Will try and make a dent at the lower end of the pyramid.
New Delhi, Nov. 9 The entry of SAIC Motor Corporation (better known as Shanghai Auto) into the Indian market a few weeks from now is a clear signal that the Chinese are serious about going global.
SAIC is learnt to have finalised a deal with General Motors where it will pick up a 50 per cent stake in its Indian arm. In the process, the company will bring to this part of the world light commercial vehicles which will compete with established players such as Tata Motors, Mahindra & Mahindra and Piaggio.
Just a few weeks earlier, Premier Ltd (the former Premier Automobiles, one of India’s old carmakers) entered into a pact with the Zotye group of China to put together and retail its compact sport-utility vehicle in India. While the product will sport the Premier badge, Zotye will also end up building its brand here in the process.
Nissan, which is getting ready with its small car for India, has indicated that certain parts like the engine control unit and headlamps will be sourced from China. As sources say, this is not a trifling matter since the engine is one of the most critical components in a car. Nissan believes it makes sense because it has already achieved economies of scale in China which will help its other global operations, particularly India and Thailand, from the viewpoint of cost-control.
Till a few years ago, not many people took the Chinese seriously. When some Indian automakers began to fit their vehicles with parts from China, the first reaction was that these were cheap and would not last. There were concerns, though, that this cost structure could put Indian ancillary suppliers under pressure and the tyre industry, in particular, was (and continues to be) concerned about cheaper Chinese imports.
At one level, this was still not a major cause for concern as it only concerned a clutch of auto components. And even when companies such as the Aurangabad-based Endurance tied up with Wanfeng of China to manufacture alloy wheels here, there was comfort in the fact that the Indian partner would have a bigger role to play.
However, the last few months, since the Lehman crisis broke out in 2008, have clearly shifted global attention towards China. A tottering GM sold its Hummer business to Tengzhong, a Chinese construction equipment maker. A few weeks ago, Ford announced that Geely Automotive of China was its preferred choice to buy out its Volvo Cars division in Sweden. This could have implications for India where Volvo Cars is already present.
Now, it is learnt that multinationals operating in China with local partners (the joint venture route is mandatory there for cars, unlike India, where the foreign partner will not be allowed a majority stake) will now have to set up another company with a local R&D base. Clearly, the goal is for local carmakers in China to improve their manufacturing standards to take on the world.
What does all this imply for India’s automotive industry? Sources say that the coming years will see more and more Chinese companies enter this market and compete on their biggest advantage which is lower costs. “The challenge could come in the light truck segment and even cheaper cars. There is no threat on the two-wheeler side since the likes of Hero Honda, Bajaj Auto and TVS Motor are well established,” they add.
Where the Chinese will try and make a dent is at the lower end of the pyramid where affordable products can generate demand. The Wuling trucks (from GM India and SAIC) will be the acid test as also Premier’s Rio compact SUV. The lessons learnt will be used to make products that could be even more relevant to the Indian consumer.
Indian companies such as Mahindra & Mahindra and Bajaj Auto are also using China to make tractors and two-wheelers (for markets like Africa), while component makers such as Bharat Forge and Sundram Fasteners see good business potential in terms of servicing bigger multinationals.
For the moment, the Chinese are roaring ahead with monthly car sale of a million units which is marginally lower than what India produces annually.Related Stories:
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Made in India, shipped to China, Thailand