More Global Auto Makers Making India Their Small-Car Export Hub

MUMBAI – Global auto makers are establishing or expanding operations in India not only to meet domestic demand but also to serve more than 110 foreign markets.

Exports of India-built passenger vehicles over the past five years soared 155.6% to 507,318 in the fiscal year ended March 31.

Hyundai India, established 16 years ago, accounted for 237,535 of those exports, 47% of the total, while domestic auto maker Maruti Suzuki contributed 127,372, roughly one-fourth. Nissan India shipped 100,909, some 20% of the total, in just its fifth year of existence.

The remaining 8% came from Ford India and domestic auto makers Tata and Mahindra & Mahindra. Volkswagen India and PSA Peugeot Citroen soon will join the roster of exporters.

These and other OEMs see a bigger role for India as a hub for small-car exports to elsewhere in Asia, the Middle East, Africa, South America and Europe.

Exports of Hyundai’s Eon small car to Southeast Asia and African countries have helped offset declining demand in financially turbulent Europe. The Korean auto maker was India’s first large-scale exporter and has ranked at the top for a decade.

“While India’s huge domestic market allows us economies of scale and affordable prices, the Indian production system has very (few) quality issues now,”says Arvind Saxena, vice president-sales and marketing for Hyundai India.

Maruti, which was founded 32 year ago before partnering with Suzuki, introduced its fuel-efficient inexpensive and versatile hatchback in India long before Hyundai arrived. The Korean auto maker gave its more recent versions premium styling and feel and overtook Maruti in export markets.

Maruti Suzuki countered by investing $2 billion in efforts to raise small-hatchback exports to 200,000 units annually, but that goal remains far off.

Other global auto makers recently have followed Hyundai’s lead and rushed into India to set up production of small cars.

Nissan already has made inroads with its Micra (March) urban hatchback and the more spacious Sunny sedan. Partner Renault plans to export 50,000 Duster small SUVs, with as many as half of them headed for the U.K.

The Renault-Nissan Alliance in India is trying to emulate the success of Hyundai’s and Maruti’s cost-cutting efforts by sharing designs and technologies, platforms and partsand manufacturing systems.

Volkswagen intends to make India its global low-cost export hub starting in the next few months. The German auto maker’s strategy is to reach select markets by exporting completely built-up Polo hatchbacks, as well as complete-knocked-down kits for assembly. A sedan version of the Polo is due later this year.

Toyota Kirloskar joined the ranks of exporters here when it recently shipped 247 Etios sedans and Etios Liva compacts. Its goal is to export 20,000 Etios cars in 2012, more in coming years.

Ford India long has survived on the strength of its exports. Shipments of its Figo compact car in the April 2011-March 2012 fiscal year totaled 25,616 units. The auto maker’s Chennai plant is nearing full production, and a new facility is under construction in Sanand, Gujarat state, that will more than double the subsidiary’s production capacity to 440,000.

“Even that may not be enough to satisfy local and export demand,” says Michael Boneham, president-Ford India. “It was a mistake (when) we started 13 years ago with oversized, costly sedans. We have now learned the lesson and will make up for the lost time from our new beginnings in Gujarat.”

The EcoSport compact SUV soon will join the roster of Ford India export builds, he adds. “Indeed, all the vehicles that we make here will be designed and engineered with a global market in mind.”

Ford India added Mexico to its list of export markets after penetrating South Africa and Nepal. Maruti within the past year has explored destinations including Australia, Hong Kong, Taiwan, Brunei and South Africa.

Honda Siel Cars finally is completing its long-delayed plans to export the new compact Brio, laying the groundwork for making India a key hub for the auto maker’s Asian business and global export activity. Honda has tailored versions of the Brio for both India and Thailand, where it first launched production.

Thailand long has served as the center of Honda’s operations within the 10-member Association of Southeast Asian Nations, and the Brio initially was designed to meet the government’s Thailand’s eco-car standards.

But Takashi Nagai, president and CEO of Honda Siel, says there will be small exports from here to Sri Lanka, Nepal and Bhutan. And in the not so distant future, more fuel-efficient Hondas like the Brio may be shipped to Europe.

Honda in India also exports key engine parts from India to Thailand, Malaysia and Indonesia which, analysts believe, is a reverse of the prevalent business model. Traditionally, Japanese auto  makers preferred to exportcomponents from Thailand, which was their manufacturing base.

But it’s now clear that Indian suppliers are ready to take on bigger global challenges. The localization level for the Brio is already 80%, and Honda plans to increase this to 90% in the coming months.

This exercise is crucial to make Honda's cost structure competitive enough to consider building cars less costly than the Brio. This will give the auto maker a  foothold in the sub-Rs320, 310 ($6,000) segment, where the Maruti Alto now rules but is facinga new rival in the Hyundai Eon.

Philippe Varin, chairman of PSA's management board in France, said on a recent visit to India, “We are attracted by the long-term vision on the potential and capabilities of the Indian market.”

PSA plans to export 25% of its Indian output to Southeast Asian countries as soon as its plant in Gujaret is ready.

It’s not just the cost advantage that brings success to vehicle exporters in India. It’s also the industry’s capabilities. Cars built for export require new technologies, engineering skills anda comprehensive supplier base.

As well, parts made by Indian manufacturers and sourced by global auto makers add another dimension to the country’s export efforts. The component industry, which meets global standards and international best practices, currently exports, under regular contracts, 15% of its turnover of Rs1.6 trillion ($32 billion).