India is a relative newcomer to the motor show game. This year’s Auto Expo, held at New Delhi’s Pragati Maidan showground, is only the country’s seventh ever. But with the economy now opening up and growing fast, there’s renewed optimism about market growth prospects in India. That was underlined by the presence at Auto Expo of a number of new models that will be launched onto the market in 2004. But there are also hopes that India will become a global hub for small car manufacture and components outsourcing. David Leggett reports.
More than a million visitors are expected to visit the Auto Expo show in New Delhi as interest in autos hits a new high in this emerging market with potential. The population is large and car ownership is low (6 cars per 1000 people; two-wheelers are only at 28 per 1000). Two-wheelers dominate the motorised transport scene but if economic growth continues, many of them will be looking to upgrade to low price cars. And the search continues for the product that will tap into that huge reservoir of potential vehicle demand.
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Even the deputy prime minister Mr Lal Krishna Advani made a point at the Auto Expo inauguration ceremony of referring to the domestic industry’s challenge to build a Rupees 100,000 (Rs 1 lakh) – or 2,000 euro – car for the Indian market. Tata Motors is working on an exploratory project, but any such car is a fair few years away and will require some revolutionary thinking.
But the Indian domestic industry’s emphasis on small cars seems set to continue, with CBU (Completely Built Up units) importers tapping niche demand for luxury models and some looking to set up assembly operations. And Hyundai Motor is already using India as a base for the export of small car CBUs to Europe (Atos Prime model – projected export total for 2004 is 65,000-70,000 units).
Mr Advani also urged India’s automotive components industry to partner with overseas firms and make India a platform for outsourcing as well as a global R&D hub. India’s competitive strengths are many-fold but low-cost skilled labour is a major one. Automotive component exports are already growing strongly and expected to reach US$1 billion in value by 2005. The Indian component manufacturers’ trade association (ACMA) expects that to grow to US$2.5 billion by 2010. A free trade agreement reached with Thailand will be helping. But the Indian automotive components industry is highly fragmented and some rationalisation looks inevitable, along with more foreign investment if international competitiveness is to be sustained along with movement up the automotive value chain.
Deregulation, reform and economic growth
Don’t be fooled by India’s impressively high rate of economic growth (currently running at near to 7% per annum). That’s not the whole story. India is changing and for the better, but from a global ‘doing business’ perspective there’s more to do. Bureaucracy, red tape and corruption are still a fact of economic life in a country that is only gradually breaking free of a post-independence legacy of tight state control and economic regulation. For decades, Indian industry was sheltered from overseas competition by high tariffs on imports and rules that restricted foreign entry. Economic policy was geared towards self-sufficiency and import substitution with little attention paid to international trade.
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By GlobalDataEconomic reform in India began in earnest in the early 1990s and has included a wide range of measures including some privatisation, banking reforms and tax cuts. It has also included measures to increase trade and become more WTO compatible as well as remove restrictions on foreign direct investment into India. Several sectors have been opened up to foreign participation under liberalisation measures and that has contributed to an expansion in output of consumer durables, electronics, cars, scooters, computers and white goods. Heavy industry remains largely publicly owned and the continued predominance of state-owned enterprises, for example, in the financial sector, is seen as a long-term growth constraint.
After a prolonged period of under-performance, India’s economic growth rate is currently accelerating to a level comparable with China. In fiscal year 2002/03 economic growth reached 4.3%. The Reserve Bank of India has recently revised its forecast for GDP growth in fiscal 2003/04 to 6.5%-7%. A strong recovery in the agricultural sector (helped by a good monsoon) is proving to be a driver along with strong growth in the IT area and construction activity. Some two-thirds of India’s population work in agriculture and the sector, along with forestry and fishing accounts for around 25% of India’s GDP. The services sector in general is growing fast and benefiting from global outsourcing trends. Services account for around half of India’s GDP.
Improving GDP growth in the US should also help increase overseas demand for goods and services overall. The IT industry and the service outsourcing sector in particular have grown at break-neck speed over the last few years, as companies in the West have moved to take advantage of India’s low wages to improve their own competitiveness. Goldman Sachs has forecast that the Indian economy will become the world’s third largest (after the US and China) by the middle of this century, provided economic liberalisation continues. And the Indian consuming ‘middle class’ is said to be growing at around 17 million people a year – a solid bedrock for automotive future demand.
Despite an increase in government borrowing, interest rates remain low in historical terms. Foreign exchange reserves are surging, bolstered by strong exports, especially in software and the Bombay Stock Exchange’s Sensex continues to rise, driven by foreign institutional investors.
