FOR the Indian automobile industry, 2008 started off on a splendid note. Last week, all the leading international automobile manufacturers descended on Delhi to participate in the biennial Auto Show, the second largest in Asia.
Many of them unveiled new models, especially of small cars, aiming to expand their market share in one of the world’s fastest growing automobile markets.
But the show-stealer was the much-awaited launch of the Rs1 lakh ($2,550) “people’s car” by Ratan Tata, chairman of the eponymous group. The ‘Nano,’ the new car, was unveiled at the show, as Tata kept his promise of launching it in the beginning of the year.
There was mixed reaction to the launch, with many of the international manufacturers pooh-poohing it, dismissing it as an unsafe vehicle. American auto majors, it was said, spend over $2,500 in just building safety features in their car.
The domestic industry in India, however, expects the new Tata vehicle to revolutionise the sector. Days before Tata displayed the new model, Bajaj Auto – a leading two-wheeler manufacturer – also rushed through with its concept small car. Bajaj plans to jointly produce the car with France’s Renault and Japan’s Nissan. It will cost about $3,000, but will be hugely energy-efficient, providing a mileage of 34 km on a litre of petrol.
If the plan is approved by all three partners, the new car will emerge out of its plant near Pune in about four years. Besides the Indian market, Renault also wants to sell a slightly more expensive version – for around $5,000 – in the Western markets, including America.
Interestingly, Renault and Nissan had earlier tied up with another Indian automobile major, Mahindra & Mahindra (M&M), to set up a manufacturing plant in Chennai. Last week, M&M decided to defer its investment in the project; it would, however, continue with its tie-up with Renault for the manufacture of mid-size sedan, ‘Logan.’
But both Renault and Nissan are planning to go ahead with the Chennai plant. They will be investing a billion dollars in the new plant, which will churn out 400,000 cars a year.
Other international manufacturers, including Japan’s Toyota Motors and Honda, America’s General Motors and Ford Motor Company, South Korea’s Hyundai, European majors Volkswagen and Fiat and even China’s leading automobile manufacturer, Chery Automobile, are eagerly monitoring the small car segment in India and the new development – the launch of the Nano – as all of them are keen to enter the $2,500-$3,000 segment in India.
Small cars account for two-thirds of India’s domestic sales of about 1.5 million cars. They are likely to double to two million by 2010. The cheapest car in India today is produced by Japan’s Suzuki, which sells the Maruti 800 for about $4,800. But with high-end motor-cycles costing about $1,500; small car makers are eyeing this segment of the market.
THE Nano, dubbed the world’s cheapest car, will be powered by a two-cylinder, rear mounted, 33-bhp, 623-cc engine. The four door car can seat four to five people, reach a top speed of 105 km an hour and can run 20 km on a litre of petrol, making it the most fuel-efficient vehicle in the country.
The basic model – a lot of plastic has gone into its production – will have one long windshield wiper, a single side-view mirror and manual, four-speed transmission. Buyers can pay extra for power steering and power windows and for air conditioning.
Tata Motors, which initially plans to manufacture about a quarter million cars every year at its new plant near Kolkata, is targetting the millions of motor-cycle and scooter riders in India. According to Tata, he first thought of producing the car when he saw a couple with their child perched precariously on a motor-bike, riding on a busy Indian road.
In India, it is a common sight to see four to five people mounted on a bike. Accidents occur frequently, especially on slippery and narrow roads, where over-loaded trucks with maniacal drivers virtually drive the two-wheelers off the roads.
While western commentators describe the Nano as unsafe, Ratan Tata argues that the vehicle is targeted at motor-cycle riders, for whom it is a much safer option. The new car also meets all the safety and emission requirements in India. Seat-belts are now compulsory in cities like Mumbai, Delhi and Bangalore, and the government plans to make it mandatory for vehicle manufactures to install air bags and antilock brakes.
Automobile manufacturers have to comply with Euro III standards at present, but in about two years the government plans to introduce Euro IV emissions standards, with tough new sulfur emission levels.
But environmentalists ridicule the standards set by the government. According to Greenpeace India, carbon dioxide emissions are not taken into account while setting emission standards. It has urged the Indian government to set CO2 emission standards and force manufacturers to reduce emissions.
There are nearly 50 million Indians riding motor-cycles and scooters, and many of them will upgrade to a four-wheel vehicle that would cost a little bit more. Banks and finance firms are also flush with funds and are eager to offer car loans to the emerging middle-class. But this could lead to worsening pollution in Indian cities, adding to a huge surge in greenhouse gases.
INDIA’S automobile industry is growing at a phenomenal pace. This year alone, about 60 new models are likely to be launched by both domestic and international manufacturers.
According to official estimates, car sales are expected to jump to three million by 2015. Car penetration in India is still very low – it is less than 10 vehicles per 1,000 people. In China, the figure is 40, and in countries like France and Germany, about 500.
The automobile industry, which produces about 1.5 million cars every year, is worth about $35 billion. According to the government’s ‘automotive mission plan,’ auto sales are expected to balloon to almost $150 billion over the next eight years. The number of direct and indirect jobs in the auto sector is likely to double to 25 million by 2016.
All the leading international automakers have made a beeline for India, and are set to invest about $6 billion in new plants over the next three to four years. Besides the $1 billion that Renault plans to invest, Ford has unveiled plans to invest $500 million at its Chennai plant, where it will produce about a quarter million engines – mainly for exports – and about 200,000 cars every year.
Interestingly, Ford is all set to sell off two of its British luxury brands – Jaguar and Land Rover – to Tata Motors for about $2 billion. This would be the first major international acquisition by an Indian auto giant. M&M was also in the race for Jaguar and Land Rover.
General Motors, America’s largest – but troubled – automaker is also investing about $350 million in a second plant in India. Though it is known more for its gas-guzzling SUVs in the US, GM is eyeing the small car segment in India.
Japan’s Suzuki, which is today the largest automobile manufacturer in India, plans to invest about $1.8 billion in expanding capacity at its Gurgaon plant. Shinzo Nakanishi, Suzuki’s managing director, said last week that the company would make about 150,000 units of its new world strategic model, the A-Star, at its Indian plant. Suzuki would be exporting the world car.
Maruti’s capacity will be raised to a million units in just about two years, by when India would account for a third of Suzuki’s global sales. India will also emerge as a small car hub for Suzuki, which plans to export 100,000 cars to Europe from here.
India’s automobile sector is poised to switch into the over-drive mode, as leading manufacturers ramp up their production facilities over the coming months.
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