Auto Sector: India Still Attractive

Indian auto sector faces rough ride today. Reasons are many but naturally the rise in the fuel prices and the interest rates are the major ones. Rising inflation is another moral deterrent.

Recent monthly sale figures for almost all manufacturers are going down. However, the domestic manufacturers are performing worse. ‘Tata Motors witnessed the steepest fall, with numbers crashing by 33%. The company sold 16,829 units in the month against 25,212 units in the same month last year. Alarmingly, the cheapest car, Nano could manage sales of only 1,202 units, 85% lower compared to August last year.’ All the companies are offering heavy discounts to push sales. With festival seasons drawing nearer, will the sales improve?

A New Manufacturing Hub: Surprisingly, the bad news of slowing economy, particularly the auto sector is not dissuading the foreign auto majors to enter India. Left outs are rushing. Sanand, the unknown to any one even in India before the decision to relocate Nano plant from Singur in West Bengal, is rapidly growing as a new manufacturing hub for automobiles.
http://www.business-standard.com/india/news/psa-peugeot-re-enters-india/447828/ French automobile major, PSA Peugeot Citroen has recently announced its plan to set up a vehicle manufacturing facility near Sanand at an investment of Rs 4,000 crore ($650 million) with an initial capacity of 165,000 vehicles a year, that can be expanded to 340,000 units. Ford India had earlier announced investment of Rs 4,000 crore to locate its second plant in Sanand with a capacity to produce 240,000 units a year initially and an engine plant with an initial annual capacity of 270,000 engines. Is it an encouraging indication?

Nissan Motor Co that was late to join the race, has already launched its Micra and has started producing Sunny sedan too in its Chennai based manufacturing plant. The good news is that Nissan will source as much as 85% of the parts for the Sunny from vendors in India. Interestingly, Renault Nissan Alliance India is credited with producing one lakh petrol engines in a record period of 15 months.

I am of an opinion that the government now starts discouraging any left out global entrants to make the already manufacturing ones to stabilize the facilities and grow for domestic as well as export market so that indigenization increases.

Maruti Suzuki India Ltd (MSIL) has found a way out to cut down the cost through increasing the overall indigenization level from 75% at present to 90 per cent in two years. A strong auto component sector goes as advantage for the foreign auto majors to find India attractive besides its big enough market.

Maruti- Suzuki at one stage was not ready to indigenize gears has a diesel engine and transmission-producing joint venture company, Suzuki Powertrain India. It’s working to develop an all-new diesel engine range, the technology where Suzuki is not strong. Suzuki Powertrain India exports engines to Suzuki’s European operation, had recently expanded its capacity by 25 per cent to 300,000 engines per annum. It certainly improves the potential for manufacturing.

Additionally, India has its auto component industry growing significantly that was by 34 per cent last financial year taking the total turnover to $39.9 billion. Unfortunately, while exports grew by a robust 54 per cent to $5.2 billion, imports increased by 30 per cent to $8.5 billion. I wish the OEMs would have encouraged the auto component sector with R&D support. Still major complex components such as one for automatic transmission remain on import list. The component industry invested close to $2-2.5 billion on capacity expansion projects in 2010-11. As estimated, the auto component industry is expected to double its workforce to four million workers over the next two years.

I get pleasantly surprised and excited to know that a minor company Amul has already entered the Business of 5’Cs namely Connecting rods, Crank Shafts, Cylinder Blocks, Cylinder Heads, and Cam Shafts for the Automotive & Engineering Industry.
The presence of a mature auto component industry in India makes its more attractive for OEMs to come to India without much hesitation.

However, the labour unions have started troubling the auto manufacturers. The state governments as well as the central government must intervene to get a positive way out to avoid the layoffs and lockouts. It’s must be taken seriously on proactive manner, otherwise all the dreams of developing India as global hub of small compact cars will remain dream only. Particularly, the HR heads of the MNCs will be on test to match the management policies of the parent companies with the local conditions without creating abrasions.

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