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INDIAN AUTOMOTIVE INDUSTRY: GLOBAL SCENARIO

Posted by Connie R. Aponte on November 21, 2013 in Automotive industry |

GLOBAL SCENARIO

In the initial years, most of the manufacturing activities were concentrated in the USA and in some of the European countries. Though, these countries still account for a significant share in the production, more and more volume of production comes from other parts of the world, like China, Japan and Korea. Around three-fourths of the global production is being carried out in top 10 producing countries, in 2007. Of these, Japan, USA and China, cumulatively constitute over 40% of global production.

The last decade has experienced a growing level of motorization, as reflected by the production of automobiles. According to OICA, Japan is the largest producer of cars in the world followed by China, Germany, USA, South Korea and France. India ranks 9th in the production of cars in the world ahead of UK, Canada, Russia and Mexico. USA is the largest producer of commercial vehicles; close competitors in production of commercial vehicles are China, Japan, Canada, Thailand and Mexico. India ranks 8th in the production of commercial vehicles and is ahead of countries like Brazil, Germany, France and Turkey.

Select Trends in Global Automotive Industry

Addressing the Challenge of Volatility in Fuel Prices. One of the major challenges of the world automotive industry is the volatile oil prices. The year 2008 witnessed crude oil prices breaching the US $ 140 mark per barrel, and thereafter slipped below US $ 40, in the later part of the year. The volatility in oil prices does not directly affect the growth in automotive industry; however, volatility in oil prices is one of the influential factors in automobile demand. In order to address the challenge of volatility in oil prices, the automotive industry is innovating new technologies and inventing usage of alternative energy. Hydrogen cars, driven either by a combination of fuel cells and an electric motor; hybrid electric technology; electric vehicles with rechargeable batteries; or alternatively, compressed air technology to drive the pistons in a specially designed engine, are thought to be replacing fossil fuel- powered motors in the decades to come.

Emergence of New Generation Automobiles

Innovation is expected to drive the automotive industry in future as the producers are involved in differentiating their products and services. There are already growing interface of electronics and IT in the automotive functionalities, such as entertainment, navigation and safety. According to a survey, conducted by IBM across the auto- majors, majority of them felt that by 2020 the level of innovation would be greater in software and electrical systems of automobiles. It is also expected that by 2020 the vehicles may become another node on internet, connecting with other vehicles, the transportation infrastructure, homes and businesses. However, there are challenges associated with this trend, with regard to consumer acceptance, technological development and adoption of standards.

Supply Chain Management in the World of Global Sourcing

Global auto-component firms are giving greater level of thrust in supply chain management to address the challenge of cost pressures. This is particularly important in the context of global sourcing. Though there is a perceived belief that global sourcing helps in reduction of cost of components, there are logistical challenges. Thus, it is being recognized that collaboration between the OEMs and component producers are crucial to develop capabilities and solve the challenges associated with global delivery, especially in the areas of inventory management, scheduling, and timely delivery. In addition, both OEMs and suppliers view that the collaborative efforts in supply chain management enhances the capacity and performance visibility[6].

Customer Management Systems

Earlier, automotive manufacturers had to get feedback from the customers through intermediaries, such as vendors or service workshops. This trend has been changing with the introduction of customer management systems through ICT interface. Even vehicle buyers are also browsing the net to know the features of a new model, evaluate them with the existing models, and compare the prices. IT firms are developing customer relationship management (CRM) tools that help the manufacturers to realise and optimize individual customer value, increase the post-warranty service retention, predict model demand and provide supply chain solutions.

Growing Small Car Segment

The volatility in crude oil prises witnessed during the year 2008 re-emphasized the need for small and fuel-efficient vehicles. Some of the automobile majors have plans to hike their R & D budget for designing of small and fuel efficient vehicles. Added to this is the need for reduction in prices to target the middle income groups of population /new buyers, especially in developing countries like India, where the vehicle penetration is low as compared to the population. An auto research firm CSM Worldwide Inc. has estimated that global demand for small cars would grow by 30% per annum to 27 million vehicles a year by 2013. The fast- growing small cars market has encouraged several global automajors (such as Renault, Toyota, and Nissan) to plan for launch of small cars.

