Report auto component_market

80
INVESTMENT POTENTIAL IN AUTO COMPONENT INDUSTRY IN INDIA MARKET ATTRACTIVENESS OF AUTO COMPONENT BUSINESS IN INDIA Prepared For: Prepared By : , IMRB International January 2009

Transcript of Report auto component_market

Page 1: Report auto component_market

INVESTMENT POTENTIAL IN AUTO COMPONENT INDUSTRY IN INDIA 1

MARKET ATTRACTIVENESS OF AUTO

COMPONENT BUSINESS IN INDIA

Prepared For:

Prepared By:

,

IMRB International January 2009

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Preface

Thai-Indian business relations have improved considerably over the past decade.

Thailand and India are close to concluding a Free Trade Agreement (FTA) covering trade

in goods by 2010. The Free Trade Agreement between Thailand and India is expected to

improve trade relations between the two countries further. The FTA covering trade in

goods would lead to long term mutual benefits in trade and investment and the

partnership would be expanded further to cover technology know-how and expertise.

India's primary imports from Thailand are machinery, electronic appliances, textiles,

plastic material, transport equipment, vegetable oil and latex. The major items of imports

under FTA are polycarbonate, cathode-ray tubes, color-TVs, air conditioners and

Aluminum products. Thailand’s main imports from India are jewelry, gemstones, steel,

pharmaceuticals and ferrous metal ores.

India's trade with Thailand could touch USD 7 billion by 2010-11 propelled by a

doubling in transaction under Free Trade Agreement (FTA). The EHS was implemented

on September 1, 2004, under which tariffs on 82 items were to be phased out by

September 1, 2006 by both the sides.

The trade between Thailand and India is estimated to be US $ 7 billion by 2010-11 from

US $ 2.2 billion in 2005-06.

The total trade of 82 items under Early Harvest Scheme (EHS) of the FTA was increased

by over 140 percent to about US $ 358.63 million in 2005-06 from US $ 149 million in

2003-04. The share of these 82 items in India-Thailand trade increased from 10.34

percent in 2003-04 to 15.68 percent in 2005-06.

Thailand’s export to India of the identified 82 EHS items was increased from US $ 84.64

million to US $ 275 million during the period from 2003 – 04 to 2005 – 06. During the

same time, India’s export to Thailand of these items increased from US $ 64.28 million to

US $ 83.03 million during the same period.

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In 2007, Thailand’s export for these 82 items was US $ 406.31 million. Due the FTA

between two countries, Thailand is able to manage the trade surplus of US $ 598 in 2007

in bilateral trade between Thailand and India.

With significant potential for growth of business between the two countries, the Ministry

of Commerce, Thailand and Royal Thai Embassy would like to understand the

investment potential across the following identified product categories:-

1. Home Utility and Furnishing: This would broadly include three product

categories:-

a. Furniture – Largely focusing on house hold furniture e.g. Sofa-set,

Dining table, Corner / corner table etc. Also covering office furniture

e.g. office chairs, cubicles, tables etc and open-air furniture i.e. the

furniture used in the garden, near pools etc.

b. Interior Decoration items – This would include: Show pieces,

Wooden handicraft, photo frames, artificial flowers.

c. Utensils – Household (kitchen), HoReCa (Hotel Restaurant Catering)

Segment, Institutional / Office.

d. Plastic Products - Food containers, plastic storage boxes etc e.g.

Cello, Tupperware, Milton, Nyasa etc.

2. Construction Material: This would include Bathroom Fittings,

Tiles/Floorings (including wooden), Roof Tiles (used in the costal areas),

Metal (Al, Tin etc) / Gypsum boards used for partition.

3. Hospitality Services: This would be understood with the objective of tie-up

with existing hotels – spas, specialty restaurant (e.g. Thai cuisine restaurant),

health wellness services etc. The client would be interested in management

control and running the property. The stand alone spas e.g. Kaya clinic is also

covered in the purview of the study.

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4. Auto parts and accessories: It would cover both types of auto parts:-

a. Essential auto parts (low volume high value items e.g. gear box,

clutch plates etc and high volume low value items like break pads etc).

These parts would be for 2-wheelers (e.g. moulding etc) and 4-

wheelers – both cars and commercial vehicles.

b. Accessories / decorative items e.g. music systems, alloy wheels etc

In order to understand the trade potential across the above categories, the Ministry of

Commerce, Thailand and Royal Thai Embassy has commissioned Business and Industrial

Research Division (BIRD) of IMRB International to avail its research based consultancy

services

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Table of Contents

1 EXECUTIVE SUMMARY ................................................................................................... 7 1.1 Automotive Component OEM and Replacement Markets .................................................... 10

1.2 Foreign Direct Investment and Government Policy .............................................................. 11

1.3 Attractiveness of Auto Component Sub-segments and Entry Strategy ................................. 11

2 GLOBAL AUTO COMPONENT INDUSTRY ................................................................ 13 2.1 Global Trends in the Automotive Industry ............................................................................ 13

2.2 Major Auto and Auto Component Markets ........................................................................... 14

2.3 Major Auto Component Companies ...................................................................................... 17

3 INDIAN AUTO COMPONENT INDUSTRY ................................................................... 18 3.1 Major Auto Component hubs in India ................................................................................... 19

3.2 Transition of Indian Auto Component Industry .................................................................... 20

3.3 Auto Component Industry Cost Buildup ............................................................................... 21

3.4 Classification of Auto Component Market ........................................................................... 22

3.5 Tier Structure of Auto Component Market ........................................................................... 23

3.6 Classification of Auto Components ...................................................................................... 24

3.7 Major Automobile Players .................................................................................................... 25

3.8 Major Automobile Component Players (Two, Three and Four Wheeler players) ................ 26

3.9 Foreign Collaboration in the Auto Component Industry ....................................................... 27

4 INDUSTRY AND MARKET ANALYSIS ........................................................................ 29 4.1 Macro and Micro Environment Analysis: Indian Auto Component Market ......................... 30

4.2 SWOT Analysis: Indian Auto Component Market ............................................................... 31

5 MARKET SIZE AND GROWTH FORECASTS............................................................. 33 5.1 Global auto component market size and growth estimates ................................................... 33

5.2 Indian auto component market size and growth estimates .................................................... 34

5.2.1 Production (in Number) and Growth rates of all vehicle categories

including two wheelers .............................................................................................. 34

5.2.2 Consolidated Production, Export and Investment in value terms ............... 35

5.2.3 Value wise break up of sub-segments – two and four wheelers ................. 36

5.2.4 Import estimates and trends (for 2 and 4 wheelers) .................................... 36

5.2.5 Auto Component Export Destinations ........................................................ 38

5.2.6 Trends in growth and margins – Two and Four wheelers .......................... 39

6 AUTO COMPONENT OEM AND REPLACEMENT MARKET ................................. 40 6.1 OEM Market in the Indian auto component industry ............................................................ 40

6.2 OEM Component Sourcing ................................................................................................... 40

6.3 OEM Vendor Selection Process ............................................................................................ 41

6.4 Inventory in Supply Chain of OEM suppliers ....................................................................... 42

6.4.1 Small and Medium OEM vendors .............................................................. 42

6.4.2 Large OEM vendors / strategic Tier-1 suppliers......................................... 43

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6.5 Break up of replacement parts market by type of vehicle ..................................................... 44

6.6 Automotive component replacement market: impact of structural changes ......................... 44

6.7 OEMs’ focus on replacement market .................................................................................... 45

6.8 Channel structure for auto component market ...................................................................... 46

7 GOVERNMENT INITIATIVES........................................................................................ 48 7.1 Foreign Direct Investment ..................................................................................................... 48

7.2 Auto Policy ............................................................................................................................ 48

7.3 Automotive Mission Plan 2016 ............................................................................................. 50

8 GROWTH DRIVERS AND CHALLENGES ................................................................... 51 8.1 Growth Drivers for Replacement Demand ............................................................................ 52

8.2 Issues and Challenges – Indian Auto Component Industry .................................................. 53

8.3 Indian Auto Component Industry amid changing global scenario ........................................ 54

8.4 Critical Success Factors ......................................................................................................... 55

9 CONSUMER PREFERENCES FOR AUTO COMPONENTS ...................................... 56

10 ATTRACTIVENESS OF AUTO COMPONENT SEGMENTS FOR THAI

INVESTORS ............................................................................................................................... 58 10.1 Attractive segments within auto component market for Thai investors ................................ 58

10.2 Business Models for Collaboration ....................................................................................... 61

11 CONCLUSIONS AND RECOMMENDATIONS ............................................................ 63 11.1 Entry Strategy for Thai Investors in the Indian Auto Component Business ......................... 63

11.2 Recommended Distribution Channel for Thai investors ....................................................... 65

12 ANNEXURE: AUTO POLICY .......................................................................................... 67

13 LIST OF EXHIBITS ........................................................................................................... 77

14 REFERENCES .................................................................................................................... 79

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1 EXECUTIVE SUMMARY

The Indian automobile ancillary sector is transforming itself from a low-volume, highly

fragmented one into a competitive industry and backed by competitive strengths,

technology and evolving value chain. The Indian Auto component industry has

transitioned from a supplier for the global aftermarket to becoming a full-scale global

Tier 1 supplier.

The components in the Indian automotive component market are classified into Engine

parts, Drive transmission and steering parts, Body and chassis parts, Suspension and

braking parts, Electrical parts and Equipment and other parts.

The macro environment of the Indian auto component industry can be assessed by

understanding the social / consumer shifts, understanding its political and legal

environment, technological environment and economic shifts. This 9-forces analysis for

Indian auto component industry is done in the exhibit below:

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Industry Competitors- 450 – 500 mid to large players with

around 6000 – 7000 units in addition to

around 10,000 units in unorganized

segment.

- Technical tie ups and R&D ensuring at

least 2 major players across segments

Threat of Substitutes- Less threat to substitute for organized players

working with OEMs and emphasizing on R&D

for future needs

- Unorganized units stand chances for greater

threat

Entry Barriers- OEMs’ “inclusive growth” ensuring long term

relationship especially for high value-adding items

- Foreign suppliers supplying to global auto majors with

local knowledge and expertise may have easy access

Supplier Power- Tier structure supporting vendor

relationship

- Most Tier – 3 suppliers are small units

largely from unorganized segment

Consumer Power- Auto OEMs have average 2 suppliers

to ensure competitiveness

- New auto clusters being developed

with OEMs and major ancillaries

-

Political / Legal Environment

- FDI growing due to competitive advantage; witnessed

CAGR of 21.7% during 2002 – 07. The FDI was USD 7.2

Billion in 2007 – 08

- Investment Commission of India facilitating FDI in all

forms

- No repatriation issues after paying taxes

Social / Consumer shifts

- Auto component industry – incubator to entrepreneurship

initiatives especially for less value adding components

- OEMs developing and launching “India centric” vehicles

after understanding Indian consumers’ demands

Technological shifts

- Fast becoming global hub for R&D: GM, Daimler

Chrysler, Bosch, Suzuki, Johnson Controls etc. have set

up development centres in India.

- Casting and forging processes in India 25 to 30 % lower

than western counterparts.

- 5 Indian auto component companies received coveted

Deming Prize, largest number outside Japan.

Economic shifts

- Concentration of disposable income in top 6 – 8 cities

- Rising spending patterns on “pampering” therapies

- International economic environment augurs cautious

approach

Market Analysis – Indian Auto Component Market

Exhibit: 18-Force Market Analysis of Indian auto component market

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According to Automotive Component Manufacturers’ Association (ACMA), the

production of automotive component in India was US$ 18 billion. It is growing at CAGR

of 27% since 2002-03. The exhibit below shows that Indian auto component industry is

growing more than 25% since 2003 – 04. The exports in 2007 – 08 were US $ 3.6 billion,

out of these close to US $ 1 billion auto components were exported to top-3 US

automotive majors i.e. GM, Ford and Chrysler.

Indian Automotive Component Market

Auto Component Production

3,2493,894 3,965 4,470

5,4306,730

8,700

12,000

15,000

18,000

330 350 456 625 578 7601,274 1,692

2,469 2,8733,615

2,300 2,645 3,1003,750

4,4005,400

7,200

3,0083,278

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

1996

-97

1997

-98

1998

-99

1999

-200

0

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08*

(In

US

D M

illio

n)

Production Exports Investment

Exhibit 22: Market size and growth trends – Indian auto component market

Source: ACMA (Automotive Component Manufacturers Association)

* Estimated figures

The Indian auto industry and auto component industry in 2006 – 07 was US$ 34 billion

and US$ 15 billion. As per Government of India’s automotive mission plan 2016, the

Indian auto industry and auto component industry in 2015-16 is estimated to be US$ 105

billion and US$ 40 billion respectively. It signifies that auto component industry would

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grow more than two times in the next seven years. This high growth augurs the business

potential in the Indian automotive component industry in the long term.

