Indian auto industry to witness major changes in a decade of growth & opportunities, suggests EY report

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New Delhi, 10 January, 2012 – Despite increase in fuel costs, macro-economic issues and slow growth in 2011, the long term growth story of India’s auto Industry remains intact, suggests EY report titled ‘Mega trends shaping the Indian passenger vehicle industry’. The country’s passenger vehicle sales and production is expected to grow by 14 to 16% over 2011 to 2021, reaching over 9 to 10 million units annually. Consequently, India is evolving to become not only a regional base for small car production, but also an exports hub to other emerging markets.

Commenting on the outlook for the auto industry, Rakesh Batra, Partner & National Leader Automotive Practice, EY, said,While the Indian automotive industry defied the recent global recession, the cooling of domestic demand in 2011 took the industry by surprise. As competition intensifies among vehicle manufacturers, companies across the value chain must adapt their strategies to aim for market share growth, sustainable profitability and operational flexibility to preserve their long-term competitive position.”

The report identifies seven mega trends that will significantly impact the revenues, costs and profitability of stakeholders across the Indian passenger vehicle value chain:

  • Increasing urbanization and evolving customer needs to have greater influence on OEM strategies and buying behaviour than reactive regulatory policies. 
    • An estimated 200 million people are likely to be added to India’s urban population by 2020, piling further pressure on an already strained transport infrastructure. OEMs are likely to increase their offerings in terms of alternate fuel variants (CNG, LPG and also hybrids) and also advanced safety features across segments.
  • Increasing risks across value chain position OEMs to deploy range of mitigation strategies
    • Indian auto industry 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 and clustering of suppliers to be closer to regions with strong demand potential and to have 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
  • While meeting local demand remains the priority of domestic and Global OEMs, 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, with a focus on innovative promotion tools such as live launch webcasts and online customer service among others. In rural markets, OEMs will increase their focus on non-traditional distribution methods including resident sales executives and satellite outlets.
    • Indian social media users growing at 100% annually; over 38 million users on Facebook – third largest globally; 16 million users on Twitter – eighth largest globally; over 20 million smartphone sales annually. Consumers are sharing uncensored feedback and information of products and services via social media
  • 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
    • By 2020, the OE market for auto components is expected to hit US$100 billion and aftermarket will reach $13 billion.
    • India’s auto component exports to reach US$26 billion, by end of this decade.
    • 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, with domestic manufacturers expecting greater flexibility and closer engagement and global OEMs expecting quick responsiveness and global quality 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.

Anil Valsan, Lead Analyst, Global Automotive Centre - EY said, “While it is imperative that the government plays a role in raising India’s position in the world auto market through creation of a favourable business environment, attracting investments, promoting R&D and facilitating infrastructure creation, the industry also has the opportunity to proactively establish best in class practices specifically in supply chain management, labour policies, digital marketing and innovative business models for mobility.

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About the Report:
The report titled ‘Mega trends shaping the Indian passenger vehicle industry’, is a result of a detailed analysis conducted by EY’s Global Automotive Center. It answers most of the questions of the stakeholders across the Indian light vehicles industry, who 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.


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