Mohit Arora, executive director, J D Power Asia-Pacific, Singapore

Interview by Aditya Bengali

Autocar Pro News DeskBy Autocar Pro News Desk calendar 03 May 2013 Views icon6357 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp
Mohit Arora, executive director, J D Power Asia-Pacific, Singapore

What similarities do you see between the India-Thai FTA and the EU-FTA?
An FTA is not done with a particular industry in mind. It is usually done with an overall business perspective -- what’s the total gain for the country rather than a specific industry or a specific market. When you look at this Euro-India FTA, there are certain apprehensions that exist regarding the auto industry, especially when you are talking about a certain amount of quota of cars being allowed into the country at a very concessional rate. We have to keep in mind that India is a very unique market, both in terms of the marketplace itself and the consumers and distribution channels that exist. So, if manufacturers think you can just produce cars in Europe and bring them to India and be successful with them in the Indian market, that’s not going to happen. Starting with the basic vehicle specifications itself, the kind of powertrains and performance, and India is all about rear seat comfort while Europe is nothing about rear seat comfort. Even the ground clearance is not compatible. Then there are also many OEMs who have a base in India. Would they like to cannibalise their own base and investments made in India? You will bring in products that are niche products and brand image builders to portray your image and portfolio; from that perspective, it provides a good opportunity for Indian consumers and gives them an option which they would never have otherwise. I think it is important when India executes the FTA, India does it not with a perspective that this is for brands from the EU. It should cover everything and anything that is made in the EU – it could be a Toyota or a Honda made in the EU -- all have an equal play. In that case, it’s an open quota for anything made in the EU. If we have that kind of a framework or guideline and we stick by it, I don’t think that India will become a dumping ground of cars from the EU into India. Many of the European brands are significantly lagging in the Indian markets, except for the luxury brands which are totally dominating the segment. I would say that even in terms of the dealer network that is to be created, if you really want to be successful you cannot be. From a distribution perspective, a lot needs to be done if you really want to take advantage of growth in India.

Is any part of the Thai-India FTA (auto sector-wise) worth emulating in the EU-India FTA?
The Thai FTA is taken from a manufacturing perspective; we are taking a manufacturing/services perspective out here. I think the uniqueness lies because we think India’s strength lies in the service industry whereas Thailand is totally a manufacturing base. So I wouldn’t like to draw direct conclusions to that and FTAs are drawn with an overall perspective rather than only one dimension or one industry

What about the EU-FTA impacting current policies or future policies, which is SIAM’s concern?
First of all, we are talking about a restricted number like 250,000 units over five years, which is about 50,000 cars yearly. Looking at a market that, by 2017, is likely to be 5 million or more, this is less than one percent of an impact. The other thing is that when you sell a car, it is the start of a journey; it is also supporting the car in the aftermarket, which is spare parts and everything else. The fact that you have a situation where you think the FTA is going to deter investments in the Indian markets. To be truly successful in India, you need to create cars that resonate with consumers in India and are suitable for Indian operating conditions -- bespoke for the Indian consumer. So, if you bring in a car with a heavy engine or low GC, and dump it into the Indian market without customising it or if you have pathetic rear seat comfort, it is not going to work. To be truly successful over a longer period of time, you need to be making cars in India and I think that point is not lost upon any manufacturer. Even if you look at Thailand, it’s not to say that their capacity has gone over a period of time; it’s increasing and they are exporting a large portion of their volume along with components to the world, and not just ASEAN. I would therefore think if India is able to restrict the numbers, defined as an open playing field for everybody -- not just an EU brand but anything made in the EU -- I think India is creating a level playing field for the brand. Keep in mind that in return if India is gaining jobs in the service industry, where it has been so strong, it will further improve economic conditions, GDP/capita which will further drive car purchase. I think we need to keep an overall perspective of what it means for India. Of course, if India thinks it is not competitive and will lose to this or if this is one sided, it should not clearly enter. But if it is only an element, keeping in mind most of the cars are high-end/niche cars, it should. The shipping cost of a car from Europe to India will be 500-600 dollars at the least. The average transaction cost of a car in the mass market is Rs 3-3.5 lakh, which is $6,000-7,000. If you are paying $500-600 in just freight, it is 10 percent of the cost of the car and it is not going to successful in the Indian market, leave aside everything else including specifications. So, you are basically taking about a car which costs $30,000-50,000; maybe what we should do is also specify that the cars should be of more than a particular threshold of value and say that it is applicable to those. I think a $30,000 car, which is Rs 15 lakh-plus, is going to be a niche segment; $20,000, I think, is still a little low and $30,000 will be a better bet which ensures you are looking at a premium kind of a car.