The auto component industry is facing transient challenges due to the changing global

situation where 2 out of the top-3 U.S. are on the verge of filing bankruptcy. Since Indian

automotive component industry is exporting to these auto majors, the reduction in the

pace of growth is expected this year. This reduction is coupled with reduced growth rate

of domestic vehicles sales in 2008-09. These rough times, however, are short timed in the

light of Government’s automotive mission plan 2016 whereby it aims to achieve the turn

over of US$ 145 billion by 2016. The growth factors i.e. lesser penetration of vehicles,

growing income levels portends health growth for Indian auto and auto component

industry in the long term.

1.1 Automotive Component OEM and Replacement Markets

The OEM (Original Equipment Manufacturer) market is also known as the organized

market segment in the Indian auto component industry. All the Tier-1 suppliers/ vendor

to OEMs have their respective distribution channels in the aftermarket (or replacement

market) segment.

The inventory in the value chain of Indian automotive industry varies according to the

size of auto component suppliers. The large strategic Tier-1 suppliers who are better

connected with OEMs through ERP (Enterprise Resource Planning) system are able to

manage inventories better. On the other size, the small and medium sized Indian auto

component players not leveraging technology end up piling inventories due to “bull whip

effect”.

The Indian automotive component replacement market have various channels selling

genuine and spurious parts that makes it one of the most dynamic market segment (out of

the three market segments i.e. replacement demand, OEM demand and export market).

According to the study conducted by IMRB International for SIAM in 2006-07, the

counterfeit components constitute about 35% - 51% of private vehicle components

replacement market. Lately, OEMs have started showing increasing interest in the

replacement auto component.

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1.2 Foreign Direct Investment and Government Policy

The automatic approval for foreign equity investment upto 100 per cent of manufacture

of automobiles and component is permitted for the auto and auto component industry.

The import of technology /technological up gradation on the royalty payment of 5%

without any duration limit and lump sum payment of USD 2 million is also allowed

under automatic route in this sector. The norms for Foreign Investment and import of

technology have also been progressively liberalized over the years for manufacture of

vehicles including passenger cars in order to make this sector globally competitive. With

the gradual liberalization of the automobile sector since 1991, the number of

manufacturing facilities in India has grown progressively.

1.3 Attractiveness of Auto Component Sub-segments and Entry

Strategy

The exhibit below shows that the domestic market for high grade plastic, electronics /

Integrated Circuit auto parts would be best suited for the auto component imports from

Thailand. The other attractive sub-segments would be rubber based intensive parts and

skill intensive parts.

Attractiveness Matrix for Thai Investors

Relative Degree of Technical Expertise

Ab

ilit

y i

n c

ost

eff

ecti

ve

sup

ply

Low High

High

Low

- Rubber Intensive parts

e.g. tyres, Accessories

- Skill intensive parts

High grade plastic, IC

based electronic parts /

assemblies

High grade plastic, IC

based electronic parts /

assemblies

Parts for evolving

technology aggregates

Exhibit 40: Attractiveness matrix for Thai investors

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For business collaboration, we suggest that Thai investors should initially export these

products for OEMs and aftermarket in India. Later on, when the product volumes would

increase, we suggest that it should set up the assembly base in one of the auto clusters, to

be selected based on initial experience. The exhibit below pictorially represents the

attractive areas and the timeframe for entering across various auto component market

sub-segments in India.

Entry strategy for Thai Investors

Au

to C

om

po

nen

t S

ub

-seg

men

ts

Rubber intensive parts

and accessories

Plastic, silicon intensive

electronic parts

Labour intensive parts –

casting, forging etc

Parts for evolving

technology aggregates

Skill intensive parts

covering engine parts

HighLow Medium

Immediate entry as OEM & aftermarket supplier

Degree of Attractiveness

Do not enter

Enter in these sub-segments after 1 – 2 years of

immediate entry

Legend

Exhibit 42: Entry strategy for Thai investors

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2 GLOBAL AUTO COMPONENT INDUSTRY

2.1 Global Trends in the Automotive Industry

The world’s automotive manufacturing sector consists primarily of about 20 very

large multinational corporations. The automotive supply sector, however, comprises of

thousands of firms ranging in size from a few employees to more than 100,000.

According to industry estimates, the size of the global auto component industry in

the year 2008 was approximately US$1.4 trillion and is likely to grow to about

US$1.9 trillion by 2015. Out of this total auto component demand by 2015, about

40% (i.e. US$ 750 billion) is likely to be sourced from low cost countries (LCCs)

such as China, ASEAN countries and India. The trends that are shaping the global

automotive industry are shown in the exhibit below:-

Global Trends –

Automotive Industry

Pressure to lower

prices continues

Global Trends in the Automotive Industry

Level of profitability

too low

Strategic “Tier-1" acting

closely with OEMs for designs

Shared platforms & modules

increasingly important

Continued

consolidationEmerging markets are

fastest growing markets

Exhibit 1: Global trends in the automotive industry

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2.2 Major Auto and Auto Component Markets

The United States is far ahead of other countries when it comes to vehicle population per

1,000 vehicle driving age. It is home to the largest passenger vehicle market of any

country In 2007, there were about 250 million vehicles in the United States.

The exhibit below shows the penetration of LCVs across the major countries and the

emerging economies like Brazil, China and India.

Cars for 1,000 inhabitants in different countries

Exhibit 2: Penetration of LCVs in different countries

Source: Secondary Search

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MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 15

The exhibit below maps vehicle penetration and nominal GDP per capita. In the long run,

the emerging economies like India hold immense potential as far as global automobile

industry future is concerned.

GDP / Capita vs. Vehicle Density: India vis-à-vis Major Markets

Exhibit 3: GDP / Capita vs. Vehicle Density: India vis-à-vis major markets

The exhibit below shows per capita income and the number of inhabitants per vehicle in

the year 2002 and expected ratio and per capita income in the year 2014. After comparing

the potential for future auto and auto component markets, it can be deduced that the

emerging economies like China and India would be at growth stage whereas the

developed economies like US and Japan are the saturated stage, expected to remain

stagnant or grow at less rate in the medium to long term.

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Vehicle Density vs GDP/per capita

Exhibit 4: Vehicle density vs GDP / per capita – Current and Estimated in 2014

Source: EIU, Goldman Sachs and A.T. Kearney analysis

The above analysis clearly indicates the importance of U.S. automotive market for the

global auto component industries, especially from the emerging economies and ASEAN

countries. The exhibit below shows US Auto Component imports from the leading

exporters:-

Year Mexico Brazil China Thailand India

2001 18,469 820 1,470 380 141

2002 20,433 1,137 1,885 516 177

2003 21,477 1,319 2,363 498 191

2004 23,672 1,550 3,246 540 296

2005 25,445 1,847 4,328 535 426 Exhibit 5: Major US Auto Component Imports (In US$m): 2001-05

Source: US Census Bureau’s Foreign Trade Statistics 2001-2005

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2.3 Major Auto Component Companies

The exhibit below shows top automotive component players and their sales figures

globally in 2004 and 2005. Robert Bosch Corporation (entered in India in collaboration

with MICO as MICO Bosch but now has standalone existence) and Delphi Automotive

Systems are the globally ranked number one and two respectively according to their sales

figures.

Company Sales in 2004

(USD Bn)

Sales in 2005

(USD Bn)

Change%

Robert Bosch Corporation 35.4 30.7 -13.28

Delphi Automotive Systems 28.6 26.9 -5.94

Denso Corporation 23.2 25 7.76

Magna International 20.6 22.8 10.68

Johnson Controls Inc. 17.7 19.2 8.47

Lear Corporation 16.9 17.1 1.18

Visteon Automotive Systems 18.7 16.9 -9.63

TRW International 12 12.6 5.00

Eaton Corporation 9.8 11.1 13.27

Exhibit 6: Top Ten Auto Component Manufacturers-2004 & 2005

Source: Various Auto reports, Database search

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3 INDIAN AUTO COMPONENT INDUSTRY

The Indian automobile ancillary sector is transforming itself from a low-volume, highly

fragmented one into a competitive industry, and backed by competitive strengths,

technology and transition up the value chain. Broadly the Indian automotive component

industry can be divided into the organized and the unorganized segments. While the forte

of the organized sector is the high valued added precision engineering products, the

presence of a large unorganized sector is characteristic especially of the lower value-

added segments of the industry.

The ACMA-McKinsey Vision 2015 document forecasts the potential for the Indian auto

component industry to be US$ 40-45 billion by 2015. Investments and exports in this

segment are witnessing continuous growth. Global automobile manufactures see India as

a manufacturing hub for auto components and are rapidly ramping up the value of

components they source from India due to:

• The cost competitiveness in terms of labor and raw material

• Its established manufacturing base

• Fine quality of components manufactured in India (used as original components for

vehicles made by General Motors, Mercedes, IVECO and Daewoo among others).

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MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 19

3.1 Major Auto Component hubs in India

In India, there are four major clusters as far as auto and auto components are concerned.

The Chennai cluster has around 25 – 30% organized auto component manufacturers. The

exhibit below maps major auto and auto component clusters in India:-

Major Auto and Auto Component Cluster

text

text

text

Bengaluru cluster

Chennai cluster

Pune cluster

Delhi NCR and

Pantnagar cluster

Exhibit 7: Major auto and auto component clusters in India

Source: Secondary search

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3.2 Transition of Indian Auto Component Industry

The Indian Auto component industry has transitioned from a supplier for the global

aftermarket to becoming a full-scale global Tier 1 supplier. The transition has been

brought upon by increased competition from foreign players that have helped Indian auto

component industry becoming auto component manufacturer and export of complex auto

spare parts. The exports from Indian auto components manufacturers to U.S. top 3

automotive majors have been in excess of US $ 900 Million last year. The exhibit below

shows the transition of Indian auto component industry.

Transition of Indian Auto Component Industry

Hand Tools

Metal bonded &

Moulded Rubber Parts

Plastic ComponentsSmall Castings &

Forgings

Heavy Forgings

Wheel Rims

Rotating Auto

Electricals

Tyres & Tubes

Hand Tools

Metal bonded &

Moulded Rubber Parts

Plastic ComponentsSmall Castings &

Forgings

Heavy Forgings

Wheel Rims

Rotating Auto

Electricals

Tyres & Tubes

Aftermarket

Customer complexity

Tier 2-n supplier Tier 1 supplier

Lo

wM

ed

ium

Hig

h

Pro

du

ct

Co

mp

lexit

y

Transition Path

Exhibit 8: Transition of Indian auto component industry

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3.3 Auto Component Industry Cost Buildup

Across the auto component industry, material cost is almost the half of the total cost build

up of the total expenditure. The exhibit below shows the percentage break up of total cost

in the auto component industry.

Auto component industry cost item %

Material Costs 50.9%

Power & Fuel 4.4%

Employee Costs 5.9%

Other Mfg Expenses 4.1%

Selling expenses 2.1%

Interest & Finance Costs 1.5%

Depreciation 3.3%

Tax 2.3%

OPBDIT Margins 16.9%

NPM Margins 8.6%

TOTAL 100% Exhibit 9: Auto component industry Cost Structure FY06

Source: Primary interviews and database search

Out of the 5 sub-segments i.e. equipment parts, braking parts, steering parts, electrical

parts and engine parts, the percentage contribution of raw material out of the total cost at

75% is highest in the braking parts sub-segment. The exhibit below provides the cost

break up for the auto component by segments in the Indian auto component market:-

Equipment

Parts-%

Braking

Parts-%

Steering

Parts-%

Electrical

Parts-%

Engine

Parts-%

Raw Material Cost 60% 74% 71% 68% 51%

Power and Fuel Cost 5% 5% 6% 4% 4%

Employee Cost 15% 7% 10% 10% 21%

Consumable Stores 1% 3% 4% 2% 6%

Selling Cost 5% 3% 3% 1% 5%

Others 14% 8% 6% 15% 13% Exhibit 10: Segment-wise cost structure in the auto-component Sector FY06

Source: Primary interviews and database search

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3.4 Classification of Auto Component Market

The auto component industry can be classified into the 3 channels; as far as auto

component market is concerned. The classification of auto component market, as per the

market spread, is shown in the exhibit below:

Auto Component Market

OEM demand After market demand Exports demand

Auto Components Auto Accessories

Classification of Auto Component Market

Exhibit 11: Classification of auto component market

The OEM (Domestic and Export demand) contributes to 70% of the turnover, rest 30% of

the auto component demand is generated through aftermarket or replacement demand.

