By S. Raj, Regional Director, Indo-German Chamber of Commerce, Chennai
After a dismal performance in the last two years, the Indian automotive industry reflecting the positive sentiments in the country, is showing signs of recovery in the first quarter of 2014 with a marginal growth of 1.68% in passenger cars (7.6 lakhs), around 16% in 2-wheelers (4.5 million).
Last year (2013), the global passenger car production witnessed a 3.7% growth and stood at more than 65 million cars. China continued to lead with a 20% growth at over 18 million. Having recovered in the previous years, the US market continued its momentum with a 5.9% growth with over 4.3 million cars. German manufacturers increased their market share in China to 20 per cent and continue to gain market share in the US for the eighth year in a row.
While India continue to retain its position as the 6th largest car manufacturer in the world with 3 million cars, China which was at No.14 with 700,000 cars and India at No.15 with 650,000 cars in 2001, is today the largest car manufacturer in the world with a production of more than 18 million cars (15 million last year). However, looking at the oft referred Indian demographics, and the low penetration level of 12 cars per 1,000 persons simply calculated means 15 million cars alone for a population of 1.25 billion. Add the 2-wheelers, 3-wheelers, commercial vehicles and the number is already mind boggling. Germany, has the highest penetration of 565 cars per 1,000 persons. While it is sustainable for a developed nation with a small population of just over 80 million which translates to 44 million cars. India with a population of 1.25 billion, even at 100 cars per 1,000 would translate to 125 million cars. However, the question is, do we have the infrastructure to embrace such growth? While growth is desirable for the economy, we need quantum leaps in infrastructure development to cope with the growth. Public transport system should also be simultaneously developed. Else our streets would look like parking lots with traffic congestion. Germany has an outstanding public transport system which helps traffic management despite the volume of cars.
The Indian passenger car scene is dominated by foreign players, led by the Japanese with Suzuki as the market leader, and the Korean – Hyundai. Domestic players like Tata Motors and Mahindra being relatively small. The commercial vehicle segment has negligible foreign presence though we have had huge investment by Daimler Trucks (Bharat Benz), which claims to have sold 10,000 trucks already. The European car manufacturers have managed to increase their share to 5% in the last 5 years with a major contribution by the German car manufacturers in India. The luxury car segment in India is dominated by the German trio of Audi, BMW and Mercedes. Again, compared to China their volumes are miniscule. The largest car manufacturer in the world – Volkswagen with around 8.5 million cars, produced more than 2 million cars in China, last year, Audi more than 300,000, BMW more than 230,000 and Mercedes more than 170,000 cars.
German automotive industry is global leader
The German automotive industry registered a turnover of Euro 361.1 billion, registering a 1.2% growth. The automotive sector is the largest industry sector in Germany contributing to around 20 per cent of the total German industry revenue.
With 5.4 million passenger vehicles and more than 278,000 commercial vehicles manufactured within the country during 2013, Germany is leader in European car production accounting for 30% of the production and 20% of sales. With 47 OEM sites, Germany has the largest concentration of major auto brands in Europe.
German Cars produced in foreign countries during 2013 increased by 5 per cent, crossing the 8.6 million for the first time. This means 3 out of every 5 German-branded passenger cars is produced abroad. At the same time, domestic production in the past 10 years has risen by 5 per cent to 5.4 million passenger cars. With 14 million cars produced globally, Germany accounts for 21% of the global production. The increasing focus on production sites outside Germany has not resulted in a fall in domestic production, as in other large Western European automotive countries. In-spite of German Auto companies being present in 70 countries, more than 77% of cars produced in Germany in 2013 were exported. This twin pronged strategy of focus on exports and expanding offshore production base gives it’s the advantages of shorter distance of travel, reduction in import duty. This also helps the domestic market in securing jobs not only with the OEMs but the support industry of component and logistics. Inspite of all this, an estimated third of Germany’s new car registration is imported, making it also a big importer as well.
German suppliers, with a turnover of EUR 70 billion reached its peak level of 2011. The domestic market contributed EUR 46 billion and the foreign business EUR 24 billion.
German Automotive industry is one of the largest employers with around 756,000 employees in 2013. An addition of 14,000 jobs over the year or 54,000 jobs since 2010. These are only permanent jobs with companies having 50 or more employees.
Most innovative sector
With an R&D spending of EUR 25 billion accounting for a third of total German Industry R&D expenditure of EUR 70 billion, Germany’s automotive sector is the country’s most innovative industry sector. Thereby it sets standards in fuel efficiency, emission, safety, quality, comfort, design and networking. Over 90,000 personnel work for R&D in the German automobile industry.
No other country in Europe has a comparable concentration of auto-related R&D, design, supply, manufacturing and assembly facilities. Therefore, Germany provides the best market opportunities for the auto industry. Suppliers and service providers based in Germany profit from close client interaction starting from the pre-development stage. They take advantage of joint research activities with some of the world’s leading automotive technology research institutes and universities.
Numerous innovation clusters integrate industry, science and education in automotive-related areas including mechatronics, microelectronics, mechanical engineering, manufacturing processes and material sciences. 85 per cent of auto industry suppliers are medium-sized companies. All of these suppliers provide up to 70 per cent of value addition within the domestic auto sector – ensuring that the German auto industry remains at the forefront of the competition.
Value addition is moving to the supplier side and increasingly also to non-auto industry sectors (e.g., the chemical industry in electro-mobility). International suppliers are, therefore, increasingly attracted to Germany as a business location. To date, world’s ten largest non-German auto industry suppliers have successfully established operations in Germany. These are Denso, Bridgestone & Aisin Seiki from Japan; Michelin, Faurecia and Valeo from France: Johnson Controls, Goodyear & Delphi from the US and Magna from Canada.
The auto and the auto component industry located in Germany are among the world’s leading patent applicants. Around 3,650 patents per year (an average of 10 patents registered per day), make the German automotive industry the world patent leaders. Around half of these patents are related to environment friendly technologies. No other country registers as many auto industry patents.
R&D is considered to be among the most important areas for the development of Germany. The German economy, industry and the public sector together have made a commitment to spend around 3% of national GDP per year on R&D activities. This amounts to approximately EUR 70 billion R&D spending each year. In addition, an unprecedented campaign to foster the advancement of new technologies has been launched by the German Government. For example, in the automotive industry the focus of innovation is on networking the automobile with several intelligent assistance system with the objective of making driving even safer, more convenient and also relieving drivers of work.
The National Electromobility Development Plan of Germany’s Federal Government has made more than EUR 500 million in funding available as part of its initiative to put one million electric vehicles (EV) on Germany’s roads by 2020. The Federal Government is striving to increase the effort significantly during and has made an additional EUR 1 billion in funds available. The plan has been drawn up to promote all aspects of electric driving including the development of battery technology, grid integration and acceptance for electric vehicles.
Innovation will be the key to success of the Indian automotive industry. R&D spending will have to improve along with policy initiatives of the Government to remove hurdles and thereby help industry focus on business.
Source: VDA, OICA, GTAI & SIAM