Driving Like Dummies 3 - Story of the Indian Car Industry

When it comes to having changed the lives of millions of Indians post liberalization, the automobile sector must come second only after the Telecom sector. Almost all major automobile manufacturers in the world have their presence in the country today with models and variants ranging from 125,000 to 500 million bucks on offer, but heavily skewed towards the sub Rs.500,000 range. And the way people pounce upon these cars scraping the bottom of their life-savings-barrels seems an aberration from the usual "saving-mentality" that Indians are famous for. It looks like people want to just acquire a car of some sort at the least price possible. Things like features, safety, interiors, driveability, space, engines, ride quality, color etc do not matter. Except mileage of course. It also does not matter if they actually need the thing or if anyone knows how to operate the machine. All this is manifested by the barrage of cars we see on the streets of our towns and cities. Why is this so? Why is a car still a status symbol and sign of emancipation that people scramble to own one no matter what? And why do buyers have the preferences they have? We need to take a history lesson for this.

History: Pre-Liberalization, License Raj India

India is among the countries which have been having a vibrant economy since the most ancient times. But after Independence, our governments decided that trading with foreign countries is evil and closed the doors of the country to foreign capital. All existing industries, vibrant and flourishing as they were, were dismantled or asked to leave the country. The idea was to foster home-grown industries and products by envisaging a closed, tightly controlled, centrally planned, highly regulated economy closed to all external influence and competition so that we could somehow invent and create technology from almost scratch with which we would conquer the World. These policies of a socialist economy centered on self-sufficiency were grossly flawed and ultimately led to the license-raj, invention of corruption, economic stagnation and near ruin of the country.

The method they found for Indian industries to grow was the same flawed method some people use to raise anti-social kids: "No going outside and playing, only sitting home and studying". It was not just foreign corporations that were not allowed, even Indian ones weren't. The government would decide who would produce what, when, how much and who all could buy them. Anyway, this strategy worked in the beginning, increasing industrial output in the short run but killed the economy along and all our industries in the long run as we all know. This License-Raj system was also where the corruption and protectionist policies we see today in India came from.

The cumulative result of all this was that by May 1991 we were left with only 3 months of reserves to buy imports. India was as broke as some of us are during the end of the month. We were forced the humiliation of having to airlift our entire currency-base gold reserves to London and Zürich to pawn it for money to buy oil, something like us pledging our wives' jewelry in Muthoot Finance to buy booze, but on a much larger scale. The Congress government that came after this debacle, under PM Mr. P. V. Narasimharao (with Dr. Manmohan Singh as Finance Minister) decided to liberate the economy by doing away with this controlled system and threw open the economy of the country to the World, ultimately enabling millions of Indians to get a life. India emerged from being a cobweb laced, dusty and dark country of elephants, the Taj Mahal and snake charmers to the economic powerhouse it is today, even with its shortcomings. But it was much much worse back then.

Lord Meghnad Desai explains in his interview (Commanding Heights), which every Indian should read, about how these Utopian Socialist  policies choked and killed generations of Indian talent and held back progress not just of the automotive sector but of the entire country for 40 years.

The History of the Car Industry in India

Really to say, there is not much of "history" to talk about when it comes to the Indian automotive industry, even though cars were present in India from as early as 1897. The British lavishly sold their cars in India, and many rich Maharajas were avid car collectors (buyers), with the Maharaja of Jodhpur reportedly owning 100 Rolls Royces. By 1947, the automobile industry was thriving in India with all major brands being sold here and Ford and GM even having set up assembly units in Chennai and Mumbai respectively! But all this changed after independence.

In line with the new totalitarian policies, somewhere during the early 1950s, all car companies which existed here were asked to either indigenize or pack up and leave. The entire industry which existed for around 40 years was dismantled in a few years and all companies sold off their wares and left, and India's doors closed on the outside world for a good 40 years. (It is not known what happened to all the people who had bought those cars and what they did for spares and repairs). It did not matter how many jobs they created and how much revenue they gave to the country, they were viewed to be imperialist, evil and about to put the yoke of colonialism back on our backs the first chance they got. We were taught that all foreign corporations and their products were evil and hence were to be banned in India. So there would be no Ford, Chevrolet, Daimler, Benz, Dodge, BMW, Toyota, Nissan or any such colonialist powers who were about to enslave us with their world-class products, making us dependent on grossly inferior, defect quality but more patriotic Made-in-India stuff. I grew up during those times when people in India were spoiled for choice when it comes to buying cars, with a huge, mind-boggling variety of exactly 5 vehicles to choose from: The Hindustan Ambassador Mark IV, the Fiat-Premier Padmini, the Maruti 800, the Maruti Omni and the Mahindra Jeep (MM540). Only a very few number of people could actually afford even these, as there were no jobs and no money anywhere because under socialism, making money was a big sin as well.

