There was a time during the license quota raj when the average Indian got to see new cars and bikes only in the movies. A single model or two dominated each auto category. Be it the Ambassador car or Bajaj scooter or Luna.
India's auto sector has come a long way since then. Now, Indian auto companies come up with more models that we can keep count of. And they don't shy away from acquiring foreign brands or foraying into the overseas markets. International auto majors also look at India as an important destination both as market and as an export hub.
Recently there has been a flurry of activity in the small cars segment. Ford Motor, for instance, has announced plans to make India its manufacturing hub. As per Mr. Alan Mulally, Ford's president and CEO, the global market is shifting towards smaller cars. He also believes that India has a predominant advantage with a 70% market for compact cars. In fact, he believes that the small car market in India will double in the next decade. As per a leading business daily, the company has set a target of 200,000 cars for India by 2010. It also plans to export a large number to the countries in the Asia Pacific and African region.
We heard Maruti's management speak just yesterday how it expects the car market to more than double in a matter of just five years. The company expects the market, which is just 2 m cars a year currently, to reach sales of about 4.6 m cars by 2015. It may be noted that the domestic car industry has grown by 13% annually over the last five years. It will have to clock in an average annual growth of 18% till 2015 to attain the 4.6 m cars target. It expects growth to come in due to India's advantageous demographics and rising household income levels.
However, competition levels in the industry are set to heat up like never before. This is with MNCs like Toyota, Volkswagen, Nissan and Renault along with their domestic counterparts upping investments in the country. Therefore, the fortunes of companies in the industry will be reliant not only on industry growth but also on how they are able to maintain their market share over time. But overall, from an investor's perspective, this is one industry to watch out for in the years ahead.