India's consumer market has reached an inflection point that promises to radically alter the country's automotive demand profile. From 2005, India's economic growth accelerated from the 6 percent average annual rate it maintained for two decades to a higher 7.3 percent pace that one McKinsey team believes can be sustained for the next two decades—a rate that will triple consumer income levels by 2025. This income expansion will be broad and relatively deep, lifting more than 290 million people out of poverty.

The surge of discretionary income will quadruple transportation spend in India. The team expects a tenfold increase in the number of households able to purchase a new car by 2025 (i.e., more than 100 million Indian households by 2025 compared to just 11 million in 2005). Furthermore, the change in consumer profiles will dramatically reshape the nature of demand for autos in India. First, the market will shift from an undifferentiated small-car market to a differentiated three-segment one. Second, three customer segments will become relevant for manufacturers: "aspirers"—people from rural areas making their first automotive purchase; "seekers" and "strivers"—value-conscious first-car buyers graduating from motorcycles; and "globals"—brand-conscious consumers seeking high-value products and typically having multiple cars. Finally, the rural market will become increasingly important, especially in the "aspirers" and "seekers" segments.

The expected surge in Indian consumer discretionary income will push the automotive industry away from its current minimalist footing, creating a vibrant, multilayered modern market. In the process, it will open up major new market spaces for automotive players, both domestic and multinational. However, companies interested in capturing a winning share of this massive opportunity must overcome three critical challenges:

	Product: Current products will not be relevant to the needs of more than two-thirds of future market demand.
	Customer acquisition and retention: Between now and 2025, more than 70 percent of car buyers will be first-time automotive users. As a result, OEMs must work to transform their operating mind-sets toward competing in terms of branding and customer affinity.
	Transformed supply chain: As India's car-buying tide advances, second- and third-tier cities as well as the rural market will become significant pools of demand. In order to cost efficiently meet this demand, the successful automaker will need to develop and roll out a distributed manufacturing and supplier cluster footprint and build lean capex (capital expenditure) capabilities.

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