Automotive Components India

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India Automotive Components Industry Compiled by: Swiss Business Hub India New Delhi, July 2004 1. Executive Summary The Indian automotive components industry is rapidly transforming itself from a low-volume, fragmented sector, into a highly competitive sector characterised by world-class technology, large and assured volumes, and adherence to strict delivery schedules as specified by global vehicle manufacturers. In particular, most Indian companies have entered into technological collaborations and equity partnerships with world leaders in automotive components. Besides, subsidiaries of global vehicle manufacturers like Delphi of General Motors have set up components manufacturing facilities in India. This in turn is expected to enable the Indian automotive components industry measure up to strict quality standards and imbibe the latest technology. The competitive edge of the Indian market is its lower labour cost and availability of highly skilled workforce. The Indian prices are estimated broadly to be 10 to 25% less than the world market prices. The auto components market is distinctly divided between Original Equipment Manufactures (OEMs) and replacement markets. Indian component manufacturers have relatively weak in-house R&D capabilities as compared with their global counterparts. One of the main reasons for this is that vehicle design activity is minimal in India. Also, Indian companies are better at product adaptation than product development. As far as export demand is concerned, the Indian automotive components industry has strong potential to increase exports with India emerging as the sourcing hub for global automotive companies. This trend of outsourcing will gain momentum with Indian component manufacturers having the potential to consolidate their exports in those segments that are growing at a brisk pace in the global market. India is also well placed to become a key hub for the manufacture of small cars. Along with other product segments, it is the auto and the auto component industry that is the driving force behind the machine tools industry - fairly well represented by Switzerland. Swiss companies have much to gain from the advantages that India offers right now. There are several Swiss companies already present in India and for all the others this is the time to move while the industry is booming and the good quality opportunities exist. Exchange Rate (July 20, 2004): US$ 1.00 = INR 46.21 SFr. 1.00 = INR 37.58

Unit Conversion: 1 Billion = 100 Crore 1 Crore = 10 Million 1 Million = 10 Lakh 1 Lakh = 100 Thousand

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2. Indian Automotive Components Industry 2.1 Snapshot

Category 2002-03 Automotive Components Production (INR million) 255354 Investments (INR million) 125000 Exports (INR million) 34965 Imports (INR million) 32503 Employment (numbers) 250000 Vehicle Industry Production (numbers) 6461171 Production (INR million) 595184 Investments (INR million) 222602 Exports (INR million) 26153 Imports (INR million) 4470 Employment (numbers) 1200000

Source: Automotive Component Manufacturers Association (ACMA)1

2.2 Some Characteristics of the Industry The arrival of Maruti in the 80s brought about many changes in the Indian automotive components industry. The industry was liberalised in 1991 leading to an influx of foreign vehicle manufacturers including Mercedes-Benz, Ford, General Motors, Daewoo, Peugeot, Hyundai and Volvo, among others. This rapid expansion presented a world of opportunity for the components industry, which responded with huge capacity additions and modernisation programmes. Even though the industry faced difficult times and sluggish growth during 1997-1999, the situation has now turned for the better with Indian companies bracing themselves to face the various structural changes affecting the global components industry. Subsequently, since 2002, there has been a sharp pick up in the growth rate of the automotive industry following the introduction of competitive pricing strategies, launch of new models, and the easier availability of consumer loans, among other factors. Category-wise Production of Vehicles in India (in Numbers)

Category 1998-99 1999-00 2000-01 2001-02 2002-03 Passenger Cars 390355 574369 517907 564052 606088 Multi Utility Vehicles 113440 124310 125938 105667 114881 LCVs 55371 61213 63869 65756 82865 Buses and Trucks 80452 114068 88185 96752 120081 Tractors 253850 257112 248079 207324 156613 Three Wheelers 209033 205543 203234 212748 271224 Scooters 1315055 1259408 879759 937506 850102 Motorcycles 1387276 1794093 2183430 2906323 3914626 Mopeds 671699 724510 694974 465256 344691 Grand Total 4476531 5114626 5005375 5561384 6461171

Source: Society of Indian Automobile Manufacturers and Ministry of Road Transport It is clear from the above table that except for a few segments like tractors, scooters and mopeds, all the others registered a growth in production in 2002-03. The overall growth for this period stood at an impressive 16%. 1 All figures in this reports are provided by the Automotive Component Manufacturers Association (ACMA), unless otherwise specified.

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The automotive components industry is more aptly described as an “agglomeration of industries” rather than as a single industry. This sector is involved in the production of over 150 different products. The size of the automotive components industry that was relatively flat for the three decades covering 1960-1990 witnessed a sharp increase from 1994-95 onwards. Production of Automotive Components Year Amount (INR Million) 1997-98 120317 1998-99 129967 1999-00 163559 2000-01 178569 2001-02 216021 2002-03 255354

The total domestic production of automotive components (including Small Scale Industries sector) in 2002-03 was INR 2,55,354 million (or US$ 5.4 billion), registering a growth of 18.2% over the previous year. Market Segmentation Segment Share(%) Organised sector 69 Informal sector 20 Imports 11

Most components required by the Indian automotive industry are manufactured locally, thus lowering the import dependence of the industry. The import dependence attributable to components imported directly by the vehicle manufacturers far outstrips the import dependence of component manufacturers themselves. The imports are usually restricted to items requiring special steels and components of precision engineering like gearboxes. 2.3 Classification of Automotive Components An automobile consists of more than 20,000 components, with each performing a different function. On the basis of product characteristics and functions, Original Equipment Manufacturers (OEMs) classify automotive components into six categories as the following table shows. This classification for India is done by Automotive Component Manufacturers Association (ACMA) and is slightly different from the international classification. (For international classification of automotive components, kindly refer to Annex. 1).

