'Small car projects are worthwhile'

Q&A: Dilip Chenoy

Dilip Chenoy

India's emerging status as a global hub for small cars and auto components almost seems like a foregone conclusion. Yet the size of the industry is just below 1 per cent of the world industry. The challenges, industry watchers believe, are not insurmountable.

In an interview with Business Standard, Dilip Chenoy, secretary general, Society of Indian Automotive Manufacturers (SIAM), explains why and how the Indian automotive industry is poised for "steep growth" in the coming years.

Chenoy took charge of SIAM in April this year. His grounding in the Indian engineering industry spans over two decades. A graduate in chemistry, Chenoy started his career with Campa Cola as the plant manager in Jaipur, followed by a brief stint in a company manufacturing hardware for cable TV.

In 1985 he joined the Confederation of Indian Industry (CII, then known as the Association of Indian Engineering Industry) and played a key role in the setting up and running of the Indian Steel Alliance, until he handed over the reigns to Moosa Raza. Excerpts:

The Indian automobile industry grew at a healthy pace in the last financial year, with passenger car sales growing by 32 per cent and commercial vehicles by 37 per cent. What is the outlook for the current year?

The initial growth estimate for passenger car sales for this year was 10 to 15 per cent. With the first four months' numbers in hand, we are confident of over 20 per cent growth. A similar growth is also estimated for commercial vehicles.

The two- and three-wheeler industry is expected to grow at 10 to 12 per cent this year. For the first time sales of two-wheelers crossed the 5-million mark. We also crossed the 1-million-car mark last year. We expect to cross the 1.5- to 2-million mark in the next three years. This is also substantiated by the investments the industry has committed so far. The 18-month period starting 10 months ago will see a total investment of Rs 1,700 crore. This is only for capacity expansion and does not include investment on developing new vehicles.

The average capacity utilisation is already 78 per cent with some players like Maruti, Tata Motors and Hyundai reporting over 100 per cent capacity utilisation.

How has India performed on the export front? Can you explain this in the context of India emerging as a hub for the global market for small cars?

Exports last year were $ 1.2 billion and should cross $ 1.5 billion this year, if not $ 2 billion. The $ 2 billion-mark is very much within reach in the next two years.

As for India emerging as a global hub for small cars, we need plenty of institutional support, particularly from the government, in building the "Made in India" brand. The emphasis must be on promoting India as a dependable source for small cars.

To give exports a big push, we need world-class infrastructure support, particularly for the ports. We have only three major clusters for the automobile industry in India "" Chennai, Pune-Mumbai and Gurgaon.

We need more such clusters and world-class linkages [roads] and port facility. Capacity expansion to meet world demand would automatically follow.

A great deal of expectation has been built around India emerging as the global R&D centre in the automobile sector. How feasible is this, considering the Indian automotive industry spent less than 1 per cent of its sales on R&D in 2002-03?

The Indian automotive industry spent 0.82 per cent of its top-line and 17.31 per cent of gross profit on R&D. It is interesting to note, however, that the R&D spend in the automobile industry in 2003-04 exceeded that of the pharma industry.

The cost of R&D, from the concept to product stage is a fraction of what it would take in the developed nations. Tata Indica was developed, from scratch to finish, for $ 140 million and Mahindra's Scorpio for $ 60 million.

Our estimate is, it would have cost five to 10 times more in a developed country. The low cost advantage holds great potential for multinational automobile companies investing heavily in India in the R&D space.

The industry seems to be divided on vehicle classification. SIAM, for one classifies the vehicles on the length of wheel-base. Is there any rethinking on a more consumer-friendly and universally acceptable classification?

Globally, vehicle classification is done on the basis of utility. This issue has been debated and discussed at several levels in the industry.

A committee headed by Abay Firodia [of Bajaj Tempo] is also looking into the possibility of revising or fine-tuning the classification.

A draft report is ready and we expect to have the final report by end of this calendar year. The strong arguments in favour of a wheel-base related classification is that it is objective "" in other words, there cannot be two opinions on that.

It is easy to understand and even the government in its auto policy refers to the wheel-base as a standard for classifying automobiles. The biggest challenge facing the possibility of reclassification is the loss of data continuity.

The monthly sales figures provided by SIAM is based on delivery from factory and not the actual sales at the dealer-end or registration by the Regional Transport Offices (RTOs). Is there a possibility SIAM may want to go in for the actual sales rather than shipment?

The industry has been asking for this change for a long time. The challenge is the 673 RTOs spread across this country are not computerised or networked.

If they were, we would have real-time data and the sales number would be accurate. As for dealer sales, I do not believe that dealers hold enough stock to distort sales numbers. Today, companies like Maruti are redefining dealer sales.

In the coming years, dealers would not be just stockists pushing the vehicle into the market. Design, space and service at dealer points will also count.

The fact that large automobile manufacturers are working closely with dealers in understanding customer needs is a testimony to this. Even if one were to take the dealer stock or the vehicles in transit, the gap would not be more than 5 to 7 per cent.

What is SIAM's stand on Free-Trade Agreements (FTAs) and Regional-Trade Agreements (RTAs)?

SIAM is not per se against FTAs or RTAs. We only want to ensure that such agreements do not lead to intra-industry distortions.

The condition of manufacturing in the country of origin, for example, must be adhered to. It must not pass through the country to take advantage of the low or zero duty structures.

Further, manufacturers in India must have access to the same raw material and also ensure that the agreements also encourage manufacturing in India.

The agreements could include export of small cars out of India in lieu of importing components at concessional or zero duty.

Is the people's car or the Rs 1 lakh-car a feasible and desirable (in terms of safety) goal?

There are institutional checks and balances in India to ensure that the Rs 1 lakh-car will not be at the cost of safety.

As for the feasibility, we do believe that it may be possible though not necessarily with conventional material.

SIAM thinks it is a desirable goal. In the 1950s, the Japanese Automotive Manufacturers Association had considered a Yen 2,50,000-car, which triggered serious competition in the Japanese automotive business. Further, the small car holds great potential for economic growth.

In India, 11 manufacturers account for 1 million cars. The global benchmark is 2,50,000 units a model. Only the small car can promise that kind of volume.

In that context, small car projects, which need not necessarily be Rs 1 lakh, are a worthwhile goal to pursue. Every automobile manufacturer in this country is nurturing or pursuing this goal.