Changing landscape of car plant capacities in India

Over the last few weeks, there have been two big announcements of ownership changes in Indian car plants.

The first was PSA of France, which opted for the CK Birla group’s facility at Tiruvallur near Chennai to roll out its range of cars by 2020. The investment earmarked is a little over ₹700 crore, which is a fifth of what it would have otherwise involved for a brand new automobile plant.

More recently, China’s SAIC Motor Corp made official that it would acquire General Motors’s Halol plant in Gujarat. Coincidentally, this was also a CK Birka-owned unit, which was hived off as a joint venture with GM in the mid-1990s before the latter acquired complete control eventually.

The American automaker has just not been able to create any dent in the Indian market despite being around for over two decades. SAIC, GM’s loyal Chinese ally, has always planned to enter India for some years and now has a readymade facility to kick off operations aggressively.

GM has a more modern plant at Talegaon near Pune but it is still a million dollar question as to how it proposes to increase its market share in India especially when it has put on hold investments for the future. In fact, there was a point in time when it was keen on acquiring the now defunct Daewoo Motors’ facility at Surajpur near Delhi. When that did not come through, it decided to go in for Talegaon.

Its American counterpart, Ford Motor Company, has done better in comparison but that is really not saying too much in terms of market share. Ford commissioned a second Indian plant in Sanand, Gujarat, which was intended to complement its Chennai unit. Reports have been doing the rounds within industry circles that Changan Automobile of China could now look at sharing one of these facilities as part of its plan to enter the Indian market.

At a global level, Ford seems keen on targeting new mobility options in a world where the likes of Uber have truly disrupted the car ownership space. Even in India, the company has invested in Bengaluru-based rental outfit ZoomCars, which clearly reflects its priorities, at least for now.

Even as India is poised to emerge as the world’s third largest automobile market by the end of this decade, it still remains a two-horse arena with Maruti Suzuki and Hyundai taking up 70 per cent of the volumes. The balance comprises a host of other big brands fighting for a share of the mass market pie, a list that includes Renault-Nissan, Toyota, Honda, Volkswagen, Ford, GM as well as Indian companies such as Mahindra & Mahindra and Tata Motors. Luxury brands such as Mercedes, BMW and Audi operate in a completely different customer space.

Over the last two decades since the gates for multinational carmakers were thrown open, it is only Hyundai that has emerged a serious rival to Maruti in the mass market. The others have just not been able to make any significant impact though they have had their share of successful brands like the Toyota Innova or Honda City. In this backdrop it is not entirely surprising that quite a number of car plants have enough capacity to spare.

Some like the Birlas and GM have sold these to other companies while others may just look at sharing capacity if the need arises. And then there are companies like Kia Motors of Korea, which will, in all likelihood, announce its India entry over the next couple of months. This could perhaps be the last big ticket announcement of a new plant investment unless States like Andhra Pradesh offer huge fiscal goodies to Chinese automakers.

The real big ticket news from the Birlas was their decision to shut down the Hindustan Motors plant near Kolkata when it became amply clear that it would no longer be viable to manufacture the Ambassador. The brand has been sold to PSA for ₹80 crore but that by no means indicates a revival of operations at the West Bengal facility.

With its closure, the State has been left high and dry in the car space even while the yellow Ambassador taxi remains one of the enduring symbols of Kolkata. The other big ticket investment that came and went was from Tata Motors, which had originally planned to set up the Nano car plant in Singur but had to relocate to Gujarat following political opposition.

The other prominent carmaker of yesteryear, Premier Automobiles, whose Padmini taxi is now in its last lap in Mumbai, had two car plants near Mumbai. These were hived off as joint ventures with Peugeot and Fiat way back in the ‘90s. While the former exited its India operations and brought down the shutters on the plant, Fiat plodded on before relocating to Pune in a manufacturing joint venture with Tata Motors.

It is not as if all companies are suddenly facing the problem of excess capacity. Maruti Suzuki is readying a new unit in Gujarat while Renault-Nissan has a sprawling facility in Chennai, which is balancing exports and domestic demand reasonably well. Hyundai is going flat out at its Chennai plant too and with Kia coming in soon, the issue of capacity could be sorted out.

At the end of the day, while India is potentially a robust car market, it is not the easiest either. That explains why some companies have cracked the code while others just have not been able to. As a result, spare capacity becomes inevitable in some cases that can be better used by other entrants.