The annual SIAM convention took place at a time when the Indian automotive industry is witnessing the biggest slowdown and the lowest sales ever since the Society of Indian Automobile Manufacturers (SIAM) began tabulating industry sales figures for both the domestic and export markets 20 years ago.
The well-attended conclave, held at the Taj Palace in New Delhi on September 5 on the theme of 'Building the Nation, Responsibly: Moving into a New Era of Auto Industry', saw the participation of the who’s who of the industry and top bureaucrats. The event came a day after the FADA (Federation of Automobile Dealers Association) convention, where automobile dealers from across the country were keenly looking out for indications from vehicle manufacturers as to which quarter would the industry see a turnaround so as to stop the continuing discounts.
Nitin Gadkari assured India Auto Inc of continued support to the IC engine vehicle industry and advised automakers to look into setting up of a proprietary financing arm to boost sales.
Chief guest Nitin Gadkari, Minister of Road Transport and Highways and Micro, Small and Medium Enterprises, used the SIAM Convention as a platform to assure support from the government to the automobile industry. He added that he will take up the industry’s demand of GST reduction with the finance minister. He also assured continued support to the IC engine vehicle industry while asking the industry to establish their own proprietary financing arm to boost sales. He pointed out that small-scale banks have close to Rs 2.5 lakh crore of funds available per bank and auto companies must tap such banks. Gadkari assured that the government is trying to introduce the vehicle scrappage policy quickly, which will lower production costs to a huge extent. In order to increase the bus population in the country, the minister is looking to adopt the London public transport model while also urging state governments to be bullish with electric buses in their fleet. He also announced that he is in talks with the finance minister for incentives to boost the export figures.
Rajan Wadhera, President, SIAM & President (Automotive Sector), Mahindra & Mahindra, reiterated the need to reduce GST on automobiles and also highlighted the need for the government to consider a single nodal regulatory ministry for the auto industry (see separate panel story on page 23).
Embracing the new era
The complex, diverse and dynamic auto market of India has always demanded value for money products and the industry has been meeting those demands through focused product development, incorporating customer feedback and by adding the right features. However, in doing so, the members of ACMA who are automotive component manufacturers have been facing some serious challenges, including high cost of capital, non-availability of skilled labour and rising operational costs.
At the inaugural session, speakers including Rajan Wadhera, president, SIAM and president (Automotive sector), Mahindra & Mahindra; Ram Venkataramani, outgoing president, ACMA and director Amalgamations Component Group; Uday Kotak, president-designate, CII and managing director and CEO, Kotak Mahindra Bank, Kenichi Ayukawa, vice-president, SIAM and managing director and CEO, Maruti Suzuki India along with Nitin Gadkari, Minister of Road Transport, spoke about how the government could provide a clear and stable policy framework for easier adoption of the newer technologies.
Globally, there is a need for a major policy intervention to drive towards an emission-free economy and achieve the climate goal targets of 2030 and 2050. India, on the other hand, needs to urgently ensure energy security as it imports nearly 80 percent of oil for meeting the mobility demands and for moving towards zero emissions.
Considering the fact that by 2030, the consumption of petroleum would double in India, thus making it the third-largest consumer of crude oil in the world, the panellists observed that an electric vehicle ecosystem, Industry 4.0, smart manufacturing and Advanced Driver Assistance Systems (ADAS) technology and Internet of Things (IoT) are the ways of tomorrow’s automobile industry.
Is India ready for Real Driving Emissions?
Some important aspects that came to fore at the forum is that the driving, road and ambient and boundary conditions in India are quite different from those in other countries globally. The Indian RDE (Real Driving Emissions) is based on EU RDE third package and the test cycle is based on BS VI. It has also been observed that India is not going to adopt some of the most important provisions of the EU RDE regulation as AIS 137 meets several elements of the European RDE package 1 and 2 but not 3 and 4. Along with a concern in accuracy for one- and two-cylinder engines, the effects of high temperature and low flow conditions also need to be assessed. It has been found that neither the RDE tests nor the in-house conformity requirements will go into effect until 2023 and more rigorous laboratory testing based on World Harmonised Test Procedure (WLTP) is yet to be adopted.
It has been suggested in a report, presented at the 2019 SIAM Convention, that the Indian RDE programme adopt aspects of the EU and Chinese RDE programmes, while adjusting the boundary conditions to better reflect the Indian driving conditions. India could incorporate Portable Emission Measuring Systems (PEMS) to provide a complete real-time monitoring of the key pollutants like PM and NOx. This is where the need arises for Selective Catalytic Reduction (SCR) and lean-NOx systems, which makes the entry segment diesels unattractively pricier.
A regulatory framework is in the anvil for adopting a market surveillance programme that places the testing responsibility in the type-approval authority and it has been confirmed that MoRTH will be in charge of maintaining the database for the public.
