Tightrope walking

Ammar Master, Senior Manager

15 May 2018

India Light Vehicle Sales Forecast

“How can you make money in India?” a client attending our LMC Automotive Asia-Pacific Conference in Shanghai asked me two years ago.

Global OEMs – vehicle makers and component suppliers – have always found operating in India like walking a tightrope. On the one hand, you have to maintain the quality that is associated with an international brand and, on the other, keep prices low enough so that India’s vast and highly cost-conscious middle-class find your products a value-for-money buy. This combination of quality products at affordable prices, while making money at the same time, has been a challenge for many. A case in point is General Motors’ decision to stop selling its vehicles in India in order to get out of a loss-making operation.

“This combination of quality products at affordable prices, while making money at the same time, has been a challenge for many”

But not everyone can bravely withdraw from a market that is predicted to become the world’s third largest automotive industry in the near future. The solution then is to rethink your strategies in relation to the products being launched, how they are developed and, most importantly, reduce costs. Frugal engineering is the order of the day.

This compelling need to lower costs has more recently spawned new partnerships in the Indian automotive landscape, most notably the agreements between Suzuki & Toyota and Ford & Mahindra.

Without getting into the specifics, the key purpose of these agreements is to bring products to market faster at lower costs by sharing market knowledge and technical expertise, and jointly develop or share vehicle platforms. Electric mobility solutions are also an integral part of the deals.

Ford and VW Group have also realised that their vehicle platforms in their current format with high cost parameters cannot form the basis of very competitively priced products – hence Ford’s decision to join forces with Mahindra.

“Electric mobility solutions are also an integral part of the deals”

VW Group, too, had intended to form a partnership with Tata Motors, but the deal fell through, so it has now tasked Škoda to modify its MQB A0 platform to meet the costs for India. Known internally as MQB A0 IN (for India), this modified structure will underpin three vehicles each for Volkswagen and Škoda.

These strategies are, of course, ultimately targeted at achieving one thing: competing effectively against the dominant market leader Maruti-Suzuki/Suzuki, which controlled 44% of India’s Light Vehicle market in 2017. Its closest competitor was Hyundai, with a share of 14%.

India Light Vehicle Sales ForecastAlthough we forecast that Maruti-Suzuki/Suzuki will lose market share in the coming years, in part due to the decline of the Mini Car segment and increasing competition in the Sub-Compact Car market, it would be unwise to underestimate a company that has adapted well in the past to fighting off its rivals.

There are certainly some interesting times ahead for the Indian market over the next few years.