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'India's car market will be totally different in three years'

Neena Haridas in New Delhi

What makes the Indian car market a haven for few and a hell for others? Why could not the foreign auto companies overtake the long-time market-leader Maruti? These are some of the questions which bother multinational companies seeking to make a mark on the automobile industry in India.

Delegates at the India Economic Summit in New Delhi said the Indian car market has a long way to go in terms of brand equity.

S G Awasthi, managing director, Daewoo Motors-India, said the WTO-driven market might be beset with the problem of organised dumping by global producers. As for the export possibilites, India has not yet established abroad an image of credibility, reliability and quality.

Till Becker, vice-chairman and CEO, Mercedes-Benz India, said the WTO agreements will be implemented but "they will not make a lot of difference due to the lingering protectionism under the guises of different market structure or a different rate of development."

Reflecting on his company's non-too-impressive show in India, Becker said the problem with the Indian car market is that it is divided into three segments of unequal weight. He said, "One, 80 per cent of all passenger car sales are of cars at the lower end of the market, priced between Rs 200,000 and Rs 600,000. This market is highly price-sensitive and fiercely competitive.

"Two, there are very few players in the higher price range. But then, of course, demand in this segment is little. As a result, the manufacturers of high-end cars face excess capacity."

In fact, Becker suggested that there is a need for a global strategy on the part of those companies that are serious about Indian market. Which is why several MNCs have already decided to make India a production base for the Asian markets. He added, "It is imperative for the players to develop newer models faster in order to keep up with the pressure of globalisation and technological advancement."

The problem with such moves by MNCs is that India will continue to be a highly price-sensitive market. "Additional pressures will be felt in terms of protecting the environment and demanding quality. But the good news is that both these issues are being addressed quickly than expected."

Awasthi agreed with Becker but reiterated that Indian car market suffers from what he calls the dual sets of forces -- on the one hand, growth and optimism, and on the other, scepticism, apprehension and doubts. Awasthi added, "The passenger car segment is attractive in terms of demand potential, but numerous producers have been losing money. Even in this environment, some major qualitative shifts are discernible because today's customers are becoming more demanding. The fact that consumers have started demanding sleek looks, high quality, good service and technological advancement in their vehicles indicates a shift from money to value.

"At the same time, the market remains very volume-sensitive as manufacturers strive for economies of scale while creating value that is percieved, recognised and accepted by consumers. As a result of these dual pressures, the small car niche continues to undergo re-segmentation along the price/value quotient.

"In addition, the demands of production along sufficient economies of scale mean that producers must think globally while meeting the requirements of various local markets. This will make joint ventures and mergers and acquisitions more common. But one thing is clear, the Indian market will be totally different three years from now."

Shummet Banerji, vice-president, Boz Allen & Hamilton, India, management consultants, said that after two years of stagnation, the current year has seen incredible growth in passenger car demand, a year-on-year growth of over 50 per cent in the past six months. "High demand growth is especially notable in the small car segment with players such as Telco and Hyundai that continue to shift positions."

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