NEW YORK (TheStreet) -- India's rising middle class values personal transportation for practical reasons, as well as providing symbolic proof of the Indian economy's growth. Yet the purchase of passenger vehicles in recent years remains short of expectations for international car manufacturers.
Interest rate cuts by lenders and tax cuts by government give international companies hope that sales will increase and General Motors (GM) and Ford Motor Co. (F) are two companies hoping this will change.
GM is planning a wave of new vehicle models and is aiming at capturing 5 percent of the Indian car market, according told Reuters. Stefan Jacoby, head of GM's international operations, recently told Reuters that the country is "regaining confidence" after new Indian Prime Minister Narendra Modi took office last year.
In late March, Ford sent its CEO, Mark Fields, to Gujarat for a ceremonial opening of an assembly plant and engine plant where the small Figo Aspire sedan will be built. Ford had been building the $1 billion complex since 2011; the automaker expects the ultra-competitive small-sedan segment to grow to 1.6 million a year in 2018 from 1.1 million last year. The assembly plant can produce about 240,000 vehicles a year.
According to the Society of Indian Automotive Manufacturers, passenger car sales in India rose in the latest fiscal year ended March 30 some 5% to 1.9 million, still demonstrating a rate lower than the double-digit pace of a decade earlier but perhaps a sign of improvement.
"We do expect faster growth, but it is not a sharp recovery or a 'V'-shaped recovery. It will be patchy," Anil Sharma, head of IHS Automotive in New Delhi, told the Financial Times. IHS is forecasting about an 8% increase in passenger vehicle sales in 2015.
Sales by Maruti Suzuki -- a local joint venture -- are outpacing those of international enterprises that also include Volkswagen (VLKAY) and Toyota (TM) , according to the Financial Times. Two foreign manufacturers that have done well in India are Japan's Honda Motor Co. (HMC) and Hyundai Motor Co. of South Korea.
According to Statista, Maruti Suzuki had 42% of the market share in 2014, Hyundai, 15%, Honda, 5.3%, Toyota, 5.2% --and Ford and GM less than 5%.
India also will grow as an export platform to other Asian countries, Jacoby told Reuters, possibly displacing some of GM's exports from South Korea, where labor troubles and costs have ballooned. Jacoby also said he believed that extremely inexpensive cars, priced at about $5,000 to $8,000, will begin to vanish; they will be replaced by better-looking, higher-priced vehicles with more equipment and amenities favored by Indian consumers.
Yet Indian consumers remain sensitive to price. Automotive manufacturers thus have expanded their offerings of so-called "automatic manual transmission," which dispenses with the clutch yet isn't as expensive as full-fledged automatics, common in the West.
In traffic-clogged streets of major cities, as Indian drivers are spending an increasing amount of time behind the wheel, perhaps new cars will increasingly come equipped with automatic transmissions and air conditioning.