Why have European car makers struggled to succeed in India?

Remember Opel Astra? It was India’s first tryst with German technology on the roads. With automatic transmission — a rarity in those days — ventilated disc brakes and a CFC-free air-conditioning system, Astra quickly became the car to dream for. It single-handedly launched the premium luxury sedan segment in India. Opel, then owned by Detroit, US-based auto major General Motors, doubled down, launching Corsa with an ad campaign that auto enthusiasts still remember—“Achtung Baby”—flaunting its German origins. The Opel cars scored high on product satisfaction, but the sheen wore off quickly, thanks to expensive maintenance and sub-par after-sales experience, all of which affected the resale value. Opel exited India in 2006, 10 years after its entry.

French manufacturer Peugeot was another early mover in the 1990s and launched the 309 —a boxy sedan with 80s design language—in India. Not even the choice of the TUD5 engine, a legendary motor, could save the Parisian car maker. You would think that after initial hiccups, things would have become different in the new millennium and the Europeans would have made the most of their early-mover advantage. But that was not to be.

Opel’s and Peugeot’s rise and fall capture the story of European car makers in India, who won hearts, but have yet to make any significant impact in one of the fastest growing passenger vehicle markets in the world.

TOUGH TERRAIN
The numbers tell the larger story. Almost three decades after the “Achtung” call, European carmakers have been relegated to the sidelines by the Japanese and the Koreans. The share of European cars in the Indian market is under 4%, while the Asian giants command over 50%. NonEuropean carmakers continue to be in top gear, luring the “value-conscious, yet not budget-constrained” buyers in India by flaunting an enviable fleet of 72 models across different price points in the mass-market segment. In contrast, European mass-market car brands have only 13 models on Indian roads, and they have no presence in the entry-sedan and mid- and premiumhatchback space, according to data collated by Jato Dynamics.

So, what went wrong?

“They build cars for Europe and try pushing the same across the world using the narrative of ‘better build quality’. Indians, just like the Japanese, Koreans and Chinese, do not buy that narrative,” says Avik Chattopadhyay, founder of brand consultancy Expereal, who has had stints with European carmakers.

This has led to faulty product strategies for most European car companies, which have impacted the number of line-ups in their portfolio. European carmakers have faced challenges in markets like India due to misalignment between their product portfolios and local consumer needs, as they focus on highprofit markets like Europe and China.

“Why should Indian customers pay more for ‘benefits’ which are not as per their needs and desires? The Indian customer is value-conscious, not budget-constrained,” says a former India CEO of a European car company, who does not want to be named. “Their product and engineering approaches did not always match local preferences and regulatory frameworks. In fact, their products are overengineered for lenient regulatory demands and affordability challenges in India,” says Ravi Bhatia, director, Jato Dynamics.

The Europeans may have also missed the bus when it comes to a derived benefit of better build quality— safety. India is one of the worst in the world when it comes to road fatalities. Even in the Covid-lockdown-hit 2021, the country had more than 155,600 fatalities, according to the National Crime Records Bureau. Over the last few years, there has been a shift in consumer behaviour and attitude towards safety as a feature. This was in no small measure influenced by better roads being constructed around the country, which meant higher speeds and a more real threat to life from high-speed crashes. Buyers started giving a higher weightage to safety features.

European car makers should have been able to capitalise on this, but instead, this proved a key selling point that Tata Motors latched on to in its brand revival strategy. Europeans thus failed to capitalise on something they were good at, up and down the segments. Apart from entry-level segments, even the Rs 25-40 lakh price bracket has been a tough space for European automakers.

“It is difficult for European manufacturers to make a profitable business case to adequately localise cars that maintain refined European levels of ride, handling and comfort. Nobody has yet tested the waters and taken the seemingly high risk to invest significant euros in manufacturing and vendor tooling to launch a refined car priced at Rs 30-40 lakh that will generate volumes in excess of about 40,000 year after year,” says Sudhir Rao who led the Indian subsidiaries of GM, Renault and Skoda.

Meanwhile, the Japanese and the Koreans gained major market shares by prioritising fuel efficiency, low maintenance costs and affordability.

