 "Auto part makers unsure about revival in demand")
The excise duty cuts announced in the interim Budget triggered a sigh of relief in the Indian automotive industry, which has been in the grip of a demand slump over the past two years that hurt not only OEMs (original equipment manufacturers) but component suppliers as well.
However, since the duty cuts are valid only until the regular budget is presented by the new finance minister after the forthcoming general elections, manufacturers of auto components are uncertain about future demand from OEMs.
OEMs are expected to clear their inventories on a priority basis if demand surges, but parts suppliers say they will benefit only when auto companies resume operating at optimum capacity.
Vikas Jain, president of the Gurgaon Chamber of Commerce and Industry, told Business Standard that the cascading effect of tepid demand for four-wheelers and commercial vehicles has been quite apparent on auto ancillaries in the Delhi NCR region: "The OEMs have not been able to consolidate their sub-vendors. Volumes have shrunk and margins of small and medium enterprises (SMEs) have been squeezed. Many small units in the NCR cluster have become unviable and those who have multi-location units (operating simultaneously from the NCR and hill states offering tax incentives) have discontinued operations in the NCR."
It is imperative for OEMs to maintain their vendor base, since it takes time to develop it, and once demand starts reviving it will be difficult to immediately create one, he added. Dependence on a new vendor may involve a risk, as a slight defect in a component may trigger a recall of an entire batch of vehicles, leading to a big loss for OEMs.
Purohit pointed out that auto ancillaries work on thin margins and high volumes. With volumes dwindling by up to 40 per cent, SMEs are left with no scope to tighten their belts, he said. They have not yet resorted to lay-offs, hoping for a revival in demand in the near future.
According to Vinnie Mehta, president of the Automotive Component Manufacturers Association (Acma), the Indian automobile industry is facing challenges such as high rates of interest, inflation, volatility in costs of raw materials, high fuel prices and shaky customer confidence.
The auto parts industry went through turmoil in 2008-09, growing a mere 1.2 per cent, but recovered impressively in 2009-10, soaring by 25.3 per cent. Growth climbed further in 2010-11, to 35.9 per cent, but nosedived to 8.7 per cent in 2011-12 and fell further to 5.6 per cent in 2012-13 (see graph).
The commercial vehicle industry has registered negative growth for over a year. The passenger car segment has for the first time recorded negative growth in 2013-14. The sales of two-wheelers have been flat, and only tractor sales have been robust owing to a good monsoon in 2013.
An auto component manufacturer in Ludhiana who did not wish to be named said that the higher demand projections by OEMs in the last few years had pushed SMEs to expand, and the tapering off in demand had led to inventory piling up.
Nitin Peshawaria, a Chandigarh-based supplier of components to tractor manufacturers, said that despite steady sales of tractors the payment cycles for SMEs had stretched, for reasons best known to OEMs.
However, since the duty cuts are valid only until the regular budget is presented by the new finance minister after the forthcoming general elections, manufacturers of auto components are uncertain about future demand from OEMs.
OEMs are expected to clear their inventories on a priority basis if demand surges, but parts suppliers say they will benefit only when auto companies resume operating at optimum capacity.
Vikas Jain, president of the Gurgaon Chamber of Commerce and Industry, told Business Standard that the cascading effect of tepid demand for four-wheelers and commercial vehicles has been quite apparent on auto ancillaries in the Delhi NCR region: "The OEMs have not been able to consolidate their sub-vendors. Volumes have shrunk and margins of small and medium enterprises (SMEs) have been squeezed. Many small units in the NCR cluster have become unviable and those who have multi-location units (operating simultaneously from the NCR and hill states offering tax incentives) have discontinued operations in the NCR."
It is imperative for OEMs to maintain their vendor base, since it takes time to develop it, and once demand starts reviving it will be difficult to immediately create one, he added. Dependence on a new vendor may involve a risk, as a slight defect in a component may trigger a recall of an entire batch of vehicles, leading to a big loss for OEMs.
Purohit pointed out that auto ancillaries work on thin margins and high volumes. With volumes dwindling by up to 40 per cent, SMEs are left with no scope to tighten their belts, he said. They have not yet resorted to lay-offs, hoping for a revival in demand in the near future.
According to Vinnie Mehta, president of the Automotive Component Manufacturers Association (Acma), the Indian automobile industry is facing challenges such as high rates of interest, inflation, volatility in costs of raw materials, high fuel prices and shaky customer confidence.
The auto parts industry went through turmoil in 2008-09, growing a mere 1.2 per cent, but recovered impressively in 2009-10, soaring by 25.3 per cent. Growth climbed further in 2010-11, to 35.9 per cent, but nosedived to 8.7 per cent in 2011-12 and fell further to 5.6 per cent in 2012-13 (see graph).
The commercial vehicle industry has registered negative growth for over a year. The passenger car segment has for the first time recorded negative growth in 2013-14. The sales of two-wheelers have been flat, and only tractor sales have been robust owing to a good monsoon in 2013.
An auto component manufacturer in Ludhiana who did not wish to be named said that the higher demand projections by OEMs in the last few years had pushed SMEs to expand, and the tapering off in demand had led to inventory piling up.
Nitin Peshawaria, a Chandigarh-based supplier of components to tractor manufacturers, said that despite steady sales of tractors the payment cycles for SMEs had stretched, for reasons best known to OEMs.