The boom in automobile sales expected during the festive season has raised the hopes of component makers.
From production cuts, worker lay-offs and plant closures, things are changing for auto-component makers based in and around Pune city, the national hub for auto-ancillary units. Companies are busier and a large number of units are even planning for full capacity utilisation over the next three months— due to the 30 per cent increase in demand for auto components triggered by the burgeoning sales of cars and motorcycles since June.
As the global auto industry crumbled over the last 12-odd months, a large number of auto-component makers saw demand for their products shrink. The Indian auto majors too saw falling volumes, causing problems for auto-ancillary units, which are largely small- and medium-sized enterprises (SMEs). There are around 5,000 SMEs within the Pune region, with an additional 3,000 units manufacturing only two or three niche components each. The industry employs some 300,000 people and has seen job losses of more than 50,000.
Sales of passenger vehicles in 2008-09 rose by less than 0.13 per cent over 2007-08, while sales of commercial vehicles fell by 21.7 per cent. Only a 2.6 per cent increase in two-wheeler sales in 2008-09 led to an increase in total vehicle sales of 0.7 per cent that year. Although the commercial vehicles segment is yet to see a revival (it registered a negative growth of 2.19 per cent during April-August 2009, over the year-ago period), passenger vehicles are selling briskly (the segment grew by 11.97 per cent during April-August 2009, over the year-ago period), leading to an improved situation for auto-parts makers.
(Predictably, a handful of auto component makers has lined up total investments of nearly Rs 1,000 crore in 2009-10. Minda Industries is investing Rs 200-250 crore on new plants in Vietnam, Pune, Bangalore and Manesar; Sona Koyo, which manufactures car steering gear, has invested Rs 300 crore on new facilities; Lumax Industries will invest Rs 40 crore during the remainder of this fiscal year, especially for upgrading R&D; and Rico Auto Industries, which makes brake systems and dye-castings, has invested Rs 60 crore this fiscal and will invest Rs 40 crore more.)
Says Suresh Mhetre, president of the Pimpri-Chinchwad Small Industries Association: “We expect the market to completely change from Dussehra/Diwali onwards. The big auto companies expect booming sales in the festive season, and hence auto component makers too have high hopes.”
The association, which has a membership of more than 700 auto-component makers, largely represents auto ancillary units from Pune’s sister city Pimpri-Chinchwad, and believes that the auto giants will begin placing more orders once they have liquidated ready-to-sell stock. “The festive season will see increased sales and hence order book positions will improve. Capacity utilisation had fallen to 40 per cent during the tough times, but has now improved to 70 per cent,” Mhetre adds.
A K Kapoor, chairman and managing director, Laxmi-Agni Components and Forgings, also believes that the festive season will help auto component makers. “We are expecting better sales after the launch of new models during the festive season. We mostly supply components to Bajaj Auto and we are looking at brighter days ahead,” says Kapoor.
Forging units recently protested against high steel prices, which have led to increasing imports of forged components. Trinity Engineers joint managing director Asheet Pasricha says that the demand for forged components in the auto segment is improving fast but there are issues such as pricing that may hurt the forging units.
“The demand for forged components had fallen drastically from its peak last year. This state continued for some time but things are changing slowly. The demand for forged components over the last two months has gone up to about 70 per cent of the peak level. With the festive season coming up, it might even go up further,” Pasricha, who is also the spokesman of the Association of Indian Forging Industry, notes.
The Indian auto industry imported Chinese forged components worth Rs 1,700 crore over the last year, which is a cause of concern for Indian forging units. “The Chinese government is offering export subsidies on forged steel components. Due to this, China’s prices are low and Indian forging units are not able to compete with their Chinese counterparts. The market is growing but if the government takes appropriate steps, we will see more growth,” he adds.
