Liberalization Liberates India's Automotive Industry, U.S. Exports On Their Way

Michael Martineck
by Michael Martineck
liberalization liberates india s automotive industry u s exports on their way

Nine countries in the world have nuclear weapons. Oddly enough, that’s the same number of nations that design and build their own cars from scratch. The two accomplishments don’t have all that much in common, except that the former may indicate just how much scientific and engineering prowess the latter requires. India is one of a handful of states on both lists. The West tends not to think too much about the country’s carmakers because the world’s largest democracy has spent the last 50 years making cars for India, and India alone. That’s changing. Fast.

India’s automotive market is booming. While U.S. automobile sales stalled in April, India’s rose 11.8 percent year-to-date (105,962 units vs. 94,771). In 2006, local and foreign firms combined to manufacture 1.4m vehicles. Sure, experts estimate that China’s vehicular population will hit 10 million in 2007, but India’s growth rate is even more spectacular. They’re expected to double automotive output by 2008, and keep going from there.

The Indian car industry’s explosive growth reflects three main trends: a huge jump in the living standards of India’s middle class, an increase in their disposable income and regulatory liberalization. The latter includes the relaxation of the foreign exchange and equity restrictions, reduction of punitive import tariffs, and reform of Byzantine banking policies (to allow consumer financing).

The changes have created a vibrant sector. There are currently 41 automobile companies operating in India, from Ashock Leyland to TVS Suzuki. There are native companies, foreign partnerships and foreign subsidiaries. They offer a wide array of automotive products, from the (plug in) all-electric Reva Standard, to the once import-protected and now embattled Hindustan Ambassador, to the Lamborghini Murcielago.

The country has a “Big 2.5” and they’re on a roll. Last year, Mahindra & Mahindra earned $3.2b in gross profits from its car and truck branch. Maruti Udyog Limited, a subsidiary of Suzuki and Indian automotive industry leader, sells about 50k cars a month. Tata Motors also sells just under that amount AND brags of a 19 percent rise in sales for ‘06.

Western automakers are betting on India. Mercedes' new Indian factory is set to produce 5k cars a year (up from 2,121 vehicles in 2006). Ford India plans to open 135 new dealerships this year, capitalizing on its 45 percent year-on-year sales growth (41,797 vs. 28,840 units). GM recently declared it wants 10 percent of the Indian market by 2010 (200,000 units). To that end, they have just launched the 309k rupees ($7,300) Chevrolet Spark.

Toyota’s also shooting for 10 percent of India’s automotive business by the same deadline. India is reported to be ground zero for the Japanese automaker’s new global small car platform, which will be modified for local tastes and budgets. The GM and Toyota products will go up against Mahindra & Mahindra’s sub-$3k car and Tata’s planned 33 horsepower, $2500 four-door.

Fully assembled cars are only part of the story. Successful parts manufacturers have sprouted up alongside the assembly plants throughout India, contributing to the industry’s overall health and wealth. The main reason BMW opened an assembly plant in Chennai: access to quality suppliers.

All these Indian operations require local labor and management. Necessity has proven the mother of talent. A new cadre of educated automotive professionals has emerged.

Dilip Chhabria is a prominent example of India’s new breed of auto industry insiders. Chhabria began his career as an automotive designer working for General Motors in the States. It was not the best fit (or finish) for him. "I was not going to design door handles and hub caps for 20 years before I got a shot at designing cars," he told Businessweek.

Chhabria set up DC Design in ’93. The company now claims 300 employees and over 500 automotive designs (OEM, custom and prototyping). Dilip Chhabria decided to take his stake in India nascent automotive industry to the next level, and share his intellectual capital.

This August, the eponymous DC College of Automotive Design will welcome 1500 students. DC is working with Italy's Polytechnic di Turino to develop engineering courses, and the Istituto Europeo di Design for creative curriculum. DC will offer undergraduate and two-year postgraduate programs on automotive styling, transportation design, and engineering. By the time the first students matriculate, the Indian automotive industry may already be operating on the next level.

As American gas and labor prices continue their inexorable rise, demand for well-made yet cheaply-produced gas-sippers has blossomed. While all eyes are on China, it's only a matter of time before Ford, GM and other Western automakers use their Indian assets to design, build and export inexpensive and frugal ‘captive imports’ stateside.

After that, who knows? If Korea’s Hyundai can move its products upmarket, so can India. The United Auto Workers had better watch out. If they dig in their heels, domestic automakers are sure to use the nuclear option.

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2 of 12 comments
  • Willbodine Willbodine on May 20, 2007

    Um, doesn't Canada build a lot of cars also?

  • Greg Locock Greg Locock on May 21, 2007

    US, Japan, Korea, China, UK, France, Germany, Italy, Sweden, Russia, India. Australia also designs and builds its own cars, and in the case of Ford, its own engine. In addition Ford of Australia designs cars for manufacture in several other countries, including India.

  • SPPPP The little boosters work way better than you would expect. I am a little nervous about carrying one more lithium battery around in the car (because of fire risk). But I have used the booster more than once on trips, and it has done the job. Also, it seems to hold charge for a very long time - months at least - when you don't use it. (I guess I could start packing it for trips, but leaving it out of the car on normal days, to minimize the fire risk.)
  • Bader Hi I want the driver side lights including the bazl and signal
  • Theflyersfan One positive: doesn't appear to have a sunroof. So you won't need to keep paper towels in the car.But there's a serious question to ask this seller - he has less than 40,000 miles on some major engine work, and the transmission and clutch work and mods are less than 2 months old...why are you selling? That's some serious money in upgrades and repairs, knowing that the odds of getting it back at the time of sale is going to be close to nil. This applies to most cars and it needs to be broadcasted - these kinds of upgrades and mods are really just for the current owner. At the time of sale, a lot of buyers will hit pause or just won't pay for the work you've done. Something just doesn't sit well with me and this car. It could be a snowbelt beast and help save the manuals and all that, but a six year old VW with over 100,000 miles normally equals gremlins and electrical issues too numerous to list. Plus rust in New England. I like it, but I'd have to look for a crack pipe somewhere if the seller thinks he's selling at that price.
  • 2ACL I can't help feeling that baby is a gross misnomer for a vehicle which the owner's use necessitated a (manual!) transmission rebuild at 80,000 miles. An expensive lesson in diminishing returns I wouldn't recommend to anyone I know.
  • El scotto Rumbling through my pantry and looking for the box of sheets of aluminum foil. More alt right comments than actual comments on international trade policy. Also a great deal of ignorance about the global oil industry. I'm a geophysicist and I pay attention such things. Best of all we got to watch Tassos go FULL BOT on us.