70%

30%

OEM Demand (Including Domestic & Exports)Replacement Demand

Break up of OEM and Replacement Demand

Exhibit 12: Break up of OEM and replacement demand

Source: ACMA

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3.5 Tier Structure of Auto Component Market

The auto industry globally is structured based on vendor-supplier relationship with 3 to 5

nodes in the value chain ending at OEM (Original Equipment Manufacturer), that are also

the automotive major. In general, the OEMs in India typically have 100 to 500 Tier-1

equipment suppliers. These vendors are further classified as per the auto component sub-

segments that has been explained in the next section of this report. The tier structure in

the automotive industry is shown in the exhibit below:-

Tier Structure in the Auto Component Industry

OEM

1st

Tier

2nd

Tier

2nd

Tier

2nd

Tier

2nd

Tier

2nd

Tier

2nd

Tier

1st

Tier

2nd

Tier

2nd

Tier

2nd

Tier

2nd

Tier

1st

Tier

2nd

Tier

2nd

Tier

2nd

Tier

2nd

Tier

3rd

Tier

Tier 0.5

3rd

Tier3rd

Tier3rd

Tier

Tier-3 supplier to Tier-2 as well as

Tier-1 supplier to OEM

Exhibit 13: Tier structure in the auto component industry

Page 24: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 24

3.6 Classification of Auto Components

The components in the Indian automotive component market are classified in the

following sub-segments:-

Auto Component

Industry

Engine parts

- Requires high precision and high quality adherence

- These fall into three broad categories: Core engine parts, fuel delivery

system and others.

- Major parts include Pistons, piston rings, engine valves, fuel pumps etc

Drive transmission & steering parts

- Major sub-segments in this category include gears (tones), wheels/wheel

rims, steering gears and systems

- Major parts include starter motors, generators and spark plugs, gears, steering

gears and systems, wheel, clutch etc

- Technology intensive, top ten players account for about 80% of the total

segment size

- Size of replacement market for this segment is likely to increase esp. for

wheels

Body and chassis

- The chassis is the skeleton upon which all other components are positioned

- The parts under this segment include underbody, closure, body side, doors,

plastic-molded parts and exhaust systems etc

Segments within Auto Component Industry

Suspension & braking parts

- Major sub-segments in this category are shock absorbers, leaf springs and

brake shoe assembly segments

- Gabriel India Ltd and Munjal Showa Ltd are the majors in

the shock absorber segment

Electrical parts

- New technology in cars and electric start two-wheelers are leading to the

growth of this segment

- Major parts include carburettors, starter motors, generators, bimetal bearings,

distributors, air conditioning unit etc

Equipment & Others

- Major equipment parts include headlights, dashboard instruments,

wiper motors and electric horns etc. Other components include sheet metal

components and plastic moulded parts

Exhibit 14: Segments within auto component industry

Page 25: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 25

3.7 Major Automobile Players

The significant growth in the Indian automobile market as a result of growing income and

purchase power has provided opportunities to all the global automobile players to set up

their base in India in the last one decade. The setting up of new plants has provided

cluster development of automobile and automotive component market in India.

The exhibit below shows the major players in the Indian market who have manufacturing

units in India:-

Passenger Cars Commercial Vehicles Two-Wheelers Three-Wheelers

Maruti Suzuki Ashok Leyland Hero Honda Bajaj Auto

Hyundai Tata Motors Bajaj Auto Piaggio

Tata Motors Eicher Motors TVS Motors Mahindra & Mahindra

Honda Swaraj Mazda Royal Enfield Motors TVS Motors

Mahindra & Mahindra Volvo Kinetic Motors Tata Motors

Toyota MAN-Force Suzuki Motors Force Motors

Fiat Yamaha Motors

Hindustan Motors Honda

General Motors LML India

Ford

Volkswagen

Renault

Mercedes Benz

Skoda

BMW

Volvo

Exhibit 15: Auto Component Sub Segments and Major Players in Indian Markets

Page 26: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 26

3.8 Major Automobile Component Players (Two, Three and Four

Wheeler players)

There is not any distinction between the two wheeler and four wheeler automobile

component players in the Indian automobile component industry. The major organized

players who are catering to two wheeler OEMs are also catering to four wheeler OEMs.

However, for some niche commercial vehicle components, due to specialized load

bearing and design requirements, some automobile component players are the vendors

only to commercial vehicles.

The exhibit below shows the major players operating in the key sub-segments in the

product segments of the auto components:-

Product Segment Key Sub-Segments Major Players

Transmission and Steering

Gears & Drive 1. Rico Auto Inds

Clutches 2. Automotive Axles

Axles 3. Wheels India Ltd.

Others Sona Koyo Steer.

GKN Driveline (India)

Electrical Parts

Starter Motors, Generator, Denso

Distributor, Spark Plugs, Motherson Sumi

Ignition Coil, Flywheel MICO

Magnet, Voltage Regulator, Minda Industries

Electrical Ignition India Nippon

Lucas TVS

Engine Parts

Pistons

Piston Rings

Engine Valves

Carburettors

Fuel Delivery System

Escorts

India Pistons

Goetze (India)

India Pistons

Rane Engine Valves

Shriram Pistons & Rings

Spaco Carburettors

Ucal Fuel

Lucas TVS

MICO Germany

Equipment

Headlight Lumax, Autolite, Phoenix

Lamps

Dashboard Premiere Instruments &

Controls

Sheet Metal Jay Bharat Maruti, Omax

Auto, JBM tools

Suspension and Braking Brake System

Brake Linings

Automotive Axles

Brakes India

Page 27: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 27

Shock Absorbers Kalyani Brakes

Allied Nippon

Rane Brake Lining

Sundaram Brake

Gabriel India

Munjal Showa

Others Fan Belts Rico Auto

Sheet Metal Rico Auto Exhibit 16: Auto Component Sub Segments and Major Players in Indian Markets

Source: Database search

Since components used in Commercial Vehicles and Tractors call for the properties of

high strength and load requirement, it was, therefore, observed that the operation of these

parts manufacturers are following in nature:

a) The manufacturer is a niche player exclusively catering to the need of

Commercial Vehicle or Tractor replacement market segment OR

b) A large organized player supplying to the traditional 2& 3 wheeler and passenger

vehicles component markets has established a separate SBU (Strategic Business

Unit) for servicing the need of Commercial Vehicles and Tractors segment

3.9 Foreign Collaboration in the Auto Component Industry

The Indian automotive industry is characterized by a strong competition between

increasingly quality conscious manufacturers. The large, highly skilled but low cost

manufacturing base makes partnering linkages with overseas players attractive. These

strengths coupled with India’s well established strengths in IT/software combined

together to make India an emerging player in this sector. However, the industry needs to

continue to increase its quality standards and develop new products to compete globally.

Many domestic manufacturers have successfully entered into strategic alliances/

“Top 50 auto component companies in India would have around 1000 auto

component units across clusters. The vendors supplying to OEMs can be considered

as organized segment players. These (organized players) would be around 5,000 –

6,000. The total players including unorganized segment would be around 15,000.”

- Sr. Vice President, One of the leading Tier-1 component suppliers

Page 28: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 28

collaborations while others are actively chalking out their plans. Many of the world’s

leading Tier-1 suppliers have set up manufacturing facilities in India including Bosch,

Delphi, Visteon and Denso etc. Additionally, there is a well-developed domestic

component and ancillary industry with some suppliers already meeting global technical

and quality standards at the Tier-1 level. Some of India’s leading OES (Original

Equipment Suppliers) include TACO, Bharat Forge, Sundaram Clayton, and Sundaram

Brake Linings that have proven quality track record. However, many other suppliers lack

such competence and are looking to upgrade their process/technologies to remain

competitive. The exhibit below shows a part of Indian auto companies that have

collaborated with the foreign partners in the Indian market:-

Name of Indian Company Name of Foreign

Collaborators Item of Manufacture

Amtek Auto Ltd., Gurgaon Bendo Kogyo, Japan Fly wheel ring gears

Jay Bharat Maruti Ltd., Gurgaon Allied Signal, USA Seat belts and Air bags

Subros Ltd., New Delhi Allied Signal, USA Catalytic converters

Mark Exhaust Systems Ltd., Gurgaon Sankei Giken, In.Co., Japan Exhaust Systems,

Catalytic Converters

Atul Glass Industries Ltd., New Delhi Saint Gobain Vitgrage,

France

Laminated Safety Glass

Menon Pistons Ltd., Kholapur Alcan Deutschland GmbH,

Germany

Pistons & Piston Rings

Automotive Axles Ltd., Mysore Rockwell International Corp.,

USA

Axle systems

Autolec Industries, Madras Blue Chip Products Inc.,

USA

Water pumps

Spicer India Ltd., New Delhi Dana Corp., USA Engine bearings

Sona Steering Systems Ltd., New Delhi Somic Ishikawa, Japan Ball joints & Suspension

joints

Sona Steering Systems Ltd., New Delhi Fedoro, UK Asbestos free brake

linings

Sona Steering Systems Ltd., New Delhi Matsuda Industries, Japan Cold forging

Haryana Sheet Glass Ltd., Haryana Pilkington Plc., UK Laminated sheet glass

Tata Industries Ltd., Bombay

Johnson Controls Inc., USA Seating systems

Sommer Allibert, France Interiors and Plastics

Yazaki, Japan Wiring harness

ZF, Germany Transmission of steering

systems

NIFCO, Japan Plastic Fasteners

ITT, USA Brake systems, Electrical

& wiper systems Exhibit 17: Indian Auto Component-Foreign Collaborations (2006)

Source: Database search

Page 29: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 29

4 INDUSTRY AND MARKET ANALYSIS

The macro environment of the Indian auto component industry can be assessed by

understanding the social / consumer shifts, understanding its political and legal

environment, technological environment and economic shifts. The micro environment of

the industry can be assessed under the Porter’s 5 forces framework by understanding the

entry barriers, threats and supplier / buyer power. Merging the two assessment

frameworks provides an indication of macros (at a broader level) and micro (at an

industry level) factors influencing the entry of new players in the market. This 9-forces

analysis on a framework (comprising macro and micro factors) for Indian auto

component industry is done in the exhibit below:-

Page 30: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY

30

4.1 Macro and Micro Environment Analysis: Indian Auto Component Market

Industry Competitors- 450 – 500 mid to large players with

around 6000 – 7000 units in addition to

around 10,000 units in unorganized

segment.

- Technical tie ups and R&D ensuring at

least 2 major players across segments

Threat of Substitutes- Less threat to substitute for organized players

working with OEMs and emphasizing on R&D

for future needs

- Unorganized units stand chances for greater

threat

Entry Barriers- OEMs’ “inclusive growth” ensuring long term

relationship especially for high value-adding items

- Foreign suppliers supplying to global auto majors with

local knowledge and expertise may have easy access

Supplier Power- Tier structure supporting vendor

relationship

- Most Tier – 3 suppliers are small units

largely from unorganized segment

Consumer Power- Auto OEMs have average 2 suppliers

to ensure competitiveness

- New auto clusters being developed

with OEMs and major ancillaries

-

Political / Legal Environment

- FDI growing due to competitive advantage; witnessed

CAGR of 21.7% during 2002 – 07. The FDI was USD 7.2

Billion in 2007 – 08

- Investment Commission of India facilitating FDI in all

forms

- No repatriation issues after paying taxes

Social / Consumer shifts

- Auto component industry – incubator to entrepreneurship

initiatives especially for less value adding components

- OEMs developing and launching “India centric” vehicles

after understanding Indian consumers’ demands

Technological shifts

- Fast becoming global hub for R&D: GM, Daimler

Chrysler, Bosch, Suzuki, Johnson Controls etc. have set

up development centres in India.

- Casting and forging processes in India 25 to 30 % lower

than western counterparts.

- 5 Indian auto component companies received coveted

Deming Prize, largest number outside Japan.

Economic shifts

- Concentration of disposable income in top 6 – 8 cities

- Rising spending patterns on “pampering” therapies

- International economic environment augurs cautious

approach

Market Analysis – Indian Auto Component Market

Exhibit 18: 9-Force Market Analysis of Indian auto component market

Page 31: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY

31

The macro and micro environment can be analyzed by looking at Porter’s five forces for

micro environment analysis and PEST analysis for analyzing macro environment of the

auto component industry.

In the exhibit above, while looking at competitors, there are 450 – 500 medium to large

players with around 6000 – 7000 units in addition to around 10,000 units in the

unorganized segment. This distribution highlight that auto component industry is

dominated by unorganized players. It provides opportunity for organized Thai investors

to provide the products identified as their core competence in the later part of the report.

