Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Politics / Policy/  The Indian automobile market | Big is in
BackBack

The Indian automobile market | Big is in

Even as policymakers try to discourage gas-guzzling, smoke-emitting vehicles with tougher emission norms, car makers pitch big cars with powerful engines to aspirational young consumers eager to explore the great outdoors

An overcrowded stall at the Auto Expo in Greater Noida. This year, there were at least 65 exhibitors and more than 80 new models of cars, bikes and commercial vehicles. Photo: Ramesh Pathania/MintPremium
An overcrowded stall at the Auto Expo in Greater Noida. This year, there were at least 65 exhibitors and more than 80 new models of cars, bikes and commercial vehicles. Photo: Ramesh Pathania/Mint

New Delhi: In the printed flyers and publicity videos, the marketing pitch is: adventure.

A pitch which shows that more and more Indians are drawn to the thrill of the outdoors.

That after five days of a 9-to-9 job that is today’s norm, they just want to dump all the stuff they need for the weekend in a large car, with a big, expectant grin spread across their faces and drive as far as possible from the steel and glass cities they live in.

There’s a man driving a car, a woman next to him and, sometimes, children. They all look happy. The marketing pitch is an active lifestyle, work-life balance—work hard and then go climb rocks, explore mountains and beaches, ride a bike and pitch a tent in the wild.

The marketing pitch is a large car. One can call it a utility vehicle. Depending on how powerful and big the engine under the hood is, one can add sport before it—and there you have it: a sport utility vehicle (SUV)—a very large car, with a very large carbon footprint.

The recently concluded Auto Expo 2016 in Greater Noida, on the outskirts of Delhi, was a lot about big, utility vehicles:

— Maruti Suzuki Vitara Brezza: Big

— Hyundai Tucson: Big

— Isuzu D-Max V-Cross pick up: Big

— Honda BR-V: Big

— Toyota Innova Crysta: Big

— Jeep Wrangler: Big

— Jaguar F-Pace: Big

Spare a moment to let this sink in.

Now, consider the world we live in today—poor urban infrastructure, congested streets and a country grappling with a genuine pollution scare.

Now, add big, utility vehicles to this milieu. It is inexplicable, this changing landscape of the Indian automotive industry. More so in the context that various cities are scrambling to arrest pollution levels—Delhi experimented with an odd-even car rationing plan, while the Supreme Court has put a temporary ban on the sale of diesel vehicles with engine capacity of more than 2,000cc in the city.

Other cities could follow suit. Perhaps.

All of this raises a few pertinent questions: Do Indians really aspire for SUVs? Why? What’s going on with small cars? Are there any takers for electric and hybrid cars? Is the government doing enough to promote them? Are the car companies doing enough? Jeez, what’s going on? For some answers, nothing beats some historical perspective. From a man who has seen the automotive landscape change; from close quarters.

4 February. It is the second day of the Auto Expo. Nigel Harris, president and chief executive of Ford Motor India Pvt. Ltd, has had the time to go around and see the cars and he is clearly impressed.

Harris remembers the first time he visited the Delhi Auto Expo in 1998, when it was held at Pragati Maidan in the Indian capital. It was buzzing: “Mr (Ratan) Tata (then chairman of the Tata group) was showcasing the Indica, the first made-in-India modern car."

In many ways, 1998 was a defining year for the industry. The Indian car market was a little over 400,000 units a year and most of the multinational companies, including Ford, were in the process of setting up their manufacturing operations in the country.

The popular models on Indian roads were the Maruti 800 and Maruti Omni; Hindustan Motors’ Ambassador was still doing decent numbers, and the South Korean company Hyundai Motor Co. had just introduced its tall boy, small car—the Santro.

Cut to the present: Ford unveiled its iconic sports car Mustang during the 2016 Auto Expo; cult American brand Jeep made its Indian debut and Jaguar unveiled its crossover F-Pace.

Local and global manufacturers are increasingly making models to suit the tastes of Indian customers. India now sells 2.6 million passenger vehicles a year and most of the global auto makers have a representation in the country.

Between January and November 2015, the year-on-year (y-o-y) growth in sales of passenger vehicles in India, at 7.6%, was the fastest among the top eight automobile markets. The UK, with 6.20% y-o-y growth, was the second fastest growing market, followed by France and China at 6.19% and 5.91%, respectively. China’s passenger vehicle market is at least eight times the size of the Indian market and 11 times that of the French one.

The venue for the auto show first shifted from a couple of banquet halls to the capital’s Pragati Maidan and, as it grew further, the organizers opted for an exposition mart in Greater Noida, some 40km out of the city.

This year, there were at least 65 exhibitors and more than 80 new models of cars, bikes and commercial vehicles.

The venue—India Expo Mart in Greater Noida—itself has been through a massive makeover. It now houses six large halls with an additional carpet area of 37,240 sq. m.

The venue previously had only eight permanent halls measuring 27,648 sq. m; as a result, in the 2014 edition, the remaining display was curated in temporary hangars measuring 32,400 sq. m. The gross indoor exhibition space has increased from 67,000 sq. m in the previous edition to 73,000 sq. m in the current edition.

“Now, it is world-class. You can even compare the Delhi motor show with the Detroit motor show," said Harris.

Not in terms of quality and importance yet, but it can surely be compared with Detroit in terms of its size and footfalls.

