1. How has India’s automotive sector been performing so far this year? Retail sales show growth in all major segments according to FADA’s latest figures. Do you think these trends will continue?

Urban India is back on track, and the growing need for personalized mobility has taken the front seat, driving passenger vehicle (PV) sales. The continuous excitement built up by OEMs has also kept the segment and customers engaged. The market has responded favorably to the introduction of new hybrid and CNG models. However, a constrained product range in popular segments, such as mid-size SUVs, continues to limit overall potential. It is alarming that inventory levels have exceeded a 60-day supply for the first time, even before the onset of the Navratri-Diwali festivities—a trend that necessitates vigilant monitoring by PV OEMs.

The government’s ongoing investment in infrastructure remains a key factor driving the commercial vehicle (CV) segment. Aggressive promotional campaigns and improved customer sentiment further bolster the optimistic outlook for the segment. The three-wheeler segment has achieved a historic high, largely due to a revival dominated by electric vehicles (EVs) aiding last-mile assistance and the growth of e-commerce. The two-wheeler segment is yet to reach pre-COVID levels, especially the entry-level segment, given its price-sensitive nature and persistent challenges related to the increasing cost of ownership. The tractor segment has shown signs of revival, especially in the post-COVID world, where there has been significant migration from urban to rural areas, generating self-employment in the region.

2. What major trends, drivers & challenges do you see shaping/emerging in the automotive sector over the next 4-5 years as well as more long-term? For instance, there has been a lot of talk about the shift away from car ownership among younger people.  The vehicle subscription model is also in the spotlight.

The automotive sector is poised for significant evolution over the next 4-5 years and beyond. One major trend we anticipate is a notable shift away from traditional car ownership, particularly among younger generations. Factors such as increasing urbanization, a focus on sustainability, and the rise of shared mobility options have been driving this change. The emergence of the vehicle subscription model is a prime example of this trend, offering a flexible and cost-effective alternative to ownership.

 Online sales, once considered a convenience, have become a necessity in the post-COVID world. Technology, like online platforms and virtual showrooms, has played a vital role in enabling the transition of the automotive industry. Indian consumers are now more open to exploring and embracing technological advancements, showcasing consistent growth in technology acceptance across various verticals within the automotive sector.

3. Specifically, what key trends do you see currently affecting automotive retail in India? For example, is intensifying competition helping or hurting dealerships? What about the increasingly higher costs associated with setting up new dealerships and operating them? Or the fact that only a few brands are selling enough volumes?

The dealership business is dynamic, and the community is resilient. We have bravely faced the extreme adversity created by COVID-19, where business was sustained amidst zero sales, while continuing with daily expenses. As an association, we have been working closely with OEMs to reduce the growing cost of ownership, while also seeking ways to enhance brand visibility and business opportunities. We have recently developed a Model Dealer Agreement that offers a level playing field for both OEMs and dealers, ensuring equal opportunities and accountability for both parties.

4.How, if at all, have connected, autonomous, shared and electric (C.A.S.E) mega trends affected the automotive industry in India?

The Indian customer is open to change and accepting of technological advancements; however, affordability and the cost of ownership are important considerations for businesses. Connected car and EV technology have been well-received and have now become significant components of the automotive ecosystem. On the other hand, other technologies are still in a relatively nascent stage. With continuous efforts made by OEMs in this direction, we are quite optimistic that these could become key factors driving the sector going forward.

5. Manufacturing vs retail. What is the sentiment in the automotive retail market vs manufacturing?

With the festive season just around the corner, we anticipate a sharp increase in demand, resulting in a rush of bookings for some of our fastest moving models. However, OEMs continue to manufacture slow moving models with low semiconductor requirements that do not enjoy high demand, resulting in an accumulation of inventory at dealerships. On the other hand, models with high demand still experience substantial booking numbers and waiting periods. To address this surge, FADA has been urging OEM partners to recalibrate their manufacturing plans, focusing on meeting consumer demands, and providing ease to their dealer partners to effectively satisfy customers within minimal time, rather than concentrating solely on achieving wholesale numbers.

