Globally, the automotive sector is in transition in many markets. While it is growing significantly overall, major differences in market dynamics exist by geography. The US market is experiencing poor profitability, industry consolidation, restructuring and spin-offs.
Market share dominance is shifting from the traditional Big 3 US OEMs to other Asian-based manufacturers and suppliers. The emerging markets, particularly India, China and Russia have seen frenzied activity over the last few years.
India is the second largest two wheeler market, fourth largest passenger vehicle market and the largest three wheeler market in the world. By industry estimates, it is expected to contribute approximately 10 per cent to India’s GDP by 2016.
In the immediate future, the market likely to witness intense competition with leading global OEMs as well as Indian vehicle and component manufacturers aggressively showcasing their product portfolios and hoping to translate the much hyped potential of the Indian marketplace into higher market share, revenues and profitability.
Driving this phenomenon is the continued growth of the Indian economy, reflected in increased consumer spending and growing disposable incomes of a vibrant and an aspirational middle class.
Of all the segments in the Indian auto space, the passenger vehicle segment will probably witness the most intense market action with introduction of nearly two dozen new models and variants. The entry level segment will be redefined owing to the introduction of a car priced under $ 3,000 in early 2008. Several first-time buyers will graduate from the two wheeler market to this base segment.
While the number of vehicles will grow rapidly, the related road infrastructure will face added pressure to sustain the increased vehicular movement, particularly in the major metros.
All market participants will have to quickly rethink and alter their own pricing strategies and product portfolios to combat the challenge. Notwithstanding the competition, several players have announced plans to enter this segment and are forging new joint ventures and alliances. While it is difficult to track consumer habits in a rapidly evolving market, price competitiveness will certainly remain a critical success factor.
The mass market consumers are likely to make product selections based on the price competitiveness, fuel efficiency and liberal credit availability. Valued added features, more lucrative sales incentives to dealers, extended warranty coverage will emerge as some of the means to retain and increase market share in this extremely price sensitive market segment.
Key expectations of the automotive sector from the forthcoming budget include policy support through adoption of a uniform excise structure for passenger vehicles, providing tax benefits for development of alternative fuels and powertrain technologies and extending liberal credit to the agricultural sector for purchase of tractors.
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For the commercial vehicle segment, budgetary allocation for road infrastructure development and government policy on environmental and safety norms are also important, whereas liberal credit availability will be the principal growth driver for the two wheeler and small car segments.
Going forward, volatile raw material and input costs, especially oil and steel will continue to have a pervasive impact on the operating profitability of vehicle manufacturers.
For OEMs, Successfully managing supply chain complexity, implementing low cost sourcing and lean manufacturing strategies, continuous technological innovation will be vital to achieving long-term profitability goals.
The automotive industry is a B2B, B2C industry involving large investments and a long term return on investment plans. New product launches – on time, on budget and focused on the target segment will be critical to the future success of Original Equipment Manufacturers (OEMs) and suppliers across all segments. Volatile raw material and input costs, especially oil and steel will continue to have a pervasive impact on the operating profitability of OEMs.
Successfully managing supply chain complexity, implementing low cost country sourcing strategies and continuous technological innovation will be vital to achieving long term cost mitigation goals.
As the ongoing global debate on climate change gains momentum in India, consumer groups and government will introduce legislative changes with varying incentives and time frames for compliance to reduce emissions, encouraging use of blended fuels and alternative powertrain technologies.
For example, in the US, tax credits are available to consumers purchasing environmentally friendly hybrid vehicles to offset the higher initial cost of purchase. While a commercially viable global mass-market for hybrid and alternative fuel vehicles will take another 8-10 years to evolve, leading OEMs will continue to make investments in this area over the next few years.
Although, there are no tax credits or other significant incentives to encourage use of alternative fuels or powertrain technologies in India, the government could consider these in future.
In conclusion, India will necessarily remain an integral element of the long term strategy of every significant automotive player. All players are sharpening their focus on developing and executing their business strategies to take advantage of this market which will be critical to achieving future growth and profitability. Let the race begin.
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