Automotive Component Manufacturers Association of India

The Capital Court, 6 th Floor, Olof Palme Marg, Munirka, New Delhi 110 067, India

Tel. : (011) 2616 0315, 2617 5873, 26175874, 2618 4479, Fax : (011) 2616 0317E-mail : acma@acma. in Website : www.acmainfo.com

Press Release

Auto Component industry to grow five-fold by 2020; to cross USD 110 billion

Industry to be 3.6% of GDP - Domestic market potential USD 80 billion, exports to touch USD 30 billion;

Investment to cross USD 35 billion; over 1 million new jobs to be created Industry calls for infrastructure support New Delhi; August 27, 2010: ‘Vision 2020’ of ACMA, the apex body representing India’s Auto Component manufacturing industry, was released today at its 50th Annual Session by B S Meena, Secretary, Ministry of Heavy Industry & Public Enterprises, Government of India. The Indian auto component industry can potentially grow to over ` 5 lakh crore (USD 110 billion) by the year 2020 driven in tandem with the surge in vehicle production in the country. Of this, the domestic turnover can grow to ` 4 lakh crore (USD 80 billion) and exports scale up to another ` 1.4 lakh crore (USD 29 billion). The auto component industry can thus be an engine of India’s economic and manufacturing sector growth, potentially contributing 3.6% of GDP by 2020, up from the current 2.1%. To achieve this potential the auto component industry would require investments of over ` 1.6 lakh crore (USD 35 billion) during the period. It will also create employment opportunity for over 1 million skilled people.

The Vision 2020 document, created jointly by ACMA and internationally renowned consultancy firm Ernst & Young (EY), in the backdrop of the recent global recession that has shifted the centre of gravity of the auto industry to the east; as also, of the unprecedented growth in the automotive industry in India in the last one year, attempts to capture the future potential of the Indian auto component industry and provides insights into the actions that need to be taken by all stakeholders including the industry, the Government and the industry body.

According to the ACMA-EY Vision 2020 study, India is expected to witness strong growth in vehicle production across all segments by 2020.

Passenger vehicles - projected to be 5 million units by 2015 and over 9 million by 2020

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driven by domestic demand and as a global hub for exports of small cars Commercial vehicles – volumes of over 1.4 million by 2015 and over 2.2 million by

2020. Small Commercial Vehicles (SCV), a relatively new segment, expected to grow 28% annually over the next few years

Two and three wheelers – expected to double to 22 million units by 2015 and reach 30 million by 2020 driven by low penetration levels, expanding rural sales and growth in exports

Tractors – projected to be over 0.7 million by 2015 and over 1 million by 2020 with steady growth expected in domestic and export volumes

Construction equipment – likely to grow 2.5 times to 0.1million units by 2015 and almost double to 0.18 million by 2020 driven by the infrastructure sector

Commenting on the out come of the Vision 2020 study, ACMA President, Jayant Davar said: “India is well on its way to be among the top 5 vehicle producing countries in the world by 2020. The high projections of vehicle production in the country will provide traction to the auto component industry, which is expected to grow almost five-fold to over USD 110 billion from its current level of USD 26 billion. Increasing cost pressures is driving OEMs towards low cost country (LCC) sourcing. In order for the Indian component manufacturers to stay competitive, among other things, they will have to move up the value chain. Many different regions around the world are fast becoming centres for LCC sourcing; India will have to be wary of these.”

Elaborating on the need for immediate action by the industry to harness the opportunity and stay ahead of competition, Davar mentioned, “The Indian component industry must raise capital – strengthen balance sheets; scale capacities – manage costs and flexibility of new assets; build R&D competence - product development, design and frugal engineering capabilities; and build robust organizations - to manage significantly increased complexities and risks associated with growth.”

He further added, “On its part the Indian government needs to provide long-term stable policies to create a conducive ecosystem in which the large numbers of small and medium companies that make up this industry are able to scale up at the rapid pace. Additionally the government needs to continue its efforts to improve the infrastructure especially that of roads, ports and clean & stable power. Internationally, there is strong competition from other countries in both the exports and local market. The growing trend of FTAs with other auto producing nations will further add to the competitive intensity in the industry, we must cautiously tread this path and explore agreements that are advantageous to the local industry.”

The ACMA-EY Vision 2020 report calls for a significant role to be played by the Government to support the industry. Some of the salient recommendations for the government include:

Facilitate access to cost-effective capital for the industry. The government should provide incentives to retail and private investors, domestic financial institutions, and strategic investors that invest in the domestic auto components sector.

