Traffic moves along a highway during evening rush hour in Delhi, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

Why Kia, MG Motors And Citroen Are In For A Rough Ride In India

Overseas automakers have found India’s crowded market difficult to crack. Yet, three more are looking to sell bigger vehicles in a nation of car buyers obsessed with three things—small cars, mileage and pricing.

While Hyundai Motor Co.-owned Kia Motors is introducing a mid-sized SUV, code-named SP2i, the Chinese-owned British carmaker MG Motors is debuting with its SUV Hector. Peugeot’s parent Groupe PSA’s Citroen is expected to launch its SUV, the C5 Aircross, next year.

They will be up against nearly 20 domestic and foreign carmakers. What’s lured them are increasing incomes in a nation where the automotive industry is expected to grow 3.5 to 4 times the current value of Rs 4,64,000 crore to Rs 18,85,500 crore by 2026, as per the government’s Automotive Mission Plan 2016-26.

But overseas companies have struggled, except Hyundai Motor—the only one to have a meaningful share in the world’s fourth-largest auto market. While General Motors Co. exited two years ago after racking up huge losses, Fiat Chrysler Automobiles NV is said to be scaling down its operations. And Ford Motor Co., Volkswagen AG and Renault-Nissan barely have a toehold.

An employee polishes the badge of a Citroen C3 Aircross automobile, manufactured by PSA Peugeot Citroen.  (Photographer: Krisztian Bocsi/Bloomberg)
An employee polishes the badge of a Citroen C3 Aircross automobile, manufactured by PSA Peugeot Citroen. (Photographer: Krisztian Bocsi/Bloomberg)

“The new players are treading a well-worn path, so the uniqueness is gone,” BVR Subbu, former president of Hyundai India, said, blaming the failure of overseas companies on lack of quality in people and strategic leadership. They could have had a stellar start had they come up with high-quality hybrids or electric vehicles, according to him, as that would have helped them carve a niche and then expand.

Jagdish Khattar, former managing director of Maruti Suzuki India Ltd., told BloombergQuint that automakers make the right noises for the first six months or so but fizzle out slowly. “People who take a decision today in the local market are there for three to four years, and before they’re able to witness the outcome, someone else comes in and introduces a new vision.”

More than three million passenger vehicles are sold in India every year, according to Society of Indian Automobile Manufacturers data. The opportunity is huge, according to Ashwin Patil, senior research analyst at LKP Securities, as India’s four-wheeler market has only 36 percent penetration. “There is scope for every player to gain,” he said, but added that the journey won’t be easy.

Finding The Right Spot

Maruti Suzuki and Hyundai together enjoy a near-70 percent share in the Indian auto market, followed by Mahindra and Mahindra Ltd., Tata Motors Ltd., Honda Cars India and Toyota Kirloskar Motor, according to SIAM data.

“Nowhere in the world do we have 20 manufacturers with majority of them having single-digit market share and bleeding,” Khattar said.

Kia Motors has invested $1.1 billion in its Anantapur, Andhra Pradesh, plant that can churn out 300,000 cars annually. The company, in a statement to BloombergQuint, said it’s optimistic about selling 300,000 vehicles by 2021.

But that won’t be a cakewalk. “Look at Ford, Volkswagen, Skoda, Renault and Fiat, they’re not doing well because of poor availability of their parts,” Patil of LKP Securities said. “High prices of the parts are also working against them.”

Manohar Bhat, head of sales and marketing of Kia Motors India, recognises the challenge. He said they’d woo buyers with compelling offerings and an extensive after-sales network. “We’re looking at new products every six-to-nine months based on the desire and requirement.”

Patil agreed that an array of launches is important for the newcomers to acquire mindshare among customers. “While players like Maruti Suzuki and Hyundai are bringing in refreshed products every year, others like Volkswagen and Skoda have relied on limited models.”

Groupe PSA is looking at a localisation of over 90 percent, Roland Bouchara, senior vice president (sales & marketing) Citroën India, said in an emailed response to BloombergQuint. They are looking for quality, cost and delivery performance, which isn’t only the lowest cost per part but also total cost of ownership.

Citroen didn’t comment on its pricing and segmentation strategy. MG Motor declined to comment.

Why Kia Stands A Better Chance

The Kia Motors Corp. logo is displayed on a vehicle in the lobby of the company’s headquarters in Seoul, South Korea. (Photographer: SeongJoon Cho/Bloomberg) 
The Kia Motors Corp. logo is displayed on a vehicle in the lobby of the company’s headquarters in Seoul, South Korea. (Photographer: SeongJoon Cho/Bloomberg) 

Among the three entrants, two have tested the waters in India. Groupe PSA introduced the Peugeot and pulled out in 2001, while SAIC, the Chinese owner of MG Motor, brought out a couple of small cars under a joint venture with General Motors and Wuling Motors in the past.

Subbu said both the companies will face challenges. “Groupe PSA hasn’t done well before and is unlikely to create a dent in the market,” he said, adding that India will at best be a sourcing centre for them.  

SAIC, he said could be a drag on the brand as the quality of the vehicles they brought out in the past was low and failure rates were high.

Patil of LKP Securities said Kia has a better chance to carve a niche, thanks to Hyundai. “Hyundai has the network and Kia wouldn’t find it difficult to launch products.”

Subbu agreed but warned that Kia could be on a sticky wicket as it’s the same as Hyundai under the hood. “They can’t afford to raise prices above Hyundai nor go below it.”

Still, the best strategy for it will be to directly challenge the incumbents.

“Kia should first compete head-on against Mahindra and Tata, and try to grab their market share,” Avinash Gorakshakar, head of research at Joindre Capital Services, said. “Whoever will be flexible, has the technology and set up a tremendous base of component manufacturing is going to be better placed.”

Hyundai Kia has the technology capability, the brand recall and reach to threaten Maruti, Subbu said adding those are only necessary, not sufficient conditions.