Editorial

The automobile sector must change gears towards more sustainable production models

| Updated on September 06, 2019 Published on September 05, 2019

Auto companies could reinvent themselves by offering integrated mobility-services

Retail sales of automobiles slumped to their lowest in 20 months in August, and the industry is once again looking to the government for some succour. The Union government has already announced some measures, such as an accelerated rate of depreciation on vehicles bought in the current fiscal year, replacement of old fleet of cars used by the ministries and departments as also deferment in implementation of the revised registration charges. These issues are unlikely to address some of the key factors behind the slump. Besides, the incomes squeeze, traffic congestion, cost of operating a vehicle and paucity of parking spaces do not serve the cause of revving up auto sales. At a less significant level, ride-hailing services offered by cab aggregators have possibly worked in reducing personal demand, at least in the metros. A GST cut here or there at this stage is all very well, but this crisis should also serve as an opportunity for the industry to rejig their business models to be in business in the long run. This is not merely about transiting to electric vehicles, but also about realising that private personal vehicles are unlikely to be in as much demand as in recent times. This means the auto majors need to alter their business models. Compound annual growth rates of passenger vehicles sales of 8 per cent between 2008-09 to 2018-19 cannot be expected to continue; they have already slipped to 6.17 per cent in the last five-year period.

In this scenario, auto companies could become integrated mobility-services providers, following the example of many global companies such as BMW, Daimler AG Groupe Renault and Groupe PSA (Peugeot Citroen). Groupe Renault offers a range of shared and environmentally responsible solutions, going beyond being a vehicle manufacturer. It has subsidiaries providing services such as ride-hailing, car-sharing, short-term rental and car-pooling. Daimler AG was among the first auto manufacturers to venture into car-sharing in 2009 and had now merged its car-sharing operations with a similar operation of its competitor BMW to form a new joint venture, ShareNow. Mahindra and Mahindra’s decision to buy over 55 per cent stake in Meru Cabs, a ride-hailing and radio cab service provider, after investing in car-sharing service provider Zoom, signals a change in business strategy. Others like Hyundai Motors are looking at a minority stake in ride-hailing service provider Ola as well as an arrangement to manufacture EVs for the ride-hailing segment.

The economic and ecological limitations of pushing personal vehicles are only too evident. Over 80 per cent of India’s transport fuel needs are imported, as a NITI Aayog report observes. The transport sector accounts for 18 per cent of commercial energy use — 70 per cent of diesel and 99.6 per cent of petrol consumed (in the latter case, it is passenger vehicles). The future lies with sustainable, planet-friendly mobility. Unless the traditional automobile sector can reinvent itself, it runs the risk of being disrupted by new and more innovative rivals.

Published on September 05, 2019
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