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Car makers turn to exports to make up for low domestic sales

Car makers turn to exports to make up for low domestic sales
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First Published: Mon, Nov 21 2011. 12 33 AM IST

Foreign focus: A Hyundai factory at Sriperumbudur, Tamil Nadu. The car maker shipped 144,000 units in the April-October period. Photo: Madhu Kapparath/Mint
Foreign focus: A Hyundai factory at Sriperumbudur, Tamil Nadu. The car maker shipped 144,000 units in the April-October period. Photo: Madhu Kapparath/Mint
Updated: Mon, Nov 21 2011. 12 33 AM IST
Mumbai: To tide over the sluggish demand in the domestic market, triggered by periodic petrol price hikes and higher interest rates, car makers in India have sharpened their focus on exports.
Foreign focus: A Hyundai factory at Sriperumbudur, Tamil Nadu. The car maker shipped 144,000 units in the April-October period. Photo: Madhu Kapparath/Mint
While dampened sentiment crimped car sales by 1.8% to 1,378,513 units in April-October 2011, according to industry lobby Society of Indian Automobile Manufacturers (Siam), exports for the same period moved up 19% to 293,426 units.
Last year, buoyant demand from the home market made car firms in India curtail exports. For April-October 2010, domestic car sales saw a 33% increase over the same period a year ago, while car exports registered a less than 2% growth during the same period. This year, however, the trend has reversed.
The overall expansion in the exports volume was led by the local arms of global car makers such as Nissan Motor Co. Ltd and Ford Motor Co., both of which have identified India as an export hub for small cars and have recently started shipping models from their factories in India.
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Nissan, which sells the compact car Micra, the Sunny sedan and the X-Trail sports utility vehicle (SUV) in India, started exports of the Micra in October 2010. The company despatched 59,770 units of the model in the April-October 2010 period, according to Siam.
Similarly, Ford India Pvt. Ltd began overseas shipments of its small car Figo in June last year, and ramped up export volumes to 15,402 units during the same period from 4,882 units a year ago.
The export volumes for the last four years, too, suggest a strong correlation with domestic demand. In years, when the domestic market has been sluggish, auto makers have been aggressive on exports and vice versa.
Michael Boneham, president and managing director at Ford India, said his firm plans to ship out 20% of the total production by the end of this fiscal. Nissan India declined comment. An email sent on Friday remained unanswered.
Kumar Kandaswami, a senior director at Deloitte Touche Tohmatsu India Pvt. Ltd, said overall volumes will only expand as existing and new global car makers start exports. “A lot will depend on how volumes stack up at the two biggest exporters,” said.
Car makers said exports will also help them in pushing volumes of their petrol models abroad, demand for which has slumped in India owing to the wide price gap between diesel and petrol.
The current trend is a part of the long-term strategy of companies and is only partially influenced by the ongoing domestic scenario, according to Rakesh Batra, a partner and national leader, Ernst and Young. However, “the additional focus on exports will help them make up for the shortfall in domestic volumes”, he added.
The uncertainty in Europe, however, is a dampener for car makers.
For instance, volumes of traditional car exporters—Hyundai Motor India Ltd and MarutiSuzuki India Ltd, India’s largest domestic car maker and second largest car exporter, either remained flat or declined. Hyundai shipped 144,000 units from April to October, up 1% over the last year, while overseas volumes for Maruti declined 25% to 63,850 a year ago.
Arvind Saxena, senior vice-president, sales and marketing, Hyundai Motor India, which exports cars to 150 countries from India, attributed the flattish growth to a contraction in volumes from Europe, which accounts for 45% of its total export volume. It used to be 55% two years back. “Europe is not promising in terms of demand right now,” said Saxena, adding that the situation is likely to remain unchanged in the months ahead.
According to him, besides the economic uncertainty in Europe, volumes have also been dragged down by the shifting of production of its i20 model to Turkey for which India was an exports hub till March last year. He said that with exports to as many as 150 countries, nothing is untapped, but overall exports will depend on how the demand pans out in all these markets.
“There was no exports happening due to strikes at our plant,” said a Maruti Suzuki executive, requesting anonymity. “Production of the A-Star and other export models was virtually shut. So, with production getting back to normal, we have seen a jump in export numbers.”
He added that the company is in the process of identifying newer markets for exports as there is a slowdown in the European market. “We have started exporting to Indonesia, Latin America and other South-East Asian countries,” he said. “More such regions will be identified soon.”
After the global economy faced a crisis following Lehman Brothers Holdings Inc.’s collapse, governments in some key western European markets doled out incentives to car buyers to trade their fuel guzzling cars for fuel-efficient small cars. This propped up demand for global car makers such as Suzuki Motor Corp. and Hyundai Motor Co., which made India a manufacturing hub for such vehicles. This has since stopped.
Exports to Europe have been shrinking. Hence, global car makers are heading to relatively uncharted territories and are enhancing focus on newer markets such as Asean (Association of Southeast Asian Nation), Latin America, Africa and West Asia, among others.
Ford’s Boneham said his firm, which started off with exports to a few countries, currently ships cars to 27 countries and plans to add another half-a-dozen countries to the list by June next year. “It makes sense to spread the risk to lot of more markets. It also offers larger economies of scale,” said Boneham.
By shipping a higher number of models to these newer locations, auto makers are not only hoping for better capacity utilization, but are also netting better margins by making the most of a sliding rupee against major currencies. The Indian rupee slumped to a 32-month low to 51.34 against the dollar on Friday.
Pravin Shah, head of exports at Mahindra and Mahindra Ltd, said it all depends on which way one wants to grow—be it in a fiercely competitive market dominated by established global firms or in a newer market that is opening up and holds promise. Mahindra, which has 6% of its volumes coming from exports, currently aims to take the share of exports to 30% in the next two years.
Kandaswami said that for India to truly emerge as a significant exporter, auto makers in India need to tap into the big markets such as the US and Europe, among others. “A Poland or a Chile cannot be an answer for the long term,” he pointed out.
Amrit Raj in New Delhi contributed to this story.
shally.s@livemint.com
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First Published: Mon, Nov 21 2011. 12 33 AM IST