India: Despite drop in car sales, Global auto giants Volkswagen, Toyota, Ford convinced about prospects in long haul

The Economic Times - Depending on whom you ask or what you read, China has between 100 and 250 carmakers. Joint ventures with the global biggies dominate the top 10 - think General Motors (GM), Volkswagen (VW), Toyota, Ford, Nissan, Hyundai - and a rash of domestic players makes up the rest of the pack. The sheer number of players may not come as a surprise considering China is the largest car market in the world - in 2010, 13.8 million units were sold.

The Indian car market is roughly a seventh of the Chinese one, and at last count, there were a little over 20 major players - mostly multinational - in the race with close to 40 brands. The difference: the top three are not global leaders by any yardstick. There's no Toyota, GM, VW - the global one-two-three - at the top of the India grid. Rather, there's Maruti, the affiliate of world No 9 Suzuki at pole position, followed by Hyundai Motors (No 8 globally) and home-grown manufacturer Tata Motors in third spot.

What's more, the top three rather remarkably control almost 70% of the Indian car market, with the Detroit giants GM and Ford (globally No 2 and No 4, respectively) relegated to 6th and 7th position, Toyota at No 5 and VW at No 8. Much of this, of course, has to do with Suzuki's early entry into India, via a joint venture with the government in the early 1980s when the competition at that time was sparse and outdated. Ford, GM, Toyota and Honda began Indian operations over a decade ago but have met with limited success thanks largely to their top-down approach of first launching cars at the higher end of the market where margins are fatter but volumes slim.

A situation in which global leaders are also-rans with market shares in single digits is unimaginable in most other parts of the world.

But that situation may not hold for too long back home. For, even though growth in car sales fell by 15% in July to touch a two-year low, global auto majors are convinced about prospects in the long haul. Abdul Majeed, auto practice leader at PricewaterhouseCoopers (PwC) expects the Indian car market to more than double to five million from 2.2 million units in five years.

ON THE GROWTH PATH

In contrast, growth in developed markets is subdued. In the Eurozone, growth in car sales is expected to decline by 2-4 % in 2011. The saviour for global Big Auto, as in the case in many other industrial categories, is of course the much-touted cluster of developing economies. The July skid notwithstanding, car sales are still expected to grow by 10-12 % in India in 2011. "The growth story is intact. This (drop in July) is just a temporary blip. All car manufacturers need to expand operations," says Sandeep Singh, deputy managing director, Toyota Kirloskar Motor, the joint venture in which the Japanese giant holds 89%. "If inflation is tamed, interest rates will come down. There is a huge opportunity and we have to move fast with our expansion plans," he adds.

The world's largest carmaker by sales, Toyota, intends to boost its share of emerging markets from 40% in 2010 to 50% in two to three years on the back of growing sales of fuel-efficient small vehicles. That in a line sums up the name of the game for the auto majors: ramp up capacities at the entry levels with affordable and snazzier models. "The Indian market is much bigger for us now than in the past," says Hiroshi Nakagawa, managing director of Toyota Kirloskar Motor.

The renewed focus on the mass market - more than half of the cars sold in India are compacts and hatchbacks - promises to change the name of the game. VW, one of the newer entrants into India - it began operations in 2007 - has achieved what many of its global counterparts could not do in more than a decade: a market share of 3% in four years. It has done so by launching competitively-priced models -the Vento that was priced lower than the hitherto bestselling Honda City in the mid-size segment; and the Polo premium hatchback is VW's cheapest car in India.