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Tale of Two Indias: City Auto Buyers go Upscale, No-Frills Minis Rule

The Irrawaddy by The Irrawaddy
May 20, 2015
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Tale of Two Indias: City Auto Buyers go Upscale

Mayank Pareek

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NEW DELHI — As India’s auto industry matures, manufacturers are facing up to a new reality—from Mumbai to the provinces, they now have two different markets to serve, with costs to shoulder and a challenge to sales and profits.

In big cities, rising incomes and aspirations mean buyers want compact models with features absent from the bare-boned minis that first bridged the gap from two-wheeled motorbike transport to four-wheeled cars. Automatic transmission, extra luggage space and daring colours are objects of desire.

Across a sluggish rural economy, meanwhile, incomes are often informal, access to bank loans is tougher, and customers favor cheap motoring over fancy flourishes—with simple maintenance and reliability a must.

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“Automakers have to be aware that India works at different levels and segments, and they have to keep up,” R.C. Bhargava, chairman of Maruti Suzuki said by telephone.

With that awareness comes investment in new or upgraded production lines to produce the compact vehicles that will account for one in every four vehicles sold in India in 2019, up from a 17 percent share in 2010, according to IHS Automotive.

Symbolising the new dynamics, Tata Motors, the maker of India’s cheapest car, unveiled a facelift of its ultra-cheap Nano on Tuesday. With power steering and bluetooth connectivity, Tata’s “GenX” Nano—with a basic sticker price equal to $3,127—will seek to shift the model from budget to desirable.

Meanwhile France’s Renault SA will on Wednesday launch its first-ever small car in the country, a premium hatchback.

The new attempts at producing autos with flair appeal to buyers like Sajan Kedia, a 25-year-old IT professional in Bangalore who spent an extra 80,000 rupees ($1,257) to buy Hyundai Motor Co’s premium hatchback, the i20.

“The car should look good and not feel like you have bought a cheap car,” said Kedia, who looked at smaller cars before settling on the i20 “supermini”. “In India, we don’t want only convenience, we want to show off as well.”

Long dominated by Maruti Suzuki, which sells about one in every two cars in India, the small car business is in flux.

Even as the compact market grows, sales of mini cars, which include Maruti’s Alto, Hyundai’s Eon and Tata’s Nano, are expected to shrink to 12 percent of India’s total light vehicle sales in 2019 from 24 percent in 2010, according to IHS Automotive.

Rivals like General Motors, Toyota Motor Corp and Renault once looked to small, inexpensive cars to boost sales in the country. Now they too are reworking plans to focus on compact cars or adding features like dual air bags and automatic gearshift technology to woo urban buyers.

But market watchers say the automakers can’t afford to neglect the traditional rural market for basic vehicles, which can sell for roughly half the price of a higher-end compact.

“This makes business a lot more complicated. But if you have ambitions to have a big share of the market, you need to expand your portfolio,” said Deepesh Rathore, director at Emerging Markets Automotive Advisors.

At Tata, sales of the Nano fell to 16,901 cars in the year to the end of March, a fifth less than a year earlier, according to industry body data, as city buyers spurned a car seen as ‘cheap’.

Newly added features designed to reel in urban 25- to 35-year-olds include quality audio and a front grille shaped like a smile.

“Aspirations have gone up and that has figured in our planning,” said Girish Wagh, who works for Tata Motors’ programme, planning and project management division and is credited with being the engineer behind the Nano.

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