Auto Component Manufacturers

The next big thing to happen in India after software, textiles, pharmaceuticals and BPO would
undoubtedly be the auto component manufacturing industry.

The global automotive component manufacturing industry is estimated to have a market size of
around $1trillion. Ford Motors, Delphi Corporation, Caterpillar, Cummins, International Truck
and Engine Corporation and last but not the least General Motors (GM) are some of the leading
global automobile components manufacturers of the world. With importations of components
worth $69 billion a year, the US stands at the top of all the auto component markets the world
over.

Auto Component Manufacturing Hubs

The main automobile components manufacturing hubs in India are situated in Chennai, Pune and
Gurgaon. The magnitude of the Indian auto component manufacturing industry stands at Rs
25,000 crore ($5 mn approx.). Though relatively small, the Indian automotive component
manufacturing industry due to a huge talent pool of skilled automotive engineers and access to
the latest technologies has a great potential to emerge as a big player in the near future.

Used Car Component Manufacturers:

Those customers eager to buy used cars can revamp their car with used car components. Used
car components include Engine Parts, Steering Parts, Suspension and Brake Parts and Electrical
Parts. There are a number ways to sell a used car i.e. through car owners, car dealerships, car
agents, car rental companies at nominal rates.

ACMA

According to the Automotive Component Manufacturers' Association of India (ACMA), the

domestic Indian auto component manufacturing industry is heading for a whopping 18% growth
in the coming years compared to the export market which is estimated to reach $2.7 bn by the
year 2010.

Lacking the required infrastructure, the Indian auto component manufacturing industry falls way
behind the major global players in terms of production capacities. Due to this fact, it also lags
behind other nations in getting large manufacturing orders. Or even if it manages to get one, it
ranges below the $100 mn mark, which is considered a mere figure as per the automotive
industry standards. Though striving to better its standards, the Indian auto component
manufacturing industry has registered a robust growth in the recent past. The three main factors
providing impetus to this industry are the ever increasing domestic automobile industry (two-
wheelers, commercial vehicles and passenger cars), the aftermarket sales and servicing industry
and the outsourcing of component manufacturing to India and China by the global titans to cut
down on their cost of productivity and thereby laughing all the way to the banks. To improve
upon the auto component industry in India, the need of the hour is to focus on its
competitiveness, learn the best manufacturing practices, be quality conscious and at the same
time inculcate a prompt delivery culture.

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Importance Of Automotive Components

Industry In India
The Indian automotive components industry has fast emerged from a supplier of the domestic
market only, to one of the central and best auto parts supplier of Asia. Apart from being a
significant player in the global automotive supply chain, auto component companies India also
supply high-value and sophisticated auto components to renowned auto makers such as General
Motors, Toyota, Ford, Volkswagen to name a few.

Most global auto makers purchase Indian auto components to meet the growing demands for
hardy and genuine spare parts. According to statistics revealed by the Automotive Component
Manufacturers Association of India (ACMA), the estimated turnover of the auto component
industry will be around US $19.2 billion, in the year 2009-10. Whereas exports from the auto
component companies India will be around US $3.2 billion. The maximum percentage of Indian
automotive components is dominated by engine parts that accounts to almost 31%, 19% by drive
transmission and steering parts and 12% each by suspension and braking parts and body and
chassis respectively. The best auto parts supplier from India covers three main clusters mainly,
commercial vehicle suppliers Delhi and NCR regions, Pune and Chennai.

Initiatives of the UNIDOSPX further helped the Indian Auto component manufacturers to reach
out to the global auto majors by organizing noteworthy and useful events such as the Auto Expo
2010 held from 5-11 January 2010 in New Delhi. The UNIDO-SPX India is a technical
information and match making centre for industrial subcontracting and supply chain
management that helps small and medium sized companies to reach out to the global audience
and make a foothold in the international market. Various auto component companies India,
especially from the small and medium sectors were immensely benefited from this Auto Expo
fair that strengthened their chance of creating tie-ups with big international as well Indian players
in the automobile industry. The various delegations from all around the world who were
participating in this Auto Expo also got a chance to get into contract with commercial vehicle
supplier Delhi & NCR, Pune and Chennai to purchase Indian auto components.

According to the Investment Commission of India, India is among the most competitive
manufacturers and best auto parts supplier in the world. More and more international auto
component makers including big names like Delphi, Visteon, Bosch and Meritor are interested to
purchase Indian auto components and have set up operations in India. Apart from this India is
also becoming the main hub for research and development of automotive components with
companies like Bosch, Suzuki, Johnson Control etc setting up research and development centers
in this country.

ACMA is the main agency for the Indian automotive components industry that helps the auto
parts manufacturers to participate in international trade and technology fairs, send delegates
abroad, bringing out publications on various automotive industry issues etc. ACMA also helps
the auto component companies India to maintain their standard and quality of products and keep
themselves upgraded according to international standards.

