- Thursday, April 25, 2024
By: Shubham Ghosh
FOREIGN automakers have always eyed India’s booming market but once the devastating second wave of Covid-19 wreaked havoc, the hopes have faded faster than the pick-up of their top-end models. Moreover, limited government room for more stimulus spending suggests that the country’s recovery rate could trail that of China and the United States by far.
According to a report by Reuters, manufacturers that witnessed nearly a decade of sales growth in India getting wiped out in 2020 are now hoping to see the demands bouncing back this year. But the recovery could be seen more in the sector of small and affordable cars – the one which is dominated by domestic leader Maruti Suzuki and Hyundai – instead of the premium models made by most foreign makers, industry executives and analysts fear.
Foreign makers falling far behind their goals
For firms like Ford, Honda, Skoda, Nissan and Volkswagen, the facts that their Indian factories are working much below capacity and sales lagging the original plans by far pose serious challenges for future investments. One senior executive with a western automaker told Reuters on the condition of anonymity that it is nothing but a survival issue.
“Choosing to remain in India depends on the cost benefit analysis of other international markets,” the executive said before warning that if the outlook remains dull, the number of automakers in the country could diminish.
It may be noted here that India has already seen General Motors and Harley Davidson shutting their shops last year.
Anurag Mehrotra, managing director at Ford India told Reuters that the car market has not seen a growth as projected and the pandemic has made things worse, impacting domestic sales and exports. “The uncertainty in the long-term growth prospects of the auto industry and economy have resulted in serious challenges, including capacity utilisation,” he said. The top executive said the current crisis demanded “agile solutions and tough decisions” but stopped short of sharing details of Ford’s plans. Ford had said previously that it is working on a new plan for the India market.
Volkswagen trying hard to improve position
German automaker Volkswagen, which revised its India strategy a few years ago by giving operational control for the group in India to its Czech subsidiary Skoda, reiterated its plan to invest $1.2 billion to bag five percent of the market by 2025 with new launches that include two SUVs in 2021. Its target is to continue building and reinforcing the group’s position in India, a spokesperson for Skoda Auto Volkswagen said.
According to the Society of Indian Automobile Manufacturers (SIAM), automakers like Ford, Honda, Skoda and Volkswagen witnessed their sales in India plummet between 20 -28 percent last fiscal year through March 31, which is more than twice the decline seen by Maruti Suzuki and Hyundai.
Ten years ago, forecasts said India will become the world’s third-largest car market by 2020, next only to the US and industry leader China. But high taxes on large cars and SUVs that disproportionately affect foreign makers, coupled with the economic slowdown of 2019 and the current pandemic has held it back two ranks below what was expected. Germany and Japan are also ahead of the country besides the top two.
India has a potential but still it has miles to go
Indian consumers have a purchasing power which is far below than that seen in the West, with the weighted average price of a car at $10,000 compared to $38,000 in the US, Ravi Bhatia from UK-based consultancy JATO Dynamics said. Long-term potential remains for India, which is home to only 27 cars per 1,000 people, with consultant LMC Automotive expects Indian car sales to go up by 35 percent this year to 3.17 million from 2.35 million in 2020, a decade-low figure. But yet India’s figures are much less compared to those of China which is expected to grow by seven percent to reach 22 million vehicles this year and the US, by 21 percent to 13.5 million.
