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India back on the road to growth?

It seems like only yesterday that India was being widely talked of as one of the next titans of the global auto industry.

And indeed things were looking good for the world’s second most populous nation. During a succession of boom years, vehicle sales were driven by strong economic growth and a rapidly expanding middle-class. Indian companies started taking an interest in international businesses, most notably Tata’s highly successful acquisition of Jaguar Land Rover, and the stage was set for India to join the ranks of the world’s automotive superpowers. More recently though, a combination of increasing fuel prices, the weakening rupee and prolonged high interest rates have led to rising vehicle finance costs and a marked slowdown in the domestic market. In 2013 sales fell for the first time in a decade, despite manufacturers’ liberal use of incentives in a bid to entice customers into their showrooms.

In the past few days however, there have been a couple of promising signs that policy-makers are ready to act to help pull the nation’s auto sector out of the doldrums.

On 21 February the government of Tamil Nadu announced plans to set up an bold new “Auto City” - a modern 1,000 hectare industrial park for domestic and global vehicle manufacturers and suppliers. This is the first initiative of its kind in India and the state government plans to form an Automotive Industrial Development Centre (AIDC) offering investment services, support and incentives with the aim of making Tamil Nadu a “destination for manufacture and export of motor vehicles”. The Auto City would boast a logistics hub to provide multi-modal transport, a design and technology park and common infrastructure such as effluent treatment and waste management utilities. It would enable the transportation of goods to various ports on a 24-hour basis. Chennai is already the centre of India’s auto industry with global OEMs including BMW, Ford, Hyundai and Renault Nissan located in the area, along with major domestic players. Tamil Nadu also accounts for 35 per cent of India’s auto component production worth $6.2 billion. Now the state government says it aims to make Chennai one of the top five auto-clusters world-wide.

And this announcement from Tamil Nadu comes just days after the Indian government announced cuts to the national excise duty on automobiles in it’s interim budget for 2014. Finance minister P. Chidambaram took the unexpected step of reducing the duty on small cars and two-wheelers from 12 to 8 percent. He also slashed duty from 30 percent to 24 percent on SUVs, and on large and mid-sized cars from 27% to 24% and 24% to 20% respectively. Manufacturing received a boost too in the form a reduction of excise duty on capital asset purchases from 12% to 10% across all sectors.

If these measures are signs that India’s political leaders are serious about intervening in the strategic interests of their domestic auto industry, it might be back on the road to growth again pretty soon.

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Suppliers keep hold of their lunch money

Back in the summer of 2013, with its volumes climbing again and the end of government ownership finally within sight, GM presented its suppliers with revised terms and conditions of business. It would be fair to say that the reception they received was unseasonably frosty.

In a nutshell, GM wanted future contracts to hold suppliers responsible if
the automaker were to later determine that a component posed a safety risk to consumers; even where the component in question was built in accordance with GM specifications (previous contracts limited supplier liability to cases where products didn't meet GM specs). In other words, a de facto open-ended liability beyond the usual warranty on supplier parts, which generally expires at the same time as GM’s consumer product warranty.

At the same time, GM introduced a clause which appeared to give it
significant new rights with respect to the ownership and licensing of
suppliers’ intellectual property. Then there was the new audit clause
which required a supplier to “promptly provide” (to GM) “its most current income statements, balance sheets, cash-flow statements and supporting data and schedules upon request.” It’s easier to negotiate with your supplier on price once you know exactly what net margins he's making across his whole business.

Not surprisingly, feathers were ruffled. Following months of “feedback”
from its suppliers, and what one assumes was a better-than-average
Christmas for Detroit’s corporate law firms, the automaker had a change of heart - announcing it would re-word the more controversial sections of the new contract. Last week GM's global purchasing chief, Grace Lieblein, told Automotive News that the contract changes “left a lot of room for
interpretation,” and may have led some suppliers to think GM’s intention
was to assert an unreasonable degree of leverage over its key suppliers.

“I don’t want to be talking to CEOs about terms and conditions,” she said. “I want to be talking to them about technology and quality and driving waste from the system to go after cost.”