Infrastructure in India remains poor by international standards but is improving. One of the most ambitious projects is the ‘Golden Quadrilateral’ highway project. Work started on the 5,850 km plan to link New Delhi, Mumbai, Chennai and Kolkata with four and six-lane highways in 1998 and is said to be progressing on time and to budget. More widespread investment in road infrastructure in rural areas connecting small towns could lead to a big upsurge in car demand during the 2010s.
Government policy towards auto industry freed up too
An auto policy announced in 2002 by the government has opened the automobile sector to 100% foreign direct investment and removed the minimum capital investment requirement for fresh entrants. There have also been excise duty concessions to small cars, multi-utility vehicles and low emission vehicles. The policy is aimed at making India a major global hub for the manufacture of small cars as well as a global supplier of components. There are also new incentives to facilitate more R&D activity in India.
India’s ‘Big Three’ focus on affordable small cars
India’s light vehicle market is dominated by three players – Maruti Suzuki, Tata Motors and Hyundai. The three of them combined account for around 75% of the market and each has a budget small car as its top-selling model (Maruti 800, Tata Indica and Hyundai Santro). Indeed, the Indian light vehicle market is heavily skewed towards entry-level models – a segment in which the Maruti 800 continues to reign supreme. The ubiquitous 800 is what the millions of Indian motorcycle and scooter owners aspire to – at least as their first step in the four-wheeler market. On its own this model still accounts for a fifth of light vehicle sales.
Maruti Suzuki has consolidated its position in attracting first-time buyers with improved nationwide distribution and a highly successful consumer finance tie-up with the State Bank of India (9,000 branches across India). Maruti has also been busy working on its dealer base, expanding the number of salesmen from 2,500 to 5,000 over the past few years. There’s also a new emphasis on training and things like CRM, in part a response to more intense competition in the marketplace generally. The Maruti 800 and the Suzuki Carry window van based Omni have a customer-base that is made up of first-time buyers to the tune of 70%.
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The evergreen Maruti 800 is still No. 1 in the market |
Maruti 800’s long-term future uncertain
There has been speculation that Maruti 800, based on a 1980s Suzuki Alto, could be dropped from Maruti’s line-up, but excise duty reductions and better nationwide distribution have given it a new lease of life. It is the market’s top seller by a considerable margin (see table below). However, a decision on whether to invest in keeping the model going or drop it and re-position the Alto or Zen as Maruti’s entry-level model needs to be taken by the end of 2004 (in advance of tougher safety and noise standards). If the necessary investment is made, the Maruti 800’s lifecyle could be extended to 2010.
Tata Motors fills out Indica platform-based product range
Tata Motors’ big car launch at Auto Expo was the Indica-based Indigo Marina. Reviving the Marina name once used by British Leyland’s Morris brand, the Tata Indigo Marina is an estate car (station wagon) based on Tata’s Indica small hatchback. The model was well received by local press representatives and opens a new segment in the Indian car market. Tata also showed a facelifted Indica model – V2 – at Auto Expo. In addition, Tata is also planning an ‘Indica Sports’ model and a replacement for the Sumo budget SUV. Tata Motors’ claims that it has an international competitive advantage over other vehicle makers in being able to fund product enhancements and new models at relatively low development cost. Dr V. Sumantran told just-auto that the development cost for the Indica model was around US$100 million while comparative international benchmarks would be US$500 million to US$ 1 billion.
Tata is also planning a sub-Indica model which the company would aim to make the cheapest car available in India, although it is described as an ‘exploratory project’. The new model is expected to be priced between a two-wheeler and existing small cars with the aim that it would retail at Rs 100,000 (Rs 1 lakh or approximately 2,000 euros). Tata Motors’ executive director, Dr V. Sumantran, told just-auto that such a car needs to be developed with revolutionary techniques and new materials.
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Tata Motors’ latest Indica V2 | Indica-based Indigo Marina was unveiled at Auto Expo |
Luxury segment seeing growth from a low base
Can there really be more dollar millionaires in the metropolitan Mumbai area than in central Manhattan? It’s just one of those things you hear about the consequences of India’s large population and a fast-growing economy. Certainly there is a growing market for luxury brands and goods. And that includes cars. A number of new models for the Indian market were unveiled at Auto Expo. One that caught the eye of the local media was DaimlerChrysler’s Maybach luxury limousine, which is rumoured to already have around five orders from customers in the Mumbai area. DaimlerChrysler said that it sold 1,581 Mercedes-Benz cars in India in 2003 – an increase of 30% on the previous year. But even Mercedes-Benz concedes that growth will be slower off that higher base in 2004.
