Posted by: qmaxim | January 31, 2010

Auto Expo 2010 and coming royal fight

Auto expo    concluded  recently in  New Delhi’s Pragati maidan is largest ever  so far in the venue &  is turning out to be one of the  largest in the world. Consider these facts : estimated  1.2 million visitors, 15 concepts, more than 100 global and local launches, 125,000 sq meters of space. It has reached  the  status of one of the big shows  among  peer shows such  as Detroit, Shanghai, Tokyo, Frankfurt.

Almost all the  major players were present, many of them made products launches and showed off concepts. These include new  car launches from  Maruti-Suzuki, Toyota , GM, Honda, Tata motors, Volkswagen, Hyundai, Fiat, Reva, Ford, Mahindra, etc. There was also announcements from Nissan, BMW, Bajaj and other major players.

Why so much enthusiasm from world’s biggest   car companies?

The reason is not far to fathom. In a scenario in which in  most of the global markets were showing a  drop or anemic growth,  India  with China have bucked  trend.  Both the markets have shown respectable growth. In fact, this year China will end up being the largest auto market in the world overtaking the United States.

Indian market  is expected to be 1.45 million cars this year with production expected to touch  four  million by 2015 by most industry estimates. This will make it one of the largest auto markets in the world. Export from India based manufacturers  have shown  significant increase over the previous year. Most of the exports are small cars to Europe. In fact, during the same period ,exports from other countries like China & Thailand showed a decline.

However, reaching these numbers depends on several things going right.

New plants have come up and some more are going to come up in the next few months. Recently, Volkswagen commissioned brand new plant near Pune spending over  500 million Euros. GM commissioned a new plant at a nearby location. GM claims that after 10 years in India it is set to make profit, one of two countries in the world   it is going to make profit this year. Tata motors’  iconic Nano car plant is expected to come online by last quarter of this year though it is already supplying cars from other plants. Hyundai is expanding capacity, and its  already a large player in India and in the export markets. Toyota  is expanding capacity as well in view of the impending  launch of small car. They are going to very careful indeed in view of quality issues they are elsewhere in the world which was primarily due to their scramble to become the largest car company in the world. Nissan is setting up new plant near Chennai mostly for exports.

The first  point  is that they would be able to commission the plants  on time without a hitch  which is not all that certain.  Secondly, they should get  looks ,features,  pricing , fuel consumption, ruggedness, cost of spares, advertizing etc  just right first time. That is almost everything should  be perfect!  Because, quite often there is  no second chance. Mahindra-Renault ‘s Logan – is case in the point, though car gave a good mileage, was easy to maintain and so on, it failed to make any impression.

Second point  is that they will be able to hold the cost. This would depend on cost of inputs namely Steel, Aluminium, Lead, and being able to reach the volumes  to reach the breakeven point. Price of all these  commodities have already started going up.

Another point is what used to be major selling point namely car’s foreign (pronounced as  phoren by many people in  India) name  is no longer a big selling point anymore & increasingly in foreign markets. Incumbent players like Tata motors, Maruti Suzuki  have been holding their own against new players. BMW which has been in India for fewer years but has sold more cars last year than Mercedes which has been here for more than 15 years. So, the fight is going to be not only between Indian players with phoren players but also going to be between phoren players.

Especially, for the new players it appears that  is going to be red ink for many years to come.

Most of the European entrants (& even Japanese  except for Suzuki) don’t have successful  small cars suitable for India and other developing countries. These are cars which sell for Rs 1- 3 lac. So, as of now  Tata Motors Nano which sells for 1.1 – 1.7 lacs  is going to have open field at least for next couple of years. Many like Toyota are developing cars targeted towards  countries like India with a very high local  content. Some of them are scrambling to form  alliances like Vokswagen’s with Suzuki for small cars. Nissan has formed alliance with Indian motorbike major Bajaj to design from scratch super economical a car  to compete with Tata Nano, but this  going to take couple of years.

Finally, Government ‘s so called economic  stimulation packages which gave a fillip for car sales for the last few months has to be wound down in the next few months as budget deficits have  reached  very high levels. Thought of this is making many  industry titans very nervous indeed.

So, indeed it is going to be battle royal for  the cars companies for  the coming months and years. But for others like for some in the print and electronic media for instance it is going to be time for  fun and celebration. The suppliers like metal producers are also  keeping their hopes high. But, it is not going to be no cake walk either as they have to produce special grades of materials suitable for car parts.

I will be pleased to hear your views

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