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India

Automotive Components Industry


Compiled by:

Swiss Business Hub India


New Delhi, July 2004

1. Executive Summary

The Indian automotive components industry is rapidly transforming itself from a low-
volume, fragmented sector, into a highly competitive sector characterised by world-
class technology, large and assured volumes, and adherence to strict delivery
schedules as specified by global vehicle manufacturers. In particular, most Indian
companies have entered into technological collaborations and equity partnerships with
world leaders in automotive components. Besides, subsidiaries of global vehicle
manufacturers like Delphi of General Motors have set up components manufacturing
facilities in India. This in turn is expected to enable the Indian automotive components
industry measure up to strict quality standards and imbibe the latest technology. The
competitive edge of the Indian market is its lower labour cost and availability of highly
skilled workforce. The Indian prices are estimated broadly to be 10 to 25% less than
the world market prices. The auto components market is distinctly divided between
Original Equipment Manufactures (OEMs) and replacement markets.

Indian component manufacturers have relatively weak in-house R&D capabilities as


compared with their global counterparts. One of the main reasons for this is that
vehicle design activity is minimal in India. Also, Indian companies are better at product
adaptation than product development. As far as export demand is concerned, the
Indian automotive components industry has strong potential to increase exports with
India emerging as the sourcing hub for global automotive companies. This trend of
outsourcing will gain momentum with Indian component manufacturers having the
potential to consolidate their exports in those segments that are growing at a brisk
pace in the global market. India is also well placed to become a key hub for the
manufacture of small cars.

Along with other product segments, it is the auto and the auto component industry that
is the driving force behind the machine tools industry - fairly well represented by
Switzerland. Swiss companies have much to gain from the advantages that India
offers right now. There are several Swiss companies already present in India and for
all the others this is the time to move while the industry is booming and the good
quality opportunities exist.

Exchange Rate (July 20, 2004): Unit Conversion:


US$ 1.00 = INR 46.21 1 Billion = 100 Crore 1 Crore = 10 Million
SFr. 1.00 = INR 37.58 1 Million = 10 Lakh 1 Lakh = 100 Thousand

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2. Indian Automotive Components Industry

2.1 Snapshot

Category 2002-03
Automotive Components
Production (INR million) 255354
Investments (INR million) 125000
Exports (INR million) 34965
Imports (INR million) 32503
Employment (numbers) 250000
Vehicle Industry
Production (numbers) 6461171
Production (INR million) 595184
Investments (INR million) 222602
Exports (INR million) 26153
Imports (INR million) 4470
Employment (numbers) 1200000
Source: Automotive Component Manufacturers Association (ACMA)1

2.2 Some Characteristics of the Industry

The arrival of Maruti in the 80s brought about many changes in the Indian automotive
components industry. The industry was liberalised in 1991 leading to an influx of
foreign vehicle manufacturers including Mercedes-Benz, Ford, General Motors,
Daewoo, Peugeot, Hyundai and Volvo, among others. This rapid expansion presented
a world of opportunity for the components industry, which responded with huge
capacity additions and modernisation programmes. Even though the industry faced
difficult times and sluggish growth during 1997-1999, the situation has now turned for
the better with Indian companies bracing themselves to face the various structural
changes affecting the global components industry. Subsequently, since 2002, there
has been a sharp pick up in the growth rate of the automotive industry following the
introduction of competitive pricing strategies, launch of new models, and the easier
availability of consumer loans, among other factors.

Category-wise Production of Vehicles in India (in Numbers)

Category 1998-99 1999-00 2000-01 2001-02 2002-03


Passenger Cars 390355 574369 517907 564052 606088
Multi Utility Vehicles 113440 124310 125938 105667 114881
LCVs 55371 61213 63869 65756 82865
Buses and Trucks 80452 114068 88185 96752 120081
Tractors 253850 257112 248079 207324 156613
Three Wheelers 209033 205543 203234 212748 271224
Scooters 1315055 1259408 879759 937506 850102
Motorcycles 1387276 1794093 2183430 2906323 3914626
Mopeds 671699 724510 694974 465256 344691
Grand Total 4476531 5114626 5005375 5561384 6461171
Source: Society of Indian Automobile Manufacturers and Ministry of Road Transport

It is clear from the above table that except for a few segments like tractors, scooters
and mopeds, all the others registered a growth in production in 2002-03. The overall
growth for this period stood at an impressive 16%.

1
All figures in this reports are provided by the Automotive Component Manufacturers
Association (ACMA), unless otherwise specified.

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The automotive components industry is more aptly described as an “agglomeration of
industries” rather than as a single industry. This sector is involved in the production of
over 150 different products. The size of the automotive components industry that was
relatively flat for the three decades covering 1960-1990 witnessed a sharp increase
from 1994-95 onwards.

Production of Automotive Components

Year Amount (INR Million)


1997-98 120317
1998-99 129967
1999-00 163559
2000-01 178569
2001-02 216021
2002-03 255354

The total domestic production of automotive components (including Small Scale


Industries sector) in 2002-03 was INR 2,55,354 million (or US$ 5.4 billion), registering
a growth of 18.2% over the previous year.

