Natarajan: India's economic and demographic conditions are right for a boom in auto sales over the next few decades.
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A recent Booz & Co. report concluded that by 2015, India will become the fourth largest automotive market in the world, with vehicle sales eclipsing every major European country. The report also predicts that by the mid 2030s, vehicle sales in India will surpass the United States-positioning China and India as the superpowers of the global automotive market. Booz & Co. estimates that annual vehicle sales in India could grow to more than 6 million units by 2020, to 11.7 million units by 2030 and past the 15 million-unit range by the mid 2030s. Natarajan sees India's growth spurt as the result of a perfect storm: a booming economy; the emergence of as many as 400 million middle-class families over the next decade; and a population of 35- to 45-year-olds that will peak over the next few years. "Typically, you'll find that people around the age of 18 to 20 buy two-wheelers, use these for about eight to 10 years and then migrate to a four-wheeler," Natarajan explains. "So the biggest volume of cars is sold to the age group of 35 to 45." Cashing in on India's growth trajectory, however, comes with some challenges that are unique to a market dominated by small, low-cost vehicles. According to the Society of Indian Automobile Manufacturers, two-wheelers such as scooters and motorcycles accounted for 76% of the market share in India's fiscal year 2010. As more middle-class citizens can afford to upgrade from two-wheelers to passenger vehicles, Natarajan points out that automakers must be able to offer features on a $5,000 vehicle-such as power steering and antilock brakes-that typically would be associated with a vehicle twice as expensive. In his recent conversations with U.S.-based automakers, Natarajan has found that they are keenly aware of the fact that developing a low-cost platform-profitably-is table stakes to the game in India. Another unique dynamic in play: Vehicles in India often have anywhere from five to seven passengers in them, Natarajan explains, and many car owners pay chauffeurs to navigate the congested roadways for them. That puts the onus on automakers to maximize interior space and "find and fine-tune ways to bring in entertainment and controls and make them accessible to the people who are sitting in the backseat," Natarajan says. Hyundai's Inroads Foreign automakers seeking to make inroads into India's market might look to South Korea's Hyundai as a good model, asserts Natarajan. Within a few years of entering the Indian market in 1996, Hyundai Motor India Ltd. became the second-largest vehicle manufacturer in the country. What did Hyundai do right? Natarajan notes that the automaker hit a home run with its first entry, the Santro. The tiny hatchback offered power windows and other creature comforts that were considered "added" features by Indian automakers at the time. Shortly after introducing the Santro in the late 1990s, Hyundai wisely made a number of "tweaks" to accommodate the needs and preferences of the local market, including raising the vehicle's ground clearance to make it easier for it to safely negotiate the ubiquitous potholes on India's roadways. "At first [the Santro] had power windows in the front seat, while the back-seat windows were opened by cranking a handle," Natarajan recalls. "And within six months or so, [Hyundai] realized that the chauffeur has the power windows while the owner of the car has to crank the handle, so you need to provide power windows for the people in the back."
