TN Govt to Announce Automotive sector-specific policy soon

The Tamil Nadu Government would soon announce an automotive sector-specific  policy to build up on the strong automobile industry base the State already has.  The policy details were being worked out by the State Manufacturing Competitive Council. Tamil Nadu which already has production base of six major car companies, and companies for the manufacture of commercial vehicles and tyres will shortly have  more major investments in these sectors, Mr Rajeev Ranjan, IAS, Principal Secretary –Industries Department, Government of Tamil Nadu said here on Friday.

In his keynote address to the `Auto Serve 2010’ Conference, he said the State was also partnering with the private industries for the skill development of over a lakh people in various sectors. The conference, organized by the Confederation of Indian Industry (CII) focused on the theme - `Productivity and efficiency in automotive services, components and spare parts’.  The three-day `Auto Serve 2010’ also has an exhibition showcasing the latest technology / solutions in  garage and service equipment, tools and auto spare parts, tyre service equipment, vehicle testing, vehicle care products and others.

Mr Rajeev Ranjan said the national automotive vision plan envisaged the employment of 25 million people in this sector having over 600 automobile parts units in the organized sector and over 800 in the unorganized sector. He said about 25% automobiles and 35% auto parts were manufactured in Tamil Nadu. The State government was keen on tapping the huge employment potential this sector. It was partnering with the private sector to develop and upgrade the skills of the job seekers.  For every candidate selected for training with a commitment of future employment the government would  pay  Rs 6000, he said.

Mr Rajeev Ranjan released a report prepared by McKinsey & Company for CII Auto Serve 2010 on `Opportunities in the Indian automotive  aftermarket’.

Mr R Seshasayee, Past president, CII and Managing Director of Ashok Leyland Ltd, called for huge investments in skill development to cope with the major changes in the automotive manufacturing sector and the major role India had to play in the world automotive market. He said ``all the players in the world are looking at India as a common ground’’.

Mr Seshasayee said we would be able to build on our capabilities to face the challenges.  He said the automotive sector should continue to work together as a networked body to manage and monitor the changes and challenges collectively.  He said CII had to play a major role in this.

Mr Pradipta K Mohapatra, Past Chairman, CII (SR) and Chairman, Task Force on Trade Fairs CII (SR), said there had been exponential growth in the automotive sector in the country. Tamil Nadu played a major role in this having established capacity for 12.8 lakh cars and 3.5 lakh commercial vehicles a year. Last year the State produced 5.6 lakh cars. `Three cars were being produced every minute and one commercial vehicle in every 75 second’’, he said.

Mohapatra said this offered a huge aftermarket which was estimated to be worth $3.7 billion.  It would grow to $10.5 billion by 2015. He said the automotive industry and the service providers were to be prepared to keep pace with this rapid growth by evolving new business models for enhanced customer satisfaction, and by upgrading the skill-levels of people employed in different areas.

Mr R Dinesh, Chairman Auto Serve 2010, and Joint Managing Director, T V Sundram Iyengar & Sons, in his `theme address’ said  there has been a lot of apprehension among the key players in the aftermarket  segment of the automotive industry about `what was in store for them’ and `how they were to continue in business profitably’. He said the automotive sector had to take to new technologies and bridge the skill gap of the employees. Mr Dinesh said, there was need for a new paradigm of public-private partnership for skill development.

Mr Ananth Narayanan, Partner, McKinsey & Co, in his presentation on the  CII Auto Serve 2010 Report on ‘Opportunities in the Indian  Automotive Aftermarket’, prepared by the McKinsey & Company said the increasing number of vehicles on the road and aggressive expansion of Indian and foreign players would fuel the growth of the automotive aftermarket to about Rs 44,000 crore by 2015. In order to sustain profitability the aftermarket stakeholders have to evaluate additional ways of capturing value, expanding network, forward integrating and building scale.

Mr Serge Morelli, Chairman and CEO of the France-based AXA Assistance Group said the key changes in the vehicle market would erode the use of conventional assistance services. Huge investments in new technologies were needed to be competitive in the automotive assistance and aftermarket.

