Auto companies turn to localisation

Hit by costlier imports on the back of a depreciating rupee, domestic automobile companies are looking at stepping up localisation efforts and scaling up exports to cut costs and offset the impact of adverse foreign exchange fluctuations.

While Toyota Kirloskar Motor (TKM) and Hyundai Motor India Ltd (HMIL) are banking on rising exports for a bailout, others such as Maruti Suzuki India Ltd and Honda Siel Cars India Ltd are tweaking sourcing policies to bring down input costs.

The rupee has declined by 11.51 per cent since February to close at an all-time low of Rs 55.39 on Tuesday.

Shekhar Vishwanathan, deputy managing director (commercial), TKM, said: “We can do little to arrest the hit on our finances due to the sharp depreciation of the rupee. We are 35-40 per cent import-dependent because of which our import bill has been on the rise. For every rupee depreciation we lose as much as Rs 90 crore.” To counter the impact of the adverse forex fluctuation, TKM has commenced exports of the ‘Etios’ model to South Africa.

Korean auto company Hyundai, which accounts for 47 per cent of all passenger vehicles exported from India, too, is focusing on overseas sales to meet growing import bills. “We have been able to absorb the increase in our import costs because we are export positive,” said R Sethuraman, senior vice-president (finance), HMIL.

The country’s largest car maker, Maruti Suzuki India, is working with vendors to raise overall indigenisation levels of the company to 90 per cent, from 75 per cent at present, over the next two years.

S Maitra, senior managing executive officer (supply chain), Maruti Suzuki, said: “As as much 65 per cent of the components we import have exposure to the yen. We are sourcing more components from the Asean (Southeast Asian) region, from countries such as Thailand rather than Japan, to ward off currency risks and, thereby, reduce dependence on Japanese vendors.”

Honda Siel, too, has increased its supply base by 25 per cent to 170 vendors to bring down import costs. Jnansewar Sen, senior vice-president (sales and marketing), Honda Siel, said: “Localisation is our main strategy. We have been trying to improve localisation levels at our research and development centre over the last three years and that is helping us now.”