Addressing The Slowdown

Addressing The Slowdown

Editor's Desk October 2019 Addressing Slowdown

Dear Readers,

The prevailing slowdown in the Indian automotive industry has ruffled every single player in the market, including market leaders across segments. Large component suppliers have been hit too, while smaller players in the second and third tiers have had to take the maximum impact. Amidst all the downbeat market sentiment, new players such as Kia Motors India and MG Motor India, however, have been enjoying the acceptance of consumers for their brand new products.

At the annual convention of the Automotive Component Manufacturers Association of India (ACMA) last month – as has been a practice with the industry body for many years now – McKinsey & Company was invited to present a report on the theme of the session – Embracing the discontinuities in India’s auto component industry – at a time when every stakeholder in the sector is concerned about the future of the industry.

For an industry that enjoyed robust growth for almost a decade before it was hit by the current slowdown, McKinsey has identified six areas – impending discontinuities, as they call them – that the industry can anticipate and prepare for.

One, accelerated enforcement of emission and safety standards could make the world a level playing field for Indian auto component manufacturers; two, the thrust on electrification by the government and private sector alike is increase EV sales; three, growth of shared mobility could see the emergence of fleet aggregators and owners as a new customer segment; four, customers’ preference (must have) for connected vehicles might change the composition of vehicles, with electronics and software (rather than mechanical components) likely to dominate the mix; five, global consolidation of auto OEMs could drive demand up or down for suppliers, lead to greater standardisation and enable access to new markets in the footsteps of these OEMs; and six, the digital and analytics-related transformation of core areas of business could unlock EBITDA growth.

In addition, McKinsey also suggested that the auto component manufacturers could also address the downturn by optimising parts complexity and modularising products, enhancing quality, optimising their portfolio, developing optimal inventory control and building transparency, and revisiting the organisation structure to enhance efficiency. The management consulting firm said the future course of action automotive suppliers take would define whether they can turn the discontinuities on the horizon into opportunities.

There is little doubt about the growth potential of the Indian automotive industry – both in the domestic market as well as in terms of exports. As has been seen in the past, companies who continue to invest in these trying times emerge winners and often are better prepared to address the market when good times return.

New Delhi, October 2019