Second Covid-19 wave deals new blow to foreign carmakers’ Indian dream

International

New Delhi, 21 June: Foreign automakers’ hopes of a booming Indian car market are fading fast as a brutal second wave of Covid-19 infections and limited government room for more stimulus spending suggest a recovery could lag far behind China and the United States.

Carmakers that saw nearly a decade of Indian sales growth wiped out in 2020 are expecting a bounce back in demand this year.

But it is likely to be led by small, affordable cars—a sector dominated by homegrown leader Maruti Suzuki and rival Hyundai—rather than the premium models churned out by most foreign manufacturers, industry executives and analysts say. With their Indian factories running well below capacity and sales far behind original hopes, firms like Ford, Honda, Nissan, Skoda and Volkswagen face difficult decisions about future investments.

“It is a survival issue,” said one senior executive with a Western automaker who declined to be named.

“Choosing to remain in India depends on the cost benefit analysis of other international markets,” the executive added, forecasting that, if the outlook remains grim, the number of automakers in the country could fall.

India has already seen General Motors and Harley-Davidson shut up shop last year.

A decade ago, India was widely tipped to be the world’s third-largest car market by 2020, lagging only the United States and industry leader China, as car ownership per capita among its 1.3 billion people caught up with more mature markets.

Instead, years of high taxes on large cars and SUVs that disproportionately affect foreign automakers, an economic slowdown in 2019 and the pandemic have held it back at number 5.

The purchasing power of Indian consumers remains far below those in the West, with the weighted average price of a car just $10,000 compared with $38,000 in the United States, according to Ravi Bhatia at consultancy JATO Dynamics.

The long-term potential remains, analysts say, with India home to only around 27 cars per 1,000 people.

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