India has become the second-fastest-growing market for car sales in the world after China. Its auto industry reported a 26.4 percent growth in sales in 2009-10. Naturally, everyone wants to get the pie of this cash cow. GM India’s decision to invest $ 500 mn is well in line with this aspiration.
The General Motors (GM) is looking to invest $ 500 mn in India in next 2 years. It will also launch six new vehicles —a pick-up van, multi-seater van, hatchback, notchback, sports utility vehicle and multi-purpose vehicle. This will be in addition to the light commercial vehicles that would be launched in 2012.
The GM India’s decision has not come as a surprise for industry analysts. With Indian auto sector witnessing a windfall in last 2 years, major global players are rushing to tap the Indian market. The obvious answer to this vibrancy is the future potential of the Indian automobile sector. It has become the new sunrise industry for India. The entry of these global players confirms this fact. With the vehicle density being low and infrastructure growth high on agenda of the government, the future is really bright. The industry has many growth drivers like favorable demographic distribution, easy finance schemes, increasing disposable incomes in rural agri-sector, requisite vertical integration and positive policy interventions and so growth seems to be a perennial story for Indian market.
Apart from India specific factors there are also external factors creating urgency for GM to broad base its presence in India. The decision to upscale the Indian operations is the result of the stagnant automobile market in developed countries. The iconic American carmaker went bankrupt last year,but its Indian operations have done well. It has registered a growth of 17.67% in sales in November 2010, compared to the corresponding period last year. It sold 8376 units in November 2010 against 7118 units in November 2009.
General Motors India has completed 14 years of operation in India. GM India started its journey in 1996 and now offers products under the Chevrolet brand, which was introduced in India in 2003. Chevrolet had already emerged as one of the fastest growing automotive nameplates in India. GM India produces the Chevrolet Captiva, Chevrolet Optra, Chevrolet Cruze, Chevrolet Aveo, Chevrolet Aveo U-VA, Chevrolet Spark, Chevrolet Beat and Chevrolet Tavera for sale in India and operates state-of-the-art manufacturing facilities in Halol, Gujarat and in Talegaon, Maharashtra.
GM is aggressively looking to increase its Indian sales. As the Indian market is growing, even a small percentage increase in share will help in creating economies of scale and bring down the manufacturing cost. The positive policy intervention has played a crucial role in providing impetus to the car sales in India. The government has cut the manufacturing taxes in late 2008 and early 2009 to protect domestic markets and attract overseas partners. Another important factor about growth in India is the existing vehicle density. The current vehicle density stands at 10 cars per 1000 people providing high growth opportunity for car makers. Moreover, the share of passenger vehicle (Graph 2) is only 15.86% vs. 76% for two wheelers. The success is also attributed to emphasis on small cars suited for medium class families in India with a car budget of less than $ 7000.
With far lower labour costs, GM India is more willing to be innovative. The company recently announced that it will join Reva, India's electric-car company, to roll out a new vehicle this year. The aggressive moves by company are justified as India is turning out to be a battle field for global auto giants. Most of the global players have already made their foray into Indian market and the remaining ones are also considering the entry to the much coveted Indian auto sector. There are reports that five auto biggies Chrysler, Kia, Peugeot, Triumph and Scania are looking forward to invest in India. The foreign investment in the sector is allowed upto 100%. The industry is de- licensed and imports of component is also freely allowed. All these are making the entry quite smooth for global players.
The foreign investment in India in automobile sector has brought the much needed cushion. While the choice of consumer has increased, it has also led to technology transfer to indigenous auto sector. The result is booming growth and increased production. The industry has attracted a FDI of $ 4776 mn from 2000 to 2010 (till Sep) and constitutes around 4% of total FDI received in India during the period.
Further, India aims to become the small car hub of the world by dethroning Japan, the biggest maker of compact cars. Last year, it had pipped Brazil to become the second-largest producer of such cars. While Japan produced 3.4 million small cars between January and December in 2009, India manufactured 1.48 million units in the same period.
Clearly the plan of GM to pump in $ 500 mn in India is only the beginning of the story. With India emerging quite favorable as investment destination and western markets struggling with stagnant numbers, the global auto giants seem to have reshuffled their strategy. As India streamlines its process of investment, the Indian automobile industry is all set to past its peers. Clearly the bull run for India auto industry has begun.