Automakers from across the globe are looking at India wide-eyed, with the hope that they can firmly establish themselves in the Indian market before it emerges as the next China. But is there really any comparison?
In our conversation last month with Karl Slym, MD, GM India, he pointed out a few telling figures, “1.3 billion people in China, and 1.3 billion in India. The market for commercial vehicles and passenger cars together last year in India was about 2 million in the whole industry. Conversely, GM sold nearly 1.2 million in China during the same period, so it just shows you the huge difference.” And that doesn’t tell the whole story. Up until very recently, it was believed that China would take a number of years before it could surpass the US as the worlds’ largest car market. Well, looking at current levels of monthly sales, it appears that China may have already done just that. Sales in the US have fallen from 16 million passenger vehicles a year to around 10 million (based on current monthly sales) – a monumental drop that’s effectively caused the bankruptcies of both General Motors and Chrysler. Monthly sales in China, on the other hand, already point to a market size of 11 million cars on an annual basis in 2009 – that’s 20% higher than 2008 and, believe it or not, 20 times that of just 10 years ago. To put that even further in perspective, this is at a time when car markets the world over are in decline, and, at best, clinging to hope that there’s some light at the end of the tunnel.
So, where does that leave India then? With a market size of a just about a million-and-a-half, and growing slowly at the moment, your first reaction would be ‘nowhere.’ But it’s not as simple as that. Karl Slym, once again, gives us a manufacturers’ perspective, “In terms of market saturation, America has 850 cars per 1,000 people, India has 8 cars per 1,000 people, and China has 17-18 cars per 1,000 people. So on a saturation basis, India’s got a long way to go to catch up.” In addition, the macro factors are in our favour, such as a stable government, growing economy, increasing disposable incomes, and favourable age demographics – all of which makes India very exciting and important for the future of any manufacturer.
However, while all of that may well be true, the reality is that carmakers from across the world are hampered by the lack of infrastructure in the country. As Karl Slym once again pointed out, “I think the difference between China is that the infrastructure has paved the way for industry to develop. In India, the industry is here, tugging along the infrastructure.” Consequently, Hyundai recently announced that they plan to shift production of the i20 for the European market to a location in Eastern Europe from their Sriperumbudur plant near Chennai, which was meant to be the export production hub for both the i10 and i20. And the reason they’ve cited, primarily, is high logistics cost – resulting from a lack of suitable infrastructure. In fact, there was a report published recently which pointed out that, despite the upgrades planned to the Chennai port, its capacity would still be woefully inadequate in light of the Governments’ aim of making India a small car manufacturing hub.
All is not lost however – there is good news at both ends of the market. At the volume end, Maruti is recording record sales and profits while its parent is struggling at home and in the US. In fact, Maruti Suzuki, which contributes up to 30% of Suzuki’s profits, recently surpassed Suzuki North America in terms of revenue for the first time – of course that’s largely because Suzuki’s sales in North American have taken a nose dive like never before. And at the premium end of the market, Jaguar Land Rover, which recently opened its flagship showroom in Mumbai, is reporting that they’ve sold about a car a day since their launch, which is very impressive considering that their cars and SUVs range from a fairly steep sixty lakhs to a stratospheric ninety lakhs.
At the end of the day, there’s no denying that the Indian market is only headed in one direction, and that’s up. However, to reach its true potential and really make a mark on a global scale, it depends on just how quickly the Government and industry can combine to eliminate any and all inhibiting factors.
