3rd Generation Automobile – India can lead this opportunity

Introduction

The size of the global automotive industry today is in excess of US$ 1.6 trillion USD. The Global
Automotive sales will exceed 100 million units per year by 2009.

Size does matter. But besides the size, the industry is also highly competitive. The Global Customers
are well informed and highly demanding. Besides, people relate the car to their personality and many
times the choice of the car is driven by emotional preferences. This makes a compelling need for the
Automotive industry to design and launch new products quickly with more innovative features.

1st Generation Automobile:

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Looking at the industry from an evolutionary perspective, America dominated the 1 Generation
Automobile through Industrialization and availability of capital. America led the way in the mass
production of Automobiles. During this period, Henry Ford pioneered the famous moving assembly line
for their flagship model T. America is also credited with a lot of innovations in the Automotive industry
including experimental designs, front engine, internal combustion engine, rear storage space, automatic
transmission.

Factories became economical due to a revolution in equipment sophistication, process technology.

America gained supremacy over Europe in industrialization as technologically competent owner-
investor-capitalists were ready to invest in upgrading manufacturing technology. By World war II,
America had more large scale business enterprises than the rest of the world combined and they
introduced the modern accounting concepts and spawned managerial hierarchies.

2nd Generation Automobile:

With the labor wages crawling up in US and not much innovation happening in terms of process
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technology, this set the stage for Japan to dominate the 2 Generation Automobile through their
focus on quality and cost. For Japan, that was hungry to prove itself after being hit very badly in the
Second World War, this opportunity provided the perfect platform to bounce back as an industrialized
nation.

The Japanese collaborated with US due to their geographical proximity and reverse engineered
American products. This helped Japan becoming a new industrial center in Asia. The interventionist
government helped them by keeping a close relationship with the industry, keeping cost of capital low.

All the Japanese automotive majors like Toyota, Nissan, Honda, Mitsubishi invested in the supplier
companies through kereitsu (a set of companies with interlocking business relationships and
shareholdings) bolstered the subsidiary's financial strength, product planning, parts rationalization, and
overseas marketing capability.

The Japanese companies introduced lean production initiatives like JIT (having suppliers supply parts
on a timely, need basis), Jikoda (self-regulation and building quality into the process), 5 Whys (Asking
“Why?” 5 times to locate source of problems and stopping the production line whenever there are
quality problems to ensure they are not repeated), SMED (Single Minute Exchange of Dies) enabling
companies to have very flexible production runs and high capacity utilization rates of 75% to 215%.
Through these initiatives, the Japanese Automotive companies were able to rationalize production,
models and thereby produce higher quality automobiles at lesser cost. Japan thus became the leader of
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the 2 Generation Automobile opportunity.

With the advent of electronics, computing and communication technologies, we are now in the era of
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the 3 Generation Automobile – the “software cars” as General Motors calls it. With technology and
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innovation set to play a key role in the 3 Generation Automobile, India is very uniquely placed to lead
this opportunity.
The 3rd Generation Automobile
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The 3 Generation Automobile will be a Hi-Tech car and a Green car.

The cars are becoming more hi-tech, intelligent and communicative powered by Information and
communication technology. The scope of IT in automobiles spans from intelligent systems, navigation
control, infotainment and superior safety systems. In fact, technology is the selling point and is the
differentiator in many instances. The automotives are moving from a mechanical platform to an
electronic platform with more intelligence and communicative features powered by IT.
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Some examples of Hi-Tech features in the 3 Generation Automobile include:

1. GPS, GIS and Fuzzy Logic Control systems for Adaptive Cruise Control – Uses microwave radar to
detect traffic conditions & slow down or stop car accordingly. Most high luxury model lines (like
Merc, BMW, Jaguar, etc) already have these even today

2. Wireless networking for Car to Car Networking – Passes information about road / traffic conditions
helping other drivers to prepare. Each car acts as a relay station

3. Use Digital signal processing for Active Noise Cancellation – Cancels road & wind noise by
sending signals through audio system

4. Sensor network based Electronic Stability Control (ESC) intervenes when the car senses a
possible loss of control. The car's control unit can reduce power from the engine and even apply
the brakes to prevent the car from under steering or over steering

5. Embedded systems in vehicles senses the road conditions & actuates the Power Steering
mechanism to assist driver accordingly

