Indian Auto Makers Hope Investments Will Halt Slump

MUMBAI – Indian auto makers are determined to reverse a slowdown in the growth of light-vehicle sales from 31.9% in 2010 to 11.4% in 2012, according to WardsAuto data.

They have considerable ground to regain. Deliveries in first-quarter 2013 declined 7.6% to 880,381 units compared with year-ago. Several new-vehicle launches sputtered and auto makers have been offering huge discounts to clear inventories, cutting their thin margins if not making losses.

The country’s top seven auto makers nevertheless are making further investments and growing capacity. They plan to invest a combined Rs150 billion ($2.8 billion) to add capacity of 1.4 million units. This follows Rs220 billion ($3.9 billion) spent in 2011 to expand capacity by 1.7 million.

Component makers also have made major investments over the two years.

Auto makers and analysts anticipate Indian light-vehicle sales will range from 9 million to 10 million units by 2015-16. During the 2009 downturn, most of the manufacturers curtailed investments and stopped adding capacity, only to be caught unawares when the market recovered in 2010. They do not intend to repeat that mistake.

“Our investment is based on long-term projections,” says Chairman R C Bhargava of Maruti Suzuki India.

But he acknowledges the risks, noting Indian auto makers’ total LV capacity is 5 million units and current industry utilization is only 60% to 65%. “The Indian market has to grow at 10% a year to absorb the additional capacity,” Bhargava says.

The near term, however, is proving difficult for India’s largest auto maker. Outgoing CEO and Managing Director Shinzo Nakanishi says Maruti Suzuki will find it difficult to increase, or even maintain, its market share.

“(Cross/utility vehicles) and multipurpose vehicles have been growing very fast in the market, but we are not growing,” he says. “We need to have a stronger presence there. Having just one Ertiga (a 7-passenger MPV) is not enough.”

Lacking another compact MPV, Maruti Suzuki soon will launch an all-new premium WagonR Stingray in the small-car segment to improve its market share.

India’s four best-selling cars are Marutis: the Alto entry-level hatchback, DZire sedan, Swift hatchback and compact WagonR sedan. The auto maker’s market share for the first quarter was 35%, up marginally from 33.7% year-ago, but the 45% goal set by marketing chief Mayank Pareek likely is too ambitious.

Maruti Suzuki’s two new diesel engines may help. The auto maker relies mainly on a Fiat-built 1.3L multijet diesel also used by General Motors, Tata and Premiere. By 2014, Japanese parent Suzuki plans to develop new 1.0L and 1.4L mills in-house. They are meant to enable the brand to compete on equal terms with the Chevrolet Beat and Tata Indica diesel cars.

Maruti Suzuki also is looking into competitors’ strategies for ways to help itself. The auto maker exported about 120,000 vehicles in the fiscal year that ended April 1, while Nissan India shipped nearly 100,000 units out of India, many going to markets in Africa, South America and elsewhere in Asia.

For its part, Nissan is working aggressively to build a domestic-sales network along the lines of Maruti’s.

Honda India Vice President Jnaneswar Sen says the auto maker is developing new diesel technology and plans to launch four new, competitively priced models over the next three years.

The new-generation Jazz hatchback and City sedan will be powered by Honda’s 1.5L i-DTEC engine that has just been introduced in the entry-level Amazesedan. The engine also will power a compact CUV featured at this year’s North American International Auto Show in Detroit and yet-to-be unveiled 7-seatMPV.

Honda has a 7-seat MPV named the Freed based on the last-generation Jazz platform. But the auto maker is looking to the new 7-seater based on the Brio platform to achieve cost competitiveness with Maruti's Ertiga.

“We have achieved competitive pricing in the Brio and Amaze,” Sen says. “They share 70% of parts and have common looks. They will help us offer new models at such competitive prices.”

Ford India is integrating its local plants with its global manufacturing network as part of its One Ford strategy. With fresh investments in Gujarat and Chennai, and an increase in its workforce from 10,000 to 15,000, the auto maker is increasing capacity to 440,000 vehicles and 610,000 engines. It plans to export 25% of the vehicles and 40% of the engines and expand its Indian sales network.

Market preferences are shifting from hatchbacks and small cars to entry-level sedans, CUVs and MPVs as buyers with growing disposable incomes look for bigger vehicles. But while auto makers wait for the Indian market to rebound, some are leaning on exports to gain scale, manage costs and fine-tune both their supplier bases and manufacturing systems.

India is attractive as an export base because global auto makers are under no compulsion to seek a local partner, as they are in China. They have the freedom to use their own technology as well as promotion and marketing skills to develop foreign markets and retain their profits.

Makers of super-luxury cars are key exporters because their production costs in India are relatively low. Indian output of Mercedes, BMW and Audi models is estimated to grow from a combined 54,000 units last year to 300,000, although those auto makers decline to provide export figures.

Volume manufacturers Honda, Hyundai India, Mahindra & Mahindra, Nissan India and a newcomer to the export market, Toyota Kirloskar, increased overseas shipments to 390,985 units in the 12-month period through March, up 11.3% year-over-year, according to the Society of Indian Automobile Manufacturers.

Says Hiroshi Nakagawa, managing director-Toyota Kirloskar, “We have been successful in completing our vision of making Toyota India operations a strategic hub for both domestic and global markets.”