Passenger vehicles have a high rate of private ownership and this has always benefitted OEM sales. However, there is a newer model of PV ownership which can adversely affect OEMs along with policy changes and disruptions. Can OEMs still make the best of it?The Indian auto industry is often touted as the fastest growing industry in the world. This industry is prominently known for a consistent release in products, with OEMs coming out with newer models every six month, be it diesel or petrol variants. Not only that, there is a proliferation of OEMs both homegrown and foreign. So important is the automotive industry that it takes up a major chunk of the manufacturing and even casting and forging sector’s customer base. Export Growth of Passenger VehiclesA surprising trend was the 1.5 per cent YoY decline in PV export volumes in FY18, as per a report by India Research and Ratings (Ind-Ra). The primary influencer is the weak growth that was seen in UV export volumes compared to earlier years. UV exports grew 7.9 per cent YoY in FY18, post showing a double-triple digit growth rates in the past six years. In line with the global trend of shift towards UVs, passenger car sales declined 4 per cent YoY (a trend in line with domestic market) in recent years.UV exports of Maruti and Mahindra & Mahindra Ltd fell, whereas Hyundai, the second-largest contributor to UV exports, saw a much slower growth rate of 6.8 per cent YoY in FY18 than the 145 per cent rate in FY17, indicating Creta losing its share in the overall UV space this year (which was also seen in the domestic market). Consumers’ shift towards UVs has generated a strong demand for them in the domestic market. Top PV manufacturers’ such as Maruti and Hyundai are utilising capacities to the optimum levels to meet the strong domestic demand and thus losing their export share. Additionally, the increase in cess could have affected the overall growth in PVs, according to the Ind-Ra report on automotive exports.The report also provides the export performance of major Indian players. Ford India, the biggest UV exporter, reported healthy export volume growth of 13.9 per cent YoY in FY18 (FY17: negative 4.6 per cent), driven by the refreshed EcoSport compact crossover. The ramp-up of Ford’s Sanand plant in Gujarat helped it report overall 14 per cent YoY growth in PV export volumes. FCA India Automobiles Pvt Ltd saw a jump in its export volumes since it is exclusively producing its right-handed Jeep Compass in India for global sales, the trend shall continue in FY19. Also, Mahindra & Mahindra is committed towards regaining its market share in the UV space this year, which shall add to its exports growth, although it is likely to face intense competition.Models of ownershipWhile vehicles manufactured can be used for commercial, personal, defence, cargo or passenger purposes, there is often a cross-functionality served by the passenger vehicles (PV) segment, where they are used for commercial and private purposes. PVs have long enjoyed a growth in sales due to the need for personal vehicles. However, private ownership of vehicles in India is still at a very low rate compared to the rest of the world. At the same time, the boom in ride-sharing or car-sharing sector companies like Uber, Ola and Zoomcar has contributed to the sale of PVs for commercial usage.The passenger vehicle segment, with its many segments and categories enjoys a larger share of private ownership, as compared to ride-sharing platforms. Of these, it is very clear as to which segment does particularly well in the urban areas.“Indian passenger vehicle market is divided into four major categories: hatchbacks, sedans, SUVs and MUVs. Of these four types hatchbacks captures more than half of the market followed up by sedan’s with one-fifth share of the overall passenger car market. But the highest growing segment came out to be from SUV segment which has outgrown MUVs in last few years and have doubled up its market share in last five years,” observes Karan Chechi, Research Director, TechSci Research, about the growing trend in the PV segment. As per market research company MarketsandMarkets, Associate Director-Automotive and Transportation, Srinath Manda, confirms that hatchbacks occupy the highest market share in India. “However at a global level sedan segment occupies highest market share. In terms of growth, there is a common trend of ‘SUV’ segment witnessing highest growth rate across the world.”Comparing SUVs to hatchbacks, there couldn’t be a more sharper contrast. Yet the Indian market seems to see a demand in both. It is obvious why hatchbacks would see a rise in demand in urban spaces due its small size. However, according to Chechi, on account of rising youth population, increasing demand for off-roading and greater carrying capacity, the SUV segment sees a higher demand.So between SUVs and hatchbacks, who is predicted to beat the other in the future? “SUV passenger car type is expected to register the fastest growth among all the passenger vehicle segments in India in the coming years, due to the mentioned reasons. This will significantly have an effect on hatchbacks and other vehicle segments which are projected to lose their current market share,” declares Chechi.According to Volkswagen Passenger Cars, the country is poised to be the fourth largest market for the automotive industry in the world. Indian automotive industry's domestic sales displayed a growth of approximately 9.20 per cent in FY 2017 over the previous year. In which, the segment that commanded the highest demand were SUVs with a growth of 5.13 per cent in 2017. This is also evident in the remarkable sales trajectory of its premium SUV, Tiguan. Volkswagen reports that its SUV model witnessed an 80 per cent increase in sales volumes in the first quarter of CY 2018 compared to Q4 of CY 2017. Now, on the back of increased demand, the company has ramped up production of this model at its manufacturing facility in Aurangabad. Shift in ownership?While there is a growth in certain segments, the total ownership of passenger vehicles ownership in India is still pretty low as compared to the rest of the world. However, the current amount of