India is currently experiencing auto industry growth at a rate similar to that experienced by Brazil one decade ago, with numerous manufacturers establishing themselves singly or as part of joint ventures. While there are still significant challenges that may prevent India from experiencing the same sort of explosive growth seen in China, it has the potential for high rates of growth in the coming years.
Light vehicle sales in India are projected to reach 2.6m units in 2010, a 30% increase on 2009. And Indian auto companies are developing international presence.
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India’s economy is expected to expand by close to 10% this year. That’s an impressive sounding number in itself and such rapid growth in a country of 1.2 billion people rightly gets economists and market forecasters excited. India is emerging as a major automotive market in its own right, with indigenous companies, such as Tata and Mahindra, that are beginning to spread their wings in the international marketplace.
India is often compared to China as a hugely populous country with enormous economic growth potential, though there are significant differences between the two emerging market giants. For one thing, India is a democracy whereas China is not. China’s controversial political system may actually have helped it to achieve very rapid economic growth from a virtual standing start in the 1990s. Once Beijing had decided that economic liberalisation could go hand-in-hand with a one-party state, there followed a rapid and single-minded pursuit to create the right conditions to maximise economic growth. The situation in India is a little more complex with the need to build consensus across multiple interests.
But India’s long-term prospects are helped by favourable demographics. It has a young workforce – younger than China’s – and economists believe that the conditions for a long and robust economic upswing are being generated by the emergence of a new class of well educated entrepreneurs and a growing middle-class, with an appetite for consumption. That said, the need for more investment in India’s infrastructure is obvious if that economic potential is to be fully realised.
India’s macroeconomic performance has been particularly vigorous in 2010, with industrial production at a two-year high. Leading indicators—the production manufacturing index and measures of business and consumer confidence—continue to point up. Economic growth is projected by the IMF at 9.7% percent in 2010 and 8.4% in 2011 (forecast issued in October 2010), led increasingly by domestic demand. That represents an acceleration from 2009’s GDP growth rate of 5.7%.
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By GlobalDataThe IMF says that robust corporate profits and favourable external financing will encourage investment to continue strong growth. The rapid pace of domestic activity, evidenced by rising inflation, has led the central bank to increase the repo policy rate, in steps, by a cumulative 125 basis points – pointing to some cooling off of economic growth in 2011.
Vehicle market heading for record 2010
India’s automotive market achieved momentum as 2009 and 2010 progressed. As well as strong economic growth, car sales have also been boosted by easier access to consumer credit, plenty a product action and some aggressive discounting by manufacturers. According to JD Power, the Indian light vehicle market remains on track for a record year in 2010. The forecasting firm says that India’s light vehicle sales will increase to 2.66m units this year (2010), which compares with 2m units in 2009. Passenger vehicle sales should increase by 27% to 2.14m units in 2010.
By 2015, JD Power envisages an India light vehicle market of around 5m units a year, reflecting continued growth of the economy and real incomes.
On a seasonally adjusted annualised rate (SAAR) basis, the light vehicle selling rate in September was 2.8m units, with passenger cars at 2.3m units.
Like China, the domestic component of the country’s economic activity is rising strongly. However, inflationary pressures are building as economic growth quickens and after the weakest monsoon rains since 1972 hurt farm output, pushing up food costs. That means that interest rates will nudge upwards, potentially hitting consumer demand in 2011. But most forecasters are suggesting a gentle slowdown in 2011.
Vehicle sales hit new highs in 2010
As well as the underlying uplift provided by an advancing economy, car sales in India have been boosted this year by inexpensive loans and a plethora of new models from manufacturers, especially in the small car segments. Maruti Suzuki and Hyundai, India’s two top selling car brands, posted record sales in October 2010 as a strong economy continued to bring consumers into showrooms to buy new models ahead of the religious festival season.
Top seller Maruti Suzuki India said sales jumped almost 40% from a year earlier to hit a monthly record of 118,908 units in October. The company has a market share of more than 50% and broke its previously monthly sales record of 108,006 set just one month earlier.
The figures come as Maruti reported a 5% jump in quarterly net profit. Chief financial officer Ajay Seth said he believed the car market would continue to grow.
