Component Suppliers Have to Follow Auto Manufacturers

The Indian auto component industry, with exports of $3.6 billion in 2007-08 of a total turnover of $18 billion, is on a bumpy ride with the big auto makers in the US and in Europe slowing down due to the recession. J S Chopra, president of the Automotive Component Exporters Association (ACMA) and Delphi-TVS Diesel Systems Ltd tries to explain the uncertain road ahead to Suman Rao

Q. According to ACMA, exports grew from $2.8 billion in 2006-07 to $3.6 billion in 2007-08, and constituted 20.1 per cent of the total industry turnover. Considering the slowdown in the US auto industry what will be the impact on the Indian component industry?

A. It is extremely difficult to quantify the impact of the slowdown of the US auto industry on the Indian component industry. We are on a week-to-week schedule and there’s no visibility. People are exporting to the big players like GM, Ford and Chrysler. As we don’t know what they will produce, we don’t know what to expect. That’s why we can’t quantify.

Q. Exports have been growing at a CAGR of 35 per cent during 2002-07 and are estimated to grow at a CAGR of 24 per cent during 2007-2015 to touch $20 billion to $22 billion by 2015-16. Now, can this figure be sustained? Or, is there a need to revise these projections?

A. Now, the big issue is of normalcy and nobody seems to know when the industry will return to normalcy. There’s so much uncertainty. Recession has been declared in the US, Europe and Japan. So, when we will pull out of the financial crisis is the only concern. For instance, companies in Japan are already talking of mergers - small companies merging with the big ones etc. Also, Toyota has reported a first-ever loss and Honda has announced that it is pulling out of the F1 racing. These are indications of an industry in turmoil. Unless this is sorted out and some clarity emerges, we cannot make any projections.

Q. Recently the $14 bn package to bail out the big three of the US auto industry GM, Ford and Chrysler - has been rejected by the Senate. What is the road ahead for the US auto industry and consequently for the Indian auto component exporters who are dependent on that market?

A. Frankly I don’t know. Though the package has been rejected, they got something. They are kind of bailed out till March. There’ll be some clarity once the new government takes office and announces its policy.

Q. Often, when exports slowdown, the industry turns to the domestic market. Now the Indian auto market too has hit a rough patch. So, what’s the way out for the component industry?

A. The difference between this and the previous problem is: it is not a regional problem but a global issue. Survival for the next year is the immediate concern. We’ve to first tighten our belts to preserve cash. Cutting costs, deferring capex plans and bringing down everything to a lower level is what needs to be done. That includes cutting down on manpower and even man-days and keeping inventories close to zero. You’ve to do everything in line with the new demands. For instance, Tata Motors have cut down on man-days. Similarly, Maruti and Hyundai have announced production cuts. Component suppliers have to do the same thing. They have to follow the auto manufacturers.