India's automakers rev up for run at U.S. car market

Impending influx poses new threat to Big Three

  • 11-30-08-indian-auto-industry

  • A Mahindra Scorpio moves down a production line at a plant in Nashik, India. Mahindra Motors plans to sell a sport utility vehicle similar to the Scorpio in the U.S. in the coming years.
    A Mahindra Scorpio moves down a production line at a plant in Nashik, India. Mahindra Motors plans to sell a sport utility vehicle similar to the Scorpio in the U.S. in the coming years.

    Blade reporter Steve Eder traveled in September to India to report on the country’s growing auto industry on a World Affairs Journalism Fellowship. The fellowship was administered by the International Center for Journalists and sponsored by the Ethics and Excellence in Journalism Foundation.

    First of three parts

    MUMBAI, India — Yet another challenge is facing the U.S. auto industry. And this time, it isn’t coming from Japan, South Korea, or Germany — or the meltdown of the economy.

    In the next few years, Indian automakers and parts suppliers, long outcasts because of lackluster innovation and stagnant technology, have ambitious plans to sell cars to American consumers and peddle parts to carmakers in this country.

    India’s anticipated foray into the downtrodden U.S. automotive market poses an immediate threat to Detroit’s Big Three and their domestic suppliers, already teetering on the brink of bankruptcy because of lagging sales stemming from a tightening credit market and competition from Asian automakers.

    Indian automakers, aggressively recruiting top homegrown engineers and ramping up research and development teams, are emphatic that their entrance into the U.S. and global markets should be taken seriously.

    For the first time, they believe they can compete globally.

    READ MORE: Driven To Compete: India's auto industry

    "There's a sea change," said Pravin Shah, an executive vice president of Mahindra Motors, maker of SUVs and pickup trucks, during an interview with The Blade at Mahindra Towers in Mumbai, a sprawling west coast metropolis of 18 million that most Americans know as Bombay. "People see we are getting into manufacturing that is world class," he said.

    India's entry into the U.S. auto market will have deep ramifications for the entire manufacturing sector of the United States, but especially in automotive centers such as Toledo and Detroit.

    Mahindra Motors is setting its sights on the American SUV market, looking to place its diesel-powered Scorpio on U.S. roads in the near future and taking aim at Jeep, which already faces challenges from domestic and Asian automakers.

    A Mahindra dealership is slated for Toledo's Central Avenue strip, the heart of auto sales in the area, where the company expects to begin selling pickups late next year before introducing its SUVs.

    Also next year, another Indian company, Krishna Maruti, plans to begin supplying seats for Toledo-built Jeeps.

    The automotive products supplier, headquartered near New Delhi, India's capital, has long built seats for Maruti Suzuki, India's leading car maker. Krishna Maruti is expected to take a large share of the Toledo Jeep work from Johnson Controls of Northwood. The move could mean the loss of up to 75 local jobs.

    And over the next several years, Tata Motors, India's highest-profile automaker, plans to expand its global reach to include the United States. By next spring, Tata's Nano, the world's cheapest automobile at $2,500, will begin rolling off production lines and onto India roads.

    A sense of urgency

    The Blade spent three weeks in September reporting from India's five largest cities - Mumbai, Kolkata, Delhi, Chennai, and Bangalore - meeting with automotive executives, parts suppliers, autoworkers, politicians, and engineers to explore the rise of the Indian auto industry and how it will affect the U.S. auto industry.

    India is well on its way to meeting its stated goal of joining the ranks of the world's auto industry leaders.

    Interviews with executives from India's Big Three - Maruti Suzuki, Tata Motors, and Mahindra - show the urgency of the nation's leading automakers to compete not only domestically, with an influx of foreign automakers laying roots in India, but to become global players in the world's automotive industry.

    "Today's India is a very confident India," said Debasis Ray, Tata Motors' chief spokesman, in an interview in his office at the headquarters of Tata Group.

