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Indian carmakers: one dead, one down, one dominant

Robin Elsham

One dead, one down, one battling back, and one brave -- some would say foolish -- new entrant.

That's the situation among Indian-owned automakers a decade after the government opened the door to foreign competition.

Prior to liberalisation, India had only three carmakers -- Hindustan Motors, Premier Automobiles Ltd and Maruti Udyog Ltd.

Now Bombay-based Premier has virtually ceased making its lone model, the Padmini, a sedan based on a 1950s Fiat design.

"They're already dead and I don't see them reviving," says K Sivakumar, head of research at Cholamandalam Securities Ltd.

The company, which produced 30,000 cars in fiscal 1995, made just 194 cars -- less than one a day -- four years later.

Premier may be just the first victim of the drive by seven foreign automakers to set up plants in India to make cars with modern, aerodynamic styling and vastly superior technology and performance in the world's second most populous nation.

Calcutta-based Hindustan Motors has been losing money for years, and foreign competition has now driven Maruti, a 50-50 joint venture between Japan's Suzuki Motor Corp and the Indian government, into the red.

Hindustan Motors lost Rs 1.1 billion over the past three years. Yet it survives, partly as a niche maker of museum pieces: it makes the wonderfully retro Ambassador, a 1950s-like grande coupe powered by a 1980s-design Isuzu engine.

About 70 per cent of those vehicles are sold to the government -- for use in chauffeuring around ministers, top bureaucrats and visiting VIPs -- and to taxi cab operators in most cities.

Hindustan Motors has also moved to meet the foreign challenge by in effect joining it.

The company makes, under licence, the Mitsubishi Motors' Lancer at a plant near Madras, and plans to begin importing and selling the Mitsubishi Pajero, a sport utility vehicle, by year-end.

But just over 7,000 Lancers sold last year, and Pajero sales are likely to be even lower as the vehicle is expected to cost Rs 2.2 million, or more than twice as much as the Lancer.

"I don't see much potential for a turnaround," says Sivakumar, who believes the company lacks the resources to introduce other new models.

MARUTI, MARKET LEADER

Market leader Maruti has seen its share of the new car market slide to 60 per cent from 90 per cent before liberalisation, due to the entry of foreign carmakers offering a flood of new models.

"Like all monopolies, they did slack off in introducing new models," says Satish Ramanathan, an auto analyst at ICICI Securities in Bombay, explaining in part why cars made by new entrants like Hyundai and Daewoo of Korea, Adam Opel of Germany and US-based Ford Motor Co found eager buyers.

Adds Satish Jain, an auto analyst at ASK Raymond James, an Indian brokerage house: "As an incumbent, every new entrant would take some market share."

Maruti too views the market share decline as inevitable.

"In competitive car markets worldwide, market leaders have to be content with a small share of total sales. It is true of the UK, the US and Japanese markets," the company said in a statement responding to questions from Reuters.

Yet to focus merely on market share is to miss the fact that Maruti's sales increased over the past decade, as the overall market more than doubled.

Moreover, some of that growth was due to the creation of a whole new market segment of more expensive, larger cars launched by foreign entrants. That segment now accounts for about 20 per cent of the overall Indian new car market of about a half million vehicles a year.

SMALL-CAR SEGMENT

A decade after the opening of the Indian market, Maruti remains by far the largest carmaker, with a very dominant position in the largest and most brutally price competitive segment -- the small-car market.

The Maruti 800, at a starting price of Rs 221,500 in Delhi, remains the top-selling car.

Maruti sold almost 153,000 of the entry-level cars last year, making it the only model sold in India in sufficient volume to be solidly profitable.

Maruti is using that dominance to wage a so-far successful counter-act to win back market share from foreign competitors.

Its market share expanded every quarter during 2000-01, especially in the crucial small-car segment, which accounted for about 80 per cent of the 568,000 vehicles sold last year.

"We grew nearly 20 per cent in this segment while the total industry sales were flat," a company statement said in response to questions from Reuters.

Scale also enables Maruti to provide after-sales service nationwide, essential to winning customer loyalty and repeat sales. That is something foreign competitors struggle to do as their sales volumes are so much lower.

"JD Power rated us number one in customer service, the first time ever a market leader anywhere in the world finished first in service," Maruti noted.

TELCO'S INDICA

Home-field advantage, however, has not insured the success of the past decade's boldest entry into the Indian car market.

Tata Engineering and Locomotive Co Ltd, India's largest truck maker and part of the Tata Group, one of the nation's most powerful industrial groups, invested Rs 17 billion to get into the car business by making the first entirely indigenously developed and produced car in India.

But it has run into many problems.

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