Product Group Engine Parts: Includes Pistons, Piston Pins, Piston Rings, Cylinder Liners, Gaskets, Engine Valves, Valve Guides, Valve Tappets, Valve Seat Inserts, Valve, Collect/Cotter, Carburettors, Fuel Pump (Petrol), Oil Pump Assembly, Fuel Injection Equipment/Spares, Glow Plugs/Resisters/Indicators, Filters/Elements/Inserts, Timing Chains, Flywheel Ring Gears, Crankshafts, Radiators, Fan Assembly Engine Cooling, Water Thermostats, Water Pump Assembly, Bimetal Bearings, Water Pump Bearings, Exhaust Systems & Components, Catalytic Converters, Fuel/Oil Lines, Other Engine Parts Production in INR Billion (2002-03): 45.8 Share in Total Production (2002-03): 23%


Electrical Parts: Includes Starter Motors, Generators, Voltage Regulators, Distributors, Ignition Coils, Spark Plugs, Commutators, Flywheel Magnetos, Other Electrical Parts Production in INR Billion (2002-03): 13.9 Share in Total Production (2002-03): 7% Drive Transmission and Steering Parts: Includes Clutch Assembly, Clutch Plates/Disc, Steering & Suspension Linkage Parts, Steering Gears and Systems, Gears including Crown Wheel, Propeller shafts, U. J. Cross, Axle Shafts, Complete Axle/Wheel Assembly, Axle Housing/Front Axle Housing, Oil Seals, Wheels/Wheel Rim, Other Parts Production in INR Billion (2002-03): 28.2 Share in Total Production (2002-03): 15% Suspension and Braking Parts: Includes Leaf Springs, Shock Absorbers, Air Brakes, Brake Assembly, Brake Shoe Assembly, Brake Lining and Clutch Facing, Brake Hoses, Other Suspension Parts Production in INR Billion (2002-03): 21.2 Share in Total Production (2002-03): 11% Equipment: Includes Head Lights, Other Lights, Halogen Bulbs, Automotive Bulbs, Wiper Motors, Wiper Arms and Blades, Wind Shield Water Pump Assembly, Electric Horns, Flasher Unit, Switches, Dashboard Instruments, Other Panel Instruments Production in INR Billion (2002-03): 16.2 Share in Total Production (2002-03): 8% Others: Includes Hydraulic Pneumatic Equipment, Tyre Tube Valves and Cores, Fan Belt, Sheet Metal Parts, Pressure Die Castings, Other Components. Production in INR Billion (2002-03): 70.8 Share in Total Production (2002-03): 36%

3. Market Structure 3.1 Small Size by Global Standards With a size of INR 2,55,354 Million (or US$ 5.4 billion), the Indian components industry is very small by global standards. To put things in perspective, the size of the Indian components industry is about 16% of that of the world’s largest automotive components company, Delphi Automotive Systems Corporation of the US. The small size of the Indian automotive components industry is attributable to the small size of its principal demand agent, the automotive industry. The total turnover of the automotive industry as a percentage of India’s Gross Domestic Product (GDP) in 2001-02 was 3.3%. 3.2 Fragmented Industry Even though the Indian automotive components industry is relatively small by global standards, there are close to 400 players in the organised sector and over 5,000 in the unorganised sector competing against each other for market share. However, the


share of the organised sector has increased over time. Players in the organised sector supply the vehicle manufacturers directly. The unorganised sector, on the other hand, mostly has small units, producing low-technology components. The following table indicates the distribution of Indian automotive components suppliers in the organised sector by turnover. Distribution by Turnover Turnover (in million US$) FY2000 Number of companies < 1 101 1-10 202 10-20 50 20-30 21 > 30 28

3.3 Market Share The automotive components industry is a combination of different product segments, with each segment having a different market structure. However, the number of companies present in each segment differs because of the difference in the level of technology requirement. No single company is a prominent player in more than one product segment. 3.4 Geographical Concentration In a bid to lower freight charges and facilitate faster delivery, automotive components manufacturers are located largely around their OEM customers. This is particularly so since most of them are directly supplying to the OEM producer. The Northern region, which hosts OEM manufacturers such as Maruti, Hero Honda, Escorts, Eicher, LML, Swaraj Mazda and Punjab Tractors, has the maximum percentage of automotive components manufacturers. The Western region follows next, with OEM manufacturers such as TELCO, Bajaj Auto, Kinetic Engineering Limited, Kinetic Motor Company Limited and Mahindra and Mahindra Limited being based there. Geographic Distribution of Auto Components Manufacturers (402 companies ) Northern 39% Southern 23% Western 31% Eastern 7%

