Higher disposable incomes and new model launches have helped most auto makers post record sales in October. This demand in the auto sector will lead to direct and indirect employment generation. However, lack of trained human resources for skilled jobs is a concern. Meanwhile, the tardy global market has pushed the auto component sector to take a cautious approach on investing in infrastructure. Deloitte Touche Tohmastu India senior director K Kumar tells FE?s R Ravichandran about the overall auto industry prospects.
How is the Indian automotive industry performing?
This is among the fastest growing and exciting market for all manufacturers. More categories, including hatchbacks, are likely to get into mainstream in terms of volumes. Luxury, lifestyle and leisure segments will grow. Continued economic growth, will see increased consumption of trucks and LCVs.
Is the boom sustainable?
Continued economic growth coupled with high aspiration for owning personal transport will help the boom to sustain for a long time.
The industry is already crowded with domestic and global players. Will this take toll on the sector?
Auto industry is used to competition. In India, the concentration of market share with the top manufacturers is probably the highest. There may be room for a couple of significant players to emerge. The market seems to have a potential to grow for at least a decade, it is very difficult for OEMs to stay away. It is likely that manufacturers will serve specific sub-segments and hold out sharply different value propositions. Competition will ensure high quality and good customer service.
What will be the impact on the economy, including employment generation, exports, among others?
The economic boom creates demand to start with. Currently, the share of the auto sector in the overall economic pie is relatively small and it is expected to gain ground. Clearly, there will be both direct and indirect employment generation but the real concern is lack of trained human resources for skilled jobs. It will be interesting to see what this scarcity will do to the industry in terms of costs.
What do you feel about the hue and cry among the OEMs on the short supply of ancillaries/components?
In a fast growing market, someone will play catch-up. Clearly, on the back of the slow down and not very optimistic picture painted of the global market, it is natural that there is some reluctance to investing in infrastructure. The component sector is made of medium sized companies mostly and it is not easy for them to invest ahead of the cycle. Furthermore, the component sector has the problem of low profitability and in combination with the small size, it is a difficult proposition. Add to this the relatively low valuations after the slowdown that makes it less attractive to fund expansion.
Have the Indian auto parts makers really geared up and what it requires for them to meet the surging demands?
It appears there is capacity for the present and the immediate future. There may be some softening of exports if the western markets keep shrinking or stay stagnant ? this will mean some capacity can be shifted to meet domestic demand. There are also opportunities for improving capacity utilisation and throughput, which can release some more capacity.
How do you see the growth prospects on the export front for auto companies?
In the short term, there may be slow growth ? there is a stagnation or shrinkage in the developed markets after the stimulus programmes have run out of steam. In the long term, however, this is likely to be greater as most OEMs have built capacities for hatchbacks in India and as a category, they are likely to be in demand.