Industry analysts said apart from slowing sales, these companies also face the high cost of competing with strongly-placed incumbents like Maruti Suzuki and Hyundai.
Honda Cars was the worst hit, with a net loss of R1,110 crore in FY13 84% higher than FY12 despite a 35% jump in volumes, according to data available with the RoC. Toyota Kirloskar and Skoda Auto posted losses of R6 crore and R85 crore, respectively, during the year. Other large players like Ford, Volkswagen, General Motors and Renault are yet to submit their number to the RoC. Barring Volkswagen, all others had recorded losses in FY12 as well.
VG Ramakrishnan, MD at Frost & Sullivan, South Asia, said Honda has taken a major hit due to currency depreciation. But he added that global carmakers have deep pockets and will continue to fund losses with an eye on profits in the longer term. Most companies have made huge investments in capacity in order to achieve scale, but that is not commensurate with their volumes. When they invested, they did not imagine a 2-3% market share but all carmakers know that they have to be present in India it is one of the few markets in the world that can potentially reach a size of 7-8 million units annually, he said. The 2.7-million-unit domestic passenger vehicle market grew 2% in FY13, but has recorded a 4.6% drop in April-October FY14.
At present only a select few foreign carmakers are profitable in India. Hyundai, the second-largest player in the country with a 15% market share and one of the oldest to start local operations (1996), recorded a 5.27% higher profit at Rs 836.2 crore in FY12 its FY13 profit is not available yet. Meanwhile, Nissan in FY13 also emerged from its FY12 losses of Rs 467 crore, with a Rs 312-crore profit.
Almost 75% of the domestic market comprises Maruti Suzuki, Hyundai, Mahindra and Tata Motors.
Under pressure from competitively-priced products from rivals, many of the new entrants are also opting to sell cars at a loss, or below cost, industry sources said. The aim of this strategy is to gain a large slice of the market and spread brand awareness, which they hope to take advantage of later while taking a hit in the short term. Gaining large volumes and market share is necessary for most new players as a prerequisite to later profitability.
Most companies take losses on certain variants, mostly the entry model, in order to establish themselves. They need few cash cows, like Maruti's Swift, so the entire range gets balanced out, said Puneet Gupta, principal analyst at IHS Automotive.
Gupta added that many global players have pared down on their India plans of late, with investments on new products being delayed in many cases. Most global companies initially thought that the slowdown was for the short term. Till 2012, many had been positive of expanding in India, but now many have delayed new launches to 2015, he said.
Frost & Sullivan's Ramakrishnan added that getting a large market share in India boils down to pricing products competitively, for which one needs large scale. So companies need to plan out exports from the start. To be profitable in such a tough market is all about strategy. You have to have volumes, but you cannot sell as much in India, so you have to start out with big exports. That is what Hyundai did, what Nissan did, what Ford is going to do now. All others I believe will follow suit, he said.