Local demand, alliances drive auto ancillary firms

January 12, 2010 5:15 am

Global auto makers view India as a manufacturing haven for auto components due to the cost advantage it offers in casting and forgings and are increasing their sourcing from India.
 
A bouncy domestic market and a string of alliances between local auto firms and foreign players is expected to boost business for auto part players, even though the outlook for the global sector remains gloomy. General Motors and Chinese partner SAIC Motor Corporation have teamed up to make small cars and commercial vehicles in India, while Volkswagen took a stake in Suzuki Motor, tapping the Japanese firm’s expertise in small cars and dominance in India. “Whenever such alliances happen, there is always value to be achieved at the supply chain level. This would happen over a period of time. But it all depends on how they leverage it,” said Vishnu Mathur, Exceutive Director, the Automotive Component Manufacturers Association (Acma). Global auto makers view India as a manufacturing haven for auto components due to the cost advantage it offers in casting and forgings and are increasing their sourcing from India.  “The low cost advantage is still there with India. So companies planning to outsource components can take advantage,” said Vaishali Jajoo, analyst at Angel Broking. 
Successive stimulus packages and a resilient economy has boosted sales of consumer products including cars. The auto component industry is expected to grow to between $33 billion and $40 billion by 2016, from $19 billion in 2008-09, the brokerage Firstcall India said.  The Investment Commission has set a target of attracting foreign investment worth $5 billion for the next seven years to increase India’s share in the global auto components market from the existing 0.9 per cent to 2.5 per cent by 2015.
Apart from General Motors and Volkswagen, which aims to grab 8-10 per cent of the country’s market share in the next 4-6 years, Europe’s second-biggest carmaker PSA Peugeot Citroen is also exploring entry routes.  “Down the line, all ancillary firms would benefit from these ventures, so we also stand to gain,” said Santosh Singhi, Chief Financial Officer at Amtek Auto Ltd, adding that he was waiting for a production schedule from Volkswagen and Maruti to plan production. But nagging worries persist over the health of US and European markets where Indian players export much of their products. While domestic sales are rising at a good pace, exports would take much longer to revive.