4. Industry Dynamics 4.1 Growth in Production The decline in the production of passenger cars and commercial vehicles in 2000-01 had a somewhat dampening affect on the performance of the components industry. Lower demand from OEMs, accompanied by lower replacement demand, was the main reason for the low rate of growth in the production of components in that year. In 2001-02, growth in automotive production was led by the higher production of motorcycles and passenger cars. In 2002-03, the auto component production grew by 18.21%. This exceptional performance was achieved on the strength of growth reported by the automotive industry during the previous years - production of vehicles achieved a growth on 24% from 1998-99 to 2001-02.


Segment-Wise Production of Automotive Components in India (INR million) 2001-02 2002-03 Growth (%) Engine Parts 38639 45897 18.78 Electrical Parts 13000 13986 7.58 Drive Transmission & Steering Parts 26616 28253 6.15 Suspension and Braking Parts 19557 21276 8.79 Equipment 11368 16206 42.56 Others 56990 70808 24.25 Total Organised Sector 166170 196426 18.21 Small Scale Sector 49851 58928 18.21 Total Auto Components Industry 216021 255354 18.21

4.2 Demand for Automotive Components The table below maps demand for auto components in the past and in the future. If demand increase as estimated, the industry can expect a phenomenal growth of 125% from 2001-02 to 2011-12.

Demand : Past & Future Year INR Billion Year INR Billion 1990-91 34 2003-04 285 1995-96 110 2004-05 310 2000-01 215 2005-06 335 2001-02 235 2006-07 360 2002-03 260 2011-12 530

Note: Future demand is based on estimates Sources of Demand The market for automotive components can be segmented into the following categories based largely on the identity of the buyer: 4.2.1 Demand from Original Equipment Manufacturers The pattern of growth in the automotive industry has a very significant influence on the performance of the automotive components segment. This is because the components content per vehicle differs significantly across vehicle categories. Demand for larger and higher-value automobiles implies higher demand for ancillary units. The following table presents the growth witnessed in various vehicle segments over the past few years: Category-wise growth in Vehicle Production in India from 1998-99 to 2002-03

Category Growth (%) Some Major Players Passenger Cars 55.27 Maruti Udyog Ltd., Hyundai Motor India

Ltd., Tata Engineering, Ford India Ltd., General Motors India Ltd., Honda Siel Cars India Ltd. and Hindustan Motors.

Multi Utility Vehicles 1.27 Mahindra & Mahindra Ltd., Bajaj Tempo Ltd., Tata Engineering, Toyota Kirloskar Motor Ltd., Maruti Udyog Ltd. and Hindustan Motors.


Light Commercial Vehicles

49.65 Mahindra & Mahindra Ltd., Tata Engineering, Bajaj Tempo Ltd., Eicher Motors, Swaraj Mazda Ltd. and Hindustan Motors.

Buses and Trucks 49.26 Tata Engineering, Ashok Leyland Ltd., and Eicher Motors Ltd.

Tractors -38.30 Mahindra & Mahindra Ltd., Eicher Tractors, Escorts Tractors Ltd., Punjab Tractors Ltd., International Tractors Ltd. and Tractors & Farms Equipment Ltd.

Three Wheelers 29.75 Bajaj Auto Ltd., Bajaj Tempo, Piaggio Vehicles Pvt. Ltd. and Mahindra & Mahindra.

Scooters -35.36 Bajaj Auto Ltd., Honda Motorcycle & Scooter India Pvt. Ltd., Kinetic Engineering Ltd., LML Ltd., TVS Motor Company Ltd., Majestic Auto Ltd. and Kinetic Motor Company Ltd.

Motorcycles 182.18 Hero Honda Motors Ltd., LML Ltd., TVS Motor Company Ltd., Yamaha Motors India Ltd., Bajaj Auto Ltd. and Kinetic Engineering Ltd.

Mopeds -48.68 TVS Motor Company Ltd., Kinetic Engineering Ltd. and Majestic Auto Ltd.

Grand Total 44.33 Note: For absolute figures, refer to table on page 2. With the exception of tractors, scooters and mopeds, all the other segments have achieved high growth during the last 5 years. Motorcycle production grew at an exceptional 182%; cars, light commercial vehicles, buses and trucks registering growth of approximately 50%. 4.2.2 Replacement Demand The huge unorganised sector typically caters for the demand emanating from the replacement market. The unorganised sector in turn is a low-cost one, given that its fiscal liabilities (in terms of excise duties) are low. As a result, this sector is able to supply the replacement market with significantly lower-priced parts vis-à-vis those produced by the organised sector. The after-market is highly competitive for components with a high price elasticity of demand and a tolerance of lower quality standards. A major channel of marketing and distribution for this sector is the typical roadside mechanic. Interestingly, the unorganised sector has recently shown the technical competence to even replicate some of the relatively sophisticated components. Five factors primarily influence the aggregate annual demand for replacement parts: • Size of National Vehicle Population: Clearly, more the number of vehicles,

higher the aggregate demand for replacement parts. • Average Age of National Vehicle Population: Typically, the life span of the

commercial vehicle would stretch to around 20 years. Also, a longer use of the vehicle would ensure higher replacement demand. Vehicle scrappage norms are not yet widely prevalent in India (except for the National Capital Region of Delhi).

