Not a smooth ride for automobile

Even as Indian IT services are breaching roof in their northward journey, here comes news not so sweet for automotive sector. The industry of wheels cannot vroom out on the growth path unless it overcomes the issues that have come as potholes in the way to slowdown the march.

Not surprisingly, among the major inhibitors, poor infrastructure takes the topmost rank. Though IT is playing a key role in fuelling the growth, not so friendly government policies decelerating the speed. That is what the study conducted by IBM in association with University of Michigan has to say.

IBM and the University of Michigan have released a new study titled "Inside India - Indians view their automotive future," an analysis of extensive research and interviews conducted with the Indian automotive executives and experts from the government, industry and academia. The study was jointly conducted by the Automotive Analysis Division at the University of Michigan Transportation Research Institute (UMTRIAAD), and IBM's Institute for Business Value (IBV), to highlight the rapid growth & challenges of the Indian automotive industry.

According to the study, if India is to meet the demands of the global automotive industry and evolve in to a destination for automotive production and sales, it will need to consider the following:

• A better transportation infrastructure;
•  Improved product quality;
•  More skilled workers;
•  Changes in labor and tax regulations;
•  An increase in the scale of exports of automotive companies.

The study, a dipstick for Indian market potential, was apparently in search of a lipstick that can give cosmetic sheen to the automobile industry.

"This study is a result of IBM's underlining focus to recognize each & every aspect of our customers' business, Industry issues, concerns & challenges," said Rajesh Nambiar, Vice President & General Manager - Global Delivery, IBM India." It is this industry knowledge, that we combine with our innovative solutions, to help vehicle manufacturers, suppliers and retail networks deliver shareholder value and achieve operational excellence. Through years of expertise and research in the automotive industry, IBM and IBM Business Partners have built a flexible and reliable portfolio of software, hardware, IT services, development platforms and innovative tools. With studies like this, we further strengthen our market know-how & intelligence."

Government holds the key

If the study is a pointer the needle is distinctly towards the government. The indicator shows that the initiatives from the power corridor are not potent enough to lift the industry to the peaks, which it rightly deserves.

A significant study finding is that the country's infrastructure, air quality, and oil supply are possible inhibitors to the growth of the domestic automotive market. Despite large investments in highways, connections between rural and urban cities are still lacking. Acceleration of road construction and traffic law enforcement is a key area for improvement because of the impact of traffic congestion on consumer purchasing patterns. Executives interviewed for the study are convinced that the current port facilities can neither support large numbers of vehicle based exports nor oil imports required to meet India's automotive goals. Some executives believe electricity price deregulation will accelerate investment in power generation and allow the industry to meet domestic and global expansion goals.

"There is no doubt the Indian government will play an integral role in shaping the automotive industry and its future. The Automotive Mission Plan (AMP), created by the government could be construed as a step in the right direction as it outlines development goals till 2016. More importantly, it clearly describes the role of the government in supporting the industry, especially through improved infrastructure, tax, and labor law revisions. During our study, most of the interviewees were unanimous when it came to the optimism about government's support for the growth of the industry," comments Bruce M. Belzowski, Assistant Research Scientist & Associate Director, University of Michigan Transportation Research Institute.

According to Sanjay Rishi, Global Automotive Industry Leader, Global Business Services, IBM, "Buoyed by a strong domestic appetite and robust growth of exports, the Indian automobile industry is witnessing strong growth, and could be the 7 th largest by 2016. The opportunity is tremendous, and it's important that the industry develops a holistic approach tailored to help overcome key challenges and growth inhibitors. Today, IT plays a key role in fuelling the growth of businesses - and for us this study serves as an important tool to understand how we can help the auto sector innovate for greater success."

Cartelistic vehicle financing

India's mature vehicle financing system provides important support for the growing auto industry. Forty percent of the interviewees stated that financing plays a major role in vehicle sales and will change only marginally in the future. However, they cited two areas that may affect future growth: the ability of financial institutions to assess risk of potential countryside buyers and lowering interest rates to match Western countries.

While present purchasing priorities revolved around such factors as price and fuel economy; a very different picture emerged when interviewees predicted the main vehicle purchasing factors over the next five to ten years. According to the interviewees, a greater emphasis will be placed on the brand image and status as well as the increased buyer sophistication in evaluating what a vehicle has to offer. They believe consumers will strike a balance in terms of performance, features, and safety, while at the same time consider the price and fuel efficiency of a vehicle. The increasing importance of status and brands may signal a developing car culture.

Small cars towards sunshine

Most interviewees are convinced that India can become the global hub for the development of small, inexpensive cars. They expect this expertise to translate into industry growth through the expanded presence of the major global manufacturers and suppliers in India and eventual exports to all countries. But they report significant challenges in exporting from India in the form of managing global supply chain logistics, improving local road and port infrastructure, increasing manufacturing scale, and building resources to support potential global warranty claims.

Self-reliance is the savior

India's inability to undertake automotive R&D is perceived to be a gap between the domestic players and the competing international companies. Many Indian players, in fact, rely on foreign companies for technology. If India is to compete with established global manufacturers and suppliers on the world stage; then it needs to get on par with those competitors in terms of scale, quality, and delivery capability.

There is a growing concern amongst automotive industry executives when it comes to joint ventures and their success in the country. While manufacturing, purchasing, and product adaptation are considered the most successful JV collaboration areas, the major problem area seems to be in research and development (R&D). Interviewees seem to think foreign companies are withholding important knowledge and technology.

The study also pointed out the need for Indian automotive suppliers to move upward from simple components, to more complex components, and finally to whole modules or systems. The future focus for suppliers will need to be at keeping costs low, increasing quality levels and increasing the number of skilled employees. Also, a friendly supplier business environment, especially intellectual property protection, is seen as very important.