Market Segmentation

Segment Share(%)
Organised sector 69
Informal sector 20
Imports 11

Most components required by the Indian automotive industry are manufactured


locally, thus lowering the import dependence of the industry. The import dependence
attributable to components imported directly by the vehicle manufacturers far outstrips
the import dependence of component manufacturers themselves. The imports are
usually restricted to items requiring special steels and components of precision
engineering like gearboxes.

2.3 Classification of Automotive Components

An automobile consists of more than 20,000 components, with each performing a


different function. On the basis of product characteristics and functions, Original
Equipment Manufacturers (OEMs) classify automotive components into six categories
as the following table shows. This classification for India is done by Automotive
Component Manufacturers Association (ACMA) and is slightly different from the
international classification. (For international classification of automotive components,
kindly refer to Annex. 1).

Product Group
Engine Parts: Includes Pistons, Piston Pins, Piston Rings, Cylinder Liners,
Gaskets, Engine Valves, Valve Guides, Valve Tappets, Valve Seat Inserts, Valve,
Collect/Cotter, Carburettors, Fuel Pump (Petrol), Oil Pump Assembly, Fuel Injection
Equipment/Spares, Glow Plugs/Resisters/Indicators, Filters/Elements/Inserts,
Timing Chains, Flywheel Ring Gears, Crankshafts, Radiators, Fan Assembly
Engine Cooling, Water Thermostats, Water Pump Assembly, Bimetal Bearings,
Water Pump Bearings, Exhaust Systems & Components, Catalytic Converters,
Fuel/Oil Lines, Other Engine Parts

Production in INR Billion (2002-03): 45.8


Share in Total Production (2002-03): 23%

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Electrical Parts: Includes Starter Motors, Generators, Voltage Regulators,
Distributors, Ignition Coils, Spark Plugs, Commutators, Flywheel Magnetos, Other
Electrical Parts

Production in INR Billion (2002-03): 13.9


Share in Total Production (2002-03): 7%

Drive Transmission and Steering Parts: Includes Clutch Assembly, Clutch


Plates/Disc, Steering & Suspension Linkage Parts, Steering Gears and Systems,
Gears including Crown Wheel, Propeller shafts, U. J. Cross, Axle Shafts, Complete
Axle/Wheel Assembly, Axle Housing/Front Axle Housing, Oil Seals, Wheels/Wheel
Rim, Other Parts

Production in INR Billion (2002-03): 28.2


Share in Total Production (2002-03): 15%

Suspension and Braking Parts: Includes Leaf Springs, Shock Absorbers, Air
Brakes, Brake Assembly, Brake Shoe Assembly, Brake Lining and Clutch Facing,
Brake Hoses, Other Suspension Parts

Production in INR Billion (2002-03): 21.2


Share in Total Production (2002-03): 11%

Equipment: Includes Head Lights, Other Lights, Halogen Bulbs, Automotive Bulbs,
Wiper Motors, Wiper Arms and Blades, Wind Shield Water Pump Assembly,
Electric Horns, Flasher Unit, Switches, Dashboard Instruments, Other Panel
Instruments

Production in INR Billion (2002-03): 16.2


Share in Total Production (2002-03): 8%

Others: Includes Hydraulic Pneumatic Equipment, Tyre Tube Valves and Cores,
Fan Belt, Sheet Metal Parts, Pressure Die Castings, Other Components.

Production in INR Billion (2002-03): 70.8


Share in Total Production (2002-03): 36%

3. Market Structure

3.1 Small Size by Global Standards

With a size of INR 2,55,354 Million (or US$ 5.4 billion), the Indian components
industry is very small by global standards. To put things in perspective, the size of the
Indian components industry is about 16% of that of the world’s largest automotive
components company, Delphi Automotive Systems Corporation of the US. The small
size of the Indian automotive components industry is attributable to the small size of
its principal demand agent, the automotive industry. The total turnover of the
automotive industry as a percentage of India’s Gross Domestic Product (GDP) in
2001-02 was 3.3%.

3.2 Fragmented Industry

Even though the Indian automotive components industry is relatively small by global
standards, there are close to 400 players in the organised sector and over 5,000 in
the unorganised sector competing against each other for market share. However, the

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share of the organised sector has increased over time. Players in the organised sector
supply the vehicle manufacturers directly. The unorganised sector, on the other hand,
mostly has small units, producing low-technology components. The following table
indicates the distribution of Indian automotive components suppliers in the organised
sector by turnover.

Distribution by Turnover

Turnover (in million US$) FY2000 Number of companies


<1 101
1-10 202
10-20 50
20-30 21
> 30 28

3.3 Market Share

The automotive components industry is a combination of different product segments,


with each segment having a different market structure. However, the number of
companies present in each segment differs because of the difference in the level of
technology requirement. No single company is a prominent player in more than one
product segment.

3.4 Geographical Concentration

In a bid to lower freight charges and facilitate faster delivery, automotive components
manufacturers are located largely around their OEM customers. This is particularly so
since most of them are directly supplying to the OEM producer. The Northern region,
which hosts OEM manufacturers such as Maruti, Hero Honda, Escorts, Eicher, LML,
Swaraj Mazda and Punjab Tractors, has the maximum percentage of automotive
components manufacturers. The Western region follows next, with OEM
manufacturers such as TELCO, Bajaj Auto, Kinetic Engineering Limited, Kinetic Motor
Company Limited and Mahindra and Mahindra Limited being based there.

