In September 2022, the road, transport, and highway minister of India Mr. Nitin Gadkari told all the car makers in India to stop selling unsafe cars to poor Indians. Nitin Gadkari said this because the secretary of the road, transport, and highway minister of India, Mr. Anurag Jain said that all the deaths happening due to road accidents in India have been observed at a speed less than that of the other countries. This means that if any car met with an accident in Europe due to high-speed, still, there are fewer chances that the occupant would die. But the chances of a fatal accident are higher in India even at low speeds.

But why is this so?

This is because the cars running in the US and Europe are safer in comparison to India and we have discussed it many times in the past that the cars that have a 5-star rating in Europe. The same models have got 2–3-star ratings in India. An Indian NGO has even cleared this fact an NGO named “Save Life”. When investigating the crash accidents that happened in India, they found in 66% of the accidents that the passenger compartments in the car have been impacted as well seats were deformed in 34% of the cases and 30% of the accidents were a result of absence of safety braking system in the cars.

What is Bharat NCAP?

The Bharat New Car Assessment Programme (Bharat NCAP) is a game-changer for India's automotive industry. It signifies a monumental shift in prioritizing safety standards in vehicle manufacturing. By rigorously testing and rating cars for their safety, it empowers consumers to make informed choices, ultimately leading to safer roads and reducing accidents. This revolutionary program elevates the safety bar for cars in India, saving lives and enhancing road safety.

Why are large quantities of unsafe cars being sold in India?

So, the question arises, India has the 3rd largest car market in the world, Why unsafe cars are being sold in huge numbers in India? The biggest reason behind this is the absence of India's own dedicated car assessment program. As you might have observed some of the bigger countries or groups of smaller countries have their own assessment programs, like NCAPs Latin, NCAP for Latin America, CNCAP in China, USNCAP and IIHS for the US, and European NCAP in Europe.

But in the year 2022, Mr. Nitin Gadkari said “It is highly essential for the cars that are getting sold in India to be assessed in Bharat NCAP because many lives are lost in India due to road accidents”. It also hampers the Indian economy because the people who lost their lives in road accidents are youngsters in the majority of the cases and these are the future of India. This is why Bharat NCAP will become fully operational from October 2023 and the most surprising fact is that all the major car brands in India, have already sent around 30 cars for testing all the mass market car brands have given statements in support of the Bharat NCAP.

Whether it is Hyundai, TATA Motors, Mahindra and Mahindra, Kia, or Skoda everybody is in support of Bharat NCAP and even Maruti Suzuki has said to support this initiative not only this, the executive officer of Maruti Suzuki, Mr. Rahul Bharti has said that Maruti Suzuki has already sent at least three of their cars for testing at Bharat NCAP.

But do you know, the active participation of Maruti Suzuki in this program, which is sending three cars together for testing? Is a very surprising fact, do you know why I am saying this? Because Bharat NCAP is not mandatory and through this statement, I mean that achieving a certain Bharat NCAP rating to sell cars in India is not at all mandatory. Even the brand could also choose not to send any of its cars. It's totally up to the brand whether it sends any vehicle for testing or not. This is because the job of Bharat NCAP is only to provide details to the public about the number of ratings any particular vehicle has achieved. It has become similar to the warnings written on any cigarette pack. But smoking and chewing tobacco is not at all illegal.

Is Ncap really necessary? 

Now it is not like this is the case with the Bharat NCAP only NCAP ratings are not made mandatory anywhere in the world. This means any brand can sell its vehicles without these ratings as well whether it is Euro NCAP or the American IIHS and that's why I have said that the momentary participation of Maruti Suzuki in this program and sending three of its cars for testing together is a massive fact. We observed that the performance of Maruti Suzuki in the Global NCAP has always remained poor and no magic is going to be observed in the Bharat NCAP. Because almost every testing that would be done in Bharat NCAP would follow the norms completely. As it is done in the Global NCAP testing this is because Bharat NCAP has been associated with the Global NCAP And that's why I am not going to discuss every point.

This article is not related to How Bharat NCAP is good or poor concerning Global NCAP. Or how does Bharat NCAP stand in front of Global NCAP? If you want to know about that there are ample numbers of articles on Google and even there are several videos about that on YouTube as well you can refer to them.

The main purpose of this article is that when Bharat NCAP is exactly similar to the global NCAP, and it is not mandatory as well why are so many car makers especially Maruti Suzuki participating actively in this program? Poor ratings can hamper their reputation as well, 

There are primarily two reasons for this:

1. The cost of testing is the first reason we need to discuss Global NCAP.

At Global NCAP, the procurement of vehicles is done in two ways. In one way, Global NCAP takes the vehicle anonymously from the showroom and then they test the vehicle. But it is done only when OEMs deny to provide their vehicles for testing. Like, Maruti Suzuki denied providing its cars for testing, but the majority of the car makers sent their cars for testing. Because they know in advance that their cars will perform better and every car maker from India to Germany is included. 

