Tuesday, October 14, 2008
It’s not all doom and gloom for India in this time of economic hardship. The credit crisis currently engulfing the world could even mean new opportunities for the automobile industry here. Even as bankruptcy fears for US automobile major General Motors (GM) gather steam, Asian and European manufacturers are considering moving production of small cars to India. In recent weeks, Hyundai, Toyota, Honda, Renault-Nissan and Volkswagen have all announced their plans to ramp up production capacity to meet demand from not only Africa and Asia, but also a previously under-explored high quality market like Europe. With the increase in oil prices and rising concerns over climate change the world over, cheap, compact and fuel-efficient cars are becoming popular, even in countries like America. Sport utility vehicle sales were down by over 40 per cent last month over the same period last year in Europe and America. Sure, some markets are bucking the trend, but overall car makers seem to be looking to develop small car alternatives to their current gas guzzlers. And manufacturers facing the classic problem of attempting to make money from small cars may find it enticing to ramp up production in India, given lower costs here. To an extent, the shift is already happening. Passenger car exports from India have increased by five times in the past five years. Exports over the next three years are expected to increase by 300 per cent. According to reports, the country’s second largest automaker, Hyundai, is aiming at an 8 per cent rise in exports for the rest of the year, with an increase in production targeted for next year. There are plans to export one model to the US. Other companies, even the embattled GM and Ford, are planning offerings that will bear the ‘Made in India’ tag. And Tata Motors’ home-grown Nano has drawn unprecedented attention from the global auto industry, adding to India’s growing reputation for offering innovation and quality at low costs, borne out by Hyundai’s quadrupling of its research and development arm in the country. As good as things are, however, they could be still better. Despite current robust growth, India remains a relative flyweight in the global auto industry. It exported only 2,00,000 passenger vehicles last year. By contrast, Japan exports five million cars a year and South Korea about three million. Analysts attribute this gap to a lack of adequate transport and energy infrastructure. Politics too can play spoiler, as Tata’s difficulties in setting up a Nano plant have shown. Still, India is adding capacity faster than the developed world. If we adopt the right policies, auto exports should increase as manufacturers look for lower cost alternatives at a time of near-recession in the developed world.