India v. China: A Showdown Amid Slowing Auto Growth
There's nothing intrinsically wrong with modest growth. However, for the past decade, the auto industry has become increasingly... concerned about sluggish expansion in mature markets. The financial crisis did nothing to alleviate this, as car buying in Europe and the U.S. plunged in 2009-10. But rapid growth in the developing world isn't a sure thing, either. But for India, a growth slowdown could be a boon to its auto industry.
India: The next big thing?
All eyes have been on China, where Western automakers have been aggressively partnering with Chinese manufacturers to grab share in what has become the world's largest market for cars. In 2008 and 2009 growth rates were torrid, with between 30 and 50 percent year-over-year increases.
That growth has slowed significantly, and recently, China's authorities downgrades projection for 2011 from 10-15 percent to a lowly 5 percent. It's not like the party is over. But a retrenchment, in the face of China's efforts to control surging inflation, is happening.
Meanwhile, India's projections for growth have also declined, but not as severely. This comment comes from an executive at Mahindra and Mahindra, a major Indian automaker with a focus on trucks and SUVs:
We have always said that to maintain 25-30% consistently in growth is out of question. So when we started the year, we were expecting the passenger to grow at above 15% and that has been a very good growth for the year. However, since that time till now, that is in three months, the conditions have turned a little bit unfavorable for the industry and therefore, we have brought it down from 15% growth forecast to 11-12% growth forecast.The secret of the subcontinent
The main difference between the Chinese and Indian markets is that China is characterized by joint ventures between Chinese manufacturers and Western players, such as General Motors (GM) and Volkswagen (VW). India, on the other hand, features big local companies that have been building cars for decades -- although half the India market is controlled by long-standing JV, Maruti Suzuki.
China is also moving to reign in some of the "Wild West" flavor of its auto sector, aiming to reduce the number of participants by a fairly shocking 90 percent in an effort of eliminate provincialism and support companies that have the best chances in a global market.
India has less to worry about on this front because its auto industry has more closely mirrored the West's. Plus, India's economic and political system is far friendly to indigenous innovation -- something that China would rather import.
Stealth maturity
So much of the focus has been on China's auto industry since the early part of the 2000s that India's less captivating development has eluded serious scrutiny. But it's entirely possible that India carmakers may now leapfrog their Chinese rivals in one important respect.
Labor. China's great advantage -- cheap workers -- is also its biggest weakness. It's entirely possible that Indian automakers may now begin looking at Chinese labor as a means to generate higher profits in a high-growth environment.
It's a little like the story of the tortoise and the hare. China has been the world's automotive rabbit, sprinting ahead and getting all the attention (its domestic market is also twice as big as India's -- 8-9 million passenger vehicles versus about 4 million). India has plodded along and struggled to deal with its inferiority complex, created because its democracy doesn't allow for full-on command-and-control economic planning.
But now the tortoise is seeing a finish line that its faster rival may not be able to cross. To be sure, both countries will be future automotive leaders. But in this leg of the race, slow and steady may suddenly be winning.
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