Despite being a big market and home to several global auto majors for decades, India is now under threat of losing a large chunk of fresh investments from the likes of Honda, Toyota, Nissan and Ford to regional competitors Indonesia and Thailand.
With a large part of the new capacity focussed on exports, the shift of automakers towards the two countries comes on the back of sluggish market growth in India, high interest rates and a lack of government incentives to stimulate sales, say industry executives and consultants. In comparison, Thailand and Indonesia are pushing auto sales through a slew of incentives for new car buyers, while maintaining interest rates in the low single-digits.
By 2016, around R24,000 crore will be invested by companies like Toyota, Nissan, Honda and Volkswagen in Indonesia for capacity expansion, while firms like Ford and Honda have committed an additional R10,000-crore investment in Thailand. In comparison, India will get only about R12,000 crore worth of investments from companies like Maruti Suzuki, Ford and Renault-Nissan.
Global auto majors opting to invest more in India?s Southeast Asian rivals is alarming, especially since India is a much bigger market. In fact, India?s 3.28 million light vehicle market size in 2012 was three-and- a-half times bigger than Indonesia?s (0.98 million), and two-and-a-half times bigger than Thailand?s (1.30 million), according to IHS Automotive. This makes India the sixth largest market, while Thailand and Indonesia are the 13th and 17th, respectively. By 2017, India is expected to jump three spots to the third position behind US and China.
Indonesia is likely to jump four spots to 13th and Thailand will slip to the 14th position by 2017.
Puneet Gupta, principal analyst at IHS Automotive, said that companies are choosing to invest in Indonesia and Thailand because they offer incentives to both companies and buyers that help in pushing sales. ?The worry for India is that a big slice of export production may go away to these countries. The Indonesian government has given a clear road map for the auto industry, which help new companies plan investment. In India, we need a lot of clarity on things like emissions and fuel pricing policy. If the government supports the industry at home, the potential is huge because this is a very large market,? he said.
Last month, the Indonesian government announced tax breaks (sales tax as low as 0%) for eco-friendly, low-cost cars. Thailand had a similar scheme and offered incentives to first-time car buyers. Additionally, the interest rates for auto loans are also in the lower single digits in both Indonesia and Thailand, encouraging new buyers.
With car sales falling for the eighth month in a row in June, the Indian auto industry is also expected to seek incentives like an excise duty cut from the government within a month. Car sales, in fact, have been on the slow lane for two years in India ? in FY13, volumes fell the sharpest in 12 years -6.7% dip at 1.89 million units, while in April-June FY14, volumes are down 10.41% at 0.43 million units.
VG Ramakrishnan, MD at Frost & Sullivan, South Asia, said, ?The Thai and Indonesian car markets will continue to hold sway for Japanese companies. We should not be that despondent of our situation in auto as we are one of the biggest markets in the region. The condition is worse in other sectors like home appliances where nearly all the manufacturing happens in these countries.?
Much of the capacity expansion planned by Toyota, Honda, Volkswagen and Ford in these two countries are for export purposes as companies look to take advantage of the Asean Free Trade Area that includes 10 countries. Additionally, cars from the region are also exported to South America, Africa, Australia and Europe, making it a large production base for the auto industry.
In Thailand, Honda is investing Rs 3,300 crore (17.15 billion Thai baht) in a new plant, apart from expanding production at the older plant. This will take its capacity to 4.2 lakh units by 2015. Ford is investing Rs 2,700 crore (15 billion Thai baht) in a second plant, while Nissan is also investing Rs 2,116 crore (11 billion Thai baht) in a second plant.
In Indonesia, Toyota and its affiliate companies plan to invest a mammoth Rs 15,582 crore (26 trillion rupiah) by 2016, doubling its investments of the last 40 years in the country. About 30% of the production will be exported, from 15% in 2012. With plans to locally manufacture and launch the Datsun brand next year, Nissan is investing Rs 2,395 crore ($400 million) in Indonesia by 2014 to increase production capacity to 2.5 lakh units from 1 lakh units. Honda is also investing Rs 2,018 crore ($337 million) to triple production capacity to 1.8 lakh units by 2014, while Isuzu is investing Rs 900 crore (1.5 trillion rupiah) and Volkswagen Rs 838 crore ($140 million) for setting up its first plant in Indonesia by 2014.
