Tuesday, March 26, 2013

Can Opportunity Reveal their Genius?

Buoyant car sales offer an Unprecedented Opportunity for The Indian The Auto-Component industry to ramp up its Investments and Innovation. Can they meet The Demand?

From its small beginnings in the 1940s to the spectacular growth over the last couple of decades, the Indian auto component sector has come a long way. In fact, the industry is one of the front runners for grabbing the global auto components outsourcing market estimated to be worth $700 billion by 2015. As India’s consumption story for cars is expected to remain strong, component manufacturers are gearing up to meet the challenges and demands set by the automobile sector. “The automobile industry is growing at a pace of 30% vis-à-vis the economy growth of 8-9%, so there is bound to be a correction sooner or later. However, the last three years have been full of surprises and we hope the growth will continue,” says Anil Gadi, Executive Director, Shriram Pistons. Car sales for fiscal year ending March 31, 2011 are forecasted to grow by at least 25% from a year earlier, according to the Society of Indian Automobile Manufacturers (SIAM).

According to the Automotive Component Manufacturers’ Association (ACMA), an industry body, the total passenger car production in the country will jump four times to reach nine million cars by 2020. On the other hand, the Indian auto component industry is expected to also grow by over four-fold to $113 billion by 2020. “India would be among the top five vehicle producing countries in the world by 2020,” says Vinnie Mehta, Executive Director, ACMA. A recent ACMA report puts the turnover of the auto component industry at about $26 billion in 2010-11, up 18% from $22 billion in 2009-10. The report states that 40% of the auto component industry is dominated by body and structural products, 20% by engines and exhaust, and 10% each by suspension and braking parts, transmission and steering parts, electronics and electrical and interiors.

However, the road to growth is not without hiccups. The Indian auto-component industry is up against challenges such as lack of good infrastructure, increasing input costs, et al, which could slow down growth. ACMA estimates that an investment of $35 billion must be made over the next decade to help car makers realise their targets. But the parts industry invested a measly $1.7 billion in 2009-10, half of the required rate.

Doubts over the sector’s ability to cope with the unprecedented demand have a strong basis. The second half of 2010 was characterised by long waiting periods at car dealerships of popular models. For instance, Maruti Suzuki Swift had a waiting period of over three month while the recently launched Polo from German car maker Volkswagen had a waiting period of over six months. Industry veterans ascribe the reason for the delays to component shortages, which adversely impacted the production cycle. Take, for instance, the case of utility vehicle maker Mahindra, which suffered a 10% production loss in the first quarter of FY 2010-11, mainly due to shortage of components like tyres, fuel injections and castings. At the other end, players like Maruti and Volkswagen were forced to keep consumers waiting because of the inability of their vendors to supply components as per schedule. Similarly, Volvo Eicher Commercial Vehicles also took a 20% hit in the production numbers, as their component manufacturers were not able to match pace with the orders.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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