The German and Japanese auto ancillary companies are set to enter the domestic market in a deluge, lured by the growing number of foreign car makers establishing their presence in the country. Their entry, however, is threatening to drive many of the small-sized domestic ancillaries out of business.

Officials at leading accounting firms said they have been inundated with project proposals in recent months from the Germans and the Japanese, in particular, for setting up shop in the country's auto ancillary sector.

Their most preferred route is through acquisitions of existing units, the officials said.

"The Germans and Japanese are making aggressive forays into the auto ancillary sector. We help them with the procedures of Foreign Investment Promotion Board (FIPB) and also evaluate the buying price of the shares of the domestic units for our clients. We have already worked out three deals. A major chunk of our business these days, in the area of acquisitions, concern auto ancillaries," said an official.

Industry sources said most of the existing ancillaries, hamstrung by severe liquidity problems, have become easy takeover targets for these foreign predators. "Most of the these domestic units had planned to tap the capital market during 1995 to raise resources to modernise their operations.

But the capital market nose-dived in that year, quashing their plans. And the market has never really looked up since then," a merchant banker said.

"Hence, these companies have neither been able to change their moulds nor their scale of operations to meet the emerging needs in the auto sector," he said.

"The reality is that the majority of the domestic ancillaries are going to be wiped out completely. This is because they just will not be able to deliver according to the standards set by the foreign auto majors, because they do not have the resources to alter their production process.

This is sad, but true. Perhaps the government did not see the larger consequences of providing access to the foreign auto makers into the country," officials at the accounting firms working on these acquisitions said. Majority of domestic ancillaries are going to be wiped out as they just will not be able to deliver as per the standards set by the foreign auto majors