Auto Industry

Passage to India

Chinese carmakers eye Indian expansion


The top carmaker in India

When India’s biennial Auto Show opened in New Delhi this month, it was emblazoned with a ‘3 Cs’ tagline: “co-create, co-exist, celebrate”. But the organisers should have probably added a fourth C: China.

For while the overall number of exhibitors was down from 50 to 30 (the coronavirus outbreak has derailed major car shows elsewhere in Beijing and Frankfurt, see this week’s “Talking Point”), the Chinese contingent still accounted for a third of the total.

India is fast becoming the new battleground for Chinese automakers as they ramp up their overseas expansion plans to combat declining sales at home.

India seems to offer huge sales potential. By 2025, it is expected to become the world’s third largest car market. Over the shorter-term, however, it has been suffering from declining sales owing to a slowing economy.

So far this doesn’t seem to have dented Chinese brands’ enthusiasm. Over the past month, for example, Great Wall Motors has swooped in to buy General Motors’ Indian manufacturing plant in a deal that Reuters reported was valued at about $300 million. Last week General Motors sold its car production facility in Thailand to Great Wall as well.

The US group sold both units as part of a global restructuring plan to improve profitability by focusing on core markets, most notably its home one.

Can the Chinese succeed in India – a country where others have struggled? A decade ago, a wave of foreign auto manufacturers, including General Motors, viewed India as the next big thing.

However, they were already three decades too late. Ever since India began opening up more of its economy in 1981, one company, Maruti Suzuki, has had the market almost completely sewn up (see WiC424). It’s one of the world’s most successful examples of a joint venture between an international partner (Japan’s Suzuki) and a local one (the Indian government), although the latter divested its remaining equity to financial market investors over a decade ago.

Maruti has increased its overall market share in India to 50% over the past decade, but also used its global partnership with Toyota to make sure that it doesn’t lose out as customers upgrade from its smaller cars to larger SUVs. In this segment, its major competitors are currently the South Koreans – Hyundai and Kia – plus local peers such as Mahindra & Mahindra, which established a joint venture with Ford last October; and Tata Motors, which has one with Fiat.

What the Chinese have in their favour are cheaper products, which appeal in a country where only a minority of the population is able to afford a car. Current owners are also starting to trade up to SUVs, an area where Great Wall excels.

New entrants including Chery, Great Wall, BYD and Geely all hope to emulate the success of SAIC, which opened an Indian plant in 2017 and scored a notable success last summer with the launch of its first locally targeted model, the MG Hector.

SAIC chose a very different marketing route to its competitors, which tend to use Bollywood superstars as their brand ambassadors. For instance, Shah Rukh Khan has been with Hyundai for 20 years, while Tata has Ashkay Kumar and Maruti has Varun Dhawan.

Instead SAIC picked Benedict Cumberbatch, betting that adverts with a Sherlock-Holmes-style London backdrop would work well for a former British brand targeting an upwardly mobile Indian audience. And it seems to have been reasonably effective.

What SAIC’s adverts also demonstrate is just how far Chinese branding has come over the past decade. Zhao Aimin, SAIC’s vice president, previously said that “cultural adaptation is the hardest part” for Chinese companies trying to build overseas platforms.

SAIC’s Indian strategy is a deliberate one: nothing about the car or its marketing campaign suggests Chinese ownership. It’s now planning to open a second plant in the country, while Great Wall will startselling its Haval H6 SUVs in India later this year.

Slightly further behind is Chery, which is reportedly trying to set up a JV with Tata (complementing an existing one in China); and FAW, which has partnered with Bird Electric.

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