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    Auto Component: Industry Structure

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    chompoonoot
    The Indian auto component industry has a global competitive advantage in cost and quality. It has transformed from a domestic to global supplier, attracting major automakers. The industry grew at 18.7% annually from 2009-2012, reaching $33 billion, driven by domestic demand, subsidies, and economic liberalization. Auto components are classified into engine parts, drive transmission, electrical parts, and others. Demand depends on economic growth, infrastructure, financing availability, and vehicle usage. The government supports the industry through initiatives like investment promotions and research funding to make India an automotive hub. While the industry is growing robustly, it faces challenges like increasing raw material costs, technological capabilities, and competition from imports.

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    Auto Component: Industry Structure

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    chompoonoot
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    The Indian auto component industry has a global competitive advantage in cost and quality. It has transformed from a domestic to global supplier, attracting major automakers. The industry grew at 18.7% annually from 2009-2012, reaching $33 billion, driven by domestic demand, subsidies, and economic liberalization. Auto components are classified into engine parts, drive transmission, electrical parts, and others. Demand depends on economic growth, infrastructure, financing availability, and vehicle usage. The government supports the industry through initiatives like investment promotions and research funding to make India an automotive hub. While the industry is growing robustly, it faces challenges like increasing raw material costs, technological capabilities, and competition from imports.

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    Auto Component

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    The Indian auto component industry has a global competitive advantage in cost and quality. It has transformed from a domestic to global supplier, attracting major automakers. The industry grew at 18.7% annually from 2009-2012, reaching $33 billion, driven by domestic demand, subsidies, and economic liberalization. Auto components are classified into engine parts, drive transmission, electrical parts, and others. Demand depends on economic growth, infrastructure, financing availability, and vehicle usage. The government supports the industry through initiatives like investment promotions and research funding to make India an automotive hub. While the industry is growing robustly, it faces challenges like increasing raw material costs, technological capabilities, and competition from imports.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    41 views5 pages

    Auto Component: Industry Structure

    Uploaded by

    chompoonoot
    The Indian auto component industry has a global competitive advantage in cost and quality. It has transformed from a domestic to global supplier, attracting major automakers. The industry grew at 18.7% annually from 2009-2012, reaching $33 billion, driven by domestic demand, subsidies, and economic liberalization. Auto components are classified into engine parts, drive transmission, electrical parts, and others. Demand depends on economic growth, infrastructure, financing availability, and vehicle usage. The government supports the industry through initiatives like investment promotions and research funding to make India an automotive hub. While the industry is growing robustly, it faces challenges like increasing raw material costs, technological capabilities, and competition from imports.

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    of 5

    Auto Component

    The Indian auto component industry is one of the few sectors in the economy that has a distinct global
    competitive advantage in terms of cost and quality. It is also one of the fastest growing industries in India. This
    industry had gradually transformed from being a domestic market supplier to becoming one of the essential
    auto parts suppliers in the world, with the components being widely demanded by major global automobile
    companies. Indias cost-competitiveness in terms of raw material, labour, and its established manufacturing
    base attracts the global Original Equipment Manufacturer (OEMs) for outsourcing components from India.
    Industry Structure
    The Indian auto component industry grew remarkably at 18.7% CAGR during FY09-FY12 and reached
    ` 2,109.75 bn in FY12. This remarkable growth could be attributed to strong domestic demand, government
    initiatives, additional subsidies, formation of various clusters, providing incentives, increase in the per capita
    income, as well as disposable income. Moreover, innovative marketing strategies and increase in competition
    due to entry of various foreign players has also helped drive the improvement in the end product. Economic
    liberalisation coupled with the technological, cost, and manpower advantages have made India one of the
    prime business destinations for many global automotive players.
    The Indian auto component manufacturers can be broadly divided into organised and unorganised sector,
    with the organised sector accounting for more than three fourth of the total production. While the forte of
    the organised sector is the high value added precision engineering products, the lower value-added segments
    of the industry are characterised by the presence of a large unorganised sector.
    Size of Indian auto component industry

    Source: Automotive Component Manufacturers Association of India (ACMA)

    Industry Classification
    The Indian auto component industry can be classified into various product ranges, of which six components
    contribute majorly to the industry. Engine parts contributed a remarkable 31% towards the auto component
    industry in FY12 followed by drive transmission and steering component manufacturing. Electrical parts
    contributed only 9%, lowest in the Indian auto component industry.

    XX

    Classification of Indian auto component industry

    Source: ACMA

    Demand Drivers
    Demand for auto components is directly related to that for automobiles, hence the demand drivers for
    automobiles indirectly influence those for the auto components. Factors that influence the original equipment
    demand for auto components differ from those that influence replacement demand for components. The key
    demand drivers are listed below:
    Demand drivers for OEMs:
    Economic growth.
    Infrastructure development.
    Easy availability of finance and sales promotion offers.
    Inadequate public transport.
    Freight rates.
    Demand drivers for the replacement market:
    Automobiles
    Rising penetration of personal vehicles.
    Vehicle life.
    Usage of automobiles.
    Auto components
    Growing market for used vehicles.
    Overloading of vehicles.
    Deteriorating road infrastructure.
    Upgradation of emission standards.
    Supply Dynamics
    Indian auto components manufacturers have been focusing on R&D activities innovation, design, and
    engineering activities to meet global quality standards and emerge as full-service providers to OEMs.
    Notwithstanding the slowdown in the global economy in the recent years, the Indian auto components
    industry continues to attract investments and the industry continues to add new capacities.

