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AUTOMOTIVE

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by EOS Intelligence EOS Intelligence No Comments

Turbocharging Trumps Supercharging in the Battle for Engine Downsizing

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Naturally aspirated engines have dominated the automotive landscape for decades. However, growing emphasis on the need to improve air quality in recent years has placed significant pressure on global vehicle manufacturers to improve fuel efficiency and ultimately reduce CO2 emissions. Not only have OEMs been subject to growing pressure from consumer groups and environmental activists, but there has also been a stronger push by…

The article was published as part of Automotive World’s Special report: Turbocharging and supercharging.

Click to read the full article

by EOS Intelligence EOS Intelligence No Comments

Breaking Bad, Building New: Customer Engagement Model for Automakers

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Digital transformation buzz has revolutionized the way companies operate and interact with their customers across virtually all industries. Automotive industry is no exception. Customer expectations today are more demanding than ever, primarily due to the service level benchmarks set up by the likes of Amazon, Uber, and Apple, as well as due to plethora of information customers can get through the internet and social media. The rise of digital channels is fundamentally transforming the entire auto retailing business. In order to stay ahead of the game, automakers will have to break their legacy systems and build new customer-centric marketing models.

The automotive industry has always been characterized by an extremely time consuming as well as complex sales processes that often result in an unpleasant customer experience. The industry notion “People love shopping for cars; they hate buying cars” precisely depicts the challenge auto retailers have to deal with and the need for industry players to rethink their sales and marketing models to enhance the overall customer experience. The Apple and Amazon retail ethos of seamless customer interaction, simple and streamlined sales processes, effortless and speedy customer services has become the benchmark for all retailers. Even in the automotive industry, changing customer preferences, digital transformation, increased connectivity are reshaping the entire retail supply chain, with major impact on the final parts of the chain involving direct customer interaction. The rise of cutting edge technologies, tech and information savvy consumers, and new market entrants are forcing traditional players to rethink and reinvent their entire business models.

The advent of technology has significantly lowered entry barriers for new entrants in the automotive retail segment, who have brought innovative business models and fresh ideas to help customers find, evaluate, and buy new vehicles. With slogans such as “Skip the dealership” and “Find deals. Not dealers!” new players such as Roadster or Rockar are transforming automotive retailing by offering a bargain-free and smooth car buying experience that can allow the customer to purchase a car and have it delivered to their doorstep within few hours. Traditional retailers have started to realize that, equipped with massive information at their fingertips, car buyers today are better informed than ever when it comes to car purchasing. One bad experience and customers will be very reluctant to ever come back to the same retailer. Despite this realization, many companies are still ‘moving metal’ the old-fashioned way using traditional media and other marketing approaches to attract consumers to their stores.

Statistics from many industry studies make it clear that with the mass proliferation of technologies, car buying journey is becoming increasingly digital, with most customers spending a significant part of their buying time online. Studies indicate that more than 65% of the information-gathering and decision-making process is already made prior to visiting a dealership. Therefore, it becomes vital for OEMs and dealers to rethink their entire marketing and customer engagement approach. They need to interact more effectively and engage consumers early and throughout their purchase journey.

OEMs and dealers need to understand that the whole process of buying cars is quite different from the process in some other retail segments. For example, to buy consumer electronics, many consumers visit the store to see/touch/feel the product and then buy it online because of the price benefits and other offers. In case of buying cars, most customers do their research and comparison online. They visit the local dealership to see/touch/feel the car and buy it there to benefit from special discounts and offers. Hence, it is very crucial to have an integrated and seamless transition across various channels in a frictionless manner.