Green Motoring

Automobile manufacturers are increasing the thrust on fuel efficiency than before; the initiatives are mainly through improvements in technology and introduction of new fuel variants, thereby reducing toxic emissions. It may be mentioned that China, the EU, Japan and the USA have already established fuel economy rules or agreements of varying stringency. The FIA’s declaration for green motoring has set a fuel economy target of 140 gCO2/km for passenger cars. Such a global fuel economy target could be used as an international benchmark to assess progress in the fuel efficiency of the global fleet of new motor vehicles. Some countries are also undertaking ‘Green Rating’ of automobiles[7].

Cross Border M&A Deals

The global automotive industry is increasingly getting more active in cross border mergers and acquisition (M&A) deals. On a global basis, the number of cross- border deals has grown in the past few years, and this trend is expected to continue after the recovery of economic activity in the world. The expansion outside the home markets of some of the major automotive companies from traditional low-cost countries, such as China and India, is bringing in new capital and a fresh look at certain sectors of the automotive market. With the recession in the US market and its consequent impact in other markets, automotive assets in developed countries are becoming attractive to buyers from emerging economies, as well.

Entry of Private Equity Players

The traditional funding model in the automotive industry is slowly being replaced with aggressive funding structures. There has been a structural change in the automotive industry with the entry of private equity players in the past. Traditional and family-owned businesses were taken over by the private equity players and hedge funds, which are expecting more profit or investment realization from the industry. Though the business activities of private equity players have come down, following the financial market meltdown, this is expected to be revived soon, either when the market sentiments improve or once consolidation happens among the private equity players.

Growing Collaboration for Technology Enhancement

Technology-enhancing collaboration in the automotive sector helps in preserving design integrity, despite minor engineering adjustments. There are also software/ programmes that make the global data sharing possible among designers, engineers, suppliers, partners and even customers. Such better and faster integration of design / engineering ideas help in necessary adjustments and adaptations in designs to suit the requirements.

Trendy Cars, Shorter Life-spans

An automobile is a highly- engineered collection of complex components, each of which has its own lifespan and longevity characteristics. While some components require frequent replacement, others that are relatively expensive are expected to have longer lifespan to justify the economics of a vehicle buyer. However, change in fashion and design trends may outweigh the pure economics, which may lead to planned obsolescence. In the world of changing fashion trends, auto manufacturers are developing new designs meeting the changing consumer preferences. More frequently the new models are introduced, the shorter will be the life span of the old models.

Preserving Brand Identity

With growing mergers and takeovers in automobile industry, players are carefully devising strategies to strengthen the backroom operational synergies, in terms of common logistics and supply chain management, but avoid losing the brand identities. A group owning different brands prefers not to use the same platform that has same kind of technology, management, and designers to preserve the brand identity. In this sense, the automobile sector is different from monolythic branding strategies of consumer goods.

Design for Recycling

It is being increasingly realized that natural resources of the earth are depleting fast. Hence, there is a growing concern amongst manufacturers as also the consumers to conserve the resources; one such way is through recycling. The automobile industry is one of the pioneers in usage of recyclable materials. Also, the rising input prices are making the automobile manufacturers to design the vehicles that can be easily recycled.

Emergence of Design Studios

As efficiency in design and manufacturing improves, vehicle manufacturers across the world are focusing on making models for niche market, though the sale would be in lower volume. This is in contrast to the earlier strategy of designing models for mass consumption. With the increase in number of models to be designed and developed, auto majors are outsourcing the designing jobs to independent design studios who take care of the design and execution of the process management in the value chain.

Outsourcing

Stiff competition to enhance the market share forces the OEMs in developed countries to outsource their engineering requirements to low cost countries like India. Global auto-majors such as General Motors, Ford, Toyota, BMW are increasingly outsourcing the vehicle design and engineering services to developing countries such as India, either through their captive centers or through third-party vendors. Long term trends indicate that global auto-component outsourcing from the US is expected to reach US $ 25 billion by 2015, and India, China and Mexico are likely to benefit the most from such trend. An online survey conducted by A T Kearney, revealed that around one-fourth of global automajors have considered India as a favorable destination for automobile-engineering outsourcing.

Advanced RFID Practices in Auto Manufacturing

RFID has been in use in the automotive industry for several years, though to a limited extent. The trend is changing now with adoption of technology in wide variety of applications, the dominant being vehicle entry and security. According to a study by ABI Research, 40% of new cars manufactured in North America are equipped with RFID immobilizers and the worldwide revenue generated by this application alone was estimated to be US $ 3.7 billion. In addition, RFID solutions are increasingly being used in automobile manufacturing processes and supply chain applications.

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