Auto sector: Emerging trends and challenges

AUTO GIANT: Kapil Arora, Partner - Automotive Services, Ernst & Young.

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For the commercial vehicle segment, budgetary allocation for road infrastructure development and government policy on environmental and safety norms are also important, whereas liberal credit availability will be the principal growth driver for the two wheeler and small car segments.

Going forward, volatile raw material and input costs, especially oil and steel will continue to have a pervasive impact on the operating profitability of vehicle manufacturers.

For OEMs, Successfully managing supply chain complexity, implementing low cost sourcing and lean manufacturing strategies, continuous technological innovation will be vital to achieving long-term profitability goals.

The automotive industry is a B2B, B2C industry involving large investments and a long term return on investment plans. New product launches – on time, on budget and focused on the target segment will be critical to the future success of Original Equipment Manufacturers (OEMs) and suppliers across all segments. Volatile raw material and input costs, especially oil and steel will continue to have a pervasive impact on the operating profitability of OEMs.

Successfully managing supply chain complexity, implementing low cost country sourcing strategies and continuous technological innovation will be vital to achieving long term cost mitigation goals.

As the ongoing global debate on climate change gains momentum in India, consumer groups and government will introduce legislative changes with varying incentives and time frames for compliance to reduce emissions, encouraging use of blended fuels and alternative powertrain technologies.

For example, in the US, tax credits are available to consumers purchasing environmentally friendly hybrid vehicles to offset the higher initial cost of purchase. While a commercially viable global mass-market for hybrid and alternative fuel vehicles will take another 8-10 years to evolve, leading OEMs will continue to make investments in this area over the next few years.

Although, there are no tax credits or other significant incentives to encourage use of alternative fuels or powertrain technologies in India, the government could consider these in future.

In conclusion, India will necessarily remain an integral element of the long term strategy of every significant automotive player. All players are sharpening their focus on developing and executing their business strategies to take advantage of this market which will be critical to achieving future growth and profitability. Let the race begin.