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Consolidation looms for Indian car industry

India's car industry is likely to experience consolidation as the market cannot support the current large number of players, Indian ratings agency ICRA said.

"There is a possibility of a shakeout/consolidation (as being witnessed worldwide), especially in the Rs 450,000-700,000 range. There are too many players chasing too few customers," ICRA said in the report on Tuesday.

The rating agency said the Indian car market had nearly a dozen players against just half the number in mature markets.

Leading global car makers have set up shop in the country since the sector was opened up for private and foreign investment in 1993.

The Indian car market has been dominated for over a decade by Maruti Udyog Ltd, an equal venture of the government and Japan's Suzuki Motors Corp.

But in recent years its might has been challenged by the likes of Hyundai Motor, Daewoo Motor, Fiat and Ford Motor Co, Honda Motor Co Ltd, Mitsubishi Motors Corp and General Motors Corp.

Competition fierce

According to ICRA, competition is particularly intense in the mid-sized car segment, but there are not enough volumes to support all players.

"The volumes of most players are below 100,000-150,000 units, the level that is considered viable in developing economies. Hence, as low volumes result in lack of cost competitiveness, most players might be pressurised given their current volumes," ICRA said.

Car sales grew nearly 56 per cent in 1999-2000 (April-March) after reporting near stagnant growth in the previous two years.

Data released on Tuesday by the Society of Indian Automobile Manufacturers showed passenger car sales dropped 1.6 per cent in April-October 2000 to 342,922 units from 348,614 in the year-ago period.

ICRA said the industry's growth was constrained by high taxes with cars considered luxury goods by the government.

The industry's growth was also hampered by the number of months of income needed to purchase a car.

"The acquisition cost of a car remains one of the highest in India," the rating agency said.

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