‘An end-of-life policy for cars is desirable in India.’

J D Power Asia Pacific’s Gerrit Kuyntjes and Mohit Arora speak to Shobha Mathur on improved quality levels in Indian cars and the need for a vehicle scrappage policy, among other issues.

How do you perceive the trends driving OEMs to make and market a better genre of vehicles in India?
Gerrit: India struggled last year, which saw a contraction of the industry. This year, the focus is how to get back to the former volumes. Clearly, the products entering the market are the next generation of vehicles, a trend that we see internationally. We see many more segments getting populated with new car launches and the offerings available in India are exploding in terms of number of options available to customers. So, it is becoming a more complex and diversified market.
Going forward, being able to offer the right car to the right customer is going to be an increasingly competitive game. Twenty new models are coming into the market this year, so the trend is going to continue. We are moving more into luxury vehicles and the luxury segment is becoming an attractive and growing segment. The premium midsize segment is continuing to grow and SUVs, of course, are an increasingly interesting market.

Where does India stand in terms of quality improvement over the years?
Gerrit: We measure quality on two metrics – The Initial Quality Study (IQS) measures the things that have gone wrong with the vehicle and the APEAL (Automotive Performance, Execution and Layout) study measures the things that are right about the car.
We see significant improvement on both the metrics with the last IQS score for the (Indian) industry being 155 (120).
One of the things that we are seeing is that everybody is getting better in terms of breakdown, malfunctions and defects. In the past, there was a fairly large gap between strong players in the market who were mostly Japanese companies pitted against domestic manufacturers. We now see the gap becoming very small and convergence in terms of quality and performance.
What is becoming more and more important is the other side of quality – not the manufacturing quality where most manufacturers are performing at increasingly high levels but on the APEAL side how can the car be made more appealing; what is the experience of driving the car in terms of styling, engine performance, torque, acceleration and what are the features that people require in a vehicle drive experience.
That’s where the next battle is going to be fought and even on the APEAL side we see dramatically rising levels of satisfaction. Those scoring low historically on the APEAL front are upping the appeal fairly dramatically across vehicle segments.

How does Indian vehicle quality compare with developed markets?
Gerrit: It is comparative depending on which markets you are talking about – compared to APEAL in Indonesia and Thailand, India is putting in a very competitive performance. There are some differences that we see within markets but India is at par with what we are seeing in the ASEAN markets.

How does global data compare with Indian statistics in terms of consumers, parts and services, and manufacturing costs over the past year?
Gerrit: India is clearly an emerging market and playing an increasingly important role in the global OEM perspective. What has hurt India in the last year is devaluation of the rupee; part cost and vehicle cost have dramatically risen due to the currency fluctuation. So the entire perpective has come under challenge.
Domestically, manufacturers’ margins have become compressed to a significant extent and also from an export perspective (export is an important automotive target in India compared to Thailand), the rupee has not helped in promoting that part of the business.
In the long term, India is a growth story and will be a very important part of the global automotive footprint and slated to become the fourth largest market in the next five years in volume terms. We expected the volumes to go over 9 million by end of the decade but today everyone is looking at 8 million vehicles by the year 2020. By then, India will be the third largest automotive player globally.

Mohit: Given the right amount of governance, the right amount of infrastructure, the right amount of incentives, India can clearly get there.

What will be the continuing impact of excise duty cuts, rising interest rates and fluctuating fuel prices on industry?
Mohit: The excise duty cut is a positive, high interest rates are a negative; so it was something that was given and something that was taken away. But car penetration is directly linked to GDP per capita. In India at this point of time while GDP per capita has grown, the pace has not been to the extent to what we were hoping to see.
As the GDP per capita grows and as the country’s economy grows, there will definitely be growth. The good thing is that India, by the sheer numbers that are there, can have a cumulative effect. Therefore, we can see really large numbers in a fairly short period of time.

Gerrit: The reason why China has picked up so fast is because the country’s GDP is spread across a larger base, making vehicles affordable to a larger customer base.

Does India require an end-of-life policy?
Mohit: In terms of more consciousness to the environment, clearly there are old vehicles on the roads. From a safety perspective, with many new cars on the roads with more built-in safety features, an end-of-life policy is desirable. You don’t want the roads to have 20-year-old cars that pollute a lot, that don’t have the same performance characteristics and safety features that new cars possess, and end up creating bottlenecks.
Affordability is a challenge but with an end-of-life policy, strong public transportation is a requirement. For all the top cities in the world, a strong public transport system is their backbone; cities continue to develop with an end-of-life policy and people can migrate to public transportation too. They can buy a new car which is good for the overall industry, but from an environment perspective migration to public transport will be good for the city.
Gerrit: In Singapore, due to excise duty cuts, 70 percent of the households can afford to buy a car leading to traffic congestion. So the government has been proactive in enforcing punitive taxes on car ownership and thereby the vehicle parc is being controlled through an auction system. So people cannot afford to have too many cars today.
The cities of Beijing and Shanghai in China are trying to do similar things based on taxes and limitations on vehicle parc as affordability is getting to a level where we can have unlimited cars, creating gridlock pollution.

What are your recommendations to the Indian government for improving the health of the automotive industry?
Mohit: The passenger car industry is closely linked to the economic health of the country. In a market as diverse like India, where several million people are at the bottom of the pyramid earning less than $ 1,000 (Rs 60,270) per year , the government’s focus is going to be towards that majority of citizens. But we need to understand that there is always a trickle-down effect of any industry coming to a particular location, a particular city or a particular country because it provides employment opportunities for people to grow their skills and be useful.
The car industry is one of the most influential industries in the world and in China it is a core industry. They have realised if the country has to grow, the auto industry will be a big influencer, not because the lower strata consumes the product but because it has an indirect influence. The auto industry should be made a core industry for this market as well.
Balance of payment (BoP) situations between countries have also been dramatically influenced by the car industry. The auto industry is really driven by the BoP situation between South Korea and the US, Japan and the US, so it is also important for India.
Gerrit: The passenger car industry is extremely capital intensive, involving billions of dollars. The government needs to have a long-term view of policies to drive its growth. In Thailand, the government maintains a long-standing relationship with the auto industry in terms of what will be the next vehicle segment development. For example, the small and fuel-efficient Eco-Car programme has government subsidies like excise behind it so that everybody stands to gain and everybody is investing in it.
In India, there is no clarity on petrol and diesel fuels and subsidies switch. Diesel engine plant investments need stability and a long-term partnership between OEMs and the government. India can learn from other Asian countries as they maintain a constructive, long term and a transparent relationship. The key enablers will be city infrastructure and the government will have to play a critical role here.