The Automotive Component Industry (TACI)

It is an industry with total sales of over Rs 20,000 crore. It has more than 400 players who have collectively invested nearly Rs 13,000 crore providing direct employment to over 2.5 lakh people (exports expected to cross $800 million during 2002-03). It is an important industry that caters to the transport sector, which is the backbone of any economy. The Automotive Component Industry (TACI) manufactures the entire range of parts needed by the domestic automobile industry comprising of cars, MUVs, LCVs, HCVs, tractors and two wheelers. Most of the components are manufactured locally. Import dependence is low (nearly 13% of domestic demand) and usually restricted to items requiring special steels and materials or precision engineering.

Major players:

1) Motor Industries Company Ltd (MICO)
2) Exide industries
3) Sundaram fasteners Ltd (SFL).
4) Sundaram Clayton
5) Sundaram Brake Linings (SBL)
6) Nippon Electricals
7) IP rings
8) Gabriel India
9) Bharat Forge Ltd (BFL)
10) Sona Koyo Steering.

The industry that started with supplying Components to Hindustan Motors and Premier Automobiles grow by leaps and bounds with the opening up of economy in early 90s. Till this period TACI never really bothered about business or growth. Technology was less advanced, volumes were low and there was very little incentive for the manufacturers to invest in research and development (R&D) or product development. Liberalization changed the rules of the game completely. There was a sudden influx of latest models of cars and bikes from abroad demanding high quality components at an economical price. Volumes jumped suddenly – compelling domestic and global auto gains to look the sector more closely. TACI suddenly went overboard with huge capacity expansion and modernization programs. However the industry recorded only sluggish growth during the last couples of years due to certain reasons:

1) Uncertainty in agricultural sector due to surplus food grain stock.
2) Increase in diesel and petrol prices
3) Increase in sales tax rate for vehicles in any states.
4) Un-remunerative freight rates for fleet operators
5) Stringent emission norms demanding latest technology
6) Declining exports.
7) General slowdown in the economy due to poor credit off take, IT spending world wide recessionary trends etc.

The global auto giants have soon realized that the Indian market is not as big as it appeared to be. The domestic players too have realized that they may not be able to compare with the likes of Delphi (annual turnover more than six times the entire turnover of TACI) Visteon in terms of R&D investments, product development skills, scale of operations etc. Unable to face the heat from their foreign counterparts some Indian companies started offering large equity stakes to MNCs (e.g. Premier instruments and controls, Denso India). Others who are to low technology, commodity products (such as castings and forgings, sheet metals brake linings, pistons, piston rings, wheels and oil pumps) remained focused players sticking to the areas where their strengths were supported by local talent and native design skills. Some of the players have realized the importance of assimilating latest technology by joining hands, with MNCs (e.g. India, Nippon Electricals acquired technology from Kokusan Denki of Japan; IP rings for Nippon piston rings of Japan). These companies have built up a technological base successfully without surrendering ownership to the collaborator.

Thus, as things stand now. TACI may be clearly segregated in to three distinct parts:

MNCs operating with wholly owned subsidiaries or through units where they hold controlling stakes such as Delphi Visteon, Denso India, MICO.

Indian companies where foreign collaborators hold a minority stake in return for technology supports. Such as IP rings. Wheels India, India Nippon Electricals

Indian Companies wholly owned by Indian promoters/ public. This group has a few surprising successes in the form of Sundaram fasteners. Sundaram brake Linings, Sundaram Clayton (with many enviable quality awards to their credit) who export to more than 50 countries.