Brendan Moore
Precision Tuner
Reprint from Autosavant
~~~~~~~~~~~~~~~~~~~~~~~~~~
India - The Future Auto Giant
By Brendan Moore
04.29.2007
Let’s take a quick look at India’s auto industry, now and in the future.
Of course, everyone in the auto industry talks about the new golden boy that is China, and a lot of the car companies have something going on in China, with even bigger things planned for the future. With good reason – the China market will possiby see a stunning 10 million vehicles (commercial and light-passenger) produced in 2007 calendar year.
But India is quietly coming on very strong, and although currently a small market by Chinese standards, is a market with tremendous potential. Both the domestic vehicle producers and the foreign transplants in India together make 1.4 million vehicles annually and with the pace of investment having considerably increased in the last 6 months, that number is expected to double in calendar year 2008. If that happens, that will put India ahead of places like Canada, Australia and the U.K, and get them extremely close to the projected output of Brazil and Mexico. The chances of India hitting or exceeding 1.5 million units in production in 2008 are excellent at this point. And things look very promising beyond 2008 as India has a huge rural market that is basically without personal transportation, the Country’s demographics skew heavily towards under-30 years old, incomes are rising steadily, auto financing as a loan product is finally starting to come into it’s own, and the national economy is growing at 9% or greater every year. Just as an example of one of these market factors, approximately 1.8 million vehicles financed in India last year; this in a country of approximately one billion people. As recently as ten years ago, the number of auto loans was close to zero, with almost every sale done on a cash basis. Just imagine if all auto sales worldwide could only be done on a cash basis; it’s a safe bet that overall sales would be very much lower.
Taking into account all of the above market attributes, it is not unreasonable at this point to forecast annual production of 4 million-plus vehicles by 2015, with over 3 million of that total sold in India for domestic consumption.
And Indians want cars with a hunger that is almost palpable. Think of America in the early Fifties, with a great economy and lots of pent-up demand, and not coincidentally, a tremendous amount of new highways being laid down. That is India now, except more so - current vehicle penetration among India’s population is 6 cars per 1000 people. Indians are finding out what Americans found out about owning their own cars – it gives that intoxicating combination of control and personal freedom, it provides a measure of status, you can go places quickly, you have privacy in your own car and finally, as always, the promise and satisfaction that ownership of anything large and tangible brings.
Interestingly, India is increasingly a hotbed of high-quality inexpensive car design and engineering. Unlike the Chinese, who are copying everything in sight, and using OEM components from foreign manufacturers to assemble their cars, a few companies in the Indian auto industry are working on several fronts to develop the “one-lakh” car. One lakh is 100,000 rupees which is around $2100 USD. That would make the car in development roughly half of what a Renault Logan costs, the Logan being the lowest-cost car currently sold by a major manufacturer in India. Hard to say if it will happen, but very good progress has been made by Tata, India’s largest automaker, in the last 12 months, and without belaboring the obvious, if the efforts to build a one-lakh car are successful, it could have ramifications for all the other auto manufacturers as well as consumers in other countries beside India. The current Tata brief for the one-lakh car is four doors, a 33-HP engine and a 5-speed manual transmission, with everything, including an extra rear-view mirror or a radio, optional and at extra cost.
Renault-Nissan, who just signed a deal with Mahindra and Mahindra for a joint venture to produce the Logan in India, stated that, they too are working an inexpensive car, namely, a cheaper version of something they already make, like the Logan. The Logan currently costs about $9500 USD in most places in the world, but is expected to cost less in India. Carlos Ghosn, CEO of Renault-Nissan, says they are shooting for a price point of $3500 USD for the as-yet unnamed low-cost car, and he expects it to show up before the end of the decade.
If either of these cars or both of these cars show up before the end of the decade, then all bets are off in terms of production and sales projections for the Indian market. It is entirely possible that sales only in India could close in on 7 million units by 2010. Production figures would be much higher, because, as we noted above, the market ripples would not stop there. Many auto industry analysts believe the global market for passenger vehicles priced under $10,000 USD will be 17-18 million units by 2012. I think it’s going to be a little higher than that, perhaps as much as 19 million units by 2012 and 22 million units by 2015. Indian auto production could increase geometrically in the instance of this sort of successful model development. Here is another factor favoring India in this sort of scenario: an important difference between Indian auto production and Chinese auto production is that while production costs are very low in both countries, vehicles made in China are not anywhere close to meeting the emissions and safety standards that are required in order to sell cars in most countries, while Indian auto production is able to satisfy those requirements.
And not to belabor the obvious, but competing models in this price range will follow quickly in India, should production of a single model by any manufacturer occur. Maruti, Suzuki’s subsidiary in India, owns 51% of the Indian market and will not likely be left behind in the cheap car race. Hyundai, with 11% of the market, will also not sit idly on the sidelines in this potential market environment. Fiat, GM, Toyota, Honda and VW are also pouring resources and capital into the Indian market and will of course want a piece of the market. GM, in particular, has 2.8% of the market in India, sees India as “China, The Sequel”, and has publicly stated it wants 10% of the market in India by 2010. China has been a wonderful, almost giddy success story for GM, and India looks like more of the same to General Motors. In fact, the fashionable 20-somethings in India’s Bollywood and it’s music recording industry have sort of adopted a small Chevy as “their” car, so that can’t hurt.
Most industry analysts agree that approximately 70% of automotive sales growth in the next 10 years is going to happen in the Asia-Pacific region, and that growth is going to happen in emerging markets like India. The differences in opinon usually center around which countries will come in at which percentage of the overall number. I say, keep your eye on India.
