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India zips ahead
By Indrajit Basu
KOLKATA - Although its auto market is shrinking and is likely to be dampened
further in the next few years, China continues to attract the biggest chunk of
auto sector foreign investment in Asia. But that's about to change. Judging by
the growth rate that India's auto sales recorded in 2004 and the slew of new
launches that the country is poised to see this year, India seems to have
finally arrived in the big league of Asian car markets, making foreign
investors sit up and take notice.
With almost 24% growth in car sales in 2004, India has emerged as the
fastest-growing car market in the world, outstripping China's estimated 13.7%
growth last year. But India's potential looks even more promising, so much so
that investment banking firm Goldman Sachs has predicted that it will have the
largest number of cars by 2050. However, at this point, India is still far
behind in terms of car sales compared to other Asian giants like China, South
Korea and Japan. But considering that India's auto industry really took off
only as recently as 2000, it has done amazingly well.
Sales of passenger vehicles crossed the million-figure mark (1,044,597 units)
in 2004, making India the fastest-growing in this segment. The growth rate of
other segments was equally impressive. Sales of commercial vehicles grew at
28%, two-wheelers at 17%, three-wheelers at 13% and exports went up by 36%.
Auto analysts say India's chances of staying ahead of China in terms of growth
are bright, given that the Chinese government's efforts to cool down the
scorching economy are likely to dampen demand there.
Of course, India's total auto tally in 2004 is nowhere close to China, which
sold about 2.2 million vehicles. But analysts foresee that China's days of scorching
car sales, which registered 71% growth rate in 2003, are over, dampened
primarily by Beijing's moves to tighten easy credit. "The biggest factor behind
the slowdown in sales is uncertainty over the future of the economy created by
government policies designed to cool down the overheated economy," says a
report prepared by Chinese auto sector analyst Chi Hung Kwan. "Additional
factors include more stringent screening of automobile loans and higher crude
oil prices, which have raised the cost of automobile ownership."
But that's not just a uniquely Chinese trend. Globally, too, auto markets are
slumping. While North America and Japan reported flat or negative growth in
2004, France and Germany shrank by 2% and 5%, respectively, Spain and the
United Kingdom grew by a meager 2% each. Italy's decline was the highest, at
-19%. Canada's auto market also shrank by 5%.
"Clearly, then, India has emerged as a significant auto market," says Dilip
Chenoy, director general of the Society of Indian Automobile Manufacturers
(SIAM), "and that is due to the overall shift in government policies since
2000." Important features of these policies include steps to make manufacturing
competitive by creating export promotion zones, expanding infrastructure, like
power, roads and ports, bringing down transaction costs, developing
industry-specific clusters and freeing industries from excessive regulations.
"Besides, the auto industry per se has also undergone several other changes in
the way it conducts business. For instance, most of the original equipment
manufacturers [OEMs] are now following ISO 9000, 9001, 14000 series and other
best practices such as supply chain management. Local auto makers have also
started spending on research and development," adds Chenoy.
The car market is also undergoing significant structural shifts. "One such
major shift," says Chenoy, "is easy finance. Today, over 80% of the cars sold
are financed, thanks to the continuously sliding interest rates for the past
five years." Consequently, car upgrades have become frequent and multiple
ownership a norm. "As the number of double-income families has gone up and so
has disposable income, changing lifestyles with greater need for mobility and
pleasure has made cars an absolute must-have," says Neeraj Bhatia of TNS India,
a market research outfit.
According to Rajesh Jejurikar, vice president of Indian auto major Mahindra and
Mahindra, booming sales have "expectedly" changed the perception of foreign
investors, for whom the Indian market, or rather the lack of it, was a laughing
stock not so long ago. "The past two years have completely changed the way the
world views India," he says. "Now, everybody wants to be here."
In the past four years, India has not only seen launches of a plethora of
foreign marques, but owing to "its low-cost, high-quality manufacturing", says
P Balendran of General Motors, India, it has also emerged as a significant
outsourcing hub for auto components and auto engineering design, rivaling
Thailand. This is why, perhaps, India is now getting all the variety and
attention that were so far reserved for mature car markets. A slew of new
models is being lined up for launch this year. Creating a landmark of sorts, 30
new cars will hit Indian roads this year, including 11 "super luxury" cars from
celebrated brands like Audi, BMW, Ferrari and Alfa Romeo. The roll-out in the
luxury segment has already begun with a Bentley model, two Porsche best-sellers
and Mercedes Benz's Maybach. "This is the biggest launch lineup I have ever
seen in India," says Hormazd Sorabjee, editor of Autocar India.
 This
confidence is reflected in investments as well. The next three to four years,
says SIAM, could see the industry pump in as much as $5 billion, "out of which
foreign direct investment [FDI] would be close to $3 billion - higher than
ever," says SIAM's Chenoy. Again, that would be miniscule compared to China,
which is expected to attract $13 billion in 2005 alone. "As per our
understanding, China will continue to attract higher FDI flows as compared to
India, both in the short and long term," says Chenoy. "The reasons are that
China offers better facilities and a larger domestic market."
Still, feel experts, India cannot be compared with China on mere numerical
terms since one, the country's auto market is more stable than China's, and
two, it has acquired its own growth momentum, says the third BRIC (Brazil,
Russia, India, China) report from Goldman Sachs. The report adds that in line
with the industry's projection, India will add a million cars a year from next
year and sales volumes will overtake Germany by 2010 and Japan by 2012, to
become the world's fourth largest market by 2020. And by 2050, Indians will buy
every sixth car produced in the world.
Indrajit Basu is a Kolkata-based equity-analyst-turned-journalist with
more than 12 years of experience in business/finance and technology journalism.
Besides writing for Asia Times Online, he also writes for US-based
publications, as well as IT companies.
(Copyright 2005 Asia Times Online Ltd. All rights reserved. Please contact us
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