India is the second largest producer of motorcycles in the world after China. The vast range of
vehicles made in India includes;
Light passenger vehicles including passenger cars, MUVs, SUVs, Commercial vehicles
including light commercial vehicles, medium and heavy commercial vehicles and buses,
Tractors that include earth moving, and construction equipments,
Two wheelers including motorcycles, scooters, mopeds and
Three wheelers including passenger carriers and goods carriers.

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Indian Auto Components Industry

Revving up

The Indian auto component industry is one of the front runners for grabbing the global auto
component outsourcing market, estimated to be worth US$700 billion by 2015.

The Indian automobile components industry has come a long way since the country’s economic liberalisation
which opened up the sector in the early 1990s. From a quiet supplier of low-value components to the domestic
aftermarket, the industry has transformed itself into a global hub for sourcing a range of high-value and critical
automobile components. The industry is the darling of many global auto makers such as GM, Toyota, Ford,
Volkswagen, etc., who source auto components worth millions from India. In fact, the industry is one of the front
runners for grabbing the auto components outsourcing market estimated to be worth US$700 billion by 2015.
However, the journey is not smooth. The industry accounts for only 0.4% of the US$1.2 trillion global components
industry as against competitors like China (1.2%) and Mexico (5.9%). It is up against challenges such as lack of
good infrastructure, increasing input costs, etc. which could impede its growth.
Current scenario

Rising costs of automobile manufacturing in the West coupled with benefits of sourcing from India such as low cost
(which saves the automobile manufacturers about 25 to 30%) etc. have been instrumental in driving Western
automobile manufacturers to source auto components from India. Apart from the growing demand from the global
markets, the domestic automobile market boosted by the tremendous increase in domestic demand, is also
contributing to the growth of the auto components industry. The demand led to increase in production capacity.
According to the Automotive Component Manufacturers Association of India (ACMA), domestic components
production increased by 15% from 2004-05 to US$10 billion in 2005-06. It recorded a compounded annual growth
rate of 20% between 2000 and 2005 and is expected to grow to US$18.7 billion by 2009. Meanwhile, exports
increased by 28% in 2005-06 to US$1.8 billion from the previous year with Europe and North America respectively
accounting for 36% and 26% of the total auto components exports from India.

The Indian auto components industry is one of the fastest growing manufacturing sectors which is both forward
and backward integrated with other engineering and manufacturing divisions in the country. The industry has
about 500 organised players (registered with ACMA) which account for more than 85% of the country’s production
and another 5000 in the unorganised sector.

Early days

Though the Indian auto components industry has been in existence since the early 1940s, the protectionist policies
of the Indian government prior to the nineties and low volumes of production due to limited demand from the
vehicle manufacturers in India hampered innovation and growth in this sector. Nearly 80% of the auto components
were supplied to the aftermarket and the remaining to Tier 1 OEMs. As a result, the Indian component
manufacturers were left far behind their global counterparts until the middle of the late 20th century. The first boost
came in 1982 when the Government of India established Maruti Udyog Limited (MUL) and collaborated with
Suzuki Motors of Japan. The government insisted on having at least 75% local content in the next five years.
However, the local suppliers were in no position to meet the quality standards and specifications of MUL. Hence
MUL entered into joint ventures with a number of Indian component manufacturers and started working with them
closely. Suzuki launched development programmes and assisted component suppliers in upgrading themselves
and in transfer of technology. Suzuki also asked a number of Japanese OEM suppliers to license technology or
enter into JVs with the Indian component manufacturers. This improved the standards of a majority of the
components manufacturers who were located around the MUL plant in Gurgaon, Delhi.

However, a major impetus came after the liberalisation of the Indian economy in the early 1990s. The abolition of
licensing in 1991 and automatic approval given up to 51% foreign investment in the industry saw a host of foreign
automobile manufacturers such as Hyundai, Toyota, General Motors, Ford, and DaimlerChrysler etc. set up their
manufacturing centres in India. The components manufacturers willy-nilly went on to improve themselves to meet
the standards of the foreign automobile makers to continue as their suppliers.
In this pursuit, component manufacturers embraced global best practices/standards such as Lean Manufacturing,
TQM, Six Sigma, etc. They invested substantially to improve their production capacities and capabilities. They
began using IT for design, development and simulation and achieved flexibility in small batch productions. This in
turn propelled modernisation and induced dynamism in the industry. Some of them imported or borrowed
equipment and technology from foreign companies while others forged alliances. For example, in 1992 when GM
was closing a plant in the UK, Sundram Fasteners bought the equipment and relocated it to its plant in Chennai.

A number of component manufacturers have upgraded themselves to meet the ISO standards - ISO 9000 (456
players) and ISO 14001 (129 players). Gradually, they learned to meet the technical standards of all global
automotive manufacturers. However, it should be noted that a number of component manufacturers who were not
willing to upgrade themselves perished.

