Three trends that are shaping the Indian auto industry

New Delhi: Top executives of global automobile companies from Renault-Nissan to Harley-Davidson have praised India’s frugal manufacturing, affordable labour and resources diversity. With India growing faster than China, India’s prospects for becoming an major producer of automobiles have become brighter.

Mint takes a look at three trends shaping up India’s automobile industry:

1. Tighter regulations

(a) A large number of regulations for the automobile industry have been proposed in the last five years. These aim to take India to the league of technologically developed automobile markets. Today, auto makers are forced to issue a voluntary recall in case of a manufacturing defect, as they anticipate severe penalties when government makes it mandatory under the Motor Vehicle Act. This is because if they don’t clean up their act now and are found guilty once the law is in place, the penalties could be huge.

(b) The government plans to make frontal and side crash tests mandatory for new vehicles from October 2017 and existing vehicles by October 2019. This has forced car makers to beef up safety features. To pass these tests, cars must have airbags and other safety features such as child restraint systems.

(Read the safety story here)

(c) The government wants to adopt Bharat Stage VI emission norms (equivalent to Euro VI norms) quickly, skipping the previous BS V stage. The move is good in intent, but adopting new technologies in a short span of time could hurt the auto industry and impact demand as new technologies will raises prices.

(Read the emission story here)

2. Export revolution

Exports of cars, utility vehicles, two-wheelers and commercial vehicles have grown every year since 2000. In 2014-15, auto exports were at a record high. Exports have helped automobile companies mitigate risks from the cyclical demand in home and overseas markets. The tepid demand in the local market in the last three years saw a renewed exports thrust by automobile firms, particularly those that saw a sharp decline in domestic volumes. Today, every company is looking to make use of the favourable manufacturing atmosphere in the country. The sector may also benefit from the Make in India focus.

(Read the export story here)

3. R&D hub

Two trends have emerged in in the R&D space lately.

(a) Bayerische Motoren Werke AG’s (BMW AG’s) technology officer Markus Braunsperger will join HeroMotoCorp Ltd. Hero is just a twentieth of the size of BMW and its entire revenue is less than the R&D budget of BMW. Similar appointments at Apollo Tyres Ltd, Royal Enfield and Tata Motors Ltd point to greater focus on talented professionals.

(b) In the past decade, BMW, Beiqi Foton Motor Co. Ltd, General Motors Co., Honda Motor Co. Ltd, Maruti Suzuki India Ltd, Mercedes-Benz, Renault–Nissan Alliance and Volvo Group have set up R&D centres in India. They moved to India to tap the country’s engineering base and cost advantage.

So, the flow of knowledge and expertise is mutual and augurs well for the industry.