Monday, March 21, 2011

Did you notice: India is the 6th biggest car maker this year?!

These days, such news stories are hidden in the inside pages of newspapers. But in spite of a keen attempt to bury them, they tend to pop out! Yes, in the year about to end this 31st March, India will have become the 6th largest car manufacturer in the world. With a total production of 3 million (30 lac) automobiles (not including 2 wheelers obviously), we would be behind only China (13.8 million), Japan (8.8), US (7.7), Germany (5.8) and South Korea (3.8). We were #7 last year.....we’ve just overtaken Brazil. At the present rate of growth, we could be overtaking South Korea in the next few years.

One must differentiate between car production and car sales though. 3 million cars are produced in India, but not all of them are sold in India. Many are exported around the world as well. Of the 3 million cars, around 2.5 million are sold in India and about 500K are exported. This indicates two things. One, that the domestic market has now become really large. At this number, the Indian car market would rank somewhere in the top 10 car consuming markets after the usual suspects (US, China, Japan, Germany, UK, France, Italy, Russia and maybe even Brazil and Spain). Estimates made by industry bodies suggest that the Indian domestic car market may go ahead of even Japan by 2014 or so. By 2020, it will become the world’s 3rd largest car market with sales of about 9 million cars a year. This is terrific since most cars sold in India will also be made in India and you can imagine the employment opportunities that this can create for our people!

The other component of car production is exports. And this is a particularly bright sector for India. In 2009, India exported around 500K cars. Exports are largely led by Hyundai (about 250-300K) and Maruti (most of the balance). Projections for Indian exports are very rosy with some reports indicating that India should be exporting more than a million cars soon (maybe in 2011 itself). Here’s the huge point to be made with respect to exports. India exports more cars than even China! One of the reasons for this stunning feat is that Indian car manufacturing is considered to be extremely high quality. Precision engineering is India’s forte and that’s what is helping Indian exports. As proof of this, check out the list of Deming Award winners and you will find Indians and Indian companies right at the top of the awards list (after Japan).

With rising incomes, the middle class is out there in the market buying cars like never before. Aiding the process is the easy availability of finance. Even though finance costs are increasing, the latent demand for cars is so high that people don’t mind paying that extra bit. Much of the growth of the Indian car market is coming (expectedly) from the lower priced models. However, the lowest priced of them all – the Tata Nano – is still to fire. It is believed that if it succeeds, the Tata Nano alone could sell a few million pieces. Should that happen, the milestones mentioned above may tumble much earlier! As a reference point, India is also the 2nd largest motorcycle market with sales of nearly 9 million units last year!

The main roadblock to further car sales growth is the availability of roads! Or good roads to be precise. We have a lot of fact, the road network of India is the 3rd largest in the world at 3.3 million kms. However, only about half of these are paved. Rural roads form a bulk of this network and we all know the quality of those roads. Just look at the length of expressways in India. China has close to 25,000 kms of expressways.....we have some 200. If we could have better roads all over the country, travel by roads would increase dramatically thus increasing the consumption of cars as well. Let’s hope the government plan of investing some $100 billion into roads in the next few years goes as per plan!

However, road’s is not all that we need to worry about. While it’s important to be the 5th largest production market, it is even more important to be the owner of the brands. We still have a lot of work to do here. Most of the car brands produced in India belong to foreign companies. Maruti is really a Japanese company and Hyundai, Korean. The only warriors from India are the Tatas (especially with the acquisition of Daewoo of Korea and Jaguar and Land Rover of the UK some time back) and the Mahindras (their SUVs are doing rather well worldwide!). But the Tatas were only ranked 19th worldwide and the Mahindras 32nd in terms of sales. The brand owners are the ones who really rake in the moolah. If India does not have enough brand owners, then it will only remain a marketplace for others to exploit. It won’t be able to tap the opportunity that exists worldwide. That’s what we need to focus on. More emphasis on research and development is required. More global acquisitions are required. More brand building exercises are required. This is the only way we are going to be recognized as a major auto power. It’s interesting that this post is being written on a day when the Mahindra group appears to have broken a massive brand campaign in the papers!

The real truth is that India is now in the top 5-10 countries on almost any list that you make. Whether it is power production (5th largest), car (5th) and bike (2nd largest) sales, steel production (5th....soon to be 3rd largest), cement (2nd) or even internet users (4th soon to become 3rd largest). At the same time, we also have the highest number of poor in the world :-( We must stay focused on removing this stigma. We can do it....provided we stay focused on our economic goals and not get distracted by inane and senseless politics that the newspapers and TV channels appear to be focusing on!

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