Nine countries in the world have nuclear weapons. Oddly enough, that’s the same number of nations that design and build their own cars from scratch. The two accomplishments don’t have all that much in common, except that the former may indicate just how much scientific and engineering prowess the latter requires. India is one of a handful of states on both lists. The West tends not to think too much about the country’s carmakers because the world’s largest democracy has spent the last 50 years making cars for India, and India alone. That’s changing. Fast.
India’s automotive market is booming. While U.S. automobile sales stalled in April, India’s rose 11.8 percent year-to-date (105,962 units vs. 94,771). In 2006, local and foreign firms combined to manufacture 1.4m vehicles. Sure, experts estimate that China’s vehicular population will hit 10 million in 2007, but India’s growth rate is even more spectacular. They’re expected to double automotive output by 2008, and keep going from there.
The Indian car industry’s explosive growth reflects three main trends: a huge jump in the living standards of India’s middle class, an increase in their disposable income and regulatory liberalization. The latter includes the relaxation of the foreign exchange and equity restrictions, reduction of punitive import tariffs, and reform of Byzantine banking policies (to allow consumer financing).
The changes have created a vibrant sector. There are currently 41 automobile companies operating in India, from Ashock Leyland to TVS Suzuki. There are native companies, foreign partnerships and foreign subsidiaries. They offer a wide array of automotive products, from the (plug in) all-electric Reva Standard, to the once import-protected and now embattled Hindustan Ambassador, to the Lamborghini Murcielago.
The country has a “Big 2.5” and they’re on a roll. Last year, Mahindra & Mahindra earned $3.2b in gross profits from its car and truck branch. Maruti Udyog Limited, a subsidiary of Suzuki and Indian automotive industry leader, sells about 50k cars a month. Tata Motors also sells just under that amount AND brags of a 19 percent rise in sales for ‘06.
Western automakers are betting on India. Mercedes' new Indian factory is set to produce 5k cars a year (up from 2,121 vehicles in 2006). Ford India plans to open 135 new dealerships this year, capitalizing on its 45 percent year-on-year sales growth (41,797 vs. 28,840 units). GM recently declared it wants 10 percent of the Indian market by 2010 (200,000 units). To that end, they have just launched the 309k rupees ($7,300) Chevrolet Spark.
Toyota’s also shooting for 10 percent of India’s automotive business by the same deadline. India is reported to be ground zero for the Japanese automaker’s new global small car platform, which will be modified for local tastes and budgets. The GM and Toyota products will go up against Mahindra & Mahindra’s sub-$3k car and Tata’s planned 33 horsepower, $2500 four-door.
Fully assembled cars are only part of the story. Successful parts manufacturers have sprouted up alongside the assembly plants throughout India, contributing to the industry’s overall health and wealth. The main reason BMW opened an assembly plant in Chennai: access to quality suppliers.
All these Indian operations require local labor and management. Necessity has proven the mother of talent. A new cadre of educated automotive professionals has emerged.
Dilip Chhabria is a prominent example of India’s new breed of auto industry insiders. Chhabria began his career as an automotive designer working for General Motors in the States. It was not the best fit (or finish) for him. "I was not going to design door handles and hub caps for 20 years before I got a shot at designing cars," he told Businessweek.
Chhabria set up DC Design in ’93. The company now claims 300 employees and over 500 automotive designs (OEM, custom and prototyping). Dilip Chhabria decided to take his stake in India nascent automotive industry to the next level, and share his intellectual capital.
This August, the eponymous DC College of Automotive Design will welcome 1500 students. DC is working with Italy's Polytechnic di Turino to develop engineering courses, and the Istituto Europeo di Design for creative curriculum. DC will offer undergraduate and two-year postgraduate programs on automotive styling, transportation design, and engineering. By the time the first students matriculate, the Indian automotive industry may already be operating on the next level.
As American gas and labor prices continue their inexorable rise, demand for well-made yet cheaply-produced gas-sippers has blossomed. While all eyes are on China, it's only a matter of time before Ford, GM and other Western automakers use their Indian assets to design, build and export inexpensive and frugal ‘captive imports’ stateside.
After that, who knows? If Korea’s Hyundai can move its products upmarket, so can India. The United Auto Workers had better watch out. If they dig in their heels, domestic automakers are sure to use the nuclear option.
Since my daughter moved to Chennai India, I have seen in the last four years the changes you write about. At first there were road clogging prosessions of auto-rickshaws along with an old morris sedan called the ambasssador (the taxi and all around four door sedan of India) Today, the ambassador is fading,as are the rickshaws and the mostly Japanese designed small cars fill to streets. There are a sprinkling of German luxury brands including Mercedes S class (along with the rolls royce are imported by Indian dealers. They use many small diesels and some two and three cylinder gas motors. My daughter has a knockoff Toyota land cruiser (safari short wheelbase look) with a 4 cylinder diesel. The quality is sub Western standards as are the safety features (non existent) but at about $13000 US the suv is still cheap. By the way,, the traffic is so chaotic and right side driving that everyone Western must hire a driver. With 1.1 billion people to almost match the Chinese 1.3 billion, do you see a competition for oil resources in the future?
