Auto majors race to India for sourcing

The domestic auto component industry is expected to witness a boom with global car majors drawing up plans to source from Indian suppliers.

The big players include DaimlerChrysler AG, Chrysler (owned by Cerberus), Volkswagen, General Motors, Renault-Nissan, Volvo, JCB, and Caterpillar amongst others.

According to the Auto Component Manufacturers Association (ACMA), the apex body of component makers in India, global sourcing of components from the country will double from $2.95 billion to $5.9 billion in 2008-09, and is slated to hit $20 billion in seven years.

"Until now, China was a growing market, but all the international players are looking at India as the new sourcing hub," said J C Chopra, vice-president, ACMA.

Common components that are sourced include axle assembly, propeller shaft, crank shaft, cylinder heads, bearings and cylinder blocks. Sourcing such components from India offers companies a 25-30 per cent cost advantage. 

Chrysler, which does not manufacture cars in India, is setting up a local sourcing unit in Chennai and is expected to start sourcing for its global plant by next year.

German manufacturer Volkswagen AG, which recently entered India, had held a suppliers' meeting to identify potential sourcing partners.

GLOBAL MAJORS, LOCAL PLANS
Companies	Sourcing plans*
General Motors	$1bn
Volkswagen	$1bn
DaimlerChrysler	$2.4bn
Chrysler	has set up local office
JCB	Will set up a sourcing plant
Renault-Nissan	$140mn
Ford	$500mn
*Source: Companies

"The group is actively pursuing its idea of starting a full-fledged sourcing activity in a year for which it is exploring many companies. The sourcing will initially be less but is expected to touch about $1 billion later," a company executive said.

General Motors, the world's second-largest car-maker, is also in the process of appointing component suppliers from India. The company will make an annual purchase of about $1 billion in the next four years.

"When GM President Rick Reilly came to India, he decided to make the country a key source for auto components globally," said P Balendran, president, GM India.

The Renault-Nissan combine aims to initially buy components worth $140 million in the next few years to understand the Indian market, after which it aims at gradually raising component sourcing from the country. Its alliances with Mahindra, Ashok Leyland and Bajaj Auto can provide both companies with a ready vendor base.

Apart from the car industry, JCB, the country's largest construction equipment manufacturer, will set up a component unit for almost $50 million, especially for sourcing components.

"We will put up a sourcing plant in Pune to cater to our international operations. Investments will initially be marginal but will grow significantly since the company plans to make India an important sourcing centre," said Vipin Sondhi, managing director, JCB.

Naturally, component companies are grbbing the opportunity. "We no longer have to knock at the doors of international auto companies. We are becoming globally recognised. In addition, we are witnessing a three- to four-fold growth in demand from our existing customers for the next three to four years," said Surinder Kapur, chairman and managing director, Sona Koyo Steering Systems.