Geographic Distribution of Auto Components Manufacturers (402 companies )

Northern 39% Southern 23%


Western 31% Eastern 7%

4. Industry Dynamics

4.1 Growth in Production

The decline in the production of passenger cars and commercial vehicles in 2000-01
had a somewhat dampening affect on the performance of the components industry.
Lower demand from OEMs, accompanied by lower replacement demand, was the
main reason for the low rate of growth in the production of components in that year. In
2001-02, growth in automotive production was led by the higher production of
motorcycles and passenger cars.

In 2002-03, the auto component production grew by 18.21%. This exceptional


performance was achieved on the strength of growth reported by the automotive
industry during the previous years - production of vehicles achieved a growth on 24%
from 1998-99 to 2001-02.

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Segment-Wise Production of Automotive Components in India (INR million)

2001-02 2002-03 Growth (%)


Engine Parts 38639 45897 18.78
Electrical Parts 13000 13986 7.58
Drive Transmission & Steering Parts 26616 28253 6.15
Suspension and Braking Parts 19557 21276 8.79
Equipment 11368 16206 42.56
Others 56990 70808 24.25
Total Organised Sector 166170 196426 18.21

Small Scale Sector 49851 58928 18.21

Total Auto Components Industry 216021 255354 18.21

4.2 Demand for Automotive Components

The table below maps demand for auto components in the past and in the future. If
demand increase as estimated, the industry can expect a phenomenal growth of
125% from 2001-02 to 2011-12.

Demand : Past & Future


Year INR Billion Year INR Billion
1990-91 34 2003-04 285
1995-96 110 2004-05 310
2000-01 215 2005-06 335
2001-02 235 2006-07 360
2002-03 260 2011-12 530
Note: Future demand is based on estimates

Sources of Demand

The market for automotive components can be segmented into the following
categories based largely on the identity of the buyer:

4.2.1 Demand from Original Equipment Manufacturers

The pattern of growth in the automotive industry has a very significant influence on the
performance of the automotive components segment. This is because the
components content per vehicle differs significantly across vehicle categories.
Demand for larger and higher-value automobiles implies higher demand for ancillary
units. The following table presents the growth witnessed in various vehicle segments
over the past few years:

Category-wise growth in Vehicle Production in India from 1998-99 to 2002-03

Category Growth (%) Some Major Players


Passenger Cars 55.27 Maruti Udyog Ltd., Hyundai Motor India
Ltd., Tata Engineering, Ford India Ltd.,
General Motors India Ltd., Honda Siel
Cars India Ltd. and Hindustan Motors.
Multi Utility Vehicles 1.27 Mahindra & Mahindra Ltd., Bajaj Tempo
Ltd., Tata Engineering, Toyota Kirloskar
Motor Ltd., Maruti Udyog Ltd. and
Hindustan Motors.

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Light Commercial 49.65 Mahindra & Mahindra Ltd., Tata
Vehicles Engineering, Bajaj Tempo Ltd., Eicher
Motors, Swaraj Mazda Ltd. and
Hindustan Motors.
Buses and Trucks 49.26 Tata Engineering, Ashok Leyland Ltd.,
and Eicher Motors Ltd.
Tractors -38.30 Mahindra & Mahindra Ltd., Eicher
Tractors, Escorts Tractors Ltd., Punjab
Tractors Ltd., International Tractors Ltd.
and Tractors & Farms Equipment Ltd.
Three Wheelers 29.75 Bajaj Auto Ltd., Bajaj Tempo, Piaggio
Vehicles Pvt. Ltd. and Mahindra &
Mahindra.
Scooters -35.36 Bajaj Auto Ltd., Honda Motorcycle &
Scooter India Pvt. Ltd., Kinetic
Engineering Ltd., LML Ltd., TVS Motor
Company Ltd., Majestic Auto Ltd. and
Kinetic Motor Company Ltd.
Motorcycles 182.18 Hero Honda Motors Ltd., LML Ltd., TVS
Motor Company Ltd., Yamaha Motors
India Ltd., Bajaj Auto Ltd. and Kinetic
Engineering Ltd.
Mopeds -48.68 TVS Motor Company Ltd., Kinetic
Engineering Ltd. and Majestic Auto Ltd.
Grand Total 44.33
Note: For absolute figures, refer to table on page 2.

With the exception of tractors, scooters and mopeds, all the other segments have
achieved high growth during the last 5 years. Motorcycle production grew at an
exceptional 182%; cars, light commercial vehicles, buses and trucks registering
growth of approximately 50%.

4.2.2 Replacement Demand

The huge unorganised sector typically caters for the demand emanating from the
replacement market. The unorganised sector in turn is a low-cost one, given that its
fiscal liabilities (in terms of excise duties) are low. As a result, this sector is able to
supply the replacement market with significantly lower-priced parts vis-à-vis those
produced by the organised sector. The after-market is highly competitive for
components with a high price elasticity of demand and a tolerance of lower quality
standards. A major channel of marketing and distribution for this sector is the typical
roadside mechanic. Interestingly, the unorganised sector has recently shown the
technical competence to even replicate some of the relatively sophisticated
components.

