Auto industry: Out of the woods yet?

Passenger carsStars of the year: Hyundai Grand i10, Honda Amaze and Ford EcoSport

The prophets of doom tend to paint gloomy pictures but a slightly sagging growth rate does not mean disaster. The auto industry, as the country's largest manufacturing industry, reflects the general state of the Indian economy where a slight economic slowdown plus political uncertainty has undoubtedly lowered the production growth of passenger vehicles by 3.07% and commercial vehicles by 13.5%, though two-wheelers have grown by 5.5% during the first eight months of this financial year.

But these figures hide the fact that production is still huge. At this rate, India will produce over 3 million passenger vehicles, 700,000 commercial vehicles and 17 million two-wheelers the coming year, of which about 17% will be exported. These have a huge impact on India's employment and overall economy. The auto-makers directly employ something like 200,000 people, with much more in their vendor industries. About 30,000 trucks employing about 150,000 people are needed to move the vehicles and components while tens of thousands more are employed by their roughly 5,000 dealers. These salaries generate huge tertiary employment among the people who give them food, clothing, shelter, entertainment, medical, educational and many other services.

Lower growth rates, however, increase the competitive pressure on auto-makers who have to offer new models, new technologies and new marketing strategies to support market shares that are becoming increasingly unpredictable. It also puts huge pressure on the components industry that actually makes some 70% of all vehicles. So, it is not surprising that everyone complains.

On the plus side, however, auto-makers have to work harder to widen their markets. Their efforts towards export are increasing and this is undoubtedly aided by the falling exchange rates. India is consequently becoming one of the major global export hubs for small cars. Companies such as Hyundai, Maruti, Tata, General Motors, Ford and others have been very successful in many global markets. On the other hand, in the domestic market, there has been increased expansion into smaller towns and rural areas following improved road infrastructure.

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