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Reeling Automobile Segments. It is often remarked that the economic progress of a nation is best reflected by the state of its automobile industry. A host of new passenger cars and swanky motorbikes have in some manner contributed to the fact that global auto majors are looking at India very seriously — not just from a manufacturing point of view but as an export base as well. Rising production costs and dilapidated infrastructure threaten the Indian auto industry's ambitions for fast growth Automobile Corporation of Goa, where Tata Motors, is one of the largest shareholders, on Thursday decided to temporarily shut one of its plants in Goa due to reduced demand. Automobile Corp is one the largest bus body makers in India and Tata Motors recently increased its stake in the company by 3% to about 41%. India is an auto manufacturing hub in the south Asian region. It is the home to Ford, Tata Motors and Suzuki. India's automotive industry, which produces 1.5 million vehicles annually, is worth 34 billion dollars a year and contributes 5% of India's gross domestic product. I want to make my readers clear that we are not focusing on US auto problems and bailout since that will not clear the picture of Indian automobile industry. Today the Indian automotive industry is facing unprecedented challenges. The demand is shrinking due to lack of available consumer finance due to high interest rates as banks are reluctant to reduce lower rates to consumers. Banks are not providing the support as demanded as per the present situation. Even the companies are not getting loans on easy terms as they used to get earlier. In other words the robust growth of Auto sector is dependent on LOANS. We are forgetting that in India we have enough strength to revive our sales and revive back the productions. If the process of loan is made simple then the auto industry will not come futher to an end. The downward spiral being witnessed by automobile manufacturers is leaving a deep scar on component manufacturers who are either resorting to block closure of plants or putting off capacity expansion plans. Following the slowdown in the automobile sector in the country, auto component manufacturers have reduced the number of working days to three to five days a week depending on the production schedule of their customers. Last financial year, India exported components worth $3.6 billion (approximately Rs 14,400 crore), of which the US market alone accounted for 27%. ACMA, which is the apex organisation representing the interests of over 500 component supplier companies, reckons that of the total exports to the US, about a significant portion goes to the three auto makers, General Motors, Ford and Chrysler and their tier I suppliers. Auto component exporters do not expect an improvement in the situation even if the US comes out with a bailout package for the automobile industry. This is mainly because in such a situation suppliers are the last to get paid. Many of small component companies who are mainly into exports may not be able to sustain business. The Burning Candle Hope for the Future Cost will continue to be the key competitive advantage for India India's low labour costs and high level of available management and engineering skills have maintained the competitiveness of domestic auto companies and made it an attractive location for direct manufacturing investors The global automotive industry is under increasing cost pressure relating to raw material and some other costs (including growing pension and healthcare costs in developed economies), while consumers have begun to demand vehicles with a lower "total cost of ownership". The result has been shrinking margins for many of the world's large businesses, whether vehicle makers or component suppliers. Although India's primary cost advantage is in low labour costs coupled with good availability of trained workers, labour remains a small component in the total costs of manufacturers. Raw material costs are by far the largest cost portions: steel and rubber constitute the two main raw materials for automakers, and strong global demand is likely to ensure that prices for steel and rubber remain stable or increase in the medium term. India will emerge as a key source of Research & Development (R&D) and engineering services for the global automotive industry India's IT industry has already built a reputation for delivering intellect intensive services to global industry More than 125 Fortune 500 companies have already set up their R&D bases in India. There are already signs that automakers too are choosing to use India's auto engineering potential to cut the high cost of design as auto model lives shrink and the imperative grows to innovate at lower cost. Exports are an increasingly significant element in the growth of the Indian auto industry, more than doubling in share of sales from 2001 when Indian producers sold 3 per cent of vehicles abroad to 8 per cent of sales in 2005. The foreign sales of Indian auto makers are also increasingly made through directly owned or joint venture (JV) based foreign operations, rather than exclusively through exports from Indian manufacturing facilities. Indian companies have bought capacity or made alliances with other automakers in East Asia, South America, Africa and Europe, and total exports as a proportion of sales are close to an average of 9 per cent for the Top five OEMs together. We say Amen to this expectations. The Indian auto component manufacturing industry is currently worth USD 15 billion annually, according to the Automotive Components Manufacturers Association (ACMA), which forecast the industry to grow to USD 18.7 billion sales in 2009 and USD 40 billion by 2016.

Published by

Indraneel Sen Gupta
(Vice President-Business Development,Research & Product IFAN Finserv Private Ltd.(SPA Group Company) )
Category Others   Report

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