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The government should consider setting up a Technology Development & Upgradation Fund for the auto components industry to enable significant infusion and absorption of technology to build domestic capability and to support faster product development plans of the OEMs.

Incentivize & institutionalize a R&D environment. Create an environment for R&D through stable and long-term incentives to individual companies and fostering linkages between industry and academia for pre-competitive research.

Set up auto supplier parks that provide high quality infrastructure. Such supplier parks can be set up in the regional auto hubs (NCR, Pune, Chennai, etc) with basic facilities for component suppliers like continuous power supply, park-to-port rail tracks, tooling centres technical training centers for workmen skill upgradation, and banks for providing easy access to capital

Accelerate infrastructure project execution. Indian government is undertaking various initiatives with huge budgetary outlays for improving power, logistics and port facilities. The infrastructure initiatives need to be managed efficiently for faster execution.

Reform land acquisition so that new plants can be set up without delays. Many component manufacturers will need to set up new plants to meet rising demand levels. This will require faster land acquisition. The State governments need to play a proactive role in this.

Create long-term, stable trade policies that enable auto sector growth. Besides continuing existing FTA negotiations, the Indian government should also consider having FTAs with major auto producing countries such as Brazil, South Africa and Iran. This will help Indian companies to supply their products at competitive prices in these large markets.

Correct the inverted duty structure. The existing inverted duty structure makes value addition less competitive in those components that require raw material imports. The government needs to rectify this anomaly such that Indian component manufacturers remain competitive in domestic and export markets.

Revise labour policies such that they allow manufacturers to maintain a flexible workforce. The existing labour laws also drive manufacturers to set up multiple sub-optimal plants. Improving labour policies would have a significant impact on improving productivity levels and the overall competitiveness of the Indian auto component industry.

Increase the availability of skilled manpower. Increasing interaction levels between education and vocational institutes and the industry would help in minimizing the gap between skills requirement vs. availability.

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Delineating his thoughts on the need for the auto component manufacturers to appropriately position themselves in light of the significant global completion, ACMA Vice President, Srivats Ram said, “Auto component suppliers in India should look at how to position their companies over the next decade and would have to develop capabilities accordingly. They could look at one of five possible routes for themselves.

A diversified global supplier would span multiple component groups and geographies and position itself as an integrator to the OEMs

A focused global player would position itself as a global leader in a given component segment. Such a player would be at the forefront in its product category and would actively shape the industry developments

A domestic tier-1 supplier would be mainly an India-based supplier that would focus on the Indian OEM market, exports and the domestic Aftermarket

A domestic tier-2/-3 supplier would also be an India-based manufacturer and would focus much more on supporting the domestic tier-1 suppliers and the domestic Aftermarket

A niche innovator would be a smaller entrepreneurial venture that would focus on product innovation and develop new products at the forefront of technology. Such a player would leverage India’s capabilities in frugal engineering, IT and complex manufacturing

Unique combinations of various business capabilities will define the characteristics of players in each strategic position. ” Sharing his thoughts on the need for action by the industry body as delineated in the Vision 2020 document, to facilitate the development of a healthy environment for the auto component industry in India, ACMA Executive Director Vinnie Mehta said, “The association must focus on ‘Creating a Joint industry- Government Vision 2020 Taskforce’ to monitor the progress of various initiatives with the Government and provide periodic updates to its members on progress and emerging trends in the automotive industry. There is a need to promote the Indian auto component industry domestically as well as internationally to make it more attractive to investors for raising the much-needed capital. ACMA should consider broadening the scope of its existing cluster-based initiatives to include wider array of operational issues faced by component manufacturers including those for improving throughput, productivity, marketing (especially in export markets), and logistics operations and last but not the least, working closely with training and education institutes to help align the curricula with industry requirements.”

New Delhi August 27, 2010

About ACMA:The Automotive Component Manufacturers Association of India (ACMA) is the apex body representing the interest of the Indian Auto Component Industry. Its active involvement in

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trade promotion, technology up-gradation, quality enhancement and collection & dissemination of information has made it a vital catalyst for this industry’s development. ACMA’s charter is to develop a globally competitive Indian auto component Industry and strengthen its role in national economic development as also promote business through international alliances. ACMA is an ISO 9001:2008 certified Association.

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