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India tops growth rate among leading car markets

Business Standard:  July 25, 2017

New Delhi: India is the only country among the top seven car markets to grow at a double-digit rate in the first five months of 2017.

The world’s fifth-largest market for passenger vehicles (cars, vans and utility vehicles) expanded by over 11 per cent over the year-ago period. This came when the top two markets — China and the US — saw a declining trend.

The only market that came close to India’s growth rate is Japan, the world’s third-largest passenger vehicle (PV) market, which grew at 9 per cent during the January-May period.

China, the largest PV market, registered a decline of 2.59 per cent, while the US's shrunk by 10 per cent. The fourth-largest market, Germany, grew at less than 5 per cent.

India, with sales of 1.33 million vehicles, is not much far from Germany’s 1.45 million in volumes. India’s 11.34 per cent growth was led by companies like Maruti Suzuki, Hyundai, Honda, and Tata Motors.

While June was a month of decline due to the transition to the goods and services tax (GST), the second half of 2017 is expected to be much stronger due to festive demand and a normal rainfall. Price cuts in the wake of the GST roll-out from July 1 are also likely to push the demand for cars.

The domestic market had grown at 7 per cent in the 2016 calendar year, selling 2.96 million vehicles. China had clocked 15 per cent growth with the sale of 24.37 million vehicles in 2016, while the US declined 9 per cent to 6.87 million units. India, most experts claim, will emerge as the world’s third-largest market by 2020, when it can sell almost five million units.

Three large car makers have announced plans to enter the Indian market since January this year. In January, French car maker PSA, which makes cars under the Peugeot brand, announced an India entry by joining hands with Hindustan Motors.

Three months later, Korean car maker Kia said it would invest $1.1 billion to set up a greenfield manufacturing unit in Andhra Pradesh, with a capacity to make 300,000 cars a year. Last month, Chinese car maker SAIC said it would use GM’s now closed Halol plant to manufacture cars in India.

Amit Kaushik, managing director for Detroit-based automobile consultancy Urban Science in India, said the inadequate public transportation system in India was a major factor driving people to personal ownership. “Easy financing options, wide range of products at various price points, low fuel prices are the triggers for growth. The improvement in road network is leading to expansion of demand in small towns and rural markets,” he said.

However, the Indian market is also complex and not every large global player is able to grab a significant pie. In May, American car maker General Motors decided to stop selling cars in the Indian market while continuing to use India as a base for exports. The company struggled to maintain a one per cent market share for months before giving up on the Indian market.

Top global brands like Volkswagen, Ford and Nissan are sitting on a low single-digit share. Maruti, Hyundai and M&M dominate the Indian market with a combined share of about 73 per cent; the other dozen players have the rest. A number of these global brands are now exporting more vehicles from here than they sell in the local market.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.