'Global carmakers may hit roadblocks in India'

While global carmakers are gearing up to tap emerging markets like India and China, their path to hitting big profits may turn into a bumpy ride due to intense competition, vulnerability to oil prices and inflation, rating agency Standard and Poor's said today.

"The two markets also carry high credit risks for the established automakers because of intense competition, quality issues of manufacturing domestically, uncertain intellectual property protection and the inherent volatility of developing markets," S&P analyst Maria Bissinger said in a report.

"An increasing reliance on oil makes Indian economy vulnerable to spikes in international crude prices and the economy would also suffer from a slowdown in global expansion. But a more immediate risk is domestic inflation," Maria said.

The fledgling Indian car market is significantly more concentrated than China, although foreign players are increasingly making inroads.

Foreign players are either setting up or expanding their existing production bases in India, but progress is slow. The report said these companies must avoid overcapacity to maintain satisfactory profits in the long run.

Already, a number of companies such as Japan's Suzuki and Honda, Korea's Hyundai and American carmakers General Motors and Ford have manufacturing presence in India.

S&P said in the two countries, with population of more than a billion each, fewer than 20 in 1,000 driving-age inhabitants owned a car in 2006. With purchasing power forecast to grow above 10% per year in China and by more than 7% in India over the next five years, car sales would grow enormously, the report said.