Consumers who were cash-strapped through 2008 and 2009, and much of 2010, have now gradually regained their purchasing power. However, despite improved financial standing of consumers, the number of cars being sold in India has seen a steadily declining growth rate since 2010. An Economic Times report states that in the year 2011-2012, the sales grew by a mere 2.19%. Although the Society for Indian Automobile Manufacturers or SIAM said that a boom in sales in March has rescued the floundering industry, OEMs are looking for means and ways to increase their consumer base as well as cut costs of production and operations.
It would seem that geographic diversification is the chosen way to go by OEMs as highlighted by the Automotive Report recently published by Wipro. According to the report, there has been tremendous activity on the part of car manufacturers in India as far as local and international expansion is concerned. It reveals that major OEMs such as Honda, Toyota, Maruti Suzuki, the Tata Group, BMW, Daimler, Audi, Fiat, and even Premier have plans to exponentially expand their dealer network locally in the years 2013 and 2014. To me, this seems like a smart thing to do considering the massive amounts being spent on advertising on various media such as television, print and the internet. There seems to be plenty of awareness among consumers on the cars available in the market. Hence, the determining factors that will drive sales will be pricing, convenience and service. All the more reason for OEMs to focus on increasing the number of dealerships and service centres.
Wipro's report also highlights the need for OEMs to geographically diversify their exports, moving the focus away from the saturated US and European markets to new shores such as Russia, Brazil and South Africa. I agree with them here. Indian OEMs have the advantage of low cost manufacturing and can hence promote their cars in countries where demand for high-end luxury cars is low and preference is placed on utility and economy. I believe there is special scope for OEMs such as Tata and Maruti Suzuki, which can competitively cater to upper middle class markets in these countries.
Another aspect that the Automotive Report highlights is the M&A prospects that major Indian OEMs hold in the international markets. As Tata's acquisition of Jaguar Land Rover exemplified, such mergers have a two-pronged advantage. To begin with, Indian OEMs can capitalize on their low cost production and engineering capabilities to reduce costs and thereby increase profits through sales of cars on foreign shores. Secondly, reduced costing of such cars will also increase their demand within Indian market.
What remains to be seen is whether other Indian OEMs will focus on independent local and global expansion through dealerships, or follow Tata's lead and take the M&A way.