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August 14, 2008 Source: www.AsiaEcon.org India's automobile sector may become one of the global leaders by 2012. In fact, India's automobile sector is the tenth largest in the world with an annual car production of 2 million out of the world's 73 million.


India’s automobile sector may become one of the global leaders by 2012. In fact, India’s automobile sector is the tenth largest in the world with an annual car production of approximately 2 million out of the world’s 73 million. India is the largest motorcycle manufacturer and the fifth largest commercial vehicle manufacturer. Currently, India dedicates 75 percent of its automobile industry to small cars, more than any other country in the world. India is expected to witness more than a dozen new compact car models in the auto market in the next few years.

All-time highs in fuel prices and inflation have not dulled demand for automobiles. The last quarter has seen a substantial growth in sales of passenger cars and commercial vehicles on a year-on-year basis. Over the past year, the automobile industry has achieved a turnover of $34 billion, and the auto component industry has reached a turnover of $10 billion. In addition, India’s tire industry has registered a turnover of almost $3 billion. The contribution of the automotive industry to GDP rose from 2.77 percent in 1992-1993 to 5 percent in 2006- 2007. Both passenger car and commercial vehicle sales are up. India’s automobile sales are expected to grow at a CAGR of 9.5 percent up to 2010.

India’s automobile and global automotive giants, including General Motors (GM), Volkswagen, Honda, and Hyundai, have announced huge expansion plans. Because of its large market, low base of car ownership (25 per 1,000 people), and surging economy, India is well on its way to becoming an outsourcing country for global auto companies. The list of upcoming cars in India include the Maruti A-Star (Suzuki), Maruti Splash (Suzuki), VW Up and VW Polo (Volkswagen), Bajaj small car (Bajai Auto), Jazz (Honda), Cobalt, Aveo (GM), and more.

India has seen an increasing number of global players entering it’s market by way of joint ventures, collaborations, and wholly owned subsidiary. Earlier this year, South   Korea’s top automaker Hyundai opened a second assembly plant in Sriperumbudur. Hyundai told Auto Beat ASIA that the company will maintain its focus on the compact car market, which accounts for more than 70 percent of new vehicle sales. Hyundai India sold 327,200 vehicles in 2007, up more than 9 percent compared to last year. They expect to sell about 530,000 vehicles in the current fiscal year which will account for 45 percent of India’s auto exports. Hyundai is planing to invest $1 billion in India by 2013 and will employ up to 4,235 people during these years. Meanwhile, Hyundai has opened a new research and development center in Hyderabad. The staff is expected to grow from 250 to 800 people by next year. Hyundai also plans to increase its dealer network in India by 70 to 300 outlets by the end of 2008. The company has announced that it hopes to bring their next small car, the I20 model, into India’s market by 2011-2012. The I20 will have a price tag of $3,500 making it the second cheapest car after Tata’s $2,500 Nano model.

Beside Hyundai, the German auto maker Volkswagen is launching its new assembly plant near Pune six months earlier than expected. On the commercial vehicle front, Volkswagen plans to begin selling buses in India early next year. This will be followed by trucks and business vans. Because India is the world’s fourth largest commercial vehicle market, Volkswagen will invest $870 million in the Pune site to build 240,000 vehicles per year in India by 2012. The plant will employ 2,500 people and have a capacity of 110,000 units per year. The mini-cars “Polo Compact” and “Up”, which have been selling very well in Europe and Latin America for many years, are also expected to be added to the production mix starting in 2009. In addition, Volkswagen reported in July 2008 that its small car will be specially- designed for India and will be launched in 2010.

India’s booming car market has prompted the Japanese car maker Honda to start work on a brand new car platform. Honda doubled the capacity of its plant near New Delhi to 100,000 units annually, spending $405 million on the factory. Honda is setting up its second car manufacturing unit in Rajasthan at an investment of $239 million with a capacity to produce 60,000 units in the first phase of 2009. By the year 2014, Honda plans to expand the facility and increase its production capacity to 200,000 units per year. To meet the expected production output, the new plant will be employing 4,000 workers. This means that Honda will not only benefit from the growing market in India, but they will also be stimulating the country’s economy. Honda assembles 3 models in India: the Accord, City and Civic. Next year, however, Honda will start making its first small car, the Jazz, in India.

The world’s largest American automaker GM may be losing big money in its home market, but it is still doing well in India. The company’s investment in India is poised to cross $1 billion even as it is close to commissioning its second Greenfield plant at Talegaon in Maharashtra. GM has also invested another $300 million in its Gujarat plant where the existing facility of 60,000 units has been increased to 85,000. GM’s market share has increased by 30 percent during the current year while the company has initiated process of constructing more plants in Gujarat, Bangalore and Maharashtra. Production may increase by as many as 300,000 units in the near future. It will have an initial annual production capacity of 140,000 vehicles and will employ more than 1,000 people. For a small market, GM India currently markets a small car called “Chevrolet Spark” with a price tag of $7,350. GM India is targeting sales of 45,000 cars this year and 75,000 cars next year.

India’s Automotive Industry has been the recipient of major foreign investments. For this year, the Indian automotive industry is worth around $34 billion a year and contributes about 5 percent to India’s GDP. It produces about 1.5 million vehicles with half a million of them earmarked for export. It employs 13 million people either directly or indirectly.

India’s automobile market expects to launch 12 new models by the end of this year, spanning everything from small and affordable cars to SUVs. As a result by 2010, India’s capacity could triple to 3.1 million vehicles a year, which is about the same as China’s market size today. The government’s Automotive Mission Plan calls for automotive sales to more than quadruple and for the auto sector’s employment to grow from around 13 million to 25 million people by the year 2016. India’s low-cost manufacturing advantage combined with a robust vendor base for components make a compelling case for it to be a global leader in small cars.

Source: www.AsiaEcon.org

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Source: www.asiaecon.org |

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