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IBM and University of Michigan Reveal India’s Automotive Industry Challenges


A study unveiled today by IBM (NYSE: IBM) and the University of Michigan’s Transportation Research Institute reveals that India still needs to overcome significant challenges to continue its rapid growth in the automotive industry, and that the path to success is an even stronger partnership between industry and government. India faces challenges in the areas of transportation infrastructure, product quality, and skilled workers as well as labor and tax regulations. The study authors interviewed industry executives, academics, industry experts, and government officials to get a picture of what India itself sees as the real future state of its automotive industry.

India is expected to be one of the top 10 countries in terms of vehicle sales by 2015. The number of four-wheelers sold in 2006-2007 was about 1.4 million. But industry executives interviewed for the study expect sales to double to 2.8 million by 2010 and triple to 4.2 million by 2015. The interviewed executives also expect an increase from 7 to 17 million two-wheelers from 2005 to 2015.

“The Indian government will certainly play an integral role in shaping the automotive industry and its future. Their Automotive Mission Plan could be construed as a step in the right direction as it outlines development goals till 2016, including the role of the government in improving infrastructure, tax and labor law revisions,” said Bruce M. Belzowski, assistant research scientist & associate director, University of Michigan Transportation Research Institute, Automotive Analysis Division. “Most of the interviewed industry experts are optimistic about government’s support for the growth of the industry.”

Among the study’s specific findings in three major areas are:

India’s automotive market

-- The small car (especially the inexpensive “1 lakh car” at about
$US2,500) is a key growth strategy. Indians view design, development, and
manufacturing of small, inexpensive cars as their country’s global niche
and also as a way to fulfill the needs of India’s domestic buyers. India,
however, will likely be challenged by other global manufactures who can
leverage economies of scale.
-- The impact of infrastructure on the domestic market is significant.
Government needs to address the overarching future needs of India’s
automotive infrastructure to support the industry’s development in the
short and long-term.
-- India’s financial system provides an important building block for a
developing industry, and each company’s ability to provide superior after
sales service may determine their competitive sustainability in the
domestic market. India’s production capabilities

-- India needs to strengthen its own R&D capability. To be a global
player, it must be considered an innovative designer of vehicles and
components in the automotive industry.
-- The entire supplier base needs to get stronger. While India has world-
class suppliers, it needs to develop the capabilities of its entire
supplier base to support improved quality and low-cost delivery throughout
the supply chain.
-- Costs need to be contained. India’s path to the world stage has been
through low-cost production. Wages and infrastructure costs, such as
electricity and shipping, are starting to rise.
-- Labor and skills could be a surprise constraint. The Indian
automotive industry is starting to suffer from an undersupply of skilled
labor. Labor laws and regulations also seem to be hampering business.
Challenges that impact India’s automotive industry

-- Infrastructure is the most urgent challenge to its industry.
Acceleration of road construction and traffic law enforcement are key areas
for improvement because of the impact of traffic congestion on consumer
purchasing patterns. Port capacity for exporting vehicles needs to be
improved as well.
-- Combating air quality, oil dependency, and congestion issues should be
a coordinated effort between government and industry.
-- Government’s efforts to augment public transportation and port
capacity, enforce traffic laws and support alternative fuels will allow it
to address multiple problems.
-- It is vital that the government continue to recognize the auto
industry as a crucial part of India’s growth and success. The Indian
government has a large and crucial role to play.
“IBM has taken the lead in identifying the challenges of India’s automotive industry,” said Sanjay Rishi, global automotive industry leader, IBM Global Business Services. “India’s automotive market has come a long way in a short period, growing more than 15 percent compounded annually since 2001. Based on the study, we have developed the next action steps for them to become successful industry players as well as a key market while maintaining the historical double-digit growth in the future.”

The key next action steps for India’s success are:

-- To build India’s domestic vehicle market, India’s government needs to
build more and better roads and hasten the vehicle friendliness of India’s
cities. Manufacturers and suppliers need to understand and capture the
small car segment and continue to raise supplier quality levels while
keeping costs low.

-- To become major players in the world market, India’s manufacturers
need to accelerate the perception that “quality” comes from India, find
their market niche in the world vehicle market, and manage their businesses
on a worldwide scale, including manufacturing, global logistics, sales, and
distribution. India’s government needs to accelerate port capabilities and
work in tandem with industry to boost skilled labor availability and
strengthen India’s own R&D capabilities. The results from the study were part of extensive research which gathered, via in-person interviews, the opinions of leaders from the Indian automotive industry and government, complemented by views from academic experts.

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About University of Michigan’s Transportation Research Institute

The Automotive Analysis Division, a research unit of the University of Michigan Transportation Research Institute, has performed research, analysis, and communication activities focused on the future of the global automotive industry for over 25 years.


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