Indian market to surge on BS-VI pre-buy

Car dealers will be busy ahead of India’s 2020 emission standard, expecting sales of over 4 million this year. Meanwhile, truck sales will grow twice as fast. By Martin Kahl

In many ways, India’s new vehicle market resembles other emerging markets: a high volume of two- and three-wheelers, severe pollution, worsening congestion, poor infrastructure and considerable government intervention.

Yet in many other ways, the Indian market is very different. Price-conscious yet aspirational, fast-growing and highly competitive, attractive to most global brands, and with a general expectation that it will become and remain one of the world’s most important vehicle markets, India has enjoyed strong growth in recent years. And that growth looks set to continue, although there is an emissions standard-related plateau on the horizon.

The bike-and-trike markets offer a tantalising opportunity to car manufacturers seeking to grow vehicle sales. Were those vehicle users to switch to four wheels, the market would look very different.

Price-conscious yet aspirational, fast-growing and highly competitive, attractive to most global brands, and with a general expectation that it will become and remain one of the world’s most important vehicle markets, India has enjoyed strong growth in recent years

For customers, however, purchase price and running costs are often prohibitive, even at the lower end of the market. India is a very cost-aware market, but it is also value-conscious, and automakers have learned the hard way not to confuse ‘budget’ with ‘low cost’; the Tata Nano experience has opened vehicle manufacturers’ eyes to the specific demands and expectations of the Indian car buyer.

The country’s urgent need to address severe pollution and worsening congestion has led to confusing and at times contradictory efforts by cities, states and the national government, adding a further challenge for automakers. Sweeping statements have been made, and undeveloped policies have been announced, and then watered down or withdrawn, often with costly consequences for car and truck manufacturers.

At the same time, the Indian government is generally supportive of the automotive industry, one of the country’s most important industrial sectors. Despite the challenges that automakers face, the rewards can be high; so much so, that four mainstream brands – Kia, Peugeot, Citroen and MG – are planning to enter or re-enter the market. It will be interesting to see how these brands fare in a market which GM felt was too challenging to maintain a viable market presence.

India rickshaw Pune
India’s poor quality, busy roads are shared by a wide variety of vehicles, from a high number of two-wheelers through to heavily-laden trucks. New emission regulations will have a significant impact on vehicle sales in the months leading up to the April 2020 implementation of BS-VI

The underlying rationale for numerous automotive investments in India over the past two decades has been that the region’s vehicle market, already sizeable, is still full of potential for further growth, believes automotive industry analyst, Jonathan Storey, author of a new Automotive World report on the Indian vehicle market. However, Storey cautions, “That rationale has proved an inadequate basis for investment. Where foreign vehicle manufacturers are concerned, India has seen more losers than winners. The fact is that, for most of the past two decades, automakers’ Indian operations have been a waste of resources, losing money or, at best, making an insignificant contribution to global profit.”

Suzuki and Hyundai are the main exceptions to this comment, notes Storey, adding, “Ford India is reported to be heading for a net profit in 2018/19, but if achieved, this profit will make only a small dent in accumulated losses approaching US$500m.”

At the heavy truck end of the market, Tata and Ashok Leyland’s long-term truck market dominance continues, with the only real challenge coming from BharatBenz, Daimler’s local brand. Just as GM stepped away from the light vehicle market, MAN has brought its Indian activities to a close, with joint venture partner Force Motors acquiring MAN Trucks India’s Pithampur plant in Madhya Pradesh state.

Despite the challenges that automakers face, the rewards can be high; so much so, that four mainstream brands – Kia, Peugeot, Citroen and MG – are planning to enter or re-enter the Indian market

“Aside from the many pitfalls, the lure of emerging markets such as India remains strong and for every brand that is giving up, at least one more is poised to take its place,” says Storey, adding, “This, of course, means that competition will remain intense and profits for most will remain thin.”

The country’s light vehicle (LV) market reached a fresh peak last year of over 3.7 million units. At almost 430,000 units, HV demand was also up, and the two sectors’ positive momentum has continued during 2018. India’s economic outlook is good, and so are the near-term prospects for both vehicle sectors, according to the report, with LV sales expected to pass the 4 million unit mark this year, and the heavy CV (>3.5t) market expected to grow at almost twice the rate of the LV market.

Growth will appear significant over the next 18 months or so, but it will be looked back on as a pre-buy-led anomaly; 2020 sees the introduction of the BS-VI emission standard, and an associated slowdown in growth, although the report suggests that the market will pick up again from 2021.

To learn more about the challenges and opportunities facing those operating in India’s automotive industry, download Automotive World‘s latest market outlook report, India’s new vehicle market: prospects to 2022.

Close
Close