• Average Number of Kilometres Driven per Vehicle: Trends indicate that people

are driving their vehicles for longer distances every year. A variety of factors has


contributed to this trend: wider suburban spreads in virtually all the major cities where the bulk of the vehicle population resides; greater demand for travel-based leisure activities; relatively poor progress in the expansion of public transportation systems in the urban and rural areas; and various other factors. The demand for replacement parts would increase as the wear associated with higher mileage of vehicles per year increases.

• Road Infrastructure: It is estimated that around 2% of the road length in the

country carries about 40% of the road traffic. This has led to deteriorating driving conditions like increased traffic congestion and low vehicular speed, besides higher pollution levels. While increasing fuel consumption, low speed also adds to the wear and tear of most automotive components.

• Driving Conditions: Besides congestion, the poor average quality of Indian roads

is a significant factor adding to the wear and tear of vehicular parts. For instance, internationally, axles are not high-replacement demand products. But in India, because of the poor quality of roads, axles have a high replacement demand.

4.3 Export Competitiveness International automotive players with operations in India are increasingly sourcing components from Indian automotive component manufacturers. For instance, Hyundai and Fiat are sourcing parts locally for their Santro and Palio models in India, respectively. The demonstrated ability of Indian component makers to make supplies to global automotive manufacturers in the country opens up the possibility of the component makers supplying the same OEMs in other countries as well. Indian component manufacturers continue to enjoy competitive advantages primarily on the strength of the following factors: • Low labour costs: it pulls down the total cost of production, typically in assembled

parts such as clutches and lighting equipment. • Less stringent environmental regulations: environmental regulations have

rendered the production of parts like castings cost prohibitive in developed countries.

• Low minimum economic scales and possession of established technology. The parts exported by Indian automotive component manufacturers are targeted at following distinct groups of buyers: 1. To international vehicle majors: exports are made largely to their operations in

developing countries. 2. To vendors who supply to component manufacturers 3. To the replacement market: which accounts for a large proportion of the exports of

components from the Indian market. Typically 60% of the exports are to the replacement market and the rest 40% to the OEM segment. In the past, Indian component manufacturers were heavily dependent on this market for the reason that unlike the OEM market, the replacement market has low volumes but high margins. The OEM market, on the other hand, has very large and assured volumes, but low margins and stringent quality norms. As a result, Indian component manufacturers targeted mainly the replacement market for exports.

At present India's share in the global market is minuscule because even though the Indian automotive components industry is quality-consistent, the export competitiveness of the industry leaves scope for improvement. The automotive components industry is expected to witness an increase in competition and quality pressures in the near future.


Export of Automotive Components Year Amount (INR million) YOY Growth (%) 1997-98 14935 -- 1998-99 15685 5.02 1999-00 18330 16.86 2000-01 27065 47.65 2001-02 28019 3.52 2002-03 34965 24.79

In 2003-04, this segment touched $1.1 billion as its export figures. This is 40% higher compared to last year and almost double the amount in 2000-01. This is by no means a small feat, but compared to the $1 trillion global auto components market, it is only a drop. The projected Compounded Annual Growth Rate (CAGR) is 18% and the Automotive Component Manufacturers' Association of India's export projections for 2010 is US$2.7 billion. Auto Component Export Destination (2002- 03) Region Share (%) America 31.13 Europe 30.15 Asia 18.33 Africa 10.71 Middle East 7.66 Oceanic Countries 1.84 Others 0.18

Top 9 Destinations of Indian Automotive Components Exports (2002-03) Country Amount (INR million) Share in Total (%) United States of America 8572 24.52 Germany 3175 9.08 United Kingdom 2640 7.55 Mexico 1510 4.32 United Arab Emirates 1434 4.10 Italy 1268 3.63 Bangladesh 1093 3.13 Srilanka 989 2.83 South Africa 771 2.21 4.4 Import Scenario Import of motor vehicles falls in the restricted category. Vehicles can be imported against a specific licence or in accordance with a public notice issued by the Directorate General of Foreign Trade. However, capital goods, raw materials, components, parts, intermediates and consumables for the manufacture of vehicles can be freely imported unless they appear in the negative list of imports. Parts and accessories of motor vehicles can be freely importable with 40.37% custom duty (HS Code: 8708). Till the year 1988, legislation regarding safety standards and pollution control was either non-existent or not enforced. Under the Motor Vehicles Act, every component used has to comply with standards laid down by the Bureau of Indian Standards (BIS). The Act outlines rules regarding brakes, wipers, steering, safety glass and lights.


