Small wonders

Tata’s Nano has fuelled a revolution in the small-car segment, forcing other car manufactures to come up with a similar product, writes Girija Shankar Kaura

Big is out, small is in! That is the big story that Tata’s Nano has stirred up in a country, starved of icons. The company and the car have become an icon, forcing the other car manufacturers in the country to follow suit and exploit that section of Indian society for which owning a car had, till now, been a dream.

The Indian middle class is the strongest and the biggest consumer segment in the country, which is also the most deprived. The small car revolution has given this segment a hope that it may also soon join the proud club of cars owners.

Though critics may have their own arguments against this revolution, which include more crowding of the roads already bursting at the seams, contribution to global warming etc, but this revolution is here to stay.

The buzz around new brands and brand extensions in the small-car market is so loud that car manufacturers have no choice but to come up with options or lose out on the opportunity.

After Nano’s launch, there has been a gamut of small-car launches, including Hyundai’s i20

It is the small cars that are leading the charge towards higher sales. It is these cars, which have scripted the revival story, from the depths of a slowdown in the past six months.

Starting from the wonder car Nano, there has been a gamut of small-car launches. These include the path-breaking Honda’s Jazz, Hyundai’s i20 and the latest from the Maruti stable — Ritz.

One can say that Nano has triggered off a greater interest in the small-car segment or has started a new sub-compact segment.

The fact is that several small carmakers are either offering quite low price or a slew of extra features. In short, they are doing everything they can to make their presence felt and woo the Indian middle class.

A glimpse at the number of brands in the fray would bring home the fact that the interest in the small-car market in India is more than noticeable. The presence of a large number of players, including Indian companies like Bajaj, who has also announced its intention to launch a small car in collaboration with Renault, Maruti Suzuki, and international carmakers like General Motors, Ford, Hyundai, Volkswagen and Toyota proves this point.

Volkswagen, Toyota and Ford, who have, so far, been relatively dormant due to the lack of a small car in their stable, are now readying their products within the next six months. Their officials agree that it is a voluminous segment and they do not want to lose out.

Incidentally, though India is leading the small car revolution, this phenomenon is not unique to this country. Even globally, there is a shift towards small cars as these not only cost less, but are also more fuel-efficient.

According to the data available, lower-income countries, including India, make up approximately 53 per cent of the global population, but account for only 13 per cent of car sales. Low-cost to ultra low-cost cars are expected to drive market penetration in such countries.

The latest sales figures show a jump of almost 26 per cent in the passenger car category. And pushing up the sales are these small cars, which are proving to be extremely fuel-efficient. Photos by Mukesh Aggarwal

Besides, small cars are easier to drive, economical to maintain and use and also cost less.

While Nano’s numeric contribution to the small-car success story is a mere 2,475 units sold in July, it is expected to play a major role in going forward and expanding the customer base further. Due to its production and supply constraints, the car attracted a very high booking amount, but analysts feel once the Sanand factory in Gujarat is operational, the car will be available to the masses in a more reasonable manner.

Bajaj-Renault’s small car, expected to be launched sometime next year, may also give some competition to Nano in this ultra-low segment. Because Bajaj-Renault have also decided to keep the pricing of their small car in competition with Nano, and experts say that the prices could be attractive.

Industry observers point out that there is also a global awareness among carmakers that India can be an attractive manufacturing hub for making compact cars. Global automobile majors like Toyota Motors, General Motors, Volkswagen, Hyundai and Suzuki are some of the companies keen to make India an export-base for their cars.

The strong domestic automobile market, coupled with many more factors like increase in the purchasing power of the middle class, consumer credit and financing facilities, well-developed auto-component industry, availability of trained and cheap manpower and raw materials are attracting these international companies to invest millions of dollars in India.

These factors plus other things favour car manufacturers such as Nissan and Toyota, who are looking to make India their production hub. The labour costs here are about 10 per cent of that in the US and Europe, and raw material costs are even lower by as much as 11 per cent.

The latest sales figures show a jump of almost 26 per cent in the passenger car’ category in the country as compared to the corresponding period last year, a reflection of the changing economic scenario. And pushing up the sales were only these small cars, which are proving to be extremely fuel-efficient.

The result is that not only are the car manufacturers upbeat about achieving double-figure growth mark by the year-end but are also hopeful that by the time new small car models come in, the effect of the economic downturn would be totally over.

The other passenger car manufacturers wanting to exploit the small-car market segment are also hopeful that their launches over the next six months would also attract the same attention and response as did Tata’s Nano when its booking opened earlier this year.

`A0The positive aspect of this booking period was that both the nationalised and the private banks were ready to hand out loans to prospective buyers even for the booking amount. Seeing the response, Tata pointed out that it would only be able to accommodate 100,000 customers initially, and that, too, with the help of a computer draw.

As of now, the Indian automobile industry is valued at US $34 billion, and has been a key sector of the economy that accounted for 3 to 4 per cent of the country’s GDP. However, on the global level, India’s share of automobile production was around 2.3 per cent of the world production, and exports were only 0.3 per cent of global trade.

With the objective of developing the Indian automobile industry into a global hub, the Government of India had released a draft Automotive Mission Plan in 2006, which has been showing results as more and more global car manufacturers want to make India their manufacturing hub, especially for the smaller models.

In an effort to attract global manufacturers, the government has already reduced the excise duty on small motor vehicles and also on raw materials used in the automobile industry.
Some experts feel that the Indian automobile industry has to build economies of scale, lower manufacturing costs, attain higher labour and capital productivity, and maintain high-quality international standards in order to become a global hub in automobile manufacturing. It would face competition from countries like Brazil, China and Thailand with regard to attracting foreign investment in the automobile sector.

India would be the driving force behind this small car revolution as it has a huge market with millions of first-time car buyers wanting to be part of this revolution.

According to Booz & Company’s report on the automobile sector, the total number of automobiles sold worldwide will increase from 69 million in 2007 to 80 million by 2012, with emerging markets like India accounting for more than three quarters (77 per cent) of the increase.

Experts point out that there are already over eight million Indian households that can afford cars in the price range of Rs 2 lakh to over Rs 4 lakh. With the advent of cars such as the Nano, and other small-car models by Toyota, Suzuki and Renault, ranging between Rs 1 lakh and Rs 2.5 lakh, the market is expected to expand threefold over the next few years.

India continues to remain one of the world’s least-penetrated car markets with just seven cars per 1,000 persons as compared to 850 cars per 1,000 persons in the US.

Another heartening factor is that India is also expected to overtake South Korea as a world’s number one supplier of small cars by 2015. The small-car focus also has the potential of reducing the country’s trade deficit.

The country’s exports of small cars rose by 44 per cent between January and July, while the total exports rose by 18 per cent to 229,809 units. In contrast, China’s exports dropped 60 per cent to 164,800, followed by South Korea, whose car exports dropped 31 per cent during the same period, and Thailand, which saw a 43 per cent drop in auto production.

These figures are a clear green signal from India to the car manufacturers from around the world that all roads lead to the new "world of small cars" – that is India.

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