The availability of cheap labour, raw materials, technically skilled manpower in abundance attracted a number of
foreign manufacturers to India. Foreign manufacturers such as Volkswagen and Renault, which had no
manufacturing plants in India, too started sourcing components from India. Initially, foreign manufacturers had
some apprehensions about the quality of components made there. However, the standards achieved by some of
the manufacturers soon removed any doubts regarding the quality of the components. Global auto component
makers such as Delphi (a spin-off of GM), Visteon (a spin-off of Ford) started their offices in India to source
components for their global operations which saw a gradual increase in the number of components sourced from
India. This improved the exports and by 2003 auto components exports crossed US$1 billion mark from just
US$273 million during 1997-98.
During the same time (mid and late nineties), Indian manufacturers such as Tata Motors, Mahindra & Mahindra
joined the race to catch the growing demand from the burgeoning Indian middle class and helped increase
domestic car production rapidly; the car production increased 17-fold between 1982 and 2000. As a result, the
component manufacturers shifted their focus from supplying to the aftermarket to the Tier1 suppliers and OEMs.
By 2006, Tier 1 OEMs market accounted for around 75% while the aftermarket’s share was reduced to 25%.

On the prowl

By early 2000s, some of the component manufacturers, having established themselves firmly in the domestic
market, began attempts to make a global footprint. Manufacturers such as Bharat Forge, Sundram Fasteners
began scouting for foreign companies. Some of the reasons for focussing on acquiring foreign firms were red-
tapism and poor infrastructure (roads and ports in India) which delayed the export process. As clients were strict
on deadlines, component makers turned to foreign acquisitions not only to circumvent such bottlenecks but also to
move closer to global automobile manufacturers. Bharat Forge’s acquisition of German company Carl Dan
Peddinghaus (CDP) in 2003 brought it closer to the top European car manufacturers such as Volvo, BMW,
Volkswagen, Audi etc. and made it the world’s second biggest forging company. Further, Indian companies felt
that having manufacturing facilities on foreign soil would bring credibility and respect along with access to new
technologies. (Table I gives details of some of the acquisitions made by Indian manufacturers since 2000).

Government support
Apart from starting Maruti and liberalising the Indian economy, Indian government has played a valuable part in
the growth of the industry. The government has allowed 100% foreign equity investments in this sector and also
freed it from manufacturing and imports duties, and securing licenses and approvals. Further, there is no local
content regulation in the industry. The Ministry of Commerce and Industry, through the engineering export
promotion council, has been involved in promoting exports of auto parts. The government has also been taking
effective measures to improve infrastructure.

The road ahead

Today, India has the potential to manufacture a range of automotive components (about 20,000 in number) - from
fasteners to engine parts (Figure 1). Apart from the foreign demand, the domestic car production is also growing
with sales expected to be about 10 million by 2009. The exports are expected to touch US$5 billion by 2010 and
looking at the current growth, it seems very much possible. The sector has attracted US$18 billion in investments
between 2000 and 2006 which includes about US$530 million in FDI. India, which currently accounts for just
above 1% of the global auto components sourcing market, is expected to garner up to 3-4% by 2015. Indian
component manufacturers are now looking at ASEAN countries to invest and expand their operations while Japan
is keen on investing in India.
Given the scenario, though it looks like the Indian component manufacturers would take the world by storm, the
reality is there are certain issues that could hamper the pace of the industry’s growth. The FTAs (Free Trade
Agreements) and RTAs (Regional Trade Agreements) signed with China and ASEAN countries are arguably in
their favour. Trade agreements signed with countries like Thailand and China which already offer a number of
incentives to their domestic players, are perceived to be a huge threat to India. The agreements are seen as the
reason behind India losing out to these countries in gaining green field investments and are expected to hamper
future investments in India. It is feared that this could severely dent India’s competitive advantage very soon.

The government reduced the peak import duty from 15% during 2005 to 12.5% in 2006. This increased the
Chinese imports by three times to Rs.100 crores in 2006 from 2005. While the peak import duty could have been
retained until some more internal reforms took place, the government cut it down further by 2.5% in 2007. The
industry is facing about 18-20% cost disadvantage in the form of increasing raw material costs, power costs,
higher taxation, infrastructure costs, etc. when compared to China and Thailand. With the increasing input costs
and automobile designs getting changed frequently, components manufacturers are required to constantly invest
to upgrade themselves and to add value. This has been a drag, especially on small and medium manufacturers
who, in some cases, have been found wanting in terms of servicing huge orders due to lack of scale.

Given the hardships involved during the journey towards grabbing up a sizeable chunk of global automobile
sourcing market, it remains to be seen whether the components industry will gear-up itself in the wake of ensuing
action-packed years.

Keywords: Indian Automotive Components Industry, Automobile components, auto components outsourcing,
Automobile manufacturers, Automotive Component Manufacturers Association of India (ACMA), Original
equipment manufacturers, foreign automobile makers, Components manufacturers