In this process, an executive from the Global NCAP randomly selects a car from the production line. Then the brand sends the car to the UK bearing all the costs. The car is tested in the UK three to four units of any vehicle are taken. The cost of those units, the cost of transportation of sending the cars from India to the UK, the expenses of the manpower used in the crash tests, and the cost of facilities that are going to be used. Every type of expense is to be borne by the car manufacturer and this cost is in the range of a few crores. As I have heard it takes around INR 2-3 crores. 

The cost also depends on the car And now if we talk about the Bharat NCAP. The way of procurement of cars by Bharat NCAP is exactly similar to the path of Global NCAP. Every piece of expense is to be born by the manufacturer here as well. But there lies a difference here and it is that Unlike the Global NCAP, the cars would not be sent to the UK now. But to do this, already 6-8 government-certified test centers have already been inaugurated in India. These are situated near the different auto-hubs in India Like Gurugram, Chennai, and Pune. The test centers are situated near these sites. It has been estimated that this will reduce the expense of the car manufacturer by almost 75%. This was the minor reason car manufacturers actively participated in the Bharat NCAP program.

2. Public trust in the government and car makers' advertising are the main reasons.

Due to this as discussed earlier in this article in the major car markets. The cars don't need to get a certain number of ratings in the NCAP. But still, the cars available in those markets are highly safe and the biggest reason behind this is the public's trust in these ratings. In the majority of the car markets, NCAPs were introduced many decades ago like IIHS. It was made by many insurance companies in the US. This organization became active in the year 1959 and in the year 1995, this organization also started front-end crash testing, and then gradually, many NCAPs were introduced Euro NCAP was introduced in the year 1986 and A-NCAP was introduced in the year 1983. The benefit of the early introduction of these NCAPs was that the customers of cars in these countries became highly educated about the importance of car safety. It was also because the governments of these countries were supporting these organizations and people trusted their government more than any random organization. 

Similar could be observed with Global NCAP in India and that's why without any governmental forced mandate. Only safe cars are being sold in these countries because the people in these countries don't want to buy any unsafe car and if you want an example, you can look at the recently launched Scorpio-N in Australia. When this car was launched in Australia this car was reviewed by the media of Australia. They had provided this Verdict. If you are one of those people who puts safety as one of your top priorities when it comes to buying a new car. Especially in 2023, then it not might be right for you this is probably something that disappoints me about this car there is no autonomous emergency braking. The fact that it doesn't come with any active safety is a real letdown, especially in 2023 and if this is your family car, you want your car to be as safe as possible.

Reviews of Australia

Australian reviewers are criticizing Mahindra and Mahindra for not providing a high-end safety feature like ADAS in a family car. Even though this car is available in Australia at a price of half that of Everest the Fortuner Scorpio-N competes with this car neck-to-neck. Still, they are highly concerned regarding this and in India, ADAS is not provided in 90% of the cars, and from here we can understand that due to the presence of A-NCAP in Australia for many years. The people of Australia are highly concerned about the safety features provided in cars. 

A similar is going to be observed with the Bharat NCAP in India Because here the government is testing the vehicles and now people would become highly aware of the safety provided in cars in India. Therefore, they would demand their car manufacturers to provide the government safety level sticker on the car and this is the main reason behind providing so many cars together in a short period Companies like Maruti Suzuki and Hyundai are also participating in this program. Because they know that they used to ignore the Global NCAP, they would not be able to deny Bharat NCAP because the Indian government is involved in this and I believe if every brand starts providing its car to Bharat NCAP considering it to be mandatory.

Maruti Suzuki testing for Bharat NCAP

Maruti Suzuki would also be forced to provide its cars as well in the future This can lead to two things – Either their sales would decline sharply because of poor ratings or they could become the car brand with the best safety ratings. But still, I believe that Bharat NCAP should have been made mandatory or at least some points should be made to be followed strictly like if any car obtains less than two stars. That car would not be allowed for sale in the market. The car companies that completely neglect the safety features in their cars would definitely need to follow these rules. Do let me know in the comment section whether you agree with me or not 

 You are likely familiar with various car companies' brands, such as Volkswagen, Toyota, BMW, etc. unless you have been living under a rock for the past few decades. The Japanese giant Toyota is the most prominent of these well-known companies, producing the largest number of vehicles worldwide. However, this list does not highlight the most valuable car companies. Instead, it reveals the companies that have paid the most debt globally. It is not uncommon for businesses to acquire debts to function, so being in debt is not necessarily a significant issue for these companies.

