India and China, future car giants

Helped by lower labour costs and cheaper raw materials (more than 10 per cent compared to Europe and the United States), India is becoming a growing market for minicars and compact vehicles. The sector’s growth has also been nudged by a lower manufacturing tax (8 per cent excise duty) and, unlike China, Indian authorities do not require foreign companies to set up joint ventures with at least 50 per cent capital held by local partners.

Big carmakers, especially those from Asia like the Suzuki Motor Corporation, Hyundai Motor Co. and Nissan Motor Co. are expanding their Indian platforms to export compact vehicles at the expense of other countries like Thailand and South Korea.

This year exports by Maruti Suzuki India more than doubled to 79,860 vehicles. In August alone it exported 14,847 vehicles and aims to ship 130,000 vehicles during the current fiscal year.

According to data released by the Society of Indian Automobile Manufacturers, India's total exports in the first seven months of this year rose 18 per cent per cent to 229,809, including mini cars and hatchbacks which gained 44 per cent. By 2015 small cars will account for 95 percent of the 690,000 passenger vehicles India will export.

In contrast, China’s exports slumped 60 percent to 164,800 between January and July. The same happened to vehicles produced in Thailand whose export declined by 43 per cent whilst South Korean exports dropped 31 per cent.

“It makes companies more comfortable to have an export strategy when they have full control,” said Ashvin Chotai, London-based managing director for Intelligence Automotive Asia Ltd. “They don’t have to give up some parts of the profits to their partner.”

Indian firms are specialised in small, low-cost vehicles like the Nano by Tata Motors, which makes such models more profitable. Analysts note that developing a car from the design stage may take US$ 225 million to US$ 250 million in India, whilst in Europe the same may cost US$ 400 million.

Nissan, Japan’s third largest carmaker, is building a factory to build cars for the European market, and is expected to save at least 5 per cent on production costs.

China has responded to the situation by stimulating domestic sales through tax breaks and easy credit. Mainland passenger car sales last month rose 90.18 per cent from a year earlier.

Sales by General Motors in China last month jumped to 152,365 vehicles, a gain of more than 100 per cent. The Detroit-based company said its 2009 sales will rise more than 40 per cent from 1.09 million last year.

According to government figures, in China total sales for all automakers may increase to 12 million, up from 9.38 million.

Car sales are also up in India, but the domestic market is still small. Last month 120,669 passenger cars (+ 25.59 per cent over a year earlier) and 40,624 commercial vehicles (+18.48 per cent) were sold.