“It’s much easier for the passenger car guys – they just build for export, so they don’t need to worry about the local market.” So said one truck OEM executive to Automotive World at Megatrends India 2014 in Chennai.
The executive was referring to the nearly two-year long decline in sales in the Indian automotive market, a market that had previously been expected to enjoy growth – if not volumes – akin to China’s automotive industry in the early 2000s.
The Indian truck market has fallen every month for nearly two years now, and the 10% year-on-year drop in passenger car sales in 2013 was the first decline in 11 years. As a result, all OEMs with plants in India are desperate to protect their investments and maximise installed capacity utilisation. Export is just one of several ‘low-hanging fruits’ in most OEMs’ reach, along with discounting, interest-free repayments, or more drastically, production – and job – cuts.
True, the “car guys” can use India as an export hub more easily than the truck OEMs; but exporting from India is nothing new, and it’s certainly not something OEMs are suddenly doing to survive the current downturn
Building for export at least keeps factories open, lines running and workers working. But it’s not a viable long-term strategy. It raises questions over the subsidies and incentives originally granted to build factories serving the local market and specific exports. It affects profitability, too, with currency value – in this case, the rupee – a serious consideration. There’s also the cost of exporting, and the issue of whether that plant’s products are even appropriate for export markets.
True, the “car guys” can use India as an export hub more easily than the truck OEMs; but exporting from India is nothing new, and it’s certainly not something OEMs are suddenly doing to survive the current downturn. Hyundai India has been exporting cars for several years; the Renault-Nissan plant builds for a wide and growing number of overseas markets, including various European countries; and Ford’s Chennai-built EcoSport is shipped to Europe, and the OEM is looking to increase beyond 45 the number of markets served from its Indian plants.
Exports may offer short-term relief to the growing overcapacity issue, but if the Indian market eventually grows to anywhere near those six to nine million units, all available capacity will be required just to meet local demand
But as OEMs look at how to utilise capacity, they also need to prepare for the long-game. The Indian market is expected to not only recover, but to grow significantly. Indeed, it has the potential to become the world’s third-largest new vehicle market. In a panel debate at Megatrends India 2014, chaired by Automotive World, four truck OEM executives agreed that the Indian truck market will reach 500,000 units over the next decade. On the Passenger Car day at Megatrends India 2014, predictions for India’s car market ranged from six to nine million units over the same time frame; Ford India’s Executive Director of Manufacturing, Tom Chackalackal, talked of a seven million unit market by 2020.
However, the short term prospects are much less positive, with terms like ‘flat’, ‘poor’ and ‘dead’ being used to describe CV and light vehicle sales prospects in 2014. Some believe sales will pick up from the second half, after the election that’s causing so much uncertainty, and in time for the festival season.
Until then, exports may offer short-term relief to the growing overcapacity issue, but if the Indian market eventually grows to anywhere near those six to nine million units, all available capacity will be required just to meet local demand.
Martin Kahl is Editor, Automotive World.
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