Behind the Wheel: Corporate Governance & Trends in the Automotive Realm

Rangaraj Ravindran is a Strategist, thought leader and business turnaround specialist committed to a customer-oriented, results-driven and profit-focused approach with over 34 years of cross-functional global exposure in the automotive and engineering sectors of India and Oman. He has proven abilities in driving CSR initiatives at Murugappa Group (India) and SuhailBahwan Group (Oman). He is also an MCA-Endorsed Independant Director. In a conversation with Industry Outlook magazine, he shares his insights on the changing trends in corporate governance in the automotive sector.

In light of evolving market trends, where do you see the position of the automotive industry, particularly in terms of its response to the recent developments?

The entire automotive industry is positively moving towards EV adoption. First is because of the commitments made by nations and individuals to address the issues of global warming and going clean. Automotive, as a product segment, is one of the largest contributors to pollution and harm to the earth's environment. It is only natural for organizations and individuals to take steps to adopt and embrace this new technology and replace the technology associated with the usage of fossil fuels. It started with two-wheelers, and now we have major four-wheeler players available in the market for EV technology. Organizations have made significant R&D investments to come up with new products in the EV range that can completely replace internal combustion engines.

"Organizations have made significant R&D investments to come up with new products in the EV range that can completely replace internal combustion engines."

What are the key considerations potential franchisees should evaluate before investing in an automotive industry franchise?

Considering the new technology that I spoke about, those who are looking at investing in the automotive industry franchise should realize that the after-sales revenues from the IC-Engine vehicles are much higher than what they will derive from the after-sales servicing of EV vehicles. An EV does not come with an engine or gear transmission and there are many parts that do not require servicing. A huge chunk of revenue will not be available for EV vehicles which were previously there for petrol and diesel vehicles. There is, however, still a lot of room to make profits, knowing the fact that this is going to be the future of the automotive industry. Many OEMs have also slowly started changing their business models in this regard. Consumers will be able to get all the product information from the internet and then place the order directly. The OEMs will get it manufactured and hand it over to the consumer through a retailer from a showroom.

What risk management strategies are employed by automotive industry leaders to address technological, supply chain, regulatory, and market risks?

First, if you look at the technological challenges, the risk is old systems have to be tossed out and need to be replaced by completely new EV systems. This will mean a considerable amount of investments already made over the last several years will become redundant and newer investments have to be made in that place. This is a significant challenge for investors but nonetheless, it needs to be addressed. The investors need to understand the necessity of this investment considering the global scenario, and vendors also need to be brought into the scenario. There are always risks involved with new technologies and the new investments would need to address these appropriately. The OEMs must handhold their vendors and provide the required support to bring about the needed change. The investments on the supply chain side of things must also be revised in order to implement the EV technology in the market. Warehousing patterns also need to be changed because many parts will not be applicable for EV technology that was earlier required. In terms of regulatory aspects, the OEMs again need to take responsibility for complying with the regulatory guidelines that differ from country to country because today, most of the manufacturers are global players, and they need to be flexible enough to comply with the native demands and requirements. There are various regulations regarding the usage of the battery, the life of the battery, and safety norms that currently apply to EV vehicles in the market. All these issues need to be addressed for all the global players to continue having a global presence.

What corporate governance practices are implemented within the automotive industry to ensure transparency, accountability, and ethical conduct?

Here, it would be good to speak from the perspective of India. In the last two decades, Indian consumers have become conscious of their money's worth and also about their legal rights as consumers. There are more choices available to the consumers as well. Organizations must be aware of this fact and should not think that they can take the customer for a ride. Be it a low-budget vehicle or a high-end car, on-time delivery and product quality are some of the aspects that need to be taken care of by the manufacturer.