As other emerging markets decline, India is still seeing significant investment by global vehicle-makers
Vehicle-makers are stepping up their campaigns to crack the difficult Indian automotive market after the country became the most promising of the emerging BRIC nations following market collapses in Brazil and Russia and a cooling in China. Combined car, commercial and motorbike sales recorded their best year for five years at 19.7m in the 12 months ending March 2015, with cars rising 4% to 2.6m. Sales of medium to heavy commercial vehicles reversed a slump to climb 16%, to the relief of their makers, while sales of motorbikes and scooters were back almost at full throttle, rising 8% to just over 16m, according to the local manufacturers’ association, SIAM.
To sell in India, almost without exception you have to make in India, and production hit 23.4m cars, motorbikes and commercials in the 2014-15 financial year, up 9% from the year before to a five-year high. According to SIAM, the automotive industry in India now accounts for 7.1% of the country’s GDP and employs around 29m people. And there is still plenty of room for expansion; analyst IHS Automotive believes that car production will rise from 3.2m in financial year 2014-15 to 6m by 2020. Newcomers might be finding it tough to break the long-term stranglehold on the car market of Maruti Suzuki, which took a 45% share in 2014-15, but they still anticipate plenty of future growth.
Renault, for example, points out that at the moment car ownership in India is just 20 vehicles per 1,000 inhabitants, compared with 105 in China, 300 in Russia and 600 in Europe. In a country with a population of 1.25 billion – not far behind China’s 1.36 billion – that is an untapped market to attract any ambitious carmaker; Renault reckons it will hit 5m sales by 2020 and is aiming for a 5% share, up from 2% at present.
Renault has developed a new engine facility at the plant it shares with Nissan in Chennai, just one of many OEM investments
The French vehicle-maker has invested money in a new engine facility at the plant it shares with alliance partner Nissan in the automotive hub of Chennai, on the east coast – and it is not alone in piling in the investment cash. Honda, India’s fourth-largest carmaker in terms of sales with a 7% share, is plotting plant number three, this time in Gujurat, the western state which is vying to become the third automotive production hub after Chennai and Pune. The CEO of Honda India told news agency PTI in July that it had started buying up land in the state for a greenfield site. Back in March, Honda announced that it would invest a further 3.8 billion rupees ($59.6m) to increase the capacity from 120,000 to 180,000 units per year at its Takapura, Rajasthan plant, which was only opened in February 2014. Honda reckons it is the fastest growing car brand in India, based on its 44% growth in the 2014-15 financial year.
Maruti Suzuki has also said that it will expand by building a new plant in Gujurat, after admitting in June that it had no room to boost capacity at its two plants in Haryana state, which together can produce 1.5m cars per annum. Maruti sold 1.17m cars in the 2014-15 financial year, led by the evergreen Alto A-segment car but also the Dzire booted supermini, which in a rare event overtook the Alto in June sales this year to become India’s bestseller.
Meanwhile, Ford opened its second plant in March, also in Gujurat, to complement its Chennai facility and make the new Figo Aspire booted A-segment car. This new plant in Sanand pushes Ford’s investment in India to $1 billion and doubles its installed capacity to 440,000 vehicles and 610,000 engines.
Second-placed seller Hyundai will need another plant to fulfil its expansion desires, according to IHS Automotive’s Gaurav Vangaal, senior forecast analyst for the region, while long-time Indian player (and struggler) Fiat announced in July that it would build a Jeep plant with its joint venture partner Tata Motors near Pune. Production of an as yet unnamed model is likely to start in 2017.
Exports the key to success
The disparity between Ford’s Indian capacity and sales looks like madness – last year the brand sold just over 75,000 in the country, mainly its successful B-segment SUV the EcoSport. But Ford also sees India as an export base. Last financial year, Ford was the fourth-biggest exporter from the country with just over 81,000 units, ie more than its sales in India. The vast majority were EcoSports from the Chennai plant, with Europe being one destination.
Ford is now gearing up to export the new Figo hatch from its Sanand plant as the next Ka A-segment car, and earlier this year Ford CEO Mark Fields was quoted by the Indian Express as saying that he wants to triple exports from India within five years and expand the number of export markets from 37 to 50. “[We will] pitch for India as an export hub,” he said.
[sam_ad id=17 codes='true']Last year, the top exporter was Hyundai with 191,221 units, followed by Suzuki and Nissan, each shipping around 120,000. Exports are key to domestic success too, argues Vangaal at IHS, because it gives the economies of scale necessary to keep sticker prices low in price-obsessed India. “Look at what VW has done with Vento [a Polo-based saloon]; they were struggling, then they started exporting, and they’re doing much better,” Vangaal states. The Vento is made in VW’s factory in Chakan, near Pune, and the company exported around 55,000 units last year, mainly to Mexico. VW’s India sales in June this year were up 31% to just over 4,000 thanks to the success of the Polo and Vento, moving above Nissan and a struggling Chevrolet.
It is not only cars themselves that are a focus of export strategies; Honda, for example, wants the country to be a global parts hub too. In July, the president of Honda Cars in India, Katsushi Inoue, told news agency PTI that he wanted a 50% increase in exports of parts such as forgings, transmissions and engine parts made at its Tapukara plant, adding the US, China and Canada as destinations.
Meanewhile, Renault-Nissan’s CEO, Carlos Ghosn, admitted at the launch of the Kwid earlier this year that “India is not an easy market”. But he added that the rewards for succeeding will be huge: “If an affordable car succeeds in India with big numbers, it will be successful in whichever global market we launch it in.”