Automotive Components Manufacturing in India: The challenges and solutions

By Bhalchandra Chorghade

The Indian auto component industry, which registered a turnover of Rs 2.34 lakh crore in 2014-15, has been a driving force for the country’s economic growth. The compound annual growth rate (CAGR) of this sector has been 11% over last six years and the components manufactured at Indian shopfloors are being exported to over 160 countries and the CAGR in this particular area has been 29% in the last six years.

According to reports, the automobile industry contributes 25.6% to the manufacturing GDP and 3.8% to the national GDP while being a major source of employment in India. As per Automotive Component Manufacturers Association of India (ACMA), the Indian auto-components industry is expected to register a turnover of USD 100 billion by 2020 backed by strong exports ranging between USD 80- 100 billion by 2026, from the current USD 11.2 billion.

The Government of India’s Automotive Mission Plan (AMP) 2006–2016 has been ensuring growth for the sector and it is expected to contribute to the GDP of USD 145 billion in 2016 with major focus on exports of small cars, multi-utility vehicles (MUVs), two and three-wheelers and auto components.

However, despite these strong figures to the back and a bright future ahead, the auto component manufacturing sector had been facing a rough weather since past 2-3 years. Apart from major slump in the sales of two, three and four-wheelers in India, the major challenges faced by them include infrastructure deficit, talent crunch, scaling-up the industry, access to world-class technology and quality practices, remaining cost competitive, access to and availability of cost-effective capital. As regards trade policy, the challenges mainly faced by Indian manufacturers are slowing down of investment in the OEM auto sector and sharp rise in imports mainly from ASEAN countries.

Reports state that the Indian automobile industry is currently suffering due to several factors. The industry talks of six Ms that determine investments in the automobile sector. These are men (labour),money (capital), material (inputs), matter (energy, water), mandarin (policies) and market (domestic and global).

According to auto makers, India scores well only in two of these 6 Ms: Men and Market. The current problem, however, is that there are problems in these two areas as well. First, when it comes to Men (labour), there two issues: lack of skilled workers and increasing militancy in the last few years which has even led to the death of a chief executive of an auto component maker in Greater Noida and of course, the strike at Maruti’s Manesar plant.

With regard to the market again there are two issues: the slowdown in North American/European markets and a demand slump in the short run because of a sharp switch in customer preference for diesel engines due to an equally sharp rise in fuel costs.

Apart from these two detrimental factors, the recent increase in interest rates has further skewed the picture against India as an investment destination when it comes to another critical M – Money (capital). As a consequence of these issues, automobile manufacturers have either put on hold their investment plans or are going slow on them. Investment in the auto components industry is also likely to be affected if auto majors continue to defer their investment plans.

According to Mr. Arvind Balaji, the President of ACMA, “The Make in India campaign has enthused the domestic and the international manufacturing industry. The drive encompasses a gamut of initiatives to promote investments and growth in the entire manufacturing value-chain India. This has certainly brought in the much needed focus and impetus for reforms related to the manufacturing sector.

“The Indian auto component industry, with a well evolved manufacturing ecosystem, produces a wide variety of products including engine parts, drive transmission and steering parts, body and chassis, suspension and braking parts, equipment and electrical parts, besides others to service the dynamic automobile industry.

“The impressive performance of the industry was possible due to frugal engineering, a key strength of Indian auto component manufacturers. Over the years, the component industry has developed strong manufacturing capabilities that have helped in keeping costs low and meeting stringent global quality norms.

“The steady growth in the auto component sector stands to be bolstered by various Government of India initiatives around infrastructure development, skilling initiatives and ease of doing business. Better inter-state connectivity through roads and highways is bound to bring an upswing in transportation through commercial vehicles, which accounts for 20 percent of the overall turnover in the auto component industry.”

According to Mr. Balaji, engine parts, transmission parts, brake system and components, body parts, exhaust systems, turbochargers have mainly driven export growth. India has started to emerge as a global hub for small engines as these are increasingly being manufactured here for exports.

“The last three to five years have seen a systematic shift with focus on engineering, design and technology; innovation management being the most critical element. Shortening product life cycles,new products/variants and increasing localisation will drive the future needs. Many Indian component manufacturers are competing in the lower value-added space and produce parts/components on either job work or build-to- print basis. Given that the government is positioning India as a global manufacturing hub, we need to move from the ‘built to print’ to the ‘built to intent model’ implying creation of entire value chain in the country from research; design and development to production within the country as opposed to working in silos.

“In addition, with the regulatory environment becoming stringent with regards to safety, emissions and vehicle-recalls, the industry will have to invest in requisite technologies to meet the prescribed standards and quality products. Further, the tier-2s and tier-3s, which form the bulk of the auto component suppliers, are unfortunately the weakest link in the automotive value chain. It is therefore important to focus attention towards enhancing skills of such companies in quality, production, manpower management, skill up-gradation and others, so that they can support their tier-1s better,” he quipped.

Meanwhile, Mr. Sanjay Jakhadi, the Director of Nasik-based Shree Engineers, which has been manufacturing automotive components since 1997-98 stated that the automotive market was sluggish since past three years and there was very less work to the component manufacturers. “There was very less scheduling and everyone was a bit worried. But since past one year, the market has been improving and the component manufacturers are witnessing increase in schedules,” he said.

Courtesy: Automotive Components Manufacturing Association

“Even as the automotive market is showing some positive signs, managing the finances is a big challenge. The RBI lowering interest rates is a welcome move. But what we need is that the market should improve. The Met department’s declaration of a good monsoon has given a boost and we all hope that everything goes well and the market keeps on improving,” Mr. Jakhadi added.

Industry expert Mr. Ajit Pande added, “Whether the manufacturing unit is Indian or MNC, precision matters when it comes to manufacturing auto components. Nowadays, domestic and international standards have almost become equal and the manufacturer has to raise his capability to match the high precision needs.”

“However, what is missing today is the technical schools to really train and upgrade the skills for these manufacturers. What has made difference today is the hi-tech technology with high end machines that give world class output. Norms of each and every OEM are different though the gist remains the same. Can we really standardise those norms for tier-I or tier-II manufacturers? If yes, it will ease pressure on tier-II companies where they miss on these norms and the business opportunity,” Mr. Pande opined.

He added, “Today we are talking of shifting from basic model to hi-tech models, especially if you see the evolution of two-wheeler industry. The four-wheeler industry is already coming to high-end models and the BIS/AIS norms are becoming stringent. Overall journey is towards the safety of people and environment. India being one of the great market for two-wheelers is really going for big leap in terms of technology and innovation. Indian customer is going to experience the same very soon. Innovation and technology will be the key as it gives the much-needed boost to the companies in spite of down turn in the vertical.”

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