Bentley also said that it would be launching the Continental GT and said that there were fifteen confirmed orders for the car. But analysts say that the luxury end of the market will remain a relatively low volume – if profitable – niche for certain manufacturers, while the ‘exponential growth’ focus will be firmly on more affordable models and segments. The high-end products are widely seen as part of a strategy to build brand names.
At Auto Expo Audi said that it will import the TT Coupe to India later in 2004 and that it hopes to start assembly operations in India eventually. The company has set up dealerships in three major metro areas and also hopes to add the A4 and A6 to its Indian product portfolio. Those models will most likely be added in 2005. In terms of an eventual assembly operation, it is planned that Audi will share a facility with Skoda. Skoda began assembly of the Octavia in 2001. A final decision on Audi-Skoda Indian operations is expected by April 2004.
Skoda is introducing its Superb model to India in 2004, hoping to tap demand for ‘affordable European luxury’. The car is expected to sell at around Rs 25 lakh, which compares to around Rs 35 lakh for the Mercedes-Benz E-class. Skoda believes that the time is right to add models and capitalise on a favourable brand image, especially among the newly affluent and young middle class IT industry-based consumers who are emerging in places like Bangalore. Mercedes-Benz is considered to have a more staid image than Skoda. However, introduction of the entry-level Fabia is considered more problematic as it will need to be made locally and have very high local content in order to achieve a suitably low price point. Skoda is reportedly involved in discussions with local suppliers.
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Interest was high at the large Mercedes-Benz stand in the ‘German hall’ |
It is understood that plans for the Volkswagen brand to enter India have been put on hold, in part due to Skoda’s success. Skoda is aiming to sell some 8,000 units in India in 2004, against around 5,500 units in 2003.
GM looks to exploit GMDAT connection in India
General Motors‘ strategy for the Indian vehicle market centres on using the products of its South Korean subsidiary GM-Daewoo (GMDAT) to increase market penetration. GMDAT has said that it sees its competitive advantage over other makers in terms of cost as making its products especially appropriate to low price emerging markets such as India. GM India already sells the Daewoo Nubira/Lacetti as the Chevrolet Optra and the Matiz, sold as Chevrolet Spark, is expected to follow early in 2005.
Vehicle exports picking up
Vehicle exports from India are in an upswing that looks set to continue. Europe, the Middle East and some Asian markets are among the main targets, both for parts and for CBU vehicles. On the vehicle side, Hyundai Motor, Tata Motors and Maruti are leading the way. Hyundai Motor has decided to make India its global production hub for the Santro (Atos Prime) model, shifting production from South Korea. Hyundai exports to Europe amounted to 30,000 units in 2003 and exports of 70,000 units are targeted for 2004. Shipments to markets in Latin America are also increasing and Hyundai is said to be considering making India a global production hub for a 1.1 litre engine too.
Tata Motors’ export push is being led by its MG Rover supply deal. The company has already shipped some 5,000 units of the Indica-based cars which are badged CityRover. The current agreement envisages around 20,000 units per annum being shipped to the UK. The Indigo Marina estate is tipped to be added to the CityRover deal at some point over the next two years. Tata Motors is also commencing sales of its Indica model in mainland Europe this year, raising the possibility that it will appear in some markets next to the CityRover if MG Rover chooses to sell that model in Europe (which it is entitled to do under the two companies’ agreement). Tata Motors is also in talks with Iran Khodro about assembling the Indica in Iran for the Iranian market.
Maruti says that it is targeting exports of 50,000 units in fiscal 2003/04 against 40,000 units sold overseas in the previous fiscal period. It exports to Europe and some Asian markets. Mahindra & Mahindra has launched its Scorpio SUV on the Italian market where it is sold as the Goa. Ford India ships around 3,000 CKD units of its Ikon to South Africa and Mexico every month.
Component industry looks to global outsourcing for growth
As the Indian vehicle production industry has grown, so has a domestic supplier industry. And the global auto industry’s search for lower cost and more international outsourcing has led to a sharp growth in component output and exports in recent years. GM, Ford, DaimlerChrysler and Toyota see India as a cost competitive base for parts sourcing. Among Tier 1s, Delphi, Visteon, Bosch, Cummins and Denso have operations in India.
