Weekly News Review | 22 May 2017 | Automotive Purchasing and Supply Chain Automotive Purchasing and Supply Chain

Talking Point

The new markets are now more upmarket

In a week when General Motors announced plans to withdraw from the retail market in India by the end of this year and has said it will also sell up its operations in South Africa and Volvo Cars said that it will start vehicle assembly operations in the region in 2017, I was reminded of the failure of the Tata Nano and the changing nature of car buyers in what we used to call emerging markets.

The Nano was a laudable attempt by Ratan Tata to introduce an affordable car, to persuade Indians to, as he put it, “get them and their families off their dangerous two-wheelers and get into cars they can afford.” The Nano was intended to be priced at 1 lakh rupees, or about $1200, twice the price of a scooter or small motorcycle at the time of its introduction. The car was basic in the extreme and this was its downfall. For as Indians were increasingly looking at the rest of the world via the Internet, they aspired to much more luxurious and feature-rich vehicles.

This aspiring to better products is at the root of General Motors’ and Volvo’s decisions; GM has attempted to sell lower-segment cars in the region for many years but the stranglehold of the small car market by Maruti Suzuki, which was government-backed for many years, saw its combined India and South Africa sales fall to 49,000 in 2016. As well as Maruti Suzuki’s vast market share, the success of better-specification and high quality Japanese and Korean cars has put GM’s models under extreme pressure. The OEM invested $1 billion in 2015 to build a new line of Chevrolet models developed as part of a Global Emerging Market vehicle programme; the emerging market title points to its failure to understand the aspirations of these markets.

Volvo on the other hand, are showing a better understanding of the market; the Indian premium vehicle market is still relatively small but it is forecast to grow rapidly in coming years, as hundreds of thousands of people graduate to the middle class each year. As with Jaguar Land Rover, who is using its parent Tata’s infrastructure to assemble SUVs in the country, Volvo will use the investment might of Geely and the existing infrastructure and production licenses of Volvo Group, the truck, bus and construction equipment manufacturer to models based on it’s SPA modular vehicle architecture.

All these moves reinforce the fact that, sadly for Ratan Tata’s dream of simple affordable family transport for everyman and his family, OEMs and their publicity machines, in league with the Internet, have raised car buyers’ expectations beyond wanting simply utilitarian vehicles.

Alex K

Simon Duval Smith

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