The economic slowdown has left a deep impact on the automobile manufacturing and original equipment manufacturing (OEM) segment in India. With leading US auto giants such as General Motors (GM) and Chrysler filing for bankruptcy, there is little need to elaborate on the worrying state of the US automotive market.
Following the global liquidity crisis, vehicle sales have plunged by almost 40%. Moreover, with credit lines drying up fast, leading auto companies have found almost nothing to cling on to amidst the financial tsunami. The heat is being felt by the OEMs as well, many of which are facing insolvency.
The crumbling of the US automotive market is a major setback for the auto industry in India. The demand for cars and two wheelers, both in the overseas and domestic markets, has plummeted. In a bid to ride out the downturn several leading car manufacturers in India have drastically cut down their production. As a direct consequence of this, the demand in the OEM segment has dropped to worrying levels.
At the moment, industry experts see slim chance of market revival, and expect the dry spell to continue for the next two years. Thus, the automotive industry is banking on various government initiatives and focusing on drafting a restructuring plan to survive the slump.
The OEMs should concentrate on improving the short-term cash flow. But in that case, the definite challenge will be getting adequate funds from banks and other financial institutions. Before undertaking a restructuring plan, the OEMs should thoroughly assess the market dynamics. They should also pay attention to key factors such as the regional markets, customer base, product portfolio and various vehicle segments.
Although it may sound too ambitious at this point of time, OEMs should also consider exploring opportunities in new markets. It has been found that manufacturers that are ready to execute a bold yet credible plan gain the most during restructuring.
As part of the restructuring process, the OEMS should also give priority to cost-cutting, with special emphasis on generating short-term cash flow. To achieve this, they have to concentrate on product strategy, eliminate non-performing products and improve their pricing.
To put a positive twist to the prevailing market condition, OEMs should view the ongoing crisis as an opportunity to foray into new markets and launch innovative products to expand their market share. Looking at the current situation, it is quite obvious that major changes would take place in the automotive industry only in the next few years.
Though the impact of these changes will only become evident with time, whether they augur well or not for the OEM segment will largely depend on their ability to adapt to these changes and tap the prevalent market opportunities.
Industry analysts forecast the auto market to recover by the end of this financial year, following which the demand for original equipments is expected to grow. In the meantime Indian OEMs should equip themselves to take the maximum advantage of the upswing in the industry and ensure a well spread client portfolio to minimise loss. Navin Tolpadi, Proprietor & Director, Manas Engineering, a mid-sized auto component maker in Pithampur |