    For Detroit's Big Three, India's entry into the North American market will present just one more competitor in an already crowded field, said Bruce Belzowski, an associate director and assistant research scientist with the automotive analysis division of University of Michigan's Transportation Research Institute

    "[Detroit's Big Three] have enough competition as it is," said Mr. Belzowski, who has studied India's auto industry and co-authored the study "Inside India: Indians view their automotive future."

    Mr. Belzowski said India's automakers must have near-perfect planning before they enter the "hyper-competitive" U.S. market.

    "They have to be prepared with advertising, dealerships, aftermarket parts - with all of the things you need to get a brand off the ground," Mr. Belzowski said. "For long-term survival, you have to have a variety of vehicles."

    Bernard Swiecki, a senior project manager with the Ann Arbor-based Center for Automotive Research, who has been on trade missions to India, said he doesn't see India as a short or medium-term threat but potentially as a long-term threat.

    "What the Big Three face today is so immediate that [India's automakers] don't really contribute to that whole crisis," Mr. Swiecki said, adding that he expects it'll take time for Indian automakers to build their volume and presence in the U.S. market once they've arrived.

    ‘People see we are getting into manufacturing that is world class,’ says Pravin Shah of Mahindra Motors.
    ‘People see we are getting into manufacturing that is world class,’ says Pravin Shah of Mahindra Motors.

    Evolution of an industry

    Until 1991, India's government maintained strict control over the nation's automotive industry, letting the bureaucracy determine which automakers could build which types of cars. As a result, there were few options for car buyers and little competition for carmakers, causing India's research and development to stall.

    For decades, India's passenger car market included few options other than Hindustan's Ambassador - a basic British-styled car, often in white, and a vehicle of choice for politicians dating to its inception in 1948 - and the Premier Padmini, often seen as black and yellow taxis dominating the rough Indian roads.

    The deregulation of India's automobile market, which began in 1991, shook the industry and ushered in massive changes that now have the nation's largest automakers on the verge of becoming international players.

    During the past 15 years, world automakers including Ford, General Motors, and Hyundai established themselves in India, slowly cutting their way into the domestic car market and forcing Indian automakers for the first time to compete.

    India's major automakers have responded by becoming bolder and more aggressive in competing to sell cars domestically and more ambitious about overseas markets.

    A global vision

    From his perch atop Mahindra Towers in downtown Mumbai, Pravin Shah has a vision that would make Mahindra Motors a name known not just to Indians but to people across the globe.

    Mahindra Motors, the automotive wing of Mahindra & Mahindra, one of India's premier businesses, already exports vehicles to 25 countries in Europe, Africa, South America, South Asia, and the Middle East.

    If Mahindra sticks to its sched-ule, it will be the first line of Indian automobiles to be sold in the United States. And Mr. Shah is confident his company's products will fill a need.

    "People are looking for cost-effective transportation systems and clean-burning products," Mr. Shah said. "It's value for money - that doesn't mean cheap, but delivering more than what you pay for."

    The executive vice president for international operations of Mahindra & Mahindra's automotive sector said his company is being cautious and deliberate in its planning, commenting that Mahindra has no plans to be a short-timer in the U.S. auto market. Instead, Mr. Shah said, his company wants to enter the market "with the intent to stay."

    Mahindra, in a partnership with Georgia-based Global Vehicles, is planning more than 320 dealerships across the United States, including one in Toledo, operated by local car dealer Steve Taylor.

    "The Indians definitely are on the way here," said Mr. Taylor, who traveled to India this year to meet with Mahindra and tour its facilities. "I think they have some technology - diesel and engine technology - that is going to be state of the art. It is high quality. It is going to be a less expensive kind of a car that is going to fit a bigger niche than what we see with bigger cars."

    The media gathered in January for the launch of the Nano, which is priced at about $2,500.
    The media gathered in January for the launch of the Nano, which is priced at about $2,500.