MARKET IN TRANSITION
India is a market in transition, while Europe is closer to maturity and stagnation. India has a huge population that is set to graduate from two-wheelers to four-wheelers, but Western brands have consistently failed to grasp nuances like the substantial differences between first-time buyers in India and Europe.

In their defence, the European car makers ET spoke to unanimously point out to the innate differences in the regulatory environment between India and Europe that makes devising a long-term strategy difficult. In addition, specificities of each market on competitive benchmarks, segment-wise spread, cost considerations and technological maturity have an impact on the manufacturing process and choice of material for the country, they argue.

The industry has been asking for a long-term, stable regulatory and policy framework to aid India’s elevation as the manufacturing headquarters for the world, says Bhatia of Jato Dynamics. Indian consumers tend to prioritise affordability, making it challenging to introduce higher-priced models. The tax burden in India further impedes the introduction of lower-volume products that entice customers but make them unviable due to higher costs.

Affordability is crucial for any brand to succeed in the Indian market. The Indian consumer is value-conscious, but not thrifty in their purchase decision. The Indian consumer is a novelty seeker and that significantly compresses the product lifecycle vis-avis the European markets. This requires continuous investments over the lifecycle and that is the key balancing act. The answer to that is smart product solutions and extending the same platform for multiple uses. Without the overall supply chain efficiency, including manufacturing, no OEM will be able to compete, given the rigorous cost benchmarks in the Indian automotive industry. Affordability is not the key anymore for the Indian consumer. It is the sense of delivered value through attributes that are both tangible and perceived.

THE ROAD AHEAD
We are confident of regaining lost ground, says Venkatram Mamillapalle, country CEO & MD of Renault India. He points out that Renault was one of the first European manufacturers to introduce India-specific models, including two platforms designed and developed specifically for the Indian market.

“We have been subsequently adapting to the market through special editions and model year changes,” says Mamillapalle. Renault commands a little above 1% of the Indian market, which once had touched 4%. The brand is also a good example of a company that executed a series of mass-market launches starting with the Duster and ending with the Kwid. However, they lost the momentum, thanks both to their global upheavals and local execution weaknesses in customer satisfaction and dealer relations.

“The inability to achieve sustained excellence in all aspects of the business has shaken the confidence of European mass high-value brands in developing a profitable business in India. At the end of the day, the responsibility for their inability to crack the Indian market lies collectively with global and local managements,” says Rao.

VW and Skoda have exited the highvolume sub-4 metre segments which are now dominated by the Japanese and Korean car makers. But Skoda Auto Volkswagen India is considering new models to bounce back in this category.

Piyush Arora, MD and CEO, Škoda Auto Volkswagen India, says that his firm always listens to customer demands. “Hence we are coming up with a new compact SUV— our latest tailor-made-in-India-for-India product, which will hit the roads in the first half of 2025 and is part of the most crucial segment of the Indian volume market,” he says.

In India the SUV segment contributes over 50% to all vehicle sales and is growing at over 20% y-o-y which shows the strong demand towards this body style. Skoda’s hope is that this new model will contribute significantly to reaching the brand’s 100,000 annual sales goal in India by 2026.

Citroen is betting on its latest launch—the Basalt coupe-SUV, its fourth model in India. With an introductory starting price of Rs 7.99 lakh (ex-showroom), the Basalt is an alternative to traditional mid-size SUVs and its rival is the recently launched Tata Curvv.

“While the brand has a strong recall in developed markets, recognition is lower compared with established local players,” says Shailesh Hazela, CEO & MD, Stellantis India, part of the global behemoth that owns the Peugeot, Citroen, Opel and Chrysler brands.

“Offering models with innovative features to solve everyday concerns is a critical first step,” says Hazela, adding, “A high level of localisation to reduce the cost of ownership and maintenance will improve affordability without compromising on the core DNA of the brand.”

Several former leaders at European car companies whom ET spoke to seem to agree that their Indian subsidiaries need to convince the headquarters that there is a trade-off–– if a technologically refined product is localised, it will lead to profitability. With regulations changing rapidly across the world and consumer behaviour in the developed world typically not about “owning” but about “experiencing”, European car makers must change the way they look at the Indian car market, says Chattopadhyay.