ownership has tripled in the lat decade. It is predicted that it will rise further still to 175 vehicles per 1000 people.On the other hand there is a rise in commercial usage of passenger vehicles through the ride sharing platforms. Currently there are private-personal use models of ownership and the ride/car-sharing models.Both these models have their pros and cons. High private ownership mean more congestion in urban and semi-urban areas which can lead to higher levels of pollution be it air or noise. While ride-sharing, car-sharing and carpooling systems are good for the environment, these models are created to reduce the amount of private ownership. This can pose as a problem for the automobile industry whose success can be credited to the increasing consumption and demand for vehicles that is fueled by private ownership. A prominent OEM in India, Hyundai Motors (HMIL) has witnessed demand for its vehicles from sharing platforms. “Ride sharing is steadily gaining market share as an alternative to vehicle ownership especially in big metro cities. However, PV sales are primarily private ownership as evidenced by our market share for CY 2017 which stood at 16.4 per cent,” says Puneet Anand, Senior GM & Group Head – Marketing, HMIL.“The three key reasons for rapid growth of vehicle penetration in India are rising income levels, expanding range of vehicle offerings within affordable budgets of all income groups and inadequate growth of modern public transport systems as compared to most other developing nations. These reasons together are resulting in growing vehicle ownership and congestion on roads,” says Manda.“The most appropriate way of dealing with the rising congestion in urban spaces is to create multiple efficient public transport systems like Metro-rail, Mono-rail, and bus-rapid-transport sytem. Another way to deal is to create self-sufficient (commercial and residential) townships outside of the existing cities so that a significant share of population reduces travel activity in or through the city travel infrastructure,” he further opines.While creation of alternative transport can lessen the congestion caused by PVs and even CVs, policies enacted on usage and disposal of vehicles can also play an important part. Chechi states that road rationing policies such as odd/even which was implemented by Delhi Government last year can be exercised by urban set ups on a regular basis, in order to combat the problem of congestion and its subsequent issues. Similar policies are being exercised across the globe to put a curb on vehicle pollution and traffic congestion. “A nationwide car scrappage program can be implemented offering rebates for trade in old heavy polluting cars and trucks for new ones,” he adds.The goal of shared mobility platforms is inevitably to make travelling sustainable. This removes the need for private ownership of passenger vehicles. One might think that currently there might be a shift which can lead to lower demand of PVs which can adversely affect OEM sales in the country.Impact on PV OEMsManda estimates that the ride sharing or car sharing platforms are meant to facilitate higher utilisation of lower number of vehicles, which in a way could prove detrimental to OEMs. This could help OEMs in highly developed countries where there is a rapidly aging population who are unable to drive by themselves and thereby the PV sales are witnessing a decline. In such countries the growth of ride sharing services could boost/sustain demand for PVs.However in a country like India where vehicle ownership ratio is still very low the growth of ride sharing platforms could mean dampening the actual sales potential and thereby impact OEMs negatively.Chechi on the other hand says that OEMs and automotive suppliers can benefit from the car sharing trend by developing technologies to be used by fleet providers. “Vehicle monitoring technologies will help these companies control their fleets and make more informed decisions when it comes to purchasing new vehicles. Building a relationship with these players could lead to consistently higher sales for OEMs.”“However,” he adds, “this means that vehicle design will need to increasingly diverge from current driver-oriented vehicle conventions, which will allow the cars to be much more open, benefitting not only passenger experience and ridesharing, but also connected car features and entertainment possibilities. It is understood that the vehicle cost will come down significantly if OEM’s focus more on purpose-built cars.”In urban spaces, there is a vicious cycle. The already present levels of congestion might be a deterrent to PV sales. In such cases, people are already looking at ride-sharing for their day-to-day commute.Alternative transportation methods are growing in popularity across the world. Instead of owning or leasing vehicles, people are increasingly looking for ride-sharing and hailing services which can reduce the cost and responsibility associated with travel. These new trends have been gaining momentum for years but have recently become common in urban areas with higher population densities.“One of the main reasons for this trend becoming more popular is that it helps to avoid the excessive cost of vehicle ownership. Especially among young people, it can be difficult to pay for insurance, fuel, and repair/maintenance fees; shared mobility helps to overcome some or all these factors. Compared to car ownership, shared mobility services can be significantly less expensive depending on required mileage,” observes Chechi.On the other hand, Manda is of the belief that ride-sharing ownership model could gain prominence in developed countries with rapidly aging population, but may not be able to dampen growth in an emerging market for vehicle ownership like India.In case there is a major revolutionary shift, Chechi emphasises on how the OEMs will need to consider design and marketing of their products.