Skip navigation

India Aims to Become Small-Car Export Hub

India's auto makers and suppliers have global ambitions that already are coming to fruition. Both are working toward the country becoming the region's small-car export hub, while making a concerted push into Europe and other foreign markets. India's leading auto component makers in the last two years have made 30 acquisitions in the European Union and U.S., totaling more than $300 million in investment.

India's leading auto component makers in the last two years have made 30 acquisitions in the European Union and U.S., totaling more than $300 million in investment. Bharat Forge Ltd., alone, is on the way to its fifth global acquisition in two years – a Swedish forging company it plans to buy for $56 million.

Italy's Fiat Auto SpA and Tata Motors Ltd., India's largest truck and car maker, are exploring an alliance that includes design and development, technology and manufacturing, distribution of passenger cars and sourcing of components.

Mahindra & Mahindra Ltd., one of India's oldest auto makers, saw export sales of its Scorpio SUV rise 160% to 2,600 units in the fiscal year's first half and predicts they will reach 6,000 by year end. Export regions include the Middle East, South America and South Africa.

The company now is considering complete-knocked-down kit assembly in Russia and Malaysia and will begin building Renault SA's low-cost Logan small car in 2007.

Ford India's Fiesta.

Ford Motor Co. in October announced the Ford Fiesta will be its fifth new product to launch in India. Ford Chairman and CEO Bill Ford Jr. hosted the debut event in New Delhi, reportedly noting that among growing markets around the world, “India is right at the top of that list.”

Ford assembles the Ikon sedan, midsize Fusion sedan and Endeavor SUV at its plant outside the southern city of Chennai. It also imports fully built Mondeo sedans. The company sold 27,064 vehicles in India last year and exported about 24,000 Ikons to South Africa and Latin America.

Indeed, India has much going for it: an educated workforce, large middle class and a hankering to become a major player in the global industry. However, it is faced with a critical oil crisis and a tottering coalition government that some observers worry could hurt its growing economy.

Additionally, the high costs of oil, steel, rubber and plastics combined with tougher pollution rules and a new tax in April are driving up prices and slowing sales of cars and commercial vehicles in Asia's third-largest economy.

Nevertheless, the auto industry continues to thrive as it emerges from China's shadow. Although new-vehicle sales fell in the year's first half to 621,241 units, a 2.6% drop vs. year-ago's 637,926, October sales were running at a feverish pace.

While meager compared with the 501,700 vehicles China sold in September, the Indian auto industry prides itself in its focused strategies, quite unlike its chief competitor's disparate free-for-all market.

India's Finance Minister P. Chidambaram in September said the country's automotive tax structure needs a review earlier than planned to keep pace with its goals. Industry officials were disappointed in February, when an expected reduction in excise taxes, from 24% to 16%, did not materialize, at least not to the desired level.

Instead, the government's 2005-2006 budget calls for a 5% cut in peak customs duties on automotive components to 15% and a cut in tire excise duties from 24% to 16%, while steel taxes rose to 16% from the previous 12%.

Many domestic auto makers say the cuts barely offset the effects of the rising euro on their margins. A GM India spokesman tells Ward's any benefits in the reduction of the excise taxes will be offset by the cost of upgrading vehicles to meet Euro III emissions standards.

To bolster domestic auto makers' small-car plans, Chidambaram says the government may “reconsider” a decision to place cars in the luxury goods tax bracket, along with tobacco and alcohol. All cars sold in India currently fall into this 24% tax bracket, with additional fees for fuel and roadways.

Small cars made up more than half of the 1.23 million passenger vehicles sold in India in the fiscal year ended March 2005. The number is dwarfed by Japan, a country with one-tenth India's population, where 3 million small-car sales were recorded in 2004.

But the equation could change if India can transform itself into a regional small-car export hub for major auto makers.

Toyota Kirloskar Motor India Ltd., which until now has specialized in SUVs, announced in September plans to establish a joint venture with alliance partner Daihatsu Motor Co. Ltd. to produce a new Toyota Passo/Daihatsu Boon by using Toyota's technology and quality expertise and Daihatsu's small-car skills.

Toyota makes India small-car base.

Some 100,000 vehicles annually will be built at Toyota's Bangalore facility, using 100% local parts, the company says.

Suzuki Motor Corp. has said it plans to make subsidiary Maruti Udyog Ltd. its Indian small-car expert, and Hyundai Motor Co. Ltd. is making plans to produce small cars in the country, as well.

Following the trend, GM India CEO Rajeev Chaba moved quickly once he was appointed in May to bring the Daewoo Matiz minicar to India as the Chevy Spark. The subsidiary, which sold 23,542 vehicles in the year's first nine months, is looking to corner a 10% share of India's car market by 2010.

The Indian government has said it plans to tax cars according to their segment, with buyers of small cars receiving an incentive. Part of this push has to do with the price and availability of fuel.

Between March and August, the government protected its consumers with only one 4% increase in the price of gasoline and diesel, despite a 105% ihike in the price of imported crude oil in the same timeframe.

However, in mid-September, officials were compelled to raise the price of gasoline to $3.79 per gallon and diesel fuel to $2.65 per gallon at state fueling stations, representing 21.7% and 33.9% increases, respectively, over the prior 15 months.

In a move toward oil independence, India has offered to purchase 5.5 million-6.6 million tons (5 million-6 million t) of crude annually from Azerbaijan, via the new $4 billion, 1,096-mile (1,764-km) Baku-Tblisi-Ceyhan pipeline near the Caspian Sea.

In return, India has promised equity and expertise to put toward exploration and the upgrading of refineries, as well as opportunities for cross investments in India. An 11-point blueprint of the proposal is being drafted.

– with Sudhakar Shah in India

[email protected]

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish