- There is lot of media coverage of auto ancillary industry unable to meet the domestic auto demand. Is it true? What are the reasons for the shortage, if any? Which areas in auto ancillary are witnessing critical shortage to meet the growing domestic demand and why these?
The growth in automobile industry has been unprecedented. The auto components industry is running at full capacity. The growth in automotive industry has come so fast and so steep that even the OEMs have been caught off-guard and probably, as a result, adequate lead time was not made available to the suppliers to beef up their capacities and ramp up their production. Capacity addition in the component sector has also been adversely affected as ROI in India is a shade poorer compared to the international levels. Concerns of poor, basic infrastructure including those of availability of trained manpower and power in some of the states remains to be addressed. These are pangs of a growing economy and the industry will have to learn to deal with them, plans are already afoot in the component sector to add more capacity and some have already done so. On the broader issue of capacity shortage, there are companies who are supplying well, and with some there has been a challenge; some of issues with the shortfall in supplies are generic while some of these are company specific.
- How is industry meeting with mounting domestic demand of Indian auto industry – now and in future? When do you see the leveling of auto ancillary industry with Indian auto demand?
As I mentioned, capacity expansion is already taking place across the auto components companies, maybe the addition is a tad faster for products, which are less infrastructure intensive. Capacity addition also depends upon the handholding of the companies by those ahead of them in the value chain.
When the leveling would take place is difficult to say, but we have hit the growth cycle. We believe the growth is here to stay for at least next 5 years, if not more and the current buoyancy is encouraging the component industry to expand. It is important to note that the fate of the component manufacturers is intertwined with that of the OEMs and the more clear they are of the future trends, the easier it will be for the component manufacturers.
- How is the export market performing especially the European market?
In the second half of the last year, the EU and the euro hit a bad patch. There is no denying that in the short run it has adversely impacted our exports prospects in the region, but we expect it to even out in some time.
However, what has come to the rescue of the industry is the significant growth in the domestic market. Some of those who were planning to export or to diversify to new markets have probably delayed their plans to do so and are servicing the domestic market instead, however, those companies who export for strategic reasons continue to do so. Again, a lot of this is determined by what the customer wants.
- Has any auto parts player in India been part of the recalls witnessed by foreign OEMs? If not, did these recalls make Indian auto parts industry look even better?
We do understand from the media reports about this. Firstly, there is qualifying criteria and stringent audits and if and only if a supplier meets those, only then the OEM sources from such a component manufacturer. Secondly, typically, the Indian auto component industry delivers what is called as ‘print to manufacture'; the designs are given by the OEMs. Therefore it is not necessary that the faulty components can be attributed to the supplier alone, these could even be a result of faulty design or even faulty manufacturing. What is also heartening is the focus on quality by the Indian auto component manufacturers has been steadily increasing. Out of the 600 members companies that ACMA represents, over 550 are ISO9000 certified, 11 are Deming awardees, 15 have TPM excellence and now companies have started getting the coveted Shingo award as well. Stringent quality norms are helping the industry to emerge as world-class suppliers.
- A lot of international players such as Nissan, Volkswagen etc have set up their plants here in India. Is the Indian auto parts industry gaining from it or has it led to increase in imports of auto parts?
India has been the point of focus for several of the large global OEMs for the last few years, some of them have achieved significant indigenization – from 60% to even 100% in some cases. Considering that the auto parts are bulky, with rapidly increasing costs of freight and insurance, it is in their interest to source locally. Also, as volumes in the market go up, OEMs typically enhance the local content.
On the issue of imports of components, it was to the tune of USD 8.16 billion, up 20% in FY 2010. With growth picking up, now we need to monitor this number.
- Kindly throw light on the imports of auto parts in India. What is the import content of auto parts in FY 10 vs. FY 09?
We are still net importer. While exports stood at USD 3.8 billion in 2009-10, the imports were USD 8.16 billion. Almost 85% of the imports were accounted for by the OEMs, the rest 15% by the aftermarket. The quantum of imports has also increased due to several FTAs and other trade agreements signed by the Government. The imports cater to both the OEMs and after market.
- What is Industry's targeted growth for financial year 2010-11 vs. FY 10?
Earlier, we had conservatively estimated that the growth in 2009-10 would be 4%. However; this has been 20% with turnover of USD 22 billion. We expect the turnover to grow by 18% to over USD 26 billion in FY 2010 -11.
- What is capex spending in Industry for FY 2011?
The auto component industry added USD 1.7 billion in capacity in 2009-10 in several greenfield as well as expansion projects. This took cumulative investment in the auto component sector in India to USD 9 billion in 2009-10. The industry is expected to add at least another USD 2 billion in 2010-11.
- The labour costs in China are increasing, and the country has agreed to gradually allow Chinese Yuan to appreciate. What is the likely impact of both these factors on the global economy in general, and global auto ancillary sector in particular? Do you visualize tangible gains for India in the short, medium and long term?
While China is a significantly large market for any one to ignore, the costs in China are rising, new labour laws and withdrawal of some of the incentives for foreign direct investments in manufacturing has made production in coastal china expensive. Also the Yuan has been marginally depreciated. The Chinese government is now incentivizing the industry to move to lesser-developed regions – West and North West interiors. India too is growing very well. I am not too sure that the current changes in the cost structure in China will tremendously impact the dynamics of the business in India, at least in the short run.
- With the spurt in OEM demand, has the demand in replacement market taken back seat?
Every product has a useful life. The replacement market is phase behind the market for finished goods. With the growing OEM demand, it is good indicator that we will see growth in replacement market in 2-3 years.