Mr S Muralidharan, Vice President and Head- Aftermarket, Bosch Ltd, said increased application of electronics, management of stores and continuous investment in skill development were the key elements of sustainable business in automotive aftermarket.

Indian automotive aftermarket $10 billion market

The Indian automotive aftermarket for parts, currently valued at Rs 19,000 to Rs 24,000 crore, is estimated to reach  Rs 39,000 to Rs 44,000 crore by 2015,” says a CII Report prepared by McKinsey & Company titled: “Opportunities in the Indian Automotive Aftermarket”, released at the CII Auto Serve 2010 Conference here today.  The report observes that the Indian automotive aftermarket, which is growing at 11 per cent per annum, is at an inflection point with: the increase in vehicle parts, more complex parts, price sensitive customers, and expansion of global suppliers in terms of sourcing and distribution presence in India.
The CII Report said that the market demand for parts and services set to double over the next 5 years. Hence, companies across the value chain will require significant additional investments in capital to double their capacity, as well as to enhance their capabilities to produce parts for and service a wider variety and complexity of vehicles.
The Report also observes that since there is a threat of margins coming down with the maturing of the market, the automotive aftermarket players will need to proactively pursue certain initiatives such as evaluating additional ways of capturing value, expanding service networks, developing branded generic parts, integrating forward, and building scale to sustain profitability.
The Report suggested that: the OEMs and OES step up efforts to control parts distribution; the independent garages and multi-brand dealers capitalise on India’s ageing car-parc, and OEMs and distributors develop branded generics to capture the cost advantage in this rapidly growing independent market.
The Report observes: “The aftermarket parts business is highly profitable for OEMs and it is imperative for them to place adequate importance on expanding this business. Given that the aftermarket contributes a modest 24 per cent in revenues to OEMs, but a sizeable 55 per cent to profits, this is a lucrative sector to play in. With independent players actively expanding, there is a need for OEMs to consider various initiatives to attain a tighter control of parts distribution.
Market interviews and analysis indicate that owners of older vehicles often migrate to independent service networks for cheaper and faster service. With OEMs more focussed on vehicles in their warranty period, offering higher levels of service for older cars will be necessary for independent players to attract customers. OEMs and distributors should develop branded generics to capture the cost advantage in this rapidly growing independent market: The Indian market for branded generics is already worth Rs 3,000 crore to Rs 4,000 crore and is set to grow significantly in the next 5 years. Analysis shows that generic brands tend to have much higher margins and are extremely popular among consumers looking for fully functional, yet cheaper alternatives to OE spares, especially in the non-critical product ranges.
OES’s, independent players and distributors should consider partnerships and options for forward integration: Since many key skills and capabilities required for success overlap along the value chain, forward integration offers players the potential to create additional value. While global trends and the complex nature of the Indian market indicate independent distributors are going to remain valuable components of the value chain, it is imperative that they build scale in order to counter the threat of exclusivity from OEMs, OESs and the risk of displacement by logistics providers.
According to the Report, roughly, 30 per cent of the market comprises spurious parts. After making adjustments for the spurious parts market, the manufacturing revenue pool of around INR 10,500 crore is roughly shared by OEMs (39 per cent), OESs (34 per cent) and generic manufacturers (27 per cent). Distributors, who typically enjoy margins of around 15 per cent, have a profit pool of around INR 2,500 crore. Original equipment manufacturer’s sales units and distributors enjoy a slightly higher share of the market at 55 per cent compared to independent distributors at 45 per cent.
The production of parts is split between original equipment manufacturers (OEM), original equipment suppliers (OES) and generic manufacturers. Commercial vehicles (CV), which include multi-axle vehicles, light commercial vehicles (LCVs), buses and trailers account for roughly 22 per cent of this market (INR 4,500 crore to INR 5,500 crore), with Maharashtra, Tamil Nadu, Gujarat and Kerala accounting for over 40 per cent. The car market is estimated at INR 6,000 crore to INR 7,000 crore (34 per cent of the market) with Maharashtra, Andhra Pradesh, Delhi and Tamil Nadu cumulatively accounting for about 40 per cent of the share.