Though the Indian passenger car market and exports are coming under pressure from a variety of factors, including high inflation, rising interest rates, and currency concerns, it seems unlikely that Hyundai will be affected unduly in the short term given the current strategy it has in place, Global Insight auto analyst Ian Fletcher said in a research note.
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Hyundai said at the weekend it would turn its Indian operations into the global production hub for its second new small car, the i20, and would follow this with an additional US$250m of investment by 2013, details of which have not been announced.
“India is quickly becoming the global production hub for all of Hyundai’s new small vehicles, following the introduction of its popular i10 model late last year. This has helped the automaker expand its Indian sales further, surpassing Tata Motors to become the second-largest passenger car manufacturer in the country,” Fletcher said.
He noted that Hyundai Motor India (HMI) managing director Heung Soo Lheem told The Economic Times that the automaker wants “to use India as our small car hub”, adding that “our upcoming i20 model… will be solely manufactured in India”. He also told the publication that the launch of this model is scheduled for November and quashed reports that the Getz would replace it locally, saying, “We will strengthen our line-up giving more options to our customers.” No local prices have been announced for the new model, but Lheem told the newspaper that it will be priced a little higher than the Getz, which sells for between INR410,000 and INR590,000 ($9,575-13,780).
The Hindustan Times, citing a Hyundai spokesperson, said the automaker is to invest a further $250m in India by 2013, raising its cumulative investment in the country to around $1bn. He also said that the company has raised its export target for the current year to 240,000 units, against an earlier forecast of 212,000 units, with 150,000 of these Santro and i10 models, and the rest made up of Getz and Accent models.
Fletcher said Hyundai had become one of the biggest passenger car players in India since starting production with the Santro (Atos in other markets) around a decade ago.
“Partly as a result of this, its Indian operations have become of ever-growing importance, and they are now seemingly becoming the firm’s small-vehicle specialist. Although it has already exported many vehicles from the country in the past, the i10, launched in October 2007, is the first model for which the Indian unit is the sole focus of manufacture, rather than a satellite operation.
“This latest news confirms an earlier-announced company strategy for the i20 to move small-vehicle production out of South Korea, where these vehicles have a limited appeal and are also pressured by the comparatively high wages demanded by workers in the country and the fluctuating currency.”
He said Hyundai India has already completed a second vehicle manufacturing facility in Chennai that has raised its total capacity in the country to 600,000 units a year and this will be the primary location for the i20, which will be built alongside the i10.
The company has also more recently finished construction of a new engine and transmission facility that will expand its total output from 320,000 to 570,000 units.
“Another stage of vehicle production expansion could be in the offing if earlier reports of a new low-cost vehicle primarily for the local market are accurate,” Fletcher added.
“However, despite Hyundai’s decision to increase its focus on India, it could still end up facing the same pressures that are currently hitting other automakers in the country. These include a jump in the cost of fuel, which has pushed inflation up dramatically in recent times. In response, the Reserve Bank of India has increased interest rates, making credit either more expensive or impossible to get hold of for some, something that has hit the vehicle market hard since the majority of passenger car buyers in the country depend on financing to purchase vehicles.
“Strong demand for the newly introduced i10 has meant that Hyundai has largely been unaffected by these problems, but fluctuations in the local currency could reduce the competitiveness of this vehicle in export markets, the automaker having already expressed its fears on this score just after the model was launched.
“However, such a situation is unlikely to occur soon given that demand for the i10 is outstripping supply, while the i20 will not only be used to replace ageing models overseas, but also to bolster Hyundai’s range in India, as part of a strategy similar to the one that has made Maruti Suzuki so successful.”
