Indian automobile industry cruises in top gear

June 4th, 2008 - 6:32 pm ICT by IANS  

By Venkatachari Jagannathan
The Indian automobile market has undergone a transformation in the past decade. Unlike the early 1990s when only a handful of models were available, the customer today has the choice of riding home in a wide array of models with virtually every global car manufacturer setting up base in the country. As the fast-growing economy pumps more disposable income into the hands of its aspiring citizens, this choice is getting even wider and as many as 20 new models are set to hit the market this calendar year, over and above the 18 that were unveiled a year ago.

What is more, the competition is intensifying not only for compacts, or the small cars, but also in the luxury segment. Even for cars priced at Rs.2 million ($50,000) and above - dominated by imports till the 1990s - the choice today is wider, despite comparatively lower volumes of no more than a few thousand units per annum, but growing.

For instance, in the first three months of this year alone, Mercedes Benz logged 50 percent more sales than in the whole of 2007 with a target of over 3,000 for the entire year. The story is no different for other manufacturers.

“In 2007, we sold 2,491 units. But in the current year, we have already sold 1,330 units. This includes both the locally-produced as well as the imported models,” said Wilfried Aulbur, managing director of Mercedes Benz India.

“With the economic emergence of smaller centres in India like Madurai, Kolhapur or Bhubaneswar, a whole new generation of customers now aspire to own a Mercedes Benz,” Aulbur said.

In a similar vein, Paul de Voijis, managing director of Volvo Car India, expects the luxury car market to double by the end of this calendar year.

Having sold 100 units of XC90 and S80 models — imported as completely built units — since 2007, Volvo plans to sell 500 units in 2008 by expanding its model line-up and the distribution network.

Audi and Skoda, too, have plans for new models, while Mercedes is setting up a new unit at Chakan in the western Indian city of Pune that is expected to go on stream in early 2009. And sensing the rising demand, BMW enhanced its Chennai plant’s capacity by 1,300 units last year to 3,000 units per annum at an outlay of $750,000.

The German automobile major is also beefing up its product offering with plans to launch X6 in India while considering the introduction of the small luxury car Mini that would be priced around Rs.2 million ($50,000).

This is indeed a major transformation in a country that had just three car manufacturers in 1990 - Hindustan Motors, Premier Automobiles and Maruti Suzuki - that were selling just a few models.

The customers have multiple choices in terms of not only price but also fuel - petrol, diesel, compressed natural gas, liquefied petroleum gas and even battery powered cars from the stable of Reva Electric Car Company.

Major global car producers from different regions have India on their production map - Ford and General Motors from the US, Renault, Fiat, BMW, Skoda, Daimler, Volkswagen, Volvo and Audi from Europe and Suzuki, Toyota, Honda, Hyundai, Mitsubishi and Nissan from Asia, to name a few.

After the economic reform process began in early 1990s, Tata Motors became the first homegrown car manufacturer in the country with the launch of the Indica in 1998 and made global headlines earlier this year by promising a revolutionary small car Nano later this year, costing all of $2,500.

Now, French Renault has teamed up with Bajaj Auto to roll out its own small car, expected to be priced slightly higher than Nano. In fact, similar plans are on the cards for Ford, Toyota, Volkswagen and Honda.

Compacts and sedans accounted for 85 percent of the 1.5 million car sales in India in 2007-08, while utility vehicles accounted for the rest. Within the car segment, compacts accounted for 60 percent of the sales.

“This trend will continue because cars are considered to be expensive and fairly price elastic in India,” said Arvind Saxena, senior vice president for marketing and sales with Hyundai Motor India.

In fact, General Motors has seen its sales in India climb faster since the launch of small car Spark (formerly called Matiz) after taking over the South Korean carmaker Daewoo. And to cash in on the trend, small car manufacturers are fast expanding the capacities.

While Hyundai Motor recently doubled its capacity at the Irrungattukottai plant near Chennai to 600,000 units, the other players, Maruti Suzuki and General Motors, are also expanding their capacities.

“A major part of our company’s Rs.90 billion ($2.25 billion) investment is towards the goal of achieving one million units in domestic sales by 2010-11,” said S. Nakanishi, managing director and chief executive of Maruti Suzuki.

The Indo-Japanese venture commands over 50 percent market share and hopes to hold on to the share with the launch of new models like A Star and Splash, besides some offerings in the diesel engine-powered segment.

At the same time, the company is also transforming its operations from essentially being a small car manufacturer to a complete passenger automobile maker with the launch of bigger models like SX4.

Similarly, General Motors, which expanded its Halol facility near Vadodara, Gujarat, to 85,000 units last year, is setting up a 140,000-unit second plant near Pune in Maharashtra.

The transformation of the Indian automobile industry has also seen the country emerge as a major exporter and today ranks among the top three countries with Japan and Brazil to emerge as a global hub for small cars for a host of companies.

According to data available with the industry lobby, the Society of Indian Automobile Manufacturers, 218,418 passenger vehicles were exported from India in 2007-08, which is nearly 15 percent of the industry’s total domestic sales.

And to encourage this trend, the Indian government reduced the excise duty on small cars progressively, from 24 percent in 2006 to 12 percent in 2008.

Hyundai, for example, shipped 126,748 units out of its total India sales of 327,160 units in 2007 and plans to export nearly 50 percent of its 530,000 units production this calendar year. Its new model i10 will be exclusively made in India for the global markets.

Likewise, Maruti Suzuki shipped 53,024 units last fiscal and has chalked out some ambitious export plans to export up to 200,000 units in three years’ time. The Indian arm is revving up to play a much bigger role for parent Suzuki Motor’s global strategy.

“As part of this strategy, we have been developing global models that are European in overall styling and design, and modified to suit local markets,” said Nakanishi, pointing out that their Swift, launched 2005, was the first model to emerge out of this strategy, followed by Grand Vitara, SX4 and Splash.

“Of the three million cars that Suzuki wants to sell worldwide, almost 30 percent will come from Maruti Suzuki,” he said, adding Suzuki’s next world car A Star will come from their plant at Manesar on the outskirts of the Indian capital.

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