States could leverage from Nissan, TN face-off
Adversity for one could translate into an opportunity for others
Nissan and the Tamil Nadu government have been in the news lately over non-payment of incentives, an issue that is now heading for international arbitration. The first hearing is scheduled in the middle of this month and it remains to be seen what will eventually emerge even while some attempts at rapprochement are reportedly underway.
Detroit of Asia
What does this mean for Tamil Nadu’s image in the auto space? Its capital, Chennai, has constantly been referred to as the Detroit of Asia thanks to the fact that it has some of the world’s biggest auto brands in its kitty. What began with Ford and Hyundai in the mid-1990s soon grew to include BMW, Daimler India Commercial Vehicles, Renault-Nissan, Yamaha, Royal Enfield, PSA (formerly Peugeot Citroen) and many others.
Tamil Nadu’s emergence was particularly interesting considering that traditional favourites such as Maharashtra lost out to some of these big names when the economy opened its gates to investments from auto MNCs. It then made up for lost time in successfully wooing Volkswagen, Tata Motors is experimenting with young minds to design its cars Tata-Fiat, Mahindra & Mahindra (at Chakan) and so on. Karnataka, meanwhile, ensnared Toyota and Volvo. Yet, Tamil Nadu stood tall even against Haryana and Uttar Pradesh, which have been home for decades to Maruti Suzuki, Hero MotoCorp, Honda Cars, Honda Motorcycle & Scooter India, Yamaha and Escorts. Uttarakhand and Himachal Pradesh, through generous fiscal sops, drew in big names such as Tata Motors, Bajaj Auto, TVS Motor, Hero and M&M while Rajasthan bagged the Honda combine of motorcycles and cars.
It is no secret that States are now becoming fiercely competitive in attracting investments. The auto space becomes particularly relevant in the context of creating jobs (which becomes a political brownie point) and the added glamour of the State being home to big global brands. This explains why Gujarat and Andhra Pradesh have been going flat out in recent years to lay down the red carpet for companies.
In this backdrop, it is reasonably logical to assume that other States will be watching the Nissan-TN saga with great interest since adversity in the case of one could spell into opportunity for the other. Andhra Pradesh Chief Minister, Chandrababu Naidu, has been quite successful in getting Kia Motors, Isuzu and Hero to set up their plants in his State.
The next flush of potential investors could be from China where the likes of Changan Auto and Great Wall have been on the lookout for suitable locations over many months now. Apart from AP, Gujarat will also be keeping its eyes and ears open, especially with one Chinese brand, SAIC, taking charge at Halol following the exit of General Motors.
As in the recent Nissan case, it was an automaker’s conflict with a State that was the spur for Gujarat’s automotive roadmap. West Bengal had invited Tata Motors to set up its prestigious people’s car project in Singur and the stage was set for a new era in manufacturing. Till then, the State only had a solo resident in the form of Hindustan Motors, which had been churning out its Ambassador for decades with the decline clearly apparent.
However, there was stiff political opposition to the Tata project and this was the time Gujarat scented an opportunity to yank the Nano from Bengal to its own turf. It was getting increasingly clear that Singur was not going to work and Narendra Modi, then Chief Minister of Gujarat, reached out to the Tatas and invited them to Sanand. This was the beginning of a virtual flood of other big names in the business such as Ford, Maruti, Honda and PSA of France.
Gujarat got the big break thanks to the issues in Singur, which effectively stalled the Nano project. And to think that the West Bengal government was going all out to promote the Nano but did not quite reckon with the fierce opposition that followed.
PSA also made the news when it was scouring for facilities in India as part of its second innings following its abrupt exit in 1997. This was sometime in 2011 when a team had come visiting and there was a press release from Tamil Nadu stating that the French automaker had pretty much decided to set up shop in State.
PSA refuted this claim and subsequently decided to commission its new plant in Sanand, Gujarat. Clearly, it was a sense of competitive TN government will now be hoping to sort out the issue soon with Nissan since it can harm the State’s image as the ideal destination for automakers. A view of Renault Nissan’s Chennai plant pressure that perhaps prompted Tamil Nadu to jump the gun and stake its claim. However, a global slowdown caused PSA to shelve its India plans, which meant Sanand was out of its radar too.
When it was back on its feet eventually, the company announced that Tamil Nadu would now be its new home! It acquired the Hindustan Motors facility in Tiruvallur near Chennai and has now teamed up with the CK Birla group for a project scheduled to kick off in 2020. To that extent, Tamil Nadu has seen fluctuating fortunes with PSA except that the story has ended on a happy note.
The State authorities will now be hoping for an encore with Nissan too since anything to the contrary could create some brand erosion to its carefully cultivated image as the ideal destination for automakers. And this is not just a boastful claim but reality based on a robust ancillary supplier base, cerebral engineering resources, access to a port and so on.
Yet, it is also equally true that neighboring States such as AP will be keen on replicating the TN story, especially with a Chief Minister who is pulling out all the stops. Naidu is head of a newly created State and has already done enough in getting some big brands over. From his point of view, the journey may have only begun and the fact that the TN political landscape is relatively fragile now will only spur him on.