Auto Part Units Put Brakes On Investment Plans

Auto component manufacturers reeling under the sluggish growth of the automobile industry and the slowdown in economy have decided to roll back investment plans for the current year.

Against the original projection of about Rs 1,200 crore, the industry will pump in only about Rs 600 crore in 1997-98. The investment would have been lower, but many such plans cannot be stopped abruptly as the process was set in motion a couple of years ago, says Auto Component Manufacturers Association (ACMA) president K Mahesh.

Euphoric over the entry of a large number of foreign car manufacturers a few years ago, the auto components industry, for the first time, planned for capacities higher than the requirements. Mahesh said only those units that expanded with exports in mind would survive.

 

In 1997-98, the car and commercial vehicle sectors are expected to grow a mere 5 per cent each, against a heady 25 per cent last year. With the new car manufacturers realising that the Indian market for mid-size cars is not as big as originally estimated, component manufacturers have no choice but to go slow on expansion plans.

On the export front, too, options are limited, because most components made in India do not match international quality norms. The rejection rate is a high 0.2 per cent, against 0.002 per cent in South Korea.

According to the ACMA president, such poor quality of components can in turn be traced to inferior raw material where the average rejection rate is as high as 2-3 per cent and defective machine tools. He said the industry was also paying the price for not paying enough attention to training of workers.

ACMA, which recently sent a 12-member delegation to South Korea, says the Indian car market has become fragmented due to the entry of as many as 12 foreign auto majors. Fewer players with larger volumes would do more good to the industry than a large number of manufacturers fighting in a small market, he said.

Citing the case of South Korea, Mahesh said the three local car producers there had been able to roll out cars that were globally competitive in terms of price as well as quality because of the benefits of automation. Automation, in turn, had been possible because of the volumes, he said. The number of cars manufactured in South Korean during 1996-97 is estimated at 2.6 million.

Mahesh said Indian companies would find it increasingly difficult to access the latest technology, because they could become a threat to foreign firms due to the advantage of low-cost labour in the country. Long-term investment in in-house research and development is a must, he said. According to him, Indian companies spend an average of 1 per cent of the turnover in R&D, against 5 per cent in South Korea.

He however said India, like Korea, enjoyed an advantage over other South-East Asian countries because of its strong component base. Hyundai and Daewoo are likely to forge joint-ventures with domestic companies to supply car components, as Indian suppliers can readily absorb new technology. Besides, the cost of setting up greenfield projects will be prohibitive, said Mahesh.