6. Biometrics based identification applications Finger prints, pressure sensors helps reduce misuse
or theft of vehicles

7. Programmable Vehicle – The systems allows driver to vary the ground clearance based on the
terrain on which the vehicle is driven

8. Auto Valet – Available in Europe. Intelligent Park Assist helps Toyota Prius owners on congested
streets

9. High Impact System – The Lexus system can detect and prepare for imminent impact with
vehicles and even pedestrians

10. Auto Cruise – Audi Q7 uses radar to maintain distance from other vehicles

11. Virtual Reality – Future navigational aids add a third dimension

12. Wake up call – Camera enabled system helps keep drivers in their lane

13. No blind spots – Camera and radar technologies can help drivers “see” otherwise hidden vehicles

14. In the dark – The latest night vision systems allow drivers to see beyond the headlights
Besides making the car Hi-Tech, the escalating fuel prices and environmental concerns such as global
warming drive the industry to innovate pollution free green cars. Today there are around 800 million
vehicles on the road around the world burning nearly 250 billion gallons of fuel every year. The Gas
prices have increased by over 50% in the past few years and is expected to rise further, accelerating
the need to find cars that will run on alternate fuel and are pollution free.

From hybrids to hydrogen cells, the world's leading automakers are working furiously to increase their
production of “green cars.” Some of the examples of “green cars” from leading automakers include:

1. BMW Hydrogen 7 with Hydrogen as fuel, commercial sales expected by end of 2007
2. GM Chevrolet Volt – Electric with back-up 3 cylinder engine. Fuel – Electric or Diesel, Gas or
Hydrogen
3. Honda – Power train – Hydrogen fuel cell stack, Fuel – Hydrogen, Expected in 2008
4. Toyota Lexus LS 600h L – Gas – Electric hybrid

Indeed the “Hi-Tech and Green car” represents the next battleground of supremacy in the global
automotive industry. The country or the company that innovates the superior hi-tech, green car with
more fuel efficiency will not only be appreciated by the global community but also will emerge as the
global leader.

Technology shall play a key role in enabling innovation for the 3rd
Generation Automobile
Technology shall play a significant and far reaching role in enabling the innovation towards the Hi-Tech,
Green car. Software and Electronics are changing the concept of car designs.

To provide some numbers:

1. The Approx cost of electronics in luxury automobile is ~ 23% of the total product cost
2. The Average automotive electronic cost per vehicle is forecast to increase by 50% in 2010
3. Today, 80% of innovations in automobiles comes from electronics

Automotive industry leader General Motors has unveiled the concept of “new Automotive DNA” where
the car design will be driven by software and electronics. In the new DNA, GM talks about moving from
IC engines to electric propulsion, moving from mechanical systems to electronic systems for both
steering and motion of the wheels. This means everything from how these systems are built, sold and
serviced will undergo a sea change.

Emerging technologies are driving several innovations in car design. One such interesting innovation
being attempted is to teach cars how to feel and sense what is happening on the road. However for this
to be effective, systems need to be developed that can collaborate with other cars on the road.

Another example of innovation in a car’s navigation system is a facility that could tell the driver how
much money a trip on a specified electronic toll highway might be expected to cost.

The ultimate innovation would be to get the cars drive themselves. With a combination of GPS, digital
maps, 360 degree sensing, and vehicle-to-vehicle communication technologies, this appears to be a
distinct possibility in the future.

Technology shall play a key role not only in product innovation but across the value chain of automotive
design, engineering and manufacturing.

The future design, engineering and even manufacturing will be highly digitized powered by information
and communication technology.

The virtual or digital manufacturing as we call it, is already here getting wider acceptance among the
global automobile manufacturers with significant benefits in terms of cost, quality and speed to market.