The green ecosystem
The large audience comprising industry stakeholders was all ears whenever somebody dropped the words – electric vehicles or EV. It was widely accepted at the convention as well that the growing demand for EVs across the globe, coupled with favorable government policies, has influenced a change in the automotive and battery manufacturing industries both domestically and globally. Due to the EV megatrend, virtually all reusability between existing models and new models is gone and a complete disruption of the industry economics is on the cards.
What largely came out of this year’s SIAM convention is that new supply chain partnerships are the need of the hour and component suppliers are ready to redefine their product portfolios in order to retain their position in the changing automotive landscape. Be it in engine management, emission control and fuel efficiency to batteries, drive motors and other aspects of technology, every OEM at the convention have vouched for their readiness to tackle this new disruption.
Emerging mobility ecosystem
In a panel consisting of Vinod Aggarwal, treasurer, SIAM and managing director MD and CEO, VE Commercial Vehicles; Rahul Jain, managing director and senior partner, Boston Consulting Group; John Moavenzadeh, executive director - Urban Mobility Professional Education, Massachusetts Institute of Technology (MIT), senior advisor, Deloitte and founder and managing partner, Mobility Nexus and Martin Peter Schwenk, MD and CEO, Mercedes Benz India, there was a lively debate on the urgent need for a well designed urban mobility model that would be driven by all stakeholders.
Derived from another analyst report that was presented at the convention, Indian companies could look forward to new opportunities in vehicle development, in-vehicle transit experience, infrastructure enablers and mobility management. One of the few services that really came in focus were the new modes of mobility which includes car sharing, bike sharing, e-scooters, ride-hailing and micro-mobility. Of course, these services would get a further boost with the advent of electric vehicles.
Path to digital transformation
Digitalisation has fueled the evolution of four industrial capabilities: connectivity and computing power, analytics and intelligence, the human-machine interface and the digital-physical transformation. This has brought a significant change in the Indian automotive industry’s value chain, value proposition to customers and overall business model. This is all the more reason why Industry 4.0 was also a burning topic at the SIAM convention.
As per the AT Kearney-SIAM-ACMA study, the industry is recognising the importance of digital technologies but the fact of the matter is that few companies at India Auto Inc have a digital roadmap or a dedicated team in place. Although there is a greater focus on using sensors and the Internet of Things (IoT) to collect data, there is a limited understanding of how to use that data effectively. In India, Industry 4.0 is mostly incorporated to address system security, machine interoperability and standardisation.
As India Auto Inc, which has for long been demanding a GST cut to spur vehicle sales along with a vehicle scrappage policy, awaits the outcome of a key GST Council meeting on September 20, the grim reality is that the year ahead will continue to be full of challenges in terms of the shift to BS VI, new safety technology upgrades, lightweighting of vehicles, shared mobility and also vehicle electrification.
Not all is lost though. BS VI is a great technology leveler for all advanced global markets and gives Indian OEMs a solid platform for exports. A stringent focus on ensuring top-notch product quality could see them increase their shipments, which could thereby act as a buffer to troubled times in the domestic market.
In a media briefing, SIAM president Rajan Wadhera spoke on a range of issues impacting industry. Some excerpts.
How do you view the assurances given by Mr Gadkari?
There are three important things that he spoke on. First, he said that the reduction of the GST rate is something that he will put in a word with the Finance Minister. We have already been talking about it with the state ministers; our dealers, as well as suppliers, have met with the state ministers. Most of these suppliers were from Tamil Nadu, Karnataka, Maharashtra, Haryana, where the Tier 1 and 2s are losing jobs because of slow demand, therefore less production and hence layoffs. We heard that they have requested the ministers to support the Central government’s initiatives if they have to get the ecosystem to survive. So, we understand that the chief ministers are considering reduction in GST rates. In states where there is no manufacturing and hence no job loss, they might not support it.
Job loss has more of a multiplier effect. For every one person we reduce, the suppliers have to reduce around 15-20 depending on how much backward integration goes on there. At the front end with the dealers, the ratio is almost 8-10. Obviously, it has much more effect on the vendors and this is at a time when BS IV has to go down, BS VI has to take off, so managing inventory, managing production, managing loss of employment are all the complexities that have ganged up together. We always have light at the end of the tunnel but are just wondering how long is this tunnel. There is some fiscal stimulus that is needed to shorten the tunnel.
The scrappage policy was the second thing Mr Gadkari talked about and we are talking with the government to give us a clear picture on it at the earliest. The third stimulus is the Rs 5 lakh crore investment in roads on 68 critical projects. In three months' time, they are going to announce and award the projects. So all that money will come in, people will buy heavy commercial vehicles, tippers, construction equipments and overall it will generate positive sentiment. So, these are the three big-ticket items which he said would boost demand.
How will industry manage inventory in the run up to BS VI?