Hyundai Motor India also reported its best ever domestic monthly sales of 34,725 in October, up 22.7% over same month last year.
India’s largest domestic vehicle maker Tata Motors reported a 22.3% increase in its passenger vehicle sales to 24,478 units.
Strong sales have prompted the Society of Indian Automobile Manufacturers (SIAM) to increase its growth forecast for vehicle sales in this fiscal year to March 2011 to 18 to 20% from an earlier prediction of 13 to 15%.
The October 2010 sales marked the highest ever numbers in all large volume segments: The A2 segment achieved 77,502 sales vs the previous highest 68,921 units in September; A3 segment total was 11,621 (previous highest 10,883 units in May this year) and the C segment reached 15,379 against a previous high of 14,157 units in August.
Ford India is also reporting booming sales this year; sales in October reached 9,026 units, an increase of 161% over the same month last year. The locally-produced Figo (based on the last generation Fiesta) also passed through the 50,000 sales mark during the month as the company expanded its dealer network by opening new showrooms in Pathankot, Bengaluru and Nepal in the Indian sub-continent.
Year to date, Ford India has sold 72,078 units, an increase of 183% over the 25,386 units sold during the same period in 2009.
Small car focus
As India’s urban middle class grows, demand for cars in the A and B segments is rising. It is estimated that almost a third of small hatchback buyers are first-time buyers. Many manufacturers are looking to get into this area of the market, which also holds the prospect of retaining first-time owners who are new to the brand.
Toyota is typical. It is looking to enter the B-segment with the Etios sedan and add a hatchback on the same platform. Etios is expected to be launched in December 2010 in the Rs 4.5-7.5 lakh (USD10,000-USD16,000) range. Multiple body styles are selected to reinforce brand values (Toyota relatively high in the segment) and meet niche market needs.
Honda is planning an early 2011 launch for its small car, followed by Hyundai’s small car in mid-2011. Chevrolet is looking at rolling out Sail — expected to give Maruti Suzuki’s Dzire and Tata Motors’ Manza competition. Mahindra & Mahindra is planning a mini Xylo next year and a refreshed Logan.
A more crowded small car segment could present problems for new entrants if demand fails to keep pace; the existing established players could use their market clout to lower prices. Local analysts, however, are optimistic that the growing market can absorb the new entrants’ products.
General Motors adds engine capacity, eyes new models for India
GM’s local chief is bullish about prospects in India as he prepares to officially open a new engine plant next week. “We are bringing in four passenger cars and two commercial vehicles in the next two years in 14 fuel variants,” General Motors India president Karl Slym told just-auto in New Delhi at a vintage car rally organised to mark 100 years of the company. “We are also planning a model in the small car arena as well,” he added.
Chevrolet is gearing up to officially open its new engine plant in Pune.
“We will formally inaugurate the flexi-engine plant on 12 November in Talegoan, Pune,” Slym said.
The plant will manufacture 160,000 units a year and is the first GM facility to make both petrol and diesel small car engines together. Capacity can be increased by another 160,000 cars and 140,000 engines annually in a second phase to take total Talegoan output to 300,000 cars and 300,000 engines annually.
The company also plans to make its Halol facility its commercial vehicle hub.
“We are planning to invest US$250m more in the Indian market,” said Slym. This will be on top of the $1bn spent to date.
The automaker has developed local suppliers and awarded component supply contracts worth $500million. It plans to source components worth $1bn in the next two years for its global operations.
Slym is content with GM India’s performance year to date. “We have grown by almost 79% in the first 10 months of 2010 and are sure of surpassing the 100,000 mark this year,” he said. The company sold 69,500 units in 2009.
Fiat charts new strategy
As its partnership with Tata Motors failed to yield desired results, Fiat is charting out a new strategy to turn around its fortunes. The Italian car major plans to open exclusive company-owned brand stores in major cities. The brand stores would be an indirect way of starting its own retail format without involving Tata Motors.
Fiat has long been a laggard in the Indian market, despite having competitive products like Punto and Linea and failed to ride the boom in car sales. Alarmed, it is now taking steps to highlight the brand more aggressively.
