Passenger car MNCs - not in the best of shape - Views on News from Equitymaster

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Passenger car MNCs - not in the best of shape

May 13, 2000

The passenger car segment grew by 56% in FY2000. Of this majority of the growth came in from the small car segment. The premium car segment on the other hand grew slowly due to the fact that the demand in this segment has not been as buoyant as it caters to a niche segment of buyers, unavailability of spare parts and overall high costs due to high import content. Many of the multinational car companies have not performed well in terms of profitability in their Indian operations. The reasons for this is the low indigenisation levels of their products leading to higher overall costs, larger overheads and hindered volume growth. Some of the companies whose performance has been hit are General Motors India, Mercedes Benz India Ltd, Daewoo Motors.

On the positive side these companies have realised this and have tried to increase the level of indigenisation in their products to reduce the cost of spare parts and other imported components so as to reduce overall costs. Also the demand in the premium car segment is expected to pick up. As volumes in the small and medium segment have been very good in the past year this will result in a shift in demand gradually to the medium and premium car segments, as those already owning a small car will want to upgrade to a larger car.

Many of the automobile MNCs companies are also keen to set up their own component supplier base so as to make available easily spare parts and components locally. This too should help in reducing overall costs for the industry and give a boost to demand for this segment.

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