Revving up - automotive industry at crossroads

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The automotive industry will likely see an uptick in demand in FY17 as the economic environment improves. To translate the growth potential into reality, automakers need to identify profitable niches and introduce exciting new models, offer improved customer experience, invest in localization, and create flexible production capacity and supply chains. We have highlighted 11 key trends that will define the industry and its way forward.

Key trends

Highlights

Implication for players

Implementation of policy reforms

Policy and regulatory initiatives such as “Make in India,” GST, and the new road transport and safety bill, aim to bring in efficiency, safety and sustainable development. Their proper implementation is critical to put the industry back on a high-growth path.

  • Optimize your supply chain and distribution strategy in view of GST
  • Explore opportunities in the evolving mobility aggregation space
  • Invest in R&D to develop cost-effective products that comply with upcoming vehicle safety and emission regulations

Passenger vehicle market to grow moderately in the short term; long-term prospects positive

After moderate recovery in FY15, we expect a good FY16 on the back of new model launches, low fuel prices, possible reduction in interest rates and high discounts.

  • Invest in newer retail channels, both online and offline
  • Strengthen focus on allied businesses
  • Explore flexible production and workforce arrangements

Commercial vehicle demand to keep reviving, driven by economic recovery, urbanization and infrastructure development

The industry will benefit from the lifting of mining bans, the Government’s infrastructural push, increased freight movement, pent-up demand and positive consumer sentiment.

  • Prepare for upcoming regulatory changes
  • Explore innovative sales and service formats
  • Leverage telematics services and analytics
  • Consider offering an approved used truck proposition for fleet

Two-wheeler market growth to pick up after a hiatus in FY16

Long-term growth would be driven by economic revival, urbanization and low market penetration.

  • Engage in collaborations/strategic M&As to access technology and distribution networks in global markets
  • Invest in multichannel marketing, CRM and aftersales service support
  • Drive innovation in retailing; leverage the growing role of digital in the consumer buying process

Tractor demand to remain subdued in the short term; moderate-to-strong growth in the medium term

The market will likely pick up during the second half of the fiscal year.

  • Engage in strategic collaboration with financial institutions
  • Increase consumer touch-points
  • Deploy sophisticated analytics tools for better inventory management and demand forecasting

Tier 1 suppliers to become vital in the global automotive supply chain

The auto component industry will enjoy high exports and recovery in domestic demand in FY16. Increased capacity utilization, operational restructuring and correction in global commodity prices will aid margin improvements.

  • Ensure a secure and efficient supply chain with stable/localized procurement and distribution
  • Continue to invest in R&D to co-own product development with OEM
  • Explore collaboration and strategic M&As to access technology and new customer base
  • Leverage analytics for better inventory management and demand forecasting

Tire manufacturers to benefit from benign raw material prices and higher OEM sales

Growth will be driven largely by pickup in OEM sales and an upsurge in replacement demand.

  • Develop a robust distribution strategy and optimal retail mix
  • Differentiate product offerings and explore potential bundled services/solutions
  • Explore opportunities across newer markets
  • Establish an appropriate manufacturing/sales organization presence and structure

Improved infrastructure to drive demand recovery for the off-road CV industry

The industry is expected to recover during FY16, provided there are no liquidity and finances bottlenecks

  • Increase localization content
  • Explore collaboration/alternate service channels
  • Consider a structured equipment rental option for end-users
  • Leverage telematics services and analytics to minimize equipment downtime

Evolution of automotive retail to provide a consistent and enhanced customer experience across multiple channels

Dealerships will need to collaborate closely with OEMs to invest in talent management and evolve their customer orientation strategy.

  • Explore newer sales and service formats
  • Integrate customer experience across digital and physical touch-points
  • Deploy technology and analytics
  • Undertake training and coaching for dealer network employees

Automotive finance captives to play a crucial role in enabling OEMs’ sales growth

Amid changing customer preferences and buying behavior, automotive finance stakeholders need to focus on digital sales, flexible ownership and new products/services.

  • Drive innovation in product design and adapt to unique consumer preferences
  • Ensure consistent messaging across customer touch-points
  • Leverage analytics across
  • Tie in bundled product offerings

M&A activity being driven by supplier sub-segments and significant PE/VC investments

The automotive sector witnessed significant growth in transaction activity over the last two years.
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  • Forge need-based and strategic alliances, JVs and acquisitions to gain technology and geographic coverage
  • Evaluate effectiveness of currency and raw material hedging strategies