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One quits while three drive into India car parc

Murali Gopalan | Updated on March 10, 2018

Changing hands: The erstwhile GM plant in Halol, Gujarat, will now serve Chinese auto-maker SAIC

Carlos Tavares

While GM bowed out, PSA, Kia and SAIC threw their hats into the ring during rollercoaster 2017

As 2017 draws to a close, the Indian automobile industry will have reasons to feel quite pleased with its showing.

After all, there were shocks in the form of the Supreme Court order on Bharat Stage IV, which meant liquidating older stocks in barely 72 hours before April 1. Then came the Goods and Services Tax three months later, which ushered in a new fiscal regime though automakers negotiated the transition without too much of a fuss.

Of course, there were companies that stood out during the year like Maruti Suzuki, which just continued to grow from strength to strength and has half the car market in its kitty. Hyundai remains its only notable rival with other players in the single digits in market share. Maruti has also gone beyond its small car image to retailing a range of diverse models.

GM exits

The year also saw a prominent exit in the form of General Motors in April after two decades of operations here where it had precious little to show in terms of market share. It also shut down its Halol plant in Gujarat, which has now been taken over by its close Chinese ally, SAIC Motor Corp.

GM is now using its Talegaon facility near Pune to manufacture and export cars though speculation is rife that this may eventually go the Halol way. Beyond India, the American carmaker has shut down operations in Russia, Indonesia, Australia and South Africa, which means that it will focus on China, Latin America and, of course, the US. It also sold its Opel brand in Europe to PSA of France, known for its Peugeot and Citroen brands.

While GM was the big ticket exit, this was made up by significant investment announcements from PSA (the first to bid adieu to India two decades earlier), Kia Motors of South Korea and China’s SAIC, which will roll out the MG brand of cars from the former GM facility in Gujarat.

Enter Kia and PSA

Of the three, Kia will be especially interesting since it is part of Hyundai, which has been the only carmaker to emerge a serious rival to Maruti Suzuki. It has decided to set up its plant in Anantapur, Andhra Pradesh, which will be up and running by 2019.

Kia will have synergies with Hyundai at the back-end where it can access a competitive costing structure in the form of component suppliers. Both will, however, compete at the front end and Kia will be the third Korean brand to enter India after Hyundai and Daewoo (which shut shop in 2002 and was subsequently taken over by GM).

PSA has been quite circumspect about its India plans, perhaps understandable considering that it is just about bouncing back into shape after being on the mat for some years. Its Chairman, Carlos Tavares (formerly with Renault-Nissan), is no stranger to India and will be keen on building his group’s presence in a market that is perhaps the most intensely competitive in the world.

PSA was among the earliest entrants to India in the 1990s when the country opened its doors to investments from global car-makers. It exited in end-1997 following a botched innings even while contemplating a comeback four years later with Tata Motors.

It was not until 2011 that PSA announced a big ticket investment of over ₹4,000 crore at a new facility in Sanand, Gujarat, but shelved the plan when it was engulfed by the global slowdown. Now, after getting a lifeline from Dongfeng of China, the company has acquired a used facility of the CK Birla group near Chennai and will roll out its cars by the end of the decade, which will also be the time Kia will have its range ready for India.

So where does that leave SAIC, which is scheduled to launch its first offerings in 2019? The company will obviously use the MG Motors brand as the lever to reach out to customers while downplaying the SAIC association.

Chinese players planning big

Even while Chinese products like Xiaomi have taken the mobile phone market here by storm, it could be a different ballgame for cars where the price tags are a lot higher. There is no telling how customers will react to a vehicle from China, where the low cost association is strong, apart from geopolitical realities, which could create emotional barriers in buying.

SAIC had planned an earlier India entry with GM in 2009 during the time of the global slowdown. A 50:50 joint venture had been formed with big plans drawn up to introduce a range of vehicles but nothing eventually materialised. Now with GM’s exit, SAIC will be able to test waters on its own in a market where the Japanese and Koreans are ahead of the rest.

It remains to be seen if other automakers from China will also enter India with talks doing the rounds for a long while now that the likes of Changan Automobile and Great Wall Motors are quite interested. These companies have been scouring for facilities in the West and South even while Foton, which had planned a truck plant near Pune, has not got going yet.

Strategic alliances

The automotive market is also getting ready to meet the BS VI deadline, set to become a reality in April 2020. Beyond this, the Centre has also announced its plans to have electric mobility in place a decade later. This is where strategic alliances are expected to take the story forward.

For instance, Suzuki and Toyota have joined hands in a global R&D drive that will see electric cars roll out in India from 2020. Likewise, Mahindra & Mahindra has teamed up with Ford once again (they were partners earlier) to explore a range of e-mobility solutions among other options.

On the subject of alliances, Tata Motors and Volkswagen had planned to collaborate for new product development through an agreement at the Geneva Motor Show. However, things did not go according to plan and the duo has now called off the proposal since it was apparent that the targeted benefits would not materialise.

Tata Motors, meanwhile, is upbeat about its car business, which is slowly coming back on track with products like the Tiago, Hexa and Nexon. VW, likewise, is quite confident that it can restart the India story with Skoda leading the way for a cost-competitive platform.

Fresh challenges

In a way, the market is now gearing up for a new set of challenges from 2020 when safety and emission notes will become more stringent. In addition, there will be new contestants in the arena like PSA, Kia and SAIC. It will also be interesting to see how alliances like Toyota and Suzuki mature in the coming years, which could even result in greater manufacturing synergies.

For the moment, Maruti is the clear monarch of all it surveys and is not going to give this up in a hurry. What could change though is the fabric of the market once small cars become passé and customers start going in for more premium options. With GST in place, manufacturers will also hope that prices will come down even though there will be unpredictable factors like high fuel costs to reckon with.

As the market matures and grows beyond five million units from 2020, rival car-makers will hope to grab a share of the pie. Thus, even as the Maruti monopoly will continue, market share percentage figures will change over the next decade (2020-30) by when there will also be the electric challenge to cope with. In addition, pressure on car ownership will continue as cities become more crowded and people prefer alternatives like Uber and Ola among others.

Finally, if there was one discordant note in the year, it was related to Nissan suing the Centre for non-payment of dues from the Tamil Nadu government.

The company, along with global partner Renault, has a sprawling facility in Chennai and has been seeking pending incentives of nearly ₹3,000 crore from the State government. It is now seeking ₹5,000 crore inclusive of incentives and damages.

Hopefully, the issue will be resolved amicably in the coming months.

Published on December 28, 2017

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