Analyzing other aspects like entry barriers, threat of substitute and supplier and consumer

power also helps in understanding the Indian auto component market and devising the

entry strategy and positioning plank for the products supplied by the entrepreneurs from

Thailand to Indian auto component market.

4.2 SWOT Analysis: Indian Auto Component Market

The classical tool to assess the industry environment is through SWOT analysis. The

exhibit below identifies Strengths, Weaknesses, Opportunities and Threats (SWOT

analysis) in the Indian Auto Component Industry:-

Page 32: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 32

Strength

▪ Is globally cost competitive

▪ Adheres to strict quality

controls

▪ Has access to latest

technology

▪ Provides support to critical

infrastructure and metal

industries

Weakness

▪ Industry has low level of research

and development capability

▪ Industry is exposed to cyclical

downturns in the automotive

industry

▪ Most component companies are

dependent on global majors for

technology

Opportunities

▪ May serve as sourcing hub for

global automobile majors

▪ Significant export

opportunities may be realised

through diversification of

export basket

▪ Implementation of Value-

Added-Tax (VAT) in FY2004

will negate the cascading

impact of prices

Threats

▪ The presence of a large

counterfeit components market

poses a significant threat

▪ Pressure on prices from

OEMs continues

▪ Imports pose price based

competition in the replacement

market

▪ Further marginalization of

smaller players likely

KEY FEATURES

▪ Annual production turnover of

Rs. 210 billion (US $4.5 billion):

small by global standards

▪ Around 5,000 players in the

unorganised sector and 400 in the

organised sector.

▪ Share of unorganised sector at

23%: caters primarily to

replacement market

▪ Share of organised sector at

77%: caters primarily to Original

Equipment Manufacturers, exports

and replacement market

▪ All prominent companies have

technological tie-ups with global

majors

▪ Manufactures products that may

be classified into six categories:

Engine Parts; Electrical Parts;

Drive, Transmission & Steering

Parts; Suspension & Braking Parts;

Equipment; and Others

▪ The fortunes of the industry are

largely driven by the automotive

industry

▪ Posted a decline in margins and

returns in last five years till

FY2002: working capital cycle

increased during the same period

SWOT Analysis – Auto Component Industry

Exhibit 19: SWOT Analysis – Indian auto component industry

With the growing sales of automobiles, new global OEMs are entering in the Indian

automotive industry which in turn provides the auto component industry the opportunity

to register robust growth over next 5 – 8 years. The component industry has not more

than 50 players with turnover of more than US$ 500 million per annum. Around 70 –

80% of the total numbers of players, at the bottom of the pyramid, have revenues of less

than US$ 1 million per annum. The growing automobile demand and the increasing

awareness to purchase genuine spare parts in the aftermarket poses attractive market

opportunities for the two and four wheeler auto component manufacturers.

Page 33: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 33

5 MARKET SIZE AND GROWTH FORECASTS

5.1 Global auto component market size and growth estimates

Global Automotive Component Market (US$ billions)

Exhibit 20: Growth trends of global automotive component market

Source: Database search

As shown in the exhibit above, the global automotive components consumption is

expected to grow from US$ 1.2 trillion in 2003 to US$ 1.65 trillion in 2015 (exhibit

below). As per one of the reports, of this US$ 1.65 trillion, LCC (Low Cost Country)

players can theoretically address roughly 42 per cent or US$ 700 billion. They cannot

address US$ 425 billion or 26 per cent of the market that will primarily be manufactured

by OEMs in their home countries. Another US$ 525 billion or 32 per cent of the global

market will be ruled out because of practical difficulties in off-shoring or because it will

yield negligible savings.

Page 34: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 34

5.2 Indian auto component market size and growth estimates

According to Automotive Component Manufacturers’ Association (ACMA), the

production of automotive component in India was US$ 18 billion. It is growing at CAGR

of 27% since 2002-03. The investment in the Indian auto component industry is also

gaining momentum with almost all major global automotive component manufacturers

are setting up their plants in India.

5.2.1 Production (in Number) and Growth rates of all vehicle categories

including two wheelers

The exhibit below indicates that in 2006-2007, out of the total automobiles market size of

around 1,10,65,000 vehicles, 94,42,000 or around 85% of the vehicles were two

wheelers. On an average, the overall annual growth rate of vehicles in the last 5 years has

been in excess of 15%.

Category 2002-03 2003-04 2004-05 2005-06 2006-07

Passenger Car 609 843 1018 1113 1323

Utility Vehicle 114 146 192 197 222

Commercial Vehicle 204 275 354 391 520

Two-Wheeler 5076 5623 6530 7609 9442

Three-Wheeler 277 356 374 434 556

Grand Total 6280 7244 8468 9744 11065

Growth Rate 18.13% 15.34% 16.90% 15.06% 13.55%

All Number in '000 units while Growth Rate is in percentage Source: Ministry of Heavy Industries, Government of India

Exhibit 21: Production and growth rates of all vehicle categories

Source: ACMA

Above table also points out that the two-wheelers and passenger cars have been the most

significant product categories (combined share -97%) and growing steadily over the past

few years. The two wheeler replacement auto component market also holds significant

importance due to the sheer volumes. Therefore, the 2-wheeler automotive component

market cannot be ignored while gauging the attractiveness of automotive component

market of India. The synergies between the two-wheeler & four wheeler component

market also enable two-wheeler component manufacturers to service the four wheeler

segment easily.

Page 35: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 35

5.2.2 Consolidated Production, Export and Investment in value terms

As per the exhibit below, the exports in 2007 – 08 were US $ 3.6 billion, out of these

close to US $ 1 billion auto components were exported to top-3 US automotive majors

i.e. GM, Ford and Chrysler.

Indian Automotive Component Market

Auto Component Production

3,2493,894 3,965 4,470

5,4306,730

8,700

12,000

15,000

18,000

330 350 456 625 578 7601,274 1,692

2,469 2,8733,615

2,300 2,645 3,1003,750

4,4005,400

7,200

3,0083,278

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

1996

-97

1997

-98

1998

-99

1999

-200

0

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08*

(In

US

D M

illio

n)

Production Exports Investment

Exhibit 22: Market size and growth trends – Indian auto component market

Source: ACMA (Automotive Component Manufacturers’ Association)

As per the exhibit above the consolidated production of the two, three and four wheeler

auto component industry is growing at CAGR of 25 – 27% from the past 4 – 5 years. The

production is catering to both the domestic demand, coming from OEM and replacement

demand, and the growing rate of exports.

The investment in the auto component industry has also been doubled to USD 7.2 Billion

in the last three years. This highlights the growth momentum in the Indian auto

component industry.

Page 36: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 36

5.2.3 Value wise break up of sub-segments – two and four wheelers

The two wheeler automotive component market like the four wheeler automotive

component market can be classified into the same sub-segments categories. Out of the

consolidated automotive component market, the engine parts have the major share among

the other auto components. It accounts for 31% of the total auto component market (in

value terms). The equipments, electrical and other parts account for 10%, 12% and 7%

respectively of the total auto component market size (in value terms). The break up of the

auto component industry (in value terms including 2 and 4 wheeler components) is

shown in the pie chart below:

Beakup of Various Segments in Indian Auto Component Industry

(In Value terms)

31%19%

12%

12%10%9%

7%

Engine parts Drive transmission & steering parts Body & chassis Suspension & braking parts Equipment Electrical parts Others

Exhibit 23: Percentage breakup of sub-segments in the Indian auto component industry

Source: ACMA (Automotive Component Manufacturers Association of India)

5.2.4 Import estimates and trends (for 2 and 4 wheelers)

The imports for the auto components are ranging 2-4% for the total replacement market

(which is 30% of total auto component demand in India). In the OEM demand, import of

auto-components is negligible (less than 1%), as it can be identified from the comment

below:-

Page 37: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 37

Within imports of auto components, Engine and Suspension / Braking have relatively

higher proportion in imports whereas Transmission and Equipments have lesser

proportion.

The table below highlights the items that are either high in import proportion (in value

terms) or are growing at rapid rate i.e. 50% or more. India imported US$ 20 million auto

components from China in 2004 – 05 whereas the imports from ASEAN countries were

close to US$ 73 million during the same time. The estimated imports (based on the

growth trends) from China and ASEAN countries in 2008 – 09 would be around US$ 120

– 150 million and US$ 350 – 400 million respectively.

Auto component import

(OEM + Replacement) Total Import – 2004-05 (US $ Million) Growth Rate (2001-05)

Components detail All

Imports

Imports

from

China

Imports

from

ASEAN

Share of

China &

ASEAN

All Imports

Imports

from China

Imports from

ASEAN

Parts and accessory of motor

vehicles 543.38 3.98 61.16 12% 28% 28% 58%

Engine parts 203.19 8.99 3.09 6% 15% 113% 24%

Electrical parts and accessories 29.80 0.68 0.1 3% 26% 63% -50%

Bumpers and parts 23.09 0.23 1.59 8% 69% 74% 288%

Injection pumps, oil pumps,

water pumps 22.67 0.73 0.01 3% 39% 111% -29%

Drive axles with differential 18.63 0.01 0.87 5% 50% -

Lighting equipment 17.46 1.8 2.01 22% 24% 14% 107%

Other Brakes/Servo brakes 17.20 0.9 0.23 7% 46% 63% -17%

Starter motors 11.16 0.3 1.44 16% 33% 166% 5%

Clutches 9.17 0.2 0.74 10% 25% 26% 147%

Wheels 7.86 0.75 0.29 13% 80% 127% 14%

Steering wheels and columns 7.06 0.01 0.45 7% 45% 21% 208%

Rear view mirror 4.23 0.74 0.6 32% 37% 104% 97%

Laminated safety glass 1.84 0.63 0.29 50% 87% 281% 313%

Total 916.7 20.0 72.9 30% 55% 49%

Exhibit 24: Auto component imports (OEM + Replacement market)

Source: ACMA (Automotive Component Manufacturers Association, DGFT (Directorate General of Foreign Trade)

“All OEMs have their vendors located in India. However, some OEMs like us

(Ashok Leyland) have set up their offices in China from where we are importing

some components that are cost effective. These components would be less than 1% of

the total auto component requirements

- Strategic Sourcing Official from one of leading Vehicle manufacturer

Page 38: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 38

The highlighted components above are the promising auto component products for both

two wheelers and four wheelers auto components that have are either high on value or the

rate of growth of import is significantly higher. These items could be looked as the

potential export items by Thai investors to export to India. The consumable items markets

like injection pumps, oil pumps, bumper and parts and wheels are growing at faster rate

in the replacement market due to increase vehicle population.

We expect the share of imported parts (especially from China and ASEAN countries

including Thailand) to grow in the future because of the two major reasons:-

FTA’s that India has sign with a number of countries including Thailand would

result in increase in imported parts

Launch of similar products in India and China / ASEAN.

5.2.5 Auto Component Export Destinations

The U.S. and European markets account for 28% each of the total exports from the Indian

auto component companies. The exhibit below shows the break up of the total auto

component export markets across the major auto importing markets.

Auto Component Export Destinations

(In Value terms)

28%

28%

27%

11%2%4%

U.S. Europe Asia Africa Australia Others

Exhibit 25: Indian auto component export destinations

Source: ACMA

Page 39: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 39

5.2.6 Trends in growth and margins – Two and Four wheelers

As mentioned in the section 5.2.2 above, the automobile market is growing at CAGR of

25 – 27%. Notwithstanding the temporary global economic meltdown, it is expected that

the domestic demand for automobiles would grow unabatedly over the next 3 – 5 years.

The exhibit below shows the gross margin and net margin at the distribution and retailer

level:-

Exhibit 26: Distributor and Retailer Margin

The average distribution margin per players (made by distributors / wholesalers) is

dependent on the number of layers in the channel. The margins and incentives play a key

role in pushing the product at the retail end. The margins are relatively higher for

electrical parts and brake & suspension parts.

Gross Margins Net Margins

Ranges between 12 – 15%

based on type of part and

type of manufacturer

Ranges between 4 – 6% based

on type of part and type of

manufacturer

Distribution

Margin

Ranges between 14 – 18%

based on type of part and

type of manufacturer

Ranges between 6 – 8% based

on type of part and type of

manufacturer

Retail

Margin

Page 40: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 40

6 AUTO COMPONENT OEM AND REPLACEMENT

MARKET

This section highlights OEM supply chain and inventory management aspects for small

and large auto component supplier. In the replacement market segment, changes in the

replacement market including the increasing focus of OEM on aftermarket in the recent

years and the channel structure have been highlighted in this chapter.

