Big is beautiful at Indian auto show

There’s a new drive in town. The ultra-low cost vehicle, long the popular choice in the Indian market, is making way for the big family transporter – that is the main message of the five-day Delhi Auto Expo, which opened on Thursday.

As demand for usually popular small cars has slumped over the past 12 months on the back of record high interest rates, focus has shifted to filling the gap with affordable large vehicles that can be used as a van during working days and a big family car for the weekend. Ford Motor, Nissan, Renault and Hyundai are among the international carmakers displaying at least one model of the 15 vans and compact sports utility vehicles at the Indian auto show.

The move comes as global carmakers expect demand among India’s wealthier middle class for bigger cars to outstrip that for smaller and cheaper vehicles. Industry forecasters IHS Automotive believes SUV and van sales combined will treble from the current level of 434,000 units a year to 1.3m by 2020.

Indian auto sales were flat in 2011 after the sector enjoyed growth rates of nearly 30 per cent during the previous two years. Demand was hurt by record high fuel prices and rising borrowing costs: a loan for a car is above 13 per cent since the central bank raised interest rates 13 times from March 2010, to 8.5 per cent.

However, the overwhelming view among chief executives is that the slowdown is won’t last for long. Most expect sales to increase by about 8 to 12 per cent by the second half of 2012, and the fact that several of them, such as Ford’s Alan Mulally, came to the Delhi Auto Expo for the first time to unveil more than 50 new models indicates India’s re-emergence as a key growth market, says IHS Automotive.

The mid-to-long-term view is that this growth means the shift in demand from small to bigger cars will naturally increase. “It is a natural transition for India,” says Deepesh Rathore, managing director of IHS Automotive. “India remains a predominantly small-car market but this segment is now crowded.”

The push towards offering larger vehicles also follows a year during which India’s once-venerated Tata Nano, the world’s cheapest car, failed to wow the domestic market. Ratan Tata, who played a key role in the conception of the ultra-low cost vehicle, admitted his group had failed to capitalise on the early hype that accompanied the car’s release.

Analysts say the failure of the Nano reflected Tata’s poor of understanding of a changing market. “The market is evolving, customers’ preferences are changing and they are looking for something different,” says Mr Rathore. “Compact SUVs are popular here because they reflect Indians taste and aspiration – a car that can dominate the road and is robust to deal with the country’s terrible roads.”

The compact SUV and the “utilitarian” seven-seater segments have been neglected until now, according to analysts. Very few vehicles are on offer within the Rs600,000 ($11,000) to Rs1m range.

Andy Palmer, executive vice-president at Japan’s Nissan, says the utilitarian segment – a car that can be used as a commercial vehicle as well as seven-seater – within that price range is a big “white space” in India.

“When we came in three years ago we had to build volumes. We had to go after the major market segment, the compact segment. That gave us the first hit of volume. But then, being Nissan, we went with something different,” Mr Palmer says as he pointed to the Evalia, a seven-seater on show at the Delhi Auto Expo.

Mr Palmer adds the company is going after India’s new aspirational middle class. “There are a lot of emerging entrepreneurial small businesses going on in India. Probably many can’t afford two cars but probably they can afford one car that is capable of doing their business during the week and carrying the family during the weekend.”



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