The Hindu Business Line : Car design outsourcing the next gold rush?

NEXT YEAR the US alone will see the launch of 50 new cars, and parts of these cars will be designed in India through outsourcing of engineering drawings.

Carmakers in the US are increasingly facing a major challenge in terms of designing more complex cars than ever before, at far lower costs but faster pace.

"The pressure on engineering will be enormous, and at the same time to do it more efficiently and at lower costs," Mr Mahesh Lunani, partner in the US-based management consulting firm, Roland Berger Strategy Consultants, told Business Line.

To cope with such demands, US automakers are planning to shift more engineering work to suppliers, Mr Lunani, who has co-authored a study called Automotive Engineering-2010: Achieving more from less, said.

He also said that India was becoming the preferred destination for automakers to send their engineering drawings to companies. "Savings from such exercise is between 10 per cent and 30 per cent," said Mr Lunani.

Commenting on the study, an industry veteran, Mr Aravind Melligeri, President of Quest Engineering & Software Technologies - which has been part of the development of passenger cars in the US - said that while it takes $1 million to carry out such work in India, the same kind of work would cost the company at least three times more.

Mr Lunani said that because of the increase in the number of cars, there will be a heavy burden on development resources. "All automakers now want to get more work done for less."

Even the time for development of cars has shrunk from five years a decade ago to 10 months and hence, there are far more models on the roads than ever before.

At the same time, drawings are becoming more complex as automakers face an increasing challenge of developing niche vehicles across various segments.

"Added complexity impacts costs, quality and warranty - things are not simple anymore," said Mr Lunani.

Moreover, R&D budgets have remained flat - around four per cent of total sales - putting more pressure on auto companies to develop more with less.

Mr Melligeri said that most of the designers in the US charge higher rates for working extra hours; hence, automakers tend to save a lot if they send the drawings to countries where salaries are a fraction of those paid to engineers in the US.

However, Mr Lunani said that more work to countries like India does not necessarily mean job losses in the US. "There is enough work for everybody. Therefore, there will not be any job losses."

The Roland Berger study is based on interviews with 60 top automakers and suppliers.