Carmakers look to India for growth

By Amy Yee, Financial TimesPublished: January 15, 2008, 01:22
Ford Motor's decision last week to splash out $500 million on making small cars in India is the latest example of a global carmaker taking a bet on the burgeoning market.
The US automaker joins Fiat, Nissan, Renault, Volvo, Volkswagen, Suzuki and Hyundai, which have all committed large investments and have targeted aggressive expansion in India. In contrast to slowing sales in developed countries, India is the world's fastest-growing market for passenger cars and light commercial vehicles. Last year, more than 1.6 million light vehicles and 7.8 million motorbikes were sold in India compared with 675,116 light vehicles and 4.2 million motorbikes in 2002.
However, overall penetration is still low at just seven to eight cars per 1,000 people, compared with 750 cars per 1,000 in the US, with carmakers looking to take advantage of this huge potential for growth.

Most of the big investments in India so far are aimed at capturing share of the booming domestic market. Following a partnership with Indian truckmaker Mahindra & Mahindra, Nissan last autumn secured joint ventures with Indian truckmaker Ashok Leyland to make engines and light trucks. Meanwhile, Renault forged ties with Bajaj, the Indian motorbike manufacturer, to make a small car.
However, a few automakers such as Hyundai of South Korea,are using India as a manufacturing hub for export. Maruti Suzuki, India's largest passenger carmaker, intends to make a bigger push with exports to Europe.
Others are also waking to the idea of research and development in India. Suzuki Motors of Japan recently pledged $1.8 billion of investment in India, mainly for R&D and marketing, on top of a previous commitment of $2 billion to expand manufacturing. Carlos Ghosn, chief executive of Nissan and Renault, has cited the potential of India's "frugal engineering" to develop quality lower-cost vehicles.
Highly skilled engineers in India are paid a fraction of salaries earned by counterparts in developed countries, and with its population of 1.1 billion, the talent pool is deep. An estimated 220,000 engineers with four-year degrees graduated in India in 2005.
Design studio
Shaking the notion that India is a base merely for cheap manufacturing, General Motors last month opened a design studio in Bangalore. It is one of 12 such GM centres around the world in countries including the US, Germany, South Korea and Brazil. Opened in November, the studio will specialise in the design of interiors for new GM cars destined for both India and global markets.
"Obviously you are aware of [cost savings] when you're making these decisions," said Darwin Allen, director of product communication with GM in Detroit. "But the real motivation is to find people with expertise."
About 70 engineers and industrial designers at the centre use computers and special software to digitally "sculpt" car interiors. They will also carve foam and clay models of GM cars, both miniatures and life-size. Another room will house special equipment that projects 3D images of designs in progress.
Schemes hatched in India could become cars sold globally. "It is wrong to think of [the design centre] as an island just for India market," said Allen.
The trend for India to become a place where more advanced work takes place is expected to grow. Engineering services, which includes work for the automotive, telecom and high-tech sectors, could lead to a $40 billion market by 2020, according to a 2006 report from consultancy Booz Allen Hamilton, and Nasscom, India's IT industry lobby group.
At GM's Technical Centre in Bangalore, which hosts the new design studio, 1,000 employees are already involved in R&D. GM also last month unveiled a $1 million investment in a research tie-up with the prestigious Indian Institute of Technology at Kharagpur in West Bengal. The collaborative research lab will focus on automotive electronics, controls and software.
IIT-Kharagpur is one of only a dozen institutions around the world involved in research collaborations with GM. Others include Stanford University, Massachusetts Institute of Technology and Carnegie-Mellon University.