Toyota Motor Corp., Honda Motor Co. and other automakers unveiling vehicles in India may take years to recoup their investments as inexpensive minicars and a wave of new models will lead to discounting, analysts said.
At least 10 models were introduced at the Delhi Auto Show this week as companies rush to India to boost sales and counter a slump in the U.S., Europe and Japan. The carmakers risk an erosion in profit margins as in China, where three of the nation's top 19 carmakers posted losses even after record industrywide vehicle sales.
"The probability of a price war does appear to be very high in India now," said Mahantesh Sabarad, an analyst at Centrum Broking Ltd. in Mumbai. "While sales will rise, margins will contract."
Ford Motor Co., General Motors Co., Volkswagen AG and other carmakers will add at least six more minicars and hatchbacks in the next two years as automakers invest $6 billion in India. Maruti Suzuki India Ltd., the country's dominant carmaker with 52 percent of the market, has suffered a drop in profit margin to 5.94 percent in the year ended in March from 10.79 percent two years earlier under pressure from rivals.
"When you are in a competitive scenario where you will have at least 10 to 12 other manufacturers eyeing for the same segment, you will be under pressure in terms of pricing," said Sandeep Singh, a deputy managing director of Toyota's India unit. Toyota aims to triple its market share to more than 10 percent by 2015.
