Vendors hope to ride out the global auto crash

Vishwanath Kulkarni
Shamik Paul

Bangalore, Dec. 5 Notwithstanding the impending collapse of North American auto firms such as General Motors, Ford Motors and Chrysler, the Indian IT firms are cautiously optimistic that global automakers would sustain long-term investments in futuristic technologies such as fuel efficiency and emission control systems.

However, the IT firms are cautious about the impact in the short-term as they expect some cut in budgets on discretionary ‘nice-to-have’ projects as auto companies affected by the declining demand and credit crunch await a bail-out package.

Already battered by the meltdown in the US financial services sector, the Indian IT vendors had set eyes on sectors such as manufacturing and retail to offset the impact.

The auto sector is a major component of the manufacturing vertical for many an Indian vendor.

No cancellations

TCS, which serves clients such as Chrysler and Ferrari, is cautious about the dynamic developments in the North American auto industry and has adopted a “watch-and-see” stance.

“We have not seen any reduction in projects or cancellation of contracts,” said Mr Reghuayaswamy, Vice-President and Global Head of Engineering and Industrial Services practice at TCS. However, there is an increasing interest to offshore as clients want to control costs.

Mr Reghuayaswamy expects the auto companies to maintain their sustenance type of budgets that are already committed. While there could be pressure on the discretionary budgets, customers would go ahead with investments in programs relating to fuel efficiency, emission controls, electronic systems, better engine management and hybrid vehicles, he said.

TCS earns about five per cent of its revenues from the automotive clients.

Customers cautious

“Customers are cautious about the outlook and the decision making has got delayed,” said Mr Ravi Pandit, Chairman and Group CEO of KPIT Cummins Infosystems Ltd. “Investments would grow in areas of technology innovation and on newer products that are essential for companies to remain competitive when the economy starts looking northwards again,” he said.

KPIT, which earns about a third of its revenues from the auto engineering and auto IT, said it has not seen any project cancellations so far. “While US companies are awaiting decision on the auto bail-out plan expected in the next two weeks, we expect renewed activity from European customers in the New Year,” said Mr Pandit, adding that investments in futuristic technologies relating to higher mileage and advanced safety systems would be sustained.

Other major vendors such as Wipro and Satyam, who serve companies such as General Motors, did not comment.

Sensing a slowdown, Geometric Ltd started diversifying a few quarters ago to reduce its dependence on auto and moved into new verticals such as oil and gas, fashion and high tech, said Mr Ajit Joshi, Senior Vice-President and Head- Product Lifecycle Management (PLM) solutions.

Geometric provides PLM solutions to auto companies, which helps them to manage the entire lifecycle of the product right from conception through design and manufacture to service and disposal. Admitting the increasing pressure on rates, Mr Joshi said the company was also witnessing some delays in new project starts. However, there have not been any major cut back on the existing PLM projects as these help companies in product innovations and reduce time to market. Mr Joshi felt that European automakers, which are closely following their US counterparts in the IT off-shoring wave, will be an opportunity for the India Inc to grab.

Analysts not upbeat

However, analysts are not optimistic unlike the IT vendors. “Business will suffer to an extent for vendors who have exposure to the auto industry as IT spends for clients will take a back seat,” said Mr Harit Shah, equity analyst at Angel Broking Ltd.

“There is likelihood that new projects will be delayed or cancelled, and there would be pricing pressure as well,” Mr Shah predicted.