In 2015 alone, auto makers introduced more utility vehicles in the market than small cars. The reason—they expect consumers to graduate to bigger vehicles.

According to data gathered by Mint, more than 15 new models are to be launched in the utility vehicle segment over two business years—the current, ending in March, and the next—while only eight new products will be introduced in the small-car segment in the same period, suggesting Indian consumers with increasing aspirations and rising incomes will opt for bigger vehicles in the future.

Manufacturers will also introduce three sedans during the period.

The shift is triggered by strong demand in the compact SUV segment over the past two years. The contribution of compact SUVs to overall sales has gone up from 10% to 17%.

With Renault-Nissan Alliance chairman Carlos Ghosn calling his small car Kwid “SUVish" and Mahindra breaching the 5 lakh barrier with its compact SUV KUV100, industry experts believe customers with a 4-5 lakh budget may soon have more options of buying an SUV.

To be sure, the action in the utility space is unlikely to impact the small-car market even though the sales in the segment have slowed.

With vehicle penetration levels still low—only 15 out of every 1,000 Indians own a car—the potential for small cars is immense.

The momentum shifting in favour of utility vehicles can also be attributed to the absence of an adequate number of products in the segment.

Yet, this edition of the expo comes when the Indian auto industry is going through one of its toughest phases even as the sales have just started to look up.

While the use of diesel vehicles has become an emotive issue, largely driven by public opinion around pollution, the debate has certainly thrown up a very big challenge that may require a complete overhaul of the technologies that auto makers will use amid India’s pursuit of a blue sky.

This coupled with the emergence of concepts such as a shared economy, taxi aggregation and connected mobility are likely to create a disruption in the sector and they may perhaps also redefine the automotive business in the country.

Clearly, the backdrop for auto makers has changed. The mood is a lot more upbeat, which is a comforting factor. The Narendra Modi government has completed 20 months in office, the economy has been growing at an average quarterly pace of 7.3% since May 2014 (according to the new method of calculating growth) as against 6.3% in the previous year, fuel prices and interest rates have softened and car sales have advanced for 14 straight months; sales rose 12.87% in December 2015.

Sure, the growth in car sales hasn’t been industrywide; it has been confined to a few models and companies. India’s largest auto expo is also taking place amid uncertainties over the emissions road map and the fate of diesel vehicles.

In December, the Supreme Court banned the registration of cars and utility vehicles powered by diesel engines bigger than 2,000cc in the National Capital Region till 31 March.

India will also move to the toughest emission standards regime, Bharat Stage-VI from Bharat Stage-IV, skipping an intermediate level, by 2020.

Even though the National Capital Region, centred on Delhi, accounts for only 7% of India’s auto sales, the steps aim to bring in cleaner technologies, which may require several adjustments by auto makers.

In an interview, the minister for road transport and highways, Nitin Gadkari, said the government will not compromise on pollution even as it will look to extend a helping hand to the industry on other matters.

Pawan Goenka, executive director, Mahindra and Mahindra Ltd, said that the industry will have to align with the decisions that the government or judiciary takes.

“Whatever decision they take, we will have to align with that. You can keep moaning and whining, it won’t get us anywhere. We are getting on to the job right now," Goenka told Mint in an interview.

This includes compressed natural gas (CNG) vehicles, hybrid and electric vehicles, downsizing diesel engines to meet the revised norms, finding newer export markets for diesel engines and sharpening the focus on petrol models.

The automotive industry continues to face transformation and change, with more on the horizon within the next few years, according to Abdul Majeed, partner and national auto practice leader at PricewaterhouseCoopers.

“Alternatively fuelled vehicles (AFVs) at lower price points represent a great challenge for OEMs (original equipment manufacturers), given the price-sensitive consumer base; still, the most challenging shift anticipated would be the switch from traditional combustion engines to alternative propulsion technologies," he added.

Nearly 50% of Europe runs on diesel vehicles. In India, nearly 40% of the passenger cars sold runs on diesel, while all buses and trucks are diesel vehicles. Though global fuel prices have witnessed a drop, European consumers are slowly embracing AFVs. Pure electric and plug-ins show maximum growth in AFVs with an increase of 82.2% through September 2015, followed by hybrids at 22%, when compared to with 2014. Consumers looking for lower levels of carbon dioxide emissions, which mean higher fuel economy, are increasingly drawn to electric vehicles and plug-ins, compared with traditional hybrids.

Looking ahead to 2016, pure plug-in sales are expected to slow down, given the run-out of “green" subsidies. In the UK, for example, a £5,000 government grant available since 2011 is nearing its limit of 50,000 applicants. UK buyers are likely hoping to take advantage of the programme before it ends. In the Netherlands, the government will end a tax break for alternative-fuel company cars. While the growing AFV demand may dominate the headlines, overall demand is still limited.

In India, the government launched the National Electric Mobility Mission Plan (NEMMP) 2020. It aims to achieve national fuel security by promoting hybrid and electric vehicles. There is an ambitious target to achieve 6-7 million sales of hybrid and electric vehicles year on year from 2020 onwards. The government aims to provide fiscal and monetary incentives to kick-start this nascent technology.

“To achieve this target, consumers need more information to increase their existing awareness levels on plug-in vehicles," Majeed said. “In addition, the government should provide necessary infrastructure such as charging stations for promoting electric vehicles."

amrit.r@livemint.com

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Politics News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
More Less
Published: 12 Feb 2016, 01:07 AM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App