The introduction of new business models (direct-to-customer) and customer experience strategies (highly interactive and pressure-free brand stores) created by the likes of Tesla, or Rockar, have caught the eyes of many traditional players, who have gauged the significance of realigning their marketing and customer engagement strategies as per demands of the rapidly evolving industry. Many OEMs and dealers have started to take a hard look at their entire customer lifecycle processes to assess the current gaps and address them. Companies are reconfiguring their touch points across channels by eliminating redundant processes and services. Recently, automakers such as BMW, Audi, and Mercedes have rolled out brand stores similar to Apple’s, where customers can visualize their cars, configure them to their own specifications, get experts to answer their questions, and even buy cars in a non-pressurized sales environment. Having already seen some positive results, these OEMs are likely to ramp up their efforts to roll out such brand stores on a larger scale across cities, states, as well as countries in the near future. While not all automakers have plans to launch such stores at present, it is expected that it will not be long before OEMs with no such current plans observe and eventually follow the footsteps of OEM players that have already reaped these rewards and showed what advantages such stores can offer.

EOS Perspective

As digital transformation continues to revolutionize the auto retailing landscape, there is no doubt that advancing technologies will make the car buying process increasingly digital for the years to come. We can expect a rapid surge of various online platforms that provide customers with the ability to easily research, evaluate, and buy cars. Operating within such a highly competitive marketplace with changing customer preferences, auto retailers will have to transform their business models to become more customer-centric and deliver on customers’ expectations. They will have to reinvent customer engagement frameworks to create ones that are built around customer needs, and are simple, frictionless, more transparent, quicker, and convenient for today’s savvy car buyers. On the one hand, this will help OEMs and dealers win more business, while on the other hand customers will benefit from an accelerated and hassle-free sales process, resulting in an improved customer experience.

Although transforming current customer engagement model seems inevitable, this will not come easy and will involve massive changes in existing marketing models. At present, majority of industry players lack the resources, infrastructure, and systems required to execute this transformation. In addition, as signification investments will be required, amid current business environment with high cost and competitive pressure, many automakers as well as dealers will still continue to engage in sales the old fashioned way or adopt a ‘wait-and-watch’ stance. At a dealer level, implementation of new customer engagement model will be much slower primarily due to capabilities and resources constraints.

In the end, one thing is obvious – in order to retain today’s customers and to win new ones, OEMs and dealers will have to reinvent their marketing and customer engagement strategies. To achieve this transformation, these players will have to work together to deliver rich brand experience and match the simplified and streamlined buying experiences set by Amazon and others. OEMs and dealers should take John F. Kennedy’s words to heart “Change is the law of life. And those who look only to the past, or the present, are certain to miss the future.”

by EOS Intelligence EOS Intelligence No Comments

GCC to Introduce VAT: What It Means for Businesses, Economy, and People

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The Gulf Cooperation Council (GCC) countries are gearing towards rolling out a 5% Value Added Tax (VAT) starting January 1, 2018. Economies of GCC countries are highly dependent on the oil and gas sector revenues, which account for about 80% of the GCC governments’ budgets. The recent volatility in oil prices have battered GCC nations’ revenues, which motivated the governments to initiate a reform in the form of indirect taxation with a goal to diversify income sources. VAT is a measure that will impart more stability and robustness to the governments’ income considering the outlook for crude oil still remains volatile, while diversified revenue sources will cushion the GCC economies in times of financial crisis.

A standard rate of 5% will be applied on most products, except specified food items, domestic public transportation, and healthcare, education, and financial services. The proposed VAT rate is much lower in comparison with rates in most European countries, China, and Australia. Nonetheless, the GCC countries still stand to gain in income with the tax implementation – for instance, the UAE is forecast to generate US$3.27 billion revenue during the first year of VAT introduction.

Industries such as construction and automotive are likely to benefit from VAT implementation, while retailers might feel a pinch due to dwindling margins. The sentiment among the citizens is wary to say the least – for instance, according to a survey conducted by CFA Society Emirates, citizens of the UAE did not seem quite optimistic towards the economic impact of VAT across certain parameters such as price inflation, cost of doing business, and inflow of foreign direct investments (FDI).

