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Old 12th May 2015, 15:53   #1
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Default Indian Cars whose exports > domestic sales

Came across this article on Economic Times. While we always knew the net exports by brand, it's interesting to see model-specific export numbers.

Some manufacturers just don't get the Indian market, practice a flawed strategy or are plain lazy. Whatever the reason, they're forced to export the product at lower margins (to a subsidiary) than sell it at a higher profit (to the end customer). The Indian automobile market is now a sizeable 2.5 million units per annum, yet Nissan / Ford / VW / other global majors simply don't have the strategy & action to crack the code.

I know some of you are under the wrong impression that exports make the unit more money than Indian sales. No, that's not the case (with 9/10 manufacturers). Think about it: Would you be able to get fatter margins from a sister concern, or from the end customer? Then, the only reason global headquarters see India as an export hub is because of the low costs. HQ knows exactly how much it costs you to build your car and will limit your profits (again, no reason other than low costs for them to source cars from India). Yes, exports help you earn foreign exchange, but I'd rather make Rs. 1000 than US $10.

Exports can help you make more cars off your under-utilized production lines. It's basically using your excess capacity for something. Consider the case of VW which started exports only recently, after its Indian sales went rock bottom. The 56,000 Ventos it exported helped limit the liability of its fixed cost structure, and it further gives VW more scale & efficiency. But, all said and done, VW's first choice would've been to sell those 56,000 Ventos in India at a fatter margin.

The true winners are car makers like Hyundai who have built a strong local base as well as maintained healthy export volume all these years. Since a year though, Hyundai is using its Indian factories almost entirely to meet local demand, as its sales have increased (due to new launches like the Elite i20).

So, which cars built in India are exported more than they're sold locally?

NOTE: All numbers are for FY15 (April 2014 - March 2015)

Nissan Micra
Local Sales: 8271
Exports: 76120

VW Vento
Local Sales: 12849
Exports: 56064

Ford EcoSport
Local Sales: 52067
Exports: 55178

Nissan Sunny
Local Sales: 5442
Exports: 38759

Ford Figo
Local Sales: 17389
Exports: 23368

Last edited by GTO : 12th May 2015 at 17:19.
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Old 12th May 2015, 17:19   #2
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Default Re: Indian Cars whose exports > domestic sales

Thread moved from the Assembly Line (The "Assembly Line" Forum section) to the Indian Car Scene!
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Old 12th May 2015, 18:00   #3
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Default Re: Indian Cars whose exports > domestic sales

It is really proud for every Indian that the Made in India cars are exported regularly and it is indeed a credit to the Indian manufacturing sector as a whole.

But one point of concern is the disdainful attitude of the major exporters like Ford with respect to the Indian customers. If they had the mindset, they could have increased the monthly sales by at least another 50 per cent, very easily. Instead, the buyers are left to the whims and fancies of many a Ford Dealer.

btb, is the A Star, which is prominently present in the list as per the ET article, still exported as Alto to other countries though is discontinued in India?

Last edited by rajeev k : 12th May 2015 at 18:01.
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Old 12th May 2015, 18:13   #4
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Default Re: Indian Cars whose exports > domestic sales

In my opinion, a comparison between local sales and export numbers isn't justified,since export is nothing but an intra company transfer ( for reason mentioned above like utilisation of capacity, etc). How many of those cars get sold in the foreign markets to end users is unknown.

Is there any data for the ex-works/FOB price of a car to a domestic dealer by the company vis-a-vis Ex-works/FOB price for export?

I was under the assumption that the prices would be similar. If they have differential pricing structure for related parties, I believe all sorts of government departments( IT, CBEC, ED) would intervene.

Edit: The price in domestic market would include the taxes, which won't form a part of the company's profit sheet.

Last edited by riteshritesh : 12th May 2015 at 18:16.
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Old 12th May 2015, 19:40   #5
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Default Re: Indian Cars whose exports > domestic sales

I can understand Micra's high export ratio (8k sales Vs 76k export), because they simply aren't able to sell that car in India and they would rather make whatever money they can through exports, albeit a lesser margin.

But, check the fords! - They export almost as much ecosports as they sell in India (52k Vs 55k). I mean, there is a strong market waiting to buy your car at a much higher price than you would get elsewhere, yet they choose to make the customers wait and export it for less money. Unfathomable.

Last edited by veyron_head : 12th May 2015 at 19:46.
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Old 12th May 2015, 19:58   #6
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Default Re: Indian Cars whose exports > domestic sales

Quote:
Originally Posted by GTO View Post

I know some of you are under the wrong impression that exports make the unit more money than Indian sales. No, that's not the case (with 9/10 manufacturers). Think about it: Would you be able to get fatter margins from a sister concern, or from the end customer? Then, the only reason global headquarters see India as an export hub is because of the low costs. HQ knows exactly how much it costs you to build your car and will limit your profits (again, no reason other than low costs for them to source cars from India). Yes, exports help you earn foreign exchange, but I'd rather make Rs. 1000 than US $10.

