Indians Have Had Enough of Second-Rate Cars

(Bloomberg Gadfly) -- No-one ever went broke underestimating the intelligence of the American public, but a sure-fire way to lose money in recent years has been to underestimate the tastes of Indian drivers.

The most glaring example of this has been Tata Motors Ltd.'s Nano. The much-touted one lakh rupees (100,000 rupees, or $1,570) selling price was once predicted to be a Model T-style game-changer, but consumers were less enthused about the bus-like seats and austere interiors. Less than a decade after it first went on sale, Indian media have been reporting for months the Nano will soon be phased out of domestic markets.

That's a good reason for the country's manufacturers not to fret about new safety rules expected to pass New Delhi's upper house this year. While analysts told P R Sanjai of Bloomberg News that adding features such as airbags and anti-lock brakes could kill the market for cars costing 400,000 rupees or less and raise manufacturers' costs by 7 percent to 8 percent, consumers are already voting with their feet.

Have a look at the figures for the best-selling cars of 2017, reported by Business Today magazine this week, and a notable pattern emerges: The success stories were increasingly vehicles that sold themselves on the basis of their upgraded features, such as Maruti Suzuki India Ltd.'s Baleno, Vitara Brezza, and revamped Dzire models.

All have at least dual airbags and anti-lock brakes -- not to mention chrome detailing and touchscreen displays -- while other fast-growing models like Hyundai Motor Co.'s locally built Creta SUV have the full complement of safety features you'd expect on a comparable car in a rich country.

Even Maruti's Alto, a bare-bones model that has dominated the domestic market for a generation, offers a driver-side airbag as an option on a range whose prices start at less than 300,000 rupees.

Unlike New Delhi's genuinely transformative plans for the taxation of electric vehicles, its latest safety rulings constitute no more than a nudge in the direction the industry was headed anyway. If the changes kill off the cheapest subcompact cars, they'll only be dealing the final blow to a segment that's long been low-margin and is increasingly becoming low-volume as well.

With Indian professional salaries expected to increase at double-digit rates for the eighth consecutive year in 2018, consumers now have the money, and the desire, not to put up with second best any more.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

To contact the author of this story: David Fickling in Sydney at dfickling@bloomberg.net.

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