While no expert on the country, I’m amazed at the direction that India is taking. Their population density and lack of land for highway construction is going to make an already chaotic situation look tame compared to what the future will bring. (In addition, the cars produced there will have to be designed to be both two and four-legged “pedestrian friendly”.) Perhaps the nukes will come in handy to assist the expansion of the country when the burgeoning road network starts to exert “pressure”. (Consider this post my daily addition [edition?] of "The Pessimism Press".)
A few years ago I taught ESL classes with Indian students. We could always get some lively discussion started about traffic conditions back home. Lots of fun, no serious injuries, but some multi-desk collisions
Car industries in China and India are still very immature, and over the next decade or two, will go through a normal phase of the business cycle where the industry matures and dominant players emerge.
I suspect in this time we will begin to see the real capacity for these markets to absorb automobiles. Given physical size and population, it’s impossible these markets would resemble the USA either in volume, rate of vehicle ownership, or size of vehicles.
How do you take a country (India) physically 1/3 of the USA’s size, more than triple the population and give it the same car ownership rate? Think about it next time you’re stuck in traffic. Of course from an industry point of view, there’s still a lot of growth to be had before that wall is hit…or so is the general feeling.
Sorry to get hung up on a very minor point… but I get 11 with my “top of the head” calculation: US, Japan, Korea, China, UK, France, Germany, Italy, Sweden, Russia, India.
That doesn’t count the boutique & small market marques found in Holland, Spain, Mexico, Croatia, and the Czech Republic.
–chuck
If I had an Indian automotive company and were going to enter the North American market I would hit ’em where they aren’t, what the UK folks call “cheap and cheerful” vehicles in the light to medium duty truck segments.
There is no actual small pickup truck being sold in the US anymore. Remember the popular and useful the 1970s sized Toyota, Datsun, Mazda and Isuzu compact pickup trucks? What about a 1/2 ton pickup truck the size of a 1972 Ford F150 which can be sold profitably for under $10k new? How about small delivery van vehicles? With both fuel and cash becoming harder to come by there will be a real market for simple, reliable, cheap to buy, cheap to own utlitiarian vehicles.
Marketing would be a variation on the dollar store concept: “Everything under $10,000, brand new”.
Mahindra & Mahindra already has a business relationship with Navistar. They could kick that up to the next level by bringing back the International Truck brand and relaunch light trucks under that name in the US. Heck, make a line a small rugged workhorse four wheel drive vehicles and sell them as International Scouts.
Both Mahindra already participates in the US farm tractor market. Perhaps that is simply in order to learn how to do business in the US.
http://www.mahindrausa.com/
Tata has a winning line a very light trucks in India which sell there for under the Ace name. Prices are about $5,500 new. A slightly larger version which meets US emissions and safety regulations would surely be more expensive, but still under $10k. Probably the biggest thing standing in the way of all this right now is the infamous “chicken tax” duty of 25% on any imported truck. This is the sort of protectionist duty which the US government lectures the rest of world on the evils of.
http://thehill.com/business–lobby/foreign-truck-dealers-squawking-over-retaliatory-chicken-tariff-2005-03-30.html
Interesting times we live in!
The best thing for GM and Ford in such emerging markets is the brand image they enjoy as opposed to their declining perception at the home front.
However the Japs are in the fray as well and soon people are bound to notice the differences in build quality, reliability, cost of ownership etc….I hope the Big 2 learn from the mistakes made in the NA market.
India is where post-war Japan was in 1960. They’ve got a cheap but highly educated labour force (well some of it…), each worker being born in an era where you either worked hard or you died. That kind of motivation is unparalleled, there’s nothing like it in the USA or Europe.
In a short time, India’s population will surpass that of China. Everyone’s got their eye on China, the chest-thumping “hey look at me” Dragon, while the discreet Indian Tiger waits in the shadows.
Great article.
China and India will have big impact on the prices of commodities.
Consider soon China and India will soon have combined population of about 3 billion people (nine giga persons), this is about 10X current US population.
What if they reach standard of living 1/3 of ours? This would be equivalent to 3 US economies this is a great deal of oil, copper, tin, etc. Also for you carbona-phobes a lot of CO2.
So far China has out-competed India in most manufacturing – we’ll see if this continues.
Fossil fuel demand will drive the price up until sufficient demand is destroyed, if they have a hard time affording the cars good luck affording the fuel, unless they want to buy them to look at them.
Um, doesn’t Canada build a lot of cars also?
US, Japan, Korea, China, UK, France, Germany, Italy, Sweden, Russia, India.
Australia also designs and builds its own cars, and in the case of Ford, its own engine. In addition Ford of Australia designs cars for manufacture in several other countries, including India.