Considering volatile economic conditions in India, car makers delay the launch of small cars

Major auto brands of the Indian auto industry are postponing their small car launches in the country considering the facts like free fall of rupee against the strong US dollar, slow economic growth and increasing interest rates. In a couple of years, it is believed that Volkswagen will introduce UP!, Ford will come up with KA and Fiat will break the covers off from its all-new entry-level car; however their launch will now be delayed further by at least 6 to 12 months. Placed in sub-Rs. 4 lacs category, these cars are expected to compete against the Maruti Suzuki A-Star and Hyundai i10, which are currently ruling the hatchback segment of Indian auto industry.

It is believed that Volkswagen UP!, which was slated for a 2014 launch may not get introduced any time before 2015. This is mainly because of the depreciation in the value of Indian rupee, which has eventually increased the import duties. Other reason for the same is being the car maker’s fault since it has not been yet able to negotiate on setting up a plant in Maharashtra. Volkswagen is forced to mark its presence in the state in order to avail tax benefits on small car in the state.

Ford India is also banking on its upcoming small car, code named B562 or KA, to pull the volumes in future. According to the sources, the car maker has requested the component supplier to review the project cost in order to make it economical. The move is an indication to the fear of the company, referring to the current economic slow down, which is likely to affect its future volume expectations. Owing to this reason, the launch of KA may also get delayed by a minimum of six months in the Indian industry.

Italy-based Fiat was also considering launching its small car in India; however, studying the volatile economic pattern, it went down the priority list of the car maker. Now the Italian car marque is more inclined towards the launch of Sports Utility Vehicles (SUVs) and Multi Purpose Vehicles (MPVs), which are the recent trend in the market. According to Head, Commercial, Fiat India, Enrico Atanasio, the ongoing flow in the Indian auto market is inclining towards the B-segment cars and Fiat's current brand positioning fits the bill perfectly.

Atanasio quoted, “And for the future small car, we'll have to identify the right platform and product from our global portfolio, which can be shared and which could give us viable volumes to make the project profitable.”

According to a vendor close to all the three companies, “These companies want to deliver low-cost car, but without compromising on quality. So the margins are getting squeezed. Therefore, they are trying to strike the right balance between cost, quality and margins, and are spending more time on the project.”

On the other hand, analysts and industry experts believe that the level of localisation and anticipated sales figures are crucial factors that will assist in determining the cost of new projects. On this, Senior Director, Automotive, Frost & Sullivan, V.G. Ramakrishnan, commented, “And a lot depends on localisation of components over imports, since these are entry-level cars. MNCs will have to rely on local content to de-risk them from a volatile currency.”