Some examples of Virtual Manufacturing and Collaborative Engg at work at global Automotive
companies include:

1. GM has integrated more than 800 suppliers in North America and another 1,000 suppliers in
Europe into its worldwide development network for Collaborative product development.
2. Renault F1 reduced simulation time from three weeks to 18 hours and shaved six months off
engine development time
3. GM uses Digital Manufacturing tools to eliminate physical mock ups & saves USD 75 Mn /
annum
4. Daimler Chrysler has reduced planning cycle by 40% by eliminating physical mock ups
5. 80% of Part interference problems in assembly & quality were resolved in Toyota by pre-
validating the interference process through digital simulation
6. Digital Manufacturing helped GM reuse of 80% of the plant design for a new power train
production facility in Eastern Europe

Apart from virtual manufacturing and collaborative engineering, the recent trends in IT such as Service
Oriented Architecture enables global Automotive companies to be more responsive, adaptive
manufacturing organizations and helps them run their supply chain, CRM and business support
processes more efficiently.
India has all the key ingredients to be a leader in shaping the 3rd
Generation Automobile opportunity
Over the past decade, global sourcing of services has witnessed unprecedented growth.

Capitalizing on its advantages of high skill talent pool and cost arbitrage, India today has emerged as a
global hub of IT and software. The technology supremacy of Indian Engineers is acknowledged and
appreciated world-wide.

With the advent of Hi-Tech and Green “software” cars, India has the opportunity to be a leader to shape
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the 3 Generation Automobile for the world.

Today India has several advantages to make this happen.

With the advantage of lower cost of operation, the cost per innovation could be anywhere 40 to 50%
lower than doing it in developed countries leading to the concept of frugal innovation as someone has
rightly termed it.

Besides, deploying the well tested global delivery model to design and engineering, companies in India
can reduced the time to market significantly by establishing a 24/7 engineering schedule.

India produces a very high number of engineers many of them come with the engineering design
background. The current employee strength of India-based automotive design vendors is approximately
12,000 and is expected to reach 40,000 by 2010.

Automotive domain expertise - Indian OEMs Mahindra & Mahindra and TATA Motors have
successfully designed and built new vehicles. Maruti Udyog jointly designed its small car Swift with
Suzuki's engineers in Japan. This makes India one of the few countries outside of the US, Europe,
Japan and Korea with a proven capability to design and build automobiles.

Presence of Global Auto Majors - India is becoming a major manufacturing destination for Global
Automotive majors. General motors is setting up a design center in Bangalore, Nissan is making India
as the hub for their small car design and manufacturing, Hyundai consolidating their small car
manufacturing in India, Nissan working with Ashok Leyland, BMW and Mercedes assembling their high
end cars in India, Renault working with Mahindra & Mahindra on passenger cars and many other such
initiatives.
Presence of Design software companies - Design software companies such as Autodesk and PTC
have established a significant presence in India.

Government initiatives for Automotive R&D - The government, in partnership with the Indian
automotive industry has initiated the National Automotive Testing and R&D Infrastructure Project
(NATRIP) to create state-of-the-art testing, validation and R&D infrastructure in the country. The project
involves an investment of about USD$380 million.

Robust Auto Component Industry - Indian auto component industry is very robust and of significant
size crossing USD 15 B in 2006 including exports of $ 2.1B to global OEMs / Tier 1 companies.

Indian companies produce a comprehensive range of products – Engine, Transmission, Steering, Body
& Chassis, Suspension & Braking, Equipment, Electrical parts and others.

They are readily embracing modern manufacturing practices like Lean Manufacturing, 6 sigma, TPM,
TQM, Kaizen, 5-S, 7-W to compete with other countries. Indian companies won 9 Deming awards, the
highest among companies outside Japan, Japan quality medal, TPM award and they are also investing
in setting up design center to move the value chain.

Need for a collaborative approach to make this happen

With its strengths in IT, Automotive domain expertise, Design and Engineering capability and growing
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recognition as an innovation hub, India can aspire to create the 3 Generation Automobile for the world.
Such a car shall be conceptualized, designed and engineered in India and sold in the global markets.
The manufacturing of the “Designed and Engineered in India” car could be in India or in any of the low
cost global manufacturing hubs like China, Vietnam and the like.
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To lead this 3 Generation Automobile opportunity, India needs an integrated approach.

While we have pockets of excellence, there is a need to bring together the different players – Industry,
Academia, Research institutions, Technology alliance partners, industry bodies – as an ecosystem with
a cluster approach. Successful innovation can happen only by breakthrough collaboration between the
different key stakeholders.

This collaboration needs to happen not only within India but also at a global level involving the global
community.

Such a collaborative approach shall effectively harness the tremendous thought leadership potential
inherent amongst the different stakeholders and help the India lead the next paradigm in the
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Automotive development - the 3 Generation Automobile.