Indian Automobile

India has an edge over China, West in auto production

After breaking into the world’s top 10 auto-producing countries, India has a good chance of consolidating its position as markets in North America, Europe and East Asia struggle to grow.

While Western nations and Japan are still recovering from the 2008-09 economic slowdown, China has scrapped incentives for auto buyers and is now discouraging car sales to deal with ubiquitous traffic snarls.

But India, albeit still a small market, has tremendous growth potential driven by fast-paced economic expansion and a young and aspiring population, say experts.

The country now accounts for 5% of global auto production, up from 1.4% at the beginning of the last decade, according to industry lobby Society of Indian Automobile Manufacturers (Siam). 

That also makes India the seventh largest auto producing nation, rising from 15th in 2000. Passenger vehicle production is expected to grow to nine million a year in 2020, while two-wheeler production will touch 30 million.

In 2010, their production was 1.95 million and 12.7 million, respectively, according to a report by consultancy firm Ernst and Young (E&Y).

If we can achieve these volumes, we will be positioned among one of the top five vehicle-producing countries in the world by 2020, with the domestic consumption growing by fourfold to Rs.5.6 lakh crore.This is quite realistic as earlier had projected India to become the seventh largest vehicle-producing country in the world by 2016. We have already achieved this milestone a good six years ahead of the set target.

India’s auto market grew at 32.69% in 2010, marginally better than China’s 32.44%, according to Siam. China produced 18,264,700 automobiles last year against India’s 17,076,659, according to China Association of Automobile Manufacturers. The data does not include two-wheelers.

In absolute terms, the Indian auto market remains small compared with countries such as China. Vehicle penetration, at 14 units per 1,000 people, is among the lowest in the world.

But the country is the world’s second fastest growing major economy, after China—a crucial factor driving the auto sector’s recent upsurge.

In addition, India has one of the world’s youngest populations, with half its 1.2 billion inhabitants less than 25 years of age.

In fact, India is home to 20% of world’s population under 25 years of age. These 610 million potential future car buyers are twice the size of the entire US population, and nearly two-thirds of the current global vehicle fleet—965 million cars and trucks.

China, meanwhile, is discouraging the auto market to handle the country’s growing traffic woes. The government has done away with incentives for buyers, and Beijing and Shanghai have imposed restrictions on buying cars.

Beijing, which has about 5.1 million cars, has restricted new sales to 240,000 a year. More than 200,000 people have applied for car purchase licences in the city this month already, but only 20,000 will be issued through a monthly lottery.

Shanghai has started following a similar policy. Other cities could follow suit, restricting car purchases or raising the cost of maintaining cars, Gomes wrote in the report. He added that these policies would particularly affect low-end, local brands.

Sales growth in China will moderate to around 15% over the coming year, held back by the expiry of government scrapping incentives, and a sharp reduction in licence plate issuance by the city of Beijing as it attempts to tackle vehicle congestion.

Also predicted a 15% growth for the Chinese auto market in 2011, while Deutsche Bank expects it to slow further to 11%. The publication China Automotive Review expects market growth to approach zero, while IHS Global Insight says China’s heavy-duty truck sales would see negative growth in 2011.

Western Europe registered only a marginal increase in vehicle production in 2010, while the US grew at 11.3%.

India’s market is expected to witness 16-18% growth across all segments in 2011.

The next few years will be an important period for the Indian automotive industry as it moves to becoming one of the major automotive design and production centres globally and Indian OEMs (orignial equipment manufacturers) and suppliers establish themselves as global players. This will require not only investments in capacity, but also business transformation by organizations in order to successfully manage their global or local operations and create shareholder value.

Maruti Suzuki India Ltd, the country’s largest car maker, cautioned that poor infrastructure development could peg back growth expectations.

Those with rising incomes will aspire to own their means of transportation, The governments have to build this into their plans and display political will in implementing programmes to improve urban infrastructure.