6.1 OEM Market in the Indian auto component industry

The OEM market is also known as the organized market segment in the Indian auto

component industry. All the Tier-1 automotive component vendors have their respective

distribution channels in the aftermarket segment. Typically, an OEM works with around

100 – 200 Tier-1 suppliers and around 500 Tier-3 / Tier-2 suppliers (to Tier-2 / Tier 1

suppliers), depending upon the diversity of product line offerings.

6.2 OEM Component Sourcing

The automotive manufacturing industry in India is on par with the globally competitive

markets. All the plants are typically connected with ERP systems with their strategic

vendors and distribution channels that enable them to control raw material, WIP (Work In

Process) and finished products (vehicles) inventory. The exhibit below shows typical

order-to-delivery process supply chain in the automotive industry.

Page 41: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 41

Typical Order-to-Delivery Process in the Auto Industry Supply Chain

Purchasing Programming MarketingPurchasing Programming Marketing

Order Bank

Scheduling

Sequencing

National

Sales Co.PlanPlan

Schedule Schedule

Tier 2

Supplier

Tier 1

Supplier

Inbound

Logistics

Body, paint,

assemble

Outbound

LogisticsDealer Inv.

Customer

Exhibit 27: Order-to-delivery process in auto industry supply chain

6.3 OEM Vendor Selection Process

The research team of IMRB International tried to understand the vendor selection process

of LCV and Commercial Vehicle manufacturers. The OEM vendor selection process was

found to be almost similar in all the OEMs visited during the course of this study. In

general, OEMs select vendors in the following steps:-

Step 1: First, the vendor contacts OEM’s sourcing or purchase department. Due to high

number of parts, the sourcing department is categorized into 4 – 5 vendor management

groups. After submitting the credential documents and filling the vendor application

“We have categorized the components in various buckets. For high value items, we

follow JIT approach; we carry 1 day inventory for these items. For other categories

we may carry 3 - 4 day inventory. For smaller and less value components we may

have one week of inventory”

- Strategic Sourcing Official from one of leading Vehicle manufacturer

Page 42: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 42

form, it is submitted with respective departments within the sourcing department of

OEM.

The party should be financially and technically sound. It should have prior experience as

supplier to other vehicle manufacturers. For some parts, specific commercial vehicle

technical expertise as vendor is required whereas for other components the vendor is

qualified if the party is supplying to LCVs.

Step 2: After initial qualification, a team of people from various departments (i.e.

Engineering, Sourcing etc) is formed that checks for quality aspects, the vendor’s

manufacturing set-up and technological capabilities etc. OEMs evaluate them whether

they would be able to meet OEM’s expectations with the economies of scales and quality

levels.

Step 3: After the party qualifies, OEMs involve in the commercial discussion about the

cost, inventory and other nitty-gritty. OEMs have long term association with vendors.

The process of vendor selection takes few weeks to few months.

6.4 Inventory in Supply Chain of OEM suppliers

6.4.1 Small and Medium OEM vendors

The small to medium auto component industry that are not leveraging the information

flow are the most vulnerable to the market volatility because of the “bullwhip effect”

leading to piling up of inventory all levels i.e. RM (Raw Material), WIP (Work In

Process) and FG (Finished Goods). The OEMs are well connected to their strategic

vendors either because of their physical proximity to the vendors or because of prompt

information exchange through ERP (Enterprise Resource Planning) software. It enables

these vendors to change the supplies as per the changing Master Production Scheduling at

OEMs’ end. The percolation of technology in India hasn’t seeped beyond Tier-1

suppliers, resulting in excess inventory at various levels. The exhibit below pictorially

represents the inventory buildup in a typical supply chain of Indian auto component

industries.

Page 43: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 43

Inventory in the Supply Chain of Small Indian Auto Component Industries

Tier 2Tier 2 OEMOEM

InventoryInventoryInventoryInventoryInventoryInventory

InventoryInventory

InventoryInventory

RMWIP

FGTier 1

SMALL AUTO COMPANIES – LONG LEAD TIMES & SHIPMENT DELAYS

Exhibit 28: Inventory in the supply chain of small auto component industries

6.4.2 Large OEM vendors / strategic Tier-1 suppliers

Though the supply chain of automotive industry in India is lagging behind in term of

technology adoption when compared with developed economies, the OEM and Tier-1

supplier relationship maintains some level of information flow that enables them to keep

a tab on the inventory levels. The exhibit below pictorially represents the ideal supply

chain situation that exists in the handful value chains in the Indian automotive industry.

Inventory in the Supply Chain of Evolved Indian Auto Component Industries

TOP 50 AUTO COMPONENT COMPANIES REPLACE INVENTORY WITH

INFORMATION, HAVE ROBUST DELIVERY CAPABILITIES - LEAD TIMES ARE

VERY SHORT

Tier 1Tier 1 OEMOEMTier 2Tier 2

SRM

Delivery

SRM

DeliveryInventoryInventory

planning

Manufacturing AssemblyManufacturing

planning planning

Exhibit 29: Inventory in the evolved value chain of automotive industries

“The time is not ripe (for the auto component players like us). We have sudden

export order cancellation from 2 out of top-3 US majors. We have inventory

accumulation of around 50% of our annual turnover at various levels. It will take

some time for us to come out of this situation.”

- General Manager of one of mid sized Automotive Component Manufacturer

Page 44: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 44

6.5 Break up of replacement parts market by type of vehicle

The exhibit below shows the break up of the replacement market among various

categories of vehicles. 2/3 wheelers and cars replacement parts constitutes 66% of the

overall replacement market. In India, as far as major component suppliers are concerned,

most of the auto component players for 2/3 wheelers and cars are common..

Break up by type of vehicle (Year 2006-07)

2/3 Wheelers

33%

Cars

33%

Commercial

Vehicles

25%

Tractors

9%

Exhibit 30: Break up of replacement auto component market by type of vehicle

6.6 Automotive component replacement market: impact of structural

changes

Though replacement market caters to 30% of the total (domestic and exports) auto

component market, several channels selling genuine and spurious parts make it the most

dynamic market segment out of the other two markets i.e. OEM demand and export

market.

Due to the squeezing margin for the OEM auto component segment, the replacement

market has relatively better margins for OES and additional stream of income for OEMs.

The replacement market has become increasingly competitive with the focus on OEMs,

imports and reducing price difference between OEM/OES products and spurious auto

components. The exhibit below details out the critical factors that have recently

transformed the aftermarket demand:

Page 45: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 45

Indian Replacement

Parts Market

Increasing imports on

account of FTAs

Impact of Value Added Tax

(VAT)

- Effective reduction in tax

burden after process stabilizes

Increasing focus of OEMs on

aftermarket

Growth of organized

private service centers

Regulatory changes inducing

shift towards OES (Original

Equipment Suppliers)

- ARAI, ELV norms,

Emission & safety norms

Advances on technology &

reliability of parts

- Leading to demand

reduction for spare parts

- Increase in OES / branded

parts demand

Structural Changes impacting auto component replacement demand

Exhibit 31: Structural changes impacting auto component replacement market

6.7 OEMs’ focus on replacement market

Lately, OEMs have started showing increasing interest in the replacement auto

component market because of the following reasons:-

- The already have established channel in the form of their vehicle dealers

- The margins in the aftermarket equipments are significantly higher than the OEM

demand

- The OEMs can source the component from suppliers at wafer-thin margins in bulk

quantities

- By supplying genuine parts, OEMs are building on the brand image of their products

Page 46: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 46

The marketing and supply initiatives taken by OEMs in the after market component

business is shown in the exhibit below:-

OEMs’ initiatives in the after market (replacement) business

Exhibit 32: OEM initiatives to grab replacement market share

6.8 Channel structure for auto component market

At a broader level, the channel structure for the replacement market can be classified into

3 categories: the OES / OEM channel, the spurious component channel and the import

channel where products are sold by importers.

According to the study conducted by IMRB International for SIAM in 2006-07, the

counterfeit components constitute about 35% - 51% of private vehicle components

replacement market. The exhibit below shows the product flow across different channels.

In the replacement market, it is estimated that spurious product market is bigger than the

market catered by genuine parts.

Page 47: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 47

Prevailing Distribution Channels in the Auto Components Aftermarket

OES

(Original Equipment

Supplier)

OEM

(Original Equipment

Manufacturer)

Unbranded

(including spurious)

component market

Imports

Warehouse –

typically one at

factory and the

others at zonal level

Warehouse –

generally only at

factory level

Importers esp. for

accessories – generally

having warehouse at

import cities

OES / OEMs –

further utilize their

spare parts channel

Stockists / Big

Dealers

Stockists / Big

Dealers

Franchise e.g.

Leyparts, Maruti

Service Masters etc

Dealers – small dealers

generally in smaller cities

C U

S T

O M

E R

/ E

N D

U

S E

R

Dealers – small dealers

generally in smaller cities

Exhibit 33: Channel structure in the auto component aftermarket

“All the auto companies (out of a total of 25 to 30 companies) within our group,

have separate distribution channels. We (our company) have OEM supplies, for

aftermarket we supply to 1200 dealers directly, these dealers in turn send it to smaller

shops. We have 1 warehouse in addition to warehouse at this (manufacturing)

facility.”

- General Manager, Marketing of one of the leading Tier-1 component suppliers

Page 48: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 48

7 GOVERNMENT INITIATIVES

7.1 Foreign Direct Investment

The Indian automotive industry with a turnover of US$ 34 billion and the auto parts

industry with a turnover of US$15 billion offer excellent scope for FDI. The investment

figure for the past 5 years is shown in the exhibit 20 under chapter 5.2 of this report.

The automatic approval for foreign equity investment upto 100 per cent of manufacture

of automobiles and component is permitted. The import of components is freely allowed.

The import of technology/technological up gradation on the royalty payment of 5%

without any duration limit and lump sum payment of USD 2 million is also allowed

under automatic route in this sector.

The norms for Foreign Investment and import of technology have also been progressively

liberalized over the years for manufacture of vehicles including passenger cars in order to

make this sector globally competitive. With the gradual liberalization of the automobile

sector since 1991, the number of manufacturing facilities in India has grown

progressively. At present there are 15 manufacturers of passenger cars & multi utility

vehicles, 9 manufacturers of commercial vehicles, 16 of 2/3 wheelers and 14 of tractors

besides 5 manufacturers of engines.

7.2 Auto Policy

The industry provides direct and indirect employment to 13.1 million people. The

contribution of the automotive industry to GDP has risen from 2.77% in 1992-93 to 5%

in 2006-07. The industry is also making a contribution of 17% to the kitty of indirect

taxes of the Government. In order to provide special attention to the auto industry, the

Government of India has drafted the Auto Policy whose vision and objectives are

mentioned below:

Page 49: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 49

Vision

To establish a globally competitive Automotive Industry in India and to double its

contribution to the economy by 2010.

Objectives

This policy aims to promote integrated, phased, enduring and self-sustained growth of the

Indian automotive industry. The objectives are to:-

(i) Exalt the sector as a lever of industrial growth and employment and to achieve a high

degree of value addition in the country;

(ii) Promote a globally competitive automotive industry and emerge as a global source

for auto components;

(iii) Establish an international hub for manufacturing small, affordable passenger cars and

a key center for manufacturing Tractors and Two-wheelers in the world;

(iv) Ensure a balanced transition to open trade at a minimal risk to the Indian economy

and local industry;

(v) Conduce incessant modernization of the industry and facilitate indigenous design,

research and development;

(vi) Steer India's software industry into automotive technology;

(vii) Assist development of vehicles propelled by alternate energy sources;

(viii) Development of domestic safety and environmental standards at par with

international standards.

The full auto policy of Government of India is attached in the annexure of this report.

Page 50: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 50

7.3 Automotive Mission Plan 2016

The Ministry of Commerce, with the help of SIAM (Society of Indian Automobile

Manufacturers) and ACMA (Automotive Component Manufacturers Association of

India) has devised automotive mission plan 2016 to emerge as the destination of choice in

the world for design and manufacture of automobiles and auto components with output

reaching a level of US$ 145 billion accounting for more than 10% of the GDP and

providing additional employment to 25 million people by 2016.

The Automotive Industry offers huge growth potential in terms of sales volume

(including exports) and also immense employment opportunities. The likely future

volumes of different vehicle categories were estimated on the basis of projections made

by iMaCS, NCAER and AT Kearney. The value of projected domestic output was

computed based on historical average vehicle prices. The export potential was estimated

on the basis of current trends and possible opportunities in major export destinations. The

demand for after-market auto components and export output was also included in

computing growth potential of the industry.

According to AMP, Government will encourage collaboration of Industry with research

and academic institutions like CSIR, IIT, and machine tool industry for the development

of appropriate technology and creation of IPR to meet more stringent regulations as well

as to develop relevant machine tools and equipment that improve manufacturing

processes and quality of the vehicles and components produced by the industry. The

interface with the Core Group on Automotive Research (CAR) would be strengthened.