Import of Auto Components by Vehicle Manufacturers and Others Year Amount (INR million) YoY Growth (%) 1997-98 24217 1998-99 24439 0.92 1999-00 33861 38.55 2000-01 30598 -9.64 2001-02 31637 3.40 2002-03 32503 2.74

Top 9 Sources of Indian Imports of Auto Components (2002-03) Country Amount (INR million) Share in Total (%) Japan 5867 18.05 Germany 4535 13.95 Korea 3889 11.97 United States of America 3821 11.76 United Kingdom 2521 7.76 Italy 1980 6.09 Thailand 1789 5.50 Brazil 1077 3.31 France 1052 3.24 5. Swiss Indian Automotive Components Trade 5.1 Joint Ventures A handful if Swiss companies already have joint ventures with Indian companies, some of them are: 1. Bossard AG - manufacturing industrial fasteners 2. Rasmasser Polymer Development - manufacturing cross laminated films 3. Associated Industrial Development Holding - manufacturing carburettors 5.2 Indian Exports to Switzerland Since there is hardly any vehicle manufacturing activity in Switzerland, it could be interpreted that Swiss companies are importing automotive components from India, mostly to re-export these products to other countries. Year Amount (INR million) 1997-98 72 1998-99 71 1999-00 58 2000-01 66 2001-02 80 2002-03 72

There is a vast range of products that Switzerland imports from India, some of them are bearings, component parts of diesel engine, head lamps, bumper, mounted brake lining, radiators, transmission shaft, gears, gaskets, spark ignition engines etc. (a year-wise break up can be done for all the products if required).


5.3 Indian Import from Switzerland Switzerland's share in total Indian imports in 2002-03 was only 0.8 percent but it is heartening to note that in terms of value of imports, the figures are slowly but steadily growing. Year Amount (INR million) 1997-98 250 1998-99 271 1999-00 306 2000-01 253 2001-02 288 2002-03 330

India imports a variety of products from Switzerland, most noticeable amongst them are bearing housing, rivets, rubber rings, flexible coupling, pulley power transmission, environment protection equipment, valves, pistons, parts of petrol & diesel engine etc. (a year-wise break up can be done for all the products if required). 6. Trade channels Almost all the international players in the Indian automotive components industry have links with at least one prominent local player. They operate in one of the three ways: 1. Set up a subsidiary 2. Joint venture with a local company 3. Technical tie-up. Following liberalisation, the Government stipulated that the automotive joint ventures would have to achieve 70% indigenisation within five years. This local-content requirement (which has since been abolished) had necessitated improvements in technology and production quality of the Indian automotive components industry. Consequently, the Indian components industry has been experiencing the same pattern as witnessed in other countries: OEMs are first entering the country and then encouraging their existing suppliers to establish facilities here. For instance, 20 suppliers of Hyundai had already established plants in India even before Hyundai’s own production went on stream. 7. Trends 7.1 Rising Quality Consciousness The average quality of automotive components produced in India has been improving gradually, particularly during the past few years. Significantly, three Indian companies (Sundaram Clayton, Sundaram Brake Linings and TVS Motor Company) currently hold the Deming Prize for quality (only six companies outside Japan have won this award). In the automotive components industry, quality is measured against two parameters: 1. End of the line rejection: The end of the line rejection rate refers to the defective

parts that are rejected by the producer of the automotive components. The end of the line rejection level has improved considerably in the recent past for Indian automotive component manufacturers. The average end of the line rejection rates a little less than a decade ago was in the range of 2% (20,000 parts per million) for players in the organised sector. The figure currently stands reduced at 0.5%-0.8% (for some it is even less) or 5,000 to 8,000 parts per million (PPM).


2. Customer rejection level: The number of components rejected by the customer, such as an OEM, comprises the customer rejection rate. The customer level rejection rates have also come down significantly. International companies maintain their customer rejection rate at an average 200 PPM. In the recent past, certain Indian companies have attained a customer rejection rate of up to 500 PPM, with a few attaining even a zero customer level rejection rate.

7.2 Vendor Rationalisation With vehicle manufacturers in India reducing the number of suppliers, “rationalisation” of the Indian automotive components industry is likely to gain pace. Already, leading OEMs such as Maruti, TELCO and Bajaj Auto Limited have been pursuing vendor rationalisation programmes for some time now. TELCO, the country’s largest commercial vehicle manufacturer, has decided to deal only with Tier I suppliers for outsourced components and assemblies. Vendor rationalisation reduces the cost of dealing with multiple vendors besides making the process of quality control easier. Also, it enhances the efficiency of supply chain management. Further, by increasing the order size per vendor, the OEMs can help the vendor operate at a higher scale of operation and thus increase the vendor’s efficiency. Also, this provides greater incentive to pursue technological improvements and enhance systems and processes to meet the quality standards set by the OEMs. The process of vendor rationalisation is likely to be implemented by many more players in the automotive industry in the medium term. 7.3 Environmental Issues Stringent emission norms have put pressure on manufacturers of components. In 2002, the Mashelkar Committee on automotive fuel policy announced modifications to Euro-II norms. The committee suggested that Euro-II norms be extended throughout the country by the end of 2005, Euro-III norms be introduced in seven mega-cities from April 2005, and Euro-III norms be extended to the entire country from 2010 onwards. As of now, almost all new car models are now Euro II compliant. 8. Road Blocks 8.1 Size of Unorganised Sector The unorganised sector of the Indian automotive components industry accounts for a sizeable chunk of the total production of components in the country. During FY2002, this sector accounted for around 23% of the total component production. Many of these unorganised units are located in the Northern States of Delhi and Haryana. Most of these manufacturers use primitive technologies and buy second-hand machinery, sometimes at near-scrap value. Unorganised sector players are more likely to be involved in the production of low technology products having lower production complexity, such as gaskets, engine valves, pistons and sheet metal parts. This sector is also likely to have a limited share in products involving sophisticated machinery and a large number of operations. For the unorganised sector, the turnover growth rate is relatively less influenced by the growth rate of the automotive industry. A considerable portion of the production in the organised sector serves OEMs in the automotive industry. Thus, there is a parallel movement in the growth rates for the automotive industry and the organised sector of the automotive components industry. The unorganised sector, on the other hand, serves mainly the replacement market.


