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Auto sector India EY report | Passenger vehicles India trends | Auto sector trends India - EY - India

Mega trends shaping the Indian passenger vehicle industry

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The Indian passenger vehicles industry

This report summarizes seven major trends that will significantly impact revenues, costs and profitability of stakeholders across the Indian passenger vehicle value chain.

Stakeholders across the Indian passenger vehicles industry are likely to be impacted by fast changing events across the automotive ecosystem — be it in the operating environment, customer preferences, competition, distribution channel or supply chain.

To prepare for the years ahead, automotive companies need to raise the following five questions and assess how well they are prepared to respond to the opportunities and challenges they present:

As an answer to these questions, we have identified the following key trends that will influence vehicle manufacturers, suppliers and dealers on multiple fronts:

  • Increasing urbanization and evolving customer needs to have greater influence on OEM strategies and buying behavior than reactive regulatory policies. 
    • By 2020, India's population is expected to increase by an estimated 200 million, piling further pressure on the transport infrastructure. OEMs are therefore, likely to increase their offerings in terms of alternate fuel variants (CNG, LPG and also hybrids) and advanced safety features across segments.
  • Increasing risks across value chain position OEMs to deploy range of mitigation strategies
    • Indian auto industry is expected to be short of 300,000 skilled personnel by 2020 across functions, including R&D and manufacturing.
    • With logistics infrastructure lagging behind the pace of the auto industry's expansion, OEMs will need to consider multi-plant strategies. They will look to cluster suppliers to be closer to regions with strong demand potential and for better control of the supply chain.
  • Global OEMs gain market share with “glocalization,” while competition drives domestic OEMs to bridge technology gap
    • Apart from localizing production to achieve cost parity and product differentiation, global OEMs also continue to expand their distribution network to tier II, III and IV cities.
    • In response, domestic OEMs are strengthening their technological capabilities through organic and inorganic investments.
    • Local demand remains the top priority of domestic and Global OEMs. However, they will be looking to leverage India as an export hub to emerging markets, including Africa, Eastern Europe, and South-East Asia.
  • OEMs leverage digital marketing for urban consumers and non-traditional distribution channels for rural markets
    • OEMs are likely to increase their digital marketing spend, especially on social media. There will likely be emphasis on innovative promotion tools such as live launch webcasts and online customer service, among others. In rural markets, OEMs are expected to increase their focus on non-traditional distribution methods, including resident sales executives and satellite outlets.
  • New entrants using creative business models for mobility, in-vehicle services and after-sales support
    • With India's urban population to reach 500 million and the growing infrastructure concerns, consumers will need alternative personal mobility solutions. New entrants such as car-rental companies, multi-brand service networks and group buying companies are already taking a lead to leverage the Indian consumers' needs for mobility, after-sales services, and need for enhanced bargaining power.
  • Suppliers to enhance local product development capabilities, supply chain competency, and flexibility to meet diverse OEM expectations
    • Global suppliers are setting up R&D centers in India to increase local content in vehicles and at the same time leverage it as a global hub for design and technology. 
    • The supplier community will need to adapt to diverse expectations of OEMs. Domestic manufacturers are expecting greater flexibility and closer engagement; global OEMs, on the other hand, are expecting quick responsiveness and global quality standards at local cost levels
  • Dealers to focus on managing their capital agenda, skill development and shifting revenue contribution of high-margin allied services
    • In particular, franchises of global OEMs will become attractive because of higher margin offers and flexible payment options. Apart from expanding their portfolio of brand franchises, dealers will also look to increase share of high-margin allied businesses including service, parts and vehicle financing/insurance.

Download our report for details on these key trends.

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