Indeed. The days when carmakers called all the shots in the automotive
value chain are long gone. Today’s leading global T1s are powerful
technology partners, and they know it. Their competency in key areas like
advanced electronics, software, communications, emissions control, new
materials etc. often exceeds that of even their biggest clients. They
invest spectacular sums in R&D and they create technologies and features
which end users get excited about. GM’s hasty retreat from this “misstep”
is one of the strongest signs yet of a new world order. It's a world in
which eye-wateringly high levels of investment are required to perfect
challenging new technologies and automakers can't make it on their own.

The smartest OEMs and suppliers will embrace the reality of their profound inter-dependence and learn to collaborate ever more closely on advanced technologies, keeping their eyes fixed on the real prize: that of making vehicles which customers will pay a premium for.

History suggests that some OEMs will handle these changing relationships
better than others, but one thing is already clear. The suppliers that are
worth having can no longer be bullied.

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Copenhagen wants citizens to electrify their commute

Back in December 2009, a colleague and I travelled to Copenhagen to participate in the COP-15 climate talks. I fondly recall the camaraderie we experienced during the 7 hours we queued, with roughly 15,000 other NGO hacks (and a few hundred riot police) outside, in the snow, for accreditation. I learned a valuable lesson about supply and demand that day when I paid EUR 40 for 3 takeaway cappuccinos. Still, we did save the world from climate catastrophe, so all’s well that ends well.

What we failed to do however, due to a combination of lack of time and mild hypothermia, was to check out the city’s world-famous cycle-hire scheme. Copenhagen was the city that first popularised bike sharing back in the ’90s. Now it’s getting rid of its aging coin-operated pushbikes and replacing them with state-of-the-art electric motor–assisted bicycles. The new bikes, which the city tested at the end of 2013, boast motors that can deliver up to 450 watts of power from a battery pack that’s rechargeable at dozens of docking stations around the city.

The scheme is called Cykel DK, and its stated aim is to encourage more people to ditch their cars. As automakers and the burgeoning car-sharing industry suit up to do battle in a new era of mobility-on-demand in cities around the world, it might be worth taking a fresh look at Cykel DK and the numerous other tech-enabled sharing schemes springing up around the world. These include Paris’s celebrated Vélib’, New York’s CitiBike and London’s so-called Boris Bikes. All these schemes use smart docking stations to handle credit card deposits and payments. Cykel DK goes a step further though, utilising a small tablet computer fixed to the handlebars which allows users to reserve and pay for the bike and to navigate with GPS. Customers can also reserve a bike online using their PC or a phone app.

But the key factor in any shared-use scheme is availability, and here’s where the on-board tablets have a trick up their sleeve. If the system detects that a particular dock is receiving more reservation requests than it has bikes, it pings nearby riders with an offer: Leave your bike at the requested location when you’re done and you’ll get credit toward future rides. Cykel DK’s hoping that this will cut the number of expensive shuttles required to keep the city’s bikes where they’re needed and indeed help to keep the overall fleet size (and therefore the costs) to a minimum.

And then there’s the fact that these bikes are motorised and, as such, could have an appeal that reaches beyond committed cyclists. Offering commuters a self-powered vehicle – one that’s smaller and slower than a car, such as Barcelona’s Motit scheme  – is increasingly being viewed by urban authorities as a strategy to reduce the number of cars being driven into city centres. But full-power electric scooters give rise to whole new level of safety and liability issues. Several Chinese cities have banned full-power electric bikes as a result of reckless riders causing thousands of fatal accidents. New York City has done the same. With the electrically assisted bikes favoured by Copenhagen, the scheme operators have the facility to adjust the amount of electric boost the motor provides for different cities. In hillier environments, for example, the motors will need extra boosting capability, up to the bike’s maximum power output of between 400 and 450 watts – but at or below a speed limit set by the city. In flatter cities, bike-share operators could dial-down the current. Copenhagen’s bikes will stop assisting riders above 16 kilometers per hour.

Of course seducing people out of their cars and onto electric bikes will not be easy. And what seems like a fun, convenient alternative in the summer months can lose some of its allure in the November rain. But it’s worth keeping an eye on Copenhagen over the next years. Cykel DK has until late 2014 to bring the system up to the intended scale of 1800 bikes and between 65 and 135 stations, and it has an additional seven years on its contract, so this is a valuable chance for automakers, as well as public authorities, to learn more about shared urban mobility in a real-word setting.

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