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Auto sector: China's success but India's challenges
Published on Tue, Jan 17, 2012 at 16:05 | Source : Moneycontrol.com
video:Auto sector: China's success but India's challenges >> Watch Video
Published on Tue, Jan 17, 2012 at 16:05 | Source : Moneycontrol.com
video:Auto sector: China's success but India's challenges >> Watch Video
Some of the best minds of the auto industry got together to discuss if China has tasted sweet fruit of success while India is only struggling in the sector.
In the special discussion on behalf of Audi and CNBC-TV18, Marco Hecker, Partner and Director Automotive and Industrial Equipment at Accenture, Sumit Bali,CEO of Kotak Mahindra Prime and Michael Perschke, Head of Audi India were part of the panel.
Here is an edited transcript of the interview. Also watch the accompanying videos.
Q: The title of my discussion suggests that China has had success and India has had only challenges. What are India's successes?
Hecker: I think there are a lot of India's successes and the key part is if you look at India and China, it's somewhat an unfair comparison. If you look at their different markets there is a lot of potential on either side.
If you look at number of cars per 1,000 inhabitants, India has much more headroom than China has. Obviously there are some challenges but the key strength of India is not only the huge demand which we have in the market as such, but also the entire legal system that's something that China cannot give us. I think it's really important that we as Indians need to make sure that we cannot out-Chinese the Chinese but I think it's really important that we believe in our own strength and work on our own destiny.
Q: I just want a little perspective from you. How many cars did you sell last year in China and how many did you sell in India?
Perschke: Well, in China last year we sold more than 300,000 cars and it's the first time in our history that we sold more cars in China than in Germany. So, we always say China is our second home market, basically it's now our first home market and in comparison India we sold 5,511 cars.
Taking that into perspective it is pretty much what we sold in China in 1996-1997, so from that point of view probably you could calculate we are probably 13-14 years behind China, but that's of course not that simple.
But we see that China is a big car market. Chinese started buying cars, government official cars where we started with Audi 100 a long time ago, while India is predominantly a small car market. There is a more demographic evolvement of the market and I think that makes some significant differences between the two markets just for instance the luxury play out.
Q: How is the customer any different in the two countries?
Bali: There is a lot of difference between a Chinese customer and the Indian customer. The finance penetration that is the number of cars sold on financing is far higher in India.
It's almost four to five times the Chinese number. About 70% of cars in India are sold on finance whereas the similar number for China is about 12-15%.
Q: Then is how is the Chinese consumer buying a car? Are they not taking bank loans to buy cars?
Bali: They are buying with outright cash. It is largest market for buying vehicles on down payment. So India is certainly following a different trajectory here. I think the reasons are by and large the younger generation is far more open to taking loans.
There is a good legal infrastructure. There is adherence to contract laws. The credit bureaus are doing a wonderful job, so that makes the finance penetration even better. I am quite hopeful that seeing the trends of younger generation the 70% will only head higher in future.
Q: By all definitions of poverty and economic wealth, India continues to remain a poor country and a middle class country. Is the Indian consumer ready to buy luxury vehicles to flaunt his or her wealth so to speak? Do you see a cultural difference between a Chinese customer and an Indian customer?
Hecker: Luckily so, because if you look at the overall global automotive market India and China in particular when it comes to the luxury segment are the most crucial prime drivers of growth and in India as well as in China it's a status symbol to drive a car.
It's basically I have arrived, I have achieved. So it's a good thing to show off. I think there are many nicer ways of showing off in a really beautiful car. Also looking at the amount of time that you spend in the car, it's not only about showing off it's also about enjoying the luxury around you. If you spend a lot of time it makes a true difference.
Q: 2011 has been a year of interest rate hikes. How sensitive is the Indian consumer to these interest rate hikes? The hikes in interest rates are not dramatic shifts in EMI, they are marginal shifts, but in terms of sentiment they represent dramatic shifts in sentiment. How sensitive is the Indian consumer to these interest rates problems?
Bali: I would say there is a high correlation between interest rate and automotive sales, inverse correlation, but logically if you were to see I don't think it holds true. It's just that when the interest rates are higher, that period of high inflation, high fuel prices, generally poor sentiment, so people are not so confident about future.
Q: So, there interest rate hike is like a red flag to the consumer saying maybe everything is not going to be as good as you think it is?
Bali: Absolutely, but in terms of affordability given the kind of wage inflation we have had, I think one can easily afford the interest rate hike. In fact we did another study and given the discounts which were non-existent in 2010 and you had lower interest rates with the discounts of 2011. While the higher interest rates, commercially one was better off buying a car in 2011, but it's just that the sentiment wasn't too great hence you had this near zero growth in the automotive industry.
. But on the other hand, I am still using a 3 year old hp dv4 and I have a lot more in my bank account than what the guy does. 
