India’s fast growing automotive components makers are scaling up from producing individual components to making assemblies and systems, as vehicle makers seek to manage fewer vendors and trim costs, industry players told a news agency.
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Those that made parts for gearboxes have now begun to make the entire ‘box, gaining higher revenue, profits and market share in a price-sensitive industry, Reuters cited as an example, adding that one such firm embracing the shift is Amtek Auto, which expects revenue from assemblies and sub assemblies to double to 30% of sales in 18 months.
“The business model is changing,” Amtek’s chief financial officer Santosh Singh told Reuters. “It is entirely in our hand to move over to assemblies or remain as a component maker and be lost.”
Besides Amtek, Mahindra & Mahindra’s component unit, Motherson Sumi Systems and Sona Koyo Steering Systems are also working to double revenue from machined and assembled components in two years, the report added.
Better margins were one reason for the shift, Hemant Luthra, president of Mahindra’s auto parts unit, Mahindra Systems & Automotive Technologies, told Reuters.
“At times margins for assemblies and value-added components can be double that of components,” he said, adding they would typically rise by 4-5 percentage points with a shift to assembly manufacture.
Rising wages have forced automotive firms to buy completed assemblies rather than parts, analysts told the news agency.
“Auto makers wage cost has been found to be three times that of an ancillary maker. They are better off outsourcing more and more of their work,” an analyst with brokerage Enam told Reuters.
The report noted that India’s largest car maker, Maruti Udyog, has cut the number of suppliers to around 200 from 350 in the last few years while top truck and bus maker Tata Motors has also “significantly cut” its supplier base to 1,000 in the last three years, a company spokesman reportedly said. “We believe in working with select specialised vendors,” he added.
Reuters also noted that global car makers such as General Motors, Ford and Toyota have said they would source gearboxes, steering systems, engine transmission sub assemblies and axle assemblies from low-cost countries.
“Auto firms see financial sustainability with fewer vendors,” Singh reportedly said.
Even those firms that lack the technology and bases abroad to move into assemblies, are shifting to manufacture sub-assemblies, riding the consolidating trend, the report added.
Sona Koyo’s managing director Surinder Kapur told Reuters it was too early for his company to begin assembly making and they would stick to sub-assemblies.
Analysts reportedly said Bharat Forge Amtek and Mahindra & Mahindra bought firms abroad with an eye on the technology and bases close to large customers.
Others such as Motherson Sumi and Rico Auto Industries expect their technology tie-ups to make the transition, the report said.