Five factors primarily influence the aggregate annual demand for replacement parts:
• Size of National Vehicle Population: Clearly, more the number of vehicles,
higher the aggregate demand for replacement parts.

• Average Age of National Vehicle Population: Typically, the life span of the
commercial vehicle would stretch to around 20 years. Also, a longer use of the
vehicle would ensure higher replacement demand. Vehicle scrappage norms are
not yet widely prevalent in India (except for the National Capital Region of Delhi).

• Average Number of Kilometres Driven per Vehicle: Trends indicate that people
are driving their vehicles for longer distances every year. A variety of factors has

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contributed to this trend: wider suburban spreads in virtually all the major cities
where the bulk of the vehicle population resides; greater demand for travel-based
leisure activities; relatively poor progress in the expansion of public transportation
systems in the urban and rural areas; and various other factors. The demand for
replacement parts would increase as the wear associated with higher mileage of
vehicles per year increases.

• Road Infrastructure: It is estimated that around 2% of the road length in the


country carries about 40% of the road traffic. This has led to deteriorating driving
conditions like increased traffic congestion and low vehicular speed, besides
higher pollution levels. While increasing fuel consumption, low speed also adds to
the wear and tear of most automotive components.

• Driving Conditions: Besides congestion, the poor average quality of Indian roads
is a significant factor adding to the wear and tear of vehicular parts. For instance,
internationally, axles are not high-replacement demand products. But in India,
because of the poor quality of roads, axles have a high replacement demand.

4.3 Export Competitiveness

International automotive players with operations in India are increasingly sourcing


components from Indian automotive component manufacturers. For instance, Hyundai
and Fiat are sourcing parts locally for their Santro and Palio models in India,
respectively. The demonstrated ability of Indian component makers to make supplies
to global automotive manufacturers in the country opens up the possibility of the
component makers supplying the same OEMs in other countries as well.

Indian component manufacturers continue to enjoy competitive advantages primarily


on the strength of the following factors:

• Low labour costs: it pulls down the total cost of production, typically in assembled
parts such as clutches and lighting equipment.
• Less stringent environmental regulations: environmental regulations have
rendered the production of parts like castings cost prohibitive in developed
countries.
• Low minimum economic scales and possession of established technology.

The parts exported by Indian automotive component manufacturers are targeted at


following distinct groups of buyers:

1. To international vehicle majors: exports are made largely to their operations in


developing countries.
2. To vendors who supply to component manufacturers
3. To the replacement market: which accounts for a large proportion of the exports of
components from the Indian market. Typically 60% of the exports are to the
replacement market and the rest 40% to the OEM segment. In the past, Indian
component manufacturers were heavily dependent on this market for the reason
that unlike the OEM market, the replacement market has low volumes but high
margins. The OEM market, on the other hand, has very large and assured
volumes, but low margins and stringent quality norms. As a result, Indian
component manufacturers targeted mainly the replacement market for exports.

At present India's share in the global market is minuscule because even though the
Indian automotive components industry is quality-consistent, the export
competitiveness of the industry leaves scope for improvement. The automotive
components industry is expected to witness an increase in competition and quality
pressures in the near future.

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Export of Automotive Components

Year Amount (INR million) YOY Growth (%)


1997-98 14935 --
1998-99 15685 5.02
1999-00 18330 16.86
2000-01 27065 47.65
2001-02 28019 3.52
2002-03 34965 24.79

In 2003-04, this segment touched $1.1 billion as its export figures. This is 40% higher
compared to last year and almost double the amount in 2000-01. This is by no means
a small feat, but compared to the $1 trillion global auto components market, it is only a
drop. The projected Compounded Annual Growth Rate (CAGR) is 18% and the
Automotive Component Manufacturers' Association of India's export projections for
2010 is US$2.7 billion.

Auto Component Export Destination (2002- 03)

Region Share (%)


America 31.13
Europe 30.15
Asia 18.33
Africa 10.71
Middle East 7.66
Oceanic Countries 1.84
Others 0.18

Top 9 Destinations of Indian Automotive Components Exports (2002-03)

Country Amount (INR million) Share in Total (%)


United States of America 8572 24.52
Germany 3175 9.08
United Kingdom 2640 7.55
Mexico 1510 4.32
United Arab Emirates 1434 4.10
Italy 1268 3.63
Bangladesh 1093 3.13
Srilanka 989 2.83
South Africa 771 2.21

4.4 Import Scenario

Import of motor vehicles falls in the restricted category. Vehicles can be imported
against a specific licence or in accordance with a public notice issued by the
Directorate General of Foreign Trade. However, capital goods, raw materials,
components, parts, intermediates and consumables for the manufacture of vehicles
can be freely imported unless they appear in the negative list of imports. Parts and
accessories of motor vehicles can be freely importable with 40.37% custom duty (HS
Code: 8708).

Till the year 1988, legislation regarding safety standards and pollution control was
either non-existent or not enforced. Under the Motor Vehicles Act, every component
used has to comply with standards laid down by the Bureau of Indian Standards (BIS).
The Act outlines rules regarding brakes, wipers, steering, safety glass and lights.

