Auto component makers to ratchet up production base

The Indian auto component industry is all set to witness a major ramp up in its production base this year.

While the exact addition to capacities is not available, industry sources reveal that investment commitments to the tune of Rs 5,000 crore were made in 2003-04. Only a part of this was actually invested during the year and the remaining will flow in the current year. Fresh commitments are also expected to be made this year.

"The presence of 20 outsourcing teams in the country is pushing projection for market potential to mind boggling levels," K V Shetty, president, Auto Component Manufacturers' Association (ACMA), told Business Standard.

The industry is seeing a visible shift in its product mix as well as the market destinations. In 2003-04, the industry's output rose by 20 per cent to Rs 31,000 crore ($6.8 billion).

But more remarkable is the growth in exports by 30 per cent to cross the $1 billion mark at Rs 4,600 crore. Though the revival of the domestic automotive industry was the key driver of auto component sales, exports is clearly increasing in importance in the overall production plans.

Rising from 13 per cent of the total industry output in 2001-02 to 16 per cent in 2003-04, exports are set for exponential growth from here.

"The different international purchase offices that have set up base in the country are closely working with the industry here to evolve India as an outsourcing base," Shetty informed. Such a process takes about two years. "The outsourcing potential should crystallise this year," he added.

The industry has been diligently gearing for this moment, working on TQM, TPM, Six Sigma, securing various certifications and even the coveted Deming Awards and the Japan Quality Medal.

The entry of purchase offices of Visteon, Delphi, Caterpillar, Volvo, International Truck, Toyota, Daimler Chrysler and even Volkswagen, among others has catapulted India to the global arena in a big way.

Though the country contributes a minuscule 0.1 per cent to the global component sales, it is eyeing tremendous potential today. CEOs of MNCs such as Cummins, International Truck have been visiting the country recently to monitor the evolution of India as a sourcing base.

Besides these procurement agencies, Indian players are also making some in-roads in the OEM segment of the export market, on their own steam.

"Traditionally India used to play only in the replacement market. But today we are getting more and more into the OE segment," L Ganesh, vice chairman and managing director, Rane Engine Valves Ltd, noted.

"In the Nineties, 80 per cent of Indian exports went into after-market and only 20 per cent found its way into OE supplies. But today 55 per cent go to OEMs and Tier-I suppliers while the after-market supplies have shrunk to 45 per cent of our export," Shetty points out.

This in itself is a positive trend as OE supplies mean sustained repeat orders.

ACMA estimates that at least 50-60 per cent of its 470 members are into exports. Along with this, India finds itself moving into the more discerning markets of US, Europe and Japan. The bigger players have already started building their warehouses in the US and Europe.

ACMA is encouraging the small and medium enterprises (SMEs) to operate in clusters to be able to afford such investments in warehousing.

The financial year 2003-04 was the turning point for the domestic automotive industry with passenger car market growing by 40 per cent, the goods carriers in the HCV and MCV range up by 39 per cent, the passenger HCVs and MCVs rising by 30 per cent and the two wheelers climbing by 12 per cent.

Though the swadeshi presence in the Tier-I supplies to domestic OEMs has been marginalised, the burgeoning automotive industry needs hold a lot of promise for the non-MNC auto component makers.

Only the export potential largely overshadows the domestic possibilities. One estimation doing the rounds is - the industry will require fresh investment to tune of Rs 8,500 crore by 2010 to meet the growing domestic demand.

As for meeting the export market that is opening up big time now, the investment needed is being placed between Rs 12,000 crore and Rs 15,000 crore.