The company, which has seen sales fall 8% in the first six months of this fiscal at a time when the overall car market boomed 34%, will open the brand stores, or “image points”, at Delhi, Mumbai, Pune, Chennai and Bangalore. It is thought that the stores will provide informal meeting points and display Fiat merchandise. While the stores will not sell cars – that remains the preserve of the joint Tata-Fiat dealerships – it is thought they will help in generating sales inquiries that can be passed on to dealerships.
Fiat has also hired global consultancy firm Accenture to suggest ways to improve its position in India.
Ford plans more models for India
After the success of the Figo in India, Ford says it is set to introduce eight new models from 2011 and is planning to set up a second plant in Chennai.
At present, the company manufactures 200,000 cars and 250,000 engines annually. The company will decide on the new plant in 8-12 months. The eight vehicles, Boneham said, would be spread across different segments, ranging from SUVs, crossovers to sedans and hatches. However, unlike the Figo, there will be no India-specific car.
Volkswagen reports buoyant sales across brands
VW Group has reported growth in deliveries to customers of 131.9% in the Indian market for the first nine months of the year. The group which sells three brands in India – Audi, Skoda and Volkswagen – delivered 32,359 vehicles to customers in the period, compared to 13,956 cars sold from January to September 2009.
The Volkswagen brand was the largest selling brand of the group in the period with sales figures of 15,957 vehicles against 2,201 cars sold in the corresponding period in 2009, a leap of 625%. Skoda sold 14,224 cars compared to 10,415 cars in the corresponding period in 2009, a growth of 36.6%. Audi reported growth of 63.4% selling 2,178 vehicles.
The best-selling car from Volkswagen was the Polo, which is manufactured in the Chakan plant, Pune, while the Jetta also performed well. The car was launched in India in 2008 and is assembled in the Volkswagen’s Group Aurangabad plant.
The best selling cars of Skoda in the first nine months 2010 are the Fabia and the Laura.
Audi A4 and Audi A6 were the best selling models in that range from January to September 2010. Both are assembled in Aurangabad plant along with the Audi Q5.
| Automobile Domestic Sales Trends | (Number of Vehicles) | ||||||
|---|---|---|---|---|---|---|---|
| Category | 2003-04 | 2004-05 | 2005-06 | 2006-07 | 2007-08 | 2008-09 | 2009-10 |
| Passenger Vehicles | 902,096 | 1,061,572 | 1,143,076 | 1,379,979 | 1,549,882 | 1,552,703 | 1,949,776 |
| Commercial Vehicles | 260,114 | 318,430 | 351,041 | 467,765 | 490,494 | 384,194 | 531,395 |
| Three Wheelers | 284,078 | 307,862 | 359,920 | 403,910 | 364,781 | 349,727 | 440,368 |
| Two Wheelers | 5,364,249 | 6,209,765 | 7,052,391 | 7,872,334 | 7,249,278 | 7,437,619 | 9,371,231 |
| Grand Total | 6,810,537 | 7,897,629 | 8,906,428 | 10,123,988 | 9,654,435 | 9,724,243 | 12,292,770 |
| Automobile Production Trends | (Number of Vehicles) | ||||||
|---|---|---|---|---|---|---|---|
| Category | 2003-04 | 2004-05 | 2005-06 | 2006-07 | 2007-08 | 2008-09 | 2009-10 |
| Passenger Vehicles | 989,560 | 1,209,876 | 1,309,300 | 1,545,223 | 1,777,583 | 1,838,593 | 2,351,240 |
| Commercial Vehicles | 275,040 | 353,703 | 391,083 | 519,982 | 549,006 | 416,870 | 566,608 |
| Three Wheelers | 356,223 | 374,445 | 434,423 | 556,126 | 500,660 | 497,020 | 619,093 |
| Two Wheelers | 5,622,741 | 6,529,829 | 7,608,697 | 8,466,666 | 8,026,681 | 8,419,792 | 10,512,889 |
| Grand Total | 7,243,564 | 8,467,853 | 9,743,503 | 11,087,997 | 10,853,930 | 11,172,275 | 14,049,830 |
