INDIA: DRIVEN TO COMPETE

Global automakers gain foothold on subcontinent

Growth market draws GM, Ford, Hyundai, others

10/4/2012
BY STEVE EDER
BLADE STAFF WRITER

Second of three parts

Employees work on a car at the Ford India plant in Chennai, India. Ford has invested $875 million in India since its 1995 arrival.
Employees work on a car at the Ford India plant in Chennai, India. Ford has invested $875 million in India since its 1995 arrival.

DELHI, INDIA -- A fleet of foreign automakers is investing billions of dollars to build plants in India, hoping to cash in on the nation's rapidly growing class of drivers.

And Ford and General Motors, both in the midst of massive expansions in India, are chief among them.

As car sales sag in North America and other parts of the globe, the world's largest car manufacturers are increasingly looking at India as a good bet because of the nation's growing middle class -- estimated at 50 million -- and infrastructure gains.

While India isn't immune from the economic downturn that plagues much of the world, it's still considered a growth market with a bright future.

The number of passenger cars sold in India has more than doubled from 707,000 in 2002 to 1.55 million in 2007, according to the Society of Indian Automobile Manufacturers. The total number of vehicles - including two-wheelers, three-wheelers, and commercial vehicles - has increased from 5.9 million to 9.6 million during the same period.

READ MORE: Driven To Compete: The Indian Auto Industry


The growth of the India auto market has coincided with the arrival and expansion of nearly all of the world's automakers.

"We are very aggressive about the opportunities and the prospects here," said Michael Boneham, the president and managing director of Ford India, during an interview with The Blade in his office at Ford India's headquarters near Chennai in September. "That's why we are all here."

As domestic and foreign automakers have sunk billions of dollars into the country, India's automotive production has ballooned from 723,000 in 2002 to 1.76 million 2007, according to the auto manufacturers' society.

Those numbers are dwarfed by the 10.8 million vehicles produced in the United States last year, but India's potential is huge as an auto market.

Although passenger vehicle sales in India fell by 9 percent in October amid the global economic downturn, global automakers say there are plenty of reasons to remain optimistic about the demand for cars in a nation with more than 1.1 billion people packed into an area about one-third the size of the United States.

President and managing director Ford India Michael Boneham.
President and managing director Ford India Michael Boneham.

"Frankly, a population that big is simply too large to ignore," said Bernard Swiecki, a senior project manager with the Ann Arbor-based Center for Automotive Research, who has been to India and seen the automotive growth firsthand. "That population is huge and experiencing income growth."

Mr. Swiecki said the growth of India's automobile industry differs from the U.S. and European markets in that there are large numbers of first-time car buys.

"It's a type of a growth that we see very little of here, and it makes it a very attractive potential market for our automakers," Mr. Swiecki said.

Many Indians live in sprawling cities spread out across 28 states, with each having its own languages, distinct cultures, and religions. But the common bond across India is that almost everywhere, the middle class is growing and wants small, affordable vehicles. That's what is attracting automakers across the world to set up plants and compete for the millions of new Indian drivers.

Challenges ahead

The Blade spent three weeks in September reporting on India's burgeoning auto industry from India's five largest cities - Mumbai, Kolkata, Delhi, Chennai, and Bangalore - and meeting with automotive executives, parts suppliers, autoworkers, politicians, and engineers to investigate what lies ahead for India and the automobile.


With tremendous opportunity in India for automakers, challenges remain:

- The construction of India's roads hasn't kept up with the ever-increasing traffic. Despite plans for major highways connecting India's biggest cities, driving remains consistently slow, especially in the highly populated cities of Mumbai, Delhi, and Chennai.

- There's a shortage of electricity to power large industrial operations in some parts of India. In Chennai, factories experience regular power outages and are forced to use expensive diesel generators to avoid disruptions. The government mandates plants close one day each week to save electricity.

- More than 27 percent of Indians - about a quarter-billion people - live in poverty and many are uneducated or undereducated, making it challenging for automotive businesses to find trainable employees. Some employees are hungry, requiring employers to feed them one or two meals during each shift to assure they are focused on their jobs, not food.

- Political infighting and the competing agendas of agriculture and industry present an obstacle for automakers looking to grow, potentially displacing farmers and villagers. That was evidenced by Tata Motors' pullout in October from a factory site under construction near Kolkata, formerly known as Calcutta, because of local protests.


The Ford factor

Even with all of its quirks and challenges, Mr. Boneham, a 23-year Ford veteran, says India is still "the place to be."

It's what he calls a "major emerging power," a place that's both "very complex" and an "exciting place to be at the moment."

Ford's excitement about the potential of India can't be underestimated.

In January, Ford invested $500 million to expand its Indian operations in Chennai, making room to build a new small car in 2010 and launching a

$26 million facility to produce petrol gasoline and next-generation diesel engines.

With its investment, Ford has committed $875 million in India since it arrived in 1995 and established Ford India, a wholly owned subsidiary of Ford Motor Co.

"We are growing our structure and growing our operations to cope with the significant growth we are going to have here," Mr. Boneham said, adding that the expansion will lift Ford's capabilities to 200,000 cars per year.

Ford sells four models in India - the Ikon, Fusion, Endeavour, and Fiesta - with 130 dealers scattered across the country.

