Car makers need to shy away from investments and stick to India-specific modules to be successful

Saturday 21 July 2012, 12:34 PM by

Recently, a strategy consultancy agency has come up with a formula for the car makers to be successful in the Indian market. According to Managing Partner, Roland Berger Strategy Consultants, Dr. Wilfried Aulbur, the global car manufacturing companies are advised to bring down their investments and reduce the quality. This will be helping them to remain successful in the long run. The Germany-based strategy consultancy is the same, which earlier advised the Tata Group about acquiring the Jaguar Land Rover.

Majority of the overseas car manufacturers have been performing poorly, irrespective of the surge in sales volumes of the industry. The failure of the global companies to generate decent volumes can be credited to the ultra competitive auto market of the country, which has caused the profit margin to dip. At the same time, companies have been investing huge sums to increase their production and hoping to earn back the same within tenure of 4-5 years.

According to Aulbur, auto makers need to act miserly and reduce their expenditure in terms of capital since it's quite challenge to generate significant revenue in India. He said, “Investments cannot be made on a Western cost basis. Car makers may not have to put factories of the same quality as Europe — they just need to look at what quality levels the customers will pay for and what local laws allow.”

Ford India, after ramping up losses worth Rs. 1,200 crore and witnessing its net worth reduce by half, was declared as a 'potentially infeasible' brand in the beginning of 2012. Other companies who faced a similar fate were the Indian subsidiaries of General Motors and Honda Motor with losses estimated to be Rs. 184 and 213 crore, respectively. All of these auto companies have been present in the country since 15 years.

Aulbur went on to express that when it comes to the products, higher per cent of localisation level and exports are crucial to reap decent margins from the country. Auto Companies must also pay specific attention to the needs and requirements of the local buyers and develop the vehicle on country-specific modules. This will avoid chances of the products being rejected just because the customer was not willing to pay extra for the unwanted features.

Aulbur said, “This is value driven market, so pricing power is limited. Prices are half of Brazil and China. Localising can insulate a company from FOREX fluctuations. Customers here may not bother as much about NVH (Noise Vibration Harshness) and safety features, but want better design and gadgets. Also, platforms sold in Europe may be too expensive for a car sold in India, so you need cheaper options.” While these arguments do hold water in the country, one can only hope that the car makers are listening.