GCC to Introduce VAT

EOS Perspective

Introduction of VAT could empower the GCC economies by bolstering revenue generation, aiding infrastructure development, and improving productivity levels. While some may believe that VAT implementation could tarnish GCC countries’, particularly the UAE’s, competitiveness and tax-free haven status, it is important to consider that GCC markets’ attractiveness goes way beyond only the tax benefits. GCC’s appeal also lies in developed infrastructure, competitive labor costs, lower trade barriers, and proximity to the developing Asian and African markets – implementation of a new tax reform will not change this favorable business environment.

There have been some discussions regarding the negative implications of VAT, considering residents and businesses have grown accustomed to high incomes and low deductibles for a long time. Post VAT implementation, businesses are expected to incur certain additional costs related to administrative expenses, upgrading IT systems, and training staff members, among others.

Also, highly competitive industry sectors, or those operating with thin margins are likely to witness cash flow burden, as they will be required to meet the VAT costs on purchases before they can be reclaimed from the government – in certain scenarios, when the businesses end up paying more as VAT to suppliers as compared to the VAT collected from customers, the difference can be reclaimed from public funds. The way businesses operate is likely to fundamentally transform once VAT is applied, however, with adequate preparation businesses should be able to introduce systems and processes to avoid unnecessary cost implications as well as smoothly align themselves with the new tax system.

The way businesses operate is likely to fundamentally transform once VAT is applied, however, with adequate preparation businesses should be able to introduce systems and processes to avoid unnecessary cost implications as well as smoothly align themselves with the new tax system.

VAT is not expected to have much impact on a common man, as vital household expenditure items will be exempted from it – this includes about 100 varieties of staple food items and essential services such as healthcare and education. However, for a section of the population with an appetite for luxury goods, services, and lifestyles, as well as for tourists (along with VAT, they will have to pay duty tax again on some goods in their country of origin) the brunt of new taxation is likely to be felt.

Nonetheless, a modest tax rate of 5% will ensure that certain social-economic distortions often associated with VAT are minimized. Also, the decision to exempt a few vital sectors (basic food items, and healthcare, financial, and education services) will ascertain that they are not affected by the tax reform.

VAT imposition is expected to become an essential part of GCC regions’ economic reforms and the taxation policy will immensely aid in diversification of revenue sources. Further, the pre-implementation period should be used by the GCC countries to develop a modern tax administration system that ensures compliance, so that once VAT is implemented, businesses and residents are able to smoothly adapt themselves to the new taxation policy.

by EOS Intelligence EOS Intelligence No Comments

A Close Look at Iran’s Post-Sanctions Growth Story

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Iran’s emergence from economic isolation in 2016 was considered by many industry experts as the largest market opportunity since the fall of the Union of Soviet Socialist Republics (USSR), paving way for plethora of new business opportunities. They expected massive influx of foreign direct investments (FDI) and a rapid economic growth in the country. As a result, many business delegations traveled from all over the world to Iran, hoping to tap its lucrative industry opportunities. Over a year later, we take a close look at Iran’s progress so far and whether it has truly leveraged its growth potential.

At first glance, multinationals saw the lifting of sanctions as the opening up of paths for foreign investments and international trade in crucial sectors such as oil and gas, automotive, aviation, mining, tourism, and financial services. In addition, Iranian president Rouhani’s long-term political vision with its focus on various domestic structural reforms and the stance on improving relations with the West were viewed by the international business communities as promising signs. Iran achieved 6.6% GDP growth during 2016-2017 as well as a drastic decline in annual inflation to 8.9% from nearly 40% during 2013.

Despite the economic growth achieved, a closer look at the ground realities in the country depicts a different picture, especially when comparing the expectations and the country’s actual achievements so far. The growth achieved in 2016 was largely due to the oil sector’s rebound in both production and exports. Growth in non-oil sectors was mere 0.9% during the first half of 2016. In the same year, unemployment rate also increased to 12.8% from 11% in 2015. There are still serious questions about the country’s ability to sustain its economic stability in the long run. To add fuel to the fire, Iran’s ballistic missile testing and accusations of sponsoring terrorism in the region have brought the nuclear deal again in jeopardy, eroding newly-regained investor confidence.

