India makes its mark as global car parts supplier

The world's car and truck makers are knocking on India's door as they shop for low-cost, high-quality parts.

Giants like truck maker AB Volvo, Ford Motor Co, DaimlerChrysler AG and diesel engine maker Cummins Inc have headed for India as the nearly trillion-dollar industry seeks to defeat a demand slump that has forced them to slash prices.

"These days we're addressing at least two foreign delegations a month looking for auto-parts," says Deep Kapuria, president of the Automotive Component Manufacturers Association of India and chairman of Hi-Tech Gears Ltd.

India's edge: increased quality control and improved delivery times, cheap labour costs, a pool of English-speaking engineering graduates, and a booming local software industry that can develop and design electronic parts.

With potential cost savings of 15 to 20 per cent, some automakers have already announced plans to buy parts from India, which has nearly 500 firms making components for cars, motorcycles and tractors.

Volvo plans to buy $1 billion of parts a year, or a tenth of its overall purchases, from low-cost countries like India and Mexico, said Volvo India's marketing manager Arne Knaben.

And Toyota Motor is investing $73 million to build two factories in Karnataka to make 160,000 transmission systems a year for its overseas plants.

Toyota said it chose India over other contenders like the Philippines, Thailand, China and Brazil because of price, quality and human resources.

Exports jump

Indian auto-parts companies, seeking to break out of a domestic market with only modest growth, are jumping on selling opportunities abroad.

"It's a big market out there -- running into many billions of dollars," says Arvind Kapur, head of Rico Auto Industries Ltd, which supplies car parts to Ford and Jaguar.

Crackling growth in auto component exports, albeit from a low base, show Kapur's optimism may be justified.

Exports are estimated to have jumped nearly 40 per cent to $800 million for the fiscal year ended March 31, ACMA estimates. The industry's exports grew 2.5 per cent to Rs 2,775 crore ($578 million) in the year ended March 31, 2002  -- one of its worst years.

ACMA members aim to boost exports to $1 billion by 2004-05 and $2.5 billion by 2009-10, a 20 per cent annual growth.

Still, India's total car component output of $4.47 billion in the year ended March 31, 2002 is less than a third of Mexico's 2002 output of $16.9 billion, contributed by its 150 auto parts makers.

Mexico also exported $10.8 billion worth of auto parts, including sales of parts to Mexican car assembly plants that then export assembled cars. No comparable figure is available for India, but its vehicles and parts exports totalled $1.45 billion in the fiscal year ended March 31, 2002.

India's edge

General Motors, Ford, Toyota and Honda Motor have been making cars in India since the 1990s, when the nation threw open its auto industry to foreign firms. They have helped local vendors boost quality and meet stringent delivery schedules.

Indian companies can expect to achieve 15 to 20 per cent savings over the West thanks to lower management, engineering and labour costs, said L Ganesh, the vice chief of Rane Engine Valves Ltd.

Cost savings are greatest for labour-intensive parts such as engine components needing machining but less for electronic items where automation partly offsets lower labour costs.

As a result, India's biggest advantages are in products such as forgings, castings, stamped steel, rubber and aluminium parts.

Analysts' top picks in this space are: Motor Industries Co Ltd, a unit of Germany's Robert Bosch AG, Sundram Fasteners Ltd, a supplier of radiator caps to GM, and Bharat Forge Ltd, a maker of forged parts.

Price pressure mounts

Delphi Corp, the world's largest automotive supplier, started to consider exporting from India two years ago as price competition heated up in North America, said Ravi Khanna, managing director of Delphi's Indian unit.

"In the next three years our exports should grow something like 60 per cent year-on-year and reach an excess of Rs 150 crore (Rs 2.5 billion) in the next three years," Khanna said.

Foreign companies are also looking at China to buy parts, but India is higher up "the quality ladder" because major global automobile firms have been there longer and helped the development of local vendors.

Reflecting the trend to buy parts from India, Maruti Udyog Ltd, India's top carmaker and a Suzuki Motor unit, has asked local suppliers to be ready to supply to Suzuki plants across the world, Khanna said.

It is in lower design and development costs where India may have the biggest edge, a potential global firms also see.

In February, GM said it would invest $60 million in a technology centre in India's software capital, Bangalore, for engineering and research on materials and software for autos.

And Delphi set up a technical centre in Bangalore with nearly 250 engineers and is developing high-end software for engine management systems. It sees output from the centre growing at 40 to 50 per cent a year.