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Import of Auto Components by Vehicle Manufacturers and Others

Year Amount (INR million) YoY Growth (%)


1997-98 24217
1998-99 24439 0.92
1999-00 33861 38.55
2000-01 30598 -9.64
2001-02 31637 3.40
2002-03 32503 2.74

Top 9 Sources of Indian Imports of Auto Components (2002-03)

Country Amount (INR million) Share in Total (%)


Japan 5867 18.05
Germany 4535 13.95
Korea 3889 11.97
United States of America 3821 11.76
United Kingdom 2521 7.76
Italy 1980 6.09
Thailand 1789 5.50
Brazil 1077 3.31
France 1052 3.24

5. Swiss Indian Automotive Components Trade

5.1 Joint Ventures

A handful if Swiss companies already have joint ventures with Indian companies,
some of them are:
1. Bossard AG - manufacturing industrial fasteners
2. Rasmasser Polymer Development - manufacturing cross laminated films
3. Associated Industrial Development Holding - manufacturing carburettors

5.2 Indian Exports to Switzerland

Since there is hardly any vehicle manufacturing activity in Switzerland, it could be


interpreted that Swiss companies are importing automotive components from India,
mostly to re-export these products to other countries.

Year Amount (INR million)


1997-98 72
1998-99 71
1999-00 58
2000-01 66
2001-02 80
2002-03 72

There is a vast range of products that Switzerland imports from India, some of them
are bearings, component parts of diesel engine, head lamps, bumper, mounted brake
lining, radiators, transmission shaft, gears, gaskets, spark ignition engines etc. (a
year-wise break up can be done for all the products if required).

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5.3 Indian Import from Switzerland

Switzerland's share in total Indian imports in 2002-03 was only 0.8 percent but it is
heartening to note that in terms of value of imports, the figures are slowly but steadily
growing.

Year Amount (INR million)


1997-98 250
1998-99 271
1999-00 306
2000-01 253
2001-02 288
2002-03 330

India imports a variety of products from Switzerland, most noticeable amongst them
are bearing housing, rivets, rubber rings, flexible coupling, pulley power transmission,
environment protection equipment, valves, pistons, parts of petrol & diesel engine etc.
(a year-wise break up can be done for all the products if required).

6. Trade channels

Almost all the international players in the Indian automotive components industry have
links with at least one prominent local player. They operate in one of the three ways:
1. Set up a subsidiary
2. Joint venture with a local company
3. Technical tie-up.

Following liberalisation, the Government stipulated that the automotive joint ventures
would have to achieve 70% indigenisation within five years. This local-content
requirement (which has since been abolished) had necessitated improvements in
technology and production quality of the Indian automotive components industry.
Consequently, the Indian components industry has been experiencing the same
pattern as witnessed in other countries: OEMs are first entering the country and then
encouraging their existing suppliers to establish facilities here. For instance, 20
suppliers of Hyundai had already established plants in India even before Hyundai’s
own production went on stream.

7. Trends

7.1 Rising Quality Consciousness


The average quality of automotive components produced in India has been improving
gradually, particularly during the past few years. Significantly, three Indian companies
(Sundaram Clayton, Sundaram Brake Linings and TVS Motor Company) currently
hold the Deming Prize for quality (only six companies outside Japan have won this
award). In the automotive components industry, quality is measured against two
parameters:

1. End of the line rejection: The end of the line rejection rate refers to the defective
parts that are rejected by the producer of the automotive components. The end of
the line rejection level has improved considerably in the recent past for Indian
automotive component manufacturers. The average end of the line rejection rates
a little less than a decade ago was in the range of 2% (20,000 parts per million) for
players in the organised sector. The figure currently stands reduced at 0.5%-0.8%
(for some it is even less) or 5,000 to 8,000 parts per million (PPM).

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2. Customer rejection level: The number of components rejected by the customer,
such as an OEM, comprises the customer rejection rate. The customer level
rejection rates have also come down significantly. International companies
maintain their customer rejection rate at an average 200 PPM. In the recent past,
certain Indian companies have attained a customer rejection rate of up to 500
PPM, with a few attaining even a zero customer level rejection rate.

7.2 Vendor Rationalisation

With vehicle manufacturers in India reducing the number of suppliers, “rationalisation”


of the Indian automotive components industry is likely to gain pace. Already, leading
OEMs such as Maruti, TELCO and Bajaj Auto Limited have been pursuing vendor
rationalisation programmes for some time now. TELCO, the country’s largest
commercial vehicle manufacturer, has decided to deal only with Tier I suppliers for
outsourced components and assemblies. Vendor rationalisation reduces the cost of
dealing with multiple vendors besides making the process of quality control easier.
Also, it enhances the efficiency of supply chain management. Further, by increasing
the order size per vendor, the OEMs can help the vendor operate at a higher scale of
operation and thus increase the vendor’s efficiency. Also, this provides greater
incentive to pursue technological improvements and enhance systems and processes
to meet the quality standards set by the OEMs. The process of vendor rationalisation
is likely to be implemented by many more players in the automotive industry in the
medium term.

7.3 Environmental Issues

Stringent emission norms have put pressure on manufacturers of components. In


2002, the Mashelkar Committee on automotive fuel policy announced modifications to
Euro-II norms. The committee suggested that Euro-II norms be extended throughout
the country by the end of 2005, Euro-III norms be introduced in seven mega-cities
from April 2005, and Euro-III norms be extended to the entire country from 2010
onwards. As of now, almost all new car models are now Euro II compliant.

