Indian Potential
January 15, 2007
Last year, more than 1.3 million new cars were added to India's already congested roads as auto production continued running in overdrive. India's automobile sector is currently growing at an estimated 17 percent a year.
Add that to an annual growth rate of almost 10 percent and it's not difficult to see why the German car industry -- which has thus far focused largely on China -- is increasingly training its sights on India.
DaimlerChrysler, VW lead the way
Earlier this month, DaimlerChrysler AG, the world's second-largest luxury carmaker, said it was investing 44 million euros ($57 million) to build a new assembly plant in the western Indian state of Maharashtra. The state is already home to factories of Tata, Renault and Fiat SpA.
By 2009, the Stuttgart-based German-American carmaker -- which currently assembles the E-Class, C-Class and S-Class models in India -- plans to roll out a further 5,000 luxury models a year.
Wolfsburg-based Volkswagen last year signed a whopping deal worth 410 million euros -- the single-biggest foreign investment in Indian so far -- with the government of Maharashtra to set up a production facility on the outskirts of the rapidly growing city of Pune. The plant will manufacture the Passat and other models.
Volkswagen's affiliate Audi AG will also begin work on producing the A6 sedan in India this year.
Mercedes as a status symbol
"The Indian car market has huge growth potential," said Thomas Becker, deputy head of the German Car Industry Association (VDA). He pointed out that German carmakers in India saw growth rates of over 33 percent in 2006, double the rate of the Indian market as a whole.
Though German carmakers only have a market share of around one percent in India, Becker stressed that it was changing fast given that they had a solid presence in the luxury car segment. "It's really important that you're up there in the high-value segment nice and early," he added.
Dilip Chenoy, head of the Society of Indian Automobile Manufacturers (SIAM) said German carmakers are prized for their luxury cars and diesel technology.
"German cars are valued for their quality and sturdiness," Chenoy said, adding that most of them boasted sophisticated technology, a smooth drive and sleek looks and contrasted greatly with the traditional image of lumbering diesel-powered cars.
Chenoy added that German luxury cars had also become something of a status symbol among India's upwardly mobile and wealthy classes.
DaimlerChrysler -- with more than 80 percent of the market share -- is the unmistakable leader in the luxury segment.
"The cars are a 'statement' and they're the vehicle of choice for many managers," Chenoy said. "The main buyers are big companies," said Chenoy, adding that the Mercedes is usually bought by an increasingly affluent new class of entrepreneurs in northern India.
Problems remain
Despite India's robustly growing economy and surging consumer confidence, the country's road network, hampered by potholes and heavy congestion, still needs to be expanded.
German carmakers say that strengthens the case for setting up their own production plants in India, also arguing that in light of high Indian import tariffs, it makes sense to ship auto parts from Germany and assemble the cars in India.
"This process is usually preferred as a first step towards setting up your own production in many emerging markets," Becker said, adding that the operation in no way undermined the performance of the car or damaged Germany's high reputation for quality products.
German carmakers say that one way to lower high import tariffs and dismantle other barriers to investment in India would be to set up a free-trade zone between the EU and India next year. That would also make it easier for India to export cars and auto components to Europe.