Challenges for the Indian automobile industry
As we move into the new millennium, the Indian Automobile Industry faces some tremendous opportunities and also great challenges. The growth in automobile sales has been impressive for the past ten years since liberalization began.
However, with liberalization, the Indian customer has been presented with a wide range of choices in automobiles, to suit every requirement and budget. The market has turned into a buyers market where the customer is being wooed by the manufacturers and the dealers with a range of freebies unheard of before in India. Financing has become so easy that an automobile is within every aspirant's reach.
Competition has meant that manufacturers' margins have been squeezed severely and they are all under pressure to cut costs to be profitable and competitive.
Some of the older manufacturers like Premier Automobiles (manufacturers of Premier cars), Automobile products of India (manufacturers of Lambretta scooters) and Ideal Jawa (manufacturers of Jawa and Yezdi motorcycles) have closed shop.
Hindustan Motors (manufacturers of Ambassador and Contessa cars) is in trouble due to the declining sales of its car’s, as most customers prefer the newer models available in the market.
Even the dominant player Maruti has seen its market share decline rapidly due to its models being old and jaded and is in addition facing labour problems in its plant.
To add to the problems, come April 2001, under the WTO agreement, India will have to permit import of fully built automobiles, which hitherto was not permitted.
The foreign manufacturers such as GM, Ford and Daimler Chrysler will almost certainly import vehicles from their large portfolio of models and makes, further segmenting the market into niches, although how competitive they are in terms of price remains to be seen.
The challenge before the industry is to figure out the strategy for survival and growth. It is clear from the picture painted above that the industry will have to increase volumes in each segment to achieve lower cost of manufacture.
One way to achieve this will be to go for exports in a big way. Maruti is already exporting vehicles, as are Mahindra, Telco, Daimler Chrysler and more recently Daewoo. The overseas markets will have to be exploited more aggressively, but this will mean the companies will have to invest more in Research and Development of new models with better features.
The second opportunity is to become contract manufacturers for overseas companies. A number of Japanese and Korean companies have been following this strategy very successfully. Hindustan Motors is said to be considering this option.
The third opportunity is to overcome the vulnerability of the automobile market to oil prices by designing vehicles, which can offer lower fuel consumption. Recent reports suggest the government is exploring the possibility of introducing Gasohol, which is a mixture of Petrol and Alcohol. Gasohol has been very successful in Brazil.
Since Alcohol is a by-product of the Sugar industry (of which India has the worlds largest), this is a very logical step that should have been taken many years ago. Even a small percentage reduction in the consumption of petroleum per vehicle can make a big difference to the balance of payments.
The industry must focus its R&D efforts in line with the global trends, which is to build vehicles that are considerably more fuel efficient and less polluting. With growing awareness among the public about pollution and the effective campaigns carried out by the NGO's, this will increasingly become an important selling feature.
It was surprising to see how the industry kept stalling the introduction of pollution norms for vehicles on the pretext that they needed more time to get the technology. Even Maruti despite its foreign affiliation was caught off guard when the Supreme Court finally ruled that all new vehicles should strictly adhere to the Euro II norms.
The inadequacy of road infrastructure in India is well known. This is compounded by the fact that traffic management is very poor or non-existent and the drivers are mostly ill trained and in disciplined. As more vehicles come on the road, this will become a major bottleneck. The industry will need take initiatives firstly to train all drivers in safe driving and proper road discipline and manners.
They will also need to assist government agencies in better road design and in building of multilevel parking lots. Training of police personnel in better traffic management and advising them on better equipping themselves to deal with various problems will also have to be done.
In terms of the world averages, India's vehicle density is very low and if we have to achieve those density levels, the industry can look forward to a bright future. However in the industry's interest care must be taken to see that we also achieve the safety and convenience levels of using automobiles.
As we move into the new millennium, the Indian Automobile Industry faces some tremendous opportunities and also great challenges. The growth in automobile sales has been impressive for the past ten years since liberalization began.
However, with liberalization, the Indian customer has been presented with a wide range of choices in automobiles, to suit every requirement and budget. The market has turned into a buyers market where the customer is being wooed by the manufacturers and the dealers with a range of freebies unheard of before in India. Financing has become so easy that an automobile is within every aspirant's reach.
Competition has meant that manufacturers' margins have been squeezed severely and they are all under pressure to cut costs to be profitable and competitive.
Some of the older manufacturers like Premier Automobiles (manufacturers of Premier cars), Automobile products of India (manufacturers of Lambretta scooters) and Ideal Jawa (manufacturers of Jawa and Yezdi motorcycles) have closed shop.
Hindustan Motors (manufacturers of Ambassador and Contessa cars) is in trouble due to the declining sales of its car’s, as most customers prefer the newer models available in the market.
Even the dominant player Maruti has seen its market share decline rapidly due to its models being old and jaded and is in addition facing labour problems in its plant.
To add to the problems, come April 2001, under the WTO agreement, India will have to permit import of fully built automobiles, which hitherto was not permitted.
The foreign manufacturers such as GM, Ford and Daimler Chrysler will almost certainly import vehicles from their large portfolio of models and makes, further segmenting the market into niches, although how competitive they are in terms of price remains to be seen.
The challenge before the industry is to figure out the strategy for survival and growth. It is clear from the picture painted above that the industry will have to increase volumes in each segment to achieve lower cost of manufacture.
One way to achieve this will be to go for exports in a big way. Maruti is already exporting vehicles, as are Mahindra, Telco, Daimler Chrysler and more recently Daewoo. The overseas markets will have to be exploited more aggressively, but this will mean the companies will have to invest more in Research and Development of new models with better features.
The second opportunity is to become contract manufacturers for overseas companies. A number of Japanese and Korean companies have been following this strategy very successfully. Hindustan Motors is said to be considering this option.
The third opportunity is to overcome the vulnerability of the automobile market to oil prices by designing vehicles, which can offer lower fuel consumption. Recent reports suggest the government is exploring the possibility of introducing Gasohol, which is a mixture of Petrol and Alcohol. Gasohol has been very successful in Brazil.
Since Alcohol is a by-product of the Sugar industry (of which India has the worlds largest), this is a very logical step that should have been taken many years ago. Even a small percentage reduction in the consumption of petroleum per vehicle can make a big difference to the balance of payments.
The industry must focus its R&D efforts in line with the global trends, which is to build vehicles that are considerably more fuel efficient and less polluting. With growing awareness among the public about pollution and the effective campaigns carried out by the NGO's, this will increasingly become an important selling feature.
It was surprising to see how the industry kept stalling the introduction of pollution norms for vehicles on the pretext that they needed more time to get the technology. Even Maruti despite its foreign affiliation was caught off guard when the Supreme Court finally ruled that all new vehicles should strictly adhere to the Euro II norms.
The inadequacy of road infrastructure in India is well known. This is compounded by the fact that traffic management is very poor or non-existent and the drivers are mostly ill trained and in disciplined. As more vehicles come on the road, this will become a major bottleneck. The industry will need take initiatives firstly to train all drivers in safe driving and proper road discipline and manners.
They will also need to assist government agencies in better road design and in building of multilevel parking lots. Training of police personnel in better traffic management and advising them on better equipping themselves to deal with various problems will also have to be done.
In terms of the world averages, India's vehicle density is very low and if we have to achieve those density levels, the industry can look forward to a bright future. However in the industry's interest care must be taken to see that we also achieve the safety and convenience levels of using automobiles.