Indian automotive sector: From resilience to resurgence

From dipping sales to the Covid-19 pandemic, the Indian automotive sector has faced many challenges these last few years. Yet, it has also bounced back with equal vigour. In late 2020, eased travel restrictions, a good harvest and the festive season stimulated high-volume segments. In addition, tailwinds from rebalancing global supply-chains, government incentives and technology disruptions point to a future with clear potential.

Undoubtedly, the industry has shown immense resilience and emerged stronger. But is resilience enough? Are there ways to tap into the sector’s unmatched potential and plan for a complete resurgence?

We believe capturing the plethora of growth opportunities available, planning for robust operations and future of mobility disruptions, and investing in the right enablers will help automakers re-invent their industry and cement their position as leaders in both India and overseas.

It's like Einstein said — in the middle of difficulty lies opportunity. As the Indian automotive industry regains momentum, several prospects are taking shape that could accelerate a revival.

The domestic market is slowly pivoting towards repeat purchasers. Some start-ups are already attempting to simplify and improve the resale process for used cars. If automakers proactively shape this landscape, they could help revive urban demand. As value-seeking customers feel the pinch of BS6 costs and the recent surge in commodity prices, bringing them back into the market could also spur growth and introduce a new wave of productivity transformations. Addressing the new-age customer's requirements by developing digital, direct-to-customer channels and alternate ownership options is also the need of the hour.

International markets look promising, as well. Regions such as Africa, South-East Asia and Latin America offer significant room for growth, and the frugal engineering of Indian products is likely to offer a strong fit for customers there. As the Indian government rolls out production-linked incentives to bolster exports, it could be the right time for automakers to double down on select international markets and invest in creating a lasting franchise.

Meanwhile, expanding into the downstream value chain could provide an additional avenue of growth. First movers in this space get to shape a digitally enabled, downstream ecosystem that provides a one-stop solution for customer needs throughout the ownership cycle, including scheduled/breakdown service, resale, and purchase of personalised accessories.

With the present uncertainties and global supply chain discontinuities at play, it has become even more important for automakers to think about robust operations.

A leading Indian car manufacturer currently has more than seven of its car models and over 60 per cent of its sales volumes on just one platform. Cutting the number of platforms not only lowers costs but also reduces time-to-market. This serves as a perfect example of what operational resilience can achieve. Reviewing their product-platform architectures and moving to modular product designs could help automakers significantly bring down complexity (20-30 per cent lower part count) and cost base (6-8 per cent reduction in material cost).

As the manufacturing and supply-chain philosophy expands from being just-in-time to just-in-case, companies can also win by embedding digital and analytics into their operations.

Furthermore, as the mobility landscape transforms through four disruptions — autonomous, connected, electrified, and shared mobility (ACES) over the next 10-15 years, Indian automakers could utilise their economical designs and engineering to become a global hub for innovation. This is especially true for traditional micro-mobility segments like two-wheelers and three-wheelers.

Key enablers

To make the most of the opportunities and trends mentioned above, the Indian automotive industry could focus on three key enablers.

Reimagining their partnership ecosystem : The days of going alone are limited. Automakers may find that they can access new customer segments by working with other companies that offer complementary products or capabilities, and share risks associated with certain ventures. This can already be seen in the market, with GM and Honda collaborating on electric vehicles and partnerships among Volkswagen, AWS and Siemens.

Rebuild for the future : Automotive companies have traditionally had vertical set-ups that prevent them from being nimble and agile in the face of change. They could redefine organisational structure and flows around two signature processes — Product Creation and Development System (PCDS) — to facilitate product development and Customer Value Delivery System (CVDS) to provide a complete operational framework for all processes, thereby reducing siloes.

Revamp with digital and analytics: Most leading automotive organisations have articulated a bold aspiration for unlocking real bottom-line impact from D&A technologies and have created a CXO level role to drive the transformation. The first wave of change for automakers is underway, with a significant push for digital marketing and digital platforms to generate leads. Digital and analytics should not be limited to the front-end but should percolate organisation-wide to manufacturing, supply chain, and planning.

Automotive is one of the core sectors of the Indian economy and serves as a bellwether for its current state. It will play a central role in our aspiration to become a $5 trillion economy — provided the industry embraces changing dynamics and customer choices and proactively plans for a brighter future.

The writers are partners in McKinsey’s Gurgaon office

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