PRESENTATION ON
“FUTURE OF AUTO COMPONENT INDUSTRY”
BY
MR. M. RADHAKRISHNAN
JT.MANAGING DIRECTOR
AUTOLINE INDUSTRIES LTD.
PRIMARY GROWTH DEMAND
Dependant on OEMs
OEM market drivers (for India)
• Growth in Economic Activity
• Increase in the Personal disposable incomes
• Growth in Rural Economy
• Multiple & easy finance options
• Decline in tax rates
• Economic vehicles (Nano effect )
After market Drivers
• Old vehicle population
• Life span of components (frequency of replacement).
• Average value of parts replaced.
• Share of genuine-branded components in the total aftermarket.
DOMESTIC MARKET
Growth opportunities in terms of volume
The domestic market for four wheelers is projected to grow at a
compounded annual growth rate of 9% during the next few years.
This will provide reasonably good growth opportunities in terms of volume
to component manufacturers such as our company with facilities having
latest technologies and mass manufacturing facilities.
PRODUCTION OF FOUR WHEELERS
PAST AND FUTURE (IN 000S)
Production of Four wheelers
Past and Future (In 000s)
(In thousands)
7000
6000
5000
4000
3000
2000
1000
0
2003 2004 2005 2009 2014
Year
INDUSTRY OVERVIEW
INDIAN AUTO COMPONENT INDUSTRY
The Indian automobile ancillary sector is transforming itself from a low-
volume, highly fragmented one into a competitive industry, and backed by
competitive strengths, technology and transition up the value chain.
Broadly the Indian automotive component industry can be divided into the
organized and the unorganized segments. While the forte of the organized
sector is the high valued added precision engineering products, the
presence of a large unorganized sector is characteristic especially of the
lower value-added segments of the industry.
In the organized segment, the component manufacturers supply
components to at least one of the Original Equipment (Vehicle)
Manufacturers (OEMs). Such component manufacturers usually have
access to the required technology due to their tie-ups with some of the
foreign collaborators or through their links with the automobile
manufacturer. There are presently 29 Vehicles Manufacturers (OEMs) in
India located at Gurgaon, Pune and Chennai who together manufactured
more than 5.2 million vehicles during 2005-06.
Original Equipment Manufacturers of 4-Wheelers In India &
Production During 2005-06
Japanese/Joint Venture OEMs Production in 000s American OEMs Production in 000s
Maruti Udyog Ltd 572.10 General Motors 31.00
India Pvt. Ltd
Toyota Kirloskar Motor Pvt .Ltd 45.00 Ford India Pvt. Ltd 27.00
41.00 Total 58.00
Honda Siel Cars India Ltd
12.00 KOREAN OEMS
Swaraj Mazda Ltd
Total 670.10 Hyundai Motor India 260.00
Ltd
Original Equipment Manufacturers of 4-Wheelers In India &
Production During 2005-06
EUROPEAN OEMS Production in INDIAN OEMS Production in 000s
000s
Skoda Auto India Pvt.Ltd 9.80 Tata Motors Ltd 450.00
Daimler Chrysler India Pvt. 1.80 Mahindra & Mahindra Ltd 128.00
Ltd
Volvo India Pvt. Ltd 1.00 Ashok Leyland Ltd 65.00
Tatra Trucks India Ltd 0.10 Force Motors Ltd 36.00
Fiat India Pvt.Ltd 0.70 Eicher Motors Ltd 24.00
Total 13.40 Hindustan Motors Ltd 15.00
Total 718.00
Original Equipment Manufacturers of 2-Wheelers in India and
production during 2005-06
JAPANESE OEMS Production in 000s
Hero Honda Motors Ltd 3006
Honda Motorcycles & Scooters 603
Yamaha Motor India Pvt. Ltd 249
Suzuki Motorcycles India Pvt. Ltd 2
Total 3860
Original Equipment Manufacturers of 2-Wheelers in India and
production during 2005-06
Indian OEMs Production in 000s
Bajaj Auto Ltd 2042
TVS Motors Co .Ltd 1367
LML Ltd 107
Kinetic Engineering Ltd 82
Majestic Auto Ltd 57
Kinetic Motor Co.Ltd 54
Royal Enfield 31
TOTAL 3740
The table below shows segment-wise distribution
of the auto component Industry www.acmainfo.com.
