Its rush hour in India for global auto majors

A booming economy, changing tastes and rising disposable incomes have made
India a dream market for global auto players, one from which no one would like to
be excluded

By Sandeep Anurag

Cars have travelled a long journey from being a luxury item to a lifestyle statement. Till 1983, Hindustan Motors and Fiat used to produce between 30,000 and 40,000 cars per annum for the country's population of 70 crore. Today, individual car firm manufacturers do not sell less than 60,000 units per annum. All thanks to the Maruti 800, which changed the way to take cars to the mass market and attracted people from even the middle class with its economy tag.

One can feel the dynamic nature of the domestic car market with a fact that Maruti Udyog Ltd, a joint venture between Suzuki Motor of Japan and the Indian government, put the Ambassador and Fiat, once India's most popular vehicles, on the back seat and took the lead in the growth race with its small family car, Maruti 800. Today, Maruti 800, MUL’s bread-and-butter model itself appears to be ancient given the glut of new cars on Indian roads.

The M-800 is today is facing challenges from its elder sibling Alto (monthly sales average 11,000 units), as the former has been witnessing a continuous fall in its sales. The reason is simple — people are going in for upgradation given the choices galore and cheaper finance schemes in the market. Though home-made Ambassadors and small Maruti 800s still occupy substantial space on the roads, other models from MUL, Hyundai, Tata, Honda, Toyota, General Motors, Ford and Skoda, and scores of other versions have become the pride of Indian roads. This has happened because of the changing preferences and buying patterns of the consumers. ''Fuel efficiency and price tags are no longer the main deciding factors for the buyer,'' says Satya Bagla of Exclusive Motor, which deals in the Porsche and Bentley rang. Current trends also show how the auto market has graduated from small and compact versions to luxury and super-luxury models, with competition boiling in every segment. Periodical improvisation on all the existing models have become a norm to accelerate sales growth.

When the compact-sized segment, mainly represented by the Alto, Zen, Wagon R, Santro, Palio and Indica, was not growing up to the expectations of the car makers, Hyundai (Getz), Ford (Fusion) and Maruti (Swift) went for hatchbacks to enable this category to come alive. The Swift created the same euphoria among buyers that Maruti 800 had done 22 years back and it is currently on a roll against the Getz, which has hired tennis sensation Sania Mirza as its brand ambassador. The speeding growth has come as a result of a liberal economic regime during the past 15 years, which saw the rich becoming richer and the richer even wealthier. Consequently, those who had scooters or motorbikes are now buying cars and those driving small and inexpensive cars are upgrading to more expensive cars. These trends have pushed the sales of luxury cars like Hyundai Accent, Honda City, Toyota Corolla and GM Optra, and super-luxury vehicles such as Sonata, Accord, Camry, Vectra, Ford Mondeo and Skoda Octavia, all priced under Rs 25 lakh.

Indian buyers, however, have crossed the limit as far as price is concerned, with the result that companies like DaimlerChrysler has introduced the Rs 5-crore Maybach, while Porsche and Bentley have also rolled out their 'crore- pati cars'. The market for these high-end cars too appears to be on a roll, if one sees the number of bookings these global majors have attracted. Similarly, if multi-utility vehicles like Scorpio from M&M, Tavera from GM, Sumo from the Tatas and Innova from Toyota are ruling the roost, sports utility vehicles like Terracan, Ford's Endeavour, Honda CRV, Tata Safari, Toyota Prado and Mitsubishi Pajero have emerged as a new potential segment.

This indicates a promising future of the ‘great Indian car bazaar’, which is seeing a rush of new models, investments plans, capacity expansion and fresh facilities in the pipeline. In fact, most global players are planning to make India their manufacturing and export hub due to the availability of cheap human capital. The automobile segment is set to see investments worth nearly Rs 15,000 crore, with Maruti, Hyundai, Toyota and Mahindra & Mah- indra pumping in Rs 6,000 crore, Rs 2,600 crore, Rs 1,500 crore, and Rs 700 crore, respectively for new plants. These companies are set drive in 20 new car models in the next two years.

Market leader Maruti will launch five models over the next five years, with its diesel car hitting the roads by 2006. ''The low penetration rate of cars in India presents a tremendous opportunity for growth,'' MUL managing director Jagdish Khattar says, hoping that much of this growth will be in the entry-level segment, as the nearly 25 million Indians who bought two wheelers in the past five years upgrade to four wheels.

Its rival, Hyundai, is also readying to drive into the diesel segment, presently dominated by Tata Indica, with a 1.3 litre compact car — eM-Cee — to be positioned above the Accent to take on Honda City. It expects to launch the model within two years. Hyundai will also launch a variant similar to its hot cake Santro — Pa — which will be launched against the Swift in petrol and CRDi versions. ''Our plan is to gradually introduce the entire Hyundai global line-up in India,'' says Hyundai Motor India managing director Steve S Yang.

Toyota is understood to be pushing for a Rs 1,500-crore splurge to expand its operations in India as it plans to set up a second assembly plant and foray into the compact car market. The Japanese car maker wants to capture 10 per cent of the Indian passenger vehicle market by the year 2010. It is now also looking at entering the used car segment. Toyota’s A Toyoshima states: ''Entering the used car market is on our horizon. But we will take a firm decision on this only after studying the market potential.'' Small car manufacturers are also looking at making India the base for the global market. Toyota and Daihatsu plan to start making small cars by 2007. General Motors will launch Aveo this year and another small car in 2007, while Ford also has plans to enter the segment. Also, Tata Motors' Rs 1-lakh car could be out in three years. Finance minister P Chidambaram has also hinted that the government will drive down taxes on smaller and fuel-efficient cars. ''In order to encourage the small car makers, we will revisit the question of taxation on small cars.''

Besides small cars, global car firms have also lined up new models in the luxury segment by 2007, with GM planning to launch the hatchback version of its Optra by December and SUV Hummer in early 2007. Ford is launching its mid-sized sedan, Fiesta, in November and promises to launch one car every year to grab volume business. Similarly, Honda and Skoda are rolling out the Civic and the Fabia, respectively next year. Mahindra & Mahindra has tied up with French car-maker Renault to set up a plant at Nashik with an investment of Rs 700 crore for introducing Logan cars. These are expected to be priced between Rs 3-4 lakh and will be launched in February 2007.

Faced with sagging sales of its Lancer and Pajero models, Japan-based Mitsu- bishi is all poised to launch one new car/utility vehicle every month for the next four months. The Cedia — entry D segment sedan — will be launched in December with a price tag between Rs 25 and Rs 30 lakh. Also, to compete with Honda CRV and Hyundai Tucson, Mitsubishi is bringing in its SUV Outlander. Then, its multi purpose vehicle — Grandis — will be shipped into the country in March. Besides, it is planning to redo the Lancer. This is not the end of India's car journey as other players like BMW, Ferraris and Aston Martins are also eyeing the country. Given the cost-benefits, global automakers like BMW and Volkswagen AG, are moving their manufacturing operations to India. Czech firm Skoda also intends to make the Aurangabad plant its manufacturing and export hub for the South Asian region. GM to has similar plans. For Hyundai, India is the exclusive hub for exports of its Santro, while Maruti Udyog has been a sourcing base for Suzuki Motors for a long time.

All developments notwithstanding, there is still a long way to cover in order to make 'cars' a way of life in India. Tough road ahead!