Despite the positive response to festive bookings, challenges persist for dealers, particularly concerning lower-end models that are slow moving and accumulating at dealerships, leading to a current inventory buildup of 50 days. High-end models with advanced features are facing supply shortages from OEMs, resulting in extended waiting periods. Car buying is primarily a discretionary decision influenced by sentiment. These prolonged waiting periods might negatively impact customer sentiment, as some customers might delay their purchases for auspicious occasions. If they don’t receive their deliveries during this time, they might reconsider their decision, potentially causing the industry to miss out on opportunities. While waiting periods have improved recently, the festive season typically witnesses a sudden surge in demand. We have high expectations for the festive season, aiming to make it one of the best in recent times for the industry.

6.How do you see the role of dealerships changing in an age of digitization? And how are automotive dealerships adapting to the emergence of new digital platforms?

The nation has swiftly transitioned through a digital revolution, further propelled by the challenging circumstances of the COVID-19 pandemic. Post-COVID, the dealer fraternity has found themselves navigating a vastly altered landscape where conventional methods of influencing customer purchases and dealership foot traffic have considerably diminished. Customers, now armed with extensive research and well-informed insights, have become the primary architects of their purchasing decisions.

In a business environment characterized by slender profit margins, dealers grapple with substantial day-to-day operating expenses that significantly reduce their revenue. This post-pandemic era has ushered in a shift where opulent showrooms, resembling ‘Taj Mahal’, have been replaced by more compact ‘CUBE’ showrooms, adeptly leveraging technology to craft delightful experiences for potential customers and meet their evolving expectations in a digital era.

The dealer community has exhibited remarkable adaptability; embracing new technologies and fostering an environment of heightened innovation, agility, and vitality within the sector. Understanding the urgent need for the automotive retail sector to transition into a virtual, lean, and flexible paradigm, the dealer fraternity, spearheaded by FADA, has collaborated with ASDC and Google on an online sales training initiative that focuses on Digital Marketing, Hyper-Local Marketing, and Full-Funnel Strategy, empowering dealer principals and their teams to adeptly navigate the digital realm and engage with customers effectively. This strategic move towards digitization foresees the decline of traditional large showrooms, paving the way for smaller, tech-enabled spaces strategically positioned at prime locations. The envisioned transformation aims to significantly reduce dealership operational costs, enhancing competitiveness and future-proofing the business for the dynamic road ahead.

7.What are your views on the near and long-term prospects for the PV, CV, and EV retail segments? What about the two-wheeler segment – entry level two-wheelers have been struggling?

Looking ahead, the outlook is cautiously optimistic and influenced by a range of factors that vary across different vehicle segments. The commencement of the festive season, beginning with Onam, has had a positive impact on market sentiment. It has improved liquidity and eased earlier supply chain blocks across all categories.

In the two-wheeler market, there is now a broader range of models available. However, subdued rural demand, attributed to insufficient rainfall, may potentially temper sales growth. CVs, bulk deals and the favorable timing of the construction season in September contribute to optimism. The real sales momentum is expected to surge during the Navratri and Deepawali festivals following the Shraadh period.

In the PV market, the situation is more mixed. New product launches and improved stock availability are positive indicators. However, high customer expectations for discounts and the impact of the Shraadh period may present minor obstacles.

Rural demand, after a prolonged period of stagnation, is showing signs of a positive resurgence. Nevertheless, this recovery remains fragile and hinges on the performance of the final phase of the monsoon season. Insufficient rainfall could lead to inflation, reducing consumer purchasing power and dampening demand. Such a meteorological shortfall would not only jeopardize the yield of ongoing kharif crops but also cast uncertainty over the subsequent sowing season for rabi crops. These developments would be particularly untimely, coinciding with India’s peak festive season, including Navratri and Deepawali, traditionally marked by heightened consumer activity.

8. The Indian consumer has always been regarded as being very price-sensitive. Do you see this continuing and how are consumer expectations changing?

The perception of the Indian consumer as price-sensitive in the automobile industry is likely to continue, but consumer expectations are evolving in several ways. Affordability remains a crucial factor for a significant portion of the population, especially considering the diverse socioeconomic landscape of India. Alongside price, however, consumers now prioritize other factors such as safety, fuel efficiency, and technological features in their vehicles. There’s an increasing demand for smart and connected vehicles that offer a seamless integration with smartphones and other devices, providing a high-tech driving experience.

