Indian car industry accelerates

Posted in India | 15-Dec-06 | Author: Siddharth Srivastava| Source: Asia Times

NEW DELHI - Prime Minister Manmohan Singh has lauded the Indian automobile and auto-components industry as a proud symbol of the success of Indian enterprise in this new era. Manmohan said the government will take necessary steps to turn India into a global automobile workshop.

Speaking near India's auto hub, Chennai, Manmohan said the automotive sector "has the potential to generate millions of jobs, which our youth need. The Indian automobile industry has, like a beautiful butterfly, come out of its protective cocoon and is showing its wares across diverse continents.

"What is more, it has done so with virtually no state subsidy or support. It has done so based on a transparent system of taxation, pricing and technology development. It has done so on the basis of domestic talent in design, marketing and brand building," the prime minister said.

This sunrise sector has grown impressively to carve out a 7% share in the global market, Manmohan noted. A government mission plan said Indian auto manufacturers are aiming for sales of US$145 billion in 10 years, up from $36 billion now, or an average of 16% annual growth.

Indeed, Manmohan has cause to be upbeat. This year could turn out to be the best for the Indian automobile industry, riding high on domestic and international demand. Between April and September, Indian companies sold more than 4.86 million vehicles, including cars, two-wheelers and commercial vehicles, in the domestic market.

For the April-September period in 2005-06, sales of domestic vehicles stood at 4.15 million, up 13.4% over the previous year. Prior to this, sales for the same period in 2004-05 were 3.6 million vehicles, a jump of 14.7%.

If these trends hold, industry observers have said, sales could touch 10 million by March for the first time, an annual growth rate of 20%. After China's, the Indian auto industry is the second-fastest-growing automotive sector, totaling about 8 million vehicles.

Some 1.1 million passenger cars rolled off Indian assembly lines last year, and the number is forecast to nearly double to 2 million by 2010, while scooters and motorbike sales are forecast to grow from 7 million to 12 million units in the same time.

"This will double the the industry's share of the gross domestic product to more than 10%, creating 25 million new jobs," Minister for Heavy Industries Santosh Mohan Dev said recently.

The last time the 20% growth figure was achieved was in 2000-01. Analysts say the boom is due to several factors, including overall economic growth, 8% excise-tax cuts in the budget for small cars and attractive discounts, loyalty bonuses, and exchange schemes offered by firms and dealers.

Said Maruti managing director Jagdish Khattar, "I'm not surprised by the performance. We have had two years of moderate growth, and last year's was single-digit. Plus, the excise-tax policy has paid off and if infrastructure is available, the dream of India becoming a small-car hub will also come true.'

India is still dominated by motorized two-wheelers (it is the largest manufacturer-exporter of two-wheelers), but passenger cars represent a high-growth segment.

Booz-Allen Hamilton and McKinsey have estimated that the Indian domestic market of 1 million passenger cars (with 70% small cars) will double by 2010 and cross 3.5 million by 2015. India is also likely to grab 3-4% of the global auto-components market ($700 billion) by 2015. Foreign direct investment is likely to touch $8 billion in the same year.

More than 50 new car models are expected to be launched in the next 12 months, the Society of Indian Automobile Manufacturers reports. "In recent times, new models have done very well, and people have come to believe that these are the most effective way to grab eyeballs," said Dilip Chenoy, head of SIAM.

France's Renault recently announced that it plans to build a plant in India with its Indian partner Mahindra and Mahindra to turn out half a million cars a year by 2012. India offers "important opportunities for growth and profitability", Renault chief executive Carlos Ghosn said as he announced that the plant would assemble the no-frills Logan car.

The company joins a number of big names such as US auto maker General Motors, Germany's Volkswagen and BMW, Japan's Suzuki and Honda, and South Korea's Hyundai that are stepping up their India plans.

Following on the heels of Renault, German luxury-car maker BMW has short-listed at least six models, including four from top-of-the-line 7-Series stables, to launch in the Indian market.

The 3-Series (at completely knocked-down prices) cars will compete against premium models such as the Mercedes-Benz C-class and Toyota Camry, while 7-Series (imported as fully built units) will take on rivals such as the Mercedes S-class and a slew of imported cars.

"Indian domestic vehicle sales are growing by double-digit figures, and when you compare that with anemic rates in the US and Europe, you see why they're coming," said Chenoy.

Among the new launches are: premium compact Chevrolet Aveo UVA, the compact Spark by General Motors, Grande Punto by Tata Motors, Getz diesel and a new compact by Hyundai, Swift diesel and the new Zen by Maruti Udyog, a new car by Volkswagen (Europe's largest car company, which is entering India), Fabia by Skoda, Logan by Mahindra-Renault and either Jazz or Fit by Honda.

There will also new offerings from DaimlerChrysler and its arch-rival BMW, which is going to build the 3- and 5-Series in India from next year.

Indeed, the trends continue to he positive. In October, India's largest car maker Maruti Udyog Ltd's top-selling 800cc hatchback Alto broke previous records to become the highest-selling car that month, with 22,294 units. Maruti sold an aggregate of 55,894 units, up 11% over 50,308 in the corresponding month last year. The company's other models, which drove up monthly sales, were the Swift and the Wagon-R.

In the same period, the second-largest car maker, Hyundai Motor India, notched total sales of 18,603 units, up 18% over 15,801 units sold in the same month last year; and General Motors India registered a 12% growth, selling 3,153 units as against 2,829 units in October 2005.

Ford India sold 3,336 units, up 142% over the same month last fiscal year. Riding on the Civic and the City, Japanese car maker Honda, Siel Cars India Ltd sold 5,566 units registering a growth of 343% from a low base.

Given the stiff competition, hatchback makers have announced big price cuts recently, with Maruti's new Zen, Santro Xing and Tata Indica in intense competition.

US-based consultancy Keystone has forecast that India will become the world's third-largest automobile market by 2030, behind China and the US. Over the next 25 years, more motor vehicles will be sold than in the entire history of the industry, the report says. The projected size for China is 62 million, US 23 million and 20 million for India. By 2017, India's auto market is projected to surpass Japan's.

Siddharth Srivastava is a New Delhi-based journalist.

Siddharth Srivastava is WSN Editor India.