If you look closely at the list, you'll notice a peculiar trend. Out of the 12 companies listed, 6 of them are automotive companies, with Toyota being the company that has acquired the most debt at $186 billion. It's strange to see this trend persist not just in the current year, but in the past as well. In 2019, the most indebted companies also included automotive companies like VW AG, Daimler, Ford Motor Company, and BMW. Upon analyzing data from the past five years, I found that aside from major players in the automobile industry, no other industry had acquired such a large amount of debt. While telecom companies do acquire high amounts of debt, this trend is not as consistent as it is with automotive companies.

It appears that the same situation is now occurring with car companies. This raises a significant question: Why is this exception limited to car companies? Additionally, there is concern over whether these companies may face bankruptcy after acquiring such substantial loans. However, there is no need to worry about this colossal debt causing trouble for these companies, as such an outcome is highly unlikely to occur.

What is the reason for car companies to never go into debt?

Keep the thought of going bankrupt aside, Volkswagen and Toyota are highly profitable automotive brands at this point in time almost every car company acquires a particular amount of debt. Whether it is a significant company or a minor one, this is because operating a car company requires a massive amount of capital. This factor alone is not sufficient, to keep these companies in the list of the top 10 most indebted car companies from around lakhs of the automobile companies around the world. The reason behind that is the finance wings in these companies. 

Did you know that big car companies like Ford, Toyota, and Volkswagen have their own finance departments? These departments help the companies' dealers keep their stock and assist consumers in acquiring loans. To do this, car companies receive a large amount of capital from banks at a lower interest rate. They provide this capital to individuals at a slightly higher interest rate than the one at which they acquired it, resulting in a profit. Due to this approach, car companies have acquired billions of dollars in loans. Although the majority of this capital is acquired by their finance departments, there may be more to the story.

How do Indian Car companies bear the debt?

Let's understand this with two Indian car brands. TATA Motors also has a finance wing. It is called TATA Car Finance and they provide loans exclusively for TATA cars, This finance wing comes under TATA Motors. But if we talk about Mahindra and Mahindra the name of their financial wing is Mahindra and Mahindra Financial Services. But this wing does not come under the Mahindra and Mahindra car company and that's why it is listed as a separate entity in the Indian Stock Market. That's why Mahindra and Mahindra Financial Services can also provide loans on different types of vehicles manufactured by Mahindra and Mahindra and even on the vehicles of other brands unlike TATA Car Finance, etc. However, the car companies that had acquired the most amount of debt in the world provide loans exclusively on their cars just like TATA Motors. We could observe one more thing from here and it is that more car companies are present in this list. More is the amount of debt they have acquired, Toyota, Volkswagen, Ford, and Mercedes are the top companies in the world in terms of revenue we can observe here that the debt size is directly proportional to the size of the company. The bigger the brand, the bigger the debt.

Debt is directly proportional to the size of the company because these companies are selling more vehicles. As discussed earlier these car companies have to first acquire a loan from a bank. The more cars they sell, the more amount of debt these companies would acquire, That is the reason the bigger the brand, the more the amount of debt acquired by them from this, we can also understand that increasing debt figures means that these companies are performing well. 

The debt of Ford.

Since they are selling more vehicles that's the amount of debt is increasing and if we especially talk about Ford then they are escaping from going bankrupt only because of their lending firm. Do you want to know how? The sale figures of Ford is continuously declining in its home market and we can also observe internationally that they are stopping their operations in various markets one after the other. They had exited from Japan and India and are also declining in China. That's why the situation of Ford has become so critical in recent years that if they did not have any financial subsidiary. They could have reported bankruptcy according to a report published in the year 2020 The lending firm under Ford is generating 50% of the overall profit generated by Ford. This means the number of vehicles Ford is selling similar is to the profit they are earning through the interest from the loans they are providing to their customers. But usually, it is observed that the finance arm of any company generates only 15-20% of the profit for the company that's why it has been considered. In the case of Ford if they did not have any finance arm they were not capable of spending capital on the R&D of electric vehicles.

Now we understand that this mountainous debt on the car companies. Is not at all like any typical debt some car companies are even performing exceptionally but debt is acquired by almost every car company. Whether they have a financial wing under them or not are all such companies also profitable? No and from where there comes a U-turn in the story of the debt of these car companies. Now do read very carefully what I am going to say If you follow the car industry closely. You might have also noticed that apart from a few countries in the world. The majority of the countries in the world have only one or two car brands India has only two major car companies TATA Motors, and Mahindra and Mahindra. Korea also has only three major car companies Hyundai, Kia, and Ssangyong, While a country like Australia does not have any car brands and countries that had multiple or successful car companies in the past, the majority of those companies have been already sold out.