It is a matter of risk-taking capacity, which differs for individual companies. Some might opt for high risk while some may not. So to that extent, having very high inventories and then going for a distress sale may not be the right thing for some companies but some may just take the call. I believe business is done with a lot of prudence. We will watch what will happen till the end of October and after that we still have sufficient time to correct our inventories so that we don’t go for a distress sale.
The economic performance measure is coming from commercial vehicle sales, which is 60 percent down wholesale, and the retails are also substantially lower. That should tell you that it is not an inventory correction that is happening. In some segments, I agree that it must be inventory correction but very largely in the commercial vehicle segment, which is a mirror of the economy, and the economy itself is slowing down and it is a genuine loss of sales.
What are your expectations from the GST Council?
I think every initiative counts and a fiscal stimulus is a very big initiative. Our past history tells us that in 2008 and 2014, when India was hit with downturns, there were tax rebates given by government, somewhere around 4 percent, which did boost up the sales. It is a universal correlation between price and demand. The price goes up, demand goes down and vice- versa.
What we are also saying is that with BS VI in the commercial vehicle industry and the higher end of the car industry which is largely diesel. The fun-to-drive factor is only there in diesel vehicles with the high initial torque and the calorific value of the diesel.
So for diesel vehicles and for CVs, the cost is going to go up by 8-10 percent because of the two new technologies that are packed in for BS VI. Now the government is going to gain 8-10 percent in GST just because of this price hike. We are asking the government if they could reduce the rates so that the demand does not fall due to the BS VI price rise.
What's your position on hybrid and alternate vehicles?
SIAM has not taken its position yet and internal discussions are going on. Mr Gadkari mentioned very clearly that there will be no replacement of petrol and diesel fuels. Alternate fuels will come and if you are happy with the performance that you get from CNG then CNG will flourish. CNG is not in competition with any other fuel.
What Captains of Industry had to say at this year's SIAM Convention
Guenter Butschek, CEO and Managing Director, Tata Motors
“The Indian growth story is too big to be washed away over a few quarters of low demand. We, as the industry, need to win back the customers’ confidence by being disciplined in our approach and consistent in our messaging. We need to make sure that we keep our customers attention through product interventions, improving on TCO (total cost of ownership), and providing superior experiences.
To bring sanity and calibration between demand and supply, we expect SIAM to lead the discussions on the shift of reporting from wholesale to retail, in order to measure what finally gets on the road. As an industry we need to have ‘One Voice’ on technology play. While ICE and EV will co-exist for the decade or even beyond, ICE will require some evolution to meet the CAFE fleet emission norms while the EV would require a complete ecosystem beyond auto. But in order to get out of the current crisis and not to miss the festive season, we require clarity from the government, here and now, on GST and the scrappage policy.”
Dr Pawan Goenka, Managing Director, Mahindra & Mahindra
"This slowdown comes at a wrong time because we are just about to shift to BS VI. We would have liked to go as a healthy industry to prepare for the inevitable impact of BS VI. So the ability to absorb the impact now will be lower."
"The industry has suffered a lot in reputation in the past 8 to 10 years. We're not seen as a powerhouse that creates jobs and contributes significantly to the economy but as an industry that pollutes the environment. The Indian automotive industry has to win back the aspirational value that it has lost in the past 8-10 years. It has to emerge as a new auto industry."
Kenichi Ayukawa, Vice-President, SIAM and MD & CEO, Maruti Suzuki India
"Creating a common platform for all the different ministries governing the automobile industry in India, to come together and address their concerns with the automobile industry, is the need of the hour. All stakeholders including OEMs, suppliers, dealers and the banking sector need to work together to break through this crisis and move forward with a brave heart."
Venu Srinivasan, Chairman, TVS Motor Company
"Two-wheeler prices have gone up by 35 percent in a little over 2 years as a result of multiple regulations in quick succession including the GST level of 28 percent, the same as luxury cars. Bringing in the scrappage policy will be the biggest transformation that the auto industry will undertake. We need an organised system where vehicles are received, shredded and segregated. An inclusive approach, with the government’s support, would be required in bringing the industry out of its current stage."
Martin Peter Schwenk, MD and CEO, Mercedes-Benz India
"The auto industry is undergoing major disruption and these changing trends will shift markets and revenue pools. India is in dire need of regulatory stability, along with policies that are technology agnostic."
Gurpratap Boparai, MD, Volkswagen India and Skoda India
"Industry 4.0 will disrupt the way we go about automobile manufacturing by bringing in emerging technologies like Artificial Intelligence, resulting in higher flexibility and shorter delivery time."
Venkatram Mamilapalle, Country CEO and MD, Renault India
"Industrial revolution 4.0 has both opportunities and challenges as it is customer-driven but it also requires the right skill force to support it."
(This article was first featured in the September 15, 2019 issue of Autocar Professional)