Posted by: qmaxim | July 5, 2012

Indian auto industry at takeoff stage?

It has been a while since I wrote about Indian auto industry. Lot has happened since then. Auto industry is facing some headwinds. Scorching growth of the past has slowed down, reasons are many- slowing economy, high inflation, high loan payment rates, high petrol costs, policy paralysis in the government, etc.

However, industry seems to be optimistic about the long term prospects of the auto industry which is expected to be one of the largest auto markets in the world in the next few years. This is borne out by some of the recent developments.

Tata motor’s iconic Nano car seems to have recovered from the slump – sales per month has improved to 7500 cars from low of 500. Launch of new model, improvements in design, fixing the quality issues, better marketing and distribution seem to have helped. Exports have started , which should help the company reach breakeven point. Largest auto producer Maruti-Suzuki Motors is also planning to expand capacity and has finalised factory location in the Gujarat state. Company recently launched a 7 seater MPV called Ertiga (predominantly designed in India) which met with good success – bookings so far was respectable 40,000.

India is world’s second largest 2 wheeler market after China. Honda Motorcycle & Scooter India (HMSI) which makes Honda scooters and motorcycles is in aggressive expansion mode after separating from partner Hero Mototcorp (HMC). It has aggressively expanded distribution to rural areas and is in the process of ramping up production to reach 4 million / year from 2.4 million at present. It is setting up a green field factory in the southern Karnataka state. It is aiming to reach number two slot behind HMC which is the world’s largest 2 wheeler manufacturer. HMC is also scouting for locations to expand capacity. It also plans to increase exports significantly from current low percentage.

Perhaps the most important event was the building of a truck company from scratch by Germany’s Daimler. It will launch trucks of 6-49 ton capacity during qtr 3 from a brand new factory built at a location near Chennai. Trucks will have 85% local content and though build on Daimler platform will cost 40% less than in Europe. Trucks are expected to give 5-10 % better fuel efficiency at 10% additional cost as compared to competition. More importantly the trucks won’t carry Mercedes Benz name plate and would be called BharatBenz. The company spent years studying the market before launching so that it does not meet the same fate as the other foreign companies which tried to compete with market leaders Tata Motors and Ashok Leyland. According to Marc Llistosella CEO of the BharatBenz  Indian truck market will become one of the largest in the world in the next few years.

Some other trends are also becoming apparent. Both in 2 wheeler and car buyers are shifting to lower priced and fuel efficient vehicles. This is due to skyrocketing cost of Petrol and higher loan rates. To improve fuel efficiency of car companies are doing light weighting by material substitution for example Steel by Aluminium or Magnesium and sometimes even plastic. Other innovation are use of fuel injection in petrol cars instead of more expensive option like hybrid. One local company is working on an inexpensive hybrid and has working prototype. Large increase in amount of brain power in the form of software for most aspects of car control also helps in reducing fuel consumption. Number of lines of computer code even in a entry level car is likely jump from 10 million now to 40 million lines according to local companies involved in writing software for cars.

Due to falling Rupee, particularly higher end car makers are scrambling to build locally rather than simply assembling cars from imported subassemblies. Urgency to localise parts has increased a great deal. Some companies like Toyota (TKM) are planning to export cars to offset appreciating Yen. Huge price differential between Diesel and Petrol is making buyers shift towards Diesel cars.

Even some experts like for example an European  management consultancy focussed on auto space thinks that India will be the  third largest auto market in the world in the next 8-10 years. Will it be a reality?

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  1. […] TrueCar.coms Top 10 Most Fuel-Efficient CarsThe Half-Ton V6 Diesel Pickup: What America NeedsIndian auto industry at takeoff stage […]


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