8. Road Blocks

8.1 Size of Unorganised Sector

The unorganised sector of the Indian automotive components industry accounts for a
sizeable chunk of the total production of components in the country. During FY2002,
this sector accounted for around 23% of the total component production.

Many of these unorganised units are located in the Northern States of Delhi and
Haryana. Most of these manufacturers use primitive technologies and buy second-
hand machinery, sometimes at near-scrap value. Unorganised sector players are
more likely to be involved in the production of low technology products having lower
production complexity, such as gaskets, engine valves, pistons and sheet metal parts.
This sector is also likely to have a limited share in products involving sophisticated
machinery and a large number of operations. For the unorganised sector, the turnover
growth rate is relatively less influenced by the growth rate of the automotive industry.
A considerable portion of the production in the organised sector serves OEMs in the
automotive industry. Thus, there is a parallel movement in the growth rates for the
automotive industry and the organised sector of the automotive components industry.
The unorganised sector, on the other hand, serves mainly the replacement market.

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8.2 The Counterfeit Components Market

The Indian automotive components market has long been affected by the presence of
a large spurious-parts market. Further, counterfeiting is largely prevalent in those
segments (or models) that offer sufficient volume. Manufacturers have now been
using bar coding techniques to partly offset the problems created by the spurious
market. However, a relatively more successful tool than bar coding has been the
change in packaging offered by original equipment suppliers. A study commissioned
by ACMA in 1999 estimated the value of the spurious-components market at INR 567-
600 million (at FY1998 prices).

9. Observations and Recommendations

As competition in the mature markets of North America, Japan and Europe intensifies
and global players look for ways to enhance their competitiveness, presence in low-
cost production countries like India will emerge as a critical factor for these global
players. With the stakes for the OEMs getting higher, the pressure on component
manufacturers to improve quality has also gone up. As noted earlier, the relatively low
level of quality in the Indian automotive components industry had initially resulted in
component exports being restricted mainly to the replacement market. However, the
quality levels have improved considerably after the entry of international OEMs in
India. The stringent quality norms imposed by these OEMs have forced Indian
companies to upgrade their facilities.

The Indian automotive components industry is unlikely to be insulated from this global
trend of consolidation among major players and this will lead to realignment in the
Indian industry as well. More demanding requirements of the new vehicle
manufacturers and export markets, will generate a further need for investment in
technological upgrades and quality improvements. The prime requirement of Indian
suppliers is access to the latest technology. Swiss companies are known for high
quality, reliability and technology oriented products and can effectively position
themselves in the Indian automotive industry. Since collaboration with Indian
component manufacturers remains the most common strategy - for a long term
approach, it is advisable for Swiss companies to explore in this direction. The export
of products from Switzerland to India is also a possibility but these products will attract
high import duties, making them relatively expensive and unable to compete with
locally produced similar products in India. However, if a product requires very
specialised technology and is catering to high-end companies, then in the short to
medium run, plenty of opportunities of exporting to India exist.

Swiss companies in the areas of electronics components, brakes, fuses, sheet metal
works, welding and soldering equipment, machine tools, electric instruments, electric
equipment etc. have much to gain right now. There are several Swiss companies
already present in India (specially in the machine tool segment) and for all the others
this is the time to move while the industry is booming and the good quality
opportunities exist.

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10. Useful Website

Automotive Components manufacturers Association of India: www.acmainfo.com


Society for Indian Automobile Manufacturers: www.siamindia.com
Ministry of Road Transport and Highways: www.morth.nic.in
Auto Policy: www.dhi.nic.in/autopolicy.htm
Bureau of Indian Standards: www.bis.org.in

Annexes (at the end of the report)

1. International Classification of Automotive Components


2: Projected demand, growth and lead players of select items
3: Category-wise Production of Automobile in India (In Numbers)

Date: 21 of July 2004

Author: Deepti Sharma, Senior Trade Advisor


Author’s address: Swiss Business Hub
C/o. Embassy of Switzerland
Nyaya Marg
Chanakyapuri
New Delhi - 110 021
Tel: +91-11-26878534
Fax: +91-11-26112220
E-mail: Deepti.Sharma@ndh.rep.admin.ch

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Annex 1: International Classification of Automotive Components

Product Category Major Products


Engine and • Engine (pistons, piston rings and engine valves)
Transmission/Power Train • Gears
• Clutches
Electrical • Rotating electrics
• Lighting
• Wiring
• Entertainment devices
Chassis • Axles
• Brakes and suspension
• Wheels and knuckles
• Steering column
Trims • Plastic
• Glass
• Rubber
• Seats
• Fabric
Bulk Materials • Sealents
• Lubes, oils and grease
• Paint
• Tyres
Body in White (BIW) • Sheet metal
• Mechanisms (locks, etc)
Source: ICRA Advisory Services

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Annex 2: Projected demand, growth and lead players of select items