Nearly all of the cars Ford builds in India are sold either in India or the Asia-Pacific region.

"We feel very confident about the growth opportunities here in India.

"We think the market is going to grow very, very comfortable to support the number of new manufacturers that are coming into the market," Mr. Boneham said.

OBJECTA 'small fish'

Karl Slym, the president and managing director of GM India, sees the same opportunities for growth.

In September, GM opened a new plant on 300 acres in Talegon, near Pune, an information technology and automotive hub in western India. The new plant, which cost more than $300 million to build, boosts GM's investment in India to $1 billion and eventually will increase its capacity to 225,000 vehicles per year.

GM controls about 3 percent of the Indian car market, but by 2010 it hopes to increase that to 10 percent and rise from its position as India's fifth-largest automaker.

"From GM's point of view, we are a very small fish," Mr. Slym said during a meeting in his office in Gurgaon. "We are

3 percent of the market share, so the other four guys are taking a whole load of market share. But we are growing."

GM India, incorporated in 1994, sells its cars under the Chevrolet brand. To establish itself in India, the company partnered with Indian and Asian companies. It has 136 dealerships throughout India.

CNissan India’s Shouhei Kimura says his company’s plans call for putting five models on sale in India by 2012.
CNissan India’s Shouhei Kimura says his company’s plans call for putting five models on sale in India by 2012.

High on Hyundai

It's hard to miss Hyundai on the streets of India.

It's not necessarily the cars - although there are plenty of Hyundai cars on the roads - but the banners and sponsorships that plaster the brand name for all to see across India.

Establishing the Hyundai brand has been paramount to the Korean automaker's vision for India since the company arrived in 1996.

In addition to sponsoring festivals and placing banners across the subcontinent, Hyundai struck at the center of India culture by signing Shahrukh Khan, an India celebrity and movie star, to pitch its products.

When the Korean automaker came to India, "nobody knew about Hyundai," said H.S. Lheem, the managing director of Hyundai India, a wholly owned subsidiary of Hyundai Motor Co., during an interview in his office in Chennai.

That's changed now, as Hyundai has emerged as the nation's second-largest car manufacturer and largest passenger car exporter, touting itself as "the fastest-growing car manufacturer in India."

Hyundai recently opened its second plant in Chennai, doubling its annual production capacity to 600,000 vehicles. In 2007, Hyundai reported sales of 327,000 vehicles in India, an increase of 9.2 percent above 2006.


Other major players

As companies such as Ford, GM, and Hyundai look to expand their market share, other major international players are making their debuts in India.

Nissan, a Japanese automaker, is building a plant in Chennai in a partnership with Renault. And Japanese automakers Honda and Toyota are long established in the Indian market.

Shouhei Kimura, Nissan India's managing director, said Nissan's ambitious plans call for putting five models on sale in India by 2012 with production of 200,000 vehicles a year.

"We have a lot of opportunity here," said Mr. Kimura during an interview at Nissan Renault's temporary offices in Chennai.

Mr. Kimura said one factor in Nissan's decision to invest in India is the access to inexpensive labor.

"But if the labor is cheap and the quality is bad, it is impossible," Mr. Kimura said.

BMW, the German luxury-car maker, also recently opened a plant in Chennai. It's a small facility that builds only 12 vehicles a day for the Indian market, with parts imported from Germany.

BMW inaugurated its 22-acre plant in March, 2007, and has opened dealerships across India. Other German companies have seized on India too. Volkswagen and Daimler are both building plants in Pune.

Vehicles creep along a thoroughfare in Mumbai. The booming Indian car market has intensified challenges. Traffic can be so dense that it takes hours to travel 15 miles in a busy city.
Vehicles creep along a thoroughfare in Mumbai. The booming Indian car market has intensified challenges. Traffic can be so dense that it takes hours to travel 15 miles in a busy city.

A challenging situation

Making cars in India has presented challenges common to developing countries and unique to the subcontinent.

Working with contractors to build plants in India has proved difficult because of language and cultural divides.

Foreign automakers in India say that contractors repeatedly have failed to meet deadlines, which has cost them time and money.

Ford, in the midst of its expansion, said it hired multiple contractors to build its new facilities so it wouldn't have to rely solely on one builder in case things went badly.

BMW learned those lessons the hard way.

With its headquarters operational in Gurgaon near Delhi, BMW waited three months for its contractors to complete its factory in Chennai.

In a city such as Chennai, where major automakers are quickly moving in and existing automakers are expanding, there's been a run on power, causing factories to need to take a day off each week to conserve energy.

Some factories run on backup diesel-powered generators because of frequent power outages.

And driving on India's roads is a frightening experience, let alone transporting allotments of newly built cars down roads cluttered with two-wheelers, three-wheelers, and three-wheel auto rickshaws. Traffic is so intense and so unruly that it can take hours to travel 15 miles in a busy Indian city.

The people-centered infrastructure is also lacking, automakers say.

While India boasts a strong class of engineers, its factory workers are undereducated and ill-equipped to handle skilled factory jobs.

That poses a problem for automakers looking to make use of new machinery and improve operations.

To Mr. Boneham, the president of Ford India, education holds the key to India's future.

"Once that's in place, the opportunities are endless for this country," Mr. Boneham said.