Exports can help you make more cars off your under-utilized production lines. It's basically using your excess capacity for something. Consider the case of VW which started exports only recently, after its Indian sales went rock bottom. The 56,000 Ventos it exported helped limit the liability of its fixed cost structure, and it further gives VW more scale & efficiency. But, all said and done, VW's first choice would've been to sell those 56,000 Ventos in India at a fatter margin.

I'm really no expert on the economics of car manufacturing, but I'm a bit surprised on this. I would have thought that manufacturing in India would give a lower manufacturing cost, compared to manufacturing in say Europe.

Of course there is taxation, logistics etc. In my industry (Telecom) we are looking at more Indian manufacturing for both local and some export markets. By and large its the labour component of the total manufacturing cost that sets India apart from other regions. Raw materials and sub assemblies tend to carry more or less global prices. Our equipment has a relative small labour component, (heavily automated) but still we can come up with viable business case.

Why would that not be true in automative manufacturing?
Is it because Western factories are heavily automated to the extend that labour cost isn't a big enough differentiator? Not so sure, if I look at the number of people employed by say VW, Audi, BMW etc. They still have huge workforces.

From a Western/European point of view, I would think these manufactures do face a huge dilemma. Car manufacturing in Europe is heavily unionised, often a sort of national Industrial flagship. Nobody wants to rock the boat to proclaim, the very same cars can be manufactured in India (or somewhere else) for a lower unit cost.

I would like to understand the numbers a bit more, if you can share your insights.
Thanks
Jeroen
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Old 12th May 2015, 20:01   #7
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Default Re: Indian Cars whose exports > domestic sales

Quote:
Originally Posted by GTO View Post

I know some of you are under the wrong impression that exports make the unit more money than Indian sales. No, that's not the case (with 9/10 manufacturers). Think about it: Would you be able to get fatter margins from a sister concern, or from the end customer?

Exports can help you make more cars off your under-utilized production lines. It's basically using your excess capacity for something. Consider the case of VW which started exports only recently, after its Indian sales went rock bottom. The 56,000 Ventos it exported helped limit the liability of its fixed cost structure, and it further gives VW more scale & efficiency. But, all said and done, VW's first choice would've been to sell those 56,000 Ventos in India at a fatter margin.
I always assumed that the reason that Ford is restricting the supply of the Ecosport in the local market is because they made much higher profits exporting. If this is not the case, I wonder why Ford is so very focused on the Ecosport exports, Considering the interest for the Ecosport even today, 2 years after launch, I am pretty sure that they can easily sell the 50K Ecosports that they are exporting in India itself. This would mean 10K+ sales per month, a place in the Top 5- No mean feat in a list dominated by Maruti and Hyundai and of course fatter margins and profits.
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Old 13th May 2015, 01:27   #8
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Default Re: Indian Cars whose exports > domestic sales

Quote:
Originally Posted by GTO View Post
Nissan Micra
Local Sales: 8271
Exports: 76120

VW Vento
Local Sales: 12849
Exports: 56064

Ford EcoSport
Local Sales: 52067
Exports: 55178

Nissan Sunny
Local Sales: 5442
Exports: 38759

Ford Figo
Local Sales: 17389
Exports: 23368
GTO, I can understand Nissan and VW. They are not able to sell their cars in India and they have a lot of capacity too. But how about Ford? Especially the Ecosport. They had a huge demand and waiting for Ecosport in India - no question of unused capacity or low demand. In fact Ford increased price to such an extent that potential buyers will be pissed off, still it had a very good demand. Why is it that they are exporting over half of the Ecosports produced?? Or in other words, why are they using half their capacity to produce export model Ecosport (India and Export markets have a lot of structural differences, if various reports are to be believed)???

I can think of only 2 reasons.
  1. Higher profit from export markets - Highly improbable considering the inflated pricetag Ecoport had in India
  2. Ford India had a pre-launch agreement with parent company to export so many Ecosports no matter the Indian demand and profit - Why I say pre-launch is, if they saw the demand, they would not have exported so much.
Is there anything I am missing. I am sure you know more than I do in this matter

Quote:
Originally Posted by rajeev k View Post
It is really proud for every Indian that the Made in India cars are exported regularly and it is indeed a credit to the Indian manufacturing sector as a whole.
Rajeev, let us not be so proud about the "Made in India". Australia has rejected India made i20 stating the quality of India made i20 makes it ineligible for 5 star rating in Australian NCAP. Nissan is also not going to produce the next gen Micra in India. Honda is exporting its products mainly to the African market. Many manufacturers are moving towards different countries as their manufacturing owing to various reasons. Not great signs I would say.
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Old 13th May 2015, 05:53   #9
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Default Re: Indian Cars whose exports > domestic sales

