Abdul Majeed, Leader - Automotive Practice, PwC talks about the challenges and the rising input costs
Indian tyre manufacturers have been facing a tight situation for the past many months now. Abdul Majeed, Leader - Automotive Practice, PwC throws some light on the potential of aftermarket sales...
B&E: The tyre manufacturers have been increasing prices for the past couple of months. Does that spell out some positives for them?
AM: Rubber prices play a major role in the manufacturing of a tyre and the price of natural rubber has been on a fluctuating drive over the past 12-18 months. If you look at the sentiment in the market, then the prospects of the tyre industry are robust as many OEMs are firming up plans to make their presence felt in the Indian market. However, the whole automobile market is operating under very tight margins currently and hence makes the hike in the aftermarket a profitable proposition for the tyre manufacturers as the margins in supplying to the OEMs are quite thin. What the tyre manufacturers are looking at whenever there is a significant rise in the input cost, they try to pass it on to the customer and I believe they will continue to do it in times to come as it makes the business sustainable. The bright light in the whole concept is, the more number of vehicles will be on the road, demand will only get high. As the penetration level is low in India, the long-term story for the automobile industry is very bright. It may face some short-term blips like interest rate hikes or input costs rise but the long-term prospects are very bright. Moreover, the purchase of new vehicles can be postponed but one cannot postpone the purchase of tyres in the aftermarket after a point of time. However, for the price of tyres coming down a lot depends on the movment of the rubber prices and coupled with other economic factors, there is no choice other than passing it on to the customers as otherwise they will start bleeding.
B&E: Apart from price hike due to the input costs, there are major labour issues that tyre manufacturers are facing. What is your take on that and can you throw some light on some other challenges in the domestic market?
AM: The labour issues is simply because of the fact that our labour laws are very rigid in nature which is pushing the OEMs to go for the contractual labour. Hence, as the contractual employee is not a part of the regular employees of the company, there is a point of time where the demands of the manufacturers and the labour do not match. As long as we don’t work on our labour laws, it will not help much either the labourers and the manufacturers as well. There is a need to develop flexible labour laws in India that will focus on ways that will benefit both the parties. Apart from the labour issues, the level of competition is certainly going to go up. Moreover, the fact that OEMs will always try to push the price down via the high volumes even in the situation where the normal prices are going up may prove to be a challenge for many of the tyre manufacturers. In fact, getting the right distribution channel may not be an big challenge for many companies but will be a hurdle for many global players as India is diverse and vast in nature.
B&E: The import of tyres in the Indian market from places like China and Thailand has risen up in the past few months. Do you see this as a long-term threat for the Indian players?
AM: That is more of a short-term challenge because of the gap in capacity and demand and this gap is being currently filled through Chinese imports. However, a lot of investments are in the pipeline in the past 12-18 months and the capacity is expected to go up soon. Apart from this, it is very important for the tyre manufacturer to maintain its quality as a lot of innovation is happening in the market but a manufacturer should keep in mind that the quality is intact in this process to ensure success in the market.
Indian tyre manufacturers have been facing a tight situation for the past many months now. Abdul Majeed, Leader - Automotive Practice, PwC throws some light on the potential of aftermarket sales...
B&E: The tyre manufacturers have been increasing prices for the past couple of months. Does that spell out some positives for them?
AM: Rubber prices play a major role in the manufacturing of a tyre and the price of natural rubber has been on a fluctuating drive over the past 12-18 months. If you look at the sentiment in the market, then the prospects of the tyre industry are robust as many OEMs are firming up plans to make their presence felt in the Indian market. However, the whole automobile market is operating under very tight margins currently and hence makes the hike in the aftermarket a profitable proposition for the tyre manufacturers as the margins in supplying to the OEMs are quite thin. What the tyre manufacturers are looking at whenever there is a significant rise in the input cost, they try to pass it on to the customer and I believe they will continue to do it in times to come as it makes the business sustainable. The bright light in the whole concept is, the more number of vehicles will be on the road, demand will only get high. As the penetration level is low in India, the long-term story for the automobile industry is very bright. It may face some short-term blips like interest rate hikes or input costs rise but the long-term prospects are very bright. Moreover, the purchase of new vehicles can be postponed but one cannot postpone the purchase of tyres in the aftermarket after a point of time. However, for the price of tyres coming down a lot depends on the movment of the rubber prices and coupled with other economic factors, there is no choice other than passing it on to the customers as otherwise they will start bleeding.
B&E: Apart from price hike due to the input costs, there are major labour issues that tyre manufacturers are facing. What is your take on that and can you throw some light on some other challenges in the domestic market?
AM: The labour issues is simply because of the fact that our labour laws are very rigid in nature which is pushing the OEMs to go for the contractual labour. Hence, as the contractual employee is not a part of the regular employees of the company, there is a point of time where the demands of the manufacturers and the labour do not match. As long as we don’t work on our labour laws, it will not help much either the labourers and the manufacturers as well. There is a need to develop flexible labour laws in India that will focus on ways that will benefit both the parties. Apart from the labour issues, the level of competition is certainly going to go up. Moreover, the fact that OEMs will always try to push the price down via the high volumes even in the situation where the normal prices are going up may prove to be a challenge for many of the tyre manufacturers. In fact, getting the right distribution channel may not be an big challenge for many companies but will be a hurdle for many global players as India is diverse and vast in nature.
B&E: The import of tyres in the Indian market from places like China and Thailand has risen up in the past few months. Do you see this as a long-term threat for the Indian players?
AM: That is more of a short-term challenge because of the gap in capacity and demand and this gap is being currently filled through Chinese imports. However, a lot of investments are in the pipeline in the past 12-18 months and the capacity is expected to go up soon. Apart from this, it is very important for the tyre manufacturer to maintain its quality as a lot of innovation is happening in the market but a manufacturer should keep in mind that the quality is intact in this process to ensure success in the market.
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Source : IIPM Editorial, 2010.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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