Well, it looks like India’s automotive industry is defying the world economic crisis. While auto sales in the US dropped by almost 23% in October 2009 (compared to the same month of the previous year), and some say we didn’t even hit rock bottom yet, the Society of Indian Automobile Manufacturers (SIAM) reported an increase in light vehicle retail sales of staggering 34% the very same month! Sales of commercial vehicles are up by 52%, and Motorcycle sales increased by almost 15%. These numbers mark the peak of a continuous growth over the last four months, and are testimony to the increasing economic power of India.

If you haven’t been living under a rock for the last couple of months, you most likely know what is going on in the automotive sector in the rest of the world, especially in the United States. Since I work for a German auto maker (OEM) that is currently struggling with the economic downturn in Europe and the US, I asked myself how news of a strong Indian automotive industry is affecting other automakers.

I called one of my colleagues in Munich, and asked him to share his thoughts on the Indian automotive industry, in particular about its largest OEM Tata Motors. In his opinion Tata has still a very long way to go until it will be at eye level with European or even US auto makers in terms of technology and production processes. The fact that the market for high end vehicles in India is still dominated by European OEMs backs up this claim. As an example, BMW’s sales figures increased by 56% this October (compared to the previous year). The company holds a strong 39% market share in the luxury segment competing mostly with Mercedes and other European OEMs. Indian cars do not play a role in this segment yet. However it’s important to understand that the luxury segment is only a small piece of the pie, and naturally all OEMs are trying to push into that million unit mainstream market by launching low cost versions of their cars. I think it’s going to be interesting if we see a cannibalization between the established and these low cost models on the domestic markets.

Having said that, I don’t think Tata would be able to compete in the high-end segment presently. I want to point out that it is operating under very favourable conditions, and I expect a vigorous race to catch up. Besides, Tata is operating on an extremely competitive cost structure and, (most importantly) is able to tap into a large pool of highly educated workers. There are clear signs that Indian OEMs are trying to get ready for prime-time in the near future – One is India’s recent accession to the ‘World Forum for Harmonisation of Vehicle Regulations (WP-29)’ and, the other is the statement of the Indian Minister for ‘Heavy Industry & Public Enterprises’ that he sees the Indian automotive industry as one of the most important driving forces for economic prosperity. Besides a strong public commitment to the automotive industry and support through regulatory initiatives, the Indian governments pledged to invest over $500 Million in the construction of six new automotive R&D facilities and the world’s largest test track in the very near future. Tata and a handful of other Indian car makers are in my opinion definitely the competitors that Europeans need to watch out for.

-Vitus Holzner