Auto focus

States in fierce tug-of-war to woo automakers

Updated on: Sep 10, 2015
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Traditionally strong players like Tamil Nadu, Maharashtra and Haryana have to contend with new rivals like Gujarat

When India opened its doors to multinational automakers in the early 1990s, it was Tamil Nadu (TN) which was among the early movers in snapping up big projects. What began with Hyundai and Ford quickly grew to include the likes of Renault-Nissan, BMW and Daimler India Commercial Vehicles. The more recent entrants were Royal Enfield and Michelin which all adds up to an impressive kitty of big brands.

TN drove home this point at the global investor meet in Chennai this week with big ticket announcements of Yamaha’s new plant and TVS Motor’s expansion plans at Hosur. Mahindra & Mahindra, likewise, has earmarked investments at MRV (Mahindra Research Valley) and a new plant.

There is no question that the State can rightfully claim that it is the nerve centre for the automotive industry.

However, competition is now intensifying with other parts of the country also throwing their hats into the ring. The most recent challenger is just across the TN border with a Chief Minister of a newly created State pulling out all stops to woo automakers.

Red carpet treatment Chandrababu Naidu is keen to see Andhra Pradesh (AP) emerge as a viable auto hub and is literally laying out the red carpet in the form of attractive sops. Sri City which is a comfortable drive from Chennai is already home to Japanese truck maker, Isuzu whose plant will be commissioned next year. The company now has an interim assembly operation at Hindustan Motors’ plant near Chennai.

Hero MotoCorp has also announced its intent to set up a new plant in Sri City which means Naidu will have every reason to feel triumphant. More so, considering that during his stint as CM of the then united AP many years ago, he had tried really hard to get Volkswagen and Proton of Malaysia in setting up shop. Today, he has been far more successful and is clearly aiming for the sky.

“The biggest advantage in Sri City is that ancillary suppliers can continue to operate from their facilities in TN and deliver parts to their (vehicle) customers across the border. Chennai can also double up as home to those working in Sri City,” says an auto industry veteran.

Speculation is now rife that brands such as Toyota and Hyundai would not be averse to the idea of setting up new facilities in AP as part of their Indian expansion plans. It offers them the best of both worlds in terms of a cost-effective manufacturing base as well as access to TN’s strong vendor base and its ports.

However, this is really not about the tug-of-war between two neighbours in wooing big ticket automotive investments but more on the changing regional dynamics within the country. Prime Minister, Narendra Modi, has already made it clear that States will now have to stand on their own feet and draw up individual manufacturing roadmaps. This was especially evident at Germany’s Hannover trade fair this year when States showcased their strengths to visitors.

Rewind to the early 1990s when TN surged ahead in the automotive rally and caught stronger players like Maharashtra by surprise. This was the first sign that the era of competition had set in and it would not pay being complacent. To its credit, Maharashtra quickly put its house in order and worked out a package of incentives for automakers. The result was a vibrant hub across the Pune area which is now home to big names like Volkswagen, Tata-Fiat, General Motors, M&M and Bajaj Auto.

Haryana, likewise, has been a traditional automotive hub for many years, thanks largely to Maruti and Hero which were among its earlier residents in the Gurgaon zone. It is also home to top brands in the auto component space which prompted Honda to set up its two-wheeler business here 15 years ago. Today, all three companies are expanding operations beyond Haryana in Gujarat, Rajasthan, Karnataka and AP.

Multiple contenders Gujarat, in particular, has been on overdrive in wooing automakers and has been hugely successful in its efforts. The journey began with Tata Motors’ momentous decision to relocate the Nano plant from Singur in West Bengal to Sanand near Ahmedabad. This was done in record time and the levels of efficiency clearly impressed Honda, Ford, Hero and Maruti which have made Gujarat their new home.

This intense pressure from a newbie prompted TN to announce some years ago that Peugeot would set up its operations there but the French carmaker promptly settled for Sanand instead. It is, of course, a different story that Peugeot eventually shelved its India plans but the winds of change were clearly blowing in favour of Gujarat.

With the renewed emphasis on autonomy, Rajasthan and Madhya Pradesh are also stepping on the gas in attracting auto investments.

MP already has a hub in the form of Pithampur where Volvo-Eicher and MAN Trucks are among its high-profile residents. Rajasthan has Hero and Honda in its kitty and will be on the prowl for more players.

“Eventually, it boils down to attractive fiscal sops and high levels of decentralisation in decision making. This is where newer entrants will have an edge with a dynamic bureaucracy at work,” say a top auto CEO.

As India marches towards its goal of becoming the third largest car market in the world, its states will be eager to get a share of the pie.

Published on January 22, 2018

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