Driving uphill

IF TRADE FAIRS and expositions can serve as adequate reference points for gauging a major industry such as the automobile sector, then the recent Auto Expo 2000 at Delhi could establish a point or two that can outlast the hype currently surrounding it. The two years between the last exposition and now have been momentous in many ways for the industry as well as its consumers. In 1998, in the midst of a deep and prolonged recession, the auto industry was hoping for miracles. Two years on, the picture is brighter even though highly uneven. The commercial vehicles sector, which bore the brunt of the industrial slowdown is riding back to reasonable health on top of the economic recovery, with the manufacturers reporting better capacity utilisation and financial performance. India's two-wheeler market, rapidly maturing in volumes as well as in quality is following global trends such as in the marked consumer preference for motorbikes over scooters.

The passenger car scene, however, remains an enigma. Its future direction even over the next few years remains uncertain. Arguably the most critical in terms of the industry's economics, it has hogged all the attention after the liberalisation: most of the large Rs. 12,000-crore greenfield direct investments since 1993 have been in this sector. Nearly all the consumer focus that is redefining the whole industry is attributable to the changes being introduced by the car makers. And of course the Indian auto scene would be bereft of the sheen and the gloss without all those new car models and more specifically the ways in which they are being introduced to the Indian consumer. However, even taking into account the remarkable upsurge over the past year - the aggregate yearly car sales are expected to cross 400,000 soon and more than treble in five years time - there are big question marks that can overwhelm even the mightiest of the global auto majors who have set up shop here.

Two years ago the introduction of Tata's indigenously-produced Indica transformed the then moribund industry. Even its sceptics concede that the launch of the car was a seminal event in that it clearly showed where the Indian consumers' preference was. The remarkable success of the so-called Zen segment - with the Santro and the Matiz completing the team - has been built on the niche created. It is that segment which also holds the maximum promise. The failure of the other players to comprehend the market correctly - and in an extended sense the Indian environment - has been their major failure so far. Most of the embarrassment caused to them can be traced to their blind pursuit of capacities while implicitly assuming that world-famous names will automatically sell here. No allowance was provided, for instance, for the very obvious fact that it takes almost forty-eight times an average Indian's salary to buy a popular car. In America the corresponding figure is nine.

With capacity utilisation at just around 50 per cent, all the manufacturers have publicly contemplated exports as a way out. But with the global auto industry witnessing a huge glut and with every other developing country also keen on exporting, it may not be an easy option. Besides, the industry is learning another truth: cost competitiveness is linked to scale and in global terms the Indian industry is puny, just five per cent of the size of General Motors. Experts say that the low labour costs associated with India counts for little and most certainly export earnings from the auto industry will come by way of value-added services. Finally the new WTO dispensation brings with it competition from cheap car imports. The auto industry is perturbed by it and even the Industries Minister has held out assurances but clearly a matter like that needs to be examined from the widest perspective.

Send this article to Friends by E-Mail

Section  : Opinion
Previous : Only a breather
Next     : Kargil and Kandahar