Now, foreign carmakers are entering the competition, increasing pressure to make cheaper yet appealing cars. From June to September alone, Skoda, said it would start making and selling Fabia, its small car, in India...
A revolution is taking place in India that could change what most of the world drives. Next fall, the Indian automaker Tata Motors is scheduled to introduce its long-awaited People’s Car, with a sticker price of about $2,500. Hot on its tail are as many as half a dozen new ultra-affordable vehicles, some from the world’s leading carmakers, including Toyota and Renault-Nissan. With a median age of just under 25 and a rapidly expanding middle class, India will overtake China next year as the fastest-growing car market, according to estimates by CSM Worldwide, an auto industry forecasting service.
To tap that emerging market, automakers are starting to respond to Indians’ desire for small and cheap cars. As a result, car companies are coming up with new ways to develop and build automobiles worldwide.
“Ask one billion people, and 99 per cent of them are going to say they want a car,” said Jagdish Khattar, MD of Maruti Suzuki India. “The problem is, How many can afford it?” For a long time, only a few carmakers in India concerned themselves with that question. The small-car market in this country is dominated by Hyundai Motors India, Maruti Suzuki and Tata. Maruti Suzuki has more than 50 per cent of the car market, thanks to models already as low as Rs 1.95 lakh (about $5,000).
Entering the arena Now, foreign carmakers are entering the competition, increasing pressure to make cheaper yet appealing cars. From June to September alone, Skoda, said it would start making and selling Fabia, its small car, in India; Toyota’s Chairman, Fujio Cho, said his company might introduce a new small car to India; Ford Motor executives said they were studying the situation; and Renault-Nissan announced it would set up an engineering and design center, adding to previous plans to build a plant in India.
Renault-Nissan, has been talking with Bajaj Auto about building a cheap car that analysts say could cost as little as $3,000. Hyundai is adding a new small car model to its existing line and doubling its local production, and Honda is planning a small car tailored to the Indian market. Recently, Fiat stepped up a partnership with Tata, announcing a 50-50 joint venture to make cars, engines and transmissions in India for the domestic and overseas markets. India differs from the giant slow-growth and the no-growth auto markets like the US and Western Europe, and even from fast-growing markets like China, where the emphasis is on small, low-cost cars but with four doors and room for the extended family. While the Indian upper classes are snapping up roomier models and even imports like Mercedes-Benz, first-time buyers will provide a big chunk of growth for years to come.
By 2013, CSM predicts, India’s market will expand at an average of 14.5 per cent a year, compared with just over 8 per cent for China. CSM estimates that in 2013, the Chinese will buy 10.8 million cars, compared with 3.8 million in India, but says there is already a glut of local and foreign manufacturers in China, making India a more attractive long-term market.
If global manufacturers can figure out how to make small, cheap cars in India, they are expected to start exporting them to other fast-growing markets where the proportion of car ownership remains small like Southeast Asia, Africa and the Middle East. But first they have to conquer this market. A T Kearney, an international management consulting firm, estimates that a car with a $3,000 list price could attract 300 million buyers in India by 2020. Of course, forecasters were bullish on China for decades before its growth finally took off. And economic upheaval or political change could stall India’s expected growth, too.
But millions of Indians who will buy cars are likely to agree with Shuchita Bagga, who bought her first auto in July. “Budget was the most important thing,” said Bagga, 26, a trainee in human resources who earns about Rs 3.75 lakh per annum (about $9,500) and paid a little more than Rs 2.35 lakh ($6,000) for it. “I’m not in a position to buy a big or an expensive car.” Car manufacturers are looking at India’s approximately 65 million scooter owners, mostly men. Currently, entire families commute on scooters, with the man of the house driving, his wife sitting side-saddle on the rear, and as many as three children wedged in between. The People’s Car will create a situation where “someone who never even dreamed of a car finds it within reach,” said Ravi Kant, the MD of Tata Motors.
Environmentalists and safety advocates are less enthusiastic. Anumita Roychowdhury, the Associate Director for the Center for Science and Environment in New Delhi, said the ultra-affordable vehicles would worsen India’s pollution and traffic congestion. Already, nearly 60 per cent of India’s cities have pollution levels that are considered critical, she said.
On the safety front, auto executives insist the cars will comply with the safety standards of the markets they are sold in. But in India those standards do not currently include full-body crash testing, airbags or antilock braking systems. Critics worry that thousands more cars on the roads will increase an already high accident and fatality rate in India, and those travelling in cheap cars are most likely to be injured or killed.
Given their need for speed and bulk, the car demands of North America are “almost diametrically opposite” those of India, said Craig Cather, the President and Chief Executive of CSM. That might limit the expansion of the ultra-cheap cars into mature markets like the United States and Western Europe.
Low-price cars
But that does not mean much. The automotive supplier Robert Bosch estimates that vehicles priced under 7,000 euros (about $9,870) will make up 13 per cent of the world’s market by 2010, or 10 million cars a year. And by then, sales of low-price cars will grow twice as fast as the rest of the market, according to Bosch. To satisfy that market, manufacturers and suppliers will need “exceptional creativity and inventiveness,” Wolf-Henning Scheider, President of Robert Bosch’s gasoline services division, said. “Slimmed down versions of existing components and systems are not sufficient.”
The competition
Daryl Rolley, GM for international operations at Ariba, a sourcing and procurement company working closely with Tata, agreed. “There are so many legacy costs built into a design, and trying to engineer those out is difficult,” he said. The competition to make cars less expensive could finally help make India an automotive research and development hotspot — after years of false starts and complications from bureaucracy, poor infrastructure and labour unrest.
Maruti’s factory in Gurgaon, for instance, is reached by a potholed road filled with cows and fringed with stands selling juices and snacks. But inside Maruti’s gates, the company has created a self-sufficient, streamlined island where 4,700 Maruti employees work. The site generates its own electricity and recycles its own water. Inside the main factory are all the materials the company needs for two hours of production at the current rate of one car built every 21 seconds. Maruti, has plans to increase its already highly automated process, with the goal of cutting its production time in half and trimming costs. Already, giant swivelling robots do much of the welding. Manpower is employed mostly to check for errors.
Khattar of Maruti says that India would never be a global manufacturing hub for all automobiles, but the country did have a major role to play in the manufacture of compacts. What India can offer, he said, is “frugal engineering.”
