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China threat to Indian dominance in SL vehicle mkt

Though Chinese models are minnows in this market, they have the potential to wipe out Indian presence, reports PK Balachandran.

world Updated: Sep 21, 2007 14:20 IST
PK Balachandran

Chinese models are minnows in the Sri Lankan vehicles market, but they have the potential to demolish Indian dominance over this sector in the near future, says auto industry analyst Viraj Manatunga.

"1996-99 was the Indian era, when Indian makes edged out established Japanese makes in the commercial vehicle and motorbike segments. But two to three years from now, we will see the dawn of the Chinese era," Manatuga told Hindustan Times.

Indeed, history tells us that it does not take very long for vehicle sales to catch up or decline, and that there is no room for complacency.

"The Bajaj motorbike had only 10% of the market here in 1999. But today it is number one, with 64% of the market, selling 8,000 units per month. In 1999, Isuzu had 30% share of the commercial vehicle market. But now it has just 19%. TATA, which had only 1.5% in 1991, has 23% of the market share now," Manatunga pointed.

Chinese commercial vehicles, JAC and FAW, are emerging "very strongly, he said. The Loncin is doing well in the motorbike market, selling 1,300 per month. Chery QQ, which is a Maruti-Suzuki Alto like vehicle, is also doing well, selling 100 to 150 units a month, according to the local agent, David Peiris Motor Co.

Chery QQ is going to be assembled in Sri Lanka. Although it cannot be compared to the Maruti 800, which is only semi option and is cheaper by about SLRs 200,000, Chery QQ's buyers belong to the same socio-economic class as the buyers of Maruti 800, and these could gone in for it.

China's strengths

Besides being highly sophisticated, the Chinese auto industry is very much bigger than India's. China can, therefore, supply quality products at low prices to satisfy the quality conscious but price sensitive Sri Lankan market. "A vehicle from the Chinese firm,Geely, which is modeled after Toyota Corola, is priced at SLRs.1.9 million (approximately $17,000), while the Toyota Corola is priced at SLRs.3.5 million ($ 31,000). Geely, a new comer now, is bound to do catch up
soon given the price differential," Manatunga predicted.

And there is a political dimension which needs to be taken into account. Good political relations between trading countries help push goods and services without hassles, while bad or lukewarm relations will hamper the flow. Relations between Sri Lanka and China have traditionally been trouble free, and Sri Lanka has never felt threatened by China, but Indo-Lankan relations have tended to go through ups and downs and India is seen as a threat in one way or another. The present Sri Lankan regime is friendly with India but is eager to build very strong economic ties with China.

Hurdles

But the Chinese vehicle manufacturers have formidable hurdles to cross in Sri Lanka. Firstly, Chinese makes are still to enter the consciousness of the Sri Lankan buyer. This is because Chinese vehicles are not yet publicly visible on a large scale, said Yasantha Abeykoon of David Peiris Motor Company.

Secondly, of the three companies which have taken up the agency for Chinese brands, two are strangers to the automobile business and are still to set up an island-wide infrastructure for sales and after sales service. "Only David Peiris and Associated Motorways (agents for Maruti) are in the automobile trade and have an all-island infrastructure," Manatunga pointed out.

Indians unfazed

Indian vehicles makers dismiss the prophets of doom, deriving confidence from India's manifest dominance in the heavy vehicle and the two and three wheeler sectors. "Sales are related to the models' visibility on the roads, and Indian vehicles are very visible," remarked a representative of an Indian company. Indians also contend that the Chinese models are technically inferior to their Indian counterparts.

Indians think that Sri Lanka is not an exciting market to enter now. "It is small and it is declining too. In 2006, only 26,500 cars were sold, and there is already a 35% decline in 2007 because of the worsening economic conditions," a representative of an Indian company said.

However, the Indians believe that tax concessions from the Sri Lankan government under the India-Sri Lanka Free Trade Agreement will help revive the market and improve sales. But in the past three years, their efforts in this direction have been in vain.