India defines value in a different way to most of the other large car markets in the world. Hence, each global player needs to take a call whether it wants to wait for the market to mature or is willing to make extra effort to address the current market needs, feels Credit Suisse

India is a unique market with strong local players, and perhaps the only large market where none of the top four players globally have even a 5% share. In fact, across the emerging markets (EMs), India is the only country with strong local players in auto segment. Global carmakers, therefore will have to develop different and long term strategy for Indian market, says Credit Suisse.

"The market defines value in a different way to most of the other large car markets in the world and hence each global player needs to take a call whether it wants to wait for the market to mature or is willing to make extra effort to address the current market needs," Credit Suisse said in a research report.

India- the only large market where top three global players have such a low share

According to the report, Maruti Suzuki India Ltd, the country's largest carmaker has a big advantage over its competitors on almost every parameter. Korean automaker Hyundai Motor Co unit, Hyundai Motor India Ltd, stands out as the key challenger to Maruti Suzuki with a complete product portfolio and reach that is second to the Suzuki Motor Corp unit.

Most MNCs have a gap in the A segment, Maruti has a gap in SUVs

Credit Suisse feels to succeed in India, global automakers need to have suitable products, distribution network, use their facility as export hub, improve brand strength, take care of ownership cost and show commitment.

(1) Suitable products—unlike most other markets globally which are C or D segment markets, India is still largely an A and B segment market; 

(2) Distribution network—the importance of this factor has grown in the past few years with strong growth witnessed in rural India (share has increased from 5% to 30%);

(3) India as an export base—given that one needs a certain scale to set up a plant, a player needs about 10% market share in India.  Barring Hyundai this seems a tall order for other MNCs; hence it is important for a player to make India an export hub to get the required scale; 

(4) Brand strength—a car is seen as a status symbol, hence apart from the product the mother brand also matters; 

(5) Ownership costs—whilst most manufacturers offer similar fuel efficiency, reliability & cost of spares varies across manufacturers; 

(6) Commitment to the market—almost every manufacturer wants to focus on emerging markets but few have created the requisite organisational structure to cater to the uniqueness of markets such as India.

Right products complemented by large distribution network

Based on these six parameters, Credit Suisse feels, Hyundai, Nissan and Honda are the key challengers to Maruti Suzuki, in Indian markets. "However,” it said, "given its success in the developed markets, Hyundai's focus on India seems to have reduced. It was one of the last players to launch a diesel variant on its hatchbacks and still doesn’t have a compact sedan that have 15% market share."

"The Renault-Nissan alliance stands out as the strongest emerging threat to Maruti Suzuki. They are the only new entrant expected in the A segment with the Datsun brand. The seriousness on India is evident by the frequent visits of Carlos Ghosn and the amount of money they have committed to the market. They have also made India an export hub with about 70% of the production being exported, thus despite entering the market much later they already have a significant scale in terms of manufacturing in India," the report said.

According to Credit Suisse, Honda is the other player to watch out for in India. "Honda has a very strong brand name in India, not only in cars but also in two-wheelers and engines and India is now getting the deserved attention. They have started correcting one large long-standing gap in the portfolio by developing a diesel engine specifically for the Indian market. And over the next few months, we will see them spread themselves across the entire B segment with six models—three body types (hatchback, SUV and sedan) on two platforms," the report said.

Exports solve problem of low utilisation Maruti has big advantage on spares

Although, Maruti Suzuki is the market leader, it is not sitting on its laurels and is working hard to maintain this advantage. Maruti Suzuki is likely to launch two SUVs to plug the only two gaps in its product portfolio in the less than Rs10 lakh price bracket. It is also developing a small diesel engine for its ‘A’ segment cars where none of its key competitors have a diesel offering. This smaller diesel engine will also be used by the company for its foray into the LCV segment. Another thing that should help drive both volumes and help Maruti Suzuki better combat currency volatility is the decision by its parent to allow the Indian unit to develop export markets in Africa and Latin America.

"Going forward, we are likely to see more as localisation benefits start trickling in. Given the higher competitive intensity in the market at present, discounts may not go down to the levels seen earlier but they will definitely reduce from current levels. Once demand picks up, operating leverage too should help margins; a 10% higher growth than the normal 8-10% growth (necessary to cover cost inflation) should help margins by about 100 basis points-bps," Credit Suisse said.