ArvinMeritor Inc., a US-based manufacturer of automotive axles and brakes, will double its auto parts buying from India to $500 million (Rs2,150 crore) by 2010 to take advantage of lower costs in the country, said Rakesh Sachdev, the company’s Asia-Pacific president.
The company, which currently sources $4 billion worth of components globally every year, said it will increase sourcing from low-cost countries such as India, China and Mexico to around $2.4 billion by 2010. It mainly sources components such as castings and forgings, which are used in large quanities.
“Lower labour costs present a price arbitrage of 20-15% even in commodity intensive components like castings and forgings,” said Rajat Dhawan, partner at McKinsey & Co. “In case of more labour intensive products like wiring harnesses, it could go up to 40%.”
International automobile makers and their main assemblers, often called tier-I companies, are buying parts from India at a fast pace to take advantage of lower costs and increasing quality of the country’s parts makers. General Motors Inc., for instance, announced last year that it is increasing its parts procurement from India almost ninefold to $1 billion by 2008. It also plans to set up design centres here.
Ten Indian automotive companies have won the Deming Prize, an international award for quality management, in the past six years. Sourcing from India is projected to rise 10-fold to $20 billion in 2016, according to the Automotive Mission Plan 2006-2016, the government’s blueprint for the sector.
ArvinMeritor, which has a presence in India through four joint ventures (JV) with Bharat Forge Ltd and the Anand Group, is looking to do product development work in its technical centre at Bangalore, where it does basic design work now. It will double the number of engineers to 400 by 2010 and develop prototypes too, said Sachdev. It will procure parts outside of its JV companies, he added.