While new entrants such as BMW, Renault-Nissan, Volvo, Volkswagen, Audi and Chery are expected to fuel growth, major players such as Maruti Udyog Limited, Tata, Fiat Motors, Hyundai and Mahindra & Mahindra are going in for brownfield ventures to meet the growing demand. According to research company Frost & Sullivan, the sales of passenger vehicles in India are likely to grow at 14.9 per cent till 2010 to reach the 2.1-million mark.
While the US-based consultancy firm Keystone -- a subsidiary of LaSalle Consulting Associates -- has forecast that India will become the world's third-largest automobile market by 2030, next only to China and the US. However, many see the rising interest rates as a major deterrent. "The passenger car companies will feel the impact of the rising interest rates and raw material cost which will affect their margins for the entire year," said Arvind Jain, an analyst with Religare Securities.
According to Emkay Share & Stock Brokers, the operating margins for the passenger car and commercial vehicle companies could dip by one to 4 per cent, while it would be more significant for in the two-wheeler industry, where a fall of 200 to 400 basis points is expected.
"After a robust fiscal of 2007, the growth of the automobile industry would slow down as vehicle manufacturers face increased competition and the impact of rising interest rates. Currently, there is a slowdown in demand for two-wheelers, which would impact all the major players in the next fiscal," said Huzaifa Suratwala, auto analyst at Emkay Share & Stock Brokers.
The Indian car market is dominated by small cars (hatchbacks) with sales by over 75 per cent, led by MUL, Tata Motors and Hyundai Motor India. Global majors - General Motors, Ford Motor and Toyota Motor Corporation - lag in market share. Meanwhile, the small car concept is catching up with all companies. Toyota, Ford, Honda, Mitsubishi and General Motors are vying for a major pie in this car segment.
Their products -- with engine specifically up to 1.5 litre -- are expected to hit the market in the next three years. This will increase the Indian passenger vehicle sales to 2.1 million units by the financial year ending March 31, 2010.
"Not enough vehicles are produced to meet the current demand. So, we are doubling our annual capacity to 6,00,000 units to meet the demand," said a senior executive of HMIL.
The buoyant economy is also driving the commercial vehicles industry, which grew at about 33 per cent in the financial year 2007. One lakh new commercial vehicles on Indian roads have prompted DaimlerChrysler, Volvo, MAN, Scania, AMW, International Trucks and Isuzu to enter the domestic market.
According to the Society of Indian Automobile Manufacturers, significant growth is being witnessed in the multi-axle trucks segment, which has posted 112 per cent growth in the year 2006-07.
"All the new players are concentrating on the super heavy segment as the massive investment in highways and infrastructure has hiked their demand. We are expecting this to continue for the next five years," said a senior SIAM member.
"Most of the global two-wheeler players have set up shops in India. The total investment is expected in excess of Rs 10,000 crore that will add 10 million capacity during in next five years," said the official.
According to SIAM, two-wheelers accounted for 77 per cent of the automobile production of 1.38 million units in 2005- 06.
