Maruti rules India’s car market
By Rina Chandran and Chang-Ran Kim
MUMBAI/TOKYO: Last month, India’s top car maker Maruti Udyog Ltd. hosted 2,400 dealers from Japan’s Suzuki Motor Corp., who arrived on 16 chartered planes to visit the Taj Mahal and see first-hand how Maruti dealers operate. Suzuki, which owns 54.2 per cent of Maruti, wanted its salesmen to learn how Maruti dealers in India sold more than half a million vehicles through 300 dealerships last year, while 3,500 Suzuki dealers in Japan sold 700,000 vehicles.
“When Suzuki decided to invest about half of Suzuki Motor Corp.’s yearly profit in India, many Japanese businessmen were concerned about making such large investments in India,” Suzuki Chairman and Chief Executive Osamu Suzuki told reporters.
“But I thought, Suzuki is not number one in Japan, so let’s go to where we can be number one.”
In the two decades since the launch of its mini 800, Maruti Udyog has been firmly in the driver’s seat, leaving Japanese and US rivals far behind in Asia’s fast-growing, third-biggest car market after China and Japan.
Maruti accounts for more than half of India’s annual 1.1 million unit car market, and with a diesel-powered model launch due this year and a recent excise tax cut on small cars that will make it even tougher for makers of bigger cars, it looks comfortable out in front.
Only South Korea’s Hyundai Motor Co. Ltd. and local Tata Motors Ltd. are visible in Maruti’s rearview mirror, but global giants such as Toyota Motor Corp., Honda Motor Co. Ltd. and General Motors Corp. are way off the pace.
“Firms like Toyota, Honda and GM have to quickly firm up plans for their small cars, or they’re going to fall behind even more,” said Kalpesh Parekh, an analyst at ASK-RJ Securities.
Akira Okabe, who heads Toyota’s Asia, Middle East and Oceania operations, told Reuters recently Japan’s top auto maker was years away from mapping concrete product plans for India, citing difficulty in lowering costs.
Toyota now makes its Corolla sedan and Innova minivan at its plant in India for the high end of the market.
“(Toyota’s) decision not to enter this market for the time being supports our view that economies of scale and a solid cost base are absolutely necessary to achieve a profitable business proposition,” said Kurt Sanger, a Tokyo-based analyst at Macquarie Research.
“The scale enjoyed at Maruti Suzuki is not easily matched.”
Margins in the small car segment are thin, and a company needs to be long on both money to invest, and patience.
“The small car segment especially requires economies of scale, as it is a small-margin, big-volume play, which needs a high degree of localisation to keep costs low,” Parekh said.
Honda, which plans to add the Civic sedan this year to its line-up, has said it has no plans yet to compete in the mini segment, which features India’s top five top-selling models.
GM, which like Toyota is looking to more than triple its Indian market share to 10 per cent by 2010, saw its small car plans delayed after it abandoned a three-year attempt to build a local Daewoo car plant.
The US auto maker has said it would consider a new plant or a retooling of its Halol plant to make the Spark compact.
“You can’t be a major player in this market without a mini car,” GM India President Rajeev Chaba has said.
Small cars make up three of every four cars sold in India, and a recent tax cut to 16 per cent is expected to boost their popularity and sales even further, perhaps at the cost of mid-sized cars.
The move has angered companies such as Ford Motor Co, which had seen growth in the mid-sized segment in the last couple of years on rising disposable incomes and cheap loans.
“We’re artificially tweaking the market now,” said Arvind Mathew, president of Ford India, saying he would only consider going smaller if there was a particularly strong response. “But I’m not going to chop up my bumpers to meet the requirements.”
Analysts and car makers say a major hurdle to selling in India at a reasonable cost is the need for unique models.
“You need a product that specifically works in Indian conditions ... you can’t just launch something you have in other markets,” ASK-RJ’s Parekh said. In contrast to its rivals, Maruti will invest $719 million in a new diesel plant and another $611 million on new cars over the next five years. —Reuters
Source Dawn