8.2 The Counterfeit Components Market The Indian automotive components market has long been affected by the presence of a large spurious-parts market. Further, counterfeiting is largely prevalent in those segments (or models) that offer sufficient volume. Manufacturers have now been using bar coding techniques to partly offset the problems created by the spurious market. However, a relatively more successful tool than bar coding has been the change in packaging offered by original equipment suppliers. A study commissioned by ACMA in 1999 estimated the value of the spurious-components market at INR 567-600 million (at FY1998 prices). 9. Observations and Recommendations As competition in the mature markets of North America, Japan and Europe intensifies and global players look for ways to enhance their competitiveness, presence in low-cost production countries like India will emerge as a critical factor for these global players. With the stakes for the OEMs getting higher, the pressure on component manufacturers to improve quality has also gone up. As noted earlier, the relatively low level of quality in the Indian automotive components industry had initially resulted in component exports being restricted mainly to the replacement market. However, the quality levels have improved considerably after the entry of international OEMs in India. The stringent quality norms imposed by these OEMs have forced Indian companies to upgrade their facilities. The Indian automotive components industry is unlikely to be insulated from this global trend of consolidation among major players and this will lead to realignment in the Indian industry as well. More demanding requirements of the new vehicle manufacturers and export markets, will generate a further need for investment in technological upgrades and quality improvements. The prime requirement of Indian suppliers is access to the latest technology. Swiss companies are known for high quality, reliability and technology oriented products and can effectively position themselves in the Indian automotive industry. Since collaboration with Indian component manufacturers remains the most common strategy - for a long term approach, it is advisable for Swiss companies to explore in this direction. The export of products from Switzerland to India is also a possibility but these products will attract high import duties, making them relatively expensive and unable to compete with locally produced similar products in India. However, if a product requires very specialised technology and is catering to high-end companies, then in the short to medium run, plenty of opportunities of exporting to India exist. Swiss companies in the areas of electronics components, brakes, fuses, sheet metal works, welding and soldering equipment, machine tools, electric instruments, electric equipment etc. have much to gain right now. There are several Swiss companies already present in India (specially in the machine tool segment) and for all the others this is the time to move while the industry is booming and the good quality opportunities exist.


10. Useful Website Automotive Components manufacturers Association of India: www.acmainfo.comSociety for Indian Automobile Manufacturers: www.siamindia.com Ministry of Road Transport and Highways: www.morth.nic.in Auto Policy: www.dhi.nic.in/autopolicy.htm Bureau of Indian Standards: www.bis.org.in Annexes (at the end of the report) 1. International Classification of Automotive Components 2: Projected demand, growth and lead players of select items 3: Category-wise Production of Automobile in India (In Numbers) Date: 21 of July 2004 Author: Deepti Sharma, Senior Trade Advisor Author’s address: Swiss Business Hub C/o. Embassy of Switzerland

Nyaya Marg Chanakyapuri New Delhi - 110 021 Tel: +91-11-26878534 Fax: +91-11-26112220 E-mail: [email protected]


http://www.acmainfo.com/

http://www.siamindia.com/

http://morth.nic.in/mvact.htm

http://www.morth.nic.in/

http://www.dhi.nic.in/autopolicy.htm

http://www.bis.org.in/

mailto:[email protected]

Annex 1: International Classification of Automotive Components Product Category Major Products Engine and Transmission/Power Train

• Engine (pistons, piston rings and engine valves) • Gears • Clutches

Electrical • Rotating electrics • Lighting • Wiring • Entertainment devices

Chassis • Axles • Brakes and suspension • Wheels and knuckles • Steering column

Trims • Plastic • Glass • Rubber • Seats • Fabric

Bulk Materials • Sealents • Lubes, oils and grease • Paint • Tyres

Body in White (BIW) • Sheet metal • Mechanisms (locks, etc)

