Players such as Ford India, Nissan, Renault, and Volkswagen now export a bulk of their production.
By Pritish Raj
American and European carmakers have had a chequered history in India. In 2017, after piling up losses of close to `1,500 crore, General Motors decided to shut shop. It has taken over two decades for Ford India to make its India outfit profitable; it first reported a profit in 2017-18 and that was due to the success of the EcoSport, a massive cost-cutting exercise and shift of focus to exports. But even today, Ford hasn’t been able to go beyond a 3% market share and that is small given 3.2 million cars are sold every year.
“Many foreign players have failed to scale up the business since they have not been able to launch cost-competitive products and build a large enough network to allow dealers enough of a profit,” Rakesh Batra, partner and national leader – automotive sector, EY, told FE. According to Batra, overseas carmakers launch products from their global portfolio with very little localisation, which are unable to compete with models made locally. Besides, lack of continuous launch limiting the options has been a deterrent for them.”
Arun Malhotra, former MD at Nissan India, feels the product is king and foreign carmakers can succeed only with breakthrough designs. “What these companies need is new breakthrough products in terms of design, technology and features. One product alone will never help, there has to be an entire line-up to be able to challenge established players,” Malhotra said.
Players such as Volkswagen, Renault, Nissan and Skoda have struggled to run a continuously profitable operation though some of them have been around for 10 years. While Volkswagen, which made a reasonable success with the Polo, reported a loss of `37.1 crore in 2017-18. French major Renault’s India outfit posted a loss of `850 crore in the same year — the Kwid got off to a great start but sales slowed thereafter. Skoda’s profits skidded 66% to `22.18 crore in 2017-18 with none of its models really taking off.
Consequently, the market is dominated by Maruti Suzuki, while Hyundai India is a distant number two. While Maruti commands a market share of 50% plus, Hyundai has around 17%, although in the early 2000s at some point, its share had touched 21%.
According to VG Ramakrishnan, managing partner and MD at Avanteum Advisors, GM had to exit because it was late in responding to changing consumer preferences. “Customers want cost-effective cars with more features along with reasonable service costs. GM also went slow on product launches,” he said.
Maruti Suzuki heralded the change of the automotive landscape during 1980s and South Korean manufacturer Hyundai entered in 1995 when the market was opening to private players and small cars were in great demand, which helped them consolidated their position, built a vast sales and service network, which required any latter entrant to invest heavily to compete with them. Maruti currently has over 2,000 dealerships in around 1,650 cities along with over 3,200 workshops. Hyundai has around 500 dealership networks and 1,300 service points.
Volkswagen, Renault, Nissan and Skoda were late entrants. Volkwagen entered India in 2007 with the launch of the sedan Passat, which sells less than 80 units a month. Renault came in around 2008 and launched its sedan Fluence, which was discontinued in 2017 due to poor sales.
Gaurav Vangaal, country lead, LVP forecast, IHS Markit, said the reason for failure of global carmakers in India is inconsistency in their products.
“They have either delayed new launches and upgrades or discontinued existing products, which is why consumers’ trust on these brands have gone down,” he said.
“The complex structure of the Indian car market has to be studied at length before making a foray. “A lot of foreign companies like VW, Renault and Nissan have failed to understand the consumer behaviour, cost of operations, issues of labour and easy-to-access after-sales service,” said an analyst at a foreign brokerage firm.
Apart from the dominant duo, the other players who matter in the domestic auto market are Honda, M&M and Tata Motors. The three companies command a market share of nearly 5%. During 2014, Honda did command a market share of around 7% but that fell due to limited success of City and Amaze. Other products such as BR-V, WR-V and Jazz could not fetch substantial numbers.
Renault’s Kwid became one of the highest selling mini hatchbacks when it was launched in 2015, touching around 10,000 monthly units and was seen as a competitor to Maruti’s Alto till 2017. Even now, Kwid contributes nearly 50% of Renault’s sales but monthly volumes have tumbled to 4,000. Renault’s compact SUV Duster was one of the highest selling in the segment, but competition from Maruti and Hyundai pulled the numbers down.
For Ford, compact SUV EcoSport initially garnered volumes of around 9,000 units a month and became the only successful model during 2016-2017. It competed well with Hyundai’s Creta and Maruti’s Vitara Breza. However, volumes halved from late 2018.
Players such as Ford India, Nissan, Renault, and Volkswagen now export a bulk of their production. Despite such failures of top-notch foreign brands, new entrants such as Kia Motors and MG Motors are entering India.