The complete document of Automotive Mission Plan 2006 – 2016 describing the mission

for development of Indian Automotive Industry can be downloaded from the following

URL: http://www.siamindia.com/upload/AMP.pdf .

Page 51: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 51

8 GROWTH DRIVERS AND CHALLENGES

Over the last 5 years, the Indian automotive component industry is thriving with the

CAGR of 27%. Though the current global situation would have some coupling effect on

the exports and domestic consumption in the coming year, the growth story over 5 – 7

years period i.e. till 2015 is quite positive.

The demand for auto components is mainly driven by the demand for automobiles,

although auto components do find usage in non-automotive industries as well. This

section covers the growth drivers, issues / challenges, Indian auto industry amid the

changing global scenario (transient challenges) and the critical success factors for the

automotive industry.

Page 52: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 52

8.1 Growth Drivers for Replacement Demand

The auto component industry has cascading effect on the auto component industry as

70% of the automotive component supplies in value terms go to OEMs (domestic and

exports. The exhibit below represents the growth drivers propelling the growth of the

replacement demand. Due to these factors, there has been an increasing interest from

OES and OEMs to concentrate on auto component aftermarket.

Road Infrastructure

Impacts life of auto parts,

replacement demand is

influenced by condition

of road infrastructure

Driving Conditions

Poor driving conditions

coupled with poor road

infrastructure adds to

demand for certain parts

e.g. axle, tyres etc

Vehicle Population Size

Proportional to aggregate

demand for replacement

parts Average age of the

Vehicle Population

Vehicle scrap norms not

widely prevalent, leading

to longer vehicle usage.

Higher vehicles’ average

age leads to greater

demand

Distance (in Kms)

covered per Vehicle

Services not just confined

to super-riches.

Affordability factor

instrument in increasing

demand

Growth

Drivers

Growth Drivers for Replacement Demand

Exhibit 34: Growth drivers for auto component replacement demand

Page 53: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 53

8.2 Issues and Challenges – Indian Auto Component Industry

As is the case with many other young, aspirant and rapidly growing industries, Indian

auto component industry is also engulfed with certain challenges. These challenges can

be dissected into two categories – internal factors i.e. the challenges faced at

organizations’ level and external factors where the other entities, issues outside the

organization / industry influence the growth of the industry. The exhibit below highlights

the issues and challenges Indian auto component industry is facing today:-

Indian Auto Component Industry –

Issues and Challenges

Internal factors

– At Organizations’ level

Sustaining quality levels

Shipment delays causing cascading

impact on aggregate planning of

supplier organizations

Under-investment in ERP (Enterprise

Resource Planning) infrastructure

leading to inefficient stock planning

and high inventory levels

Rising attrition rate

External factors

– Other than organizations’ level

Poor logistics & power

infrastructure

Tightening environmental & safety

regulations leading to high capital

investments

Increasing competition and high lead

time for international contracts (from

OEMs)

Increasing cost of raw material and

labour wages

Managing M&A / JV /

Collaborations

Exhibit 35: Indian auto component industry – Issues & Challenges

Page 54: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 54

8.3 Indian Auto Component Industry amid changing global scenario

In addition to the above challenges the auto component industry is facing, there are

certain transient challenges due to the changing global situation where 2 out of the top-3

U.S. auto major are on the verge of bankruptcy. The business scenario in case of Japanese

and Korean automotive majors is also echoing similar sentiments due to global meltdown

imposed by the sub-prime mortgage crisis in U.S. and the European economies. The

exhibit below shows the transient challenges in view of changing global business

situation.

Auto Component

Industry

Volatile input prices and

reduced profit margins

Increasingly stringent emission

and safety regulations

Reduced growth rate of

domestic vehicle Sales

Insufficient skill-sets and

shortage of qualified

labour

Rising Customer

Expectations Integration with Global

(Developed) markets

· Sudden dip in the vehicle

demand in the last quarter has

reduced the growth estimate

for FY 2008 – 09

· Increase in employee wages in

the last decade has increased

the operating costs

· With the entry of new players

in last 5 – 7 years, shortage of

employees with specific skill

sets

· Customer expects more product

features

· Expectation of high quality and

reliable product offerings

· Increase in the volatility of ferrous

and non-ferrous metals

· Usage of newer input components

due to technological up gradation

· Reduced profit margin due to cut-

throat competition

· High environment concerns

· Increase in technological capability to

reduce emissions due to increased

R&D

· Higher cost in ensuring better safety

and adherence to safety protocol

leading to higher input cost

· Integration leading to lowering

product life cycles

· Reduced time-to-market for new

products

· Threat of new competition

Troubled times for top-3 US

auto major

· Top 3 US auto majors are either

canceling or delaying orders from

leading Indian auto majors,

leading to bad shape of their

financial books

· GM among the front runners in

filing bankruptcy, Ford and

Chrysler also in bad shape leading

to less business from exports

Indian Auto Component Industry

in view of changing Global situation

Exhibit 36: Indian auto component industry in view of changing global situation

Page 55: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 55

8.4 Critical Success Factors

The factors critical to the success of auto component industry in India have been

delineated in the exhibit below. Some of these factors are commonly important to the

supply chain and automotive component industry across the economies because of the

nature of the industry. However, some factors are based on observing the businesses in

the Indian automotive industry.

Critical Success Factors for Auto Component Industry

Critical SuccessFactors

Forge right alliance

with well defined exit

strategy

Operatio

nal

excellence &

co-

creatio

n in

technolo

gy

transfe

rBuilding

credible

relationship

with key

customers

Managing the

supply chain

Invest in technology

with long term

perspective

Strong

managem

ent with

global

perspective

Achie

ving

Econom

ies o

f

Sca

le in d

om

estic

mar

ket

Critical SuccessFactors

Forge right alliance

with well defined exit

strategy

Forge right alliance

with well defined exit

strategy

Operatio

nal

excellence &

co-

creatio

n in

technolo

gy

transfe

r

Operatio

nal

excellence &

co-

creatio

n in

technolo

gy

transfe

rBuilding

credible

relationship

with key

customers

Building

credible

relationship

with key

customers

Managing the

supply chain

Managing the

supply chain

Invest in technology

with long term

perspective

Invest in technology

with long term

perspective

Strong

managem

ent with

global

perspectiveStrong

managem

ent with

global

perspective

Achie

ving

Econom

ies o

f

Sca

le in d

om

estic

mar

ket

Achie

ving

Econom

ies o

f

Sca

le in d

om

estic

mar

ket

Exhibit 37: Critical success factors for auto component industry

Page 56: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 56

9 CONSUMER PREFERENCES FOR AUTO

COMPONENTS

The understanding of consumer preference for the replacement market provides an

insight on the factors consumers consider important while purchasing the auto

components, be it for 2/ /3 wheelers, cars or commercial vehicles.

Individual Customer

2.8

3.1

2.4

3.2

4.5

0 1 2 3 4 5

Reliability

Brand

Availability

Price

Quality

Fleet Customer

2.7

3.4

2

3.4

4.4

0 1 2 3 4 5

Reliability

Brand

Availability

Price

Quality

Exhibit 38: Critical success factors for auto component industry

Source: ACMA

As per the exhibit above, quality, brand and price are three key criteria for both

individual customers and customers owning a fleet of vehicles, either for personal or

commercial use. However, price is a less important factor for crucial components like

engine and transmission parts. The same finding can be extended to high value, low

volume IC (Integrated Circuit) based components as well.

When it comes to the sources of purchase for the organized replacement market, majority

of the individual customers rely on OEM and branded parts. As per the exhibit below,

almost more than one-third of the individual customers purchase OEM parts i.e. the parts

available from OEM distribution channel. Around half of the customers, except for

Key Purchase Criteria (Replacement Market)

1 = Least Important 5 = Most Important

Page 57: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 57

transmission parts, purchase branded components, available from dealers or auto

component shops.

Source of Purchase (Replacement Parts)

35%

34%

38%

33%

42%

52%

51%

41%

51%

47%

13%

15%

21%

16%

11%

0% 20% 40% 60% 80% 100%

Equipment Parts

Suspension / Braking Parts

Transmission Parts

Electrical Parts

Engine Parts

OEM Branded Others

Exhibit 39: Source of purchase for replacement parts by individual customers

Source: ACMA

Recognizing the importance of OEMs in the component market, their criteria for vendor

selection and purchase process has been covered separately in “OEM’s Vendor Selection

Process” section of this report.

Page 58: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 58

10 ATTRACTIVENESS OF AUTO COMPONENT

SEGMENTS FOR THAI INVESTORS

This chapter takes the cues from the insights highlighted in previous chapters and

classifies the sub-segments in the automotive component industry in the attractiveness

matrix based on the opportunity for the Thai investors. It takes into account the import

trends for auto components - in total value terms, imports from China and ASEAN

countries, the subjective opinion of various stakeholders met through the automotive

value chain and maps the auto component sub-segments in the attractiveness matrix for

Thai investors.

10.1 Attractive segments within auto component market for Thai

investors

The attractiveness of domestic auto component market can be gauged by segmenting it

based on the type of raw materials, manufacturing/design process involved and the

technical expertise required to produce these auto parts. On the basis of these 3 factors,

the auto component market can be segmented into the following five broad categories:-

1. Plastic, silicon intensive / electronics, integrated circuits parts

2. Rubber intensive parts

3. High labour intensive parts e.g. casting and forging parts

4. Skill-intensive parts

5. Parts for evolving technology aggregates

“Thai auto component industry can supply tyres to Indian OEMs at cost effective

price.”

- Sourcing Manager, one of leading passenger car manufacturers

Page 59: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 59

The sub-segments are classified on two axes on the attractiveness matrix. These axes are:

- relative degree of technical expertise and ability in cost effective supply of automotive

components. By relative degree of technical expertise, we imply the technical expertise of

Thai automotive component industry for a particular sub-segment over the technical

competence of Indian auto component industries.

The exhibit below shows that the domestic market for high grade plastic, electronics /

Integrated Circuit auto parts would be best suited for the imports from Thailand. The

other attractive sub-segments would be rubber based intensive parts and skill intensive

parts.

Attractiveness Matrix for Thai Investors

Relative Degree of Technical Expertise

Ab

ilit

y i

n c

ost

eff

ecti

ve

sup

ply

Low High

High

Low

- Rubber Intensive parts

e.g. tyres, Accessories,

Skill intensive parts

covering engine parts

High grade plastic, IC

based electronic parts /

assemblies

Labour Intensive parts

requiring forging and

casting

Parts for evolving

technology aggregates

Exhibit 40: Attractiveness matrix for Thai investors

Page 60: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 60

The share of auto accessories in the aftermarket demand is significantly less. The major

auto accessories that are sold are audio-video equipments, alloy wheels and car perfumes.

However, this segment is slated to become attractive as the size grows in 3 – 5 years’

time frame. Another important sub-segment for Thai imports would be rubber intensive

parts e.g. tyres, brakes etc.

The indicative list of major Indian auto component manufacturers across various sub-

segments is shown in the table below:-

Sub-segments Auto Component Manufacturers

Plastics, Silicon intensive and

electronics parts

Tata Autocomp Systems Ltd, Pune

Denso India

Motherson Sumi, Delhi NCR

Macro Precision Components, Bangaluru

Rubber intensive parts and

accessories

Appollo Tyres, Delhi NCR

Ceat Tyres, Mumbai

MRF Tyres, Chennai

Sundaram Clayton Ltd, Chennai

Parts for evolving technology

aggregates

Lucas TVS, Chennai

Clutch Auto

Munjal Showa, Delhi NCR

Sona Koyo, Delhi NCR

Rane TRW Steering Systems Limited

Amtek Auto

Skill intensive engine parts

Delphi TVS, Chennai

Bosch India, Bangaluru

Ucal Fuel Systems Ltd

Precision Sintered Products, Gujarat

“Imports from Thailand would have an edge in the IC-based electronics components.

Once you have designed the (electronic) component, they (Thai investors) are good at

replicating it in the cost effective manner.”

- CEO of one of India’s leading auto component manufacturers

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MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 61

Labour intensive - casting, forging

parts

Bharat Forge, Pune

Automotive axles, Mysore

Unitech Texmech Pvt. Ltd., Pune

Progressive Gears Industries (P) Ltd,

Delhi

Exhibit 41: Sub-segment wise list of Indian auto component manufacturers

10.2 Business Models for Collaboration

There have been many success stories in the Indian auto component industry (as

mentioned in the section 3.8). The equity participation or technical tie up with foreign

collaborator depends upon the business plan and the attractiveness of various auto

component product categories.