Additionally, sustainability is becoming a growing concern with many consumers now showing interest in electric and hybrid vehicles. Government incentives and awareness campaigns are further driving this shift towards eco-friendly options. Furthermore, consumers expect a higher level of customization, personalized services, and a hassle-free buying process. They seek transparent pricing, easy financing options, and a strong online presence from automobile manufacturers and dealerships. Customer reviews and recommendations play a significant role in shaping purchasing decisions, reflecting a trend towards more informed and discerning consumers.

In conclusion, while price sensitivity remains prevalent, Indian consumers in the automobile industry are broadening their expectations to encompass a more comprehensive evaluation of features, technology, sustainability, and overall convenience.

9. How do you see the lifting of FAME II subsidies affecting EV sales?

The lifting of FAME II subsidies is anticipated to have a noticeable impact on EV sales in India. FAME II played a crucial role in promoting the adoption of EVs by offering financial incentives and subsidies to manufacturers and consumers, making them more economically attractive.

Without these subsidies, the cost of purchasing an EV will rise, affecting the affordability factor for consumers. Price sensitivity is a significant consideration for buyers, and the absence of subsidies might deter some potential consumers from transitioning to EVs.

The FAME policy benefits have undoubtedly provided the sector a boost and momentum in terms of sales. It’s noteworthy that in earlier communications, the Ministry of Heavy Industries had indicated the potential cessation of subsidies upon reaching the one million sales milestone.

The EV sector while still in its formative stages, has demonstrated remarkable strides, with startups at the vanguard of product innovation and technological breakthroughs. Hence, it’s crucial to recognize the immense value of extending guidance and support for a few more years, a move that can substantively fortify the sector and equip it to thrive and expand independently in the future.

Premature withdrawal of subsidies could potentially instigate undesirable impacts on business prospects and consumer sentiment. It’s essential to acknowledge the unique character of the Indian market, which is particularly sensitive to price fluctuations. Currently, the EV segment has not achieved the level of maturity required to contest the cost of ownership associated with a conventional internal combustion engine (ICE) two-wheeler.

In this context, it’s vital to sustain the subsidy program for EVs, which serves as a critical bridge to close the cost disparity and ensure market competitiveness. Doing so would facilitate the EV industry’s further evolution and broader acceptance, thereby fostering a more sustainable and environmentally conscious transportation ecosystem.

Collaboration between the government, industry stakeholders, and financial institutions is key to devising and implementing effective strategies that ensure a sustainable growth trajectory for the EV market in India despite the reduction of FAME II subsidies.

10. The government has placed emphasis on skilling and Made-in-India initiatives, PLI, etc. What kind of government support – whether in terms of regulations or incentives, do you think will be required to push India’s automotive retail sector to the next level? For instance, currently there is no law to protect dealer interests. So we have seen OEMs being in a stronger bargaining position vis a vis dealers.

To propel India’s automotive retail sector to the next level and protect dealer interests, government support in the form of regulations and incentives is imperative. Firstly, the establishment of clear and comprehensive regulations that govern the relationship between OEMs and dealers is essential. This should include Dealer Protection Act, guidelines for fair business practices, contract terms, dispute resolution mechanisms, and a transparent framework for setting dealership margins and targets.

Furthermore, providing support for skills development and training programs specific to the automotive retail industry is essential. Incentives for training dealership staff in modern sales techniques, customer service, and technological advancements will enhance the competency and professionalism of the workforce, contributing to an improved customer experience. Overall, a combination of regulatory frameworks, financial incentives, and skills development initiatives is needed to propel India’s automotive retail sector to the next level and protect the interests of dealers.

11. What are your views on sustainability and innovation? How is the Indian automotive manufacturing / retail industry incorporating such concepts?

Sustainability and innovation are fundamental pillars for the future of the Indian automotive manufacturing and retail industry. FADA strongly advocates for the integration of sustainable practices and continuous innovation across the automotive sector. Sustainability involves responsible resource utilization, reducing environmental impacts, and promoting long-term viability of the industry. In terms of sustainability, the Indian automotive manufacturing industry is gradually shifting towards eco-friendly technologies, including the development and adoption of EVs, hybrid vehicles, and fuel-efficient models. OEMs are investing in R&D to enhance vehicle efficiency and reduce emissions. Additionally, there’s an increasing focus on recycling and responsible disposal (scrappage) of end-of-life vehicles to minimize environmental damage.