    XXI

    Investments
    Investments in the industry increased from US$ 0.66 bn in FY08 to US$ 2.3 bn in FY11, growing remarkably
    at a 51.6% three-year CAGR during FY08-FY11. Major foreign companies have been investing in the domestic
    industry through joint ventures/partnerships or setting up their own production plants. Domestic component
    players are also investing heavily in the industry to reap benefits of the long term growth prospects.
    Investments snapshot

    Source: ACMA

    Import Export Scenario


    The growth in the domestic auto market increased the imports of auto components from ` 260.4 bn in FY08
    to ` 514.4 bn in FY12, registering a four year CAGR of 18.6% during FY08-FY12. Exports of auto components
    from India grew at a higher pace of 20.4% CAGR from ` 159.6 bn in FY08 to ` 334.9 bn in FY12. Exports
    constitute about 15.9% of the Indian auto components industrys total turnover.
    Foreign Trade

    Source: ACMA

    Exports have seen a large scale change with respect to the clientele in the overseas market. The extent of
    catering to OEMs has increased substantially over a period of two decades due to heavy manufacturing
    facilities set up by various foreign players. During FY12, global OEMs/tier-I manufacturers accounted for 80%
    share in the Indian auto component industrys exports, while the global aftermarket accounted for the rest.
    Europe accounted for nearly 36% of Indias exports and continues to be one of the major export destinations
    followed by Asia.

    XXII

    Composition of export destinations (%)

    Source: ACMA

    Government initiatives
    The government has taken various initiatives to promote the growth of the sector. Some of these initiatives
    include:
    To promote the growth in the automotive sector and to make India a global automotive hub, the
    Government of India has initiated the Automotive Mission Plan (AMP) 2006-2016, under which emphasis
    has been given to increase exports of compact cars, multi utility vehicles, and auto components.
    The report of the Working Group on the Automotive Sector for the 12th Five Year Plan (2012-2017) has
    recommended the following:
    The task of building a place for Made in India brand for Indian Automobile and auto components
    globally has been proposed.
    The government has proposed to formulate a sequel of AMP II (2017-27) to put in place a framework
    for the long-term growth trajectory of the auto and auto ancillary sector.
    Creation of Technology Upgradation & Development Scheme (TUDS) for Auto Components and setting
    up of the Auto Component Technology Development Fund (ATDF), which will help the auto component
    companies in accessing loans at reduced rates of interest for the research & development activities,
    upgradation of process, and technology acquisition.
    Auto Component Manufacturers Association (ACMA) has identified the long-term investment requirement
    of ` 150 bn in the auto component industry during FY13-FY17, of which ` 75 bn is proposed to be
    financed through soft loans with an interest subvention.
    The government has allowed 100% foreign equity investment in the sector, through the automatic route,
    without any minimum investment criteria.
    The government has initiated a National Automotive Testing and R&D Infrastructure Project (NATRIP)
    for automotive testing and homologation, for which ` 4.88 bn have been allocated in union budget
    FY 2012-13.
    An increase in the weighted tax deduction allowed on in-house R&D expense from 150% to 200% was
    extended for a five year period until 2017 in the Union Budget 2012-13, which is likely to promote
    technology innovations in this sector.

    XXIII

    Issues and Challenges


    The auto components industry is in a robust growth phase. However, the industry faces certain challenges
    that could hamper its growth going forward. Some of the major challenges faced by the industry are listed
    below:
    Technological capability not enough to match global standards.
    Availability of smooth power supply.
    Surging raw material prices bringing pressure on the profit margins.
    Slowdown in the global economy affecting exports.
    Players are losing bargaining power against buyers as industry size is larger than OEMs.
    Increasing rivalry among players with numerous small similar firms targeting same customer segments.
    Players have low bargaining power with raw material suppliers, especially steel suppliers due to increasing
    demand for steel.
    FTAs signed with other developing countries may increase bulk imports of relatively cheaper auto
    components.
    Tier 2/3 companies also face challenges of low return on investment, which prevents scaling up of
    operations.
    Further, the governments move to push for more Multilateral & Bilateral Trade Agreements in contrast
    to many other nations imposing Non-Tariff Barriers on imports, increases the threat of duplicate as well
    as cheap imports to India.
    Outlook
    According to the ACMA, the auto components industry is likely to grow to US$ 113 bn by 2020, with the
    domestic market at around US$ 84 bn. Going forward, the Indian auto components industry is well poised to
    achieve strong growth, owing to rising domestic demand in the OEM market and the expanding replacement
    market, which will give India a strong platform to gain a stand in the global market. The export market for auto
    components is also likely to see strong traction once the global market stabilises and the economic uncertainty
    fades away. The cooling off of raw material prices and the expected rate cut to revive the decelerating economic
    growth is likely have a favorable impact on the margin of industry players. In the long run, auto component
    industrys outlook remains robust on the back of various government initiatives initiated to make India an
    Auto Hub of the world by 2020.

    XXIV

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