[lbo-talk] After China, auto makers head to low-cost India

uvj at vsnl.com uvj at vsnl.com
Sat Jul 8 05:41:28 PDT 2006


Reuters.com

After China, auto makers head to low-cost India http://today.reuters.com/investing/financeArticle.aspx?type=mergersNews&storyID=2006-07-07T082449Z_01_BOM169178_RTRIDST_0_AUTOS-INDIA.XML

Fri Jul 7, 2006

By Rina Chandran

MUMBAI, July 7 (Reuters) - India is becoming key to the growth plans of global auto makers as its emerging market and low-cost manufacturing base offer an alternative to rival China.

Japan's Suzuki Motor Corp. (7269.T: Quote, Profile, Research) said this week it would build a new compact car in India for Nissan Motor Co. (7201.T: Quote, Profile, Research) to sell in Europe, as part of a broad-based pact to supply vehicles and share manufacturing in emerging markets.

Nissan also said last month it plans to consign production of a car to one of Suzuki's factories in India as a shortcut into Asia's third-biggest economy.

"In the future India is going to be a more important place than China," Honda Motor Co. (7267.T: Quote, Profile, Research) CEO Takeo Fukui said in New Delhi this week after unveiling plans to invest about $650 million in India over the next 10 years.

"The growth rate is coming close to China's and one factor in favour of India is that it is a democracy," he said.

India's passenger vehicle market is only a fifth of China's, but is forecast to nearly double to two million units by 2010, analysts said.

"Globally, opportunities for quick growth are really only in emerging markets, particularly China and India," said Mohit Arora, director of J.D. Power Asia Pacific in Singapore.

"Until recently, only China was considered as a manufacturing base, but people are waking up to India's growing domestic auto market, its large pool of engineers and skilled labour, and the well-established vendor base," he said.

South Korea's Hyundai Motor Co. (005380.KS: Quote, Profile, Research), which aims to be the world's number-five auto maker with Kia by 2010, has positioned India as its export hub for compact cars. Hyundai India exported cars worth $390 million last year and is building a second plant which will double capacity to 600,000 a year.

INDIA VS CHINA

"Where you manufacture a car is not so important any more," said Pawan Goenka, chief operating officer of Mahindra & Mahindra's (MAHM.BO: Quote, Profile, Research) automotive unit. "It is more important to do it where costs are lower."

France's Renault (RENA.PA: Quote, Profile, Research), which has said it would make its no-frills Logan sedan with partners around the world, has a joint venture for it in India with Mahindra, India's largest utility vehicle maker.

"We are seeing more alliances closer to home because our markets are becoming more significant," Goenka said.

"But maybe because there are too many players in China already, or because they are cautious about intellectual property issues, India seems a more favourable destination now," he said.

But alliances are vulnerable: Ford Motor (F.N: Quote, Profile, Research) entered India through an alliance with Mahindra and then went it alone. "At the end of the day, some alliances will work, while others fall apart," Arora said.

"There are also basic problems like infrastructure, including power and water and the ports in India," he said.

Suzuki was among the first to recognise the opportunity in India for small cars, and its Maruti Udyog Ltd. (MRTI.BO: Quote, Profile, Research) unit dominates the Indian market where compact cars make up more than two-thirds of sales.

Suzuki is building a second plant with an initial annual capacity of 100,000 cars, to add to its 500,000-unit it has. That plant will eventually be expanded to 250,000 units.

Earlier this year, Italy's Fiat (FIA.MI: Quote, Profile, Research) said it would explore co-production, development and sharing of technologies with India's third-biggest car maker, Tata Motors Ltd. (TAMO.BO: Quote, Profile, Research). The two have already started sharing dealer networks.

Navistar Inc. (NAV.N: Quote, Profile, Research) has a joint venture with Mahindra to source components and make trucks for India and overseas, while Germany's MAN AG (MANG.DE: Quote, Profile, Research) has a joint venture with Force Motors (FORC.BO: Quote, Profile, Research) for parts, buses and trucks.

Japan's Isuzu Motors (7202.T: Quote, Profile, Research) said this week it would sell its vehicles in India through Swaraj Mazda (SWRJ.BO: Quote, Profile, Research).

(Additional reporting by Chang-Ran Kim in TOKYO and Shailendra Bhatnagar in NEW DELHI) ($1=46.1 rupees)

© Reuters 2006. All Rights Reserved.



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