Auto Industry in a Consolidation and Restructuring phase

May 12, 2010 7:05 am

Auto Industry in a Consolidation and Restructuring phase
 
“The demand in developing economies is projected to outstrip that of the developed economies. It is expected that emerging economies will overtake triad markets to become the auto demand hub in the world in the next few years.”
 
While releasing the Strategy Paper on the Growth of Auto & Auto Component Exports, Dr. Rahul Khullar, Commerce Secretary, informed that the global automotive industry is in transition in many key markets and the consolidation and restructuring issues relating to regulatory compliance & risk management, climate change and other trends are creating significant transitional challenges and opportunities throughout the automotive value chain. He said that the Strategy paper gives a holistic analysis of both the global and Indian auto industry. The strategy paper was commissioned by EEPC India and carried out by Ernst & Young.
 
Dr. Khullar said there is a need to expand target market and added that in the light of the recession in the developed world and narrow focus of India’s Auto Vehicle exports, it is necessary to target newer markets where India has marginal penetration presence to accelerate the exports momentum and increase the exports in those countries. The Secretary also emphasized that India needs to enter into trade agreements with identified thrust markets. “The Strategy paper makes the point that success of past trade agreements has been limited due to the restrictive nature of PTAs that cover only a small cross section of goods rather than the FTAs/CECAs that other low cost competitors such as Mexico and Thailand have entered. The FTA with ASEAN, CEPA with Korea and CECA with Singapore are, therefore, steps in the right direction and need to be undertaken for all the identified thrust markets in the order of priority to enhance India’s trade”, he added.
 
The broad objectives of this Strategy Paper are as follows:
•      Understanding the issues and challenges facing Indian automotive exporters and recommending solutions
•      Identifying the opportunity arising for the Indian automotive industry
•      Identifying the major products and markets Indian exporters need to focus
•      Setting aspirations for the growth of Indian automotive exports over the next five years
•      Laying a strategic framework that the Indian automotive industry, EEPC INDIA and government bodies need to follow to achieve these aspirations.
 
Highlights of the report:
The Indian Auto and Auto Component industry accounts for around 18% of India’s total engineering exports. In the aftermath of the global economic crisis, the auto industry in the developed world faced a major crisis with shakeouts amongst the big auto players. It was in this context and to analyze the emerging trends in the Auto sector, EEPC India felt that there was a need to develop a strategic action plan for the growth of the Auto and Auto components exports of India during the next five years.
 
The recent financial tsunami has significantly impacted the global automotive industry with most of the developed economies witnessing a sharp decline in sales volume. The auto industry in the developing economies such as China, India, Brazil etc have also been hit by the global economic recession but they have remained relatively less affected when compared to the developed countries.
 
The demand in developing economies is projected to outstrip that of the developed economies. It is expected that emerging economies (ILC: India like countries—Brazil, Russia, China, Mexico, Thailand, Turkey and Korea) will overtake triad markets (Japan, United States, and Western Europe) to become the auto demand hub in the world in the next few years.
 
With a burgeoning working population, rising disposable income and changing spending pattern, affordable finance backed with strong macroeconomic fundamentals India is fast becoming one of the favored global destinations for automobile manufacturing.
 
The automotive industry accounted for 6% of the total GDP in 2007-08 up from 5% in 2005-06. According to Automotive Mission Plan 2006-2016, the automotive industry is expected to account for 10.4% of the
Indian GDP by 2016. A number of both domestic and foreign auto & auto component companies have planned major investments in India – prominent among those are the small car projects of global auto majors like Toyota, GM, Ford, Nissan and Volkswagen.
 
India’s recent growth trend and its current low share of world automotive exports, significant scope for improvement in the overall manufacturing competitiveness and the emerging consensus that the worst of the recession is behind us indicates that it is a distinctly achievable aspiration.
 
The study concludes by listing the key imperatives for India to achieve the targeted growth. These imperatives can be completely realized only by a concerted action on the part of the industry, EEPC India and the government as they broadly relate to enhancing the alignment and effectiveness of trade drivers, boosting the competitiveness of the Indian automotive industry, and strengthening enablers for growth by clearing infrastructural and procedural bottlenecks. (Source: PIB)