A Close Look at Iran’s Post-Sanctions Growth Story by EOS Intelligence

 

Although the FDI saw a massive 600% increase in 2016, it is still nowhere near the government’s projections. While several MoUs were signed, not many have converted into actual deals till date. It was realized soon by many that Iran still remains a challenging place for multinationals to conduct business due to high levels of state interruption, bureaucratic bottlenecks, lack of transparency, and outdated business and financial systems. Iran still continues to be isolated from the global financial systems. Majority of international banks are reluctant to re-engage in Iranian transactions mainly due to potential links with terrorism they might be implicated in and massive financial repercussions such transactions could entail. Therefore, investors are holding their horses amid current ambiguity over local and global political developments (Trump’s final stance on nuclear deal as well as President Rouhani’s reforms post elections).

Automotive

The automotive sector is Iran’s second largest industry after oil and gas, contributing around 10% of the GDP. Iran Khodro Company (IKCO) and SAIPA, the two major companies (state funded), have long benefitted from monopoly and protectionist policies, and therefore are reluctant to innovate. Currently, Iranian cars are considered to be of inferior quality mainly due to lack of technological innovation and outdated production platforms. The industry also suffers from price controls, unfavorable import tariffs, and other state interventions.

Since the lifting of sanctions, many expected car prices to decline and FDI to increase, both of which have not materialized quite yet due to the overall financial and political hurdles the country currently faces. Despite 19 MoUs already signed by global automakers, only few have progressed so far. With the new reforms pertaining to local content and export requirements, and the government’s ambitious plan to boost domestic production from 1.6 million cars at present to 3 million cars by 2025, the automotive industry presents a lucrative opportunity for foreign investors. Vehicle sales are projected to grow at a CAGR of 13% by 2020. Joint ventures with foreign automakers and deregulation are the top priorities for the government to unleash the industry potential.

Aviation

Due to the years of economic isolation, Iran’s aviation industry has failed to stay abreast with the latest industry developments, which we discussed in detail in our article New Wings to Fly – Post-Sanction Scenario of Iran’s Aviation Industry in April 2016. The sanctions restricted Iran to procure new planes as well as any maintenance or repair services for its existing fleet. As a result, the nation remains inherited with an outdated fleet that requires immediate modernization. Iran requires nearly US$220 billion in investment to uplift its aviation industry. Besides investments, Iran will have to make significant changes to the existing business and financial policies that have become outdated and unprofitable. The current pricing and finance management strategies have resulted in many local airline companies running with severe losses.

In the post sanctions era, Iran has signed four major procurement deals for over 240 new passenger aircrafts. However, industry experts believe that it will be challenging for Iran to finance these deals. The delivery of third Airbus A330 was postponed recently (March 2017) and banking restrictions were cited as the main reason. Considering the heavy investments required in this sector as well as the current ambiguity of political developments and financing bottlenecks, Iran’s aviation industry will still take a few good years to start its journey towards growth trajectory.

Oil & Gas

Iran’s underdeveloped oil and gas industry has attracted the eyes of many. This was evident from the visit of Chinese president Xi Jinping to the country just weeks after the sanctions were lifted. Oil production has increased rapidly from 3.2 million barrels per day (BPD) in 2015 to 3.7 million BPD in 2016. The total output is expected to reach 4.2 million BPD in 2017. Similarly, exports in the post-sanctions period have also witnessed a rapid surge as many countries resumed purchasing Iranian oil. Experts suggest that Iran also has the potential to supply Europe with around 35 billion cubic meters of gas each year by 2030.

