Global car companies entering India in the mid-1990s chased a growth promise that would lift many boats. But they have had to deal with a growth scenario that never transited from competent to great, and a hegemony unique to India
At the outset, American carmaker Ford’s recent decision to exit India appears to be about its struggle to carve an identity for itself in a cost-conscious emerging market. But it is also partly about a market that didn’t deliver the lofty growth expected of it when it welcomed global manufacturers in the 1990s.
The liberalization of Indian industry, initiated in 1991, saw a slew of manufacturers drive in: Daewoo and Hyundai from South Korea, Honda and Toyota from Japan, and Ford and General Motors from the US. The needle of economic growth was shifting from the west to the east. Big things were expected of Asian economies, in particular China and India. Today, China is the world’s largest car market and India the fifth largest, shows data from the International Organization of Motor Vehicle Manufacturers.
While both grew, the difference was their pace of growth. In 1999, both produced around half a million vehicles each annually. In the next two decades, India grew at 10% a year—a rate manufacturers would happily take in developed markets. But China grew twice as fast, consistently. As a result, in 2019, it produced six times as many cars as India did.
A 10% compounded annual rate translates into a doubling of the market every seven years. With a 20% rate, the doubling takes three-and-a-half years. Global car companies entering India had sought a growth wave that lifted many boats. But they have had to deal with a growth scenario that never transited from competent to great, and a hegemony unique to India.
Growth levels that belie expectations are a strand that runs through most segments of the Indian auto industry. In the last 25 years, only two of the eight broad segments of the sector have recorded compounded annual sales growth in double digits, according to data from the Society of Indian Automobile Manufacturers, the nodal industry body. The first is utility vehicles, but this is a small segment (1.12 million vehicles sold in 2019-20), accounting for about one-third of total passenger cars.
The second is motorcycles, which is the largest auto segment, with 14.4 million units sold in 2019-20. On the back of that surge in motorcycle sales, two-wheeler ownership in Indian households increased from 8% in 1991 to 38% in 2011, Census data shows. By comparison, four-wheeler ownership increased from 1.1% to 6% during the same period. For carmakers on the fringes, such as Ford, greater overall growth would have given them more operating room.
Hegemony at Top
The Indian car market also proved to be more cost-conscious and indelibly concentrated at the lower end. In 2011, hatchbacks accounted for 61% of vehicles sold in India, according to data from Team BHP, an independent information resource on Indian auto. Even in 2019, when more carmakers were squeezing utility vehicles in size to draw lower taxation, hatchbacks had a share of 46%. Maruti Suzuki and Hyundai not only dominate this space, they have also been successful in other segments.
Maruti Suzuki’s sales increased from about 997,000 in 2011 to 1.5 million in 2019, Hyundai from about 374,000 to 510,000. Together, they commanded a 68% share of vehicles sold in 2019. Meanwhile, Ford, without a small car in its portfolio, saw its sales drop from about 96,000 to 74,000. Carmakers without significant stakes in the lower end of the market have struggled against this unique hegemony of Maruti and Hyundai.
General Motors, the world’s fifth-largest manufacturer by revenues, exited India last year. Now, it’s Ford, the fourth largest. In its 2010 annual report, parent Ford Motor had said: “Ford has big plans for India, China and the region...The growth potential in this part of the world in the next 10 years is astounding. China will remain the largest car market in the world for the foreseeable future and we estimate India will be the third largest market in the world in the next 10 years."
A decade later, India’s presence in Ford’s global portfolio is minuscule. China accounted for about 10% of the 5.4 million vehicles sold by Ford in 2019; India just 1.6%. Ford’s market share in India that year was 2%. Among its 12 major markets, only in Russia did Ford have a smaller share. And the Ford Motors stock is trading 3% higher than 9 September, when the company announced its India exit.
www.howindialives.com is a database and search engine for public data.
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