“OEM’s who do not innovate will face major problems. They need to shift from conventional car manufacturing to purpose built cars. Companies need to work towards becoming a mobility provider who not only provide vehicle for movement but a complete package with rich technology features such as vehicle monitoring, telematics, ADAS, emergency vehicle notification, passenger information system etc. OEM’s through their services will be required for day-to-day movement of the vehicle and this will eventually define their position in the automotive value chain,” he predicts.From a carmakers point of view, Volkswagen Passenger Cars believes that the growth of these players is transforming the traditional automotive landscape. The convenience these platforms propose for urban cities with higher population densities on a day-to-day basis is evident. However, car sales in urban areas specifically, continue to remain resilient, with a generous mix shift towards these alternative mobility solutions. In India, with the rise in income levels, competitive pricing and the multitude of options available for car buyers, at every stage of the purchase experience, the primary ownership model still holds a significant allure and retains its aspirational value. “As we head into a future of car sharing and changing trends in mobility, consumers and OEMs alike can benefit. Customers have more efficient and more affordable transportation options, and car sharing can open up numerous new ways for OEMs to reposition their brand and implement strategies to maximise the bottom line,” says Anand, taking a positive view of the future of mobility.While this doesn’t battle the issue of congestion, electrification can certainly battle pollution problems. In that case, even if there is a proliferation of electric PVs, congestion resulting from it won’t lead to excessive air or noise pollution.According to Volkswagen Passenger Cars, for India there is immense capability for the vision that the Government has set to curb the effects of this particular growth projection is electrification. However, there are a number of factors that will need to be accounted for, and the infrastructure as well as how mobility is perceived in the country has to revolutionise. In fact, a recent study showed that 90 per cent of the car owners in India would chose to go electric, on the condition that the right infrastructure was made available. Volkswagen as a company has a clear intention to be the one to mobilize the electrification process for the masses and produce the electric car for future. From 2020 the Volkswagen brand plans to introduce an entirely new generation of full electric cars based on the modular electrification toolkit (MEB platform) for global markets. BS VI and its effects on PVsThe implementation of BS VI norms in fuels and transmission will be a game changer. This will no doubt affect PV sales as the technology for BS VI vehicles has to be made cost effective. Even the fuel need to be made ready and the rising price of fuel can serve as a deterrent as well. The customers with introduction of BS VI compliance will emphasise more on vehicle operating expense and benefit. On the basis of their usage and budget they’ll need to plan which vehicle to buy. Few will also increase their usage for ride sharing, carpooling, public transport etc. Customers might accommodate vehicle price escalation by using their cars sporadically which will eventually cut fuel expenses and other maintenance related services. Citing BS VI regulation there would be more micro mobility service providers (mobility based on 2 wheelers, cycles, auto rickshaws etc) coming in to picture to serve these customers.“As compared to an individual purchasing a PV for personal use which are typically petrol/gasoline powered, the PVs purchased by taxi/transport/ride-sharing operators are mostly of diesel powered which are already significantly costlier than petrol powered vehicles. Despite this price gap, it is observed that the return on investment (ROI) on their vehicles is much faster as compared to an individual owned personal use vehicle. So even in case of BS VI compliant vehicles which are expected to be costlier than current models, the commercial use buyers are likely to obtain their ROI in slightly longer time than current level so they may not be deterred by the price rise,” predicts Manda.Diesel vehicles share to declineManda affirms that the variant to get hit the most, due to BS VI-related price increase would be diesel PVs. The segment is likely to be the most negatively impacted due to growing penetration of alternate fuel vehicles (CNG, electric), especially in case of personal use PVs, he adds.The overall market share for diesel PV is projected to decrease but not significantly. If only a new regulation comes up which might put restriction in its usages, the segment might witness a gradual fall. “As far as we know, government envisaged all electric mobility by 2030, but there is no policy on scrapping of older vehicles which could support this vision,” says Chechi. So how can OEMs prevent the discouragement of their PV sales?In order to protect their sales, PV OEMs will need to step out to provide better post sales services to their existing customers, advises Chechi. Added benefits during new car sales will make the customer confident about their purchase.Manda suggests that OEMs can proactively and aggressively educate the target customer base about the benefits of the newer technology vehicles and explain how those benefits minimise the net impact of the increased vehicle cost, and thus lessening the potential damage to sales.Technology and improvements to the set-up comes at a cost and the market is sure takes it’s own time to adapt to related upgrades and changes that a manufacturer can offer together with the industry. Increased localisation is a key element to a competitive price proposition. Volkswagen is at approximately 82 per cent localisation (without engine and transmission). The company is working towards increasing that percentage and is continuously exploring possibilities to develop key components in the country while maintaining Volkswagen quality standards. At the same time Volkswagen Passenger Cars has observed a shrinking ratio between petrol and diesel variants. India, it believes, is a dynamic market and OEMs/consumers have to think and plan the choice of fuel based on relevant requirements and needs.