India’s Auto Industry- A Showpiece in Manufacturing Sector

In February, France’s Renault and its Japanese affiliate, Nissan, announced plans to team up with Mahindra & Mahindra to build the passenger car manufacturing plant. The Rs. 4,000 crore ($902 million) facility in Chennai will turn out 400,000 cars a year from mid-2009 on. If industry rumors are to be believed, eventually the number could double to 800,000.
Indian auto industry now produces about 1.1 million cars each year.

India’s auto industry has plans to invest some Rs. 35,000 crore ($8 billion) over the next 3-4 years in building manufacturing capacity in India for another two million cars each year, with half a million earmarked for exports.

About two-thirds of the planned investments of the industry — about Rs. 24,000 crore ($5.4 billion) — will come from Tata Motors, Maruti and Hyundai and other companies.

The Tatas are expected to invest Rs 10,000 crore ($2.2 billion), revised to Rs 15,000 now and this includes outlays for a new, low-cost car, a joint venture with Fiat and capacity for commercial vehicles.

Maruti plans to invest Rs. 4,000 crore ($900 million) in its plant in Manesar near New Delhi, after which its capacity will increase from 600,000 cars to 900,000 cars.
Hyundai is doubling its Indian capacity to 600,000 cars at a cost of Rs. 5,000 crore ($1.12 billion).

Honda Motors will spend Rs. 1,800 crore ($400 million) to triple capacity to 150,000 units by 2010 with a new manufacturing plant in Rajasthan.

General Motors is investing about Rs. 1,300 crore ($280 million) in its second Indian plant in Pune, near Mumbai, where its capacity could more than double to 140,000 cars in a year. Industry watchers expect it to produce its economy car, Chevrolet Spark, at the facility.

Nine of the world’s top 10 automobile companies are manufacturing today in India. Some other global automakers have also lined up impressive investment plans for India in recent times. Volkswagen is setting up a manufacturing facility at Chakan near Pune. Daimler Chrysler has also acquired 100 acres nearby at Chakan to set up a assembly line by end of 2008. BMW Group is set to roll out its first cars from the Indian plant set up in the Mahindra City near Chennai early 2007.

India’s capacity by 2010 could triple to 3.1 million cars a year, making it the same size as China’s market today. (In the U.S., automakers sold 7.6 million cars in 2005, according to data updated in January by the U.S. Bureau of Transportation Services.)

India’s auto sector has certain obvious advantages: low manufacturing costs compared to developed countries, a robust and growing vendor base for components, large skilled manpower including that for R&D, and fairly big domestic market of 250-million-strong middle class. India potentially could emerge as a global hub, at least for small cars.

Many opine, India is an attractive base from which to export cars to third country markets. Carlos Ghosn, the CEO of Renault and Nissan, has been quoted as saying that sourcing cars from India for the world markets is 35% cheaper than Europe. However, many think, China could still be cheaper by about 12% to 15% today. So China remains the first choice for global investors. It’s a little early to tell if global auto majors will switch to India as their first choice to manufacture small cars for export markets.

However, some think the point in the rise of per capita income of Indian middle class when fast ‘motorization’ happens is coming nearer. Vehicle financing in India is also helping, as it accounts for 85% to 90% of all cars bought (typically up to 80% of the car’s value is financed). By contrast, the penetration of vehicle financing in China is considerably lower, even as it boasts nearly three times India’s passenger car volumes. (In the U.S., about 56% of consumers and 41% of businesses financed their vehicle purchases in 2005.)

But the people eagerly waiting the arrival of Tata Motors’ car priced at Rs. 100,000 ($2,200) in 2008 that may change the rules of the game. It’s targeting at least one-fifth of seven million two-wheeler buyers who may want to graduate. This will mean 1.4 million cars, more than the current size of the domestic car market. Tata Motors has already a history of similar success. It profitably sells its Ace, a light commercial vehicle, for Rs. 130,000 ($2,920), and it is 80% outsourced. Tata Motors will be a company to watch. Some still believes, ” Tata Motors would be a frontrunner here.” And one can imagine the things to happen, if this can make cash rich and highly young CEOs of Bajaj Auto to take the challenge.

Bravo! Let auto sector lead the manufacturing. If the industry leaders integrate R&D capability and strength of IT sector with innovative designs and after sales services that provide delight to the customers, the Indian auto industry is on the right track with global ambitions.

Cars to drool over
Speed Bumps For Automakers In China, India
The incredible story of Tata Motors and the Rs 1-lakh car

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