    Jeep similarities

    Mahindra got its start making SUVs by building Jeeps on a contract toward the end of World War II. And it has some familiarity with American consumers who use Mahindra tractors.

    Its modern SUV offering, the Scorpio, as it is presented on India roads, looks and feels like a Jeep - although its current specifications and pricing don't differ greatly from what Jeep is already offering.

    The newly introduced automatic version of the Mahindra Scorpio sells in India for $23,800, which is comparable to the $23,640 starting price for the 2009 Jeep Liberty. It's difficult to compare fuel efficiency since Scorpio models run on diesel engines, getting about 19 miles per gallon on mixed roads, and the Jeep Liberty uses a gasoline engine, reporting 22 mpg on highways. The Scorpio and Liberty have similar length and weight.

    To Mr. Shah, the Scorpio is engineered unlike any SUV American consumers have seen. And before it is introduced on U.S. roads, Mr Shah expects that the Scorpio's specifications and pricing will outmatch the Jeep.

    "I don't see a competitor that has a product in this size [that compares with the specifications of the Scorpio]," Mr. Shah said.

    Mr. Shah denied knowing anything about reports that Mahindra earlier this year expressed interest in buying the Jeep brand from Chrysler.

    A possible obstacle to Mahindra's entry into the U.S. sport utility vehicle market is its need to meet safety and environmental standards.

    "It's in our DNA to make heavy duty, clean-running, fuel-efficient vehicles," Mr. Shah said. "They will meet the standards."

    Mr. Shah said Mahindra's products will be unique to the United States because of their size and capabilities, allowing for opportunities to find niches in the market where "you can't find the Big Three."

    A.K. Bedi says Krishna Maruti’s quality and costs were the keys to securing a supplier contract with Jeep.
    A.K. Bedi says Krishna Maruti’s quality and costs were the keys to securing a supplier contract with Jeep.

    The SUV market

    When gas prices soared earlier this year, U.S. car buyers moved away from bigger cars and into smaller, more fuel-efficient ones.

    Asked why he is confident that American drivers will buy Mahindra's SUV, Mr. Shah said: "You can't separate the American from the SUV."

    Mr. Shah, who has worked for Mahindra since 1981, has seen firsthand how the deregulation of India's automotive industry changed and inspired India's automakers to be more innovative. He said automakers must focus more on customer service, volume of sales, and financial performance than ever before.

    "The whole paradigm of doing business has undergone dramatic change in India," he said. "This has transformed the whole business and the way we do things."

    Indian ingenuity

    When Tata Motors earlier this year introduced the Nano, the world's cheapest passenger car, it had every intention of taking it global.

    Amid much fanfare, the $2,500 Nano put Tata Motors on the global automotive map and made it the symbol of Indian ingenuity when it comes to car design and forward-thinking. The Nano, which is within reach of middle-class Indians, would aim to replace the rickety three-wheelers that clog Indian roads and offer a safer alternative than motorbikes for transporting families across busy city streets.

    On Jan. 10, the day the Nano was unveiled, Tata Motors' Web site attracted 7.9 million hits from around the globe, giving a sense of the worldwide interest in the vehicle.

    On a Tuesday morning in September, Debasis Ray's office phone rang again and again with media calls from across the world inquiring about the Nano, which is expected to be available in standard and luxury lines by next spring.

    "After the unveiling of the Nano in January of this year, we have seen the response that has come from countries across the world, including developed markets like the U.S.," Mr. Ray said. "It does seem that an affordable car like this is a need across the world."

    Tata Motors plans for the Nano to initially be sold in India but later sold in other developing countries.

    "When it come to India, you look at mobility," Mr. Ray said. "Personal mobility is a fundamental desire. But a car made affordably to transport families has never been possible."

    In addition to its automotive division, Tata Group, headquartered in Bombay House in Mumbai's financial district, boasts a portfolio of steel, communications, information technology, chemical, and engineering businesses. The Tata Group also owns Taj Mahal Palace and Tower, a hotel that was among the targets of last week's deadly terror attacks in Mumbai.