Innovation is equally crucial, and the industry is witnessing rapid advancements. Digitalization, Internet of Things (IoT), artificial intelligence (AI), and data analytics are being employed to enhance vehicle features, safety, and customer experiences. The retail industry is adopting innovative sales and service approaches, utilizing online platforms, providing virtual showrooms, and embracing contactless transactions to cater to modern consumer preferences. However, to further accelerate sustainability and innovation, collaboration between the government, industry stakeholders, and academia is vital.

12. Does the future belong to Indian manufacturers or foreign companies?

The future of the automobile industry in India is expected to feature a dynamic interplay between Indian manufacturers and foreign companies. Indian manufacturers have been rapidly evolving, demonstrating their prowess in innovation, cost-efficiency, and market understanding. They have been leveraging their strengths, to carve a niche for themselves.

On the other hand, foreign companies continue to invest and expand their presence in the Indian market, bringing in advanced technologies, global best practices, and international quality standards. They contribute to elevating the technological landscape of the Indian automobile sector and bring in substantial capital investments. In the evolving automotive landscape, collaboration and partnerships between Indian manufacturers and foreign companies are anticipated. Joint ventures, technology transfer agreements, and strategic alliances have become more common, resulting in the amalgamation of global expertise with local insights. This collaborative approach can drive the development of innovative, cost-effective, and sustainable solutions that cater to the diverse needs of the Indian consumer.

13. Where you see the Indian auto industry and the automotive retail industry in the next five years? Ideally, where would you like to see it?

Looking ahead to the next five years, FADA anticipates significant growth and transformation within the Indian auto industry and the automotive retail sector. In the Indian auto industry, we foresee a pivotal shift towards sustainable mobility solutions, including a considerable increase in the adoption of EVs and a focus on indigenous manufacturing of EV components.

The automotive retail sector is set to undergo a digital revolution, with a more customer-centric approach. We aim to see a seamless convergence of online and offline retail experiences, supported by robust digital platforms, virtual showrooms, and AI-driven customer engagement. Building trust and transparency will be key focal points, ensuring a delightful and convenient purchasing journey for consumers.

Ideally, we envision an Indian auto industry that stands as a global leader in sustainable and innovative automotive technologies. We aspire to witness a vibrant automotive retail sector that values consumer satisfaction and operates at the forefront of technological advancements. By prioritizing sustainability, innovation, and consumer-centric strategies, we aim for a flourishing and globally respected automotive landscape in India.

14. How do you view the possible entry of Tesla in India, particularly in light of their sales model which is a deviation from the traditional dealership focused sales in the automotive retail sector.

The possible entry of Tesla into the Indian market is a significant development, particularly due to their unconventional sales model that deviates from the traditional dealership-focused approach in the automotive retail sector. Tesla’s direct-to-customer sales model is relatively new for the Indian market, where consumers are accustomed to the dealership-centric purchasing process. Understanding the Indian consumers’ mindset, car buying is a highly sensitive decision in India, influenced by numerous factors such as brand reputation, after-sales service, affordability, and convenience. Indian customers highly value a robust after-sales service network and personalized attention, which has been a key element of traditional dealership-based models.

Tesla’s direct approach may initially pose challenges in aligning with these customer expectations, especially considering the significance of personalized service in the Indian automotive market. However, Indian consumers are known for adapting quickly, and as they become more familiar with Tesla’s innovative products and customer experience, the direct-to-customer model might gain traction. While investing in Tesla vehicles can be a substantial decision considering their price point, Indian consumers, known for their quick adoption of new technologies, may embrace Tesla’s offerings. The brand’s reputation for cutting-edge technology, sustainability, and global appeal may appeal to a segment of the Indian population seeking innovative and environmentally friendly alternatives.

Anuj Monga

Global Research Manager, Aftermarket Mobility, Automotive & Transportation

Amrita Shetty

Amrita Shetty is Communications & Content Senior Manager within Frost & Sullivan's Mobility practice.

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