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J.D. Power study pegs India as 3rd largest vehicle market by 2020; small car focus

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Light-duty vehicle sales, 2010 vs. 2020. Source: J.D. Power. Click to enlarge.

India surpassed France, the United Kingdom and Italy to become the sixth-largest automotive market in the world in 2010, and it is expected to become one of the three largest automotive markets in the world by 2020, according to a special report titled “India Automotive 2020: The Next Giant from Asia,” released by J.D. Power and Associates.

More than 2.7 million light vehicles (passenger cars and light-commercial vehicles) were sold in India in 2010, up from just 700,000 light vehicles sold in 2000. Due to increased economic activity and a more consumer-driven culture that has developed during the past 20 years, India—a country with a population of nearly 1.2 billion—is expected to reach 11 million light-vehicle sales by 2020. This would make India the third-largest light-vehicle market in the world, behind China (expected to reach 35 million light-vehicle sales in 2020) and the United States (expected to reach 17.4 million sales in 2020).

India has quickly become one of the largest and fastest-growing automotive markets in the world. This momentum has been driven by a more open and market-driven economy, an empowered and less risk-averse work force, a more consumer-driven culture and an emphasis on small car production.

—John Humphrey, senior vice president of global automotive operations at J.D. Power and Associates

In addition to policies favoring general market liberalization and encouraging foreign investment, India’s government has pursued policies meant to support development of India’s automotive industry, the report says. The main thrust of these policies has been to position India as a global hub for small passenger car production.

These policies include a reduction on the sales tax of small cars (defined as those less than 4,000 millimeters in length and with an engine displacement of 1.2 liters or less), and providing financial incentives for automakers to build and export vehicles overseas. As a result, many automakers have been shifting their small car production operations to India, or designing vehicles specifically to fit Indian market needs.

In 2010, nearly 80% of all new passenger vehicles sold in India were classified as either mini cars or subcompact passenger cars. By comparison, the mini car and subcompact segments accounted for only 24% of passenger-vehicle sales in China in 2010, and just 3% of passenger-vehicle sales in the United States.

The average transaction price for all new passenger vehicles sold in 2010 in India was about $10,000 (compared with $17,500 in China and $28,000 in the United States), while the best-selling passenger car in India—the Maruti Suzuki Alto—had an average transaction price of about $6,200. While India’s emphasis on small vehicles has helped sales to grow quickly, it also means that automaker earnings will depend primarily on small car segments, where profit margins are traditionally thin.

Should fuel prices continue to climb globally in the future—and as demand for inexpensive and reliable transportation increases in many of the world’s developing markets—India could find itself well-positioned to fulfill the needs of the small car segment. That said, profit margins are thinner in the small car segment, so automakers are going to need to manage their businesses carefully to optimize profits.

—John Humphrey

While significant progress has been made in building the Indian automotive industry, there are challenges that could impede India from reaching its future potential. Economists and automotive industry executives believe that much still needs to be done to smooth the way and drive the country forward.

“Much of India’s future growth in the automotive sector will depend on successfully creating the infrastructure to support its economy.”
—John Humphrey

In India, government, business and academic officials regularly refer to India’s “three deficits” as reasons for caution about India’s future growth. These “deficits” are continual international trade deficits; chronic government budget deficits; and an underdeveloped power generation and distribution infrastructure.

While it was India’s recurring budget and trade deficits that essentially forced the country to liberalize its economy and industries in the early 1990s—and some improvement has been made in these areas, the report notes—the country’s lagging infrastructure poses the biggest potential obstacle to future growth. To assure the country’s continued economic development, the Indian government has earmarked billions for investment in power generation and road/rail networks.

In the automotive space, most senior executives agree that a fourth “deficit” also exists: the lack of a broad-based automotive components and parts production industry, as well as the engineering talent needed to carry the automotive components industry forward.

Right now, much of the industry still depends on smaller local parts makers to produce components for vehicles. For India to build vehicles of high quality, and in large volumes—especially for export—significant improvements to the components industry will need to be made.

—John Humprhey

Comments

SJC

Make a Tata Nano EREV like the Suzuki and sell them.

HarveyD

Considering the strong possibility that USA may still be in their Wall Street man made structural financial institution crisis, India may very well catch up (unit wise) with USA sooner than expected.

Of course, the $$$ value is going to be much less in India and even in China, for many well known reasons. They will build and buy smaller, more fuel efficient, lower price units. Our favored very large pick-ups to do have the same appeal over there.

It will be very interesting the see the relative penetration of electrified vehicles in those three large markets, by 2020+.

HarveyD

correction....third line in para 2 should read...very large pick-ups do NOT have the same appeal ...

SJC

We don't seem to invest in new companies anymore. Hedge funds chase T bonds and the highest yield in the game of churn and burn. One day we may wise up before it is too late.

HarveyD

The land of mass production is quickly becoming the land of mass speculation. This is the recipe for another major crash. How long can we keep printing more green backs and borrowing to buy Chinese-Korean-Japanese goods and import crude oil?

Mass production of future batteries and electrified vehicles for the local market is something that should be done locally. If not, the automobile-truck-bus-subways-locomotive industries will fold by 2030. That would be another major blow to the US economy. Most of the bus-subways-locomotive industries have moved out already.

SJC

We may want to produce HEV/PHEV/EV in the U.S. but just reducing imported oil through less oil consumption is a good goal that will help the country. It would help even more to make them here, but that is out of the hands of policy makers. The PNGV program showed it could be done, but the U.S. car companies went back to large SUVs and Toyota made the Prius.

ToppaTom

I don't see what speculation has to do with jobs going overseas.

Speculators drive up gas prices BEFORE we run out of oil because the politicians lack the will.

I admit that the little speculators did help the collapse by buying houses they could not even afford to rent, because we just KNEW house prices would go up forever and our government helped them get loans.

Labor costs (and union overhead) have driven manufacturers of almost all goods overseas - and the present administration blames those that still pay (rather than those who get) taxes.

The PNGV program and the Insight-I showed it could NOT be done unless cost was no object and marketability were of no concern.

The old GM designed the Volt and Toyota made the Prius (and the Sequoia) - both EVs not yet, and NOT SOON (even if you include ALL hybrids) to capture any significant share of the market.

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