Organized Unorganized
Component Component
Manufacturers Manufacturers
1999 2006 1999 2006
Year
Share in OE 80% 80% 20% 20%
supply market
Share in 40% 35% 60% 65%
Aftermarket
The table below shows segment-wise distribution of the
auto component Industry www.acmainfo.com.
Organized Component Unorganized
Manufacturers Component
Manufacturers
Strengths 1.Higher production capacities 1. Low capital investment
2. Captive OE market 2. Minimal overheads
3. Access to technology through tie 3. Taxes and levies
ups exemption (violation)
4. Quality standards 4. Poor regulation on sale
5. Potential to export of spurious parts
6. Improving quality consciousness 5. Price sensitivity of
of end users market
1. High Investment in plant and 1.Sub normal quality
Weaknesses machinery 2.Obsolete technology
2. Higher overheads 3. Low capital availability
3. Higher rates of taxes and 4. Restricted growth
differential regional tax patterns potential
4. Limited domestic OE volumes
EXPORT MARKET
Despite a relatively small share of Asia in the global pie, India is now
amongst one of the most preferred destinations and has come to
occupy the image of an exporting hub for most of the major global
OEM players. Almost all the big auto manufacturers of the world are
either already or are in the process of outsourcing from the country.
• Hyundai Motors India – Export base for small cars
• Ford Motors India– exporting CKDs of Ikon to South Africa and other
countries
• Skoda India – Hub for exports of cars to neighboring countries
• General Motors – Global Purchasing Team
• Volvo – Global buying team
• Delphi – International purchase office
• Renault – scouting for truck part suppliers
Exports of auto components from India have witnessed a CAGR of 20.3% over the last six years.
The value of exports which was US$ 300 million in 1997 had grown to over US$ 2000 million in 2006.
GEOGRAPHICAL DISTRIBUTION DETAILS OF AUTO COMPONENT EXPORTS FROM INDIA
Continent/Country Percentage share of Total Exports
Europe 36.00
USA 26.00
Middle East 10.00
Africa 10.00
Asia 16.00
Oceania 1.60
Others 0.40
Total 100.00
There has also been a qualitative shift in the composition of exports from being
predominantly for the aftermarket during the 1990s to the OEM market
presently as depicted below:
Market segment Percentage share in
Total Exports
1990 2006
OEM 35 75
Aftermarket 65 25
Total 100 100
Global Trends that will impact the auto component
industry in India
• Global Industry - Major car makers in the world introducing car models
simultaneously in different countries of the world - Ripple effect
• Under pressure to identify consumers preferences, national biases,
Government regulations, new market segments - to gain market share,
leading to impetus for Research, Design, innovations and changes in
the manufacturing processes.
Result – Frugal Engineering (Renault – Nissan Chairman)
India emerging as a base of the entire world’s small car
production
• Pattern of demand for new cars.
- In developed countries, Mature market with stagnant demand (1%
growth over last 10 years)
- Sales growth from China, India, South America, Eastern Europe (26%
growth to go upto 40% by 2010)
• Response to increasingly diverse set of customers
- Large proliferation of segments & models ( challenges of cross over
production from same line).
- Plus myriad of features like power steering, power windows, cruise
control etc.
- No. of vehicle models offered for sale in the US market alone doubled
since 1980 to more than 1050 in 2004.
Strategies of Global Auto Majors impacting Component Manufacturers:
Adopt a global perspective in the operations
- Since 1990s, presence of all in virtually every corner of the world.
