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.
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….