'Threat' fails to spook auto industry

US PRESIDENTIAL ELECTION

The automobile industry seemed upbeat about Barack Obama being elected the next President of the United States, notwithstanding his pre-election statements about providing tax breaks for industries that create employment within the US and denying the same for those who create employment outside the US.

Carmakers across the world and not just in the US are increasingly depending on their production bases in the BRIC (Brazil, Russia, India and China) economies to keep costs under control.

Obama’s stated intention about providing tax breaks only for those keeping jobs within the US ought to affect businesses looking outside the US. Industry pundits, however, believe that outsourcing in general, and not just in the automotive industry, is a trend that has been set in motion and cannot be reversed.

General Motors and Ford Motor Company, two of the top three carmakers in the US, have a strong base in India. With more than a decade’s presence, each of these has invested in excess of $1 billion in the country.

Interestingly, the state of Michigan, home to the world’s largest concentration of automakers, has the highest employment rate in the US at 8.9 per cent. However, job losses, quoted in popular media, run into nearly 300,000 in the recent few months.

“He (Obama) wants to put the house (US economy) in order. This in turn will be good for the US economy and therefore benefit the industry, including Detroit,” PricewaterhouseCoopers Partner Abdul Majeed said, adding: “He is only taking about retaining high-end jobs within the US and, moreover, outsourcing is a trend that cannot be reversed.”

During the pre-election fever, the Big Three in the US (including Chrysler) had asked for a $50 billion bailout in the form of low-interest loans to convert their plants to making fuel efficient and hybrid cars in place of SUVs. While the outgoing Republican Bush administration had indicated its willingness to accept this proposal from Detroit, the verdict under the new Obama administration that will take charge early next years is still open to guesses.

Speaking for the component makers of India, Automotive Component Manufacturers’ Association Director General Vishnu Mathur said, “Outsourcing is good news for the US automakers. It helps them stay competitive. Keeping production bases in low-cost countries also benefits their consumers. We will have to see how pre-election statements turn into policy-level changes.”

“In these tough times. I don’t think it is much of a benefit. Even the Republicans are working hard to get credit to the customer. The new president would have to continue with the same policies,” added Amtek Auto Chairman Arvind Dham.

Meanwhile, an executive of the Reva Electric Car Company said if Obama kept his commitment of promoting hybrids and other fuel efficient green vehicles, the US market, which was till now difficult to serve, would become easier for it to access. “We hope we could take advantage of this opportunity in the world's largest automobile market,” he said.