Based on the demand potential for the auto components from Thailand, it is suggested

that Thai investors should initially export these products for OEMs and aftermarket in

India. Later on, when the product volumes would increase, we suggest that it should set

up the assembly base in one of the auto clusters, to be selected based on initial

experience.

Over the last few years, we have seen the equity participation and technical tie up in

equal proportion from the foreign players in the auto component industry. However, due

to robust demand for the automotive component industry over the next 5 – 7 years, there

has been an increase in the business model involving the equity participation with the

domestic players. In general, the equity participation of 49% by the foreign player is

prevalent in the Indian automotive component industry. The Global automotive

“3 types of business models exist in the (Indian) auto component industry: 1) Fully

domestic or multinational 2) JV i.e. equal equity participation between Indian and

foreign players 3) Indian company getting into technical tie up with foreign

counterpart.”

- General Manager, Marketing of one of the leading Tier-1 component suppliers

Page 62: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 62

component majors from Japan, US, Germany and France have formed a joined venture

based on equity participation with their Indian counterparts in the last 2 – 3 years.

It is suggested that Thai automotive component manufacturers should also set up

manufacturing or assembly plant in India by forming equity partnership with their Indian

counterparts.

Page 63: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 63

11 CONCLUSIONS AND RECOMMENDATIONS

The domestic automotive component market holds promising potential for the domestic

industries and for the players from China and ASEAN countries. However, for the

imports from Thailand, the success would largely depend upon the attractiveness of

product segments. The attractiveness for sub-segments can be assessed by looking at

relative degree of technical expertise and ability in cost effective supply of automotive

components.

11.1 Entry Strategy for Thai Investors in the Indian Auto Component

Business

The exhibit below pictorially highlights the attractive areas in the Indian auto component

market and the timeframe for entering through these sub-segments in the Indian markets.

Entry strategy for Thai Investors

Au

to C

om

pon

ent

Su

b-s

egm

ents

Rubber intensive parts

and accessories

Plastic, silicon intensive

electronic parts

Labour intensive parts –

casting, forging etc

Parts for evolving

technology aggregates

Skill intensive parts

covering engine parts

HighLow Medium

Immediate entry as OEM & aftermarket supplier

Degree of Attractiveness

Do not enter

Enter in these sub-segments after 1 – 2 years of

immediate entry

Legend

Exhibit 42: Attractiveness of auto component sub-segments for Thai investors

Page 64: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 64

We suggest that Thai auto component manufacturers in the plastics, silicon intensive and

electronic parts would export their auto component products in India initially. Thai

investors would have technical edge over India auto component companies for silicon

intensive and electronics parts. Moreover, Thai investors can provide these parts cost

effectively because of the economies of scale of production.

Thai auto component manufacturers have attained high quality levels in the plastics,

silicon intensive and electronics parts by working with Japanese automobile

manufacturers. Also, since they are supplying auto components to Japanese automobile

manufacturers who have very high demand in comparison to Indian automobile

manufacturers, Thai auto component players have huge production capacities and thereby

lesser cost of manufacturing.

The other category of auto components would that would be attractive for Indian markets

would be rubber intensive parts and accessories. The rubber intensive parts would be

attractive for Thai investors due to cost effective availability of latex in Thailand.

Automobile tyres forms significant cost component among the automobile components.

Thailand can supply good quality tyres at better prices than the Indian counterparts.

As far as high labour intensive parts are concerned, India has the cost as well as skill

advantage. We, therefore, suggest Thai investors not to enter into these sub-segments in

the Indian automotive component industry.

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MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 65

The phase wise entry strategy for attractive auto component segments has been explained

pictorially in the exhibit below:-

Exhibit 43: Entry strategy for Thai investors

11.2 Recommended Distribution Channel for Thai investors

After examining the existing distribution channel for imports for the automotive

components market, it is suggested that Thai investors either should have a warehousing

arrangement at the port of entry. The port would most likely be either Mumbai or

Chennai. Goods are then supplied to OEMs and the replacement market from the

warehouse. Consequently, the following distribution channel is recommended.

Focus on replacement

market for core

components once the

products is established

among OEMs

· To be targeted after

establishing

credibility among

OEMs

· Acceptance by OEMs

initially provide

necessary push to

these components in

replacement market

1. Set up assembly unit in

India

2. Assembly unit to be set

up at one of the auto

clusters, nearer to

OEMs

3. Consolidate business

with old OEMs and

target new OEMs and

Tier – 1 suppliers

4. User raw material

procured from India or

from Thailand / other

countries

1. Form vendor

relationship with Indian

OEMs

2. Export parts from

Thailand / other

countries

3. Set up warehouse at

port of entry for

efficient distribution

management

4. Target replacement

market for auto

accessories like alloy

wheels, music systems,

car perfumes, decorative

stickers etc

Phase I – Supply from

plants located in

Thailand or other

countries

Phase II – Bring

manufacturing

closer to

marketplace

Phase III – Target

servicing

replacement

market

Page 66: Report auto component_market

MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 66

Recommended Distribution Channel for Thai Investors

Imports

Warehouse

arrangement at port of

entry

OES / OEMs – further

utilize their spare parts

channel

End CustomerStockists / Big Dealers

(Usually at state level)

Dealers – small

dealers generally in

smaller cities

OE

M

Marke

t

Rep

lace

men

t

Mar

ket

Exhibit 44: Sub-segment wise list of Indian auto component manufacturers

Servicing replacement market calls for engaging stockists or big dealers at the zonal level

followed by the deployment of stockists at the state level. These stockists would supply

the auto components to dealers who in turn sell to end consumers.

*****

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MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 67

12 ANNEXURE: AUTO POLICY

Vision: To establish a globally competitive automotive industry in India and to double

its contribution to the economy by 2010

1. POLICY OBJECTIVES

This policy aims to promote integrated, phased, enduring and self-sustained growth of the

Indian automotive industry. The objectives are to:-

(i) Exalt the sector as a lever of industrial growth and employment and to achieve a high

degree of value addition in the country;

(ii) Promote a globally competitive automotive industry and emerge as a global source

for auto components;

(iii) Establish an international hub for manufacturing small, affordable passenger cars and

a key center for manufacturing Tractors and Two-wheelers in the world;

(iv) Ensure a balanced transition to open trade at a minimal risk to the Indian economy

and local industry;

(v) Conduce incessant modernization of the industry and facilitate indigenous design,

research and development;

(vi) Steer India's software industry into automotive technology;

(vii) Assist development of vehicles propelled by alternate energy sources;

(viii) Development of domestic safety and environmental standards at par with

international standards.

2. BACKGROUND

2.1 Automotive industry has universal5ly emerged as an important driver in the economy.

Although the automotive industry in India is nearly six decades old, until 1982, only three

manufacturers - M/s. Hindustan Motors, M/s. Premier Automobiles and M/s. Standard

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Motors tenanted the motor car sector. Owing to low volumes, it perpetuated obsolete

technologies and was out of sync with the world industry. In 1982, Maruti Udyog Ltd.

(MUL) came up as a government initiative in collaboration with Suzuki of Japan to

establish volume production of contemporary models. After the lifting of licensing in

1993, 17 new ventures have come up of which 16 are for manufacture of cars. This

industry currently accounts for nearly 4% of the GNP and 17% 0f the indirect tax

revenue.

3. EXTANT POLICY

3.1 Before the removal of QRs with effect from 01-04-2001, the policy placed import of

capital goods and automotive components under open general licence, but restricted

import of cars and automotive vehicles in Completely Built Unit (CBU) form or in

Completely Knocked Down (CKD) or in Semi Knocked Down (SKD) condition. Car

manufacturing units were issued licences to import components in CKD or SKD form

only on executing a Memorandum of Understanding (MOU) with the Director General

Foreign Trade (DGFT). 11 companies signed MOUs with DGFT under which they

agreed to:

i. Establish actual production of cars and not merely assemble vehicles;

ii. Bring in a minimum foreign equity of US $ 50 Million if a joint venture

involved majority foreign equity ownership;

iii. Indigenise components upto a minimum of 50% in the third and 70% in

the fifth year or earlier from the date of clearance of the first lot of

imports. Thereafter the MOU and import licensing will abate;

iv. Neutralise foreign exchange outgo on imports (CIF) by export of cars,

auto components etc. (FOB). This obligation was to commence from the

third year of start of production and to be fulfilled during the currency of

the MOU. From the fourth year imports were to be regulated in relation to

the exports made in the previous year.

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4. CURRENT STATUS OF INDIAN AUTOMOTIVE INDUSTRY

4.1 The industry encompasses commercial vehicles, multi-utility vehicles, passenger cars,

two wheelers, three wheelers, tractors and auto components. There are in place 15

manufacturers of cars and multi utility vehicles, 9 of commercial vehicles, 14 of

Two/Three Wheelers and 10 of Tractors besides 5 of engines. With an investment of

Rs.50,000 crores, the turnover was Rs. 59,500 crores in Automotive Sector during 1999-

2000. It employs 4,50,000 people directly and 100,00,000 people indirectly and is now

inhabited by global majors in keen contention.

4.2 India manufactures about 38,00,000 2-wheelers, 5,70,000 passenger cars, 1,25,000

Multi Utility Vehicles, 1,70,000 Commercial Vehicles and 2,60,000 tractors annually.

India ranks second in the production of two wheelers and fifth in commercial vehicles.

4.3 India’s automotive component industry manufactures the entire range of parts

required by the domestic automobile industry and currently employs about 250,000

persons. Auto component manufacturers supply to two kinds of buyers – original

equipment manufacturers (OEM) and the replacement market. The replacement market is

characterised by the presence of several small-scale suppliers who score over the

organised players in terms of excise duty exemptions and lower overheads. The demand

from the OEM market, on the other hand, is dependent on the demand for new vehicles.

4.4 The auto sector (excluding Tractors) attained a steep cumulative annual growth of

22% between 1992 and 1997. The Tractors achieved a cumulative annual growth of 16%.

Component production grew by 28%. There has been a slowdown in the automobile

sector in the past two years. However, the component industry maintained a low but

positive growth rate mainly due to its export performance. Over the years, the component

industry has maintained a 10% - 12% share of exports in the total production.

4.5 Roads occupy an eminent position in transportation as they, as per the present

estimate, carry nearly 65% of freight and 87% of passenger traffic. Although, India has

3.3 million kilometers of road network, which is the second largest in the world, the

Indian highways are getting overpopulated. Traffic management and road sense also need

attention.

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MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 70

5. NEED FOR A COMPREHENSIVE AUTOMOTIVE POLICY

5.1 The extant policy has drawn many overseas companies into India but needs to be

more investor friendly, address emerging problems and be WTO compatible. World over,

the majors have consolidated to elevate technology, enlarge product range, access new

markets, cut costs and in-graft versatility. They have resorted to common platforms,

modular assemblies and systems integration by component suppliers and E-Commerce.

5.2 The automotive industry is in the midst of a major structural transformation in today's

globalised scenario. "System Supply" of integrated components and sub-systems is

becoming the order of the day, with individual small components being supplied to the

system integrators instead of the vehicle manufacturers. In this process, most of the SSI

units manufacturing smaller individual components are on their way to become tier 2 and

tier 3 suppliers, while the larger companies including most MNCs are being transformed

into tier 1 companies, which purchase from tier 2 & 3, and sell to the auto manufacturers.

5.3 Indian auto sector needs to grow collaterally and in harmony with world industry.

India has the potential to be a global automotive power. However, concerted efforts will

be required to take auto manufacturing to a self-sustaining level where they shall have

volumes, generate requisite technology and meet evolving emission requirements.

5.4 Volume is important for any manufacturing enterprise. However, it is more important

for automobile sector, both for the manufacture of vehicles as well as auto components.

Lack of volume will not only inhibit efficient manufacture but also R&D and

introduction of new models. The investment and fiscal policies should create an

environment for volume production and indigenous capability for innovation for small

cars and auto components.

5.5 Auto components manufacturers have been slowly gaining global recognition and

maintaining a certain level of exports despite the recent downturn. It should be possible

to achieve an export target of US $ 1 billion by 2005 and US $ 2.7 billion by 2010. This

would require three pronged marketing strategy: exports through OEMs for their global

sourcing requirements, export to tier I manufacturers as a part of their international

supply chain and direct exports to aftermarket. The main challenges are lower volume –

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MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 71

low scale, fragmentation, inadequate R&D/technology support, lower productivity levels,

limited resources for international marketing and establishment of an efficient supply

chain.

6. MEASURES TO REALIZE THE POLICY OBJECTIVES

6.1 Initiatives relating to investment, tariffs, duties and imposts will be the instruments to

achieve the Policy objectives. These path government’s economic reform and are in

harmony with the commitments made to WTO.

