The growth of the Indian middle class along with the growth of the economy over the past few years has attracted global auto majors to the Indian market. Moreover, India provides trained manpower at competitive costs making India a favoured global manufacturing hub. The attractiveness of the Indian markets on one hand and the stagnation of the auto sector in markets such as Europe, US and Japan on the other have resulted in shifting of new capacities and flow of capital to the Indian automobile industry.

Global auto majors such as Japanese auto majors Suzuki, Honda and Korean car giant Hyundai are increasingly banking on their Indian operations to add weight to their businesses, even as numbers stay uncertain in developed markets due to economic recession and slowdown.

Moreover, according to a study released by global consultancy firm Deloitte, at least one Indian company will be among the top six carmakers that would dominate the global auto industry by 2020. According to the study, the car industry would see a massive capacity building in low-cost locations like India and China as manufacturers shift base from developed regions.

Production

Although the sector was hit by economic slowdown, overall production (passenger vehicles, commercial vehicles, two wheelers and three wheelers) increased from 10.85 million vehicles in 2007-08 to 11.17 million vehicles in 2008-09. Passenger vehicles increased marginally from 1.77 million to 1.83 million while two-wheelers increased from 8.02 million to 8.41 million.

In recent times, India has emerged as one of the favourite investment destinations for automotive manufacturers.

• German car major Audi will start assembling its sports utility vehicle Audi Q5 from mid-2010. The company plans to assemble more cars locally at its Aurangabad plant instead of importing completely built units (CBUs).
• Ford India commenced commercial production of its compact car Figo, and diesel and petrol engines at a new factory in Chennai. The Figo will be built exclusively in India and exported to Asian countries and South Africa.
• Japanese major Nissan has decided to shift the entire production of its small car, Micra, from the UK to India. After production of the Micra begins here, Nissan plans to manufacture four more models in India, involving a total investment of over US$ 412.2 million.
• Suzuki Motorcycle India (SMIPL), a wholly-owned subsidiary of Japanese auto major Suzuki Motor Corporation, plans to double production capacity of its two-wheelers to 300,000 units by the end of the current fiscal year. The company will invest US$ 26.77 million.
• Volkswagen has set a target to localise production in India to about 80 per cent in 2-3 years from the current levels of almost 50 per cent as it seeks to offer cars at more competitive prices.

Domestic Market

According to figures released by the Society of Indian Automobile Manufacturers (SIAM), domestic passenger car sales have increased 32.28 per cent to reach 145,905 units in January 2010 from 110,300 units in the same month last year.

Across all categories, total sale of vehicles increased 44.94 per cent to 1,114,157 units in January 2010, against 768,698 units in the January 2009.

Road Ahead

The Indian auto industry is likely to see a growth of 10-12 per cent in sales in 2010, according to a report by the global rating firm, Fitch. According to its report, Indian Auto Sector Outlook, competition in the country's auto sector is likely to increase due to increasing penetration of global original equipment manufacturers (OEM).