10 Special Feature Car Wars

THE ECONOMIC TIMES | MUMBAI | THURSDAY | 4 AUGUST 2011

Turbocharged Race
Dont let the drop in car sales in July fool you. Global giants Volkswagen, Toyota and Ford are getting their act together, and with the likes of Renault and Nissan in the race, the stage might just be set for a change in the old order, writes Lijee Philip

THE LEADERS...

MARUTI SUZUKI
Product range: 800, Alto, Ritz, A Star, Wagon R, Swift, Estilo, Dzire, SX4, Kizhashi, Eeco Installed capacity: 1.75 million per annum Market share: 41.67%

HYUNDAI
Product range: Santro, i10, Getz, i20, Accent, Verna, Elantra, Sonata Installed capacity: 6 lakh per annum Market share: 15.48%

TATA MOTORS
Product range: Nano, Indica, Indigo CS, Manza, Safari Installed capacity: 5.5 lakh per annum Market share: 12.66%

...THE COMPETITORS... GENERAL MOTORS

Product range: Spark, Beat, UVA, Aveo, Optra, Cruze, Tavera , Captiva Installed capacity: 2.25 lakh per annum Market share: 4.4%

AND THE NEWER CHALLENGERS TOYOTA

Product range: Liva, Etios, Corolla, Camry, Prius, Innova, Fortuner Installed capacity: 1,50,000 and by September 2011 to 2,10,000 Market share: 4.85%

FORD
Product range: Figo, Fiesta, Endeavour Installed capacity: 2 lakh per annum Market share: 3.54%

VW
Product range: Polo, Vento, Jetta , Passat, Phaeton Installed capacity: 1.3 lakh per annum Market share: 3.08%

HONDA SIEL
Product range: Jazz,City, Civic, Accord, CR-V Installed capacity: 1 lakh per annum Market share: 1.29%

NISSAN
Product range: Micra, X Trail, Teana, 370Z Installed capacity: 2 lakh (another 2 lakh by May 2012) (Renault-Nissan combine) Market share: 0.73%

FIAT
Product range: Grande Punto, Linea Installed capacity: 1 lakh per annum Market share: 0.94%

epending on whom you ask or what you read, China has between 100 and 250 carmakers. Joint ventures with the global biggies dominate the top 10 think General Motors (GM), Volkswagen (VW), Toyota, Ford, Nissan, Hyundai and a rash of domestic players makes up the rest of the pack. The sheer number of players may not come as a surprise considering China is the largest car market in the world in 2010, 13.8 million units were sold. The Indian car market is roughly a seventh of the Chinese one, and at last count, there were a little over 20 major players mostly multinational in the race with close to 40 brands. The difference: the top three are not global leaders by any yardstick. Theres no Toyota, GM, VW the global one-two-three at the top of the India grid. Rather, theres Maruti, the affiliate of world No 9 Suzuki at pole position, followed by Hyundai Motors (No 8 globally) and home-grown manufacturer Tata Motors in third spot. Whats more, the top three rather remarkably control almost 70% of the Indian car market, with the Detroit giants GM and Ford (globally No 2 and No 4, respectively) relegated to 6th and 7th position, Toyota at No 5 and VW at No 8. Much of this, of course, has to do with Suzukis early entry into India, via a joint venture with the government in the early 1980s when the competition at that time was sparse and outdated. Ford, GM, Toyota and Honda began Indian operations over a decade ago but have met with limited success thanks largely to their top-down approach of first launching cars at the higher end of the market where margins are fatter but volumes slim. A situation in which global leaders are also-rans with market shares in single digits is unimaginable in most other parts of the world. But that situation may not hold for too long back home. For, even though growth in car sales fell by 15% in July to touch a two-year low, global auto majors are convinced about prospects in the long haul. Abdul Majeed, auto practice leader at PricewaterhouseCoopers (PwC) expects the Indian car market to more than double to five million from 2.2 million units in five years.
ON THE GROWTH PATH

which the Japanese giant holds 89%. If inflation is tamed, interest rates will come down. There is a huge opportunity and we have to move fast with our expansion plans, he adds. The worlds largest carmaker by sales, Toyota, intends to boost its share of emerging markets from 40% in 2010 to 50% in two to three years on the back of growing sales of fuel-efficient small vehicles. That in a line sums up the name of the game for the auto majors: ramp up capacities at the entry levels with affordable and snazzier models. The Indian market is much bigger for us now than in the past, says Hiroshi Nakagawa, managing director of Toyota Kirloskar Motor. The renewed focus on the mass market more than half of the cars sold in India are compacts and hatchbacks promises to change the name of the game. VW one of the , newer entrants into India it began operations in 2007 has achieved what many of its global counterparts could not do in more than a decade: a market share of 3% in four years. It has done so by launching competitively-priced models -the Vento that was priced lower than the hitherto bestselling Honda City in the mid-size segment; and the Polo premium hatchback is VW's cheapest car in India. Emboldened, VW is now thinking big very big. Says John Chacko,

