China and India emerging key to global automakers'' profits: S&P

22 March 2007

Mumbai: According to a report on the global economic outlook published by Standard & Poor's Ratings Services in March 2007, global economic growth is disproportionately riding on India and, to an even larger degree, China, both of which have seen energy demand rise sharply.

As the report, titled On The Road To Big Profits In China And India, Global Automakers May Hit Some Bumps points out, automakers' hopes are riding particularly high in China due to the significant investments already made in this market.

Forecasts by J D Power and Associates (which, like Standard & Poor's, is a unit of The McGraw-Hill Companies) suggest that China could overtake Japan to become the world's second-largest automotive market as soon as 2007. It is already the world's fourth-largest manufacturer of automobiles after North America, Western Europe, and Japan, and the third-largest producer of commercial vehicles behind the US and Japan.

However, despite promising high returns, the burgeoning auto markets of China and India carry high credit risks for foreign automakers, not least because of intense competition to maintain a foothold in these markets, says a report published today by Standard & Poor's Ratings Services.

The report points out to the major differences between the Indian and the Chinese markets. In India, the second fastest-growing auto market, passenger cars sales grew by 16 per cent in 2006 compared with just 8 per cent a year earlier, fueled mainly by increases in the small-car segment boosted by tax benefits, new model launches, and greater access to consumer financing. Nevertheless, the international OEMs' chances of gaining from this are being dampened by the predominance of cheaper, locally manufactured motorised three-wheelers, which still hold nearly 80 per cent of India's total vehicle market.