Quote:
Originally Posted by Vigkey View Post
GTO, I can understand Nissan and VW. They are not able to sell their cars in India and they have a lot of capacity too. But how about Ford? Especially the Ecosport. ....... Or in other words, why are they using half their capacity to produce export model Ecosport (India and Export markets have a lot of structural differences,
Rajeev, let us not be so proud about the "Made in India". Australia has rejected India made i20 stating the quality of India made i20 makes it ineligible for 5 star rating in Australian NCAP. Not great signs I would say.
Vigkey, You are right and wrong here.
There is no much difference between the Indian and export Ecosports, if some other reports are to be believed.
If there needs to be changes to meet norms in those countries to which these cars are exported, Nissan and VW can very well incorporate those changes and export.

True, Hyundai Australia is having problems selling new Indian made i20s whereas, old i20s were meeting standards there. In other words, the deterioration is attributable to the relaxed norms in our land and not the manufacturing capability.
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Old 13th May 2015, 08:15   #10
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Default Re: Indian Cars whose exports > domestic sales

Quote:
Originally Posted by Jeroen View Post
I'm really no expert on the economics of car manufacturing, but I'm a bit surprised on this. I would have thought that manufacturing in India would give a lower manufacturing cost, compared to manufacturing in say Europe.
I think what was implied was opportunity cost of exports. The main aim of manufacturing units of global automotive brands in India should be to sell cars in India - given the market potential. Of course the low cost labor advantage should be leveraged for export manufacturing.

But a manufacturer using its India capacity majorly for exports for cars that can have healthy demand in India and failing to sell them in India, is not making the best use of its asset.
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Old 13th May 2015, 09:16   #11
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Default Re: Indian Cars whose exports > domestic sales

Quote:
Originally Posted by rajeev k View Post
Vigkey, You are right and wrong here.
There is no much difference between the Indian and export Ecosports, if some other reports are to be believed.
If there needs to be changes to meet norms in those countries to which these cars are exported, Nissan and VW can very well incorporate those changes and export.

True, Hyundai Australia is having problems selling new Indian made i20s whereas, old i20s were meeting standards there. In other words, the deterioration is attributable to the relaxed norms in our land and not the manufacturing capability.
Rajeev, there is no doubt about the capability. These are state-of-the-art manufacturing facilities and WILL be capable to produce the best quality of cars. The bigger problem is with the kind of raw materials used. Do you think, in the case of the last generation i20, India and Australia were getting the exact same cars? No. The variants, feature set and even structural components (probably) were different. However, the quality of materials were good (and suitable for Australia).

Coming to this gen, the quality of materials used by Hyundai has probably gone down and that is the reason, I think, Hyundai Australia has rejected Indian made cars. It could be cost-cutting and probably Hyundai went to cheaper suppliers or wanted suppliers to provide cheaper materials - We would not know.
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Old 13th May 2015, 11:26   #12
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Default Re: Indian Cars whose exports > domestic sales

If Ford is exporting more, then it has to do with economics. They have to be making more money elsewhere than selling here. I don't find any reason why any manufacturer would forgo money.
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Old 13th May 2015, 11:41   #13
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Default Re: Indian Cars whose exports > domestic sales

I actually don't see an issue with Ford's numbers; close to 50-50 split of their production capacity is not a bad thing IMO.
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Old 13th May 2015, 11:41   #14
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Default Re: Indian Cars whose exports > domestic sales

I am absolutely shocked to see the Ecosport in that list. I was in the market recently for a 10-11L car and visited the Ford dealership in Agra for the same. The attitude of the salesgirl and even her manager was so lazy and lackadaisical: "Basically, Sir you might as well forget about the Petrol AT/Ecoboost version (the 2 I wanted). Why should we even give you a TD, we know you're not going to wait 6 months from the car."

Even if the economics of exporting is in favor of Ford right now, I believe this would be extremely short term thinking on their part given the potential of the Indian market, which has finally been picking up after 2-3 years. To think about it, they have a Best-selling product in a category almost ALL car manufacturers want to enter, and they end up exporting more than half the cars to some other market while their dealers quote 9 month waiting periods to customers here. Insane, I say.
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Old 13th May 2015, 11:49   #15
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Default Re: Indian Cars whose exports > domestic sales

Exporting to Europe makes a lot of sense, because under some special scheme Indian car exports to EU are effectively duty free.

I think this is a major point based on which EU demands FTA for cars built in EU.
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