Tuesday, January 25, 2011

India becomes world's 3rd largest SMALL CAR MANUFACTURER

It is 2011 now. Try watching any old Hindi movies of 70's and 80's. You will notice 2 standard cars on an average - Ambassador and Fiat. These were the only 2 cars one could possess until the entry of Suzuki (Maruti) in 80's. Thanks to Sanjay Gandhi and Indira Gandhi. He insisted that a common man must have a car and Indira Gandhi allowed for the collaboration of Suzuki with Indian govt thus creating the first auto revolution in India.

Post liberalization, auto production has been growing, but in the latter half of the 2000 decade, car production has tremendously increased. Today, on Indian roads, you will find an amazing variety of cars from Maruti to Nissan, from Volkswagen to BMW. The people have so many choices that if you still possess the Maruti Esteem, please think of synchronizing with the market. It is very old to have it!!

Have a look at some incredible statistics: (Source1 and Source2).

There are about 13 foreign companies (BMW, Fiat, Ford, GM, Honda, Hundai, Benz, Mitsubushi, Nisan,Toyota etc), 6 domestic companies (Tata, Chinkara, Mahindra, etc) involved in car production in India thereby heating up the market.

Car manufacturing total units as per 2009:(Source)

  • Cheap and skilled labor. Almost 10-15% costs lesser against US and Europe - a huge gain for multi national companies
  • Huge market size.
  • The Auto Policy of 2002 that allows foreign companies to directly assemble/manufacture cars instead of collaboration route with local companies which China mandates.
  • Volkswagen, Hyundai, Nissan, Mitsubushi are investing in heavy R&D (research and development) to develop small cars customized to Indian roads. Huge job opportunities to people.
  • Hyundai cars made in India are a huge hit in Russia, Taiwan, Latin America and Africa.
  • Indian tractors are a huge hit in the US.  US is still the largest market for Indian tractors.
  • Pune has emerged as the hub of research of tractors mainly led by Mahindra and Mahindra and Deere
  • The Govt's new policy of emission standards - Bharat Stage III that is pressurizing car manufacturers to produce fuel-efficient and low emission output cars.
  • The growing number of RURAL PEOPLE PURCHASING CARS. It shows signs of a growing urban class.
  • An urban middle class of 300 million - almost 1/3rd of the population.
  • Banks making car loans easier - from 17% interest rate to 13-14% interest rate. (It is now bound to increase because of inflation).
  • Reduced costs of raw materials - almost 11% cheaper than US or Europe.
  • Lower manufacturing tax (8% excise duty).
  • Small cars suit most people because of crunching parking spaces and suits most middle class homes with respect to price/cost.
  • Unlike China which has been always having issues with non-safety components, The Auto Policy of India ensures that the foreign companies are putting the best practices and components in cars. Shocked about China...It is true....This is from CHINA DAILY newspaper
  • The cost of steel in India is one of the cheapest in the world.


Between 2008-2010 when the Europe and the US car companies where drowning in recession, India overtook China in car exports. Which means cars manufactured in India were exported in huge numbers than China. Here's the bloomberg report and times of india news confirming this. The biggest bet India has taken is that people will continue to buy small cars and hence the demand will always be there. However, we don't know how far will we go, though the future looks optimistic. The rising inflation which is burning the pockets of the common man, and huge deficit in city roads (highways are expanding) are continuing to be show stoppers for zooming car sales.

A bloomberg report which was published in Sept 2010 says that in less than 10 years sales of Mercedes Benz in India is going to be that of U.K as the growing number of millionaires are on the rise in India.

Hynudai exports 50% of its cars produced in India. It's i-20 and i-10 models are a huge hit overseas. Even several models of Maruti are being produced only for the purpose of exports.

Nissan expects to export 250,000 cars by the end of 2011. Fiat is planning to get $1 billion worth of auto components from India.