While many multinationals have recognized the country’s potential, various legal, political, and financial hurdles are holding them back from acting on their interest. As a result, despite the high number of initial MoUs signed throughout 2016, only the joint deal between Total, Petropars, and China National Petroleum Corporation (CNPC) has materialized so far. With the current government’s strong focus to develop and boost the petrochemicals industry as well as to improve contract politics and terms to attract more investments, there are signs of growth in the medium to long term. The need of the hour for Iran’s oil industry is to attract FDI and technology to improve the current infrastructure in order to meet its long-term goals.

Implications for an Average Iranian

The nuclear deal and its expected socio-economic rewards are yet to yield significant benefits for an average Iranian. Before the recent elections, sentiments were mixed as many Iranians felt that their living standards have not improved as expected. In a recent 2016 survey by University of Maryland, only 46% of Iranians believed the country’s economic situation was good, compared to 54% expressing the same opinion in 2015. It is important to note that structural reforms at a national level and FDI deals require longer timeframes to be implemented and show their true impact on the economy as well as society. For example, it will take years for Airbus and Boeing to complete their deliveries and for Total to start pumping oil, and even longer for the financial benefits of these and other deals to trickle down to general population. Attaining economic prosperity as a result of investment deals is a time-consuming process and not something that happens overnight, hence, it is too early to judge the success or failure of the nuclear deal as of yet. Keeping in mind Iran’s current volatile environment, it will take at least few more years for Iranians to slowly start reaping the rewards.

EOS Perspective

The lifting of sanctions has helped Iran to boost its GDP, oil production, and trade, while at the same time, the country’s continuation of testing nuclear weapons and supporting terrorism has dampened investor confidence and business opportunities. The political and financial risk of doing business with Iran has forced many multinationals to refrain from pursuing new opportunities. In the current context, Rouhani’s recent victory echoes public acceptance towards his overall political propaganda including economic liberalization. The election results are expected to have a positive impact on Iran’s prospects in the next four years, as the government will continue to work towards reviving the economy by improving foreign relations and business policies.

In order to sustain the current economic recovery and to rekindle investor confidence, the government will have to implement major reforms with regards to its state-owned enterprises, financial systems, and business policies. In its second term, the government will have to push for investment promotion, upgrade its outdated policies, promote competitiveness, and business-friendly environment to encourage FDI. Further, with the current level of unemployment and present economic framework, it is clear that the pace of job creation is inadequate. There is a pressing need to diversify the economy and develop private sector free of current bureaucratic challenges. In the long run, the key question is whether Iran can leverage its natural resources to diversify its economic structure and ramp up its economic modernization.

Looking at the promising developments that Iran’s automotive, aviation, and oil and gas sectors have shown so far, there is no doubt about their growth potential in the long term. Over the next year or so, Iran should attempt to re-integrate itself into the global trade and finance systems. This would boost trade and open up more business opportunities, fueling growth in key industry verticals. In the short-term however one can only expect moderate growth.

Driverless Autonomous Vehicles
by EOS Intelligence EOS Intelligence No Comments

Autonomous Vehicles: Moving Closer to the Driverless Future

An Uber self-driving car was reported getting into an accident in Arizona last month. But as the saying goes “any publicity is good publicity”, this also holds true for autonomous vehicles. The news sparked a discussion and shed some light on potential challenges the technology may face before it becomes available for commercial use. At the same time, it spread awareness about the level of safety testing being done to improve the technology before it is rolled out to the public. We are taking a look at what’s potentially in store for users waiting to see streets flooded with driverless vehicles.

Autonomous self-driving vehicles have been the talk of the industry for some time now, with some of the initial attempts to create a modern autonomous car dating back to 1980s. However, major advancements have only been made during the last decade, coinciding with advancements in the supporting technologies, such as advanced sensors, real-time mapping, and cognitive intelligence, which are perhaps the most crucial to the success of any autonomous vehicle.