    Tata Motors hit stumbling blocks with the Nano project. After committing hundreds of millions of dollars to build a Nano plant in Singur, a 75-minute drive from Kolkata (formerly Calcutta), a major city along India's east coast, Tata Motors pulled out of the region last month amid a dispute with villagers whose land was acquired by the regional government to make way for the 997-acre plant.

    Villagers said they didn't receive fair compensation from the government, and their protests caused the company to shutter the site and move its operations across the country to an 1,100-acre plot near Ahmedabad, which is north of Mumbai and southwest of Delhi.

    Just as the world community was getting to know Tata Motors, the rapidly growing Mumbai-based company purchased the luxury Jaguar and Land Rover brands from Ford in a $2.3 billion deal.

    "We believe that the Jaguar and Land Rover are two iconic brands with global reach," Mr. Ray said. "That is the reason to bring Jaguar and Rover under our fort."

    Mr. Ray called Tata, India's largest carmaker, an "infant" in the realm of passenger carmaking. The company entered the passenger vehicle market only in the 1990s, making its major foray into the market with the 1999 launch of the Tata Indica, a basic and widely popular small car built for India's rugged roads. The company has built commercial vehicles for more than 60 years.

    Tata, like the other Indian automakers, has joined into agreements with other car companies across the world, including South Korea's Daewoo, Spain's Hispano, and Brazil's Marco Polo.

    Mr. Ray said those agreements are part of Tata's strategy to increase its global reach.

    Supplying parts

    While India's automakers map their entrance in the U.S. auto market, some Indian parts suppliers are already exporting to the United States.

    There are hundreds of parts suppliers based in India, which historically have served Indian automakers such as Tata, Mahindra, Maruti Suzuki, Bajaj Auto, and Ashok Leyland. But as India's reputation rises for producing quality auto parts, the demand for Indian-made components is increasing.

    By next year, the seats for Toledo-built Jeep Wranglers will be built by Krishna Maruti, a parts supplier based in Gurgaon, near Delhi.

    Krishna Maruti won the contract this year to build the seats, a contract currently held by Wisconsin-based Johnson Controls, which makes the Jeep seats at its Northwood plant. Chrysler officials later said Johnson Controls would continue building the Wrangler's front seats, while the Krishna Maruti would be responsible for the backseats.

    It was a milestone victory for Krishna Maruti, said A.K. Bedi, the executive director of operations, as Jeep will be Krishna Maruti's first major international venture.

    Krishna Maruti, founded in 1994 as a joint venture, builds more than 600,000 seats per year, with many of them landing in Maruti Suzuki cars.

    The company, which has 13 factories in India in places such as Pune and Chennai, employs about 2,500 workers, with 40 working in research and development.

    Mr. Bedi wouldn't discuss how much Krishna pays its employees, but Indian auto workers are paid from $1.65 to $7.20 an hour - a wage that seems low by U.S. standards but allows many to own homes and motorcycles and send their children to private school because of India's low costs.

    'The cost war is on'

    Mr. Bedi, at an interview at Krishna's headquarters in Gurgaon, said Krishna's quality standards and its chairman's philosophy - "the customer is God" - convinced Chrysler to award his company the Jeep contract.

    "The quality is something we talk about, but it is the cost that the customers are looking for," he said. "Like they say, the cost war is on."

    Krishna Maruti is planning to open a 50,000 to 60,000-square-foot assembly plant in the Toledo area and is looking at potential locations, Mr. Bedi said, adding that the plant is likely to employ about 100 people.

    Mr. Bedi, who is leading the Jeep project and has visited Toledo, said he expects the job to be quite "challenging."

    But he is confident that the lessons learned working with Jeep, as well as the bolstering of Krishna Maruti's global reputation, will lead to more chances to take its products global.

    "There are a lot of opportunities," Mr. Bedi said.

    Contact Steve Eder at: or 419-304-1680