COPYRIGHT Autosavant.net – All Rights Reserved
~~~~~~~~~~~~~~~~~~~~~~~~~~
India - The Future Auto Giant
By Brendan Moore
04.29.2007
Let’s take a quick look at India’s auto industry, now and in the future.
Of course, everyone in the auto industry talks about the new golden boy that is China, and a lot of the car companies have something going on in China, with even bigger things planned for the future. With good reason – the China market will possiby see a stunning 10 million vehicles (commercial and light-passenger) produced in 2007 calendar year.
But India is quietly coming on very strong, and although currently a small market by Chinese standards, is a market with tremendous potential. Both the domestic vehicle producers and the foreign transplants in India together make 1.4 million vehicles annually and with the pace of investment having considerably increased in the last 6 months, that number is expected to double in calendar year 2008. If that happens, that will put India ahead of places like Canada, Australia and the U.K, and get them extremely close to the projected output of Brazil and Mexico. The chances of India hitting or exceeding 1.5 million units in production in 2008 are excellent at this point. And things look very promising beyond 2008 as India has a huge rural market that is basically without personal transportation, the Country’s demographics skew heavily towards under-30 years old, incomes are rising steadily, auto financing as a loan product is finally starting to come into it’s own, and the national economy is growing at 9% or greater every year. Just as an example of one of these market factors, approximately 1.8 million vehicles financed in India last year; this in a country of approximately one billion people. As recently as ten years ago, the number of auto loans was close to zero, with almost every sale done on a cash basis. Just imagine if all auto sales worldwide could only be done on a cash basis; it’s a safe bet that overall sales would be very much lower.
Taking into account all of the above market attributes, it is not unreasonable at this point to forecast annual production of 4 million-plus vehicles by 2015, with over 3 million of that total sold in India for domestic consumption.
And Indians want cars with a hunger that is almost palpable. Think of America in the early Fifties, with a great economy and lots of pent-up demand, and not coincidentally, a tremendous amount of new highways being laid down. That is India now, except more so - current vehicle penetration among India’s population is 6 cars per 1000 people. Indians are finding out what Americans found out about owning their own cars – it gives that intoxicating combination of control and personal freedom, it provides a measure of status, you can go places quickly, you have privacy in your own car and finally, as always, the promise and satisfaction that ownership of anything large and tangible brings.
Interestingly, India is increasingly a hotbed of high-quality inexpensive car design and engineering. Unlike the Chinese, who are copying everything in sight, and using OEM components from foreign manufacturers to assemble their cars, a few companies in the Indian auto industry are working on several fronts to develop the “one-lakh” car. One lakh is 100,000 rupees which is around $2100 USD. That would make the car in development roughly half of what a Renault Logan costs, the Logan being the lowest-cost car currently sold by a major manufacturer in India. Hard to say if it will happen, but very good progress has been made by Tata, India’s largest automaker, in the last 12 months, and without belaboring the obvious, if the efforts to build a one-lakh car are successful, it could have ramifications for all the other auto manufacturers as well as consumers in other countries beside India. The current Tata brief for the one-lakh car is four doors, a 33-HP engine and a 5-speed manual transmission, with everything, including an extra rear-view mirror or a radio, optional and at extra cost.
Renault-Nissan, who just signed a deal with Mahindra and Mahindra for a joint venture to produce the Logan in India, stated that, they too are working an inexpensive car, namely, a cheaper version of something they already make, like the Logan. The Logan currently costs about $9500 USD in most places in the world, but is expected to cost less in India. Carlos Ghosn, CEO of Renault-Nissan, says they are shooting for a price point of $3500 USD for the as-yet unnamed low-cost car, and he expects it to show up before the end of the decade.
If either of these cars or both of these cars show up before the end of the decade, then all bets are off in terms of production and sales projections for the Indian market. It is entirely possible that sales only in India could close in on 7 million units by 2010. Production figures would be much higher, because, as we noted above, the market ripples would not stop there. Many auto industry analysts believe the global market for passenger vehicles priced under $10,000 USD will be 17-18 million units by 2012. I think it’s going to be a little higher than that, perhaps as much as 19 million units by 2012 and 22 million units by 2015. Indian auto production could increase geometrically in the instance of this sort of successful model development. Here is another factor favoring India in this sort of scenario: an important difference between Indian auto production and Chinese auto production is that while production costs are very low in both countries, vehicles made in China are not anywhere close to meeting the emissions and safety standards that are required in order to sell cars in most countries, while Indian auto production is able to satisfy those requirements.
And not to belabor the obvious, but competing models in this price range will follow quickly in India, should production of a single model by any manufacturer occur. Maruti, Suzuki’s subsidiary in India, owns 51% of the Indian market and will not likely be left behind in the cheap car race. Hyundai, with 11% of the market, will also not sit idly on the sidelines in this potential market environment. Fiat, GM, Toyota, Honda and VW are also pouring resources and capital into the Indian market and will of course want a piece of the market. GM, in particular, has 2.8% of the market in India, sees India as “China, The Sequel”, and has publicly stated it wants 10% of the market in India by 2010. China has been a wonderful, almost giddy success story for GM, and India looks like more of the same to General Motors. In fact, the fashionable 20-somethings in India’s Bollywood and it’s music recording industry have sort of adopted a small Chevy as “their” car, so that can’t hurt.
Most industry analysts agree that approximately 70% of automotive sales growth in the next 10 years is going to happen in the Asia-Pacific region, and that growth is going to happen in emerging markets like India. The differences in opinon usually center around which countries will come in at which percentage of the overall number. I say, keep your eye on India.
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