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 As economic torpor suffocates demand for new cars in India's
megacities, incomes are growing faster in small towns and country
areas. That's pushing the likes of General Motors <GM.N> and Honda
Motor Co <7267.T> to fan out in search of buyers in places where
fewer than 20 people in every thousand own a car — for now.
Standing firmly in the way are strong home-grown brands. With local
services plentiful and repairs cheap, Maruti Suzuki India Ltd <MRTI.NS>,
Mahindra and Mahindra Ltd <MAHM.NS>, and Tata Motors Ltd <TAMO.NS>
dominate the rural vehicle market where foreign automakers are seen
as expensive and distant.
Foreign companies showing cars at the Delhi auto show, starting on
Wednesday, have already poured billions of dollars into factories,
product development and marketing in India's once-booming car
market.
Still, no foreign car maker has a share of more than 6 percent in
India's passenger vehicle market aside from South Korea's Hyundai
Motor Co <005380.KS> with 15 percent.
Car makers see success in rural areas as vital, as slow economic
growth, high interest rates and rising fuel prices mean overall
sales are headed for their second straight year of decline. Though
the need for rural sales has been recognized, success could yet
prove illusory.
 Japan's Honda entered India nearly two decades ago but will still
have only 170 dealerships by end-March, compared with market-leading
Maruti's current 1,300. Of the 60 sales outlets Honda plans to open
in India in the fiscal year that starts in April, 43 will be in
small towns.
"It's very easy to travel once in three-four years to a place 100
kilometers away to buy," said Jnaneswar Sen, senior vice president
of sales and marketing at Honda India. "It becomes a bit of a hassle
for the customer to travel 100 or 150 kilometers every few months to
get the car serviced."
Like most foreign carmakers in India, however, Honda is seen as a
premium brand, beyond the reach of price-sensitive rural buyers. To
expand its potential market, Honda last year launched the
entry-level Amaze sedan, which starts at about 520,000 rupees
($8,300) and has helped it nearly double its market share to 4.7
percent.
Smaller towns and cities account for nearly two-thirds of Amaze
sales, the company said.
"Smaller towns and rural areas are a gold mine that foreign
automakers are yet to tap efficiently," IHS Automotive analyst Anil
Sharma said.
"One of the prerequisites for any automaker to be successful in
rural areas would be availability of after-market services. Since
the population is more dispersed in rural areas, what we probably
need is services like mobile workshops."
Selling foreign cars to rural India remains tough. Deepanshu Rai,
who lives in Raigad, a small town about 100 kilometers from Mumbai,
said he never considered buying a foreign model when he bought his
first car about 10 months ago, an Alto 800 hatchback made by Maruti.
"If you buy a foreign brand, it won't have a service center
everywhere. You may have to travel far even for a small issue," said
the 22-year-old Rai, who works for a mapping company.
MIGHTY MARUTI
For Maruti, the opposite is true. Founded in Gurgaon, outside the
Indian capital of New Delhi in 1982, Maruti accounts for nearly one
in two new cars sold in India.
Though it has drawn on the small-car knowhow of Japan's Suzuki Motor
Corp <7269.T>, its majority shareholder, Maruti is seen as so
home-grown that in the 1980s, the word "Maruti" was used generically
to mean any car.
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On narrow rural roads, it's cheap small cars jostle for space with
Mahindra's sturdy utility vehicles, tractors, motorbikes and bullock
carts, with foreign models scarce. Spare parts, including fakes, are
cheap and ubiquitous, and mechanics everywhere can fix a Maruti,
keeping maintenance costs down.
Maruti's deep rural penetration has helped it defend its market
share amid the industry's two-year downturn. That's despite the
onslaught of new models launched by foreign rivals.
Next in line will be Nissan Motor Co's <7201.T> relaunched low-end
Datsun brand. At the Delhi auto show Datsun will showcase a
hatchback to compete with Maruti's Alto 800, which starts at 280,000
rupees.
Areas with populations of less than 10,000 people account for 31
percent of Maruti's sales so far in the fiscal year that ends in
March, said Mayank Pareek, Maruti's chief operating officer for
marketing and sales, adding the company began a heavy push to target
rural buyers five years ago.
"Unlike urban markets, in the rural markets customers are very
loyal. So you get a big first-mover advantage," he said.
General Motors has been selling cars in India since 1996. It has a
market share of just 3.5 percent and 273 dealerships, increasing to
300 by the end of the next fiscal year. Most of the new outlets will
be in smaller towns and rural areas, said P. Balendran, vice
president at GM India.
"With higher growth expected in rural areas as compared with the
metros, we expect the share of rural markets in our overall sales
increasing in the future," he said.
One thing that is certain in the push by global car makers beyond
India's big cities is more choice for the growing number of rural
buyers. Until a few years ago, many rural buyers essentially had
just one choice to make — the color of their Maruti 800, the
hatchback predecessor to the Alto.
Krishnakant Shinde, a farmer in Gove, a village about 250 kilometers
from Mumbai, says he was the first in his village to buy a
Volkswagen AG <VOWG_p.DE> when he upgraded last October to a Vento
sedan from a Maruti Swift Dzire entry-level sedan.
Volkswagen, which has market share of just 2.25 percent in India,
said it doesn't plan new outlets in the country this year. But it
opened a dealership in Satara, a regional hub about 15 kilometers
from Shinde's home, about two years ago.
"Volkswagen the company wasn't new to me, but I didn't buy earlier
as I was worried about spare parts and servicing," said Shinde, a
sugar cane and dairy farmer.
"Now, since they have opened a showroom and service center in Satara,
I decided to buy."
($1 = 62.4600 Indian rupees)
(Additional reporting by Rajendra Jadhav
in Satara; editing by Tony Munroe and Kenneth Maxwell)
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