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China’s Automakers Eye India for Future Growth

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The rapid emergence of India as a major automotive powerhouse coupled with the ambitions of China’s automakers to go global are the principal drivers behind the planned entry of China’s big automakers Beiqi Foton and Great Wall Motor.

Foton aims to become a key global player over the next decade, according to its 2020 Strategy statement. Under the truck maker’s “5+3+1” strategy, India is a key region in its growth plan along with Brazil, Mexico, Russia and Indonesia.

This is why Foton signed a Memorandum of Understanding (MoU) with the Maharashtra government in India last April to establish a manufacturing unit at an investment cost of $307 million over 5 years. It is currently in the process of setting up its plant in Chakan (near Pune) to build light-, medium- and heavy-duty commercial vehicles.

Foton to Take On India’s Own Truck Giants

We believe strong candidates for an India launch include models such as the Foton Forland light truck, Foton Mini Truck and Foton View light van. Each of these models is a volume seller for Foton in China.

Foton Forland is the truck maker’s biggest light commercial vehicle model, with sales of 292,000 units during the first 10 months (January to October) of 2012. The Foton Mini Truck ranks No. 2, with sales of 89,000 units, while Foton Midi sold 16,000 units.

To be certain, Foton will be facing tough competition from India’s own light-commercial vehicle makers. The Foton Forland will have to compete against Tata LCVs, Mahindra Cabking/Loadking, and Eicher Canter/Eicher LCVs.

Foton Mini Truck also will have a tough road ahead. The model is unlikely to make a dent capturing sales from segment leader Tata Ace, and it will be in a difficult position to challenge Mahindra’s Maxximo or Gio. However, the Foton Mini Truck could be a strong contender against other smaller players, namely Piaggio Ape, Force M4 and Hindustan HM‐Shifeng Winner. Foton Midi also will have a tough competitor when it squares off against Maruti Suzuki’s Eeco and Omni, Mahindra’s Maxximo Van and Tata’sVenture.

Naturally, the pricing and positioning of Foton’s models will be key to Foton’s relative success in India. Therefore, the truck maker should heavily localize its vehicles in order to keep production costs low.

Foton’s vehicles will also need to have good fuel economy and low operating costs. At the same time, Foton will need to build an expansive service network.

Great Wall Wants to Build its SUV Presence in India

Unlike Foton, Great Wall is planning to make its presence felt in the fast-growing SUV segment in India. The vehicle maker is still scouting for a location for its manufacturing unit, which is being planned to start operations in 2016.

We understand that Great Wall has elected to bring its Haval SUVs to India. It has several variants of the Haval, but we believe the Haval M4 to be an ideal candidate. The Haval M4 measures less than 4 meters (about 13 feet), but Great Wall would have to replace the current 1.5L gasoline engine or offer a 1.5L diesel motor for India. The Haval M4 would then qualify for lower excise duties on small vehicles in India.

Great Wall, too, will be entering a highly competitive market, where it will not only face local players but also global automakers. Pricing and positioning will again be critical factors in winning demanding buyers in India. We think it would be a good strategy for Great Wall to position its SUVs slightly above the local players, but below global SUVs such as Ford’s EcoSport for instance.

However, Great Wall will need to ensure that the price gap between its models and that of Tata or Mahindra SUVs is not very large. Most importantly, it would have to convince buyers that Great Wall SUVs are ‘value for money’ products.

One significant drawback for Great Wall would be prejudice against China‐made products in India. Unlike the commercial vehicle market where economics is a major proponent of the purchase decision, buyers of passenger vehicles are more discerning. Therefore, Great Wall will have to put a lot of effort into promoting the company and its products in India.