Maritz Research GmbH – Study: India – The Underrated Auto Nation

Indian economy is booming and car production in the country is on the brink of rapid growth. The car sector is already one of the most important branches of Indian industry.

The market potential is huge: just 0.7 per cent of the 1.1 billion population of Indian own a car, but the percentage is rising.

A study conducted by the market research institute Maritz Research answers the most important questions:

– What is the current situation of the Indian car industry?

– What trends can be observed?

– Who are the big players in the industry?

– What opportunities are open to European car producers in India?

A summary of the results of the study, along with an interview with Joerg Hoehner, Director of Automotive Research Europe at Maritz Research, commenting on the results, can be found below:

On the fast track with inexpensive vehicles

European automakers and suppliers still underestimate the significance of the Indian automobile market. Mistakenly, however: passenger car sales have doubled in India over the last five years to more than 1 million annually. And the future looks bright, to put it mildly. Experts estimate that unit sales will reach 3.15 million by 2015. India would thereby overtake France as the world’s sixth-largest automobile market and almost pull even with Germany and the UK.

Growth market India

– The Indian economy is booming. With a 9.4 per cent hike in GDP from 2006 to 2007, India’s economy is amongst the strongest growing on the planet. According to the IMF (International Monetary Fund), the Asian subcontinent could become one of the main engines of the world economy. The growing buying power of 1.1 billion Indians represents enormous market potential for automakers and others.

– Since the market was opened to foreign producers in 1991, the automobile sector has developed into one of India’s main industries.

– But the market is a far from saturated. A mere 0.7 per cent of Indians own a vehicle. This is less than in China, where there are 1.2 automobiles per 100 inhabitants. And in Germany, Japan and the U.S., at least one in two people own cars.

– Credit is easy to obtain. Unlike China, 85 per cent of vehicle sales in India are financed.

– Indian consumers are open to both domestic and foreign brands.

Small and cheap: it’s what Indian car buyers want

– To be successful on the Indian market, a vehicle needs to be one thing: cheap. Indians are very price conscious and pay close attention to the purchase price as well as fuel consumption and maintenance costs.

– Seventy per cent of vehicles sold in India are small (e.g. the Tata Indica, Maruti Zen and Hyundai Santro).

– Three automakers – Maruti, Hyundai Motor Co. and Tata Motors – control 85 per cent of the Indian market.

Production in India

– Forecasts say that production in India will grow to around 3.1 million vehicles in the next three to four years.

– India already has a strong base of automotive suppliers, and the industry is developing briskly. Maruti, for example, currently outsources 80 per cent of its production.

– The world’s largest democracy can boast a wealth of highly skilled workers in areas such as engineering. Moreover, strong investment into education persists. The DC College of Automotive Studies, which opened in mid-2007, will train 1,500 students per year in automobile design.

– Exhaust emissions and safety standards are being steadily increased to bring India up to an international level.

Interview with Joerg Hoehner,
Director Automotive Research Europe at Maritz Research

Mr. Hoehner, what is the current state of India’s automotive market?

In contrast to China, India has not played a sizeable role for big automakers from Europe and North America. But this is now changing. With good reason, too, since the outlook for the Indian automobile market is more than bright. For one thing, it’s one of the world’s fastest growing markets. And the booming economy has given rise to a middle class with purchasing power. In a country with a population of 1.1 billion, this obviously represents enormous potential. Furthermore, manufacturing and research are still relatively cost-effective in India. The combination of rapid domestic market growth and production cost advantages makes India an increasingly important global location with huge market opportunities.

What are the main strengths of India’s automakers?

The big advantage Indian manufacturers have is that they’ve grown with the needs of their customers. In the past, many of them primarily produced motorised two-wheelers-still one of the main forms of transportation in India. But as the demand for cars swelled, they got into automobile production. As a result, the dominant domestic players know the market intimately and have tailored their products to it. There is an unmistakable preference in India for low-priced small cars, so Indian automakers concentrate mainly on this segment. They’re also paying special attention at the moment to getting more people off of two wheels and into four. The huge potential of the ultra low-cost vehicle segment has set off a price war between automakers vying for this target group. Maruti, the market leader, plans to drop the price of its entry-level model by 20 per cent. Meanwhile, Tata Motors is pursuing a particularly aggressive pricing policy and has set itself the goal of bringing a model onto the domestic market in 2008 for 100,000 rupees (around EUR1,800 or GBP1,200). Tata is aiming to raise unit sales to 1.5 million with the help of this cheap small car. The company already sells the Tata Ace, a mini-truck, for 130,000 rupees (roughly EUR2,300 or GBP1,550).

What opportunities exist for European automakers on the Indian market?

India could develop into a lucrative market for European manufacturers. Whereas the markets in Europe and America are for the most part saturated, India’s has massive growth potential. An early presence on this market of the future could definitely pay dividends. But it is essential to be aware of certain oddities. For example, the price factor has caused big problems for many foreign brands. High duties keep the Indian market largely insulated from imports, and excessive taxes on imported components push up production costs substantially. Therefore, if you want to capture an appreciable share of the Indian market, you have to produce locally. Manufacturers like Maruti make vehicles entirely in India, so they can offer much lower prices to the end customer than any importer.

What does the development of the Indian automobile industry imply for worldwide the auto sector?

India’s economic ascendancy could intensify competition in the global automotive sector as it has in other markets. With the low costs of research and production, India is a competitor that needs to be taken seriously. Although the small vehicles manufactured in India are at the moment sold predominantly on the home market, they could put future pressure on European and American automakers. With 150,000 passenger cars sold abroad, India has only just begun to export. Emerging economies and even some developing countries offer the ideal markets for Indian producers looking to shift their microcars. Automobile producers from the industrialised world and their expensive models could be left out in the cold.