How Chennai became an auto hub

Business Houses of the South by Sushila Ravindranath

A recent report that Ford, which had exited India a couple of years ago, is planning to start manufacturing again in its Chennai plant at Sriperumpudur, has brought back exciting memories of the mid 1990s.

It was Maruti, with its Suzuki tie-up, that first made a difference, with its launch of the 800 in the 1980s. That plant was set up in Haryana. In 1994, after liberalisation, the government of India finally decided to let multinational automobile manufacturers into the country. It seems unbelievable now, but we were stuck with the cumbersome Ambassadors and Premier Padminis. Foreign technology was not allowed. It was those do-it-yourself, import substitution days.

To add insult to injury, one had to wait for years to get these cars. For a country of our size and population we were not even producing one lakh cars a year. Most large auto manufacturers were waiting to enter India.

Automobile production line. Picture courtesy: The Hindu.

For various historic reasons, Chennai was the leading manufacturer of automobile components in the country. There were always expectations that one of these people would start making automobiles when the time was right. However, none of them showed any interest. It was left to Ford, the American company, to sow the seeds for Chennai becoming a major automobile hub in the country .

Ford initially tied up with the Mahindras to enter India. Mahindra Ford was the largest of the new automobile projects which came up at that time. There was much excitement surrounding this. Global experience showed that setting up an automobile factory immediately improved the economic prospects of the area.

All the states with manufacturing background started courting Ford and the Mahindras. It was assumed that as the Mahindra base was Maharashtra and as the state was the country’s major industrial hub, the project would automatically go there. Gujarat and Delhi were the other contenders.

After almost a year of sheer persistence, Tamil Nadu pulled off what was considered a near impossible feat. The state government signed an MOU with both Ford and Mahindras to set up an automobile plant at Maraimalai Nagar. At that time (1995) the investment was around Rs 1,500 crore which was considered huge. This is not counting the many ancillary plants which sprang up around the unit.

This was the then chief minister Jayalalithaa’s most triumphant moment. To quote from my book Surge, “The ecstatic bureaucracy gave chief minister Jayalalithaa full marks for her initiative in bringing the project to the state”. It was also a rare instance of co-operation between the state government and the private sector. Again to quote from Surge “The then Industry Secretary, C. Ramachandran, asked Suresh Krishna, of the TVS group to talk to his old friend and Mahindra Chairman Keshub Mahindra, to accept the location. After all it was Mahindra who brought Ford to India.

The state needed an automobile project as Tamil Nadu had not attracted large investment in decades. Chennai was not the first choice as Ford felt the market was in the West and the North.”

The state launched an all-out marketing effort unheard of before. To quote Ramachandran again, “We put together a highly professional multimedia presentation on the state which made a very favourable first impression. Then Ford sent a 200 query questionnaire covering all aspects of Chennai like climatic condition, social conditions and so on.

When all this was going on, the South Korean giant Hyundai had already opted for Chennai as its entry point. It had to choose between Chennai and Pune. When the company did a thorough market survey, it decided on Chennai as it had a port. According to Korean sources, Tamil Nadu at that time had 100 engineering colleges, the state offered impressive human resources, and South Indians were seen as more hard working than North Indians.”

The South Koreans do not mingle unlike the Westerners. They have created their own enclave in Sriperumbudur, where the Hyundai factory is located. Many Korean restaurants have come up in the suburbs. Hyundai Motors India was established in 1996 in Irungattukottai, near Chennai with an investment of over $600 million. Today it is the second largest car manufacturer in the country. When Hyundai came to India, it said it wanted to make India a global hub for the export of its cars. It has kept up its word.

After Ford and Hyundai came to Chennai, car makers like Renault Nissan, BMW, and others flocked to the city making it an automobile hub of the country. Tata Motors has in March pledged to invest Rs 9,000 crore for a car manufacturing unit in Ranipet district near Chennai.
Chennai has an annual capacity to produce 1,380,000 cars and 361,000 commercial vehicles. This means that the city can produce three cars every minute and one commercial vehicle every 75 seconds. We have truly arrived.

In a matter of three decades our own Chennai has emerged as one of the largest automobile clusters in the world.

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