Early advancements in the segment were led by technology companies which focused on developing software to automate/assist driving of cars. Some prime examples include nuTonomy, which has recently partnered with Grab (a ride-hailing startup rival to Uber) to test its self-driving cars in Singapore, Cruise Automation (acquired by GM in 2016), and Argo AI, which has recently received a US$1 billion investment from Ford. These companies use primarily regular cars/vans that are retrofitted with sensors, as well as high-definition mapping and software systems.

However, software alone is not capable enough to offer self-driving driving functionalities, therefore, automotive OEMs are taking the front seat when it comes to driving advancements in autonomous vehicles segment. New cars/vans, which are tuned to work seamlessly with this software, are likely to adapt better with the algorithms and meet stringent performance and safety standards required before they can be rolled out commercially. California-based Navigant Research believes that with its investment in Argo AI, Ford has taken a lead among such automotive OEMs in the race to produce an autonomous, self-driving vehicles.

Advanced levels of autonomy still to be achieved

In a nutshell, there are five levels of autonomous cars. Levels 1 through to 3 require human intervention in some form or other. The most basic level comprises only driver assistance systems, such as steering or acceleration control. Most common form of currently prevalent autonomy is Level 2, which involves the driver being disengaged from physically operating the vehicle for some time, using automation such as cruise control and lane-centering. Tesla’s current Autopilot system can be categorized as Level 2.

Level 3 involves the car completely undertaking the safety-critical functions, under certain traffic or environmental conditions, while requiring a driver to intervene if necessary.

Most OEMs developing autonomous cars target launching their vehicles in the next three to five years. Tesla is probably the closest, with its Model 3 car with Autopilot 3 system expected to be unveiled in 2018 (however, this depends on whether the regulations are in place by then). Nissan, Toyota, Google, and Volvo plan to achieve this by 2020, while BMW and Ford have set a deadline for 2021. Most of these companies are working on achieving cars with Level 3 autonomy, with a driver sitting behind the steering wheel to take over from the car’s programming as and when required.

Level 4 and Level 5 vehicles are deemed as fully autonomous which means they do not require a driver and all driving functions are undertaken by the car. The only difference is that while Level 4 vehicles are limited to most common roads and general traffic conditions, Level 5 vehicles are able to offer performance equivalent to a human driving in every scenario – including extreme environments such as off-roads.

Some OEMs, Ford in particular, are against the practice of using a human as a back-up, based on the understanding that a person sitting idle behind the wheel often loses the situational awareness which is required when he needs to take over from the car’s programming. Ford is planning to skip achieving Level 3 autonomy and target development of Level 4 autonomous vehicles instead.

Google is currently the only company focusing on developing a Level 5 autonomous car (or a robot car). The company already showcased a prototype that has no steering wheel or manual controls – a prototype that in true sense can be the first autonomous car. Tesla also plans to work on achieving the highest level of autonomy and plans to fit its cars with all hardware necessary for a fully-autonomous vehicle.

High costs continue to be challenging

While the plans are in place, one massive roadblock that persists in the development of these cars of future are costs. There are multiple sensors used in these cars, including SONAR and LIDAR. The ongoing research has helped to reduce the costs of sensors – Google’s Waymo has managed to reduce the costs of LIDAR sensors by 90%, from about $75,000 (in 2009) to about $7,000 (in 2016) – but they are still very expensive. The fact that a driverless car requires about four of these sensors, makes the cars largely unaffordable for consumers, and that puts off any discussion of feasibility of commercial production at this stage.

EOS Perspective

The first three months of 2017 have been particularly eventful, with several prototypes launched or tested. This activity is expected to increase further as companies try to meet their ambitious plans to roll out self-driving cars by 2020.

Initial adoption is likely to come from companies investing in commercial fleet, particularly those focusing on on-demand taxi or fleet, similar to what Uber or Lyft offer. Series of investments by large bus manufacturing companies, such as Scania, Iveco, and Yutong, also indicate how this technology will be the flavor of the future in public transport.

