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Why the Indian Auto story is like an overrated Bollywood movie!

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The Indian Auto story is like a Bollywood movie, full of twists, turns, item numbers and emotions.

It is also very overrated!

In 2008, the auto industry in India was the center of attention of the entire world. In that year Tata motors had announced the launch of the $2000 or the 1 lakh car called the ‘Nano’. India began to be touted as the land of the frugal auto engineering. But since then the drive has skidded many times.

The challenges are many fold but the bottom line is that India has failed to live up to its potential as the auto hub of the world. It today caters mostly to domestic demand. Hyundai that had set up its plant in Chennai to cater to global demand is shifting part of its i20 production line to Turkey. Even domestic manufacturers like Bajaj and TVS are shifting manufacturing to China.

Indian Auto Industry

Why is this happening?

If you look at the reasons why India was chosen it was mainly for its cheaper labor. But now the strikes at the Maruti-Suzuki plant which were preceded by similar militant trade unionism at Honda have proven that not only is the labor unskilled, it is also unreliable.

Secondly, infrastructure problems in India continue to dog the manufacturers. Power shortages continue as India faces a huge power deficit and challenges with the coal supply chain. Also roads and ports continue to be under developed which have hampered exports.

Thirdly, many auto auxiliary companies continue to struggle with production schedules and face a huge challenge in supplying the right parts to these auto companies.

So overall India currently is not looking like an attractive destination for auto manufacturing for global export.

Domestic Challenges

The domestic market has its own challenges. In many ways the government policies have not helped either, with increasing petrol prices while continuing the subsidy on Diesel. This has led to a steep demand in Diesel vehicles catching many manufacturers like Honda on the wrong foot. Also as manufacturers try to turn to Diesel there is talk of increasing the excise duty on Diesel vehicles. Bottom line is that everyone is confused and manufacturers have decided to apply a wait and watch policy.

Also politics led to the late launch of the Tata Nano in India and I think the care has never recovered from it. Tata’s had to leave Bengal and move to Gujarat which led to delays and inflation led to changes in the pricing which have resulted in losses for Tata Motors.

Secondly, the increase is interest rates have brought the production to a halt. And thirdly, the city infrastructure in India is so poor that one can hardly call driving a pleasure, hence most auto manufacturers continue to look to India as base for smaller cars. A good example is the Nissan Micra.

In conclusion, through many promises were made the sad fact is that the Indian Auto story has been overrated for a while and is starting to go sour.

In such a scenario, I am not sure how management leaders can help to turn this scenario around. There has to be a effort at various levels but are we willing to take a long term view of this Industry?

What can be done to salvage it? Who all should be involved? What are the critical issues that need to be resolved? These can be some of the questions.

If you have any answers I am listening, please do let me know. Till then enjoy the movie….

  1. Dr Vikram says

    @ Krishna That is a very interesting perspective. Social Backwardness as a reason for Auto boom. You are probably correct and India is a very class conscious country. Maybe that is the reason for domestic demand in all sectors like real estate and even auto

  2. Krishna says

    In spite of all odds Indian Auto sector is bound to boom unless there is a cultural shift. Indians because of social stigma do not use appropriate transport but go for what is socally acceptable. eg if a CFO stays even 100 Meters from office he will not use cycle. Indian social and cultural backwardnes is in far worse shape then economic backwardness. So autos will boom.

  3. Dr Vikram says

    Sheetal

    Good point, but blaming the government. Historically the Indian auto industry kept production low to keep the demand high. One has to only see Bajaj auto as an example. Ten years waiting for a Bajaj super. Similarly there was no modification to the ambassador and premier cars for a long time. Thought the government is responsible but the private auto sector is equally to blame.

  4. sheetal says

    Good points Altaf which were missing in the post. Also the other related issues needs to be first addressed and then the Auto Sector will be on the top.

  5. Dr Vikram says

    @Altaf, totally right on all accounts. I think Infrastructure is the key and I cannot understand how policy makers can ignored the choked status of Indian roads. On another note was never sure why the inland rivers were never used.

    Brilliant points and insights. At the same time I don’t think any business can survive on the global scene without infrastructure and Auto is suffering from it as well.

  6. Altaf Rahman says

    Though what you said above covers all of the issues related to Auto industry, I am commenting from another point of view.
    If you look at progressing India as the center point and auto sector as a sub point, we will understand that so many other sub points to grow in order to have a balanced center point.
    We have seen growth explode in auto production numbers (2, 4 and multi wheeler vehicles). But we lagged behind in Road development. Expansion of roads, laying of new roads, converting high ways to 4, 6, 8 lanes has not kept pace.
    The result? More congestion. More traffic jams, more vehicles running idle, more belching of fumes, more pollution etc.
    For the sake of Over all India, I would say, India should discourage auto industry and concentrate more on Infrastructure. I am not saying that we should kill the industry. The policy should be in such a way that Auto Industry should grow only as much as Infra grow.
    Or some one kick govt on its back side to accelerate road development.

    Also there is another view to this logistics sector.

    After independence India has either overlooked or intentionally killed inland waterways. There is so much scope to develop inland waterways by regularly dredging rivers, canals that more than 25% of the cargo presently handled by Railways can be shifted to waterways. If done, it will achieve that much de-congestion on roads.

    Infact if considered seriously, the waterway transport in itself is a massive industry sector. US, Canada, Europe have developed canal systems for bulk shipments. We do not have to experiment. We can gain from their decades old experiance.

    If properly developed, India with so many rivers, interlinking canals is a mode of cargo shipment mode, public travel mode.

    Bottom line : My view is that we should not focus too much attention towards auto industry by ignoring so many other related issues.

    Just my two paisa :)

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