Faced with a slowdown in sales growth and rising costs, domestic automakers may increase their focus on frugal engineering to sustain volume growth and ensure stable profit margins, an ICRA report said.

The use of common parts and platforms across various models and companies, lowering vehicle weight, and increasing engine efficiency will help automakers counter challenges such as increasing raw material prices, higher interest rates and rising fuel costs.

After having recorded strong double-digit volume growth over the last two years, the auto and auto components industry may face strong headwinds in 2011-12 leading to a moderation in growth, ICRA said.

“While the industry has made big strides over the last decade towards improving internal efficiency and, thereby, partially offsetting input cost pressures, going forward efficiency gains alone may be insufficient to combat cost headwinds.

Industry players will, therefore, need to intensify their focus on deploying more cost-effective vehicle systems in their new product development and existing model refurbishment programmes,” the report said.

This may require industry players to incur greater investments.

The longer term benefits and resultant structural changes could alter the automotive design paradigm, change the cost drivers and provide greater value to customers.

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