Car Manufacturing In India - A Snapshot
Car Manufacturing In India - A Snapshot
This year, India overtook Germany to become the world’s fourth largest vehicle market, as per sales volumes. Commercial and passenger vehicle sales in the country grew 8.3 per cent last year to 3.99m, overtaking the 3.74m of sales in Germany. According to industry forecasts, by 2021, India will get ahead of Japan and become the third largest market for vehicles. As things stand, the domestic automobile industry contributes more than 7% to India’s GDP, and the Automotive Mission Plan 2016-26, seeks to boost this contribution to 12 per cent.
Socio-economic trends, too, point to an increased demand for passenger cars amongst the country’s emerging class of consumers. India’s growing urbanization and people’s rising income mean that more people will be looking for a range of mobility solutions. While some of this demand will be met by access to improved public transport, use of shared resources, and availability of electric vehicles, Indians will be in the market for a greater variety of cars. While economy-driven segments like hatchbacks and minis will continue to lead the market, new segments such as compact SUVs, sedans, and luxury vehicles will also see more takers.
Major Players in The Indian Market
India’s largest automaker Maruti Suzuki continues to dominate in India with a massive market share of 53 percent as of July 2018. Launched as a joint venture between its Japanese parent company Suzuki and the Indian government in 1982, its market capitalization currently stands at over $31 bn. Tailing it is the South Korean carmaker Hyundai India, with a market share of about 16.5%. Mahindra & Mahindra follows at 7.5 % and Tata Motors owns 6% of the market. Together, these top four car makers account for over 82% of the Indian passenger vehicle market. Japanese car makers including Honda Cars India (5.5%), Toyota Kirloskar (4.3%), French carmaker Renault India (3.5%), Ford India (2.7%) and Nissan India (1.7%) make up the rest of the mix. Luxury car brands in India include the German players, Mercedes Benz, BMW Audi, Swedish manufacturer Volvo, and JLR (Jaguar Land Rover) a British multinational, which is now a subsidiary of Indian automotive giant Tata Motors.
Why International Car Makers Are Eyeing The Indian Market
Winning in India can be used as a recipe for success across the globe because emerging markets in Latin America, SE Asia and Africa present similar opportunities and challenges. India offers a chance to refine a model that can be replicated across the globe, because it has a strong manufacturing ecosystem and a rising class of consumers who seek value for money above all else.
International players want to leverage the infrastructure in the country to create a robust manufacturing base not cater to its domestic market but they also wish to use these facilities to create an important base for exports. According to a McKinsey report, “The World Economic Forum ranks India 30th on the global manufacturing index, which assesses the manufacturing capabilities of more than 100 countries. The government’s “Make in India” initiative has played an important role in elevating the country’s position. In the past three to four years, India improved on nine out of ten parameters for ease of doing business.” There is growing evidence to support this, for instance, Ford India is exporting over 90,000 EcoSport cars every year, Hyundai is also using its factory in India as a global hub for compact sedans.
Why Making in India Makes Economic Sense
India is now recognized as a hub for frugal engineering. Indian consumers want a feature-loaded cars. For instance, they care about having enough space in the boot, roomy interiors, and heavy duty air conditioning to combat summer temperatures, but they want all these affordances at a very competitive price. It is challenging for Western manufacturers to go back to the drawing board and rethink engineering from scratch to create a car that offers what popular must-haves and build in adequate safety features at a price point that pleases customers. However, French manufacturer Renault has seen success with the completely made-in-India ultra-cheap hatchback, Kwid.
Hailed as a marvel of value engineering, the Kwid has made a significant dent in the small-car segment ruled by Maruti Suzuki. Recently, in Dec 2018, Renault Kwid created a very significant milestone by crossing 5,00,000 sales, becoming one of the fastest automobile brands to achieve this accomplishment. Sumit Sawhney, Country CEO & MD, Renault India Operations talked about this achievement, “ With more than 2,50,000 customers, KWID is a true game-changer and has been one of the most successful mini-car launches in India. A large part of the credit for the KWID’s manufacturing success goes to sourcing of local components at competitive prices. A strong base of over 400 suppliers was developed locally and given the flexibility to think out of the box to develop innovative cost-efficient parts for the KWID. This ensured that KWID is manufactured at 98 % localization, which is also an industry first by a global automobile brand. The vehicle is a testimony to the PM Modi’s Make in India ideology.” The McKinsey report reinforces this trend by labelling India as a hub for cost-efficient engineering, due to a focus on ground-up innovation, heavy local sourcing, and local tastes and preferences.
Entry of a New French Player
PSA Group recently announced that the Citroen brand will enter the Indian market and launch its first model for India before 2021 end. PSA Groupe is known for three brands, Peugeot, Citroen and DS. In the year 2018, the French carmaker sold 1.05 million vehicles in over 90 markets across the world. The manufacturer is attempting to break into the Indian market for the second time. Earlier, it has entered into a partnership with the erstwhile Premier family resulting in JV Peugeot PAL India. However, it pulled out from the venture in 2001, owing to a global economic slowdown.
This time around, the player has signed an agreement with India’s CK Birla Group, known for the iconic Ambassador Car, manufactured by its group firm Hindustan Motors. The CK Birla group has interests in technology, automotive, construction, healthcare and education sectors.
The company said in a press statement that the group’s aim is to “be Indian in India” and to manufacture vehicles and powertrains in the State of Tamil Nadu. The brand marked an important milestone setting into motion the partnership by inaugurating a Powertrain JV greenfield facility in Hosur, Tamil Nadu, in late 2018. Elaborating on their plans for the future, Emmanuel Delay, Executive Vice President, Head of India-Pacific Region, PSA Groupe said that, “This project means to be fully integrated in India with a comprehensive eco-system including local production of vehicles and powertrains, distribution of vehicles and services as well as procurements for the whole Group.” Linda Jackson, Citroën Chief Executive Officer said, “The company is very proud to launch Citroën in India, one of the fastest growing markets in the world. Building on the Brand's success in Europe with 5 consecutive years of growth, the brand is convinced that Citroën’s selling proposition of unique styling, eco-friendly & comfortable cars at the heart of the market has all the potential to satisfy Indian customers.”
Keeping all these developments in mind, the future does look exciting for domestic manufacturers, automotive component makers, and international players who will come up with exciting innovations to make in India, and cater to a global audience. Understanding the Indian consumer’s mind with market research to evolve valuable insights and doing due diligence to seek and find the right partners on the ground will be critical to the success of any long term venture. Reach out to domain experts at Arsha Consulting to understand nuances that define the Indian market, understand cultural norms and use our services to research potential partnerships with vendors in industrial hubs across the country.Please write to us and customized advice.
Preeti Prakash | Journalist