India is the seventh largest country in the world and, after its neighbour China, has the second largest population at 1.2 million. Growth in the Indian vehicle market has been impressive over the past decade, both in terms of production and sales. According to statistics from the Society of Indian Automobile Manufacturers (SIAM), total vehicle sales in India have grown from 7,897,629 in 2004/5 to 15,513,156 in 2010/11.

That said, the most popular vehicles in India are two-wheelers, which accounted for 11,790,305 sales from the 2010/11 total – around 76% of the market. Passenger car sales of 2,520,421 in 2010/11 accounted for the second largest sector with a share of some 16.25%, having grown 137% since 2004/5. Commercial vehicle sales have also enjoyed healthy growth in the period, reaching 676,408 in 2010/11, an increase of 112% since 2004/05.

Since India has built up a thriving automotive industry, it is not surprising that vehicle production has followed a similar trend to domestic sales. Total vehicle production reached 17,916,035 in 2010/11 – a 112% increase on the 2004/5 figure of 8,467,853. Like domestic sales, the bulk of that production is of two wheelers, which accounted for 13,376,451 units in 2010/11. Passenger vehicle production reached 2,987,296 in the same year, up from 1,209,876 in 2004/5 and commercial vehicle production reached 752,735 vehicles in 2010/11, up from 353,703 in 2004/5.

Like China, India has not been immune to the economic reverberations, which have affected Europe and North America in particular. Last October, SIAM downgraded its growth forecast for the Indian automotive sector. Having forecast growth of 10-12% in the fiscal year to March 2012, back in July 2011, by October the organisation had slashed its growth forecast to 2-4% for the year. That followed car sales growth of 30% in 2010/11 and 25% in 2009/10.

Other causes behind the cooling of the market are a series of fuel price increases and the high interest rates in the country. Fuel prices have increased by around 11.5% in the past year.

The Reserve Bank of India has increased its rate many times over the past two years to tackle high inflation, currently running at around 4.8%. The current bank base rate stands at 10.5% and the bank is facing calls to reduce the rate. Price increases in India are currently the highest among the BRIC countries (Brazil, Russia, India and China) and press reports suggest that the country could lose its Standard and Poor’s investment grade credit rating.

Not surprisingly, many global motor manufacturers have set up operations in India to take advantage of the burgeoning domestic market and export opportunities. BMW, Fiat, Ford, General Motors, Honda, Hyundai, Mercedes-Benz, Nissan, Renault, Suzuki, Toyota and the Volkswagen Group all have car assembly operations in India. These operate either as wholly owned subsidiaries or, as in the case of Honda and Toyota for example, as joint ventures with a local partner.

Commercial vehicle manufacturers are well represented too. Mercedes-Benz has established Bharat Benz to build trucks and buses in the country, opening a new plant earlier this year. MAN has a joint venture with Force Motors, Navistar with Mahindra and Mahindra, while Scania and Volvo are represented too.

Besides these operations, India also has an established motor industry of its own. Maruti Suzuki is India’s largest car manufacturer, established originally as Maruti Udyog, but now a wholly owned Suzuki subsidiary. The company sold its 10 millionth car in India earlier this year and is the best selling car manufacturer in India with around 40% of the domestic car market. Mahindra and Mahindra began by building the Willys Jeep under licence and currently produces cars, SUVs and CVs. Premier builds a range of vehicles and was probably best known for producing Fiat based cars between the 1950s and 1990s.

Tata now owns Jaguar and Land Rover and has built a range of cars and trucks in India for many years. The Tata Nano is the cheapest car built in India, designed as an affordable entry-level model. Altogether, Tata has around 16% of the domestic car market. Hindustan Motors is probably best know for the Ambassador, popular as a taxi in India, based on the 1950s Morris Oxford. Ashok Leyland is one of the largest commercial vehicle manufacturers in India and produces a range of trucks, buses and construction vehicles.

Hyundai is the second largest car manufacturer in India and has a domestic

market share of around 14%. The i10 supermini is built solely in India for domestic sales and export markets. Other manufacturers also export to Europe and other markets from India. Nissan, for instance, produces the Micra and Pixo in India.

ALD Automotive reports that Honda and Toyota are strong in the executive segment. The company reckons that the recent market entrant with significant future potential for market share is Volkswagen, which has introduced the Polo and Vento. At the premium end, ALD says the market is still small. Mercedes, BMW and Audi between them account for about 20,000 units per annum, which is around 1% of the total market ­– a contrast to China where the three brands sell almost 1 million units in total.

The rapidly growing market and the strength of the motorcycle and scooter segment are indicators that the fleet sector is far from developed. A number of large fleet companies are active in India, including ALD Automotive, LeasePlan and Arval and expect to be able to take advantage of the growth that the market offers.

ALD opened its Indian operation in 2005 and has built a team from scratch, as the company’s general manager in India, Sujit Reddy told IFW: 'We started with a strategy to have a presence in the major cities, so we were headquartered in Mumbai, but at the same time we also recruited sales and operations people in Delhi, Bangalore and Hyderabad. We signed our first clients in July/August 2005.'The business has expanded further since with representation in Pune and Chennai.

Sujit points out that there are no published figures for the business fleet sector in India, 'Manufacturers have approximately 2,000 corporate customers whom they track for corporate sales. Based on these figures, we estimate that annually sales to these corporates are about 80,000 units per year with a total fleet of around 400,000 vehicles. This excludes smaller, SME segment corporates, which may amount to another 70,000 units per annum but this market is not tracked. These cars are largely provided as perks for senior managers or used within the business for their activities.'

LeasePlan bases its figures on estimates too and reckons that the new car market in India is growing at around 18% and aggregates to about two million per annum, although growth will be much smaller this year. Out of the total new car market, LeasePlan estimates that the company car market constitutes 10%, or around 200,000 cars. The company reckons that the company car market can further be segregated as follows:

• Perquisite given to senior executives, representing around 30,000 cars.
• ‘Tool for trade’ (vehicles for field staff representing around 30,000 cars.
• Business vehicles (such as cash vans and logistic vehicles) – representing around 40,000 cars.
• Salary sacrificed cars – representing around 100,000 cars.

Sujit Reddy at ALD says that providing cars to employees specifically for business use has still not become a major feature in India. That said, he identifies several industries that have procured vehicle fleets for business use.

'This is particularly so in the agricultural business where utility, Jeep type vehicles such as the Mahindra Bolero and TATA Sumo are given to sales staff as they travel in rural areas to market and distribute their products. Other companies have provided smaller vehicles, mainly hatchbacks, to sales staff to carry out certain specialised duties primarily for sales executives.

'This is an area of the market – the "tool for trade" segment, which has a large capacity to develop and it will provide tremendous opportunities for car operating lease business to grow to another level.

'We are talking to a number of companies in, for example, the pharmaceutical and fast moving consumer goods (FMCG) sector about considering options for leasing cars for their sales representatives instead of the current method of travel reimbursement or two-wheeler transport.'

LeasePlan reports similar demand and also points to the popularity of Toyota and Honda models where cars are provided as perks.

Sujit Reddy suggests that the Income (perquisite) tax applied to the employee for company provided vehicles is relatively low. For a car below 1,600 cc, the perquisite value or taxable benefit is equivalent to around €30 per month and for cars above 1,600 cc it rises to €40 per month.