Mumbai: The Automotive Component Manufacturers Association of India (Acma) plans to draft a new road map for the industry as domestic sales have risen more than it had projected in 2004 and the export market has shrunk.
The earlier document, drafted by management consulting firm McKinsey and Co., had underestimated domestic growth potential and overestimated export potential of the industry.
The export market has shrunk following the recent turmoil in the automotive industry, led by bankruptcy filing in the US by Chrysler Llc. and General Motors Corp.
The 2004 document envisioned that local auto component makers will have the potential to grow revenues to $33-40 billion (Rs1.61-1.95 trillion today) by 2015. This included $20-25 billion of exports and $13-15 billion local sales, and indirect exports where auto ancillaries are sold to a local trading house, which in turn exports them.
However, in the year that ended on 31 March, local firms have together grossed $14.4 billion in domestic sales. Exports, however, have been lagging way behind the target of $3.6 billion.
Awry targets: New Holland’s tractor plant in Greater Noida. Domestic auto component firms have grossed $14.4 bn in local sales in the year to 31 March. Exports have been lagging way behind the target of $3.6 bn. Madhu Kapparath / Mint
The document said that to reach the potential of $33-40 billion revenues by 2015, the industry will need to invest around $15 billion in the next 10 years. Acma executive director Vishnu Mathur said in five years since 2003-04, the industry has invested Rs1.35 trillion. Of this, an estimated Rs32,000 crore was invested in 2008-09 alone.
Mathur attributed the fatster growth in revenues to launches of many cars made in India. “Unlike foreign car models, which take time to reach a requisite level of localization, locally manufactured cars like a Indica, Nano or a Mahindra Xylo help the component industry grow significantly,” he said.
The new study will be completed by December. Consultancies such as Deloitte Consulting Llp., PricewaterhouseCoopers, Ernst and Young and McKinsey, among others, are in the fray for the mandate to draft the study, which will lay down a road map for the industry till 2020.
According to Ramesh Mangaleswaran, a director at McKinsey who was involved in the earlier study, a lot of things have changed since the document was prepared. “Between the time of the report and now, the Indian economy grew much faster than what people had expected,” he said.
The industry had expected the growth to be 6.5-7%, but the actual growth has been 8.5-9%, he added.
The earlier vision document, according to him, primarily aimed at characterizing the opportunity and the potential for the industry. “We were not presenting a forecast because we are not in the business of forecasting. It presented the potential of what was possible,” Mangaleswaran said.
Jayant Dawar, vice-president of Acma, said the study was based on some reference points or indicators such as the currency movement, GDP growth, etc., and all of them have changed significantly.
“While turnover in the domestic industry have gone beyond what was expected, exports have lagged. No one had expected drastic downward movement in demand of vehicles in the US and Europe,” Dawar said.
According to Deep Kapuria, chairman of Gurgaon-based Hi-tech Gears Ltd, and head of the steering committee at Acma that is taking a relook at the document, factors such as shift in technology, energy security dictating the agenda of most of the world’s economies, and fragmentation have altered the landscape of the auto industry. “We are revisiting it late in the day,” he said.
“The new document will be more dynamic in nature and be reviewed on an annual basis,” Kapuria added.
V.G. Ramakrishnan, an analyst at Frost and Sullivan, a business research firm, said while it’s critical for the industry to have a vision with a 10-year horizon, it’s equally important to pay attention on an industry-academia collaboration as part of that vision. “This will help it move beyond application engineering.”