Starter Motors
Projected Demand 2005-06 (Mio. Nos) 1
Market growth rates: 2001-02 - 2006-07 9.10%
Lead players (Strategic partner)
• Delco Remy Electro
• Auto Ignition
• Lucas TVs, Premier Auto (Magnet Mardi Spa, Italy)
• Denso India (Denso Corp., Japan)
• MICO Robert (Bosch GmbH, Germany)
• Sahney (Delco Remy America, USA)
Steering Gears
Projected Demand 2005-06 (Mio. Nos) 1.32
Market growth rates: 2001-02 - 2006-07 7.00%
Lead players (Strategic partner)
• Sona Koyo Steering Sys (Koyo Seiko, Japan)
• Rane TRW Steering Sys (TRW Inc. USA & AMC Ind. France)
• Rane Madras (TRW Steering Sys., UK
• Hi-Tech
• ZF Steering Gear (ZF Frierrichschafen AG., Germany
• XLO India (Ross Gear Div. TRW, UK)
Radiators
Projected Demand 2005-06 (Mio. Nos) 1.45
Market growth rates: 2001-02 - 2006-07 7.10%
Lead players (Strategic partner)
• Banco Products (Japan Gaskets, Japan)
• Standard Radiators
• India Radiators (Suddeutsche Kuhlarfabrik,Germany, Behr GmbH, Germany)
• Haryana Radiators
• Climate Sys (Ford Motor Co., USA)
• Consolidated (X-Rad International,Canada)
• Radiators (Universal Auto, Radiators, USA)
• GS Radiators (Calsanic Llanelli Radiators, UK)
Tie Rod Ends
Projected Demand 2005-06 (Mio. Nos) 11.64
Market growth rates: 2001-02 - 2006-07 6.00%
Lead players (Strategic partner)
• Rane Madras (TRW Fahrworks System, Germany)
• Q.H. Talbros (Quinton Hazell PLC, UK)
• ISPL Industries
• National Auto Accessories
• Sri Ramdas Motor
• Guru Nanak Auto
• Punjab Bevel Gears
Pistons
Projected Demand 2005-06 (Mio. Nos) 24
Market growth rates: 2001-02 - 2006-07 6.50%
Lead players (Strategic partner)
• Escorts Mahle (Mahle GmbH,Germany)
• India Pistons (T&N Technology, UK)
• Menon Pistons (Sukura Kogya, Japan)
• Samkrg Pistons (Nippon Piston, Japan)
• Abilities India
• Pistons (Cheng Shing Piston, Taiwan and Kolbenshemidt AG, Germany)
• Shriram Pistons (Honda Foundry Co., Japan)

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Piston Rings
Projected Demand 2005-06 (Mio. Nos) 142
Market growth rates: 2001-02 - 2006-07 5.80%
Lead players (Strategic partner)
• Goetze India (Goetze Technologies, Germany)
• Perfect Circle Dana Corp., USA
• India Pistons (T & N Technology, UK)
• Shriram Pistons & Rings (Riken Corp., Japan)
• Menon Pistons (Sukurya Kogya, Japan and Nippon Pistons, Japan)
• Samkerg Pistons (Chengshing Piston Taiwan)
• IP Rings
Axle Shafts
Projected Demand 2005-06 (Mio. Nos) 1.51
Market growth rates: 2001-02 - 2006-07 6%
Lead players (Strategic partner)
• Talbros Engg (Coopers Payen, UK)
• Axles India
• Sona Koyo Steering
• Bharat Forge
• Deepak Inds
Shock Absorbers
Projected Demand 2005-06 (Mio. Nos) 28.35
Market growth rates: 2001-02 - 2006-07 10.20%
Lead players (Strategic partner)
• Munjal Showa (Showa Corp., Japan)
• Garbriel India IIC, Japan
• Escorts Ltd
• Sirmour Sudbury (Sudburg-Werk, Germany)
• Endurance Sys India
• Sachs India
• Renowned Auto
• Stallion Shox (Monroe Auto Eqpt., USA)
Crankshaft
Projected Demand 2005-06 (in thousands)) 565
Market growth rates: 2001-02 - 2006-07 8.20%
Lead players (Strategic partner)
• Bharat Forge Ltd Nissho Iwa, Japan
• Shardlow India Shardlow, UK
• Harig Crankshafts (Wilhelmus, Germany, Cofoma Auto Parts, Sahyadri Auto
Products, Kolhapur Axles)
Carburettor
Projected Demand 2005-06 (Mio. Nos) 5.7
Market growth rates: 2001-02 - 2006-07 4%
Lead players (Strategic partner)
• Ucal Fuel Systems (Mikuni, Japan)
• Spaco Carburettors India (Associated Ind Dev. Holding, Switzerland, Keihin
Seiki, Japan)
• Escorts Empl Ancillaries
Engine Valves
Projected Demand 2005-06 (Mio. Nos) 34.45
Market growth rates: 2001-02 - 2006-07 5.60%
Lead players (Strategic partner)
• Rane Engine Valves
• KAR Mobiles
• Triton Valves
• Shriram Pistons & Rings (Fuji OOZX, Japan, Autofield Enginers, Atlas

