Quandaries of an Auto Company

We might be on our way to becoming a global hub for automotive production, but the harsh reality is that we still have massive challenges en route!

It’s now a well-accepted fact that amongst the rising economies of the world, India (along with China) will become one of the automotive manufacturing hubs in the world. Whether the production that takes place is limited to small cars and economy two-wheelers, which are the biggest domestic consumer categories, remains to be seen however. The list of manufacturers willing to setup base in India to take advantage of the relatively lower costs of manufacturing shows that the advantage is viable and the interest is serious. For example, in the last few years, Renault, Nissan, Volkswagen, Honda, and Ford are just a few of the many companies that have either set up brand new factories or substantially added to their existing ones in the country.

The advantages are substantial – relatively low-cost labour, a large number of technical workers, availability of large blocks of land, governments willing to offer incentives to bring factories to their States, and a growing domestic market. All of these factors mean that it clearly makes sense to invest here, but the road thus far has been anything but easy. For instance, the supplier base in the country – a crucial component for the viability and growth of automakers – has developed tremendously over the years with tremendous capacity expansion and quality up-gradation. But, it didn’t happen overnight. When international manufacturers started setting up base in India, there was a massive struggle to identify suppliers who could produce parts at global quality levels. After all, the era of License Raj left a void of world-class ancillary and component makers – those who did exist had meager R&D facilities and no focus towards product quality. Nevertheless, with persistence from the global majors towards developing local industry, and the industry itself taking the initiative to advance, today it’s in healthy shape.

And, the automotive industry is now one of the fastest growing sectors in the Indian economy. While, the past year has been a relatively tough one for the industry, in the medium to long term, the outlook is very positive – which is more than you can say about most markets around the world.

But, it hasn’t been all rosy. There are fundamental issues that continue to plague the industry. Firstly, our infrastructure is in terrible shape, and while the going is good, companies will grin and bear it – but it’s proving to be one of the biggest obstacles at present. Secondly, there has been a lack of clarity on government policy for years. Too many vested interests and political games being played in the background mean that there’s no single, clear direction on the way forward. Issues like the possible WTO sanctions for inordinate import duties and protectionist politics have resulted in plenty of news headlines already.

But, despite all this, the industry continues to progress to become one of the main auto production hubs in the world. However, this will throw up yet another issue for the industry to tackle – that of sub-standard educational institutions. In this ever progressing world of technology and engineering, our educational institutions are simply not good enough to churn out engineers or technicians who can work on today’s ever complicated machines unless they are imparted further training by the employers. Too often, the knowledge and experience they come equipped with is already decades old and of not much use in the current era.

So, the issues are multi-fold, and the industry will continue to deal with them one-by-one. The question is – when will we gain the political will to tackle them with any sort of cohesion?