Source: ICRA Advisory Services


Annex 2: Projected demand, growth and lead players of select items Starter Motors Projected Demand 2005-06 (Mio. Nos) 1 Market growth rates: 2001-02 - 2006-07 9.10% Lead players (Strategic partner) • Delco Remy Electro • Auto Ignition • Lucas TVs, Premier Auto (Magnet Mardi Spa, Italy) • Denso India (Denso Corp., Japan) • MICO Robert (Bosch GmbH, Germany) • Sahney (Delco Remy America, USA) Steering Gears Projected Demand 2005-06 (Mio. Nos) 1.32 Market growth rates: 2001-02 - 2006-07 7.00% Lead players (Strategic partner) • Sona Koyo Steering Sys (Koyo Seiko, Japan) • Rane TRW Steering Sys (TRW Inc. USA & AMC Ind. France) • Rane Madras (TRW Steering Sys., UK • Hi-Tech • ZF Steering Gear (ZF Frierrichschafen AG., Germany • XLO India (Ross Gear Div. TRW, UK) Radiators Projected Demand 2005-06 (Mio. Nos) 1.45 Market growth rates: 2001-02 - 2006-07 7.10% Lead players (Strategic partner) • Banco Products (Japan Gaskets, Japan) • Standard Radiators • India Radiators (Suddeutsche Kuhlarfabrik,Germany, Behr GmbH, Germany) • Haryana Radiators • Climate Sys (Ford Motor Co., USA) • Consolidated (X-Rad International,Canada) • Radiators (Universal Auto, Radiators, USA) • GS Radiators (Calsanic Llanelli Radiators, UK) Tie Rod Ends Projected Demand 2005-06 (Mio. Nos) 11.64 Market growth rates: 2001-02 - 2006-07 6.00% Lead players (Strategic partner) • Rane Madras (TRW Fahrworks System, Germany) • Q.H. Talbros (Quinton Hazell PLC, UK) • ISPL Industries • National Auto Accessories • Sri Ramdas Motor • Guru Nanak Auto • Punjab Bevel Gears Pistons Projected Demand 2005-06 (Mio. Nos) 24 Market growth rates: 2001-02 - 2006-07 6.50% Lead players (Strategic partner) • Escorts Mahle (Mahle GmbH,Germany) • India Pistons (T&N Technology, UK) • Menon Pistons (Sukura Kogya, Japan) • Samkrg Pistons (Nippon Piston, Japan) • Abilities India • Pistons (Cheng Shing Piston, Taiwan and Kolbenshemidt AG, Germany) • Shriram Pistons (Honda Foundry Co., Japan)


Piston Rings Projected Demand 2005-06 (Mio. Nos) 142 Market growth rates: 2001-02 - 2006-07 5.80% Lead players (Strategic partner) • Goetze India (Goetze Technologies, Germany) • Perfect Circle Dana Corp., USA • India Pistons (T & N Technology, UK) • Shriram Pistons & Rings (Riken Corp., Japan) • Menon Pistons (Sukurya Kogya, Japan and Nippon Pistons, Japan) • Samkerg Pistons (Chengshing Piston Taiwan) • IP Rings Axle Shafts Projected Demand 2005-06 (Mio. Nos) 1.51 Market growth rates: 2001-02 - 2006-07 6% Lead players (Strategic partner) • Talbros Engg (Coopers Payen, UK) • Axles India • Sona Koyo Steering • Bharat Forge • Deepak Inds Shock Absorbers Projected Demand 2005-06 (Mio. Nos) 28.35 Market growth rates: 2001-02 - 2006-07 10.20% Lead players (Strategic partner) • Munjal Showa (Showa Corp., Japan) • Garbriel India IIC, Japan • Escorts Ltd • Sirmour Sudbury (Sudburg-Werk, Germany) • Endurance Sys India • Sachs India • Renowned Auto • Stallion Shox (Monroe Auto Eqpt., USA) Crankshaft Projected Demand 2005-06 (in thousands)) 565 Market growth rates: 2001-02 - 2006-07 8.20% Lead players (Strategic partner) • Bharat Forge Ltd Nissho Iwa, Japan • Shardlow India Shardlow, UK • Harig Crankshafts (Wilhelmus, Germany, Cofoma Auto Parts, Sahyadri Auto

Products, Kolhapur Axles) Carburettor Projected Demand 2005-06 (Mio. Nos) 5.7 Market growth rates: 2001-02 - 2006-07 4% Lead players (Strategic partner) • Ucal Fuel Systems (Mikuni, Japan) • Spaco Carburettors India (Associated Ind Dev. Holding, Switzerland, Keihin

Seiki, Japan) • Escorts Empl Ancillaries Engine Valves Projected Demand 2005-06 (Mio. Nos) 34.45 Market growth rates: 2001-02 - 2006-07 5.60% Lead players (Strategic partner) • Rane Engine Valves • KAR Mobiles • Triton Valves • Shriram Pistons & Rings (Fuji OOZX, Japan, Autofield Enginers, Atlas


