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Auto-makers square up for battle in India and China.

Auto-makers square up for battle in India and China

Few in the motor industry underestimate the potential of the Chinese and Indian markets. As increasing affluence enables more and more of their population to move from bicycles and motor-cycles to cars, they are likely to account for a quarter of the world's auto sales in five years' time.

Volkswagen and General Motors have been fast out of the starting blocks in both markets, while Suzuki accounts for more than half of car sales in India. Ford, meanwhile, makes up only 2.6% of the Chinese market and 2% of the Indian. The brand is simply not well known in China and the range of models on offer in both countries is limited.

In the April 2010 issue of Business Week, Einhorn reveals how the company is boosting investment, production and marketing to make up for lost time.

The author points out that Ford chief executive Alan Mulally - an ex-Boeing executive who nurtured the plane-maker's relationship with China before joining Ford in 2006 - has spent more than €2.2 billion in Asia over the last four years. The investment has boosted Ford's capacity by 50% in China and 100% in India since 2007. The company plans to add four models over the next three years in China, and to introduce a new model every 12 to 18 months in India.

The competition, though, is not standing still. Einhorn describes how General Motors launched its compact Chevy Beat in India in January, the month before VW began selling its Polo to Indian consumers. Yet already there is a two-month waiting list for the Beat and the company has added a second shift at its plant in western India to meet demand. In China, too, GM plans 10 new models this year, while VW aims to launch seven locally-produced models in 2010.

In the May 2010 edition of Forbes, Muller reports on the success in China of the Wuling Sunshine mini-van, which is mainly used by small-business owners and farmers to transport goods ranging from sugar cane to electronics. GM manufactures the van with two Chinese partners, from whom it is learning the secrets of low-cost production. The Wuling Sunshine sells for as little as $4,500, yet still makes a considerable profit.

Muller explains that GM plans to replicate its low-cost business model throughout the developing world, starting with India. But all this expansion will be costly. Einhorn quotes industry experts who claim that, as everyone claws for more market share, the companies with the deepest pockets will be the ones left standing.

In this context, in Bloomberg Business Week's May 2010 issue, Welch reports how the appointment of ex-telecom executive Ed Whitacre as chief executive has strengthened the balance sheet at GM. Restructuring the company reduced its debts from $46 billion before it filed for bankruptcy to $17 billion after. Five senior executives were eased out of the company and 20 more reassigned. Seven outsiders were brought in to fill top jobs. The changes have shocked the company, previously known for its insularity and for ignoring and even rewarding failure. GM bosses are now hinting at a return to profitability this year, following losses of $88 billion in the dark days of 2005 to 2009.