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backASIAtalk January, 2010

Indian market clutches German carmakers

As India, Asia's third largest economy, grows, hundreds of millions of Indians hope to have what the vast majority of Americans and Europeans nearly consider a human right - the keys to their own car.

If you've been to India recently, the one thing you'd think the emerging economy doesn't need is more cars. Plugged intersections, massive traffic jams and total parking chaos are daily nightmares for drivers in the country's larger cities. But that doesn't appear to be holding anyone back from buying their own car.

With more than a billion people, India offers huge potential for carmakers, including Germany's BMW, Daimler and Volkswagen, which are exhibiting at the Indian auto show Auto Expo 2010 through January 11.

The country's car market is growing at a rate or more than 10 percent a year, and there's plenty of room for further expansion. Currently, only one in 1,000 Indian citizens owns a car. In Germany, by comparison, that proportion is more than 500 to 1,000, according to the German Association of the Automotive Industry (VDA).

"It is a rising market," said Rajiv Kaul, chief organizer of Auto Expo. "Although the number of people who can afford (a car) as a percentage is small, in absolute numbers it's increasing quite rapidly.

Compact models in demand

Today, two Indian auto manufacturers dominate Indian streets: Maruti Suzuki and Tata. Combined, they sell more than a million cars a year, with Maruti Suzuki the market leader. The big sellers are compact models equipped with special features, such as modified suspension for rough roads, and engines customized for city driving.

But German carmakers, particularly VW, hope to carve out a sizable chunk of the budding Indian car market. After years of delay, VW opened up a new plant in Pune in early 2009.

The first vehicle to roll of the assembly line in the new plant will be new affordable version of its Polo, tailored for the Indian market. The compact model on display at the auto show in New Delhi is scheduled to hit Indian roads in March.

VW is also rumored to be in talks with Maruti Suzuki about the joint development of a new, low-cost car. The rumors, which began in late December, came on the heels of the German carmaker's acquisition of a 19.9 percent stake in Japan's Suzuki.

"A sense of commitment"

"Volkswagen has done extremely well in China, being the first there," said Jayant Davar, president of India's Automotive Component Manufacturers Association. "Here, I think, they lost the advantage of being a first mover but they are coming into India with large investments and there is definitely a sense of commitment."

Luxury carmakers BMW and Daimler also aim to expand their business in India. The Bavarian manufacturer unveiled two new models targeted at Indians with deep pockets. Although Daimler has been a player in the Indian market since the early 1990s, the company has been more successful selling trucks than cars. But with new models on display at the Indian auto show, the Stuttgart-based firm appears determined to establish a stronger foothold in the car sector, albeit at the higher end of the market.

How big a market the high-end is remains to be seen, however. An increasing number of Indians have become wealthy, thanks to numerous European, Japanese and US companies building factories in the country and outsourcing services. But chronic poverty remains a widespread problem. The World Bank estimates that just over one quarter of the Indian population was living on less than one US dollar a day in 2005.

Source: Deutsche Welle - GAI

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