Are SIAM and the domestic OEMS justified in opposing the EU-India FTA?
I think they are justified from the perspective that they are looking at the manufacturing base in India and the possibility of these bases being impacted. But I think the impact needs to be clearly understood and also that that it does not favour the Japanese and local manufacturers who have a large presence in the market. We need to keep in mind the kind of car models we are talking about. We need to keep in mind that if I am opening the market for anything made in the EU, say a Toyota, it doesn’t matter right? I can bring in the niche products from Toyota that I could sell in the Indian market and then it becomes an open playing field. And again the fact that overall if we see a big economic benefit for us with a higher GDP/capita, it will drive better overall sales from all manufacturers. From Tata Motors’ perspective, I think we need to look at not just Tata cars but Jaguar cars which come from the EU; it will actually benefit them. Why do I need to invest so much money when I can already supply from Europe at a competitive price in their segment? I think what is important is to keep this open to everybody; keep it restrictive and keep it time-bound

How much of an impact do you see on Indian OEMs’ business plans if the EU-India FTA goes through?
Depending upon the segments addressed, if I am BMW or Mercedes, I may want to rethink a few things but if I am a mass volume manufacturer, it won’t really matter. The only thing this can do to an extent is help create a brand image. Create an overall brand imagery which is a positive thing for these brands and I think that is where they will end up gaining.

Is India and its trading rules in a minority globally when it comes to taxation and imports on cars?
I think in a sense yes but increasingly India and other countries are opening their markets. Frankly, it needs to be done faster. India needs to attract increasing amounts of FDI in all industries, especially the auto industry. If India can attract large amounts of FDI, invite people to set up regional bases, it is clear that strategically speaking nothing untoward can happen as they will be so deeply invested in the market that they will have to rethink before any kind of quota influence can impact them adversely. You have to market the country as not just a service base but a strong manufacturing base especially when your neighbouring countries like Thailand, Indonasia and China, which are so strongly marketing themselves, are already capturing an increasing amount of share.

Will an FTA with the ASEAN yield a better result for Indian OEM suppliers than the EU?
Like I said, an FTA has to be done from an overall perspective and not just the auto industry. The fact is that many of these players already have large bases in ASEAN. My opinion is that you should try and have FTAs with as many countries as possible because right now, India is not seen as an easy country to do business in. The more and more of these things you can get, you can easily create an image of a country that is open for business. Of course the norms, intentions and guidelines could be different but I think the more of these type of relations India can develop, the better it is. It is like a visa-free country or visa on arrival. There will always be a larger inflow of tourists which is beneficial to both countries. Without circumventing security or safety concerns, India must allow free movement of goods and services ensuring it remains on a strong wicket where it is able to provide the right variables/environment for attracting growth/companies, ensuring there is an overall gain for the economy rather than just a specific sector. As long as the economy and the country moves forward, every industry will benefit.

In your view, what is the way forward for overall Indian industry?
Compared to a few years ago when India was clearly seen as an emerging alternative to China just a few years ago, it is clearly losing a lot of that brand equity in the global markets and the mind of the investors around the world. India needs to do some active reassurance, selling brand and destination India because it definitely needs as much of FDI as possible from global markets. India has a huge amount of talent, Indians are representing companies around the world, I don’t think that is lost upon any company in the around that the benefit India or Indians bring to the table. It is just the hesitancy of decision making, the back-and-forth in policy which has been seen, which is where people are getting skeptical whether India can really make it. I think India is a county that holds a lot of promise. You don’t come to India with a two or three-year period, you should come to India with a 20-to-30-year perspective because that’s where the true advantage or benefit is there for companies when you are looking at India as a holistic base rather than just one of the markets. It is a unique market but a complex and diverse market and I think India should embrace as much as possible, not just in the auto sector but around the sectors to come up and experience India. The more it is open, the more it will be able to realise the true potential of the country.

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