8. Maneka, R. (2014).The role of the automobile industry in India’s economic
growth.Indian Economic Review, 20(2), 112-118.
.

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