Indian Auto Industry in High Gear as New Models Flood the Market

The Indian auto market is heating up, set to increase by 16% to 1.4 million vehicles this year. It is still a far cry from China’s projected 13m or Japan’s 4.6m but as Asia’s third largest market and second largest population, India clearly has huge growth potential in the years ahead – which explains why there is a deluge of new models, mostly small compacts. The current market leader, Maruti Suzuki, is fighting to maintain its 50% market share according to Reuters. The Maruti 800 and Alto models have been highly popular in the mini and compact segments for cars shorter than 13′ 14 (4mtrs) which accounts for three quarters of India’s car market. Rival Honda recently unveiled a new compact car at the Delhi Auto Expo, a 5-seat model being developed especially for India and other emerging markets called the 2CV which it will build in India.   Honda will source steel from Indian steel mills such as Tata. The locally procured steel is said to be some 20-30% cheaper than Japanese material used at Honda’s current facilities elsewhere in Asia and will help Honda compete in this fiercely priced market. Toyota is also bringing out a new compact model, the Etios, at a price of Indian Rupees 500,000 (US$ 10,823) which sounds like a lot in a market where buyers can access the Nano at $3000, even when Toyota says they have spent four years and had 2000 engineers working on the Etios. This suggests the quality and product specifications should not disappoint.

Meanwhile as some 10 new models foreign made are launched this year, Maruti is fighting back with various new offerings including a 7-seater which should prove popular with larger Indian families. Volvo is ramping up truck production to 100,000 units annually by 2015 as it targets 15% of the heavy truck market. At the same time, the group is increasing component sourcing from India by five times for its worldwide operations, looking to source US$5bn of components from India by 2015.

As Volkswagen also looks to launch a new Polo sedan in India using locally sourced components, it looks as if the authorities’ dreams are finally being realized as domestic material and component supply infrastructure becomes a reality. It was always the governments’ intention that India would become a regional hub for auto production, rivaling Thailand and China but as the domestic market has grown so aggressively it looks as if that reality will be accelerated. As auto markets in the west remain largely dormant, growth in Asia, even on the narrow margins to be made from the compact market, appears to be pretty much the only show in town.

–Stuart Burns

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