Drive to Asia

Last Updated: Oct 13, 2010, 17:23 PM IST

Anil Kumar Satapathy

“3 Cs for Paris cars: Clean, Cheap and China,” read the title of a news agency’s report, at the start of this year’s Paris Auto Show – one of the oldest and most prestigious events where auto majors showcase their latest models. Usually, a slight hint of what is in store for the world can also be got at the expo.

Earlier this year, China surpassed the United States as the biggest auto market in the world. 13.6 mn vehicles were sold in China in 2009-10 compared to 10.4 million in US, which suffered a 27-year low sales figure. India, which is the second fastest growing auto market, registered robust sales of 12.2 million vehicles in that period from 9.7 million a year ago.

India produces around 11 million vehicles and exports around 1.5 million units every year.

Other major Asian economies like South Korea, Thailand and Indonesia are on the radar of the automotive industry, which is looking for a change in fortunes after being battered by the severe financial crisis of 2008 coupled by a prolonged and haphazard growth pattern.

While Western markets registered improved auto sales in the later half of 2009, it soon turned out to be the side-effects of massive incentives provided by the respective governments – like the US’ cash-for-clunker. But growing fiscal deficit had prompted the government to cut their welfare schemes, thereby triggering a decline in sales of the industry.

Asian countries, which are now reaping demographic dividends and unprecedented growth rate, are now becoming must-markets for all the major auto players.

The growth figures for the month of September of the major car-makers in India are just one indication. Honda (33%), Toyota (8%), Ford (over 200%), GM (13%), Hyundai (14.2%), to name a few.

Asia is fast becoming not only the client but also an export hub. The availability of cheap labour, abundant essential minerals and favourable policies are driving the Asian countries’ competitiveness.

The production of vehicles is also getting highly specialised. While China is specializing in components, India is focusing on two wheelers and small vehicles, Thailand in pick-up trucks and passenger cars, and Indonesia in utility vehicles.

The Indian angle

India is always known as the last frontier, as it has the largest number of consumers and they have yet to own a vehicle.

In India small is beautiful when it comes to a vehicle. Indian consumers are the most cost conscious, yet they want better fuel economy, a longer vehicle life and better resale value. In fact, Alan Mulally, Chief Executive Officer of Ford India, insisted on growing demand for small cars during Figo’s launch last year.

“60 percent of all vehicles worldwide are going to be of a smaller size, 25 percent medium size and 15 percent larger,” he said.

Innovation is another key. Car makers have consistently been launching new models in a bid to outsell each other.

French car maker Renault`s Indian unit is planning to launch five cars between mid-2011 and mid-2013, including small cars in 2012. Renault-Nissan is also working with Indian two-wheeler maker Bajaj Auto to develop a low-cost car, which would be designed by Bajaj and launched by end-2012.

Ford is planning to introduce eight new vehicles in India by the middle of the decade and will start exporting its best-selling compact Figo cars from India to 50 new markets next year, including Mexico, North African countries and the United Arab Emirates.

Honda will launch a compact car in the second half of 2011 and will initially roll it out of its facility near New Delhi.

The period between 2009 and October 2010 has seen high-profile launches including Tata Nano, Honda Jazz, Maruti Suzuki Ritz, Fiat Punto, Chevrolet Beat, U-Va.

Challenges ahead

The road ahead will not be, however, smooth for aspirants. Maruti Suzuki, which has over the years established itself as the leading player with over 50 percent market share, will be a tough competitor. It already enjoys a very high brand loyalty.

Indian auto players at the moment are best placed to invest more and more in R&D. As Indian consumers are prone to oil price fluctuations, hybrid cars and more importantly e-cars are most attractive at the moment. So far, there are hardly any such vehicles in India. Apart from Toyota Prius all others are a sort of compromise and not a replacement of mainstream vehicles. In future, cars that run on alternative fuels will most likely be the ones sought by the consumers.

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