Small cars promise big business in
India By Siddharth Srivastava
NEW DELHI - Encouraged by India's
fast-growing small-car market - it already
accounts for 75% of the 1.5 million auto market in
that country - a slew of global auto makers have
announced plans to make and launch small cars in
the South Asian country.
So far Japan's
Suzuki, Korean Hyundai and India's Tata Motors
have dominated the hatchback segment of the
small-car market
with
their Maruti 800, Santro, Wagon-R, Indica and
Swift.
However, the market is going to be
really crowded now.
In the past year and a
half, General Motors, Fiat, Honda, Nissan and
Hyundai have announced Indian investments to the
tune of US$1.5 billion. Volkswagen, Mitsubishi,
Toyota and BMW are also looking to move in by
setting up manufacturing units.
The top
seven or eight auto makers are estimated to invest
$4 billion, with most of the small cars - those
with engine displacement up to 1.3 liters - likely
to hit the Indian roads within the next three
years.
Tata Motors' much-anticipated
Rs100,000 ($2,460) people's car, cheaper than some
two-wheelers, is likely to open up the competition
further when it is launched next year.
Suzuki, which has half of India's car
market sewn up, is making 800,000 cars a year and
ramping up to build 1 million a year in two years.
The entry of one of China's biggest auto
makers, Chery Automobile Co, could alter the
market further. The company said this week that
India is very much on its market horizon.
Car companies are looking at young
high-income earners as well as two-wheel riders
looking to upgrade to four. According to experts,
a quarter of new-car purchasers move up from
scooters.
Much as with mobile telephones
that have enjoyed phenomenal growth in the
country, experts say there is a big untapped car
market as well.
In the past few weeks,
Fiat chairman Luca De Meo, Renault-Nissan chief
executive officer Carlos Ghosn, and GM chief G
Richard Wagoner have visited India. Honda
president and CEO Masahiro Takedagawa was also in
India recently.
Honda Motor Co, Japan's
second-largest car maker, is estimated to invest
Rs10 billion ($245 million) in a new factory in
the western state of Rajasthan, with an initial
capacity of 60,000 per annum. The company is
scheduled to start making its first small car in
India in 2009. Honda currently assembles the City,
Civic and Accord sedans at a plant near the
capital, New Delhi.
"With the proposed
plant we plan to foray into the volume segment -
the compact-car segment," said Takedagawa. "We
plan to manufacture two models from the plant ...
one model will be a new small car and the second
will be from our existing lineup."
After a
decade of selling big cars in India, last month,
Detroit-based General Motors, until recently the
world's biggest auto maker, started sales of its
first mini-car, the Chevrolet Spark, in India.
Wagoner said the company considers India
one of its most valuable markets and is committed
to investing capital in its India ventures. GM is
investing more than $300 million to build a
factory in the western state of Maharashtra.
"GM has made growth in India a priority.
We are keeping up the momentum this year with the
introduction of the Spark, which gives GM an entry
in India's predominant market segment," Wagoner
said.
Renault-Nissan CEO Ghosn spoke about
the possibility of launching a small car in India.
Ghosn said Nissan is looking to introduce a
"full-fledged product lineup" from the Chennai
plant, including small cars from two different
platforms.
The Chennai plant is expected
to begin production during the financial year
starting April 1, 2009, and will initially only
export cars from India, said Ghosn.
Speaking separately about Renault, Ghosn
said production of its three-box Logan cars via
the joint venture with India's Mahindra is
expected to become profitable next year.
To mark its entry to India, Japan's Nissan
joined a manufacturing joint venture between
Renault and Mahindra in February. Renault holds a
44% stake in Nissan.
Italian auto major
Fiat, which has tied up with Tata Motors, is
looking to scale up sales with Grande Punto, a
premium hatchback slated for an India launch next
year. Fiat is also looking to launch the Linea
sedan. Fiat's compact Palio has not done too well
in India.
"We want to accelerate our entry
into key emerging markets. I think India is a
market where we could actually get above the
100,000 threshold if the market develops in the
right direction,'' Meo said.
Toyota is
also pushing its compact cars in India, with its
big offerings, Corolla and Innova, doing quite
well.
If it could get its technology and
emission standards right, Chery could end up
spoiling Tata's small-car launch. Chery's QQ model
will sell in India for about Rs140,000, with
experts predicting that the Tata car will end up
settling at the Rs125,000 range given rising
costs.
"We realize that the Indian
small-car market is very competitive. But it is
also a growing market," said Zhang Lin, Chery's
general manager for international sales. "It would
not be possible to compete in India on prices if
we export from here [China]. The obvious direction
to take is to produce there [India]. But we have
not taken a final decision yet."
Reports
in the Indian media have said that Chery could
team up with Delhi-based International Cars and
Motors Ltd, maker of Sonalika tractors, to
introduce a small car in India next year. But
Zhang said: "We have talked to a few companies in
India. But we cannot mention their names."
Indeed, the broad market parameter looks
good, though it remains to be seen which will be
the players that survive the intense competition.
The government has launched an ambitious
10-year Automotive Mission Plan to develop India
as a global manufacturing hub and hopes auto sales
will jump from last year's $34 billion to $145
billion in 2016.
More than 50 different
models across segments are scheduled to be
launched in India this year.
After China,
the Indian auto industry is the
second-fastest-growing automotive sector, totaling
about 10 million vehicles.
This year
ACNielsen Co published a survey that said that
currently 9% of Indians own a car and that could
easily touch 25% by the end of the decade. India's
car-owning middle class is expected to grow to 583
million, or 41% of the population, by 2025,
McKinsey and Co has reported.
Some 1.4
million passenger cars rolled off Indian assembly
lines last year and the number is forecast to rise
to 2 million by 2010 and 3 million by 2015.
Scooter and motorcycle sales are forecast to grow
to 12 million units by 2010.
US-based
consultancy firm Keystone has forecast that India
will become the world's third-largest automobile
market by 2030, next only to China and the US.
Siddharth Srivastava is a New
Delhi-based journalist.
(Copyright
2007 Asia Times Online Ltd. All rights reserved.
Please contact us about sales, syndication and republishing.)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
