‘India’s auto sector can gain from Thai turmoil’

With Thailand seized by political turmoil, several OEMs who had made the country their export base are scouting for other locations for their factories.

In an interview with BusinessLine , PwC’s auto expert and a member of its global automotive review board, Abdul Majeed, pointed out that India will lose out to countries such as the Philippines and Vietnam if the government does not fast-track tax and labour reforms and provide better infrastructure. Excerpts:

Except June, the auto sector has seen a steady increase in sales. Do you see it being sustained over a period?

Frankly, the passenger car industry is not contributing as much as it should to the economy. Several foreign OEMs who set up business here are now using their production facilities for exports whereas they came here to tap the growing domestic market.

India produces about 3 million cars, which is expected to double by 2020, whereas China already sells about 22 million cars.

The problem is that the there is no consistency in the growth of the Indian economy.

The entire economy depends on rains and the minimum support price the government offers. In addition, inflation is very high and taxes are steep. Assuming you spend ₹100, about ₹65 goes towards taxes and for bigger vehicles it is as high as ₹85.

What do you think needs to be done to achieve consistent growth of the auto industry?

Several things need to be done. The automotive sector can and should address the problem of unemployment in a big way. Earlier OEMs would employ people in large numbers. Today, they are afraid to do so.

They are now hiring contract labour and are looking at automation so that they can reduce the workforce. If you want to sell vehicles, the OEMs should generate employment. But labour laws are so tilted towards workers that OEMs almost feel stifled.

I am not saying reforms should be one sided but the interests of both the sides should be taken care of.

What the manufacturing companies are saying is that when the demand is low, allow us to shed extra labour.

Also, businesses now know that they need to be socially responsible and if you can’t do that, you cannot sell cars. In the internet age, nobody can get away with repressive labour laws. If you treat employees badly, you might lose customers.

Also, if the government can work along with the OEMs, they can create niche skill sets which will allow a lot more people, especially from the rural areas, to get jobs.

Where do you think the opportunities lie for the auto sector?

There is one huge opportunity coming up for us. Many of the OEMs picked Thailand to set up base for exports because taxes were low and labour laws conducive.

Because of the political turmoil and resulting uncertainty there, OEMs are now looking to exit the country. Therefore, they are looking at alternative markets but India does not figure in their scheme of things because of high taxes and poor infrastructure. If we don’t get our act together, countries like the Philippines and Vietnam will benefit. The export market is a whopping $2 trillion.

To take a pie out of that we need to improve infrastructure. Most of our ports are choked and the turnaround time in Indian ports is almost a week whereas in Chinese ports, it is just around 24 hours.

We haven’t actually done well in the export market…

If you ask me we can easily be a 10 million passenger car market. Today we export just half a million cars.

China exports between 3 and 4 million cars which is almost equal to the entire market in India. South Korea exports a similar number and so does Germany.

The main issue bogging us down is that we are not competitive. There are hardly any component suppliers who have global scale. Look at the innovations. Without expertise in IT, we can actually do a lot more. If we don’t take advantage of the situation, we will just be a domestic player.

Carmakers such as General Motors, Tata Motors and, to an extent, Toyota in the small car market, have not performed well while the others have. What do you think went wrong for them?

Those who have succeeded have done well because of three things. First, they have a very sound product strategy, both in the mass market and in the mid segment.

Second is distribution, which means having outlets spread across the country and being almost everywhere.

The third is the sales and service and replacement market, which means your car should get you a good price when you sell it in the second hand market.

Those who haven’t done well never believed in the domestic market. You can’t bring in a blockbuster product and expect to milk it year after year when the product cycle is just two or three years. If you do not consistently engage customers, you will lose out.

Do you think the introduction of GST will help carmakers to expand their market?

I personally feel the overall GST rate should not be more than 20 per cent. People might say it may create problem for the state revenue but that can be taken care of by increasing the economic activity in the country.

We need to make sure that the rates are competitive and I am not in favour of 1 per cent rate. If goods are going to pass through four states then it will add up to 4 per cent.

Therefore, it is necessary to have a competitive rate and make sure there is a united market in the country and also eliminate check posts. If the truck stands for six hours at the check posts, then the economic activity suffers.

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