It is too soon to comment how and when exactly these autonomous vehicles can be expected to impact the way people choose to travel and how they may redefine the societies’ mobility. It is likely to depend on how the regulatory environment evolves to allow driverless cars in active traffic. Current regulatory environment for driverless cars is still at a nascent stage and allows only for testing of these cars in an isolated environment. Some states in the USA, particularly California, Arizona, and Pennsylvania, have opened up to testing of these cars in general public. However, recent accidents and cases of autonomous cars breaking traffic rules have put pressure on authorities to reconsider their stance until the cars become more advanced and tested to handle the nuances of public traffic. We might need to wait another decade or two before driverless cars are a reality in many markets. As things stand, endless efforts continue to go behind the curtain, as companies strive to win the race to develop highly autonomous and safe vehicles.

Indian automotive market
by EOS Intelligence EOS Intelligence No Comments

Tata’s Tamo Breaks with Convention, but the Fight Lies Elsewhere

Will the new Tamo sub-brand be able to change Indian consumers’ perception of Tata Motors?

Tata Motors is out to regain its place in the Indian automotive market, where it continues to suffer from a lack of trust among consumers.

Launched in February, Tata Motors’ future mobility sub-brand, Tamo, is intended to act as an incubation center of innovation’ to push new technologies for developing future mobility solutions…

Read our article published on Automotive World.

by EOS Intelligence EOS Intelligence No Comments

India Union Budget 2017: Implications for the Auto Industry

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Due to various macroeconomic factors, the Indian automotive industry has not achieved its full growth potential during the last 12-18 months.

In addition, the government’s recent demonetization policy has impacted consumer spending and created an unfavorable environment for the auto industry on the whole.

Amid these challenges, key stakeholders within the auto industry were hoping for a favorable budget which could revive consumer demand and catalyze growth in the industry.


What was expected

The auto industry had a fair bit of expectations from the Union Budget 2017 (annual budget of India). Many industry players expected last week’s budget announcement to offer reductions in existing tax structures, various incentives for R&D expenditure and promotion of hybrid and electric vehicles (EVs), and lower interest rates on auto financing. Some of the key items on the industry’s wish list were:

  • In order to support and boost government’s ‘Make in India’ program aimed at encouraging companies to manufacture their products in India, the industry expected some impetus in the form of lower taxation and other financial incentives

  • To increase vehicle sales, the industry expected lower interest rates on auto financing and larger fund allocation for the development of mobility infrastructure

  • EV and hybrid carmakers hoped for various tax exemptions and subsidies under the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India (FAME) scheme

  • OEMs expected the government to continue its 200% weighted deduction on R&D expenses

  • Industry players hoped for further clarifications with regards to incentives, timeline, etc. for vehicle scraping policy

What was received

  • Slashing 5% of corporate tax for enterprises with turnover under ₹500 million (US$7.4 million). This will benefit tier-2 and tier-3 auto components manufacturers and help them in further expanding their business as well as their R&D capabilities

  • The government earmarked ₹1,750 million (~US$25.9 million) in funding for the FAME scheme, which will further enhance the promotion of eco-friendly vehicles in the country


EOS Perspective

Although there were no substantial announcements in the budget that could directly benefit the auto industry, it surely has provided growth opportunities for it. Firstly, the government has increased its fund allocation by 11% to ₹640 billion (US$9.5 billion) for the development of national highways. In addition, 2,000 km of coastal roads are planned to be developed to improve the connectivity of ports and remote villages. These measures are expected to fuel demand for commercial vehicles in the coming years. Secondly, the income tax deduction of 5% for individual tax payers earning under ₹500,000 (US$7,425) is expected to boost personal consumption and spur demand among first-time buyers of passenger cars. Furthermore, the budget focused on boosting rural consumption by allocating more funds through various schemes. It is projected that these schemes will stimulate the demand for farming vehicles as well as two-wheelers in rural India.