week ago the US auto giant announced that it would invest close to $1 billion in a second factory in Sanand in Gujarat to assemble vehicles and make engines. If Ford has decided to bite the bullet after 13 years in the country it , may have something to do with some new-found success. Struggling with just a 1.5% market share till a year ago, Ford bounced back smartly to more than double its share to 3.54%. The success ingredient: The small car Figo, which accounts for three fourths of all cars Ford sold in July . More variants of the Figo are in the works even as the Detroit major recently launched the premium sedan Fiesta. But Ford is clear that that compacts is where the action is it will launch eight new such products in 12-18 months.
ROOM FOR ALL

Of the top three, Tata Motors seems to be the weakest. Nano didnt give them the market share
RC BHARGAVA Chairman,Maruti Suzuki
Volkswagen Groups chief representative and president and MD, Volkswagen India: We want to be amongst the top three in India by 2018. Globally we rank third with a market share of 11%. I am sure with a market share of 11% in India we can be amongst the top three. Chacko acknowledges that its going to be a long journey and that he , needs to get a whole range of products, the right products and achieve high localisation levels if he has to get into the top three. If VW does climb five places, it will also mean that one of the leaders, if not all three, will have to face up to a significant erosion in share. For, its not only VW that can be spotted in their rear view mirrors. Detroit giants GM and Ford are also threatening to get their act together. What's more, Nissan (ranked No 6 in the world) and Renault have joined the race. The likes of Peugeot-Citroen, Kia, Chrysler and Proton are all itching to get foot to pedal, and finalising their India blueprints. There is demand but we are all constrained by capacity says , Michael Boneham, managing director, Ford India. Perhaps no longer. A

RENAULT
Product range: Fluence Market share: 0.048%

In contrast, growth in developed markets is subdued. In the Eurozone, growth in car sales is expected to decline by 2-4% in 2011. The saviour for global Big Auto, as in the case in many other industrial categories, is of course the much-touted cluster of developing economies. The July skid notwithstanding, car sales are still expected to grow by 10-12% in India in 2011. The growth story is intact. This (drop in July) is just a temporary blip. All car manufacturers need to expand operations, says Sandeep Singh, deputy managing director, Toyota Kirloskar Motor, the joint venture in

Slowdown or no slowdown, the slugfest promises to be fascinating. After all, if the top three control over two thirds of the market, the top five lord over 85% of it; add No 6, 7 & 8 and the share shoots up to close to 95%. In effect, this means that there are at least a dozen players slugging it out for a thin sliver of the pie. Is it going to be worth their while? That more than 12 players are fighting for less than 5% market share is not going to kill anybody . There is room for every car maker, maintains Neeraj Garg, head of VWs passenger car business in India. Industry experts feel that the top two Maruti Suzuki and Hyundai are unlikely to be displaced in the next four to five years. There is no killer product in the pipeline to sway the market otherwise, says VG Ramakrishnan, senior director, automotive, at Frost and Sullivan, a management consulting firm. Maruti with a solid 41% overall market share and a near-complete portfolio may be in an even sweeter spot. Maruti has the scale, new products and is currently the most efficient manufacturer in India, says Hormazd Sorabjee, editor of Autocar India. At least for the next 8-10 years, Maruti will continue to be the dominant player as India is a lead market for Suzuki, much more important than Japan, he adds. Indeed, Suzukis ability to transfer R&D quickly will go a long way in helping Maruti stay on top. Our ability to put models in the market that reflect customer needs in shorter periods at a low cost of ownership will make the difference, says RC Bhargava, chairman, Maruti Suzuki. We may lose market share over a 10-year period but our volumes will grow, he adds. Over the past decade, Marutis share has slipped by 14 percentage points from 55% in 2000. Marutis sales have fallen by more than a fourth in July with the dis, continuation of popular hatchback Swift contributing to that fall. But with a new version of that model set for launch, Indias largest car maker may have a new ace up its sleeve. Another masterstroke from Maruti could well prove to be a plan