- Especially in Emerging Markets, where all OEMs are fiercely
competing for market shares as the market grows.
- Leading to simultaneous launch of models in different locations with
similar standards.
- Replicate Supply Chain structures.
Reorganization of their vehicle portfolio around product platforms and
car modules and systems.
- Declining sales per vehicle model, short product life
cycle – preventing economies of scale in design &
manufacturing with adverse impact on cost.
- Focusing on common platforms and interchangeable
modules – leading to faster & lower cost deployment of
new solutions across the whole product range, while
tailoring vehicles to a multitude of tastes and
preferences of consumers in the world.
- Design with a common underbody platform adapting
body, trim and ride to particular market conditions.
Wave of Consolidation
- Perspective of future platform sharing clearly acknowledged in deals such as
Daimler acquiring Chrysler, GM – Mitsubishi, Nissan – Renault, Nissan –
Renault – Mahindra, Nissan – Renault- Bajaj Auto (for Joint
Manufacturing).
- Estimated that within next 5 years, less than 10 independent automakers
may survive.
Increased Vendor Responsibilities –reaching impressive levels -
treated as partners
- Passing the responsibility of developing, manufacturing and
assembling important sections of the Car on to their Vendors.
- Attempting innovative approaches in terms of assembly – suppliers
assemble a number of modules in the final assembly plant and
attach them directly to the vehicle themselves. (V/W & GM projects
in Brazil) - ( Drivers Cabin for CV’s)
Role of technology in reshaping the industry
• Extent to which a Design is economical, functional and easy to
manufacture –impact new car’s revenues & costs.
Cars are technically complex in that
a) fairly deep level of engineering expertise
b) a large number of parts must fit together in a precise way i.e.
product architecture is integral , rather than modular.
• Today most functions in the styling , design &engineering
departments are done utilizing computers and math based
engineering (as against paper based (draftsmen) ,clay models
based processes).
• Various software tools and processes, such as FEA, CAE and
product data management (PDM/PLM) practices are utilized
to validate the components to validate the components for
-Form, Fit & Function.
Auto Component Industry in a state of Transition
and Transformation
• Indian auto component industry to take advantage
of the transition that is taking place internationally
and dominate the global supply chain in auto
components due to
- reasonably priced skilled work force
- large population of technology workers
- established strengths in I.T. and electronics.
• Transformation of global auto component industry structural change from
1,2,3 & 4th tiers to 0.5 tier structure.
• New direct suppliers are either specialised in complex systems OR
integrators of several simpler systems.
- Systems Integrators – Suppliers capable of designing and integrating
components, subassemblies and systems into modules.
- Global standardizers – Systems Manufacturers capable of setting the
standard on a global basis for a component or system – through design,
development and manufacturing of complex systems.
- Component specialists - Suppliers capable of designing & manufacturing a
specific component or subsystem, for a given car or platform – process
specialists or product specialists.
• INDIAN ADVANTAGE IN DESIGN & DEVELOPMENT
• In the new paradigm, the design and development capability
is a critical success factor.
• India has emerged as an offshore hub for software services
outsourcing.
- Design & development and supply of auto components
provides a far greater opportunity as Automobile Industry is
one of the largest industries in the world.
- Leading OEMs have started outsourcing designing work to
start- ups such as Virtual E 3D and Ecad in India.
- Have set up their own captive development centres in
India
• Worldwide market for design services pegged at USD 11
billion (Rs. 44,000 Crores) and presently India’s share is a
mere 1 percent
- Almost all major Auto and auto component companies in
India are using 3D software engineering design tools to
create designs .
- India offers more than 20% cost reduction to any client
and hence Global OEMs tempted to outsource to India.
- A typical CAD project in the USA will cost about USD 60
per man hour, as against about USD 25 in India.
- India is known world over for its expertise in I.T., and has a
long history in manufacturing , with strong domestic
market.
• Outsourcing of engineering design services is a Big
Opportunity for India.