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Crankshaft Corp, USA)
• Schrader Duncan
Bimetal Bearings
Projected Demand 2005-06 (Mio. Nos) 108.91
Market growth rates: 2001-02 - 2006-07 9.00%
Lead players (Strategic partner)
• Kirloskar Oil Engines (Glacier Metal Co, UK)
• Bimetal Bearings
• Gabriel India (Federal Mogul Corp., USA and BHW Germany)
• Gleitlager India (Daido Metal Co., Japan)
• Patel Brass Works
Spark Plugs
Projected Demand 2005-06 (Mio. Nos) 35.5
Market growth rates: 2001-02 - 2006-07 5.40%
Lead players (Strategic partner)
• Motor Industries MICO (Robert Bosch GmbH,Germany)
• Modi Champion (Champion Spark Plug Co., USA)
• IVP (Magneti Marelli, Italy)
Propeller Shafts
Projected Demand 2005-06 (Mio. Nos) 2.5
Market growth rates: 2001-02 - 2006-07 6.50%
Lead players (Strategic partner)
• DD Industries
• GNA Axles
• Hindustan Hardy
• Guru Nanak
• Mahindra Sona
• Tapan Preci Tek
• Sona Koyo Steering
Flywheel Magnetos
Projected Demand 2005-06 (Mio. Nos) 2.85
Market growth rates: 2001-02 - 2006-07 8.10%
Lead players (Strategic partner)
• Indo Nippon Electricals Ko Kusan Denki, Japan
• Jaya Hind Inds. Mitsuba Electric, Japan
• Denso India Nippon Denso, Japan
• Saraswati Engineering
• Vikas Automotive
Catalytic Converters
Projected Demand 2005-06 (in thou.) 2180
Market growth rates: 2001-02 - 2006-07 14.90%
Lead players (Strategic partner)
• Subros (Allied Signal, UK)
• Mark Exhaust (Sankei Giken Inc.,Japan)
• Ucal Fuel Sys (Englehard Computers, USA)
• General Motors (General Motors, USA)
• Panalfa Dongwlon India (Dongwon Meta Ind. South Korea)
• SM Auto Engg. (Zema Starker,Germany)
• Special Engg. Services (Cataler Industrial Co Japan.)
• John Mathey India (John Mathey)

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Annex 3: Category-wise Production of Automobile in India (In Numbers)

Category Companies 1999-00 2000-01 2001-02


Ashok Leyland Ltd 35777 33169 31370
Medium & Heavy Hindustan Motors Ltd 194 136 16
Commercial Tata Engineering 76340 54905 59463
Vehicles Volvo India Pvt Ltd NA NA NA
Total 112311 88210 90849

Ashok Leyland Ltd 510 634 453


Bajaj Tempo Ltd 4790 3266 2072
Light Eicher Motors Ltd 6956 8517 9638
Commercial Mahindra & Mahindra Ltd 6421 6107 5908
Vehicles Swaraj Mazda Ltd 4010 5231 6360
Tata Engineering 38526 40114 30917
Total 61213 63869 55348

Daewoo Motors (India) Ltd NA NA NA


Daimler Chrysler India P. - - 1415
Ltd
Fiat India Automobiles Ltd 16039 NA NA
Ford India Ltd NA NA 14306
Passenger General Motors India Ltd 3108 8324 8135
Cars Hindustan Motors Ltd 26673 25774 19398
Honda Siel Cars India Ltd NA NA 10310
Hyundai Motor India Ltd 75306 81740 93888
Maruti Udyog Ltd 398669 342248 351949
Mercedes Benz India Ltd 436 880
PAL - Peugeot Ltd 32 0 0
Premier Automobiles Ltd 54 0 0
Tata Engineering 56926 45688 64725
Total 577243 504654 564126

Bajaj Tempo Ltd 6019 5000 5155


Multi Hindustan Motors Ltd 2604 2340 3798
Utility Mahindra & Mahindra Ltd 70487 56792 57196
Vehicles Maruti Udyog Ltd 8899 5869 5153
Tata Engineering 32719 30543 27488
Toyota Kirloskar Motor Ltd 3580 25394 24958
Total 124308 125938 123748

Bajaj Auto Ltd 594436 356159 374135


Honda India (Pvt.) Ltd 0 0 55670
Scooters Kinetic Motor Company 116790 123304 108301
Ltd
LML Limited 275805 168802 125470
Maharashtra Scooters Ltd 140530 91687 60216
TVS Motor Company Ltd 131862 139755 146421
Total 1259423 879707 870213

Bajaj Auto Ltd 431837 548326 724397


Hero Honda Motors Ltd 761210 1034074 1422112
Kinetic Engg Ltd 0 0 55221
Motorcycle LML Limited 0 42410 42180
Royal Enfield Motors 23278 21432 24136
TVS Motor Company Ltd 325319 358024 455224

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Yamaha Motor India (P) 252434 179519 238636
Ltd
Total 1794078 2183785 2961906

Bajaj Auto Ltd 69475 58381 37758


Kinetic Engg Ltd 162615 159424 100987
Mopeds Majestic Auto Ltd 111119 107524 81853
TVS Motor Company Ltd 381301 369645 270927
Yamaha Motor India (P) 0 0 0
Ltd
Total 724510 694974 491525

Bajaj Auto Ltd 173223 159196 158342


Three Bajaj Tempo Ltd 16963 17439 18899
Wheelers Mahindra & Mahindra Ltd 73 247 3208
Piaggio Vehicles Pvt. Ltd 0 26352 32304
Total 190259 203234 212753
Source : Society of Indian Automobile Manufacturers.

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