Electronics Components for Automotive Industry

Market analysis with ACMA (The Automotive Component Manufacturers Association of India)

The past decade has seen extraordinary change in the automotive industry. Not only high-end cars such as the Mercedes or BMW use additional features and dedicated components but comfort & IT assistance has become a must for budgetary cars as well. Engine-management systems are now high-power computing environments, delivering fuel-economy figures that once seemed unobtainable in the first fuel-injection systems. These new complexities are driving trend to adopt new processes in all aspects of technology & engineering. Result is an entire new face of electronics inside your cars. In this story we have covered component facet of Automobiles and analysis the market prospect with India’s biggest automotive organization, ACMA.

Automotive Components: Significance & Role in Indian Automotive Industry

The automotive components industry occupies a significant place in the Indian economy. The Indian auto industry has been recording tremendous growth over the years and has emerged as one of the major contributor to India’s gross domestic product (GDP). Currently, India is ranked 22 among global component exporting countries. Majority of Indian auto component exports are to countries in Europe, which account for 35 per cent followed by countries in North America with 26 per cent.

“The Make in India’ campaign led by Prime Minister Modi has encouraged the manufacturing sector. Make in India is expected to bring in foreign investment and with it, the technology for future requirements and needs.”

Mr Ramesh Suri, President, ACMA joined us on this survey with his expert views and facts on the industry. As per Mr. Suri, the automobile industry is one of India’s most vibrant and growing industries that accounts for 2.2 per cent of the country’s manufacturing gross domestic product (GDP). The auto industry is considered to be one of the largest job creators, both directly and indirectly. It is estimated that every job created in an auto company leads to three to five indirect ancillary jobs. India’s domestic market and its growth potential have been a significant attraction for many global automakers. The country is presently the world’s third largest exporter of two-wheelers after China and Japan. According to a report by Standard Chartered Bank, India is likely to overtake Thailand in global auto-export market share by the year 2020. The next few years are projected to show steady but cautious growth due to improved affordability, rising incomes and untapped markets.

Indian Automotive Components market in year 2015

Year 2013-14 has been one of the most challenging one for the auto-component industry in India – flagging vehicle sales, high capital costs, high interest rates, fluctuating exchange. After a period of rapid growth post the global economic crisis in 2008, there has been a slowdown since 2011-12, with turnover actually reducing in 2013-14 rates and slowing down of investment in manufacturing have adversely impacted the growth of the auto component industry. The new government has recognized the potential and the need for revival and has put in place certain measures for the industry such as allowing 49 per cent FDI in defense sector which will soon open doors for the component makers. Extension of the excise duties till the end of the year has been well received by the auto industry at large. Moreover, with the Government’s focus on infrastructure and skill development, scaling-up of the MSME sector and overall measures to sustain growth, will go a long way in attracting investments and help to facilitate the growth tangent for the industry.

Mr. Suri, shared his views about current scenario of automotive component industry. He shows optimistic approach towards industry with the new government taking over the things. ACMA do see green shoots emerging and is confident that the industry will have positive growth this year. To strengthen the automotive value chain, ACMA is focusing heavily on the growth and development of tier-2s and tier-3s. At ACMA, we are also looking at making India into a global export hub because of the frugal engineering, cost and quality benefits that India can provide to the rest of the world. At ACMA we believe that the worst is now behind us and that the industry should prepare itself for the forthcoming growth cycle.

Strengths of Indian Automotive Industry:

1.    The 700 companies are member of ACMA, Indian Automotive Association
2.    There are 576 ISO-9001 certifications, 467 TS-16849 certifications, 208 ISO-14001 certifications and 105 OHSAS-18001 certifications.
3.    Second only to Japan, India’s auto components industry also has the highest number of Deming Awards, which stands at 14 to its credit.
4.    The industry boasts of 15 Total Productive Maintenance (TPM) awards,
5.    Indian companies have three Japan Institute of Plant Maintenance (JIPM) awards, two Japan Quality medals and two Shingo Silver medallions.
6.    The Indian auto components are exported to more than 160 countries
7.    Growing at 15 percent per annum over the past six years.
8.    Components exports stood at Rs 61,487 cores (USD 10.2 billion) in FY 2013-14, accounting for 29 percent of overall industry turnover.

The Indian auto component industry is well versed with global quality practices and is endowed with high technology skills with several companies having set up their engineering and R&D/Innovation centers. While this speaks volumes about the component industry, this could not have been possible without the support of OEMs/Vehicle manufacturers who have played a critical role in handholding the supplier community including equity participation and technical Joint Ventures with their suppliers.

Considering the turbulence in the environment, the component industry witnessed a marginal decline of 2 percent over the fiscal, clocking Rs. 2,11,765 cores (USD 35.13 billion) in turnover for the period April 2013 to March 2014, however the CAGR over the last six years has been an impressive 14 percent. Indian auto component manufacturers, over the years, have developed strong manufacturing capabilities that have helped them in keeping costs low and meeting stringent quality norms. As mentioned by Mr. Ramesh Suri. In the last 10 years, several Indian suppliers have evolved, developing world-class capabilities and becoming prominent global players. However, the Indian suppliers account for just 1 per cent of overall global exports of USD 1006 billion—indicating a significant upside opportunity for exports. This opportunity assumes even more significance in the context of an increasingly global posture of auto-suppliers across the world—for example, share of international revenues for top 150 suppliers globally increased from 34 per cent to 45 per cent in last 10 years. The Auto Component industry in India has a strong positive multiplier effect as a key driver of economic growth. Despite a very turbulent year, the industry clocked a turnover of Rs 2,11,765 cores ($35.13 billion) in FY 2013-14, with an impressive CAGR of 14 per cent over the last six years. The industry is expected to grow up to $115 billion by 2020, with increase in vehicle production. Of this, the domestic turnover is expected to touch $85 billion and exports $30 billion.

Competition with Chinese & Imported Brands and Products

Indigenous industry faces tough competition with Chinese manufacturers & other imported companies, influenced by factors like, rising customer expectations, Increasing capabilities of systems and financial crises. Mr. Suri, with his extended experience in the industry talked about competitions & challenges in the industry. China’s manufacturing cost competitiveness vis-à-vis India continues to endure although the magnitude of the advantage has declined significantly in recent years driven by cost increases in basic raw materials, rising labor costs and relative movement of the currencies in opposite directions. Some of the other drivers of China’s competitiveness are also likely to be eroded in the years to come:

• Power tariffs are likely to rise as losses in State Owned Enterprises(SOE) utilities continue to mount
• Leeway in social security payments to manpower will be reduced as industries get more and more organized and streamlined with better systems and processes
• Low interest rate regime will likely fade away as deposit rates are liberalized and financial reforms deepen
• Tax subsidies introduced to encourage growth may not endure as most have now achieved significant scale

The advantages related to logistics and higher productivity will sustain but the gap between India and China across primary industries will continue to reduce. In the long run, due consideration will need to be given to safeguard the profitability and inherent value of these companies requiring them to compete on more equitable terms. Many Chinese OEMs have a poor awareness of Indian manufacturing capability. A strong effort to increase awareness and encourage dialogue with key stakeholders in the auto component value chain of China is essential to make inroads in exports. This will require Government to push for joint events with the Chinese counterparts– ACMA can lead the effort in organizing such events in India and China.

Conclusions

Indian automotive component industry, is promising a very bright future with the favorable market conditions & Organize and government support. The component industry is expected to become a significant contributor -3.6 per cent, to India’s GDP, up from the current level of 2.2 per cent. To achieve this potential, the industry requires additional skilled manpower of over 1 million and cumulative investment of over $35 billion.