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Auto Markets: Disrupted

Society of Indian Automobile Manufacturers (SIAM), in a report some years back, indicated that the relationship between fuel price rise and the vehicle sales was not strong until a tipping point was reached. This was when the price of petrol in Mumbai was Rs. 80 / litre and diesel was selling around Rs. 76. Petrol has crossed Rs. 90 today and diesel is catching up. The price that the citizens pay is the highest anywhere in the world, what with more than 50% of that going to the government coffers. Spiralling international crude oil prices may not impact sales of the automotive sector in the short-term. The same cannot be said for the future. Governments have to seriously look at alternate modes of transport, also with air pollution assuming disastrous proportions. In all probability, electric vehicles will sooner replace the current, than we can comprehend.

The primary sector of the economy makes direct use of natural resources. This includes agriculture, forestry, fishing and mining. In contrast, the secondary sector produces manufactured goods, and the tertiary provides services. In terms of employment potential and job creation, the primary markets account for about 15%, the secondary about 35% and the tertiary, about 50%. A vibrant Manufacturing sector largely dependent on the primary sector for its survival will drive the GDP growth of a country. Automobile manufacturing is an important cog in the larger manufacturing paradigm and assumed a pole position from the time, automobiles were invented to run on fossil fuels.

Demand swings in any of the segments, cars, two-wheelers, commercial vehicles, whether driven by fuel hikes or any other have an impact on auto ancillary demand too, as on the vehicles themselves. Demand is derived from original equipment manufacturers (OEM) as well as the replacement markets. The Indian auto-components industry has experienced healthy growth over the last few years. The auto-component industry of India expanded 18.3 per cent to reach a level of US$ 51.2 billion in FY 2017-18.

The auto-components industry accounts for 2.3 percent of India’s GDP and employs as many as 1.5 million people directly and indirectly each. A stable government framework, increased purchasing power, large domestic market, and an ever increasing development in infrastructure have made India a favourable destination for investment. The total value of India’s automotive exports stood at US$ 13.5 billion in 2017-18 as compared US$ 10.9 billion in the year 2016-17. This has been driven by strong growth in the domestic market and increasing globalisation, including exports of several Indian suppliers. Growth is further expected to accelerate to 8-10 percent in FY19 due to pick up in global scenario. According to the Automotive Component Manufacturers Association of India (ACMA), the Indian auto-components industry is expected to register a turnover of US$ 100 billion by 2020 backed by strong exports ranging between US$ 80- US$ 100 billion by 2026. The growth story can easily be hijacked by the rising crude on one hand and falling rupee on the other.

The inability or ‘not wanting to’ of the powers be, to rein in the price for the customer, albeit in the name of welfare schemes, which may see a downside, if the prices were to be pegged, has only queered the pitch for both the manufacturers and the users and forced them to look at alternatives.

What then are the alternatives? How would they affect the economy? Both these are important questions and will have a pronounced say on the future of Governments. For one, people will be forced to use public transport more, if it is effective and efficient. Several social factors may influence ones choice. Sharing vehicles may become a norm but needs to become a movement

That is forced out of need.

The Global Automotive Repair and Maintenance services market 2018-2022, is expected to grow at a CAGR of 5.5% during the period 2018-2022. The Indian markets are also expected to do at least 50% of this value.

The Governments, world over have been pushing for electric vehicles. India too is at the forefront of promoting it with the transport minister pitching proactively. India unveiled ‘National Electric Mobility Mission Plan (NEMMP) 2020’ in the past but has not found any traction. With its commitment to the Paris Agreement, the Government has plans to make a major shift to electric vehicles by 2030. Electric car use by country, varies worldwide, as the adoption of plug-in electric vehicles is affected by consumer demand, market prices and government incentives. Plug-in electric vehicles (PEVs) are generally divided into all-electric or battery electric vehicles (BEVs) that run only on batteries, and plug-in hybrids (PHEVs), that combine battery power with internal combustion engines. The electric vehicles have only, rotary parts and far fewer than the current IC engines, have a low maintenance requirement and are based on replacements when repairs are warranted. This eliminates the need for an elaborate repair and maintenance ecosystem that can affect the dependant employment markets.

A few automobile manufacturers have marketed electric vehicles both in the two and four wheeler segments in the country. The usage of electric vehicles, nascent in our country, helps in the reduction of air pollution and with the growing awareness about the need to reduce greenhouse gases, there is a rise in the adoption of electric vehicles. Passenger plug-in market share of total new car sales in 2017 has been the highest in Norway, almost 40% and 2% of all vehicles in China. In terms of number of vehicles, China is by far the largest electric car market in the world. Domestically built new energy vehicle (NEV) sales totalled 1,728,447 units between January 2011 and December 2017. These figures include heavy-duty commercial vehicles such as buses and sanitation trucks. India is yet to figure in this market to merit a mention. The downside of a rising demand for electric vehicles can affect the ancillaries, repair and maintenance markets, even seriously denting the existing jobs.

The electric vehicle segment, can affect margins which are likely to come under pressure in the long term because as competition increases, manufacturers will find it difficult to increase prices and will try to cut costs. The burden will eventually fall on auto ancillary players. In the near future though, companies will need to have manufacturing lines that can be adapted for new models, have strong technology backing, an ability to export to developed markets, market dominance in specific products and a growth plan driven by volumes and product innovations. Companies will have to focus on quality and abide by delivery schedules if they want to survive. As manufacturers sourcing components are keen to get components from fewer sources in future, this will lead to consolidation in the sector.

Market analysts predict that Self-governing cars would be on the streets by 2020, with more than half them powered by diesel by 2020. High performance Hybrid cars are likely to gain greater popularity among consumers. All said and done, electric vehicles are here to stay. In as much as some markets and employment opportunities may crash, new ones will be created. Several initiatives are needed if we are not to be left behind. For a start, a few goals like creating plans for a world-leading industry, energy security; reduction in urban air pollution; and to reduce carbon emissions are required.

Only EVs must be made eligible for purchase incentives. We must make a strategy of “Energy Saving and Electric Vehicles”. The policy measures of this strategy must focus on carrying out pilots to subsidize EV buyers, promoting charging facilities construction and accelerating EVs commercialization. The government may even announce a trial program to provide financial incentives in chosen five cities. The Traffic Management Bodies must also announce special green license plates to facilitate preferential traffic policies. A proactive policy will be a Win-Win for all.

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