Crankshaft Corp, USA) • Schrader Duncan Bimetal Bearings Projected Demand 2005-06 (Mio. Nos) 108.91 Market growth rates: 2001-02 - 2006-07 9.00% Lead players (Strategic partner) • Kirloskar Oil Engines (Glacier Metal Co, UK) • Bimetal Bearings • Gabriel India (Federal Mogul Corp., USA and BHW Germany) • Gleitlager India (Daido Metal Co., Japan) • Patel Brass Works Spark Plugs Projected Demand 2005-06 (Mio. Nos) 35.5 Market growth rates: 2001-02 - 2006-07 5.40% Lead players (Strategic partner) • Motor Industries MICO (Robert Bosch GmbH,Germany) • Modi Champion (Champion Spark Plug Co., USA) • IVP (Magneti Marelli, Italy) Propeller Shafts Projected Demand 2005-06 (Mio. Nos) 2.5 Market growth rates: 2001-02 - 2006-07 6.50% Lead players (Strategic partner) • DD Industries • GNA Axles • Hindustan Hardy • Guru Nanak • Mahindra Sona • Tapan Preci Tek • Sona Koyo Steering Flywheel Magnetos Projected Demand 2005-06 (Mio. Nos) 2.85 Market growth rates: 2001-02 - 2006-07 8.10% Lead players (Strategic partner) • Indo Nippon Electricals Ko Kusan Denki, Japan • Jaya Hind Inds. Mitsuba Electric, Japan • Denso India Nippon Denso, Japan • Saraswati Engineering • Vikas Automotive Catalytic Converters Projected Demand 2005-06 (in thou.) 2180 Market growth rates: 2001-02 - 2006-07 14.90% Lead players (Strategic partner) • Subros (Allied Signal, UK) • Mark Exhaust (Sankei Giken Inc.,Japan) • Ucal Fuel Sys (Englehard Computers, USA) • General Motors (General Motors, USA) • Panalfa Dongwlon India (Dongwon Meta Ind. South Korea) • SM Auto Engg. (Zema Starker,Germany) • Special Engg. Services (Cataler Industrial Co Japan.) • John Mathey India (John Mathey)


Annex 3: Category-wise Production of Automobile in India (In Numbers) Category Companies 1999-00 2000-01 2001-02

Ashok Leyland Ltd 35777 33169 31370 Medium & Heavy Hindustan Motors Ltd 194 136 16 Commercial Tata Engineering 76340 54905 59463 Vehicles Volvo India Pvt Ltd NA NA NA Total 112311 88210 90849 Ashok Leyland Ltd 510 634 453 Bajaj Tempo Ltd 4790 3266 2072 Light Eicher Motors Ltd 6956 8517 9638 Commercial Mahindra & Mahindra Ltd 6421 6107 5908 Vehicles Swaraj Mazda Ltd 4010 5231 6360 Tata Engineering 38526 40114 30917 Total 61213 63869 55348 Daewoo Motors (India) Ltd NA NA NA Daimler Chrysler India P.

Ltd - - 1415

Fiat India Automobiles Ltd 16039 NA NA Ford India Ltd NA NA 14306 Passenger General Motors India Ltd 3108 8324 8135 Cars Hindustan Motors Ltd 26673 25774 19398 Honda Siel Cars India Ltd NA NA 10310 Hyundai Motor India Ltd 75306 81740 93888 Maruti Udyog Ltd 398669 342248 351949 Mercedes Benz India Ltd 436 880 PAL - Peugeot Ltd 32 0 0 Premier Automobiles Ltd 54 0 0 Tata Engineering 56926 45688 64725 Total 577243 504654 564126 Bajaj Tempo Ltd 6019 5000 5155 Multi Hindustan Motors Ltd 2604 2340 3798 Utility Mahindra & Mahindra Ltd 70487 56792 57196 Vehicles Maruti Udyog Ltd 8899 5869 5153 Tata Engineering 32719 30543 27488 Toyota Kirloskar Motor Ltd 3580 25394 24958 Total 124308 125938 123748 Bajaj Auto Ltd 594436 356159 374135 Honda India (Pvt.) Ltd 0 0 55670 Scooters Kinetic Motor Company

Ltd 116790 123304 108301

LML Limited 275805 168802 125470 Maharashtra Scooters Ltd 140530 91687 60216 TVS Motor Company Ltd 131862 139755 146421 Total 1259423 879707 870213 Bajaj Auto Ltd 431837 548326 724397 Hero Honda Motors Ltd 761210 1034074 1422112 Kinetic Engg Ltd 0 0 55221 Motorcycle LML Limited 0 42410 42180 Royal Enfield Motors 23278 21432 24136 TVS Motor Company Ltd 325319 358024 455224


Yamaha Motor India (P) Ltd

252434 179519 238636

Total 1794078 2183785 2961906 Bajaj Auto Ltd 69475 58381 37758 Kinetic Engg Ltd 162615 159424 100987 Mopeds Majestic Auto Ltd 111119 107524 81853 TVS Motor Company Ltd 381301 369645 270927 Yamaha Motor India (P)

Ltd 0 0 0

Total 724510 694974 491525 Bajaj Auto Ltd 173223 159196 158342 Three Bajaj Tempo Ltd 16963 17439 18899 Wheelers Mahindra & Mahindra Ltd 73 247 3208 Piaggio Vehicles Pvt. Ltd 0 26352 32304 Total 190259 203234 212753

Source : Society of Indian Automobile Manufacturers.


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