Strategy & Competition

Who's Winning the Asian Auto Derby


Delhi - For years, global automakers have fretted about the day when Chinese manufacturers start exporting cars en masse, driving down profits worldwide. But the bigger challenge may come from China's neighbor, India. This year through September, India exported more than 292,000 cars, up 32% from the same period in 2008, while China's car exports fell 57%, to about 221,000.

In contrast to China, where exports come mostly from domestic companies, India's biggest exporters are the global manufacturers themselves. They like the country because it's a fast-growing market with plenty of smart engineers; developing a small car in India costs about $225 million, vs. some $400 million in Europe, estimates researcher CSM Worldwide. While costs in China are on a par with India's, China hasn't penetrated the European countries where India is strongest. The vast majority of Chinese cars sold abroad end up in the developing world. "India's advantage lies in its strong engineering skills and a large supplier base, which has learned to meet the strict quality requirements of European markets," says Ammar Master, an analyst with J.D. Power & Associates (MHP).

The biggest names in autos are ramping up production in India. Renault and Nissan Motor (NSANY) are building a plant near Chennai with an annual capacity of 400,000 vehicles and plans to export to Europe by next May. Ford (F) is refurbishing a plant where it will build a small car called the Figo, which it aims to start exporting next year. And Volkswagen is boosting production at two factories in western India to 110,000 cars annually, many for export. "India offers a launchpad to develop and build small cars at a much lower cost [than in Europe]," says Rajesh Nellore, the India head for PSA-Peugeot Citroën, which is scouting land near Hyderabad for a factory with an annual capacity of 100,000 vehicles. "Those cars need not go through dramatic changes to suit Western needs."

The leaders so far are Korea's Hyundai Motor and Maruti Suzuki, a Japanese-Indian joint venture. With the introduction of the subcompact A-Star, the latter has doubled its European sales this year to 91,000. Hyundai expects to export 300,000 cars from India in 2009, mostly a pair of hatchbacks called the i10 and the i20. Tata Motors (TTM) is close behind. Its hatchbacks and sedans do well in Italy and Britain, where Tata has invested in dealerships and a roadside assistance service so that "no matter where he is, our customer knows he won't be stranded," says Tata Managing Director Prakash M. Telang.

That's not to say China won't overtake India in exports someday. Part of India's success this year is due to European cash-for-clunkers programs. China's car market, meanwhile, is about five times as big as India's and has grown 46% this year, spurring carmakers there to focus on the mainland rather than exports. At just 2 million vehicles last year, India's market is too small to warrant all the capacity the country now has, so manufacturers feel they need to export. "If you have a factory in China, you just fill it and sell the cars in China," says Colin Dodge, Nissan's chief for Africa, Middle-East, India, and Europe. "Don't [bother with] exports."
Rowley is a correspondent in BusinessWeek's Tokyo bureau.
Srivastava is a reporter-at-large for Bloomberg News in London. He also reports for Bloomberg Businessweek.

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