T N Ninan: Moving on wheels

What’s good for General Motors is good for the US of A. Or so the old saw went. And it remains true today; if you want to capture the problems of the old, established economies, just look at their figures for car sales. Italy with its big car brands is back to the level of 1979, ie 33 years earlier, with 1.4 million cars sold in 2012. India, in the same 33 years, has gone from about 60,000 to 2.6 million. France, meanwhile, has slipped back to the car sales level of 15 years ago, at 1.9 million; Britain is not much better at 2 million. All of Europe is back to the levels of the mid-1990s, with sales of about 12.5 million — the same number as in the US. Lots of car factories across the European continent now use less than half their production capacity, and lay-off announcements are routine.

The shift of market weight to Brics stares you in the face. China topped the world tables last year at 15.5 million. The other three Brics countries – Brazil, Russia and India – featured in the top seven markets. By 2015, Brics might well do the unthinkable and push auto giants Germany and Japan off the top table, by accounting for four of the five largest car markets. Already, the Brics countries are about equal to the US and Europe combined, though the unit value would of course be much lower in the case of Brics. But even Europe’s luxury car companies know that the future is in places like India, which is expected to become the fourth largest maker of cars by 2020. By then, China’s car production is expected to soar to an astonishing 26 million.

The car industry is a key economic marker, because of its unmatched backward linkages – to component manufacturers, tyre companies, steel producers, battery makers, glass manufacturers, paint companies, and so on – and forward linkages to energy demand, sales and servicing outlets, et al. Every economy that has acquired momentum has established a strong car industry — Japan, Korea and China being the examples in Asia. In India, the industry’s gross turnover is equal to more than three per cent of GDP. It is a huge provider of tax revenues to governments, an important exporter because half a million vehicles are shipped out annually, and a vital source of well-paid employment. If we set aside the issue of contract workers (which hopefully is a phenomenon on the decline), Maruti factory workers’ salaries would do white-collar employees proud in other sectors.

The industry brings with it major challenges too — of air pollution, and the demands made on urban spaces. But the continuing stream of announcements with regard to new car factories foretells the future. Gujarat alone has new investment under way by Maruti, Ford and Peugeot, on top of factories put up there already by Tata and General Motors. Tamil Nadu is no slouch when it comes to new auto projects, while Gurgaon-Manesar continues to be an industry hub, as does the Pune-Chakan belt in Maharashtra. The optimism that underlies all the investment points to the strong sales and export growth that the industry expects, because capacity is already well ahead of demand. And it goes without saying that everything you say about cars is true also of motorcycles, scooters and mopeds — for which India is the world’s second largest market.

For an economy that is struggling to get its manufacturing sector going, automobiles and their components have been a remarkable success story. The days when Ambassador cars used to be the embarrassing totem of an out-of-date economy belong to ancient history.