Japanese carmakers look beyond slowdown, commit huge investments to Indian market

Written by Roudra Bhattacharya | New Delhi | Updated: Dec 2 2013, 13:50pm hrs
The domestic car market may be in the slow lane for over two years now, but that has not altered the flow of fresh investments from Japanese car makers that have placed their bets for a long term. Even as most global rivals tighten their purses, companies like Maruti Suzuki, Honda, Nissan and Isuzu have together committed investments of about R25,000 crore in fresh capacity additions and domestic R&D over the next 4-5 years, while Toyota, the worlds largest car maker, has recently completed an expansion of its production unit near Bangalore.

The optimism shown by Japanese car makers is not surprising, say industry insiders. Compared to rivals from Europe and America, Japanese car makers have traditionally been most successful in India, starting with Maruti Suzuki in the late 1980s which heralded the beginning of the modern Indian car industry. The success of Japanese players has been attributed to the Indian buyers preference for compact, fuel-efficient, high quality yet low-priced vehicles something that Japanese car companies are experts in.

Today, the four Japanese players Maruti Suzuki, Toyota Kirloskar, Honda and Nissan, together, command 52% share of Indias 27 lakh units passenger vehicle (PV) market. The lions share of 40% is with car market leader Maruti Suzuki, which offers up to seven small cars the small car segment is the bulk of the domestic market with a 54% share of total PV sales. Hondas recent success with its first diesel model Amaze has seen its market share climb to 5% by October this fiscal from about 3% a year ago, while Toyotas lead in the MPV market with the Innova has helped it maintain around 5.5% market share. Nissan, which is currently building its local portfolio, hopes to gain significant market share when it launches its low-cost mass brand Datsun in January, while SUV maker Isuzu has just started domestic operations with initial sales limited to South India.

Marutis tremendous success in India has encouraged its parent Suzuki to use it as an export base and product development centre for most emerging markets like Africa, South America and Southeast Asia, with a free hand to set up overseas assembly operations, if necessary. The reason for this division of responsibilities is clear Maruti today accounts for about 40% of Suzukis global sales and around 25% of its profits. Huge investments are now in order as Maruti, which has an annual production capacity of 15 lakh units across its two facilities in Haryana, will initially invest R4,000 crore and take it up to over R14,000 crore (besides R6,000-crore vendor investments) over the next 6-7 years in another mega-facility in Gujarat.

Though Marutis Gujarat project has been delayed by two years, insiders say that when completed the Gujarat operations will be even bigger than Haryana and take the combined output to around 30 lakh units a year. Though products are largely designed in Japan today, Maruti is also building a large R&D base in Rohtak that will be able to develop new models from scratch. Marutis volumes in April-October FY14 are up 2.4% at 5.82 lakh units.

These investments are timely since analysts believe the domestic PV market will rebound from FY15 after almost three sluggish years FY12, FY13 and FY14. After a 29% jump in FY11 to 25 lakh units, PV sales in FY13 slowed down with a 4.66% rise to 26 lakh units. In FY13, growth slowed down further with a 2.15% rise to 26.8 lakh units and is expected to bottom out in FY14 between April and October, PV volumes are down 4.6% at 14.4 lakh units.

Nissan, along with global alliance partner Renault, is also doubling its investments to $5 billion by pumping in a further R15,600 crore in the next five years. With various new high-volume models in the pipeline, the bulk will go towards capacity expansion to about 6 lakh units annually by 2016, from 4 lakh units today. With three new models to be launched in 2014, Honda will start its second car plant in Tapukara, Rajasthan, by March 2014 and almost double its current output to about 3 lakh units a year. Honda is investing R2,500 crore in fresh capacity. Hondas volumes in April-October FY14 were up 63% at 70,831 units, though Nissan has seen a 26% drop to 17,400 units.

Isuzu is currently assembling its products at Hindustan Motors plant near Chennai. Additionally, it is investing R1,500 crore on building its plant in Andhra Pradesh, which will start operations by 2016 and initially produce about 1.2 lakh units a year.