For now amid no significant changes, all eyes are on the goods and services tax (GST) implementation expected to take place in July 2017. Industry experts anticipate that the rollout of GST will not only help to standardize various tax aspects, but it will also reduce costs across the industry’s entire supply and value chains. Therefore, a significant share of the impact will be seen only after the implementation of GST. Given the current scenario, we anticipate growth in the industry to rebound largely driven by government’s strong focus on enhancing consumer consumption and infrastructure development.

by EOS Intelligence EOS Intelligence No Comments

The Return of Consumer Credit – What Does It Mean for Algerian Passenger Vehicles Industry?

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(This post, along with recently published article on auto financing in Nigeria, formed a mainstay of a broader coverage article titled ‘Affordable auto financing essential for OEM success in Africa’, contributed by EOS Intelligence to ‘Guide to the automotive world in 2017’, Automotive World’s annual publication covering a gamut of articles by leading global automotive industry analysts and consultants. The report was published in January 2017)

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Banned in 2009 in order to curb the national import bill as well as the level of household debt, consumer credit was reinstated in Algeria in early 2016 to encourage the consumption of national products. In the local automotive industry, Renault Symbol is the only passenger vehicle currently available on auto financing, since Renault is the only locally assembled vehicle in Algeria. Can the return of consumer credit along with other policies provide the much needed boost to the nation’s passenger vehicle industry?

With a total population of approximately 40 million, Algeria is the second largest automotive market on the African continent. For the past several years, the country’s automotive industry has relied heavily on imports from Europe and Asia, importing nearly two million cars between 2012 and 2015. Today, the industry continues to be heavily dominated by imported vehicles, which account for approximately 85-90% of the total market. Passenger car manufacturing is limited, with Renault Algerie being the only domestic manufacturer (the Renault Algerie production plant is an assembly unit that builds the Symbol model from completely knocked down production for the Algerian market).

In 2009, all consumer loans were abolished by the government in an effort to reduce import bills as well as the level of household debt. However, in 2016, under the Executive Decree No. 15-114 of May 2015, consumer loans were made available on selected goods manufactured nationally. Under the scheme, car loans are available only on Renault Symbol, since it is the only locally-assembled vehicle.

Unlike in Nigeria and in several other African countries, where accessibility and affordability of car finance remain an immense challenge, in Algeria, a considerable part of the population can qualify for loans based on their monthly income level. As a result, major Algerian banks have seen a rapid surge of car loan applications. Although access to consumer finance has boosted car loan applications over the second half of 2016, this is not likely to significantly impact the industry growth, since consumers have no choice in selecting either brand or model. In addition, Renault’s current production volumes are very limited (25,000 vehicles per annum) and cannot meet the total local demand. However, due to the recently introduced reforms, the industry dynamics can be expected to change in the next few years.

EOS Perspective

The current economic environment, along with the implementation of licensing system and import quotas are likely to have a negative impact on the passenger vehicles industry in the short term. New vehicle sales can be expected to witness a decline to some extent in 2017. But the recent developments are also likely to push automakers to invest in setting up local production facilities. The arrival of major OEMs and their production projects is expected to serve as a growth catalyst for the local automotive industry over medium to long term. Once these projects become operational, local production volumes might increase significantly, which will provide consumers with more buying options. In addition, the ease of consumer lending could accelerate household spending, leading to increased bank lending in the automotive industry. As competition between banks intensifies, more innovative and affordable car financing solutions are likely to be available to consumers in Algeria, which can in turn attract many consumers across segments to buy new cars. The rising and young middle-class Algerians are likely to consider shifting from entry-level segment to the luxury segment, as they can spread their payments over a longer period of time (e.g. up to 60 months).

All of these efforts combined together – the recent industry reforms, auto manufacturing projects in the pipeline, and auto lending – can be expected to fuel growth in Algeria’s passenger vehicle industry.

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