U.S. auto makers still may be a little gun shy when it comes to pulling the trigger on new-product development as the industry slowly fights its way out of a recession that wiped out 40% of annual new-vehicle sales.
But they appear to be far less reticent in green-lighting investment in emerging markets – at least in the case of one unidentified car manufacturer.
Karthikeyan Natarajan, who heads up the Integrated Engineering Solutions Practice for Mahindra Satyam, says in a phone interview from India that product-development money, hard to come by during the peak of the global downturn, is beginning to shake loose.
But so far, European auto makers are showing more confidence in the future than their North American competitors.
“The economic climate is improving and customers are getting more clarity about what they want to do in terms of investment and the programs they want to do,” he says. “(But) on the global level, Europe is a lot more bullish.
“We still see the U.S. auto makers as a little bit more circumspect when it comes to going ahead with some of their new programs.”
Natarajan says his European customers are firming up product plans and beginning to dole out supply contracts for programs that run late into the decade.
“They’re starting up some really long-term programs,” he adds. “They are building their pipeline for the next five to seven years already and really starting to spend. That has been something that has been surprising for us, and I think that is something that is not happening at the same pace in the U.S.”
But then Natarajan drops a bombshell, saying his firm has started to get “some interesting opportunities” to help auto makers set up plants in emerging markets, including one unidentified U.S. OEM that may be about to embark on an extensive capacity-expansion program overseas.
“One of the North American OEMs wants to have about 20 factories set up in 20 countries, essentially all emerging economies,” he says. “They’ve figured out these are the countries they really want to scale up their manufacturing (capacity) as they try to increase their footprint in the local markets.”
Mahindra Satyam is bidding on contracts to help design automation systems and set up the plants. Natarajan does not indicate the size or extent of the manufacturing operations, which presumably would vary from market to market.
The new-plant rollout is targeted for completion in the next three to five years, he says, but “maybe four to five plants will come up in the next year.”
The unnamed auto maker believes it’s time “to leverage the opportunity that is likely to happen in those markets and get ready for it,” Natarajan says. “And they seem to have a broad concurrence with their board (of directors) to go ahead with those plans.”
It might be difficult to tell if such a sweeping plan comes to fruition, as the investments are likely to come to light piecemeal, not as part of one big capacity-expansion package. And Natarajan acknowledges there could be delays and some projects could get sidetracked altogether.
Emerging markets in Asia and elsewhere are expected to take the lion’s share of automotive growth in the next decade. The Boston Consulting Group predicts Brazil, Russia, India and China, alone, will account for 41% of new-vehicle sales in 2020, up from just 9% today.
Potential that big is hard to ignore. And it looks as if at least one U.S. auto maker may be ready to pounce.
