Multinational carmakers need to reduce their investment commitments and lower quality levels to turn profitable in India, said Dr Wilfried Aulbur, Managing Partner of Roland Berger Strategy Consultants.
Roland Berger is a German strategy consultant, which had advised the Tatas on its JLR deal.
Most foreign players have not been able to turn profitable in India despite rapid growth in sales volumes, he said.
This is because a competitive market has driven margins low, while high demand has forced carmakers to invest in fresh capacity, with hope of a break-even 4-5 years down the line.
Minimise expenditure
Dr Aulbur said that since making money is a challenge in India, carmakers need to be frugal and minimise their capital expenditure.
“Investments cannot be made on a Western cost basis. Carmakers may not have to put factories of the same quality as Europe — they just need to look at what quality levels the customers will pay for and what local laws allow,” he said.
Earlier this year, Ford India was declared ‘potentially sick’ and reported to the BIFR after its accumulated losses (Rs 1,200 crore) eroded 50 per cent of its net worth.
In 2010-11, General Motors and Honda’s local subsidiaries also posted losses of Rs 184 crore and Rs 213 crore, respectively.
GM, Honda Siel and Ford have all been operating in India for over 15 years.
Dr Aulbur further said that in terms of products, high localisation and exports are very necessary to make local operations profitable.
But, there also has to be focus on country-specific vehicle platforms which do away with features domestic consumers may not really be willing to pay for.
“This is value driven market, so pricing power is limited. Prices are half of Brazil and China. Localising can insulate a company from forex fluctuations.
“Customers here may not bother as much about NVH (Noise Vibration Harshness) and safety features, but want better design and gadgets.
“Also, platforms sold in Europe may be too expensive for a car sold in India, so you need cheaper options,” Dr Aulbur said.
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