Mumbai: India, whose auto market is 19% of China’s, has the edge in exports.
Suzuki Motor Corp., Hyundai Motor Co. and Nissan Motor Co. are making India a hub for overseas sales of minicars as incentives raise demand for smaller, fuel-efficient autos. Helped by cheaper labour and a surging local market, India this year overtook China in auto exports and is challenging Thailand and South Korea as an alternative production centre in Asia.
“There is a worldwide shift toward fuel-efficient, compact cars,” said Jayesh Shroff, who helps manage around $7 billion (around Rs34,000 crore) of assets, including car maker shares at SBI Asset Management Co. Ltd in Mumbai. “This offers a huge potential for India and it can emerge as a leader in the small car segment.”
Gaining foothold: Maruti A-Star cars ready for export to Europe at the Mundra port. The firm aims to ship 130,000 cars in the year to March.
Maruti Suzuki India Ltd’s exports more than doubled to 79,860 this year. It aims to ship 130,000 vehicles in the year to March, 86% more than last year, said chairman R.C. Bhargava.
India’s exports of minicars and hatchbacks gained 44% between January and July to 201,138, according to the Society of Indian Automobile Manufacturers. Total exports, including vans, sport-utility vehicles and trucks, rose 18% to 229,809. Cars are exported to at least 100 countries, and don’t include the US or Japan.
In contrast, China’s exports slumped 60% to 164,800 between January and July, according to government data. Vehicles produced in Thailand for export declined 43% to 263,768, according to the Thai Automotive Club.
South Korean exports dropped 31% to 1.12 million units, according to the Korea Automobile Manufacturers Association. Japan, the world’s largest automobile producer and exporter, shipped 1.77 million cars, trucks and buses. Of those, 135 were minicars and 439,849 were compacts.
Besides the attraction of serving a market where three of four cars bought are compacts, automakers will favour India to set up an export base as China requires companies to form local joint ventures and India doesn’t, said Ashvin Chotai, London-based managing director of Intelligence Automotive Asia Ltd. “It makes companies more comfortable to have an export strategy when they have full control. They don’t have to give up some parts of the profits to their partner.”
Small cars will account for 95% of the 690,000 passenger vehicles India will export in 2015, according to Tim Armstrong, Paris-based director of IHS Global Insight Inc. In 2016, India may share the top slot with Japan as the world’s biggest small car producer, building as many as three million units. “All of India’s expertise has been the small car,” Armstrong said. “So obviously it’s a natural place to turn to to set up export units.”
Toyota Motor Corp. and General Motors Co. are also expanding Indian units and plan to export compact vehicles.
Hyundai, South Korea’s biggest car maker, plans to export 300,000 cars from India this year, more than its sales in the local market, a first since setting up a plant a decade back.
Nissan, Japan’s third biggest car maker, will set up its first factory in India by May and use it to export entry-level cars to Europe. “Spending on the plant is the most out of its global investments this year,” said executive vice-president Colin Dodge. “Production in India will help Nissan save at least 5% of costs,” Dodge said. “It’s enormous money for us.”
The cost of labour in India is around one-tenth of that in the US and Europe, and raw material costs in the nation are lower by 11%, according to Puneet Gupta, an analyst at CSM Worldwide Inc., an industry consultant. “Developing a car from the design stage in India may take $225 million to $250 million, while in Europe it may be $400 million.”
“The single biggest opportunity in the auto industry for India is the small car,” said Vikas Sehgal, a Chicago-based partner at Booz and Co., an industry consultant. “If India loses in the small car market, it has nothing.”