The Chinese are here!

Beijing Automotive Industry Holding Co., better known as BAIC plans to sell commercial vehicles in India. Good news, bad news? I say premature news.


Well, you see, China and India are the poster children of the global economy at present, especially in the automotive industry and these two countries are trying to make their mark felt in the industry. They drive substantial global sales, but do not have domestic companies that contribute much, yet, to those sales figure. China and India are core competitors in the automotive industry, like everything else. When it comes to these two countries, it is not about the companies, but about the countries. These two countries are growing at an incredible pace and they will be the architects of the present and future world economy. 


So, a rapidly growing Chinese company trying to sell its wheels in India, or rather, to quote Bloomberg, "start its overseas expansion by entering the Indian market", is bad news for India's rapidly growing automotive companies (talking in terms of the global automotive scenario) like Tata Motors, Mahindra&Mahindra, Ashok Leyland and also for the smaller International Cars & Motors Ltd. (that is Sonalika - the Toyota Qualis look alike - for people unfamiliar with the name of the real company).


Okay, enough of cryptic clues. The crux of the matter is, both Chinese and Indian auto makers are trying to go global in a big way - they have the same goals, so it does not make sense for them to mutually compete in each other's domestic markets. India has a maximum of 10 auto makers, both passenger and commercial (yes, including Hindustan Motors and Premier), China has around 130 indigenous automakers!


Both these markets need to break even and their domestic auto makers need to win a decent pie of the global automotive market before they can start competing with each other. They are already struggling hard enough to make their presence felt among the Detroit and Germany big 6.


Here is the piece of news that got me started in the first place.

M&M acquires Ssangyong - Can we say that finally?

Okay, we have been hearing about the Mahindra & Mahindra acquisition of Ssangyong for a while now and no further developments have been heard of; however, there is definitive news that M&M will buy a majority stake in the smallest of the Korean car makers, Ssangyong, by end-2010 or early 2011. At this stage there are no details of the amount involved in the acquisition. M&M mentioned that it will go through the final due diligence of Ssangyong sometime in September 2010 and then fix the deal.

Not many people have seen Ssangyong cars, rather SUVs - that is what this Korean car maker specializes in - low-priced, robust SUVs. The Korean SUV maker has vehicles like Rexton, Kyron, Rodius and one sedan in its entire line-up - the Chairman.

M&M, through this deal, can expand its line-up of SUVs; but when it comes to sedans - the basic ingredient for any versatile car maker - I can only hope that M&M does not have another sour experience like the Logan. Ssangyong, on the other hand, will not go bankrupt and have access to more markets and M&M's technology. With this deal, M&M is giving out all the signals that it intends to focus on SUVs - at a time when people are selling off their gas guzzlers and shifting to more fuel-efficient vehicles. Lets hope that M&M becomes the phoenix of the SUV market , and brings out SUVs that suit the taste and needs of the present and future markets - vehicles with more high-end torque, yet thrifty on fuel consumption.

Here is a ball-park SWOT analysis of M&M:

Strengths: Well established as an utility and farm equipment manufacturer. Has dealer networks in the US, South Africa, Latin America and other key markets. Diversified business and hence the group has financial stability. Few model line-up in the passenger vehicle segment, hence less complexity. Has the advantage to design a new global vehicle platform and bring out different products. Has been making vehicles since the 1940s and has a lineage of sorts.

Weaknesses: Does not yet have a mass-market sedan or hatchback - and hence missing out on the major passenger vehicle market share. Has not yet reached the levels of international collaboration needed to bring out world-class petrol/diesel engines in the 1.3 to 1.6 liter displacement range, to be globally viable. Vehicle platforms are dated and the company is still perceived as essentially commercial vehicle manufacturers. Cannot really go global with just utility vehicles and SUVs. The Scorpio cannot sustain M&M for long.

Opportunities: Emerging markets in South Asia, like Vietnam, Thailand and Indonesia, markets in Eastern Europe, like Russia, Turkey, et al and Latin American markets. M&M needs to develop a small/mid-segment sedan or hatchback to shares in these markets. The acquisition of Reva holds lot of potential. M&M should aggressively pursue electric vehicle development at this moment, and if done properly, the company will have a headstart over many smaller but global players. M&M should invest its research rupees in developing a global small SUV - which is the fad and demand of the day. It already has the expertise and just needs to tweak the engine and platform a little bit.

Threats: The biggest threat for M&M is Tata Motors and the Chinese companies. Other OEMs comparable to M&M are increasingly entering into technology sharing partnerships and thus have access to better technology. Consumers in India and other potential markets have more options to choose from and if M&M does not diversify its product portfolio it will lose out to competition.

For those who have not seen Ssangyong vehicles:

                                                                           Rexton

Mandatory fuel economy standard for India

The biggest irony for a country obsessed with fuel economy is the fact that India does not yet have an official fuel economy standard set by the government. Efforts to set up a standard have been made in the past; however, like everything else in this country, those efforts yielded no outcome as everything got lost in the mire of bureaucracy and organisational power play.

However, things are set to change as the Environment and Forest Minister of State Mr. Jairam Ramesh, formally announced on August 2010, that there will be a mandatory fuel efficiency standard for auto makers. What worries me however, is the fact that the minister did not specify a timeline. He just said that a standard will be enforced “soon”. Now, from what little I know of these auto-related policies, there always is a time frame set for the enforcement of policies and future regulations. It would be a welcome change if this time the ball is really set rolling and we have a fuel economy standard by end-2012.

The automotive industry is gradually becoming very uniform across the globe. What I mean to say is that the regional differences of types of engines and cars are lessening as the world strives for smaller and more fuel-efficient cars. Auto makers are already collaborating with one another in terms of technology sharing so that they can bring out cleaner cars. This is partly due to the price of fossil fuel, growing awareness among people for the environment, the US suddenly waking up to the need to have fuel-efficient cars and lastly, but by far the most important reason, the very strict CO2 regulations imposed by the EU 27 states. The point, however, is that OEMs already have the technology, so an Indian fuel-efficiency standard set at par with global standards will not be impossible for auto makers to achieve, and this in a way will contribute to the much talked about harmonization of standards in the automotive industry.

Lets hope this time we really show we are concerned and join the global race to cut emission, reduce fossil fuel dependence and participate in a greener tomorrow.