The biennial Indian Auto Expo laboured under a cloud: the five per cent fall in car sales in the current financial year. This puts it in a league where it does not belong - alongside Europe, Japan and Korea, all mature markets with different demographics.
But the automotive industry is very important for India: it has emerged as a globally competitive centre for car and two-wheeler manufacturing. Car exports (in numbers) have been rising at a compounded annual rate of 10.5 per cent, and two-wheeler exports at 14.3 per cent for the five-year period 2008-13. In an otherwise dismal manufacturing scenario, the automotive sector has been an exception. How can India avoid giving up this advantage?
To help evolve a strategy, the Confederation of Indian Industry has released a study, "Automotive Landscape 2025" by Roland Berger Strategy Consultants. An India update on their more elaborate 2011 global study, the report paints a fascinating scenario. Globally car ownership will rise and low-cost cars (the sort assembled in India by global players) will meet basic transportation demand, with BRIC markets in particular giving a big push to this demand. But younger people in metropolitan areas will lose interest in car ownership. New technologies defining the industry will deliver enhanced power-weight ratios and lower emissions. Large additional value will come from electronics in the powertrain and active systems built into the chassis.
Three aspects will guide the future scenario: high technology, budget and sustainability. Cars will let people stay connected; electrical and electronic systems will greatly enhance safety, help driving and aid diagnostics. The budget imperatives will come from globalisation of manufacturing - jobs migrating to developing countries with enough engineers - and material scarcity, particularly of rare earths.
Sustainability will be driven by legislation and taxes legitimised by rising environmental consciousness. Car owners will look for durability and high quality, and electric and hybrid cars will forge ahead. And there will be a bigger market for second-hand cars.
What does all this imply? Both research and development (R&D) centres and production locations will shift to BRIC markets, particularly Asia - and foremost China. Small cars will show fastest growth, putting pressure on margins. Manufacturers will go for volumes and earn a premium only by offering enhanced safety, efficiency and driving experience in small cars.
A new bogeyman will emerge - demotorisation. Car ownership rates will keep falling. In order to survive, the industry must offer integrated mobility made up of bikes, e-bikes, city bus, metro and car sharing. With car fleets surging ahead, car retailers will be threatened. In response to tougher carbon dioxide emission norms, electrification will grow in all modes like hybrids, pure electric drive and fuel cells. Cars will be perpetually online and always connected. Collision warning, driving assistance, autopilots, travel information and electronic pay systems will be familiar features.
To deliver all this, new business models will emerge. Car sharing will become serious business and there will be more fleet ownership. Business organisations will be simultaneously global and local - the former to amortise R&D costs and the latter to meet customer preferences. Only the flexible organisation will survive.
What will all this mean for India? Powerful R&D will be essential for survival. With low R&D spending, the only way India will latch on to the future is by hosting R&D services for global players and gaining through spread of knowledge by association. It is already doing so. Mercedes-Benz and General Motors, among others, are well established. Own R&D-driven product development is also happening - which is taking Bajaj Auto places and giving confidence to Hero after parting with Honda.
As India's gross domestic product (GDP) will be nudging Germany's, domestic demand, though way behind China's, will be the main engine of growth - but that demand will have to be addressed differently. Car makers will have to embrace ever higher safety and emission norms to enhance car ownership (don't be stingy over airbags). Further, they will have to play an active role in both car pooling and multimodal transport. For example, car and information technology (IT) companies could join hands and develop a payment system that loads value on to a smartcard that can be used to pay for an auto-rickshaw, bus, metro and taxi ride in a single trip.
The government will have several roles. Bring together all players to enable a multimodal transportation system - make the auto-rickshaw drivers' union and bus owners syndicate talk to each other. Help bring in non-polluting technologies through an initial subsidy - as with subsidised CNG for public transport, incentivise electric scooters. And finally, train even more engineers to meet the demand from the auto industry after satisfying IT.
If India is to reap the benefits of having a powerful entrepreneurial class (the likes of Rajiv Bajaj and Anand Mahindra), it will have to overcome its low technological prowess. There also the government role will be decisive through fostering better research at universities and institutes - in which China is miles ahead.
subirkroy@gmail.com
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