Auto industry eyes 15% growth in FY12: Siam

Agitated workers stalling production in manufacturing units of Maruti Suzuki and General Motors became an eye sore for the Indian auto industry that has hit a growth trajectory. With the sector’s image taken a dent in global markets, Vishnu Mathur, director general of Society of Indian Automobile Manufacturers ( Siam) shares his concerns with ET about the roadblocks that might destabilise the journey of the Indian auto industry. Edited excerpts..

How do you see the growth of auto industry unfolding in this decade?

The auto industry has grown at a very healthy pace over the last decade. During this period, the industry volumes have increased by 3.2 times from a level of 4.7 million number to 14.9 million numbers. Going forward, the long-term potential for growth of the auto industry is very good, given the very low vehicle penetration in the country. As income levels rise and easy finance is available, the industry will continue to see a healthy growth rate. Siam estimates that the growth of the auto industry in FY12 will be in the region of 12-15%.

Is the industry equipped to handle the consumer demand?

The auto industry has already made huge investments in the country. As per 2008-09, the total investment of auto industry in India was Rs 60,952 crore. Another Rs 78,000 crore of new investments have been announced by the auto industry out of which some have already been made and the rest will come up over the next 2-3 years. Therefore, the auto industry is keeping pace with the growing demand for vehicles in all segments, eg passenger cars, two or three wheelers and commercial vehicles.

Which could be the potential auto clusters in-the-making?

Over the past a few years, we have seen a number of new automotive hubs emerge in the country. The northern states have seen significant auto investments propelled by tax benefits. Gujarat has attracted large investments in the auto and auto component sector. Now we are also seeing Rajasthan proactively attracting investments from the auto sector. As the traditional auto hubs gets saturated from the point of view of land availability and cost, we can expect to see industry moving to some of these new hubs.
With demand of auto components from not just domestic, but even foreign OEMs rising, what is the way out for the fragmented auto component industry?

The auto-component industry would need to ramp up capacities to meet the growing domestic and export demand. This would require constant investments in the component sector, specially at the Tier 2 and 3 levels where we are seeing capacity constraints. In addition, the component industry will also have to upgrade technology, quality levels and develop product development capabilities to design and manufacture the next generation of components.

What have been the takeaways for the domestic auto sector in terms of best management practices with MNCs making India their manufacturing hub?

The opening up of the auto sector to global competition has been a boon for the auto sector. Global competition has brought in higher standards of quality, en-couraged higher productivity through best management practices as well as best practices on the shopfloor. Japanese concepts like 5S, SMED, PPM levels of quality, Kaizan, Poka Yoke etc. are now well known and common terms in the automotive industry. Maruti was the first company that brought in these concepts to the Indian automotive industry.

What about the existing infrastructure?

Growth in the infrastructure sector has been comparatively much slower than the industry growth leading to a infrastructure deficit. However, with the roads and highways network improving with the establishment of the Golden Quadrilateral and the East West Corridors, there would be a definite boost to the auto sector. The auto industry would like to see a faster development in the infra sector. In addition to infra, there is huge scope for better traffic management, better road design, driving discipline and effective of ITES in transport etc which would permit the existing infrastructure to accommodate higher traffic densities.

Electric bikes are trying to find a space for themselves in the cluttered Indian market. What is the scope of these bikes?

There will always be some category of consumers who would prefer high performance vehicles. However, a large part of our consumer base wants to purchase bikes for simple mobility. Such consumers are highly price conscious and would purchase a vehicle only if it makes economic sense in terms of overall cost of ownership of the vehicle. The real challenge will lie in making EV/HEV technology economically viable and attractive for the consumer.

Do you agree that Gujarat has suddenly emerged in the automotive map?

Gujarat is a fast upcoming automotive destination. After having attracted the Tata Motors Nano plant, recently, Maruti has also announced their next big investment in Gujarat. Large OE investments will also pave the way for the component industry to invest in Gujarat as the suppliers would prefer to be close to their customers due to logistic reasons. This would give a fillip to the state’s economy as an automotive hub.

At a time when the industry is bullish about the next level of growth, labour strikes may paralyse the system. What is the way out for the industry?

No country is without its share of challenges. Labour strikes not only result in production losses, but also deprive the country of economic activity and dents the global image of the industry. There is clearly a need for actions to be taken to update the antiquated labour laws in the country. Industry also needs to be more sensitive to the rising aspirations of the labour and respond accordingly.