to re-introduce its one-time breadand-butter entry-level brand, the Maruti 800. Analysts point out that the new-look 800 will comply with the new emission norms, and will be priced lower than the Alto taking it closer into the territory of the worlds cheapest car, the Tata Nano. Hyundai too is planning to launch a car below its current base model, the Santro. Tata Motors may well be the most vulnerable of the top three, what with the Nano not yet delivering huge volumes. Sales in July fell to 3,250 from a peak of 10,000 a few months ago. Overall, Tatas share in passenger cars has dropped from 18% in fiscal 2007 to 12.66% in the April-June 2011 quarter. Of the top three, Tata Motors seems to be on the weakest wicket. The Nano has not given them the required market share, says Marutis Bhargava. The passenger vehicle segment of Tata Motors is under pressure as the lead time for product development is too long, adds Autocars Sorabjee. Tata Motors officials were unavailable for comment. The biggest beneficiaries are the new kids on the block. In the first six months of 2011, points out VWs Garg, the top three have grown volumes by 14%, 21% and 9% respectively but , their market shares have dropped cumulatively by 3.8%. In the same period Toyota, VW and Ford have collec-

pirations, acknowledges Toyota Kirloskars Singh. Etios will now be our flagship product as it was developed and adapted for India. And for the next two years our focus will be on the compact segment (where the Liva is positioned), adds Singh. Toyota intends to increase dealerships from 159 to 175 by the end of 2011, 40-45% of them in tier-II markets.
SMALL PACKAGES

There is demand, but we are all constrained by capacity

MICHAEL BONEHAM MD, Ford India
tively gained 4.4%, adds Garg. This has to happen in any emerging market where a market leader starts losing share as the number of players increase, he explains. VW for its part has more than doubled its market share from 1.6% a year ago. As a group, VW is present with entire range of brands: theres Audi at the luxury end; and Skoda, which extends from the mass segment (with the Fabia) to the luxury (the Superb). Between January and June, the three brands grew by 500% with sales of nearly 38,000 units, says Chacko. Toyota has been present in India since 1999 when it launched utility vehicle Qualis. Over the years, it captured consumer mind space with bestselling brands like the Corolla, Innova, Camry and Fortuner. Yet these brands addressed only 12% of the Indian car bazaar. The more recent launches of the mid-size sedan Etios and small car Liva have changed the name of the game-now Toyota can pull in close to half of the countrys potential car buyers. Thats a significant shift for Toyota, from the higher end to the mass market. We have entered a new segment with new customers and as-

The advantage for brands like VW and Toyota is that they are distinctly more aspirational than a Maruti. The flip side, however, is that nobody knows and straddles the small car segment as well as Maruti does. And thats the segment that every car maker with mass market ambitions is attempting to crack. GM is there with the Beat, which is now in diesel too, and Ford with Figo (petrol and diesel). And Honda Siel, a distant No 10, is banking on the Brio compact to score some gains. So where does that leave a Johnnie-come-lately like a Renault? The French auto major dissolved a joint venture with the Mahindras last April, and started independent operations this May The market . share game is not priority for Renault at this point in time; establishing the brand over the next 12 months is. To that end Renault recently launched the Fluence sedan in the Rs 15 lakh price bracket. Brand Renault is not well established in India. With the launch of the Fluence we are showing Renaults capabilities in design, styling, innovation, technology and value-formoney products, says Marc Nassif, MD, Renault India. Renault plans to follow up with the launch of the SUV Koleos this year; in 2012, it will launch mass market cars, including a hatchback, the affordable SUV Duster and another yet unnamed car. In two years, we will launch mass market products and have 100 dealership outlets in 70 cities, so 2013 will be the first fully functional year and we expect to sell 100,000 cars by 2014, explains Nassif. That's when he says Renault will reach a critical mass in the Indian market. Phase two of our operations will take us to a goal of reaching a 5% market share, adds Nassif. In South America and Brazil, the company got a 5% share in 8-10 years. Renault may be a late entrant but its advantage may well be that it wont have to traverse as long learning curve as the likes of the Detroit majors, Honda and Toyota had to. Meantime, other global majors like Peugeot-Citroen are looking to kickstart their India operations. New entrants have outlined an aggressive strategy with several new launches lined up in the next three to four years. Cost and product differentiation will hold the key , says PwCs Majeed. Its going to be a no-holds-barred skirmish for share in one of the worlds fastest growing markets. Who ends up on the victorious side is a matter of conjecture as of now, but theres little doubt about one big winner in this battle: the spoilt-for-choice Indian consumer.