The Hindu Business Line : India could become global hub for developing small cars: Study

Pune, July 10 “Can India do for the automobile industry what it had done for the telecom revolution?”. This is what IBM and the University of Michigan have focussed in their new study titled ‘ Inside India — Indians view their automotive future’.

Releasing the findings of the study, Mr Rajesh Nambiar, Vice-President and General Manager, Global Delivery, IBM India, and Mr Sanjay Rishi, Global Automotive Industry, Global Business Services, IBM, said that if India is to meet the demands of the global automotive industry and evolve into a destination for automotive production and sales, it must have better transportation infrastructure, improved product quality, more skilled workers, changes in labour and tax regulations and an increase in the scale of exports of automotive companies.

Vehicle financing

One of the key observations in the study was the mature vehicle financing system. It provides support for the industry and 40 per cent of executives interviewed for the study said that financing played a major role in vehicle sales and would change only marginally in future. However, they pointed out that two areas that could affect growth were the inability of the financial institutions to assess risk of potential countryside buyers and lowering interest rates to match the Western countries. The study pointed out that while the existing purchasing priorities revolved around factors such as price and fuel economy, the main purchasing factor over the next five to ten years,would be the brand image and status as well as the increased buyer sophistication in evaluating what the vehicle has to offer.

According to the interviewees, consumers would strike a balance in terms of performance, features and safety while at the same time consider price and fuel efficiency of the vehicle. The study noted that India could become the global hub for the development of small and inexpensive cars. But the significant challenges in exporting from India come in the form of managing the logistics, improving local road and port infrastructure, increasing manufacturing scale and building resources to support potential global warranty claims.

The domestic market forecast is cautiously optimistic, the study said.The optimism is based on CAGR since 2001 of 15.4 per cent for four-wheelers and 13.3 per cent for two-wheelers. The industry estimates a doubling and tripling of four- wheeler sales by 2010 and 2015 respectively. The number of four-wheelers sold in 2006-07 was about 1.4 million and a doubling (2.8 million) and tripling (4.2 million) would make India one of the top ten countries in terms of vehicles sales.

The study has also brought to the front the country’s inability to undertake automotive research and development and is perceived as a gap between the domestic and the competing international companies.

It pointed out that many Indian companies relied on foreign companies for technology and if India is to compete it needs to be on par in terms of scale, quality and delivery capability. The need for the Indian automotive suppliers to move upwards from simple components to more complex components and finally to whole modules or systems.

The future focus for the suppliers need to be keeping the costs low, increasing quality levels and increasing the number of skilled employees.

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