May 28, 2023

Indian Automobile Market

The automotive industry in India is one of the larger markets in the world. It is also among the fastest growing automobile market. India’s passenger car and commercial vehicle manufacturing industry is the sixth largest in the world, with an annual production of more than 3.9 million units in 2011. The Indian automotive industry has called as a sunrise sector in the Indian economy. India is being estimated as one of the world’s fastest growing passenger car markets and second largest two wheeler manufacturer. It is also home for the largest motor cycle manufacturer and the fifth largest commercial vehicle manufacturer. India is expected to become the third largest automobile market in the world. In 2010, India beat Thailand to become Asia’s third largest exporter of passenger cars, only behind Japan and South Korea. According to the Society of Indian Automobile Manufacturers, annual vehicle sales are projected to increase to 4 million by 2015.

The foreign direct investment inflow for the automobile industry during the years between 2000 and 2012 is a staggering 7518 million dollars. It amounts to 4 percent of the total FDI India received. The rapid improvement in infrastructure, huge domestic market, increasing purchasing power, established financial market and stable corporate governance framework have made the country a favourable destination for investment by global majors in the auto industry, as per Automotive Mission Plan (AMP) (2006-16).Additionally, the introduction of alternative fuels like hydrogen and bio fuels needs to be promoted to ensure sustainability of the industry over the long term.The vision of AMP 2006-2016 aims India “to emerge as the destination of choice in the world for design and manufacture of automobiles and auto components with output reaching a level of US$ 145 billion accounting for more than 10 per cent of the GDP and providing additional employment to 25 million people by 2016.” In addition, the US-based car major, Ford aims to make India its export hub and plans to sell its products in more than 50 countries over a period of time. The company has committed a total investment of US$ 2 billion in India till November 2012

The majority of India’s car manufacturing industry is based around three clusters in the south, west and north. The southern cluster consisting of Chennai is the biggest with 35% of the revenue share. The western hub near Mumbai and Pune contributes to 33% of the market and the northern cluster around the National Capital Region contributes 32%. Chennai, with the India operations of Ford, Hyundai, Renault, Mitsubishi, Nissan, BMW, Hindustan Motors, Daimler, Caparo, and PSA Peugeot Citroën is about to begin their operations by 2014.  Gurgaon and Manesar in Haryana form the northern cluster where the country’s largest car manufacturer, Maruti Suzuki, is based. The Chakan corridor near Pune, Maharashtra is the western cluster with companies like General Motors, Volkswagen, Skoda, Mahindra and Mahindra, Tata Motors, Mercedes Benz, Land Rover, Jaguar Cars, Fiat and Force Motors having plants in the area. Nashik has a major base of Mahindra & Mahindra with a UV assembly unit and an Engine assembly unit. Aurangabad with Audi, Skoda and Volkswagen also forms part of the western cluster. Another emerging cluster is in the state of Gujarat with manufacturing facility of General Motors in Halol and further planned for Tata Nano at their plant in Sanand. Ford, Maruti Suzuki and Peugeot-Citroen plants are also set to come up in Gujarat. Kolkata with Hindustan Motors, Noida with Honda and Bangalore with Toyota are some of the other automotive manufacturing regions around the country.

The Indian automobile market is, clearly, going through tough times. Buyers have been targeted with attractive offers to try and induce them to make the purchase decision, good discounts; interest-free offers. Insurance is being bundled in free. Meanwhile, buyers of even popular models of sedans have discovered to their surprise that there is practically no waiting period which earlier they had to wait for many months. Recent reports have emphasised that the problem extends across companies, whether multinational or local. In December, Maruti Suzuki India predicted that growth for domestic passenger vehicles would be single-digit for at least a year and probably three; the firm cut its forecasts for sales from five million units by 2015-16 to four million. Following distress at its Manesar plant, it had announced that it would suspend production at its Gurgaon plant one day a month; it has now increased that period, citing mismatches between supply and demand and inventories piling up at distributors. Indeed, over the last financial year, the Society of Indian Automobile Manufacturers revised growth predictions downwards by three percentage points, and said the fall was even steeper, with the biggest decline coming in February. In some ways, the worst hit is Tata Motors – in February its domestic sales declined by 62 per cent year-on-year

Many reasons are there for the slowdown in demand. One is that the global slowdown is finally beginning to hit even middle-class consumption, which has so far been immune. More hopefully, many buyers may believe that an interest rate cut from the Reserve Bank of India (RBI) is imminent – once that happens, their monthly payments on their car loans will come down. Thus, it makes sense to cost-conscious consumers to postpone their purchase of a car till rates are eventually cut. This view will be tested if the RBI does, indeed, cut rates next week. It is far from certain how, say, a 0.25-percentage-point cut in rates will affect the buying decision. Another reason many cite is a structural move in demand away from regular saloons and sedans to sports utility vehicles (SUVs) of one sort or another. By this way of thinking, consumers have already changed preferences; but many auto makers have yet to alter their supply lines to match changed demand. Anecdotal evidence that waiting periods for SUVs have not declined as steeply as have those for other cars is cited as support for this argument. None of these reasons augurs well for the economy – especially if you buy the argument that an SUV market growing while a regular car market falling is a sign that the middle class is being hit by the slowdown while the elite is not, which would have worrying social consequences.


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