6.2 Increased resource allocation to the highways sector to ensure collateral upgradation

and development of road infrastructure in step with the increase in the population of

vehicles.

6.3 An appropriate regulatory framework for smooth movement of traffic, safety and

environmental aspects.

7. FOREIGN DIRECT INVESTMENT

7.1 Automatic approval for foreign equity investment up to 100% of manufacture of

automobiles and component is permitted.

8. IMPORT TARIFF

8.1 The incidence of import tariff will be fixed in a manner so as to facilitate

development of manufacturing capabilities as opposed to mere assembly without giving

undue protection; ensure balanced transition to open trade; promote increased

competition in the market and enlarge purchase options to the Indian customer.

8.2 The Government will review the automotive tariff structure periodically to encourage

demand, promote the growth of the industry and prevent India from becoming a dumping

ground for international rejects.

8.3 In respect of items with bound rates viz. Buses, Trucks, Tractors, CBUs and Auto

components, Government will give adequate accommodation to indigenous industry to

attain global standards.

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MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 72

8.4 In consonance with Auto Policy objectives, in respect of unbound items i.e., Motor

Cars, MUVs, Motorcycles, Mopeds, Scooters and Auto Rickshaws, the import tariff shall

be so designed as to give maximum fillip to manufacturing in the country without

extending undue protection to domestic industry.

8.5 The conditions for import of new Completely Built Units (CBUs), will be as per

Public Notice issued by the Director General Foreign Trade (DGFT) having regard to

environment and safety regulations.

8.6 Used vehicles imported into the country would have to meet CMVR, environmental

requirements as per Public Notice issued by DGFT laying down specific standards and

other criteria for such imports.

8.7 Appropriate measures including anti dumping duties will be put in place to check

dumping and unfair trade practices.

9. EXCISE DUTY

9.1 Motor Cars

9.1.1 The ownership of cars in India is just 6 per thousand of population as

against 500 in the developed economies. The contribution of the auto

sector to the GDP and employment is likewise low. Expansion of local

demand holds great potential and is vital to install scale volumes of

production.

9.1.2 Domestic demand mainly devolves around small cars not exceeding

3.80 meters in length. Small cars occupy less of road space and save on

fuel. These capture more than 85% of the market. India can build export

capability and become an Asian hub for export of small cars. The growth

of this segment needs to be spurred.

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9.2 Multi Utility Vehicles

9.2.1 MUVs are an important mode of economical mass transport in rural

India due to poor road infrastructure and lack of good State transport

system. They are the first vehicle purchased by a number of farmers,

traders, small businessmen in rural and semi-urban markets. The

Government will endeavour to provide fiscal incentives to this sector.

9.3 Commercial Vehicles

9.3.1 Presently excise duty on commercial vehicles sold by a manufacturer

whether as a chassis or with a complete body is 16%. However, no duty is

levied on the body that is built by an independent body builder on chassis

bought from a manufacturer. This dispensation inveigles production of the

complete trucks and buses by the chassis manufacturer and is detrimental

to safety standards. The duty imposed on the construction of bodies by an

independent body builder, small or organised sector shall be equal to that

of bodies built by a chassis manufacturer.

9.3.2 The Government will encourage fabrication of bus body on bus

chassis designed for better passenger comfort instead of truck chassis as is

the current practice.

9.3.3 The Government will promote the use of multi-axle vehicles for

carriage of goods as they cause reduced environmental pollution and lesser

wear and tear on road surface in comparison to the existing 2-axle trucks.

10. IMPROVING ROAD INFRASTRUCTURE

10.1 Traffic on roads is growing at a rate of 7 to 10% per annum while the vehicle

population growth for the past few years is of the order of 12% per annum. Poor road

infrastructure and traffic congestion can be a bottleneck in the growth of vehicle industry.

A balanced and coordinated approach will be undertaken for proper maintenance, up

gradation and development of roads by encouraging private sector participation besides

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public investment and incorporating latest technologies and management practices to take

care of increase in vehicular traffic.

10.2 For the convenience of traveling public the Government shall also promote multi-

modal transportation and the implementation of mass rapid transport systems.

11. INCENTIVE FOR RESEARCH AND DEVELOPMENT

11.1 The Government shall promote Research & Development in automotive industry by

strengthening the efforts of industry in this direction by providing suitable fiscal and

financial incentives.

11.2 The current policy allows Weighted Tax Deduction under I.T. Act, 1961 for

sponsored research and in-house R&D expenditure. This will be improved further for

research and development activities of vehicle and component manufacturers from the

current level of 125%.

11.3 In addition, Vehicle manufacturers will also be considered for a rebate on the

applicable excise duty for every 1% of the gross turnover of the company expended

during the year on Research and Development carried either in-house under a distinct

dedicated entity, faculty or division within the company assessed as competent and

qualified for the purpose or in any other R&D institution in the country. This would

include R & D leading to adoption of low emission technologies and energy saving

devices.

11.4 Government will encourage setting up of independent auto design firms by

providing them tax breaks, concession duty on plant/equipment imports and granting

automatic approval.

11.5 Allocations to automotive “cess fund” created for R&D of automotive industry shall

be increased and the scope of activities covered under it enlarged.

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12. BUILDING BYE LAWS FOR RESIDENTIAL, COMMERCIAL AND OTHER

USES

12.1 With the growth of vehicles, smooth traffic movement has come under severe strain.

The problem has been aggravated because of inadequate provision of parking facilities

generally. Starting with metropolitan and important towns, the Government will pursue

with State Governments and Local bodies amendments to bye laws for upward revision

of the parking norms for new residential buildings, construction of common parking for

existing residential areas besides parking upgradation in all commercial areas. Multi-

storied parking shall also be encouraged.

13. ENVIRONMENTAL ASPECTS

13.1 The automotive and oil industry have to heave together to constantly fulfill

environment imperatives. The Government will continue to promote the use of low

emission fuel auto technology.

13.2 The Government after considering the recommendations of the Expert Committee

on Auto Fuel Policy headed by Dr. R.A. Mashelkar, have approved a road map for

implementation for the auto fuel quality consistent with the required levels of vehicular

emissions norms and environmental quality. The Government will formulate a

comprehensive auto fuel policy covering the other related aspects and ensure availability

of appropriate auto fuel/fuel mixes at minimum social costs across the country. Suitable

institutional mechanism will be put in place for certification, monitoring and enforcement

of different technologies/fuel mixes. Appropriate fiscal measures will be devised to

achieve milestones in the roadmap for implementation of auto fuel policy.

13.3 In the short run, the Government will encourage the use of short chain hydrocarbons

along with other auto fuels of the quality necessary to meet the vehicular emissions

norms.

13.4 There is prime need to support the development and introduction of vehicles

propelled by energy sources other than hydrocarbons by promoting appropriate

automotive technology. Hybrid vehicles and vehicles operating with batteries and fuel

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cells are alternatives to the conventional automobile, which in their early beginnings, lie

entreasured. As an impetus for the development of such vehicles, an appropriate long-

term fiscal structure shall be put in place to facilitate their acceptance vis-à-vis vehicles

based on conventional fuels.

13.5 Internationally, the practice is to levy higher road tax on older vehicles in order to

discourage their use. In India, the road tax on vehicles varies in nature and quantum

among the states. Lifetime road tax is also in vogue. The endeavour will be to move to

the international model.

13.6 In order to facilitate faster up-gradation of environmental quality, the Govt. will

consider having a terminal life policy for commercial vehicles along with incentives for

replacement for such vehicles.

14. SAFETY

14.1 Government will duly amend the Central Motor Vehicles Rules, Bureau of Indian

Standards (BIS) and other relevant provisions and introduce safety regulations that

conform to global standards.

14.2 Testing and certification facilities need to be revised and strengthened in accordance

with safety standards of global order. Government, in partnership with industry, will tend

to this requirement.

15. HARMONISATION OF STANDARDS:

15.1 Government recognises the need for harmonisation of standards in a global economy

and will work towards it.

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MARKET ATTRACTIVENESS OF INDIAN AUTO COMPONENT INDUSTRY 77

13 LIST OF EXHIBITS

Page No.

Exhibit 1: Global trends in the automotive industry ......................................................... 13

Exhibit 2: Penetration of LCVs in different countries ...................................................... 14

Exhibit 3: GDP / Capita vs. Vehicle Density: India vis-à-vis major markets.................. 15

Exhibit 4: Vehicle density vs GDP / per capita – Current and Estimated in 2014 ........... 16

Exhibit 5: Major US Auto Component Imports (In US$m): 2001-05 .............................. 16

Exhibit 6: Top Ten Auto Component Manufacturers-2004 & 2005................................. 17

Exhibit 7: Major auto and auto component clusters in India ............................................ 19

Exhibit 8: Transition of Indian auto component industry ................................................. 20

Exhibit 9: Auto component industry Cost Structure FY06 ............................................... 21

Exhibit 10: Segment-wise cost structure in the auto-component Sector FY06 ................ 21

Exhibit 11: Classification of auto component market ....................................................... 22

Exhibit 12: Break up of OEM and replacement demand .................................................. 22

Exhibit 13: Tier structure in the auto component industry ............................................... 23

Exhibit 14: Segments within auto component industry .................................................... 24

Exhibit 15: Auto Component Sub Segments and Major Players in Indian Markets ........ 25

Exhibit 16: Auto Component Sub Segments and Major Players in Indian Markets ........ 27

Exhibit 17: Indian Auto Component-Foreign Collaborations (2006) ............................... 28

Exhibit 18: 9-Force Market Analysis of Indian auto component market ......................... 30

Exhibit 19: SWOT Analysis – Indian auto component industry ...................................... 32

Exhibit 20: Growth trends of global automotive component market ............................... 33

Exhibit 21: Production and growth rates of all vehicle categories ................................... 34

Exhibit 22: Market size and growth trends – Indian auto component market .................. 35

Exhibit 23: Percentage breakup of sub-segments in the Indian auto component industry 36

Exhibit 24: Auto component imports (OEM + Replacement market) .............................. 37

Exhibit 25: Indian auto component export destinations ................................................... 38

Exhibit 26: Distributor and Retailer Margin ..................................................................... 39

Exhibit 27: Order-to-delivery process in auto industry supply chain ............................... 41

Exhibit 28: Inventory in the supply chain of small auto component industries ............... 43

Exhibit 29: Inventory in the evolved value chain of automotive industries ..................... 43

Exhibit 30: Break up of replacement auto component market by type of vehicle ............ 44

Exhibit 31: Structural changes impacting auto component replacement market .............. 45

Exhibit 32: OEM initiatives to grab replacement market share ........................................ 46

Exhibit 33: Channel structure in the auto component aftermarket ................................... 47

Exhibit 34: Growth drivers for auto component replacement demand ............................. 52

Exhibit 35: Indian auto component industry – Issues & Challenges ................................ 53

Exhibit 36: Indian auto component industry in view of changing global situation .......... 54

Exhibit 37: Critical success factors for auto component industry .................................... 55

Exhibit 38: Critical success factors for auto component industry .................................... 56

Exhibit 39: Source of purchase for replacement parts by individual customers............... 57

Exhibit 40: Attractiveness matrix for Thai investors ........................................................ 59

Exhibit 41: Sub-segment wise list of Indian auto component manufacturers .................. 61

Exhibit 42: Attractiveness of auto component sub-segments for Thai investors .............. 63

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Page No.

Exhibit 43: Entry strategy for Thai investors .................................................................... 65

Exhibit 44: Sub-segment wise list of Indian auto component manufacturers .................. 66

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14 REFERENCES

Primary Research – Expert Interviews

The expert interviews were conducted with the following organizations. More than one

interview per organization was conducted to gauge the holistic view of information

collectibles.

Government Departments and Industry Associations

Automobile Component Manufacturers Association (ACMA), Delhi

Society of India Automobile Manufacturers (SIAM), Delhi

Department of Heavy Industries, Delhi

Automobile Companies

Ashok Leyland, Chennai

Hyundai Motors, Chennai

Automobile Component Manufacturers

TVS Lucas, Chennai (and Delhi NCR)

Brakes India Limied, Chennai

Sundaram Fastners, Chennai,

Bosch India, Bangalore

Delhi TVS, Delhi NCR and Chennai

Krishna Quinette Seats Pvt. Ltd, Delhi NCR

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Secondary Research Sources / Databases

ISI Emerging Markets Datatbase: Compilation of news articles, news snippets and

various secondary data reports.

ACMA (Automobile Component Manufacturers Association) Database and Annual

report: It details about latest market size and growth figures.

Internet Search for validation of various data points.