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CHENNAI, March 14

SOME European car manufacturers are using Eastern Europe as a low cost manufacturing base. Peugeot, for instance, is building plants in Eastern Europe, where the wage costs are one-fourth of that in France. But, the chief executive of Peugeot has said low cost wages are not the main driver in the move to Eastern Europe, logistics is a more important factor.

What does this mean for the Indian automotive industry? Mr Michael A. Bacon, Senior Partner, KPMG, UK, who highlighted the trend in the global automotive industry at a presentation here on Thursday, said there were opportunities that India could tap - as a manufacturing base for low cost cars, and for low cost, labour-intensive components; and become a hub for R&D facilities and technology centres.

The R&D facilities and technology centres could be for low emission, fuel-efficient and safer vehicles; automobile design engineering; automobile test centres; and, advanced automotive software and electronics.

However, the Indian automotive industry would have to face some critical challenges as it would need to be strong to survive in light of continuous cost down pressures and low return on capital employed. The Indian industry must build expertise, experience and design capability quickly. Logistics and supply-chain management were critical to satisfy European, North American and other Asian plants, he said.

Mr Bacon and Ms Kameswari Vissa, Partner, KPMG India, were making a presentation on "Global insights for the Indian automotive sector".

Mr Bacon said India could become a significant player in the global auto industry. It had a large, highly skilled but low cost manufacturing base. However, he said, the quality levels at the higher tiers of the industry were good but was not that good in the lower levels. There were real opportunities for joint ventures and technology transfer agreements.

He said that the Indian market was expected to grow by eight per cent per annum, which would result in a demand for cars of around 7,40,000 in 2005-06 and of 1.2 million by 2010. He said the excise duty cuts should improve demand at least for the short term. However, increasing steel prices was expected to offset this reduction.

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