The Hindu Business Line : Asia to fuel auto demand, says KPMG survey

GLOBAL automotive executives have forecast an accelerated financial turnaround for the industry. They expect to reap higher profits this year as against the earlier forecast of 2006-07, according to an annual global survey of automotive leaders conducted by KPMG LLP.

While KPMG's Global Auto Executive Survey 2005 focused on executives in the American and European automotive industries, the findings have relevance for the Indian industry as well, as the automotive market in India is increasingly being influenced by global trends.

Eighty per cent of the respondents in the survey felt that the next big surge in global automotive demand would come from Asia, primarily China. They added that the bulk of this demand would be met by vehicles made locally, specifically Chinese and Korean brands, rather than by imports. Therefore, there is likely to be a sustained thrust on investing in China. According to KPMG, this is both a challenge and an opportunity for auto players in India. "While the huge Chinese market offers an attractive option for growth through expanding operations, competition in the domestic market from global auto majors investing in India is likely to increase."

Further, an increasing focus on cost reduction by global auto majors in the US and Europe can lead to increased outsourcing to India and China. Auto players in India need to be ready to seize the resulting growth opportunities. While outsourcing continues to be a preferred option for cost reduction, product innovation is increasingly being explored for reducing costs.

"In future, the advantage of lower labour costs will not be enough to attract global customers — Indian players need to have product development and research and development (R&D) capabilities in place to meet the original equipment manufacturers' requirements in the area of product innovations as well," KPMG states.

"Developing indigenous product development capability and taking up sustained cost reduction initiatives across the supply chain are key imperatives for players in India to remain competitive. While the Indian auto industry is in the growth phase, companies face two key challenges. "On the one hand, they need to penetrate the domestic market further by addressing untapped suburban and rural areas through network expansion, innovative product pricing and promotions.

On the other hand, they need to address global markets, requiring a different set of capabilities like R&D, product development and global supply chain management," Mr Sanjay Upendram, Director, Business Advisory Services, KPMG said.

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