Britain, Italy, Germany, Netherlands and South Africa are countries that received exports worth $4.5 billion last year. This year it is expected to jump to $12 billion.

TATA NANO makes headlines in the US and forces China to invent such a vehicle.

Tata Nano is truly India's invention. With almost 10 patents in its favor, Nano is making inroads. However, due to the entry of many other companies giving several luxury features in cars, and production not matching the demand quickly, Nano sales have been going down. The management is aggressively marketing Nano by offering a lot of incentives and warranties.

Looking at the new research output which India has given to the world, China invented a similar one - Jiangnan Alto in Aug 2010.


Mahindra and Mahindra and Tata are truly most successful indigenous car production companies of India. The new electric car by TATA INDICA called VISTA is a huge hit in Bangkok. It promises 200 km on a single charge and acceleration of 0 to 100 km in 10 seconds. Nano, Vista and Indigo Manza are being exported to Mexico, Brazil. The order is for 100,000 cars. The demand may go up to 300,000. Here's the livemint article.

Mahindra's diesel trucks are going to hit US roads - Made in India, Drive in America. As it is tractors are the largest exported item to US market. The target is to capture at least 5% of US market. If this happens on a full fledged scale, it is a huge phi-lip to Indian auto industry.

Mahindra's jeeps run on ITALY's roads. Click here for the picture.

But, what is the share of India's exports on a global scale?

It is 1%, which is a very small number, but in less than 5 years, the industry expects to go up to 3% and if that happens then the expectations would be beaten and not just met.

Future Outlook:

The future of auto industry is very positive. Just to gauge this statement, look at the following developments happening. The list below is just some. Many more will happen.

Challenges before India's auto growth
  • It is very important that production of components keeps pace with demand. 
  • Power supply shortages
  • Infrastructure bottlenecks
  • More emphasis on R&D and management skills
  • Customer service skills and more customer friendly measures/discounts.
  • More emphasis that needs to be given to safety and fuel-efficiency.
  • It is very important that Indian auto industry starts investing in bringing more hybrid vehicles, vehicles which run on green energy. This is very crucial.
What are the bad effects of such an unprecedented growth?

  • Because of such an exponential growth, the number of cars on the road have increased leading to traffic mess in cities.
  • The traffic management is getting more challenging.
  • More parking spaces and open areas are required which puts a lot of stress on cities and highways.
  • Safety could be a big issue if the small car manufacturers do not take adequate measures to suit Indian roads where driving is a hell.

This booming auto industry is changing the economic landscape of India. Aurangabad was a sleeping city in the past decade. Now with BMW setting up plant, Aurangabad is booming. So many malls are being set up, apartments are being built, real estate is heating up, jobs are being created.

Another example is how Kanchipuram has changed. Earlier known for temples and sarees, it is now a huge production base for Hyundai. Read this BBC article that captures the details of this news item where 300,000 cars are produced annually.

Chennai has become DETROIT OF INDIA. Chennai is home to
  • 5 global car majors production facilities.
  • 2 commercial vehicle production facilities.
  • 3 earth moving companies.
  • tyre major and 100 major auto component manufacturing companies.
  • 1.28 million cars are produced from this city (in the region Tiruvalluvar to Maraimalainagar)
  • It is home to National Automobile Testing center.
Another interesting newspaper article is NEW YORK TIMES - MORE CARS COMING FROM INDIA.

According to industry experts, 22 million jobs are created till date because of the growing auto industry. Halol in Gujarat has now become the new industrial hot bed after Nano plant has been set up. Many more companies are targetting the same place to compete with Tata.

Tier-II and Tier-III cities are increasingly being penetrated so that car manufacturers can reach semi-urban and rural areas. 

At present 5% of India's GDP comes from auto sector which is significant with respect to industrial contribution which is about 20%.. 17% of Indirect taxes to Govt comes from this industry.

I hope that industry sets new benchmarks in automobile industry and become a major contributor to the Rising India story.

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