DaimlerChrysler recently said that its India’s auto component exports to DaimlerChysler rose 12% year on year to €72 million last year. “The auto component exports by India to DaimlerChrysler is a result of the company’s strong partnership with major Indian auto component makers, such as Bharat Forge Co.,” DaimlerChrysler India chief executive Hans-Michael Huber said. Bharat Forge now claims that, following its recent acquisition of Carl Dan Peddinghouse in Germany, that it is the world’s second largest forge company. Bharat Forge is also said to be set to buy capacity in China and India’s auto component trade association – ACMA – has lately taken to playing up the potential for Indo-China supplier tie-ups in the future. But at some level Indian and Chinese suppliers are in direct competition for available global outsourcing business. The Indian industry likes to stress its high skill base and the sophistication of its IT industry in addition to low cost, as international competitive advantages.
One thing that could be crucial to shaping the future development of India’s supplier industry is India’s participation in free trade frameworks. The South Asia Free Trade Area, the India-ASEAN free trade agreement and the India-Thailand FTA present India with opportunities to gain further scale economies as well as reinforce a growing internationalist outlook. The Thailand connection could be particularly important, with bilateral trade and investments between these two major automotive players accelerating in a mutually beneficial manner.
Major model launches for 2004 | |||
| Manufacturer | Model | Expected price* | Expected launch date |
| Audi | TT | RS 33 Lakh | October 2004 |
| Hyundai | Accent | RS 5-7 Lakh | June 2004 |
| Hyundai | Getz | RS 4.6 Lakh | November 2004 |
| Hyundai | Elantra | RS 9 Lakh | July 2004 |
| Nissan | X-Trail | RS 20+ Lakh | June 2004 |
| Skoda | Fabia | RS 8 Lakh | November 2004 |
| Skoda | Superb | RS 25 Lakh | May 2004 |
| Tata | Indigo Marina | RS 5.5 Lakh | October 2004 |
| *Note: 1 lakh = 100,000 rupees; 1US$ = approx 45 rupees at current exchange rate | |||
Light vehicle sales by make | ||||
Calendar years | ||||
| Make | 2002 | 2003 | %ch | 03 Share |
| Maruti Suzuki | 328,200 | 392,074 | 19.5 | 44.6% |
| Tata Motors | 99,153 | 144,816 | 46.1 | 16.5% |
| Hyundai | 100,578 | 120,291 | 19.6 | 13.7% |
| Mahindra & Mahindra | 63,568 | 86,642 | 36.3 | 9.9% |
| Toyota | 25,215 | 39,949 | 58.4 | 4.5% |
| Ford | 15,440 | 18,987 | 23.0 | 2.2% |
| Honda | 13,020 | 16,733 | 28.5 | 1.9% |
| HM/ Mitsubishi | 20,937 | 15,599 | -25.5 | 1.8% |
| General Motors | 7,982 | 15,155 | 89.9 | 1.7% |
| Fiat | 31,815 | 11,909 | -62.6 | 1.4% |
| Bajaj | 5,698 | 9,466 | 66.1 | 1.1% |
| Skoda | 5,084 | 5,527 | 8.7 | 0.6% |
| DaimlerChrysler | 1,024 | 1,497 | 46.2 | 0.2% |
| Total Sales | 719,019 | 878,654 | 22.2 | 100% |
Source: Industry sources | ||||
Top twenty light vehicle models by 2003 sales | |||
Rank | Make | Model | 2003 Sales |
1 | Maruti Suzuki | 800 | 170,624 |
2 | Hyundai | Santro | 93,854 |
3 | Tata Motors | Indica | 77,309 |
4 | Mahindra & Mahindra | UV’s | 63,814 |
5 | Maruti Suzuki | Zen | 62,699 |
6 | Maruti Suzuki | Omni | 53,807 |
7 | Maruti Suzuki | WagonR | 43,212 |
8 | Maruti Suzuki | Alto | 42,163 |
9 | Toyota | Qualis | 30,734 |
10 | Tata Motors | Sumo | 25,799 |
11 | Tata Motors | Indigo | 25,748 |
12 | Hyundai | Accent | 25,002 |
13 | Mahindra & Mahindra | Scorpio | 22,828 |
14 | Ford | Ikon | 18,628 |
15 | Honda | City | 14,367 |
16 | Tata Motors | 207 | 12,462 |
17 | HM/ Mitsubishi | Ambassador | 11,625 |
18 | Maruti Suzuki | Esteem | 11,122 |
19 | Fiat | Palio | 9,990 |
20 | Bajaj Tempo | Trax | 9,466 |
Source: Industry sources | |||
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