Why do car brands do not have any ownership of their own?

Let's talk about the United Kingdom Rolls Royce and Mini Cooper are owned by the BMW group. Bentley is owned by the Volkswagen group. Jaguar and Land Rover are owned by TATA Motors and this leaves only one car brand Aston Martin Its condition is so poor that It can file for bankruptcy anytime. Britain is not the only one that has such a condition. The majority of the European and American car companies have experienced this. It is considered that at one time there were around 300-400 car brands in Britain. But today it can be observed that the brands that are left today do not have any ownership of their own. This is not the case in Britain there are only two companies in the US i.e., Ford and Tesla. They have not filed for bankruptcy till now, according to a tweet written by Elon Musk The US had 1000 Auto start-ups at one time. But today all have become non-existent.

Why have so many brands shut down or been sold?

Even though they had a huge brand value. The answer is Debt other than lending departments, car companies require a tremendous amount of capital for their operations and it is considered that the car business is the toughest in the whole world. It is so difficult to operate a car company that developing a rocket and sending it to the moon is easier. Hear it from the owner of a space company car companies require heavy capital to set up their manufacturing plants to acquire the raw material, to manufacture their cars, to provide the salaries, and to ship their products as well. Apart from this, if the companies observe any problem in the whole batch of any car. They have to recall the cars, remove the flaws, and deliver them back to the customers and if I talk about the year 2023 only General Motors had recalled 6.5 Lakhs SUVs Jeep had recalled 2.19 Lakh cars. In the year 2023 alone Honda has recalled 5 Lakh cars.

Regarding the safety belt issues similarly Indian car companies have also done thousands of recalls. Alone in the year 2023, these expenses are highly diminished in front of a tremendous expense. It is also associated with the car companies and it is R&D For launching new models, And to also upgrade the current models, Automotive Brands have to spend a massive amount of capital. If you don't know, R&D stands for Research and Development apart from this, they have to spend huge capital on the R&D of the engines to continuously get stricter emission norms. Apart from this, safety norms are also getting highly strict around the world and that's why automotive companies have to spend a huge amount of capital on the R&D of both active and passive safety features the biggest transition that the world is experiencing at present. That is the world is shifting from IC Engines vehicles to Electric vehicles Car companies have to spend a huge amount of capital on this due to the same reason.

Debt of Tata Motors and Mahindra

TATA Motors and Mahindra Mahindra are the most cash-rich companies in India and come under the top 10 most indebted companies in India. Yes, because these companies also use the majority of the debt in the R&D of cars. You can observe the same in the chart car companies spend huge amounts of capital on the R&D of cars. What is the intensity of the R&D of these car companies? From this chart, we can understand that all the car companies that are present in this chart Volkswagen Group has spent the most capital on the R&D of cars. According to this list, TATA Motors has the biggest intensity in the R&D of cars, and take into account that here we are talking about the whole world, not India. Here R&D intensity means that what percentage of the sales these companies are spending on R&D of the cars? and TATA Motors has the biggest R&D intensity. This could be because the market capitalization of TATA Motors is less in comparison to the other companies present in this chart and TATA Motors is only limited to India. But obviously, since they want to grow, that's why they are spending huge amounts of money. In the R&D of their vehicles, As discussed previously almost every car brand has acquired a huge amount of debt. There is an exception as well, this brand has not acquired any amount of loan, and this company is Tesla!

How can Tesla accomplish this?

Because Elon Musk has created massive hype around him and Tesla. Due to this, the value of this company is touching the sky. A high value means that the stock price of Tesla in the stock market is very high. It is so high that the valuation of Tesla is double the valuation of Toyota. Even though Tesla has twice the brand value of Toyota. But, Toyota is far ahead of Tesla in terms of its sales since Toyota is a monstrous company. That's why the expenses of companies like Toyota are very high compared to companies like Tesla. But still, Tesla is not so small company it should have definitely acquired a certain amount of debt. However, Tesla has not acquired any debt because due to its increased share prices, they indulge in equity funding. They have acquired an almost negligible amount of debt Now, after reading this article, you might have understood, how difficult it is to operate a car company!

Next time you are about to criticize any car company blindly. You should keep one thing in mind. These companies are in a fight with many government policies and several odds as well and it takes a considerable amount of risk to deliver an affordable car to you. If you have loved reading this article please share this little piece of blog and don't forget to mention your thoughts in the comment section.