Aug. 6, 2007
Inside India: How Indians view their automotive future
ANN ARBOR, Mich.—India is expected to be one of the top 10 countries in vehicle sales by 2015, but it must overcome major obstacles to continue its rapid growth in the automotive industry, according to a new study by the University of Michigan's Transportation Research Institute (UMTRI) and IBM.
Bruce Belzowski, associate director of UMTRI's Automotive Analysis Division, says that India's path to automotive success requires a strong partnership between industry and government.
The world's second-most populous country, with more than 1.3 billion people, faces such challenges as the need for a better transportation infrastructure, improved product quality, more skilled workers, changes in labor and tax regulations, and the need to increase the scale of their domestic companies to meet the demands of the global auto industry.
"Despite these obstacles, India's executives and experts are optimistic about their ability to overcome these challenges and make India an important destination for automotive production and sales," Belzowski said. "We believe this optimism stems from the contrast between India's past economy and its present state, particularly from the government's increasing encouragement of the automotive industry."
Belzowski and colleagues Allan Henderson and Penny Koppinger of the IBM Institute for Business Value surveyed Indian auto executives and experts from government, industry and academia on a wide range of issues, including India's future market and industry structure, relationships between domestic auto companies and their foreign joint venture partners, and challenges in the areas of infrastructure, air quality and oil security.
The number of vehicles sold in India during the 2006-2007 fiscal year was about 1.4 million, but industry executives expect sales to double to 2.8 million by 2010 and triple to 4.2 million by 2015.
"Compared to domestic sales numbers in the rest of the world, especially China, which has a similarly sized population, India sells a low number of four-wheeled vehicles," Belzowski said. "And the gap between China and India is not expected to close in the near future.
"But while China's financial institutions are still in the process of modernizing, India's are already mature. India has a financial loan system for purchasing vehicles that can serve as the basis for the development of India's automotive industry for years to come."
Among the study's key findings:
• Indians view design, development and manufacturing of small, inexpensive cars (especially the inexpensive "1 lakh car" for about $2,500) as their country's global niche and also as a way to fulfill the needs of India's domestic buyers. Because two-wheelers (motorcycles, mopeds, scooters) represent almost 75 percent of the current vehicle population, manufacturers hope to steer consumers toward four-wheeled vehicles.
• Acceleration of road construction and traffic law enforcement are key areas for improvement because of the impact of traffic congestion on consumer purchasing patterns. Port capacity for exporting vehicles must also be improved.
• India must strengthen its research and development capability. To be a global player, it must be considered an innovative designer of vehicles and components. India's protection of intellectual property makes the country an attractive destination for R&D investment.
• Each company's ability to provide superior after-sales service may determine their competitive sustainability in the domestic market.
• While India has world-class suppliers, it must develop the capabilities of its entire supplier base to support improved quality and low-cost delivery.
• Costs must be contained. India has a reputation for low-cost production, but wages and infrastructure costs, such as electricity and shipping, are starting to rise.
• The Indian auto industry is starting to suffer from a shortage of skilled labor. Labor laws and regulations appear to be hampering how companies manage their business.
• Combating air quality, oil dependency and congestion issues should be a coordinated effort between government and industry.
Overall, Belzowski says that recent growth in the Indian auto industry has been impressive.
"Some manufacturers and suppliers are already reaching global levels of quality and the government seems committed to supporting the industry," he said. "However, India's domestic market is still relatively small and India's manufacturers and suppliers are not yet universally recognized as strong global players.
"Even so, the recent industry growth and development, along with the government's commitment of support, are strong reasons for optimism about India's future automotive success."
Related Links: More information on Belzowski
Contact: Bernie DeGroat
Phone: (734) 647-1847
Related Categories: Business
Related Keywords: automotive |
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