The Ambassador and PAL Padmini were the only cars that were allowed to be produced in India, and they cared nothing about the quality or standard of their products. For 4 decades, when the World outside the dark and repressed socialist India had thousands of models and variants of cars to choose from, we were stuck with only 2 ancient models which remained unchanged for decades, depriving two generations of Indians of quality automobiles or quality anything. This phenomenon must have been unseen anywhere else except in Cuba maybe and contrary to any market rules ever imagined. The Ambassador and the Padmini produced in 1990 were still the same old 1950 models with minor face lifts, with the Ambassador becoming synonymous with the license raj, economic stagnation and pre-liberalization. And aberrations like the Contessa and the Standard cars are best forgotten.

Advertisement for the Hindustan Ambassador Mark 4, 1979

They had advertising? What for??

Cars in India were cherished, worshipped and lusted for, but remained unattainable. Say "car" and our minds would conjure up the Ambassador, or the Premier Padmini if you were in Mumbai. Anyone owning a car was a snob, bourgeois and obviously anti-poor. We didn't know about how the World had progressed outside, what safety features, reversing lights and automatic transmissions were, except for a small informed group. We used to gape at pictures and stories told by visiting NRIs about cars and drooled at the sight of the rare imported Mercedes or even Ford on our roads. Import tax on vehicles was 110% and we didn't have good enough roads to drive on anyway. In all, we were stuck in a transportation black hole and time warp till 1983 when the government realized that Indians wanted to drive vehicles too and that socialism won't lead us anywhere. Policies were relaxed and one by one, and new models were launched by Maruti and Tata at first, before foreign brands were finally allowed to enter the Indian market by 1991.

The Modern Indian Automobile Industry.

It all started in 1983 with the launch of the Maruti 800, or just "Maruti car" which sold more than any cake, hot or not. Waiting periods stretched into months and you had to get recommendations from as high as the PM's office to jump the queue. Then came the Omni, the Gypsy, the 1000 and the Esteem and the Zen. Tata released the triple of the TataMobile (207), the Tata Sierra and the Tata Estate, all which failed due to maintenance issues and niggling problems, which 20 years later, Tata has still not been able to sort out. Peugeot, Ford, GM, Fiat, Honda and Hyundai were the first foreign companies to enter India and committed blunders by entering with outdated and sub-standard quality products, thinking Indians would lap them up. The Ford Escort and Opel Astra recorded huge sales in the beginning, only to bomb spectacularly later. Ford learned it's lesson and tasted success with the home-grown, "tailored-for-India" Ikon, while Opel folded up. Peugeot was here for a very short time with the 309, which have all gone extinct now. Fiat released the Uno, which didn't go anywhere and the company still struggles in India. Honda and Hyundai did their homework properly and the City and the Santro were instant, rip-roaring hits. Maruti gave them company with the Alto, and Tata with the Indica. Seeing the success of these brands, there was a deluge of companies, brands, models and variants crashing into the country. Today, with the possible exception of Peugeot, Citroen and Kia, almost all major brands have their presence in India, and hopefully it will remain that way. The Indian Automobile Industry is worth $33.8 billion (INR 165,000 crore) with 35 lakh vehicles produced providing employment to 13 million people, as of 2010.  Those earning their drivers licenses just now (18 years) will be hard pressed to believe that there was a time when there were only two models of cars to choose from.

India's Socialist Hangover and the Automotive Market

Even 20 years after liberalization, that socialist hangover still lingers and will do so for a long time to come. For many decades, a car was the epitome of luxury, wealth and success in life. While the West had moved on with life, India was stuck in time, in the dark ages. And this was fostered by numerous movie dialogues proclaiming that "Gaadi" and "Bangalow" were the final frontiers one had to conquer to be finally "successful" in life. I am no Economist, but guess that whatever is in short supply will have more demand and value, and when the supply levels dry up totally or become negligible, these goods will have almost God-levels of perceived value. I think that is what happened here. As you needed a lot of cash and even influence to buy a car and 99% didn't have any of these two, the outlook stuck that "Owning a car means that you have made it in life". And something that has been hammered into the minds and passed down through generations doesn't go away easily, even when there is plenty of choices now. Case in point: Cats/dogs circling around before going to sleep.

The automobile industry in India today is still in its infancy, undergoing teething troubles. There are still many years to go before the industry matures to a level where we develop a driving culture and a taste for what is good about cars. We still do not have company exchange facilities where on arrival of a new variant or model we can trade in our old car for the new one at the company showroom, as that would make no sense at all with the market dynamics we have, where we do not buy cars for their comfort or driving pleasure, but for frugality, price, status/show off and as a "moving on to next step in life" ritual. The only way for the industry to mature is through the forces of the market and time, when the outlook of the society towards cars changes. And as with everything else in India, this too will take time. We have come a long way, but still, there remains a lot to be aspired for, like good roads and driving culture, which both cannot be easily attained. Especially with all the hangovers and baggage we carry. The story with more details on this in the next part: The Story of the Indian Car Buyer - Part 1

All Episodes in the "Driving Like Dummies Series

Part 1: Traffic in India

Part 2: A car is NOT an "Investment"

Part 4: The Story of the Indian Car Buyer - Part 1

Part 5: The Story of the Indian Car Buyer - Part 2

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